Western Energy Services Corp. releases year end 2009 financial and operating
results
/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/
CALGARY, April 23 /CNW/ - Western Energy Services Corp. ("Western" or the "Company") (TSX Venture: WRG) is pleased to release its year end 2009 financial and operating results. Additional information relating to the Company, including the Company's financial statements and management's discussion and analysis for the year ended December 31, 2009 will be available on SEDAR at www.sedar.com.
Comprehensive revaluation
On December 22, 2009, the Company completed a recapitalization and reorganization involving a non-brokered private placement of $7.0 million, the conversion of the Company's existing bridge lending facility, subordinated convertible debentures (including the cancellation of the related common share purchase warrants) and other specified obligations into common shares of Western Energy Services Corp., and the appointment of a new board of directors and a new management team. This transaction resulted in a realignment of Western's equity and non-equity interests. Prior to the recapitalization, the Company faced the prospect of being unable to meet obligations to creditors due to its deteriorating financial position. The outcome of the recapitalization and reorganization was a significant de-leveraging of Western's balance sheet. Total debt was reduced to approximately $0.2 million, and Western is in a significantly better position to meet current and future market challenges.
As a result of the realignment of equity and non-equity interests, Western's identifiable assets and liabilities were recorded at a new cost basis, being the fair value, as required under Canadian Institute of Chartered Accountants Handbook Section 1625 - "Comprehensive Revaluation of Assets and Liabilities". The process of undertaking such a comprehensive revaluation is commonly referred to as "fresh start accounting". The recapitalization and reorganization is described in Note 2 of our audited consolidated financial statements for the period ended December 31, 2009 as filed on SEDAR at www.sedar.com.
Outlook
Subsequent to the recapitalization and reorganization completed on December 22, 2009, as discussed above, the following significant events have occurred:
- On February 24, 2010, Western announced that due to the significant
downturn in industry demand, Western has ceased operations in the
United States. Western has redeployed certain of its U.S. assets to
its Canadian operations and completed the sale of the remaining
assets in the United States.
- On March 18, 2010, Western completed a public offering of 375 million
common shares at a price of $0.20 per share for gross proceeds of
$75 million. Concurrent with the closing of this equity offering,
Western completed the acquisition of Horizon Drilling Inc.
("Horizon") for total consideration of approximately $66 million,
including the assumption of debt, and the acquisition of Cedar Creek
Drilling Ltd. ("Cedar Creek") for consideration of approximately
20.5 million common shares.
- On April 15, 2010, Western announced the increase of its credit
facility with its existing lender. The credit facility will consist
of a $5 million operating demand revolving loan (the "Operating
Facility"), and a $45 million 364-day committed extendible revolving
credit facility (the "Revolving Facility"). The purpose of the
Revolving Facility is to assist the Company in completing corporate
acquisitions and financing the construction of additional equipment.
- Management has determined that it will take all necessary steps to
reduce its exposure to Mexico and Central America by either selling
or winding up the operations.
Western believes that current market conditions in the Canadian energy sector provide an opportunity to build a new Canadian focused oilfield service provider through consolidation and that conditions are also favourable to attract qualified staff to grow the organization. It is anticipated that these factors combined with access to capital will provide Western with consolidation opportunities.
Western will be focused from both a business line and geographical perspective. Due to the experience of the management team, it is their intention to initially focus their efforts in three core business lines in Canada encompassing contract drilling, service rigs and rental and production services. The business plan will see the management team pursue strategic acquisitions focused on strengthening and adding depth to these core business lines with an emphasis on attracting business from Canadian customers engaged in unconventional resource development.
The acquisitions of Horizon and Cedar Creek provided Western with a fleet of 11 drilling rigs which are, on average, less than 4 years old, have modern designs, move and rig-up efficiently and have a premium customer base. Western believes these assets should be in demand as exploration and development of key resource plays requiring horizontal drilling continues to increase. Western also anticipates very little integration risk with Horizon and Cedar Creek as management is familiar with the assets and believes operational efficiencies can be achieved with the larger scale that these acquisitions bring. These acquisitions also provide Western with immediate cash flow and key human resource capabilities.
With the increase in Western's credit facilities, as noted above, Western has been able to repay all the debt assumed in the acquisitions of Horizon and Cedar Creek and consolidate its debt with one lender. Western intends to employ a conservative balance sheet strategy going forward by maintaining a conservative debt to annualized EBITDA ratio.
Selected Financial Information
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After
comprehensive
revaluation Before comprehensive revaluation
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(stated in
thousands of
Canadian dollars, Dec 23, 2009 Jan 1, 2009 Year ended Year ended
except per share to Dec 31, to Dec 22, Dec 31, Dec 31,
amounts) 2009 2009 2008 2007
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Revenue 184 5,462 12,732 15,201
EBITDA(2) (131) (1,733) 728 623
Cash from operating
activities (436) (2,765) 121 (1,639)
Net loss from
continuing operations (2,011) (6,341) (5,990) (5,521)
- per share(1) (0.02) (0.20) (0.43) (0.54)
Total assets 11,531 12,024 22,398 26,902
Long term financial
liabilities 65 65 764 1,000
Outstanding common
shares 132,031,830 132,031,830 32,246,405 14,000,652
Dividends declared - - - -
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(1) Per share amounts for all periods reflect the 1 for 12 consolidation
of shares that occurred in September 2008.
Overall Performance and Results of Operations
The Company operates in the oil and gas services sector in Canada and, until recently, the United States and specializes in the delivery of acidizing and solvent well remediation services as well as nitrogen and fluid pumping services. The operating environment for the oil and gas services sector is highly dependent on drilling activity and commodity prices of both oil and natural gas. Overall, 2009 represented a challenging year for the oilfield services industry as North American natural gas supplies increased and demand was reduced as a result of the global recession. However, activity levels in the last half of 2009 did improve as oil prices improved.
The key operational results for the year ended December 31, 2009 are:
- For all of 2009, Western's revenues decreased by $7.1 million or 56%
to $5.6 million ($184,000 for the 9 day period ended December 31,
2009 and $5.5 million for the 356 day period ended December 22, 2009)
as compared to $12.7 million for the year ended December 31, 2008.
The decrease in revenues is directly attributable to a drop in US
based revenues and in particular the decreased activity levels in the
Barnett shale area of north Texas serviced from the Company's Abilene
base. Subsequent to year end, due to the downturn in industry demand,
the Company ceased its operations in the US. Revenues from the US
operations decreased by $5.4 million or 80% year over year while
revenues from our international operations decreased by $0.7 million
or 68% as compared to the year ended December 31, 2008. Revenues from
our Canadian operations decreased by $1.0 million or 20% on an
annualized basis, mainly due to a decrease in the number of jobs
completed coupled with a decrease in the average revenue per job
completed. In 2009, the number of jobs completed decreased by 11% to
1,244 as compared to 1,398 jobs completed in 2008. Additionally, the
average revenue per job decreased by 11% to $3,149 in 2009 as
compared to $3,541 in 2008. During the first quarter of 2010, Western
has experienced renewed demand for its well remediation services,
with a 63% increase in the number of jobs completed in the first
quarter of 2010 relative to the same period in the prior year.
- For the 9 day period ended December 31, 2009, Western realized a net
loss of $2.0 million, mainly due to $1.8 million in stock based
compensation expense related to the issuance of 50.5 million warrants
as part of the recapitalization transaction. For the 356 day period
ended December 22, 2009, Western realized a net loss of $6.5 million
as compared to a net loss of $5.9 million for the year ended
December 31, 2008.
- For all of 2009, Western's EBITDA (see non-GAAP measures on page 9)
was negative $2.0 million, as compared to a positive EBITDA of
$0.7 million for the year ended December 31, 2008. The decrease in
EBITDA is due to a $7.1 million decrease in revenues, as US based
revenues decreased significantly, partially offset by $4.4 million
decrease in operating expenses.
- On November 9, 2009, the Company completed a debt restructuring with
its lenders. As a result of the restructuring, all of the Company's
bank debt was held by its senior lender with all but $182,000 of the
balance of the Company's term debt obligations being held by a
company controlled by a former director. The bank debt and the term
debt were settled on December 22, 2009 as part of the restructuring
and reorganization of the Company, discussed below.
- On December 22, 2009, the Company completed a reorganization
involving a non-brokered private placement of $7.0 million, the
conversion of the Company's existing bridge lending facility,
subordinated convertible debentures (including the cancellation of
the related common share purchase warrants) and other specified
obligations into common shares of Western, and the appointment of a
new board of directors and a new management team. The proceeds from
the private placement were used initially to repay the Company's bank
debt obligations and for general corporate purposes.
- To improve the Company's liquidity position, during 2009, Western
completed the sale of assets for proceeds of approximately
$3.2 million. Almost all of those assets were assets used in
Western's U.S. based operations. Subsequent to December 31, 2009,
Western announced that due to the significant downturn in industry
demand, Western would be ceasing its current operations in the United
States. Western has redeployed certain of its U.S. assets to its
Canadian operations and completed the sale of the remaining assets in
the United States. During the first quarter of 2010, Western has
completed additional asset sales, including the sale of the remaining
U.S. assets, for total proceeds of approximately $3.5 million.
- Subsequent to period end, on March 18, 2010, Western completed a
public offering of 375 million common shares at a price of $0.20 per
share for gross proceeds of $75 million. Concurrent with the closing
of this equity offering, Western completed the acquisition of Horizon
for total consideration of approximately $66 million, including the
assumption of debt, and the acquisition of Cedar Creek for
consideration of approximately 20.5 million common shares. Each of
Horizon and Cedar Creek were, at the time of acquisition, privately
held companies engaged in the operation of contract drilling rigs in
the Western Canadian sedimentary basin.
Forward-looking statements
This press release contains certain statements or disclosures relating to the Company that are based on the expectations of its management as well as assumptions made by and information currently available to the Company which may constitute forward-looking information under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that the Company anticipates or expects may, or will occur in the future (in whole or in part) should be considered forward-looking information. In some cases, forward-looking information can be identified by terms such as "forecast", "future", "may", "will", "expect", "anticipate", "believe", "potential", "enable", "plan", "continue", "contemplate", "pro-forma", or other comparable technology.
Under the heading "Outlook" there are statements to the effect that current market conditions in the Canadian energy sector provide an optimal opportunity to build a new Canadian focused oilfield services provider through consolidation, that Western will be in a position to attract qualified staff and that these factors, combined with access to capital, will provide Western with the opportunity for increased returns. Also, under the heading "Outlook" there are statements pertaining to the intentions of the Corporation with respect to seeking opportunities in three core business lines in Canada, encompassing contract drilling, service rigs and rental and production services and that the business plan will see the management team pursue strategic acquisitions focused on strengthening and adding depth to the core businesses.
Those statements assume that the Company will be able to attract enough additional capital or credit to allow for anticipated acquisitions and that those acquisitions, if made, would be accretive. There is a risk that, due to a number of factors, adequate additional capital and credit may not become available to the Company and even if such capital does become available, there is further risk that opportunities that are accretive may either not be available or, if completed, are ultimately not accretive.
As such, many factors could cause the performance or achievement of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.
Neither the 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.
%SEDAR: 00005790E
For further information: Dale E. Tremblay, Chief Executive Officer, (403)-262-9439; Alex MacAusland, President and Chief Operating Officer, (403) 262-9013; or Jeffrey K. Bowers, Vice President Finance and Chief Financial Officer, (403) 262-9548
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