Total revenue for IROC from continuing operations increased 16% to $16.2 million for the three months ended March 31, 2010 as compared to $14.0 million in the comparable period of the prior year. – Gross margin from continuing operations increased 17% to $5.6 million for the three months ended March 31, 2010 as compared to $4.8 million in the comparable period of the prior year. – EBITDAS from continuing operations increased 31% to $3.4 million for the three months ended March 31, 2010 as compared to $2.6 million in the comparable period of the prior year. – Net income from continuing operations increased 539% to $524 thousand for the three months ended March 31, 2010 as compared to $82 thousand in the comparable period of the prior year. – The Corporation paid a cash dividend of $0.02 per common share on January 29, 2010. OPERATIONS ———-
IROC’s continuing operations are reported in three segments; the Drilling and Production Services segment, the Technology Services segment and Corporate Services. The following is a discussion of the reporting segments in which IROC operates.
DRILLING AND PRODUCTION SERVICES
The Drilling and Production Services segment provides services and rental equipment to oil and gas exploration, development and production companies with most of our customers and operations being located in western Canada, in the provinces of Alberta and Saskatchewan.
The Drilling and Production Services segment consists of two divisions:
Eagle Well Servicing (“Eagle”) contracts service rigs to oil and gas companies to perform various completion, work-over and maintenance services on oil and natural gas wells. Eagle has offices and equipment in Red Deer, Grande Prairie and Lloydminster in Alberta and an office and equipment in Estevan, Saskatchewan with equipment being used in those geographic areas.
Aero Rental Services (“Aero”) provides rental equipment for surface pressure control in drilling and work-over operations and tubular handling equipment used for the work over, re-entry and completion operations. Aero has an office in Red Deer, Alberta with equipment being rented for use primarily in Alberta. Aero’s results are directly affected by the level of new well drilling activity.
This segment generated revenue of $13.5 million, or 83% of the Corporation’s total revenue, for the three month period ended March 31, 2010.
Eagle currently has a fleet of 36 service rigs with our fleet amongst the newest in the industry. All Eagle’s service rigs are internally guyed (no requirement for external anchors) which reduces set up time and corresponding costs when compared to anchored rigs.
Service rig utilization, as measured by IROC’s internal methodology, improved in the quarter to 55%. This is the best utilization since the third quarter of 2008 and is the third consecutive quarter of improvement. This trend is attributed to the improving environment in the energy sector due to improved and stabilizing oil prices. Natural gas focussed activity continues to be constrained at current price levels. Pricing for services continues to be very competitive and, notwithstanding the increases in utilization, has not been able to recover to year ago levels.
Aero rentals has followed a similar trend over the past three quarters with improving gross margin returns on capital used for rental equipment.
TECHNOLOGY SERVICES
The Technology Services segment is comprised solely of our Canada Tech division. Canada Tech develops, manufactures and sells or rents a wide line of tools and systems that measure pressures, temperatures and other attributes in the down-hole and surface environment of oil and gas wells.
This segment generated revenue of $2.7 million, or 17% of the Corporation’s total revenue, for the three month period ended March 31, 2010. During the quarter 25% of Canada Tech’s sales were to Canadian customers, 25% were to the customers located in the United States and 50% were to international customers.
Canada Tech’s customers require data that is reliable, consistent and accurate. Our products utilize new and superior technology enabling our gauges and systems to operate in higher temperatures and more challenging environments. Canada Tech’s competitive advantage continues to be the ability to look at each well individually and adapt a system to match the needs of the customer within the well parameters.
Canada Tech differs from our other divisions in that the capital requirement is smaller and the value of the division is contained in its patents and proprietary technology. A significant portion of Canada Tech’s costs are fixed and as such increased sales volumes have a magnified effect on the EBITDAS of IROC. We expect improved performance from this division in the coming quarters as we increase sales to international markets and introduce new products and technology both domestically and internationally.
Canada Tech’s operations were consolidated in our Calgary facility in the current quarter and we expect to start to see the benefit of reduced overall costs as we continue through the year. Previously, Canada Tech had offices and facilities in both Red Deer, and Calgary, Alberta.
CORPORATE SERVICES
IROC’s non-operating segment, Corporate Services, captures general and administrative expenses associated with supporting each of the reporting segments operations noted above, plus costs associated with being a public company. Also, included in Corporate Services is interest expense for debt servicing and income tax expense.