Peak Energy Services Ltd. Reports its Financial Results for the Three Months ended March 31, 2011

TSX SYMBOL: PES

CALGARY, May 17 /CNW/ -

FINANCIAL AND INDUSTRY HIGHLIGHTS (unaudited)

                           
                         
            Three months ended March 31
(in '000's of CAD, except otherwise noted)           2011     2010     Change
                         
Revenue           64,638     38,945     66%
EBITDA (1)           17,710     7,433     138%
  Per share - diluted           0.10     0.08     25%
  As a percentage of revenue           27%     19%      
Profit for the period           8,059     2,710     197%
  Per share - diluted           0.05     0.03     67%
Funds from operations (1)           18,150     7,481     143%
  Per share - diluted           0.10     0.09     11%
Common shares outstanding ('000's)           172,405     172,383     -%
Industry activity (2)                        
  Cdn drilling rig operating days           47,455     38,399     24%
  US average active drilling rigs (3)           378     247     53%
  Cdn service rig utilization           66%     58%      

(1)     Refer to the "Non-IFRS Measures" section for further details.
(2)     Sources: Canadian Association of Oilwell Drilling Contractors ("CAODC"), the Daily Oil Bulletin ("DOB"), Petroleum Services Association of Canada ("PSAC") and Baker Hughes Incorporated ("BHI").
(3)     Represents drilling rigs active in regions which Peak operates (Wyoming, Colorado, North Dakota, Montana and Pennsylvania).

This News Release focuses on key information and statistics from Peak Energy Services Ltd.'s ("Peak" or the "Company") consolidated financial statements and oilfield services industry which contains known and unknown risks and uncertainties. Furthermore, certain statements contained in this News Release are forward-looking. Please review the discussion of these statements in the "Forward-Looking Statements" section of this News Release.

Throughout this News Release certain measures are used that are not recognized measures under International Financial Reporting Standards ("IFRS"). Specific measures used are earnings before interest, taxes, depreciation, amortization and other certain items ("EBITDA"), funds from operations, working capital, funded debt, net debt and long-term debt to equity ratio. Please review the discussion of these measures in the "Non-IFRS Measures" section of this News Release.

INDUSTRY ACTIVITY

During the first quarter of 2011, industry activity was higher than the prior year first quarter reflecting the continued industry momentum experienced in the second half of 2010 and a longer than normal winter drilling season, as cold weather conditions extended the onset of break-up. Canadian drilling rig operating days for the quarter were 24 percent higher than the prior year first quarter and wells drilled increased by 8 percent to 3,894 wells. Wells drilled in Canada for the first quarter of 2011 has increased, however it still compares negatively with the ten year average of 5,193 wells. Meanwhile, Canadian service rig utility increased to an average utility of 66 percent for the first quarter of 2011.

Analysts are forecasting that Canadian drilling activity levels will increase in 2011 from 2010, with the current trend of a lower number of wells with a longer duration for each well being drilled, continuing. Analysts estimate a range of between 12,500 and 14,600 Canadian wells will be drilled in 2011, which management concurs with. Although activity has rebounded from 2009 lows, it is still significantly below historical levels for the past decade. Progress is being made on the overall pricing front when comparing to late 2009 and most of 2010 and it is expected that throughout 2011 overall pricing of services will continue to improve as available rental equipment and services become tighter.

In the regions that Peak is active in the US, which includes Wyoming, Colorado, North Dakota, Montana and Pennsylvania, the average number of active rigs has improved. For the first quarter of this year, there were an average of 378 rigs operating in these regions compared to 247 rigs for the same quarter of 2010. This translates to a 53 percent increase in active rigs within Peak's regions of scope. It is uncertain if overall US drilling rig activity will continue at current levels over the longer-term considering natural gas storage and pricing levels. However, with the exception of Wyoming, where Peak is more established, Peak believes it has significant opportunities to gain market share with a flat to slight decrease in overall US rig activity.

Management believes the outlook for the oil and natural gas industry in North America remains positive over the longer term and is positioning the Company strategically to take advantage of improved activity levels.

SELECTED FINANCIAL AND OPERATING INFORMATION

For the three months ended March 31, 2011, Peak:

  • generated revenue of $64.6 million which was an 66 percent or $25.7 million increase over the prior year period revenue of $38.9 million. The primary drivers of the increase over the industry activity level increase were continued growth in the US market, the return of Camps and Catering projects in the oil sands region and recovering product pricing;

  • realized EBITDA of $17.7 million ($0.10 per share diluted or 27 percent of revenue), an increase of 138 percent or $10.3 million over EBITDA for the same prior year period of $7.4 million ($0.08 per share diluted or 19 percent of revenue). On a margin basis, the primary positive impacts were the significant increases in activity levels and recovering product pricing; and

  • posted profit for the period of $8.1 million ($0.05 per share diluted), which was an increase of 197 percent or $5.3 million as compared to $2.7 million ($0.03 per share diluted) for the same prior year period.

Financial results by operating segment:

                                             
Three months ended March 31, 2011
(in 000's CAD, except otherwise noted)
        Surface
Rentals
Canada
    Surface
Rentals
USA
    Camps
and
Catering
    Fluids
Handling
    Water
Technology
        Total
                                             
Revenue
Segmented field operating expenses



$
22,560
11,201

$
12,587
7,585

$
17,697
12,542

$
8,019
6,815

$
3,775
3,362

$
    64,638
41,505
Divisional operating margin
Divisional operating margin %



$
11,359
50%

$
5,002
40%

$
5,155
29%

$
1,204
15%

$
413
11%

$
    23,133
36%

                                             
Three months ended March 31, 2010
(in 000's CAD, except otherwise noted)
        Surface
Rentals
Canada
    Surface
Rentals
USA
    Camps
and
Catering
    Fluids
Handling
    Water
Technology
        Total
                                             
Revenue
Segmented field operating expenses



$
16,578
10,343

$
6,192
3,837

$
7,151
5,798

$
7,085
5,518

$
1,939
2,005

$
    38,945
27,501
Divisional operating margin
Divisional operating margin %



$
6,235
38%

$
2,355
38%

$
1,353
19%

$
1,567
22%

$
(66)
-3%

$
    11,444
29%

CAPITAL RESOURCES

As compared to December 31, 2010, Peak:

  • increased working capital by $12.5 million to $45.4 million;

  • decreased tangible capital assets by $3.2 million to $167.3 million;

  • decreased funded debt by $4.3 million to $32.9 million; and

  • increased shareholders' equity by $7.6 million to $161.1 million.

LONG-TERM DEBT

The Company's long-term debt (including current portion) increased marginally to $49.4 million at March 31, 2011, as compared to $49.3 million at December 31, 2010. Funded debt was $32.9 million at March 31, 2011, as compared to $37.2 million at December 31, 2010. Meanwhile, net debt was $4.1 million at March 31, 2011, as compared to $16.4 million at December 31, 2010. The long-term debt to equity ratio decreased to 0.31 to 1.00 at March 31, 2011 (December 31, 2010 - 0.32 to 1.00). As at March 31, 2011, Peak is in compliance with its financial covenants.

SHAREHOLDERS' EQUITY

Shareholders' equity increased $7.6 million to $161.1 million at March 31, 2011, from $153.5 million at December 31, 2010. The increase over the prior year-end was the result of a profit for the period of $8.1 million incurred and other comprehensive loss of $0.5 million.

OUTLOOK

Peak is now forecasting that the oil and natural gas industry in western Canada will drill approximately 13,000 wells for 2011, which represents a slight increase in activity of approximately 7 percent from the 12,158 wells drilled in 2010. Meanwhile, we expect overall drilling activity in the US to remain flat to slightly down. This said, management expects the areas where Peak is active, in particular Pennsylvania and North Dakota to remain flat or show an increase in drilling activity due to the specific economics of these plays. Although the overall industry activity increase is believed to be modest, Peak expects revenue and EBITDA to continue to significantly outpace the increase in industry activity as demonstrated in the first quarter of this year. Management believes this to be the case due to the realization on contracted revenues from contracts procured in 2010, continued recovery in pricing discounts that we started to experience in the second half of 2010 and continued expansion into the US marketplace.

As announced on April 6, 2011, Peak has signed a definitive acquisition agreement with Clean Harbors, Inc. ("Clean Harbors") (NYSE: CLH), pursuant to which Clean Harbors has agreed to acquire all of the issued and outstanding common shares of Peak ("Peak Shares"), excluding Peak Shares already held by Clean Harbors, for cash consideration of $0.95 per share. Under the terms of the acquisition agreement, the acquisition will be accomplished by way of a plan of arrangement (the "Arrangement") pursuant to the Business Corporations Act (Alberta). The proposed Arrangement is subject to certain conditions including, without limitation, the approval by: the holders of Peak Shares representing at least two-thirds of votes cast in person or by proxy at the meeting of Peak shareholders to be held to approve the Arrangement; the Court of Queen's Bench of Alberta; and appropriate regulatory and other authorities. The Peak shareholders' meeting to approve the Arrangement is expected to be held on May 25, 2011, and the closing of the Arrangement is anticipated to be completed on June 10, 2011, but no later than the outside date of June 30, 2011. Each of the directors and officers of Peak and Deans Knight Capital Management Ltd., collectively holding approximately 53.6 percent of the issued and outstanding Peak Shares, have entered into agreements with Clean Harbors pursuant to which such holders have agreed to vote such Peak Shares in favour of the Arrangement at the Peak shareholders' meeting.

Management believes that this transaction provides fair value for Peak's business at this point in the cycle and full liquidity to all of its shareholders. Clean Harbors will no doubt create opportunities for Peak to significantly expand its businesses through the combination of its broad geographic network, extensive customer base and access to growth capital. The cultures of Clean Harbors and Peak also appear to be very much aligned with a "safety first" attitude and a focus on best practices being at the forefront of the day-to-day operations for both organizations.

CONFERENCE CALL

Management will hold a conference call to discuss the quarter end results at 9:30 a.m. MT (11:30 a.m. ET) on Wednesday, May 18, 2011. To participate, please dial 1 (888) 231-8191 or 1 (647) 427-7450. Participants are asked to call at least 10 minutes before the start of the call. The call is also available by webcast by going to Peak's website at www.peak-energy.com or by directly going to http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3517580. For those unable to participate in the live call, a replay will be available until Wednesday, May 25, 2011 by dialing 1 (800) 642-1687 or if preferred 1 (416) 849-0833, pass code 64916894. The replay will also be available by webcast at the URL's indicated above.

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements within the meaning of applicable Canadian securities legislation regarding expected future events and financial and operating results of the Company. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. By its nature, forward-looking statements require the Company to make assumptions and is subject to numerous inherent risks and uncertainties. The Company believes the expectations reflected in these forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. There is significant risk that assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from expectations, estimations or intentions expressed in the forward-looking statements. The Company disclaims any intention or otherwise to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. It is the current policy of the Company to evaluate its past forward-looking statements and where it deems appropriate, provide updates subject to requirements by law. The forward-looking statements contained in this news release are made as of the date hereof. Additionally, the Company undertakes no obligation to comment on expectations of, or statements made by, third parties in respect of this news release.

In particular, this news release contains forward-looking statements pertaining to the following:

  • the geopolitical and global economic future;
  • expectations of future oil and natural gas industry activity levels, hydrocarbon supply/demand balance and associated hydrocarbon commodity pricing;
  • the cyclical and seasonal nature of activity within the oil and natural gas industry;
  • the future provision of Peak's services and its impact on equipment utility, pricing, and forecasted financial performance;
  • management's fiscal 2011 business plan and expectations for Peak's operations and cash flows provided by continuing operations;
  • the Company's ability to increase market share in various geographical regions;
  • the Company's financing strategy and compliance with debt covenants;
  • Peak's working capital changes;
  • management's financing strategy for managing Peak's liquidity and capital resources;
  • the impact of potential environmental liabilities;
  • the receipt of approvals and consents by all required parties of the proposed acquisition by Clean Harbors, Inc.;
  • the closing of the proposed acquisition of Peak by Clean Harbors, Inc.;
  • the timing of the proposed acquisition of Peak by Clean Harbors, Inc.; and
  • the impact of future accounting standards on the Company's financial statements.

With respect to such forward-looking statements, the Company has made assumptions regarding, among other things, capital expenditure levels, Peak's ability to obtain equity and debt financing on satisfactory terms, the impact of increasing competition and Peak's ability to attract and retain qualified personnel. Readers are cautioned that such assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect.

As a result, you are cautioned not to place undue reliance on these forward-looking statements. These statements are based on certain assumptions and analysis made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from the Company's expectations. Such risks and uncertainties include, but are not limited to:

  • geopolitical issues worldwide;
  • volatility in the price and demand for oil and natural gas;
  • currency fluctuations;
  • fluctuations in the level of oil and natural gas exploration and development activities;
  • fluctuations in the demand for oilfield services that the Company provides;
  • the effects of weather conditions on operations;
  • the existence of competition from other oilfield service entities;
  • general economic, market or business conditions;
  • public market volatility and the related ability to access sufficient capital to fund activities;
  • availability to access debt financing to fund activities;
  • government policy changes;
  • changes in laws or regulations, including taxation and environmental regulations;
  • liabilities inherent in the oil and natural gas field services business;
  • the lack of availability of qualified personnel or management;
  • other unforeseen conditions which could impact the use of services supplied by the Company;
  • a failure to obtain all required approvals and consents and timing thereof of the proposed acquisition of Peak by Clean Harbors, Inc.; and
  • a failure to satisfy the conditions precedent in the agreement by Clean Harbors, Inc. to acquire Peak.

These factors should not be construed as exhaustive. New risk factors emerge from time to time and it is not possible for Peak to predict all of such factors and to assess in advance the impact of each such factor on Peak's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations.

NON-IFRS MEASURES

EBITDA is defined as earnings before interest, taxes, depreciation and amortization and other items (non-cash expenses, gains/losses and non-operating items). EBITDA is not a recognized measure under IFRS. Management believes, in addition to profit, EBITDA is a useful supplemental measure as it provides an indication of the results generated by Peak's principle business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions. Readers should be cautioned that EBITDA should not be construed as an alternative to profit determined in accordance with IFRS as an indicator of the Company's performance. Peak's method of calculating EBITDA may differ from other companies and, accordingly, EBITDA may not be comparable to measures used by other entities.

Funds from operations is defined as cash flow from operating activities, as reported in the IFRS financial statements, before non-cash changes in working capital. Funds from operations is not a recognized measure under IFRS. Management believes funds from operations is a useful supplemental measure as it provides an indication of the Company's cash generating abilities from continuing operations before consideration of capital impacts. Readers should be cautioned that funds from operations should not be construed as an alternative to cash flow from operating activities, as an indicator of the Company's performance. Peak's method of calculating funds from operations may differ from other companies and, accordingly, funds from operations may not be comparable to measures used by other entities.

Working capital is defined as current assets less current liabilities excluding current portion of long-term debt. Working capital is not a recognized measure under IFRS. Management believes working capital provides an indication of the current liquidity available to the Company before considering long-term debt facilities or equity financing considerations. The Company's method of calculating working capital may differ from those used by other entities and, accordingly, may not be comparable to measures used by other entities.

Funded debt is defined as long-term debt including current portion of long-term debt less cash and cash equivalents. Net debt is defined as long-term debt including current portion of long-term debt less working capital. Funded debt and net debt are not recognized measures under IFRS. Management believes funded debt and net debt provide an indication of the Company's debt position after consideration for assets and liabilities that are considered relatively liquid in nature. The Company's method of calculating funded debt and net debt may differ from those used by other entities and, accordingly, may not be comparable to measures used by other entities.

Long-term debt to equity ratio is defined as long-term debt including current portion of long-term debt divided by shareholders' equity. Long-term debt to equity ratio is not a recognized measure under IFRS. Management believes the long-term debt to equity ratio provides an indication of how the Company's operations are financed. The Company's method of calculating long-term debt to equity ratio may differ from those used by other entities and, accordingly, may not be comparable to measures used by other entities.

FINANCIAL RESULTS

The following selected financial information summarizes Peak's consolidated financial results for the three months ended March 31, 2011. Peak's First Quarter Report is available at www.sedar.com or www.peak-energy.com.

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
                           
(in thousands of CAD) (unaudited)       March 31,
2011
      December 31,
2010
        January 1,
2010
                             
ASSETS                          
Current assets:                          
 
 
 
 
 
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Income taxes recoverable

  $


16,512
57,806
1,594
1,999
-
 
$
12,168
40,957
1,615
1,713
-
      $ -
23,396
1,425
2,180
726
  Total current assets       77,911       56,453         27,727
                             
Non-current assets:                          
 
 
 
Property and equipment 
Intangibles
Deferred tax assets

 
167,333
3,314
-
      170,532
3,765
738
        99,805
3,430
-
  Total non-current assets       170,647       175,035         103,235
                             
Total assets     $ 248,558     $ 231,488       $ 130,962
                             
LIABILITIES AND SHAREHOLDERS' EQUITY                          
Current liabilities:                          
 
 
 
 
 
 
 
 
Trade and other payables
Loans and borrowings
Obligations under finance leases
Share based payment liability
Provisions
Deferred lease inducements
Deferred income
Income taxes payable
    $






27,880
-
2,202
-
217
201
960
1,097
    $ 20,291
-
2,064
-
281
201
736
-
      $ 16,122
61,548
2,507
160
-
201
212
-
  Total current liabilities       32,557       23,573         80,750
                             
Non-current liabilities:                          
 
 
 
 
 
Loans and borrowings
Obligations under finance leases
Provisions
Deferred lease inducements
Deferred tax liabilities

 


49,406
1,712
1,329
1,472
965
      49,320
1,772
1,774
1,522
-
        -
2,254
-
1,723
-
  Total non-current liabilities       54,884       54,388         3,977
                             
Total liabilities       87,441       77,961         84,727
                             
Equity:                          
 
 
 
 
 
Share capital
Trust Unit capital 
Contributed surplus
Accumulated other comprehensive income
Deficit


 

250,981
-
2,586
(2,380)
(90,070)
      250,970
-
2,489
(1,803)
(98,129)
        -
227,347
1,483
(452)
(182,143)
  Total equity attributable to shareholders of the Company       161,117       153,527         46,235
                             
Total liabilites and equity     $ 248,558     $ 231,488       $ $130,962

 

CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE INCOME (LOSS) AND DEFICIT
            Three months ended
March 31,
(in thousands of CAD, except per Share amounts) (unaudited)         2011       2010
                     
Revenue     $   64,638   $   38,945
Direct operating costs         46,292       30,752
Gross profit         18,346       8,193
                     
General and administrative expenses         4,987       3,497
Selling expenses         611       390
Profit from operating activities         12,748       4,306
                     
Net finance costs         1,735       1,594
Profit before income taxes         11,013       2,712
                     
Provision for income taxes:                  
  Current         1,250       2
  Deferred         1,704       -
            2,954       2
                     
Profit for the period attributable to shareholders of the Company         8,059       2,710
                     
Other comprehensive income:                  
  Foreign currency translation differences from foreign operations         (577)       (225)
Other comprehensive income for the period, net of tax         (577)       (225)
                     
Total comprehensive income attributable to shareholders of the Company     $   7,482   $   2,485
                     
Earnings (loss) per share:                  
  Basic         $   0.05   $   0.03
  Diluted     $   0.05   $   0.03

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
              Three months ended
March 31,
(in thousands of CAD) (unaudited)           2011       2010
                       
Cash flows from operating activities:                    
  Profit for the period       $   8,059   $   2,710
  Add (deduct) items not affecting cash:                    
    Share payment transactions           103       (114)
    Depreciation and amortization           6,033       1,517
    Net finance costs           1,735       1,595
    Loss (gain) on sale of equipment           (218)       1,771
    Onerous contracts           (516)       -
    Income taxes           2,954       2
              18,150       7,481
                       
  Changes in non-cash working capital items           (9,881)       (7,492)
                       
              8,269       (11)
                       
  Interest paid           (1,114)       (1,268)
  Income tax paid           (153)       (1)
                       
              7,002       (1,280)
                       
Investing activities:                    
  Purchase of equipment           (2,424)       (938)
  Proceeds on sale of equipment           461       1,332
  Acqusition of finance leases           (883)       (1,103)
  Proceeds on disposition of finance leases           7       66
  Unrealized foreign exchange loss           75       23
              (2,764)       (620)
                       
                       
Financing activities:                    
  Increase in bridge loan           -       1,000
  Repayment of bridge loan           -       (2,000)
  Repayment of long-term debt           -       (10,856)
  Long-term debt financing costs           -       (694)
  Addition of finance lease liabilities           883       1,103
  Payments of finance lease liabilities           (782)       (792)
  Issuance of Shares           5       -
  Issuance of Trust Units           -       24,797
  Trust Units issue cost           -       (1,175)
              106       11,383
                       
Increase in cash and cash equivalents           4,344       9,483
Cash and cash equivalents, beginning of period           12,168       -
                       
Cash and cash equivalents, end of period       $   16,512   $   9,483

About Peak Energy Services Ltd.

Peak Energy Services Ltd. is a diversified energy services organization operating in western Canada and the United States of America. Through its various operating divisions, Peak provides drilling and production services to its customers both in the conventional and unconventional oil and natural gas industry as well as the oil sands regions of western Canada. The Company also provides water technology solutions to a variety of customers throughout North America. Peak's shares are listed on the Toronto Stock Exchange under the symbol "PES".

The TSX have neither approved nor disapproved the information contained herein. 

For further information:

Peak Energy Services Ltd.
Mr. Curtis W. Whitteron
President and Chief Executive Officer
Livingston Place, South Tower
Suite 900, 222 - 3rd Avenue SW  T2P 0B4
Tel: (403) 543-7325
Fax: (403) 543-7335

or

Peak Energy Services Ltd.
Mr. Monty R. Balderston
Chief Financial Officer
Livingston Place, South Tower
Suite 900, 222 - 3rd Avenue SW  T2P 0B4
Tel: (403) 543-7325
Fax: (403) 543-7335

Organization Profile

Peak Energy Services Ltd.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890