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IROC Energy Services Corp. announces third quarter results, 2013 capital build program, and declaration of increased quarterly dividend

Tuesday, November 27, 2012 5:42 PM


CALGARY, Nov. 27, 2012 /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 nine months ended September 30, 2012, provide details for its 2013 capital build program, and announce an increase in its quarterly dividend. For a complete copy of IROC's interim financial statements and management's discussion and analysis ("MD&A") please visit www.sedar.com.

Basis of Presentation
Throughout this news release amounts are presented on a continuing operations basis to more accurately reflect the way in which IROC intends to operate on a continuing basis.

Highlights for the three month quarter ended September 30, 2012:

  • Strong operational performance from service rigs and rental assets along with industry leading service rig utilization continues to drive results.

  • Continued demand for our services supports our planned $25.3 million 2013 capital build program including 6 new build service rigs and $8 million of new rental assets.

  • Total revenue increased 9% to $24.9 million for the three months ended September 30, 2012 as compared to $22.9 million in the third quarter of 2011.

  • Gross margin decreased 10% to $9.4 million for the three months ended September 30, 2012 as compared to $10.5 million in the third quarter of 2011.

  • EBITDAS decreased 14% to $7.1 million for the three months ended September 30, 2012 as compared to $8.2 million in the third quarter of 2011.

  • Net income from continuing operations decreased 30% to $3.0 million for the three months ended September 30, 2012 as compared to $4.3 million in the third quarter of 2011.

  • Announcing increase of quarterly dividend to $0.03 per share effective January, 2013.

Highlights for the nine months ended September 30, 2012:

  • Total revenue increased 25% to $74.0 million for the nine months ended September 30, 2012 as compared to $59.0 million during the comparable period of the prior year.

  • Gross margin increased 18% to $28.9 million for the nine months ended September 30, 2012 as compared to $24.4 million during the comparable period of the prior year.

  • EBITDAS increased 20% to $22.0 million for the nine months ended September 30, 2012 as compared to $18.3 million during the comparable period of the prior year.

  • Net income from continuing operations increased 15% to $9.9 million for the nine months ended September 30, 2012 as compared to $8.6 million during the comparable period of the prior year.

Operations

IROC's operations are reported in three segments; the Drilling and Production Services segment, the Rental Services segment and Corporate Services and Other.  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 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:

Eagle Well Servicing ("Eagle") contracts service rigs to oil and gas companies to perform various completion, workover and maintenance services on oil and natural gas wells.  Eagle has offices and equipment in Red Deer and Grande Prairie in Alberta and Lloydminster and Estevan in Saskatchewan with equipment being used in those geographic areas.

Helix Coil Services ("Helix") contracts coiled tubing units to oil and gas companies to perform various completion, workover and maintenance services on oil and natural gas wells.  Helix is based in Red Deer, Alberta with equipment generally being used in Alberta and Saskatchewan, Canada.

                           
        Three months ended
        September 30,
2012
    June 30,
2012
    March 31,
2012
    December 31,
2011
Eagle Well Servicing:                          
  Number of service rigs (end of period)       47     46     44     41
  Service rig utilization(1)       62%     43%     74%     69%
                           
Commodity prices:                          
  NYMEX crude oil $US/bbl       92.22     93.49     102.93     94.06
  AECO Monthly index natural gas $CAD/GJ       2.07     1.74     2.39     3.29
                           
        Three months ended
        September 30,
2011
    June 30,
2011
    March 31,
2011
    December 31,
2010
Eagle Well Servicing:                          
  Number of service rigs (end of period)       38     36     36     35
  Service rig utilization(1)       69%     42%     78%     66%
                           
Commodity prices:                          
  NYMEX crude oil $US/bbl       89.76     102.60     94.08     85.17
  AECO Monthly index natural gas $CAD/GJ       3.53     3.54     3.58     3.39
(1)    IROC calculates utilization based on full utilization being 10 hour days, 365 days per year consistent with
the CAODC standard.  IROC commences calculation of utilization for a new rig on the first day it goes
into the field for active service.
   

As at September 30, 2012, Eagle had a fleet of 47 service rigs having added one slant rig in the quarter.  Year to date, we have added one slant service rig, two double service rigs, and three single service rigs in the nine month period ended September 30, 2012.  Eagle's service rig fleet and equipment are among the newest in the industry.  All of Eagle's service rigs are free standing mobile service rigs and are internally guyed with no requirement for external anchors.  This reduces set up time and corresponding costs when compared to service rigs which require external anchors or are skid mounted. At September 30, 2012, Eagle had three slant rigs in service.  Slant rig designs are optimized for use in the heavy oil and SAGD markets and our slant rigs have been well received by the customers who have put them into service.  Slant rigs tend to work on locations with multiple well bores, referred to in the industry as "pads", which can result in more hours of operation due to shorter rig moves and less impact from spring breakup conditions.

Currently Eagle's service rig fleet consists of 48 service rigs, all of which are fully crewed and operational.  In addition, 2 additional service rigs from our 2012 capital build program are currently being built, with expected delivery and deployment before year end.  This will give Eagle 50 service rigs in operation by December 31, 2012.

One key challenge facing the energy services industry is staffing, particularly for field personnel.  To date, Eagle has been able to fully crew its assets in this very tight labour market across the service industry.

The trend toward increased oil-related activity continues to provide benefit to the Corporation's service rig division. Current activity levels are estimated to be in excess of 90% levered to oil, with workover, completion and abandonment activity all contributing to continuing demand for the Corporation's services in the foreseeable future.  In the past couple of quarters, we have seen a relative change in service rig and coiled tubing unit activity focussing less on new drilling completion activity and more on workover and maintenance activities.  This shift is consistent with lower year over year drilling and completion activity.

Commodity prices are the main activity driver in the oil and gas industry 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.  Crude oil prices have continued to be strong during the first nine months of 2012.  Year over year, NYMEX crude oil prices for the first nine months of 2012 have averaged $US 96.21/barrel in 2012 as compared to $US 95.48/barrel in 2011.  In contrast, the historically low natural gas prices in 2011 have given way to a near collapse in 2012.  The third quarter AECO average price of $2.07/GJ is a recovery from the $1.74/GJ average price in the second quarter, but 2012 is on track to have the lowest natural gas price in over a decade and this has created hardship for many of our natural gas weighted customers.  In Alberta, the AECO monthly index for May settled at $1.5586, marking the lowest AECO index settlement since February 1998.  At these price levels, natural gas development has been focused on resource type development projects and liquids rich reservoirs as much conventional shallow gas is not economic.  Going forward, the current AECO forward price for calendar 2013 is about $3.36 per GJ, which would be a relative improvement from 2012 price levels.

Service rig utilization for the third quarter remained strong at 62% in the current year as compared to 69% in the prior year quarter.  Year to date, service rig utilization has also been strong averaging 60% in 2012 as compared to 63% in 2011.  Demand for our service rigs and coiled tubing units was softer in the current year quarter as compared to the prior year quarter as customers, especially smaller producers and gas weighted producers reduced their activity levels due to a combination of uncertain commodity prices and tight capital markets impacting their ability to raise additional funds for exploration and development.  While utilization is lower in the current year quarter, it is notable to point out that 2011 Q3 utilization was a record and that Eagle's five year average utilization for Q3 is 57%.

Activity levels in 2012 continue to be driven by oil based activity with the majority of activity in the quarter being related to workover and maintenance activity as opposed to completion based activity.  Completion work has been focused on horizontal oil wells with the complexity of horizontal wells typically being more time consuming and therefore impacting utilization percentages relative to vertical wells.  In the first six months of 2011 crude oil prices were on an increasing trend reaching levels not seen since before the economic downturn in 2008 and 2009, oil and gas producers equity values were also increasing rapidly, and the equity markets opened up in the second and third quarters to allow producers to raise additional equity and expand their capital programs.  In short, in the prior year producers were optimistic and investing in new capital projects, at least new oil or liquids rich natural gas projects.  In contrast, in 2012 crude oil prices peaked in the first quarter and declined for three consecutive months in April, May and June with some recovery since then.  However, volatility and generally soft equity markets for oil and natural gas producers has tempered the optimism and moderated or delayed the capital spending plans of many of our customers resulting in lower activity levels for both our service rigs and our intermediate coiled tubing units.  Considering the very strong activity levels in the last quarter of 2011 and the reduced capital spending plans of many of our customers, we continue to anticipate a strong fourth quarter tempered by year over year declines in demand and activity levels.

Helix Coil Services began operations in July 2011 with the deployment of two truck mounted coiled tubing units, each with 2" capabilities placing the equipment in the intermediate size range. In the fourth quarter of 2011 Helix added one trailer unit with 2" capabilities, along with crane support equipment. We have not achieved the performance targets initially set for our coiled tubing units in 2012.  A combination of less completion work occurring in the current year than in the prior year, changes in the completion programs of many multi stage completions, and increased competition in the coiled tubing services segment of the industry is expected to continue to put pressure on this division of our business.  The Corporation has and will continue to take a measured approach to the growth of this new business line, focussing on developing both the internal business processes to support this business and a niche market with a customer base from which we can scale growth going forward.

RENTAL SERVICES

The Rental Services segment consists of the Aero Rental Services division ("Aero").  Aero provides rental equipment for surface pressure control in drilling and workover operations and tubular handling equipment used for the workover, re-entry and completion operations.  Aero has an office in Red Deer, Alberta with equipment being rented for use primarily in Alberta.

                           
        Three months ended
$ 000's       September 30,
2012
    June 30,
2012
    March 31,
2012
    December 31,
2011
Aero Rental Services:                          
  Gross margin       2,101     1,136     3,409     2,653
  Book value of rental equipment (end of period)       19,894     17,866     16,099     14,641
                           
        Three months ended
$ 000's       September 30,
2011
    June 30,
2011
    March 31,
2011
    December 31,
2010
Aero Rental Services:                          
  Gross margin       2,533     826     2,793     1,739
  Book value of rental equipment (end of period)       12,887     11,799     11,249     10,121
                             

This quarter marks the first time in two and a half years that Aero did not provide absolute margin growth on a year over year basis.  Utilization in the current quarter was more impacted by the general decline in drilling and completion activity than our Drilling and Production Services segment.  Outside of the current quarter, there has been a general trend of seasonality adjusted increases in gross margin driven by the increasing size of our rental asset base.

CORPORATE SERVICES AND OTHER

IROC's non-operating segment, Corporate Services and Other, 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 and other amounts not relating to the two main operating segments.

Comparison of results from the three and nine month periods ended September 30, 2012 to the same periods last year

REVENUE

                               
        Three months ended                
$ 000's       September 30,
2012
    September 30,
2011
      Change
$
      Change
%
Revenue:                              
  Drilling and Production Services       21,091     19,042       2,049       11%
  Rental Services       3,915     4,029       (114)       (3%)
  Inter-segment eliminations       (117)     (155)       38       (25%)
Total revenue       24,889     22,916       1,973       9%
                               
        Nine months ended                
$ 000's       September 30,
2012
    September 30,
2011
      Change
$
      Change
%
Revenue:                              
  Drilling and Production Services       61,869     48,272       13,597       28%
  Rental Services       12,693     11,023       1,670       15%
  Inter-segment eliminations       (525)     (279)       (246)       88%
Total revenue       74,037     59,016       15,021       25%
                               

Revenue growth in the current year periods as compared to the prior year periods in our Drilling and Production Services segment is primarily due to an increase in the number of service rigs with impact also coming from increased current year pricing and changes in utilization from our service rigs.

For the three months ended September 30, 2012, service rig utilization was 62% based on an average of 46.8 service rigs as compared to 69% based on 38 service rigs in the prior year quarter.  For the nine months ended September 30, 2012, service rig utilization was 60% based on an average of 44.6 service rigs as compared to 63% based on 36.7 service rigs in the prior year period.  For both the three month and nine month periods, the increase in the number of service rigs and hourly pricing more than compensated for impact of decreased utilization rates on revenues.

Helix Coil Services began operations in July 2011.  Currently, Helix has two truck mounted coiled tubing units and one trailer mounted coiled tubing unit, each with 2" coil capabilities placing the equipment in the intermediate size range.  Additionally, Helix owns related crane and support equipment.  Revenues from our three coiled tubing units were lower in the current year three month period than in the prior year due to lower utilization and lower pricing in the current year quarter.  Revenues for our coiled tubing units commenced in the third quarter of 2012, so all coiled tubing unit revenues for the first six months of 2012 were incremental as compared to the first six months of 2011. Coiled tubing demand was lower due to the coiled tubing division's focus being concentrated more on completion and fracturing operations.

Our Rental Services division's utilization levels are more closely tied to drilling and completion activity than our Production Services segment and revenues from this segment declined in the current year quarter as compared to the prior year quarter due to the general decrease in new drilling and completion activities during the current year quarter.  Over the past two years, Aero has more than doubled the amount of rental equipment in its inventory with this increase being the primary contributor to the higher revenues for the nine month period ended September 30, 2012 as compared to the same period of 2011.  Aero continues to grow a larger and more diverse range of rental equipment.

Crude oil and natural gas prices are the main drivers of activity for all of our businesses as our customers make capital and operating expenditure decisions based on their revenue streams generated by selling crude oil and natural gas.  NYMEX Crude oil prices in the current year to date period have averaged $US 96.21/barrel as compared to $US 95.48/barrel in the prior year.  Natural gas prices have been much weaker in the current year, averaging $2.06 per GJ in the nine months ended September 30, 2012 as compared to $3.55 per GJ in the comparable period of 2011. The AECO monthly index for May 2012 settled at $1.5586, marking the lowest AECO index settlement since February 1998, a period of 14 years and three months.  Low natural gas prices have significantly reduced natural gas focused activity by our customers over the past few years.

Operating Costs and Gross Margin

                               
        Three months ended                
$ 000's       September 30,
2012
    September 30,
2011
      Change
$
      Change
%
Operating costs:                              
  Drilling and Production Services       13,792     11,099       2,693       24%
  Rental Services       1,814     1,496       318       21%
  Inter-segment eliminations       (117)     (155)       38       (25%)
Total operating costs       15,489     12,440       3,049       25%
                               
Gross margin:(1)                              
  Drilling and Production Services       7,299     7,943       (644)       (8%)
  Rental Services       2,101     2,533       (432)       (17%)
Total gross margin       9,400     10,476       (1,076)       (10%)
                               
Gross margin %(1):                              
  Drilling and Production Services       35%     42%               (7%)
  Rental Services       54%     63%               (9%)
Total gross margin %       38%     46%               (8%)
(1) See Non-GAAP Measures.                              

                               
        Nine months ended                
$ 000's       September 30,
2012
    September 30,
2011
      Change
$
      Change
%
Operating costs:                              
  Drilling and Production Services       39,664     29,977       9,687       32%
  Rental Services       6,047     4,871       1,176       24%
  Inter-segment eliminations       (525)     (279)       (246)       88%
Total operating costs       45,186     34,569       10,617       31%
                               
Gross margin:(1)                              
  Drilling and Production Services       22,205     18,295       3,910       21%
  Rental Services       6,646     6,152       494       8%
Total gross margin       28,851     24,447       4,404       18%
                               
Gross margin %(1):                              
  Drilling and Production Services       36%     38%               (2%)
  Rental Services       52%     56%               (4%)
Total gross margin %       39%     41%               (2%)
(1) See Non-GAAP Measures.                              
                               

In the Drilling and Production Services segment, most operating costs are variable in nature and increase or decrease with activity levels such that much of the change in operating costs in the year over year periods is due to the increases in revenues in the current year periods as compared to the prior year periods.  The largest cost in this segment is service rig crew salaries and wages with most service rig employees being hourly in nature and paid only when they are working on service rigs.  In contrast to service rig crews, coiled tubing crews are paid both a base salary plus an hourly wage when working.  This results in the cost structure for coiled tubing operations being less variable than for our service rig operations.  The lower utilization for our coiled tubing units in the current year, coupled with a larger number of coiled tubing employees in the current year period negatively impacted operating costs, gross margin, and gross margin percentages.

Gross margin is calculated as revenue minus operating costs and provides a measure of cash flow available to cover all of the other costs of the business.  Gross margin percentages are calculated as gross margin divided by revenue and is used by management as a measure of relative profitability.  Gross margins have been impacted by reduced year over year utilization rates for our service rigs, our coiled tubing units and our rental equipment.  In our Rental Services segment, a significant percentage of operating costs are fixed in nature, such that fluctuations in revenues have a relatively significant impact on gross margins.

EBITDAS

                               
        Three months ended                
$ 000's except per share amounts       September 30,
2012
    September 30,
2011
      Change
$
      Change
%
EBITDAS(1):                              
  Drilling and Production Services       6,330     6,930       (600)       (9%)
  Rental Services       1,746     2,235       (489)       (22%)
  Corporate and other       (993)     (933)       (60)       6%
Total EBITDAS       7,083     8,232       (1,149)       (14%)
                               
EBITDAS per common share(1)                              
  - Basic       $ 0.141     $  0.164       ($ 0.023)       (14%)
  - Diluted       $ 0.137     $  0.160       ($ 0.023)       (14%)
(1) See Non-GAAP Measures.                            

                               
        Nine months ended                
$ 000's except per share amounts       September 30,
2012
    September 30,
2011
      Change
$
      Change
%
EBITDAS(1):                              
  Drilling and Production Services       19,285     15,768       3,517       22%
  Rental Services       5,642     5,318       324       6%
  Corporate and other       (2,913)     (2,815)       (98)       3%
Total EBITDAS       22,014     18,271       3,743       20%
                               
EBITDAS per common share(1)                              
  - Basic       $ 0.438     $  0.386       $ 0.052       13%
  - Diluted       $ 0.427     $  0.378       $ 0.049       13%
(1) See Non-GAAP Measures.                            
                             

Earnings before interest, income taxes, depreciation, amortization, and stock based compensation ("EBITDAS"), is used by the Corporation as a measure of cash flow and liquidity.  Positive EBITDAS provides cash needed to grow our business through the purchase of new equipment or business acquisitions, reduce outstanding bank debt, repurchase common shares, or pay dividends to our shareholders.

GENERAL AND ADMINISTRATIVE EXPENSES

                               
        Three months ended                
$ 000's       September 30,
2012
    September 30,
2011
      Change
$
      Change
%
General and administrative                              
  Drilling and Production Services       969     1,013       (44)       (4%)
  Rental Services       355     298       57       19%
  Corporate services and other       993     933       60       6%
Total general and administrative       2,317     2,244       73       3%
                               
        Nine months ended                
$ 000's       September 30,
2012
    September 30,
2011
      Change
$
      Change
%
General and administrative                              
  Drilling and Production Services       2,920     2,527       393       16%
  Rental Services       1,004     834       170       20%
  Corporate services and other       2,913     2,815       98       3%
Total general and administrative       6,837     6,176       661       11%
                               

Increased year over year activity levels are the primary driver for the increase in general and administrative costs.  Year over year percentage increases in revenue were larger than the percentage increases in general and administrative expenses.  General and administrative expenses are a combination of fixed and variable costs.  A portion of the change in general and administrative expenses is related to the change in EBITDAS as some employees have a component of variable compensation based on EBITDAS performance.

NET INCOME AND EARNINGS PER SHARE

                               
        Three months ended                
$ 000's except share and per share amounts       September 30,
2012
    September 30,
2011
      Change $
or number
      Change
%
                               
Net income from continuing operations        3,016     4,330       (1,314)       (30%)
                               
Loss from discontinued operations       -     (968)       968       (100%)
                               
Net income and comprehensive income         3,016     3,362       (346)       (10%)
                               
Earnings per share from continuing operations:                              
  - Basic       $0.06     $0.09       ($0.03)       (33%)
  - Diluted       $0.06     $0.08       ($0.02)       (25%)
                               
Weighted average common shares outstanding:                              
  - Basic       50,358,624     50,187,484       171,140       -%
  - Diluted       51,571,791     51,292,379       279,412       1%
                               
        Nine months ended                
$ 000's except share and per share amounts       September 30,
2012
    September 30,
2011
      Change $
or number
      Change
%
                               
Net income from continuing operations        9,911     8,601       1,310       15%
                               
Loss from discontinued operations       -     (1,184)       1,184       (100%)
                               
Net income and comprehensive income        9,911     7,417       2,494       34%
                               
Earnings per share from continuing operations:                              
  - Basic       $0.20     $0.18       $0.02       10%
  - Diluted       $0.19     $0.18       $0.01       7%
                               
Weighted average common shares outstanding:                              
  - Basic       50,283,891     47,323,554       2,960,337       6%
  - Diluted       51,499,647     48,338,268       3,161,379       7%
                               

On April 11, 2011, the Corporation completed a short form prospectus offering of 7,200,361 common shares. This share issue is the primary reason for the increased the average number of shares outstanding during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.

The diluted number of common shares is directly impacted by the trading price of the Corporation's common shares.  Increased trading prices will also increase the number of diluted shares calculated for options issued under the Corporation's stock option plan.

Capital Expenditures and 2013 Capital Build Program

IROC's capital expenditures for the periods indicated were as follows:

                               
        Nine months
ended
    Three months ended
$ 000's       September 30,
2012
    September 30,
2012
      June 30,
2012
      March 31,
2012
Capital expenditures:                              
  Drilling and production services       19,663     7,033       5,792       6,838
  Rental services       8,237     3,392       2,908       1,937
  Corporate       106     2       65       39
  Discontinued operations       -     -       -       -
Total capital expenditures       28,006     10,427       8,765       8,814

                               
        Nine months
ended
    Three months ended
$ 000's       September 30,
2011
    September 30,
2011
      June 30,
2011
      March 31,
2012
Capital expenditures:                              
  Drilling and production services       13,029     4,677       4,783       3,569
  Rental services       4,009     1,624       860       1,525
  Corporate       153     115       17       21
  Discontinued operations       362     2       329       31
Total capital expenditures       17,553     6,418       5,989       5,146
                               

The Corporation's strategy to organically grow its capital asset base, has resulted in IROC having capital assets, as a whole, in new or like new condition.  Our service rigs represent the largest percentage of the Corporation's overall net book value of fixed assets and they are among the newest fleet of service rigs in the industry.

The Corporation budgeted $24.6 million for capital expenditures during 2012 as part of its 2012 capital build program consisting of the following:

  • $16.1-million -- for construction of eight new service rigs in the Eagle Well Servicing division (does not include $4.8 million from assets which were purchased in the fourth quarter of 2011);
  • $8 million -- for expansion of rental inventory assets in the Aero Rental division;
  • $0.5-million -- for maintenance and infrastructure expenditures.

As at September 30, 2012, the Corporation estimates it has spent $21.1 million of the $24.6 million originally budgeted in the 2012 capital build program.  Additionally, during 2012, the Corporation has spent approximately $6.9 million on items not included in the 2012 capital build program, including approximately $2.4 million on deposits for three service rigs to be delivered in 2013, $3.1 million on additional service rig related equipment and maintenance capital, $0.8 million for coiled tubing related equipment, $0.2 million for incremental rentals inventory assets and $0.4 million on other miscellaneous capital including the costs of leasehold improvements and furniture for our new Lloydminster shop and office.

Management continuously evaluates opportunities to grow the business and adjusts or increases the capital program if the opportunities and conditions warrant.  At September 30, 2012, the Corporation anticipates spending an additional $3 million for identified rental asset inventory additions, $4.1 million for additional service rig equipment and $0.2 million for other miscellaneous capital by December 31, 2012.  This will bring total capital spending incurred during 2012 to approximately $35.3 million.

The total 2013 capital build program budget is $25.2 million with approximately $6 million of this expected to be incurred before December 31, 2012 and $19.2 million expected to be incurred in the first seven months of 2013 as follows:

  • $14.7 million - for construction of six new service rigs in the Eagle Well Servicing division;
  • $8 million - for expansion of rental inventory assets in the Aero Rental division;
  • $2 million for additional service rig and coiled tubing equipment, including rig recertifications and maintenance capital;
  • $0.5 million - for infrastructure and other capital expenditures.

Dividend Increase and Outstanding Share Data

The following table summarizes outstanding share data and potentially dilutive securities:

                       
                        November 27, 2012
 Common shares                     50,393,292
 Stock options                     1,735,701
 Restricted share units                     471,838
                       

The following table summarizes dividends declared or paid since December 31, 2011:

                         
Declaration Date       Record Date       Payment Date       Amount of Dividend per Common Share
December 20, 2011       January 9, 2012       January 13, 2012       $0.025
March 20, 2012       April 6, 2012       April 13, 2012       $0.025
May 23, 2012       July 6, 2012       July 13, 2012       $0.025
August 14,2012       October 5, 2012       October 12, 2012       $0.025
November 27, 2012       January 4, 2013       January 18, 2013       $0.030
                         

The Board of Directors has declared a quarterly cash dividend of $0.030 per common share. The dividend will be payable on January 18, 2013 to shareholders of record at the close of business on January 4, 2013.  This dividend is an eligible dividend for Canadian income tax purposes.

Outlook

IROC had a good third quarter, posting a net income over $3 million and EBITDAS over $7 million.  This marked the 33rd consecutive quarter of positive EBITDAS, underscoring the fundamental strength of our core businesses and the ability of our assets to generate positive operating cash flow. Our ability to address the needs of our customers as they continue to expand their use of horizontal drilling and multistage fracturing technologies remains the focus of each of our operating divisions.

Prior to July, we expected activity levels in 2012 would be similar to those experienced in 2011.  This expectation was based on oil prices in the first quarter of 2012 being the highest since 2008 and the robust capital spending programs of producers.  However, NYMEX crude oil prices declined for three consecutive months during the second quarter, and Alberta oil price levels were further impacted by wider differentials, further reducing the price received by our customers for their crude oil.  Natural gas prices also declined in the second quarter, but since natural gas activity had already become a minor part of our business these declines have had a negligible impact on the demand for our services.  As a result of these commodity price declines, and equity market volatility for oil and gas companies, we have seen capital budget reductions at many oil and gas companies and we expected demand for the last half of 2012 to fall short of the levels experienced in the last half of 2011 for most services.

Despite our expectations of lower year over year industry activity levels in the second half of 2012, each of our business segments are expected to be profitable and provide positive operating cash flow and EBITDAS through the upcoming winter.

Our service rig division is expected to continue to be the largest contributor of revenues and profits in our company.  Eagle averaged 37.3 rigs during 2011, starting the year with 36 rigs and ending with 41 rigs in the field.  Eagle averaged 44.6 service rigs during the first 9 months of 2012 with 48 rigs currently in service and another 2 service rigs on track to be in service by the end of the year.  We expect to average 45 rigs for calendar 2012 as compared to the 37.3 rigs in 2011, an increase of 7.7 rigs or 21%.  Even with lower industry activity levels, we expect year over year growth in revenue, margin and EBITDAS for this division for the last half and full year 2012.

Eagle's new equipment specifically addresses the current needs of our customers or targeted areas of operation and provides greater operating efficiency with minimal downtime. We continue to build equipment that is lighter and more adaptable to the various areas where we operate.  This new and innovative equipment continues to attract both work and competent personnel, enabling Eagle to achieve high equipment utilization, a benefit to our employees and customers alike.

Our rental business continues to operate well and the demand for Aero's products and services continues to increase as our customers exploit oil opportunities in both the application of horizontal technology and the SAGD operating segments of the oil and gas business in Western Canada.  We continue to unlock the operating leverage available to us in this division as we add more equipment without significantly increasing infrastructure or general and administrative costs, resulting in increasing revenues and margins. As industry acceptance of our new equipment and services remains strong, we have been able to continue to profitably add assets in this division and expect to add approximately $11 million of new rental equipment during the full year ended December 31, 2012.  We have already exceeded our originally budgeted $8 million in asset acquisitions for 2012 with an incremental $2.7 million of assets on order to fulfill specific customer opportunities.  Geographic expansion remains a priority focus for this business.

The contribution from our coiled tubing assets, which we have now operated for over a year, was positive for the first nine months of 2012, but performance is lower than the targets we had set for these assets and the utilization of these assets has been impacted by the decline in hydraulic fracturing and completion activity.  We continue to expect some growth from our coiled tubing operations as we add additional auxiliary equipment and continue to work through the operational challenges of starting a new service line. During the quarter we made certain personnel changes which are expected to improve the performance of this division, and we continue to be committed to building a foundation from which we can lever future growth.  The coiled tubing operation remains complementary to our other services and we expect it will provide a positive contribution to our bottom line over the coming years.

Our ability to attract and retain personnel in a very tight labour market is critical to all of our businesses. We have been able to fully crew all of our service rigs and coiled tubing units through the first nine months of 2012.  With the onset of winter and what is traditionally our period of greatest activity, we will be actively focused on ensuring we have the people necessary to crew our growing fleet of service rigs.  Our recent and planned growth continues to make IROC an attractive employer and provides opportunities to our workforce for career advancement. We continue to have a strong balance sheet, the newest in equipment, and a talented group of employees that will allow us to continue to grow and capitalize on opportunities as they present themselves.

Conference Call and Webcast
IROC will conduct a conference call on Wednesday November 28, 2012 at 9:00 a.m. MST (11:00 a.m. EST).  Thomas Alford, President and CEO, and Ryan Michaluk, 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 Third Quarter 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/1069225/1162993 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 a diverse range of products, services and equipment to the oil and gas industry that are 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 a product and services offering in the following core areas: well servicing & equipment, 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, delivery and deployment of IROC's new service rigs and new coiled tubing units, the expected demand for our services, 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; the lack of availability of qualified personnel or management; 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 other risk factors set forth under the heading "Risks" in the annual MD&A for the year ended December 31, 2011 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 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 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.

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

                                 
        Nine
months
ended
    Three months ended
$ 000's except number of shares and per
share amounts
      September
30, 2012
    September
30, 2012
    June 30,
2012
    March 31,
2012
    December
31, 2011
Net income from continuing operations       9,911     3,016     145     6,750     4,778
                                 
Depreciation and amortization       7,620     2,682     2,546     2,392     2,111
Loss (gain) on foreign exchange       8     4     10     (6)     (1)
Stock based compensation expense       524     211     168     145     167
Gain on disposal of equipment       (74)     (46)     (8)     (20)     (8)
Interest and financing costs       543     194     168     181     163
Income taxes:                                
  Current       -     -     (1,185)     1,185     -
  Deferred       3,482     1,022     1,320     1,140     1,432
                                 
EBITDAS - continuing operations       22,014     7,083     3,164     11,767     8,642
                                 
EBITDAS per share - continuing operations                                
  Basic       $0.44     $0.14     $0.06     $0.23     $0.18
  Diluted       $0.43     $0.14     $0.06     $0.23     $0.18
                                 

                                 
        Nine
months
ended
    Three months ended
$ 000's except number of shares and per
share amounts
      September
30, 2011
    September
30, 2011
    June 30,
2011
    March 31,
2011
    December
31, 2010
Net income (loss) from continuing operations       8,601     4,330     (331)     4,602     2,703
                                 
Depreciation and amortization       5,285     1,920     1,715     1,650     1,857
Loss on foreign exchange       31     23     8     -     -
Stock based compensation expense       437     169     115     153     105
Loss (gain) on disposal of equipment       (11)     7     7     (25)     (17)
Interest and financing costs       640     164     190     286     305
Income taxes:                                
  Current       -     -     -     -     -
  Deferred       3,288     1,619     (62)     1,731     367
                                 
EBITDAS - continuing operations       18,271     8,232     1,642     8,397     5,320
                                 
EBITDAS per share - continuing operations                                
  Basic       $0.39     $0.16     $0.03     $0.20     $0.12
  Diluted       $0.38     $0.16     $0.03     $0.19     $0.12

 

 

SOURCE: IROC Energy Services Corp.

IROC Energy Services Corp.
Mr. Thomas M. Alford, President and CEO,
Telephone:  (403) 263-1110
Email: investorrelations@iroccorp.com

or

Mr. Ryan A. Michaluk, Chief Financial Officer
Telephone:  (403) 263-1110
Email: investorrelations@iroccorp.com

(Source: CNW )
(Source: Quotemedia)

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