HispanicBusiness

Capital Resources

As at March 31, 2013, the Corporation has access to a $10 million operating facility. The facility bears interest based primarily on the Corporation's senior debt to EBITDA ratio, as defined in the agreement. At the Corporation's option, interest is at the bank's prime rate plus a margin that ranges from a minimum of 0.75 percent to a maximum of 2 percent, or the bank's bankers' acceptance rate plus a margin that ranges from a minimum of 1.75 percent to a maximum of 3 percent. As of March 31, 2013, the Corporation had $7.7 million drawn on this facility.

As at March 31, 2013, the Corporation also has access to a $95 million syndicated facility and a US$25 million operating facility in the US. The facilities bear interest at the same rates disclosed above. The syndicated facility will permanently reduce to $80 million on September 30, 2013, which coincides with the expected closing of the sale and leaseback of the new operations center. The remaining $80 million syndicated facility and the US operating facility mature on September 6, 2015. The maturity date can be extended for another year at the option of the lender. As at March 31, 2013, $95 million was drawn on the syndicated facility, and $5.1 was drawn on the US operating facility.

All credit facilities are secured by a general security agreement over all assets of the Corporation located in Canada and the US. As at March 31, 2013, the Corporation was in compliance with all of its bank debt covenants.

Cash Requirements for Capital Expenditures

Historically, the Corporation has financed its capital expenditures and acquisitions through cash flows from operating activities, debt and equity. The 2013 capital budget has been set at $30.4 million subject to quarterly review of the Board of Directors. These planned expenditures are expected to be financed from a combination of one or more of the following, cash flow from operations, the Corporation's unused credit facilities or equity, if necessary. However, if a sustained period of market uncertainty and financial market volatility persists in 2013, the Corporation's activity levels, cash flows and access to credit may be negatively impacted, and the expenditure level would be reduced accordingly. Conversely, if future growth opportunities present themselves, the Corporation would look at expanding this planned capital expenditure amount.

Outlook

In the first quarter of the year, PHX Energy remained focused on delivering superior services and reported record quarterly consolidated results with each segment generating strong performance.

In Canada, as anticipated, there were numerous challenges throughout the industry and PHX Energy believes that these will persist in 2013. It is expected that drilling activity will be curtailed due to a number of issues, namely commodity price differentials and soft capital markets. Despite this, PHX Energy's Canadian operations achieved market share growth generating strong operational and financial results in the first quarter; however, the length of the spring break-up period in the second quarter could impact PHX Energy's future activity.

In the US, PHX Energy also outperformed the industry. In the quarter, rig counts decreased yet Phoenix USA's growth and achievements continued. The Corporation has focused on building a team of strong leaders and dedicated personnel, and with that in place has leveraged its asset base to expand its presence in areas where growth opportunities exist. There are many promising plays where demand for services and the adoption of horizontal drilling are expected to increase, such as the Permian Basin, the Eagle Ford shale and the Mid-Continent region. PHX Energy will continue to support its operations in these regions with the experienced personnel and equipment required to capture its share of these markets and believes that the ground work has already been laid.