Mr. Alex MacAusland reports

WESTERN ENERGY SERVICES CORP. RELEASES SECOND QUARTER 2015 FINANCIAL AND OPERATING RESULTS AND DECLARES QUARTERLY DIVIDEND

Western Energy Services Corp. has released its second quarter 2015 financial and operating results and has declared a quarterly dividend of 7.5 cents per share. Additional information relating to the company, including the company's financial statements and management's discussion and analysis, as at and for the three months and six months ended June 30, 2015, and 2014, will be available on SEDAR. (All amounts are denominated in Canadian dollars unless otherwise identified.)

Second quarter 2015 highlights:

• Second quarter operating revenues decreased by $46.7-million (or 60 per cent) to $30.7-million in 2015 as compared with $77.4-million in 2014. In the contract drilling segment, operating revenues decreased $38.4-million (or 70 per cent) to $16.7-million in the second quarter of 2015 as compared with $55.1-million in the second quarter of 2014. Contract drilling operating days decreased approximately 68 per cent in the second quarter of 2015, as compared with the same period in the prior year, due to the decreased commodity price environment, resulting in significant reductions in the capital spending programs of Western's customers. Reduced activity and increased competition resulted in downward pricing pressure, which reduced average day rates in the contract drilling segment in Canada by approximately 22 per cent. In the United States, average day rates have increased marginally in the second quarter of 2015, as one of Western's upgraded rigs worked throughout the quarter on a long-term contract. In the production services segment, hourly rates decreased marginally by 1 per cent due to increased pricing pressure in all areas, offset by changes in rig mix concentrating on more rigs working in geographic areas that generate higher hourly rates. However, decreased utilization resulted in an $8.9-million decrease in operating revenues in the production services segment during the second quarter of 2015, as compared with the second quarter of 2014.
• Second quarter 2015 drilling rig utilization -- operating day -- in the Canadian contract drilling segment averaged 10 per cent, which was lower than the Canadian Association of Oilwell Drilling Contractors industry average of 13 per cent and the 34 per cent averaged in the second quarter of 2014. The change relative to the CAODC industry average is due to a number of Western's customers, which typically drill through spring breakup, significantly cutting their second quarter drilling programs in 2015, resulting in the discount to the CAODC industry average. In the United States, drilling rig utilization -- operating day -- decreased to 31 per cent as compared with 80 per cent in the same period of the prior year, mainly due to reduced activity resulting from the decreased commodity price environment.
• Well-servicing activity decreased in most of Western's operating areas due to the decreased commodity price environment, which resulted in service rig utilization decreasing to 26 per cent in the second quarter of 2015 as compared with 40 per cent in the second quarter of 2014. Despite the significant decrease in activity, Western continued to gain market share in the second quarter of 2015, as the CAODC reported that Western worked the third-most service hours in the Western Canadian sedimentary basin, while comparatively having the sixth-largest well-servicing rig fleet.
• Second quarter adjusted earnings before interest, taxes, depreciation and amortization totalled $4.3-million in 2015 (14 per cent of operating revenue), a $19.7-million decrease (or 82 per cent), as compared with $24.0-million in the second quarter of 2014 (31 per cent of operating revenue). The year-over-year decrease in adjusted EBITDA is due to lower utilization and pricing in both the contract drilling and production services segments.
• During the second quarter of 2015, capital expenditures totalled $7.7-million and included $5.6-million of expansion capital and $2.1-million of maintenance capital. The majority of the capital expenditures relates to expansion capital incurred on the completion of Western's 2014 rig build program.

Year-to-date highlights:

• Operating revenues for the six-month period ended June 30, 2015, decreased by $95.3-million (or 42 per cent) to $131.7-million as compared with $227.0-million in the same period of the prior year. Included in operating revenues in the contract drilling segment for the six-month period ended June 30, 2015, is $4.5-million (U.S.) in shortfall commitment and standby revenue on idle but contracted rigs in the United States. The decrease in operating revenue is due to decreased utilization and pricing in the contract drilling segment, coupled with decreased utilization in the production services segment.
• On a year-to-date basis, drilling rig utilization -- operating day -- in the Canadian contract drilling segment averaged 30 per cent, which was 600 basis points higher than the CAODC industry average of 24 per cent but lower than the 57 per cent averaged in the same period of 2014. The company's drilling rig utilization -- operating day in Canada -- premium to the CAODC industry average decreased by 900 basis points to 600 basis points, as compared with the 1,500-basis-point premium realized in the six months ended June 30, 2014. The decrease in the company's utilization premium is partially due to increased competition in the industry due to a reduction in the industry rig count from 808 rigs at June 30, 2014, to 768 rigs at June 30, 2015, as competitors continue to decommission older shallower rigs given the current market conditions, coupled with a delayed start to the summer drilling season in the second quarter of 2015, which resulted in Western's customers significantly reducing their capital spending programs. In the United States, for the six months ended June 30, 2015, drilling rig utilization -- operating day -- decreased to 39 per cent as compared with 78 per cent in the same period of the prior year, mainly due to reduced activity resulting from the decreased commodity price environment.
• For the six-month period ended June 30, 2015, well-servicing activity decreased in most of Western's operating areas due to the decreased commodity price environment, which resulted in service rig utilization decreasing to 34 per cent for the six months ended June 30, 2015, as compared with 51 per cent for the six months ended June 30, 2014. Despite the significant decrease in activity, Eagle continued to gain market share in the first six months of 2015, as the CAODC reported that Eagle worked the third-most service hours in the WCSB for the six months ended June 30, 2015, while comparatively having the sixth-largest well-servicing rig fleet.
• For the first six months of 2015, adjusted EBITDA decreased by $38.7-million (or 46 per cent) to $44.9-million (34 per cent of operating revenue), as compared with $83.6-million (37 per cent of operating revenue) in the first six months of 2014. The decrease in adjusted EBITDA is due to the decrease in activity and pricing across all of Western's divisions, partially offset by Western's cost structure, with approximately 80 per cent of costs being variable, and effective reductions of fixed overhead costs.
• For the six months ended June 30, 2015, capital expenditures totalled $25.6-million and included $18.7-million of expansion capital and $6.9-million of maintenance capital. The majority of the capital expenditures relates to expansion capital incurred on the completion of Western's 2014 rig build program.
• For the six months ended June 30, 2015, 456,900 common shares for a total cost of $2.5-million were repurchased, cancelled and charged to share capital, or contributed surplus as applicable, under the company's normal course issuer bid. To July 30, 2015, since the NCIB was initiated, 628,000 common shares, for a total cost of $3.4-million, have been repurchased, cancelled and charged to share capital, or contributed surplus, as applicable.

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

                       Three months ended        Six months ended   
                             June 30,                 June 30,   
                         2015        2014        2015        2014
Financial
highlights
Revenue               $32,037     $81,981    $137,887    $243,397
Operating
revenue                30,719      77,352     131,677     226,979
Gross
margin                 10,403      31,206      58,294      98,835
Gross margin
as a
percentage
of operating
revenue                    34%         40%         44%         44%
Adjusted
EBITDA                  4,255      24,028      44,892      83,576
Adjusted
EBITDA as a
percentage
of operating
revenue                    14%         31%         34%         37%
Cash flow
from
operating
activities             41,009      71,912      80,346     110,546
Capital
expenditures            7,688      27,026      25,551      46,389
Net income
(loss)                (12,607)      4,396       2,687      29,896
Basic net
income
(loss) per
share                   (0.17)       0.06        0.04        0.40
Diluted
net income
(loss) per
share                   (0.17)       0.06        0.04        0.40
Dividends
declared                5,591       5,609      11,184      11,147

                       Three months ended        Six months ended 
                             June 30,                 June 30,
                         2015        2014        2015        2014  
Operating
highlights
Contract
drilling
Canadian
operations
Contract
drilling
rig fleet
Average                    49          49          49          49
End of period              49          49          49          49
Operating
revenue
per revenue day       $20,589     $26,285     $25,015     $26,368
Operating
revenue
per operating
day                    22,285      28,632      27,570      28,872
Operating days            464       1,529       2,617       5,061
Drilling rig
utilization --
revenue day                11%          37         33%         63%
Drilling rig
utilization --
operating day              10%          34         30%         57%
CAODC industry
average
utilization                13%          25         24%         42%
U.S.
operations
Contract
drilling
rig fleet
Average                     5           5           5           5
End of period               5           5           5           5
Operating
revenue
per revenue
day
(U.S.$)               $27,766     $25,900     $28,888      $24,905
Operating
revenue
per operating
day
(U.S.$)                32,181      28,568      33,118       28,684
Operating days            142         365         356         711
Drilling rig
utilization --
revenue day                36%          89         45%         90%
Drilling rig
utilization --
operating day              31%          80         39%         78%
Production
services
Well-servicing
rig
fleet
Average                    66          65          66          65
End of period              66          65          66          65
Service rig
operating
revenue
per service
hour                      794         800         833         814
Service hours          15,596      23,433      40,308      60,242
Service rig
utilization                26%         40%         34%         51%

Outlook

Currently, nine of Western's 54 drilling rigs (or 17 per cent) are operating under long-term take-or-pay contracts providing a base level of future revenue, with three of these contracts expected to expire in each of 2015, 2016 and 2017, respectively. These contracts each 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 each typically generate between 330 to 365 revenue days per year.

Western's revised capital budget for 2015 remains unchanged at approximately $42-million, composed of $23-million of expansion capital and $19-million of maintenance capital. The attached capital expenditures table summarizes the 2015 revised capital budget, the capital spending incurred for the six months ended June 30, 2015, and the remaining capital budget expected to be incurred throughout the rest of 2015.

                           CAPITAL EXPENDITURES

                                         Six months ended                   
                                            June 30, 2015,                   
Capital expenditures       Revised 2015           capital     Capital budget
(stated in millions)             budget      expenditures          remaining

Expansion                           $23              $(19)                $4
Maintenance                          19                (7)                12
Total capital                                                               
expenditures                         42               (26)                16

Expansion capital 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 carried forward from the 2014 capital budget. In addition, expansion capital includes $3-million related to the purchase of additional oil field rental equipment. Spending on maintenance capital is weighted to the second half of 2015, which provides additional flexibility to allow for adjustments if market conditions change. 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. Western will continue to evaluate and expand its operations in a disciplined manner and make any required adjustments to its capital program when customer demand improves.

The continued pressure on crude oil and natural gas prices has resulted in reductions to the capital spending plans for the majority of Western's customers. In some cases, the capital spending reductions have been significant. The extremely low activity in the second quarter of 2015 has generally resulted in a slower start to the summer drilling programs for many of Western's customers. As a result, active drilling rig counts in both Canada and the United States are currently at, or near, five-year lows for third quarter activity. Activity levels throughout the oil field services industry for the rest of 2015 are expected to be significantly lower as compared with the second half of 2014, when higher commodity prices and strong customer budgets supported increased utilization and a strong pricing environment across all of Western's business lines. Lower activity and pricing pressure will impact Western's adjusted EBITDA and cash flow from operating activities in 2015. Western's variable cost structure, under which approximately 80 per cent of operating and administrative costs is variable, and a prudent capital budget will aid in preserving balance sheet strength. At June 30, 2015, Western's net debt to trailing 12-month adjusted earnings before interest, taxes, depreciation and amortization ratio was 1.3. In addition to $83.6-million in cash and cash equivalents at June 30, 2015, Western has $175-million available on the company's revolving credit facility, which does not mature until Dec. 17, 2018, $20-million available on the company's operating demand revolving loan and no principal repayments due on the $265-million senior unsecured notes until they mature on Jan. 30, 2019. As such, Western is well positioned to manage the current slowdown in activity and maintain its 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 customer spending constraints as a result of lower commodity prices and the challenge to retain skilled labour. Western's view is that its modern drilling and well servicing rig fleets, strong customer base, and solid reputation provide a competitive advantage, which will enable the company to attract and retain skilled labour, continue its growth strategy, and maintain its higher than industry average utilization.

Quarterly dividend

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

Second quarter 2015 results conference call and webcast

Western has scheduled a conference call and webcast to begin at 10 a.m. MST (12 p.m. EST) on July 31, 2015.

The conference call dial-in number is 1-866-223-7781.

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. 14, 2015, by dialling 1-800-408-3053 or 905-694-9451, passcode 6011581.

We seek Safe Harbor.