Xtreme Coil Drilling Corp. (TSX:XDC) ("Xtreme Coil", the "Company") provides an
operations update and announces financial and operating results for the three
and six months ended June 30, 2009 ("2009 1Q"), with comparative data for same
period in 2008 ("2008 2Q") and for the year ended December 31, 2008.
2009 2Q Highlights
- revenue $23.1 million up 119 percent from 2008 2Q
- EBITDA $5.4 million up 550 percent from 2008 2Q
- EBITDA per share $0.13, up 550 percent from 2008 2Q
- operating days reached 878, up 86 percent from 2008 2Q
- at June 30, 69 percent of rigs operating; 81 percent under term contracts
Operations Update
Xtreme Coil completed a very strong 2009 2Q in terms of our corporate history as
well as in relation to other energy services sector participants. Our financial
performance for the quarter was driven by our rig fleet's 878 operating days. At
June 30th, 69 percent of our rig fleet was working under contract.
Two of our XTC 400 Coil Over Top Drive(R) ("COTD(TM)") drilling rigs commenced
operations in México during 2009 2Q, expanding our fleet in that region to
eight. As announced July 22, 2009, we executed long-term contracts for an
additional two drilling rigs, both XTC 200DT(Plus) models, and began the work to
modify the rigs to customer specifications. Once prepared for mobilization they
are being deployed to the Chicontepec project in México. One of the rigs is now
moving to its first location. We expect both to begin drilling operations
during 2009 3Q which would increase our total number of rigs operating in
México to ten by September 30, 2009.
During 2009 2Q, three Xtreme Coil rigs continued drilling in the Rocky Mountain
region of the United States under long-term contracts. While the United States
drilling market remains severely constricted, it has been reported there is
still demand for high performance rigs.
Xtreme Coil's balance sheet strength has provided flexibility to fund strategic
elements of our plan for future growth. At the close of 2009 2Q, we completed an
equity offering under a "bought deal" arrangement which raised net proceeds of
$43.4 million on issuance of 11,845,000 common shares. At the same time, we
undertook a non-brokered private placement with net proceeds of $1.0 million on
issuance of 258,500 common shares. In May, we announced execution of an
amendment to Xtreme Coil's extendible credit facility with our existing lenders.
International projects and opportunities continue as a priority for Xtreme
Coil's business development, sales and marketing, given the volume and frequency
of inquiries we have received. During 2009 2Q, to prepare for a number of
opportunities which would be ideal for our COTD(TM) drilling rigs, we began work
on a fit-for-purpose re-entry drilling rig. The rig's design, based on a
recently-issued Xtreme Coil patent, will have applications that meet the
requirements of potential projects in the Middle East and North Africa markets.
We believe what differentiates Xtreme Coil from our competitors is our
proprietary and patented applications and processes together with our in-house
engineering capability. We continue to evaluate drilling markets and the
availability of drilling rig equipment or components throughout North America.
For instance, we are analyzing the potential to expand Xtreme Coil's rig fleet
cost-effectively through application of our engineering designs which focus on
upgrading late model top drive rigs to incorporate our innovative COTD(TM)
capabilities.
Xtreme Coil recorded strong financial results for the first six months of 2009.
We publish and use EBITDA (earnings before interest, taxes, depreciation and
amortization, stock-based compensation, foreign exchange gains or losses and
gains or losses on sale of equipment) and EBITDA per share as supplemental
measures to monitor our corporate financial performance. Although EBITDA and
EBITDA per share are not generally accepted accounting principles ("non-GAAP")
financial measures, management believes they are useful supplemental measures of
the financial performance of Xtreme Coil's principal business activities before
considering how activities are financed or taxed, and before the impact of
stock-based compensation, foreign exchange rate fluctuations or sales of
equipment. A reconciliation of EBITDA to net income is presented in the non-GAAP
measures section of Xtreme Coil's MD&A.
As we address opportunities to expand Xtreme Coil's business horizons, we will
continue to concentrate on delivering excellence in day-to-day operational
performance. Our management and operations staff are empowered to work closely
with Xtreme Coil's valued current and potential customers to deliver efficient
contract drilling services. We believe our performance sets an industry standard
for the benefit of our customers and our shareholders.
Tom Wood Rod Uchytil
Executive Chairman President and Chief Executive Officer
2009 Second Quarter Highlights
($ thousand, except where indicated)
2009 Jun 30 2008 Jun 30 % Change
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Revenue 23,052 10,527 119
EBITDA (1) 5,379 715 652
EBITDA per share (1) ($) 0.13 0.02 550
Net income (loss) 1,926 (1,541) n/a
Net income (loss) per common
share - basic ($) 0.05 (0.04) n/a
Weighted average common shares -
basic (thousand) 40,859 38,516 6
Capital assets 254,070 211,948 20
Operating days (1) 878 473 86
Rig utilization (1) (percentage) 60 52 15
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(1) see Non-GAAP measures in MD&A
Management's Discussion and Analysis ("MD&A")
For the three and six months ended June 30, 2009
($ thousand, except where indicated)
Management for Xtreme Coil Drilling Corp. ("Xtreme Coil", the "Company") based
this MD&A on operating and financial results for the three and six months ended
June 30, 2009 and provides comparative information for the three and six months
ended June 30, 2008. Management recommends reading this discussion and analysis
of Xtreme Coil's financial condition and results of operations in conjunction
with the audited consolidated financial statements and MD&A for the year ended
December 31, 2008. Management prepares the consolidated financial statements in
accordance with Canadian generally accepted accounting principles ("GAAP") and
expresses all amounts in Canadian dollars ("CAD") unless otherwise stated. This
MD&A is based on information available as at August 12, 2009.
Forward-Looking Statements
This MD&A, or documents incorporated herein, may include certain information,
statements and assumptions (collectively, "forward-looking statements")
regarding management's view of future events, expectations, plans, initiatives
or prospects constituting forward-looking statements within the meaning of
securities laws. Forward-looking statements may relate to Xtreme Coil's future
outlook and anticipated events or results and may include statements related to
current and anticipated future contracts; commodity pricing; rates of currency
exchange; operating expenses; rig building, completion or deployment; capital
expenditures and other 2009 guidance provided throughout this MD&A.
These statements are based on certain factors and assumptions regarding, among
others: assessment of current, and projections for future, operations; ongoing
and future business negotiations and opportunities to enter new, continue or
extend existing contracts; the availability and cost of financing; foreign
currency exchange rates; timing and magnitude of capital expenditures; expenses
and other variables affecting rig operating and construction expenses; the
ability of vendors to provide rig component equipment, services and supplies,
including labour, in a cost-effective and timely manner; the issuance of
applied-for patents; jurisdictional changes in taxation rates; and government
regulations. Although Xtreme Coil considers the assumptions reasonable, based on
information available to management as at August 12, 2009, the assumptions may
ultimately prove 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, currency exchange rates, and
commodity prices; access to credit and to equity markets; the availability of
qualified personnel; competition for customers from other drilling contractors,
labour and vendor-provided rig components.
Management's assumptions included the following: continued operation of the
existing fleet of drilling equipment without additional significant capital
expenditures; meeting the terms of the Company's credit facility; ongoing access
to key supplies required to continue operating 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 contracts; revenue expectations
related to shorter-term drilling activity; willingness and ability of customers
to remit amounts owing to Xtreme Coil in accordance with normal industry
practices; and management of accounts receivable in direct relation to revenue
generation.
Management considered the following risk factors when preparing the MD&A:
fluctuations in crude oil and natural gas commodity prices, supply and demand;
fluctuation in currency exchange and interest rates; financial stability of
Xtreme Coil's customers; current and future applications for Xtreme Coil's
proprietary technology; competition from other drilling contractors; regulatory
and economic conditions; environmental constraints; changes to government
legislation; international trade barriers or restrictions; global political and
military events.
Financial outlook information contained in this MD&A about prospective results
of operations, financial position or cash flow from 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 MD&A is not appropriate for purposes other than
for which it is disclosed herein. Readers should not place undue importance on
forward-looking information and should not rely on this information as of any
other date. Except as required pursuant to applicable securities laws, Xtreme
Coil disclaims any intention, and assumes no obligation, to update or revise any
forward-looking statements to reflect actual results, whether as a result of new
information, future events, changes in assumptions, changes in factors affecting
such forward-looking statements or otherwise.
Description of the Business
Xtreme Coil is a drilling contractor designing, building and operating its
proprietary Coil Over Top Drive(R) ("COTD(TM)") drilling rigs which employ new
patented and patent-pending coil designs and technologies. In addition to their
coil drilling capabilities, these drilling rigs retain the ability to drill with
conventional jointed drill pipe. Xtreme Coil has built drilling rigs in Canada
under contracts with several third parties. Upon completion of the COTD(TM)
drilling rigs, Xtreme Coil operates the rigs under contract to oil and natural
gas exploration and production ("E&P") companies and to international integrated
drilling service providers. Xtreme Coil conducts drilling operations in the
United States and Mexico and routinely pursues opportunities to provide contract
drilling services within and beyond these current regions of operation.
Xtreme Coil's head office is in Houston, Texas. Xtreme Coil also has a corporate
office in Calgary, Alberta, Canada and an operations office near Poza Rica, in
the state of Veracruz, Mexico, and United States field offices in Casper,
Wyoming.
At June 30, 2009 Xtreme Coil had three drilling rigs working under long-term
drilling contracts with a major E&P company in the United States. During 2008,
Xtreme Coil signed contracts and deployed six rigs for drilling operations in
Mexico. Early in 2009, Xtreme Coil entered into an additional long-term contract
for two additional drilling rigs which were mobilized to commence operations in
the same oil development project in Mexico in 2009 2Q. As a result, the Company
had a total of 11 rigs working under long-term contracts at June 30, 2009. We
continue to prepare project proposals and conduct contract negotiations with
current and potential new customers.
As at June 30, 2009, the United States Patent and Trademark Office has issued
nine patents to Xtreme Coil. In late 2008, one of these patents also received
issuance by the Eurasian patent office for regions under its jurisdiction
throughout Europe and Asia. Xtreme Coil has more than 60 patent-related
applications in the United States, Canada and other jurisdictions. Xtreme Coil's
issued and applied-for patents collectively cover coiled tubing drilling and
transportation technology including equipment and methods for coiled tubing
drilling to deeper horizons of 3,000 meters (10,000 feet) or more.
Xtreme Coil has designed six models of COTD(TM) drilling rigs with five designs
completed and deployed to field operations. At June 30, 2009, Xtreme Coil had 16
COTD(TM) rigs completed (2008 2Q - 12 rigs). Of the sixteen rigs in service at
June 30, 2009:
- three rigs were operating under long-term contracts in the United States;
- three rigs were stacked in the United States;
- eight rigs were operating under long-term contracts in Mexico;
- two rigs were being prepared for deployment from the United States to Mexico
to begin operations under long-term contracts.
In May 2009, Xtreme Coil accepted a letter of intent requesting mobilization of
two XTC 200DT(Plus) rigs to Mexico to operate under long-term contract, with
operations expected to commence in 2009 3Q. In July 2009, long-term contracts
were executed for these two rigs and mobilization and rig modifications were in
progress. Once operations commence for these two further drilling rigs, Xtreme
Coil will have ten drilling rigs working in the Chicontepec development project
in the state of Veracruz.
Xtreme Coil's original capital plan called for the construction of 18 drilling
rigs in total. The Company made the decision to temporarily suspend drilling rig
construction in 2008 3Q when economic uncertainty decreased demand in the United
States drilling market. In addition to 16 completed drilling rigs, we have
purchased, and retain in stock, a number of components for two additional
drilling rigs.
Xtreme Coil's common shares trade on the Toronto Stock Exchange under the symbol
"XDC".
Selected Quarterly Financial Information (unaudited)
Three months ended
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30 Jun 31 Mar 31 Dec 30 Sep
2009 2009 2008 2008
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Revenue 23,052 22,914 28,924 26,328
EBITDA (1) 5,379 6,187 6,539 5,899
EBITDA per share (1) ($) 0.13 0.15 0.16 0.15
Net income 1,926 2,379 2,508 1,278
Net income per share ($) 0.05 0.06 0.06 0.03
Capital assets 254,070 271,366 238,345 231,392
Total assets 346,090 326,098 289,394 279,457
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Operating days (1) 878 803 949 947
Rig utilization (percentage) 60 56 68 83
Weighted average rigs in service 16.0 16.0 15.2 12.4
Completed rigs, end of quarter 16 16 16 15
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30 Jun 31 Mar 31 Dec 30 Sep
2008 2008 2007 2007
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Revenue 10,527 12,335 12,416 9,574
EBITDA (1) 715 2,253 2,237 (342)
EBITDA per share (1) ($) 0.02 0.07 0.07 (0.01)
Net income (loss) (1,541) 496 (204) (1,338)
Net income (loss) per share ($) (0.04) 0.01 (0.01) (0.04)
Capital assets 211,948 192,855 188,913 167,788
Total assets 249,043 219,049 213,464 190,191
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Operating days (2) 473 579 579 398
Rig utilization (percentage) 52 74 77 62
Weighted average rigs in service 10.0 9.0 8.1 7.0
Completed rigs, end of quarter 12 11 11 8
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(1) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, stock-based compensation, foreign exchange gains or losses
and gains or losses on sale of equipment. EBITDA per share is defined as
EBITDA divided by the Company's basic number of common shares.
Management believes EBITDA and EBITDA per share are useful supplemental
measures of the financial performance of Xtreme Coil's principal
business activities before considering how activities are financed or
taxed, and before the impact of stock-based compensation, foreign
exchange rate fluctuations or sales of equipment. A reconciliation of
EBITDA to net income is presented in the Non-GAAP measures section of
this MD&A.
(2) see Non-GAAP measures
During the preceding eight quarters, Xtreme Coil's revenue, EBITDA, net income,
assets and operating days have shown general improvement as we increased the
size of our drilling rig fleet and secured long-term contracts for our rigs. In
the near term, we expect the primary source of revenue will be from the eleven
rigs operating under long-term contracts at the end of 2009 2Q and the
additional two rigs which we expect to commence operations under long-term
contracts in 2009 3Q.
As discussed, in 2009 3Q, once operations begin for the two XTC 200DT(Plus) rigs
contracted in July 2009 to operate under long-term contract in Mexico, Xtreme
Coil will have a total of ten drilling rigs operating in the Chicontepec
development project in the state of Veracruz.
For the three months ended June 30, 2009, our utilization rate of 60 percent was
16 percent higher (with 11 rigs working at the end of the period out of 16 total
rigs) compared to the utilization rate of 52 percent for the comparative period
(with 5 rigs working at the end of the period out of 12 total rigs).
Xtreme Coil reported increased operating days during the three and six month
periods ending June 30, 2009 compared to 2008. This reflected primarily the
increased number of rigs in the operating fleet and the additional number of
rigs operating under long-term contracts.
Results of Operations
Revenue
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Total revenue 23,052 10,527 119 45,966 22,862 101
Operating days 878 473 86 1,681 1,052 60
Revenue per operating day 26.3 22.3 18 27.3 21.7 26
Rig utilization (percentage) 60 52 16 58 68 (15)
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At June 30, 2009, Xtreme Coil's fleet consisted of 16 rigs (2008 - 12 rigs). As
we ramped up construction, commissioning and deployment of new drilling rigs
during 2008, operating days, revenues and revenue per operating day all
increased. During the three and the months ended June 30, 2009, we had a greater
proportion of our larger rigs operating than in the comparable 2008 periods.
These larger rigs command higher dayrates which result in increased revenue per
operating day.
Increased revenues were offset to some extent by the declining value of the
United States dollar ("USD") relative to the CAD. All drilling contracts under
which the Company operates its equipment are denominated primarily in USD. The
USD decreased in value relative to the CAD for the three and six months ended
June 30, 2009 compared to the comparable periods in 2008.
We anticipate the continued operation of ten rigs in Mexico (eight of which were
operational at June 30, 2009 and the additional two previously discussed
expected to become operational during 2009 3Q) and three rigs in the United
States under long-term contracts will contribute to revenue stability during the
remainder of 2009. Management believes demand for drilling equipment in Mexico
during 2009 will remain strong as the country focuses on developing existing
hydrocarbon reserves to replace historic declines in production rates.
In response to weaker drilling market conditions in the United States,
management intends to continue efforts to market internationally what we believe
are the advantages of our newer and efficient fleet of COTD(TM) drilling rigs.
We continue aggressive efforts to market to existing customers and are
increasing efforts to secure business from a broader range of potential
customers. We are actively pursuing energy projects in the Middle East, North
Africa, Eastern Europe and Asia Pacific regions. Management believes there is
potential to secure contracts in these markets which could utilize several of
Xtreme Coil's rigs and result in further enhanced utilization rates and revenue.
Operating Expenses
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Operating expenses 14,169 8,614 64 28,787 17,527 64
Operating expenses
(percentage of revenue) 61 82 (25) 63 77 (19)
Operating expenses
per operating day 16.1 18.2 (11) 17.1 16.7 3
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The increase in operating expenses year-over-year primarily reflects the higher
number of drilling rigs in service and the higher number of operating days.
Operating expenses, as a percentage of revenue, continued to decline in both
2009 1Q and 2Q when compared to the prior year periods as fixed infrastructure
and other non-rig specific operational expenses did not increase proportionally
over these periods. Operating expenses per day showed slight improvement for
2009 2Q due to an operational problem with the XTC 400 series rigs which
occurred in 2008 2Q resulting in additional downtime and costs required to
analyze and correct the problem.
Gross Margin(1)
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Gross margin 8,883 1,913 364 17,179 5,334 222
Gross margin
(percentage of revenue) 39 18 112 37 23 60
Gross margin per operating
day 10.1 4.1 150 10.2 5.0 102
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(1) see Non-GAAP measures
The increase in total gross margin, gross margin per operating day and gross
margin percentage for the three and six months ended June 30, 2009 improved
primarily due to increased operating days and the resulting increase in
revenues. Certain operational expenses are fixed in nature and any increase in
operating days produces significant improvement in these metrics. In addition,
increasing operating days allow Xtreme Coil to achieve certain efficiencies and
economies of scale which improves gross margins and gross margin percentages.
Selling, General and Administration Expense ("SG&A")
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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SG&A 3,504 1,198 192 5,614 2,366 137
SG&A (percentage of revenue) 15 11 34 12 10 18
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SG&A for the three and six months ended June 30, 2009 was higher primarily due
to development of administrative infrastructure to support expanded
international operations, including professional fees and the establishment of
operations in Mexico and an office in Houston, Texas. Additionally, certain
expenses related to international tax planning were incurred during the first
half of 2009.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")(1)
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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EBITDA 5,379 715 652 11,565 2,968 290
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(1) see Non-GAAP measures
For the three and six months ended June 30, 2009, the increase in EBITDA was a
result of higher dayrates, increased operating days, as well as a decrease in
direct operating expenses as a percentage of revenue.
Depreciation and Amortization
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Depreciation and
amortization 2,871 1,529 88 5,720 3,251 76
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Depreciation charges for our drilling equipment are based on the
units-of-production method. Depreciation for drilling equipment comprises the
majority of depreciation charges. This method generally increases depreciation
charges in direct proportion to increased operating days. For the three and six
months ended June 30, 2009, the increase in depreciation and amortization is
proportionate to the increase in operating days and is primarily due to the
increase in equipment engaged in active field operations.
Stock-based Compensation
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Stock-based compensation 352 152 132 593 300 98
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For the three and six months ended June 30, 2009, stock-based compensation
increased as our operations in the United States and Mexico grew. The board of
directors responded to this growth by granting additional options to purchase
common shares to employees.
Foreign Exchange
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Foreign exchange (gain)
loss (1,689) 184 n/a (775) (78) (894)
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Foreign exchange ("FX") gain or loss results from translation of the portion of
revolving debt denominated in USD as well as operational revenues and expenses
denominated in USD and Mexico pesos ("MXN"). FX gains and losses result directly
from the fluctuation in values of the CAD relative to the USD and the MXN.
Drilling operations in the United States and Mexico are denominated primarily in
USD.
Interest Expense
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Net interest expense 876 487 80 1,878 1,083 73
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During 2008, Xtreme Coil drew on its credit facilities primarily to continue
construction of drilling rigs which totalled 16 at December 31, 2008, as well as
to provide cash for ongoing operating requirements and to establish operations
in Mexico.
Net interest expense for the three and six months ended June 30, 2009 increased
compared to the three and six months ended June 30, 2008 due to increased debt
related to the construction of rigs and expansion of operations. This increase
was offset somewhat by decreased interest rates between the periods on the
Company's variable rate debt facilities.
Income (Loss) Before Tax
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Income (loss) before tax 2,969 (2,119) n/a 4,149 (1,587) n/a
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For the three and six months ended June 30, 2009, income before tax increased
primarily as a result of Xtreme Coil's transition from a construction phase to
an operational phase. The Company's initial construction program for 18 rigs was
temporarily suspended after completion of the 16th rig in 2008. As the Company
has secured long-term drilling contracts and increased revenues, operating days
and income before tax have increased.
Income Taxes
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Income tax recovery
(expense) (1,043) 578 n/a 156 542 (71)
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The increase in income tax expense in 2009 2Q is due to a gain on the sale of a
drilling rig to a foreign subsidiary and a non-recurring income tax recovery
recorded in 2008 2Q, related to the operating loss recorded in that period. The
tax recovery in the six months ended June 30, 2009 is primarily due to a tax
benefit recorded in 2009 1Q, which reflected new information supporting the
applicability of a lower tax rate related to a previous sale of drilling
equipment to a foreign subsidiary, offset by the tax effect of the gain
described above.
Net Income (Loss)
Three months ended Six months ended
2009 2008 % 2009 2008 %
Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Net income (loss) 1,926 (1,541) n/a 4,305 (1,045) n/a
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The increase in net income in 2009 2Q, compared to 2008 2Q, primarily reflects
the combination of increased operating income from expanded operations and the
significant tax recovery recorded in 2009 1Q discussed previously.
Financial Condition, Liquidity and Capital Resources
($ million) 2009 Jun 30 2008 Dec 31 % Change
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Long-term liabilities 47.4 49.1 (3)
Less: working capital 55.1 6.2 789
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Net debt (1) (7.7) 42.9 n/a
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(1) see Non-GAAP measures
The decrease in net debt and the corresponding increase in working capital at
June 30, 2009 as compared to December 31, 2008 is primarily related to the two
equity offerings which closed in 2009 2Q. Net proceeds from these offerings
totalled $44,446.
Capital Expenditures and Commitments
Three months ended Six months ended
2009 2008 % 2009 2008 %
($ million) Jun 30 Jun 30 Change Jun 30 Jun 30 Change
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Capital expenditures 3.1 15.1 (79) 5.1 26.1 (80)
Commitments 0.5 10.7 (95) 3.7 23.5 (84)
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Capital expenditures and commitments decreased in the three and six months ended
June 30, 2009 compared to 2008. At June 30, 2008 six rigs were under
construction. By year-end 2008, the Company had completed construction of 16
rigs and a further two rigs were placed on hold due to market conditions as
discussed in "Description of the Business". Capital spending in the three and
six months ended June 30, 2009 was primarily related to the purchase of
replacement equipment and spare components for operating rigs as well as capital
expenditures associated with the relocation of two rigs from the United States
to Mexico.
Eleven rigs were operating at June 30, 2009 and two were being mobilized in
anticipation of commencing operations under long-term contracts in Mexico which
we expect to become revenue productive in 2009 3Q. Any additional work we are
able to obtain for the remaining three rigs would further enhance future cash
flow.
During the next quarter, we expect to incur some capital expenditures in advance
of moving the two additional rigs from the United States to prepare for
operations in Mexico. Management expects to fund these expenditures and other
commitments primarily from current cash flow from operating activities and
existing cash on hand.
In May 2008, Xtreme Coil entered into an agreement for credit facilities with
its existing lender and another lender on a syndicated basis. The credit
facilities included a $15,000 operating loan facility and a revolving extendible
facility, initially set at $70,000 which reduced as scheduled to $60,000 at
December 31, 2008. The credit facilities required Xtreme Coil to maintain
certain financial covenants. At December 31, 2008 and at March 31, 2009, Xtreme
Coil was not in compliance with two of these covenants related to funded debt to
EBITDA and interest coverage. The syndicate provided waivers with regard to
covenant non-compliance for twelve months following the respective balance sheet
dates of non-compliance.
On May 29, 2009, Xtreme Coil executed the second amendment to the credit
agreement. The amendment extends the existing credit facilities, continuing the
$15 million operating loan facility ("Tranche A") and converting the $60 million
revolving credit facility into an extendible term loan ("Tranche B"). Terms of
Tranche A remain essentially unchanged. The amended Tranche B facility requires
minimum principal payments based on a five-year amortization of the outstanding
balance at May 29, 2009. Quarterly installments in arrears began June 30, 2009
and continue until the stated maturity date of January 4, 2011, at which time
the remaining facility balance becomes due and payable unless extended. Under
the terms of the amended agreement, Xtreme Coil may request extension of the
facility at any time 90 days before the stated maturity date. A debt service
coverage ratio covenant replaces the EBIT interest coverage and funded debt to
EBITDA covenants that previously applied to quarterly financial reporting
periods. Xtreme Coil was in compliance with all covenants at June 30, 2009.
At June 30, 2009 Xtreme Coil had drawn $4,787 on the operating loan facility
("Tranche A") (at December 31, 2008, $7,878) and $59,474 on the extendible term
loan, of which $12,096 was classified as current ("Tranche B") (at December 31,
2008, $58,930, of which $9,825 was classified as current).
Xtreme Coil maintains ongoing communication with its banking syndicate and
believes that its relationship with the syndicate is good and the syndicate is
in sound financial condition.
This table summarizes Xtreme Coil's contractual obligations at June 30, 2009.
Payments due by period
Less than 1 1 - 3 4 - 5
Contractual Obligations Total year years years
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Capital lease obligations 66 66 - -
Operating leases 1,789 402 925 462
Extendible term loan 59,474 12,096 47,378 -
Operating facility 4,787 4,787 - -
Commitments 506 506 - -
----------------------------------------------------------------------------
Total contractual obligations 66,622 17,857 48,303 462
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The table above assumes that the Company's credit facility is not extended and
that payments on the existing loans are made as presently required under
existing agreements. Interest payments are not included in the table. Management
believes cash on hand, cash flow from operating activities and amounts available
under our credit facilities will be sufficient to fund payments due in less than
one year.
Segmented Information
This table summarizes results of operations for Xtreme Coil's three geographic
operating segments of Canada, Mexico and the United States.
Three months ended Six months ended
2009 2008 % 2009 2008 %
Revenue Jun 30 Jun 30 Change Jun 30 Jun 30 Change
----------------------------------------------------------------------------
Canada - 36 - - 2,477 -
United States 6,155 10,491 (41) 13,208 20,385 (35)
Mexico 16,897 - - 32,758 - -
----------------------------------------------------------------------------
Total 23,052 10,527 119 45,966 22,862 101
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding Common Shares
As at June 30, 2009, Xtreme Coil had outstanding options to purchase 3,636,000
common shares (2008 2Q - 2,029,000) at a weighted average exercise price of
$4.70 per share (2008 2Q - $4.62).
Share capital on August 12, 2009 was $252,713 and 52,842,669 common shares were
issued and outstanding. Additionally, Xtreme Coil has outstanding purchase
warrants entitling the holder to purchase a total of 1,000,000 common shares and
options outstanding entitling the holders to purchase 3,645,000 common shares.
Subsequent Events
In July 2009, Xtreme Coil executed long-term contracts for two XTC 200DT (Plus)
rigs to operate in Mexico, with operations expected to commence in 2009 3Q.
After contracts and mobilization are completed for these two rigs, Xtreme Coil
will have a total of ten drilling rigs operating in the Chicontepec development
project in the state of Veracruz.
Non-GAAP Measures
Xtreme Coil uses both GAAP and non-GAAP measures to assess performance and
provides non-GAAP measures as supplemental information to investors. 'Operating
days', 'utilization' 'gross margin' and 'EBITDA' do not have standardized
meanings prescribed by GAAP. Xtreme Coil's method of calculating operating days,
rig utilization, gross margin and EBITDA may differ from methods used by other
companies and may not be comparable to measures used by others.
Operating Days
Operating days represent the total of all drilling, moving, standby and other
revenue days for each drilling rig in the fleet during the period. Management
uses operating days to measure rig utilization which quantifies the
revenue-generating activity of the fleet of drilling rigs.
Rig Utilization
Xtreme Coil calculates rig utilization as total operating days of each rig
divided by total days in service for each rig.
Gross Margin
Gross margin represents the revenue minus operating expenses. Management
believes gross margin is a useful supplemental measure of the financial
performance of Xtreme Coil's principal business activities before considering
how activities are financed or taxed, as well as other expenses not closely
associated with activity levels. The following is a reconciliation of gross
margin to net income as calculated in accordance with GAAP.
Three months ended Six months ended
2009 Jun 30 2008 Jun 30 2009 Jun 30 2008 Jun 30
----------------------------------------------------------------------------
Net income (loss) 1,926 (1,541) 4,305 (1,046)
Tax expense (recovery) 1,043 (578) (156) (542)
Interest expense 876 487 1,878 1,083
Loss on sale of
equipment - 482 - -
Foreign exchange loss
(gain) (1,689) 184 (775) (78)
Stock-based compensation 352 152 593 300
Amortization of
intangibles 71 67 141 134
Depreciation of capital
assets 2,800 1,462 5,579 3,117
Selling, general and
administrative 3,504 1,198 5,614 2,366
----------------------------------------------------------------------------
Gross margin 8,883 1,913 17,179 5,334
----------------------------------------------------------------------------
EBITDA
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, stock-based compensation, foreign exchange gains or losses and
gains or losses on sale of equipment. EBITDA per share is defined as EBITDA
divided by the Company's basic number of common shares. Management believes
EBITDA and EBITDA per share are useful supplemental measures of the financial
performance of Xtreme Coil's principal business activities before considering
how activities are financed or taxed, and before the impact of stock-based
compensation, foreign exchange rate fluctuations or sales of equipment.
Following is a reconciliation of EBITDA and EBITDA per share to net income and
net income per share as calculated in accordance with GAAP.
Three months ended Six months ended
2009 Jun 30 2008 Jun 30 2009 Jun 30 2008 Jun 30
----------------------------------------------------------------------------
Net income (loss) 1,926 (1,541) 4,305 (1,046)
Tax expense (recovery) 1,043 (578) (156) (542)
Interest expense 876 487 1,878 1,083
Loss on sale of
equipment - 482 - -
Foreign exchange loss
(gain) (1,689) 184 (775) (78)
Stock-based compensation 352 152 593 300
Amortization of
intangibles 71 67 141 134
Depreciation of capital
assets 2,800 1,462 5,579 3,117
----------------------------------------------------------------------------
EBITDA 5,379 715 11,565 2,968
----------------------------------------------------------------------------
EBITDA per share ($) 0.13 0.02 0.28 0.08
----------------------------------------------------------------------------
Net Debt
Net debt is a measurement used by management and the investment community which
is composed of the amount of debt minus working capital.
Outlook
The general economic uncertainty and recession continued in 2009 2Q with the rig
count dropping dramatically in both the United States and Canada compared to one
year ago. While Xtreme Coil was successful in raising equity during 2009 2Q, the
Company recognizes that credit and equity markets continue to exhibit
historically high levels of volatility and access to these markets remains
constrained.
In mid 2009 2Q, Xtreme Coil accepted a new letter of intent requesting
mobilization of its two XTC 200DT(Plus) rigs to Mexico to operate under
long-term contracts. In early 2009 3Q, contracts were executed for these two
rigs and operations are expected to commence in late 2009 3Q. Once these
additional rigs are mobilized to Mexico, Xtreme Coil will have ten drilling rigs
based in the Chicontepec development project in the state of Veracruz.
Xtreme Coil will continue to market rigs in Mexico where we believe drilling
opportunities will remain robust. Additionally, we believe there are
opportunities in the Middle East, North Africa, Eastern Europe and Asia Pacific.
Generally, these regions have not seen the erosion in drilling demand that the
United States and Canada have experienced.
Xtreme Coil currently has thirteen of its sixteen rigs under long-term
contracts. We expect this will improve our operating days in 2009 3Q compared to
2009 2Q. We did not win any contracts on the spot drilling market in 2009 2Q.
However, rig utilization and operating days increased somewhat in 2009 2Q
compared to 2009 1Q, primarily due to the commencement of operations for two
rigs under the new long-term contract in Mexico outlined earlier. This, together
with the anticipated commencement of operations of two more rigs in Mexico
during 2009 3Q, should contribute to increased cash flow from operating
activities during the remainder of 2009.
Xtreme Coil believes the drilling market in Mexico will remain strong during the
remainder of 2009. It is possible additional tenders will be made available to
companies who are potential customers for Xtreme Coil rigs. We continue to
aggressively pursue these opportunities. The possibility exists for price
erosion which may develop for new contracts, given the continued soft conditions
in the United States and Canada. Management believes Xtreme Coil's
differentiating technology will provide some remedial support as we work to
respond to any possible pricing pressure.
During 2009, Xtreme Coil will continue to pursue strategic opportunities and
contracts outside of North America in response to interest generated from
discussions initiated during 2008 in several international drilling regions for
projects to which our COTD(TM) drilling rigs are well-suited.
Additional Information
Information relating to Xtreme Coil is available on SEDAR at www.sedar.com. To
obtain copies of published corporate information, contact investor relations at
Xtreme Coil Drilling Corp., 1402, 500 Fourth Avenue SW, Calgary, AB T2P 2V6
(telephone +1 403.262 9500), visit Xtreme Coil's website
www.xtremecoildrilling.com or e-mail ir@xtremecoil.com.
----------------------------------------------------------------------------
Xtreme Coil Drilling Corp.
Consolidated Balance Sheets
($ thousand, except share and per share data)
(unaudited)
2009 Jun 30 2008 Dec 31
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 43,635 $ 2,010
Accounts receivable (Notes 4 and 12) 27,785 27,291
Other receivables (Note 5) 6,354 7,966
Prepaid expenses 631 1,218
Inventory (Note 6) 2,703 1,045
----------------------------------------------------------------------------
81,108 39,530
Future income tax 4,366 4,966
Equipment (Note 7) 254,070 238,345
Intangible assets (Note 8) 4,916 4,923
Goodwill (Notes 2, 9 and 15) 1,630 1,630
----------------------------------------------------------------------------
$ 346,090 $ 289,394
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness (Note 10) 4,787 7,878
Accounts payable and accrued liabilities
(Note 12) 8,821 14,215
Income tax payable 110 1,354
Current portion of obligations under
capital leases (Note 12) 66 75
Current portion of long-term debt (Note 10) 12,096 9,825
----------------------------------------------------------------------------
25,880 33,347
Long-term liabilities
Obligations under capital leases (Note 12) - 35
Long-term debt (Note 10) 47,378 49,105
----------------------------------------------------------------------------
47,378 49,140
Shareholders' equity
Share capital (Note 11) 252,670 207,462
Warrants (Note 11b) 1,630 1,630
Contributed surplus (Note 11c) 4,070 3,453
Deficit (1,333) (5,638)
Accumulated other comprehensive income 15,795 -
----------------------------------------------------------------------------
272,832 206,907
----------------------------------------------------------------------------
$ 346,090 $ 289,394
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commitments and contingencies (Note 14)
See accompanying notes to the consolidated financial statements
Xtreme Coil Drilling Corp.
Consolidated Statement of
Income (Loss) and Retained Deficit
($ thousand except share and per share data)
(unaudited)
Three Months Three Months Six Months Six Months
ended ended ended ended
2009 Jun 30 2008 Jun 30 2009 Jun 30 2008 June 30
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 23,052 $ 10,527 $ 45,966 $ 22,862
Expenses
Operating
expenses 14,169 8,614 28,787 17,527
Selling, general
and administrative 3,504 1,198 5,614 2,366
Depreciation of
capital assets 2,800 1,461 5,579 3,117
Amortization of
intangibles 71 67 141 134
Stock-based
compensation 352 152 593 300
Foreign exchange
loss (gain) (1,689) 184 (775) (78)
Loss on
repurchase of
equipment - 482 - -
Interest on
long-term debt
and capital leases 876 488 1,878 1,083
----------------------------------------------------------------------------
Income (loss)
before tax 2,969 (2,119) 4,149 (1,587)
Tax recovery
(expense)
Current (124) - 1,096 -
Future (919) 578 (940) 542
----------------------------------------------------------------------------
Net income 1,926 (1,541) 4,305 (1,045)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Deficit,
beginning of
period (3,259) (7,883) (5,638) (8,379)
----------------------------------------------------------------------------
Deficit, end of
period $ (1,333) $ (9,424) $ (1,333) $ (9,424)
----------------------------------------------------------------------------
Net income per
common share
- basic $ 0.05 $ (0.04) $ 0.11 $ (0.03)
- diluted $ 0.05 $ (0.04) $ 0.11 $ (0.03)
Weighted average
number of
common shares
(Note 11e)
- basic 40,859,175 38,515,512 40,793,039 36,493,944
- diluted 41,129,357 38,515,512 40,795,715 36,493,944
See accompanying notes to the consolidated financial statements
Xtreme Coil Drilling Corp.
Consolidated Statements of
Comprehensive Income (Loss)
($ thousand)
(unaudited)
Three Months Three Months Six Months Six Months
ended ended ended ended
2009 Jun 30 2008 Jun 30 2009 Jun 30 2008 Jun 30
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) $ 1,926 $ (1,541) $ 4,305 $ (1,045)
Other comprehensive
income (loss)
Unrealized gain
(loss) on
translating
financial
statements of
self-sustaining
foreign
operations (19,206) - (10,693) -
----------------------------------------------------------------------------
Comprehensive
income (loss) $ (17,280) $ (1,541) $ (6,388) $ (1,045)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
Xtreme Coil Drilling Corp.
Consolidated Statements of
Accumulated Other Comprehensive Income
($ thousand)
(unaudited)
Three Months Three Months Six Months Six Months
ended ended ended ended
2009 Jun 30 2008 Jun 30 2009 Jun 30 2008 Jun 30
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other
comprehensive income
- beginning of
period $ - $ - $ - $ -
Impact of
translating
financial
statements
of self-sustaining
foreign operations
beginning of
period (Note 3) 35,001 - 26,488 -
Unrealized gain
(loss) on
translation of
foreign
operations
during the
current
period (Note 3) (19,206) - (10,693) -
----------------------------------------------------------------------------
Accumulated other
comprehensive
income
- end of period $ 15,795 $ - $ 15,795 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
Xtreme Coil Drilling Corp.
Consolidated Statement of Cash Flows
($ thousand)
(unaudited)
Three Months Three Months Six Months Six Months
ended ended ended ended
2009 Jun 30 2008 Jun 30 2009 Jun 30 2008 Jun 30
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by
(used in) operating
activities
Net income
(loss) for the
period $ 1,926 $ (1,541) $ 4,305 $ (1,045)
Items not
affecting cash:
Depreciation
and
amortization 2,871 1,527 5,720 3,251
Stock-based
compensation 352 152 593 300
Loss on
repurchase of
equipment - 482 - -
Amortization
of financing
cost 110 53 276 53
Unrealized foreign
exchange loss
(gain) (1,621) 65 (1,101) -
Future income
tax expense 919 (578) 940 (542)
----------------------------------------------------------------------------
4,557 160 10,733 2,017
Changes in non-cash
operating
working
capital (Note 16) 1,987 1,684 (521) (71)
----------------------------------------------------------------------------
6,544 1,844 10,212 1,946
----------------------------------------------------------------------------
Financing
activities
Proceeds from
Shares Issued 47,203 34,990 47,203 35,030
Share issue
costs (2,757) (848) (2,757) (848)
Proceeds from
other long-term
liabilities
(Note 9) - - - 4,080
Proceeds from
(reduction of)
long-term debt 1,269 (10,580) 1,192 (1,580)
Proceeds from
(repayment of)
operating
facility (6,055) - (3,091) -
Capital lease
payments (22) (20) (44) (40)
----------------------------------------------------------------------------
39,638 23,542 42,503 36,642
----------------------------------------------------------------------------
Investing
activities
Proceeds from
sale of
equipment - - 266 -
Proceeds from
sale of
equipment to
joint venture
(Note 9) - - - 5,873
Purchase of
equipment (3,150) (15,139) (5,153) (26,103)
Increase in
intangibles (132) (37) (134) (56)
Changes in
non-cash
working capital
relating to
capital items
(Note 16) (2,109) (1,221) (6,069) (9,069)
----------------------------------------------------------------------------
(5,391) (16,397) (11,090) (29,355)
----------------------------------------------------------------------------
Increase (decrease)
in cash and cash
equivalents
during the
period 40,791 8,989 41,625 9,233
Cash and cash
equivalents,
beginning of
period 2,844 627 2,010 383
----------------------------------------------------------------------------
Cash and cash
equivalents,
end of period $ 43,635 $ 9,616 $ 43,635 $ 9,616
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental
disclosure of
cash flow
information
Interest
received - $ 8 - $ 17
Interest paid 765 443 1,602 1,047
Income tax paid - - - -
Non-cash
transactions
Issuance of
shares for
joint venture
purchase;
repayment of
joint venture
loan - 8,000 - -
See accompanying notes to the consolidated financial statements1.
Reader Advisory
This news release contains forwarding looking statements. More particularly,
this news release contains statements relating to assumptions regarding
management's view of future events, expectations, plans, initiatives or
prospects constituting forward-looking statements within the meaning of
securities laws. Forward-looking statements may relate to Xtreme Coil's future
outlook and anticipated events or results related to existing and anticipated
future contracts; commodity pricing; rates of currency exchange; operating
expenses; rig construction, completion or deployment; capital expenditures and
other 2009 guidance provided throughout this news release. Risks and
uncertainties result from a variety of factors and actual results, expectations,
achievements or performance may differ materially from those anticipated or
indicated in this news release. Although Xtreme Coil believes the expectations
reflected in these forward-looking statements are reasonable, undue reliance
should not be placed on them because Xtreme Coil can give no assurance that they
will prove to be correct. Since forward-looking statements address future events
and conditions, by their very nature, they involve inherent risks and
uncertainties. The forward-looking statements contained in this news release are
made as of the date hereof and Xtreme Coil undertakes no obligation to update
publicly or revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise, unless so required by
applicable securities laws.
Corporate Profile
Xtreme Coil develops and applies leading edge patented and patent-pending
technology and designs to build, transport, and operate new COTD(TM) drilling
rigs. Currently contracted in the United States and Mexico and marketed to other
international regions, Xtreme Coil's innovative, dual-purpose and efficient rigs
drill with larger coil to reach hydrocarbons in deeper horizons. Xtreme Coil's
proprietary technology also features modular transportation systems, larger coil
injectors and new methods for achieving deeper, faster and safer drilling.
Xtreme Coil's common shares trade on the TSX under the symbol "XDC".
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