Excerpt from Management's Discussion and Analysis
For the three months ended March 31, 2013
The focus on execution and optimization continued at Xtreme during the first quarter of 2013. The Company improved financial performance to maintain the momentum of the previous three quarters. Both revenue and adjusted EBITDA reached all-time quarterly highs. Management is confident that the foundation has been laid over the past nine months that will allow the Company to produce consistent financial and operating results well into the future.
While the US rig count has recently moderated or even slightly decreased, Xtreme has not felt the effects. At quarter end the Company had six rigs operating in the Williston Basin, ten rigs operating in the greater DJ Basin, and one rig operating in Utah. The two primary US plays of the Bakken and the Niobrara have remained strong. The successful drilling programs of several operators in the Wattenberg/Niobrara field of Colorado have led to increased demand for drilling. This has shown up in the rig count, which has increased from 30 operating rigs at the end of the first quarter 2012 to 51 operating rigs at the end of the first quarter 2013. Xtreme has participated in this growth as four additional XDR 500 rigs were contracted in the Niobrara over the past year. These new contracts increased Xtreme's market share to 20% in this growing play.
In South Texas, Xtreme operates two XSR coiled tubing units in the Eagle Ford play. Drilling activity has remained robust with approximately 200 drilling rigs operating. Although the Company does not drill in the Eagle Ford the rig count is typically a good proxy for completion demand. Since the XSR division was reorganized in the third quarter of 2012, Xtreme has been able to consistently improve operating performance. Utilization levels and operating margins have increased in each of the past three quarters. This business continues to deliver excellent operational results for customers and has built a reputation as the long reach coil provider of choice in the Eagle Ford.
Drilling Segment - XDR
Xtreme ended the quarter with 21 XDR rigs available to work. Of these rigs 17 of 18 were under long term contracts in the United States and 1 of 3 rigs was working well-to-well in Canada. At quarter end the Company had approximately 4,650 days on term contract for the remainder of 2013 and an additional 3,900 days contracted beyond 2013. The average remaining duration on the contracted rig fleet was approximately 1.25 years at quarter end. Two XDR 500 rigs and one XDR 400 rig are up for renewal in the second half of the year in the Bakken. Discussions with existing customers are currently taking place and it is anticipated at this time that each of these rigs will remain in the Williston Basin.
Drilling services continued to be the largest revenue segment in the Company. Canadian and US drilling operations represented 82%, or $43.3 million, of revenue for the first quarter. Margin improvement continued as operating margin increased to 41.7% of revenue or $18.1 million. This was driven by new processes that were implemented over the previous nine months with the objective of improving the overall cost structure of the drilling division.
Canada continues to be slow evidenced by the fact that horizontal well permits were down 10% year-over-year, as was the rig count. In the quarter, the Company had 179 operating days in Canada compared to 174 in the fourth quarter of 2012. The Company had one rig work into break up. It is anticipated that the three XDR rigs located in Canada will begin work when road bans come off in June.
Most Popular Stories
- 15 Myths That Could Ruin Your Hispanic Ad Campaign
- Bitcoin Clones Lurch Onto Financial Scene
- General Motors Names Mary Barra as First Female CEO
- AIG to Create 230 Jobs in Charlotte
- Clinton to Keynote Annual Simmons Leadership Conference
- Pacific Trade Pact Delay Hinders U.S. Pivot to Asia
- Californians Want to Legalize Marijuana
- Russia Says Nyet to Canada North Pole Claim
- Scripps Shares Rise on Reported Bid Talks
- Budget Deal Sets Off Grumbles in Both Houses