IROC ENERGY SERVICES CORP. ANNOUNCES INCREASED NET INCOME AND FILING OF INTERIM FINANCIAL STATEMENTS

Jun. 15, 2011 (Canada NewsWire Group) --

CALGARY, June 15, 2011 /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 months ended March 31, 2011.  For a complete copy of IROC's interim financial statements and management's discussion and analysis ("MD&A") please visit www.sedar.com.

Highlights for the three months ended March 31, 2011:

• Total revenue from continuing operations increased 65% to $26.7 million for the three months ended March 31, 2011 as compared to $16.2 million in the comparable period of the prior year.
  
  
• Gross margin from continuing operations increased 91% to $11.0 million for the three months ended March 31, 2011 as compared to $5.7 million in the comparable period of the prior year.
  
  
• EBITDAS from continuing operations increased 138% to $8.4 million for the three months ended March 31, 2011 as compared to $3.5 million in the comparable period of the prior year.
  
  
• Net income from continuing operations increased 481% to $4.4 million for the three months ended March 31, 2011 as compared $0.8 million in the comparable period of the prior year.

Operations

IROC's continuing operations are reported in three segments; the Drilling and Production Services segment, the Technology Services segment and Corporate Services.  The following is a discussion of the reporting segments in which IROC operates.

Drilling and Production Services

The Drilling and Production Services segment provides services and rental equipment to oil and gas exploration, development and production companies with most of our customers and operations being located in western Canada, in the provinces of Alberta and Saskatchewan.

The Drilling and Production Services segment consists of two divisions:

At March 31, 2011, Eagle had a fleet of 36 service rigs with our equipment amongst the newest in the industry.  All Eagle's service rigs are internally guyed with no requirement for external anchors.  This reduces set up time and corresponding costs when compared to anchored rigs. Subsequent to quarter end, in May, 2011 the Corporation has placed one additional rig into service for a total operational service rig fleet of 37 rigs currently.  In addition, five new service rigs are being built with one rig expecting to be delivered in each of June, July, September October and November, 2011.

Commodity prices are the main activity driver as the Corporation's customers' exploration and development programs are directly impacted by oil and natural gas prices.  Oil and gas producers spend capital on new wells and service operations when they are economic within the context of current and forecasted commodity prices.  Year over year, crude oil prices are stronger now than in the prior year and have been on an increasing trend for over two years since they bottomed in the first quarter of 2009 during the financial crisis.  For the past four quarters, natural gas prices have remained within a $3.00 to $4.00 range which continues to be relatively weak in comparison to historic price levels over the previous five years.  At recent price levels, natural gas development has been focused on resource type development projects and liquids rich reservoirs as much conventional shallow gas has not been economic.  Should there be a return to higher natural gas prices, as is starting to be predicted by some industry participants, the level of activity and demand for the Corporation's services is expected to increases across all business lines.

Service rig utilization, as measured by IROC's internal methodology, increased in the quarter to 78%, as compared to 55% in the comparative period of last year.  Our utilization percentage increased by 12% as compared to the fourth quarter 2010 as activity levels increased due to high oil prices and a longer than normal winter.  We are starting to see increases in the average length of a service rig job as horizontal wells which have been drilled in the past few years start to require servicing operations.  The complexity of horizontal wells typically makes service operations more difficult and time consuming and is starting to impact utilization percentages.  Certain areas are only accessible by service rigs and other heavy equipment during winter when the ground is frozen and this season saw colder weather than normal through to the end of the first quarter and into the second quarter.

Aero Rental Services continues to have strong margin growth in the current year quarter as compared to the prior year quarter and the immediately prior quarter.  This increasing gross margin is driven by three primary factors.  Firstly, the same industry activity drivers impacting Eagle's utilization; secondly, the increase in the rental asset base; and thirdly, the decreasing percentage of fixed costs to total costs in the business as we start to more fully utilize the excess capacity which was available in our shop location's yard and buildings.

Technology Services

The Technology Services segment is comprised solely of our Canada Tech division.  Canada Tech designs, develops, manufactures and sells or rents a wide line of tools and systems that measure pressures, temperatures and other attributes in the downhole and surface environment of oil and gas wells.

Canada Tech differs from our other divisions in that the capital requirement is smaller and the value of the division is contained in its patents and proprietary technology.  A significant portion of Canada Tech's costs are fixed and as such increased sales volumes have a magnified effect on the EBITDAS of IROC.

Corporate Services

IROC's non-operating segment, Corporate Services, captures general and administrative expenses associated with supporting each of the reporting segments operations noted above, plus costs associated with being a public company.  Also, included in Corporate Services is interest expense for debt servicing and income tax expense.

Financial results and selected financial information

Financial results and selected financial information (continued)

Comparison of results from the three month period ended March 31, 2011 to the same period last year

Revenue

Operating Costs and Gross Margin

EBITDAS

^{(1) See Non-GAAP Measures}

Outlook

The first quarter of 2011 has provided an excellent start to the year with increased revenues, margins, net income, and EBITDAS as compared to the prior year.  Eagle Well Servicing, our largest operating division, had record utilization of its service rigs and Aero Rental Services had record revenues and gross margins.  As we look forward to the future, we have many reasons to be optimistic about the continued prospects for our businesses.  Oil prices continue to follow a strengthening trend and there is clearly an increase in oil related drilling and completion activity.  The latest forecasted activity levels by the Canadian Association of Oilwell Drilling Contractors has the numbers of wells expected to be drilled in 2011 at 13,128 as compared to 11,587 in 2010 and 8,278 in 2009 and reflects a 24% increase in the activity projected for the last three quarters of 2011 since their previous forecast in October 2010.

While the operating environment has changed substantially, the increased levels of business activity for IROC are also indicative of how we have positioned our assets to benefit our shareholders, employees and customers in both the short and longer term. Eagle Well Servicing has developed solid relationships with active oil and gas operators across Western Canada by providing the newest equipment available, trained personnel and a skilled group of managers that combine to provide value to our customers both in superior customer service and efficient operations. IROC continues to be able to effectively crew our rigs, a tribute to the efforts of our managers at the field level, and a reflection of workers preference to work on relatively new and well maintained equipment.

Our optimism is reflected in our commitment to grow the business.  To that end we have recently taken delivery of the first of six new service rigs planned for deployment during 2011.  The remaining five rigs are scheduled to be delivered in each of June, July, September, October and November, 2011.  We remain enthusiastic about the growth potential for Aero Rental Services and have earmarked $5.5 million for new capital additions to Aero's rental inventory during the remainder of 2011.  We are building our new coiled tubing business, Helix Coil Services, with $5.6 million budgeted for construction of three coil tubing units with up to two-inch capacity and the first unit already delivered and ready for deployment once spring road bans are removed. Management expects that revenues will be positively affected by these capital additions in the coming quarters, but more so during 2012, when the full year effect of the additional equipment will be achieved.

Our capital program will make the newest fleet of service rig equipment in Western Canada newer, and management expects to be able to continue to work this aspect of our fleet to our advantage in attracting experienced, competent personnel to operate the equipment.

Canada Tech continues to focus on increasing revenue streams by penetrating both domestic and international markets.  Management has continued to work on efficiencies to reduce our fixed costs while at the same time pushing hard to extend our penetration into select markets around the world. A number of new products introduced over the past two years will allow for increased diversification with some of the oilsands applications for our technology beginning to contribute.

From a financial perspective, we have used the recent interest in the Corporation by the investment community to both reduce bank debt and enhance shareholder liquidity.  On April 11, 2011, the Corporation completed a short form prospectus offering of 7,200,361 common shares at a price of $1.40 per common share, for estimated net proceeds after costs of approximately $9.3 million.  Along with this offering, Key Energy Services, Inc. sold the 8,734,469 common shares which it had held since 2005.  Key's ownership amounted to 20.47% of the total outstanding common shares and we believed the distribution of this block of shares to a wider number of shareholders along with the new shares issued would enhance liquidity in the trading of the Corporation's shares.  Since the completion of this offering, trading in the Corporation's common shares has in fact seen increased volumes.

As we move further into 2011, IROC has a strong balance sheet, the newest in equipment and technologies, and a competent group of employees that will allow us to both create opportunities for growth and capitalize on opportunities as they present themselves.

Accounting policy changes

IROC prepares its financial statements in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants ("CICA" and "CICA Handbook").  In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards ("IFRS") and require public companies to apply such standards effective for years beginning on or after January 1, 2011.

On January 1, 2011, IROC adopted International Financial Reporting Standards ("IFRS") for purposes of financial reporting, using a transition date of January 1, 2010.  Accordingly, the interim condensed consolidated financial statements for the three months ended March 31, 2011 and the comparative information for the three months ended March 31, 2010, have been prepared in accordance with International Financial Reporting Standard 1, "First-time Adoption of International Financial Reporting Standards", and with International Accounting Standard 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board ("IASB").

In this news release, the term "GAAP" or "Canadian GAAP" refers to Canadian generally accepted accounting principles before the adoption of IFRS.  Certain tables which incorporate a combination of GAAP and IFRS amounts have column headings which indicate which set of accounting principles were used in the preparation of the amounts in such column.  In the absence of any such designation, amounts included in this news release are prepared in accordance with IFRS.

The adoption of IFRS has not had an impact on the Company's operations or strategic decisions.  Further information on the effect of adopting IFRS is outlined in the Changes in Accounting Pronouncements including Initial Adoption section of the interim MD&A for the three months ended March 31, 2011.

About IROC Energy Services Corporation

IROC Energy Services Corp. is an Alberta oilfield services company that, through the IROC Energy Services Partnership, provides a diverse range of products, services and equipment to the oil and gas industry that are among the newest and most innovative in the Western Canadian Sedimentary Basin and international markets.  IROC combines cutting-edge technology with depth of experience to deliver a product and services offering in the following core areas: Well Servicing & Equipment, Downhole Temperature & Pressure Monitoring Tools, Rental Services and Coiled Tubing Services. For more information on IROC Energy Services Corp. visit our website at www.iroccorp.com.

Cautionary Statement Regarding Forward Looking Information and Statements

Certain information contained in this news release, including information related to the completion and timing of the construction of IROC's six new service rigs and three new coiled tubing units, the Corporation's planned capital expenditures and growth opportunities, outlook for future oil and gas prices, cyclical industry fundamentals, drilling, completion, work over and abandonment activity levels, the Corporation's ability to fund future obligations and capital expenditures, and information or statements that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may", "likely", "estimate", "predict", "potential", "continue", "maintain", "retain", "grow", and similar expressions and statements relating to matters that are not historical facts, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation.  This information or these statements are based on certain assumptions and analysis made by the Corporation in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. In particular, the Corporation's expectation of uncertain demand and prices for oil and natural gas and the resulting future industry activity, is premised on the Corporation's understanding of customers' capital budgets and their ability to access capital, the focus of its customers on deeper and horizontal drilling opportunities in the current natural gas pricing environment, and the continuing impact of the recent global financial crisis and the current economic recovery all of which affects the demand for oil and gas. Whether actual results, performance or achievements will conform to the Corporation's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from the Corporation's expectations.  Such risks and uncertainties include, but are not limited to: fluctuations in the price and demand for oil and natural gas; fluctuations in the level of oil and natural gas exploration and development activities; fluctuations in the demand for well servicing; the effects of weather conditions on operations and facilities; the existence of competitive operating risks inherent in well servicing; general economic, market or business conditions; changes in laws or regulations, including taxation, environmental and currency regulations; the lack of availability of qualified personnel or management; the other risk factors set forth under the heading "Risks" in the annual MD&A for the year ended December 31, 2010 and other unforeseen conditions which could impact on the use of services supplied by the Corporation.

Consequently, all of the forward-looking information and statements made in this news release are qualified by this cautionary statement and there can be no assurance that the actual results or developments anticipated by the Corporation will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Corporation or its business or operations. Except as may be required by law, the Corporation assumes no obligation to update publicly any such forward-looking information and statements, whether as a result of new information, future events, or otherwise.

This press 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.

Non-GAAP 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.  These measures include:

1. EBITDAS and EBITDAS per share- 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 and EBITDAS per share are not recognized measures under GAAP or 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 GAAP or 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 products and 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 GAAP or IFRS and do not have any standardized meaning prescribed by GAAP or 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.  Gross margin is reconciled to revenue - continuing operations in the Financial results and selected financial information table.

Non-GAAP Measures (continued)

The following is a reconciliation of EBITDAS and EBITDAS per share to net income from continuing operations:

(1) See Accounting policy changes

 

IROC Energy Services Corp.
Mr. Thomas M. Alford, President and CEO, or
Mr. Ryan A. Michaluk, Chief Financial Officer
Telephone: (403) 263-1110
Email: [email protected]