EARNINGS / Peak Energy Announces Third Quarter Results
TSE SYMBOL: PES
NOVEMBER 13, 1998
CALGARY, ALBERTA--Peak Energy Services Ltd. announces third
quarter results for the nine months ended September 30, 1998.
/T/
Consolidated Statement of Income & Retained Earnings (Deficit)
($000's), except per share amounts
--------------------------------------------------------------
Three months Nine months
ended Sept. 30 ended Sept. 30
1998 1997 1998 1997
(Revised) (Revised)
Revenue $ 10,628 $ 8,491 $ 33,761 $ 15,786
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Expenses
Operating 5,003 3,222 14,686 6,348
General and
administration 3,440 1,212 8,935 2,755
Depreciation 1,092 1,328 3,260 2,216
Amortization of
goodwill 293 - 838 -
Interest on
long-term debt 432 86 718 121
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10,260 5,848 28,437 11,440
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Income before
income taxes 368 2,643 5,324 4,346
Provision for income
taxes 233 1,202 3,090 1,202
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Net Income 135 1,441 2,234 3,144
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Retained earnings (deficit),
beginning of period 8,264 1,355 6,165 (348)
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Retained earnings(deficit)
end of period $ 8,399 $ 2,856 $ 8,399 $ 2,856
--------------------------------------------------------------
Number of shares
outstanding at end
of period (thousands) 35,179 24,644
Basic earnings
per share $ 0.00 $ 0.07 $ 0.06 $ 0.21
Fully diluted earnings
per share $ 0.00 $ 0.07 $ 0.06 $ 0.18
Fully diluted cash
flow per share $ 0.07 $ 0.17 $ 0.19 $ 0.33
Fully diluted EBITDA
per share $ 0.06 $ 0.18 $ 0.28 $ 0.34
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/T/
The ongoing weakness in crude oil pricing, reduction of our
customers cash flow and their reduced access to capital to finance
capital expenditure programs has continued to have a significantly
negative impact on activity levels in the oil and gas services
industry. Utilization rates for our Drilling Services divisions
averaged 38 percent for the three months ended September 30, 1998
compared to 90 percent in the third quarter of 1997. This level
of utilization tracks very closely with the drilling rig
utilization realized in the industry which totaled 38 percent in
the third quarter compared to 89 percent in the same period in
1997. In spite of the fact that utilization rates are down by
over 55 percent year over year, revenue for the three months ended
September 30, 1998 totaled $10.6 million compared $8.5 million for
the comparable period in 1997, a 25 percent increase. Revenue for
the nine months ended September 30, 1998 totaled $33.8 million
compared to $15.8 million for the comparable period for 1997, a
114 percent increase.
A divisional breakdown of revenue is summarized as follows:
- the Well-Site Accommodations division contributed approximately
22 percent during the third quarter of 1998 compared to 34 percent
in the third quarter of 1997;
- Solids Control contributed 21 percent in the third quarter of
1998 compared to 24 percent during the same period in 1997;
- Drilling Instrumentation contributed 16 percent in the third
quarter in 1998 compared to 23 percent in the third quarter in
1997;
- Production Services contributed 41 percent in the third quarter
in 1998 compared to 13 percent in the third quarter in 1997.
The results for the third quarter were positively impacted by the
expansion of our Production Services division with the operations
of Zeta Oilfield Rentals being included for a full quarter and
Lorchem Industries, which was closed in August 1998, being
included for two months in the quarter ended September 30, 1998.
As planned, the expansion of our Production Services division has
had a major impact in reducing the seasonality of our business as
the company generated 29 percent growth in revenue and more than
doubled its EBITDA from the three month period ended June 30,
1998.
During the three months ended September 30, 1998 several
initiatives were undertaken to reduce our cost structure which
included the rationalization of our reporting entities from eleven
to five and the reduction of approximately 15 percent of our staff
complement excluding Zeta and Lorchem. As a result of these
initiatives we have taken a one time charge of approximately
$500,000 in the quarter, however we anticipate cost savings going
forward of approximately $2.75 million annually. Almost all of
these costs will not have to be incurred in future years even with
an increase in activity levels.
FINANCIAL RESULTS
Operating expenses for the quarter totaled $5.0 million or 47
percent of revenue compared to $3.2 million or 38 percent of
revenue for the same period of 1997. General and Administrative
expenses totaled $3.5 million or 32 percent of revenue compared to
$1.2 million or 14 percent of revenue in the third quarter of last
year. This figure includes the $0.5 million dollar one time charge
taken in the quarter. Earnings before interest, taxes,
depreciation, and amortization (EBITDA) totaled $2.2 million or 21
percent of revenue for the third quarter compared to $4.1 million
or 48 percent of revenue for the same period in 1997. For the nine
months ended September 30, 1998 EBITDA totaled $10.1 million or 30
percent of revenue compared to $6.7 million or 42 percent of
revenue for the same period in 1997.
During the quarter, management assessed its deprecation and
amortization policy for its rental assets and as a result of that
assessment has changed its policy from a declining balance method
to a unit of production method based on utilization rates.
Management believes this better reflects the actual depreciation
of its rental assets, as the majority of our equipment does not
depreciate unless it is being utilized in the field. As a result
of this policy change, September 30, 1997 retained earnings were
increased by $60,000 and an adjustment of $379,000 to retained
earnings occurred in the first six months of 1998. Depreciation
for the three months ended September 30, 1998 totals $1.1 million
compared to $1.3 million for the same period in 1997. Cash flow
from operations before changes in non-cash working capital totaled
$2.7 million or $0.07 per share compared $4.0 million or $0.17 per
share for the comparable period in 1997. Cash flow for the nine
months ended September 30, 1998 totaled $6.7 million, or $0.19 per
share compared to $6.6 million, or $0.33 per share for the same
period in 1997. Net income for the three months ended September
30, 1998 totaled $135,000 or nil per share compared to $1.4
million or $0.07 per share. For the nine months ended September
30, 1998 net income totaled $2.2 million or $0.06 per share
compared to $3.1 million or $0.18 per share for the same period in
1997.
OUTLOOK
The implementation of Zeta Oilfield Rentals Ltd. and Lorchem
Industries into our Production Services division has greatly
enhanced our overall operations and now accounts for 41 percent of
our revenue as compared to 18 percent for the first half of 1998.
This shift has had a positive impact on our operations in the past
quarter and we expect this to continue in the immediate future.
Our Drilling Services divisions will continue to be negatively
impacted due to low crude prices and will be levered directly to
activity levels in the industry drilling rig fleet. We are seeing
some seasonal strengthening in utilization rates, however activity
levels are still well below historical averages for this time of
year and we now expect that only 10,500 wells will be drilled in
1998.
Looking to 1999 we expect the well count will remain at 1998
levels, however with our expansion in the Production Services
division and the capital expenditures undertaken in our Drilling
Services divisions we anticipate strong year over year growth in
1999 regardless of the fact that industry utilization will remain
flat from 1998 levels.
We remain optimistic about the long term fundamentals of the oil
and gas service industry in Canada and have continued to put the
building blocks in place for a very strong, diversified service
company which will benefit greatly from increased activity levels
once an increase and stabilization in crude oil prices occurs.
Until that time we will continue reviewing our operations at all
levels to gain efficiencies and reduce costs and continue to
position Peak Energy Services Ltd. as one of the dominant
providers of services to the Western Canadian oil and gas
industry.
Peak Energy Services Ltd. is a diversified energy services company
providing oilfield rental equipment and related services to the
energy industry in Western Canada. Peak's shares are listed on
The Toronto Stock Exchange under the symbol "PES".
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