PHX Energy Announces Highest Second Quarter Revenue in its History and Continued Record RSS Activity

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For the three and six-month periods ended June 30, 2026, PHX Energy’s US division generated revenue of $127.8 million and $253.6 million, respectively, flat, and a decrease of 4 percent as compared to $128.1 million and $264.2 million in the corresponding 2025-periods.

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In the 2026 three-month period, the US segment recorded 4,427 operating days, a 1 percent decrease from 4,486 days in the comparable 2025-period. In comparison, the average number of active horizontal and directional rigs per day in the US industry declined by 4 percent to 524 compared to an average of 544 rigs per day in the corresponding 2025-period. Despite softer industry drilling activity, the US division sustained market share through its differentiated technologies and strong operational performance. In the second quarter of 2026, the US division achieved record RSS activity which represented 25 percent of its operating days, an increase compared to 24 percent in the 2025-quarter. For the three-month period ended June 30, 2026, the US division’s average revenue per day⁽³⁾ for directional drilling services was flat at $25,704 compared to $25,670 in the same 2025-period.

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For the six-month period ended June 30, 2026, US operating days⁽³⁾ were 8,713, a 4 percent decrease compared to 9,035 days in the corresponding 2025-period. In comparison, the average number of active horizontal and directional rigs per day in the US industry declined by 5 percent over the same period. RSS activity increased to 26 percent of operating days in the first half of 2026 from 23 percent in the same 2025-period. For the six-month period ended June 30, 2026, the US division’s average revenue per day marginally decreased by 1 percent to $26,132 from $26,304 in the corresponding 2025-period.

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As operators seek to improve drilling efficiency, the industry trend toward longer lateral sections and more complex horizontal well designs, including U-turn and J wells, has continued in certain basins. The Corporation’s fleet capabilities and operational expertise are well suited to these increasingly sophisticated applications, enabling the US division to remain actively engaged in drilling such wells throughout the first half of 2026. During the 2026-quarter, Phoenix USA was active in the Permian, Eagleford, Scoop/Stack, DJ Basin, Fayetteville, Uinta, Haynesville, and Marcellus/Utica basins. Additionally, the division was involved with Gulf Coast gas storage projects and geothermal wells in Nevada.

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For the three and six-month periods ended June 30, 2026, US motor rental revenue increased by 14 percent and 9 percent to $13.6 million and $25.1 million, respectively, compared to $12 million and $23 million in the corresponding periods of 2025. The increase in revenue in both 2026-periods was primarily driven by growth in the client base, expanded Atlas motor fleet, and a greater number of operators choosing a la carte approach to drilling services rather than bundled service offerings. As a high-margin business line, the motor rental division continues to be a strategic focus for the Corporation.

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In the 2026 three and six-month periods, PHX Energy’s US operations generated $0.4 million and $0.8 million of revenue from the sale of motors and parts compared to $1 million and $3.6 million in the corresponding 2025-periods. Due to the intermittent and cyclical nature of the customers’ ordering frequency and changes in customers’ equipment fleet and demand, it is expected that revenue from this line of business will fluctuate between periods.

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For the three and six-month periods ended June 30, 2026, the US segment’s reportable segment income before tax decreased by 12 and 18 percent to $17.4 million and $35.4 million, respectively (2025 – $19.7 million and $43.1 million). In both 2026-periods, margins declined primarily due to higher direct costs that largely resulted from increased depreciation and amortization of drilling and other equipment, and certain repair and equipment rental costs that grew in relation to greater RSS and motor rental activity. In addition, there were margins lost from the decreased sales of motor equipment and parts. The impact of increased costs on the US division’s margins during the 2026-periods was partially offset by lower SG&A costs and higher other income which was primarily from net gains on disposition of drilling and other equipment.  

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Canada

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(Stated in thousands of dollars)

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For the three and six-month periods ended June 30, 2026, PHX Energy’s Canadian operations generated revenue of $51.1 million and $109.2 million, respectively, a 29 and 12 percent increase from $39.6 million and $97.2 million in the corresponding 2025-periods. In both 2026-periods, the segment saw revenue growth primarily driven by the continued expansion of the Canadian RSS fleet and stronger market penetration as an RSS provider. In the second quarter of 2026, the Canadian segment generated record second quarter revenue and achieved its highest RSS activity to date, with RSS accounting for 15 percent of its activity (2025 – 13 percent). RSS activity in the first half of 2026 rose to 12 percent of operating days from 9 percent in the same 2025-period. Strong growth in RSS activity also drove improvements in the Canadian division’s average revenue per day⁽³⁾ for directional drilling services which increased by 6 and 9 percent to $16,915 and $15,937 in the three and six-month periods ended June 30, 2026, respectively, as compared to $15,966 and $14,564 in the corresponding 2025-periods.

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In the 2026 three-month period, PHX Energy’s Canadian operating days increased 24 percent to 2,920 days from 2,362 days in the same 2025-quarter. In comparison, industry horizontal and directional drilling activity, as measured by drilling days, increased by 22 percent to 13,068 in the second quarter of 2026 from 10,708 in the 2025-quarter. In the 2026 six-month period, the Canadian segment’s operating days⁽³⁾ increased 4 percent to 6,642 days, in line with the 4 percent increase in industry horizontal and directional drilling activity, as measured by drilling days. During the 2026-quarter, the Corporation was active in the Duvernay, Montney, Glauconite, Frobisher, Cardium, Viking, Bakken, Torquay, Colony, Ellerslie, Charlie Lake, Cummings, Sparky, and Scallion basins.

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For the three-month period ended June 30, 2026, the Canadian segment’s reportable segment income before tax increased to $4.2 million from $0.3 million in the same 2025-period. For the six-month period ended June 30, 2026, the Canadian segment’s reportable segment income before tax decreased by 1 percent to $12.2 million from $12.3 million in the comparable 2025-period. In both 2026-periods, stronger activity, particularly in the segment’s high-margin RSS revenue stream, led to increased gross profit. In the six-month period of 2026, a higher share price in the first quarter of 2026 increased the cash-settled share-based compensation, which resulted in higher SG&A costs that negatively impacted the division’s reportable segment income before tax.

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Investing Activities

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Net cash used in investing activities for the three-month period ended June 30, 2026 was $6.4 million as compared to $17.9 million in the corresponding 2025-period. During the second quarter of 2026, the Corporation spent $6.3 million (2025 – $12.4 million) to grow the Corporation’s fleet of drilling equipment, $7.4 million (2025 – $6.4 million) was used to maintain capacity in the Corporation’s fleet of drilling and other equipment, and $1.4 million (2025 – $2 million) was spent to replace equipment lost downhole during drilling operations. With proceeds on disposition of drilling and other equipment of $13.1 million (2025 – $10.9 million), the Corporation’s net capital expenditures⁽²⁾ for the 2026-period were $1.9 million (2025 – $9.9 million).

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The 2026-quarter capital expenditures comprised of:

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The capital expenditure program undertaken in the year was primarily financed from proceeds on disposition of drilling equipment, cash on hand, and the Corporation’s credit facilities when required.

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The change in non-cash working capital balances of $4.4 million (use of cash) for the three-month period ended June 30, 2026, relates to the net change in the Corporation’s trade payables that are associated with the acquisition of capital assets (2025 – $6.1 million).

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Financing Activities

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For the three-month period ended June 30, 2026, net cash used in financing activities was $5.9 million as compared to $4.7 million (source of cash) from financing activities in the same 2025-period. In the 2026-quarter:

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Capital Resources

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As of June 30, 2026, the Corporation had CAD $64.5 million drawn on its Canadian credit facilities, nothing drawn on its US operating facility, and a cash balance of $20.6 million. As at June 30, 2026, the Corporation had CAD $45.1 million and USD $25 million available from its credit facilities. The credit facilities are secured by substantially all of the Corporation’s assets and mature in December 2028.

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As at June 30, 2026, the Corporation was in compliance with all its financial covenants. Under the syndicated credit agreement, in any given quarter, the Corporation’s distributions (as defined therein) cannot exceed its maximum aggregate amount of distributions limit as defined in the Corporation’s syndicated credit agreement. Distributions include, without limitation, dividends declared and paid, cash used for common shares purchased by the independent trustee in the open market and held in trust for potential settlement of outstanding retention awards, as well as cash used for common shares repurchased and cancelled under the NCIB.

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Cash Requirements for Capital Expenditures

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Historically, the Corporation has financed its capital expenditures and acquisitions through cash flows from operating activities, proceeds on disposition of drilling equipment, debt and equity. In June 2026, the Board approved an increase to the 2026 capital expenditure budget from $65 million to $80 million which largely relates to growing the Corporation’s RSS fleet including its Real-Time RSS Communications technologies. Of the total expenditures, approximately 60 percent is anticipated to be spent on growth and the remainder is anticipated to be spent to maintain capacity in the fleet of drilling and other equipment and replace equipment lost downhole during drilling operations. The amount expected to be allocated towards replacing equipment lost downhole could increase, should more downhole equipment losses occur throughout the year.   However, these replacement costs are typically covered by proceeds on disposition of drilling and other equipment.

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These planned expenditures are expected to be financed from cash flow from operating activities, proceeds on disposition of drilling equipment, cash and cash equivalents, and the Corporation’s credit facilities, if necessary. However, if a sustained period of market uncertainty, threats of trade wars, geopolitical instability and financial market volatility persists in 2026 and 2027, the Corporation’s activity levels, cash flows and access to credit may be negatively impacted, and the expenditure level would be reduced accordingly where possible. Conversely, if future growth opportunities present themselves, the Corporation would look at expanding this planned capital expenditure amount.

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As at June 30, 2026, the Corporation has entered into commitments to purchase drilling and other equipment for $29.2 million (2025 – $21 million); equipment on order is largely expected to be delivered before the end of 2026.

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About PHX Energy Services Corp.

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PHX Energy is a growth-oriented, public oil and natural gas services company. The Corporation, through its directional drilling subsidiary entities provides horizontal and directional drilling services and technologies to oil and natural gas exploration and development companies in the US, Canada, and the Middle East. In connection with the services it provides, PHX Energy engineers and manufactures leading-edge technologies. In recent years, PHX Energy has developed various new technologies that have positioned the Corporation as a technology leader in the horizontal and directional drilling services sector.

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PHX Energy’s Canadian directional drilling operations are conducted through Phoenix Technology Services LP. The Corporation maintains its corporate head office, research and development, Canadian sales, service and operational centers 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., is headquartered in Houston, Texas. The Corporation has sales and service facilities in Houston, Texas; Midland, Texas; and Oklahoma City, Oklahoma. Internationally, PHX Energy has administrative offices in Luxembourg, Switzerland, and the Cayman Islands and also supplies technology to the Middle East regions.

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The common shares of PHX Energy trade on the Toronto Stock Exchange under the symbol PHX.

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For further information please contact:
Michael Buker, President and CEO; or Cameron Ritchie, Senior Vice President Finance and CFO

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PHX Energy Services Corp.
Suite 1600, 215 9th Avenue SW, Calgary Alberta T2P 1K3
Tel: 403-543-4466 Fax: 403-543-4485 www.phxtech.com

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Condensed Consolidated Interim Statements of Financial Position

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Condensed Consolidated Interim Statements of Comprehensive Earnings
 (Stated in thousands of dollars except earnings per share, unaudited)

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Condensed Consolidated Interim Statements of Cash Flows
(Stated in thousands of dollars, unaudited)

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Cautionary Statement Regarding Forward-Looking Information and Statements

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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”, “targets” and similar expressions are intended to identify forward-looking information or statements.

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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.

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In particular, forward-looking information and statements contained in this document include without limitation, the Corporation’s intent to preserve balance sheet strength and continue to reward shareholders, including through its ROCS program under which the Corporation targets up to 70 percent of annual excess cash flow to be used for shareholder returns and includes multiple options including the dividend program and the NCIB, projected level of net capital expenditures, a balanced remaining balance under ROCS target by the end of the 2026-year, PHX Energy’s intentions with respect to the renewal of its NCIB, the anticipated industry activity and demand for the Corporation’s services and technologies in North America, expectations for inflation, tariffs and the cost environment, uncertainty of global trade policy and global conflicts and the potential impact on the Corporation, its customers and the industry, the projected capital expenditures budget for 2026, and how the budget will be allocated and funded, the timeline for delivery of equipment on order, and the anticipated continuation of PHX Energy’s quarterly dividend program and the amounts of dividends.

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The above are stated under the headings: “Financial Results”, “Overall Performance”, “Dividends and ROCS”, “Capital Spending”, and “Capital Resources”. In addition, all information contained under the heading “Outlook” of this document may contain forward-looking statements.

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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, without limitation, that: the Corporation will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions and the accuracy of the Corporation’s market outlook expectations for 2026 and beyond; that future business, regulatory and industry conditions will be within the parameters expected by the Corporation; the duration and impact of tariffs that are currently in effect on goods exported from or imported into Canada, and that other than the tariffs that are currently in effect, neither the US nor Canada (i) increases the rate or scope of such tariffs, reenacts tariffs that are currently suspended, or imposes new tariffs, on the import of goods from one country to the other, or (ii) imposes any other form of tax, restriction, or prohibition on the import or export of products from one country to the other; anticipated financial performance, business prospects, impact of competition, strategies, the general stability of the economic and political environment in which the Corporation operates; the potential impact of trade wars, pandemics, the Russian-Ukrainian war, Middle-East conflict, US-Venezuela and other world events on the global economy, specifically trade, manufacturing, supply chain, inflation and energy consumption, among other things and the resulting impact on the Corporation’s operations and future results which remain uncertain; exchange and interest rates, and inflationary pressures including the potential for further interest rate hikes by global central banks and the impact on financing charges and foreign exchange and the anticipated global economic response to concerted interest rate hikes; the continuance of existing (and in certain circumstances, the implementation of proposed) tax and regulatory regimes; 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, dividends, and ROCS, which are subject to change; and market conditions and future oil and natural gas prices and resulting demand for related services. 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.

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The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Such information and statements 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 information or statements including, without limitation: volatility of commodity prices; adverse economic conditions; political uncertainty; the risk that (i) the tariffs that are currently in effect on goods exported from or imported into Canada continue in effect for an extended period of time, the tariffs that have been threatened are implemented, that tariffs that are currently suspended are reactivated, the rate or scope of tariffs are increased, or new tariffs are imposed, (ii) the US and/or Canada imposes any other form of tax, restriction, or prohibition on the import or export of products from one country to the other, and (iii) the tariffs imposed or threatened to be imposed by the US on other countries and retaliatory tariffs imposed or threatened to be imposed by other countries on the US, will trigger a broader global trade war which could have a material adverse effect on the Canadian, US, and global economies, and by extension the Canadian crude oil and natural gas industry and the Corporation, including by decreasing demand for (and the price of) crude oil and natural gas, disrupting supply chains, increasing costs, causing volatility in global financial markets, and limiting access to financing; the impacts of the ongoing Middle-East conflicts, Russia-Ukraine war and geopolitical developments in Venezuela (and any associated sanctions) on the global economy and commodity prices; compliance with environmental regulations; risks relating to climate change, including transition and physical risks; PHX Energy’s ability to recruit and retain a skilled workforce and key personnel; risks relating to a changing investor sentiment; asset and customer concentration; risks relating to information technology systems and cyber security; liquidity; inflation, cost management, and interest rates; third-party credit risks; variations in foreign exchange rates; the impact of competitors; risks related to potential or ongoing litigation; lack of adequate insurance coverage; limited, unfavorable or a lack of access to capital markets; unanticipated operating results; increased debt levels or debt service requirements; increased costs; and certain other risks detailed in PHX Energy’s public disclosure documents. Readers should also carefully consider the risks discussed in the section entitled “Business Risk Factors” contained within the Corporation’s most recently filed Annual Information Form (“AIF”) on the SEDAR+ website (www.sedarplus.ca).

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PHX Energy’s future shareholder distributions, including but not limited to the payment of dividends and NCIB purchases, if any, and the level thereof is uncertain. Any decision to pay dividends on PHX Energy’s shares (including the actual amount, the declaration date, the record date, and the payment date in connection therewith) will be subject to the discretion of the Board and may depend on a variety of factors, including, without limitation, PHX Energy’s business performance, financial condition, financial requirements, growth plans, expected capital requirements and other conditions existing at such future time including, without limitation, contractual restrictions and satisfaction of the solvency tests imposed on PHX Energy under applicable corporate law. Further, the actual amount, the declaration date, the record date, and the payment date of any dividend are subject to the discretion of the Board. There can be no assurance that PHX Energy will pay dividends or make additional purchases under its NCIB in the future.

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The forward-looking information in this document also includes financial outlooks and other related forward-looking information relating to PHX Energy, including, but not limited to the expectations of PHX Energy regarding capital expenditures. The internal projections, expectations, or beliefs are based on the 2026 capital budget, which is subject to change in light of ongoing results, prevailing economic conditions and industry conditions and regulations. These financial outlook and other related forward-looking statements are also subject to the same assumptions, risk factors, limitations, and qualifications as set forth above. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted, and as such, undue reliance should not be placed on financial outlook and/or forward-looking statements.

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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.sedarplus.ca) or at the Corporation’s website. The forward-looking statements and information contained in this Press Release 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.

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Non-GAAP and Other Financial Measures

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Non-GAAP Financial Measures and Ratios

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a)   Adjusted EBITDA

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Adjusted EBITDA, defined as earnings before finance expense, finance expense lease liability, income taxes, depreciation and amortization, impairment losses on drilling and other equipment and goodwill and other write-offs, equity-settled share-based payments, severance payouts relating to the Corporation’s restructuring cost, and unrealized foreign exchange gains or losses, does not have a standardized meaning and is not a financial measure that is recognized under GAAP. However, Management believes that adjusted EBITDA provides supplemental information to earnings that is useful in evaluating the results of the Corporation’s principal business activities before considering certain charges, how it was financed and how it was taxed in various countries. Investors should be cautioned, however, that adjusted EBITDA should not be construed as an alternative measure to earnings determined in accordance with GAAP. PHX Energy’s method of calculating adjusted EBITDA may differ from that of other organizations and, accordingly, its adjusted EBITDA may not be comparable to that of other companies.

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The following is a reconciliation of earnings to adjusted EBITDA:

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(Stated in thousands of dollars)        

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b)   Adjusted EBITDA Per Share – Diluted

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Adjusted 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 adjusted EBITDA per share – dilutive is based on the adjusted EBITDA as reported in the table above divided by the diluted number of shares outstanding.

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c)   Adjusted EBITDA as a Percentage of Revenue

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Adjusted EBITDA as a percentage of revenue is calculated by dividing the adjusted EBITDA as reported in the table above by revenue as stated on the Condensed Consolidated Interim Statements of Comprehensive Earnings.

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d)   Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense

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Adjusted EBITDA excluding cash-settled share-based compensation expense is calculated by adding cash settled share-based compensation expense to adjusted EBITDA as described above. Management believes that this measure provides supplemental information to earnings that is useful in evaluating the results of the Corporation’s principal business activities before considering certain charges, how it was financed, how it was taxed in various countries, and without the impact of cash-settled share-based compensation expense that is affected by fluctuations in the Corporation’s share price.

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The following is a reconciliation of earnings to adjusted EBITDA excluding cash-settled share-based compensation expense:
(Stated in thousands of dollars)        

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e)   Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense Per Share – Diluted

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Adjusted EBITDA excluding cash-settled share-based compensation expense 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 adjusted EBITDA excluding cash-settled share-based compensation expense per share – dilutive is based on the adjusted EBITDA excluding cash-settled share-based compensation expense as reported in the table above divided by the diluted number of shares outstanding.

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f)  Adjusted EBITDA Excluding Cash-settled Share-based Compensation Expense as a Percentage of Revenue

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Adjusted EBITDA excluding cash-settled share-based compensation expense as a percentage of revenue is calculated by dividing the adjusted EBITDA excluding cash-settled share-based compensation expense as reported in the table above by revenue as stated on the Condensed Consolidated Interim Statements of Comprehensive Earnings.

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g)   Gross Profit as a Percentage of Revenue Excluding Depreciation & Amortization

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Gross profit as a percentage of revenue excluding depreciation & amortization is defined as the Corporation’s gross profit excluding depreciation and amortization divided by revenue and is used to assess operational profitability. This Non-GAAP ratio does not have a standardized meaning and is not a financial measure recognized under GAAP. PHX Energy’s method of calculating gross profit as a percentage of revenue may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.

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The following is a reconciliation of revenue, direct costs, depreciation and amortization and gross profit to gross profit as a percentage of revenue excluding depreciation and amortization:

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(Stated in thousands of dollars)

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h)   SG&A Costs Excluding Share-Based Compensation as a Percentage of Revenue

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SG&A costs excluding share-based compensation as a percentage of revenue is defined as the Corporation’s SG&A costs excluding share-based compensation divided by revenue and is used to assess the impact of administrative costs excluding the effect of share price volatility. This Non-GAAP ratio does not have a standardized meaning and is not a financial measure recognized under GAAP. PHX Energy’s method of calculating SG&A costs excluding share-based compensation as a percentage of revenue may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.

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The following is a reconciliation of SG&A costs, share-based compensation, and revenue to SG&A costs excluding share-based compensation as a percentage of revenue:

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(Stated in thousands of dollars)

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Capital Management Measures

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a)   Funds from Operations

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Funds from operations is defined as cash flows generated from operating activities before changes in non-cash working capital, interest paid, and income taxes paid. This financial measure does not have a standardized meaning and is not a financial 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 and interest and taxes paid. 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.

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

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(Stated in thousands of dollars)

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b)   Excess Cash Flow

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Excess cash flow is defined as funds from operations (as defined above) less cash payment on leases, growth capital expenditures, and maintenance capital expenditures from downhole equipment losses and asset retirements, and increased by proceeds on disposition of drilling equipment. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses excess cash flow as an indication of the Corporation’s ability to generate funds from its operations to support operations and grow and maintain the Corporation’s drilling and other equipment. This performance measure is useful to investors for assessing the Corporation’s operating and financial performance, leverage and liquidity. 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 excess cash flow may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.

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The following is a reconciliation of cash flows from operating activities to excess cash flow:

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(Stated in thousands of dollars)

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c)   Working Capital

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Working capital is defined as the Corporation’s current assets less its current liabilities and is used to assess the Corporation’s short-term liquidity. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses working capital to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating working capital may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.

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The following is a reconciliation of current assets and current liabilities to working capital:

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(Stated in thousands of dollars)

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d)   Net Debt

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Net debt is defined as the Corporation’s loans and borrowings less cash. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses net debt to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating net debt may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.

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The following is a reconciliation of loans and borrowings and cash to net debt:

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(Stated in thousands of dollars)

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e)   Net Capital Expenditures

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Net capital expenditures is comprised of total additions to drilling and other long-term assets, as determined in accordance with IFRS, less total proceeds from disposition of drilling equipment, as determined in accordance with IFRS. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses net capital expenditures to provide insight as to the Corporation’s ability to meet obligations as at the reporting date. PHX Energy’s method of calculating net capital expenditures 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 additions to drilling and other equipment and proceeds from disposition of drilling equipment to net capital expenditures:

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(Stated in thousands of dollars)

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f)   Remaining Balance under ROCS Target

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Remaining balance under ROCS target is comprised of the total of 70 percent of excess cash flow as defined above and remaining balance under ROCS target carried forward from the previous year, less repurchases of shares under the Normal Course Issuer Bids in effect during the period and less the dividends paid to shareholders during the period. This financial measure does not have a standardized meaning and is not a financial measure recognized under GAAP. Management uses the remaining distributable balance under ROCS to provide insight as to the Corporation’s ROCS strategy as at the reporting date. PHX Energy’s method of calculating remaining balance under ROCS target may differ from that of other organizations and, accordingly, it may not be comparable to that of other companies.

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The following is a reconciliation of excess cash flow as defined above to remaining distributable balance under ROCS:

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(Stated in thousands of dollars)

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Supplementary Financial Measures
“Average consolidated revenue per day” is comprised of consolidated revenue, as determined in accordance with IFRS, divided by the Corporation’s consolidated number of operating days. Operating days is defined under the “Definitions” section below.
“Average revenue per operating day” is comprised of revenue, as determined in accordance with IFRS, divided by the number of operating days.
“Dividends paid per share” is comprised of dividends paid, as determined in accordance with IFRS, divided by the number of shares outstanding at the dividend record date.
“Dividends declared per share” is comprised of dividends declared, as determined in accordance with IFRS, divided by the number of shares outstanding at the dividend record date.
“Dividends paid as a percentage of excess cash flows” is comprised of dividends paid, as determined in accordance with IFRS, divided by the excess cash flow as reported in the table above.
“Effective tax rate” is comprised of provision for or recovery of income tax, as determined in accordance with IFRS, divided by earnings before income taxes, as determined in accordance with IFRS.
“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 – diluted is based on the funds from operations as reported in the table above divided by the diluted number of shares outstanding.

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Definitions
“Operating days” throughout this document, it is referring to the billable days on which PHX Energy is providing services to the client at the rig site.
“Capital expenditures” equate to the Corporation’s total acquisition of drilling and other equipment as stated on the Condensed Consolidated Interim Statements of Cash Flows and Note 6(a) in the Notes to the Financial Statements.
“Growth capital expenditures” are capital expenditures that were used to expand capacity in the Corporation’s fleet of drilling equipment.
“Maintenance capital expenditures” are capital expenditures that were used to maintain capacity in the Corporation’s fleet of drilling equipment and replace equipment that were lost downhole during drilling operations.

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