Mr. Alex MacAusland reports

WESTERN ENERGY SERVICES CORP. RELEASES FOURTH QUARTER AND YEAR END 2014 FINANCIAL AND OPERATING RESULTS AND DECLARES QUARTERLY DIVIDEND

Western Energy Services Corp. has released fourth quarter and year-end 2014 financial and operating results and has declared a quarterly dividend. Additional information relating to the company, including the company's financial statements and management's discussion and analysis, as at and for the years ended Dec. 31, 2014, and 2013, will be available on SEDAR. (All amounts are denominated in Canadian dollars unless otherwise identified.)

Fourth quarter 2014 highlights

Operating revenue totalled $129.2-million, a $9.4-million increase (or 8 per cent) over the same period in the prior year as contract drilling day rates improved in both Canada and the United States, and utilization and pricing improved in the production services segment.

Contract drilling operating days remained relatively constant year over year as a larger average drilling rig fleet in Canada was offset by lower utilization in Canada and the United States. Utilization per operating day in the Canadian contract drilling segment decreased to 59 per cent, which was higher than the CAODC industry average of 45 per cent but lower than 65 per cent in the fourth quarter of 2013. In the United States, contract drilling utilization per operating day remained strong at 85 per cent as compared with 87 per cent in the same period of the prior year, as the fleet was essentially fully utilized in both periods.

Well-servicing activity increased in most of Western's operating areas, particularly the focus on steam-assisted gravity drainage work in the oil sands in Northern Alberta resulted in well-servicing utilization improving to 58 per cent in the fourth quarter of 2014 as compared with 53 per cent in the fourth quarter of 2013.

Adjusted earnings before interest, taxes, depreciation and amortization totalled $50.4-million (39 per cent of operating revenue) in the fourth quarter of 2014 as compared with $43.5-million (36 per cent of operating revenue) in the same period of the prior year. The increase in adjusted EBITDA is mainly due to improved rates in the contract drilling segment and higher pricing and utilization in the production services segment.

Although actual results were as expected, and have improved year over year, as a result of the declining commodity price environment and the reduced outlook for oil field services activity and pricing, Western recorded an impairment loss on goodwill in the production services segment of $22.7-million, as well as a loss on the decommissioning of a shallow drilling rig, used drilling equipment and underutilized oil field rental equipment totalling $7.2-million.

During the fourth quarter of 2014, capital expenditures totalled $31.1-million and included $23.6-million of expansion capital, $5.6-million of maintenance capital and $1.9-million for rotational equipment. Capital spending mainly relates to Western's rig build program, which incurred costs on the construction of one slant well-servicing rig and four drilling rigs, one of which was commissioned in the period.

On Dec. 18, 2014, Western increased its four-year extendible credit facility to $175.0-million from $125.0-million previously, with a maturity date extension to Dec. 17, 2018, and increased Western's operating demand revolving loan to $20.0-million from $10.0-million previously.

Full-year 2014 highlights

Operating revenue totalled $474.1-million, a $121.0-million increase (or 34 per cent) over the prior year due to higher utilization, improved day rates and a larger average 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 following the acquisition of IROC Energy Services Corp. in April of 2013.

Contract drilling utilization per operating day in Canada averaged 58 per cent, as compared with the CAODC industry average of 44 per cent and 55 per cent in the prior year. In the United States, contract drilling utilization per operating day increased by 1,600 basis points to 83 per cent as compared with 67 per cent in 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 essentially fully utilized in 2014.

Total well-servicing hours in Western's production services segment increased 64 per cent to 127,768 from 77,879 in 2013. The increase is attributed to improved utilization, which increased to 54 per cent in 2014 as compared with 45 per cent in the prior year, coupled with the increased size and scale of Western's well-servicing operations subsequent to the IROC acquisition.

Adjusted EBITDA totalled $176.8-million (37 per cent of operating revenue) in 2014 as compared with $117.4-million (33 per cent of operating revenue) in 2013. 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.

Capital expenditures totalled $108.6-million and include $85.2-million of expansion capital, $14.8-million of maintenance capital and $8.6-million of rotational equipment. Capital spending mainly relates to the drilling rig build program in the contract drilling segment as three drilling rigs were commissioned in 2014, with an additional three drilling rigs under construction at year-end. 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          Year ended
                                                                    Dec. 31,                Dec. 31,
Financial highlights                                            2014        2013        2014        2013

Revenue                                                     $139,210    $129,713    $507,832    $379,943
Operating revenue                                            129,181     119,831     474,120     353,124
Gross margin                                                  57,826      52,980     207,231     147,559
Gross margin as a percentage of operating revenue                 45%         44%         44%         42%
Adjusted EBITDA                                               50,419      43,543     176,777     117,423
Adjusted EBITDA as a percentage of operating revenue              39%         36%         37%         33%
Cash flow from operating activities                           47,830      36,866     181,351     114,358
Capital expenditures                                          31,071      27,529     108,604      95,234
Net income (loss)                                             (8,164)     15,797      36,450      35,246
Basic net income (loss) per share                              (0.11)       0.22        0.49        0.51
Diluted net income (loss) per share                            (0.11)       0.21        0.48        0.50
Dividends declared                                             5,614       5,504      22,376      20,983
                                                                                                   
                                                            Three months ended        Year ended 
                                                                    Dec. 31,            Dec. 31,
Operating highlights                                            2014      2013      2014      2013
Contract drilling
Canadian operations
Contract drilling rig fleet
Average                                                           50        46        49        45
End of period                                                     49        47        49        47
Operating revenue per revenue day                            $27,104   $26,060   $26,178   $24,829
Operating revenue per operating day                           29,710    28,884    28,699    27,513
Drilling rig operating days                                    2,724     2,754    10,478     9,098
Drilling rig utilization per revenue day                          65%       72%       64%       61%
Drilling rig utilization rate per operating day                   59%       65%       58%       55%
CAODC industry average utilization rate                           45%       43%       44%       40%

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.$)                    $28,309   $23,457   $26,124   $22,507
Operating revenue per operating day (U.S.$)                   31,876    26,559    29,680    26,942
Drilling rig operating days                                      385       402     1,506     1,228
Drilling rig utilization per revenue day                          95%       99%       94%       81%
Drilling rig utilization per operating day                        85%       87%       83%       67%

Production services
Well-servicing rig fleet
Average                                                           65        65        65        48
End of period                                                     65        65        65        65
Operating revenue per service hour                              $837      $804      $817      $766
Total service hours                                           34,456    31,403   127,768    77,879
Service rig utilization rate                                      58%       53%       54%       45%

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 equipment 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 seven 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 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.

Commodity prices, such as crude oil and natural gas, impact the cash flow of Western's customers, which in turn impacts the demand for Western's services. Overall performance of the company was affected by the volatility of crude oil in the second half of 2014. Crude oil prices were strong in the first six months of 2014, but weakened, however, significantly in the last half of 2014. During the first six months of 2014, light oil such as West Texas Intermediate averaged approximately $95 (U.S.) per barrel, while during the last half of 2014, WTI averaged approximately $85 (U.S.) per bbl and approximately $73 (U.S.) per bbl in the fourth quarter of 2014. From its peak in June, 2014, of approximately $103 (U.S.) per bbl to the Dec. 31, 2014, exit price of approximately $53 (U.S.) per bbl, WTI decreased by approximately 49 per cent. Similarly, the price for heavy oil, such as Western Canadian Select, averaged approximately $89 per bbl in the first half of 2014, while during the last six months of 2014, WCS averaged approximately $75 per bbl and approximately $65 per bbl in the fourth quarter of 2014. From its highest price in June, 2014, of approximately $95 per bbl to approximately $43 per bbl at the end of the year, WCS decreased by approximately 55 per cent. On a year-over-year basis, the average price of WTI decreased by approximately 5 per cent in 2014, while WCS increased by approximately 11 per cent as compared with the prior year. Natural gas prices have marginally improved to average approximately $4 per thousand cubic feet in the fourth quarter of 2014, a 3-per-cent increase as compared with the same period in 2013. However, from February, 2014, when AECO averaged approximately $7 per thousand cubic feet to the exit price of approximately $3 per thousand cubic feet at Dec. 31, 2014, AECO decreased by approximately 57 per cent. Year over year, the AECO 30-day spot rate increased on average by 44 per cent as heating demand increased in the first quarter due to a cold winter, resulting in decreased storage levels across North America.

Despite the reduction in commodity prices in the last half of the year, strong demand for oil field services 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 year ended Dec. 31, 2014, to 75 per cent, as compared with 70 per cent in the prior year. This has resulted in continued demand in the WCSB for Western's ELR drilling rigs, as industry utilization rates for the year ended Dec. 31, 2014, averaged 44 per cent, which is consistent with the five-year average and an improvement over the prior year when industry utilization averaged 40 per cent.

Outlook

Western's drilling rig fleet is specifically suited for drilling horizontal wells of increased complexity. In total, 96 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, 12 of Western's 54 drilling rigs (or 22 per cent) are operating under long-term take-or-pay contracts, with five of these contracts committed into 2016 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 revised capital budget for 2015 totals approximately $46-million composed of $21-million of carryforward capital from 2014, $6-million in expansion capital and $19-million in maintenance capital. The revised capital budget reflects a net decrease of $18-million from Western's previously announced budget of $64-million.

Revised carryforward capital of $21-million relates to the completion of two 5,000-metre telescopic ELR double drilling rigs, one 6,000-metre ELR AC triple pad drilling rig and one slant well servicing rig. Expansion capital of $6-million relates to additional oil field rental equipment, while maintenance capital of $19-million includes $13-million for the contract drilling segment and $6-million for the production services segment. Included in the maintenance capital budget is $1-million related to rotational equipment. In addition, the majority of the capital budget has been deferred until the second half of 2015 and will be further postponed or cancelled if market conditions continue to deteriorate. Western believes the 2015 capital budget provides a prudent use of cash resources and ensures that it continues to maintain its balance sheet flexibility, allowing for the execution on opportunities as they arise, or alternatively adjust downward, if the downturn in oil field service activity is prolonged. This budget demonstrates the company's commitment to maintaining its drilling and well-servicing rig fleets while expanding Western's presence in the oil field rental equipment market. Western will continue to evaluate and expand its operations in a disciplined manner and make any required adjustments to its capital program as customer demand improves.

The continued pressure on crude oil and natural gas prices, which are currently near five-year lows, has resulted in reductions to the capital spending plans for the majority of its customers. In some cases, the capital spending reductions have been significant. While activity in the first two months of 2015 has been constant, although lower than in the same period of the prior year, Western currently expects an early end to first quarter activity, due to the current commodity price environment. Activity levels throughout the oil field services industry for the rest of 2015 are expected to be significantly lower as compared with 2014, resulting in utilization and price reductions across all of Western's business lines. Lower activity and pricing pressure will impact Western's adjusted earnings before interest, taxes, depreciation and amortization and cash flow from operating activities. Western's variable cost structure, under which approximately 80 per cent of operating and administrative costs are variable, and prudent capital budget will aid in preserving balance sheet strength. At Dec. 31, 2014, Western's net debt to trailing 12-month EBITDA ratio was 1.1. In addition to $62.7-million in cash and cash equivalents at Dec. 31, 2014, Western has $175-million available on the revolving facility, which does not mature until Dec. 17, 2018, $20-million available on the operating facility and no principal repayments are due on the $265-million senior notes until they mature on Jan. 30, 2019. As such, Western is well positioned to manage the current slowdown in activity and maintain a sustainable dividend.

Oil field service 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, and the challenge to attract and retain skilled labour. The company believes Western's modern drilling and well-servicing rig fleet, above industry average 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 Feb. 26, 2015, Western's board of directors declared a quarterly dividend of 7.5 cents per share, which will be paid on April 16, 2015, to shareholders of record at the close of business on March 31, 2015. 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.

Normal course issuer bid

On Dec. 15, 2014, Western initiated a normal course issuer bid, which has been filed with and accepted by the Toronto Stock Exchange. Pursuant to the bid, Western may purchase for cancellation up to 5.55 million common shares of the company. Shares, totalling 23,400, for a total cost of approximately $100,000 were repurchased in the fourth quarter of 2014.

Fourth 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 Feb. 27, 2015.

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 March 13, 2015, by dialling 1-855-859-2056 or 416-849-0833, passcode 64127463.

We seek Safe Harbor.