Xtreme Drilling and Coil Services
TSX : XDC

Xtreme Drilling and Coil Services

March 06, 2012 18:36 ET

Xtreme Announces Fourth Quarter and Fiscal Year 2011 Results and Conference Call Details

CALGARY, ALBERTA--(Marketwire - March 6, 2012) - Xtreme Drilling and Coil Services (TSX:XDC) announces filing on SEDAR of the audited Consolidated Financial Statements and Notes to the audited Consolidated Financial Statements and Management's Discussion and Analysis for the twelve months ended December 31, 2011. These documents may be viewed at www.sedar.com and the Company's website www.xtremecoildrilling.com.

Xtreme has scheduled a conference call on Wednesday, March 07, 2012 beginning promptly at 9:00am MDT (10:00am CDT; 11:00am EDT) to discuss Xtreme's fourth quarter and fiscal year 2011 financial and operating results.

To participate in the conference call, please dial in approximately ten minutes before the start time in your time zone +1 866-226-1793 (North America Toll-Free) or +1 416-340-2218 (Alternate). An audio replay of the call will be available until Friday, March 25, 2012. To access the replay, call +1 905-694-9451 or +1 800-408-3053 and enter pass code 4699078.

Highlights - 2011 Full Year

  • revenue of $104 million;
  • adjusted EBITDA of $21.9 million;
  • operating margin of $29.2 million;
  • operating days of 4,602;
  • revenue per operating day of $22,600 and margin per operating day of $6,400

Highlights - 2011 Fourth Quarter

  • revenue of $31.2 million;
  • adjusted EBITDA of $6.1 million;
  • operating margin of $6.9 million;
  • operating days of 1,246;

Highlights - Early 2012

  • One new XDR 500 rig commenced operations in late January.
  • Three previously idled XDR 200 rigs commenced operations in mid-January in Canada.
  • The first XSR coil service unit commenced operations in early February.
  • The Company renegotiated three existing drilling contracts effective January 1 at a 35% price increase and a three year term on two rigs and two year term on the other rig.
  • Contracted one XDR 400 with a new customer to commence operations in North Dakota after it completes its work with current customer in Texas.
  • On schedule to deliver five additional new build XDR 500 rigs in 2012 as follows: three in Q2, one in Q3 and one in Q4.
  • Anticipate the remaining four XSR coil service units beginning operations through Q1 and Q2.
  • Extension of contract for two XSR units in Saudi Arabia for an additional year.

Excerpt from Management's Discussion and Analysis for the twelve months ended December 31, 2011

2012 Outlook

In 2012, the Company anticipates it will realize the economic benefits related to significant capital expenditures in 2011. Capital spending totaled $111 million for 2011 and is anticipated to be approximately $70 million in 2012. The first of six new XDR 500 drilling rigs began operations in January with the remaining scheduled to commence operations on long term contracts throughout 2012. In addition, five new XDR deep coil service units will go to work, with the first unit commencing operations in February.

The continued strength in unconventional drilling and completion has increased the demand for the Company's services. The geographic areas the Company operates in are dominated by drilling for oil and/or natural gas liquids. Management has strategically targeted the fleet towards these liquid rich areas as North American natural gas prices have remained extremely weak. Conversely, oil and natural gas liquids prices have remained quite strong. This is evidenced by the substantial decrease in the number of rigs drilling for natural gas, down 26% over the past 12 months compared to an increase of 84% in rigs targeting oil and liquids.

The target market for the new XSR deep coil service units, the Eagle Ford in South Texas, saw an increase in drilling rig count of 76% to 213 operating rigs from February 2011 to February 2012. Management focuses on operating rig count as this is a good leading indicator of demand for completions services, the primary focus of the XSR units. The new XSR units will initially target post frac clean outs with an ability to differentiate from competitors through longer reach and larger diameter coiled tubing.

The target markets for existing and new build XDR drilling rigs continue to be the Williston Basin of North Dakota and the Greater DJ Basin of Colorado. Similarly, the rig count has significantly increased in these areas, up 20% to 153 in the Williston Basin and up 43% to 40 operating rigs in the Greater DJ Basin. Day rates and terms of new drilling contracts have, as expected, remained strong in these areas.

Effective January 1, 2012, the Company was able to renegotiate three existing drilling contracts with its largest customer. Two of the rigs signed three year extensions at pricing that was 35% higher. The other renegotiated contract was for a two year term and also a 35% increase in pricing. It is anticipated that two additional rigs will renegotiate contracts at higher rates in 2012.

In January the Company initiated drilling operations in Canada with three XDR rigs working in Alberta. These rigs were moved to Canada in December of 2011 and were not working in the US market. This was due to the fact that they have lower depth capacity than is required for most US resource plays. However, they are well suited for the Canadian market where the wells are typically shallower. The Company believes that these rigs offer many technological advantages over existing rigs in the Canadian market and have the potential to work consistently. The Canadian market has also seen an increase in drilling that targets oil and natural gas liquids. The operating drilling rig count has increased by 10% from the year ago period to approximately 600 rigs. Spears and Associates project that total Canadian drilling and completion expenditures will increase by 15% in 2012 even with record low natural gas prices.

The Company continues to perform well with the two XSR units drilling re-entry horizontal wells in Saudi Arabia. In the first quarter of 2012 Xtreme executed a one year extension of this contract that will run through third quarter 2013.

In summary, the core drilling markets in the United States and Canada remain robust. Management expects that in 2012 the Company will realize significant increases in revenue, operating profits and net earnings as well as key metrics of operating margin per day, rig utilization and EBITDA. As of January 1, 2012, the Company had approximately 15,000 operating days under long term contract on the XDR or drilling side of the business. The drilling business provides a higher confidence in cash flows due to the take or pay and long term nature of the contracts. The XSR or coil service segment should provide significant lift to operating profits as it is anticipated that operating margins will be higher on this business as compared to the existing drilling business. This business has historically been a call out or spot market business. Long term contracts are not as common and as such utilization is not anticipated to be as high on the service business as compared to the drilling segment. In total, management believes that the portfolio of assets and services is complimentary and provides a segment that is stable and predictive (XDR) and a segment that is higher margin with a bit more volatility (XSR).

Consolidated Statement of Financial Position
(in thousands of Canadian dollars)
Dec 31, 2011 Dec 31, 2010 Jan 1, 2010
Assets
Current assets
Cash and cash equivalents 5,892 2,994 21,864
Accounts receivable 45,353 37,083 28,807
Other receivables 1,906 2,200 8,075
Prepaid expenses and other 2,090 2,551 1,613
Income tax recoverable 934 1,967 -
Inventory 5,863 5,402 4,592
62,038 52,197 64,951
Non-current assets
Deferred tax asset 7,566 4,265 4,525
Property and equipment 341,198 233,193 234,951
Intangible assets 4,523 4,793 4,909
Goodwill - - 1,630
Total Assets 415,325 294,448 310,966
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness - 8,317 -
Accounts payable and accrued liabilities 26,175 10,097 14,139
Income tax payable - - 2,222
Current portion of long-term debt 500 12,224 12,332
26,675 30,638 28,693
Long-term liabilities
Long-term debt 80,937 18,952 31,344
Total Liabilities 107,612 49,590 60,037
Shareholders' equity
Share capital 310,296 253,765 252,714
Warrants reserve - - 1,630
Share option reserve 10,338 8,585 5,509
Accumulated deficit (4,325 ) (4,496 ) (8,924 )
Foreign currency translation reserve (8,596 ) (12,996 ) -
Total Shareholders' Equity 307,713 244,858 250,929
Total Liabilities and Shareholders' Equity 415,325 294,448 310,966
Consolidated Statement of Income
For the years ended December 31, 2011 and 2010
(in thousands of Canadian dollars, except share and per share data)
2011 2010
Revenue 103,982 85,585
Expenses
Operating expenses 74,742 50,191
General and administrative expenses 9,622 13,260
Depreciation 11,991 10,064
Amortization of intangibles 304 298
Stock-based compensation 1,826 1,277
Impairment of goodwill - 1,630
Impairment of equipment - 2,528
Foreign exchange (gain) loss 1,790 (976 )
Loss on sale of equipment 159 5
Other income (43 ) (90 )
Interest expense 2,532 1,728
Income before tax for the year 1,059 5,670
Tax expense (recovery)
Current 2,571 1,212
Future (1,683 ) 30
Total tax expense 888 1,242
Net income for the year 171 4,428
Net income per common share
- basic 0.00 0.08
- diluted 0.00 0.08
Weighted average number of
common shares
- basic 60,481,719 53,143,356
- diluted 61,298,859 53,902,512

Consolidated Statement of Comprehensive Income (Loss) For the years ended December 31, 2011 and 2010

(in thousands of Canadian dollars)

2011 2010
Net income for the year 171 4,428
Other comprehensive income (loss)
Unrealized gain (loss) on translating financial statements of foreign operations 4,400 (12,996 )
Comprehensive income (loss) for the year 4,571 (8,568 )
Consolidated Statement of Changes in Shareholders' Equity
For the years ended December 31, 2011 and 2010
(in thousands of Canadian dollars)
Share capital Warrants reserve Share option reserve Accumulated deficit Foreign currency translation reserve Total equity
Balance at January 1, 2010 252,714 1,630 5,509 (8,924 ) - 250,929
Net income for the year
-

-

-

4,428

-

4,428
Other comprehensive income (loss)
Currency translation differences
-

-

-

-

(12,996)

(12,996

)
Total comprehensive loss - - - 4,428 (12,996) (8,568 )
Transactions with owners
Cancellation of warrants - (1,630 ) 1,630 - - -
Purchase of own shares (258 ) - 112 - - (146 )
Employee share
option scheme:
Value of employees services 140 - 1,475 - - 1,615
Proceeds from shares issued 1,169 - (141 ) - - 1,028
Total transactions with owners 253,765 - 8,585 - - 262,350
Balance at December 31, 2010 253,765 - 8,585 (4,496 ) (12,996 ) 244,858
Balance at January 1, 2011 253,765 - 8,585 (4,496 ) (12,996 ) 244,858
Net income for the year - - - 171 - 171
Other comprehensive
income (loss)
Currency translation differences - - - - 4,400 4,400
Total comprehensive income - - - 171 4,400 4,571
Employee share
option scheme:
Value of employee services 133 - 1,867 - - 2,000
Proceeds from shares
Issued, net of share issue costs 56,398 - (114 ) - - 56,284
Total transactions with owners 310,296 - 10,338 - - 320,634
Balance at December 31, 2011 310,296 - 10,338 (4,325 ) (8,596 ) 307,713
Consolidated Statement of Cash Flows
For the years ended December 31, 2011 and 2010
(in thousands of Canadian dollars)
2011 2010
Cash flow provided by (used in):
Operating activities
Net income for the year 171 4,428
Items not affecting cash:
Depreciation and amortization 12,295 10,362
Stock-based compensation 1,826 1,277
Gain (loss) on sale of equipment 159 5
Provision for doubtful accounts (310 ) 322
Loss on inventory write-down - 416
Interest expense 2,326 1,850
Amortization of debt issuance costs 206 -
Impairment of goodwill - 1,630
Impairment of equipment - 2,528
Unrealized foreign exchange (gain) loss 1,790 (882 )
Deferred tax recovery 1,683 30
Interest paid (1,534 ) (1,664 )
Changes in items of working capital
15 (14,378 )
Net cash generated from (used in) operating activities 18,627 5,924
Financing activities
Proceeds from shares issued 55,615 -
Proceeds from exercise of stock options 783 1,182
Share buy-back - (146 )
Proceeds from long-term debt 145,490 1,325
Repayment of long-term debt (95,963 ) (11,858 )
Repayment of operating facility (8,317 ) 8,317
Debt issuance cost (1,070 )
Net cash generated from (used in) financing activities 96,538 (1,180 )
Investing activities
Proceeds from sale of equipment 478 6,234
Capital expenditures (106,702 ) (27,977 )
Increase in intangibles (34 ) (182 )
Other - (1,100 )
Net cash generated from (used in) investing activities (106,258 ) (23,025 )
Effect of exchange rate changes on cash and cash equivalents (6,009 ) (589 )
Increase (decrease) in cash and cash equivalents 2,898 (18,870 )
Cash and cash equivalents - beginning of year 2,994 21,864
Cash and cash equivalents - end of year 5,892 2,994
Adjusted EBITDA
For the three and twelve months ended December 31, 2011 and 2010
(in thousands of Canadian dollars)
Three months ended Twelve months ended
Dec 31, 2011 Dec 31, 2010 Dec 31, 2011 Dec 31, 2010
Net income (1,092 ) 954 171 4.429
Tax expense (recovery) 1,400 (270 ) 888 1,242
Interest expense 963 417 2,532 1,728
Loss on sale of equipment 212 - 159 5
Other income (1 ) (66 ) (43 ) (91 )
Impairment of equipment - - - 1,630
Impairment of goodwill - - - 2,528
Foreign exchange loss (gain) (1,153 ) (372 ) 1,790 (976 )
Stock-based compensation 278 350 1,826 1,277
Amortization of intangibles 76 78 303 298
Depreciation of property and equipment 3,654 3,068 11,991 10,064
4,337 4,159 19,617 22,133
Non-recurring items:
Inventory adjustments 1,091 - 1,442 -
Other 716 - 829 -
Adjusted EBITDA 6,144 4,159 21,888 22,134
Adjusted EBITDA per share ($) 0.09 0.08 0.36 0.42

Reader Advisory

This news release, or documents incorporated herein, contains forward-looking statements ("FLS"). More particularly, this news release contains statements that may relate to contracting, marketing, financing, construction, modifications, deployment, operation, utilization of drilling rigs in the Company's current and future fleet, and any potential outcome relating to claims and litigation. Further, the FLS herein may relate to trade credit insurance carried by the Company to mitigate receivables collection risk. Although Xtreme believes expectations reflected in these FLS are reasonable, readers should not place undue reliance on them because Xtreme can give no assurance they will prove to be correct. There are many factors that could cause FLS not to be correct, including risks and uncertainties inherent in the Company's business.

These statements are based on certain factors and assumptions including, but not limited to: the assessment of current and projected future operations; ongoing and future strategic business alliances, negotiations and opportunities to enter new, extend or complete existing contracts; the availability and cost of financing; foreign currency exchange rates; timing and magnitude of capital expenditures; expenses and other variables affecting rig operation, modification and construction; the ability and commitment of vendors to provide rig component equipment, services and supplies, including labor, in a cost-effective and timely manner; the issuance of applied-for patents; changes in tax rates; and government regulations. Although Xtreme considers the assumptions used to prepare this news release reasonable, based on information available to management as of March 06, 2012, ultimately the assumptions may prove to be incorrect.

Forward-looking statements are also subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from management's current expectations. These factors include, but are not limited to: the cyclical nature of drilling market demand, foreign currency exchange rates, and commodity prices; access to credit and to equity markets; the availability of qualified personnel; vendor-provided rig components; and, competition for customers.

Management's assumptions considered the following: compliance with the terms of the Company's current and proposed new credit facility; ongoing access to key supplies and components required to continue operating and maintaining equipment, including fuel; continued successful performance of drilling and related equipment; expectations regarding gross margin; recruitment and retention of qualified personnel; continuation or extension of existing long-term or multi-well contracts; revenue expectations related to shorter-term drilling opportunities; willingness and ability of customers to remit amounts owing to Xtreme in accordance with normal industry practices; and management of accounts receivable in direct relation to revenue generation.

In preparing this news release, management considered the following risk factors: fluctuations in crude oil and natural gas prices, supply and demand; fluctuation in foreign currency exchange and interest rates; financial stability of Xtreme's customers; current and future applications for Xtreme's proprietary technology; competition from other drilling contractors; regulatory and economic conditions in regions where Xtreme operates; environmental constraints; changes to government legislation; international trade barriers or restrictions; and, where appropriate, global political and military events.

Financial outlook information contained in this news release about prospective results of operations, financial position or cash provided by operating activities is based on assumptions about future events, including economic conditions and proposed courses of action, and on management's assessment of relevant information currently available. Readers are cautioned such financial outlook information contained in this news release is not appropriate for purposes other than for which it is disclosed here. Readers should not place undue importance on FLS and should not rely on this information as of any other date. Except as required pursuant to applicable securities laws, Xtreme Coil disclaims any intention, and assumes no obligation, to update publicly or revise FLS to reflect actual results, whether as a result of new information, future events, changes in assumptions, changes in factors affecting such FLS or otherwise.

About Xtreme Coil

Xtreme Coil Drilling Corp. ("XDC" on the Toronto Stock Exchange) and its subsidiaries operate under the brand name Xtreme Drilling and Coil Services. Xtreme designs, builds, and operates a fleet of high specification drilling rigs and coiled tubing well service units featuring leading-edge proprietary technology including AC high capacity coil injectors, deep re-entry drilling capability, modular transportation systems and continuous integration of in-house advances in methodologies.

Currently Xtreme operates two service lines: drilling services (XDR) and well services (XSR) under contracts with oil and natural gas exploration and production companies and integrated oilfield service providers in Canada, the United States and Saudi Arabia. For more information about the Company, please visit www.xtremecoil.com.

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