Builders Energy Services Trust
TSX : BET.UN

Builders Energy Services Trust

November 13, 2007 20:56 ET

Builders Energy Services Trust Reports Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 13, 2007) - Builders Energy Services Trust (TSX:BET.UN) ("Builders", or the "Trust") announces third quarter results for 2007.



(Thousands, except per unit amounts)

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
Revenue $ 40,088 $ 50,422 $ 125,125 $ 147,766

Gross margin(a) $ 10,642 $ 17,501 $ 32,838 $ 50,279

Gross margin as a
percentage of
revenue(a) 27% 35% 26% 34%

EBITDA (a) $ 7,621 $ 12,845 $ 21,323 $ 36,786

Earnings before
non-controlling
interest and
impairment of goodwill $ 2,291 $ 6,806 $ 4,102 $ 23,525

Net earnings (loss): $ (34,734) $ 6,554 $ (33,042) $ 22,402

Per unit - diluted $ (1.84) $ 0.38 $ (1.76) $ 1.40

Funds flow from
operations:(a) $ 6,406 $ 11,852 $ 18,495 $ 34,484

Per unit - diluted $ 0.34 $ 0.70 $ 0.98 $ 2.15

Cash distributions to
Unitholders: $ 6,803 $ 7,282 $ 22,639 $ 19,557

Per unit $ 0.36 $ 0.42 $ 1.20 $ 1.22

Payout ratio(a) 106% 61% 122% 57%

Equipment Expenditures $ 6,320 $ 10,996 $ 18,509 $ 33,107
---------------------------------------------------------------------------
Trust Units Outstanding
Outstanding, end of
period 18,896 18,109 18,896 18,109

Weighted average, basic 18,896 16,774 18,823 15,759

Weighted average, diluted 18,896 17,028 18,823 16,038
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(a) Gross margin, gross margin as a percentage of revenue, EBITDA, funds
flow from operations and payout ratio are non-GAAP financial measures.
The attached Management's Discussion and Analysis outlines the
definition and usefulness of these measures.


Third Quarter Review

Oilfield service activity levels and equipment utilization rates improved over the seasonally slow second quarter but were below activity levels of the third quarter of 2006. Natural gas storage levels remain high due to active drilling in the U.S., an increase in liquefied natural gas imports and minimal negative weather impacts. In the third quarter, drilling utilization in Canada, a barometer for oilfield service activity, averaged 38%, as compared to 63% in the third quarter of 2006. This is largely due to reduced natural gas drilling activity. While the price of crude oil continued to reach record highs, resulting in an increase in conventional oil well drilling, crude oil drilling historically only represents approximately 30% of drilling in the Western Canadian Sedimentary Basin ("WCSB").

Builders' operations are weighted toward natural gas and have been impacted by this reduced natural gas drilling activity. Industry uncertainty has also created a lack of urgency by customers to proceed with drilling programs and enhanced production activity. The uncertainty was related to low natural gas pricing, a strong Canadian dollar and the Alberta Royalty Review. In addition, the quarter was also affected by wet weather in August and September. Price pressure and competitive bidding continued to impact Builders' margins, especially Oilfield Transport. However, crude oil activity in eastern Alberta continued to contribute to the success of our Oilfield Transport operations and the downhole tools business that operates in that area. The Service Rig business was steady in southern Alberta and British Columbia, but slower in the west-central and northern areas of Alberta.

Builders continued to focus on cost management and divisional synergies. Cost reduction initiatives to date include staff reductions, deferral of discretionary spending and a voluntary reduction in management compensation.

The net loss in the third quarter of 2007 reflects a $37.8 million goodwill impairment. A combination of recent events including the Alberta Royalty Review Report, a strengthening Canadian dollar relative to the U.S. dollar and further delays in the expected recovery of natural gas prices led management to test for goodwill impairment at September 30, 2007. The analysis indicated the fair values of goodwill in the oilfield transport and wireline reporting units exceeded their carrying value and an impairment of goodwill has been recognized.

"Given the difficult industry conditions, we are pleased with our third quarter results," said Garnet Amundson, President and Chief Executive Officer. "Despite facing the challenges of low natural gas prices and the uncertainty of the Alberta Royalty Review, we were able to generate reasonable quarterly funds flow and margins through our focus on effective sales and cost management."

Outlook

The Petroleum Services Association of Canada (PSAC) and the Canadian Association of Oilwell Drilling Contractors (CAODC) have recently released 2008 forecasts that show a further expected reduction in drilling in Canada. PSAC is projecting 14,500 wells to be drilled in 2008, compared to their current forecast of 17,550 wells in 2007. CAODC is projecting 13,735 new wells in western Canada in 2008, compared to their current forecast of 16,393 wells in 2007. Continued weak natural gas prices, a strong Canadian dollar, increased Alberta royalties and high operating costs continue to affect the industry.

While these forecasts point to challenging operating conditions for the next year, Builders' management remains confident in the long-term underlying fundamentals for Canadian natural gas drilling and Canadian-based oilfield services. Builders continues to expect that eventually, high production decline rates combined with anticipated rising natural gas demand will work in tandem to encourage an increase in Canadian natural gas drilling and increased activity levels for Canadian-based oilfield services.

The Report of the Alberta Royalty Review Panel created significant uncertainty in the industry in the period between its announcement on September 18 and the Alberta government's response on October 25, and thereafter. A further slowdown in Alberta oilfield activity has been partially attributed to this uncertainty, along with a very tentative outlook, as several of the major oil and natural gas producers had announced reduced spending in Alberta if the proposal went ahead. The Alberta government accepted many of the recommended changes for conventional oil and gas. However, some adjustments were made to delay the timing of implementation from January 1, 2008 to January 1, 2009 and some positive concessions have been made for deep gas drilling. In addition, concessions have been provided for non-conventional gas reserves such as coal-bed methane, tight gas and shale gas. Many of the producers are still assessing the impact of the final decision. The near-term impact to Builders will be dependent on its customers' spending plans for the balance of 2007 and 2008.

In response to further deterioration in the outlook for western Canadian oilfield services, Builders reduced the October cash distribution by 50% from the prior month, or $0.06 per Trust unit. This reduction, combined with the $0.02 reduction announced in July will reduce cash outlays by $18.4 million annually and will increase financial flexibility of the Trust.

The sector environment in 2007 has made it difficult for Builders to execute its growth strategy. Large scale organic growth and growth through private company acquisitions has been curtailed as a result of the current operating environment and lower equipment utilization. Trust-to-trust mergers have been considered, but to date, there has been no consolidation in the sector. While growth has been modest in 2007, over the longer term, organic and acquisitive growth continue to be key elements of the Trust's strategy.

Builders' business units have successfully operated through cyclical business environments such as the one it finds itself in today. As the Trust looks to the future, it will continue to operate in the same prudent manner that has made Builders' businesses successful in the past. Management's immediate focus continues to be on cost management, divisional synergies and cash flow management. Prudent maintenance of cash flows is being achieved through preservation of cash from the reduction in monthly cash distribution obligations that were announced in July and October and proceeds from the Distribution Reinvestment Plan. This preservation of cash combined with operational discipline is positioning Builders to capitalize on future opportunities as industry fundamentals are expected to eventually recover.

Based in Calgary, Alberta, Builders Energy Services Trust is an open-end, unincorporated investment trust providing oilfield services in western Canada through skilled staff and specialized equipment. Builders provides services to the oil and gas industry related to the ongoing servicing of producing wells and new drilling activity.

This press release may contain forward-looking statements including expectations of future cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to: risks associated with the oilfield services sector (e.g. demand, pricing and terms for oilfield services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery rates; pipeline and transportation capacity; weather, health, safety and environmental risks), integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or equipment expenditures. Additional information on these and other factors that could affect the Trust's operations or financial results are included in the Trust's documentation and filings with Canadian securities regulatory authorities. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this press release. The Trust does not assume any obligation to update these forward-looking statements, except as required by law.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis ("MD&A") of Builders Energy Services Trust ("Builders" or the "Trust") is for the three months and nine months ended September 30, 2007 and includes the results for two acquisitions in Service Rigs (Kodiak Well Service Ltd. ("Kodiak") acquired May 8, 2006 and Murphy's Oilfield Services Ltd. ("Murphy's") acquired October 3, 2006) and two Oilfield Transport acquisitions (Leachman Enterprises Ltd. ("Leachman") acquired February 1, 2006 and Prime Oilfield Hauling Ltd. ("Prime") acquired August 1, 2006).

The operations and financial results of the Kodiak and Murphy's acquisitions have been included in the September 30, 2006 consolidated financial statements and MD&A of the Trust since May 8, 2006 and October 3, 2006 respectively. The operations and financial results of the Leachman and Prime acquisitions have been included in the September 30, 2006 consolidated financial statements and MD&A of the Trust since February 1, 2006 and August 1, 2006 respectively.

This MD&A is an update to, and should be read in conjunction with, the June 30 and March 31, 2007 interim reports and the annual consolidated financial statements and MD&A included in the Trust's 2006 Annual Report to Unitholders and the attached financial statements as at and for the three and nine months ended September 30, 2007, to which readers are referred. No update is provided where an item is not material or where there has been no material change from the discussion in the aforementioned interim report or annual MD&A. This MD&A was prepared effective November 13, 2007.

Additional Information

Additional information regarding Builders, including the March 31 and June 30, 2007 interim reports, the 2006 Annual Report and the Annual Information Form, can be found on SEDAR at www.sedar.com.



SELECTED FINANCIAL INFORMATION

(Thousands, except per unit amounts)

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
------------------------------------------------------------------------
Revenue $ 40,088 $ 50,422 $ 125,125 $ 147,766

Gross margin(a) $ 10,642 $ 17,501 $ 32,838 $ 50,279

EBITDA(a) $ 7,621 $ 12,845 $ 21,323 $ 36,786

Earnings before
non-controlling interest
and impairment of goodwill $ 2,291 $ 6,806 $ 4,102 $ 23,525

Net earnings (loss): $ (34,734) $ 6,554 $ (33,042) $ 22,402

Per unit - basic $ (1.84) $ 0.39 $ (1.76) $ 1.42

Per unit - diluted $ (1.84) $ 0.38 $ (1.76) $ 1.40

Funds flow from
operations:(a) $ 6,406 $ 11,852 $ 18,495 $ 34,484

Per unit - basic $ 0.34 $ 0.71 $ 0.98 $ 2.19

Per unit - diluted $ 0.34 $ 0.70 $ 0.98 $ 2.15

Payout ratio(a) 106% 61% 122% 57%

Cash distributions to
Unitholders: $ 6,803 $ 7,282 $ 22,639 $ 19,557

Per unit $ 0.36 $ 0.42 $ 1.20 $ 1.22
------------------------------------------------------------------------
Total assets $ 276,683 $ 302,815 $ 276,683 $ 302,815

Total long-term debt $ 68,306 $ 40,093 $ 68,306 $ 40,093

Unitholders' equity $ 162,935 $ 210,020 $ 162,935 $ 210,020
------------------------------------------------------------------------
------------------------------------------------------------------------

(a) Refer to the "non-GAAP Measures" section for further details


Forward-Looking Statements

This MD&A may contain forward-looking statements including expectations of future cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to: risks associated with the oilfield services sector (e.g. demand, pricing and terms for oilfield services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery rates; pipeline and transportation capacity; weather, health, safety and environmental risks), integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or equipment expenditures. Additional information on these and other factors that could affect the Trust's operations or financial results are included in the Trust's documentation and filings with Canadian securities regulatory authorities. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this MD&A. The Trust does not assume any obligation to update these forward-looking statements, except as required by law.

BUILDERS OVERVIEW

Based in Calgary, Alberta, Builders is an open-end, unincorporated investment trust providing oilfield services in western Canada through skilled staff and specialized equipment. The Trust provides services to both producing and newly drilled conventional crude oil and natural gas wells in the oil and gas industry.

Services are offered through three operating segments: Service Rigs, Oilfield Transport and Downhole Services & Rentals ("DS&R"). The Service Rigs segment provides production and completion services. The Oilfield Transport segment provides general oilfield hauling and rig relocation services. The DS&R segment provides downhole tools sales and services, coil-tubing and nitrogen services, wireline and equipment rentals.

A fourth non-operating segment, Corporate, includes general and administrative costs and interest.

OVERVIEW OF THIRD QUARTER 2007 SECTOR ACTIVITY

Typically, during the third quarter, oilfield service companies active in the Western Canadian Sedimentary Basin ("WCSB") expect to see an increase in activity levels as spring break-up gives way to the commencement of summer drilling activities.

In comparison to the second quarter 2007, activity levels and equipment utilization rates continued to improve throughout the quarter. However, relative to the prior year, utilization levels continued to be impacted by high natural gas storage levels in the United States ("U.S.") and depressed natural gas prices. The high level of storage, a weaker U.S. dollar relative to the Canadian dollar, expectations of continued low natural gas prices, and the perception that western Canada is a relatively high cost exploration and production area continued to impact natural gas drilling programs throughout the quarter. While the price of crude oil continued to reach record highs, robust oil drilling activity was offset by reduced drilling for natural gas which, historically, represents approximately 70% of WCSB activity. Drilling rig utilization rates in the WCSB, which acts as a barometer for oilfield services activity, reached a seven year low during the second quarter of 2007 and only marginally improved during the third quarter. According to the Canadian Association of Oilwell Drilling Contractors ("CAODC"), during the third quarter of 2007, a total of 2,485 natural gas wells were drilled in the WCSB which represents a 19% increase from the 2,085 wells drilled in the second quarter of 2007 but a 9% decline from the 2,734 wells drilled in the third quarter of 2006. In addition, competition for oilfield services was affected by equipment added to the Canadian oilfield service sector during the past few years, thus increasing the availability of equipment, resulting in corresponding service pricing pressure.

The Report of the Alberta Royalty Review Panel created significant uncertainty in the industry in the period between its announcement on September 18, 2007 and the Alberta government's response on October 25, 2007. The effect of the proposed recommendations was immediate, as exploration and production companies curtailed current capital spending projects in order to assess the financial impact that the new proposed royalty rate structure would have on the long-term economic viability of capital projects. However, the Alberta government's final recommendations included some adjustments to delay the timing of implementation from January 1, 2008 to January 1, 2009 and some positive concessions have been made for deep gas drilling. In addition, concessions have been provided for non-conventional gas reserves such as coal-bed methane, tight gas and shale gas. The near-term impact to Builders will be dependent on its customers' capital spending plans for the balance of 2007 and 2008.

OVERVIEW OF THIRD QUARTER RESULTS

Operationally, in comparison to the second quarter of 2007, each of the business segments experienced a return to seasonal activity levels during the third quarter of 2007. Increased activity translated into both higher revenues and positive earnings within each business segment for the third quarter of 2007.

A deterioration in industry fundamentals impacted the current quarter's financial results. Compared to the third quarter of 2006, when the first signs of deterioration of industry fundamentals began to appear late in the quarter, the third quarter 2007 results have declined. The reduced gross margin(a) for the current quarter and year-to-date reflects lower revenues resulting from lower 2007 service utilization levels and pricing pressure combined with the effect of relatively fixed operating costs which reduce margins during periods of lower activity. As a result, lower overall gross margins(a) are expected as revenues decline. In summary:

- Revenue for the three and nine month periods ended September 30, 2007 was $40.1 million and $125.1 million, respectively, compared to $50.4 million and $147.8 million for the same periods ended September 30, 2006.

- Gross margin(a) for the three and nine month periods ended September 30, 2007 was $10.6 million and $32.8 million, respectively, compared to $17.5 million and $50.3 million for the same periods ended September 30, 2006.

- Earnings before non-controlling interest and impairment of goodwill for the three and nine month periods ended September 30, 2007 was $2.3 million and $4.1 million, respectively, compared to $6.8 million and $23.5 million for the same periods ended September 30, 2006.

- Funds flow(a) for the three and nine month periods ended September 30, 2007 was $6.4 million and $18.5 million, respectively, compared to $11.9 million and $34.5 million for the same periods ended September 30, 2006.



(a) Refer to the "non-GAAP Measures" section for further details



RESULTS OF OPERATIONS


(Thousands, except per unit amounts)

Three months ended Nine months ended,
September 30, September 30,
2007 2006 2007 2006
-----------------------------------------------------------------------
Revenue by segment:
Service Rigs $ 13,051 $ 14,842 $ 44,008 $ 38,337

Oilfield Transport 12,721 16,665 37,044 44,706

Downhole Services
& Rentals 14,316 18,915 44,073 64,723
-----------------------------------------------------------------------
Revenue 40,088 50,422 125,125 147,766

Operating expenses 29,446 32,921 92,287 97,487
-----------------------------------------------------------------------
Gross margin(a) 10,642 17,501 32,838 50,279

Gross margin as a
percentage of
revenue(a) 27% 35% 26% 34%

General and
administrative
expenses 3,003 4,616 11,353 13,440

Other cash items 18 40 162 53
-----------------------------------------------------------------------
EBITDA(a) 7,621 12,845 21,323 36,786

EBITDA as a percentage
of revenue(a) 19% 25% 17% 25%

Depreciation and
amortization 5,813 4,777 17,089 12,815

Interest on
long-term debt 1,050 786 2,873 1,761

Other non-cash items
and interest 693 207 1,611 779

-----------------------------------------------------------------------
Earnings before income
taxes, non-controlling
interest and impairment
of goodwill 65 7,075 (250) 21,431

Income tax expense
(recovery) (2,226) 269 (4,352) (2,094)

-----------------------------------------------------------------------
Earnings before non-
controlling interest
and impairment of
goodwill 2,291 6,806 4,102 23,525

Non-controlling
interest earnings (727) 252 (608) 1,123

Impairment of
goodwill 37,752 - 37,752 -

-----------------------------------------------------------------------

Net earnings (loss) $ (34,734) $ 6,554 $ (33,042) $ 22,402
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Per unit - basic $ (1.84) $ 0.39 $ (1.76) $ 1.42
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Per unit - diluted $ (1.84) $ 0.38 $ (1.76) $ 1.40
-----------------------------------------------------------------------
-----------------------------------------------------------------------


Revenue

(Thousands)
Three months ended Nine months ended,
September 30, September 30,
2007 2006 2007 2006
-----------------------------------------------------------------------
Revenue by segment:

Service Rigs $ 13,051 $ 14,842 $ 44,008 $ 38,337

Oilfield Transport 12,721 16,665 37,044 44,706

Downhole Services
and Rentals 14,316 18,915 44,073 64,723
-----------------------------------------------------------------------
$ 40,088 $ 50,422 $ 125,125 $ 147,766
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(a) Refer to the "non-GAAP Measures" section for further details


For the three and nine month periods ended September 30, 2007, Builders generated revenue of $40.1 million and $125.1 million, respectively, compared to $50.4 million and $147.8 million for the same periods ended September 30, 2006. The period over period decline experienced in 2007 is the result of an overall decrease in activity levels within the oilfield service sector in western Canada.

Service Rigs

Service Rigs generated revenue of $13.1 million and $44.0 million for the three and nine month periods ending September 30, 2007, respectively, compared to $14.8 million and $38.3 million for the same periods ended September 30, 2006. Revenue increases for the year-to-date, relative to the same period in 2006, resulted from two 2006 acquisitions in the Service Rigs segment and is partially offset by a reduction in utilization rates. The reduction in revenue in the current quarter, relative to the same period in 2006, is due to a reduction in utilization rates. Service rig utilization rates were as follows:



Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
Builders 49% 73% 51% 70%
Per CAODC(i) 54% 63% 53% 64%
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(i) Per Canadian Association of Oilfield Drilling Contractors ("CAODC")
Service Rig Activity Summary report


On a regional basis, Builders' Service Rigs achieved higher than industry utilization rates in British Columbia and southern Alberta. However, utilization rates in west central and northern Alberta were hampered by wet weather conditions throughout August and increased competitive pressures within the region. Utilization rates for the three and nine month periods ended September 30, 2007 are lower in comparison to 2006 due to overall industry activity levels, the extended spring-break-up in 2007, wet weather conditions experienced during June and August of 2007 throughout much of west central and northern Alberta and the increase in available service rigs in western Canada.

Oilfield Transport

Oilfield Transport generated revenue of $12.7 million and $37.0 million for the three and nine month periods ending September 30, 2007, respectively, compared to $16.7 million and $44.7 million for the same periods ended September 30, 2006. Pricing pressures during the current quarter combined with lower activity levels resulted in reduced revenue.

During the third quarter of 2007, activity levels within Oilfield Transport strengthened considerably in comparison to a slower second quarter of the year, although activity levels were reduced in comparison to last year. Crude oil activity in eastern Alberta continued to contribute to financial results. Activity levels for the nine month period ended September 30, 2007 were lower than 2006 due to an extended spring break-up as a result of record winter snow falls, especially in northwestern Alberta, and a reduction in natural gas drilling activity which directly affected utilization rates within Builders' pipe hauling operations in central Alberta and its rig moving business in southeastern Alberta.

Downhole Services and Rentals ("DS&R")

DS&R generated revenue of $14.3 million and $44.1 million for the three and nine month periods ending September 30, 2007, respectively, compared to $18.9 million and $64.7 million for the same periods ended September 30, 2006.

The DS&R segment generated solid revenue throughout both the three and nine month periods ended September 30, 2007. This revenue has largely been driven by two factors, Builders' downhole tools business, which services heavy oil activity in eastern Alberta and improved current quarter activity levels within coil tubing and nitrogen operations. Revenue in DS&R for the three and nine months ended September 30, 2007 was reduced from the same periods in 2006. The reduction in revenue was primarily attributed to Builders' rental and wireline businesses, which are highly correlated to Alberta's reduced drilling activity.



Operating expenses
Three months ended Nine months ended
September 30, September 30,
(Thousands) 2007 2006 2007 2006
------------------------------------------------------------------------

Operating expenses $ 29,446 $ 32,921 $ 92,287 $ 97,487
------------------------------------------------------------------------

Operating expenses as a
percentage of revenue(a) 73% 65% 74% 66%
------------------------------------------------------------------------
------------------------------------------------------------------------

(a) Refer to the "non-GAAP Measures" section for further details


Operating expenses for the three and nine month periods ending September 30, 2007 were $29.4 million and $92.3 million, respectively, compared to $32.9 million and $97.5 million for the same periods ended September 30, 2006. As a percentage of revenue(a), operating costs have increased during the three and nine month periods ended September 30, 2007 in comparison to the same periods in 2006. Throughout all of its field operations, Builders maintains a scaleable cost infrastructure wherever possible. Costs, including labour and fuel, can increase and decrease in proportion to activity levels. In addition, Builders has reduced operating expenses through staff reductions and the deferral of discretionary spending. However, costs associated with retaining key field personnel, qualified equipment operators, maintaining service locations and insurance are relatively fixed in nature. Costs of this nature change incrementally in relation to a longer term industry outlook. During periods of decreased activity, such as the reduced activity levels experienced in 2007 in comparison to 2006, this results in operating costs, as a percentage of revenue(a), being higher.



General & administrative expenses

Three months ended Nine months ended
September 30, September 30,
(Thousands) 2007 2006 2007 2006
------------------------------------------------------------------------

------------------------------------------------------------------------
General and administrative
expenses 3,003 4,616 11,353 13,440
------------------------------------------------------------------------
General and administrative
expenses as a percentage
of revenue(a) 7% 9% 9% 9%
------------------------------------------------------------------------
------------------------------------------------------------------------

(a) Refer to the "non-GAAP Measures" section for further details


General and administrative expenses for the three and nine month periods ending September 30, 2007 were $3.0 million and $11.4 million, respectively, compared to $4.6 million and $13.4 million for the same periods ended September 30, 2006. General & administrative expenses as a percentage of revenue(a) were 7% and 9% for the three and nine month periods ended September 30, 2007, respectively and 9% for the same periods in 2006.

In response to reduced operating gross margins(a) and deteriorating industry conditions, management undertook several initiatives intended to reduce discretionary spending in order to minimize general and administrative expenditures. As part of these initiatives, the executive management team has accepted a voluntary reduction in their compensation. In addition, the Trust continues to negotiate and implement cost reductions and has reduced discretionary spending.

(a) Refer to the "non-GAAP Measures" section for further details

Unit-based compensation, which includes the unit option plan ("Option Plan") and the cash-settled long term incentive plan ("LTIP"), is included within general and administrative expenses. The LTIP was implemented in early 2007. For the three and nine month periods ended September 30, 2007, the Trust recorded a non-cash expense related to the Trust's Option Plan in the amount of $0.3 million and $0.8 million compared to $0.5 million and $1.4 million for the same period in 2006. For the three month period ended September 30, 2007, the Trust recorded a recovery of previously expensed LTIP costs of $0.6 million. The recovery of LTIP during the third quarter of 2007 relates to the reduction in the Trust unit price.

On November 12, 2007 there were 1,344,650 LTIP units outstanding, none of which were exercisable.



Depreciation and Amortization

Three months ended Nine months ended
September 30, September 30,
(Thousands) 2007 2006 2007 2006
------------------------------------------------------------------------

Depreciation and
amortization $ 5,813 $ 4,777 $ 17,089 $ 12,815
------------------------------------------------------------------------
------------------------------------------------------------------------


Depreciation and amortization expenses for the three and nine month periods ending September 30, 2007 were $5.8 million and $17.1 million, respectively, compared to $4.8 and $12.8 million for the same periods ended September 30, 2006. The period over period increases relate to 2006 and 2007 capital expenditures and the 2006 acquisitions.



Interest on Long-term Debt

Three months ended Nine months ended
September 30, September 30,
(Thousands) 2007 2006 2007 2006
-----------------------------------------------------------------------
Interest on
long-term debt $ 1,050 $ 786 $ 2,873 $ 1,761
-----------------------------------------------------------------------
-----------------------------------------------------------------------


Interest on long-term debt for the three and nine months ended September 30, 2007 has increased primarily as a result of a higher average term acquisition loan outstanding throughout the period. Interest rates on Builders' term acquisition loan facility averaged 6.6% for the third quarter of 2007, compared with 6.8% in 2006. For the nine months ended September 30, 2007, interest rates on our term acquisition loan facility averaged 6.6% for 2007 compared with 6.3% for 2006.



Income Taxes
Three months ended Nine months ended
September 30, September 30,
(Thousands) 2007 2006 2007 2006
-------------------------------------------------------------------------
Current tax expense $ - $ 626 $ - $ 1,754

Future tax recovery (2,226) (357) (4,352) (3,848)
-------------------------------------------------------------------------
Income tax expenses
(recoveries) $ (2,226) $ 269 $ (4,352) $ (2,094)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Builders' trust structure includes certain subsidiaries which are subject to the payment of corporate income taxes. Current income tax expense for the nine months ended September 30, 2007 decreased $1.8 million from the same period in 2006 as a result of the restructuring of certain operations of the Trust on January 1, 2007. Builders expects to pay only a nominal amount of corporate income taxes in respect of its 2007 operations.

In June 2007 the Government of Canada enacted legislation imposing additional income taxes on trusts for taxation years commencing January 1, 2011. During the nine months ended September 30, 2007, the Trust recognized $2.2 million in future tax expense due to this enacted legislation.



Impairment of Goodwill

Three months ended Nine months ended
September 30, September 30,
(Thousands) 2007 2006 2007 2006
-------------------------------------------------------------------------
Impairment of goodwill by
segment:

Oilfield Transport $ 26,693 $ - $ 26,693 $ -

Downhole Services
& Rentals 11,059 - 11,059 -
-------------------------------------------------------------------------
$ 37,752 $ - $ 37,752 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Builders annually tests goodwill for indications of impairment. This testing has historically occurred, by reporting unit, on December 31 of each year. Ordinarily Builders does not test goodwill, which is recorded at cost, for indications of impairment during an interim period unless it is more likely than not that the carrying value of goodwill exceeds its fair value. Although management continues to believe in the long-term fundamentals of crude oil and natural gas activities throughout the WCSB, a combination of recent events transpired to indicate that goodwill may be impaired. These recent events include the September 2007 Alberta Royalty Review Report, a strengthening Canadian dollar relative to the U.S. dollar and further delays in the expected recovery of natural gas prices. Because these events have reduced Builders' earnings, particularly those within oilfield transport and wireline services (the latter being a component of the DS&R segment), management felt it was prudent to test for impairment at September 30, 2007. The result of this analysis indicated that the fair values of goodwill in the oilfield transport and wireline reporting units exceeded their carrying amounts by $26.7 million and $11.1 million, respectively. Accordingly, impairment of goodwill of $37.8 million was recognized for the three and nine months ended September 30, 2007. Builders' other reporting units include service rigs, downhole services and rentals. As the estimated fair values of each of these reporting units exceeded their carrying values, there were no indications of impairment.

FINANCIAL RESOURCES AND LIQUIDITY

On an annual basis, the Trust expects to finance the settlement of its distribution obligations through funds flow from operations(a). Overall, the Trust establishes its distribution level based on actual results to date and future expected funds flow from operations(a), with the objective of establishing a prudent distribution level while at the same time enabling the Trust to manage its debt levels and maintain the productive capacity of its equipment fleet in a cost effective manner.

During the quarter, Builders' funds flow from operations(a) was $6.4 million. These funds, in combination with previous quarter's funds, were primarily used to finance the third quarter's distribution. The change in non-cash working capital, mainly comprised of an increase in accounts receivable related to increased activity levels during the quarter, in combination with net equipment expenditures(a), were financed mainly through Builders' credit facilities.



Funds Flow from Operations(a)

(Thousands, except per unit amounts)

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
-------------------------------------------------------------------------
Cash flow from operations $ (2,605) $ 4,942 $ 17,708 $ 31,988

Add back:
Changes in non-cash
operating working
capital 9,011 6,910 787 2,496
-------------------------------------------------------------------------
Funds flow from
operations(a) $ 6,406 $ 11,852 $ 18,495 $ 34,484
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Per unit - basic $ 0.34 $ 0.71 $ 0.98 $ 2.19

Per unit - diluted $ 0.34 $ 0.70 $ 0.98 $ 2.15
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(a) Refer to the "non-GAAP Measures" section for further details


Funds flow from operations(a) for the three and nine month periods ended September 30, 2007 was $6.4 million and $18.5 million, respectively, compared to $11.9 million and $34.5 million for the same periods in 2006. The period over period decrease is attributed to weaker industry conditions resulting in reduced activity levels and lower margins.



Payout Ratio(a)

(Thousands, except per unit amounts)

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
--------------------------------------------------------------------------
Funds flow from
operations(a) $ 6,406 $ 11,852 $ 18,495 $ 34,484

Distributions:
Paid 4,535 4,747 20,371 17,022

Payable 2,268 2,535 2,268 2,535
--------------------------------------------------------------------------
Distributions declared $ 6,803 $ 7,282 $ 22,639 $ 19,557
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total distributions per unit $ 0.36 $ 0.42 $ 1.20 $ 1.22
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Payout ratio(a) 106% 61% 122% 57%
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(a) Refer to the "non-GAAP Measures" section for further details


During the third quarter, the Trust reduced its per unit distribution rate to $0.12 per month ($1.44 per annum). On October 10, 2007, Builders announced that its October cash distribution had been set at $0.06 per Trust unit. The 50% reduction from the prior month's distribution was in response to further deterioration in the outlook for western Canadian oilfield services. This reduction, combined with the $0.02 reduction announced in July will reduce cash outlays by $18.4 million annually and will increase the financial flexibility of the Trust.

On September 12, 2007, Builders announced that it adopted a Distribution Reinvestment Plan (the "DRIP"). The DRIP allows eligible Unitholders of Builders to direct their cash distributions to be reinvested in additional Trust units at 95% of the average market price on the applicable distribution payment date. The DRIP further assists Builders in retaining cash during periods of weaker industry fundamentals. On October 15, 2007 there were 20,233 Trust units issued under the DRIP in consideration for $0.1 million.



Equipment Expenditures

Three months ended Nine months ended
September 30, September 30,
(Thousands) 2007 2006 2007 2006
--------------------------------------------------------------------------
Equipment expenditures:

Service Rigs $ 3,220 $ 2,845 $ 7,774 $ 7,053

Oilfield Transport 408 5,350 4,726 13,742

Downhole Services & Rentals 751 2,542 3,291 11,641

Corporate 1,941 259 2,718 671
--------------------------------------------------------------------------
Investment in equipment 6,320 10,996 18,509 33,107

Less: Proceeds on disposal of
equipment (152) (716) (1,433) (2,695)
--------------------------------------------------------------------------
Net equipment expenditures(a) $ 6,168 $ 10,280 $ 17,076 $ 30,412
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(a) Refer to the "non-GAAP Measures" section for further details


Net equipment expenditures(a) for the three and nine month periods ended September 30, 2007 were $6.2 million and $17.1 million compared to $10.3 million and $30.4 million for the same periods in 2006. The current year-to-date net equipment expenditures(a) is comprised of $10.9 million in growth capital(a), $3.5 million in net maintenance capital(a) and $2.7 million for information systems, operational facilities and leasehold improvements. The reduced level of equipment expenditures reflects the sector slowdown throughout 2007.

Trust Units and Non-controlling Interest

During the nine months ended September 30, 2007 the following transactions occurred:

- 359,714 (2006 - 391,706) Trust units were issued in exchange for 294,493 (2006 - 356,703) Series A Exchangeable shares.

- 83,338 (2006 - 75,671) Trust units were issued on exercise of Trust unit options.

As at November 12, 2007, there were 18,916,251 Trust units and 1,487,893 Trust unit options outstanding. Of the 1,487,893 Trust unit options, 731,913 were exercisable of which nil were "in-the-money".

As at November 12, 2007, there were 294,495 Series A Exchangeable shares outstanding that were convertible at a ratio of 1.3800 per share into 406,406 Trust units.

Credit Facilities

The unutilized portions of the operating and acquisition facilities are expected to be sufficient to meet existing operating commitments and capital spending for the next year.

As at September 30, 2007, all financial debt covenants were satisfied and all banking requirements were up to date. We do not anticipate any financial resources or liquidity issues to restrict our future operating, investing or financing activities.

Non-GAAP Measures

Throughout this MD&A, certain terms that are not specifically defined in Canadian Generally Accepted Accounting Principles ("GAAP") are used to analyze the operations. In addition to the primary measures of net earnings and net earnings per unit in accordance with GAAP, the Trust believes that certain measures not recognized under GAAP assist both the Trust and the reader in assessing performance and understanding the Trust's results. Each of these measures provides the reader with additional insight into the Trust's ability to fund future distributions, principal debt repayments and capital programs. These non-GAAP measures are not recognized measures under GAAP. As a result, the method of calculation may not be comparable with other companies or Trusts. These measures should not be considered alternatives to net earnings and net earnings per unit as calculated in accordance with GAAP.

Gross margin(1) - This measure is considered a primary indicator of operating performance as calculated by revenue less operating expenses.

Gross margin as a percentage of revenue(1) - This measure is considered a primary indicator of operating performance as calculated by gross margin divided by revenue.

EBITDA(2) (Earnings before interest, income taxes, depreciation, amortization, non-controlling interest earnings, losses or gains on disposal of equipment and impairment of goodwill) - This measure is considered an indicator of the Trust's ability to generate funds flow in order to meet distributions, fund required working capital, service debt, pay current income taxes and fund capital programs.

EBITDA as a percentage of revenue(2) - This measure is considered an indicator of the Trust's ability to generate funds flow as calculated by EBITDA(2) divided by revenue.

Net maintenance capital - Equipment additions that are incurred in order to refurbish or replace previously acquired equipment less proceeds on the disposal of retired equipment. Such additions do not provide incremental increases in revenue. Net maintenance capital is a key component in understanding the sustainability of the Trust's business as cash resources retained within the Trust must be sufficient to meet net maintenance capital needs to replenish the assets for future cash generation.

Net equipment expenditures(3) - This measure is equipment expenditures less proceeds on the disposal of equipment. The Trust uses net equipment expenditures(3) to assess net cash flows related to the financing of our oilfield services equipment.

Growth capital - Growth capital is capital spending which is intended to result in incremental increases in revenue. Growth capital is considered to be a key measure as it represents the total expenditures on equipment expected to add incremental revenues and funds flow to the Trust.

Funds flow or funds flow from operations(4) - This measure is an indicator of the Trust's ability to generate funds flow(4) in order to fund distributions, working capital, principal debt repayments and capital programs. Funds flow or funds flow from operations(4) is defined as cash flow from operations before changes in non-cash operating working capital. This measure is useful in assessing the Trust's operational cash flow as it provides cash generated in the period excluding the timing of non-cash operating working capital. This reflects the ability of the operations of the Trust to meet the above noted funding requirements.

Payout ratio(5) - This ratio is defined as distributions declared expressed as a percentage of funds flow from operations(4). This ratio is an indicator of the Trust's ability to fund its distributions from the Trust's ongoing operations excluding changes in non-cash working capital.



-------------------------------

(1) Gross margin and gross margin as a percentage of revenue are reconciled
to the GAAP measures, revenue and operating costs, in the table "Results
of Operations".

(2) EBITDA and EBITDA as a percentage of revenue are reconciled to the GAAP
measure, earnings before income taxes and non-controlling interest, in the
table "Results of Operations".

(3) Net equipment expenditures is calculated from the GAAP measures,
equipment expenditures and proceeds on disposal of equipment, in the
table "Equipment Expenditures"

(4) Funds flow is reconciled to the GAAP measure, cash flow from
operations, in the table "Funds Flow from Operations".

(5) Payout ratio is calculated from the non-GAAP measure, funds flow,
and the GAAP measure, distributions declared, in the table
"Payout Ratio"



SUMMARY OF QUARTERLY DATA


(Thousands, except per unit amounts)

Sept. 30, June 30, Mar. 31, Dec. 31,
2007 2007 2007 2006
-------------------------------------------------------------------------

Revenue $ 40,088 $ 23,024 $ 62,013 $ 51,799
Net earnings (loss) (34,734) (7,376) 9,068 5,242
Per-unit - basic (1.84) (0.39) 0.49 0.28
Per-unit - diluted (1.84) (0.39) 0.48 0.28
Funds flow from
Operations(a) 6,406 (3,907) 15,996 9,418
Per-unit - basic 0.34 (0.21) 0.86 0.51
Per-unit - diluted 0.34 (0.21) 0.86 0.51
Distributions per unit $ 0.36 $ 0.42 $ 0.42 $ 0.42
Payout ratio(a) 106% - (1) 49% 82%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


SUMMARY OF QUARTERLY DATA


(Thousands, except per unit amounts)

Three months ended
Sept. 30, June 30, Mar. 31, Dec. 31,
2006 2006 2006 2005
-------------------------------------------------------------------------

Revenue $ 50,422 $ 34,590 $ 62,754 $ 50,772
Net earnings (loss) 6,554 3,978 11,870 7,220
Per-unit - basic 0.39 0.26 0.79 0.53
Per-unit - diluted 0.38 0.25 0.78 0.52
Funds flow from
operations(a) 11,852 5,719 16,913 12,544
Per-unit - basic 0.71 0.37 1.13 0.93
Per-unit - diluted 0.70 0.36 1.11 0.90
Distributions per unit $ 0.42 $ 0.41 $ 0.39 $ 0.39
Payout ratio(a) 61% 112% 35% 44%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Not presented as the denominator is negative


Commencing in the fourth quarter of 2006, relative to the comparative quarter, Builders' net earnings and funds flow(a) were impacted by a downturn in activity levels resulting from wet weather and a reduction in drilling activity as a result of weakening prices for natural gas. During the first quarter of 2007, relative to the comparative quarter, revenues, net earnings and funds flow(a) were impacted by reduced drilling and associated oilfield services activity as a result of high natural gas storage levels and the earlier arrival of spring break-up. The reduction in industry activity levels magnified and continued throughout the second quarter of 2007, and, combined with the earlier arrival and extended spring break-up and exceptionally wet weather during June 2007, resulted in reductions, relative to the comparative quarter, in revenue, net earnings and funds flow from operations(a). Continued weaker industry fundamentals in combination with wet weather during August throughout west central and northern Alberta and the proposed Alberta Royalty Review Report on September 18, 2007, impacted the third quarter of 2007, relative to the comparative quarter, in terms of revenue, net loss and funds flow from operations(a). As a result of the combination of these factors, during the third quarter of 2007, Builders recognized impairment of goodwill of $37.8 million further contributing to the net loss.

The second quarters of 2007 and 2006 were impacted by the annual spring break-up, which leaves many secondary roads temporarily incapable of supporting the weight of equipment and results in restrictions in the level of oilfield service activity. As a result of the seasonality of operations, funds flow(a) in the first quarter of each year has been substantially more than the distributions declared, which is expected. This excess funds flow(a) was used to partially finance the distributions in the second quarter. As utilization levels increased during the third quarter, funds flow(a) was primarily used to finance increases in non-cash working capital and distributions.

(a) Refer to the "non-GAAP Measures" section for further details

OUTLOOK

The Petroleum Services Association of Canada (PSAC) and the CAODC have recently released 2008 forecasts that show a further expected reduction in drilling in Canada. PSAC is projecting 14,500 wells to be drilled in 2008, compared to their current forecast of 17,550 wells in 2007. CAODC is projecting 13,735 new wells in western Canada in 2008, compared to their current forecast of 16,393 wells in 2007. Continued weak natural gas prices, a strong Canadian dollar, increased Alberta royalties and high operating costs continue to affect the industry.

While these forecasts point to challenging operating conditions for the next year, Builders' management remains confident in the long-term underlying fundamentals for Canadian natural gas drilling and Canadian-based oilfield services. Builders continues to expect that eventually, high production decline rates combined with anticipated rising natural gas demand will work in tandem to encourage an increase in Canadian natural gas drilling and increased activity levels for Canadian-based oilfield services.

The Report of the Alberta Royalty Review Panel created significant uncertainty in the industry in the period between its announcement on September 18 and the Alberta government's response on October 25, and thereafter. A further slowdown in Alberta oilfield activity has been partially attributed to this uncertainty, along with a very tentative outlook, as several of the major oil and natural gas producers had announced reduced spending in Alberta if the proposal went ahead. The Alberta government accepted many of the recommended changes for conventional oil and gas. However, some adjustments were made to delay the timing of implementation from January 1, 2008 to January 1, 2009 and some positive concessions have been made for deep gas drilling. In addition, concessions have been provided for non-conventional gas reserves such as coal-bed methane, tight gas and shale gas. Many of the producers are still assessing the impact of the final decision. The near-term impact to Builders will be dependent on its customers' spending plans for the balance of 2007 and 2008.

In response to further deterioration in the outlook for western Canadian oilfield services, Builders reduced the October cash distribution by 50% from the prior month, or $0.06 per Trust unit. This reduction, combined with the $0.02 reduction announced in July will reduce cash outlays by $18.4 million annually and will increase financial flexibility of the Trust.

The sector environment in 2007 has made it difficult for Builders to execute its growth strategy. Large scale organic growth and growth through private company acquisitions has been curtailed as a result of the current operating environment and lower equipment utilization. Trust-to-trust mergers have been considered, but to date, there has been no consolidation in the sector. While growth has been modest in 2007, over the longer term, organic and acquisitive growth continue to be key elements of the Trust's strategy.

Builders' business units have successfully operated through cyclical business environments such as the one it finds itself in today. As the Trust looks to the future, it will continue to operate in the same prudent manner that has made Builders' businesses successful in the past. Management's immediate focus continues to be on cost management, divisional synergies and cash flow management. Prudent maintenance of cash flows is being achieved through preservation of cash from the reductions in monthly cash distribution obligations that were announced in July and October and proceeds from the DRIP. This preservation of cash combined with operational discipline is positioning Builders to capitalize on future opportunities as industry fundamentals are expected to eventually recover.




BUILDERS ENERGY SERVICES TRUST
CONSOLIDATED BALANCE SHEETS
(unaudited)

As at As at
(Thousands) September 30, 2007 December 31, 2006
---------------------------------------------------------------------------

Assets
Current assets
Accounts receivable $ 32,657 $ 40,835
Inventory 6,085 5,753
Prepaid expenses and deposits 3,244 2,359
---------------------------------------------------------------------------
41,986 48,947
Equipment 162,487 161,260
Intangible assets 16,224 18,327
Goodwill (note 4) 55,986 94,015
Deferred charges (note 3) - 484
---------------------------------------------------------------------------
$ 276,683 $ 323,033
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities
Current liabilities
Bank indebtedness $ 1,846 $ 236
Operating line of credit (note 5) 10,350 2,650
Accounts payable and accrued liabilities 9,967 20,112
Distributions payable (note 11) 2,268 2,583
Income taxes payable - 1,525
Current portion of long-term debt (note 6) 8,699 11,432
---------------------------------------------------------------------------
33,130 38,538

Long-term debt (note 6) 59,607 40,790
Future income tax liability 17,771 22,278
---------------------------------------------------------------------------
110,508 101,606

Non-controlling interest (note 7) 3,240 7,881
Subsequent event (note 17)

Unitholders' Equity
Trust units (note 8) 214,912 210,083
Contributed surplus (note 9) 3,915 3,345
Accumulated net earnings 10,785 44,156
Accumulated distributions (note 11) (66,677) (44,038)
---------------------------------------------------------------------------
162,935 213,546
---------------------------------------------------------------------------
$ 276,683 $ 323,033
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to unaudited consolidated interim financial
statements


BUILDERS ENERGY SERVICES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE INCOME
(LOSS) AND ACCUMULATED NET EARNINGS
(unaudited)


Three months ended Nine months ended
(Thousands, except September 30, September 30,
per unit amounts) 2007 2006 2007 2006
---------------------------------------------------------------------------

Revenue $ 40,088 $ 50,422 $ 125,125 $ 147,766
Operating expenses 29,446 32,921 92,287 97,487
---------------------------------------------------------------------------
10,642 17,501 32,838 50,279
---------------------------------------------------------------------------

Expenses
General and administrative
(note 10) 3,003 4,616 11,353 13,440
Depreciation 5,105 4,087 14,986 11,035
Amortization 708 690 2,103 1,780
Interest on long-term debt 1,050 786 2,873 1,761
Other 711 247 1,773 832
---------------------------------------------------------------------------
10,577 10,426 33,088 28,848
---------------------------------------------------------------------------

Earnings (loss) before income
taxes, non-controlling
interest and impairment of
goodwill 65 7,075 (250) 21,431

Income tax expenses
(recoveries)
Current - 626 - 1,754
Future (2,226) (357) (4,352) (3,848)
---------------------------------------------------------------------------
(2,226) 269 (4,352) (2,094)
---------------------------------------------------------------------------

Earnings before non-
controlling interest and
impairment of goodwill 2,291 6,806 4,102 23,525
Non-controlling interest
earnings (loss) (note 7) (727) 252 (608) 1,123
Impairment of goodwill
(note 4) 37,752 - 37,752 -
---------------------------------------------------------------------------

Net earnings (loss) and
comprehensive income
(loss) (note 3) $ (34,734) $ 6,554 $ (33,042) $ 22,402

Accumulated net earnings,
beginning of period 45,519 32,360 44,156 16,512

Adoption of new accounting
policy (note 3) - - (329) -
---------------------------------------------------------------------------

Accumulated net earnings,
end of period $ 10,785 $ 38,914 $ 10,785 $ 38,914
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net earnings (loss) per
unit (note 12)
Basic $ (1.84) $ 0.39 $ (1.76) $ 1.42
Diluted $ (1.84) $ 0.38 $ (1.76) $ 1.40
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to unaudited consolidated interim financial
statements



BUILDERS ENERGY SERVICES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Three months ended Nine months ended
September 30, September 30,
(Thousands) 2007 2006 2007 2006
---------------------------------------------------------------------------

Operating activities
Net earnings (loss) and
comprehensive income (loss) $ (34,734) $ 6,554 $ (33,042) $ 22,402
Items not affecting cash:
Depreciation and
amortization 5,813 4,777 17,089 12,815
Future income tax recovery (2,226) (357) (4,352) (3,848)
Unit-based compensation
(note 10) 259 498 793 1,439
Non-controlling interest
earnings (loss) (note 7) (727) 252 (608) 1,123
Impairment of goodwill
(note 4) 37,752 - 37,752 -
Loss on disposal of
equipment 269 128 863 553
---------------------------------------------------------------------------
6,406 11,852 18,495 34,484
Changes in non-cash
operating working capital
(note 13) (9,011) (6,910) (787) (2,496)
---------------------------------------------------------------------------
(2,605) 4,942 17,708 31,988
---------------------------------------------------------------------------

Financing activities
Issue of Trust units, net
of issue costs (note 8) (25) 28,231 573 28,908
Distributions paid (7,180) (6,958) (22,954) (18,923)
Increase (repayment) of
operating line of credit 9,200 (1,495) 7,700 (5,000)
Increase in long-term debt 5,210 11,500 17,610 34,600
Repayment of long-term debt (403) (17,059) (1,526) (18,698)
Other - (187) - (295)
---------------------------------------------------------------------------
6,802 14,032 1,403 20,592
---------------------------------------------------------------------------

Investing activities
Equipment (6,320) (10,996) (18,509) (33,107)
Business acquisitions - (9,359) - (25,035)
Proceeds on disposal of
equipment 152 716 1,433 2,695
Changes in non-cash investing
working capital (note 13) 770 (1,052) (3,645) 537
---------------------------------------------------------------------------
(5,398) (20,691) (20,721) (54,910)
---------------------------------------------------------------------------

Decrease in cash (1,201) (1,717) (1,610) (2,330)

Cash (bank indebtedness),
beginning of period (645) 848 (236) 1,461
---------------------------------------------------------------------------
Bank indebtedness, end of
period $ (1,846) $ (869) $ (1,846) $ (869)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Supplementary cash flow
information
Income taxes paid $ - $ 1,258 $ 1,525 $ 4,112
Interest paid $ 1,190 $ 882 $ 3,368 $ 2,058
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to unaudited consolidated interim financial
statements


BUILDERS ENERGY SERVICES TRUST

NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the periods ended September 30, 2007 and 2006

(All tabular amounts in thousands unless otherwise stated, except for per unit amounts)

1. Nature of the Organization

Builders Energy Services Trust (the "Trust" or "Builders") is an open-end unincorporated investment trust governed by the laws of the Province of Alberta and created pursuant to a Declaration of Trust dated November 29, 2004. The Trust commenced operations on January 25, 2005. The principal undertaking of the Trust is to engage in oilfield services, indirectly, through three operating segments: Oilfield Transport, Service Rigs and Downhole Services & Rentals.

2. Significant Accounting Policies

The interim consolidated financial statements of the Trust have been prepared by management in accordance with Canadian generally accepted accounting principles and are consistent with those set out in the audited consolidated financial statements for the year ended December 31, 2006, except as described in note 3. These interim consolidated financial statements do not include all disclosures provided in the December 31, 2006 financial statements and should be read in conjunction with the Trust's consolidated annual financial statements for the year ended December 31, 2006 and the consolidated interim financial statements for the period ended March 31 and June 30, 2007. In management's opinion, these interim consolidated financial statements include all adjustments to present fairly such information.

3. Adoption of New Accounting Policy

Effective January 1, 2007, Builders adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income; CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement; and CICA Handbook Section 3861, Financial Instruments - Disclosure and Presentation. These new standards changed requirements for the disclosure and presentation and the recognition and measurement of financial instruments, the treatment of financing costs and a new statement referred to as comprehensive income.

In accordance with the provisions of these new standards, the Trust performed an analysis of its financial instruments as at January 1, 2007. The Trust's financial instruments consist of accounts receivable, bank indebtedness, operating line of credit, accounts payable and accrued liabilities, distributions payable and long-term debt. The financial instruments were reviewed to determine whether they should be categorized as held for trading, available for sale, held to maturity, loans and receivables or other. Those financial instruments categorized as held for trading or available for sale would be subsequently measured at their fair value at each reporting period. Subsequent measurement of gains or losses for held for trading financial instruments would be recognized in net earnings (loss) while those categorized as available for sale would be recognized in comprehensive income (loss). Those financial instruments categorized as held to maturity, loans and receivables or other would be initially recorded at amortized cost and subsequently measured using the effective interest rate method.

Given management's intent and the nature of the Trust's financial instruments, it was determined that the Trust's financial assets would be categorized as loans and receivables and that its financial liabilities would be categorized as other. As the carrying value of the Trust's financial instruments as at January 1, 2007 were consistent with the amortized cost using the effective interest rate method, no adjustments were required to their carrying values or recognized in comprehensive income (loss). As new financial instruments are acquired an evaluation of management's intent and the nature of the item will be performed to determine the correct financial instrument categorization and subsequent measurement of any gains or losses.

As a result of adoption of these new accounting standards the following adjustments were made as of January 1, 2007:

- The name of the consolidated statement of operations and accumulated net earnings was changed to the consolidated statement of operations, comprehensive income and accumulated net earnings in accordance with the new CICA Handbook Section 1530, Comprehensive Income.

- A decrease of $0.5 million in deferred charges and $0.2 million in the related future income tax liability with a corresponding reduction in accumulated net earnings. Deferred charges as at December 31, 2006 consist of costs associated with the establishment of debt agreements. Previously, financing charges were deferred and amortized using the straight-line method over the anticipated term of repayment with amortization included in amortization expense. As at January 1, 2007, such costs are expensed as incurred in accordance with the new CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement. As required, Section 3855 has been retroactively adopted without restatement.

4. Impairment of Goodwill

Goodwill is tested for impairment at least annually to determine if events or circumstances indicate that the asset might be impaired. As a result of the current business climate, the Trust tested for goodwill impairment as of September 30, 2007. The carrying amount of each reporting unit was compared to its estimated fair value. Management's estimates of fair value are subject to measurement uncertainty as they are based on forecasted results using information currently available. Based on these estimates, the Trust has determined that there were indications of impairment in the oilfield transport and wireline services reporting units (wireline services is a component of the Downhole Services & Rentals segment) as their carrying amounts exceeded their estimated fair values. The Trust's other reporting units were not considered impaired as their estimated fair values exceeded their carrying amounts.

As a result of the indications of impairment in the oilfield transport and wireline services reporting units, their estimated fair values of goodwill were compared to their carrying values. The result of this comparison indicated the oilfield transport and wireline services reporting units' fair values of goodwill exceeded their carrying amounts by $26.7 million and $11.1 million, respectively, and accordingly a goodwill impairment loss of $37.8 million was recognized as at September 30, 2007. In accordance with generally accepted accounting principles, the Trust will complete its annual assessment of impairment of goodwill in conjunction with the preparation of its annual financial statements.

5. Operating Line of Credit

The line of credit expires on May 28, 2008 and can be renewed, at the lenders' option, for an additional 364-day period. The line of credit has no required principal repayments during the term and bears interest that fluctuates with the bank's prime rate. If not renewed, the operating line of credit is repayable on demand. The operating line of credit is secured by a general security agreement and a general assignment of accounts receivable. The weighted average interest rate for the three and nine months ended September 30, 2007 was 6.2 and 6.1 percent, respectively (6.0 and 5.7 percent respectively for the three and nine months ending September 30, 2006).

6. Long-term Debt



As at As at
September 30, 2007 December 31, 2006
---------------------------------------------------------------------------

Term acquisition loan $ 66,395 $ 48,495
Term debt and capital leases 1,911 3,727
---------------------------------------------------------------------------
68,306 52,222
Less: current portion of
long-term debt 8,699 11,432
---------------------------------------------------------------------------
Long-term debt $ 59,607 $ 40,790
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The term acquisition loan facility expires on May 28, 2008 and can be renewed, at the lenders' option, for an additional 364-day period. If not renewed, the loan is repayable in equal monthly installments over a three-year period. As a result, the portion of the term acquisition loan included in the current portion of long-term debt at September 30, 2007 is $7.4 million ($9.4 million at December 31, 2006). The term acquisition loan facility has no required principal repayments until expiry and bears interest that fluctuates with the bank's prime rate. The weighted average interest rate for the three and nine months ended September 30, 2007 is 6.6 percent (6.8 and 6.3 percent respectively for the three and nine months ending September 30, 2006). The term acquisition loan facility is collateralized by a general security agreement and a general assignment of book debts. The term debt and capital leases are secured by collateralized equipment.

7. Non-controlling Interest



Nine months ended
September 30, 2007
---------------------------------------------------------------------------
Securities Amount
---------------------------------------------------------------------------

Balance, beginning of period 589 $ 7,881
Conversion to Trust units (note 8) (295) (4,033)
Loss attributable to non-controlling interest - (608)
---------------------------------------------------------------------------
Balance, end of period 294 $ 3,240
---------------------------------------------------------------------------
Exchange ratio, end of period 1.3548
Trust units issuable upon conversion, end of
period 398
---------------------------------------------------------------------------
---------------------------------------------------------------------------

8. Trust Units

Nine months ended
September 30, 2007
---------------------------------------------------------------------------
Units Amount
---------------------------------------------------------------------------
Balance, beginning of period 18,453 $ 210,083
Conversion of Exchangeable shares (note 7) 360 4,033
Exercise of Trust unit options for cash (note 10) 83 830
Fair value of exercised Trust unit options (note 9) - 223
Issue costs - (257)
---------------------------------------------------------------------------
Balance, end of period 18,896 $ 214,912
---------------------------------------------------------------------------
---------------------------------------------------------------------------

9. Contributed Surplus

Nine months ended
September 30, 2007
---------------------------------------------------------------------------
Balance, beginning of period $ 3,345
Unit option plan unit-based compensation expense,
net of forfeitures (note 10) 793
Fair value of exercised Trust unit options (note 8) (223)
---------------------------------------------------------------------------
Balance, end of period $ 3,915
---------------------------------------------------------------------------
---------------------------------------------------------------------------


10. Unit-based Compensation

Recognized in general and administrative expense, unit-based compensation is comprised of the Trust unit option plan ("Option Plan") and the cash-settled long term incentive plan ("LTIP").


i) Trust unit options



Nine months ended
September 30, 2007
---------------------------------------------------------------------------
Weighted
Average
Trust Unit Exercise Price
Options (Per Unit)
---------------------------------------------------------------------------

Outstanding, beginning of period 1,461 $ 12.11
Issued 238 11.50
Exercised (83) 10.00
Forfeitures (116) 13.77
---------------------------------------------------------------------------
Outstanding, end of period 1,500 $ 12.00
---------------------------------------------------------------------------
Exercisable, end of period 720 $ 11.62
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Trust recorded unit-based compensation expense in respect of the Option Plan of $0.3 million and $0.8 million for the three and nine months ended September 30, 2007, respectively (2006 - $0.5 million and $1.4 million, respectively) with a corresponding increase to contributed surplus. The amount of unit-based compensation expense has been reduced for Trust unit options forfeited during the period prior to vesting.

ii) Long-term incentive plan



Nine months ended
September 30, 2007
---------------------------------------------------------------------------
Weighted
Long-term Average
Incentive Plan Exercise Price
Units (Per Unit)
---------------------------------------------------------------------------

Outstanding, beginning of period - $ -
Issued 1,519 10.68
Forfeitures (169) 11.22
---------------------------------------------------------------------------
Outstanding, end of period 1,350 $ 10.61
---------------------------------------------------------------------------
Exercisable, end of period - $ -
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The Trust recorded a unit-based compensation recovery in respect of cash-settled LTIP of $0.6 million and nil for the three and nine months ended September 30, 2007, respectively (nil for the three and nine months ended September 30, 2006) with a corresponding reduction in accrued liabilities.

11. Accumulated Distributions and Distributions Payable



Nine months ended
September 30, 2007
---------------------------------------------------------------------------
Per Unit Amount
---------------------------------------------------------------------------
Accumulated distributions, beginning of period $ 44,038
Distributions declared and paid $ 1.08 20,371
Distributions declared and payable 0.12 2,268
---------------------------------------------------------------------------
Accumulated distributions, for the period $ 1.20 22,639
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Accumulated distributions, end of period $ 66,677
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---------------------------------------------------------------------------


On July 18, 2007, the Trust announced a cash distribution for the period July 1, 2007 to July 31, 2007 had been set at $0.12 per Trust unit.

On September 12, 2007, the Trust announced the commencement of a Distribution Reinvestment Plan ("the DRIP"). Under the terms of the DRIP, eligible Unitholders of the Trust may elect to reinvest their monthly distributions in additional trust units of Builders. Unitholders who elect to reinvest cash distributions under the DRIP will receive units at a price equal to 95 percent of the average closing price of the units on the trading period beginning on the second business day following the record date applicable to a Distribution payment date and ending on the second business day preceding that Distribution payment date.

Units were eligible for purchase under the DRIP commencing with the cash distribution payable on October 15, 2007 to Unitholders of record on September 28, 2007. Units purchased through the DRIP will be issued directly from the Trust's treasury.

12. Net Earnings (Loss) Per Unit



Three Months ended Nine Months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------------

Numerator:
Basic and diluted net
earnings (loss) $ (34,734) $ 6,554 $ (33,042) $ 22,402

Denominator:
Weighted average units
for basic net earnings 18,896 16,774 18,823 15,759
Options convertible to units - 254 - 279
---------------------------------------------------------------------------
Weighted average units for
diluted net earnings 18,896 17,028 18,823 16,038
---------------------------------------------------------------------------
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Net earnings (loss) per unit:
Basic $ (1.84) $ 0.39 $ (1.76) $ 1.42
Diluted $ (1.84) $ 0.38 $ (1.76) $ 1.40
---------------------------------------------------------------------------
---------------------------------------------------------------------------


For the three and nine months ended September 30, 2007, options convertible to units are not included in the denominator as their effect is anti-dilutive.

13. Changes in Non-cash Working Capital

Components of changes in non-cash operating working capital are as follows:



Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------------

Accounts receivable $ (9,431) $ (6,636) $ 8,178 $ 7,369
Inventory 177 267 (332) (131)
Prepaid expenses and deposits 312 862 (885) (492)
Trade accounts payable and accrued
liabilities (69) (1,620) (6,457) (7,736)
Income taxes payable - 217 (1,291) (1,506)
---------------------------------------------------------------------------
$ (9,011) $ (6,910) $ (787) $ (2,496)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Components of changes in non-cash investing working capital are as follows:

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
Equipment accounts payable and
accrued liabilities $ 770 $ (671) $ (252) $ (456)
Acquisition consideration payable
subsequent to closing - 471 (725) 1,845
Acquired accounts payable and
income taxes payable - (852) (2,668) (852)
---------------------------------------------------------------------------
$ 770 $ (1,052) $ (3,645) $ 537
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14. Seasonality of Operations

The Trust's operations are carried out in western Canada. The oilfield services industry's ability to move heavy equipment in exploration and production areas is dependent on weather conditions. With the onset of spring, melting snow together with frost coming out of the ground renders many secondary roadways incapable of supporting heavy equipment until sufficient time has passed for them to dry out. In addition, certain areas in Canada are typically only accessible during winter months, when the surface is frozen enough to support the heavy equipment. As a result, the activity levels of the Trust are directly impacted by this seasonality, whereby activity is traditionally higher in the first and fourth quarters of the year and lower in the second and third quarters.

15. Segmented Information

The Trust has three operating segments: Service Rigs, Oilfield Transport and Downhole Services & Rentals, and a non-operating segment, Corporate.

Selected financial information by operating segments and Corporate is as follows:



As at and for the three months ended September 30, 2007
---------------------------------------------------------------------------
Downhole
Service Oilfield Services &
Rigs Transport Rentals Corporate Consolidated
---------------------------------------------------------------------------
Revenue $ 13,051 $ 12,721 $ 14,316 $ - $ 40,088
Earnings (loss)
before income
taxes, non-
controlling
interest and
impairment of
goodwill $ 2,740 $ (472) $ 1,757 $ (3,960) $ 65
Goodwill &
intangible
assets (note 4) $ 27,366 $ 5,971 $ 38,873 $ - $ 72,210
Total assets $106,596 $ 64,705 $101,628 $ 3,754 $276,683
Equipment
expenditures $ 3,220 $ 408 $ 751 $ 1,941 $ 6,320
---------------------------------------------------------------------------
---------------------------------------------------------------------------



For the three months ended September 30, 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Downhole
Service Oilfield Services &
Rigs Transport Rentals Corporate Consolidated
---------------------------------------------------------------------------
Revenue $ 14,842 $ 16,665 $ 18,915 $ - $ 50,422
Earnings (loss)
before income
taxes, non-
controlling
interest and
impairment of
goodwill $ 4,006 $ 1,843 $ 4,508 $ (3,282) $ 7,075
Equipment
expenditures $ 2,845 $ 5,350 $ 2,542 $ 259 $ 10,996
---------------------------------------------------------------------------
---------------------------------------------------------------------------



As at and for the nine months ended September 30, 2007
---------------------------------------------------------------------------
Downhole
Service Oilfield Services &
Rigs Transport Rentals Corporate Consolidated
---------------------------------------------------------------------------
Revenue $ 44,008 $ 37,044 $ 44,073 $ - $125,125
Earnings (loss)
before income
taxes, non-
controlling
interest and
impairment of
goodwill $ 9,088 $ (2,365) $ 5,731 $(12,704) $ (250)

Goodwill &
intangible
assets (note 4) $ 27,366 $ 5,971 $ 38,873 $ - $ 72,210
Total assets $106,596 $ 64,705 $101,628 $ 3,754 $276,683
Equipment
expenditures $ 7,774 $ 4,726 $ 3,291 $ 2,718 $ 18,509
---------------------------------------------------------------------------
---------------------------------------------------------------------------



For the nine months ended September 30, 2006
---------------------------------------------------------------------------
Downhole
Service Oilfield Services &
Rigs Transport Rentals Corporate Consolidated
---------------------------------------------------------------------------
Revenue $ 38,337 $ 44,706 $ 64,723 $ - $147,766
Earnings (loss)
before income
taxes, non-
controlling
interest and
impairment of
goodwill $ 10,949 $ 4,743 $ 16,834 $(11,095) $ 21,431
Equipment
expenditures $ 7,053 $ 13,742 $ 11,641 $ 671 $ 33,107
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16. Comparative Amounts

Certain comparative amounts have been reclassified to conform to the current period's presentation.

17. Subsequent Event

On October 10, 2007 the Trust announced that the cash distribution for the period October 1, 2007 to October 31, 2007 had been set at $0.06 per Trust unit. The October cash distribution represented a $0.06 per Trust unit reduction from the cash distribution declared and paid for the prior month.

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

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