Essential Energy Services Announces Second Quarter Results and Quarterly Dividend

Marketwired

CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) - Essential Energy Services Ltd. (ESN.TO) ("Essential" or the "Company") announces second quarter results with EBITDA(1) of $(0.5) million compared to $(0.1) million in the second quarter of 2011. On a year-to-date basis, EBITDA(1) was $31.9 million compared to $13.3 million in the same period of 2011. The second quarter results reflect the seasonal slowdown due to spring break-up. Compared to 2011, spring break-up was prolonged this year with rain negatively impacting utilization levels to the end of June.

SELECTED FINANCIAL INFORMATION

Three months ended Six months ended

(Thousands, except per share June 30, June 30,

amounts) 2012 2011 2012 2011

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Revenue $ 52,333 $ 40,479 $ 171,913 $ 106,895

Gross margin $ 3,667 $ 3,077 $ 40,171 $ 19,729

Gross margin % (1) 7% 8% 23% 18%

EBITDA (1) $ (479) $ (137) $ 31,873 $ 13,264

EBITDA % (1) (1)% 0% 19% 12%

Funds flow from operations

(1) $ 1,115 $ (2,713) $ 29,746 $ 10,727

Per share - basic and

diluted (1) $ 0.01 $ (0.03) $ 0.24 $ 0.13

Net income attributable to

shareholders of Essential $ (5,923) $ (6,364) $ 12,971 $ (116)

Per share - basic and

diluted $ (0.05) $ (0.07) $ 0.10 $ 0.00

Total assets $ 393,377 $ 371,017 $ 393,377 $ 371,017

Total long-term debt $ 41,198 $ 63,459 $ 41,198 $ 63,459

Equity attributed to

shareholders of Essential $ 297,937 $ 257,119 $ 297,937 $ 257,119

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(1) Refer to Non-IFRS measures.    

Completion of the acquisition of Technicoil Corporation ("Technicoil" or the "Technicoil Acquisition") on May 31, 2011 impacts the results for 2012 compared to 2011. The results for Technicoil are only included in periods after the acquisition and the results for Technicoil for the first quarter and for April and May are not included in the prior year comparatives. The increased operating costs associated with Technicoil's annual maintenance programs that are performed during spring break-up are reflected in the 2012 results but are not included for the comparative periods.

SELECTED COMBINED FINANCIAL INFORMATION

To assist the reader in understanding the current operations of Essential, management has provided the combined results for Essential assuming the Technicoil Acquisition had occurred on January 1, 2011. The reporting in this news release represents Essential's stand-alone activities for January 1, 2011 to May 31, 2011 and the combined operations of Essential and Technicoil from June 1, 2011 to December 31, 2011 and does not include Technicoil's pre-acquisition operating or financial results.

Essential and Technicoil operations combined as of January 1, 2011:

Three months ended Six months ended

June 30, June 30,

(Thousands) 2012 2011 2012 2011

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Well servicing

Coil well service $ 18,697 $ 14,677 $ 61,111 $ 50,850

Service rigs 12,815 11,884 42,753 41,843

Other 3,818 4,434 14,397 13,272

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Total well servicing 35,330 30,995 118,261 105,965

Downhole tools & rentals 15,540 17,115 50,791 43,321

Colombia 1,463 361 2,861 361

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Total revenue $ 52,333 $ 48,471 $ 171,913 $ 149,647

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Gross margin $ 3,667 $ 1,324 $ 40,171 $ 30,459

Gross margin %(1) 7% 3% 23% 20%

EBITDA(1) $ (479) $ (2,506) $ 31,873 $ 22,343

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During the second quarter, revenue and EBITDA(1) for the combined entity improved compared to the prior year. The factors that enabled Essential to improve on the prior year results included:

-- Coil well service - Revenue increased compared to the prior year as a

result of the improvements in the fleet combined with price increases

introduced after the Technicoil Acquisition. Essential expanded its

coil well service operations over the last twelve months with the

acquisition of additional deep coil tubing rigs and fluid pumpers. The

expanded coil tubing rig fleet combined with the successful integration

of the pumping fleet created additional revenue for Essential.

-- Service rigs - Revenue and utilization for the second quarter increased

from the prior year due to the addition of service rigs from the

Technicoil Acquisition operating for a full quarter. Essential's

service rig utilization increased to 34% in the second quarter of 2012

from 27% in the second quarter of 2011.

-- Downhole tools & rentals - Revenue decreased during the quarter as a

result of the disposal of the wireline business in the first quarter of

2012. Wet weather conditions during the quarter and the corresponding

decline in industry drilling activity resulted in slightly lower

activity for the Tryton Multi-Stage Fracturing System ("Tryton MSFS").

Conventional tool operations maintained revenue levels similar to the

prior year despite the adverse operating conditions.

Management has also reconciled the results from the table above to the financial results for Essential.

Three months ended Six months ended

June 30, June 30,

(Thousands) 2012 2011 2012 2011

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Revenue

Combined results $ 52,333 $ 48,471 $ 171,913 $ 149,647

Less: Technicoil pre-

acquisition revenue - (7,992) - (42,752)

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Essential Consolidated

Financial Statements $ 52,333 $ 40,479 $ 171,913 $ 106,895

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EBITDA(1)

Combined results $ (479) $ (2,506) $ 31,873 $ 22,343

Less: Technicoil pre-

acquisition EBITDA(1) - 2,369 - (9,079)

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Essential Consolidated

Financial Statements $ (479) $ (137) $ 31,873 $ 13,264

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OVERVIEW OF ESSENTIAL

EQUIPMENT FLEET

As at June 30,

2012 2011

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Coil Well Service

Deep coil tubing rigs 25 23

Shallow/Intermediate coil tubing rigs 22 27

Nitrogen pumpers 12 10

Fluid pumpers 16 6

Service Rigs

Singles 33 38

Doubles 22 21

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INDUSTRY OVERVIEW

Wet weather throughout the Western Canadian Sedimentary Basin ("WCSB") during the second quarter restricted access to work sites and limited well service activity. The wet conditions in the current year persisted throughout the quarter compared to the prior year where conditions improved in June 2011.

Well service activity in the WCSB continues to be driven by horizontal drilling, stimulation and completion of oil and liquids-rich natural gas plays. The industry continued to focus on horizontal wells which typically require more investment capital and increased rig time per well due to their depth and complexity compared to conventional vertical wells.

OPERATING HIGHLIGHTS - ESSENTIAL

Completion of the Technicoil Acquisition on May 31, 2011 impacts the results for 2012 compared to 2011. The results for Technicoil are only included in periods after the acquisition and the results for Technicoil for the first quarter and for April and May are not included in the prior year comparatives. The increased operating costs associated with Technicoil's annual maintenance programs that are performed during spring break-up are reflected in the 2012 results but are not included for 2011.

Results for the second quarter reflected the normal activity decline that occurs during spring break-up. During the quarter:

-- Coil well service - Revenue generated by Essential's pumping and

nitrogen fleets increased significantly compared to the prior year as a

result of Essential's commitment to the expansion of these fleets.

Integration of this equipment with the coil tubing rigs created

additional revenue generating opportunities, however, the persistent wet

weather that extended through most of June reduced activity for deep

coil tubing compared to the prior year.

-- Service rigs - Revenue and utilization for the second quarter increased

from the prior year due to service rigs added through the Technicoil

Acquisition operating for a full quarter. Essential's service rig

utilization increased to 34% in the second quarter of 2012 from 27% in

the second quarter of 2011.

-- Downhole tools & rentals - Revenue decreased during the quarter as a

result of the disposal of the wireline business in the first quarter of

2012. Tryton MSFS activity declined slightly compared to the prior year

due to the wetter weather conditions and the corresponding decline in

drilling activity. Conventional tool operations maintained revenue

levels similar to the prior year despite the adverse operating

conditions during the quarter.

Essential continued with its 2012 capital program with 2012 spending expected to decrease from $60 million to $57 million due to a slight delay in the delivery of certain equipment. Year-to-date capital expenditures were $23.0 million, consisting of $15.6 million in growth capital, $6.6 million in maintenance capital and $0.8 million on infrastructure. Essential continues to focus on investing in high-demand assets in addition to maintaining and enhancing its existing fleet.

SEGMENT RESULTS - WELL SERVICING - CANADA

Three months ended Six months ended

June 30, June 30,

(Thousands) 2012 2011 2012 2011

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Revenue

Coil well service(i) $ 18,697 $ 9,871 $ 61,111 $ 24,002

Service rigs 12,815 9,606 42,753 33,479

Other 3,818 3,526 14,397 5,732

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Total revenue 35,330 23,003 118,261 63,213

Operating expenses 36,117 24,259 92,554 53,753

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Gross margin $ (787) $ (1,256) $ 25,707 $ 9,460

Gross margin %(1) (2)% (5)% 22% 15%

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Utilization(ii)

------------------------------

Deep coil tubing rigs

Utilization 32% 37% 67% 66%

Operating hours 7,262 3,638 30,498 8,213

Service rigs

Utilization 34% 27% 44% 45%

Operating hours 16,183 13,229 51,371 41,939

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(i) Includes revenue from coil tubing rigs, nitrogen and fluid pumpers and other ancillary equipment.

(ii) Utilization is calculated on a 10 hour day.

Completion of the Technicoil Acquisition on May 31, 2011 impacts the results for 2012 compared to 2011. The results for Technicoil are only included in periods after the acquisition and the results for Technicoil for the first quarter and for April and May 2011 are not included in the prior year comparatives. The increased operating costs associated with Technicoil's annual maintenance programs that are performed during spring break-up are reflected in the 2012 results but are not included for 2011.

The normal decline in activity during the second quarter was more pronounced in the current year as wet weather conditions persisted throughout the quarter which limited access to well sites.

Coil well service revenue increased significantly for the second quarter and for the year-to-date over the same periods in the prior year due to the increased size and scope of Essential's deep coil fleet from the Technicoil Acquisition and execution of Essential's capital program. Essential completed a large horizontal workover project during the quarter. This project utilized both the deep coil rigs and a full complement of Essential's ancillary coil services and generated incremental nitrogen and chemical revenues. The increase in these revenues, and the current year impact of price increases introduced during the second half of 2011, increased the rate per hour.

Service rig revenue for the second quarter increased from the prior year due to increased utilization across the fleet and service rigs added through the Technicoil Acquisition operating for a full quarter. Activity was impacted by wet weather conditions during the quarter, however, utilization increased due to Essential operating in high demand areas including Slave Lake and the Cardium.

During the second quarter, other revenue, which includes hybrid drilling rigs and rod rigs, was relatively flat compared to the prior year. Utilization of the hybrid drilling rigs was significantly impacted by the wet conditions during the quarter which limited their ability to access work sites and resulted in lower utilization of 11% during the second quarter of 2012.

Costs associated with retaining key personnel and maintaining equipment and service locations negatively impact operating margins during periods of lower activity; while certain labour, fuel and other operating costs tend to fluctuate with activity. Operating expenses during the second quarter also increased due to Technicoil's annual maintenance programs that are included in the current year results but not in the comparable information for the prior year.

SEGMENT RESULTS - DOWNHOLE TOOLS & RENTALS - CANADA

Three months ended Six months ended

June 30, June 30,

(Thousands) 2012 2011 2012 2011

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Revenue $ 15,540 $ 17,115 $ 50,791 $ 43,321

Operating expenses 10,277 12,993 34,015 31,429

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Gross margin $ 5,263 $ 4,122 $ 16,776 $ 11,892

Gross margin %(1) 34% 24% 33% 27%

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Number of Tryton MSFS jobs 33 36 119 82

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The Downhole Tools & Rentals segment focuses on oil and liquids-rich natural gas plays by providing production and completion tools for horizontal and vertical wells. Operations for this segment are well placed geographically across many of the active oil plays in the WCSB. During the first half of 2012, this segment continued to grow as the industry continued utilizing multi-stage fracturing services for completions on horizontal wells and as Essential continued to expand its conventional downhole tools & rentals operations.

The revenue decline for this segment compared to 2011 related primarily to the disposal of the wireline business in the first quarter of 2012. Activity generated from Tryton MSFS declined slightly during the second quarter, compared to the same period in the prior year, due to persistent wet weather conditions and moderate declines in drilling activity. Conventional downhole tools & rentals activity during the quarter remained comparable to the prior year despite the weather conditions.

The gross margin for this segment improved over the prior year as a result of the disposition of the wireline business which traditionally generated lower margins. Margins in the Downhole Tools & Rentals segment are typically less impacted during periods of low activity due to the lower fixed cost structure of this segment.

COLOMBIA

Essential services producing wells from its operating base in Barrancabermeja, Colombia. The Colombian operations were slightly cash flow negative during the quarter and revenue was below management expectations due to periods of inactivity. The Colombian operations have experienced inconsistent activity and Essential continues to pursue opportunities to stabilize activity and expand these operations. Management believes that there is significant demand for the services Essential provides and is continuing to develop these operations and relationships.

GENERAL AND ADMINISTRATIVE

Three months ended Six months ended

June 30, June 30,

(Thousands) 2012 2011 2012 2011

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General and administrative

expenses $ 4,146 $ 3,214 $ 8,298 $ 6,465

As a % of revenue 8% 8% 5% 6%

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General and administrative expenses are comprised of wages, professional fees, office space and other administrative costs incurred at the corporate and operations level. General and administrative expenses increased in absolute dollars primarily due to additional administrative costs associated with Technicoil field operations which are only included for one month of 2011 comparatives.

INCOME TAXES

Three months ended Six months ended

June 30, June 30,

(Thousands) 2012 2011 2012 2011

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Current income tax expense

(recovery) $ (1,248) $ 239 $ 2,468 $ 239

Deferred income tax expense

(recovery) (542) (1,999) 2,290 517

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Total income tax expense

(recovery) $ (1,790) $ (1,760) $ 4,758 $ 756

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For the six months ended June 30, 2012, income tax expense increased compared to 2011 due to higher comparable earnings.

WORKING CAPITAL

June 30, June 30,

(Thousands) 2012 2011

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Current assets $ 75,363 $ 66,558

Current liabilities, excluding current portion of

long-term debt (28,373) (31,155)

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Working capital $ 46,990 $ 35,403

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Working capital ratio 2.7:1 2.1:1

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The increase in working capital is a result of the improved results compared to the prior year.

CREDIT FACILITY

Essential's Credit Facility with its banking syndicate is comprised of a $100 million revolving term loan facility with a $35 million accordion feature available on lender's consent. The revolving term loan facility matures on May 30, 2014, is renewable at the lender's consent and is secured by a general security agreement over the Company's assets. To the extent the revolving term loan facility is not renewed, debt payments would be required over a two year period based on a three year amortization schedule. At June 30, 2012, the maximum of $100 million was available to Essential.

As at June 30, 2012, all financial debt covenants were satisfied and all banking requirements were up to date. Essential does not anticipate any financial resource or liquidity issues to restrict its future operating, investing or financing activities. On August 8, 2012, Essential had long-term debt outstanding of $51.9 million.

EQUIPMENT EXPENDITURES

Three months ended Six months ended

June 30, June 30,

(Thousands) 2012 2011 2012 2011

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Well Servicing $ 11,820 $ 8,168 $ 21,088 $ 14,425

Downhole Tools & Rentals 398 1,461 1,213 3,129

Corporate 246 348 710 425

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Total equipment expenditures 12,464 9,977 23,011 17,979

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Less proceeds on disposal of

property and equipment (797) (1,404) (8,115) (2,351)

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Net equipment expenditures(1) $ 11,667 $ 8,573 $ 14,896 $ 15,628

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Essential plans to complete its 2012 capital program, however, spending is expected to decrease from $60 million to $57 million due to the slight delay in the delivery of certain equipment into 2013. Spending in 2012 is expected to consist of $43 million in growth capital and $14 million in maintenance and infrastructure capital. The program continues to focus on increasing the depth capacity of the coil tubing fleet, expanding the pumping fleet to support deeper horizontal well activity and enhancing the capabilities of the service rig fleet. Capital spending during the first half of 2012 primarily consisted of deposits and progress payments on the build programs for the masted coil tubing rigs, fluid pumpers and service rigs. Capital spending during the second half of 2012 is expected to be higher than the first half of 2012 as Essential makes final payments for equipment once it has been commissioned and delivered.

During the first six months of 2012, Essential added the following assets to its fleet:

-- One 1,000 HP quintiplex fluid pumper in the coil well service

operations.

-- One custom built mobile, free-standing, all-period double service rig

for northern Alberta service rig operations.

-- One mobile, free-standing double service rig for southern Alberta

service rig operations.

Essential expects to add the following assets to its fleet through the remainder of 2012 and into 2013:

-- Five deep masted coil tubing rigs and one conventional deep coil tubing

rig in the coil well service operations.

-- Two 1,000 HP quintiplex fluid pumpers, three low-rate nitrogen pumpers

and one high-rate pumper in the coil well service operations.

-- Two custom built mobile, free-standing, all-period double service rigs

for the northern Alberta service rig operations.

-- One mobile, free-standing double service rig for southern Alberta

service rig operations.

Essential has removed from service several redundant shallow coil tubing rigs and aging service rigs during the quarter. These assets have nominal book value and represent a small portion of Essential's equipment fleet. The company expects to sell or dismantle this equipment.

Essential classifies its equipment expenditures as growth capital(1), maintenance capital(1), and infrastructure capital(1). The latter category includes information systems, operational facilities and leasehold improvements. Comparative equipment expenditures are as follows:

Three months ended Six months ended

June 30, June 30,

(Thousands) 2012 2011 2012 2011

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Growth capital(1) $ 9,545 $ 7,301 $ 15,633 $ 12,721

Maintenance capital(1) 2,575 1,929 6,552 4,179

Infrastructure capital(1) 344 747 826 1,079

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Total equipment expenditures $ 12,464 $ 9,977 $ 23,011 $ 17,979

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OUTLOOK

Demand in the WCSB continues to be driven by oil prices and activity on horizontal wells which are more service intensive than vertical wells. Activity in the second quarter was hampered by wet weather conditions which delayed the restart of operations after spring break-up, however, demand for Essential's services has recently started improving.

Since the end of the first quarter there has been some deterioration in industry expectations for the second half of 2012 as world economic events have created uncertainty in the market and oil price instability. Activity for the back half of 2012 will be dependent on whether customers maintain or reduce their capital spending programs given these market uncertainties. If capital budgets are reduced, customers may continue to focus on workovers of existing wells to meet production targets. Despite these factors, management expects strong activity in Essential's deep coil tubing fleet due to the shortage of equipment in the industry.

Essential expects to complete its 2012 capital expenditure program which further expands the breadth and depth of the current fleet and is expected to reinforce Essential's position as a leading well service provider in the WCSB.

Essential remains well-positioned with a strong balance sheet and high demand services lines of coil well service, service rigs and downhole tools and rentals to meet its customers' needs.

QUARTERLY DIVIDEND

The cash dividend for the period July 1, 2012 to September 30, 2012 has been set at $0.025 per share. The dividend will be paid on October 15, 2012 to shareholders of record on September 28, 2012. The ex-dividend date is September 26, 2012.

SUMMARY OF QUARTERLY DATA

($Thousands, except June 30, Mar 31, Dec 31, Sep 30,

per share amounts) 2012 2012 2011 2011

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Well servicing:

Coil well service 18,697 42,414 43,945 36,349

Service rigs 12,815 29,938 25,060 20,969

Other 3,818 10,579 7,735 7,148

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Total well servicing 35,330 82,931 76,740 64,466

Downhole tools & rentals(i) 15,540 35,251 32,115 33,316

Colombia 1,463 1,398 2,048 1,634

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Total revenue 52,333 119,580 110,903 99,416

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Gross margin(1) 3,667 36,504 35,758 31,100

Gross margin %(1) 7% 31% 32% 31%

EBITDA(1) (479) 32,352 31,829 27,293

EBITDA %(1) (1)% 27% 29% 27%

Net income (loss) attributable to

shareholders of Essential (5,923) 18,893 17,559 13,678

Per share - basic and diluted $(0.05) $0.15 $0.14 $0.11

Total assets 393,377 430,674 421,590 411,084

Total long-term debt 41,198 57,238 63,576 79,230

Equity attributable to shareholders

of Essential 297,937 306,372 288,828 271,561

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Utilization (ii)

Coil tubing rigs - deep 32% 102% 111% 104%

Coil tubing rigs - other 7% 25% 30% 25%

Service rigs 34% 68% 59% 54%

Hybrid drilling rigs 11% 60% 47% 48%

Operating Hours

Coil tubing rigs - deep 7,262 23,236 23,524 21,938

Coil tubing rigs - other 1,596 5,494 6,778 5,813

Service rigs 16,183 35,188 31,005 28,201

Hybrid drilling rigs 1,230 6,581 5,192 5,337

Number of Tryton MSFS jobs 33 86 69 85

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Equipment fleet (iii)

Canada

-----------------------------------

Coil tubing rigs 45 49 49 48

Service rigs 53 58 57 57

Nitrogen pumpers 10 10 10 9

Fluid pumpers 16 15 15 12

Hybrid drilling rigs 5 5 5 5

Rod rigs 14 14 14 14

Colombia

-----------------------------------

Coil tubing rigs 2 2 2 2

Service rigs 2 2 2 1

Nitrogen pumpers 2 2 2 2

Rod rigs 3 3 3 3

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SUMMARY OF QUARTERLY DATA

($Thousands, except Jun 30, Mar 31, Dec 31, Sep 30,

per share amounts) 2011 2011 2010 2010

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Well servicing:

Coil well service 9,871 14,131 11,373 8,859

Service rigs 9,606 23,873 17,747 12,796

Other 3,526 2,206 2,457 2,454

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Total well servicing 23,003 40,210 31,577 24,109

Downhole tools & rentals(i) 17,115 26,206 22,366 17,135

Colombia 361 - - -

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Total revenue 40,479 66,416 53,943 41,244

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Gross margin(1) 3,077 16,652 14,636 10,186

Gross margin %(1) 8% 25% 27% 25%

EBITDA(1) (137) 13,401 11,293 7,248

EBITDA %(1) 0% 20% 21% 18%

Net income (loss) attributable to

shareholders of Essential (6,364) 6,248 6,121 2,663

Per share - basic and diluted $(0.07) $0.09 $0.09 $0.04

Total assets 371,017 190,926 173,803 160,797

Total long-term debt 63,459 7,392 396 471

Equity attributable to shareholders

of Essential 257,119 156,694 149,660 143,989

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Utilization (ii)

Coil tubing rigs - deep 37% 85% 81% 70%

Coil tubing rigs - other 18% 34% 35% 38%

Service rigs 27% 64% 51% 40%

Hybrid drilling rigs 47% - - -

Operating Hours

Coil tubing rigs - deep 3,638 4,575 3,740 2,305

Coil tubing rigs - other 3,805 7,033 8,704 8,647

Service rigs 13,229 28,710 24,072 18,752

Hybrid drilling rigs 1,696 - - -

Number of Tryton MSFS jobs 36 46 41 33

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Equipment fleet (iii)

Canada

-----------------------------------

Coil tubing rigs 48 32 32 32

Service rigs 58 52 51 51

Nitrogen pumpers 8 8 9 10

Fluid pumpers 6 - - -

Hybrid drilling rigs 5 - - -

Rod rigs 14 20 20 23

Colombia

-----------------------------------

Coil tubing rigs 2 2 1 -

Service rigs 1 1 1 -

Nitrogen pumpers 2 2 1 -

Rod rigs 3 3 3 -

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(i) Revenue for Downhole Tools & Rentals includes the revenue from Essential's wireline fleet until it was disposed of on February 2, 2012.

(ii) Utilization is calculated using a 10 hour day for the entire fleet except for hybrid drilling rigs which is calculated using a 24 hour day.

(iii) Fleet data represents the number of units at the end of the period.

ESSENTIAL ENERGY SERVICES LTD.    

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(unaudited)

As at As at

June 30, December 31,

(Thousands) 2012 2011

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Assets

Current

Cash $ - $ 164

Trade and other receivables 49,131 85,013

Income taxes receivable 800 -

Inventories 21,313 17,819

Prepayments 4,119 3,019

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75,363 106,015

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Non-current

Property and equipment 217,513 211,764

Intangible assets 41,961 44,750

Goodwill 57,425 57,425

Deferred tax assets 1,115 1,636

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318,014 315,575

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Total assets $ 393,377 $ 421,590

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Liabilities

Current

Bank indebtedness $ 2,715 $ -

Trade and other payables 22,452 39,913

Dividends payable 3,096 -

Income taxes payable - 5,234

Current portion of long-term debt 15 14,603

Current portion of equity taxes 110 117

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28,388 59,867

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Non-current

Long-term debt 41,183 48,973

Equity taxes 110 232

Deferred tax liabilities 25,794 23,615

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67,087 72,820

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Total liabilities 95,475 132,687

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Equity

Share capital 258,514 257,775

Retained earnings 35,427 28,651

Other reserves 3,996 2,402

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Equity attributable to shareholders of Essential 297,937 288,828

Non-controlling interest (35) 75

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Total equity 297,902 288,903

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Total liabilities and equity $ 393,377 $ 421,590

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ESSENTIAL ENERGY SERVICES LTD.    

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(unaudited)

For the three months For the six months

ended ended

June 30, June 30,

(Thousands, except per share

amounts) 2012 2011 2012 2011

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Revenue $ 52,333 $ 40,479 $ 171,913 $ 106,895

Operating expenses 48,666 37,402 131,742 87,166

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Gross margin 3,667 3,077 40,171 19,729

General and administrative

expenses 4,146 3,214 8,298 6,465

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(479) (137) 31,873 13,264

Depreciation and amortization 6,231 4,047 13,394 7,555

Share-based compensation 444 409 935 714

Equity taxes - - - 478

Other (income) expense 74 849 (1,143) 1,228

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Operating profit (loss) (7,228) (5,442) 18,687 3,289

Transaction costs - 2,397 - 2,397

Finance costs 569 372 1,205 492

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Earnings (loss) before income

taxes (7,797) (8,211) 17,482 400

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Income taxes

Current expense (recovery) (1,248) 239 2,468 239

Deferred expense (recovery) (542) (1,999) 2,290 517

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Total income tax expense

(recovery) (1,790) (1,760) 4,758 756

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Net income (loss) (6,007) (6,451) 12,724 (356)

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Other comprehensive income

(loss):

Unrealized foreign exchange gain

(loss) on foreign operations (2) 169 1,007 344

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Comprehensive income (loss) $ (6,009) $ (6,282) $ 13,731 $ (12)

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Net income (loss) attributable

to:

Shareholders of Essential $ (5,923) $ (6,364) $ 12,971 $ (116)

Non-controlling interest (84) (87) (247) (240)

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$ (6,007) $ (6,451) $ 12,724 $ (356)

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Comprehensive income (loss)

attributable to:

Shareholders of Essential $ (5,913) $ (6,216) $ 13,846 $ 193

Non-controlling interest (96) (66) (115) (205)

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$ (6,009) $ (6,282) $ 13,731 $ (12)

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Earnings (loss) per share

Basic and diluted, attributable

to shareholders of Essential $ (0.05) $ (0.07) $ 0.10 $ 0.00

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ESSENTIAL ENERGY SERVICES LTD.    

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

For the six months ended

June 30,

(Thousands) 2012 2011

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Operating activities:

Net income (loss) $ 12,724 $ (356)

Non-cash adjustments to reconcile

net income to net cash flow:

Depreciation and amortization 13,394 7,555

Deferred income tax expense 2,290 517

Share-based compensation 935 714

Provision for (recovery of) impairment of trade

receivables (312) 214

Finance costs 1,205 492

(Gain) loss on disposal of assets (490) 1,591

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Operating cash flow before changes in working

capital 29,746 10,727

Changes in working capital:

Decrease in trade and other receivables before

provision 36,668 6,096

Increase in inventories (3,494) (3,036)

(Increase) decrease in prepayments (1,100) 311

Increase (decrease) in income taxes payable (6,034) 239

Decrease in trade and other accounts payables (17,461) (11,417)

Increase (decrease) in equity taxes payable (129) 478

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Net cash flows from operating activities 38,196 3,398

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Investing activities:

Purchase of property and equipment (23,011) (17,979)

Business acquisition - (56,582)

Proceeds on disposal of equipment 8,115 2,351

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Net cash flows used in investing activities (14,896) (72,210)

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Financing activities:

Increase (decrease) in long-term debt (22,378) 62,837

Dividends paid (3,094) -

Issuance of share capital, net of costs 520 6

Finance costs (1,205) (492)

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Net cash flows from (used in) financing activities (26,157) 62,351

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Foreign exchange gain on cash held in a foreign

currency (22) (4)

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Change in cash (2,879) (6,465)

Cash, beginning of period 164 2,392

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Bank indebtedness, end of period $ (2,715) $ (4,073)

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(1)Non-IFRS Measures

Throughout this news release, certain terms that are not specifically defined in International Financial Reporting Standards ("IFRS") are used to analyze Essential's operations. In addition to the primary measures of net earnings and net earnings per share in accordance with IFRS, Essential believes that certain measures not recognized under IFRS assist both Essential and the reader in assessing performance and understanding Essential's results. Each of these measures provides the reader with additional insight into Essential's ability to fund principal debt repayments and capital programs. As a result, the method of calculation may not be comparable with other companies. These measures should not be considered alternatives to net earnings and net earnings per share as calculated in accordance with IFRS.

Gross margin % - This measure is considered a primary indicator of operating performance as calculated by gross margin divided by revenue.

EBITDA (Earnings before finance costs, income taxes, equity taxes, depreciation, amortization, transaction costs, non-controlling interest earnings, losses or gains on disposal of equipment and share- based compensation) - This measure is considered an indicator of Essential's ability to generate funds flow in order to fund required working capital, service debt and fund capital programs.

EBITDA % - This measure is considered an indicator of Essential's ability to generate funds flow as calculated by EBITDA divided by revenue.

Funds flow or funds flow from operations - This measure is an indicator of Essential's ability to generate funds flow in order to fund working capital, principal debt repayments and capital programs. Funds flow or funds flow from operations is defined as cash flow from operations before changes in non-cash operating working capital. This measure is useful in assessing Essential's operational cash flow as it provides cash generated in the period excluding the timing of non-cash operating working capital. This reflects the ability of the operations of Essential to meet the above noted funding requirements.

Growth capital - Growth capital is capital spending which is intended to result in incremental increases in revenue. Growth capital is considered to be a key measure as it represents the total expenditures on equipment expected to add incremental revenues and funds flow to Essential.

Maintenance capital - Equipment additions that are incurred in order to refurbish or replace previously acquired equipment less proceeds on the disposal of retired equipment. Such additions do not provide incremental increases in revenue. Maintenance capital is a key component in understanding the sustainability of Essential's business as cash resources retained within Essential must be sufficient to meet maintenance capital needs to replenish the assets for future cash generation.

Infrastructure capital - Additions that are incurred in order to maintain the Company's business systems and operating facilities. Such additions do not provide incremental increases in revenue.

Net equipment expenditures - This measure is equipment expenditures less proceeds on the disposal of equipment. Essential uses net equipment expenditures to assess net cash flows related to the financing of Essential's oilfield services equipment.

ABOUT ESSENTIAL

Essential operates the largest coil tubing well service fleet in Canada with 47 coil tubing rigs and a fleet of 55 service rigs. Essential is a growth-oriented corporation that provides oilfield services to oil and gas producers in western Canada for servicing producing wells and new drilling activity. Essential also sells, rents and services downhole tools and equipment including the Tryton Multi-Stage Fracturing System. Further information can be found at www.essentialenergy.ca.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, this news release contains forward-looking statements including expectations regarding capital spending, in-service timing of new equipment, expectations regarding the impact of recent equipment purchases, expectations of future cash flow and earnings, expectations with respect to the demand for and price of oil and liquids-rich natural gas, expectations regarding the level and type of drilling activity, production activity and required oilfield services in the WCSB, expectations regarding the demand for Essential's services, expectations regarding the business, operations and revenues of the Company in addition to general economic conditions, expectations regarding Essential's ability to meet the changing needs of the WCSB market and expectations regarding demand for Essential's services in Colombia.

Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that such statements and information will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties.

Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: the risks associated with the oilfield services sector (e.g. demand, pricing and terms for oilfield services; current and expected oil and natural gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety and environmental risks); integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or capital expenditures and changes in legislation, including but not limited to tax laws, royalties, incentive programs and environmental regulations; stock market volatility and the inability to access sufficient capital from external and internal sources; the ability of the Company's subsidiaries to enforce legal rights in foreign jurisdictions; general economic, market or business conditions; global economic events; changes to Essential's financial position and cash flow; the availability of qualified personnel, management or other key inputs; currency exchange fluctuations; changes in political and security stability; risks associated with government regulations and environmental health and safety matters and other unforeseen conditions which could impact the use of equipment and services supplied by Essential in Colombia; and other unforeseen conditions which could impact the use of services supplied by the Company. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive.

Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) for the Company. The forward-looking statements and information contained in this news release are made as of the date hereof and the Company 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.

The TSX has neither approved nor disapproved the contents of this news release.

Contact:
Garnet K. Amundson
Essential Energy Services Ltd.
President and CEO
(403) 513-7272
service@essentialenergy.ca

Jeff B. Newman
Essential Energy Services Ltd.
Chief Financial Officer
(403) 513-7272
service@essentialenergy.ca

Karen Perasalo
Essential Energy Services Ltd.
Investor Relations
(403) 513-7272
service@essentialenergy.ca
www.essentialenergy.ca

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