Western Energy Services Corp. releases first quarter 2010 financial and
operating results

/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

CALGARY, May 27 /CNW/ - Western Energy Services Corp. ("Western" or the "Company") (TSX Venture: WRG) is pleased to release its first quarter 2010 financial and operating results. Additional information relating to the Company, including the Company's financial statements and management's discussion and analysis for the three months ended March 31, 2010 will be available on SEDAR at www.sedar.com.

    
    Selected Financial Information
    -------------------------------------------------------------------------
    (stated in thousands of Canadian                    After         Before
     dollars, except per share amounts)         comprehensive  comprehensive
                                                  revaluation    revaluation

    -------------------------------------------------------------------------
                                                 Three Months   Three Months
                                                        Ended          Ended
                                                     March 31,      March 31,
    Financial Highlights                                 2010           2009
    -------------------------------------------------------------------------
    Revenue                                             4,318          2,130
    EBITDA(1)                                             307            (85)
    Cash from operating activities                        145           (181)
    Net income (loss)                                  11,106(2)      (1,101)
      - basic income (loss) per share                    0.06          (0.03)
      - diluted income (loss) per share                  0.05          (0.03)
    Weighted average number of shares
      - basic                                     193,556,748     32,246,405
      - diluted                                   233,859,633     32,246,405
    Outstanding common shares as at period end    527,549,161     32,246,405
    Dividends declared                                      -              -
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                      March 31,   December 31,      March 31,
    Financial Position at                 2010           2009           2009
    -------------------------------------------------------------------------
    Working capital(3)                  47,463          1,087         (1,218)
    Property and equipment              94,355          7,311         17,754
    Total assets                       151,452         12,219         20,629
    Long term debt(4)(5)                39,086            321         10,875
    -------------------------------------------------------------------------
    (1) Non-GAAP measure.
    (2) Includes an $11.6 million nonrecurring gain on acquisitions.
    (3) Working capital is calculated as current assets less current
        liabilities, excluding the current portion of long-term debt.
    (4) Long term debt includes the current portion of long-term debt.
    (5) Subsequent to March 31, 2010 the long term debt balance was
        substantially reduced to approximately $7 million.
    

Overall Performance and Results of Operations

The Company operates in the oil and gas services sector in two specific segments, contract drilling in Canada and production services in Canada and, until recently, the United States and Internationally in Mexico and Central America. The contract drilling segment includes 11 technically advanced drilling rigs with depth capacities ranging from 1200 meters to 4500 meters including 6 telescopic singles, 3 modern design mechanical telescopic doubles and 2 Cantilever triples. The production services segment specializes in the delivery of acidizing and solvent well remediation services as well as nitrogen and fluid pumping services. The operating environment for the oil and gas services sector is highly dependent on the oil and gas exploration and production industry and commodity prices of both oil and natural gas. Overall, results from the first quarter of 2010 are improved from the same period in the prior year, as activity levels have increased and oil prices have improved.

The key operational results for the three months ended March 31, 2010 are:

    
    -   On March 18, 2010, Western completed a public offering of 375 million
        common shares at a price of $0.20 per share for gross proceeds of
        $75 million. Concurrent with the closing of this equity offering,
        Western completed the acquisition of Horizon for total consideration
        of approximately $66 million, including the assumption of debt, and
        the acquisition of Cedar Creek for consideration of approximately
        20.5 million common shares. Each of Horizon and Cedar Creek were, at
        the time of acquisition, privately held companies engaged in the
        operation of contract drilling rigs in the western Canadian
        sedimentary basin.

    -   Revenues increased by $2.2 million, or 103%, to $4.3 million in the
        first quarter of 2010 as compared to $2.1 million in the same period
        of the prior year. The increase reflects the acquisition of Horizon
        and Cedar Creek on March 18, 2010, which accounted for $1.8 million
        in revenue subsequent to their acquisition. The remaining
        $0.4 million increase in revenue is due to increased utilization in
        Western's production services segment which completed 679 jobs in the
        first quarter of 2010 as compared to 409 jobs completed in the first
        quarter of 2009.

    -   Net income increased by $12.2 million to $11.1 million in the first
        quarter of 2010 as compared to a net loss of $1.1 million in the
        first quarter of 2009. The increase reflects the aggregate gain of
        $11.6 million on the business acquisitions of Horizon and Cedar
        Creek. Of the remaining $0.6 million increase, $0.8 million is
        related to improved operating earnings in the production services
        segment, $0.1 million is related to operating earnings in the
        contract drilling segment generated for the 14 day period after the
        acquisition, offset by corporate and other costs of $0.3 million.

    -   During the first quarter of 2010, Western's EBITDA was positive
        $0.3 million, as compared to negative $0.1 million in the same period
        of the prior year. The $0.4 million increase in EBITDA, is due to the
        acquisition of Horizon and Cedar Creek which contributed $0.4 million
        to EBITDA subsequent to their acquisitions and an increase in the
        production services segment EBITDA of $0.3 million offset by an
        increase in corporate general and administrative costs of
        $0.3 million.

    -   During the first quarter of 2010, Western announced that due to the
        significant downturn in industry demand, Western would be ceasing its
        current operations in the United States. Subsequent to the
        announcement, Western has redeployed certain of its U.S. assets to
        its Canadian operations and completed the sale of the remaining
        assets in the United States. During the first quarter of 2010,
        Western has completed additional asset sales, including the sale of
        the majority of its U.S. assets, for total proceeds of approximately
        $2.8 million. The sale of the remaining U.S. assets has been
        completed in the second quarter of 2010.
    

Outlook

Western believes that current market conditions in the Canadian energy sector provide an opportunity to build a new Canadian focused oilfield service provider through consolidation and that conditions are also favourable to attract qualified staff to grow the organization. It is anticipated that these factors combined with access to capital will provide Western with consolidation opportunities.

Western will be focused from both a business line and geographic perspective. Due to the experience of the management team, it is their intention to initially focus their efforts in three core business lines in Canada encompassing contract drilling, service rigs and rental and production services. The business plan will see the management team pursue strategic acquisitions focused on strengthening and adding depth to these core business lines with an emphasis on attracting business from Canadian customers engaged in unconventional resource development.

With the acquisitions of Horizon Drilling Inc. ("Horizon") and Cedar Creek Drilling Ltd. ("Cedar Creek") on March 18, 2010, Western now has a fleet of 11 drilling rigs which are, on average, less than 4 years old, have modern designs, move and rig-up efficiently and have a premium customer base. Western believes these assets should be in demand as exploration and development of key resource plays requiring horizontal drilling continues to increase. These acquisitions also provide Western with immediate cash flow and key human resource capabilities.

Subsequent to March 31, 2010, the following significant events have occurred:

    
    -   On April 15, 2010, Western announced the increase of its credit
        facility with its existing lender. The credit facility will consist
        of a $5 million operating demand revolving loan and a $45 million
        364-day committed extendible revolving credit facility (the
        "Revolving Facility"). The purpose of the Revolving Facility is to
        assist the Company in completing corporate acquisitions and financing
        the construction of additional equipment.

    -   Management has determined that it will take all necessary steps to
        reduce its exposure to Mexico and Central America by either selling
        or winding up the operations. Western expects this transaction to
        result in a minimal write-off.
    

With the increase in Western's credit facilities, as noted above, Western has been able to repay all the debt assumed in the acquisitions of Horizon and Cedar Creek and consolidate its debt with one lender. Western intends to employ a conservative balance sheet strategy going forward by maintaining a conservative debt to annualized EBITDA ratio.

Forward-looking statements

This press release contains certain statements or disclosures relating to the Company that are based on the expectations of its management as well as assumptions made by and information currently available to the Company which may constitute forward-looking information under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that the Company anticipates or expects may, or will occur in the future (in whole or in part) should be considered forward-looking information. In some cases, forward-looking information can be identified by terms such as "forecast", "future", "may", "will", "expect", "anticipate", "believe", "potential", "enable", "plan", "continue", "contemplate", "pro-forma", or other comparable terminology.

Under the heading "Outlook" there are statements to the effect that current market conditions in the Canadian energy sector provide an opportunity to build a new Canadian focused oilfield services provider through consolidation and that conditions are also favourable to attract qualified staff to grow the organization and those factors along with access to capital will provide the company with consolidation opportunities. Also, under the heading "Outlook" there are statements pertaining to the intentions of the Corporation with respect to seeking opportunities in three core business lines in Canada, encompassing contract drilling, service rigs and rental and production services and that the business plan will see the management team pursue strategic acquisitions focused on strengthening and adding depth to the core businesses.

Those statements assume that the Company will be able to attract enough additional capital or credit to allow for anticipated acquisitions. There is a risk that, due to a number of factors, adequate additional capital and credit may not become available to the Company to allow for further acquisitions and even if such capital does become available, there is further risk that opportunities that are accretive may either not be available or, if completed, are ultimately not accretive.

In addition, the Company states that the 11 drilling rigs that it has recently acquired should be in demand as exploration and development of key resource plays requiring horizontal drilling continues to increase. The foregoing assumes that the demand for horizontal drilling and the Company's rigs should continue to increase. There are numerous risks that could result in the demand for horizontal drilling and the Company's rigs not to increase or which demand could decrease.

As such, many factors could cause the performance or achievement of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.

Neither the 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.

%SEDAR: 00005790E

SOURCE Western Energy Services Corp.

For further information: For further information: Dale E. Tremblay, Chief Executive Officer, (403) 262-9439; Alex MacAusland, President and Chief Operating Officer, (403) 984-5932; or Jeffrey K. Bowers, Vice President Finance and Chief Financial Officer, (403) 984-5933


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