Mr. Alex MacAusland reports

WESTERN ENERGY SERVICES CORP. RELEASES SECOND QUARTER 2014 FINANCIAL AND OPERATING RESULTS, INCREASES 2014 CAPITAL BUDGET AND DECLARES QUARTERLY DIVIDEND

Western Energy Services Corp. has released its second quarter 2014 financial and operating results. Additional information relating to the company, including the company's financial statements and management's discussion and analysis, as at and for the three and six months ended June 30, 2014, and 2013, will be available on SEDAR. All amounts are denominated in Canadian dollars unless otherwise identified.

Second quarter 2014 highlights

Operating revenue totalled $77.4-million, a $29.8-million increase (or 62 per cent) over the same period in the prior year due to higher utilization and improved pricing in the contract drilling and production services segments, coupled with a larger average drilling rig fleet in Canada.

Utilization per operating day in the Canadian contract drilling segment improved to 34 per cent as compared with 28 per cent in the second quarter of 2013 and the CAODC industry average of 25 per cent. In the United States, contract drilling utilization per operating day improved to 80 per cent as compared with 45 per cent in the same period of the prior year mainly due to fleet upgrades and strong operational performance. With the exception of downtime for the completion of two 1,500-horsepower AC pad conversions, the U.S. fleet was fully utilized in the quarter.

Total well-servicing hours in Western's production services segment increased significantly in the second quarter of 2014 to 23,433 hours as compared with 13,718 hours in the second quarter of 2013, a 71-per-cent increase, due to increased activity. As a result, well-servicing utilization improved to 40 per cent as compared with 30 per cent in the second quarter of 2013.

Earnings before interest, taxes, depreciation and amortization totalled $24.0-million (31 per cent of operating revenue) in the second quarter of 2014 as compared with $9.2-million (19 per cent of operating revenue) in the same period of the prior year. The increase in EBITDA is mainly due to the increased activity and improved pricing in both the contract drilling and production services segments, coupled with effective cost control.

During the second quarter of 2014, capital expenditures totalled $27.0-million and included $21.0-million of expansion capital, $3.9-million of maintenance capital and $2.1-million for critical spares. Capital spending mainly relates to Western's drilling rig build program, which totalled $15.8-million in the period incurred on the construction of two drilling rigs, as well as the completion of two 1,500-horsepower AC pad conversions in the United States, which were both commissioned during the second quarter of 2014.

Additionally, Western is pleased to announce a $66-million increase to its 2014 capital budget, which includes the construction of two 5,000-metre telescopic ELR double drilling rigs, a 6,000-metre ELR AC triple-pad drilling rig, a slant service rig and additional ancillary drilling equipment. With this announcement, Western's 2014 capital budget is expected to total $170-million. Including these newly announced rig builds, Western now has three telescopic ELR double drilling rigs, two ELR AC triple-pad drilling rigs and one slant service rig under construction.

Year-to-date highlights

Operating revenue totalled $227.0-million, an $89.3-million increase (or 65 per cent) over the same period in the prior year due to the increased contribution from the production services segment following the acquisition of IROC Energy Services Corp. in April, 2013, as well as increased utilization and improved pricing in both the contract drilling and production services segments, coupled with a larger average drilling rig fleet in Canada.

On a year-to-date basis, contract drilling utilization per operating day in Canada averaged 57 per cent, as compared with the CAODC industry average of 42 per cent and 49 per cent in the same period in the prior year. In the United States, contract drilling utilization per operating day increased significantly by 66 per cent to 78 per cent as compared with 47 per cent in the first half of 2013. With the exception of downtime related to the completion of two 1,500-horsepower AC pad conversions, the U.S. fleet was fully utilized in the first half of 2014.

For the six-month period ended June 30, 2014, total well-servicing hours in Western's production services segment increased significantly to 60,242 from 16,148 in the same period in the prior year. The increase can be attributed to improved utilization, which on a year-to-date basis increased to 51 per cent in 2014 as compared with 29 per cent in the same period of the prior year, coupled with the increased size and scale of Western's well-servicing operations subsequent to the IROC acquisition in April, 2013.

EBITDA totalled $83.6-million (37 per cent of operating revenue) in the first half of 2014 as compared with $43.6-million (32 per cent of operating revenue) in the first half of 2013. The increase in EBITDA reflects the increased activity, improved day rates and the larger drilling rig fleet, coupled with effective cost control in the contract drilling segment, as well as improved utilization and pricing, in addition to the increased size and scale of Western's production services segment.

During the first six months of 2014, capital expenditures totalled $46.4-million and include $36.9-million of expansion capital, $5.8-million of maintenance capital and $3.7-million for critical spares. Capital spending mainly relates to the drilling rig build program in the contract drilling segment for the construction of two drilling rigs, which were commissioned in the first quarter of 2014, and an additional two drilling rigs currently under construction. Additionally, two 1,500-horsepower AC pad conversions were completed in the United States in the second quarter of 2014.

                       SELECTED FINANCIAL INFORMATION     
            (stated in thousands, except per-share amounts)     

                                                        Three months        Six months 
                                                       ended June 30,    ended June 30,
Financial highlights                                   2014     2013     2014     2013

Revenue                                             $81,981  $50,835 $243,397 $148,841
Operating revenue                                    77,352   47,616  226,979  137,696
Gross margin                                         31,206   16,087   98,835   57,032
Gross margin as a percentage of operating revenue        40%      34%      44%      41%
EBITDA                                               24,028    9,199   83,576   43,583
EBITDA as a percentage of operating revenue              31%      19%      37%      32%
Cash flow from operating activities                  71,912   48,381  110,546   70,825
Capital expenditures                                 27,026   18,547   46,389   36,703
Net income (loss)                                     4,396   (3,381)  29,896   11,522
Basic net income (loss) per share                      0.06    (0.05)    0.40     0.18
Diluted net income (loss) per share                    0.06    (0.05)    0.40     0.17
Dividends declared                                    5,609    5,501   11,147    9,975

Western is an oil field service company focused on three core business lines: contract drilling, well servicing and oil field rental equipment services. Western provides contract drilling services through its division, Horizon Drilling, in Canada, and its wholly owned subsidiary, Stoneham Drilling Corp., in the United States. Subsequent to the acquisition of IROC on April 22, 2013, Western provides well-servicing operations in Canada through Western Energy Services Partnership's division, Eagle Well Servicing. Previously, well-servicing operations were conducted through Western's division, Matrix Well Servicing. Western also provides oil field rental services in Canada through the partnership's division, Aero Rental Services. Financial and operating results for Eagle and Aero from the date of the acquisition, as well as Matrix, are included in Western's production services segment.

Western currently has a drilling rig fleet of 54 rigs, with an average age of approximately six years. Western is the sixth-largest drilling contractor in Canada with a fleet of 49 rigs operating through Horizon. Additionally, Western has five efficient-long-reach triple drilling rigs deployed in the United States operating through Stoneham. Western is also the seventh-largest well-servicing company in Canada with a fleet of 65 rigs operating through Eagle. Western's well-servicing fleet is one of the newest in the Western Canadian sedimentary basin, with an average age of approximately four years. Western's oil field equipment rental division, which operates through Aero, provides oil field rental equipment for frac services, well completions and production work, coil tubing services, and drilling.

During the first six months of 2014, commodity prices have improved as compared with the same period in the prior year. The price for light crude oil, such as Edmonton Par, increased on average by 15 per cent and 14 per cent for the three- and six-month periods ended June 30, 2014, respectively, compared with the same three- and six-month periods in 2013, while the price for heavy crude oil, such as the Western Canadian Select price, increased by 19 per cent and 27 per cent, respectively. Natural gas prices have also improved significantly in the three and six months ended June 30, 2014, with the AECO 30-day spot rate increasing on average by 35 per cent and 57 per cent, respectively, compared with the three and six months ended June 30, 2013, as heating demand increased in the first quarter due to a cold winter, resulting in decreased storage levels across North America. The demand for oil, along with an emphasis on liquids-rich natural gas, has resulted in increased drilling of horizontal wells in both conventional and unconventional resource plays. Horizontal wells in the WCSB, as a percentage of all wells drilled, increased in the first six months of 2014 to 76 per cent compared with 69 per cent in the first six months of 2013. This has resulted in continued demand in the WCSB for Western's ELR drilling rigs, as industry utilization rates for the second quarter of 2014 averaged 25 per cent, which is an increase over the five-year average of 22 per cent and an improvement over the prior year when industry utilization averaged 18 per cent. Similarly, industry utilization rates for the first six months of 2014 averaged 42 per cent, which is consistent with the five-year average of 42 per cent and an improvement over the prior year when industry utilization averaged 38 per cent.

Outlook

Western's drilling rig fleet is specifically suited for drilling horizontal wells of increased complexity. In total, 94 per cent of Western's fleet is ELR drilling rigs with depth ratings greater than 3,000 metres, and all of Western's rigs are capable of drilling resource-based horizontal wells. Currently, 21 of Western's 54 drilling rigs (or 39 per cent) are operating under long-term take-or-pay contracts, with 15 of these contracts expiring between 2015 and 2017, providing a base level of future revenue. These contracts typically generate 250 operating days per year in Canada, as spring breakup restricts activity during the second quarter, while in the United States, these contracts typically range from 330 to 365 revenue-generating days per year.

Western's approved capital spending for 2014 totals approximately $170-million composed of $130-million in expansion capital and $40-million in maintenance capital, which includes $12-million for critical spare equipment. In total, budgeted capital spending has increased by $66-million from the previously disclosed $104-million. The increase relates to additional expansion capital related to the construction of two 5,000-metre telescopic ELR double drilling rigs, one 6,000-metre ELR AC triple-pad drilling rig, a slant service rig for the production services segment and additional ancillary drilling equipment. The majority of Western's expansion capital budget relates to the drilling rig build program, which in addition to the three newly announced drilling rig builds, also includes the construction of one 6,000-metre ELR AC triple-pad drilling rig and one 5,000-metre telescopic ELR double drilling rig in Canada. Expansion capital also includes two additional 1,500-horsepower AC pad conversions in the United States, which were both completed in the second quarter of 2014. Western believes the 2014 capital budget provides a prudent use of cash resources and ensures that it has the flexibility to execute on opportunities as they arise. This budget demonstrates the company's commitment to maintaining and increasing Western's premier drilling and well-servicing rig fleet and expanding Western's presence in the oil field rental equipment market. Western will continue to evaluate and expand its operations in a prudent manner and make any required adjustments to its capital program as these opportunities unfold during the rest of 2014. Currently, Western expects approximately $30-million of its capital spending to carry over into 2015.

The increased commodity price environment and improving economic conditions in North America led to increased oil field service activity in the first half of 2014. Western believes oil field service activity in the second half of 2014 and beyond will remain strong, providing additional drilling rig build opportunities at attractive rates that meet the company's return on investment criteria. Activity is expected to remain strong as liquefied natural gas projects gain approval, crude oil transportation capacity increases through rail and pipeline development, drilling activity increases in various resource plays in Alberta and northeast British Columbia, and foreign investment continues to flow into Canada. Currently, the largest challenges facing the oil field service industry are producer-spending constraints, pricing differentials on Canadian crude oil, the challenge to attract and retain skilled labour, and increased gas production from shale plays across North America. The company believes Western's modern drilling and well-servicing rig fleet, strong utilization, and corporate culture will provide a distinct advantage in retaining and attracting qualified individuals. Western's view is that its modern fleet, strong customer base and solid reputation provide a competitive advantage, which will enable the company to continue its growth strategy and higher than industry average utilization.

Quarterly dividend

On July 30, 2014, Western's board of directors declared a quarterly dividend of 7.5 cents per share, which will be paid on Oct. 14, 2014, to shareholders of record at the close of business on Sept. 30, 2014. The dividends are eligible dividends for Canadian income tax purposes. On a prospective basis, the declaration of dividends will be determined on a quarter-by-quarter basis by the board of directors.

Second quarter 2014 results conference call and webcast

Western has scheduled a conference call and webcast to begin at 12 p.m. MST (2 p.m. EST) on July 31, 2014.

The conference call dial-in number is 1-888-231-8191.

A live webcast of the conference call will be accessible on Western's website by selecting investors, then webcasts. Shortly after the live webcast, an archived version will be available for approximately 14 days.

An archived recording of the conference call will also be available approximately one hour after the completion of the call until Aug. 15, 2014, by dialling 1-855-859-2056 or 416-849-0833, passcode 64861256.

We seek Safe Harbor.