• Message from the CEO
• Current Events/Press Release
• Financials
• Directors
• Request Form

Fiscal 2009, (YE’09) with its year ending April 30, 2009 was a challenging year for Dalmac. Not only did we have to contend with the global economic recession but also with increasing competition, decreasing rack rates and highly volatile commodity prices. In spite of all this we managed to increase our revenue by $5.7M, to $22M, from the $16M reported in the previous year.

YE’09 was materially affected by decreased drilling activity and increased competition in addition to customer requests for rate cuts. The Company responded to these demands for rate cuts, in the amount of 20-30%, by reverting to its 2005 rack rates. The impact of these price cuts contributed to increased direct costs, which on the whole increased by 37% compared to the same period last year while revenue only increased 35%. The Company has responded to this erosion of profit margins by reducing purchasing costs wherever possible, including without limitation, the elimination of 5 non-essential staff positions, restricting any non-essential overtime and restructuring overlapping start- stop times for shop and dispatch personnel. The Company is also committed to the continued review and implementation of additional salary or wage reductions should there be any further deterioration of margins or activity levels.

The net loss at YE’09, after allowing for impairment of goodwill was $1.9M compared to $119K for the same period last year. The impairment of goodwill contributed to a $2.1M reduction of income for YE’09. Without the goodwill impairment the net income for YE’09 would have been $219K compared to loss of $119K for YE’08.

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets of acquired businesses. Goodwill is tested for impairment annually or more frequently when an event or circumstance occurs that indicates that goodwill might be impaired. When the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The determination of fair value is based on estimates or normalized earnings, price earnings multiples, cash flow, discount rates and terminal values. Such estimates require judgment.

With the current economic conditions and the decrease in share value, the Company concluded that the carrying value of goodwill was impaired and as such took a charge of $2.1M for YE’09. Economic conditions that mainly impacted the charge were:

• Low commodity prices which negatively impacted oil and gas producers
  
  
• Reduced levels of exploration and development activity by energy producers in Western Canada which negatively impacted oil and natural gas drilling
  
  
• Downward pricing pressure resulting from a more competitive environment

Management believes that the long term outlook for Dalmac’s products and services remains positive. However, in the short term, clouds of uncertainty still loom over the oilfield services industry. Our industry is marred by the global economic crisis which has kept commodity prices depressed. This has also dried up the debt and equity markets which the oil and gas producers rely on to finance their operations. Producers have been forced to shore up their balance sheets by reigning in their spending to match realistic cash flows. The loosening of the purse strings by the producers is expected to occur when there is a likelihood of sustained periods of higher commodity prices especially, in our part of the world, gas prices. Increased sustainability of commodity prices should have a matching effect on drilling utilization levels which will in turn benefit the whole industry.

Dalmac has responded to reduced drilling utilization levels by focusing on production services, trimming unnecessary overhead and reducing costs. Dalmac expects that this will have a positive effect on revenue, profit margins and utilization levels during the normally slower spring and summer seasons.

Also, the Corporation’s recent restructuring of its financing obligations on more favorable terms, along with reduced monthly payments, has given Dalmac greater flexibility to deal with unanticipated short term fluctuations in activity levels.

Dalmac’s source of revenue stems from providing specialized oilfield fluid hauling, intervention, disposal, storage, and transportation services which are required for the exploration, development and production of oil and gas resources.

Presently, about 80% of Dalmac’s revenues are derived from existing production services, which exclude drilling and well workovers. Any increased drilling, well workovers and additional production deriving there from will serve to further benefit the Company’s revenue base. Dalmac continues to strive toward securing additional sources of production revenue while keeping a close eye on maintaining an optimal balance of commitment between production services and drilling activities. The Company is dedicated to maintaining and forging strong and healthy working relationships with our customers and vendors. Our objective is to provide our customers with a broader and more practical range of products and services in order to present a better solution for their needs.

In spite of the bleak short term outlook, management continues to believe in the long term fundamentals for the oil and gas services industry. The long term fundamentals still point to an increasing demand for oil and gas. Given the increasing decline in production rates in the Western Canadian Sedimentary Basin (“WCSB”), more drilling will be required to maintain current production levels.

On behalf of the Board of Directors, I would like to thank our employees for their commitment and the shareholders for their understanding, patience and confidence as we forge ahead with building a strong and stable oil field services company while charting our way through these challenging times.

John I. Babic
Chairman and Chief Executive Officer