Mr. Alex MacAusland reports

WESTERN ENERGY SERVICES CORP. RELEASES THIRD QUARTER 2014 FINANCIAL AND OPERATING RESULTS AND DECLARES QUARTERLY DIVIDEND

Western Energy Services Corp. has released its third 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 nine months ended Sept. 30, 2014, and 2013, will be available on SEDAR. (All amounts are denominated in Canadian dollars unless otherwise identified.)

Third quarter 2014 highlights

Operating revenue totalled $118.0-million, a $22.4-million increase (or 23 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 60 per cent as compared with the CAODC industry average of 46 per cent and 56 per cent in the third quarter of 2013. In the United States, contract drilling utilization per operating day remained strong at 89 per cent as compared with 88 per cent in the same period of the prior year. The U.S. drilling rig fleet was fully utilized in the third quarter of 2014 as drilling rig utilization per revenue day was 100 per cent.

Total well-servicing hours in Western's production services segment increased in the third quarter of 2014 to 33,071 hours as compared with 30,328 hours in the third quarter of 2013, a 9-per-cent increase due to increased activity. As a result, well-servicing utilization improved to 55 per cent as compared with 51 per cent in the third quarter of 2013.

Adjusted earnings before interest, taxes, depreciation and amortization totalled $42.8-million (36 per cent of operating revenue) in the third quarter of 2014 as compared with $30.3-million (32 per cent of operating revenue) in the same period of the prior year. The increase in adjusted EBITDA is mainly due to increased activity and improved pricing in both the contract drilling and production services segments, coupled with effective cost control in all of Western's divisions.

During the third quarter of 2014, capital expenditures totalled $31.1-million and included $24.6-million of expansion capital, $3.5-million of maintenance capital and $3.0-million for critical spares. Capital spending mainly relates to Western's drilling rig build program, which totalled $18.3-million in the period incurred on the construction of five drilling rigs.

Year-to-date highlights

Operating revenue totalled $344.9-million, a $111.6-million increase (or 48 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 58 per cent, as compared with the CAODC industry average of 44 per cent and 52 per cent in the same period in the prior year. In the United States, contract drilling utilization per operating day increased by 2,200 basis points to 82 per cent as compared with 60 per cent in the nine months ended Sept. 30, 2013. With the exception of downtime related to the completion of two 1,500-horsepower AC pad conversions in the first half of 2014, the U.S. fleet was fully utilized in the nine months ended Sept. 30, 2014.

For the nine-month period ended Sept. 30, 2014, total well-servicing hours in Western's production services segment increased significantly to 93,313 from 46,476 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 53 per cent in 2014 as compared with 40 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.

Adjusted EBITDA totalled $126.4-million (37 per cent of operating revenue) in the nine months ended Sept. 30, 2014, as compared with $73.9-million (32 per cent of operating revenue) in the same period in the prior year. The increase in adjusted EBITDA reflects the increased activity, improved day rates and the larger drilling rig fleet 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 and effective cost control in all of Western's divisions.

During the nine-month period ended Sept. 30, 2014, capital expenditures totalled $77.5-million and include $61.6-million of expansion capital, $9.3-million of maintenance capital and $6.6-million for critical spares. Capital spending mainly relates to the drilling rig build program in the contract drilling segment as two drilling rigs were commissioned in the first quarter of 2014 with an additional five drilling rigs under construction, one of which has been commissioned subsequent to Sept. 30, 2014. 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 ended         Nine months ended 
                                                             Sept. 30,                  Sept. 30,
                                                        2014         2013        2014          2013

Revenue                                             $125,225     $101,389    $368,622      $250,230
Operating revenue                                    117,960       95,597     344,939       233,293
Gross margin                                          50,570       37,547     149,405        94,579
Gross margin as a percentage of operating revenue         43%          39%         43%           41%
Adjusted EBITDA                                       42,782       30,297     126,358        73,880
Adjusted EBITDA as a percentage of operating revenue      36%          32%         37%           32%
Cash flow from operating activities                   22,975        6,667     133,521        77,492
Capital expenditures                                  31,144       31,002      77,533        67,705
Net income                                            14,718        7,927      44,614        19,449
Basic net income per share                              0.20         0.11        0.60          0.29
Diluted net income per share                            0.19         0.11        0.59          0.28
Dividends declared                                     5,615        5,502      16,762        15,478

                                          OPERATING HIGHLIGHTS      
       
                                                   Three months ended                Nine months ended 
                                                        Sept. 30,                        Sept. 30,
                                                    2014         2013               2014          2013
Contract drilling

Canadian operations
Contract drilling rig fleet
Average                                               49           45                 49            45
End of period                                         49           46                 49            46
Operating revenue per revenue day                $24,887      $23,055            $25,852       $24,294
Operating revenue per operating day               27,350       25,385             28,343        26,918
Drilling rig operating days                        2,692        2,335              7,754         6,345
Drilling rig utilization per revenue day              66%          62%                64%           57%
Drilling rig utilization rate per operating day       60%          56%                58%           52%
CAODC industry average utilization rate               46%          40%                44%           39%

U.S. operations
Contract drilling rig fleet
Average                                                5            5                  5             5
End of period                                          5            5                  5             5
Operating revenue per revenue day (U.S.$)        $26,239      $21,777            $25,385       $22,080
Operating revenue per operating day (U.S.$)       29,348       24,410             28,905        27,128
Drilling rig operating days                          410          403              1,121           825
Drilling rig utilization per revenue day             100%          98%                94%           74%
Drilling rig utilization per operating day            89%          88%                82%           60%

Production services
Well-servicing rig fleet
Average                                               65           65                 65            46
End of period                                         65           65                 65            65
Operating revenue per service hour                  $804         $743               $810          $740
Total service hours                               33,071       30,328             93,313        46,476
Service rig utilization rate                          55%          51%                53%           40%

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.

Western currently has a drilling rig fleet of 55 rigs, with an average age of approximately seven years. Western is the sixth-largest drilling contractor in Canada with a fleet of 50 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 rig fleet is one of the newest in the Western Canadian sedimentary basin, with an average age of approximately five years. Western's oil field equipment rental division, which operates through Aero, provides oil field rental equipment for frack services, well completions and production work, coil tubing services, and drilling.

Crude oil prices weakened in the third quarter of 2014. The price for light oil, such as West Texas Intermediate, decreased by 8 per cent for the three months ended Sept. 30, 2014, as compared with the same period in the prior year and by 6 per cent as compared with the second quarter of 2014. The price for heavy oil, such as Western Canadian Select, decreased by 1 per cent for the third quarter of 2014 as compared with the same period of the prior year and by 6 per cent as compared with the second quarter of 2014. For the nine months ended Sept. 30, 2014, WTI increased marginally by 1 per cent, and WCS increased by 17 per cent as compared with the same period in 2013. Natural gas prices have improved significantly in the three and nine months ended Sept. 30, 2014, with the AECO 30-day spot rate increasing on average by 66 per cent and 60 per cent, respectively, compared with the three and nine months ended Sept. 30, 2013, as heating demand increased in the first quarter due to a cold winter, resulting in decreased storage levels across North America. However, subsequent to Sept. 30, 2014, the commodity price environment for crude oil and natural gas has deteriorated as compared with the third quarter 2014 average. The demand for oil, along with an emphasis on liquids-rich natural gas, 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 nine-month period ended Sept. 30, 2014, to 76 per cent compared with 70 per cent in the same period of 2013. This has resulted in continued demand in the WCSB for Western's ELR drilling rigs, as industry utilization rates for the third quarter of 2014 averaged 46 per cent, which is an increase over the five-year average of 45 per cent and an improvement over the prior year when industry utilization averaged 40 per cent. Similarly, industry utilization rates for the first nine months of 2014 averaged 44 per cent, which is consistent with the five-year average of 43 per cent and an improvement over the prior year when industry utilization averaged 39 per cent.

Outlook

Western's drilling rig fleet is specifically suited for drilling horizontal wells of increased complexity. In total, 95 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, 19 of Western's 55 drilling rigs (or 35 per cent) are operating under long-term take-or-pay contracts, with 13 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 remains unchanged totalling approximately $170-million composed of $130-million in expansion capital and $40-million in maintenance capital, which includes $12-million for critical spare equipment. The majority of Western's expansion capital budget relates to the drilling rig build program, which in addition to the three telescopic double drilling rigs already commissioned in Canada during 2014, one of which was commissioned subsequent to Sept. 30, 2014, includes two additional 5,000-metre telescopic ELR double drilling rigs and two 6,000-metre ELR AC triple pad drilling rigs. 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 and the construction of a slant well-servicing rig for the production services segment, as well as additional oil field rental equipment and ancillary drilling and well-servicing equipment. 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, or alternatively adjust downward if necessary, should there be a prolonged downturn in oil field service activity. Western expects approximately $45-million of its capital spending to carry forward into 2015. With this carryforward, the company will have flexibility over the timing and deployment of some, or all, of this capital. 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.

While commodity prices for much of 2014 have been strong, the recent pressure on crude oil and natural gas prices may negatively impact customers' cash flows and may affect their capital spending on oil field services into 2015. However, the impact of lower commodity prices has been partially offset by the weakening of the Canadian dollar. Western believes oil field service activity for the fourth quarter of 2014 and the first quarter of 2015 will remain steady, with less visibility beyond spring breakup in 2015. Activity will be impacted by the development of resource plays in Alberta and northeast British Columbia, including those related to liquefied natural gas projects, increased crude oil transportation capacity through rail and pipeline development and foreign investment into Canada. Currently, the largest challenges facing the oil field service industry are producer spending constraints as a result of lower commodity prices, pricing differentials on Canadian crude oil, the challenge to attract and retain skilled labour, and the potential negative impact on gas pricing caused by 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.

Restricted share unit plan

Western has adopted a restricted share unit plan pursuant to which restricted share units may be granted to directors, officers, employees and certain service providers, and has granted RSUs under the RSU plan. Although the Toronto Stock Exchange has accepted the adoption of the RSU plan, the RSU plan and RSUs granted thereunder prior to the receipt of shareholder approval of the RSU plan remain subject to shareholder ratification, which will be sought at the company's next annual meeting. The maximum number of shares reserved for issuance under the RSU plan may not exceed: (i) 1 per cent of the issued and outstanding common shares of the company, and (ii) when combined with all other security-based compensation arrangements of Western (including options granted under the company's stock option plan), 10 per cent of the issued and outstanding shares of the company.

Quarterly dividend

On Oct. 30, 2014, Western's board of directors declared a quarterly dividend of 7.5 cents per share, which will be paid on Jan. 15, 2015, to shareholders of record at the close of business on Dec. 31, 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.

Third 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 Oct. 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 Nov. 14, 2014, by dialling 1-855-859-2056 or 416-849-0833, passcode 15225905.

We seek Safe Harbor.