CALGARY,
March 20, 2013 /CNW/ - IROC Energy
Services Corp. ("IROC" or the "Corporation") (TSXV: "ISC") is
pleased to present a summary of its operating and financial results
for the three and twelve months ended December 31, 2012. For a complete copy of IROC's
interim financial statements and management's discussion and
analysis ("MD&A") please visit www.sedar.com.
HIGHLIGHTS
Following a robust industry environment in 2011,
lower commodity prices caused exploration and production companies
to curtail their capital spending in 2012, negatively impacting
industry activity levels in 2012. In spite of the macro
industry challenges, IROC was able to continue to execute its
growth plans resulting in a number of positive achievements in
2012:
- Achieved record annual revenue and EBITDAS of $101.2 million and $30.3
million, respectively, representing a 18% and 13% respective
increase in revenue and EBITDAS over fiscal 2011;
- Invested $37.0 million in capital
expenditures, increasing IROC's service rig fleet by 9 rigs and
added $10.1 million in new rental
assets. Continued demand for IROC's services prompted the
board of directors to approve a $25.2
million capital expenditure budget for 2013, which will
include 6 new service rigs, $8.0
million in new rental assets and $2.5
million for miscellaneous equipment and maintenance capital;
and
- Returned a total of $5.0 million
to investors via dividends, with a further $1.5 million paid in January 2013.
The positive results achieved in 2012 were a
direct result of IROC's $69.9 million
investment in the enhancement and expansion of the Corporation's
operating assets over the last two years. Strong customer
demand for IROC's service rigs allowed the Corporation to expand
its service rig fleet by 9 rigs in 2012 leaving IROC with a fleet
of 50 free standing service rigs as at December 31, 2012. Revenue also benefited
from IROC's expansion of its rental business during 2011 and 2012,
resulting in a 10% increase in rental revenue for 2012 versus
2011. IROC continues to invest in opportunities to expand its
service rig fleet as well as its inventory of specialized high
pressure completions rental equipment.
Although revenue increased $15.4 million year over year, increased labor and
fuel costs combined with competitive pricing resulted in margin
compression during the year relative to 2011. Gross margin as
a percentage of revenue declined 2% to 39% for the year ended 2012
versus the 41% margin achieved in 2011.
This lower gross margin contribution was
partially offset by lower general and administrative costs as a
percentage of revenue which was 9% in 2012 versus 10% in 2011,
resulting in EBITDAS of $30.3 million
(30% of revenue) versus $26.9 million
(31% of revenue) in 2011. The lower general and
administrative costs as a percentage of revenue is due to greater
economies of scale being achieved by the expansion of IROC's
business operations.
The increased EBITDAS was partially offset by
higher depreciation costs resulting in a nominal increase in net
income from continuing operations to $13.5
million during 2012 versus $13.4
million in 2011. Depreciation expense increased
$3.2 million to $10.6 million in 2012 as a result of the capital
investments made during 2011 and 2012.
IROC's larger average fleet size of 47.8 rigs in
the fourth quarter of 2012 allowed the Corporation to generate
$27.1 million in revenue, exceeding
the $26.7 million in revenue
generated in the fourth quarter of 2011. However, lower fleet
utilization combined with competitive pricing pressures and
increased field operating costs resulted in gross margin declining
to $10.3 million (38% of revenue)
during the quarter from $10.8 million
(41% of revenue) in the fourth quarter of 2011. Lower than
expected operating performance and utilization of the Corporation's
three coiled tubing units also negatively impacted the
Corporation's operating results during the quarter.
The lower gross margin results in the quarter
were partially offset by a $0.2
million decline in general and administrative expenses
resulting in EBITDAS of $8.3 million
(31% of revenue) in the quarter versus $8.6
million (32% of revenue) in fourth quarter of 2011.
The decline in gross margin combined with increased depreciation
expense caused net income to decline to $3.6
million in the quarter from the $4.8
million generated in the fourth quarter of 2011.
As a result of the strength and success of
IROC's business operations, IROC was presented with a proposed
business combination by Western Energy Services Corp. ("Western")
subsequent to year end. On February
21, 2013 IROC entered into an arrangement agreement with
Western whereby Western would acquire IROC's outstanding shares in
exchange for a combination of cash and Western shares. The
Western offer equated to an implied value of $3.10 per IROC share which was a 32% premium to
IROC's 20-day volume weighted average trading price of $2.35 per share as at February 21, 2013. Additional details of
the transaction are contained in IROC's February 22, 2013 press release as well as the
subsequent event discussion in the Corporation's MD&A and
December 31, 2012 audited financial
statements.
RESULTS OF OPERATIONS
|
|
Three
months ended
December 31 |
Year
ended
December 31 |
($ Thousands, except per share
amounts) |
2012 |
2011 |
2012 |
2011 |
Revenue |
$
27,117 |
$ 26,724 |
$ 101,154 |
$ 85,740 |
Operating expenses |
$ 16,840 |
$ 15,887 |
$
62,026 |
$ 50,456 |
Gross margin (1) |
$ 10,277 |
$10,837 |
$ 39,128 |
$ 35,284 |
|
Gross margin % |
38% |
41% |
39% |
41% |
General and administrative
expenses |
$ 1,979 |
$2,194 |
$
8,816 |
$ 8,370 |
EBITDAS (1) |
$ 8,298 |
$ 8,643 |
$ 30,312 |
$ 26,914 |
|
EBITDAS % |
31% |
32% |
30% |
31% |
Depreciation and amortization |
$ 2,983 |
$ 2,112 |
$
10,603 |
$ 7,397 |
Share-based compensation |
$ 200 |
$ 167 |
$
724 |
$ 604 |
Other (income) expense |
$ (152) |
$ (9) |
$
(218) |
$ 11 |
Operating income |
$ 5,267 |
$ 6,373 |
$
19,203 |
$ 18,902 |
Finance costs |
$ 242 |
$ 163 |
$
785 |
$ 803 |
Income before income tax |
$ 5,025 |
$ 6,210 |
$
18,418 |
$ 18,099 |
Provision for current and deferred
income taxes |
$ 1,435 |
$ 1,432 |
$4,917 |
$ 4,720 |
Net income from continuing
operations |
$ 3,590 |
$ 4,778 |
$ 13,501 |
$ 13,379 |
Loss from discontinued operations |
$ (70) |
$ (8) |
$
(70) |
$ (1,192) |
Net income |
$ 3,520 |
$ 4,770 |
$
13,431 |
$ 12,187 |
Net income per share from continuing
operations: |
|
Basic
Diluted |
$ 0.07
$ 0.07 |
$ 0.10
$ 0.10 |
$
0.27
$ 0.26 |
$ 0.28
$ 0.27 |
Net income per share:
|
|
Basic |
$ 0.07 |
$ 0.10 |
$
0.27 |
$ 0.25 |
|
Basic |
$ 0.07 |
$ 0.10 |
$
0.26 |
$ 0.25 |
(1) See non-IFRS
measures. |
IROC is an oilfield services company operating
in the Western Canadian Sedimentary Basin ("WCSB"). The
Corporation's business is conducted through two segments: Drilling
and Production Services and Rental Services. The discussion
that follows provides an overview of IROC's financial and business
performance in these two segments as well as a discussion on the
other general business expenditures incurred by the
Corporation.
FINANCIAL OVERVIEW - YEAR ENDED DECEMBER 31, 2012 VERSUS 2011
Drilling and Production Services Operations
|
|
Year ended December 31 |
($
Thousands) |
2012 |
2011 |
Variance |
%
Change |
Revenue |
$ 84,583 |
$ 70,589 |
$ 13,994 |
20% |
Operating expenses (1) |
$ 54,612 |
$ 44,110 |
$ 10,502 |
24% |
Gross margin (2) |
$ 29,971 |
$ 26,479 |
$ 3,492 |
13% |
|
Gross margin % |
35% |
38% |
(3%) |
(8%) |
Service rig utilization %
(3) |
61% |
65% |
(4%) |
(6%) |
Average number of service rigs during
period |
45.4 |
37.3 |
8.1 |
22% |
Service rigs at end of period |
50 |
41 |
9 |
22% |
(1) |
Operating expenses includes $662 ($537 in 2011) of intersegment
costs charged to the Drilling and Production Services division from
the Rental Services division. |
(2) |
See non-IFRS measures. |
(3) |
IROC calculates utilization based on full utilization being 10
hours per day, 365 days per year, which is consistent with the
Canadian Association of Drilling Contractors ("CAODC")
standard. |
IROC's Drilling and Production Services segment
consists of the Corporation's conventional service rig division,
Eagle Well Servicing ("Eagle"), as well as the Corporation's coiled
tubing division, Helix Coil Services ("Helix").
As at December 31,
2012, IROC owned a fleet of 50 free standing service rigs in
its Eagle division which have enjoyed strong customer acceptance
due to their use of industry leading technologies and reliable
operational performance. The average age of Eagle's service
rig fleet is approximately 4.5 years, which is one of the newest
service rig fleets in the WCSB. The recent additions to
Eagle's rig fleet has allowed the rigs to benefit from technology
enhancements that have provided opportunities for Eagle to reduce
well servicing times resulting in cost savings for Eagle's
customers. Eagle's rig designs also incorporate lightweight
materials where possible to reduce rig weights which allow for
greater rig mobility during seasonal road ban periods.
In response to strong customer demand for
Eagle's service rigs, IROC added 9 service rigs to its fleet in
2012. The rig additions consisted of 3 singles, 3 doubles,
and 3 slant rigs. Eagle's double service rigs have greater
depth and weight capacities than its single rigs allowing the
double rigs to operate in the deeper and more challenging well
conditions associated with the growing shale gas and oil resource
plays in the WCSB. The single rigs are generally utilized to
service conventional oil and natural gas wells located in central
Alberta and Saskatchewan. Eagle's slant rigs are
specially designed to service heavy oil wells located in northern
Alberta and Saskatchewan.
In addition to the benefits received from
Eagle's newer rig fleet, the industry trend towards oil related
exploration and development activity continues to benefit the
Corporation as service rigs are typically utilized more for oil
well completions and workovers versus natural gas wells. Oil
wells also generally require more frequent workover services than
natural gas wells. Over 90% of Eagle's service rig activity
is levered to the completion, workover and abandonment of oil
wells.
A significant portion of the increase in oil
related activities is focused in heavy oil resource plays, which is
beneficial to IROC's slant rigs. These rigs are specially
designed to service slant wells which are prevalent in heavy oil
resource plays. In addition to the slant design of the rigs, they
also utilize integrated rod X-celerators which allows the rig to
handle both jointed pipe as well as continuous rod pipe which is
common on heavy oil wells. The dual purpose functionality of
these rigs provides IROC's customers with a more efficient and cost
effective service rig to complete their well workover
requirements.
In addition to IROC's service rig fleet, IROC
also has three coiled tubing units operating under the
Corporation's Helix division. The Helix coiled tubing units
were introduced during the second half of 2011 and are primarily
used for horizontal well completions and workovers. During
the industry's period of high completions activity, the units
enjoyed strong utilization in 2011 and early 2012, however, coil
utilization declined in the second half of 2012 due to lower
industry horizontal well completions activity levels. The
Helix division contributed $5.6
million in revenue during 2012 versus $4.4 million in 2011.
As a result of the Eagle service rig additions,
combined with a full year contribution from Helix's coiled tubing
units, revenue in the Drilling and Production Services segment
increased to $84.6 million in 2012
versus $70.6 million in 2011.
Revenue also benefitted from a 5% increase in Eagle's average
service rig revenue rate in 2012 versus 2011. This average
rate increase was primarily due to the expansion of Eagle's double
and slant rig fleet which receive higher rates associated with the
more technically challenging work these rigs perform relative to
Eagle's smaller single rigs.
The revenue increase resulted in a $3.5 million increase in gross margin in IROC's
Drilling and Production Services segment to $30.0 million for 2012 from $26.5 million in 2011. Partially offsetting
the positive impact to gross margin from increased revenue were
higher operating costs which caused gross margin as a percentage of
revenue to decline to 35% for the year in comparison to the 38%
gross margin percentage achieved in 2011. The primary
contributing factors to higher operating costs were increased labor
costs as well as higher fixed operating costs for the coiled tubing
units.
Labor costs increased due to wage increases
implemented in late 2011 combined with recruitment and training
related costs for new staff. The ability to hire and retain
sufficient skilled labor continues to be one of the primary
challenges facing the oilfield service industry resulting in high
turnover and increased training and wage costs to attract and
retain skilled staff.
Operating costs for the Helix coiled tubing
units increased due to the impact of full year operations as well
as fixed salary costs for the coiled tubing staff. Unlike the
compensation structure for the Eagle service rig staff which is
fully variable, coiled tubing staff are compensated through a
combination of a fixed monthly salary and a variable field rate
when the units work. Due to the slowdown in activity during
the second half of 2012, the fixed salary costs negatively impacted
gross margins for the coiled tubing units. Activity for the
Corporation's coiled tubing units has increased in the first
quarter of 2013 in conjunction with increased completions
activities of IROC's customers.
Rental Services Operations
|
|
Year ended December 31 |
($ Thousands) |
2012 |
2011 |
Variance |
% Change |
Revenue (1) |
$ 17,233 |
$ 15,688 |
$ 1,545 |
10% |
Operating expenses |
$ 8,076 |
$ 6,883 |
$ 1,193 |
17% |
Gross margin (2) |
$ 9,157 |
$ 8,805 |
$ 352 |
4% |
|
Gross margin % |
53% |
56% |
(3%) |
(5%) |
Capital cost of rental equipment at
end of period |
$ 28,456 |
$ 19,729 |
$ 8,727 |
44% |
(1) |
Revenue includes $662 ($537 - 2011) of intersegment revenue
charged to the Drilling and Production Services division from the
Rental Services division. |
(2) |
See non-IFRS measures. |
IROC's rental services segment consists of the
Aero Rental Services division ("Aero"). Aero specializes in
the rental and service of high pressure equipment utilized in
drilling and completions activities. Aero's fleet of rental
equipment primarily consists of: blow out prevention devices
("BOPs"); well fracturing manifolds and pressure control devices;
and tubular handling devices. This equipment is ideally
suited for well completions in the emerging shale and tight natural
gas and oil resource plays in the WCSB. Development of these
resource plays requires intensive well fracturing services at high
pressures which require the use of various types of equipment
provided by Aero.
Revenue from the rental services segment
increased to $17.2 million from
$15.7 million in 2011. This
increase is primarily derived from IROC's $10.1 million investment in additional rental
equipment in 2012, combined with the $4.0
million investment in rental equipment in the second half of
2011.
While revenue increased 10% year over year, the
mix of equipment being rented combined with increased fixed
operating costs caused gross margin as a percentage of revenue to
decline to 53% in 2012 versus 56% in 2011. Competitive
pricing pressures also exist in the market, however, management
believes that the high quality of Aero's rental equipment combined
with Aero's strong customer service will allow the division to
mitigate some of the impact of competitive pricing pressures.
IROC also continues to evaluate new technology and service
additions to Aero's service offerings which will help to grow
Aero's market share and differentiate itself from its
competitors.
General and Administrative Expenses
As a result of the Corporation's growth in 2012,
additional investment in general and administrative support
infrastructure was required resulting in general and administrative
expenses increasing to $8.8 million
in 2012 versus $8.4 million in
2011. However, general and administrative costs declined as a
percentage of revenue to 9% from 10% in 2011.
Depreciation and Amortization Expense
Depreciation expense increased to $10.6 million in 2012 versus $7.4 million in 2011. This increase is due
to IROC's $37.0 million investment in
capital expenditures in 2012, combined with the effect of the full
year depreciation related to the $22.1
million capital asset expenditures made in the last six
months of 2011.
Share-based Compensation Expense
Share-based compensation expense increased
$0.1 million to $0.7 million during 2012 as a result of
additional stock options and restricted share units ("RSUs") issued
in 2012 under the Corporation's stock option and RSU plans.
As at December 31, 2012 the
Corporation had 1,725,701 stock options and 471,838 RSUs
outstanding.
Other (income) Expense
Other income is primarily comprised of a
$0.2 million gain on the sale of
older obsolete equipment in 2012 for proceeds of $0.8 million. Consistent with IROC's goal
of maintaining a high quality operating fleet, management routinely
reviews its operating fleet and determines opportunities to divest
of older, less efficient equipment and reinvest the proceeds in new
equipment.
Finance Costs
Interest and financing costs were consistent
year over year at $0.8M. The
Corporation utilized a combination of operating cash flows and debt
facilities to fund its $37.0 million
in capital expenditures during 2012. The average debt balance
outstanding during 2012 was $19.3
million versus $14.5 million
in 2011. The impact to interest cost of this higher average
debt balance was offset by lower average interest rates during 2012
relative to 2011.
Income Taxes
Income tax expense increased to $4.9 million versus $4.7
million in 2011. The increase was primarily due to the
Corporation's higher pre-tax income during the year. IROC's
effective tax rate was 26.7% versus the combined federal and
Alberta provincial statutory rate
of 25.0%. The higher effective rate was related to the impact
of non-deductible expenses for tax purposes such as stock-based
compensation expense.
Discontinued Operations
On July 14, 2011
IROC sold the business assets of its Canada Tech division ("Canada
Tech"). Subsequent to year end IROC settled, on a no fault
basis, an outstanding lawsuit with the former owners of
Canada Tech for $0.2 million. The cost of this settlement
has been accrued in the Corporation's December 31, 2012 year end results. This
settlement combined with the final settlement of various other
outstanding accounts receivable and payable amounts resulted in the
Corporation incurring a net after-tax loss of $0.1 million from discontinued operations for
fiscal 2012.
FINANCIAL OVERVIEW - THREE MONTHS ENDED DECEMBER 31, 2012 VERSUS 2011
Drilling and Production Services Operations
|
|
Three months ended December 31 |
($ Thousands) |
2012 |
2011 |
Variance |
% Change |
Revenue |
$ 22,714 |
$ 22,317 |
$ 397 |
2% |
Operating expenses (1) |
$ 14,948 |
$ 14,133 |
$ 815 |
6% |
Gross margin (2) |
$ 7,766 |
$ 8,184 |
$ (418) |
(5%) |
|
Gross margin % |
34% |
37% |
(3%) |
(8%) |
Service rig utilization %
(3) |
63% |
69% |
(6%) |
(9%) |
Average number of service rigs during
period |
47.8 |
39.6 |
8.2 |
21% |
Service rigs at end of period |
50 |
41 |
9 |
22% |
(1) |
Operating expenses includes $137 ($258 - 2011) of intersegment
costs charged to the Drilling and Production Services division from
the Rental Services division. |
(2) |
See non-IFRS measures. |
(3) |
IROC calculates utilization based on full utilization being 10
hours per day, 365 days per year, which is consistent with the
Canadian Association of Drilling Contractors ("CAODC")
standard. |
Consistent with the increase in IROC's full year
results, IROC's larger fleet size allowed the Corporation to
increase revenue to $22.7 million in
the quarter versus $22.3 million in
the fourth quarter of 2011. The positive contribution from
the Corporation's service rigs was partially offset by lower
activity in the Corporation's Helix division. The Helix
division generated $1.0 million in
revenue during the quarter versus $2.7
million in the fourth quarter of 2011.
Increased operating costs associated with the
Corporation's larger fleet size and higher wage costs combined with
high fixed operating costs in the Helix division caused gross
margin to decline to $7.7 million
(34% of revenue) in the quarter from $8.2
million (37% of revenue) in the fourth quarter of
2011. Lower industry activity levels have not provided IROC
an opportunity to increase revenue rates to offset increasing wage
costs, thus margins have been negatively impacted.
Rental Services Operations
|
|
Three months ended December 31 |
($ Thousands) |
2012 |
2011 |
Variance |
% Change |
Revenue (1) |
$ 4,540 |
$ 4,665 |
$ (125) |
(2%) |
Operating expenses |
$ 2,029 |
$ 2,012 |
$ 17 |
1% |
Gross margin (2) |
$ 2,511 |
$ 2,653 |
$ (142) |
(4%) |
|
Gross margin % |
56% |
57% |
(1%) |
(2%) |
Capital cost of rental equipment at
end of period |
$ 28,456 |
$ 19,729 |
$ 8,727 |
44% |
(1) |
Revenue includes $137 ($258 - 2011) of intersegment revenue
charged to the Drilling and Production Services division from the
Rental Services division. |
(2) |
See non-IFRS measures. |
Lower industry activity levels for well
completions negatively impacted IROC's rental services operations
during the quarter resulting in flat quarter over quarter revenue
results of $4.6 million in spite
having an additional $2.0 million in
rental assets available during the quarter.
In spite of the recent industry slowdown in
completions activities, IROC continues to experience strong demand
for its high pressure well fracturing rental equipment. The
demand for this equipment is mitigating the decline in demand for
other rental equipment in the Corporation's fleet. IROC
continues to expand its high pressure rental equipment fleet in an
effort to differentiate itself from its competitors and capture a
greater share of this market segment.
Operating costs for IROC's rental services
operation are relatively fixed, thus the decline in rental revenue
during the quarter caused gross margin to decline to $2.6 million (56% of revenue) from $2.7 million (57% of revenue) generated in the
fourth quarter of 2011.
General and Administrative Expenses
General and administrative expenses decreased to
$2.0 million in the fourth quarter of
2012 as compared to $2.2 million in
the fourth quarter of 2011. As a percentage of revenue,
general and administrative expenses were 7% of revenue in the
quarter, which is slightly lower than the full year average of
9%. Higher professional fees were incurred in prior quarters
resulting in higher general and administrative costs relative to
the fourth quarter.
Depreciation and Amortization Expense
Consistent with the increase seen in prior
quarters during 2012, depreciation expense increased to
$3.0 million in the fourth quarter
versus $2.1 million in the fourth
quarter of 2011. This increase is due to IROC's investment in
capital expenditures in 2012.
Share-based Compensation Expense
No significant employee stock option or RSU
grants were made during the quarter. As a result, share-based
compensation expense was consistent quarter over quarter at
$0.2 million.
Other (income) Expense
Other income in the quarter related to
$0.2 million in gains recorded from
the sale of older obsolete equipment for proceeds of $0.3 million. Similar sales of this
magnitude did not occur in the comparative quarter in 2011.
Finance Costs
The Corporation borrowed $2.6 million on its debt facilities in the
quarter to fund its fourth quarter capital expenditures. This
increased borrowing resulted in a small increase in finance costs
during the quarter. The Corporation continues to benefit from
low interest rates, which have mitigated increases in finance costs
despite increased debt borrowings during the year to fund the
Corporations business expansion.
Income Taxes
Income tax expense was $1.4 million for the quarter which equates to a
28.6% effective tax rate versus the combined federal and provincial
corporate tax rate of 25%. Consistent with the full year
results, the higher effective tax rate primarily related to
non-deductible expenses for tax purposes. These
non-deductible expense items had a greater impact on the
Corporation's fourth quarter effective tax rate given the lower
quarterly pre-tax income relative to the Corporation's full year
pre-tax income.
In 2011 the federal government amended certain
tax legislation related to the deferral of income from partnership
structures. This amendment has resulted in the acceleration
of previously deferred partnership income into income over a 5 year
period. As a result of the acceleration of a portion of
IROC's previously deferred income, the majority of IROC's
non-capital loss tax pools were utilized during the year to offset
this additional income inclusion resulting in the Corporation
becoming cash taxable during the quarter.
OUTLOOK
The steady execution of IROC's organic growth
plans over the last two years has allowed IROC to achieve record
revenue and EBITDAS results for 2012 solidifying IROC as a premier
provider of well service rigs in the WCSB. While the industry
is currently faced with near-term uncertainty and challenges
associated with lower natural gas and oil prices, management
believes the long-term fundamentals remain strong for increased
industry activity in the WCSB.
This cautious near-term outlook resulted in a
slowdown in industry activity in the fourth quarter of 2012 and has
continued into the first quarter of 2013. However, the growth
in IROC's rig fleet has placed the Corporation on track to exceed
the total hours generated by IROC's service rigs in the first
quarter of 2013 versus the first quarter of 2012. Management
believes that IROC's fleet of newer rigs in oil focused areas is
helping to mitigate the impact to IROC from the current slowdown in
industry activity. IROC's continued expansion of its rig
fleet during this period of slower industry activity will also put
IROC in a position to meet increased customer demand as industry
activity levels improve.
IROC's rental operations continues to expand its
inventory of specialized high pressure equipment that is ideally
suited for the growing shale gas development in northern
Alberta and British Columbia. Management expects
activity in these resource development areas to increase in the
second half of 2013 and into 2014 as a result of the recent foreign
investments made in Canadian exploration and production companies
operating in these areas. In addition, positive discussions
surrounding potential LNG export terminals further enhances the
long-term development of these resource development areas.
Development of these resources are well fracturing intensive and
require the specialized high pressure rental equipment that the
Aero Rental division offers.
The near-term slowdown in industry activity will
continue to produce margin pressures as competitors look for
opportunities to improve utilization through pricing
declines. In addition, despite the overall slowdown in
industry activity, the industry still faces challenges in
attracting and retaining sufficient qualified employees which is
causing higher wage costs.
In spite of the near-term industry challenges,
management believes that IROC is in a strong position to
successfully manage through the current industry cycle and prosper
when industry activity increases. The proposed business
combination with Western, if completed, also provides further
stability and growth opportunities for IROC and its shareholders as
the business combination will create a premier drilling, well
service and oilfield rental company which should provide
opportunities to break into new markets and access customers
through the more comprehensive service offering that the combined
company will provide and offer.
RISKS AND UNCERTAINTIES
Certain activities of the Corporation are
affected by factors that are beyond its control or influence.
Additional risks and uncertainties that management may be unaware
of, or that they determine to be immaterial may also become
important factors which affect the Corporation. Prior to
making any investment decision regarding IROC, investors should
carefully consider, among other things, the risk factors set forth
in the Corporation's December 31,
2012 management discussion and analysis as well as the
Corporation's most recent Annual Information Form both of which are
available under the Corporation's profile at www.sedar.com or by
contacting the Corporation.
CAUTIONARY STATEMENT REGARDING FORWARD
LOOKING INFORMATION AND STATEMENTS
Certain information contained in this news
release contains forward looking information that is based upon
IROC's current internal expectations, estimates, projections,
assumptions and beliefs. In some cases, words such as "plan",
"expect", "project", "intend", "believe", "anticipate", "estimate",
"may", "will", "potential", "proposed" and other similar words, or
statements that certain events or conditions "may" or "will" occur,
are intended to identify forward looking information. These
statements are not guarantees of future performance and involve
known and unknown risks and uncertainties and other factors that
may cause actual results or events to differ materially from those
anticipated in the forward looking information. In addition,
this news release may contain forward looking information
attributed to third party industry sources. By its nature,
forward looking information involves numerous assumptions, known
and unknown risks and uncertainties, both general and specific,
that contribute to the possibility that the predictions, forecasts,
projections and other forward looking information will not
occur. Such forward looking information in this news release
speaks only as of the date of December 31,
2012 or as of the date specified herein.
Forward looking information in this news release
includes, but is not limited to, statements with respect to:
- adequacy of capital resources required to finance IROC's
operations and the capital budget;
- the business objectives of IROC;
- the intended expansion of rental inventory and other capital
expenditures;
- results of operations and the performance of IROC;
- the completion and timing of the construction of IROC's new
service rigs; and
- benefits and opportunities related to the proposed business
combination with Western.
With respect to the forward looking information
contained in this news release, IROC has made assumptions
regarding, among other things:
- IROC's relationships with its key customers;
- economic conditions that influence the demand of IROC's
customers for equipment and services;
- receipt of necessary regulatory approvals;
- IROC's cash flow from sales; and
- the availability of debt financing through the corporation's
credit facilities.
Although IROC believes that the expectations
reflected in the forward looking information are reasonable, there
can be no assurance that such expectations will prove to be
correct. IROC cannot guarantee future results, levels of
activity, performance or achievements. Consequently, there is
no representation by IROC that actual results achieved will be the
same, in whole or in part, as those set out in the forward looking
information. Some of the risks and other factors, some of
which are beyond IROC's control, which could cause results to
differ materially from those expressed in the forward looking
information contained in this news release include, but are not
limited to:
- supply and demand for oilfield services;
- competition for, and access to, among other things, capital and
skilled personnel;
- incorrect assessments of the value of future acquisitions;
- fluctuations in the market for oil and natural gas and related
products and services;
- liabilities and risks, including environmental liabilities and
risk, inherent in oil and natural gas operations;
- fluctuations in foreign exchange or interest rates;
- political and economic conditions;
- failure of counterparties to perform on contracts;
- regional competition;
- IROC's ability to attract and retain customers;
- IROC's ability to attract and retain qualified employees;
- amounts retained by IROC for capital expenditures;
- volatility in market prices for oil and natural gas and the
effect of this volatility on the demand for oil and natural gas
services generally;
- stock market volatility and market valuations;
- uncertainties in weather and temperature affecting the duration
of the service periods and the activities that can be
completed;
- fixed costs in relation to variable revenue streams;
- the presence of heavy competition in the industries in which
IROC currently operates;
- general economic conditions in Canada and globally;
- failure to realize anticipated benefits of future
acquisitions;
- The ability of IROC to be successful in building and growing
its new coil tubing business, Helix Coil Services
- the availability of capital on acceptable terms; and
- the other factors disclosed under "Risks" in IROC's management
discussion and analysis and "Risk Factors" in IROC's Annual
Information Form ("AIF").
Readers are cautioned that the foregoing list of
factors is not exhaustive. All forward looking information
contained in this news release is expressly qualified by this
cautionary statement. IROC disclaims any intent or obligation
to update publicly any forward looking information, whether as a
result of new information, future events or results or otherwise,
other than as required by applicable securities laws.
NON-IFRS MEASURES
The financial statements have been prepared in
accordance with IFRS. Certain supplementary information and
measures not recognized under IFRS are provided where management
believes they assist the reader in understanding IROC's
results. The following is a reconciliation to the
Corporation's non-IFRS measures:
|
|
Three
months ended
December 31 |
Year
ended
December 31 |
($ Thousands) |
2012 |
2011 |
2012 |
2011 |
(1) EBITDAS: |
|
|
|
|
Net Income from continuing
operations |
$ 3,590 |
$
4,778 |
$ 13,501 |
$ 13,379 |
Add: |
|
|
|
|
|
Depreciation |
$ 2,983 |
$
2,112 |
$
10,603 |
$
7,397 |
|
Gain on sale of equipment |
$ (150) |
$ (8) |
$
(224) |
$ (19) |
|
Stock based compensation |
$ 200 |
$
167 |
$
724 |
$
604 |
|
Interest and financing costs |
$ 242 |
$
163 |
$
785 |
$
803 |
|
Income tax expense |
$ 1,435 |
$
1,432 |
$
4,917 |
$
4,720 |
|
Loss (gain) on foreign exchange |
$ (2) |
$ (1) |
$ 6 |
$ 30 |
EBITDAS |
$ 8,298 |
$ 8,643 |
$
30,312 |
$ 26,914 |
(2) Gross
Margin: |
|
|
|
|
Revenue |
$ 27,117 |
$ 26,724 |
$ 101,154 |
$ 85,740 |
Operating expenses |
$ 16,840 |
$ 15,887 |
$
62,026 |
$ 50,456 |
Gross margin |
$ 10,277 |
$ 10,837 |
$ 39, 128 |
$ 35,284
|
(1) |
EBITDAS is defined as earnings before interest, taxes,
depreciation and amortization, stock-based compensation expense,
foreign exchange gains and losses, goodwill impairment, note
receivable impairment, and gains or losses on disposal of property
and equipment. EBITDAS is not recognized measures under
IFRS. The Corporation believes that EBITDAS is provided as a
measure of operating performance without reference to financing
decisions, income tax impacts and non-cash expenses, which are not
controlled at the operating management level. Accordingly,
the Corporation believes EBITDAS is a useful measure for
prospective investors in evaluating the financial performance of
the Corporation, and specifically, the ability of the Corporation
to service the interest on its indebtedness. Investors should
be cautioned that EBITDAS should not be construed as an alternative
to net income determined in accordance with IFRS as an indicator of
the Corporation's performance. IROC's method of calculating
EBITDAS may differ from those of other companies, and accordingly,
EBITDAS may not be directly comparable to measures used by other
companies. EBITDAS % is calculated as EBITDAS divided by
revenue. |
(2) |
Gross margin is defined as revenue less operating
expenses. Gross margin % is defined as gross margin divided
by revenue. The Company believes that gross margin and gross
margin % are useful measures which provide an indicator of the
Corporation's fundamental ability to make money on the services it
sells. The Corporation believes the relationship between
revenues and costs expressed by the gross margin % is a useful
measure when compared between different financial periods as it
demonstrates the trending relationship between revenues, costs and
margins. Gross margin and gross margin % are not recognized
measures of IFRS and do not have any standardized meaning
prescribed by IFRS. IROC's method of calculating gross margin
and gross margin % may differ from those of other companies, and
accordingly, may not be directly comparable to measures used by
other companies.
|
I
|
IROC ENERGY SERVICES
CORP.
CONSOLIDATED BALANCE SHEETS
|
Stated in thousands of Canadian dollars |
|
|
|
December
31,
2012 |
December
31,
2011 |
Assets |
|
|
Current |
|
|
|
Cash |
$
29 |
$
229 |
|
Accounts receivable |
17,523 |
18,746 |
|
Inventory |
668 |
493 |
|
Prepaid expenses and deposits |
775 |
390 |
|
Note receivable |
- |
719 |
|
18,995 |
20,577 |
|
|
|
Intangible assets |
288 |
390 |
Property and equipment |
117,620 |
91,641 |
|
$ 136,903 |
$ 112,608 |
|
|
|
Liabilities |
|
|
Current |
|
|
|
Accounts payable and accrued liabilities |
$ 9,311 |
$
14,742 |
|
Dividend payable |
1,518 |
1,254 |
|
Income taxes payable |
69 |
- |
|
Loans and borrowings |
645 |
2,262 |
|
11,543 |
18,258 |
|
|
|
Loans and borrowings |
25,782 |
8,471 |
Deferred tax liabilities |
13,900 |
9,076 |
|
51,225 |
35,805 |
|
|
|
Shareholders' equity: |
|
|
|
Common share capital |
59,826 |
59,530 |
|
Contributed surplus |
5,587 |
5,146 |
|
Retained earnings |
20,265 |
12,127 |
|
85,678 |
76,803 |
|
$ 136,903 |
$ 112,608 |
IROC ENERGY SERVICES
CORP.
CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME
|
Stated in thousands of Canadian dollars |
Years ended December 31, 2012 and
2011 |
|
|
|
|
|
2012 |
2011 |
|
|
|
|
|
Revenue |
|
|
$
101,154 |
$
85,740 |
|
|
|
|
|
Expenses |
|
|
|
|
Cost of services |
|
|
72,310 |
57,636 |
Cost of administration |
|
|
9,859 |
9,191 |
Interest and financing costs |
|
|
785 |
803 |
Other |
|
|
(218) |
11 |
|
|
|
82,736 |
67,641 |
Net income from continuing
operations before income
taxes |
|
|
18,418 |
18,099 |
|
|
|
|
|
Income taxes |
|
|
|
|
Current |
|
|
69 |
- |
Deferred |
|
|
4,848 |
4,720 |
|
|
|
4,917 |
4,720 |
|
|
|
|
|
Net income from continuing
operations |
|
|
13,501 |
13,379 |
|
|
|
|
|
Loss from discontinued
operations |
|
|
(70) |
(1,192) |
|
|
|
|
|
Net income and comprehensive
income |
|
|
$ 13,431 |
$ 12,187 |
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing
operations |
|
|
|
|
Basic |
|
|
$ 0.27 |
$ 0.28 |
Diluted |
|
|
$ 0.26 |
$ 0.27 |
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic |
|
|
$ 0.27 |
$ 0.25 |
Diluted |
|
|
$ 0.26 |
$ 0.25 |
|
|
|
|
|
Weighted average number of shares
outstanding |
|
|
|
|
Basic |
|
|
50,310,985 |
48,034,018 |
Diluted |
|
|
51,534,810 |
49,136,072 |
I
ROC ENERGY SERVICES
CORP.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
Stated in thousands of Canadian dollars |
Years ended December 31, 2012 and
2011 |
|
|
|
|
|
2012 |
2011 |
Operating activities: |
|
|
|
|
|
Net income from continuing
operations |
|
|
$ 13,501 |
$ 13,379 |
|
Adjustments for: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
10,603 |
7,397 |
|
|
Deferred income taxes |
|
|
4,848 |
4,720 |
|
|
Interest and financing costs expense |
|
|
785 |
803 |
|
|
Stock-based compensation expense |
|
|
724 |
604 |
|
|
Gain on disposal of property and equipment |
|
|
(224) |
(19) |
|
|
|
30,237 |
26,884 |
|
|
|
|
|
|
|
Changes in non-cash working capital
balances |
|
|
(2,466) |
(3,635) |
|
|
|
|
|
Operating cash flow from continuing
operations |
|
|
27,771 |
23,249 |
|
|
|
|
|
Operating cash flow from discontinued
operations |
|
|
393 |
1,738 |
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(37,019) |
(32,861) |
|
|
Proceeds on disposal of property and
equipment |
|
|
764 |
328 |
|
Change in non-cash working capital
balances |
|
|
(2,086) |
3,797 |
|
|
|
|
|
Investing cash flow used in continuing
operations |
|
|
(38,341) |
(28,736) |
|
|
|
|
|
Investing cash flow from discontinued
operations |
|
|
- |
4,400 |
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
Bank loan advances (repayments) |
|
|
15,667 |
(9,082) |
|
|
Interest and financing costs amounts paid |
|
|
(758) |
(769) |
|
|
Payment of dividends |
|
|
(5,029) |
- |
|
|
Shares repurchased for cancellation |
|
|
- |
(320) |
|
|
Public offering of common shares |
|
|
- |
9,198 |
|
|
Exercise of stock options |
|
|
73 |
425 |
|
|
Cash paid on settlement of stock options |
|
|
(61) |
(159) |
|
Change in non-cash working capital
balances |
|
|
85 |
(16) |
|
|
|
|
|
Financing cash flow from (used in)
continuing operations |
|
|
9,977 |
(723) |
|
|
|
|
|
Increase (decrease) in cash during
the year: |
|
|
|
|
|
Continuing operations |
|
|
(593) |
(6,210) |
|
Discontinued operations |
|
|
393 |
6,138 |
|
|
|
(200) |
(72) |
Cash, beginning of year |
|
|
229 |
301 |
|
|
|
|
|
Cash, end of year |
|
|
$ 29 |
$ 229 |
CONFERENCE CALL AND WEBCAST
IROC will conduct a conference call on
Thursday March 21, 2013 at
9:00 a.m. MST (11:00 a.m. EST). Thomas Alford, President and CEO, and
Brian Peters, CFO, will both be
presenting during the call.
To access the conference call, contact the
conference call operator at (888) 231-8191 (North America) or (647) 427-7450 (Toronto and outside North America) approximately 10 minutes prior
to the call and request the "IROC Energy Services Corp. 2012 Annual
Results Conference Call". The call will be open to all
analysts, investors and other interested parties.
The conference call will also be available via webcast by
visiting http://www.newswire.ca/en/webcast/detail/1122949/1224637
from a web browser.
ABOUT IROC ENERGY SERVICES
CORPORATION
IROC Energy Services Corp. is an Alberta oilfield services company that,
through the IROC Energy Services Partnership, provides services and
equipment to the oil and gas industry that is among the newest and
most innovative in the WCSB. IROC Energy Services Partnership
operates under the business names of Eagle Well Servicing, Aero
Rental Services and Helix Coil Services. IROC combines
cutting-edge technology with depth of experience to deliver
equipment and services offerings in the following core areas: well
servicing & equipment, rental services and coiled tubing
services. For more information on IROC Energy Services Corp., visit
IROC's website at www.iroccorp.com.
This news release is not for dissemination in
United States or to any
United States news services.
The Common Shares of IROC have not and will not be registered on
the United States Securities Act of 1933, as amended (the "United
States Securities Act") or any state securities laws and are not
offered or sold in the United
States or to any US person except in certain transactions
exempt from the registration requirements of the United States
Securities Act and applicable state securities laws.
Neither TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
SOURCE IROC Energy Services Corp.