News Releases

Strad Announces Second Quarter Results

Aug 08, 2012
Strad today announced its financial results for the three and six months ended June 30, 2012.

CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.

The news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release.

Strad Energy Services Ltd., (TSX:SDY) ("Strad" or the "Company"), a North American-focused, energy services company, today announced its financial results for the three and six months ended June 30, 2012. In early 2012, Strad announced the sale of its Production Services business. For 2011, the Company is reporting the results from the Production Services business as discontinued operations. On that basis, comparative results have been restated to reflect the impact of operations that have been classified as discontinued during 2011. Refer to note 15 of the unaudited condensed interim consolidated financial statements of Strad for the three and six months ended June 30, 2012. All amounts are stated in Canadian dollars unless otherwise noted.

SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

  • Second quarter revenue from continuing operations of $54.3 million, a 48% increase compared with $36.7 million for the same period in 2011;
  • Second quarter EBITDA(1) from continuing operations of $10.9 million, a 4% increase, compared with $10.5 million for the same period in 2011;
  • Capital expenditures of $23.3 million in the second quarter and $46.7 million in the first half of 2012;
  • Strad officially launched its EcoPond™ frac-water storage tanks during the second quarter. The Company has started to submit customer proposals and has placed its first units in July;
  • Total funded debt to trailing EBITDA ratio of 1.0 at the end of Q2 2012; and,
  • Second quarter earnings per share from continuing operations of $0.08.

Notes:

(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous Generally Accepted Accounting Principles in Canada ("GAAP"); see "Non-IFRS Measures Reconciliation" in this press release.

"The second quarter saw more challenging conditions prevail in a few North American markets that impacted industry results for a number of oilfield service participants," said Andy Pernal, President and CEO of Strad. "Strad's previous investment in both geographic and product line diversity allowed us to adapt to changing conditions in several regions by re-deploying assets to areas of higher activity. We also continue to invest in new initiatives that target emerging trends, including the need for innovative frac-water storage solutions that offer robust opportunities for growth over the longer term."

"Changing industry dynamics, particularly in the Marcellus shale resource play, impacted our financial results this quarter, which included some one-time costs related to the redeployment of assets," said Greg Duerr, Chief Financial Officer of Strad. "We continue to closely monitor changing industry conditions, the broader global economic picture, and customer capital programs and believe the flexibility and diversity of our operations will allow us to adapt quickly to both positive and negative trends in the near term."

FINANCIAL REVIEW FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012

With the divestiture of the Production Services business, Strad is reporting operational and financial results for its core well-site infrastructure and activation solutions business along geographic lines with a separate segment for product sales. Product Sales are comprised of Strad manufactured products sold to external customers, third party equipment sales to existing customers, and sales of equipment from Strad's existing fleet to customers. Results are segmented between Canadian Operations, U.S. Operations and Product Sales to better distinguish between the Company's core operating business and product sales, which have different margin and asset base profiles.

  Three months ended June 30,  
Six months ended June 30,
 
($000's, except per share amounts) 2012   2011   % chg.   2012   2011   % chg.  
                         
Revenue from continuing operations 54,304   36,717   48   110,605   63,499   74  
EBITDA from continuing operations (1) 10,885   10,498   4   26,866   17,656   52  
EBITDA as a % of revenue 20 % 29 %     24 % 28 %    
  Per share ($), basic 0.30   0.29   3   0.73   0.48   52  
  Per share ($), diluted 0.29   0.28   4   0.71   0.48   48  
Net income from continuing operations (2) 2,772   3,569   (22 ) 7,895   4,840   63  
  Per share ($), basic 0.08   0.10   (20 ) 0.22   0.13   69  
  Per share ($), diluted 0.07   0.10   (30 ) 0.21   0.13   62  
Funds from continuing operations (3) 11,134   10,357   8   25,772   17,395   48  
  Per share ($), basic 0.30   0.28   7   0.70   0.47   49  
  Per share ($), diluted 0.29   0.28   4   0.68   0.47   45  
Capital Expenditures from continuing operations (4) 23,301   20,138   16   46,661   52,024   (10 )
Total assets 242,038   231,058   5   242,038   231,058   5  
Return on Average Total Assets (5) 20 % 30 %     25 % 28 %    
Long-term debt(6) 52,500   22,000   139   52,500   22,000   139  
Total long-term liabilities 70,453   39,433   79   70,453   39,433   79  
Common Shares - end of period ('000's) 37,251,301   37,246,384       37,251,301   37,246,384      
Weighted average Common Shares                        
  basic 36,714,257   36,632,544       36,713,600   36,632,544      
  diluted 37,767,772   36,999,618       37,678,969   36,999,618      
                         
FINANCIAL POSITION AND RATIOS
  As at June 30,
($000's except ratios) 2012 2011
     
Working Capital (7) 23,531 21,617
Funded Debt (8) 64,788 40,571
Total Assets 242,038 231,058
Funded Debt to EBITDA(7) 1.0 1.1
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(2) Net income (loss) from continuing operations excludes income attributable to the non-controlling interests.
(3) Funds from operations is cash flow from operating activities before changes in working capital. Funds from operations is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(4) Includes assets acquired under finance lease and intangible assets. Capital expenditures are net of rental asset disposals.
(5) Return on Average Total Assets is calculated as EBITDA divided by average total assets and is not a recognized measure under IFRS or previous GAAP; see "Non IFRS Measures Reconciliation"
(6) Excluding current portion.
(7) Working capital is calculated as current assets less current liabilities. See "Non-IFRS Measures Reconciliation".
(8) Funded debt includes bank indebtedness plus current and long-term portion of debt plus current and long-term obligations under finance lease less cash. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation".

RESULTS OF OPERATIONS

Strad reported an increase in revenue of 48% during the three months ended June 30, 2012, compared to the same period in 2011. Strad's expansion of its equipment fleet in both Canada and the U.S. through strong capital spending programs, continued to be the main driver of year-over-year revenue increases during 2012.

Strad's Canadian Operations reported lower EBITDA margins during the three months ended June 30, 2012, compared to the same period in 2011, due to weather related factors as well as increased infrastructure costs required to support the expanded asset base. Strad's Canadian Operations experienced an earlier and extended spring break-up period in 2012, which resulted in lower demand for Strad's surface equipment fleet. However, these wet conditions resulted in continued strong demand for Strad's matting fleet, including mat sales and supporting service. Strad's Canadian matting fleet, continued to act as a hedge against decreased surface equipment utilization rates in the Western Canadian Sedimentary Basin ("WCSB") during the second quarter.

Second quarter EBITDA results from Strad's U.S. Operations continued to be impacted by lower utilization levels in the Marcellus resource play in Pennsylvania as a result of low natural gas prices. Strad's customers in the Marcellus continued to reallocate assets to different areas within the Marcellus as well as other resource plays in the U.S. during the second quarter to focus on oil and liquids rich natural gas drilling. Strad redeployed a portion of its Marcellus equipment fleet, both within the Marcellus and other resource plays, in response to its customers' reallocation of assets. During the second quarter, Strad incurred $0.6 million of one-time trucking charges associated with redeploying its equipment fleet to meet changing customer areas of focus. EBITDA was also impacted by an increased infrastructure required to support multiple regions and a larger asset base. Warm and dry conditions in North Dakota resulted in lower utilization rates for Strad's U.S. matting fleet in the second quarter compared to 2011 when North Dakota experienced unusually wet conditions.

During the second quarter, Strad added $7.5 million of capital additions in Canada and $15.3 million in the U.S. For the six months ended June 30, 2012, Strad has spent $46.7 million of its $72.0 million budgeted capital program. Strad continued to invest in new product initiatives including EcoPond™, its frac-water storage solution, satellite communications equipment, and solids control and waste management.

Canadian Operations              
      Three months ended June 30,       Six months ended June 30,
($000's) 2012   2011   % chg.   2012   2011   % chg.
                       
Revenue 15,625   11,011   42   37,451   21,413   75
EBITDA (1) 4,153   4,241   (2 ) 11,526   7,860   47
EBITDA % 27 % 39 %     31 % 37 %  
Capital Expenditures (2) 7,520   7,823   (4 ) 17,882   15,581   15
Gross Capital Assets 99,812   69,021   45   99,812   69,021   45
Total Assets 107,421   75,277   43   107,421   75,227   43

Notes:

(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(2) Includes assets acquired under finance lease and purchases of intangible assets. Capital expenditures are net of rental asset disposals.

Revenue generated for the three months ended June 30, 2012, increased 42% to $15.6 million versus $11.0 million for the same period in 2011. Second quarter 2012 revenue increased due to capital expenditures during the third quarter and fourth quarter of 2011 and the first quarter of 2012. However, Canadian Operations revenue results were impacted by an extended breakup in the WCSB and prolonged wet weather into late June 2012. Strad's Canadian matting business benefited from wet conditions during the second quarter and a recent expansion to the fleet that allowed it to meet the corresponding increase in demand. Demand for Strad's matting fleet increases in the spring when the ground thaws and access to remote locations becomes more difficult without the use of matting. The extended breakup period impacted revenues generated by Strad's Canadian surface equipment fleet and drill pipe due to lower oilfield activity levels during the second quarter of 2012 compared to the second quarter of 2011.

EBITDA for the three months ended June 30, 2012, of $4.2 million, decreased 2% compared with $4.2 million for the same period in 2011. EBITDA as a percentage of revenue for the three months ended June 30, 2012, was 27% compared with 39% for the same period in 2011. The decrease in EBITDA as a percentage of revenue is due to increased infrastructure required to coordinate and manage the expanded equipment fleet in Canada and a shift in the mix of revenue.

U.S. Operations
  Three months ended June 30,   Six months ended June 30,  
($000's) 2012   2011   % chg.   2012   2011   % chg.  
                         
Revenue 19,939   14,476   38   40,851   23,164   76  
EBITDA (1) 5,157   5,497   (6 ) 12,605   8,175   54  
EBITDA % 26 % 38 %     31 % 35 %    
Capital Expenditures (2) 15,259   12,134   26   28,084   36,090   (22 )
Gross Capital Assets 105,674   64,292   64   105,674   64,292   64  
Total Assets 123,554   92,693   33   123,554   92,693   33  
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(2) Includes assets acquired under finance lease and purchases of intangible assets. Capital expenditures are net of rental asset disposals.
 

Revenue for the three months ended June 30, 2012, increased 38% to $19.9 million from $14.5 million for the same period in 2011. The increase is due to $46.8 million in capital additions to the surface equipment fleet during 2011, and an additional $12.8 million of capital additions in the first quarter of 2012. Strad's U.S. Operations experienced lower utilization rates in the Marcellus (PA) resource play during the second quarter as customers continued to reallocate assets towards more oil and natural gas liquids rich drilling within the Marcellus and other resource plays throughout the continental United States. Strad redeployed a portion of its Marcellus equipment fleet, both within the Marcellus and other resource plays, in response to its customers' reallocation of assets. Matting utilization in North Dakota was also lower due to drier conditions during the second quarter of 2012 compared to the same period in 2011.

EBITDA for the three months ended June 30, 2012, decreased 6% to $5.2 million compared with $5.5 million for the same period in 2011. The decrease in EBITDA is due to the previously mentioned reduction in utilization rates in the Marcellus and in North Dakota as well as increased infrastructure required to coordinate and manage the expanded fleet. During the second quarter, Strad also incurred $0.6 million of one-time trucking charges associated with redeploying its surface equipment fleet to meet changing customer areas of focus.

Product Sales

  Three months ended June 30, Six months ended June 30,
($000's) 2012   2011   % chg. 2012   2011   % chg.
                     
Revenue 18,740   11,230   67 32,303   18,922   71
EBITDA (1) 2,517   1,651   52 4,556   3,207   42
EBITDA % 13 % 15 %   14 % 17 %  
Capital Expenditures (2) 475   14   3,293 647   79   719
Total Assets 6,162   4,535   36 6,162   4,535   36
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(2) Includes assets acquired under finance lease and purchases of intangible assets. Capital expenditures are net of rental asset disposals.

Revenue for the three months ended June 30, 2012, increased 67% to $18.7 million from $11.2 million for the same period in 2011 driven primarily by matting sales to external customers. Product Sales are comprised of in-house manufactured products sold to external customers, third party equipment sales to existing customers, and sales of equipment from Strad's existing fleet to customers. Product Sales revenues tend to fluctuate quarter to quarter depending on customer demand and manufacturing capacity dedicated to external sales.

OUTLOOK

Industry conditions during the second quarter softened on a year-over-year basis, as a result of an early spring breakup followed by wet weather in Canada and continued weakness in North American dry natural gas pricing. In the Western Canadian Sedimentary Basin, active drilling rigs in the second quarter of 2012 averaged 177 compared to 184 for the same period in 2011. In the United States, drilling rig activity levels varied by region. The Bakken (ND), Marcellus (PA), and Eagle Ford plays drive the majority of the Company's operating activity in the U.S. In the Marcellus (PA) play, the active rig count averaged 90 rigs in Q2 of 2012, down from 109 in Q2 of 2011. The Bakken (ND) average rig count increased from 128 in Q2 of 2011 to 159 in Q2 of 2012, and the Eagle Ford rig count increased from 153 in Q2 2011 to 223 in Q2 2012.

During the second quarter, low natural gas pricing continued to curtail industry investment in related resource plays. Strad was most directly impacted by this in the Marcellus shale gas play where the Company experienced lower levels of activity compared to the second quarter of 2011. As a result, Strad redeployed a portion of its fleet within the Marcellus, where customers were reallocating assets towards drilling for oil and liquids-rich natural gas, and to other more active resource plays, specifically the Bakken, resulting in additional trucking costs of approximately $0.6 million during the second quarter. Strad remains optimistic about the long-term potential of the Marcellus, however, a near-term shift out of the play to areas of higher activity was necessary for the Company to achieve higher utilization rates for its fleet in the near term. While a focus on oil and liquids-rich natural gas drilling helped offset regional challenges in the Marcellus play, a wet spring in Canada delayed deployment of the Company's surface fleet north of the border.

Pricing on Strad's core group of product offerings remained in line with previous quarters in most of the markets that Strad supplies and the Company anticipates this trend continuing into the year's final two quarters. The Company has experienced price pressure in its Marcellus operations due to the decline in activity.

Strad also officially launched its EcoPond™ frac-water storage tanks during the second quarter, further diversifying its suite of product offerings. Strad sales teams have indicated significant interest for both EcoPond™ designs and the Company has started to submit customer proposals and placed its first units in the third quarter. Sufficient internal and external manufacturing infrastructure remains in place to meet 2012 sales forecasts and Management expects demand to increase in the months ahead.

Capital expenditures for the quarter totaled $7.5 million in Canada and $15.3 million in the U.S., in addition to $0.5 million in Product Sales, which represented a year-over-year increase of 9% in Canada and a 12% decrease in the United States. Strad continues to deploy its capital on a roughly equal basis between its U.S. and Canadian Operations. While the Company has 65% of its planned $72 million capital program already deployed, Management has left a portion of the total program uncommitted in order to remain flexible in response to high value opportunities.

Given that broader economic conditions continue to present a context of uncertainty, the Company is closely monitoring producer capital expenditure programs as shifts in demand can occur rapidly. Strad maintains flexibility given its geographic, product line, commodity and customer diversification. Strad's geographic diversity allows the Company to mitigate risk, as it continues to operate in numerous resource plays in both the U.S. and Canada. Strad's assets inherently have commodity diversity as the equipment fleet can be deployed to both oil and natural gas plays without modification. Strad's product line diversification also provides a natural hedge against spring breakup conditions in the WCSB as customer demand for matting products increases during the spring. Strad's customer base of large producers remains well positioned to weather short-term uncertainty with respect to changes to planned 2012 capital programs. Finally, Strad's conservative leverage levels also provide flexibility to add to the asset base when accretive opportunities are identified.

LIQUIDITY AND CAPITAL RESOURCES

($000's) June 30, 2012 March 31, 2012
     
  Current assets 59,559 64,926
  Current liabilities 36,028 41,746
Working capital 23,531 23,180
     
Banking facilities    
  Operating facility 5,459 9,673
  Syndicated revolving facility 52,500 37,500
Total facility borrowings 57,959 47,173
     
Total available facilities 100,000 100,000
Unused Borrowing capacity 42,041 52,827

At June 30, 2012, working capital was $23.5 million compared to $23.2 million at March 31, 2012. The change in working capital is consistent with the modest change in revenue from the first quarter of 2012 to the second quarter of 2012. Funds from operations for the six months ended June 30, 2012, increased to $26.1 million compared to $17.7 million for the same period in 2011. During the same period in 2012, Strad spent $46.7 million on capital additions compared to $52.0 million for the same period in 2011. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad's capital program.

The Company's syndicated banking facility consists of an operating facility with a maximum principal amount of $15.0 million and an $85.0 million revolving facility, both of which are subject to certain limitations on accounts receivable, inventory and net book value of fixed assets and are secured by a general security agreement over the Company's assets. The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company's funded debt to EBITDA ratio. Based on the Company's current funded debt to EBITDA ratio of 1.0, the interest rate on the syndicated banking facility is bank prime plus 1.00% on prime rate advances and at the prevailing rate plus a stamping fee of 2.00% on bankers' acceptances. For the three months ended June 30, 2012, the overall effective rate on the syndicated banking facility was 4.12%. As of June 30, 2012, $5.5 million was drawn on the operating facility and $52.5 million was drawn on the revolving facility. Payments on the revolving facility are interest only.

As at June 30, 2012, the Company was in compliance with all of the syndicated banking facility covenants.

NON-IFRS MEASURES RECONCILIATION

Certain supplementary measures in this Press Release do not have any standardized meaning as prescribed under IFRS and previous GAAP and, therefore, are considered non-IFRS measures. These measures are described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent IFRS or previous GAAP measure. However, they should not be used as an alternative to IFRS or previous GAAP, because they may not be consistent with calculations of other companies. These measures are further explained below.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS and previous GAAP. Management believes that in addition to net income, EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how those activities are financed or how the results are taxed. EBITDA is calculated as net income from continuing operations plus interest, taxes, depreciation and amortization, non-controlling interest, loss on disposal of property, plant and equipment, loss on foreign exchange, less gain on foreign exchange and gain on disposal of property, plant and equipment. Segmented EBITDA is based upon the same calculation for defined business segments, which are comprised of Canadian Operations, U.S. Operations, Product Sales and Corporate.

Funds from operations are cash flow from operating activities excluding changes in working capital. It is a supplemental measure to gauge performance of the Company before non-cash items. Working capital is calculated as current assets minus current liabilities. Working capital is used by Management to gauge what banking facilities are available for reinvestment in the business.

Annualized return on average total assets for the six months ended June 30, 2012, is calculated as annualized year to date EBITDA divided by the average of total assets over the fourth quarter of 2011 and first quarter of 2012, including a three month lag. The three month lag represents the time between the purchase of capital assets and when they are deployed in the field and earning revenue. In 2011, the return on average total assets calculation was adjusted to include total Company assets, whereas prior calculations included total drilling services assets only.

Funded debt is calculated as bank indebtedness plus current and long-term portion of debt plus current and long-term portion of finance lease obligations, less cash.

Reconciliation of EBITDA and Funds from Operations

($000's)

  Three Months Ended June 30,   Six Months Ended June 30,  
  2012   2011   2012 2011  
               
Net income from continuing operations 2,772   3,569   7,895 4,840  
Add:              
Depreciation and amortization 7,003   4,611   13,256 8,271  
Loss/(gain) on disposal of PP&E (11 ) (119 ) 24 (141 )
Non-controlling interest (187 ) (210 ) 333 333  
Share-based payments 113   188   362 361  
Deferred income tax expense 748   1,832   2,704 3,043  
Interest expense 696   486   1,198 688  
Funds from operations 11,134   10,357   25,772 17,395  
               
Add:              
Loss on foreign exchange (32 ) 329   369 602  
Income tax expense (104 ) -   1,087 20  
Subtotal 10,998   10,686   27,228 18,017  
               
Deduct:              
Share-based payments 113   188   362 361  
               
EBITDA 10,885   10,498   26,866 17,656  

Reconciliation of quarterly non-IFRS measures

($000's)

  Three months ended
(unaudited
)
  Jun. 30, 2012     Mar. 31, 2012   Dec. 31, 2011   Sept. 30, 2011  
                   
Net income from continuing operations 2,772     5,123   7,661   7,327  
Add:                  
Depreciation and amortization 7,003     6,253   5,713   5,215  
Loss/(gain) on disposal of PP&E (11 )   35   (96 ) 52  
Loss/(gain) on foreign exchange (32 )   401   52   (916 )
Non-controlling interest (187 )   520   543   497  
Income tax expense (104 )   1,191   1,177   2,074  
Deferred income tax expense 748     1,956   1,499   2,748  
Interest expense 696     502   620   487  
EBITDA 10,885     15,981   17,169   17,484  
                   
  Three months ended
(unaudited
)
  Jun. 30, 2011     Mar. 31, 2011   Dec. 31, 2010(1 ) Sept. 30, 2010(1 )
                   
Net income from continuing operations 3,569     1,271   1,818   2,646  
Add:                  
Depreciation and amortization 4,611     3,660   3,010   2,724  
Finance Costs -     -   13   22  
Gain on disposal of PP&E (119 )   (22 ) (5 ) (42 )
Loss/(gain) on foreign exchange 329     273   529   (211 )
Non-controlling interest (210 )   543   76   445  
Income tax expense/(recovery) -     20   (562 ) (829 )
Deferred income tax expense 1,832     1,211   1,654   2,510  
Interest expense 486     202   535   733  
EBITDA 10,498     7,158   7,068   7,998  
Note: (1) 2010 amounts are presented in accordance with IFRS.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements and information contained in this Press Release constitute forward-looking statements. More particularly, this Press Release contains forward-looking statements concerning future capital expenditures of the Company, demand for the Company's products and services, drilling activity in North America, pricing of the Company's products and services, introduction of new products and services, manufacturing capacity to meet anticipated demand for the Company's products, and expected exploration and production industry activity. These statements relate to future events or to the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

The use of any of the words "expect", "plan", "continue", "estimate", "anticipate", "potential", "targeting", "intend", "could", "might", "should", "believe", "may", "predict", or "will" and similar expressions are intended to identify forward-looking information or statements. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this Press Release. The forward-looking information and statements included in this Press Release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements. These factors include, but are not limited to, such things as the impact of general industry conditions, fluctuation of commodity prices, industry competition, availability of qualified personnel and management, stock market volatility and timely and cost effective access to sufficient capital from internal and external sources. The risks outlined above should not be construed as exhaustive. Although management of the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Accordingly, readers should not place undue reliance upon any of the forward-looking information set out in this Press Release. All of the forward-looking statements of the Company contained in this Press Release are expressly qualified, in their entirety, by this cautionary statement. Except as required by law, the Company disclaims any intention or obligation to update or revise any forward-looking information or statements, whether the result of new information, future events or otherwise.

This press release shall not constitute an offer to sell, nor the solicitation of an offer to buy, any securities in the United States, nor shall there be any sale of securities mentioned in this press release in any state in the United States in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

SECOND QUARTER EARNINGS CONFERENCE CALL

Strad Energy Services Ltd. has scheduled a conference call to begin promptly at 8:00 a.m. MDT on Thursday, August 9, 2012.

The conference call dial in numbers are 1-866-226-1798 or 1-416-340-2220.

The conference call will also be accessible via webcast at:

www.stradenergy.com

A replay of the call will be available approximately one hour after the conference call ends until Thursday, August 16th, 2012, at 11:59pm. To access the replay, call 1-800-408-3053 or 1-905-694-9451, followed by pass code 9591362.

Strad Energy Services Ltd.

Interim Consolidated Statement of Financial Position

(Unaudited)

(in thousands of Canadian dollars) As at June 30, 2012   As at December 31, 2011
Assets $   $
       
Current assets      
Trade receivables 47,546   49,466
Inventories 6,099   7,950
Prepaids and deposits 3,818   4,263
Current portion of notes receivable 649   1,352
Income taxes receivable 1,447   -
  59,559   63,031
       
Assets held for sale 1,439   -
       
Non-current assets      
Property, plant and equipment 159,562   126,439
Intangible assets 2,646   2,752
Notes receivable 1,065   683
Goodwill 17,277   17,277
Deferred income taxes 490   2,873
  242,038   213,055
Assets of disposal group classified as held for sale -   14,056
Total assets 242,038   227,111
       
Liabilities        
Current liabilities        
Bank indebtedness 5,459   5,570  
Accounts payable and accrued liabilities 23,682   30,812  
Deferred revenue 248   2,245  
Current portion of obligations under finance lease 4,080   4,383  
Current portion of note payable 510   -  
Income taxes payable -   3,392  
Dividend payable 2,049   -  
  36,028   46,402  
Non-current liabilities        
Long-term debt 52,500   23,500  
Obligations under finance lease 2,749   3,282  
Note payable 1,019   -  
Deferred income tax liabilities 14,185   13,666  
  106,481   86,850  
Liabilities of disposal group classified as held for sale -   6,988  
Total liabilities 106,481   93,838  
         
Equity        
Equity attributable to owners of the parent        
Share capital 118,251   157,042  
Contributed surplus 11,595   3,017  
Accumulated other comprehensive loss (754 ) (585 )
Retained earnings (deficit) 6,283   (28,260 )
         
  135,375   131,214  
Non-controlling interests 182   2,059  
         
Total equity 135,557   133,273  
         
Total liabilities and equity 242,038   227,111  

Strad Energy Services Ltd.

Interim Consolidated Statement of Income

For the three and six months ended June 30, 2012 and 2011

(Unaudited)

(in thousands of Canadian dollars)

  Three months ended
June 30
  Six months ended
June 30
 
  2012   2011   2012 2011  
  $   $   $ $  
Continuing operations              
Revenue 54,304   36,717   110,605 63,499  
Expenses              
Operating expenses 34,959   19,314   66,859 34,085  
Depreciation 6,637   4,221   12,525 7,548  
Amortization of intangible assets 366   390   731 723  
Selling, general administration 8,347   6,717   16,518 11,397  
Share-based payments 113   188   362 361  
(Gain) loss on disposal of property, plant and equipment (11 ) (119 ) 24 (141 )
Foreign exchange (gain) loss (32 ) 329   369 602  
Interest expense 696   486   1,198 688  
               
Income before income tax from continuing operations 3,229   5,191   12,019 8,236  
Income tax 644   1,832   3,791 3,063  
Net income from continuing operations for the period 2,585   3,359   8,228 5,173  
             
               
Income (loss) from discontinued operations, net of tax 744   (12 ) 437 304  
               
Net income for the period 3,329   3,347   8,665 5,477  
               
Net income attributable to:              
Owners of the parent 3,516   3,557   8,332 5,144  
Non-controlling interests (187 ) (210 ) 333 333  
  3,329   3,347   8,665 5,477  
               
Earnings per share from continuing operations attributable to the equity owners of the Company:              
Basic $0.08   $0.10   $0.22 $0.13  
Diluted $0.07   $0.10   $0.21 $0.13  
               
Earnings per share from discontinued operations attributable to the equity owners of the Company:              
Basic $0.02   $0.00   $0.01 $0.01  
Diluted $0.02   $0.00   $0.01 $0.01  
Earnings per share from total operations attributable to the equity owners of the Company:
Basic $0.10   $0.10   $0.23 $0.14  
Diluted $0.09   $0.10   $0.22 $0.14  

Strad Energy Services Ltd.

Interim Consolidated Statement of Comprehensive Income

For the three and six months ended June 30, 2012 and 2011

(Unaudited)

(in thousands of Canadian dollars)
  Three months ended
June 30
  Six months ended
June 30
 
  2012   2011   2012   2011  
  $   $   $   $  
                 
Net income for the year 3,329   3,347   8,665   5,477  
                 
Other comprehensive income (loss)                
  Cumulative translation adjustment 931   (267 ) (169 ) (1,063 )
Total other comprehensive income (loss) 931   (267 ) (169 ) (1,063 )
Comprehensive income for the year 4,260   3,080   8,496   4,414  
                 
Comprehensive income attributable to:                
  Owners of the parent 4,337   3,317   8,163   4,187  
  Non-controlling interests (77 ) (237 ) 333   227  
  4,260   3,080   8,496   4,414  

Strad Energy Services Ltd.

Interim Consolidated Statement of Cash Flow

For the six months ended June 30, 2012 and 2011

(Unaudited)

(in thousands of Canadian dollars)        
  2012   2011  
  $   $  
Cash flow provided by (used in)        
         
Operating activities        
Net income for the period 8,665   5,477  
Adjustments for:        
  Depreciation and amortization 13,256   10,287  
  Deferred income tax 2,704   3,216  
  Share-based payments 166   455  
  Interest expense 1,198   744  
  Loss (gain) on disposal of property, plant and equipment 24   (157 )
  Loss on sale of investment in subsidiary 441   -  
Changes in items of non-cash working capital (6,899 ) (6,107 )
Net cash generated from operating activities 19,555   13,915  
         
Investing activities        
Purchase of property, plant and equipment (45,071 ) (50,471 )
Proceeds from sale of property, plant and equipment 848   452  
Purchase of intangible assets (623 ) (338 )
Proceeds on sale of subsidiaries 7,129   -  
Purchase of assets held for sale (1,439 ) -  
Purchase of non-controlling interest (4,627 ) -  
Net cash used in investing activities (43,783 ) (50,357 )
         
Financing activities        
Proceeds on issuance of long-term debt 29,000   22,000  
Repayment of finance lease obligations (net) (1,877 ) (3,084 )
Share issuance costs -   (147 )
Issue of share capital 24   -  
Repayment of shareholder loan 271   -  
Interest paid on debt (1,198 ) (744 )
Net cash generated from financing activities 26,220   18,025  
         
Effect of exchange rate changes on cash and cash equivalents (1,676 ) (69 )
         
(Decrease) in cash and cash equivalents 316   (18,486 )
         
         
Cash and cash equivalents (including bank indebtedness) - beginning of year (5,570 ) 8,416  
Cash and cash equivalents included in liabilities of disposal group - beginning of year (205 ) -  
Cash and cash equivalents (including bank indebtedness) - end of year (5,459 ) (10,070 )
         
Cash paid for income tax 5,621   -  
         
         

ABOUT STRAD ENERGY SERVICES LTD.

Strad is a North American energy services company that focuses on providing well-site infrastructure and activation solutions to the oil and natural gas industry. Strad focuses on providing complete customer solutions in well-site-related oilfield equipment for producers active in unconventional resource plays.

Strad is headquartered in Calgary, Alberta, Canada. Strad is listed on the Toronto Stock Exchange under the trading symbol "SDY".

 

Contact Information 

Strad Energy Services Ltd.
Andy Pernal
President and Chief Executive Officer
(403) 775-9202
(403) 232-6901 (FAX)
apernal@stradenergy.com

Strad Energy Services Ltd.
Greg Duerr
Chief Financial Officer
(403) 705-4333
(403) 232-6901 (FAX)
gduerr@stradenergy.com

www.stradenergy.com