HispanicBusiness

North American industry and commodity price trends in 2012 reinforced the importance of diversification. While oil prices appeared robust, the differential that applied due to market constraints vastly widened in Canada and created a large short fall in producers' cash flow that reduced some drilling budgets. In addition, the expected recovery of natural gas prices was short lived and therefore activity levels remained depressed in certain areas due to unfavorable economics. As a result of these factors, Canadian industry activity decreased when compared to the prior year and US industry activity was relatively flat.

Canada relies heavily on US demand for oil and natural gas commodities and it is this reliance that has led to the current Canadian market conditions. In 2012, this was apparent in the challenges that resulted from the oil price differentials and low natural gas prices, one of which was the capital markets remaining predominately closed for many exploration and production companies whose budgets depend on the ability to raise capital. In a year with reduced drilling activity, PHX Energy's Canadian operations performed well and this can be attributed to the diverse client base that has been established as a result of proven performance in Western Canada. The Canadian industry in 2013 will likely continue at the same pace as 2012, and PHX Energy believes it will maintain a healthy share of activity with its knowledge of drilling operations in key basins.

Given the forecasted challenges for Canada in 2012 and PHX Energy's strong penetration in this market, a strategic objective was to strengthen and grow US operations. The US market, with its large rig count, presented greater opportunities during the year and PHX Energy established new operating areas to service the key basins that were emerging. Primarily due to increased activity in the Gulf Coast region that was driven by a dedicated team of key personnel, the Corporation delivered on this objective and US operations reported results that exceed expectations. For 2013, it is anticipated that the US will continue to be a strong growth area for PHX Energy, as the momentum in the Gulf Coast region creates further gains in market share, the Rocky Mountain region becomes more active in the year and with the industry rig count in the Northeast region beginning to show slight increases in early 2013.

Another key strategy in the past year was to focus resources on the Corporation's international segments to eliminate losses in areas that were not profitable and to strive to grow in areas where activity levels were favorable. By implementing initiatives that were targeted to each area, many of the metrics set at the start of 2012 were achieved and at year end, international operations represented 12 percent of consolidated revenue and profitability improved. In addition, through some of the strategies deployed the structure is now in place for expansion in the present markets where opportunity exists, and PHX Energy believes going forward growth in these areas will be realized.

In 2012, PHX Energy also expanded the deployment of value added technologies in North America and internationally, such as its RWD services. In a year where day rates were flat for a traditional service package, the additional revenue stream created by these technologies aided in revenue growth along with the record number of operating days achieved. A focus going forward will be to continue to expand the fleet of these tools, as they give PHX Energy a competitive advantage in many markets and offer clients operational benefits.