IROC Energy Services Corp. announces increased net income and filing of
quarterly financial statements
/THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN UNITED STATES OR TO ANY UNITED STATES NEWS SERVICES./
CALGARY, Aug. 30 /CNW/ - IROC Energy Services Corp. ("IROC" or the "Corporation") (TSX Venture Exchange: "ISC") is pleased to present a summary of its operating and financial results for the three and six month periods ended June 30, 2010. For a complete copy of IROC's quarterly financial statements and management's discussion and analysis ("MD&A") please visit www.sedar.com.
HIGHLIGHTS FOR THE THREE MONTHS ENDED JUNE 30, 2010:
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- Total revenue from continuing operations increased 16% to
$10.8 million for the three months ended June 30, 2010 as compared to
$9.3 million in the comparable period of the prior year.
- Gross margin from continuing operations increased 16% to $3.2 million
for the three months ended June 30, 2010 as compared to $2.7 million
in the comparable period of the prior year.
- EBITDAS from continuing operations increased 67% to $975 thousand for
the three months ended June 30, 2010 as compared to $583 thousand in
the comparable period of the prior year.
- Renewed the Company's credit facilities with a syndicate of three
Canadian chartered banks providing IROC with a $7.5 million
extendible demand revolving operating loan credit facility and a
$25 million extendible revolving term acquisition loan facility for a
total loan availability of $32.5 million. The facilities have an
accordion feature which provides IROC with an ability to increase the
maximum combined borrowings under the facilities to up to
$52.5 million subject to the approval of the lenders.
HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2010:
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- Total revenue from continuing operations increased 16% to
$27.1 million for the six months ended June 30, 2010 as compared to
$23.3 million in the comparable period of the prior year.
- Gross margin from continuing operations increased 17% to $8.8 million
for the six months ended June 30, 2010 as compared to $7.5 million in
the comparable period of the prior year.
- EBITDAS from continuing operations increased 38% to $4.4 million for
the six months ended June 30, 2010 as compared to $3.2 million in the
comparable period of the prior year.
- Net loss from continuing operations decreased 55% to $0.5 million for
the six months ended June 30, 2010 as compared to $1.2 million in the
comparable period of the prior year.
OPERATIONS
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IROC's continuing operations are reported in three segments; the Drilling and Production Services segment, the Technology Services segment and Corporate Services. The following is a discussion of the reporting segments in which IROC operates.
DRILLING AND PRODUCTION SERVICES
The Drilling and Production Services segment provides services and rental equipment to oil and gas exploration, development and production companies with most of our customers and operations being located in western Canada, in the provinces of Alberta and Saskatchewan.
The Drilling and Production Services segment consists of two divisions:
Eagle Well Servicing ("Eagle") contracts service rigs to oil and gas companies to perform various completion, work-over and maintenance services on oil and natural gas wells. Eagle has offices and equipment in Red Deer, Grande Prairie and Lloydminster in Alberta and an office and equipment in Estevan, Saskatchewan with equipment being used in those geographic areas.
Aero Rental Services ("Aero") provides rental equipment for surface pressure control in drilling and work-over operations and tubular handling equipment used for the work over, re-entry and completion operations. Aero has an office in Red Deer, Alberta with equipment being rented for use primarily in Alberta. Aero's results are directly affected by the level of new well drilling activity.
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Three months ended
June 30, March 31, December 31, September 30,
2010 2010 2009 2009
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Eagle Well Servicing:
Number of service rigs 35 36 36 36
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Service rig utilization 33% 55% 49% 34%
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Aero Rentals:
Gross margin $000's 233 467 455 311
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Book value of rental
equipment $000's 7,379 7,005 6,868 6,743
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Commodity prices:
NYMEX crude oil
$US/bbl 78.03 78.72 76.19 68.30
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AECO Monthly index
natural gas $CAD/GJ 3.66 5.08 4.01 2.87
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Three months ended
June 30, March 31, December 31, September 30,
2009 2009 2008 2008
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Eagle Well Servicing:
Number of service rigs 36 34 32 31
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Service rig utilization 27% 46% 54% 61%
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Aero Rentals:
Gross margin $000's 60 368 366 465
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Book value of rental
equipment $000's 6,873 5,076 5,254 5,324
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Commodity prices:
NYMEX crude oil $US/bbl 59.62 43.08 58.73 120.60
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AECO Monthly index
natural gas $CAD/GJ 3.47 5.34 6.43 8.76
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Eagle currently has a fleet of 35 service rigs with our equipment amongst the newest in the industry. All Eagle's service rigs are internally guyed with no requirement for external anchors. This reduces set up time and corresponding costs when compared to anchored rigs. During the quarter we have reduced the number of service rigs reported for utilization by one to reflect the decision to at least temporarily cease marketing of our oldest service rig.
Commodity prices are the main activity driver as the Corporation's customers' exploration and development programs are directly impacted by oil and natural gas prices. Oil and gas producers spend capital on new wells and service operations when they are economic within the context of current commodity prices. Crude oil prices have been stronger in the first two quarters of this year and have been following a general trend of strengthening since the fourth quarter of 2008. Natural gas prices have experienced less of a recovery than crude oil and remain relatively weak in comparison to historic price levels over the past five years. At current price levels, natural gas development is focused on resource type development properties and liquids rich reservoirs more than it is on conventional shallow gas.
Service rig utilization, as measured by IROC's internal methodology, increased in the quarter to 33%, as compared to 27% in the comparative period of last year. Utilization declined by 22% as compared to the first quarter due to normal seasonality caused by spring break up. The ability to move heavy equipment in the Canadian oil and natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter's frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly dried out. The duration of this spring breakup has a direct impact on the Corporation's activity levels.
In our rental equipment division, gross margin increased significantly over the prior year quarter, driven largely by an increase in the rental of owned equipment and less rental of third party equipment which reduces operating costs.
TECHNOLOGY SERVICES
The Technology Services segment is comprised solely of our Canada Tech division. Canada Tech develops, manufactures and sells or rents a wide line of tools and systems that measure pressures, temperatures and other attributes in the downhole and surface environment of oil and gas wells.
This segment generated revenue of $3.3 million, or 31% of the Corporation's total revenue, for the three month period ended June 30, 2010. During the quarter 42% of Canada Tech's sales were to Canadian customers, 20% were to the customers located in the United States and 38% were to international customers.
Canada Tech has recently been making progress in sales of a product that can potentially extend the pump life in Steam Assisted Gravity Drainage ("SAGD") applications in Alberta's heavy oil sector. This is a market segment with large growth potential as this sector has been growing and has recently surpassed natural gas in the dollar amount of Crown royalties being paid to the Alberta Government for the first time.
Canada Tech's customers require data that is reliable, consistent and accurate. Our products utilize new and superior technology enabling our gauges and systems to operate in higher temperatures and more challenging environments. Canada Tech's competitive advantage is the ability to look at each well individually and adapt a system to match the needs of the customer within the well parameters.
There is continued progress in the permanent monitoring market because of our ability to adapt systems to the customer's needs. This is evident through the SAGD projects we are involved in as well as a Shale gas project in the southern USA where we are deploying new Hybrid technology which measures temperatures and pressures up to 225 degrees C. In addition, we have developed permanent technology for measuring temperature up to 260 degrees C. For customers with multiple zones in a well, we have installed permanent multi gauge systems with up to 6 gauges per well. We anticipate growth in SAGD and multiple zone applications, both in Western Canada and internationally where permanent monitoring technology has become more accepted and is ready to be deployed.
In memory tools we continue to gain ground in international markets where we have increased the sales over the prior year period. We anticipate this trend will continue with our ongoing investment in the penetration of these markets and our expanding customer base requiring additional tools for their gauge fleet. In addition, Canada Tech has developed increased memory capability in both Piezo gauges and Quartz gauges to allow for additional data storage.
Canada Tech differs from our other divisions in that the capital requirement is smaller and the value of the division is contained in its patents and proprietary technology. A significant portion of Canada Tech's costs are fixed and as such increased sales volumes have a magnified effect on the EBITDAS of IROC. We expect improved performance from this division in the coming quarters as we increase sales to international markets and introduce new products and technology both domestically and internationally.
Canada Tech's operations were consolidated in our Calgary facility in the first quarter of 2010 and we expect to see the benefit of reduced overall costs as we continue through the year. Previously, Canada Tech had offices and facilities in both Red Deer, and Calgary, Alberta.
Corporate Services
IROC's non-operating segment, Corporate Services, captures general and administrative expenses associated with supporting each of the reporting segments operations noted above, plus costs associated with being a public company. Also, included in Corporate Services is interest expense for debt servicing and income tax expense.
FINANCIAL RESULTS AND SELECTED FINANCIAL INFORMATION
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$ 000's except number Three months ended
of shares and per June 30, March 31, December 31, September 30,
share amounts 2010 2010 2009 2009
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Revenue:
Eagle Well Servicing 6,642 11,731 10,537 7,166
Aero rentals 894 1,776 1,501 1,013
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Total drilling &
production services 7,536 13,507 12,038 8,179
Technology services 3,289 2,741 3,445 2,052
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Total revenue 10,825 16,248 15,483 10,231
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Operating costs:
Eagle Well Servicing 5,106 7,570 6,982 4,652
Aero rentals 661 1,309 1,047 702
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Total drilling &
production services 5,767 8,879 8,029 5,354
Technology services 1,897 1,751 2,356 1,554
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Total operating costs 7,664 10,630 10,385 6,908
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Gross margin(1)
Eagle Well Servicing 1,536 4,162 3,555 2,514
Aero rentals 233 467 455 311
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Total drilling &
production services 1,769 4,629 4,010 2,825
Technology services 1,392 989 1,088 498
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Total gross margin 3,161 5,618 5,098 3,323
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Gross margin %(1):
Eagle Well Servicing 23% 35% 34% 35%
Aero rentals 26% 26% 30% 31%
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Total drilling &
production services 23% 34% 33% 34%
Technology services 42% 36% 32% 24%
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Total gross margin % 29% 35% 33% 32%
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EBITDAS(1):
Eagle Well Servicing 1,079 3,566 3,057 2,129
Aero rentals 101 316 331 206
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Total drilling &
production services 1,180 3,882 3,388 2,335
Technology services 765 475 512 29
Corporate (970) (979) (927) (992)
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Total EBITDAS 975 3,378 2,973 1,372
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General and
administrative 2,186 2,240 2,125 1,951
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Depreciation and
amortization 2,003 1,991 2,392 2,073
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Interest expense net
of interest income 265 360 446 308
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Stock based compensation 129 178 74 57
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Provision for current
and future income taxes (278) 235 380 (268)
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Loss (gain) on foreign
exchange (88) 97 43 168
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Net income (loss) from
continuing operations (1,055) 524 (395) (9,314)
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Net income (loss) (1,055) 524 (481) (9,324)
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Net income (loss) per
common share from
continuing operations:
- Basic (0.02) $0.01 $(0.01) $(0.21)
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- Diluted (0.02) $0.01 $(0.01) $(0.21)
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Net income (loss) per
common share:
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- Basic (0.02) $0.01 $(0.01) $(0.21)
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- Diluted (0.02) $0.01 $(0.01) $(0.21)
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Weighted average common
shares outstanding:
- Basic 43,604,911 43,576,971 43,565,754 43,947,852
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- Diluted 43,604,911 43,576,971 43,565,754 43,947,852
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(1) See Non-GAAP Measures
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$ 000's except number Three months ended
of shares and per June 30, March 31, December 31, September 30,
share amounts 2009 2009 2008 2008
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Revenue:
Eagle Well Servicing 5,349 10,444 12,238 12,275
Aero rentals 900 1,362 1,367 1,329
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Total drilling &
production services 6,249 11,806 13,605 13,604
Technology services 3,053 2,201 3,398 5,043
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Total revenue 9,302 14,007 17,003 18,647
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Operating costs:
Eagle Well Servicing 3,919 6,544 7,117 6,891
Aero rentals 840 994 1,001 864
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Total drilling &
production services 4,759 7,538 8,118 7,755
Technology services 1,808 1,688 2,573 3,154
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Total operating costs 6,567 9,226 10,691 10,909
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Gross margin(1)
Eagle Well Servicing 1,430 3,900 5,121 5,384
Aero rentals 60 368 366 465
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Total drilling &
production services 1,490 4,268 5,487 5,849
Technology services 1,245 513 825 1,889
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Total gross margin 2,735 4,781 6,312 7,738
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Gross margin %(1):
Eagle Well Servicing 27% 37% 42% 44%
Aero rentals 7% 27% 27% 35%
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Total drilling &
production services 24% 36% 40% 43%
Technology services 41% 23% 24% 37%
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Total gross margin % 29% 34% 37% 41%
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EBITDAS(1):
Eagle Well Servicing 997 3,434 4,397 4,814
Aero rentals (53) 261 241 344
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Total drilling &
production services 944 3,695 4,638 5,158
Technology services 556 (165) 159 1,354
Corporate (917) (950) (895) (994)
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Total EBITDAS 583 2,580 3,902 5,518
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General and
administrative 2,152 2,201 2,410 2,220
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Depreciation and
amortization 1,978 2,011 1,791 1,959
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Interest expense net
of interest income 205 273 512 976
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Stock based compensation 92 110 67 59
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Provision for current
and future income taxes (785) 54 615 538
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Loss (gain) on foreign
exchange 354 54 (616) (24)
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Net income (loss) from
continuing operations (1,260) 82 1,532 2,024
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Net income (loss) (1,260) 488 1,268 315
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Net income (loss) per
common share from
continuing operations:
- Basic $(0.03) $ - $0.05 $0.05
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- Diluted $(0.03) $ - $0.05 $0.05
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Net income (loss) per
common share:
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- Basic $(0.03) $0.01 $0.04 $0.01
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- Diluted $(0.03) $0.01 $0.04 $0.01
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Weighted average common
shares outstanding:
- Basic 44,200,651 44,296,448 44,304,504 44,304,504
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- Diluted 44,200,651 44,296,448 44,324,122 44,324,122
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(1) See Non-GAAP Measures
DIVIDENDS
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The Board of Directors will consider the payment of a dividend twice yearly within the context of current and expected future performance, the cash needs of the business for current operations and for future growth. Having considered these factors, the Board of Directors has determined no dividend will be paid at the present time.
OUTLOOK
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With the continued stability of firmer oil prices through the first half of 2010 and the expansion of horizontal drilling technology in Western Canada there continues to be a great deal more optimism in our industry than we saw during the summer and fall of 2009. While we are seeing activity increase on a year over year basis, we face a tight labour market and margins that continue to be pressured. We do not expect this situation will change noticeably over the very near term but expect a continued increase in activity will provide the basis for improvement in both these areas. It should be noted that the activity currently being achieved is happening despite continuing low natural gas prices and difficulties brought on by the Alberta government royalty tax changes introduced in 2009. Recent changes to the Alberta royalty structure and conventional gas activity provides further reason for optimism as we head into the last half of 2010.
About IROC Energy Services Corporation
IROC Energy Services Corp. is an Alberta oilfield services company that, through the IROC Energy Services Partnership, provides a diverse range of products, services and equipment to the oil and gas industry that are among the newest and most innovative in the WCSB. IROC combines cutting-edge technology with depth of experience to deliver a product and services offering in three core areas: Well Servicing & Equipment, Downhole Temperature & Pressure Monitoring Tools, and Rental Services. For more information on IROC Energy Services Corp. visit our website at www.iroccorp.com.
Cautionary Statements
Certain statements contained in this press release may constitute forward looking statements concerning, among other things, expected revenues, expected expenses, profits, developments and strategies for IROC's operations all of which are subject to certain risks, uncertainties and assumptions. These forward looking statements are identified by their use of terms and phrases such as "anticipate", "continue", "estimate", "expect", "may", "will", "projected", "should", "believe" and other similar terms and phrases. By its nature, such forward looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. These risks include, but are not limited, to the risks associated with the oil and gas industry generally, fluctuating prices in crude oil and natural gas, changes in drilling activity, general global economic, political and business conditions, weather conditions, regulatory changes and availability of products, qualified personnel and manufacturing capacity and raw materials. If any of these uncertainties materialize, or if assumptions are incorrect actual results may vary materially from those expected. IROC relies on litigation protection for any forward looking statements.
This press release is not for dissemination in United States or to any United States news services. The Common Shares of IROC have not and will not be registered on the United States Securities Act of 1933, as amended (the "United States Securities Act") or any state securities laws and are not offered or sold in the United States or to any US person except in certain transactions exempt from the registration requirements of the United States Securities Act and applicable state securities laws.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
NON-GAAP MEASURES
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The financial statements have been prepared in accordance with GAAP. Certain supplementary information and measures not recognized under GAAP are provided where Management believes they assist the reader in understanding IROC's results. These measures include:
1. EBITDAS and EBITDAS per share - EBITDAS is defined as earnings before
interest, taxes, depreciation and amortization, stock-based
compensation expense, foreign exchange gains and losses, goodwill
impairment, note receivable impairment, and gains or losses on
disposal of property and equipment. EBITDAS and EBITDAS per share are
not recognized measures under GAAP. The Corporation believes that
EBITDAS is provided as a measure of operating performance without
reference to financing decisions, income tax impacts and non-cash
expenses, which are not controlled at the operating management level.
Accordingly, the Corporation believes EBITDAS is a useful measure for
prospective investors in evaluating the financial performance of the
Corporation, and specifically, the ability of the Corporation to
service the interest on its indebtedness. Investors should be
cautioned that EBITDAS should not be construed as an alternative to
net income determined in accordance with GAAP as an indicator of the
Corporation's performance. IROC's method of calculating EBITDAS may
differ from those of other companies, and accordingly, EBITDAS may
not be directly comparable to measures used by other companies.
2. Gross margin is defined as revenue less operating expenses. Gross
margin % is defined as gross margin divided by revenue. The Company
believes that gross margin and gross margin % are useful measures
which provide an indicator of the Corporation's fundamental ability
to make money on the products and services it sells. The Corporation
believes the relationship between revenues and costs expressed by the
gross margin % is a useful measure when compared between different
financial periods as it demonstrates the trending relationship
between revenues, costs and margins. Gross margin and gross margin %
are not recognized measures of GAAP and do not have any standardized
meaning prescribed by GAAP. IROC's method of calculating gross margin
and gross margin % may differ from those of other companies, and
accordingly, may not be directly comparable to measures used by other
companies. Gross margin is reconciled to revenue - continuing
operations in the Financial Highlights table.
The following is a reconciliation of EBITDAS and EBITDAS per share to net income from continuing operations:
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$ 000's except number Three months ended
of shares and per June 30, March 31, December 31, September 30,
share amounts 2010 2010 2009 2009
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Net income (loss) from
continuing operations (1,055) 524 (395) (9,314)
Depreciation and
amortization 2,003 1,991 2,392 2,073
Loss (gain) on foreign
exchange (88) 97 43 168
Stock based
compensation expense 129 178 74 57
Loss (gain) on disposal
of equipment (1) (7) 33 (2)
Other interest 37 81 92 50
Interest on long-term debt 239 290 373 276
Interest income (11) (11) (19) (18)
Goodwill Impairment - - 6,850
Note Receivable Impairment - - 1,500
Income taxes:
Current (recovery) - - -
Future (recovery) (278) 235 380 (268)
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EBITDAS - continuing
operations 975 3,378 2,973 1,372
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EBITDAS per share
Basic $0.02 $0.08 $0.07 $0.03
Diluted $0.02 $0.08 $0.07 $0.03
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$ 000's except number Three months ended
of shares and per June 30, March 31, December 31, September 30,
share amounts 2009 2009 2008 2008
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Net income (loss) from
continuing operations (1,260) 82 1,532 2,024
Depreciation and
amortization 1,978 2,011 1,791 1,959
Loss (gain) on foreign
exchange 354 54 (616) (24)
Stock based
compensation expense 92 110 67 59
Loss (gain) on disposal
of equipment (1) (4) 1 (14)
Other interest 54 73 155 68
Interest on long-term debt 187 212 357 756
Interest income (36) (12) - -
Interest and accretion
on debentures - - - 152
Goodwill Impairment - - - -
Note Receivable Impairment - - -
Income taxes: -
Current (recovery) - - (45) -
Future (recovery) (785) 54 660 538
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EBITDAS - continuing
operations 583 2,580 3,902 5,518
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EBITDAS per share
Basic $0.01 $0.06 $0.09 $0.12
Diluted $0.01 $0.06 $0.09 $0.12
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For further information: IROC Energy Services Corp., Mr. Thomas M. Alford, President and CEO, Telephone: (403) 263-1110, Email: [email protected]
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