Xtreme Drilling and Coil Services: Q1 2012 Operating and Financial Results

CALGARY, ALBERTA--(Marketwire - May 9, 2012) - Xtreme Drilling and Coil Services (TSX:XDC) announce summary results for the three months ended March 31, 2012. It is anticipated that filing will take place on SEDAR of the interim Consolidated Financial Statements and Management's Discussion and Analysis on Friday, May 11.

Xtreme has scheduled a conference call on Thursday, May 10, 2012 beginning promptly at 9:00am MDT (10:00am CDT; 11:00am EDT) to discuss the 2012 first quarter financial and operating results. Tom Wood, Chief Executive Officer, will host the conference call with participation from Richard Havinga, President and COO and Matt Porter, Chief Financial Officer.

To participate in the conference call, please dial in as follows approximately ten minutes before the start time in your time zone.

+1 888-340-9655 (North America Toll-Free) or +1 416-340-8530 (Alternate).

An audio replay of the call will be available until Thursday, May 24, 2012. To access the replay, call +1 905-694-9451 or +1 800-408-3053 and enter pass code 4699078.

Highlights - Q1 2012

• Total revenue of $37.3 million
  • Drilling Segment revenue of $30.2 million
  • Coil Services Segment revenue of $7.1 million
• Total operating margin of $10.4 million
  • Drilling Segment operating margin of $9.7 million
  • Coil Services Segment operating margin of $0.7 million
• Total Operating Days of 1,423
  • Drilling Segment operating days of 1,235
  • Coil Services Segment operating days of 188
• Total rig utilization of 78 percent
• Adjusted EBITDA of $7.5 million
• Delivery of two new XDR 500 rigs to the Bakken and Niobrara
• Delivery of the first two XSR coiled tubing units to the Eagle Ford

Corporate Outlook

In the first quarter the company continued to focus on the deployment of the new build XDR drilling rigs as well as the XSR coil service rigs. Additionally, one new build XDR 500 rig is currently moving to Colorado to commence work on a three year contract and it is anticipated that one additional XDR 500 will be delivered near the end of Q2. The final three XSR coiled tubing units will also deploy by the end of the second quarter.

Drilling Segment - XDR

The core drilling business continued to perform well in Q1. In the quarter three rigs previously idled in the US began operations in Canada. Notwithstanding the issues that go along with any start up; margins were strong through the spring breakup period. The technology and speed with which these rigs operate should provide a clear differentiation in the Canadian market.

The US drilling business performed very well in Q1 with the delivery of two new XDR500 rigs. The core markets of the Bakken and Niobrara remain robust. The rig count in both areas continues to climb as have customer inquiries. The company has limited exposure to weaker natural gas. However, it is possible that two to three rigs currently drilling DJ Basin gas wells could redeploy in the coming quarters. These rigs are currently tied to long term contracts.

Overall, the outlook for the XDR drilling business is strong for the term of 2012 and into 2013. The company has approximately 4,200 days contracted for the remainder of 2012 and over 6,200 days in 2013 under term contracts. The company continues to focus on safety and employee retention through training. Both of these significantly increase the quality of the service provided and ultimately lead to lower daily operating expenses.

Coil Service Segment - XSR

In the XSR business deployment has been at a measured pace, as both pump delays and personnel shortages have forced the company to roll out the XSR units slower than desired. Management is encouraged by the down hole performance of these new coil units, as the previously modeled capabilities are now being achieved in the field. An education process continues with customers and potential customers as to the capabilities of the XSR rigs. The equipment is technologically superior and larger than any competitor in the market. With this come new opportunities for E&P companies to design longer reach horizontal wells. We now provide a solution to complete wells with horizontals longer than 10,000 feet or 20,000 feet in total measured depth. As the company proves the ability to reach these depths safely and efficiently it has the potential to be a game changer for our customers. The increased production that comes along with longer completion capabilities is significant. This was evidenced in Q1 as a customer was able to mill an additional 2,000 feet in an existing well which increased initial production by 100%.

As many in the market have stated it continues to be difficult to attract and retain qualified crews. We have implemented a retention plan as well as a new hire training program to help mitigate this problem. It appears that the pump issues that significantly delayed the commencement of operations and impacted Q1 margins are under control. It is estimated that the remaining company pumps will be deployed by the end of Q2. As previously announced in order to begin operations in Q1 the company obtained two rental pumping units. This coupled with other startup costs dramatically impacted margins in this segment for Q1. The pump rentals and associated costs were approximately $1.3 million for the quarter. Absent these non-recurring expenses operating margins would have been within the expected range.

International

The two XSR coil service units operating in Saudi Arabia had their contracts extended through July of 2013. Performance continues to be very strong on these two units. As this business has developed and performed above expectations interest has picked up in the Middle East for the companies services.

While the sales cycle is much longer in this area of the world management is cautiously optimistic that new work is possible. To that end additional resources are being allocated to this business as we seek to build the business and operational infrastructure required to support a larger operation. While this may slightly impact margins in the short term management is confident that it will lay the groundwork to add additional rigs into the Middle East market.

The company plans to finish the existing capital build program in the early fourth quarter of 2012. At this time no major capital build programs are scheduled as the company transitions into a cash flow positive position. Opportunities to further leverage the companies leading technology into existing or new markets is a primary focus as the company moves into 2013.

Condensed Consolidated Statement of Financial Position
For the three months ended March 31, 2012 and 2011
(in thousands of Canadian dollars)
(unaudited)
		Mar 31, 2012		Dec 31, 2011
Assets
Current assets
	Cash and cash equivalents	3,481		5,892
	Accounts receivable	55,381		45,353
	Other receivables	2,618		1,906
	Prepaid expenses and other	2,400		2,090
	Income tax recoverable	918		934
	Inventory	6,540		5,863
		71,338		62,038
Non-current assets
Deferred tax asset		6,886		7,566
Property and equipment		372,834		341,198
Intangible assets		4,447		4,523
Total Assets		455,505		415,325
Liabilities and Shareholders' Equity
Current liabilities
	Bank indebtedness	4,750		-
	Accounts payable and accrued liabilities	31,150		26,175
	Current portion of long-term debt	500		500
		36,400		26,675
Long-term liabilities
Long-term debt		112,240		80,937
Total Liabilities		148,640		107,612
Shareholders' equity
Share capital		310,618		310,296
Share option reserve		10,824		10,338
Accumulated deficit		(3,395	)	(4,325	)
Foreign currency translation reserve		(11,182	)	(8,596	)
Total Shareholders' Equity		306,865		307,713
Total Liabilities and Shareholders' Equity		455,505		415,325

Condensed Consolidated Statement of Income
For the three months ended March 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share data)
(unaudited)
		2012		2011
Revenue		37,265		23,171
Expenses
	Operating expenses	26,846		16,525
	General and administrative expenses	2,884		2,569
	Depreciation	4,902		2,572
	Amortization of intangibles	76		76
	Stock-based compensation	504		464
	Foreign exchange gain	(1,609	)	(127	)
	Loss (gain) on sale of equipment	12		(7	)
	Other (income) expense	34		(63	)
	Interest expense	1,481		418
Income before tax for the period		2,135		744
Tax expense
	Current	472		72
	Deferred	733		82
Total tax expense		1,205		154
Net income for the period		930		590
Net income per common share
	- basic	0.01		0.01
	- diluted	0.01		0.01
Weighted average number of
common shares
	- basic	65,702,914		53,272,974
	- diluted	65,962,605		54,106,128

Condensed Consolidated Statement of Comprehensive Loss
For the three months ended March 31, 2012 and 2011
(in thousands of Canadian dollars)
(unaudited)
		2012		2011
Net income for the period		930		590
Other comprehensive loss
	Unrealized loss on translating financial statements of foreign operations	(2,586	)	(5,638	)
Comprehensive loss for the period		(1,656	)	(5,048	)

Condensed Consolidated Statement of Changes in Shareholders' Equity
For the three months ended March 31, 2012 and 2011
(in thousands of Canadian dollars)
(unaudited)
		Share capital	Share option reserve		Accumulated deficit			Foreign currency translation reserve			Total shareholders' equity
Balance at January 1, 2011		253,765	8,585		(4,496	)		(12,996	)		244,858
	Net income for the period	-	-		590			-			590
	Other comprehensive loss
	Currency translation differences	-	-		-			(5,638	)		(5,638	)
	Total comprehensive loss	-	-		590			(5,638	)		(5,048	)
	Employee share option scheme:
	Value of employees services	34	487		-			-			521
	Proceeds from shares Issued, net of share issue costs	245	(34	)	-			-			211
	Total transactions with owners	279	453		-			-			732
Balance at March 31, 2011		254,044	9,038		(3,906	)		(18,634	)		240,542
Balance at January 1, 2012		310,296	10,338		(4,325	)		(8,596	)		307,713
	Net income for the period	-	-		930			-			930
	Other comprehensive loss
	Currency translation differences	-	-		-			(2,586	)		(2,586	)
	Total comprehensive loss	-	-		930			(2,586	)		(1,656	)
	Employee share option scheme:
	Value of employee services	67	553		-			-			620
	Proceeds from shares Issued, net of share issue costs	255	(67	)	-			-			188
	Total transactions with owners	322	486		-			-			808
Balance at March 31, 2012		310,618	10,824		(3,395	)		(11,182	)		306,865

Condensed Consolidated Statement of Cash Flows
For the three months ended March 31, 2012 and 2011
(in thousands of Canadian dollars)
(unaudited)
		2012		2011
Cash flow provided by (used in):
Operating activities
Net income for the period		930		590
Items not affecting cash:
	Depreciation and amortization	4,978		2,648
	Stock-based compensation	504		464
	Loss (gain) on sale of equipment	12		(7	)
	Provision for doubtful accounts	-		18
	Interest expense	1,312		418
	Amortization of debt issuance costs	169		-
	Unrealized foreign exchange gain	(1,609	)	(96	)
	Deferred tax expense	733		82
	Interest paid	(612	)	(418	)
	Changes in items of working capital (Note 13)	(5,626	)	3,926
	Net cash generated from operating activities	791		7,625
Financing activities
Proceeds from exercise of stock options		171		245
Proceeds from long-term debt		33,095		12,000
Repayment of long-term debt		(159	)	(3,339	)
Proceeds from (repayment of) operating facility		4,750		(3,719	)
Debt issuance cost		(34	)	-
	Net cash generated from financing activities	37,823		5,187
Investing activities
Proceeds from sale of equipment		14		108
Capital expenditures		(40,606	)	(10,619	)
Increase in intangibles		-		(34	)
	Net cash used in investing activities	(40,592	)	(10,545	)
Effect of exchange rate changes on cash and cash equivalents		(433	)	(135	)
(Decrease) Increase in cash and cash equivalents		(2,411	)	2,132
Cash and cash equivalents - beginning of period		5,892		2,994
Cash and cash equivalents - end of period		3,481		5,126

Adjusted EBITDA
For the three months ended March 31, 2012 and 2011
(in thousands of Canadian dollars)
(unaudited)
		Three months ended
		Mar 31, 2012		Mar 31, 2011
Net income		930		590
Tax expense		1,205		154
Interest expense		1,481		418
Loss (gain) on sale of equipment		12		(7	)
Other (income) expense		34		-
Foreign exchange gain		(1,609	)	(127	)
Stock-based compensation		504		464
Amortization of intangibles		76		76
Depreciation of property and equipment		4,902		2,572
		7,535		4,140
Non-recurring items:
	Other	-		113
Adjusted EBITDA		7,535		4,253
Adjusted EBITDA per share ($)		0.11		0.08

Reader Advisory

This news release, or documents incorporated herein, contains forward-looking statements ("FLS"). More particularly, this news release contains statements that may relate to contracting, marketing, financing, construction, modifications, deployment, operation, utilization of drilling rigs in the Company's current and future fleet, and any potential outcome relating to claims and litigation. Further, the FLS herein may relate to trade credit insurance carried by the Company to mitigate receivables collection risk. Although Xtreme believes expectations reflected in these FLS are reasonable, readers should not place undue reliance on them because Xtreme can give no assurance they will prove to be correct. There are many factors that could cause FLS not to be correct, including risks and uncertainties inherent in the Company's business.

These statements are based on certain factors and assumptions including, but not limited to: the assessment of current and projected future operations; ongoing and future strategic business alliances, negotiations and opportunities to enter new, extend or complete existing contracts; the availability and cost of financing; foreign currency exchange rates; timing and magnitude of capital expenditures; expenses and other variables affecting rig operation, modification and construction; the ability and commitment of vendors to provide rig component equipment, services and supplies, including labor, in a cost-effective and timely manner; the issuance of applied-for patents; changes in tax rates; and government regulations. Although Xtreme considers the assumptions used to prepare this news release reasonable, based on information available to management as of May 09, 2012, ultimately the assumptions may prove to be incorrect.

Forward-looking statements are also subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from management's current expectations. These factors include, but are not limited to: the cyclical nature of drilling market demand, foreign currency exchange rates, and commodity prices; access to credit and to equity markets; the availability of qualified personnel; vendor-provided rig components; and, competition for customers.

Management's assumptions considered the following: compliance with the terms of the Company's current and proposed new credit facility; ongoing access to key supplies and components required to continue operating and maintaining equipment, including fuel; continued successful performance of drilling and related equipment; expectations regarding gross margin; recruitment and retention of qualified personnel; continuation or extension of existing long-term or multi-well contracts; revenue expectations related to shorter-term drilling opportunities; willingness and ability of customers to remit amounts owing to Xtreme in accordance with normal industry practices; and management of accounts receivable in direct relation to revenue generation.

In preparing this news release, management considered the following risk factors: fluctuations in crude oil and natural gas prices, supply and demand; fluctuation in foreign currency exchange and interest rates; financial stability of Xtreme's customers; current and future applications for Xtreme's proprietary technology; competition from other drilling contractors; regulatory and economic conditions in regions where Xtreme operates; environmental constraints; changes to government legislation; international trade barriers or restrictions; and, where appropriate, global political and military events.

Financial outlook information contained in this news release about prospective results of operations, financial position or cash provided by operating activities is based on assumptions about future events, including economic conditions and proposed courses of action, and on management's assessment of relevant information currently available. Readers are cautioned such financial outlook information contained in this news release is not appropriate for purposes other than for which it is disclosed here. Readers should not place undue importance on FLS and should not rely on this information as of any other date. Except as required pursuant to applicable securities laws, Xtreme disclaims any intention, and assumes no obligation, to update publicly or revise FLS to reflect actual results, whether as a result of new information, future events, changes in assumptions, changes in factors affecting such FLS or otherwise.

About Xtreme Coil

Xtreme Drilling and Coil Services Corp. ("XDC" on the Toronto Stock Exchange) designs, builds, and operates a fleet of high specification drilling rigs and coiled tubing well service units featuring leading- edge proprietary technology including AC high capacity coil injectors, deep re-entry drilling capability, modular transportation systems and continuous integration of in-house advances in methodologies.

Currently Xtreme operates two service lines: Drilling Services (XDR) and Coil Services (XSR) under contracts with oil and natural gas exploration and production companies and integrated oilfield service providers in Canada, the United States and Saudi Arabia. For more information about the Company, please visit www.xtremecoil.com.