PHX Energy Announces Record First Quarter Revenue and Operating Days, and an Increase in Its 2014 Capital Expenditures Budget

PHX Energy Services Corp. ("PHX Energy") (TSX:PHX) achieved an all-time
quarterly record for revenue, operating days and funds from operations. 


For the three-month period ended March 31, 2014, the Corporation generated
consolidated revenue of $129.1 million as compared to $92.7 million in the
2013-period; a 39 percent increase. EBITDA increased by 16 percent to $21.3
million in the first quarter of 2014 from $18.3 million in 2013. As a percentage
of revenue, EBITDA was 16 percent in the 2014-quarter as compared to 20 percent
in the corresponding 2013-quarter. Net earnings increased by 6 percent from $8.3
million in the 2013-period to $8.8 million in 2014. The Corporation's funds from
operations were $20.5 million in the 2014-quarter, which was 23 percent higher
than the $16.7 million achieved in 2013.


During the first quarter of 2014, the Corporation realized activity growth in
all of its operating segments. US revenue, as a percentage of consolidated
revenue, increased to 44 percent during the 2014-quarter as compared to 42
percent in the 2013-quarter. Russia and Albania, led the international
operation's growth and this segment represented 10 percent of consolidated
revenue in the first quarter of 2014 (2013 - 10 percent). 


During the three-month period ended March 31, 2014, $13.5 million was incurred
as part of the 2014 capital expenditure program. An additional $7.1 million is
currently on order and is expected to be received within the next quarter. Due
to realized strong growth and anticipated active future activity levels, PHX
Energy has increased its 2014 capital expenditure budget to $63.3 million from
$34.7 million. Included in the 2014 capital expenditure budget is approximately
$25.0 million associated with: 




--  maintenance capital in the amount of approximately $10.0 million; 
--  the addition of commercial value added technologies that will assist in
    increasing the Corporation's overall day rates; 
--  a new operations facility in Houston and associated equipment required
    in this growing region; and 
--  the addition of new non-commercial technologies in development. 



The balance of the unspent capital expenditures relate to 12 additional E-360
electromagnetic ("EM") and P-360 positive pulse measurement while drilling
("MWD") kits, as well as to various resistivity while drilling ("RWD")
equipment, down hole performance drilling motors and tubular equipment to
support the level of anticipated future work while helping the Corporation to
alleviate third party equipment rentals.


The new non-commercial technologies in development that are included in the
revised capital expenditures budget are being developed in collaboration with
leading edge engineering companies in North America. The Corporation is in the
latter phases of developing these technologies which are designed to improve
reliability and provide innovative mechanical, directional, and formation
measurements to enhance the drilling process. In order to accelerate testing and
commercialization, the Corporation will add additional strings of the new
technologies to its current fleet. It is anticipated that this equipment will be
in a pre-commercial field test phase for the remainder of 2014. 


During the 2014-quarter, the Corporation made total payments of $7.3 million
under the license and technology development agreements entered into in 2013.


In the 2014-quarter, the Corporation paid dividends of $7.2 million or $0.21 per
share; this represented 35 percent of funds from operations.


PHX Energy ended the first quarter with long-term debt of $91.0 million and
working capital of $82.8 million.


During the first quarter of 2014, PHX Energy's job capacity increased by 10
concurrent jobs to 224 through the addition of 8 P-360 positive pulse MWD
systems and 2 E-360 EM MWD systems. As at March 31, 2014, the Corporation's MWD
fleet consisted of 140 P-360 positive pulse MWD systems, 67 E-360 EM MWD
systems, and 17 RWD systems. Of these, 106 MWD systems were deployed in Canada,
89 in the US, 15 in Russia, 6 in Albania, 4 in Peru, and 4 in Colombia. The
Corporation is in the process of closing its Peruvian operations and
re-allocating the assets in that region to more strategic areas for greater
utilization in the future.


During the remainder of the year, the Corporation expects to add 7 P-360 and 5
E-360 MWD systems. As a result, by the end of 2014 the Corporation expects to
have a fleet of 236 MWD systems, which would be comprised of 147 P-360 MWD
systems, 72 E-360 MWD systems and 17 RWD systems. 




Financial Highlights                                                        
(Stated in thousands of dollars except per share amounts, percentages and   
shares outstanding)                                                         
                                                                            
                                       Three-month periods ended March 31,  
                                             2014         2013     % Change 
--------------------------------------------------------------------------- 
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Operating Results                      (unaudited)  (unaudited)             
Revenue                                   129,131       92,667           39 
Net earnings                                8,813        8,306            6 
Earnings per share - diluted                 0.25         0.29          (14)
EBITDA (1)                                 21,271       18,329           16 
EBITDA per share - diluted (1)               0.61         0.65           (6)
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Cash Flow                                                                   
Cash flows from operating activities        7,770       13,302          (42)
Funds from operations (1)                  20,515       16,734           23 
Funds from operations per share -                                           
 diluted (1)                                 0.59         0.59            - 
Dividends paid                              7,195        5,085           41 
Dividends per share (2)                      0.21         0.18           17 
Capital expenditures                       13,456       13,495            - 
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Financial Position (unaudited)        Mar 31, '14  Dec 31, '13              
Working capital                            82,842       66,580           24 
Long-term debt                             91,005       70,208           30 
Shareholders' equity                      203,369      198,477            2 
Common shares outstanding              34,381,800   34,218,974            - 
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(1) Refer to non-GAAP measures section.                                     
(2) Dividends paid by the Corporation on a per share basis in the period.   



Non-GAAP Measures

PHX Energy uses certain performance measures throughout this document that are
not recognizable under Canadian generally accepted accounting principles
("GAAP"). These performance measures include earnings before interest, taxes,
depreciation and amortization ("EBITDA"), EBITDA per share, funds from
operations and funds from operations per share. Management believes that these
measures provide supplemental financial information that is useful in the
evaluation of the Corporation's operations and are commonly used by other oil
and natural gas service companies. Investors should be cautioned, however, that
these measures should not be construed as alternatives to measures determined in
accordance with GAAP as an indicator of PHX Energy's performance. The
Corporation's method of calculating these measures may differ from that of other
organizations, and accordingly, these may not be comparable. Please refer to the
non-GAAP measures section.


Cautionary Statement Regarding Forward-Looking Information and Statements 

This document contains certain forward-looking information and statements within
the meaning of applicable securities laws. The use of "expect", "anticipate",
"continue", "estimate", "objective", "ongoing", "may", "will", "project",
"could", "should", "can", "believe", "plans", "intends", "strategy" and similar
expressions are intended to identify forward-looking information or statements.


The forward-looking information and statements included in this document are not
guarantees of future performance and should not be unduly relied upon. These
statements and information involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements and information. The
Corporation believes the expectations reflected in such forward-looking
statements and information are reasonable, but no assurance can be given that
these expectations will prove to be correct. Such forward-looking statements and
information included in this document should not be unduly relied upon. These
forward-looking statements and information speak only as of the date of this
document.


In particular, forward-looking information and statements contained in this
document include, without limitation the anticipated delivery of equipment on
order, projected capital expenditure budget and how this budget will be funded,
the anticipated additions to the MWD fleet, the anticipated performance and
development timeline of new non-commercial technologies, the expected impact
that strategies and initiatives underway will have on profitability, the
expected combined Canadian federal and provincial tax rate, forecasted increase
in activity in Albania, the ability to improve contract terms in Russia, the
ability to reduce costs and improve utilization in Colombia, and the
anticipation of a new direction in Colombia.


The above are stated under the headings: "Overall Performance", "Operating Costs
and Expenses", "Segmented Information" and "Capital Resources". Furthermore, all
information contained within the Outlook section of this document contains
forward-looking statements.


In addition to other material factors, expectations and assumptions which may be
identified in this document and other continuous disclosure documents of the
Corporation referenced herein, assumptions have been made in respect of such
forward-looking statements and information regarding, among other things: the
Corporation will continue to conduct its operations in a manner consistent with
past operations; the general continuance of current industry conditions;
anticipated financial performance, business prospects, impact of competition,
strategies, the general stability of the economic and political environment in
which the Corporation operates; exchange and interest rates; tax laws; the
sufficiency of budgeted capital expenditures in carrying out planned activities;
the availability and cost of labour and services and the adequacy of cash flow;
debt and ability to obtain financing on acceptable terms to fund its planned
expenditures, which are subject to change based on commodity prices; market
conditions and future oil and natural gas prices; and potential timing delays.
Although Management considers these material factors, expectations and
assumptions to be reasonable based on information currently available to it, no
assurance can be given that they will prove to be correct. 


Readers are cautioned that the foregoing lists of factors are not exhaustive.
Additional information on these and other factors that could affect the
Corporation's operations and financial results are included in reports on file
with the Canadian Securities Regulatory Authorities and may be accessed through
the SEDAR website (www.sedar.com) or at the Corporation's website. The
forward-looking statements and information contained in this document are
expressly qualified by this cautionary statement. The Corporation does not
undertake any obligation to publicly update or revise any forward-looking
statements or information, whether as a result of new information, future events
or otherwise, except as may be required by applicable securities laws.




Revenue                                            
                                                   
(Stated in thousands of dollars)                   
                                                   
                Three-month periods ended March 31,
                       2014        2013    % Change
---------------------------------------------------
---------------------------------------------------
Revenue             129,131      92,667          39
---------------------------------------------------
---------------------------------------------------



In the first quarter of 2014, the Corporation again achieved all-time record
levels of quarterly consolidated revenue and operating days as a result of
robust growth in all operating areas. For the three-month period ended March 31,
2014, PHX Energy generated record revenue of $129.1 million as compared to $92.7
million in the corresponding 2013-period; an increase of 39 percent. US and
international revenue as a percentage of total consolidated revenue was 44 and
10 percent, respectively, for the 2014-quarter as compared to 42 and 10 percent
in 2013. Consolidated operating days grew by 27 percent to 10,168 days in 2014
as compared to 7,979 in the 2013-quarter. Average consolidated day rates for the
three-month period ended March 31, 2014, excluding the motor rental division in
Midland, Texas and the electronic drilling recorder ("EDR") business, increased
to $12,206, which is 7 percent higher than the day rates in the first quarter of
2013, $11,374. 


In comparison, horizontal and directional drilling as a percentage of total
industry activity increased in both Canada and the US. In the 2014-quarter,
horizontal and directional drilling continued to dominate the Canadian market at
approximately 95 percent of total industry drilling days (2013 - 90 percent). In
the US, horizontal and directional activity levels represented 78 percent of the
rigs running per day, an increase from 75 percent in the 2013-quarter. (Sources:
Daily Oil Bulletin and Baker Hughes)




Operating Costs and Expenses                                                
                                                                            
(Stated in thousands of dollars except percentages)                         
                                                                            
                                         Three-month periods ended March 31,
                                                2014        2013    % Change
----------------------------------------------------------------------------
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Direct costs                                 100,644      70,966          42
Depreciation & amortization (included in                                    
 direct costs)                                 7,451       5,830          28
Gross profit as percentage of revenue                                       
 excluding depreciation & amortization            28          30            
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Direct costs are comprised of field and shop expenses and include depreciation
and amortization on the Corporation's equipment. Excluding depreciation and
amortization, gross profit as a percentage of revenue was 28 percent for the
three-month period ended March 31, 2014 as compared to 30 percent in the
comparable 2013-period. 


In the three-month period ended March 31, 2014, the Corporation experienced a
decline in its margins compared to the 2013-quarter. The following were the
primary factors which negatively affected profitability during the 2014-period:




--  increased field personnel costs in Canada and Albania, 
--  higher MWD system repair costs in Canada, and 
--  greater third party equipment rentals in Canada and the US.



For the three-month period ended March 31, 2014, third party equipment rentals
increased to 3 percent of consolidated revenue compared to 2 percent in the
corresponding 2013-quarter due primarily to the strong increase in activity in
Canada and the US. Management continues to implement strategies and initiatives
to improve profitability and is focused on high cost impact areas. 


Depreciation and amortization for the three-month period ended March 31, 2014
increased by 28 percent to $7.5 million as compared to $5.8 million in the
2013-quarter. The increase is the result of the Corporation's high level of
capital expenditures in 2013.




(Stated in thousands of dollars except percentages)                         
                                                                            
                                        Three-month periods ended March 31, 
                                               2014        2013    % Change 
--------------------------------------------------------------------------- 
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Selling, general & administrative                                           
 ("SG&A") costs                              14,605      10,485          39 
Share-based payments (included in SG&A                                      
 costs)                                         210         327         (36)
SG&A costs excluding share-based                                            
 payments as a percentage of revenue             11          11             
--------------------------------------------------------------------------- 
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SG&A costs for the three-month period ended March 31, 2014 increased by 39
percent to $14.6 million as compared to $10.5 million incurred in the
2013-period. Included in SG&A costs are share-based payments of $0.2 million in
the 2014-quarter as compared to $0.3 million in the 2013-quarter. Excluding
these costs, SG&A costs as a percentage of consolidated revenue were 11 percent
in both periods. 


SG&A costs increased in dollar terms during the first quarter of 2014 relative
to the 2013-quarter, mainly due to higher payroll and marketing related costs
associated with overall activity growth across all of PHX Energy's operating
segments. 


Share-based payments relate to the amortization of the fair values of issued
options of the Corporation using the Black-Scholes model. In the three-month
period ending March 31, 2014, share-based payments decreased by 36 percent as
there were no new option grants in the 2014-quarter and the Corporation has
utilized a greater number of retention awards to reward employees. Share-based
cash settled retention awards are measured at fair value and in the first
quarter of 2014 the compensation expense recognized by PHX Energy relating to
retention awards increased to $1.0 million as compared to $0.5 million in the
2013-quarter. The increase is primarily due to the greater amount of retention
awards granted in 2013 and the re-valuation of the retention awards based on the
increase in the Corporation's stock price from $12.54 at December 31, 2013 to
$13.23 at March 31, 2014.




(Stated in thousands of dollars)                                            
                                                                            
                                         Three-month periods ended March 31,
                                                2014        2013    % Change
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Research & development expense                   837         536          56
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Research and development ("R&D") expenditures charged to net earnings during the
three-month periods ended March 31, 2014 and 2013 were $0.8 million and $0.5
million, respectively. The general increase in these expenditures is due to R&D
activities associated with projects for the EDR division. During both the 2014
and 2013-quarter, no R&D expenditures were capitalized as development costs. 




(Stated in thousands of dollars)                                           
                                                                           
                                       Three-month periods ended March 31, 
                                               2014        2013   % Change 
-------------------------------------------------------------------------- 
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Finance expense                               1,030       1,094         (6)
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Finance expenses relate to interest charges on the Corporation's long-term and
short-term bank facilities. For the three-month period ended March 31, 2014,
finance charges decreased to $1.0 million from $1.1 million in the 2013-quarter.
The decrease is mainly due to the lower amount of borrowings during the
2014-quarter compared to the 2013-period. 




(Stated in thousands of dollars)                                            
                                                                            
                                       Three-month periods ended March 31,  
                                             2014         2013     % Change 
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Gains on disposition of drilling                                            
 equipment                                  1,664        2,341          (29)
Foreign exchange losses                      (409)        (302)          35 
Provision for bad debts                      (480)           -         n.m. 
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Other income                                  775        2,039              
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n.m. - not meaningful                                                       



For the three-month period ended March 31, 2014, other income is primarily
composed of gains on disposition of drilling equipment of $1.7 million (2013 -
$2.3 million). The dispositions of drilling equipment relate primarily to
equipment lost in well bores that are uncontrollable in nature. The gain
reported is net of any asset retirements that are made before the end of the
equipment's useful life and self-insured down hole equipment losses, if any.
Gains typically result from insurance programs undertaken whereby proceeds for
the lost equipment are at current replacement values, which are higher than the
respective equipment's book value. In the 2014-quarter, the gains on disposition
of drilling equipment are lower as compared to the 2013-period due to fewer
occurrences of losses. 


Offsetting other income for the three-month period ended March 31, 2014 are
foreign exchange losses of $0.4 million (2013 -$0.3 million) and bad debt
provisions of $0.5 million (2013 - nil). Foreign exchange losses resulted mainly
from fluctuations in the US-Canadian exchange rates. In the 2014-quarter, the
CAD weakened against the USD thereby causing re-valuation losses on
US-denominated payables in Canada and Canadian-denominated receivables in the
US. The bad debt provisions in the 2014-quarter relate to Russian receivables. 




(Stated in thousands of dollars except percentages)        
                                                           
                                     Three-month periods   
                                       ended March 31,     
                                          2014        2013 
-----------------------------------------------------------
-----------------------------------------------------------
Provision for income taxes               3,977       3,100 
Effective tax rates                         31%         27%
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The provision for income taxes for the three-month period ended March 31, 2014
was $4.0 million as compared to $3.1 million in the 2013-quarter. The expected
combined Canadian federal and provincial tax rate for 2014 is 25 percent. The
effective tax rate in the 2014 three-month period of 31 percent is higher than
the expected rate mainly due to profitability in the higher tax jurisdictions of
the US and non-recognition of deferred tax assets for foreign losses. 




(Stated in thousands of dollars except per share amounts and           
 percentages)                                                          
                                                                       
                                   Three-month periods ended March 31, 
                                          2014        2013    % Change 
---------------------------------------------------------------------- 
---------------------------------------------------------------------- 
Net earnings                             8,813       8,306           6 
Earnings per share - diluted              0.25        0.29         (14)
EBITDA                                  21,271      18,329          16 
EBITDA per share - diluted                0.61        0.65          (6)
EBITDA as a percentage of revenue           16%         20%            
---------------------------------------------------------------------- 
---------------------------------------------------------------------- 



The Corporation's level of net earnings and EBITDA for the three-month period
ended March 31, 2014 have both increased primarily due to the greater
profitability achieved in the US and international segments. EBITDA as a
percentage of revenue for the three-month period ended March 31, 2014 was 16
percent (2013 - 20 percent). Included in the 2014-quarter's earnings was $0.7
million of losses from the EDR division (2013 - $0.2 million).


Segmented Information:

The Corporation reports three operating segments on a geographical basis
throughout the Canadian provinces of Alberta, Saskatchewan, British Columbia,
and Manitoba; throughout the Gulf Coast, Northeast and Rocky Mountain regions of
the US; and internationally in Albania, Russia and Colombia. 


Canada 



(Stated in thousands of dollars)                                           
                                                                           
                                       Three-month periods ended March 31, 
                                               2014        2013   % Change 
-------------------------------------------------------------------------- 
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Revenue                                      58,631      44,348         32 
Reportable segment profit before tax          9,807      13,027        (25)
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In the three-month period ended March 31, 2014, PHX Energy's Canadian operations
achieved an all-time record level of quarterly revenue of $58.6 million, which
is 32 percent higher when compared to the $44.3 million generated in the
corresponding 2013-period. During the 2014-quarter, Canadian operations
benefitted from both increased demand from existing clients and the addition of
new clients. These factors primarily drove the 25 percent increase in operating
days to a new quarterly record of 5,237 days (2013 - 4,197 days). In comparison,
total industry horizontal and directional drilling activity, as measured by
drilling days, increased by 3 percent in the 2014-quarter at 38,097 days,
compared to the 2013-quarter's 36,938 days. (Source: Daily Oil Bulletin) Average
day rates, excluding EDR revenue of $2.0 million, increased by 2 percent to
$10,817 in the 2014-quarter compared to $10,567 in the 2013-quarter.


In the 2014-quarter, PHX Energy continued to build and maintain a
well-diversified customer base and revenue stream. The Corporation had very
strong presence in the Montney area and additionally was active in the Viking,
Cardium and Bakken areas. PHX Energy continued to experience greater activity in
liquids rich natural gas and for the three-month period ended March 31, 2014, 41
percent of the Corporation's overall Canadian activity was represented by gas
well drilling. 


Reportable segment profit before tax for the first quarter of 2014 decreased to
$9.8 million from $13.0 million in the 2013-quarter. Decreased profitability
during the 2014-quarter was due to increased field personnel costs, higher MWD
system repair costs, and greater third party equipment rentals. In addition,
included in the Canadian segment's profits in the 2014-quarter was a loss of
$0.7 million from the EDR division.


United States



(Stated in thousands of dollars)                                           
                                                                           
                                        Three-month periods ended March 31,
                                               2014       2013     % Change
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Revenue                                      57,442     39,383           46
Reportable segment profit before tax          5,063        (35)        n.m.
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n.m. - not meaningful                                                       



In the first quarter of 2014, PHX Energy's US operations again achieved an
all-time record level of quarterly revenues and operating days. For the
three-month period ended March 31, 2014, the segment's revenue was $57.4
million, which is 46 percent higher compared to the $39.4 million in the
2013-quarter. The Corporation's US operating days increased by 25 percent to
3,910 days from 3,131 days in the 2013-quarter as a result of gains in market
share and all US operating regions continued to demonstrate strong trends in
activity. In addition, overall day rates realized, excluding the motor rental
division in Midland, Texas, increased by 16 percent in the 2014-quarter to
CAD$13,914 compared to CAD$11,967 in the 2013-quarter. Improved day rates
resulted generally from the continued utilization of PHX Energy's value added
technologies and were aided by a stronger US dollar in the 2014-period.


The US industry continued to focus on horizontal and directional drilling. For
the three-month period ended March 31, 2014, US industry activity, as measured
by the average number of horizontal and directional rigs running on a daily
basis, increased by 6 percent to 1,393 rigs, which represented approximately 78
percent of overall industry activity, compared to 1,317 rigs, approximately 75
percent of overall industry activity, in the 2013-period. (Source: Baker Hughes)



During the first quarter of 2014, oil well drilling, as measured by drilling
days, represented approximately 75 percent of Phoenix USA's overall activity.
Phoenix USA remained actively focused on the Permian, Eagle Ford, Bakken, and
Mississippian/Woodford basins. Additionally, the Corporation was active in the
Marcellus, Niobrara, and Utica plays. 


Reportable segment profit before tax for the three-month period ended March 31,
2014 increased to $5.1 million from a loss of $35,000 in the 2013-quarter. The
increased profitability in the 2014-quarter resulted mainly from strong activity
growth and improved day rates. 


International 



(Stated in thousands of dollars)                                           
                                                                           
                                        Three-month periods ended March 31,
                                               2014        2013    % Change
---------------------------------------------------------------------------
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Revenue                                      13,058       8,936          46
Reportable segment profit before tax          2,607       1,053         148
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Led by Russia and Albania, the Corporation continued to grow its international
operations. For the three-month period ended March 31, 2014, PHX Energy's
international operations generated revenue of $13.1 million, 46 percent higher
than the $8.9 million in the 2013-quarter, and the third highest quarterly
result in the Corporation's history. International operating days increased by
56 percent from 653 days in the 2013-quarter to 1,021 days in the 2014-quarter.
The Corporation generated 10 percent of its consolidated revenue from
international operations in the 2014-quarter, which is the same as the
percentage generated in the 2013-quarter. 


For the three-month period ended March 31, 2014, Phoenix Albania's activity grew
by 19 percent while revenue increased by 15 percent compared to the
corresponding 2013-period. This growth partly resulted from the addition of a
sixth rig in March 2014. Additional directional drilling equipment has been
mobilized in anticipation of greater activity in the remainder of the year. The
Corporation continues to focus on hiring and developing local talent and using
local suppliers when possible to maintain positive margins and build goodwill in
the community. The Corporation presently has a 6 job capacity in Albania. 


Despite the seasonal slow-down and overall reduced activity due to abnormally
cold weather, Phoenix Russia increased its operating days by 134 percent and
revenue by 170 percent in the first quarter of 2014 as compared to the first
quarter of 2013. Efforts to diversify the client base are beginning to deliver
results as contracts were awarded during the quarter by a number of new clients
and in new operating regions. Day rates in Russia remain stable, and the
Corporation is focused on establishing improved contract terms with its
customers. Phoenix Russia continues to employ a staff that is comprised of 98
percent Russian nationals.


Industry activity levels in Colombia remain below expectations and the
Corporation is focused on reducing costs and moving resources to improve
utilization. PHX Energy is reviewing its Colombian operations and Management
anticipates that a new direction for the segment will be reached in the second
quarter of 2014. Phoenix Colombia currently has a 4 job capacity. 


Reportable segment profit from international operations for the three-month
period ended March 31, 2014 was $2.6 million, which is 148 percent higher than
the $1.1 million profit in the corresponding 2013-period. Increased
profitability has resulted generally from the strong activity growth realized in
Russia and Albania. 


Investing Activities 

Net cash used in investing activities for the three-month period ended March 31,
2014 was $18.5 million as compared to $14.1 million in 2013. During the
2014-quarter, PHX Energy added $10.3 million, net, in capital equipment (2013 -
$9.9 million). These capital equipment amounts are net of proceeds from the
involuntary disposal of drilling equipment in well bores of $3.1 million (2013 -
$3.6 million). The 2014-quarterly expenditures included:




--  $5.2 million in down hole performance drilling motors; 
--  $4.7 million in MWD systems and spare components; 
--  $1.4 million in non-magnetic drill collars; 
--  $1.2 million in EDR systems and spare components; and 
--  $1.0 million in other assets, including $0.4 million in machinery and
    equipment.



The capital expenditure program undertaken in the year was financed from a
combination of cash flow from operations, long-term debt and working capital. 


The Corporation made payments totalling $7.3 million under third party license
and technology development agreements that the Corporation entered into in 2013.
PHX Energy also made payments of $100,000 relating to its EDR technology. 


The change in non-cash working capital balances of $0.7 million (use of cash)
for the three-month period ended March 31, 2014, relates to the net change in
the Corporation's trade payables that are associated with the acquisition of
capital assets. This compares to $4.0 million (use of cash) for the three-month
period ended March 31, 2013. 


Financing Activities 

The Corporation reported cash flows from financing activities of $14.4 million
in the three-month period ended March 31, 2014 as compared to $2.7 million in
the 2013-period. In the 2014-quarter:




--  the Corporation paid dividends of $7.2 million to shareholders, or $0.21
    per share; 
--  through its option and DRIP program the Corporation received cash
    proceeds of $1.6 million from exercised options and reinvested dividends
    to acquire 162,826 common shares of the Corporation; and 
--  the Corporation received net proceeds from its syndicated facility an
    aggregate of $20.0 million to finance its capital expenditure program
    and payments under the license agreement. 



Capital Resources 

As at March 31, 2014, the Corporation has access to a $10.0 million operating
facility. The facility bears interest based primarily on the Corporation's
senior debt to EBITDA ratio, as defined in the agreement. At the Corporation's
option, interest is at the bank's prime rate plus a margin that ranges from a
minimum of 0.75 percent to a maximum of 2 percent, or the bank's bankers'
acceptance rate plus a margin that ranges from a minimum of 1.75 percent to a
maximum of 3 percent. As of March 31, 2014, the Corporation had nil drawn on
this facility.


As at March 31, 2014, the Corporation also has access to a $95.0 million
syndicated facility and a US$25.0 million operating facility in the US. The
facilities bear interest at the same rates disclosed above. The syndicated
facility and the US operating facility mature on September 5, 2016. As at March
31, 2014, $70.0 million was drawn on the syndicated facility and US$19.0 million
was drawn on the US operating facility. 


All credit facilities are secured by a general security agreement over all
assets of the Corporation located in Canada and the US. As at March 31, 2014,
the Corporation was in compliance with all of its bank debt covenants.


Cash Requirements for Capital Expenditures 

Historically, the Corporation has financed its capital expenditures and
acquisitions through cash flows from operating activities, debt and equity. The
2014 capital budget has been revised to $63.3 million subject to further
quarterly review of the Board of Directors. These planned expenditures are
expected to be financed from a combination of one or more of the following, cash
flow from operations, the Corporation's unused credit facilities or equity, if
necessary. However, if a sustained period of market uncertainty and financial
market volatility persists in 2014, the Corporation's activity levels, cash
flows and access to credit may be negatively impacted, and the expenditure level
would be reduced accordingly. Conversely, if future growth opportunities present
themselves, the Corporation would look at expanding this planned capital
expenditure amount. 


Outlook

PHX Energy began the 2014 year strong, once again generating record consolidated
revenue, operating days and funds from operations. The Corporation's activity
levels increased in each of the three largest horizontal drilling markets in the
world: the US, Russia and Canada.


The North American industry has seen many changes over the past few years and a
number of trends have resulted in a focus on key basins. The current attention
that these basins are receiving from the energy producers and the investment
community is warranted, as these are truly world class production zones. Current
drilling and completion efficiencies are driving positive economic metrics, as
operators and service providers zero in on new processes, developments and
technologies that will allow greater future growth. PHX Energy is strategically
placed to service these basins and has established a notable presence and
credibility in these drilling areas.


In Canada, the winter drilling season began with very robust activity levels and
PHX Energy's resources were stretched. Operators in most oil and natural gas
regions had new capital budgets and took advantage of stronger commodity prices.
A large majority of wells drilled were horizontal, and this created a lucrative
environment which PHX Energy leveraged to achieve record revenue and activity.
Unfortunately, this higher activity led to costs which negatively impacted
margins. Presently, activity levels have subsided due to the warmer weather that
arrived near the end of the quarter slowing industry drilling.


PHX Energy's focus to grow in the US, the largest market for horizontal drilling
services, continued unabated, and as a result US operating days and revenue
reached new highs in the first quarter of the year. Phoenix USA acquired new
clients in the quarter and activity in basins such as the Eagle Ford, Permian
and North Dakota Bakken experienced the largest gains. Additionally the
Marcellus and Mid-Continent remained focal points for the Corporation.


Phoenix Albania has continued to perform and the Corporation's anchor client
added an additional rig in the country which is anticipated to provide increased
revenue and profitability in the latter quarters of 2014. In Russia, there were
numerous obstacles in the quarter, including cold weather slowing activity in a
seasonally slower period and a key client delaying drilling activity as a result
of a new bidding process which is still ongoing. Despite these factors Phoenix
Russia, achieved significant growth quarter-over-quarter and PHX Energy believes
the initiatives to diversify its client base will continue to produce positive
results in the upcoming quarters.


The Corporation's outlook for the remainder of 2014 continues to be optimistic
as PHX Energy believes the following:




--  the positive trends in commodity prices will be maintained and natural
    gas prices will gain additional strength. 
--  that recent investor enthusiasm will persist and the capital markets
    will remain open for most energy producers. 
--  that operators will increase their budgets for drilling and add
    locations and rigs in the future.



As a result of these above factors, PHX Energy expects its operations will
continue to achieve growth in operating days and gain market share. However, due
to the record pace of growth, PHX Energy's cost structure will increase as
personnel and equipment levels will likely be stretched at times. As such, PHX
Energy has increased its 2014 capital expenditures budget to expand its motor
and MWD fleets. The Corporation has many strategic objectives underway and as
these are implemented over both the near and long-term, PHX Energy foresees a
future state where the pace of growth will not impact the cost structure as
significantly.


John Hooks, Chairman of the Board, President and Chief Executive Officer 

April 30, 2014

Non-GAAP Measures

1) EBITDA 

EBITDA, defined as earnings before interest, taxes, depreciation and
amortization, is not a financial measure that is recognized under GAAP. However,
Management believes that EBITDA provides supplemental information to net
earnings that is useful in evaluating the Corporation's operations before
considering how it was financed or taxed in various countries. Investors should
be cautioned, however, that EBITDA should not be construed as an alternative
measure to net earnings determined in accordance with GAAP. PHX Energy's method
of calculating EBITDA may differ from that of other organizations and,
accordingly, its EBITDA may not be comparable to that of other companies.


The following is a reconciliation of net earnings to EBITDA:



(Stated in thousands of dollars)                              
                                                              
                                         Three-month periods  
                                           ended March 31,    
                                              2014        2013
--------------------------------------------------------------
--------------------------------------------------------------
Net earnings                                 8,813       8,306
Add:                                                          
Depreciation and amortization                7,451       5,830
Provision for income taxes                   3,977       3,100
Finance expense                              1,030       1,093
--------------------------------------------------------------
EBITDA as reported                          21,271      18,329
--------------------------------------------------------------
--------------------------------------------------------------



EBITDA per share - diluted is calculated using the treasury stock method whereby
deemed proceeds on the exercise of the share options are used to reacquire
common shares at an average share price. The calculation of EBITDA per share on
a dilutive basis does not include anti-dilutive options.


2) Funds from Operations

Funds from operations is defined as cash flows generated from operating
activities before changes in non-cash working capital. This is not a measure
recognized under GAAP. Management uses funds from operations as an indication of
the Corporation's ability to generate funds from its operations before
considering changes in working capital balances. Investors should be cautioned,
however, that this financial measure should not be construed as an alternative
measure to cash flows from operating activities determined in accordance with
GAAP. PHX Energy's method of calculating funds from operations may differ from
that of other organizations and, accordingly, it may not be comparable to that
of other companies. 


The following is a reconciliation of cash flows from operating activities to
funds from operations:




(Stated in thousands of dollars)                           
                                                           
                                      Three-month periods  
                                        ended March 31,    
                                           2014        2013
-----------------------------------------------------------
-----------------------------------------------------------
Cash flows from operating                                  
 activities                               7,770      13,302
Add:                                                       
Changes in non-cash working capital      11,624       1,979
Interest paid                               735       1,272
Income taxes paid                           386         181
-----------------------------------------------------------
Funds from operations                    20,515      16,734
-----------------------------------------------------------
-----------------------------------------------------------



Funds from operations per share - diluted is calculated using the treasury stock
method whereby deemed proceeds on the exercise of the share options are used to
reacquire common shares at an average share price. The calculation of funds from
operations per share on a dilutive basis does not include anti-dilutive options.



About PHX Energy Services Corp.

The Corporation, through its directional drilling subsidiary entities, provides
horizontal and directional drilling technology and services to oil and natural
gas producing companies in Canada, the US, Albania, Russia, and Colombia. PHX
Energy develops and manufactures its E-360 EM and P-360 positive pulse MWD
technologies that are made available for internal operational use. In addition
as the result of an acquisition completed in November 2013, PHX Energy provides
EDR technology and services, through RigManager Services.


PHX Energy's Canadian operations are conducted through Phoenix Technology
Services LP. The Corporation maintains its corporate head office, research and
development, Canadian sales, service and operational centres in Calgary,
Alberta. In addition, PHX Energy has a facility in Estevan, Saskatchewan. PHX
Energy's US operations, conducted through the Corporation's wholly-owned
subsidiary, Phoenix Technology Services USA Inc. ("Phoenix USA"), is
headquartered in Houston, Texas. Phoenix USA has sales and service facilities in
Houston, Texas; Traverse City, Michigan; Casper, Wyoming; Denver, Colorado; Fort
Worth, Texas; Midland, Texas; Buckhannon, West Virginia; Pittsburgh,
Pennsylvania; and Oklahoma City, Oklahoma. Internationally, PHX Energy has sales
offices and service facilities in Albania, Russia, and Colombia, and an
administrative office in Nicosia, Cyprus. PHX Energy markets its EDR technology
and services in Canada through its newly established division, RigManager
Services, as well as worldwide outside Canada through its wholly-owned
subsidiary RigManager International Inc. ("RMII"); mainly in Albania and Mexico.





Consolidated Statements of Financial Position                               
(unaudited)                                                                 
                                                                            
                                                  March 31,     December 31,
                                                       2014             2013
----------------------------------------------------------------------------
ASSETS                                                                      
Current assets:                                                             
 Cash and cash equivalents                 $      9,306,670 $      5,663,880
 Trade and other receivables                    105,811,311       97,660,559
 Inventories                                     30,777,912       30,024,019
 Prepaid expenses                                 4,634,170        2,913,514
----------------------------------------------------------------------------
 Total current assets                           150,530,063      136,261,972
Non-current assets:                                                         
 Drilling and other equipment                   171,662,288      165,771,615
 Goodwill                                        31,229,756       31,229,756
 Intangible assets                               24,248,502       17,113,924
----------------------------------------------------------------------------
 Total non-current assets                       227,140,546      214,115,295
----------------------------------------------------------------------------
Total assets                               $    377,670,609 $    350,377,267
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY                                        
Current liabilities:                                                        
 Trade and other payables                  $     62,992,034 $     64,815,732
 Dividends payable                                2,225,022        2,239,910
 Current tax liabilities                          2,268,564        2,410,198
 Current portion of finance leases                  202,015          215,697
----------------------------------------------------------------------------
 Total current liabilities                       67,687,635       69,681,537
Non-current liabilities:                                                    
 Loans and borrowings                            91,004,500       70,208,400
 Deferred tax liabilities                        13,504,224        9,833,710
 Deferred income                                  1,933,334        1,966,667
 Finance leases                                     171,585          209,935
----------------------------------------------------------------------------
 Total non-current liabilities                  106,613,643       82,218,712
Equity:                                                                     
 Share capital                                  167,477,013      165,451,599
 Contributed surplus                              6,169,603        6,361,710
 Retained earnings                               25,917,972       24,284,690
 Accumulated other comprehensive income           3,804,743        2,379,019
----------------------------------------------------------------------------
 Total equity                                   203,369,331      198,477,018
                                                                            
----------------------------------------------------------------------------
Total liabilities and equity              $     377,670,609$     350,377,267
----------------------------------------------------------------------------
                                                                            
                                                                            
Consolidated Statements of Comprehensive Income                             
(unaudited)                                                                 
                                                                            
                                            Three-month periods ended March 
                                                          31,               
                                                       2014             2013
----------------------------------------------------------------------------
Revenue                                    $    129,130,510 $     92,666,815
Direct costs                                    100,643,812       70,965,559
----------------------------------------------------------------------------
Gross profit                                     28,486,698       21,701,256
----------------------------------------------------------------------------
Expenses:                                                                   
 Selling, general and administrative                                        
  expenses                                       14,604,626       10,484,830
 Research and development expenses                  837,244          535,913
 Finance expense                                  1,030,297        1,093,627
 Other income                                     (775,246)      (2,038,836)
----------------------------------------------------------------------------
                                                 15,696,921       10,075,534
 Share of loss of equity-accounted                                          
  investee (net of tax)                                   -          220,054
                                                                            
----------------------------------------------------------------------------
Earnings before income taxes                     12,789,777       11,405,668
----------------------------------------------------------------------------
                                                                            
Provision for income taxes                                                  
 Current                                            659,665        1,794,991
 Deferred                                         3,317,010        1,304,832
----------------------------------------------------------------------------
                                                  3,976,675        3,099,823
----------------------------------------------------------------------------
Net earnings                                      8,813,102        8,305,845
----------------------------------------------------------------------------
Other comprehensive income                                                  
 Foreign currency translation                     1,425,724        1,464,770
----------------------------------------------------------------------------
Total comprehensive income for the period  $     10,238,826 $      9,770,615
----------------------------------------------------------------------------
Earnings per share - basic                 $           0.26 $           0.29
Earnings per share - diluted               $           0.25 $           0.29
----------------------------------------------------------------------------
                                                                            
                                                                            
Consolidated Statements of Cash Flows                                       
(unaudited)                                                                 
                                                                            
                                           Three-month periods ended March  
                                                         31,                
                                                      2014             2013 
--------------------------------------------------------------------------- 
Cash flows from operating activities:                                       
Net earnings                               $     8,813,102  $     8,305,845 
Adjustments for:                                                            
 Depreciation and amortization                   7,451,072        5,829,609 
 Provision for income taxes                      3,976,675        3,099,823 
 Unrealized foreign exchange loss                  251,833          198,453 
 Gain on disposition of drilling equipment      (1,664,149)      (2,340,535)
 Share-based payments                              209,992          327,037 
 Finance expense                                 1,030,297        1,093,627 
 Provision for bad debts                           479,539                - 
 Amortization of deferred income                   (33,333)               - 
 Share of loss of equity-accounted                                          
  investee                                               -          220,054 
 Change in non-cash working capital            (11,623,068)      (1,979,158)
--------------------------------------------------------------------------- 
Cash generated from operating activities         8,891,960       14,754,755 
Interest paid                                     (735,163)      (1,271,814)
Income taxes paid                                 (386,321)        (180,752)
--------------------------------------------------------------------------- 
Net cash from operating activities               7,770,476       13,302,189 
--------------------------------------------------------------------------- 
Cash flows from investing activities:                                       
 Proceeds on disposition of drilling                                        
  equipment                                      3,111,596        3,596,968 
 Acquisition of drilling and other                                          
  equipment                                    (13,456,273)     (13,495,246)
 Acquisition of intangible assets               (7,448,272)               - 
 Investment in equity-accounted investee                 -         (200,000)
 Change in non-cash working capital               (711,312)      (4,000,360)
--------------------------------------------------------------------------- 
Net cash used in investing activities          (18,504,261)     (14,098,638)
--------------------------------------------------------------------------- 
Cash flows from financing activities:                                       
 Proceeds from issuance of share capital         1,623,315        1,061,876 
 Dividends paid to shareholders                 (7,194,708)      (5,085,438)
 Proceeds on loans and borrowings               20,000,000        4,986,500 
 Payments under finance leases                     (52,032)               - 
 Proceeds on operating facility                          -        1,767,186 
--------------------------------------------------------------------------- 
Net cash from financing activities              14,376,575        2,730,124 
--------------------------------------------------------------------------- 
Net increase in cash and cash equivalents        3,642,790        1,933,675 
Cash and cash equivalents, beginning of                                     
 period                                          5,663,880        4,329,969 
--------------------------------------------------------------------------- 
Cash and cash equivalents, end of period   $     9,306,670  $     6,263,644 
--------------------------------------------------------------------------- 



FOR FURTHER INFORMATION PLEASE CONTACT: 
PHX Energy Services Corp.
John Hooks
President and CEO
403-543-4466


PHX Energy Services Corp.
Cameron Ritchie
Senior Vice President Finance and CFO
403-543-4466
403-543-4485 (FAX)
www.phxtech.com