CALGARY, March 20, 2013 /CNW/ - IROC Energy Services Corp. ("IROC" or
the "Corporation") (TSXV: "ISC") is pleased to present a summary of its
operating and financial results for the three and twelve months ended
December 31, 2012. For a complete copy of IROC's interim financial
statements and management's discussion and analysis ("MD&A") please
visit www.sedar.com.
HIGHLIGHTS
Following a robust industry environment in 2011, lower commodity prices
caused exploration and production companies to curtail their capital
spending in 2012, negatively impacting industry activity levels in
2012. In spite of the macro industry challenges, IROC was able to
continue to execute its growth plans resulting in a number of positive
achievements in 2012:
-
Achieved record annual revenue and EBITDAS of $101.2 million and $30.3
million, respectively, representing a 18% and 13% respective increase
in revenue and EBITDAS over fiscal 2011;
-
Invested $37.0 million in capital expenditures, increasing IROC's
service rig fleet by 9 rigs and added $10.1 million in new rental
assets. Continued demand for IROC's services prompted the board of
directors to approve a $25.2 million capital expenditure budget for
2013, which will include 6 new service rigs, $8.0 million in new rental
assets and $2.5 million for miscellaneous equipment and maintenance
capital; and
-
Returned a total of $5.0 million to investors via dividends, with a
further $1.5 million paid in January 2013.
The positive results achieved in 2012 were a direct result of IROC's
$69.9 million investment in the enhancement and expansion of the
Corporation's operating assets over the last two years. Strong
customer demand for IROC's service rigs allowed the Corporation to
expand its service rig fleet by 9 rigs in 2012 leaving IROC with a
fleet of 50 free standing service rigs as at December 31, 2012.
Revenue also benefited from IROC's expansion of its rental business
during 2011 and 2012, resulting in a 10% increase in rental revenue for
2012 versus 2011. IROC continues to invest in opportunities to expand
its service rig fleet as well as its inventory of specialized high
pressure completions rental equipment.
Although revenue increased $15.4 million year over year, increased labor
and fuel costs combined with competitive pricing resulted in margin
compression during the year relative to 2011. Gross margin as a
percentage of revenue declined 2% to 39% for the year ended 2012 versus
the 41% margin achieved in 2011.
This lower gross margin contribution was partially offset by lower
general and administrative costs as a percentage of revenue which was
9% in 2012 versus 10% in 2011, resulting in EBITDAS of $30.3 million
(30% of revenue) versus $26.9 million (31% of revenue) in 2011. The
lower general and administrative costs as a percentage of revenue is
due to greater economies of scale being achieved by the expansion of
IROC's business operations.
The increased EBITDAS was partially offset by higher depreciation costs
resulting in a nominal increase in net income from continuing
operations to $13.5 million during 2012 versus $13.4 million in 2011.
Depreciation expense increased $3.2 million to $10.6 million in 2012 as
a result of the capital investments made during 2011 and 2012.
IROC's larger average fleet size of 47.8 rigs in the fourth quarter of
2012 allowed the Corporation to generate $27.1 million in revenue,
exceeding the $26.7 million in revenue generated in the fourth quarter
of 2011. However, lower fleet utilization combined with competitive
pricing pressures and increased field operating costs resulted in gross
margin declining to $10.3 million (38% of revenue) during the quarter
from $10.8 million (41% of revenue) in the fourth quarter of 2011.
Lower than expected operating performance and utilization of the
Corporation's three coiled tubing units also negatively impacted the
Corporation's operating results during the quarter.
The lower gross margin results in the quarter were partially offset by a
$0.2 million decline in general and administrative expenses resulting
in EBITDAS of $8.3 million (31% of revenue) in the quarter versus $8.6
million (32% of revenue) in fourth quarter of 2011. The decline in
gross margin combined with increased depreciation expense caused net
income to decline to $3.6 million in the quarter from the $4.8 million
generated in the fourth quarter of 2011.
As a result of the strength and success of IROC's business operations,
IROC was presented with a proposed business combination by Western
Energy Services Corp. ("Western") subsequent to year end. On February
21, 2013 IROC entered into an arrangement agreement with Western
whereby Western would acquire IROC's outstanding shares in exchange for
a combination of cash and Western shares. The Western offer equated to
an implied value of $3.10 per IROC share which was a 32% premium to
IROC's 20-day volume weighted average trading price of $2.35 per share
as at February 21, 2013. Additional details of the transaction are
contained in IROC's February 22, 2013 press release as well as the
subsequent event discussion in the Corporation's MD&A and December 31,
2012 audited financial statements.
RESULTS OF OPERATIONS
|
|
|
|
Three months ended
December 31
|
Year ended
December 31
|
|
($ Thousands, except per share amounts)
|
2012
|
2011
|
2012
|
2011
|
|
Revenue
|
$ 27,117
|
$ 26,724
|
$ 101,154
|
$ 85,740
|
|
Operating expenses
|
$ 16,840
|
$ 15,887
|
$ 62,026
|
$ 50,456
|
|
Gross margin (1)
|
$ 10,277
|
$10,837
|
$ 39,128
|
$ 35,284
|
|
|
Gross margin %
|
38%
|
41%
|
39%
|
41%
|
|
General and administrative expenses
|
$ 1,979
|
$2,194
|
$ 8,816
|
$ 8,370
|
|
EBITDAS (1)
|
$ 8,298
|
$ 8,643
|
$ 30,312
|
$ 26,914
|
|
|
EBITDAS %
|
31%
|
32%
|
30%
|
31%
|
|
Depreciation and amortization
|
$ 2,983
|
$ 2,112
|
$ 10,603
|
$ 7,397
|
|
Share-based compensation
|
$ 200
|
$ 167
|
$ 724
|
$ 604
|
|
Other (income) expense
|
$ (152)
|
$ (9)
|
$ (218)
|
$ 11
|
|
Operating income
|
$ 5,267
|
$ 6,373
|
$ 19,203
|
$ 18,902
|
|
Finance costs
|
$ 242
|
$ 163
|
$ 785
|
$ 803
|
|
Income before income tax
|
$ 5,025
|
$ 6,210
|
$ 18,418
|
$ 18,099
|
|
Provision for current and deferred income taxes
|
$ 1,435
|
$ 1,432
|
$4,917
|
$ 4,720
|
|
Net income from continuing operations
|
$ 3,590
|
$ 4,778
|
$ 13,501
|
$ 13,379
|
|
Loss from discontinued operations
|
$ (70)
|
$ (8)
|
$ (70)
|
$ (1,192)
|
|
Net income
|
$ 3,520
|
$ 4,770
|
$ 13,431
|
$ 12,187
|
|
Net income per share from continuing operations:
|
|
|
Basic
Diluted
|
$ 0.07
$ 0.07
|
$ 0.10
$ 0.10
|
$ 0.27
$ 0.26
|
$ 0.28
$ 0.27
|
|
Net income per share:
|
|
|
Basic
|
$ 0.07
|
$ 0.10
|
$ 0.27
|
$ 0.25
|
|
|
Basic
|
$ 0.07
|
$ 0.10
|
$ 0.26
|
$ 0.25
|
|
(1) See non-IFRS measures.
|
IROC is an oilfield services company operating in the Western Canadian
Sedimentary Basin ("WCSB"). The Corporation's business is conducted
through two segments: Drilling and Production Services and Rental
Services. The discussion that follows provides an overview of IROC's
financial and business performance in these two segments as well as a
discussion on the other general business expenditures incurred by the
Corporation.
FINANCIAL OVERVIEW - YEAR ENDED DECEMBER 31, 2012 VERSUS 2011
Drilling and Production Services Operations
|
|
|
|
Year ended December 31
|
|
($ Thousands)
|
2012
|
2011
|
Variance
|
% Change
|
|
Revenue
|
$ 84,583
|
$ 70,589
|
$ 13,994
|
20%
|
|
Operating expenses (1)
|
$ 54,612
|
$ 44,110
|
$ 10,502
|
24%
|
|
Gross margin (2)
|
$ 29,971
|
$ 26,479
|
$ 3,492
|
13%
|
|
|
Gross margin %
|
35%
|
38%
|
(3%)
|
(8%)
|
|
Service rig utilization % (3)
|
61%
|
65%
|
(4%)
|
(6%)
|
|
Average number of service rigs during period
|
45.4
|
37.3
|
8.1
|
22%
|
|
Service rigs at end of period
|
50
|
41
|
9
|
22%
|
|
(1)
|
Operating expenses includes $662 ($537 in 2011) of intersegment costs
charged to the Drilling and Production Services division from the
Rental Services division.
|
|
(2)
|
See non-IFRS measures.
|
|
(3)
|
IROC calculates utilization based on full utilization being 10 hours per
day, 365 days per year, which is consistent with the Canadian
Association of Drilling Contractors ("CAODC") standard.
|
IROC's Drilling and Production Services segment consists of the
Corporation's conventional service rig division, Eagle Well Servicing
("Eagle"), as well as the Corporation's coiled tubing division, Helix
Coil Services ("Helix").
As at December 31, 2012, IROC owned a fleet of 50 free standing service
rigs in its Eagle division which have enjoyed strong customer
acceptance due to their use of industry leading technologies and
reliable operational performance. The average age of Eagle's service
rig fleet is approximately 4.5 years, which is one of the newest
service rig fleets in the WCSB. The recent additions to Eagle's rig
fleet has allowed the rigs to benefit from technology enhancements that
have provided opportunities for Eagle to reduce well servicing times
resulting in cost savings for Eagle's customers. Eagle's rig designs
also incorporate lightweight materials where possible to reduce rig
weights which allow for greater rig mobility during seasonal road ban
periods.
In response to strong customer demand for Eagle's service rigs, IROC
added 9 service rigs to its fleet in 2012. The rig additions consisted
of 3 singles, 3 doubles, and 3 slant rigs. Eagle's double service rigs
have greater depth and weight capacities than its single rigs allowing
the double rigs to operate in the deeper and more challenging well
conditions associated with the growing shale gas and oil resource plays
in the WCSB. The single rigs are generally utilized to service
conventional oil and natural gas wells located in central Alberta and
Saskatchewan. Eagle's slant rigs are specially designed to service
heavy oil wells located in northern Alberta and Saskatchewan.
In addition to the benefits received from Eagle's newer rig fleet, the
industry trend towards oil related exploration and development activity
continues to benefit the Corporation as service rigs are typically
utilized more for oil well completions and workovers versus natural gas
wells. Oil wells also generally require more frequent workover
services than natural gas wells. Over 90% of Eagle's service rig
activity is levered to the completion, workover and abandonment of oil
wells.
A significant portion of the increase in oil related activities is
focused in heavy oil resource plays, which is beneficial to IROC's
slant rigs. These rigs are specially designed to service slant wells
which are prevalent in heavy oil resource plays. In addition to the
slant design of the rigs, they also utilize integrated rod X-celerators
which allows the rig to handle both jointed pipe as well as continuous
rod pipe which is common on heavy oil wells. The dual purpose
functionality of these rigs provides IROC's customers with a more
efficient and cost effective service rig to complete their well
workover requirements.
In addition to IROC's service rig fleet, IROC also has three coiled
tubing units operating under the Corporation's Helix division. The
Helix coiled tubing units were introduced during the second half of
2011 and are primarily used for horizontal well completions and
workovers. During the industry's period of high completions activity,
the units enjoyed strong utilization in 2011 and early 2012, however,
coil utilization declined in the second half of 2012 due to lower
industry horizontal well completions activity levels. The Helix
division contributed $5.6 million in revenue during 2012 versus $4.4
million in 2011.
As a result of the Eagle service rig additions, combined with a full
year contribution from Helix's coiled tubing units, revenue in the
Drilling and Production Services segment increased to $84.6 million in
2012 versus $70.6 million in 2011. Revenue also benefitted from a 5%
increase in Eagle's average service rig revenue rate in 2012 versus
2011. This average rate increase was primarily due to the expansion of
Eagle's double and slant rig fleet which receive higher rates
associated with the more technically challenging work these rigs
perform relative to Eagle's smaller single rigs.
The revenue increase resulted in a $3.5 million increase in gross margin
in IROC's Drilling and Production Services segment to $30.0 million for
2012 from $26.5 million in 2011. Partially offsetting the positive
impact to gross margin from increased revenue were higher operating
costs which caused gross margin as a percentage of revenue to decline
to 35% for the year in comparison to the 38% gross margin percentage
achieved in 2011. The primary contributing factors to higher operating
costs were increased labor costs as well as higher fixed operating
costs for the coiled tubing units.
Labor costs increased due to wage increases implemented in late 2011
combined with recruitment and training related costs for new staff.
The ability to hire and retain sufficient skilled labor continues to be
one of the primary challenges facing the oilfield service industry
resulting in high turnover and increased training and wage costs to
attract and retain skilled staff.
Operating costs for the Helix coiled tubing units increased due to the
impact of full year operations as well as fixed salary costs for the
coiled tubing staff. Unlike the compensation structure for the Eagle
service rig staff which is fully variable, coiled tubing staff are
compensated through a combination of a fixed monthly salary and a
variable field rate when the units work. Due to the slowdown in
activity during the second half of 2012, the fixed salary costs
negatively impacted gross margins for the coiled tubing units.
Activity for the Corporation's coiled tubing units has increased in the
first quarter of 2013 in conjunction with increased completions
activities of IROC's customers.
Rental Services Operations
|
|
|
|
Year ended December 31
|
|
($ Thousands)
|
2012
|
2011
|
Variance
|
% Change
|
|
Revenue (1)
|
$ 17,233
|
$ 15,688
|
$ 1,545
|
10%
|
|
Operating expenses
|
$ 8,076
|
$ 6,883
|
$ 1,193
|
17%
|
|
Gross margin (2)
|
$ 9,157
|
$ 8,805
|
$ 352
|
4%
|
|
|
Gross margin %
|
53%
|
56%
|
(3%)
|
(5%)
|
|
Capital cost of rental equipment at end of period
|
$ 28,456
|
$ 19,729
|
$ 8,727
|
44%
|
|
(1)
|
Revenue includes $662 ($537 - 2011) of intersegment revenue charged to
the Drilling and Production Services division from the Rental Services
division.
|
|
(2)
|
See non-IFRS measures.
|
IROC's rental services segment consists of the Aero Rental Services
division ("Aero"). Aero specializes in the rental and service of high
pressure equipment utilized in drilling and completions activities.
Aero's fleet of rental equipment primarily consists of: blow out
prevention devices ("BOPs"); well fracturing manifolds and pressure
control devices; and tubular handling devices. This equipment is
ideally suited for well completions in the emerging shale and tight
natural gas and oil resource plays in the WCSB. Development of these
resource plays requires intensive well fracturing services at high
pressures which require the use of various types of equipment provided
by Aero.
Revenue from the rental services segment increased to $17.2 million from
$15.7 million in 2011. This increase is primarily derived from IROC's
$10.1 million investment in additional rental equipment in 2012,
combined with the $4.0 million investment in rental equipment in the
second half of 2011.
While revenue increased 10% year over year, the mix of equipment being
rented combined with increased fixed operating costs caused gross
margin as a percentage of revenue to decline to 53% in 2012 versus 56%
in 2011. Competitive pricing pressures also exist in the market,
however, management believes that the high quality of Aero's rental
equipment combined with Aero's strong customer service will allow the
division to mitigate some of the impact of competitive pricing
pressures. IROC also continues to evaluate new technology and service
additions to Aero's service offerings which will help to grow Aero's
market share and differentiate itself from its competitors.
General and Administrative Expenses
As a result of the Corporation's growth in 2012, additional investment
in general and administrative support infrastructure was required
resulting in general and administrative expenses increasing to $8.8
million in 2012 versus $8.4 million in 2011. However, general and
administrative costs declined as a percentage of revenue to 9% from 10%
in 2011.
Depreciation and Amortization Expense
Depreciation expense increased to $10.6 million in 2012 versus $7.4
million in 2011. This increase is due to IROC's $37.0 million
investment in capital expenditures in 2012, combined with the effect of
the full year depreciation related to the $22.1 million capital asset
expenditures made in the last six months of 2011.
Share-based Compensation Expense
Share-based compensation expense increased $0.1 million to $0.7 million
during 2012 as a result of additional stock options and restricted
share units ("RSUs") issued in 2012 under the Corporation's stock
option and RSU plans. As at December 31, 2012 the Corporation had
1,725,701 stock options and 471,838 RSUs outstanding.
Other (income) Expense
Other income is primarily comprised of a $0.2 million gain on the sale
of older obsolete equipment in 2012 for proceeds of $0.8 million.
Consistent with IROC's goal of maintaining a high quality operating
fleet, management routinely reviews its operating fleet and determines
opportunities to divest of older, less efficient equipment and reinvest
the proceeds in new equipment.
Finance Costs
Interest and financing costs were consistent year over year at $0.8M.
The Corporation utilized a combination of operating cash flows and debt
facilities to fund its $37.0 million in capital expenditures during
2012. The average debt balance outstanding during 2012 was $19.3
million versus $14.5 million in 2011. The impact to interest cost of
this higher average debt balance was offset by lower average interest
rates during 2012 relative to 2011.
Income Taxes
Income tax expense increased to $4.9 million versus $4.7 million in
2011. The increase was primarily due to the Corporation's higher
pre-tax income during the year. IROC's effective tax rate was 26.7%
versus the combined federal and Alberta provincial statutory rate of
25.0%. The higher effective rate was related to the impact of
non-deductible expenses for tax purposes such as stock-based
compensation expense.
Discontinued Operations
On July 14, 2011 IROC sold the business assets of its Canada Tech
division ("Canada Tech"). Subsequent to year end IROC settled, on a no
fault basis, an outstanding lawsuit with the former owners of Canada
Tech for $0.2 million. The cost of this settlement has been accrued in
the Corporation's December 31, 2012 year end results. This settlement
combined with the final settlement of various other outstanding
accounts receivable and payable amounts resulted in the Corporation
incurring a net after-tax loss of $0.1 million from discontinued
operations for fiscal 2012.
FINANCIAL OVERVIEW - THREE MONTHS ENDED DECEMBER 31, 2012 VERSUS 2011
Drilling and Production Services Operations
|
|
|
|
Three months ended December 31
|
|
($ Thousands)
|
2012
|
2011
|
Variance
|
% Change
|
|
Revenue
|
$ 22,714
|
$ 22,317
|
$ 397
|
2%
|
|
Operating expenses (1)
|
$ 14,948
|
$ 14,133
|
$ 815
|
6%
|
|
Gross margin (2)
|
$ 7,766
|
$ 8,184
|
$ (418)
|
(5%)
|
|
|
Gross margin %
|
34%
|
37%
|
(3%)
|
(8%)
|
|
Service rig utilization % (3)
|
63%
|
69%
|
(6%)
|
(9%)
|
|
Average number of service rigs during period
|
47.8
|
39.6
|
8.2
|
21%
|
|
Service rigs at end of period
|
50
|
41
|
9
|
22%
|
|
(1)
|
Operating expenses includes $137 ($258 - 2011) of intersegment costs
charged to the Drilling and Production Services division from the
Rental Services division.
|
|
(2)
|
See non-IFRS measures.
|
|
(3)
|
IROC calculates utilization based on full utilization being 10 hours per
day, 365 days per year, which is consistent with the Canadian
Association of Drilling Contractors ("CAODC") standard.
|
Consistent with the increase in IROC's full year results, IROC's larger
fleet size allowed the Corporation to increase revenue to $22.7 million
in the quarter versus $22.3 million in the fourth quarter of 2011. The
positive contribution from the Corporation's service rigs was partially
offset by lower activity in the Corporation's Helix division. The
Helix division generated $1.0 million in revenue during the quarter
versus $2.7 million in the fourth quarter of 2011.
Increased operating costs associated with the Corporation's larger fleet
size and higher wage costs combined with high fixed operating costs in
the Helix division caused gross margin to decline to $7.7 million (34%
of revenue) in the quarter from $8.2 million (37% of revenue) in the
fourth quarter of 2011. Lower industry activity levels have not
provided IROC an opportunity to increase revenue rates to offset
increasing wage costs, thus margins have been negatively impacted.
Rental Services Operations
|
|
|
|
Three months ended December 31
|
|
($ Thousands)
|
2012
|
2011
|
Variance
|
% Change
|
|
Revenue (1)
|
$ 4,540
|
$ 4,665
|
$ (125)
|
(2%)
|
|
Operating expenses
|
$ 2,029
|
$ 2,012
|
$ 17
|
1%
|
|
Gross margin (2)
|
$ 2,511
|
$ 2,653
|
$ (142)
|
(4%)
|
|
|
Gross margin %
|
56%
|
57%
|
(1%)
|
(2%)
|
|
Capital cost of rental equipment at end of period
|
$ 28,456
|
$ 19,729
|
$ 8,727
|
44%
|
|
(1)
|
Revenue includes $137 ($258 - 2011) of intersegment revenue charged to
the Drilling and Production Services division from the Rental Services
division.
|
|
(2)
|
See non-IFRS measures.
|
Lower industry activity levels for well completions negatively impacted
IROC's rental services operations during the quarter resulting in flat
quarter over quarter revenue results of $4.6 million in spite having an
additional $2.0 million in rental assets available during the quarter.
In spite of the recent industry slowdown in completions activities, IROC
continues to experience strong demand for its high pressure well
fracturing rental equipment. The demand for this equipment is
mitigating the decline in demand for other rental equipment in the
Corporation's fleet. IROC continues to expand its high pressure rental
equipment fleet in an effort to differentiate itself from its
competitors and capture a greater share of this market segment.
Operating costs for IROC's rental services operation are relatively
fixed, thus the decline in rental revenue during the quarter caused
gross margin to decline to $2.6 million (56% of revenue) from $2.7
million (57% of revenue) generated in the fourth quarter of 2011.
General and Administrative Expenses
General and administrative expenses decreased to $2.0 million in the
fourth quarter of 2012 as compared to $2.2 million in the fourth
quarter of 2011. As a percentage of revenue, general and
administrative expenses were 7% of revenue in the quarter, which is
slightly lower than the full year average of 9%. Higher professional
fees were incurred in prior quarters resulting in higher general and
administrative costs relative to the fourth quarter.
Depreciation and Amortization Expense
Consistent with the increase seen in prior quarters during 2012,
depreciation expense increased to $3.0 million in the fourth quarter
versus $2.1 million in the fourth quarter of 2011. This increase is
due to IROC's investment in capital expenditures in 2012.
Share-based Compensation Expense
No significant employee stock option or RSU grants were made during the
quarter. As a result, share-based compensation expense was consistent
quarter over quarter at $0.2 million.
Other (income) Expense
Other income in the quarter related to $0.2 million in gains recorded
from the sale of older obsolete equipment for proceeds of $0.3
million. Similar sales of this magnitude did not occur in the
comparative quarter in 2011.
Finance Costs
The Corporation borrowed $2.6 million on its debt facilities in the
quarter to fund its fourth quarter capital expenditures. This
increased borrowing resulted in a small increase in finance costs
during the quarter. The Corporation continues to benefit from low
interest rates, which have mitigated increases in finance costs despite
increased debt borrowings during the year to fund the Corporations
business expansion.
Income Taxes
Income tax expense was $1.4 million for the quarter which equates to a
28.6% effective tax rate versus the combined federal and provincial
corporate tax rate of 25%. Consistent with the full year results, the
higher effective tax rate primarily related to non-deductible expenses
for tax purposes. These non-deductible expense items had a greater
impact on the Corporation's fourth quarter effective tax rate given the
lower quarterly pre-tax income relative to the Corporation's full year
pre-tax income.
In 2011 the federal government amended certain tax legislation related
to the deferral of income from partnership structures. This amendment
has resulted in the acceleration of previously deferred partnership
income into income over a 5 year period. As a result of the
acceleration of a portion of IROC's previously deferred income, the
majority of IROC's non-capital loss tax pools were utilized during the
year to offset this additional income inclusion resulting in the
Corporation becoming cash taxable during the quarter.
OUTLOOK
The steady execution of IROC's organic growth plans over the last two
years has allowed IROC to achieve record revenue and EBITDAS results
for 2012 solidifying IROC as a premier provider of well service rigs in
the WCSB. While the industry is currently faced with near-term
uncertainty and challenges associated with lower natural gas and oil
prices, management believes the long-term fundamentals remain strong
for increased industry activity in the WCSB.
This cautious near-term outlook resulted in a slowdown in industry
activity in the fourth quarter of 2012 and has continued into the first
quarter of 2013. However, the growth in IROC's rig fleet has placed
the Corporation on track to exceed the total hours generated by IROC's
service rigs in the first quarter of 2013 versus the first quarter of
2012. Management believes that IROC's fleet of newer rigs in oil
focused areas is helping to mitigate the impact to IROC from the
current slowdown in industry activity. IROC's continued expansion of
its rig fleet during this period of slower industry activity will also
put IROC in a position to meet increased customer demand as industry
activity levels improve.
IROC's rental operations continues to expand its inventory of
specialized high pressure equipment that is ideally suited for the
growing shale gas development in northern Alberta and British
Columbia. Management expects activity in these resource development
areas to increase in the second half of 2013 and into 2014 as a result
of the recent foreign investments made in Canadian exploration and
production companies operating in these areas. In addition, positive
discussions surrounding potential LNG export terminals further enhances
the long-term development of these resource development areas.
Development of these resources are well fracturing intensive and
require the specialized high pressure rental equipment that the Aero
Rental division offers.
The near-term slowdown in industry activity will continue to produce
margin pressures as competitors look for opportunities to improve
utilization through pricing declines. In addition, despite the overall
slowdown in industry activity, the industry still faces challenges in
attracting and retaining sufficient qualified employees which is
causing higher wage costs.
In spite of the near-term industry challenges, management believes that
IROC is in a strong position to successfully manage through the current
industry cycle and prosper when industry activity increases. The
proposed business combination with Western, if completed, also provides
further stability and growth opportunities for IROC and its
shareholders as the business combination will create a premier
drilling, well service and oilfield rental company which should provide
opportunities to break into new markets and access customers through
the more comprehensive service offering that the combined company will
provide and offer.
RISKS AND UNCERTAINTIES
Certain activities of the Corporation are affected by factors that are
beyond its control or influence. Additional risks and uncertainties
that management may be unaware of, or that they determine to be
immaterial may also become important factors which affect the
Corporation. Prior to making any investment decision regarding IROC,
investors should carefully consider, among other things, the risk
factors set forth in the Corporation's December 31, 2012 management
discussion and analysis as well as the Corporation's most recent Annual
Information Form both of which are available under the Corporation's
profile at www.sedar.com or by contacting the Corporation.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION AND
STATEMENTS
Certain information contained in this news release contains forward
looking information that is based upon IROC's current internal
expectations, estimates, projections, assumptions and beliefs. In some
cases, words such as "plan", "expect", "project", "intend", "believe",
"anticipate", "estimate", "may", "will", "potential", "proposed" and
other similar words, or statements that certain events or conditions
"may" or "will" occur, are intended to identify forward looking
information. These statements are not guarantees of future performance
and involve known and unknown risks and uncertainties and other factors
that may cause actual results or events to differ materially from those
anticipated in the forward looking information. In addition, this news
release may contain forward looking information attributed to third
party industry sources. By its nature, forward looking information
involves numerous assumptions, known and unknown risks and
uncertainties, both general and specific, that contribute to the
possibility that the predictions, forecasts, projections and other
forward looking information will not occur. Such forward looking
information in this news release speaks only as of the date of December
31, 2012 or as of the date specified herein.
Forward looking information in this news release includes, but is not
limited to, statements with respect to:
-
adequacy of capital resources required to finance IROC's operations and
the capital budget;
-
the business objectives of IROC;
-
the intended expansion of rental inventory and other capital
expenditures;
-
results of operations and the performance of IROC;
-
the completion and timing of the construction of IROC's new service
rigs; and
-
benefits and opportunities related to the proposed business combination
with Western.
With respect to the forward looking information contained in this news
release, IROC has made assumptions regarding, among other things:
-
IROC's relationships with its key customers;
-
economic conditions that influence the demand of IROC's customers for
equipment and services;
-
receipt of necessary regulatory approvals;
-
IROC's cash flow from sales; and
-
the availability of debt financing through the corporation's credit
facilities.
Although IROC believes that the expectations reflected in the forward
looking information are reasonable, there can be no assurance that such
expectations will prove to be correct. IROC cannot guarantee future
results, levels of activity, performance or achievements.
Consequently, there is no representation by IROC that actual results
achieved will be the same, in whole or in part, as those set out in the
forward looking information. Some of the risks and other factors, some
of which are beyond IROC's control, which could cause results to differ
materially from those expressed in the forward looking information
contained in this news release include, but are not limited to:
-
supply and demand for oilfield services;
-
competition for, and access to, among other things, capital and skilled
personnel;
-
incorrect assessments of the value of future acquisitions;
-
fluctuations in the market for oil and natural gas and related products
and services;
-
liabilities and risks, including environmental liabilities and risk,
inherent in oil and natural gas operations;
-
fluctuations in foreign exchange or interest rates;
-
political and economic conditions;
-
failure of counterparties to perform on contracts;
-
regional competition;
-
IROC's ability to attract and retain customers;
-
IROC's ability to attract and retain qualified employees;
-
amounts retained by IROC for capital expenditures;
-
volatility in market prices for oil and natural gas and the effect of
this volatility on the demand for oil and natural gas services
generally;
-
stock market volatility and market valuations;
-
uncertainties in weather and temperature affecting the duration of the
service periods and the activities that can be completed;
-
fixed costs in relation to variable revenue streams;
-
the presence of heavy competition in the industries in which IROC
currently operates;
-
general economic conditions in Canada and globally;
-
failure to realize anticipated benefits of future acquisitions;
-
The ability of IROC to be successful in building and growing its new
coil tubing business, Helix Coil Services
-
the availability of capital on acceptable terms; and
-
the other factors disclosed under "Risks" in IROC's management
discussion and analysis and "Risk Factors" in IROC's Annual
Information Form ("AIF").
Readers are cautioned that the foregoing list of factors is not
exhaustive. All forward looking information contained in this news
release is expressly qualified by this cautionary statement. IROC
disclaims any intent or obligation to update publicly any forward
looking information, whether as a result of new information, future
events or results or otherwise, other than as required by applicable
securities laws.
NON-IFRS MEASURES
The financial statements have been prepared in accordance with IFRS.
Certain supplementary information and measures not recognized under
IFRS are provided where management believes they assist the reader in
understanding IROC's results. The following is a reconciliation to the
Corporation's non-IFRS measures:
|
|
|
|
Three months ended
December 31
|
Year ended
December 31
|
|
($ Thousands)
|
2012
|
2011
|
2012
|
2011
|
|
(1) EBITDAS:
|
|
|
|
|
|
Net Income from continuing operations
|
$ 3,590
|
$ 4,778
|
$ 13,501
|
$ 13,379
|
|
Add:
|
|
|
|
|
|
|
Depreciation
|
$ 2,983
|
$ 2,112
|
$ 10,603
|
$ 7,397
|
|
|
Gain on sale of equipment
|
$ (150)
|
$ (8)
|
$ (224)
|
$ (19)
|
|
|
Stock based compensation
|
$ 200
|
$ 167
|
$ 724
|
$ 604
|
|
|
Interest and financing costs
|
$ 242
|
$ 163
|
$ 785
|
$ 803
|
|
|
Income tax expense
|
$ 1,435
|
$ 1,432
|
$ 4,917
|
$ 4,720
|
|
|
Loss (gain) on foreign exchange
|
$ (2)
|
$ (1)
|
$ 6
|
$ 30
|
|
EBITDAS
|
$ 8,298
|
$ 8,643
|
$ 30,312
|
$ 26,914
|
|
(2) Gross Margin:
|
|
|
|
|
|
Revenue
|
$ 27,117
|
$ 26,724
|
$ 101,154
|
$ 85,740
|
|
Operating expenses
|
$ 16,840
|
$ 15,887
|
$ 62,026
|
$ 50,456
|
|
Gross margin
|
$ 10,277
|
$ 10,837
|
$ 39, 128
|
$ 35,284
|
|
(1)
|
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 is not
recognized measures under IFRS. 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 IFRS 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. EBITDAS % is calculated
as EBITDAS divided by revenue.
|
|
(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 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 IFRS and do not have any standardized meaning prescribed by
IFRS. 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.
|
I
| |
IROC ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
|
|
Stated in thousands of Canadian dollars
|
|
|
|
|
December 31,
2012
|
December 31,
2011
|
|
Assets
|
|
|
|
Current
|
|
|
|
|
Cash
|
$ 29
|
$ 229
|
|
|
Accounts receivable
|
17,523
|
18,746
|
|
|
Inventory
|
668
|
493
|
|
|
Prepaid expenses and deposits
|
775
|
390
|
|
|
Note receivable
|
-
|
719
|
|
|
18,995
|
20,577
|
|
|
|
|
|
Intangible assets
|
288
|
390
|
|
Property and equipment
|
117,620
|
91,641
|
|
|
$ 136,903
|
$ 112,608
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
|
Accounts payable and accrued liabilities
|
$ 9,311
|
$ 14,742
|
|
|
Dividend payable
|
1,518
|
1,254
|
|
|
Income taxes payable
|
69
|
-
|
|
|
Loans and borrowings
|
645
|
2,262
|
|
|
11,543
|
18,258
|
|
|
|
|
|
Loans and borrowings
|
25,782
|
8,471
|
|
Deferred tax liabilities
|
13,900
|
9,076
|
|
|
51,225
|
35,805
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
Common share capital
|
59,826
|
59,530
|
|
|
Contributed surplus
|
5,587
|
5,146
|
|
|
Retained earnings
|
20,265
|
12,127
|
|
|
85,678
|
76,803
|
|
|
$ 136,903
|
$ 112,608
|
IROC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME
|
|
Stated in thousands of Canadian dollars
|
|
Years ended December 31, 2012 and 2011
|
|
|
|
|
|
|
2012
|
2011
|
|
|
|
|
|
|
|
Revenue
|
|
|
$ 101,154
|
$ 85,740
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Cost of services
|
|
|
72,310
|
57,636
|
|
Cost of administration
|
|
|
9,859
|
9,191
|
|
Interest and financing costs
|
|
|
785
|
803
|
|
Other
|
|
|
(218)
|
11
|
|
|
|
|
82,736
|
67,641
|
Net income from continuing operations before income
taxes
|
|
|
18,418
|
18,099
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
Current
|
|
|
69
|
-
|
|
Deferred
|
|
|
4,848
|
4,720
|
|
|
|
|
4,917
|
4,720
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
13,501
|
13,379
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(70)
|
(1,192)
|
|
|
|
|
|
|
|
Net income and comprehensive income
|
|
|
$ 13,431
|
$ 12,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations
|
|
|
|
|
|
Basic
|
|
|
$ 0.27
|
$ 0.28
|
|
Diluted
|
|
|
$ 0.26
|
$ 0.27
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
Basic
|
|
|
$ 0.27
|
$ 0.25
|
|
Diluted
|
|
|
$ 0.26
|
$ 0.25
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
Basic
|
|
|
50,310,985
|
48,034,018
|
|
Diluted
|
|
|
51,534,810
|
49,136,072
|
I
ROC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
Stated in thousands of Canadian dollars
|
|
Years ended December 31, 2012 and 2011
|
|
|
|
|
|
|
2012
|
2011
|
|
Operating activities:
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
$ 13,501
|
$ 13,379
|
|
|
Adjustments for:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,603
|
7,397
|
|
|
|
Deferred income taxes
|
|
|
4,848
|
4,720
|
|
|
|
Interest and financing costs expense
|
|
|
785
|
803
|
|
|
|
Stock-based compensation expense
|
|
|
724
|
604
|
|
|
|
Gain on disposal of property and equipment
|
|
|
(224)
|
(19)
|
|
|
|
|
30,237
|
26,884
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital balances
|
|
|
(2,466)
|
(3,635)
|
|
|
|
|
|
|
|
Operating cash flow from continuing operations
|
|
|
27,771
|
23,249
|
|
|
|
|
|
|
|
Operating cash flow from discontinued operations
|
|
|
393
|
1,738
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(37,019)
|
(32,861)
|
|
|
|
Proceeds on disposal of property and equipment
|
|
|
764
|
328
|
|
|
Change in non-cash working capital balances
|
|
|
(2,086)
|
3,797
|
|
|
|
|
|
|
|
Investing cash flow used in continuing operations
|
|
|
(38,341)
|
(28,736)
|
|
|
|
|
|
|
|
Investing cash flow from discontinued operations
|
|
|
-
|
4,400
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
Bank loan advances (repayments)
|
|
|
15,667
|
(9,082)
|
|
|
|
Interest and financing costs amounts paid
|
|
|
(758)
|
(769)
|
|
|
|
Payment of dividends
|
|
|
(5,029)
|
-
|
|
|
|
Shares repurchased for cancellation
|
|
|
-
|
(320)
|
|
|
|
Public offering of common shares
|
|
|
-
|
9,198
|
|
|
|
Exercise of stock options
|
|
|
73
|
425
|
|
|
|
Cash paid on settlement of stock options
|
|
|
(61)
|
(159)
|
|
|
Change in non-cash working capital balances
|
|
|
85
|
(16)
|
|
|
|
|
|
|
|
Financing cash flow from (used in) continuing operations
|
|
|
9,977
|
(723)
|
|
|
|
|
|
|
|
Increase (decrease) in cash during the year:
|
|
|
|
|
|
|
Continuing operations
|
|
|
(593)
|
(6,210)
|
|
|
Discontinued operations
|
|
|
393
|
6,138
|
|
|
|
|
(200)
|
(72)
|
|
Cash, beginning of year
|
|
|
229
|
301
|
|
|
|
|
|
|
|
Cash, end of year
|
|
|
$ 29
|
$ 229
|
CONFERENCE CALL AND WEBCAST
IROC will conduct a conference call on Thursday March 21, 2013 at 9:00
a.m. MST (11:00 a.m. EST). Thomas Alford, President and CEO, and Brian
Peters, CFO, will both be presenting during the call.
To access the conference call, contact the conference call operator at
(888) 231-8191 (North America) or (647) 427-7450 (Toronto and outside
North America) approximately 10 minutes prior to the call and request
the "IROC Energy Services Corp. 2012 Annual Results Conference Call".
The call will be open to all analysts, investors and other interested
parties.
The conference call will also be available via webcast by visiting http://www.newswire.ca/en/webcast/detail/1122949/1224637 from a web browser.
ABOUT IROC ENERGY SERVICES CORPORATION
IROC Energy Services Corp. is an Alberta oilfield services company that,
through the IROC Energy Services Partnership, provides services and
equipment to the oil and gas industry that is among the newest and most
innovative in the WCSB. IROC Energy Services Partnership operates
under the business names of Eagle Well Servicing, Aero Rental Services
and Helix Coil Services. IROC combines cutting-edge technology with
depth of experience to deliver equipment and services offerings in the
following core areas: well servicing & equipment, rental services and
coiled tubing services. For more information on IROC Energy Services
Corp., visit IROC's website at www.iroccorp.com.
This news 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.
SOURCE: IROC Energy Services Corp.
