Deepwell Energy Services Trust
TSX : DWL.UN

Deepwell Energy Services Trust

March 24, 2010 22:12 ET

Deepwell Announces 2009 Year End Results

CALGARY, ALBERTA--(Marketwire - March 24, 2010) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES.

Deepwell Energy Services Trust ("Deepwell" or "the Trust") (TSX:DWL.UN) announces the financial and operating results for the fourth quarter and year ended December 31, 2009.

HIGHLITES

  • Successfully negotiated a strategic financing with Gibson Energy ULC
  • Raised $7 million in equity through a private placement and rights offering
  • Renegotiated banking facilities with senior lender resulting in greater financial flexibility
  • Streamlined both G&A and Operations
  • Expanded service offering in the Bakken oilfield through the addition of waste management facilities at Palko
  • Continued to generate positive EBITDA despite difficult market conditions

For the quarter and year ended December 31, 2009, the Trust generated revenues of $3.1 million and $11.6 million respectively compared to $3.9 million and $18.7 million in 2008, a decrease of 21% and 38% respectively. The Trust's reduction in revenues, in both the fourth quarter of 2009 and the full year, reflected the protracted downturn, with weakened oilfield activity levels and decreases in both the volumes and pricing of the oilfield wastes processed at Deepwell's waste processing facilities.

Operating expenses and general and administrative costs were significantly reduced in response to decreased revenues. Despite the largely fixed-cost nature of the Trust's operations, Deepwell was able to control its operating costs, reducing its operating expenses in the fourth quarter and year end 2009 by 9% and 24% respectively. Operating expenses for the fourth quarter and year end 2009 were $2.1 million and $8.1 million, compared to $2.3 million and $10.8 million for the corresponding periods in 2008. General and administrative expenses, excluding restructuring and reorganization costs, were also significantly reduced to $507,000 in the fourth quarter and $2.1 million for the full year ended 2009, decreases of 30% for the quarter and 17% for the year, from $722,000 and $2.5 million respectively, in the corresponding periods of 2008.

The Trust generated $385,913 and $1,050,949 in EBITDA for the fourth quarter and year-end of 2009, which translated into $0.04 and $0.13 of EBITDA per trust unit respectively. In the comparative periods of 2008, EBITDA was $521,431 ($0.07 per unit), and $4,151,598 ($0.58 per unit). For the three months and year ended December 31, 2009, the Trust reported a net loss of $18.4 million ($1.86 per unit) and $22.6 million ($2.86 per unit) compared to a net loss of $1.0 million ($0.14 per unit) and $8.5 million ($1.18 per unit) for the corresponding fourth quarter and year-end periods of 2008.

Substantially impacting 2009 fourth quarter and year-end results was the impairment charge of $17.0 million on certain long lived and intangible assets, compared to the impairment charge of $7.2 million of goodwill in 2008, which had been recognized from the purchase of assets in the year ended 2006. Losses before the impairment write down in the fourth quarter and year-end 2009 were $1.4 million and $5.5 million, compared to losses of $1 million and $1.4 million in the respective periods of 2008. Losses, before the impairments, are higher primarily due to a lower operating margin of $3.4 million in the year ended 2009 versus $7.9 million in the year ended 2008.

Financial and operating highlights for the quarter and years ended December 31, 2009 and 2008 are:

Financial and Operating Highlights  ($000)
    For the three months ended December 31 For the years ended December 31
    2009 2008 % 2009 2008 %
($000's) ($000's) Change ($000's) ($000's) Change
Revenue   3,111   3,925   -21 % 11,552   18,653   -38 %
Operating Expenses   2,108   2,318   -9 % 8,145   10,755   -24 %
Operating Margin   1,003   1,607   -38 % 3,407   7,898   -57 %
Operating Margin %   32 % 41 %     29 % 42 %    
                           
General and Administrative   507   722   -30 % 2,098   2,543   -17 %
Restructuring and reorganization costs   111   364   -70 % 258   1,203   -79 %
                           
EBITDA1   386   521   -26 % 1,051   4,152   -75 %
Per Unit, Basic & Diluted   0.04   0.07   -43 % 0.13   0.58   -75 %
                           
Loss before impairments   (1,384 ) (996 )     (5,517 ) (1,354 )    
Impairments   (17,041 ) -       (17,041 ) (7,157 )    
Net Loss   (18,425 ) (996 )     (22,558 ) (8,511 )    
Per Unit, Basic & Diluted   (1.86 ) (0.14 )     (2.86 ) (1.18 )    
                           
Weighted average units outstanding (000)   9,885   7,197       7,876   7,182      
                           
Working capital deficit               (3,386 ) (15,560 ) -78 %
Long-term debt               (8,768 )        
Total working capital deficit               (12,154 ) (15,560 ) -22 %
                           
Additional information:                          
Gross equity financing   7,000           7,000          
Capital expenditures   636   224   184 % 2,816   4,910   -43 %
(Repayment) advances of debt   (4,216 ) 12,874       (4,216 ) 12,874      
Distribution payments       (906 )         (4,653 )    
Units Outstanding (000)   15,338   7,200       15,338   7,200      
                           

(1) EBITDA refers to earnings before unit-based compensation, interest & financing costs, taxes, depreciation, amortization, impairment and taxes; and EBITDA per unit is calculated as EBITDA for the period divided by the weighted average trust units outstanding over the period.

Although capital expenditures were kept to a minimum in 2009, the exception was capital expenditures focused on generating immediate cash returns. In addition to required maintenance capital, capital was spent on the expansion of the Midale waste treatment facility in order to accommodate increasing waste volume processing demand from the Bakken oil play, and on the re-completion of a disposal well to increase injection capacity at Deepwell's Grande Cache facility. Total capital expenditures for Deepwell in the fourth quarter and full year 2009 were $636,000 and $2.8 million, compared to $224,000 and $4.9 million in the corresponding periods of 2008.

Deepwell's balance sheet was reinforced in November 2009 through a $7 million equity financing. The financing was composed of a private placement for 6,337,741 trust units at $0.90 per unit for proceeds of $5,703,967, and a unitholder rights offering of 1,800,049 trust units at $0.72 per unit for proceeds of $1,296,035. In October 2009, Gibson Energy ULC had acquired a 19% ownership interest in Deepwell and together with the private placement of November 2009, Gibson Energy today owns an approximate 39% stake in Deepwell.

Commensurate with the equity financings, Deepwell renegotiated its facilities with its senior lender. The revised terms provide for less restrictive covenants with no associated reduction in the level of the loan authorization. As at December 31, 2009, Deepwell had unutilized bank lines amounting to $2 million on the demand loan facility and $7.3 million on the revolving term loan.

The precursor to the overhaul of Deepwell's balance sheet in late 2009 was the real and positive change implemented in Deepwell's corporate culture. The addition of a sales team has resulted in an organization that has become much more customer focused. In addition to driving revenue, the new sales team provides Deepwell's management with the continuous flow of valuable information that enables Deepwell to better identify what is required to keep its customers satisfied, and to take advantage of the profitable opportunities that exist in the market. Next, Deepwell revised its management information systems to deliver high quality, instantaneous feedback on key operational and financial metrics. In conjunction with higher quality business data, Deepwell has empowered its managers with increased decision making authority, enabling real time responses to market needs. Deepwell has become a data driven, customer focused business that thrives with the challenge of getting more out of less.

Subsequent to year end, Deepwell and Gibson Energy demonstrated their commitments to synergize through entering into a single shipper and marketer agreement. This agreement provides Deepwell's customers enhanced credit quality through selling their crude oil to Gibson Energy. Reducing the credit risk exposure for Deepwell's customers reflects Deepwell's commitment to both improving customer service and strengthening its commercial operations. Deepwell's strategic relationship with Gibson Energy will continue to provide Deepwell with additional opportunities to enhance its commercial operations, including increasing waste volumes processed at Deepwell facilities and the potential establishment of future pipeline connectivity at select locations.

OUTLOOK

Actions taken in 2009 have provided Deepwell with a meaningfully improved strategic position. The combination of a strengthened balance sheet, a strategic alliance with Gibson Energy and a leaner operating structure will serve the Trust well as industry conditions improve. The economic environment, while tentative, does not appear to have meaningful additional downside, and opportunities to grow appear more attainable. Generally, we are looking forward with cautious optimism. While 2009 was all about defensive strategies, in 2010, the Trust is poised with a more offensive strategy. 

Following a year of tremendous change, Deepwell looks forward to the continuation of improvement upon its strategic position and the creation of an exciting business for its unitholders moving forward.

A complete copy of the audited annual consolidated financial statements and Management's Discussion and Analysis for the year ended December 31, 2009 may be found on SEDAR under the Trust's profile at www.sedar.com.

Deepwell is a Calgary, Alberta based income trust focused exclusively on providing waste treatment and disposal services to the oil and natural gas industry in Western Canada. Deepwell owns and operates three full service waste management facilities located in Claresholm, Mayerthorpe and Grande Cache, Alberta, as well as one waste water disposal facility in Rycroft, Alberta. Deepwell also owns a 50% interest in a full service oilfield waste management and water disposal facility in Midale, Saskatchewan, the heart of the growing Bakken oil play.

Additional information about the Trust is available at www.sedar.com and on the Trust's website at www.deepwellenergy.com

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements in this press release constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Trust or Deepwell Energy Services LP, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this document, such statements use such words as "may", "will", "intend", "should", "expect", "believe", "plan", "anticipate", "estimate", "predict", "potential", "continue", or the negative of these terms or other similar terminology. These statements reflect current expectations regarding future events and operating performance and speak only as of the date of this document. Such statements include Deepwell's opportunities for growth under improving industry condition, Deepwell's continued strategic relationship with Gibson Energy and the resulting business opportunities, potential of Deepwell to expand its commercial operations and improvement upon Deepwell's strategic position in the industry. These statements assume continued improvement in the general economy and the oil and gas industry in particular, including increased drilling activity and that the relationship between Deepwell and Gibson Energy continues and will provide management's expected benefits. Although the Trust believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that these expectations will prove to be correct. There are risks which could affect the Trust's future results and could cause the results to differ materially from those expressed in these forward looking statements including: the impact of general economic conditions in Canada; industry conditions, including fluctuations in the price of oil and natural gas; the impact of governmental regulation, including environmental regulation; stock market volatility; the need to obtain required approvals from regulatory authorities and the uncertainty inherent in attracting capital. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors, including those discussed above, could cause actual results to differ materially from the results discussed in the forward-looking statements. Any such forward-looking statements are expressly qualified in their entirety by this cautionary statement. Moreover, the Trust does not assume responsibility for the accuracy or completeness of such forward-looking statements. The forward-looking statements included in this Press Release are made as of the date of this Press Release and the Trust undertakes no obligation to publicly update or revise forward-looking statements other than as required by applicable laws. You should not place undue reliance on forward-looking statements.

Contact Information

  • Deepwell Energy Services Ltd.,
    Administrator of Deepwell Energy Services Trust
    Jay Simmons
    Chairman and Chief Executive Officer
    (403) 508-6001
    jsimmons@deepwellenergy.com