CALGARY, ALBERTA — (Marketwired) — 11/05/14 — Xtreme Drilling and Coil Services (“Xtreme” or the “Company”) (TSX: XDC) announces summary results for the three and nine months ended September 30, 2014. It is anticipated the Condensed Interim Consolidated Financial Statements and Management–s Discussion and Analysis will be filed on SEDAR on Thursday, November 6, 2014.
Highlights – Q3 2014
Selected Quarterly Financial Information (unaudited)
Excerpt from Management–s Discussion and Analysis
For the three and nine months ended September 30, 2014
Outlook
Xtreme continues to see strong demand for horizontal drilling and coil services across its core United States operating areas of the Eagle Ford, Bakken and Niobrara as well as internationally in Saudi Arabia and India. This sentiment has been reinforced recently by several large service companies that highlighted the market for horizontal drilling and completions continues to increase as horizontal length, frac stages and service intensity are all expanding.
In an environment of falling oil prices, Xtreme is cautiously optimistic and well positioned if a softening in service activity does occur. This is based on Management–s belief that service companies with the best combination of new technology, high quality customers and exposure to the highest return resource plays will maintain utilization and pricing. In a lower oil price environment operators are likely to allocate their capital dollars to core areas and reduce activity in lower quality areas. Xtreme currently operates in basins that are widely believed to be among the highest rate of return basins in North America. In addition, the largest customers in both the XDR and XSR segments are among the top three operators in each basin or have investment grade credit ratings. These customers represented 54% of total revenue for the third quarter and 73% of total backlogged days. Early indication from these clients suggests that activity levels will likely remain flat to marginally higher over the next four quarters.
XDR Drilling Segment
In the XDR division the strong demand sentiment has been reinforced by four new term XDR drilling contracts signed in the last 30 days for XDR 500 rigs operating in the Niobrara and Bakken. On average, the pricing increased by 7.8% with an average duration of 14 months per contract. Xtreme has three additional rigs that are up for renewal in the first quarter of 2015 and anticipates increased pricing on these rigs as well. As of October 31, 2014, the 16 rig US XDR division has approximately 4,800 days in term days contracted with an approximate revenue value of $130 – $140 million CAD.
The XDR drilling fleet includes 21 AC electric rigs that are comprised of 13 XDR 400/500 rigs, four XDR 300 rigs and four XDR 200 rigs. The XDR 400/500 rigs are ideal for the horizontal drilling market as they are AC electric and have a drilling depth capacity in excess of 18,000–. These 13 rigs now represent 82% of the 5,700 total contracted days for the XDR fleet and 66% of the 7,040 total days that Xtreme currently has under long term take or pay contracts.
The much discussed bifurcation in the drilling market has been both from a technology and efficiency perspective as well as drilling depth capacity. As such, Xtreme has aggressively analyzed new opportunities for the XDR 200 and 300 fleet of rigs; both of which have slightly lower drilling depth capacities. The first opportunity to redeploy this class of rig was in the middle of 2014. During the second and third quarters two XDR 300 rigs were modified and mobilized to India on a long term contract at significantly higher rates than could be achieved in the US or Canadian markets. Operations in India began in the third quarter and the operation had a strong October with utilization of 95% on both of the rigs. The Company anticipates that margins will continue to improve in the fourth quarter as activity levels increase and no additional startup costs are anticipated.
Xtreme continues to actively market two XDR 300 rigs and one XDR 200 rig in the United States as well as three XDR 200 rigs in Canada. These six rigs are the most susceptible rigs in the fleet to a slowdown in E&P spending due to their shallower drilling depth capacity. Management believes these rigs will continue to work; however, it will likely be at lower utilization levels. A key focus will be to optimize the performance and financial return of these rigs.
XSR Coil Services Segment
The trend of longer lateral wells continued in the third quarter for the XSR coil service segment. Demand and pricing remained strong in the Eagle Ford as revenue averaged more than $53,000 USD per operating day. Discussions with customers indicate that activity levels and pricing should remain strong in spite of the recent dip in oil prices.
Operators now recognize the value of large diameter coiled tubing and, as such, the numbers of units with 2 3/8″ coil or larger has increased in South Texas. Although new large diameter units have entered the market, management continues to believe that Xtreme holds a clear competitive advantage. All of the current XSR units are fully AC electric with proprietary programmable logic controls and 2 5/8″ coiled tubing that can reach up to 22,500– in horizontal wells. No other coiled tubing service provider in the market can provide this type of package to oil and gas operators. In addition, Xtreme has more than two and half years of operating experience in the Eagle Ford with large diameter coiled tubing and has performed more than 300 jobs and 23 million run in feet with prolonged success. The ability to perform routine to complex coiled tubing operations at any depth or well profile continues to set Xtreme apart from other service providers.
The eight unit XSR new build program is progressing very well. The first unit will be delivered in November with the second unit in December. The remaining six units are on schedule to be delivered quarterly through mid-2016. The Company has the flexibility to increase or decrease the new build program depending on market conditions. The total build time is approximately six months from start to field delivery of each unit.
In addition to delivering the units on time, it is estimated that the cost of each unit will be below the initial forecast of $8.5 million. This represents a capital savings and ultimately improves the financial return profile of each unit. As part of the new build process, the Company began staffing and training for the new XSR units in the third quarter. This modestly impacted operating margins in the XSR segment and is anticipated to continue through the next four quarters.
In Saudi Arabia, the two XSR units on the coiled tubing drilling project recently set a record for most lateral footage drilled in a month. This is another impressive technical accomplishment on this four year project. The current contract has 21 months remaining per unit with an additional 12 month customer option. Based on the success of the project, Xtreme continues to place a high priority on adding additional units in Saudi Arabia.
Third Quarter Results and Conference Call
The Company will conduct an investor conference call on Thursday, November 6, 2014 at 10:00 am MT, 11:00 am CT. Tom Wood, Chief Executive Officer, will host the conference call with participation from Matt Porter, Chief Financial Officer, and will answer questions from analysts and investors.
To participate in the conference call, please dial in as follows approximately ten minutes before the start time in your time zone.
+1 800-446-4472 (North America Toll-Free) or +1 416-340-2220 (Alternate)
Webcast Link:
An audio replay of the call will be available until Thursday, November 13, 2014. To access the replay, call +1 800-408-3053 or +1 905-694-9451 and enter pass code 2387478.
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 November 5, 2014, 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 crude oil and natural gas 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 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
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, Saudi Arabia and India. For more information about the Company, please visit .
Contacts:
Xtreme Drilling and Coil Services Corp.
Matt Porter
Chief Financial Officer
+1 281 994 4604