Hyduke Energy Services Inc. Announces Second Quarter 2009 Financial Results



    EDMONTON, Aug. 14 /CNW/ - Hyduke Energy Services Inc. (HYD - TSX),
announced operating results for the three and six months ended June 30, 2009.
A summary of those results is as follows:

    
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    Selected Income
     Statement
     Information           Three Months Ended           Six Months Ended
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    ($000's, except
     per share data)     June 30       June 30       June 30       June 30
                           2009          2008          2009          2008
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Revenue                  6,892        15,947        16,541        27,761
    -------------------------------------------------------------------------
    Gross margin              (299)        2,157           217         3,432
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    Gross margin (%)         (4.3%)        13.5%         0.01%         12.4%
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    Adjusted gross
     margin(1)                 (88)        2,385           647         3,900
    -------------------------------------------------------------------------
    Adjusted gross
     margin (%)              (1.3%)        15.0%         0.04%         14.0%
    -------------------------------------------------------------------------
    EBITDAS(1)              (1,728)          900        (2,656)          919
    -------------------------------------------------------------------------
    Adjusted EBITDAS(1)     (1,728)          900        (2,656)          919
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    Net income (loss)       (1,452)          287        (2,333)          (49)
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    Net income (loss)
     per share - basic ($)  (0.066)        0.013        (0.106)       (0.002)
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    Net income (loss)
     per share -
     diluted ($)            (0.066)        0.013        (0.106)       (0.002)
    -------------------------------------------------------------------------

    (1) The Company uses certain non-GAAP measures as indicators of financial
        performance and believes that these non-GAAP measures provide useful
        supplemental information to investors. Gross margin, adjusted gross
        margin, EBITDAS and adjusted EBITDAS are measures used by the Company
        that do not have a standardized meaning prescribed by GAAP. The
        Company's method of calculating these non-GAAP measures may differ
        from other companies and may not be comparable to similar measures
        presented by other companies.

        Gross margin is defined as revenue less cost of sales. Cost of sales
        includes direct materials, direct labor, variable and fixed
        manufacturing overhead, and other costs closely associated with the
        manufacture of goods; costs of service and supply inventory including
        costs required to locate the inventory in its current location;
        provisions to reduce inventory to estimated net realizable value; and
        contract loss provisions. Adjusted gross margin is defined as gross
        margin before manufacturing related amortization, provisions to
        reduce inventory to estimated net realizable value, and contract loss
        provisions. EBITDAS is defined as earnings before interest, taxes,
        depreciation and amortization, gain or loss on sale of property,
        plant and equipment, gain or loss on foreign exchange, and stock-
        based compensation. Adjusted EBITDAS is defined as EBITDAS before
        goodwill impairment charges, provisions to reduce inventory to
        estimated net realizable value, contract loss provisions and
        allowance for doubtful accounts receivable provisions.
    

    Revenue levels continue to be severely negatively impacted by a
significant reduction in drilling and well service activity levels in Western
Canada. Per the Canadian Association of Oilwell Drilling Contractors (CAODC),
well count during the three months ended June 30, 2009 decreased 52% over the
same period in the prior year. To provide some historical perspective on the
reduced activity, well counts in 2009 have not been this low since 1992. The
weak domestic market resulted in a reduction in revenue for the three months
ended June 30, 2009, compared to the previous quarter and on a year-over-year
basis. Revenue of $6.9 million for the three months ended June 30, 2009,
represents a decrease of 28.5% or $2.5 million over the previous quarter (i.e.
three months ended March 31, 2009). For the three months ended June 30, 2009,
revenue decreased 57% or $9.1 million over the same period in 2008. For the
six months ended June 30, 2009, revenues of $16.5 million represents a
decrease of 41% or $11.3 million over the same period in 2008.
    Gross margin of $(0.3) million for the three months ended June 30, 2009
represents a decrease of 158% or $0.8 million over the previous quarter (i.e.
three months ended March 31, 2009) and a decrease of 114% or $2.4 million on a
year over year basis. Adjusted gross margin of $0.09 million for the three
months ended June 30, 2009 represents a decrease of 112% or $0.8 million over
the previous quarter. Gross margin percentage of (4.3)% for the three months
ended June 30, 2009 represents an decrease of 10% points over the gross margin
percentage of 5.3% in the previous quarter and a decrease of 18% points over
the gross margin percentage of 13.5% on a year over year basis. Adjusted gross
margin percentage of (1.3)% for the three months ended June 30, 2009
represents an decrease of 8.9% points over the adjusted gross margin
percentage of 7.6% in the previous quarter. The significant reduction in
revenue combined with severe pricing pressure as too many competitors bid on a
small amount of work have resulted in reduced gross margins and gross margin
percentages. While margins are sufficient to cover direct variable costs, the
current pricing situation is so depressed that fixed plant costs are just
being covered.
    EBITDAS and adjusted EBITDAS of negative $1.7 million for the three
months ended June 30, 2009 represents a decrease of $0.8 million over the
previous quarter and a decrease of $2.6 million on a year over year basis.
Management continues to take steps to reduce operating costs and
infrastructure while minimizing any potential negative impact on revenue
producing capability. The full effect of these cost reductions will be
reflected over the course of the next six months. Management is actively
monitoring anticipated activity levels to optimize the level of available
human and capital resources and increase labour efficiencies where possible.
    Net loss of $1.5 million or $0.066 per share for the three months ended
June 30, 2009 represents a decrease of $0.6 million over prior quarter and a
decrease of $1.7 million over the same period in 2008. Net loss of $2.3
million or $0.106 per share for the six months ended June 30, 2009 represents
a decrease of $2.3 million over the same period in 2008.

    
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    Selected Balance Sheet Information                 As At
    -------------------------------------------------------------------------
    ($000's, except ratios)            June 30     December 31   December 31
                                         2009          2008          2007
    -------------------------------------------------------------------------
    Total assets                          39,605        48,971        48,552
    -------------------------------------------------------------------------
    Total liabilities                     10,351        17,414        12,286
    -------------------------------------------------------------------------
    Total current assets                  27,661        36,479        33,494
    -------------------------------------------------------------------------
    Total current liabilities              8,448        15,187         9,871
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    Total bank indebtedness                3,048         6,975         2,243
    -------------------------------------------------------------------------
    Total long-term debt                   2,081         2,267         2,359
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    Total shareholders' equity            29,254        31,557        36,266
    -------------------------------------------------------------------------
    Current ratio (current assets
     divided by current
     liabilities)                   3.27 to 1.00  2.40 to 1.00  3.39 to 1.00
    -------------------------------------------------------------------------
    Debt to equity ratio
     (long-term debt divided by
     shareholders' equity)          0.07 to 1.00  0.07 to 1.00  0.07 to 1.00
    -------------------------------------------------------------------------
    

    Total assets of $39.6 million as at June 30, 2009 reflects a decrease of
$9.4 million from December 31, 2008. Total current asset decreases of $8.8
million relate to accounts receivable decrease of $6.4 million due to
collections and a decline in activity, a net inventory and unbilled revenue
decrease of $0.9 million due to a decline in activity and a decrease in income
taxes recoverable of $1.3 million. Total current liabilities decrease of $6.7
million relate to a decrease in total bank indebtedness of $3.9 million from
December 31, 2008 and is a result of managing working capital with an
objective of reducing the level of bank indebtedness during this current
economic downturn and a decrease in accounts payable of $3.0 million due to a
decline in overall activity.
    Net working capital (current assets less current liabilities) of $19.2
million reflects a decrease of $2.1 million from December 31, 2008 and
reflects a focus on converting current assets into cash in order to reduce the
level of bank indebtedness during this current economic downturn.
    The Company's current ratio is 3.27 to 1.00 and debt to equity ratio is
negligible at 0.07 to 1.00. The Company is focusing on managing cash flow and
is working to convert current assets into cash and eliminate bank
indebtedness. This balance sheet strength will allow Hyduke to weather the
economic and financing challenges currently facing the Company.

    OUTLOOK

    Western Canadian industry expectations for 2009 continue to decline as
measured by the number of wells drilled. The Canadian Association of Oilwell
Drilling Contractors (CAODC) have updated their forecast of the number of
wells to be drilled (on a completion basis) in 2009 to be 8,787 which
represents a 48% decrease over 2008 activity of 16,844 wells drilled. The
Petroleum Services Association of Canada (PSAC) have forecast the number of
wells to be drilled (on a rig released basis) in 2009 to be 9,500 which
represents a 44% decrease over 2008 activity of 16,940 wells drilled.
    Internationally, the industry has experienced a significant slowdown and
is continuing to be depressed as a result of the worldwide credit crisis.
    While it is expected that new capital equipment projects for the Western
Canadian market will remain flat in 2009, Hyduke continues to actively market
its products and services to international markets. Over the past eighteen
months, our sales and marketing team has conducted marketing trips to Russia,
South America, North Africa, Middle East, Asia-Pacific and Latin America. As a
result of these marketing trips, we are building a very extensive contact
network worldwide that we are aggressively promoting our products and services
to. We continue to actively quote on international proposals and continue to
be encouraged by positive indications for the future. For example, during the
last nine months, we have received confirmation from a number of potential
customers that they will be awarding Hyduke projects once the banking industry
stabilizes and credit availability returns to the industry. A moderating
aspect of developing international business is that the process of introducing
Hyduke to new potential customers, developing a strong relationship, bidding
on work and winning that work takes a long period of time. However, we remain
committed to our strategic plan and are building on our past successes and
devoting sufficient resources to adequately develop future opportunities. Over
the past three years, Hyduke's international revenues have approximated 20-25%
of total revenue and it is expected that the volume and proportion of
international revenue will continue to grow as these international
relationships are further developed.
    The reduced levels of industry activity experienced in the second quarter
of 2009 and forecast for the remainder of 2009 are also negatively impacting
revenue levels in Hyduke's Life Cycle Management businesses such as repair and
maintenance, inspections and certification, and consumables. We continue to
focus on increasing market share through marketing Hyduke's Life Cycle
Management and Single Source Supplier platforms to customers. These platforms
benefit customers by offering continued support throughout the useful life of
their equipment and by offering a wide array of consistent, reliable services
from a single source.
    Overall, management recognizes that we are operating in a very
challenging economic environment. The impact of the downturn in the worldwide
credit markets precipitated an global economic slowdown. Continued weakness in
gas prices is resulting in an increased focus on cost control in both capital
and operating budgets for companies in our industry sector. Management is
prepared for these challenging conditions. We have experienced operating
losses over the past year and recent quarter that are primarily due to
significant reductions in revenue levels due to an overall industry downturn.
In response, we have implemented, and continue to implement, a number of cost
cutting initiatives. We have reduced staffing levels by over 50% from December
31, 2008 to June 30, 2009. We have implemented salary and wage rollbacks
ranging from 10% to 25%. We have temporarily suspended company contributions
to Hyduke's retirement plan and certain aspects of Hyduke's benefit plan. Many
of our staff are taking voluntary unpaid leave and reduced work weeks. We are
in the process of accessing the EI work-share benefits program across all
divisions. We have halted all non-critical capital expenditures. Additionally,
we are currently undertaking a major review of all our business lines in order
to develop a re-structuring plan which will reduce the current level of
operating losses. While the full effects of these cost cutting steps are not
fully reflected in our recent quarter's operating results, we expect to see an
improvement in our results in the remainder of 2009 as a result of these
actions.
    Hyduke's strong working capital position and low debt load in relation to
equity will be a factor in protecting the Company from a prolonged downturn as
well as allow the Company to pursue viable financing alternatives should
conventional operating line lending become restricted.

    Forward Looking Statements

    This report contains certain forward-looking statements relating, but not
limited to, operations, anticipated financial performance, business prospects
and strategies of Hyduke. Forward-looking information typically contains
statements with words such as "anticipate", "believe", "estimate", "expect",
"plan", "intend" or similar words suggesting future outcomes or outlooks on,
without limitation, estimates of business activity, supply and demand for the
Company's products, the estimated amounts and timing of capital expenditures,
anticipated future debt levels, or other expectations, beliefs, plans,
objectives, assumptions or statements about future events or performance.
Readers are cautioned not to place undue reliance on forward-looking
information. By its nature, forward-looking information involves numerous
assumptions, inherent risks and uncertainties both general and specific that
may cause actual future results to differ materially from those contemplated
and contribute to the possibility that the predictions, forecasts, projections
and other forward-looking statements will not occur. These factors may affect
anticipated earnings or assets and include, but are not limited to: industry
activity levels, market liquidity, customer credit risk, competition, oil and
gas prices, product liability, fixed price contracts, development of new
products, uninsured and underinsured losses, access to additional financing,
source of supply of raw material and third party components, availability of
key personnel, agreements and contracts, government regulations, foreign
exchange exposure, interest rate risk, international scope of operations,
environmental health and safety regulations and Hyduke's anticipation of and
success in managing the risks implied by the foregoing. The Company cautions
that the foregoing list of important factors is not exhaustive. Hyduke
undertakes no obligation to update publicly or otherwise revise any
forward-looking information, whether as a result of new information, future
events or otherwise, except as required pursuant to applicable securities
legislation.

    About Hyduke

    Hyduke is an integrated oilfield services company with over thirty years
experience in the manufacture, repair and distribution of oilfield equipment
and supplies in Canada and worldwide. Hyduke specializes in providing
customized, integrated solutions to the drilling and well service industries
including:

    
    -   Turn-Key Equipment - drilling rig and service rig packages including
        in-house design, engineering and drafting, major component
        procurement and overall project management;
    -   Life Cycle Management - inspection, certification, service, repair
        and supply services throughout the operating life of the drilling or
        well service rig; and
    -   Single Source Supply - providing new capital equipment, repair and
        maintenance on existing capital equipment and supply of operating
        consumables.
    

    Hyduke is headquartered in Nisku, Alberta and has facilities in Edmonton,
Calgary, Nisku, Leduc, Red Deer and Lloydminster, Alberta.
    Hyduke operates in three operating segments. The Drilling Equipment
segment includes manufacture and repair of land-based drilling rigs and
drilling rig structures, supply and repair of drilling rig equipment,
procurement and distribution of drilling supplies, supply and service of
pneumatic controls, engineering and design of drilling rigs and inspection and
certification of drilling rig equipment. The Well Service Equipment segment
includes manufacture and repair of well service rigs, mobile and skid mounted
pump units and other well service equipment, procurement and distribution of
well servicing supplies, supply and service of pneumatic controls, engineering
and design of well service rigs and inspection and certification of well
service equipment. The Other Oilfield Services segment includes manufacture
and distribution of cased hole and overburden drill bits and drilling systems,
custom and production machining services, industrial sandblasting, painting
and collision repair and distribution and repair of truck-mounted equipment
including cranes, winches and dump boxes.

    
    The TSX has not reviewed and does not accept responsibility for the
    adequacy or accuracy of this News Release.
    

    %SEDAR: 00008371E




For further information:

For further information: Gordon R. McCormack, President and Chief
Executive Officer, (780) 955-0355; Veronica Dutchak, Chief Financial Officer,
(780) 955-0355


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