IROC Energy Services Corp. announces second quarter 2009 results and management changes
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/THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN UNITED STATES OR TO ANY
UNITED STATES NEWS SERVICES/
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IROC Energy Services Corp. ("IROC" or the "Company") (TSX: "ISC") announces the Company's financial results for the three and six months ended June 30, 2009 and certain management changes.
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FINANCIAL HIGHLIGHTS
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For the 3 months ended June 30,
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(Unaudited) (Unaudited)
2009 2008 % Change
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Revenue - continuing operations $9,302 $10,154 -8%
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Operating costs 6,567 7,519 -13%
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Gross margin 2,735 2,635 4%
Gross margin % 29% 26% 12%
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General and administrative expenses 2,159 2,150 0%
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EBITDAS - continuing operations(1) 576 485 19%
Per share diluted(1) 0.01 0.01 0%
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Net earnings (loss) - continuing
operations (1,260) (1,894) 33%
Per share diluted (0.03) (0.04) 25%
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Net earnings (loss) (1,260) (2,142) 41%
Per share diluted (0.03) (0.05) 40%
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Number of shares outstanding
Basic 44,200,651 44,301,080 0%
Diluted 44,200,651 44,321,531 0%
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For the six months ended June 30,
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(Unaudited) (Unaudited)
2009 2008 % Change
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Revenue - continuing operations $23,310 $29,674 -21%
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Operating costs 15,793 19,239 -18%
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Gross margin 7,517 10,435 -28%
Gross margin % 32% 35% -9%
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General and administrative expenses 4,360 4,036 8%
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EBITDAS - continuing operations(1) 3,157 6,399 -51%
Per share diluted(1) 0.07 0.14 -50%
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Net earnings (loss) - continuing
operations (1,176) 256 -559%
Per share diluted (0.03) 0.01 -560%
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Net earnings (loss) (772) 595 -230%
Per share diluted (0.02) 0.01 -230%
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Number of shares outstanding
Basic 44,248,284 44,276,080 0%
Diluted 44,248,284 44,304,325 0%
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(1) EBITDAS and EBITDAS per share are "NON-GAAP MEASURES". EBITDAS is
defined as "earnings before interest, taxes, depreciation and
amortization, stock-based compensation expense, foreign exchange
gains and losses and gains or losses on disposal of property and
equipment." EBITDAS and EBITDAS per share are not recognized measures
under GAAP.
Overview
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Despite the continued low activity levels in our industry during the second quarter, IROC was able to achieve positive cash flow. However, the continued downturn in activity has lead to substantial pricing pressure and lower utilization in all oilfield related services, and so IROC's management remains focused managing costs during this downturn in the cycle. As a result of previous actions taken, including the appropriate asset rationalizations and continued administrative cost cutting our balance sheet remains strong, and therefore with our equipment still being the "best in class" we believe our Company is well positioned to grow when opportunities present themselves.
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Highlights for the Quarter:
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- IROC's revenue from continuing operations for the second quarter
ended June 30, 2009 decreased 8%, from $10.2 million to $9.3 million
compared to the same period in 2008. Revenue for the six months ended
June 30, 2009 was $23.3 million compared to $29.7 million,
representing a decrease of 21%. Although IROC had additional
equipment capacity year over year from the service rig build program
in the second half of fiscal 2008, additional revenue growth was
hampered as a result of lower than expected utilization and
competitive pressure on pricing. Activity levels were slightly higher
in both Aero Rentals and Canada Tech divisions' year over year for
the second quarter; however, the increases were not enough to offset
the decline in our service rig segment during the quarter. All
divisions on a year to date basis to the end of June 30, 2009 are
lower than the previous year as a result of the significant reduction
in demand for services brought about by the low commodity price
environment.
- EBITDAS from continuing operations for the second quarter ended
June 30, 2009 was $0.6 million or $0.01 per share, compared to
0.5 million, or $0.01 per share, in the same period of 2008. For the
six months ended June 30, 2009 EBITDAS was $3.2 million or $0.07 per
share compared to $6.4 million or $0.14 per share in the same period
of 2008, a decrease of 51%. EBITDAS for the second quarter of 2009
was relatively flat compared to the same period of 2008 even though
utilization and pricing were down year over year as result of
continued focus on cost management and indefinite deferral on
discretionary spending. EBITDAS for the six months decreased year
over year mainly as a result of lower activity levels across the
industry. Additionally, operating costs were higher as field
personnel wages were increased in October 2008 at a time when the
industry activity levels were reducing. In the past pricing to
customers was increased to partially offset some of these higher
costs and with the increased competitive environment and lower demand
from customers, pricing increases were not achievable. Generally
costs associated with field activities have not moved directionally
with the lower demand environment despite best efforts of our people
as there is a base line of costs necessary to operate. EBITDAS as a
percentage of revenue was 13.5% and 21.6% for the six months ended
June 30, 2009 and 2008, respectively.
- The Company had a net loss from continuing operations of
$1.3 million, or loss of $0.03 per share, for the three months ended
June 30, 2009 compared to a net loss of $1.9 million, or loss of
$0.04 per share, for the comparable period for 2008. For the six
months ended June 30, 2009 the Company had a net loss from continuing
operations of $1.2 million, or a loss of $0.03 per share, compared to
net earnings of $0.3 million, or $0.01 per share, for the same period
of 2008. The improvement in earnings for the three month period is
from lower interest costs as a result of reduced debt levels from the
same period of 2008 as well an increase in the income tax recovery in
the current quarter. The reduction in earnings for the six month
period compared to 2008 is due to lower margins on its services and
products as a result of lower utilization and lower prices in some
cases and partially offset by lower interest costs for debt servicing
due to significant debt reductions.
- On April 27, 2009 IROC's board of directors declared a semi-annual
cash dividend on its common shares of three cents. The dividend was
paid on May 21, 2009, to shareholders of record at the close of
business on May 7, 2009. Over the past year months IROC has
significantly reduced debt obligations through the strategic
dispositions of three divisions. While the total proceeds from these
dispositions were approximately $40-million, the dispositions did not
significantly reduce the profitability or cash flow. Also, we expect
to incur only minimal capital costs in the near term given the newer,
high-quality assets in all our businesses. Management and the board
believe our balance sheet is strong, ongoing cash flows are adequate
and that pursuing a business model that includes paying a dividend in
addition to funding accretive expansion over time is a prudent course
of action. Accordingly, the board determined that it was appropriate
to initiate a dividend for the benefit of our shareholders.
- On May 28, 2009 the Company renewed its credit facility with its
syndicate of lenders. The renewal extends the revolving feature of
the facility to May 29, 2010. Due to a significant increase in
renewal and standby fees, management requested a decrease in the
facility size from $75.5-million to $40-million. The credit facility
has an accordion feature that allows the Company to increase the
credit facility by $20-million at a future date, subject to certain
terms and conditions. The $40 million credit facility consists of an
extendible revolving operating credit facility of $10 million and an
extendible revolving term facility of up to $30 million available to
finance equipment purchases for organic growth and potential
acquisitions.
Eagle Well Servicing
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Eagle Well Servicing ("Eagle"), which comprises a significant portion of the Drilling and Production Services segment, finished the second quarter of 2009 with a fleet of 36 service rigs. Eagle continued to increase its capacity by completing the build of two previously announced service rigs during the first quarter of 2009. Eagle's utilization during the second quarter of 2009 was approximately 25% compared to 36% utilization in the comparable period of 2008. Revenue per hour also decreased in the second quarter by $46 per hour or 6.7% from same period in 2008. Revenue generated from Eagle during the second quarter of 2009 was $5.3 million compared to $6.9 million in the same period of 2008, a decrease of 23%. For the six months ended June 30, 2009 revenue was $15.8 million compared to $20.4 million in the same period of 2008, a decrease of 23%. EBITDAS for the second quarter of 2009 from Eagle was $1 million compared to $1.4 million in the same period of 2008, a decrease of 29%. For the six months ended June 30, 2009 EBITDAS decreased to $4.4 million from $7 million in the same period of 2008, a decrease of 37%. EBITDAS was hampered by higher variable operating costs primarily from the increase in field wage costs implemented during the fourth quarter of 2008 based on recommended wage increases by the CAODC and lower customer demand that lead to one of the lowest historical utilization levels experienced.
Aero Rentals
Aero Rental Services ("Aero") provides rental equipment for surface pressure control in drilling and workover operations and tubular handling equipment in the workover, re-entry and completion areas. Aero's results are affected by the level of drilling activity in the industry. During the second quarter of 2009 Aero contributed revenue of $0.9 million compared to $0.6 million in the prior year period, an increase of 50%. Revenue for the six months ended June 30, 2009 was flat at $2.3 million compared to $2.3 million in the same period of 2008. Aero operating a breakeven on EBITDAS was for the second quarter of 2009 compared to negative EBITDAS of $0.3 million in the same period of 2008. EBITDAS for the six months ended June 30, 2009 was flat at $0.3 million. Aero was significantly affected by the slower industry activity during the first half of 2009 which resulted in equipment utilization and pricing at lower levels than expected. The costs in this division are somewhat fixed in nature and as such has led to lower EBITDAS for the periods of low activity. Depending on activity levels, Aero should generate higher gross margins as activity improves leading to better performance.
Canada Tech
Canada Tech is a developer, manufacturer and marketer of a wide line of tools and systems that measure pressures and temperatures in the downhole and surface environment of oil and gas wells. This segment generated revenue of $3.1 million, or 33% of the Company's total consolidated revenue, for the three months ended June 30, 2009, compared to $2.7 million or 27% of total consolidated revenue for the comparable period of fiscal 2008. For the six months ended June 30, 2009 revenue decreased to $5.3 million from $7 million in 2008 a decrease of 25%. Product sales decreased year over year as Canada Tech was affected by the slowdown in the oil and gas industry worldwide. In the past year the Canada Tech division has focused significant efforts on developing international market penetration. The international market generally has longer lead times to complete the sales process as it is more complex on all levels, including but not limited to bid processes, logistics of delivery and collection of receivables. For the three months ended June 30, 2009, Canada Tech had positive EBITDAS of $0.6 million compared to positive EBITDAS of $0.2 million in the same period of 2008, an increase of 200%. EBITDAS for the six months ended June 30, 2009 was $0.4 million compared to $1 million in the same period of 2008, a decrease of 62%. The primary result of decreased EBITDAS is attributable to the lower than expected product sales volume year over year. The margin on products improved by approximately 10% from the benefit of improved foreign exchange rates on our sales denominated in US dollars offset by lower volume of sales to spread the same level of fixed overhead costs leading to lower profitability in the quarter. Also during the quarter we initiated cost reductions in a number of areas including reduced head count and elimination of discretionary spending in a number of areas to assist in improving profitability for the remainder of the year.
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Outlook
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The outlook for 2009 remains uncertain. The global economic crisis is affecting all industries and the fall in oil and gas commodity pricing from the highs seen in the third quarter of 2008 continue to have a significant adverse affect on the oilfield service business. The conditions appear to have hindered the ability for oil and gas producers to access debt or equity markets to finance their operations. Most producers have substantially reduced their spending for 2009 with a focus on balance sheet preservation and matching spending with realistic cash flows. Increased spending by producers are expected to begin again when producers see sustained periods of higher natural gas and oil prices. Any positive change in commodity pricing will positively affect our outlook with any movement in oil providing the most immediate increase in utilization. The depressed utilization and competitive pricing environment will likely continue through the remainder of 2009 and potentially longer depending upon oil and gas prices.
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Management Changes
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IROC also announces that Mr. Kevin Howell has informed the Company of his intention to pursue another career opportunity. As a result, Mr. Howell will be stepping down from his role as Chief Financial Officer effective August 20, 2009. Mr. Alford, President and Chief Executive Officer of IROC said "on behalf of the board of directors, management and staff, I would like to thank Kevin for his efforts and we wish him all the success in his next endeavour". A search is currently being conducted for Mr. Howells' replacement and it is expected that an announcement will be forthcoming shortly regarding the new incumbent.
Publicly reported information for IROC Energy Services Corp. is available at www.sedar.com.
About IROC Energy Services Corp.
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.
SOURCE: IROC Energy Services Corp.
IROC Energy Services Corp., Mr. Thomas M. Alford, President and CEO, Telephone: (403)
263-1110, email: investorrelations@iroccorp.com
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