EARNINGS -- APPOINTMENT / NorthStar Drilling Q2 and CFO
NORTHSTAR DRILLING SYSTEMS INC. ANNOUNCES APPOINTMENT AND FINANCIAL RESULTS
CALGARY, June 4 /CNW/ - Greg Ward, President and Chief Executive Officer
of NorthStar Drilling Systems Inc. is pleased to announce the following
appointment:
J.L. (Larry) Holloway will assume the position of Chief Financial Officer
to NorthStar Drilling Systems Inc. effective June 1, 1998. Mr. Holloway will
oversee all financial aspects of the Company and its International Divisions.
Mr. Holloway is a graduate of the University of Alberta and holds a
Bachelor of Commerce degree with a Major in Accounting and Finance. In 1966
he received his Chartered Accountant designation through the Alberta Institute
of Chartered Accountants while articling with Price Waterhouse.
Mr. Holloway served as senior auditor with Price Waterhouse in Geneva,
Switzerland and Calgary, Alberta until 1969. Mr. Holloway then assumed the
position of Senior Internal Auditor and subsequently Financial Controller for
Dart Industries of Brussels, Belgium until 1977. From 1977 to 1982 Mr.
Holloway was Managing Director of Internal Audit for ATCO Ltd. in Calgary,
Alberta. In 1982 this led to a further transfer as Managing Director for ATCO
in Fribourg, Switzerland and Rotterdam, The Netherlands. In 1988 he was hired
by Nowsco Well Service as Deputy Director of Nowsco (IFC) B.V. in The Hague,
The Netherlands, where he remained until 1991. Mr. Holloway has since worked
as a Financial Consultant for International Octane Limited, in Calgary and for
ATCO both in North America and Internationally. This culminated with the
position of Finance Director for the ATCO operation in Budapest, Hungary.
Most recently Mr. Holloway has worked again as a Financial Consultant for
NorthStar Drilling Systems Inc. in Maracaibo, Venezuela.
NorthStar Drilling Systems Inc. is a leading edge Horizontal and
Directional Drilling Company, which services the Oil and Gas industry in
Canada, USA, Venezuela, Bolivia and Argentina. NorthStar is publicly traded
on the Toronto Stock Exchange under the trading symbol ''NSD.A''.
TO OUR SHAREHOLDERS:
NorthStar Drilling Systems Inc. is pleased to report on its
operational activities, and financial results for the six month period ending
March 31, 1998.
Revenue for the first six months of fiscal 1998 was $10,534,877, which is
175% growth equating to a $6,697,725 increase in revenue over the same period
in 1997. Net earnings increased 488% to $798,535 ($0.06 per share) compared
to $135,712 ($0.01 per share) for the same period in 1997. Cash flow from
operations was $1,087,761 for the first six months of fiscal 1998 versus
$211,095 for the same period of 1997 for an increase of 415%.
Operational Highlights
The Company continued its ongoing trend of significant growth for the
first six months of fiscal 1998. The diverse nature of the Company's client
base, which had no operations relating to heavy oil, allowed activity levels
to remain strong. October, November and December exceeded budget expectations
while lower than expected activity levels occurred in January and February,
primarily due to rig availability. March activity levels were substantially
higher than forecast as customers rushed to complete their winter drilling
programs before road bans were activated. Additionally, more clients are now
starting to use horizontal drilling as a tool in maximizing production in
natural gas reservoirs, the results of which are proving encouraging.
Management believes a greater demand for its services will be a result of the
success in drilling horizontal natural gas wells. The Company has already
obtained substantial commitments for the upcoming fall and winter drilling
programs relating to natural gas development. The geographic areas for this
application are in western Alberta and northeastern British Columbia. Other
sectors in the western sedimentary basin are starting to follow suit which has
already softened the blow of declining heavy oil activity. Current oil
prices have as yet not caused a slow down in activity within the Company's
client base and therefore we are forecasting third quarter results to be on or
slightly ahead of budget.
Technology Highlights
While the Company has the capability of operating 15 jobs concurrently
with its own mud motors and horizontal supervisors in the Canadian market,
prior to completing its initial public offering it had been reliant upon third
party supply of MWD systems in the past. One of the main goals of NorthStar
is to be totally self sufficient in all areas of the technology it supplies to
its customers. To this end, the Company took delivery of 5 positive pulse
retrievable MWD systems during this quarter and has experienced very good
success operationally. An additional 7 systems are scheduled for delivery
during the third quarter which will further enhance the bottom line.
The field testing of the Electromagnetic MWD system has been extremely
successful. This system has now been tested in several wells throughout
western Canada at depths ranging from 1100 meters down to 2600 meters. It is
anticipated that commercialization of this system will occur during the second
quarter. The design of the EM MWD enables operation in wide range of hole
sizes down to 4 3/4'' in diameter.
Unique to this system are its compact characteristics and further, its
innovative design which enables the system to work inside a non dedicated non
magnetic drill collar. The probe length of less than 13 feet stores inside a
modified shotgun case when disassembled. What this means is that the tool can
be transported at a moments notice to any location worldwide via air transport
and upon arrival to it's destination is able to adapt to the non magnetic
drill collars on the location.
The inherent advantages of EM technology are due to the multi faceted
applications within which it can operate. Because the tool transmits its
signal via a low frequency radio wave thru the Earth's crust, it is ideally
suited for drilling under balanced wells. Conventional mud pulse systems
cannot operate in this environment as the signal they send through the fluid
column of the well bore becomes absorbed by the nitrogen or other gases which
are introduced into the drilling fluid. This gas injection is done to reduce
the hydrostatic pressure of the drilling fluid, enabling the formation
pressure to be slightly greater so minimal invasion of drilling fluid into the
formation occurs. The end result is the prevention of formation damage which
in turn maximizes the production potential of the well.
Some of the other advantages relate to the fact that no moving parts
exist within the system, greatly enhancing reliability. The tool will
operate in all types of well profiles and in a myriad of drilling fluids that
are extremely unfriendly to conventional systems. The Company will add
additional systems to the 3 currently in inventory during the second quarter.
Geographic Expansion
With the signing of certain purchase agreements with directional drilling
companies in California, Texas and Venezuela, the Company looks to
significantly expand and diversify geographically. Additionally, upcoming
projects in Bolivia are imminent with equipment slated for shipment during the
second quarter of 1998. NorthStar is also registered in Argentina and should
market forecasts for the region come to fruition, inventory will be shipped in
the latter part of the fourth quarter. International expansion is a strong
focus for the Company. Increased revenue base and economic diversification
are the main reasons for this strategy but only where it makes economic sense.
The Future
With the reduction in the price of oil, management is of the view that
drilling activity will decline from the previous levels of 1997. This decline
does not appear to be as pronounced to the directional/horizontal portion of
the service sector, as an increasing number of operators are using this
technology as a development tool. Further, the gas market continues to be
strong with more companies wanting to exploit their land holdings
horizontally. The Company realizes that its financial well being is directly
related to that of its customers. The more effective and efficient and
innovative we are in supplying our services to our clients the better they are
able to exploit their reservoirs. Service is our commitment to our customers
and this vision is shared by all of the employees of NorthStar. Our
corporate philosophy is what has enabled us to obtain strong growth in the
past and will enable us to continue a pattern of strong growth for the future.
Respectfully Submitted,
GREG WARD
President and Chief Executive Officer
<<
NORTHSTAR DRILLING SYSTEMS INC.
Balance Sheet
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March 31, September 30,
1998 1997
--------- -------------
(unaudited) (unaudited)
ASSETS
Current Assets
Cash 107,804 94,763
Accounts receivable 5,844,934 6,458,221
Due from shareholders 195,089 148,822
Prepaid expenses and deposits 365,533 40,114
---------- ----------
6,513,360 6,741,920
Capital Assets - Net 4,094,750 2,694,178
---------- ----------
10,608,110 9,436,098
---------- ----------
---------- ----------
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities 4,455,906 4,967,722
Corporate income taxes payable 202,950 529,278
Current portion of longer term debt 611,056 179,055
Obligations under a capital lease 80,508 77,071
---------- ----------
5,350,420 5,753,126
Long-Term Debt
Long-term debt 995,719 147,189
Obligations under a capital lease 104,223 144,383
---------- ----------
1,099,942 291,572
Deferred Income Taxes 12,813 45,000
SHAREHOLDERS' EQUITY
Share Capital 100 100
Special Warrants 2,332,106 2,332,106
Retained Earnings 1,812,729 1,014,194
---------- ----------
4,144,935 3,346,400
---------- ----------
10,608,110 9,436,098
---------- ----------
---------- ----------
NORTHSTAR DRILLING SYSTEMS INC.
Statement of Earnings and Retained Earnings
-------------------------------------------------------------------------
Six Months Six Months
Ended March 31, Ended March 31,
1998 1997
--------------- ---------------
(unaudited) (unaudited)
REVENUES
Directional Services 10,534,877 3,837,152
Direct Costs 7,160,178 2,785,119
---------- ----------
Gross Profit 3,374,699 1,052,033
EXPENSES
General and administrative 1,542,939 708,946
Depreciation and amortization 343,194 72,600
Interest 35,827 25,975
---------- ----------
1,921,960 807,521
Earnings Before Income Taxes 1,452,739 244,512
Income Taxes 654,204 108,800
---------- ----------
Net Earnings for the Period 798,535 135,712
Retained Earnings, Beginning of Period 1,014,194 237,821
---------- ----------
Retained Earnings, End of Period 1,812,729 373,533
---------- ----------
---------- ----------
Basic Earnings Per Share 0.08 0.01
Fully diluted Earnings Per Share 0.06 0.01
NORTHSTAR DRILLING SYSTEMS INC.
Statement of Changes in Financial Position
-------------------------------------------------------------------------
Six Months Six Months
Ended March 31, Ended March 31,
1998 1997
--------------- ---------------
(unaudited) (unaudited)
Cash Provided by (Used For) Operating
Activities
Net earnings for the period 798,535 135,712
Add (deduct) items not requiring
cash outlay depreciation and
amortization 343,194 72,600
Deferred income taxes (32,187) 0
(Gain) loss on disposal of capital
assets (21,781) 2,783
---------- ----------
Funds flow from operations 1,087,761 211,095
Net change in non-cash working capital
components (596,543) (49,845)
---------- ----------
(491,218) 161,250
Cash Provided By (Used For) Investing
Activities
Proceeds on disposal of capital assets 190,801 44,068
Additions to capital assets (1,912,786) (909,098)
---------- ----------
(1,721,985) (865,030)
Cash Provided By (Used For) Financing
Activities
Increase in long-term debt 1,300,000 280,463
Obligations under a capital lease 0 279,913
Repayment of long-term debt (19,469) (92,775)
Repayment of capital lease obligations (36,723) (14,460)
---------- ----------
1,243,808 453,141
Increase (Decrease) in Cash During
Period 13,041 (250,639)
Cash, Beginning of Period 94,763 45,337
---------- ----------
Cash (Cheques Issued in Excess of Bank
Balance), End of Period 107,804 (205,302)
---------- ----------
---------- ----------
NORTHSTAR DRILLING SYSTEMS INC.
Six Month Report
-------------------------------------------------------------------------
Six Months Six Months
Ended Ended
March 31, March 31,
1998 1997 % Change
---------- ---------- --------
FINANCIAL HIGHLIGHTS:
Revenues 10,535 3,837 175%
EBITDA 1,832 343 434%
Net Earnings 799 136 488%
Per Share 0.06 0.01
Funds Flow From Operations 1,088 211 415%
Per Share 0.08 0.02
Capital Expenditures 1,913 909 110%
>>
Note to financial statements
Subsequent events
Initial public offering and secondary offering
In April 1998, the Company issued 2,909,090 common shares at $2.75 per
common share and issued 2,400,000 common shares upon exercise of special
warrants. The net proceeds of approximately $7.4 million were used to
purchase businesses and to finance the acquisition of drilling equipment.
Business acquisitions
On November 25, 1997, the Company agreed to purchase all of the issued
and outstanding shares of Laderal Navigation Systems, Inc. effective October
1, 1997, for total consideration of $2,120,000 comprised of 920,001 common
shares valued at $2,070,000 and stock options to acquire 50,000 common shares
at an exercise price of $2.25 valued at $50,000. The purchase was contingent
upon the Company completing its initial public offering and is recorded under
the purchase method of accounting as at April 30, 1998.
On October 31, 1997, the Company agreed to purchase all of the issued and
outstanding shares of Desvios Controlados de Pozos C.A., a Venezuela-based
company, effective June 30, 1997, for total consideration of $4,125,363
comprised of cash of $715,308, stock options to acquire 150,000 common shares
at an exercise price of $2.75 valued at $145,000 and a liability of
$3,265,055. The purchase was contingent upon the Company completing its
initial public offering and is recorded under the purchase method of
accounting as April 30, 1998.
On November 10, 1997, the Company agreed to purchase all of the issued
and outstanding shares of Directional Drilling Inc., a California-based
company, effective October 1, 1997, for total consideration of $1,798,134
comprised of cash of $894,134. 287,500 common shares valued at $862,500 and
stock options to acquire 50,000 common shares at an exercise price of $2.75
valued at $41,500. The purchase was contingent upon the Company completing
its initial public offering and is recorded under the purchase method of
accounting as at April 30, 1998.
-30-
For further information: Greg Ward, President and Chief Executive
Officer, NorthStar Drilling Systems Inc., (403) 245-4700, Fax: (403) 209-0551
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