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CALGARY, Aug. 30 /CNW/ - The second quarter of 2007 saw Western increase its quarterly revenues compared to 2006, continue its positive income from continuing operations before amortization, interest and income taxes ("EBITDA") and improve its pre tax bottom line as compared to 2006. This despite the second quarter being a seasonally slow quarter and during a significant industry wide cyclical downturn affecting Canadian oilfield service companies. Highlights for the quarter include:
- Quarterly revenues are up 34% over 2006.
- General and administrative expenses for the quarter are down 36% from
2006.
- Quarterly EBITDA improved $927,575 from 2006
During the later part of 2006 and into 2007 Western's new management team continued the implementation of a turnaround plan and change in direction for the Company. The key components of the turnaround plan are: shifting the direction of the Company's business to the less volatile production optimization though stimulation services; concentrating the Company's services in fewer operational bases; increasing efficiencies and reducing costs. The Company's plan took a big step forward in the second quarter with the purchase of the assets of Grenville Energy Partnership ("Grenville") and by disposing of its non core well testing assets.
Quarterly revenues for the second quarter increased by 34%, year over year compared to 2006. Revenues were $2,777,477 for the three months ended June 30, 2007 compared to $2,073,318 for the three months ended June 30, 2006. This increase was achieved as a result of the Company's new direction and despite an industry wide downturn for Canadian oilfield service companies. The second quarter is a seasonally slow quarter and revenues for the three months ended June 30, 2007 were down 47% from the first quarter of 2007, this however is a dramatic improvement over the 61% decline experienced comparing the second to first quarters of 2006. Unusually wet weather in the state of Texas, where the Western's US operations are based, also contributed to the lower second quarter results. Revenues in Texas were off 9% in the second quarter compared to the second quarter of 2006. Revenues to date during the third quarter in Texas show an improvement.
Quarterly, EBITDA increased by $927,575 from Q2, 2006 to a positive $219,666. Operating costs during the second quarter were 93% of revenues, compared to 93% of revenues for the second quarter of 2006. General and administrative expenses decreased 36% to 474,209 for the second quarter of 2007 compared to the second quarter of 2006. The Company's cost reduction program saved $543,955 in general and administrative expenses for the first six months of 2007 as compared to 2006.
Earnings were positively impacted by changes in foreign exchange during the second quarter of 2007. With the Canadian dollar appreciating almost 10% against the US dollar from March 31 to June 30 2007, the Company experienced foreign exchange income of $501,730. The Company's US based capital assets are recorded at historic exchange rates and do not fluctuate with exchange rates, while the Company's monetary US liabilities do fluctuate with exchange rates and the foreign exchange income's largest component is due to this devaluing of the US liabilities.
During the second quarter of 2007 the Company and Grenville Energy Partnership ("Grenville") completed the purchase by the Company of all of Grenville's oilfield service equipment for $12.5 million and terminated their revenue sharing joint venture. Commencing January 1, 2007 the Company was no longer responsible to distribute a component of its revenues to Grenville. This revenue savings will continue to be significant as the Company's business grows. To complete the Grenville purchase the Company used approximately $4.2 million of a new banking facility. This new demand term loan also funded the repayment of existing demand term loans in the amount of $0.7 million and a revolving credit facility in the amount of $1.5 million.
An 8% convertible note with a one year term was also issued to Grenville on closing of the transaction, on May 16, 2007. The note is convertible into shares of the Company at the option of its holders at $0.20 per share. The Company can force conversion of the note if its shares trade over $0.30 for 20 consecutive days or if it raises or cash flows a total of $5.0 million. If the Company forces conversion of the note, the conversion prices will be the lesser of $0.20 and 120% of the greater of the weighted average issue price of the shares issued in meeting the conversion tests or the 20 day weighted average closing price of the Company's shares leading up to the conversion. In no event will the conversion price be less than $0.12 per share.
Interest expense during 2007 is higher than in 2006, primarily due to the financing of the purchase of the assets from Grenville. It is Western's objective to convert or repay the convertible note issued to Grenville and to reduce its interest carrying charges.
The Company's efforts to focus and streamline its business were enhanced by the disposition of its well testing equipment. The $1,575,000 sale of the well testing equipment was closed during the second quarter of 2007 and the resulting proceeds were reinvested into new capital assets.
During the first two quarters of 2007 the Company achieved its objective of streamlining and consolidating all Canadian activities under the StimSol name. In addition to the cost savings that are being brought about, the operational consolidation has allowed the Company to take advantage of StimSol's excellent reputation in the Canadian marketplace. In addition, all of the Company's US operations were consolidated into a single US subsidiary. These reorganization steps significantly decrease the operational and financial complexity of the Company.
Despite the progress that has been made, management recognizes that much still needs to be done. Fiscal 2007 will see a continued expansion and realignment of the Company's fleet of equipment. Continued attention will also be spent on reducing overall administrative costs and operational inefficiencies. By concentrating its focus on the Company's core business of production optimization through stimulation services, management is confident that Western will become increasingly profitable and generate positive returns for our shareholders.
Western Energy Services Corp. also announces that it has commenced a non brokered private placement of up to $5 million. The Company will issue units consisting of one common share and one half a share purchase warrant for $0.10 per unit. Each whole share purchase warrant will entitle the holder to purchase one additional common share for $0.16 at anytime up to 18 months from the date of closing the private placement.
Forward Looking Information
This release contains certain forward-looking statements related but not limited to the Company's expectations, intentions, plans and beliefs. Investment advisors, shareholders and potential investors are cautioned not to place undue reliance on forward-looking information which by its nature involves assumptions, risks and uncertainties, both general and specific, that contribute to the possibilities that predictions, projections, forecasts and future events will not occur. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. The Company does not assume any responsibility to update this information for events subsequent to its preparation.
The TSX Venture Exchange does not accept responsibility for the adequacy
or accuracy of this release.