Hyduke announces second quarter 2010 financial results and appointment of new
chief financial officer

EDMONTON, Aug. 16 /CNW/ - Hyduke Energy Services Inc. (HYD - TSX), announced operating results for the six months ended June 30, 2010. Hyduke's second quarter results mark the third straight quarter of increased revenue. Hyduke's Financial Statements and Management's Discussion and Analysis have been filed with regulators and are available at www.hyduke.com and at www.sedar.com.

    Highlights for the second quarter of 2010 include the following:

    -   Revenue of $15.4 million is up 124% over the prior year
    -   Net loss per share of 1.9 cents is down 71% over the prior year
    -   EBITDAS of $0.1 million is up $1.9 million over the prior year
    -   International revenues represent 38% of total revenue
    -   Liquidity remains strong with current ratio at 2.50 to 1.00
    -   Outlook for 2010 remains positive with approximately $15 million of
        backlog of significant projects
    -   New lending arrangement with operating lender - Company is out of
    -   Appointment of new CFO, Dennis Rendflesh, effective August 9, 2010

    A summary of those results is as follows:
    Selected Income Statement
     Information                                Three Months Ended
                                       June 30       March 31      June 30
    ($000's, except per share data)      2010          2010          2009

    Revenue                               15,447        16,546         6,892
    Gross margin(1)                        1,392         2,414          (299)
    Gross margin (%)                        9.0%         14.6%         (4.3%)
    Adjusted gross margin(1)               1,583         2,608           (88)
    Adjusted gross margin (%)              10.3%         15.8%         (1.3%)
    EBITDAS(1)                               131         1,163        (1,728)
    Adjusted EBITDAS(1)                      131         1,163        (1,728)
    Net income (loss)                       (182)          630        (1,452)
    Earnings (loss) per share
     - basic ($)                          (0.019)        0.029        (0.066)
    Earnings (loss) per share
     - diluted ($)                        (0.019)        0.029        (0.066)
    (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.

The second quarter of 2010 continues to reflect the revenue recovery begun in the fourth quarter of 2009. Revenue of $15.4 million for the three months ended June 30, 2010 represents an increase of $8.5 million or 124% over the prior year and a decrease of $1.1 million (7%) over the previous quarter. The past three quarters of revenue strength is due primarily to an increase in international projects and additionally, industry activity levels in Canada were higher than in the previous year resulting in increases in revenue in all our Canadian operations in the first two quarters of 2010.

The second quarter of 2010 gross margin of $1.4 million shows a significant increase over the same period in the prior year ($1.7 million or 566%) and represents a decrease of $1 million or 42% over the previous quarter. The increase over the prior year is due to increased revenue levels. The decrease over the previous quarter is due to the completion of two significant projects for Canadian-based drilling contractors. Because of continuing pricing pressure for domestic work, these projects realized very low gross margins.

Second quarter 2010 EBITDAS of $0.1 million represents an increase of $1.9 million over the prior year. This year over year increase is primarily due to an increase in gross margin. Second quarter 2010 EBITDAS decreased $1.0 million over the previous quarter and is due primarily to a decline in gross margin percentage and an increase in general & administrative costs. Management continues to take steps to reduce operating costs and infrastructure while minimizing any potential negative impact on revenue producing capability. Management is actively monitoring anticipated activity levels to optimize the level of available human and capital resources and increase labour efficiencies where possible.

Second quarter 2010 net loss of $0.2 million represents a betterment of $1.3 million over the same quarter in the previous period's loss of $1.5 million and is due to significant increases in revenue and gross margin levels. Second quarter 2010 net loss saw a decrease of $0.8 million over the previous quarter. The net decrease is comprised of the following: Revenue decrease of 7% and gross margin decrease of 5.6% contributed $1.0 million of the decrease which was offset by a decrease in tax expense of $0.2 million.

    Selected Balance Sheet Information                As At
         ($000's, except ratios)       June 30     December 31   December 31
                                         2010          2009          2008
    Total assets                          43,451        38,795        48,971
    Total current assets                  31,890        26,862        36,479
    Total liabilities                     14,231        10,900        17,414
    Total current liabilities             12,756         9,213        15,187
    Total bank indebtedness                2,329           Nil         6,975
    Total long-term debt                   1,558         1,823         2,267
    Total shareholders' equity            29,220        27,894        31,557
    Current ratio (current
     assets divided by
     current liabilities)           2.50 to 1.00  2.92 to 1.00  2.40 to 1.00
    Debt to equity ratio
     (long-term debt divided by
      shareholders' equity)         0.05 to 1.00  0.07 to 1.00  0.07 to 1.00

Net working capital (current assets less current liabilities) of $19.1 million as at June 30, 2010 represents an increase of $1.5 million (9%) from December 31, 2009 and is due primarily to net income being generated in the first quarter.

Total bank indebtedness of $2.3 million has increased from nil at December 31, 2009 and is due to cash flows used in non-cash working capital balances, primarily accounts receivable.

The Company continues to maintain a strong current ratio at 2.50 to 1.00 and a negligible debt to equity ratio of 0.05 to 1.00. The Company continues to focus on managing cash flow through converting current assets into cash and continues to strengthen the cash position. Management believes that this balance sheet strength will allow Hyduke to weather the current economic challenges currently facing the Canadian oil and gas industry.


On July 8, 2010 the Company entered into a new financing agreement with its operating lender. Under the new financing agreement the Company has available a revolving demand loan of $4,000,000, bearing interest at prime plus 2%. Effective June 30, 2010, the forbearance agreement that the Company was operating under with its operating lender expired.


The Company is very pleased to announce the addition of Dennis Rendflesh as Chief Financial Officer effective August 9, 2010. Dennis is an experienced Chartered Accountant who has spent over 30 years working as a business owner and financial executive in a variety of industries. Dennis brings to the Hyduke team a strong understanding of the role that finance and accounting plays in supporting the operating divisions.


Industry expectations for Western Canada for 2010 continue to show improvement over 2009 activity. The Petroleum Services Association of Canada (PSAC) maintains a forecast for the number of wells to be drilled for 2010 to be 11,250 which is a 35% increase over 2009 activity. The Canadian Association of Oilwell Drilling Contractors (CAODC) have recently increased their forecast for the number of wells to be drilled for 2010 to be 11,587 which represents a 35% increase over 2009 activity. This increased drilling activity will result in increased activity in Hyduke's Life Cycle Management businesses such as oilfield supply, repair and maintenance and inspections and certifications. The increase in revenue experienced by the Company for the first six months of 2010 compared to the first six months of 2009 reflects the positive effect of increased drilling activity in Western Canada. Additionally, Hyduke continues 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.

While drilling activity in Western Canada is showing improvement over 2009, new capital equipment expenditures on conventional drilling rigs remains slow. The industry is showing contraction in the number of drilling rigs which is reflective of an underutilized rig fleet. In December of 2007, the rig fleet in Canada peaked at 900 drilling rigs. As drilling activity decreased, this rig fleet became underutilized and contractors began contracting. Currently, the rig fleet count is approximately 800 rigs which reflects a reduction from rigs moving out of Canada to pursue work elsewhere and rig retirements. Rig utilization in 2010 as forecast by the CAODC is expected to average 42% on the year. While this underutilization means that a general demand for new drilling rigs will be slow in Canada, the Company is seeing renewed spending on refurbishment and replacement projects as drilling contractors prepare for increased drilling activity this winter.

While it is expected that new rig builds for use in Western Canada during 2010 will continue to be limited, management believes that continued penetration into international markets will help to offset a flat domestic Turn-Key Equipment market. Hyduke continues to actively market its products and services to international markets in the United States, Russian Federation, India, South America, North Africa, Middle East, Asia-Pacific and Latin America. While the project decision making cycle is longer on international work, active quoting continues on a significant number of international opportunities. Over the past 18 months, Hyduke saw its international revenues increase to over 40% of its total revenues. It is expected that the volume and proportion of international revenue will continue as these international relationships are further developed.

Specifically, the Company is in the middle of a number of significant projects from five customers, both domestic and international. For the Canadian market, the Company is working through three service rig packages totaling approximately $3 million. Internationally, the Company is working through four drilling rig equipment projects totaling approximately $12 million. These projects commenced in the second quarter and will be completed over the next three to five months. Management is cautiously optimistic that this recent increase in activity is an indicator that industry activity levels are going to increase both in Canada and Internationally.

Management recognizes that while the recent three quarters show a significant improvement in revenue levels, we are experiencing an economic environment that continues to have some uncertainty. As the general economy, credit markets and gas pricing improve, management's strategic plan balances this uncertainty against an aggressive growth plan intended to capitalize on emerging opportunities. We will continue to actively develop markets outside of Western Canada and expect to build upon our historical successes. Operationally, we continue to focus on cost control, realizing on vertical integration opportunities and prudent cash management and investment. Hyduke's strong working capital position and low debt load in relation to equity will be a factor in protecting the Company if recent positive results do not continue.

Hyduke continues to be confident that its strategic plan considers current and expected market conditions and that strategic growth will continue to be achieved through increased products and services and increased penetration into international markets.

Forward Looking Statements

This report contains certain forward-looking statements under the heading "Outlook" and elsewhere concerning future events or the Company's 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. The Company believes that the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this report should not be unduly relied upon. The forward-looking statements in this report speak only as of the date of this report. 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

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

SOURCE Hyduke Energy Services Inc.

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

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