Total Energy Services Trust
TSX : TOT.UN

Total Energy Services Trust

November 08, 2007 14:40 ET

Total Energy Services Trust Announces Q3 2007 Results

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2007) - Total Energy Services Trust (TSX:TOT.UN) ("Total Energy" or the "Trust"), announces its consolidated financial results for the three and nine-month periods ending September 30, 2007.



Financial Highlights
($000's except per unit data)

Three Months Ended Sept. 30 Nine Months Ended Sept. 30
(Unaudited) (Unaudited)
% %
2007 2006 Change 2007 2006 Change
------------------------------------------------------
Revenue $ 24,395 $ 49,937 (51%) $ 94,056 $154,447 (39%)
Operating Earnings (1) 4,191 15,406 (73%) 18,355 46,989 (61%)
EBITDA (1) 7,797 19,111 (59%) 28,578 57,104 (50%)
Cashflow (1) 8,629 17,337 (50%) 30,338 51,341 (41%)
Net Earnings 5,190 13,778 (62%) 20,443 43,242 (53%)

Per Unit Data (Diluted)
EBITDA (1) $ 0.26 $ 0.64 (59%) $ 0.96 $ 1.91 (50%)
Cashflow (1) 0.29 0.58 (50%) 1.02 1.72 (41%)
Net Earnings 0.18 0.46 (61%) 0.69 1.45 (52%)

Sept. 30 Dec. 31
2007 2006
%
(Unaudited)(Audited) Change
Financial Position
Total Assets $216,924 $213,648 2%
Long-Term Debt and Obligations
Under Capital Leases 21,282 13,947 53%
Working Capital (2) 21,192 15,907 33%
Net Debt (3) 90 nil n/m
Unitholders' Equity 130,215 136,686 (5%)

Units Outstanding (000's)
Basic and diluted 29,731 29,879 0%


Notes 1 through 3 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy's financial results for the three months ended September 30, 2007 represent continued challenging industry conditions in Western Canada, particularly within the natural gas segment. Third quarter financial results improved from the second quarter due primarily to the seasonality of the Trust's operations. However, continued weakness in natural gas drilling activity and overcapacity within the western Canadian service industry resulted in decreased third quarter financial performance compared to the prior year comparable period.

Total Energy's Contract Drilling division achieved 411 operating days (spud to release) with a fleet of thirteen rigs during the third quarter of 2007, which translates into a utilization rate of 34%. During the third quarter of 2006 the Contract Drilling division operated eleven rigs with a twelfth rig added in late August of 2006 and achieved 664 operating days (spud to release) or 63% utilization. The Drilling and Production Rentals division achieved a utilization rate on major rental equipment of 35% during the third quarter of 2007 as compared to a 58% utilization rate during the third quarter of 2006. The reduction in equipment utilization was a direct result of lower drilling activity as compared to the prior year comparable period. The Gas Compression Services division generated revenues of $6.4 million for the three months ended September 30, 2006 compared to $20.5 million for the third quarter of 2005. While the fabrication backlog at June 30, 2007 was $9.6 million, a significant portion of such backlog represented international orders that will be delivered in the fourth quarter of 2007. The timing of such deliveries resulted in lower third quarter revenues and increased inventory levels at quarter end. At September 30, 2007 the Gas Compression Services division had a fabrication backlog of approximately $17.5 million, compared to a backlog of $30.4 million as at September 30, 2006, and had approximately 9,000 horsepower of compression equipment on rent. Approximately 70% of the September 30, 2007 backlog relates to international orders. The gas compression rental fleet operated at an average utilization rate of 92% during the first nine months of 2007.

During the third quarter of 2007, Total Energy repurchased and cancelled 78,002 Units pursuant to its normal course issuer bid at an average price (including commissions) of $8.54. Year to date repurchases total 164,602 Units at an average price of $10.16.

The Trust declared distributions of $0.285 per unit for the three months ended September 30, 2007. Total distributions for the third quarter were $8.5 million. Maintenance of the Trust's distribution level to date has resulted not only in the elimination of current taxes but also in the recovery of prior year cash taxes paid subsequent to Total Energy's trust conversion in April 2005. Such income tax recovery is expected to total between $5.0 and $5.8 million and be realized in the second quarter of 2008.

OUTLOOK

Continued weakness in natural gas prices combined with uncertainty surrounding the impact of recently announced changes to the royalty regime in Alberta have resulted in continued challenging industry conditions in Western Canada. In light of such environment, the fact that no additional material cash taxes paid previously are recoverable and increased opportunities to reinvest cash flow into accretive acquisitions (including the repurchase of Units under the Trust's existing normal course issuer bid and the recently announced $9.4 million acquisition of the operating assets of Oilpatch Rentals Ltd. that is scheduled to close effective December 1, 2007), the Trust has determined to reduce its monthly distribution to $0.03/unit ($0.36/unit per annum) beginning for the month of November 2007. This monthly distribution has been determined with the primary objective of retaining a substantial portion of pre-tax cash flow to re-invest in future growth opportunities.

Total Energy also announces the expansion of its Drilling and Production Rentals division into southeastern Saskatchewan through the recent opening of a branch in the Weyburn/Midale area. This strategic expansion will provide the Trust with a platform from which to diversify its geographic and commodity exposure.

Total Energy's balance sheet remains strong, with a long term debt to equity ratio of 0.16 to 1, a strong positive working capital position and essentially no net debt. With a reduced distribution going forward and the ability to add further leverage to the balance sheet, Total Energy is well positioned to pursue opportunities that will create substantial value for Unitholders.

CONFERENCE CALL

At 2:30 p.m. MST today, Total Energy will conduct a conference call to discuss its third quarter financial results. Messrs. Daniel Halyk, President & Chief Executive Officer, Mark Kearl, Vice-President Finance & Chief Financial Officer and Brad Macson, Vice President Operations will host the conference call. The call is open to analysts, investors, and all interested parties. If you wish to participate, call (866) 299-6655. Those who are unable to listen to the call live may listen to a recording of it by calling (800) 408-3053 (password 3240137). The recording will be available until November 15, 2007.

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and nine month periods ended September 30, 2007 and 2006 is attached to this press release. This information should be read in conjunction with the unaudited consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Trust's third quarter report.



Consolidated Balance Sheets
(in thousands of Canadian dollars)
September 30 December 31
2007 2006
----------------------------------------------------------------------------
(unaudited)

Assets
Current assets:
Accounts receivable $ 21,660 $ 34,257
Inventory 37,851 25,924
Income taxes receivable 4,210 -
Prepaid expenses and deposits 2,970 1,033
------------------------
66,691 61,214

Property, plant and equipment 146,180 148,381

Goodwill 4,053 4,053

------------------------
$ 216,924 $ 213,648
------------------------
------------------------

Liabilities & Unitholders' Equity
Current liabilities:
Bank indebtedness $ 16,003 $ 6,244
Accounts payable and accrued liabilities 18,703 24,836
Distributions payable 2,824 6,264
Income taxes payable - 2,579
Current portion of long-term debt 7,509 4,703
Current portion of obligations under capital leases 460 681
------------------------
45,499 45,307

Long-term debt 21,220 13,545

Obligations under capital leases 62 402

Future income taxes 19,928 17,708

Unitholders' equity:
Trust Unit capital 61,484 60,984
Exchangeable Share capital - 855
Retained earnings 68,731 74,847
------------------------
130,215 136,686

------------------------
$ 216,924 $ 213,648
------------------------
------------------------

Supplemental Information:
Number of units and exchangeable shares
outstanding (000's) - Basic and diluted 29,731 29,879



Consolidated Statements of Earnings and Retained Earnings
(in thousands of Canadian dollars except per unit amounts)

Three months ended Nine month ended
September 30 September 30
2007 2006 2007 2006
----------------------------------------------------------------------------
(unaudited)(unaudited)(unaudited)(unaudited)

Revenue $ 24,395 $ 49,937 $ 94,056 $ 154,447

Expenses:
Operating 13,355 26,849 54,886 84,510
Selling, general and
administration 3,499 4,399 11,172 13,528
Depreciation 2,821 2,904 8,255 8,169
Other interest 244 66 585 245
Interest on long-term debt 285 313 803 1,006
--------------------------------------------
20,204 34,531 75,701 107,458

--------------------------------------------
Operating earnings 4,191 15,406 18,355 46,989

Gain on disposal of equipment 256 422 580 695

--------------------------------------------
Earnings before income taxes 4,447 15,828 18,935 47,684

Income tax expense (recovery)
Current (1,617) 973 (3,728) 3,817
Future 874 1,077 2,220 625
--------------------------------------------
(743) 2,050 (1,508) 4,442

--------------------------------------------
Net earnings 5,190 13,778 20,443 43,242
--------------------------------------------

Retained earnings, beginning
of period 72,526 70,183 74,847 56,130

Trust distributions (8,487) (8,309) (25,243) (23,594)

Repurchase and cancellation of
trust units in excess of
stated trust unit capital (498) (124) (1,316) (250)

--------------------------------------------
Retained earnings, end of period $ 68,731 $ 75,528 $ 68,731 $ 75,528
--------------------------------------------
--------------------------------------------

Earnings per unit:
Basic and diluted $ 0.18 $ 0.46 $ 0.69 $ 1.45



Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)

Three months ended Nine month ended
September 30 September 30
2007 2006 2007 2006
----------------------------------------------------------------------------
(unaudited)(unaudited)(unaudited)(unaudited)

Cash provided by (used in):

Operations:
Net earnings $ 5,190 $ 13,778 $ 20,443 $ 43,242
Add (deduct) items not
effecting cash:
Depreciation 2,821 2,904 8,255 8,169
Gain on disposal of equipment (256) (422) (580) (695)
Future income taxes 874 1,077 2,220 625
--------------------------------------------
8,629 17,337 30,338 51,341
Changes in non-cash working
capital items:
Accounts receivable (9,556) (5,341) 12,597 3,481
Inventory (6,928) (3,136) (11,927) (3,044)
Prepaid expenses and deposits (889) (621) (1,937) (300)
Accounts payable and accrued
liabilities 1,806 (1,409) (6,133) 1,354
Income taxes payable (1,739) 1,070 (6,789) 702
--------------------------------------------
(8,677) 7,900 16,149 53,534

Investments:
Purchase of property, plant
and equipment (1,771) (9,762) (8,907) (23,263)
Proceeds on disposal of
property, plant and
equipment 1,560 2,673 3,433 3,781
--------------------------------------------
(211) (7,089) (5,474) (19,482)

Financing:
Advances (repayment) of
long-term debt 12,830 (3,166) 10,481 (5,797)
Repayment of obligations under
capital leases (169) (199) (561) (594)
Repurchase of trust units (666) (145) (1,671) (293)
Distributions to Unitholders (8,487) (8,309) (25,243) (23,594)
Distributions payable (8) - (3,440) 453
Increase (decrease) in bank
indebtedness 5,388 7,128 9,759 (4,227)
--------------------------------------------
8,888 (4,691) (10,675) (34,052)
--------------------------------------------

Change in cash - (3,880) - -

Cash, beginning of period - 3,880 - -

--------------------------------------------
Cash, end of period $ - $ - $ - $ -
--------------------------------------------
--------------------------------------------

Supplemental information:
Interest paid $ 534 $ 576 $ 1,394 $ 1,346
Income taxes paid (received) $ 122 $ (98) $ 3,060 $ 3,115


SEGMENTED INFORMATION

The Trust operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Drilling and Production Rentals, which includes the rental and transportation of surface equipment used in drilling and production operations and Gas Compression Services, which includes the fabrication, sale, rental and servicing of natural gas compression equipment.



As at and for the three months ended September 30, 2007 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression Other
Services Rentals Services (3) Total
----------------------------------------------------------------------------
Revenue $ 6,352 $ 11,690 $ 6,353 $ - $ 24,395
Operating earnings (loss)(1) 1,374 3,504 276 (963) 4,191
Depreciation 701 1,852 259 9 2,821
Assets 67,205 91,390 52,758 5,571 216,924
Goodwill - 2,514 1,539 - 4,053
Capital expenditures(2) 213 396 1,157 5 1,771

As at and for the three months ended September 30, 2006 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression Other
Services Rentals Services (3) Total
----------------------------------------------------------------------------
Revenue $ 11,886 $ 17,567 $ 20,484 $ - $ 49,937
Operating earnings (loss)(1) 4,503 7,984 4,126 (1,207) 15,406
Depreciation 970 1,684 247 3 2,904
Assets 70,986 94,821 50,736 1,001 217,544
Goodwill - 2,514 1,539 - 4,053
Capital expenditures(2) 1,663 7,986 109 4 9,762

As at and for the nine months ended September 30, 2007 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression Other
Services Rentals Services (3) Total
----------------------------------------------------------------------------
Revenue $ 21,210 $ 39,645 $ 33,201 $ - $ 94,056
Operating earnings (loss)(1) 4,767 12,867 3,888 (3,167) 18,355
Depreciation 1,940 5,537 751 27 8,255
Assets 67,205 91,390 52,758 5,571 216,924
Goodwill - 2,514 1,539 - 4,053
Capital expenditures(2) 1,715 3,749 3,337 106 8,907

As at and for the nine months ended September 30, 2006 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression Other
Services Rentals Services (3) Total
----------------------------------------------------------------------------
Revenue $ 33,369 $ 57,286 $ 63,792 $ - $154,447
Operating earnings (loss)(1) 11,023 28,187 11,333 (3,554) 46,989
Depreciation 2,581 4,831 742 15 8,169
Assets 70,986 94,821 50,736 1,001 217,544
Goodwill - 2,514 1,539 - 4,053
Capital expenditures(2) 9,541 12,860 847 15 23,263

(1) Operating earnings (loss) are earnings before gain (loss) on sale of
equipment and income taxes.
(2) Excludes acquisitions.
(3) Other includes the Trust's corporate activities.


Total Energy Services Trust is a growth oriented energy services income trust involved in contract drilling services, drilling and production rentals and natural gas compression equipment fabrication, sales, rental and service. The trust units of Total Energy are listed and trade on the TSX under the symbol TOT.UN.

Notes to Financial Highlights

(1) Operating earnings are earnings before gain (loss) on sale of equipment and income taxes. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to earnings before income taxes plus interest on long-term debt plus other interest expense plus depreciation. Cashflow means cash provided by operations before changes in non-cash working capital items. EBITDA and cashflow are not recognized measures under Canadian generally accepted accounting principles ("GAAP"). Management believes in addition to net earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Trust's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Trust's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Investors should be cautioned, however, that EBITDA and cashflow should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of Total Energy's performance. Total Energy's method of calculating EBITDA and cashflow may differ from other organizations and, accordingly, EBITDA and cashflow may not be comparable to measures used by other organizations.

(2) Working capital equals current assets minus current liabilities.

(3) Net Debt equals long-term debt plus obligations under capital lease plus current liabilities minus current assets.

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.

Contact Information

  • Total Energy Services Trust
    Mr. Daniel K. Halyk
    President & Chief Executive Officer
    (403) 216-3921
    or
    Total Energy Services Trust
    Mr. Mark A. Kearl
    Vice-President Finance and Chief Financial Officer
    (403) 216-3920
    Email: investorrelations@totalenergy.ca
    Website: www.totalenergy.ca