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Strad Energy Services Announces Record Results in Third Quarter 2011

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CALGARY, ALBERTA--(Marketwire - Nov. 9, 2011) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.

The news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For a full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release. Selected financial and operational information is contained below and should be read in conjunction with the interim financial statements and the related MD&A which are available for review at www.stradenergy.com or www.sedar.com.

Strad Energy Services Ltd., ("Strad" or the "Company") (TSX: SDY), a North America focused, diversified energy services company, today announced its financial results for the three and nine month periods ended September 30, 2011. All amounts are stated in Canadian dollars unless otherwise noted.



SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

-- Record third quarter EBITDA(1) of $18.6 million, a 116% increase
compared with $8.6 million in the third quarter of 2010 and a 65%
increase in EBITDA compared with the second quarter of 2011;
-- Capital expenditures of $6.8 million, net of disposals, in the third
quarter. By the end of September, $58.9 million of the $86.5 million
approved capital program for 2011 had been spent;
-- Continued deployment of assets to high growth resource areas in the
United States. Record third quarter United States revenues of $29.6
million increased 132% compared with the third quarter of 2010. Total
gross capital assets based in the United States now comprise 47% of
total Drilling Services gross capital assets compared with 32% at the
end of the third quarter of 2010;
-- Ongoing success in the development of new products, including solids
control, composite matting and satellite communications rental equipment
with $11.3 million spent on new products in the first nine months of
2011; and
-- Total funded debt to trailing EBITDA ratio of 0.7 at the end of the
third quarter.



"For the second straight quarter, Strad has succeeded in generating record-setting financial performance that was driven by strong utilization rates across our Canadian and U.S. operating regions. Following several quarters of sound investment in growing our asset base, third quarter EBITDA more than doubled from the same period a year ago," said Henry van der Sloot, Chief Executive Officer of Strad. "In keeping with our commitment to disciplined growth, we are also mindful of the current volatility of the global macroeconomic picture and are closely monitoring our anticipated capital spending for the balance of 2011 and beyond. We feel we are well positioned to rapidly scale the level of investment in our business as broader industry conditions dictate."

"This quarter's success speaks to the growing strength and depth of our customer base which includes major producers on both sides of the border," said Andy Pernal, President of Strad. "As the industry continues to shift towards increasingly complex and larger-scale projects that require broader rental equipment fleets, it is our growing investment in our asset base and expanded knowledge of our customers' businesses that allows us to penetrate deeper into the marketplace and ensure a growing reliance on the Strad brand."



Notes:

1. Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS or previous Generally
Accepted Accounting Principles in Canada ("GAAP"); see "Non-IFRS
Measures Reconciliation" in this press release.



FINANCIAL REVIEW FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2011

Effective January 1, 2011, Strad began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS"). Prior year comparative amounts were changed to reflect results as if Strad had always prepared its financial results using IFRS. Please see additional discussion regarding IFRS later in this news release.



SELECTED FINANCIAL AND OPERATING HIGHLIGHTS

For the three and nine
months ended
September 30,
($000's, except per share Three months ended Nine months ended
amounts) September 30, September 30,
--------------------------------------------------
2011 2010 % chg. 2011 2010 % chg.
--------------------------------------------------

Revenue 78,121 41,615 88 175,482 108,683 61

----------------------------------------------------------------------------
EBITDA(1) 18,599 8,591 116 38,364 20,442 88
Per share ($), basic 0.51 0.44 1.05 1.04
Per share ($), diluted 0.50 0.34 1.04 0.92
----------------------------------------------------------------------------
Net Income 7,436 2,323 220 12,580 4,733 166
Per share ($), basic 0.20 0.12 67 0.34 0.24 42
Per share ($), diluted 0.20 0.10 0.34 0.23
----------------------------------------------------------------------------
Funds from Operations(2) 17,324 10,371 67 37,346 20,541 82
Per share ($), basic 0.47 0.53 1.02 1.04
Per share ($), diluted 0.47 0.41 1.01 0.93
----------------------------------------------------------------------------
Capital Expenditures(3) 6,817 11,544 58,927 30,501
Total assets 260,575 165,445 57 260,575 165,445 57
Long term debt(4) 29,526 36,880 29,526 36,880
Total long term
liabilities 61,175 43,207 61,175 43,207
----------------------------------------------------------------------------
Common Shares - end of
period ('000's) 37,246 20,403 37,246 20,403
Weighted average Common
Shares
basic 36,692 19,727 36,692 19,743
diluted 37,036 25,264 37,018 22,127

Notes:

(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS or previous GAAP; see
"Non-IFRS Measures Reconciliation".
(2) Funds from operations is cash flow from operating activities before
changes in working capital. Funds from operations is not a recognized
measure under IFRS or previous GAAP; see "Non-IFRS Measures
Reconciliation".
(3) Includes assets acquired under finance lease. Segmented information does
not include capital expenditures for the corporate segment of Strad as
they are minimal.
(4) Excluding current portion; includes long term portion of finance lease
obligations and convertible debentures less cash.

FINANCIAL POSITION AND RATIOS

September 30,
------------------------------
($000's except ratios) 2011 2010
------------------------------

Working Capital (1) 39,275 11,323
Funded Debt (2) 34,477 59,597
Cash 6,000 -
Total Assets (3) 260,575 165,445
Funded Debt to EBITDA(2) 0.7 2.6

(1) Working capital is calculated as current assets less current
liabilities. See "Non-GAAP Measures Reconciliation".
(2) Funded debt includes bank indebtedness plus current and long-term
portion of debt plus current and long-term obligations under finance
lease plus convertible debentures less cash. EBITDA is based on trailing
twelve months. See "Non-GAAP Measures Reconciliation".
(3) Includes assets acquired under finance lease.



SEGMENTED INFORMATION

Strad operates in Canada and the United States through two business segments: Drilling Services and Production Services. Drilling Services includes a comprehensive range of drilling-related products and services, including a wide range of environmental solutions. Production Services includes mechanical services, production equipment packaging and electrical and instrumentation services. All divisional figures are reported based on these two segments.



For the three and nine months ended September 30,
($000's, except per share amounts)

Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
($000's) 2011 2010 % chg. 2011 2010 % chg.
----------------------------------------------------

Drilling Services
Revenue 62,675 25,985 141 126,174 62,021 103
EBITDA(1) 19,287 9,622 100 40,487 21,198 91
EBITDA % 30.8% 37.0% 32.1% 34.2%
Capital Expenditures(2) 6,130 9,713 57,880 27,556
Gross Capital Assets 143,238 73,112 143,238 73,112
Total Assets 198,821 106,591 87 198,821 106,591 87
Annualized Return on
Average Total Assets
%(3) 46.0% 45.5% 38.2% 34.2%

Production Services
Revenue 15,446 15,630 (1) 49,308 46,662 6
EBITDA(1) 1,115 593 88 3,224 3,768 (14)
EBITDA % 7.2% 3.8% 6.5% 8.1%
Capital Expenditures(2) 184 1,549 271 1,763
Gross Capital Assets 14,867 16,438 14,867 16,438
Total Assets 56,193 58,080 56,193 58,080
Annualized Return on
Average Total Assets
%(3) 7.7% 3.8% 7.2% 8.0%

Corporate EBITDA(1) (1,802) (1,624) (5,347) (4,524)

Total EBITDA(1) 18,599 8,591 38,364 20,442

Notes:

(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is not a recognized measure under IFRS or previous GAAP; see
"Non-IFRS Measures Reconciliation".
(2) Includes assets acquired under finance lease. Segmented information does
not include capital expenditures for the corporate segment of Strad as
they are minimal.
(3) Annualized return on average total drilling assets is not a recognized
measure under IFRS or previous GAAP; see "Non-IFRS Measures
Reconciliation".



RESULTS OF OPERATIONS

The record revenue and EBITDA results for the nine months ended September 30, 2011, are due to the successful execution of Strad's 2010 and 2011 capital programs. In the second quarter, Strad increased its 2011 capital expenditure program to $86.5 million (from $66.5 million), of which 68% had been purchased as of September 30, 2011. Strad's scalable capital program is being driven by continued organic demand for the Company's rental products and services. Horizontal drilling and multi-stage fracing activity have increased in the industry. In addition, there is increasingly stringent regulation and scrutiny of environmental practices, especially around high-profile resource plays in the U.S. These trends have increased the amount of equipment required on sites, the technical nature of the equipment, and the planning time required prior to execution of drilling. Strad partners with customers at the planning phase to ensure all equipment, logistical and safety needs are being satisfied efficiently. The Company's growing United States business provides geographical diversification, exposure to a larger range of resource plays and helps stabilize seasonal impacts for its rental equipment operations.

Consolidated revenue generated for the three and nine months ended September 30, 2011, increased 88% and 61%, respectively, to $78.1 million and $175.5 million compared with $41.6 million and $108.7 million for the same periods in 2010. Higher rental equipment utilization, additional capital expenditures and increased product sales contributed to the significant increase in revenue compared to 2010.

Revenues generated from the Company's Drilling Services segment for the three and nine months ended September 30, 2011, increased 141% and 103%, respectively, to $62.7 million and $126.2 million versus $26.0 million and $62.0 million for the same periods in 2010. Included in revenue for the three and nine months ended September 30, 2011 are product sales of $17.0 million and $28.2 million compared with $0.5 million and $4.8 million for the same periods in 2010. The remaining increase is primarily due to additions to the rental asset fleet in both Canada and the United States. Revenue generated from the United States for the three and nine months ended September 30, 2011, increased to $29.6 million and $54.2 million, respectively, or 131% and 137%, from $12.8 million and $22.9 million in the same periods in 2010. Canadian Drilling Services revenue also improved; for the three and nine months ended September 30, 2011, revenue of $33.1 million and $72.0 million increased 151% and 84%, respectively, compared with revenue of $13.2 million and $39.1 million for the same periods in 2010.

Production Services revenue decreased 1% and improved 6% to $15.4 million and $49.3 million for the three and nine months ended September 30, 2011, respectively, compared with $15.6 million and $46.7 million for the same periods in 2010. Revenue for the year to date period increased as the number of field service technicians in the group grew 13% over September 30, 2010, but was negatively impacted by delays in servicing due to continuing weak industry conditions in the Western Canadian Sedimentary Basin ("WCSB"), which have not changed significantly over that of last year due to depressed natural gas prices.

Consolidated EBITDA for the three and nine months ended September 30, 2011, of $18.6 million and $38.4 million improved 116% and 88%, respectively, compared with $8.6 million and $20.4 million for the same periods in 2010 for the reasons stated above. EBITDA for the quarter, excluding product sales noted above, was $16.9 million. EBITDA as a percentage of revenue for the three and nine months ended September 30, 2011, was 24% and 22% compared with 21% and 19% for the same periods in 2010.

Drilling Services EBITDA for the three and nine months ended September 30, 2011, of $19.3 million and $40.5 million improved 100% and 91%, respectively, compared with $9.6 million and $21.2 million for the same periods in 2010 for the reasons stated above. EBITDA as a percentage of revenue for the three and nine months ended September 30, 2011, was 31% and 32% compared with 37% and 34% for the same periods in 2010. EBITDA as a percentage of revenue for the three and nine months ended September 30, 2011, excluding EBITDA from product sales of $1.7 million and $3.3 million, was 38% compared with 37% and 36% excluding $0.1 million and $0.5 million of product sales EBITDA for the same period in 2010.

Production Services EBITDA for the three and nine months ended September 30, 2011, of $1.1 million and $3.2 million increased 88% and decreased 14%, respectively, compared with $0.6 million and $3.8 million for the same periods in 2010 for the reasons stated above. EBITDA as a percentage of revenue for the three and nine months ended September 30, 2011, was 7% compared with 4% and 8% for the same periods in 2010.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2011, Strad's principal sources of liquidity include working capital of $39.3 million, an increase of $28.0 million compared with September 30, 2010; a syndicated banking facility of $100.0 million consisting of a $15.0 million operating facility of which $nil was drawn; and a revolving facility of $85.0 million of which $31.5 million was drawn as of September 30, 2011. As at September 30, 2011, the Company was in compliance with all of its bank facility covenants.

OUTLOOK

Industry conditions remained strong in the third quarter, driven by activity in increasingly dynamic resource plays focused on oil and liquids rich natural gas. Demand for Strad's services continued to outstrip supply which translated into high utilization rates and strong pricing in key regional markets, trends that management expects to continue through the balance of the year and into 2012.

In the WCSB, drilling utilization of 56% for the third quarter of 2011 was up from 41% in the third quarter of last year; well permits for the third quarter of 2011 increased 15% over the third quarter of 2010; and meters drilled in the third quarter of 2011 increased 37% over that of the third quarter of 2010. Positive industry indicators were also present in the United States where land rig counts grew due to continued growth in the number of rigs currently targeting oil (53%). Horizontal drilling and multi-stage fracing are also being utilized more often to exploit both unconventional resource plays and mature conventional plays. So far this year, 57% of U.S. rig activity was focused on horizontal drilling techniques, compared with 52% in 2010. In Canada, 57% of total wells drilled in 2011 were horizontal, compared with 51% in 2010. Horizontal drilling techniques require a larger footprint and more advanced planning and equipment on the well site. Strad is successfully accessing the emerging market opportunity created by these large and complex initiatives by being one of the few companies able to deploy the volume of equipment and expertise required to support them. Management is increasingly focused on signing contracts associated with these projects, which drives utilization and provides more stable revenue. Management believes the focus on horizontal drilling techniques, as well as increasingly complex completions, are expected to drive growth through the winter drilling season.

On the back of these trends Strad generated record revenue and earnings in the third quarter. These results are a direct reflection of the successful implementation of the Company's strategy to grow its asset base and Strad's return on assets remains strong. On a year-to-date basis, the Company allocated approximately 60% of its total Drilling Services capital expenditures to the U.S. and total gross capital assets in the U.S. now comprise 47% of total Drilling Services gross capital assets. New product initiatives such as solids control, satellite communications equipment and composite mats made up $11.3 million of capital expenditures in the first nine months of 2011. The new products and services enhance the value the Company can offer to its customers and helps to further diversify the product suite. Driving further demand for these new products are the continuously evolving high standards of safety and environmental stewardship that continue to present significant concern for customers, particularly those in high profile, new resource plays. These higher standards, in combination with increasingly large and complex deployments, have created barriers to entry and a drive to use single source, full-service vendors like Strad. On that basis, the Company substantially increased its customer base in 2011 with the majority of customers ranked among the largest companies of their type in Canada and the U.S.

With increased recent volatility in commodity prices, brought on by European economic uncertainty and concerns for a potential downturn in the U.S., management expects Exploration and Production ("E&P") companies to exercise caution and to potentially moderate capital spending in 2012 versus 2011 levels. Formal approval of Strad's 2012 capital expenditure program will be confirmed in December. However, management expects that the program will approximate cash flow for the year.

Management believes it has the flexibility to rapidly scale its capital expenditure program in the coming quarters in concert with changes in broader macroeconomic conditions and spending by E&P customers. Flexibility is the result of Strad manufacturing in-house a substantial portion of the rental equipment in its 2011 capital expenditure program, and maintaining strong relationships with third-party equipment providers. This should allow the Company to take advantage of robust market conditions while they persist and mitigate the potential impact of any deterioration in economic conditions should industry dynamics change in 2012. Management intends to allocate additional capital in the coming months with a focus on continued development of new and technically advanced products. The Company typically averages a three month lag between the date of expenditures and the date that assets are deployed in the field and generating revenue, although the lag varies by product line. The lag is due to internal preparation necessary to ready the equipment for customer use.

Strad remains cognizant that a strong balance sheet is essential to remaining a successful company operating against a backdrop of fluctuating market conditions. The funds raised last November through the initial public offering, operational cash flow and the existing bank facilities, have provided for a strong balance sheet and the required funding for the 2011 capital program. Management views funded debt to EBITDA as an important tool in the prudent management of its balance sheet and intends to continue carefully allocating capital. At September 30, 2011, the funded debt to EBITDA ratio was 0.7.

NON-IFRS MEASURES RECONCILIATION

Certain supplementary measures in this Press Release do not have any standardized meaning as prescribed under IFRS and previous GAAP and, therefore, are considered non-IFRS measures. These measures are described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent IFRS or previous GAAP measure. However, they should not be used as an alternative to IFRS or previous GAAP, because they may not be consistent with calculations of other companies. These measures are further explained below.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS and previous GAAP. Management believes that in addition to net income, EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how those activities are financed or how the results are taxed. EBITDA is calculated as net income plus interest, taxes, depreciation and amortization, non-controlling interest, loss on disposal of property, plant and equipment, accretion of convertible debentures, loss on foreign exchange, less gain on foreign exchange and gain on disposal of property, plant and equipment. Segmented EBITDA is based upon the same calculation for defined business segments, which are comprised of Drilling Services, Production Services and Corporate.

Funds from operations are cash flow from operating activities excluding changes in working capital. It is a supplemental measure to gauge performance of the Company before non-cash items. Working capital is calculated as current assets minus current liabilities. Working capital is used by Management to gauge what banking facilities are available for reinvestment in the business.

Annualized return on average total assets for the first nine months is calculated as annualized current period EBITDA divided by the average of total assets over Q4 2010, Q1 2011 and Q2 2011. Annualized return on average total assets for the three months ended September 30, 2011, is calculated as annualized current period EBITDA divided by the averaged total assets over the prior quarter. The three month lag represents the time between the purchase of capital assets and when they are deployed in the field and earning revenue.

Funded debt is calculated as bank indebtedness plus current and long-term portion of debt plus current and long-term portion of finance lease obligations plus convertible debentures less cash.



Reconciliation of EBITDA and Funds from Operations

Reconciliation of non-IFRS measures
($000's)


Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
--------------------------------------------------------
2011 2010 2011 2010
--------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net income 7,436 2,323 12,580 4,733
Add:
Depreciation and
amortization 6,173 3,775 16,460 10,667
Accretion of
convertible
debenture - 22 - 22
(Gain)/loss on
disposal of PP&E 63 - (94) (61)
Share-based payments 187 130 642 435
Non-controlling
interest 497 445 830 639
Deferred income tax
expense 2,454 2,916 5,670 2,325
Interest expense 514 760 1,258 1,781
--------------------------------------------------------
Funds from
operations 17,324 10,371 37,346 20,541

Add:
(Gain)/Loss on
foreign exchange (914) (195) (319) 119
Income tax expense 2,376 (1,455) 1,979 217
--------------------------------------------------------
Subtotal 18,786 8,721 39,006 20,877

Deduct:
Share-based payments 187 130 642 435
--------------------------------------------------------

EBITDA 18,599 8,591 38,36

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