REVENUE GROWS BY 4% FROM USD 7.8 MILLION TO USD 8.1 MILLION; CONTINUED
SOFTNESS IN GULF COAST REDUCED EQUIPMENT UTILIZATION
HOUSTON, May 15 /PRNewswire-FirstCall/ - Production Enhancement Group,
Inc. (TSX: WIS) ("PEG" or the "Company") today announced financial and
operating results for the three months ended March 31, 2008.
The following is a summary of selected financial information of the
Company:
SELECTED FINANCIAL INFORMATION (1), (2)
(Stated in USD)
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Three months ended
March 31,
2008 2007 % Change
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Revenue(1) 8,116,713 7,832,175 4%
EBITDAS(2) (613,569) 925,633 -166%
Loss before income taxes (4,134,950) (529,822) 680%
Net loss from continuing operations (4,134,950) (529,822) 680%
Loss from discontinued operations (121,743) -
Loss per share from continuing
operations (basic and diluted) (0.07) (0.01) 643%
Loss per share from discontinued
operations (basic and diluted) (0.00) -
Total assets 49,668,253 41,588,354 19%
Notes and reclassification of
long-term debt 48,386,891 18,572,399 161%
Number of common shares outstanding:
Weighted average (basic and
diluted) 57,757,114 55,012,335 5%
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(1) The cessation of operations of WISE Alberta was classified as loss
from discontinued operations in the financial statements.
(2) EBITDAS means earnings from continuing operations before interest,
taxes, depreciation and amortization and stock based compensation.
Readers are cautioned that EBITDAS is generally regarded as an
indirect measure of operating cash flow and, as such, the Company
believes it is a significant indicator of success of public
companies, and is particularly relevant to readers within the
investment community. These measures do not have any standardized
meaning prescribed by Canadian GAAP and may not be comparable to
similar measures presented by other companies; however, PEG is
consistent in its calculation of EBITDAS for each reporting period.
First Quarter Financial Highlights
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Revenue for the three months ended March 31, 2008 was USD 8.1 million,
a 4% increase over 2007 first quarter revenue of USD 7.8 million. The
Company experienced a continued softness in the Gulf Coast market due to
weather in the Gulf. High winds and seas caused the number of idle days to
increase significantly.
- Coiled Tubing Division revenue for the first quarter of 2008 was
USD 3.2 million, a 42% decrease over the 2007 first quarter revenue
of USD 5.4 million. The current year quarterly decrease over the
corresponding quarterly period in 2007 was primarily attributable to
lower utilization in the field.
- Pumping Division revenue for the first quarter of 2008 was
USD 2.5 million, a 31% increase over 2007 first quarter revenue of
USD 1.9 million. The increase was largely attributable to the
organizational changes that occurred during the second half of 2007.
The operating management and the pressure pumping sales force were
restructured, including focus on primary cementing pumping services.
- The Wireline Services Division, which was acquired on March 5, 2007,
contributed USD 1.7 million of revenue during the first quarter of
2008 compared to partial first quarter of 2007 revenue of
USD 0.6 million.
- WISE Alberta, a Canadian coiled tubing operation that was acquired on
April 27, 2007, was classified in the fourth quarter of 2007 as
discontinued operations due to the Company's decision to close the
Canadian operations and the Brooks, Alberta field office. The loss
from discontinued operations for the three months ended March 31,
2008 was USD 121,743.
- The Nitrogen Services Division and WISE Tools Division contributed
USD 226,636 and USD 439,092 to revenue, respectively, in the first
quarter of 2008. Both divisions began operating in the fourth quarter
of 2007.
The Company began to feel the positive impact of its reorganization in
the first quarter of 2008. The Company was reorganized in the fourth
quarter of 2007 to focus its business exclusively on delivering high
quality oil and gas well intervention services in the United States, where
growth continues and has closed its Canadian operations due to the
continued depressed Canadian natural gas markets.
The Company continues to redeploy its equipment to maximize fleet
utilization, and is increasing its focus on meeting the stringent vendor
qualification requirements of major oil and gas producers. Although the
Company suffered reduced utilization of its equipment in the first quarter
of 2008, it is experiencing renewed demand growth for its services and
equipment as strong oil and gas demand encourages the Company's customers
to extract more production from existing wells.
EBITDAS for the three months ended March 31, 2008 was USD (613,569),
compared to 2007 first quarter EBITDAS of USD 925,633. EBITDAS declined in
the first quarter of 2008 due primarily to the lower fleet utilization
caused by high winds and rough seas in the Gulf of Mexico.
The Company had cash and restricted cash of USD 1,153,662 as at March
31, 2008 and USD 4,924,961 at December 31, 2007. The decrease in the cash
reserve was due to the use of the restricted cash to pay the fourth quarter
of 2007 and first quarter of 2008 interest payments due to the lender.
The Company was in breach of its debt covenants with its lender (the
"Lender") at March 31, 2008. The Lender has agreed to waive said breaches
and has entered into negotiations with the Company to amend the terms of
the loan agreements, which loan agreements include a note purchase
agreement (the "Note Purchase Agreement"). The Company has reclassified USD
46.3 million such long-term debt as current until such time as the
amendment is finalized. The Company believes such amendment will be
finalized in the second quarter of 2008. The Company may be in breach of
its debt covenants in the future and this may affect its ability to borrow
additional funds and/or the operations of the Company should the Lender
call the note.
Settlement Achieved with Former Wireline Acquisition Shareholders
The Company has reached a settlement with the former owners of its
acquisition of Wireline Specialists of Louisiana, Inc. ("Wireline"), which
was acquired on March 5, 2007, in connection with the earn-out provision of
the acquisition agreement pursuant to which an additional 461,538 common
shares were issued to the former owners of Wireline in the second quarter
of 2008.
Agreement Reached With Lender
The Company has reached an agreement with its Lender in which an
amendment to the original Note Purchase Agreement will be made and a waiver
will be received for all covenant violations subject to the closing of the
offer by Quest Energy (Canada) Ltd. ("Quest") for all of the Company's
issued and outstanding common shares (the "Offer"). The Lender will also
consent to the change of control of the Company upon completion of the
Offer. Subject to closing of the Offer (the "Closing Date"), the Company
will pay the Lender a restructuring fee of USD 4.0 million, with USD 2
million of such fee being due and payable on the closing date of the Offer
and the remaining USD 2 million being due and payable upon the earlier of
(a) the date the obligations owing under the Note Purchase Agreement are
repaid or prepaid in full, and (b) the maturity date for the remaining
aggregate outstanding principal amount of the obligations under the Note
Purchase Agreement, which is amended to one year from the Closing Date.
Further, upon the Closing Date, the Company will pay to the Lender USD 15
million towards the current outstanding debt which such payment causing a
release of all security against the accounts receivable of the Company.
Upon the Closing Date, the Company will furthermore amend the terms of the
existing warrants held by the Lender (the "Lender Warrants") to (a) fix the
exercise price for the Lender Warrants at CAD $0.65 per share, (b) reduce
the number of the PEG common shares to be issued on the exercise of the
Lender Warrants to 3,000,000 from 8,236,436, (c) extend the term for the
exercise of the Lender Warrants to the period of four years following the
Closing Date, and (d) provide that if the Company is taken private, the
Lender will have certain rights to have the Company redeem the Lender
Warrants. The maturity date for the remaining aggregate outstanding
principal amount of the obligations under the amended Note Purchase
Agreement shall be modified to be one year from the Closing Date with the
ability, at the option of the Company, to extend the maturity date for six
months with an interest rate increase of 2% and the grant by the Company of
an additional 500,000 warrants exercisable at CAD $0.65. Also the Lender
and the Company have agreed, subject to the Offer closing, to modify the
financial covenants.
"Overall, our first quarter results were disappointing due to the
affects caused by the high winds and seas in the Gulf of Mexico. However,
we are starting to see the results of our efforts to improve quality, lower
costs and expand internationally. We are also seeing improved market
conditions. We have repositioned our company to deliver improved financial
results. The offer by Quest announced on April 18, 2008 acknowledges PEG's
value," said Don B. Cobb, PEG's Chief Executive Officer.
For a complete copy of PEG's 2008 first quarter financial statements
and management's discussion and analysis, please visit http://www.sedar.com or
PEG's website at http://www.productionenhancement.com.
About Production Enhancement Group, Inc.
Production Enhancement Group, Inc., a Houston-based energy services
company incorporated in Alberta, Canada, trades on the TSX under the symbol
WIS. PEG's wholly owned subsidiary, WISE(R) Well Intervention Services,
Inc., has developed patented WISE multifunction coiled tubing technologies
and markets a full range of coiled tubing, pressure pumping, nitrogen, and
wireline services.
WISE(R) is a registered trademark of Production Enhancement Group, Inc.
Disclaimers
The TSX does not accept responsibility for the adequacy or accuracy
of this release.
This release and PEG's website referenced in this release may contain
forward-looking information, including expectations of future components of
revenue, cash flow and earnings. By their very nature, the preparation of
such forward-looking information requires the Company to make assumptions,
and involves inherent risks and uncertainties, both general and specific.
There is significant risk that express or implied projections contained in
such forward-looking information will not materialize or will be
inaccurate. A number of factors could cause actual future results,
conditions, actions or event to differ materially from the targets,
expectations, estimates or intentions expressed in the forward-looking
information. Such differences may be caused by factors, many of which are
beyond PEG's control, which include, but are not limited to, the level of
operations carried on by PEG's customers, oil and gas prices, weather
conditions in offshore and land markets including natural disasters,
availability of capital, access to current or future financing
arrangements, manufacturing cycles of new equipment, the effects of
competition in the markets in which PEG operates, difficulty in continuing
to develop, produce and commercialize technologically advanced services,
availability of human resources and PEG's success in anticipating and
managing the foregoing risks. The preceding list is not comprehensive, and
as such, investors and others who rely on these statements should consider
the above factors as well as the uncertainties they represent and the risk
they entail. The risks outlined above should not be construed as
exhaustive. Investors are cautioned not to place undue reliance on any
forward-looking information. PEG undertakes no obligation to update or
revise any forward-looking information.
SOURCE Production Enhancement Group, Inc.
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CONTACT:
visit http://www.productionenhancement.com or
contact Douglas Parker, Chief Financial Officer, Production
Enhancement Group, Inc., (281) 282-1851,
dparker@wisewellintervention.com
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