PHX Energy Services Corp. Reports Third Quarter Financial and Operating Results Including Record Revenue, Operating Days,

PHX Energy Services Corp. Reports Third Quarter Financial and Operating Results 
Including Record Revenue, Operating Days, EBITDA
and Net Earnings and Announces an Increase in Monthly Dividends 
CALGARY, ALBERTA -- (Marketwired) -- 10/30/13 -- Due to strong growth
in all operating regions, PHX Energy Services Corp. (TSX:PHX) ("PHX
Energy") achieved all-time quarterly records for revenue, operating
days, EBITDA, and net earnings. 
For the three-month period ended September 30, 2013, consolidated
revenue of $107 million was achieved as compared to $84.1 million in
the 2012-period; a 27 percent increase. EBITDA increased by 22
percent to $21.6 million in the third quarter of 2013 from $17.7
million in 2012. Net earnings increased by 37 percent from $7.8
million in the 2012-quarter to $10.7 million in 2013. Included in the
third quarter's EBITDA and net earnings were a gain of $2.2 million
from the sale of land and an operations centre and $1.2 million that
related to the write off of certain tools as the technology is no
longer being utilized. Excluding these gains and items, EBITDA
increased by 16 percent to $20.6 million and net earnings increased
by 25 percent to $9.8 million for the three-month period ended
September 30, 2013. 
The Corporation realized strong activity levels in all of its
operating segments in the third quarter of 2013. US revenue, a record
for any quarter, as a percentage of consolidated revenue was 47
percent during the 2013-quarter as compared to 48 percent in the
2012-quarter. Albania's strong activity levels and the momentum of
Russia's growth continued through the third quarter of 2013. As a
result, for the three-month period ended September 30, 2013, the
international segment, for the second consecutive quarter, realized
record revenue and represented 13 percent of consolidated revenue as
compared to 12 percent in the corresponding 2012-period.  
As previously announced, PHX Energy has expanded its 2013 capital
expenditure program from $30.4 million to $45 million, in light of
strong equipment utilization levels. During the third quarter of
2013, $6.9 million in capital expenditures were incurred, and an
additional $12.3 million of equipment is currently on order and is
expected to be received by the end of 2013. 
On August 7, 2013, the
 terms of the Corporation's syndicated loan
agreement with its bank were amended to extend the maturity date of
the syndicated facility and US operating facility from September 6,
2015 to September 5, 2016. In addition, the previous requirement to
repay the current portion of the syndicated facility of $15 million
was removed. Consequently, the aggregate carrying amount of the
syndicated facility of $80 million as at September 30, 2013 was
classified as a non-current liability. 
PHX Energy ended the third quarter with total long-term debt of
$105.2 million and working capital of $65.6 million. In the
2013-quarter, the Corporation paid dividends of $5.2 million or $0.18
per share. 
On October 18, 2013, PHX Energy closed a bought deal financing for
aggregate gross proceeds of $31.1 million. An aggregate of 2,990,000
common shares of the Corporation were issued at a price of $10.40 per
common share. Concurrent with the closing of the public offering,
certain directors, officers and employees of PHX Energy and their
associates, purchased a total of 500,000 common shares at a price of
$10.40 per share on a private placement basis. The gross proceeds
from the public offering and concurrent private placement totaled to
approximately $36.3 million. The net proceeds of the offerings will
be used to temporarily reduce indebtedness, which will then be
available to be redrawn and applied to fund the Corporation's ongoing
capital expenditure program and for general corporate purposes. 
On September 25, 2013, PHX Energy and RMS Systems Inc. ("RMS")
entered into an Arrangement Agreement whereby the Corporation will
acquire all of the issued and outstanding shares of RMS. Under the
terms of the Arrangement, all shareholders of RMS will receive
0.037209 of a common share of PHX Energy for each RMS share held
based upon a value ascribed to each of the RMS shares and PHX Energy
shares of $0.40 and $10.75, respectively. Following completion of the
Arrangement, RMS will become a wholly-owned subsidiary of the
Corporation. The Arrangement is subject to customary stock exchange,
Court and regulatory approvals, including approval from the
shareholders of RMS in a special meeting expected to be held on
November 27, 2013. The Arrangement allows PHX Energy to strategically
expand into a market segment that compliments its current services
and presents many opportunities for growth. The information and data
management segment of the oilfield services industry is attractive as
there are only a few competitors and the technology is required on
nearly every rig that operates. RMS recently completed upgrades to
its technology to create a more competitive product and the
Corporation believes it can successfully market this technology with
its proven ability to foster strong client relationships. PHX Energy
will leverage its existing infrastructure and geographical footprint
to expand market share and create cost benefits where possible. 
In light of the record financial results and positive company
outlook, the Board of Directors has approved a dividend increase of
$0.01 per share per month from $0.06 to $0.07 per share per month
payable on December 13, 2013 to shareholders of record at the close
of business on November 29, 2013. 


 
Financial Highlights
 
(Stated in thousands of dollars except per share amounts, percentages and
 shares outstanding)
 
                   Three-month periods ended       Nine-month periods ended
                                September 30,                  September 30,
                                           %                              %
                     2013        2012 Change        2013        2012 Change
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Operating                                                                  
 Results       (unaudited) (unaudited)        (unaudited) (unaudited)      
Revenue           106,971      84,054     27     265,120     222,247     19
Net earnings       10,737       7,836     37      14,308      13,170      9
Earnings per                                                               
 share -                                                                   
 diluted             0.37        0.28     32        0.50        0.47      6
EBITDA (1)         21,574      17,703     22      40,270      35,263     14
EBITDA per                                                                 
 share -                                                                   
 diluted (1)         0.75        0.63     19        1.41        1.25     13
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Cash Flow                                                                  
Cash flows                                                                 
 from (used                                                                
 in)                                                                       
 operating                                                                 
 activities        (7,233)       (420)  n.m.      18,011      19,322     (7)
Funds from                                                                 
 
 operations                                                                
 (1)               20,393      17,996     13      37,999      36,732      3
Funds from                                                                 
 operations                                                                
 per share -                                                               
 diluted (1)         0.70        0.64      9        1.33        1.30      2
Dividends                                                                  
 paid               5,169       5,074      2      15,375      13,516     14
Dividends per                                                              
 share (2)           0.18        0.18      -        0.54        0.48     13
Capital                                                                    
 expenditures       6,918       9,660    (28)     28,547      46,118    (38)
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Financial                                                                  
 Position                                       Sept. 30,    Dec. 31,      
 (unaudited)                                         '13         '12       
Working                                                                    
 capital                                          65,575      45,480     44
Long-term                                                                  
 debt                                            105,242      80,000     32
Shareholders'                                                              
 equity                                          121,426     115,095      6
Common shares                                                              
 outstanding                                  28,808,766  28,241,371      2
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n.m. - not meaningful
(1) Refer to non-GAAP measures section.
(2) Dividends paid by the Corporation on a per share basis in the period.

 
Non-GAAP Measures 
PHX Energy uses certain performance measures throughout this document
that are not recognizable under Canadian generally accepted
accounting principles ("GAAP"). These performance measures include
earnings before interest, taxes, depreciation and amortization
("EBITDA"), EBITDA per share, funds from operations and funds from
operations per share. Management believes that these measures provide
supplemental financial information that is useful in the evaluation
of the Corporation's operations and are commonly used by other oil
and natural gas service companies. Investors should be cautioned,
however, that these measures should not be construed as alternatives
to measures determined in accordance with GAAP as an indicator of PHX
Energy's performance. The Corporation's method of calculating these
measures may differ from that of other organizations, and
accordingly, these may not be comparable. Please refer to the
non-GAAP measures section. 
Cautionary Statement Regarding Forward-Looking Information and
Statements  
This document contains certain forward-looking information and
statements within the meaning of applicable securities laws. The use
of "expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "could", "should", "can",
"believe", "plans", "intends", "strategy" and similar expressions are
intended to identify forward-looking information or statements. 
The forward-looking information and statements included in this
document are not guarantees of future performance and should not be
unduly relied upon. These statements and information involve known
and unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those anticipated
in such forward-looking statements and information. The Corporation
believes the expectations reflected in such forward-looking
statements and information are reasonable, but no assurance can be
given that these expectations will prove to be correct. Such
forward-looking statements and information included in this document
should not be unduly relied upon. These forward-looking statements
and information speak only as of the date of this document. 
In particular, forward-looking information and statements contained
in this document include references to, without limitation, the
expected delivery of equipment that is on order; PHX Energy's ability
to market RMS's technology; the ability to alleviate rental costs;
reducing costs and improving profitability; the expected tax rate in
Canada; PHX Energy's future strategy for Peru; future job capacity;
and the projected capital expenditures budget and how this will be
funded. 
The above references are stated under the headings: "Operating Costs
and Expenses", "Segmented Information", "Investing Activities" and
"Capital Resources". Furthermore, all information contained within
the Outlook section of this document contains forward-looking
statements. 
In addition to other material factors, expectations and assumptions
which may be identified in this document and other continuous
disclosure documents of the Corporation referenced herein,
assumptions have been made in respect of such forward-looking
statements and information regarding, among other things: the
Corporation will continue to conduct its operations in a manner
consistent with past operations; the general continuance of current
industry conditions; anticipated financial performance, business
prospects, impact of competition, strategies, the general stability
of the economic and political environment in which the Corporation
operates; exchange and interest rates; tax laws; the sufficiency of
budgeted capital expenditures in carrying out planned activities; the
availability and cost of labour and services and the adequacy of cash
flow; debt and ability to obtain financing on acceptable terms to
fund its planned expenditures, which are subject to change based on
commodity prices; market conditions and future oil and natural gas
prices; and potential timing delays. Although Management considers
these material factors, expectations and assumptions to be reasonable
based on information currently available to it, no assurance can be
given that they will prove to be correct.  
Readers are cautioned that the foregoing lists of factors are not
exhaustive. Additional information on these and other factors that
could affect the Corporation's operations and financial results are
included in reports on file with the Canadian Securities Regulatory
Authorities and may be accessed through the SEDAR website
(www.sedar.com) or at the Corporation's website. The forward-looking
statements and information contained in this document are expressly
qualified by this cautionary statement. The Corporation does not
undertake any obligation to publicly update or revise any
forward-looking statements or information, whether as a result of new
information, future events or otherwise, except as may be required by
applicable securities laws. 
Revenue  


 
(Stated in thousands of dollars)
 
                    
    Three-month periods ended  Nine-month periods ended
                                     September 30,             September 30,
                                                %                         %
                             2013    2012  Change     2013     2012  Change
---------------------------------------------------------------------------
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Revenue                   106,971  84,054      27  265,120  222,247      19
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The Corporation realized strong activity levels in all of its
operating segments, resulting in PHX Energy achieving the highest
quarterly level of consolidated revenue in the Corporation's history.
For the three-month period ended September 30, 2013, PHX Energy
generated record revenue of $107 million as compared to $84.1 million
in the corresponding 2012-period; an increase of 27 percent. US and
international revenue as a percentage of total consolidated revenue
were 47 and 13 percent, respectively, for the 2013-quarter as
compared to 48 and 12 percent in 2012. Consolidated operating days
grew by 24 percent to an all-time record of 8,613 days in 2013 as
compared to 6,932 in the 2012-quarter. Average consolidated day rates
for the three-month period ended September 30, 2013, excluding the
motor rental division in the US, were $12,187, which is 3 percent
higher than the 2012-quarter day rates of $11,862.  
In the third quarter of 2013, the trend of utilizing horizontal and
directional drilling technologies continued to dominate the Canadian
and US markets. In Canada, horizontal and directional drilling
represented approximately 94 percent of total industry drilling days
in the third quarter of 2013 (2012 - 94 percent). In the US,
horizontal and directional activity levels represented 75 percent of
the rigs running per day in the 2013-quarter (2012 - 72 percent).
(Sources: Daily Oil Bulletin and Baker Hughes) 
For the nine-month period ended September 30, 2013, consolidated
revenue increased by 19 percent to $265.1 million from 
$222.2 million for the comparable 2012-period. Consolidated operating
days for the nine-month period ended September 30, 2013 grew by 18
percent to 21,524 days from 18,241 days reported in 2012.  
Operating Costs and Expenses 


 
(Stated in thousands of dollars except percentages)
 
                              Three-month periods  Nine-month periods ended
                               ended September 30,             September 30,
                                                %                         %
                             2013    2012  Change     2013     2012  Change
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Direct costs               81,370  62,150      31  214,387  175,178      22
Depreciation &                                                             
 amortization (included                                                    
 in direct costs)           6,187   5,496      13   18,041   15,536      16
Gross profit as                                                            
 percentage of revenue                                                     
 excluding depreciation &                                                  
 amortization                  30      33               26       28        
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Direct costs are comprised of field and shop expenses, and include
depreciation and amortization on the Corporation's equipment.
Excluding depreciation and amortization, gross profit as a percentage
of revenue was 30 percent for the three-month period ended September
30, 2013 as compared to 33 percent in the comparable 2012-period. For
the nine-month period ended September 30, 2013, gross profit as a
percentage of revenue, excluding depreciation and amortization, was
26 percent as compared to 28 percent in 2012. 
The following factors contributed to the decrease in the gross profit
as a percentage of revenue in the three and nine-month periods ended
September 30, 2013: 


 
--  Greater third party equipment rentals in the US to accommodate for
    increased client demands. 
--  Increased measurement while drilling ("MWD") repair costs in Canada and
    US. 
--  Higher down hole performance drilling motor repair costs in the US. 

 
For the three-month period ended September 30, 2013, the
Corporation's third party equipment rentals were 4 percent of
consolidated revenue compared to 2 percent of consolidated revenue in
the corresponding 2012-quarter. The Corporation has $5.7 million of
performance down hole drilling motors on order as at September 30,
2013, which will help alleviate rental costs in future periods.
Management also continues to implement strategies and disciplines
that will help reduce costs and improve profitability.  
Depreciation and amortization for the three-month period ended
September 30, 2013 increased by 13 percent to $6.2 million as
compared to $5.5 million in the 2012-quarter. The increase is the
result of the Corporation's record level capital expenditure program
in 2012. 


 
(Stated in thousands of dollars except percentages)
 
                                                                       Nine-
                                Three-month periods     month periods ended
                                 ended September 30,           September 30,
                                                  %                       %
                                2013   2012  Change    2013    2012  Change
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Selling, general &                                                         
 administrative ("SG&A")                                                   
 costs                        11,213  9,265      21  30,142  26,011      16
Share-based payments                                                       
 (included in SG&A costs)        231    444     (48)    761   1,855     (59)
SG&A costs excluding share-                                                
 based payments as a                                                       
 percentage of revenue            10     10              11      11        
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SG&A costs for the three-month period ended September 30, 2013
increased by 21 percent to $11.2 million as compared to $9.3 million
in 2012. Included in SG&A costs are share-based payments of $0.2
million for the 2013-quarter and $0.4 million for the 2012-quarter.
Excluding these costs, SG&A costs as a percentage of consolidated
revenue were 10 percent for both the 2013 and 2012 quarters.  
For the nine-month period ended September 30, 2013, SG&A costs
increased by 16 percent to $30.1 million as compared to 
$26 million in 2012. Excluding share-based payments of $0.8 million
in the 2013 nine-month period and $1.9 million in the corresponding
2012-period, SG&A costs as a percentage of consolidated revenue for
both the nine-month periods ended September 30, 2013 and 2012 were 11
percent. 
The increase in SG&A costs in both 2013 periods was primarily due to
higher payroll and marketing related costs associated with overall
increased activity in all of PHX Energy's operating segments and the
development of international regions.  
Share-based payments relate to the amortization of the fair values of
issued options of the Corporation using the Black-Scholes model.
Share-based payments decreased in the three and 
nine-month periods
ending September 30, 2013, as the Corporation shifted to rewarding
employees with retention awards rather than options. The share-based
cash-settled retention awards are measured at fair value, and in the
2013-quarter, the related expense included in SG&A costs was 
$0.5 million (2012 - $0.6 million). 


 
(Stated in thousands of dollars)
 
                                  Three-month periods    Nine-month periods
                                   ended September 30,   ended September 30,
                                                    %                     %
                                   2013  2012  Change   2013   2012  Change
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Research & development expense      448   564     (21) 1,440  1,665     (14)
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R&D expenditures charged to net earnings during the three-month
periods ended September 30, 2013 and 2012 were 
$0.4 million and $0.6 million, respectively. During both the 2013 and
2012-quarter, no R&D expenditures were capitalized as development
costs.  
For the nine-month period ended September 30, 2013, R&D expenditures
of $1.4 million were incurred, none of which were capitalized as
development costs. R&D expenditures for the nine-month period ended
September 30, 2012 were $1.8 million, of which $0.1 million were
capitalized. 


 
(Stated in thousands of dollars)
 
                                  Three-month periods    Nine-month periods
                                   ended September 30,   ended September 30,
                                                    %                     %
                                   2013  2012  Change   2013   2012  Change
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Finance expense                   1,384   875      58  3,659  2,142      71
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Finance expenses relate to interest charges on the Corporation's
long-term and short-term bank facilities. Finance charges increased
to $1.4 million in the third quarter of 2013 from $0.9 million in the
2012-quarter, and in the nine-month period ended September 30, 2013
increased to $3.7 million from $2.1 million in 2012. In order to fund
PHX Energy's extensive capital expenditure program in 2012 and the
construction of the new operations centre that was sold in September
2013, additional bank borrowings were made.  


 
(Stated in thousands of dollars)
 
                                                                       Nine-
                                              Three-month     month periods
                                            periods ended   ended September
                                             September 30,               30,
                                            2013     2012     2013     2012
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Gain on sale of land and operations                                        
 centre                                   (2,196)       -   (2,196)       -
Net gains on disposition of drilling                                       
 equipment                                (1,298)  (1,047)  (3,931)  (2,152)
Provision for (Recovery of) bad debts        (28)     115      (28)     (93)
Write-down of technological assets         1,245        -    1,245        -
Foreign exchange losses                      193      542      529    1,178
Losses from the change in fair value of                                    
 investment in equity securities               -      120        -      490
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Other income                              (2,084)    (270)  (4,381)    (577)
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For the three and nine-month periods ended September 30, 2013, other
income is primarily represented by a gain of $2.2 million from the
sale of land and an operations centre on September 17, 2013. Other
income also includes gains on disposition of drilling equipment of
$1.3 million for the three-month period ended September 30, 2013
(2012 - $1 million) and $3.9 million for the nine-month period ended
September 30, 2013 (2012 - $2.2 million). The dispositions of
drilling equipment relate primarily to equipment lost in well bores
that are uncontrollable in nature. The gain reported is net of any
asset retirements that are made before the end of the equipment's
useful life and self-insured down hole equipment losses, if any.
Gains typically result from insurance programs undertaken whereby
proceeds for the lost equipment are at current replacement values,
which are higher than the respective equipment's book value. In the
2013-quarter, the Corporation also recognized a $1.2 million
write-down of certain assets, whereby the technology is no longer
being utilized. For the three and nine-month periods ended September
30, 2013, the gains on disposition of drilling equipment are higher
compared to the 2012-periods mainly due to higher occurrences of down
hole equipment losses earlier in 2013 year.  
Offsetting other income for the three and nine-month periods ended
September 30, 2013 are foreign exchange losses of $193,000 (2012 -
$542,000) and $529,000 (2012 - $1.2 million), respectively. Foreign
exchange losses in the 2013-periods resulted mainly from fluctuations
in the US-Canadian exchange rates that caused revaluation losses on
Canadian-denominated receivables in the US. In the 2012-periods,
foreign exchange losses resulted mainly from the devaluation of
Albanian LEK against the Canadian currency. 


 
(Stated in thousands of dollars)
 
                                   Three-month periods   Nine-month periods
                                    ended September 30,  ended September 30,
                                                     %                    %
                                    2013  2012  Change   2013  2012  Change
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Share of losses of equity-                                                 
 accounted investees                 638   138     362  1,304   243     437
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The Corporation's share in the losses of the equity-accounted
investees, RigManager International Inc. ("RMII") and RMS, for the
three-month period ended September 30, 2013 was $638,000 as compared
to a $138,000 share in the loss of RMII during the 2012-period. The
losses incurred by RMII were primarily due to the slower than
expected penetration into the US market.  
For the nine-month period ended September 30, 2013, the Corporation's
share in the losses of the equity-accounted investees, RMII and RMS
was $1.3 million (2012 - $243,000 share in the loss of RMII). 


 
(Stated in thousands of dollars)
 
                                                                       Nine-
                                              Three-month     month periods
                                            periods ended   ended September
                                             September 30,               30,
                                            2013     2012     2013     2012
-----
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Provision for income taxes                 3,266    3,497    4,262    4,414
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The provision for income taxes for the third quarter of 2013 was $3.3
million as compared to $3.5 million in the 2012-quarter. For the
nine-month period ended September 30, 2013, the provision for income
taxes was $4.3 million as compared to $4.4 million in 2012. The
expected combined Canadian federal and provincial tax rate for 2013
is 25 percent. The effective tax rates in the 2013 three and
nine-month periods are both 23 percent. These rates are lower than
the expected rate primarily due to the effect of lower tax rates in
foreign jurisdictions.  


 
(Stated in thousands of dollars except per share amounts and percentages)
 
                                                                       Nine-
                                Three-month periods     month periods ended
                                 ended September 30,           September 30,
                                                  %                       %
                               2013    2012  Change    2013    2012  Change
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Net earnings                 10,737   7,836      37  14,308  13,170       9
Earnings per share -                                                       
 diluted                       0.37    0.28      32    0.50    0.47       6
EBITDA                       21,574  17,703      22  40,270  35,263      14
EBITDA per share - diluted     0.75    0.63      19    1.41    1.25      13
EBITDA as a percentage of                                                  
 revenue                         20      21              15      16        
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The Corporation's level of net earnings and EBITDA for the three and
nine-month periods ended September 30, 2013 have increased in part
due to the $2.2 million gain on the sale of land and an operations
centre. EBITDA as a percentage of revenue for the three and
nine-month periods ended September 30, 2013 were 20 and 15 percent,
respectively (2012 - 21 and 16 percent). Also included in the third
quarter's earnings was $1.2 million that related to the write off of
certain tools as the technology is no longer being utilized. 
Excluding the gain on sale of land and operations centre and the
write off of tools, the level of net earnings and EBITDA are as
follows: 


 
(Stated in thousands of dollars except per share amounts and percentages)
 
                                                                       Nine-
                                Three-month periods     month periods ended
                                 ended September 30,           September 30,
                                                  %                       %
                               2013    2012  Change    2013    2012  Change
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Net earnings                  9,786   7,836      25  13,357  13,170       1
Earnings per share -                                                       
 diluted                       0.34    0.28      21    0.47    0.47       -
EBITDA                       20,623  17,703      16  39,319  35,263      12
EBITDA per share - diluted     0.71    0.63      13    1.37    1.25      10
EBITDA as a percentage of                                                  
 revenue                         19      21              15      16        
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The increase in EBITDA for the 2013 three and nine-month periods and
the increase in net earnings for the 2013-quarter are generally due
to activity growth realized in all of the Corporation's operating
regions. The decrease in net earnings for the 2013 nine-month period
was partly due to increased finance expenses and depreciation costs. 
Segmented Information: 
The Corporation reports three operating segments on a geographical
basis throughout the Canadian provinces of Alberta, Saskatchewan,
British Columbia, and Manitoba; throughout the Gulf Coast, Northeast
and Rocky Mountain regions of the US; and internationally in Albania,
Peru, Russia and Colombia. 
Canada  


 
(Stated in thousands of dollars)
 
                                                                       Nine-
                                Three-month periods     month periods ended
                                 ended September 30,           September 30,
                                                  %                       %
                               2013    2012  Change    2013    2012  Change
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Revenue                      42,699  33,756      26  99,374  94,367       5
Reportable segment profit                                                  
 before tax                   7,279   5,484      33  10,049  11,984     (16)
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For the three-month period ended September 30, 2013, the Canadian
operations gained significant market share in the Montney area. This
gain primarily accounted for the 26 percent increase in Canadian
revenue to $42.7 million (2012 - $33.8 million) and the 33 percent
increase in operating days to 3,774 days (2012 - 2,841 days). There
were competitive forces on client day rates and in the third quarter
of 2013, average day rates decreased by 5 percent to $11,314 from
$11,882 in the 2012-quarter. 
For the three-month period ended September 30, 2013, PHX Energy
maintained a well-diversified client base and was most active in the
Montney, Viking, Swan Hills, Frobisher, Shaunavon, and Bakken areas.
PHX Energy's oil well drilling activity (as measured by operating
days) represented approximately 63 percent of its overall Canadian
activity; a decrease from 87 percent in the 2012-quarter due to
higher drilling activity in the Montney area. In comparison, the
Canadian industry's horizontal and directional drilling activity, as
measured by drilling days, was 8 percent lower in the 2013-quarter,
29,054 days, compared to the 2012-quarter's 31,411 days. (Source:
Daily Oil Bulletin)  
For the nine-month period ended September 30, 2013, PHX Energy's
Canadian revenue increased by 5 percent to $99.4 million from $94.4
million in the comparable 2012-period. The overall horizontal and
directional drilling days realized in the Canadian industry decreased
by 11 percent to 79,442 days as compared to 88,802 days in the
2012-period. In comparison, the Corporation's operating days
increased by 13 percent to 8,736 days from 7,738 days in the
comparable 2012-period. Seventy-four percent of PHX Energy's Canadian
drilling activity (as measured by operating days) for the 2013
nine-month period were oil wells. This compares to 81 percent in the
2012 nine-month period.  
Reportable segment profit before tax for the third quarter of 2013
increased to $7.3 million from $5.5 million in the 2012-quarter.
Increased profitability during the quarter is primarily due to
stronger activity levels and lower operating costs. For the
nine-month period ended September 30, 2013, reportable segment profit
bef
ore tax decreased by 16 percent to $10 million from $12 million in
2012. Lower profitability in the 2013 nine-month period was mainly
the result of extraordinarily low activity levels in the second
quarter of 2013 and reduced day rates in the nine-month period.  
United States 


 
(Stated in thousands of dollars)
 
                               Three-month periods Nine-month periods ended
                                ended September 30,            September 30,
                                                 %                        %
                              2013    2012  Change     2013    2012  Change
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Revenue                     49,924  40,341      24  129,602  99,888      30
Reportable segment profit                                                  
 before tax                  5,291   7,619     (31)   7,854  10,116     (22)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
In the third quarter of 2013, Phoenix USA reported the highest level
of quarterly revenue in its history. For the three-month period ended
September 30, 2013, the segment's revenue was $49.9 million, which is
24 percent higher than the revenue of $40.3 million in the
2012-period. PHX Energy's US operating days grew by 14 percent to a
record 3,770 days from 3,314 days in the 2012-quarter. Overall day
rates realized, excluding the motor rental division, increased by 9
percent in the 2013-quarter to $12,714 compared to $11,619 in the
2012-quarter.  
For the three-month period ended September 30, 2013, US industry rig
utilization levels decreased. The average number of horizontal and
directional rigs running on a daily basis was 3 percent lower at
1,334 rigs compared to 1,375 rigs in the 2012-quarter. (Source: Baker
Hughes) Growth in the US market continues to focus on horizontal oil
well drilling. In the 2013-quarter, horizontal and directional well
drilling, as measured by drilling days, represented approximately 75
percent of overall industry activity, compared to 72 percent in the
2012-period. Phoenix USA continued to benefit from this positive
trend and in the third quarter of 2013, the Corporation successfully
increased market share and continued to attract work from a
diversified client base including large multinational operators.  
Phoenix USA also remained active in the Bakken, Niobrara, Permian
Basin, Eagle Ford, Mississippian, Marcellus, and Lower Huron plays.
In addition, the Corporation is gaining more recognition for its
quality service level and continues to penetrate markets in the
Woodford and Utica plays. 
US revenue for the nine-month period ended September 30, 2013
increased by 30 percent to $129.6 million from $99.9 million in the
comparable 2012-period. The Corporation's US operating days increased
by approximately 21 percent in the 2013 nine-month period to 10,134
days from 8,383 days in 2012. For the nine-month period ended
September 30, 2013, US industry activity, as measured by the average
number of horizontal and directional rigs running on a daily basis,
decreased by 5 percent to 1,319 rigs as compared to 1,388 rigs in the
comparable 2012-period. (Source: Baker Hughes)  
Reportable segment profit before tax for the third quarter of 2013
decreased by 31 percent to $5.3 million from $7.6 million in the
2012-quarter. For the nine-month period ended September 30, 2013,
reportable segment profit before tax decreased by 22 percent to $7.9
million from $10.1 million in 2012. The Corporation's clients have
substantially increased their demand for unique configurations of
down hole performance drilling motors, which has made it necessary to
rent more third party equipment, weakening the US operations'
margins. In addition, profitability continued to be negatively
affected by increased down hole performance drilling motor and MWD
system repair costs. Currently, profitability improvements are being
examined in these areas.  
International 


 
(Stated in thousands of dollars)
 
                                                                       Nine-
                                Three-month periods     month periods ended
                                 ended September 30,           September 30,
                                                  %                       %
                                2013   2012  Change    2013    2012  Change
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Revenue                       14,348  9,957      44  36,144  27,992      29
Reportable segment profit                                                  
 before tax                    5,013  2,430     106  10,469   7,318      43
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
The Corporation's international operations achieved record third
quarter revenue in 2013, reporting $14.3 million which is 44 percent
higher than the $10 million reported in the 2012-quarter.
International operating days increased by 38 percent from 777 days in
the 2012-quarter to a record 1,070 days in the 2013-quarter. The
Corporation generated 13 percent of its consolidated revenue from
international operations in the 2013-quarter compared to 12 percent
in the 2012-quarter. For the nine-month period ended September 30,
2013, revenue increased by 29 percent to $36.1 million as compared to
$28 million in 2012. Operating days for the same period increased by
25 percent from 2,121 days in 2012 to 2,655 days in 2013.  
The momentum of Phoenix Russia's growth continued, and for the second
consecutive quarter, a record level of revenue and activity was
achieved. Operating days grew by 71 percent in the third quarter of
2013 compared to the 2012-quarter. As a result of the Corporation's
strong focus on reliability and service quality and with the addition
of a Moscow-based sales manager, Phoenix Russia successfully expanded
its customer base and its presence in the market continued to
improve. The Corporation is now exploring potential work beyond the
western Siberian region. Phoenix Russia currently has a job capacity
of 15. 
In the 2013-quarter, Phoenix Albania's activity levels remained
strong. The Corporation achieved 16 percent revenue growth which was
driven predominantly by increased utilization of the Corporation's
resistivity while drilling ("RWD") technology. Since commencing
operations in 2008, Phoenix Albania has successfully drilled in
excess of 402 wells in the country. PHX Energy's joint venture,
RigManager International Inc., continued to run its electronic
drilling recorder systems on all active rigs. The Corporation
presently has a 6 job capacity in Albania. 
Phoenix Colombia's revenues grew in the third quarter of 2013
compared to the 2012-period which is mainly a result of improved
pricing. The activity levels achieved in the second quarter of 2013
were sustained in the third quarter through the Corporation's
effective pricing and sales strategy. PHX Energy continues to review
and evaluate opportunities to improve its presence in the Colombian
market and deploy its services more effectively. Phoenix Colombia
currently has a 5 job capacity. 
Phoenix Peru also realized revenue growth in the third quarter of
2013 compared to the 2012-quarter and this was achieved through
increased activity levels. While the quarterly results were stronger,
the operating landscape in the Peruvian market has not improved from
previous periods and as such, the Corporation will revisit its future
strategy for Peru. Phoenix Peru currently has a job capacity of 4
full service jobs. 
For the three-month period ended September 30, 2013, reportable
segment profit before tax was $
5 million, an increase of 106 percent
compared to $2.4 million in the corresponding 2012-period. Reportable
segment profit for the nine-month period ended September 30, 2013 was
$10.5 million as compared to $7.3 million in 2012; a 43 percent
increase. Profitability in both 2013 periods improved primarily as a
result of Russia's strong activity growth and increased utilization
of the Corporation's value-added technologies in Albania.  
Investing Activities 
Net cash from investing activities for the three-month period ended
September 30, 2013 was $16.4 million as compared to $18 million (use
of cash) in 2012. PHX Energy made an additional $1.0 million
investment in the joint venture company RMII in the form of preferred
shares (2012 - $0.3 million) and added $3.9 million in capital
equipment in the third quarter of 2013 (2012 - $7.3 million). These
capital equipment amounts are net of proceeds from the involuntary
disposal of drilling equipment in well bores of $3 million (2012 -
$2.4 million). The quarterly 2013 expenditures included: 


 
--  $2.3 million in other assets including $1.5 million of furniture and
    fixtures and leasehold improvements primarily for the new operations
    centre and $0.7 million of software; 
--  $2.1 million in down hole performance drilling motors; 
--  $1.6 million in MWD systems and spare components; 
--  $0.8 million in machinery and equipment for global service centres, and;
--  $0.1 million in non-magnetic drill collars and jars. 

 
The capital expenditure program undertaken in the period was financed
from a combination of funds from operations, long-term debt and
working capital. 
In the third quarter of 2013, the Corporation received proceeds of
$23.1 million from sale of the land and an operations centre.
Payments relating to the land and operations centre amounted to $18.9
million. The change in non-cash working capital balances of $17
million (source of cash) for the three-month period ended September
30, 2013, pertains to $15.6 million of costs that relate to the land
and an operations centre and $1.4 million of net change in the
Corporation's trade payables that are associated with the acquisition
of capital assets. This compares to $10.4 million (use of cash) for
the three-month period ended September 30, 2012. 
During the third quarter of 2013, PHX Energy's job capacity remained
unchanged at 215 jobs. As at September 30, 2013, the Corporation's
MWD fleet consisted of 133 P-360 positive pulse MWD systems, 65 E-360
electromagnetic ("EM") MWD systems, and 17 RWD systems. Of these, 93
MWD systems were deployed in Canada, 92 in the US, 15 in Russia, 6 in
Albania, 4 in Peru, and 5 in Colombia. The Corporation expects to
sustain the current job capacity until the end of the year. 
Financing Activities 
The Corporation reported cash used in financing activities of $12.2
million in the three-month period ended September 30, 2013 as
compared to $10.6 million (source of cash) in the 2012-period. In the
2013-quarter: 


 
--  the Corporation paid dividends of $5.2 million to shareholders, or $0.18
    per share; 
--  through its option and DRIP program the Corporation received cash
    proceeds of $1.6 million from exercised options and reinvested dividends
    to acquire 174,593 common shares of the Corporation; and 
--  the Corporation made an aggregate repayments of $8.6 million on its
    operating facility and syndicated facility. 

 
Capital Resources 
As at September 30, 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 September 30, 2013, the Corporation had $6.1
million drawn on this facility. 
As at September 30, 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. On August 7, 2013, the terms of the Corporation's syndicated
loan agreement with its bank were amended to extend the maturity date
of the syndicated facility and US operating facility from September
6, 2015 to September 5, 2016. In addition, the previous requirement
to repay the current portion of the syndicated facility of $15
million was removed. The aggregate carrying amounts of the syndicated
facility and the US operating facility of $80 million and $25.2
million, respectively, as at September 30, 2013, were classified as
non-current in the statement of financial position. 
All credit facilities are secured by a general security agreement
over all assets of the Corporation located in Canada and the US. As
at September 30, 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. As previously announced the 2013 capital budget has been
expanded to $45 million and is 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 
For the third quarter of 2013, PHX Energy is pleased to report record
consolidated activity and financial results, for any given quarter.  
The achievements in the quarter confirm the Corporation's strategy is
targeting the right direction and its execution is creating the
desired results, despite industry drilling levels being lower than
the prior year. As part of this effort, PHX Energy continues to focus
on improving its field operating margins. Overall, the Corporation
believes it is well positioned and this can be directly accredited to
the experience and motivation of its more than 900 employees. 
In Canada, the Corporation's goal is to be the choice provider in key
drilling areas. The wet weather conditions typical of the second
quarter persisted into July, which limited operators' access to build
leases and deploy operations; thus, the expected robust level of
horizontal drilling activity anticipated never materialized. Despite
these industry conditions, PHX Energy's client base and market share
in many important basins increased as a result of the relentless
focus on continual improvement in customer satisfaction. 
A strategic objective that has persisted over the past few years is
growth in the lucrative and large United States horizontal drilling
market. This remains key to PHX Energy, and in the third quarter
progress was made with the addition of new clients and an increase in
operating days. Although, the Corporation had anticipated a greater
level of growth, it believes the performance achieved thus far by the
superior marketing and operating personnel speaks volumes. It is
expected that the US operations' momentum and brand awareness will
only increase in future quarters. 
The Corporation's initiatives to diversify its operations
internationally also continued to produce positive results in the
third quarter. In Colombia, recent strides have been made which
improved activity levels and profitability and PHX Energy believes
this performance will be sustained. Additionally, Russia con
tinues to
present many opportunities for the Corporation. It is a very large
market and PHX Energy is developing stronger client relationships as
it further establishes its reputation. The Corporation is committed
to the international segments where market share growth can be
achieved and positive operating margins are attainable. As such
future growth and profitability are forecasted for international
operations, albeit these gains may come at a slower pace in certain
quarters. 
PHX Energy's outlook for the remainder of the year is that overall
North American drilling activity levels will remain stagnant.
However, there are many oil and natural gas basins that are looked
upon by the industry as favorable for horizontal drilling
applications as operators continue to embrace this technology. In
addition, in the international areas the Corporation occupies similar
opportunities exist, and as such PHX Energy anticipates growth in
operating days and market share in almost all of its operating
segments in the fourth quarter of 2013. 
John Hooks 
Chairman of the Board, President and Chief Executive Officer 
October 30, 2013 
Non-GAAP Measures 
1) EBITDA  
EBITDA, defined as earnings before interest, taxes, depreciation and
amortization, is not a financial measure that is recognized under
GAAP. However, Management believes that EBITDA provides supplemental
information to net earnings that is useful in evaluating the
Corporation's operations before considering how it was financed or
taxed in various countries. Investors should be cautioned, however,
that EBITDA should not be construed as an alternative measure to net
earnings determined in accordance with GAAP. PHX Energy's method of
calculating EBITDA may differ from that of other organizations and,
accordingly, its EBITDA may not be comparable to that of other
companies. 
The following is a reconciliation of net earnings to EBITDA: 


 
(Stated in thousands of dollars)
 
                                                                       Nine-
                                              Three-month     month periods
                                            periods ended   ended September
                                             September 30,               30,
                                            2013     2012     2013     2012
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net earnings                              10,737    7,836   14,308   13,170
Add:                                                                       
Depreciation and amortization              6,187    5,495   18,041   15,537
Provision for income taxes                 3,266    3,497    4,262    4,414
Finance expense                            1,384      875    3,659    2,142
---------------------------------------------------------------------------
EBITDA as reported                        21,574   17,703   40,270   35,263
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
EBITDA per share - diluted is calculated using the treasury stock
method whereby deemed proceeds on the exercise of the share options
are used to reacquire common shares at an average share price. The
calculation of EBITDA per share on a dilutive basis does not include
anti-dilutive options. 
2) Funds from Operations 
Funds from operations is defined as cash flows generated from
operating activities before changes in non-cash working capital. This
is not a measure recognized under GAAP. Management uses funds from
operations as an indication of the Corporation's ability to generate
funds from its operations before considering changes in working
capital balances. Investors should be cautioned, however, that this
financial measure should not be construed as an alternative measure
to cash flows from operating activities determined in accordance with
GAAP. PHX Energy's method of calculating funds from operations may
differ from that of other organizations and, accordingly, it may not
be comparable to that of other companies.  
The following is a reconciliation of cash flows from operating
activities to funds from operations: 


 
(Stated in thousands of dollars)
 
                                                                       Nine-
                                              Three-month     month periods
                                            periods ended   ended September
                                             September 30,               30,
                                            2013     2012     2013     2012
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Cash flows from (used in) operating                                        
 activities                               (7,233)    (420)  18,011   19,322
Add:                                                                       
Changes in non-cash working capital       26,462   17,639   16,226   14,339
Interest paid                                854      582    2,732    1,997
Income taxes paid                            310      195    1,030    1,074
---------------------------------------------------------------------------
Funds from operations                     20,393   17,996   37,999   36,732
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
Funds from operations per share - diluted is calculated using the
treasury stock method whereby deemed proceeds on the exercise of the
share options are used to reacquire common shares at an average share
price. The calculation of funds from operations per share on a
dilutive basis does not include anti-dilutive options.  
About PHX Energy Services Corp. 
The Corporation, through its subsidiary entities, provides horizontal
and directional technology and drilling services to oil and natural
gas producing companies in Canada, the US, Albania, Russia, Peru, and
Colombia. PHX Energy develops and manufactures its E-360 EM and P-360
positive pulse MWD technologies that are made available for internal
operational use.  
PHX Energy's Canadian operations are conducted through Phoenix
Technology Services LP. The Corporation maintains its corporate head
office, research and development, Canadian sales, service and
operational centres in Calgary, Alberta. In addition, PHX Energy has
a facility in Estevan, Saskatchewan. PHX Energy's US operations,
conducted through the Corporation's wholly-owned subsidiary, Phoenix
Technology Services USA Inc. ("Phoenix USA"), is headquartered in
Houston, Texas. Phoenix USA has sales and service facilities in
Houston, Texas; Traverse City, Michigan; Casper, Wyoming; Denver,
Colorado; Fort Worth, Texas; Midland, Texas; Buckhannon, West
Virginia; Pittsburgh, Pennsylvania; and Oklahoma City, Oklahoma.
Internationally, PHX Energy has sales offices and service facilities
in Albania, Peru, Russia, and Colombia, and an administrative office
in Nicosia, Cyprus. 


 
Consolidated Statements of Financial Position
(unaudited)
 
                                                September 30,   December 31,
                                                        2013           2012
---------------------------------------------------------------------------
---------------------------------------------------------------------------
ASSETS                                                                     
Current assets:                                                            
  Cash and cash equivalents                      $ 4,285,648    $ 4,329,969
  Trade and other receivables                     89,596,945     67,189,884
  Inventories                                     28,751,806     21,833,051
  Prepaid expenses                  
               2,533,348      3,476,559
  Assets held for sale                                     -      9,436,462
---------------------------------------------------------------------------
  Total current assets                           125,167,747    106,265,925
Non-current assets:                                                        
  Drilling and other equipment                   151,168,742    144,370,109
  Goodwill                                         8,876,351      8,876,351
  Intangible assets                                3,759,200              -
  Equity-accounted investees                       7,905,868      5,010,292
---------------------------------------------------------------------------
  Total non-current assets                       171,710,161    158,256,752
---------------------------------------------------------------------------
Total assets                                   $ 296,877,908  $ 264,522,677
---------------------------------------------------------------------------
---------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY                                       
Current liabilities:                                                       
  Operating facility                             $ 6,076,407    $ 5,897,711
  Trade and other payables                        48,823,581     38,165,118
  Dividends payable                                1,657,266      1,626,287
  Current tax liabilities                          3,035,425         97,020
  Loans and borrowings                                     -     15,000,000
---------------------------------------------------------------------------
  Total current liabilities                       59,592,679     60,786,136
Non-current liabilities:                                                   
  Loans and borrowings                           105,242,350     80,000,000
  Deferred tax liabilities                         8,616,753      8,641,858
  Deferred income                                  2,000,000              -
---------------------------------------------------------------------------
  Total non-current liabilities                  115,859,103     88,641,858
Equity:                                                                    
  Share capital                                  106,107,691     99,101,118
  Contributed surplus                              6,561,069      7,860,658
  Retained earnings                                8,667,006      9,764,748
  Accumulated other comprehensive income              90,360     (1,631,841)
---------------------------------------------------------------------------
  Total equity                                   121,426,126    115,094,683
Total liabilities and equity                   $ 296,877,908  $ 264,522,677
---------------------------------------------------------------------------
---------------------------------------------------------------------------
 
 
Consolidated Statements of Comprehensive Income
(unaudited)
 
                    Three-month periods ended      Nine-month periods ended
                                 September 30,                 September 30,
                          2013           2012           2013           2012
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Revenue          $ 106,970,562   $ 84,054,349  $ 265,120,352  $ 222,246,607
Direct costs        81,369,871     62,149,600    214,386,894    175,178,242
---------------------------------------------------------------------------
Gross profit        25,600,691     21,904,749     50,733,458     47,068,365
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Expenses:                                                                  
 Selling,                                                                  
  general and                                                              
  administrative                                                           
  expenses          11,213,353      9,265,112     30,141,952     26,010,886
 Research and                                                              
  development                                                              
  expenses             447,520        563,666      1,439,501      1,664,594
 Finance expense     1,383,727        875,277      3,658,641      2,142,342
 Other income       (2,084,494)      (269,794)    (4,380,977)      (576,601)
---------------------------------------------------------------------------
                    10,960,106     10,434,261     30,859,117     29,241,221
Share of loss of                                                           
 equity-                                                                   
 accounted                                                                 
 investee (net                                                             
 of tax)               637,856        138,133      1,304,424        242,604
Earnings before                                                            
 income taxes       14,002,729     11,332,355     18,569,917     17,584,540
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Provision for                                                              
 (Recovery of)                                                             
 income taxes                                                              
 Current             1,235,771     (1,818,352)     3,864,473      1,370,421
 Deferred            2,029,919      5,315,067        397,703      3,043,870
---------------------------------------------------------------------------
                     3,265,690      3,496,715      4,262,176      4,414,291
---------------------------------------------------------------------------
Net earnings        10,737,039      7,835,640     14,307,741     13,170,249
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Other                                                                      
 comprehensive                                                             
 income                                                                    
 Foreign                                                                   
  currency                                                                 
  translation         (573,432)    (2,496,278)     1,722,201     (2,461,405)
---------------------------------------------------------------------------
Total                                                                      
 comprehensive                                                             
 income for the                                                            
 period           $ 10,163,607    $ 5,339,362   $ 16,029,942   $ 10,708,844
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Earnings per                                                               
 share - basic          $ 0.37         $ 0.28         $ 0.50         $ 0.47
Earnings per                                                               
 share - diluted        $ 0.37         $ 0.28         $ 0.50         $ 0.47
---------------------------------------------------------------------------
---------------------------------------------------------------------------
 
 
Consolidated Statements of Cash Flows
(unaudited)
 
                    Three-month periods ended      Nine-month periods ended
                                 September 30,                 September 30,
                          2013           2012           2013           2012
------------
---------------------------------------------------------------
---------------------------------------------------------------------------
Cash flows from                                                            
 operating                                                                 
 activities:                                                               
Net earnings      $ 10,737,039    $ 7,835,640   $ 14,307,741   $ 13,170,249
Adjustments for:                                                           
Depreciation and                                                           
 amortization        6,187,406      5,495,619     18,041,225     15,535,925
Provision for                                                              
 income taxes        3,265,690      3,496,715      4,262,176      4,414,291
Unrealized                                                                 
 foreign                                                                   
 exchange loss         228,144        522,831        574,834      1,126,047
Net gain on                                                                
 disposition of                                                            
 drilling                                                                  
 equipment          (1,298,348)    (1,046,555)    (3,931,046)    (2,151,864)
Write-down of
 technological
 assets              1,244,946              -      1,244,946              -
Gain on sale of                                                            
 land and                                                                  
 operations                                                                
 centre             (2,195,886)             -     (2,195,886)             -
Share-based                                                                
 payments              230,769        444,008        760,536      1,854,811
Finance expense      1,383,727        875,277      3,658,641      2,142,342
Provision for                                                              
 (Recovery of)                                                             
 bad debts             (28,456)       114,576        (28,456)       (93,138)
Share of loss of                                                           
 equity-                                                                   
 accounted                                                                 
 investee              637,856        138,133      1,304,424        242,604
Change in fair                                                             
 value of                                                                  
 investment in                                                             
 equity                                                                    
 securities                  -        120,060              -        490,245
Change in non-                                                             
 cash working                                                              
 capital           (26,462,347)   (17,639,167)   (16,225,797)   (14,338,477)
---------------------------------------------------------------------------
Cash generated                                                             
 from (used in)                                                            
 operating                                                                 
 activities         (6,069,460)       357,137     21,773,338     22,393,035
Interest paid         (854,121)      (581,962)    (2,731,853)    (1,997,257)
Income taxes                                                               
 paid                 (309,668)      (195,258)    (1,030,527)    (1,073,302)
---------------------------------------------------------------------------
Net cash from                                                              
 (used in)                                                                 
 operating                                                                 
 activities         (7,233,249)      (420,083)    18,010,958     19,322,476
---------------------------------------------------------------------------
Cash flows from                                                            
 investing                                                                 
 activities:                                                               
Proceeds on                                                                
 disposition of                                                            
 drilling                                                                  
 equipment           3,048,367      2,356,642      8,331,930      6,994,171
Acquisition of                                                             
 drilling and                                                              
 other equipment    (6,917,781)    (9,660,475)   (28,546,653)   (46,117,625)
Acquisition of                                                             
 intangible                                                                
 assets                      -              -     (3,759,200)             -
Investment in                                                              
 equity-                                                                   
 accounted                                                                 
 investee           (1,000,000)      (330,855)    (4,200,000)    (4,093,468)
Proceeds from                                                              
 sale of land                                                              
 and operations                                                            
 centre             23,100,000              -     23,100,000              -
Payments                                                                   
 relating to the                                                           
 land and                                                                  
 operations                                                                
 centre            (18,904,114)             -    (18,904,114)             -
Change in non-                                                             
 cash working                                                              
 capital            17,045,321    (10,375,149)     6,119,018    (11,292,973)
---------------------------------------------------------------------------
Net cash from                                                              
 (used in)                                                                 
 investing                                                                 
 activities         16,371,793    (18,009,837)   (17,859,019)   (54,509,895)
---------------------------------------------------------------------------
Cash flows from                                                            
 financing                                                                 
 activities:                                                               
Proceeds from                                                              
 issuance of                                                               
 share capital       1,614,456        224,154      4,946,448      1,010,054
Dividends paid                                                             
 to shareholders    (5,168,786)    (5,073,994)   (15,374,504)   (13,515,652)
Proceeds on                                                                
 (Repayment of)                                                            
 loans and                                                                 
 borrowings         (5,154,900)    15,500,000     10,053,100     37,000,000
Proceeds on                                                                
 (Repayment of)                                                            
 operating                                                                 
 facility           (3,449,008)       (71,819)       178,696      6,196,458
-
--------------------------------------------------------------------------
Net cash from                                                              
 (used in)                                                                 
 financing                                                                 
 activities        (12,158,238)    10,578,341       (196,260)    30,690,860
---------------------------------------------------------------------------
Net increase in                                                            
 cash and cash                                                             
 equivalents        (3,019,694)    (7,851,579)       (44,321)    (4,496,559)
Cash and cash                                                              
 equivalents,                                                              
 beginning of                                                              
 period              7,305,342     11,731,364      4,329,969      8,376,344
---------------------------------------------------------------------------
Cash and cash                                                              
 equivalents,                                                              
 end of period     $ 4,285,648    $ 3,879,785    $ 4,285,648    $ 3,879,785
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Contacts:
PHX Energy Services Corp.
John Hooks
President and CEO
403-543-4466 
PHX Energy Services Corp.
Cameron Ritchie
Senior Vice President Finance and CFO
403-543-4466 
PHX Energy Services Corp.
Suite 1400, 250 2nd Street SW
Calgary, Alberta T2P 0C1
403-543-4466
403-543-4485 (FAX)
www.phxtech.com