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Plains Energy increases year-end revenues
Plains Energy Services Ltd PLA
Shares issued 20,945,705 Mar 11 close $3.50
Fri 12 Mar 99 News Release
Mr. Ken Mullen reports
Plains Energy Services is now operating three coiled tubing drilling rigs
in North America using the company's patented design, two in Canada and one
in the United States. The prototype rig (rig 1), operated by XL Drilling
Ltd., a wholly owned subsidiary of Plains Energy effective Jan. 27, 1999,
has now drilled almost 300 wells over the past 18 months. In 1998 rig 1
drilled 2.5 per cent of all the wells drilled in Canada, amounting to
approximately 10 times the average number of wells drilled by conventional
drilling rigs. For better comparison, the single Plains Energy rig drilled
five times the number of wells of competitors operating in the same depth
range. All of this was accomplished while at the same time achieving world
record penetration rates and savings for the company's customers of as much
as one-third of the costs of drilling using conventional methods.
In early February 1999 the company's latest generation rig based on the
same proprietary design (rig 2) was introduced on a pilot project for a
large Canadian producer. The pilot project entailed six wells in total, two
to be drilled by Plains Energy, two by a competitor and two by the best
performer in the first four wells. Ultimately, rig 2 drilled five of the
six wells while the company's competitor managed one, that well being the
shallowest of the group. The wells drilled by Plains Energy required less
than one day each, including logging, while the company's competitor
required two weeks to complete its single well.
Based on Hughes Christensen bit records, as compared with direct offset
wells, rig 2 achieved a 76 per cent increase in penetration rates over
conventional rigs in the area. Logs were run on each well and the results
showed that the well bores drilled by rig 2 demonstrated lower total depth
deviation than conventional rigs drilling in the same area. This, coupled
with the extensive history of rig 1, conclusively addresses the unfounded
suggestions that coil drilling is less accurate than conventional means.
The average well depth for the pilot project was in the range of 600 metres
while rig 1 has drilled as deep as 1,150 metres. The depth capacity for rig
2 is at least 1,500 metres.
After the initial pilot project, rig 2 was moved to a location east of Red
Deer, Alta. to drill a 776-metre well for another producer. No surface
casing was preset on this well, requiring rig 2 to drill a 251-millimetre
hole to 110 metres to set 178-millimetre casing. After successfully
drilling and setting the surface casing, the well was then drilled to a
total depth of 776 metres with a 159-millimetre bit. The average
penetration rate in the main hole was 56.6 metres per hour. Based on
publicly available direct offset drilling records for conventional rigs
indicating an average penetration rate in the area of 25 metres per hour,
rig 2 achieved a 126 per cent increase in average penetration rate over
conventional rigs in identical conditions.
Rig 2 was then moved to another project in a new area targeting the
600-metre range of total depth. Rig 2's rate of penetration on the third
project was triple the 45-metre-per-hour average in the area, and peak
penetration rates exceeded 200 metres per hour.
In summary, on the past nine wells, rig 2 has achieved penetration rates
that are on average more than double that of conventional rigs. Rig 2 has
been active in three distinct drilling areas in Alberta. All nine wells
were surveyed and logged to dispel the fallacy that coiled tubing rigs do
not drill straight. It is critical to realize that these are the first
commercial wells drilled by rig 2, and that the results will undoubtedly
improve as the rig crews become familiar with its operations and the
potential of the technology is more completely realized.
In addition to the substantial success achieved by the second generation
rig, rig 1 has continued to perform extremely well. Drilling in the
Primrose area of Alberta for much of January and February of 1999, rig 1
successfully drilled over 35 wells at depths to 1,100 metres, without
difficulty, averaging penetration rates over 80 per cent faster than the
fastest conventional rig in the area, and demonstrating clearly the ability
of the rigs to operate in extremely cold environments, further expanding
the range of drilling environments that coiled tubing drilling can handle.
Plains Energy holds several Canadian and U.S. patents over the process
through which it uses coiled tubing for drilling purposes, and is
anticipating constructing a minimum of three and maximum of six additional
coiled tubing drilling rigs for use in Canada and the United States in 1999
in response to substantial demand from oil and gas producing companies.
With overall depth capacities of new versions approaching 2,000 metres, it
is anticipated that new rigs introduced into the market will penetrate the
market rapidly. Plains Energy's design represents the only coiled tubing
design in the world proven to be both operationally and commercially
superior to competing conventional drilling rigs operating in the same
environment. With at least 50 per cent of the new drilling in Canada in
1999 to be in the less than 1,000 metre range for shallow gas, Plains
Energy is extremely excited about the prospects for its new technology.
Alberta Energy Corporation (AEC) has committed to drilling programs for all
three existing coiled tubing units owned by Plains Energy. All surface
casing on the related AEC wells has also been awarded to Plains Energy. Rig
4, presently operating in the United States, will be transferred to Canada
over the next few weeks to begin an extended drilling program in Canada for
another customer. Rigs 5 and 6 will be available to meet existing customer
demand by July 1999.
Financial
Effective for 1998, Plains Energy has converted to a December year-end.
Accordingly, the results disclosed herein reflect 14 months of operations.
Plains Energy's focus in 1998 was primarily to streamline its core
businesses by consolidating its operations in respect of the acquisitions
it had completed in 1996 and 1997, rationalizing underperforming operations
and reducing overhead and operating costs. Notwithstanding a challenging
oil and gas service environment, the company completed construction of two
coiled tubing drilling units, its Calgary machining, manufacturing and
maintenance facility, and introduced production logging to its wireline
services division.
The 30 per cent drop in crude oil prices over 1998 sharply reduced the
company's customers' cash flows, and accordingly, the demand for its
services in the year. Notwithstanding this, Plains Energy was able to
increase revenues by approximately 80 per cent over 1997. Margins, however,
were reduced as a result of the competitive market, resulting in reduced
returns as compared with 1997.
The company has focused its efforts on four key divisions heading into
1999: surface control systems; drilling and well bore services; wire line
services; and downhole tools and manufacturing.
As noted above, one of management's key objectives in 1998 was to
consolidate its previous acquisitions along with reducing administrative
and operating costs through a streamlined organizational structure. This
was achieved in all divisions. In addition, the consolidation of the
company's field and administrative services, employee benefits, along with
insurance and banking was also completed in 1998, again reducing the
overall costs of these programs. The cost of this restructuring has
resulted in a onetime pretax restructuring charge of $1,465,000 (seven
cents per share).
As part of the review of operations in 1998, it became clear that the
company's directional drilling business was facing a depressed market and
limited short to medium-term prospects. In addition, the number of
competitors in that market had increased from approximately seven when the
company entered the market to approximately 26 by year-end 1998. As a
result, the directional drilling business was discontinued in November
1998. Plains Energy will suffer a onetime charge in relation to
discontinuing these operations of $2,629,000 (13 cents per share) before
tax recoveries of $880,000. Both of the aforementioned costs were
recognized in the November-December 1998 stub period as part of the
company's 14-month 1998 fiscal year. As the company anticipates continued
reduced activity levels subsequent to the peak winter season, it will be
reviewing its staffing and operations costs in response to activity levels.
Outlook
In common with all oil and gas service companies, the company foresees a
difficult operating environment in 1999 for both its Canadian and U.S.
operations. With its customers' cash flows restricted due to low netbacks
on their production, and acute difficulty in sourcing additional financing,
drilling levels will be curtailed from 1998's sub-10,000 well level.
However, Plains Energy feels it is well positioned to capitalize on an
increasing proportion of the work which will be undertaken. The company's
focus on providing cost-effective technologies and services, particularly
its coiled tubing drilling services, will allow it to capture substantial
portions of the rapidly growing shallow gas drilling market. In light of
this, the company is continuing a cash-flow dependent drilling rig
construction program with a view to exiting 1999 with a maximum of nine
coiled tubing drilling rigs. Though not a significant fleet in absolute
number of rigs, the company's capacity to drill more quickly and cost
effectively than conventional rigs should allow it to penetrate the market
rapidly and capture a disproportionate share of the drilling market. By
competitively combining the company's downhole tools, wire line, service
rig and production testing capabilities, its remaining divisions should
benefit from its drilling capabilities as well.
While the company remains cautious in light of the substantial
uncertainties in the overall oil and gas service market, particularly in
Canada, Plains Energy possesses technologies and a business approach well
suited to the needs of its customers. In the existing environment, the
company will obviously continue to review its individual divisional
operations with a view to rationalizing any excess capacity that may exist.
WARNING: The company relies upon litigation protection for
"forward-looking" statements.
FINANCIAL HIGHLIGHTS
(thousands of dollars)
14mo ended 12mo ended
12/31/98 10/31/97
Revenue $ 93,260 $ 50,501
Income from
continuing
operations 3,883 6,545
Discontinued
operations (1,749) -
Net earnings 2,134 6,545
Income per share
from continuing
operations 20 cents 50 cents
Loss per share
from discontinued
operations 9 cents -
Net earnings
per share 11 cents 50 cents
Cash flow 14,743 10,926
Cash flow
per share 74 cents 83 cents
Earnings before
interest, taxes,
depreciation and
amortization 19,153 16,158
Earnings before
interest, taxes,
depreciation and
amortization per
share 6 cents 1.23 |
