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Xtreme Drilling Completes First Coil Tubing Frac in Q2

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   |    Friday,August 07,2015

Xtreme Drilling and Coil Services Corp. has announced second quarter 2015 financial and operating results. 

Q2 2015 Highlights:

(amounts in thousands of Canadian dollars, unless otherwise noted)

  • For the second quarter, the Drilling Segment achieved utilization of 56% on 1,072 operating days. This was comprised of a 61% utilization rate for the 16 rig US XDR fleet, 0% for the three rig Canadian XDR fleet and 99% for the two rigs operating in India. 
  •  The lower utilization in the Drilling Segment for the quarter was driven by 232, or 21%, fewer operating days in the US and 82 fewer operating days in Canada as compared to the first quarter.
  • For the second quarter, the Coil Services Segment achieved utilization of 61% on 379 operating days. This was comprised of a 99% utilization rate for the two XSR units in Saudi Arabia and a 50% utilization rate for the six actively marketed XSR units in the US. The US XSR units for the quarter averaged 12 operating days per month on each unit. Included in the total Coil Services utilization is one additional unit that is currently idle, but is actively being marketed internationally.
  • The Company finished the second quarter of 2015 with $127.3 million in total debt and $112.1 million in net debt (total debt less cash). The funded debt to EBITDA ratio was 1.7x and the net debt to EBITDA ratio was 1.5x. At quarter end, the Company had significant liquidity with approximately $62 million available on the revolving credit facility and $42.2 million in working capital which includes $15.2 million of cash. On a US Dollar basis, in which the Company primarily borrows, the funded debt decreased $7.0 million USD during the quarter to an ending balance of $102.7 million USD and net debt was $90.7 million on a US Dollar basis.
  • Total capital expenditures were $6.0 million during the second quarter of 2015 and $15.7 million on a year to date basis. The majority of this was spent on the completion of a new XSR coiled tubing unit and continued work on the final XSR unit in this build program. The Company delivered the third new build XSR unit in June and anticipates delivering one additional new build XSR unit in October. This will bring the total to four new units from the current XSR build program. Currently the 2015 capital budget stands at $22 million which includes all sustaining, critical spare and upgrade capital for the existing fleet, as well as the requirements to complete the three XSR new build units delivered in 2015. Xtreme anticipates that 2015 capital expenditures will be funded exclusively through operating cash flow.
  • The Company currently has approximately 2,000 days firmly contracted for the remainder of 2015 across the XDR and international XSR businesses. Although Xtreme has not been immune to the recent slowdown in industry activity, it is anticipated that these remaining contracted days provide revenue transparency for the year.

Outlook

  • The active rig count in the US decreased to 859 rigs from 1,028 at the end of the first quarter per industry sources. In Xtreme's core US XDR operating areas of the DJ Basin in Colorado and the Williston Basin in North Dakota the active rig count decreased to 36 from 43 active rigs and to 63 from 86 active rigs respectively during the second quarter. 
  • US XSR activity levels have historically been highly correlated to the rig count in the Eagle Ford and Permian of South and West Texas. 
  • In the Eagle Ford the rig count decreased from 93 to 66 active rigs at the end of the second quarter and remained flat at 178 rigs in the non-vertical Permian market. 
  • In addition to the rig count, the XSR business is currently influenced by the growing backlog of drilled but uncompleted wells. It is estimated that the inventory of uncompleted wells is in excess of 2,500 in the core operating areas of the Eagle Ford and Permian. Due to this backlog of work it is anticipated that the Company's activity levels will increase in the XSR completions segment before the XDR drilling business.
  • Performance based contracts have been a positive for the Company as they offer the potential to earn above market rates while delivering a drilled well to the customer faster and within their cost estimates.
  • Xtreme currently has 11 of 21 XDR drilling rigs earning revenue in the United States, Canada and India with a 12th rig scheduled to commence operations by the end of August. In this difficult operating environment, utilization is lower than prior periods; however, it is certainly better than the broader industry. The combination of Xtreme's all AC electric fleet and strong operating performance may allow for higher than industry utilization through this downturn. Due to the previously discussed uncertainty many request for quotations today are either single or multi well in duration. 
  • Most operators are not willing to commit to term drilling contracts and it will likely stay that way for the remainder of 2015.
  • The Company continues to evaluate opportunities internationally for idled XDR rigs. Currently the Company has active bids to move additional rigs into India. The results of these tenders should be known in the near future. Overall, the fact that Xtreme has some of the only AC electric rigs as well as established infrastructure in India makes it an ideal market to focus on strategic expansion.
  • Due to the backlog of uncompleted wells in the Eagle Ford and Permian the Company anticipates that demand for the US XSR coiled tubing business will continue to increase through the remainder of 2015. Activity levels were relatively volatile during the second quarter with April being the slowest month of the year as operators adjusted frac schedules. 
  • The challenge for management has been to right size the staffing and cost structure for a business that has significant short term fluctuations in demand. Currently Xtreme has staffed and is actively marketing five of the seven available XSR units in the United States. Activity levels will dictate when the two idled units will be placed back into service along with the final new build XSR unit which is expected to be delivered in October.
  • The US XSR division completed its first coiled tubing frac job in the second quarter of 2015. This job was unique in that it combined an initial frac beginning at the toe of the well through our 2 5/8" coiled tubing and then after reaching a specified point in the horizontal, switched and fraced the remainder of the well down the annulus, or around the coil. This is a unique example of an operator utilizing Xtreme's patented AC technology and large diameter coiled tubing to optimize the completion and ultimately production from the well. 
  • Along with continuing to focus on the growing re-frac market, the Company is leveraging its technology and success of coiled tubing drilling (CTD) developed in Saudi Arabia into the US market. It is anticipated that the Xtreme's first US CTD job will commence in October. Along with this job the Company has several additional inquiries both domestically and internationally. In an environment where operators will be forced to adapt new technology to optimize drilling and completion processes, Xtreme is ideally positioned to help drive this innovation in the industry.

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