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) ------------------------------------------------------------------------- Three months ended March 31, 2008 2007 % Change --------------------------------------- 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% ------------------------------------------------------------------------- (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 ----------------------------------
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.
