Xtreme Drilling and Coil Services
TSX : XDC

Xtreme Drilling and Coil Services

August 08, 2012 20:13 ET

Xtreme Drilling and Coil Services- Q2 2012 Operating and Financial Results

CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) - Xtreme Drilling and Coil Services (TSX:XDC) announce summary results for the three months ended June 30, 2012. It is anticipated that filing will take place on SEDAR of the interim Consolidated Financial Statements and Management's Discussion and Analysis on Friday, August 10.

Xtreme has scheduled a conference call on Thursday, August 9, 2012 beginning promptly at 9:00am MDT (10:00am CDT; 11:00am EDT) to discuss the 2012 second quarter financial and operating results. Tom Wood, Chief Executive Officer, will host the conference call with participation from Richard Havinga, President and COO and Matt Porter, Chief Financial Officer.

Conference operator dialin numbers

To participate in the conference call, please dial in as follows approximately ten minutes before the start time in your time zone.

+1 888-340-9761 (North America Toll‐Free) or +1 416340-9534 (Alternate)

An audio replay of the call will be available until Thursday, August 16, 2012. To access the replay, call +1 905‐694‐9451 or +1 800‐408‐3053 and enter pass code 9317586.

Highlights - Q2 2012

  • Total revenue of $38.9 million - Up 4% from Q1
    • Drilling Segment revenue of $30.2 million
    • Coil Services Segment revenue of $8.7 million
  • Total operating margin of $9.8 million - Down 6% from Q1
    • Drilling Segment operating margin of $10.0 million
    • Coil Services Segment operating loss of $0.2 million
  • Total Operating Days of 1,494 - Up 5% from Q1
    • Drilling Segment operating days of 1,195
    • Coil Services Segment operating days of 299
  • Total rig utilization of 70 percent
  • Adjusted EBITDA of $7.2 million
  • Delivery of two new XDR 500 rigs to the Bakken and Niobrara
  • Delivery of the third XSR coiled tubing unit to the Eagle Ford

Corporate Update

In the second quarter the company continued to focus on the deployment of the new build XDR drilling rigs as well as building the XSR coil service business. It is anticipated that during Q3 the company will deliver one XDR rig and the final new build XDR in Q4.

Financial

In the second quarter the company achieved revenue that was 4% higher than Q2 at $38.9 million. The operating margin was $9.8 million with the Drilling Segment achieving $10.0 million of operating margin and the Coil Service Segment realizing a loss of $200 thousand. The Coil Services Segment is comprised of both US and Saudi Arabian XSR operations. The loss in this segment was related to the US XSR roll out.

Adjusted EBITDA for the period was $7.2 million which is down slightly from Q1. The decrease in EBITDA was due to the loss at the Coil Services Segment and was offset by lower G&A expenses and higher operating margins in the core drilling business.

The reported net loss was $2.6 million and net loss per share was $0.04. After removing the foreign currency loss in the period the net loss is reduced to $617 thousand and net loss per share would be $0.01.

Drilling Segment - XDR

Continued improvement and cost control on the XDR drilling business is the theme as the company moves into the third quarter. Operating days were up 12% in the second quarter to 1,195 in the US drilling business. The company experienced a slight increase in operating expenses in the US business in the second quarter based on the fact that two rigs were mobilized for initial deployment. The company anticipates mobilization expenses to significantly decrease in Q3 and Q4 respectively as only one rig will be delivered in each quarter. Additionally, during the quarter the company upgraded one XDR 400 to an XDR 500 rig in order to work on a higher margin North Dakota contract. This resulted in 45 fewer operating days in the second quarter. An additional ten days were lost in the third quarter as the rig began operations around July 10 in North Dakota.

The two primary plays for XDR remain strong and the slight dip in oil and NGL prices should not affect the company as only one drilling contract is up for renewal over the remainder of 2012. The greater DJ Basin/Niobrara continues to add rigs as the rig count has increased by 5 from the beginning of the year to 42 operating rigs.

The company anticipates that the one rig up for renewal in the Bakken will re-contract in October. The Bakken also remains strong as the rig count has increased by 21 rigs from the beginning of the year to 214. The XDR rigs in this play are the most technologically advanced in the market and achieve strong contracts and pricing. Although it appears the market has hit a plateau the company has very little spot market exposure as noted in the coming 6 months. The average duration of the contracts in the company's portfolio is just under 2 years. This provides significant revenue clarity in the US XDR business over the near future.

Canada had a slow post break up start based on very wet weather in Alberta. All three of the Canadian rigs are currently under contract with significant customers. It is anticipated that they will achieve market rates and strong utilization through the remainder of 2012. The move back into Canada has been very positive as these three rigs were previously stacked in the United States and likely would not be working today.

Coil Service Segment - US XSR

The US XSR business has been challenging as we have seen a bit of softness in the market coupled with a slower roll out than anticipated. While the operating days doubled in the second quarter to 95 we were not profitable in this segment based on the fact that the company initially staffed to operate three rigs and recognized higher than anticipated coil expenses in the period. Currently, in the Eagle Ford we are optimizing our crews and anticipate improved financial performance.

The company believes that the South Texas market is a good market. The down hole performance has shown very good improvement and has achieved all of the depths and milling speeds anticipated. However, after operating in the play for four months it is evident that the number of long horizontal wells drilled is not adequate to fully utilize all five of the XSR 2 5/8" coiled tubing units. As such, we continue to look at new plays that have a higher proportion of wells drilled to 20,000 feet total measured depth and horizontals in excess of 7,000 feet. These are the type of wells that allow the extended reach and technological advantage of the XSR units to show clear value to customers and thus justify premium pricing. Our current strategy is to continue to press forward in the Eagle Ford while looking for strategic opportunities in new markets with two or three units.

The international market continues to be our strongest operating segment and as such the company continues to explore additional opportunities for idle or underutilized assets. Management believes that the Middle East in particular represents a growth area for the company. The company was recently approved as a qualified contractor in the Kingdom of Saudi Arabia. This is very difficult to achieve and allows the company to deal directly with Saudi Aramco and avoids having to contract through a third party. While it is not a near term solution it is one that likely could materialize over the coming twelve months.

In the Saudi Arabian operation operating days improved by 8% to 179. Operating margins improved in Q2 in the Saudi Arabian operation on flat revenue and a slight decrease in operating expenses. On a go forward basis management believes that Saudi operating performance will continue to improve based on the fact that we now are drilling four to five laterals through one well bore. This equates to more days on each well which means higher utilization.

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 August 8, 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 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 Drilling and Coil Services Corp. ("XDC" on the Toronto Stock Exchange) 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 Coil 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.


Xtreme Drilling and Coil Services Corp.
Condensed Consolidated Statement of Financial Position
(in thousands of Canadian dollars)
(unaudited)
Jun 30, 2012 Dec 31, 2011 Jan 1, 2011
Assets
Current assets
Cash and cash equivalents 6,979 5,892 2,994
Accounts receivable 52,565 45,353 37,083
Other receivables 3,573 1,906 2,200
Prepaid expenses and other 1,345 2,090 2,551
Income tax recoverable 931 934 1,967
Inventory 7,059 5,863 5,402
72,452 62,038 52,197
Non-current assets
Deferred tax asset 7,673 7,566 4,265
Property and equipment 418,371 341,198 233,193
Intangible assets 4,372 4,523 4,793
Total Assets 502,868 415,325 294,448
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 13,819 - 8,317
Accounts payable and accrued liabilities 42,011 26,175 10,097
Current portion of long-term debt 3,690 500 12,224
59,520 26,675 30,638
Long-term liabilities
Long-term debt 133,509 80,937 18,952
Total Liabilities 193,029 107,612 49,590
Shareholders' equity
Share capital 310,740 310,296 253,765
Share option reserve 11,350 10,338 8,585
Accumulated deficit (5,998 ) (4,325 ) (4,496 )
Foreign currency translation reserve (6,253 ) (8,596 ) (12,996 )
Total Shareholders' Equity 309,839 307,713 244,858
Total Liabilities and Shareholders' Equity 502,868 415,325 294,448
Contingencies and commitments
Xtreme Drilling and Coil Services Corp.
Condensed Consolidated Statements of Income
For the three and six months ended June 30, 2012 and 2011
(in thousands of Canadian dollars, except share and per share data)
(unaudited)
Three months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Revenue 38,851 24,267 76,116 47,438
Expenses
Operating expenses 29,095 15,978 55,941 32,503
General and administrative expenses 2,588 2,664 5,472 5,170
Depreciation of property and equipment 5,559 2,855 10,461 5,427
Amortization of intangibles 76 76 152 152
Stock-based compensation 517 618 1,021 1,082
Foreign exchange (gain) loss 1,986 (161 ) 377 (288 )
Gain (loss) on sale of equipment (4 ) (42 ) 8 (49 )
Other expense 35 - 69 -
Interest expense 1,516 591 2,998 1,009
Income (loss) before tax for the period (2,517 ) 1,688 (383 ) 2,432
Tax expense (recovery)
Current 912 84 1,383 169
Deferred (826 ) 271 (93 ) 340
Total tax expense 86 355 1,290 509
Net income (loss) for the period (2,603 ) 1,333 (1,673 ) 1,923
Net income (loss) per common share
- basic (0.04 ) 0.02 (0.03 ) 0.03
- diluted (0.04 ) 0.02 (0.03 ) 0.03
Weighted average number of common shares
- basic 65,781,642 57,253,022 65,742,278 55,273,993
- diluted 65,910,670 58,293,987 65,918,381 56,397,169
Xtreme Drilling and Coil Services Corp.
Reconciliation of Adjusted EBITDA
For the three and six months ended June 30, 2012 and 2011
(in thousands of Canadian dollars, except share and per share data)
(unaudited)
Three months ended Six months ended
Jun 30, 2012 Jun 30, 2011 Jun 30, 2012 Jun 30, 2011
Net income (loss) (2,603 ) 1,333 (1,673 ) 1,923
Tax expense 86 355 1,290 509
Interest expense 1,516 591 2,998 1,009
(Gain) loss on sale of equipment (4 ) (42 ) 8 (49 )
Other expense 35 - 69 -
Foreign exchange loss (gain) 1,986 (161 ) 377 (288 )
Stock-based compensation 517 618 1,021 1,082
Amortization of intangibles 76 76 152 152
Depreciation of property and equipment 5,559 2,855 10,461 5,427
7,168 5,625 14,703 9,765
Non-recurring items:
Inventory adjustments - 352 - 352
Other - - - 113
Adjusted EBITDA 7,168 5,977 14,703 10,230
Adjusted EBITDA per share ($) 0.11 0.10 0.22 0.19

Contact Information

  • Xtreme Drilling and Coil Services Corp.
    Matt Porter
    Chief Financial Officer
    +1 281 994 4600

    Xtreme Drilling and Coil Services Corp.
    16285 Park Ten Place, Suite 650
    Houston, TX 77084
    ir@xtremecoil.com
    www.xtremecoil.com