Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd.

August 12, 2008 07:00 ET

Wenzel Downhole Tools Ltd. Announces Second Quarter Results for 2008

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2008) - Wenzel Downhole Tools Ltd. (the "Company") (TSX:WZL) announces financial results for the second quarter ended June 30, 2008.

2008 Second Quarter Results and Highlights of Operations

Record second quarter revenues of $17.7 million were achieved by the Company, which is a 62% increase over the same period in 2007. Revenues increased in all segments of the Company's operations; Canada, U.S. and international.

In Canada, Q2 is usually the slowest quarter for drilling activity and that was true in 2008. However the Company was able to improve its revenues, relative to the average number of drilling rigs working during the quarter. In 2008, Q2 revenues in Canada were $4.33 million, an increase of 31% over Q2, 2007. Q2, 2008 revenues per average working rig in Canada during this period were $25.5 thousand, compared to $13.6 thousand in Q1. Management believes that this increase in revenue per rig is due in part to the increase in the proportion of wells that are directional and/or horizontal, but is also due to the increased usage of Wenzel's downhole tools for these wells.

U.S. revenues for Q2, 2008 were $8.29 million, an increase of 46% or $2.60 million over the same period in 2007. In comparing U.S. revenues in Q2 2008 to Q1 2008, there is an increase of 38%, or $2.3 million. Management believes that this quarter-over-quarter and year-over-year improvement in revenues reflects increased knowledge within the industry of Wenzel's products and service, growing drilling activity and an increase in directional and horizontal drilling. These trends are expected to continue.

Revenues from sales outside of North America were $5.07 million for the second quarter of 2008. This amount substantially exceeds the international revenues in the first quarter of 2008 ($3.45 million) as well as those of Q2, 2007 ($1.93 million). Orders from international customers tend to be fewer in number but larger in size which if plotted over time produce an irregular pattern. This makes point to point percentage comparisons less useful as measures of performance. However the Company has significant international backorders and indications of growing interest in the Company's products in several international markets. Management anticipates continued growth in international sales.

Overall Performance

The record revenues achieved in the second quarter of 2008 reflect the increasingly positive performance of the Company. Comparing the first six months of 2008 with the same two quarters of 2007 shows that revenues increased by 32%, EBITDA by 69%, earnings before taxes by 198% and net earnings by 237%. There was growth in all of the geographical segments in which the Company operates.

Published reports indicate that drilling activity in the western Canadian sedimentary basin was down about 18% in the first half of 2008 compared to 2007. In spite of this drop, the Company increased its revenue from its Canadian operations by 5% for this six month period to $10.9 million in 2008. While both oil and gas prices have been volatile there is a general sense that overall drilling activity will be higher than originally forecast. The Petroleum Services Association of Canada has increased its estimate of the number of wells that will be drilled in 2008 to 16,500 from its original forecast of 14,000. The 16,500 forecast is 11% less than the actual number drilled in 2007.

Increased oil and gas prices worldwide have contributed to the maintenance or increase in drilling activity and the six month increase in U.S. revenues of 32% and international revenues of 98% reflect that. Given the maintenance of high demand for petroleum energy and the maturation of many of the world's petroleum producing basins, the Company believes that overall drilling will continue to grow worldwide and that, in an effort to increase recoveries through directional and horizontal drilling, more and more of the wells will be utilizing the kind of downhole tools the Company manufactures.

Highlights of the second quarter and first six months of 2008 and the year 2007 are summarized in the following table:

($000's except for earnings per share)
12 months
3 months ended 6 months ended ended
June 30 June 30 June 30 June 30 Dec. 31
2008 2007 2008 2007 2007
Revenue 17,692 10,942 33,686 25,465 54,228
Gross profit (2) 7,226 3,123 13,537 9,795 20,358
Gross profit percentage (2) 41% 28.5% 40% 38% 38%
EBITDA (1) 5,351 942 10,633 6,254 12,173
Earnings (loss) before
income taxes 3,386 (1,115) 6,761 2,258 3,869
Net (loss) earnings 2,410 (822) 4,729 1,401 2,387
Net (loss) earnings per share
- basic & diluted 0.08 (0.03) 0.15 0.05 0.08
Total assets 57,556 57,392 57,556 57,392 56,100
Long term debt 2,827 4,403 2,827 4,403 3,572

Note (1) EBITDA, or earnings before interest, taxes, depreciation and
amortization is calculated by adding these items back to reported
net earnings. In addition to EBITDA, stock based compensation
expense has been excluded so as to make year to year comparisons
more meaningful.

3 months ended 6 months ended Year ended
June 30 June 30 June 30 June 30 Dec 31
2008 2007 2008 2007 2007
Net earnings (loss) 2,410 (822) 4,729 1,401 $ 2,387
Income taxes 976 (293) 2,033 857 1,483
Depreciation 1,658 1,579 3,323 3,111 6,578
Interest 219 426 439 745 1,559
Stock based compensation 88 52 109 140 166
EBITDA $5,351 $942 $10,633 $6,254 $12,173

Management uses EBITDA as a measurement to determine the ability of the Company to generate cash from normal operations. EBITDA does not have a standardized meaning for Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable with calculations of similar measures presented by other issuers. EBITDA is not intended to represent net income for the period nor should it be viewed as an alternative to operating or net income or other measures of financial performance calculated in accordance with GAAP. Note (2) Gross Profit and Gross Profit Percentages for the three and six month periods ended June 30, 2007, as previously reported has been adjusted for the reallocation of certain service related costs previously recorded as General and Administration expenses to Costs of Goods and Services. This reallocation has no effect on net earnings for the period.

About Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd. is a manufacturer, seller and renter of drilling tools used in oil and gas exploration. In Canada the company has its manufacturing and servicing facilities located in Edmonton, Alberta and its corporate offices in Calgary, Alberta. Its U.S. headquarters and service facilities are in Conroe, Texas, with a service and sales office in Casper, Wyoming and a sales office in Oklahoma City, Oklahoma. Wenzel Downhole Tools Ltd. is listed for trading on the TSX, symbol WZL. The Company's Second Quarter consolidated financial statements and Management's Discussion and Analysis will be posted on SEDAR (www.sedar.com) on or about August 12, 2008.

This news release may contain forward-looking information. Actual future results may differ materially from those contemplated. The risks, uncertainties and other factors, both known and unknown, that could influence actual results may be substantial and include those described in documents filed with regulatory authorities, such as the Company's most recently filed Annual Report and Annual Information Form. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive therefrom. Please refer to the Company's public disclosure documents for more information on these risks and uncertainties as they apply to the Company.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy and accuracy of this news release.

Contact Information

  • Wenzel Downhole Tools Ltd.
    Harvie Andre
    President and CEO
    (403) 262-3050
    (403) 265-8154 (FAX)
    Wenzel Downhole Tools Ltd.
    William T. Spence
    Chief Financial Officer
    (403) 262-3050
    (403) 265-8154 (FAX)
    Website: www.downhole.com