DAL Dalmac Energy Inc

Business HighlightsCompared to the same period last year:

• Beginning in Q3’18 the Company was impacted by industry pipeline capacity constraints in getting product to market. Limited pipeline take-away capacity created natural gas inventory builds for domestic producers which amplified access and distribution constraints. This pushed local commodity spot prices down below acceptable economic levels and as a result many major producers and other key customers postponed scheduled drilling and workover projects until later in 2018. As of Q2’19 we are witnessing a rebound in activity as was forecast.
• Q4’18 revenues were down 4% due to spring break up and postponement of special and service related projects that were originally scheduled for the quarter. Year-end revenues were up 14%
• Gross margin was 28% - up 1% over last year.  In Q4’18 the gross margin dipped to 26% due to reduction in higher margin rental revenue, due to depressed natural gas prices and various spring break up projects deferred until later in the year. 
• EBITDAS was up 17% for the year. It dipped in Q4 due to reduction in rental revenue and spring break up along with the deferment of various spring break up projects such as plant turnarounds and pipeline testing.
• Loss before income tax improved $667K or 31% over YTD’17. Net loss for the year shows an improvement over the prior year of only 18%. The company would have had an income tax asset of $350K for YE’18 which was not reflected in the current year’s financial statements due to recent losses.  The aforementioned tax asset is still available to be claimed against future earnings.
• In YE’18 the Company has incurred other significant transactions that were not part of the core business operations which include: 

                  o   $290K of these costs relate to PNC senior debt refinancing which was refinanced in Q3’18 MD&A.

                  o   $135K loss on disposal of assets

                  o   $(125) K fair value adjustment on convertible debenture issue during Q2’18

• The senior lender’s working capital covenant requires that the revolving line of credit be treated as current debt The Company is required to maintain a working capital ratio of 1.5:1. At year end the working capital ratio was did not meet this threshold and as such was off side on this covenant. The Company is in compliance with all other senior lender covenants
• Because this breach was unable to be rectified before the deadline date for required filing of the year end statements, the Company was required to state a going concern notice in the financial statements and adjust its balance sheet liabilities accordingly, i.e. to record all related long-term debt as current.  The Company is currently working with our senior lender to remedy the working capital covenant breach. The main reason for the delay in rectifying the breach is that the senior lender requires a copy of the audited financial statements to complete its review before it can issue a waiver or amendment to the covenant.
• Charge out rates are still on a three-year low. This is expected to improve as current industry wide service capacity reaches its saturation capacity – probably sometime later this year. The demand for current services will likely exceed availability later this year and rack rates will begin to rebound.

OutlookThe global economic conditions and business climate continue to confirm that the oil and gas industry is in recovery mode. The Canadian oil and gas producers however still continue to face challenges regarding market accessibility due to such things as pipeline takeaway capacity and steep discounts on Canadian commodity prices. These constraints are contributing to the increased domestic inventory builds due to limited access to market which in turn is limiting capital expenditures. The aforementioned development has contributed to the postponement of scheduled drilling and workover projects until second half of 2018.  Dalmac will continue to monitor events relating to the timing of these projects and will defer any significant capital expenditures until increased activity levels are well under way

Management remains confident in its outlook for fiscal 2019.  We are prioritizing our emphasis on streamlining and maximizing efficiencies while striving for a strong and well-structured balance sheet.  We have secured commitments on various drilling, maintenance and plant certification projects which are scheduled to run over the course of the balance of the year that will bolster our activity levels over the course of the second half 2018. Our log books for the fall and winter season are already filling up and the Company is optimistic about its prospects for improving utilization levels for the remainder of this year.

For more information contact:

John Babic - CEO - Dalmac EnergyTel: 780-988-8510 Email: jbabic@dalmac.ca

Statements throughout this report that are not historical facts may be considered ‘forward looking statements’.  Such statements are based on current expectations that involve risks and uncertainties, which could cause actual results to differ from those anticipated.  Important factors that can cause anticipated outcomes to differ materially from actual outcomes include the impact of general economic conditions, industry conditions, competition from other industry participants, volatility of petroleum prices, the ability to attract and retain qualified personnel, changes in laws or regulation, currency fluctuations, continued ability to access capital from available facilities and environmental risks.  References to “Dalmac’, the “Corporation”, “Company”, “us”, “we”, and “our” mean Dalmac Energy Inc. and its subsidiary Dalmac Oilfield Services Inc.  The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.  We seek safe harbor.

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