THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN UNITED STATES OR TO ANY UNITED
STATES NEWS SERVICES.
IROC Energy Services Corp. ("IROC" or the "Corporation") (TSX: "ISC") announces
the Corporation's financial results for the three and twelve months ended
December 31, 2007.
FINANCIAL HIGHLIGHTS
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For the 3 months ended December 31,
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(Unaudited)
2007 2006 % Change
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Revenue - continuing operations $20,641 $17,173 20%
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Operating costs 13,264 10,776 23%
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Gross margin 7,377 6,397 15%
Gross margin % 36% 37% -3%
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General and administrative expenses 3,193 2,230 43%
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EBITDAS - continuing operations (1) 4,184 4,167 0%
Per share diluted 0.09 0.11 -18%
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Net earnings - continuing operations 194 672 -71%
Per share diluted 0.00 0.02 -100%
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Net earnings 194 (111) 275%
Per share diluted 0.00 (0.01) -100%
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Number of shares outstanding
Basic 44,251,080 38,017,080 16%
Diluted 44,285,981 38,152,032 16%
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For the year ended December 31,
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(Unaudited)
2007 2006 % Change
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Revenue - continuing operations $77,316 $62,312 24%
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Operating costs 48,080 39,445 22%
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Gross margin 29,236 22,867 28%
Gross margin % 38% 37% 3%
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General and administrative expenses 11,023 8,347 32%
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EBITDAS - continuing operations (1) 18,213 14,520 25%
Per share diluted 0.42 0.38 11%
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Net earnings - continuing operations 2,059 3,107 -34%
Per share diluted 0.05 0.08 -38%
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Net earnings 2,139 2,090 2%
Per share diluted 0.05 0.05 0%
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Number of shares outstanding
Basic 43,438,286 37,731,038 15%
Diluted 43,533,725 38,273,784 14%
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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
The fourth quarter of fiscal 2007 essentially unfolded as expected. Results
improved over the third quarter as we entered the normally busier winter months;
however, we continue to be hampered by lower industry activity in the form of
lower equipment utilization year over year and in some cases pressure on
pricing, particularly in contract drilling services. As noted in our previous
communications with shareholders, our expectations for the fourth quarter and
into fiscal 2008 were guarded as a result of uncertainty hanging over our
industry. The continuing uncertainty of natural gas pricing has led many
Canadian oil and gas producers to limit spending and curtail drilling and
completion programs throughout 2007 and industry forecasters believe this will
continue through fiscal 2008. The reductions in forecasted wells comes at a time
when equipment capacity of oilfield service companies is at an all time high
creating significant competition in terms of pricing and ultimately
profitability. There has been a noticeable shift toward oil related activities
as the fundamentals for this commodity have moved substantially higher
(exceeding $100 per barrel recently), but not enough to offset the reduction in
natural gas exploration and production. Natural gas fundamentals have driven
service activity in Western Canada in recent years and as such the expectations
are for lower year over year operating results from oil and gas service
companies as a result of fewer wells being drilled and completed. Further adding
to the current uncertainty in the industry, the Alberta government contributed
to the downturn, initially with the release of its Alberta Royalty Review Panel
report in September of 2007 and then by providing a framework for the proposed
new royalty scheme on October 25, 2007. It is widely thought that there will be
some modifications to the initially proposed royalty framework, but if they do
not materialize we believe the new royalty scheme will further dampen the near
term prospects for activity. There was a marked and immediate reaction to the
royalty review by the oil and gas producers in terms of their capital spending
plans for 2008 and beyond, which will negatively affect all participants in
every segment of the oil and gas services industry. Government intervention at
the federal and provincial levels has reduced natural gas economics, plus the
soaring Canadian dollar and increased merger activity between our customers all
contribute to reduced projections for drilling activity for 2008. Despite the
less than desirable industry conditions IROC was able to post increases in both
revenues and EBITDAS for the three months ended December 31, 2007 as compared to
the prior year period.
Fourth Quarter Results
IROC's revenue from continuing operations for the fourth quarter ended December
31, 2007 increased 20%, from $17.2 million to $20.6 million compared to the same
period in 2006. Revenue increased year over year for the three month period
primarily as a result of additional equipment capacity from internal growth
initiatives in service rigs and rental assets, increased manufacturing capacity
in down hole tools, and the purchase and deployment of drilling rig assets
during the first quarter of 2007, all of which contributed positively to the
year over year results. Another significant factor which contributed to the
positive results was that IROC had higher than industry average utilization of
service rig equipment during the quarter, although lower in comparison to the
prior year period. EBITDAS from continuing operations for the three months ended
December 31, 2007 was $4.2 million or $0.09 per share, compared to $4.2 million,
or $0.11 per share, in the same period of 2006. EBITDAS for the quarter only
modestly increased year over year as a result higher variable operating costs
predominantly relating to fuel costs, repairs and maintenance expenditures, as
well as increased allowances for doubtful accounts. EBITDAS as a percentage of
revenue was 20.3% and 24.3% for the three months ended December 31, 2007 and
2006, respectively.
The Corporation's fourth quarter financial results reflect the growth
initiatives that IROC implemented during the past few quarters. Our capital
expenditure program for 2007 continued through the quarter and was substantially
completed, which focused primarily on the expansion of Eagle Well Servicing and
Aero Rentals based upon continued demand for the products and services offered
by these divisions, the benefits of which will continue to be seen in the coming
months. IROC continues to perform well financially and management is keenly
aware of the environment that we are currently operating in and we continue to
monitor the market as it affects IROC, its competitors and its customers.
Year End Results
Revenue from continuing operations was $77.3 million, an increase of 24%
compared to the $62.3 million generated in fiscal 2006. Revenue increased year
over year primarily as a result of additional equipment capacity from internal
growth initiatives in service rigs (added 7 new service rigs) and rental assets
(added new equipment totaling approximately $4.4 million), and the purchase of
drilling rig assets (4 new drilling rigs added) during the first quarter of 2007
which contributed positively to the year over year results. Also, IROC
experienced higher than industry average utilization of its service rig
equipment during the year, although lower in comparison to the prior year
period. EBITDAS from continuing operations for the year ended December 31, 2007
was $18.2 million or $0.42 per share, a 25% increase as compared to $14.5
million, or $0.38 per share, in the same period of 2006. The increase in EBITDAS
is a result of the growth in revenue as noted above. EBITDAS as a percentage of
revenue was 23.6% and 23.3% for the years ended December 31, 2007 and 2006,
respectively.
The Corporation recorded net earnings from continuing operations of $2.1
million, or $0.05 per share, for the year ended December 31, 2007 compared to
net earnings of $3.1 million, or $0.08 per share, for the comparable period of
2006. The decrease in the net earnings for the year ended December 31, 2007
compared to 2006 is due to higher depreciation and amortization expense in the
current year as a result of significant additions to equipment in the past year,
as well as higher interest costs for debt servicing due to higher debt incurred
to support the growth over the past two years. Net earnings after the effect of
discontinued operations for the year ended December 31, 2007 was $2.1 million or
$0.05 per share compared to $2.1 million or $0.05 per share for comparable
period of the prior fiscal year.
Tom Alford, President and CEO of IROC commented that "IROC continues to perform
well in difficult conditions. The benefits of our new equipment and proprietary
technology are being embraced by oil and gas companies in Western Canada and
around the world as they seek greater efficiency in their field operations."
Additionally Mr. Alford indicated that "we are beginning to see positive signs
emerge in the area of natural gas pricing which should bode well for our company
as we continue to grow our business."
Outlook
Demand for oilfield services has fallen significantly from levels seen in recent
years. The increases in the North American natural gas supply has been driven by
strong onshore drilling activity in the United States which will offset the
anticipated production decrease of lower natural gas drilling in the Canadian
market. The weakening of the U.S. dollar relative to the Canadian dollar has
also created an additional level of uncertainty for Canadian producers cash
flows further impacting near term prospects for improving demand for services.
Management expects that continued lower drilling activity in Canada and
increasing demand will eventually stimulate Canadian drilling and well servicing
demand. Some of the factors that will impact this include lower initial well
production, steep first-year production decline rates, lower service company
pricing and rising natural gas consumption from North American economic growth
which should positively affect natural gas pricing leading to potentially higher
activity.
To add to these already significant factors affecting the oil and gas industry
is the announcement on October 25, 2007 by the Alberta government for a new
royalty tax framework for oil and gas producers. Unless there are modifications
to the proposed changes relating to conventional oil and gas operations, we
anticipate that there will be a further reduction in industry activity levels.
Industry forecasters, such as PSAC and CAODC, have reflected this in their 2008
forecast for wells to be drilled both of which are calling for substantial
decreases from 2007 levels which were already seen as low. While the magnitude
of the actual impact of the new royalty regime will depend on the results of oil
and gas companies analysis of the impact and the final form of the royalty
framework it will very likely affect many oilfield service providers. While
management at IROC is prepared to respond quickly to any prolonged or broader
based slowdown in the industry, we do believe that we have seen the worst and
that the longer term fundamentals for the industry in Canada remain strong.
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 comprehensive and diverse range
of products, services and equipment to the oil and gas industry. IROC combines
cutting-edge technology with depth of experience to deliver a product and
services offering in six core areas: Well Servicing & Equipment, Drilling Rig
Equipment & Services, Down hole Temperature & Pressure Monitoring Tools, Rental
Services, Lease Building, and Safety, Monitoring & Communications 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.
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 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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