/THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN UNITED STATES OR TO ANY UNITED STATES NEWS SERVICES/
CALGARY, Nov. 30 /CNW/ - IROC Energy Services Corp. (TSX Venture Exchange: "ISC") announces the Company's financial results for the three and nine months ended September 30, 2009 and updates its semi-annual dividend process.
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FINANCIAL HIGHLIGHTS
(Expressed in thousands of dollars, except share and per share amounts)
For the 3 months For the nine months
ended Sept 30, ended Sept 30,
-------------- --------------
(Unaudited) (Unaudited)
% %
2009 2008 Change 2009 2008 Change
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Revenue -
continuing
operations $10,231 $18,647 -45% $33,540 $48,321 -31%
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Operating
costs 6,908 10,909 -37% 22,701 30,148 -25%
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Gross margin 3,323 7,738 -57% 10,839 18,173 -40%
Gross margin % 32% 41% -22% 32% 38% -16%
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General and
administrative
expenses 1,951 2,220 -12% 6,311 6,256 1%
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EBITDAS -
continuing
operations(1) 1,372 5,518 -75% 4,528 11,917 -62%
Per share
diluted(1) 0.03 0.12 -75% 0.10 0.27 -63%
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Net earnings
(loss) -
continuing
operations (9,314) 2,024 -560% (10,490) 2,280 -560%
Per share
diluted (0.21) 0.05 -520% (0.24) 0.05 -575%
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Net earnings
(loss) (9,324) 315 -3060% (10,096) 910 -1209%
Per share
diluted (0.21) 0.01 -2200% (0.23) 0.02 -1243%
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Weighted
Average
Number of
shares
outstanding
Basic 43,947,852 44,304,504 -1% 44,147,039 44,285,624 0%
Diluted 43,947,852 44,324,122 -1% 44,147,039 44,446,091 -1%
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(1) Refer to the "NON-GAAP MEASURES" section for further details.
Overall Performance
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While the Corporation posted EBITDAS of $1.4 million, one-time, non-cash charges led to a net loss from continuing operations of $9.3 million, $0.21 per share, for the three months ended September 30, 2009 compared to a net profit of $2.0 million, $0.05 per share, for the comparable period for 2008. For the nine months ended September 30, 2009, the Corporation had a net loss from continuing operations of $10.5 million, $0.24 per share, compared to net earnings of $2.3 million, $0.05 per share, for the same period of 2008. The main reason for the significant loss in the most recent quarter was the recognition of impairment in goodwill of $6.8 million, or $0.16 per share, and the recognition of impairment in notes receivable of $1.5 million, or $0.03 per share. The recognition of the impairment in goodwill is a one-time, non-cash item resulting from management's assessment that the carrying value of goodwill related to the Technology Services segment exceeds its fair value. The recognition of the impairment of goodwill resulted in no remaining carrying value of goodwill as at September 30, 2009. The recognition of the impairment in notes receivable is also a one-time, non-cash item resulting from management's assessment that given the current economic environment, the valuation of the notes receivable is impaired.
The low activity levels the oil and gas industry experienced during the first half of 2009 continued through the third quarter. The global economic conditions and the uncertainty of commodity prices for oil and gas lead to some of the lowest historical activity levels in the oilfield in Canada thus far in 2009. The result of these factors has had a dramatic effect on oil and gas producers leading to many of our customers reducing their planned activity levels in exploration and development for fiscal 2009 with a focus on balance sheet preservation and matching spending with realistic cash flows. The downturn in activity brought about by these conditions, has lead to substantial pricing pressure and lower utilization in all oilfield related services.
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Other Results from the Period
-----------------------------
- IROC's revenue from continuing operations for the third quarter ended
September 30, 2009 decreased 45.1%, to $10.2 million from
$18.6 million compared to the same period in 2008. Revenue for the
nine months ended September 30, 2009 was $33.5 million compared to
$48.3 million, representing a decrease of 30.6%. 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 down in all
three operating divisions year over year for the third quarter.
Results in all our divisions are lower on a year to date basis to the
end of September 30, 2009 compared to the previous year as a result
of the significant reduction in demand for services brought about by
the low commodity price environment, the rising Canadian dollar, and
the ongoing royalty structure issues in Alberta.
- EBITDAS from continuing operations for the third quarter ended
September 30, 2009 was $1.4 million or $0.03 per share, compared to
$5.5 million, or $0.12 per share, in the same period of 2008. For the
nine months ended September 30, 2009 EBITDAS was $4.5 million or
$0.10 per share compared to $11.9 million or $0.27 per share in the
same period of 2008, a decrease of 62%. EBITDAS for the third quarter
and for the nine months decreased year over year mainly as a result
of lower activity levels across the industry and reduced demand for
the Corporation's goods and services. 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 but 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 24.7% for the nine
months ended September 30, 2009 and 2008, respectively.
- G and A costs for the three months ended September 30, 2009 fell
12.1% as compared to the previous year, with G and A costs of
$1.95 million as compared to $2.22 million the previous year. This
reflects management's ongoing efforts to align overhead costs with
reduced revenues.
- On May 28, 2009 the Corporation 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 Corporation 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. IROC exited the third quarter of 2009 with net debt of
approximately $11 million. During the three months ended September 30,
2009, the Corporation reduced its long debt by $0.4 million.
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Eagle Well Servicing
Eagle Well Servicing ("Eagle"), which comprises a significant portion of the Drilling and Production Services segment, finished the quarter 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 third quarter of 2009 was approximately 34% compared to 61% utilization in the comparable period of 2008. Revenue per hour also decreased in the third quarter by $50 per hour or 6.9%. Revenue generated from Eagle during the third quarter of 2009 was $7.2 million compared to $12.3 million in the same period of 2008, a decrease of 41.5%. For the nine months ended September 30, 2009 revenue was $23.0 million compared to $32.6 million in the same period of 2008, a decrease of 29.4%. EBITDAS for the third quarter of 2009 from Eagle was $2.1 million compared to $4.8 million in the same period of 2008, a decrease of 56.2%. For the nine months ended September 30, 2009 EBITDAS was $6.6 million, down from $12.1 million in the same period of 2008, a decrease of 45.5%. 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. Field wages in Eagle have recently been reduced based on recommended wage decreases by the CAODC but the reductions will only nominally mitigate increased pricing pressures and reduced activity levels.
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 directly affected by the level of drilling activity in the industry. During the third quarter of 2009, Aero contributed revenue of $1.0 million compared to $1.3 million in the prior year period, a decrease of 23.1%. Revenue for the nine months ended September 30, 2009 was $3.3 million, down slightly from $3.6 million in the same period of 2008. Aero generated EBITDAS of $0.2 million for the third quarter of 2009 compared to EBITDAS of $0.3 million in the same period of 2008. EBITDAS for the nine months ended September 30, 2009 was $0.4 million, down slightly from EBITDAS of $0.5 million in the nine months ended September 30, 2008. Thus far this year, Aero has been more resilient to the downturn in the economy than the other two divisions. This indicates a growing acceptance of our equipment and personnel as we gain market share in a tough environment. Also, as with all our divisions, Aero continues to focus on cost reductions.
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 $2.0 million, or 20.0% of the Corporation's total consolidated revenue for the three months ended September 30, 2009, compared to $5.0 million or 27% of total consolidated revenue for the comparable period of fiscal 2008. For the nine months ended September 30, 2009 revenue was $7.3 million, down from $12.0 million in 2008, a decrease of 39.1%. 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 September 30, 2009, Canada Tech had positive EBITDAS of $0.1 million compared to positive EBITDAS of $1.4 million in the same period of 2008. EBITDAS for the nine months ended September 30, 2009 was $0.5 million compared to $2.4 million in the same period of 2008.
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Dividend
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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. As previously disclosed, over the past few 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. Since the payment of the first dividend in May, 2009 management determined there should be a refinement of the timing for the dividend process to better align it with the Corporation's cash flow cycles. Based on the seasonal nature of our current business mix, consideration will be given to dividend payments in January and July going forward and the amount paid to shareholders, if any, will be declared after full consideration is given to a number of factors. Accordingly, the Board has resolved to move the consideration of the next dividend payment until January 2010.
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Outlook
-------
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While the outlook for the remainder 2009 remains uncertain, IROC's management is of the view the affect of the global economic crisis on the oil and gas industry, and specifically the oilfield service business, has reached the bottom of the trough. There has been stabilization in commodity pricing and some producers are now beginning to shift their focus from strict balance sheet preservation to a more opportunistic approach of trying to accumulate assets at a low cost. Accordingly we expect to see more activity in the industry during the fourth quarter 2009 and into the first quarter of 2010 which should translate into high utilization rates. Pricing pressure that has been evident throughout the past year should ease somewhat with expected utilization increases and a very tight labour supply. IROC's management is acutely aware that we are in a cyclical business and we will continue to closely monitor industry activity levels and commodity pricing to insure we are well positioned at each stage of the cycle.
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.
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IROC ENERGY SERVICES CORP.
Consolidated Balance Sheets
Expressed in thousands of dollars
(Unaudited)
-------------------------------------------------------------------------
September 30, December 31,
2009 2008
(As restated -
note 1)
-------------------------------------------------------------------------
Assets
Current assets:
Cash $ 1 $ 1
Accounts receivable 8,373 13,128
Inventory 4,169 3,730
Prepaid expenses and deposits 490 452
Income taxes receivable 72 72
Assets of discontinued operations (note 10) 778 3,615
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13,883 20,998
Notes receivable (note 3) 640 -
Intangible assets 3,448 4,076
Property and equipment 62,779 64,759
Goodwill (note 4) - 6,850
Assets of discontinued operations (note 10) - 7,170
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$ 80,750 $ 103,853
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Liabilities and Shareholders' Equity
Current liabilities:
Operating loan (note 5) $ 1,027 $ 4,716
Accounts payable and accrued liabilities 2,920 6,393
Current portion of long-term debt (note 6) 3,650 4,891
Liabilities of discontinued
operations (note 10) - 472
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7,597 16,472
Long-term debt (note 6) 18,125 20,116
Future income taxes 3,374 3,897
Shareholders' equity:
Share capital (note 7) 50,830 51,591
Contributed surplus (note 7(c)) 3,997 3,526
Retained earnings (deficit),
as restated (note 1) (3,173) 8,251
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51,654 63,368
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$ 80,750 $ 103,853
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IROC ENERGY SERVICES CORP.
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
Expressed in thousands of dollars except share and per share amounts
(Unaudited)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
(As restated - (As restated -
note 1) note 1)
-------------------------------------------------------------------------
Revenue $ 10,231 $ 18,647 $ 33,540 $ 48,321
Expenses:
Operating 6,908 10,909 22,701 30,148
General and
administrative 1,951 2,220 6,311 6,256
Stock-based
compensation 57 59 252 198
Note receivable
impairment (note 3) 1,500 - 1,500 -
Goodwill
impairment (note 4) 6,850 - 6,850 -
Depreciation and
amortization 2,073 1,959 6,062 5,749
Interest and
accretion on
debentures - 152 - 624
Interest on
long-term debt 276 756 675 2,558
Other interest 50 68 177 227
Interest income (18) - (66) -
Gain on disposal
of property and
equipment (2) (14) (7) (75)
Foreign exchange
(gain) loss 168 (24) 575 (81)
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19,813 16,085 45,030 45,604
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Earnings (loss)
before income taxes
from continuing
operations (9,582) 2,562 (11,490) 2,717
Future income
taxes (reduction) (268) 538 (1,000) 437
-------------------------------------------------------------------------
Net income (loss)
from continuing
operations (9,314) 2,024 (10,490) 2,280
Net income (loss)
from discontinued
operations (note 10) (10) (1,709) 394 (1,370)
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Net income (loss)
and comprehensive
income (loss) $ (9,324) $ 315 $ (10,096) $ 910
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss)
per share from
continuing
operations:
Basic $ (0.21) $ 0.05 $ (0.24) $ 0.05
Diluted $ (0.21) $ 0.05 $ (0.24) $ 0.05
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Earnings (loss)
per share from
discontinued
operations:
Basic $ - $ (0.04) $ 0.01 $ (0.03)
Diluted $ - $ (0.04) $ 0.01 $ (0.03)
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Earnings (loss)
per share:
Basic $ (0.21) $ 0.01 $ (0.23) $ 0.02
Diluted $ (0.21) $ 0.01 $ (0.23) $ 0.02
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Weighted average
number of shares
outstanding:
Basic 43,947,852 44,304,504 44,147,039 44,285,624
Diluted 43,947,852 44,324,122 44,147,039 44,446,091
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IROC ENERGY SERVICES CORP.
Consolidated Statements of Cash Flows
Expressed in thousands of dollars
(Unaudited)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
(As restated - (As restated -
note 1) note 1)
-------------------------------------------------------------------------
Cash provided
by (used in):
Operations:
Net income (loss)
from continuing
operations $ (9,314) $ 2,024 $ (10,490) $ 2,280
Items not
affecting cash:
Note receivable
impairment
(note 3) 1,500 - 1,500 -
Goodwill
impairment
(note 4) 6,850 - 6,850 -
Depreciation and
amortization 2,073 1,959 6,062 5,749
Future income
taxes (reduction) (268) 538 (1,000) 437
Stock-based
compensation 57 59 252 198
Non-cash accretion
on debentures - 64 - 256
Gain on disposal
of equipment (2) (14) (7) (75)
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896 4,630 3,167 8,845
Changes in non-cash
working capital
balances (note 8) (102) (3,362) 1,686 (52)
-----------------------------------------------------------------------
794 1,268 4,853 8,793
Discontinued operations
(note 10):
Funds provided by
(used in)
discontinued
operations (15) 760 (166) 2,585
Changes in non-cash
working capital
balances of
discontinued
operations 114 (1,108) 2,365 584
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893 920 7,052 11,962
Investing:
Purchase of property
and equipment of
continuing
operations (284) (2,773) (3,296) (5,474)
Purchase of property
and equipment of
discontinued
operations - (854) (4) (1,238)
Proceeds on disposal
of property and
equipment from
continuing operations 8 26 102 529
Proceeds on disposal
of property and
equipment from
discontinued
operations - 23,995 6,042 24,056
Change in non-cash
working capital
balances (note 8) - - (906) -
-----------------------------------------------------------------------
(276) 20,394 1,938 17,873
Financing:
Repayment of
long-term debt (408) (21,619) (3,232) (26,421)
Operating loan
advances
(repayments) 102 7,290 (3,689) 3,893
Issue of common
shares 7 15 15 33
Loan commitment fees - - (200) (340)
Repayment of
debentures - (7,000) - (7,000)
Payment of dividend - - (1,328) -
Shares repurchased
for cancellation (318) - (556) -
-----------------------------------------------------------------------
(617) (21,314) (8,990) (29,835)
-------------------------------------------------------------------------
Increase in cash - - - -
Cash at beginning
of period 1 1 1 1
-------------------------------------------------------------------------
Cash at end of
period $ 1 $ 1 $ 1 $ 1
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For further information: IROC Energy Services Corp., Mr. Thomas M. Alford, President and CEO, Telephone: (403) 263-1110, email: investorrelations@iroccorp.com
