NISKU, AB, May 11, 2017 /CNW/ - Hyduke Energy Services Inc. ("Hyduke" or the "Company") (HYD – TSX) announced operating results for the three months ended March 31, 2017 and 2016. Hyduke's Financial Statements and Management Discussion & Analysis have been filed with regulators and are available at www.sedar.com.

SELECTED FINANCIAL INFORMATION

For the three months ended March 31, 2017, the Manufacturing & Fabrication segment generated $2,840 of revenue, a 109.1% increase over the same quarter in the prior year. Through the diversification of its products and services to include the manufacture and repair of storage tanks and custom steel fabrication, the Company was able to grow revenues during the quarter with the increase in oil and gas activity in the conventional and oil sands sectors.

Consistent with the increase in operating drilling and service rigs, Supply & Service revenue increased 107.6% in the first quarter of 2017 compared to the first quarter of 2016. The Canadian Association of Oilwell Drilling Contractors reports active drilling rig counts in the Western Canadian sedimentary basin increased 64.7% and service rig utilization has increased 40.5% in the first quarter of 2017 compared to the same period in 2016.  

Gross margin (see "Non-GAAP Measures") was $705 or 11.7% compared to negative gross margin of $137 (4.7% of revenue) in the first quarter of 2016. The increased gross margin reflects a combination of increased revenues, operating efficiencies, and price improvements offset by some increases in SG&A costs.

SG&A expenses for the three months ended March 31, 2017 were $1,526, a decrease of 0.8% compared to $1,538 for the three months ended March 31, 2016.

Negative EBITDAS for continuing operations was $582 for the first quarter of 2017, an improvement from a negative EBITDAS of $1,380 in the first quarter of 2016.

Depreciation and amortization of $153 decreased from $173 in the first quarter of 2016. The decrease in the expense is due to the continued decline in net book value of the underlying assets.

Stock based compensation was $42 compared to $16 in 2016. During the first quarter of 2017 the Company granted 2,000,000 stock options and 325,000 deferred share units.

The Company recorded $165 in interest charges during the first quarter of 2017, an increase of $47 from 2016. The increase is due to an increase in the rate of interest on its term loan facility.

Continuing operations net loss of $937 improved from a loss of $1,712 in 2016 as a result of increased revenues and gross margins partially offset by an increase in SG&A costs.

As at March 31, 2017 the Company had working capital of $5,750 which includes its term debt of $6,866 which becomes due in August 2017 and thus is classified as current. The Company is unable to draw on its revolving debt facility as it was in breach of financial covenants. The Company recognizes that to stabilize its capital structure in the long term it also needs to assess the replacement of its long-term debt facility and amendment of its revolving facility to remove any covenant breaches and is in discussions with lenders to do so. There is however no certainty that these discussions will be successful.

MANAGEMENT REVIEW AND OUTLOOK

Over the last three years ago Hyduke began to execute a turnaround and restructuring strategy.  One year into that strategy, the oilfield services industry entered one of the most severe down cycles it has experienced in recent times. This downturn slowed the pace but not progress of the  turnaround plan. Non-core and non-relevant businesses have been divested or shut down. The Company has bolstered its safety, quality, sales and engineering capabilities. Product lines like Swift Environmental fluid management equipment have been added and our customer base has been expanded within the upstream oil and gas industry and into additional industries. The Company also recently entered into a construction contract with a major mid-stream customer to provide steel fabrication and construction services for the assembly and completion of a 95,000 cubic meter propane storage tank.

More recently, in anticipation of a reversal of the oilfield services down cycle, Hyduke has focused on the growth elements of our turnaround plan particularly product and market diversification. This has included the acquisitions of Western Manufacturing Ltd. and Avalanche Metal Industries Ltd. to expand our manufacturing capacity and geographic footprint. We expanded manufacturing capabilities in Nisku to build pressure vessels by obtaining ABSA, ASME and U stamp certifications. The recent accreditation by the American Petroleum Institute allows Hyduke to use the APU Standard 650 Monogram on field constructed storage tanks.

Late in 2016 and into the first quarter of 2017 the exploration and production industry began to show signs of increased activity as commodity prices increased and stabilized. Drilling rig activity in Q1 2017 averaged 252 up from 172 in Q4 2016 and 153 in Q1 2016. Hyduke has seen the impact of these improvements with a significant increase in our first quarter revenue compared to both Q1 2016 and Q4 2016. Overall indications are that 2017 rig activity should remain above 2016 levels. The revenues of BW Rig has been directly impacted by this increased industry activity. Revenues of our Manufacturing & Fabrication division also tend to be related to rig activity but the correlation is less direct and typically is delayed one to two quarters as rig activity drives the midstream activities which increases demand for the Company's manufactured products such as tanks and pressure vessels. The Company believes that the diversification of our product line and expansion of our geographic footprint and manufacturing capacity will allow us to offer unique solutions to the customer base and grow revenues and leverage our fixed cost base in this more stable business cycle.

As discussed earlier in this MD&A, the Company recognizes that to stabilize its capital structure it will need to replace its long-term debt which is maturing August 15, 2017 and renegotiate certain of the covenants in its operating credit facility. The Company is exploring a number of options in this regard and understands that there is no certainty of success and that achieving improved financial results will be critical to executing on these options. The results for the first quarter of 2017, while not yet demonstrating positive EBITDAS, show a positive trend in both revenues and margins.

Additional information relating to Hyduke is available under the Company's profile on SEDAR website at www.sedar.com and www.hyduke.com

Forward looking information

This news release contains forward-looking information relating to the expectations of management that the integration process will lead to improvements in operations and efficiency for both Western and Hyduke. Such forward-looking information is subject to important risks, uncertainties and assumptions. The results or events predicated in this forward-looking information may differ materially from actual results or events. As a result, you are cautioned not to place undue reliance on this forward-looking information.

Forward-looking information is based on certain factors and assumptions regarding, among other things, general assumptions respecting the business and operations of Hyduke and economic factors. While the Company considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

Forward looking-information is subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what is currently expected. These factors include but are not limited to risks associated with the failure of the Company to obtain the benefits of integration; volatility in market prices for oil and natural gas; and the general economic conditions in Canada.

You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While the Company may elect to, the Company is under no obligation and does not undertake to update this information at any particular time, except as required by law.

About Hyduke

Trading on the TSX under the symbol "HYD," Hyduke Energy Services Inc. is a supplier of equipment and services to the oil and gas drilling and well servicing industry. 

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this News Release.

SOURCE Hyduke Energy Services Inc.