DAL Dalmac Energy Inc

 DALMAC ENERGY INC. TSX Venture: "DAL"

EDMONTON, March 23, 2015 /CNW/ - John Babic, President and CEO of Dalmac Energy Inc. ("Dalmac") (TSX Venture "DAL") is pleased to announce fiscal 2015 third quarter financial results for the three month and nine month periods ended January 31, 2015.

The third quarter was impacted by falling oil prices which fell about 50% from the summer of 2014. Dalmac's revenues from fluid transfers and well stimulation services consequently decreased by 7% from $10.3M to $9.5M on the quarter.  The year to date revenues also slipped 7% from $27.2M to $25.4M. Service operations were affected by many of our customers electing to take an early Christmas break and did not resume fully until about the middle of January. Concurrent with the break, the oil and gas service industry was requested to take a 10-20% rate cut from almost all of our major customers.

The net operating income for Q3'15 before loss on disposition of assets was $130K and $198K for the nine months ended January 31, 2015.  The net loss for the quarter after disposition of assets was $120K as compared to a net income of $229K in Q3'14. The YTD'15 net loss was $267K as compared to $153K at the same period in the previous year.

Quarterly Gross Margin as a percentage of revenue came in at 24% which was on par with last year. The year to date GM increased by 3% to 26% from the same period in the previous year. The YTD increase in GM is a reflection of management's commitment towards maintaining appropriate staffing and utilization levels which is pared to our needs and to the circumstances envisioned in an overly quick and changing market. Dalmac has elected to take a proactive and prudent approach toward the capitalization of repairs and maintenance to more accurately determine the fair market value of its assets given the state of the oil and gas sector.  Management chose not to capitalize several expenses which were capitalized in previous years which had an immediate impact on the bottom line for Q3'15 but which will reduce or eliminate potential losses on the disposition of equipment.  The gross margin in Q3'15 was impacted by repair and maintenance expenses of $1.6M as compared to $1.4M in Q3'14.  Furthermore, the capitalized portion or repairs and maintenance decreased by 76% or $518K.  Had Dalmac opted not to take a more conservative approach towards capitalization, the gross margin for the quarter would have been closer to 29%.  The decision to expense these items along with the loss on sale of assets of $250K not only reduced Dalmac's gross margin, but resulted in a decrease of approximately $768K in net income for the quarter. Even though the condition of our asset equipment has never been in better shape, management will endeavour to keep an eye on the repair and maintenance process so as to keep necessary expenditures more on par with the revenue stream.

Dalmac's overall general and administrative expenses increased by about 5% on the quarter and remained relatively even on the year to date.  The quarter over quarter increase is primarily due to professional fees and office expenses. Apart from amortization the next largest expense category was wages, benefits and salaries which increased 7% to $642K on the quarter and decreased 8% to $2.0M for the year to date.  Long term debt (excluding finance leases) decreased by 17% to $10.4M.

Outlook
The continuing volatility of commodity prices is putting pressure on many E&P producers to make significant reductions to their capital and operating budgets. Drilling rig utilizations, which serve as a barometer of oilfield activity, witnessed a 40% drop in the first two months of 2015 as compared to the same time last year. Compounding the problems associated with lower activity levels,  rate reductions,  an usually warm winter and what seems to be an earlier than normal start to the spring breakup season, Dalmac is also expecting to see a reduction in drilling, completions and production maintenance expenditures as E&P producers strive to conserve their cash until commodity prices recover. The current CAODC forecast of a 26% drilling rig utilization for 2015 as compared to 46% for 2014 correspondingly implies lower activity levels in the oilfield services industry for this year as compared to last.  Given that Dalmac generates about 70% of its revenue from fluid transfer services which will invariably continue as long as the wells are in production, we will be hard pressed not to avoid the impact of rate reductions demanded by the E&P producers which is currently in the vicinity of 10-15% off our existing rates. We also anticipate that there will be ongoing drilling and completions activity in our area of operations in which Dalmac is expecting to get its share of the activity but that too will probably be more price sensitive than in the past.  In responding to rate cuts requested by our customers Dalmac is working in concert with them  to expand our activity levels by applying selective weighted discounts to varied underutilized service equipment.

Dalmac intends to move the dial on revenue growth by increasing the utilization of underperforming assets by featuring them as a value add in our broad range products of services while continuing to represent ourselves as a one-stop shop. This demonstrates our desire of being a value added business partner which is dedicated to helping our customers achieve their targeted goals.

In order to deal with the aforementioned developments properly, Dalmac is proactively engaging several other cash saving initiatives targeted towards preserving our cash resources and maintaining our balance sheet strength as well as addressing our most valuable asset – our key employees.

While the Canadian oil and gas industry continues to deal with the impact of lower energy pricing, management is confident that Dalmac will continue to deliver solid shareholder value while striving to be a leading provider of well stimulation and fluid management services to the energy sector.

Conference call

A conference call to discuss the results will be held Tuesday March 24, 2015, at 11:30 am EST / 9:30am  MST.

To participate in the conference call, please dial 416-847-6330 local in Toronto or toll-free 1-866-530-1553 and request the Dalmac Energy conference.

Statements throughout this report that are not historical facts may be considered 'forward looking statements'. Such statements are based on current expectations that involve risks and uncertainties, which could cause actual results to differ from those anticipated. Important factors that can cause anticipated outcomes to differ materially from actual outcomes include the impact of general economic conditions, industry conditions, competition from other industry participants, volatility of petroleum prices, the ability to attract and retain qualified personnel, changes in laws or regulation, currency fluctuations, continued ability to access capital from available facilities and environmental risks. References to "Dalmac', the "Corporation", "Company", "us", "we", and "our" mean Dalmac Energy Inc. and its subsidiary Dalmac Oilfield Services Inc. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release. We seek safe harbor.

SOURCE Dalmac Energy Inc.