Builders Energy Services Trust
TSX : BET.UN

Builders Energy Services Trust

August 10, 2006 16:50 ET

Builders Energy Services Trust Reports Second Quarter Earnings

CALGARY, ALBERTA--(CCNMatthews - Aug. 10, 2006) - Builders Energy Services Trust (TSX:BET.UN) ("Builders", or the "Trust") announced today that funds flow from operations for the first six months of 2006 was $22.6 million ($1.46 diluted per unit), compared to $9.1 million ($0.82 diluted per unit) for the 157-day period from inception on January 25, 2005 through June 30, 2005. Net earnings for the first six months of 2006 were $15.8 million ($1.02 diluted per unit), compared to $4.3 million ($0.39 diluted per unit) for the 157-day period ended June 30, 2005. The significant increase in funds flow and net earnings reflects Builders' continued growth. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the first six months of 2006 was $23.9 million.

Funds flow from operations for the second quarter of 2006 was $5.7 million ($0.35 diluted per unit), compared to $2.5 million ($0.20 diluted per unit) in the second quarter of 2005. Net earnings for the second quarter of 2006 was $4.0 million ($0.25 diluted per unit), compared to $0.1 million ($0.01 diluted per unit) in the second quarter of 2005. EBITDA for the second quarter of 2006 was $4.4 million.

The second quarter results each year are expected to be lower than the other quarters, as spring breakup leaves many secondary roads temporarily incapable of supporting the weight of heavy equipment, resulting in restrictions in the level of oilfield services. In addition, higher levels of rainfall adversely impact operations. With the slowdown in activity, equipment maintenance is typically scheduled in the second quarter, resulting in additional expenses.

"Our results are on track for this time of year, leaving us with a very attractive mid-year payout ratio," said Garnet Amundson, President and Chief Executive Officer of Builders. "Drilling activity continues to be active and we are optimistic about the third and fourth quarters of 2006."

Highlights

- For the six months ended June 30, 2006 compared to the 157-day period ended June 30, 2005:

-- Increase in funds flow from operations of $13.5 million (to $22.6 million from $9.1 million)

-- Increase in net earnings of $11.5 million (to $15.8 million from $4.3 million)

-- Increase in distributions by $0.02 per unit per month (to $0.14 per unit per month from $0.12 per unit per month)

- Continued growth through acquisitions with the purchase of Kodiak Well Service Ltd. for $18.5 million on May 8, 2006 and Prime Oilfield Hauling Ltd. for $19 million on August 1, 2006.

- Strong internal growth with $22.1 million of capital expenditures during the first six months of 2006.

- Increased financial flexibility with an increase in the credit facility from $70 million to $85 million on May 31, 2006.



FINANCIAL SUMMARY

Six months 157-days
Three months ended ended ended
(Thousands unless June 30, June 30, June 30,
otherwise stated) 2006 2005 2006 2005
------------------------------------------------------------------------
Revenue $ 34,590 $ 17,303 $ 97,344 $ 37,524
Gross margin $ 8,660 $ 4,361 $ 32,778 $ 13,798
Funds flow from operations $ 5,719 $ 2,532 $ 22,632 $ 9,120
Per unit - diluted $ 0.35 $ 0.20 $ 1.46 $ 0.82
Net earnings $ 3,978 $ 83 $ 15,848 $ 4,332
Per unit - diluted $ 0.25 $ 0.01 $ 1.02 $ 0.39
Distributions to unitholders $ 6,393 $ 3,808 $ 12,275 $ 6,500
Per unit $ 0.41 $ 0.36 $ 0.80 $ 0.63
As a percentage of funds flow
from operations ("Payout
ratio") 112% 150% 54% 71%
Gross margin as a percentage of
revenue 25% 25% 34% 37%
General and administrative
expense as a percentage of
revenue 11% 14% 8% 12%
Capital expenditures $ 9,330 $ 6,868 $ 22,111 $ 8,751
------------------------------------------------------------------------
Trust units:
Outstanding, end of period 15,803 11,793 15,803 11,793
Weighted average, basic 15,530 10,565 15,243 10,298
Weighted average, diluted 16,495 12,388 15,515 11,102
------------------------------------------------------------------------



Based in Calgary, 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.

When used in this news release, the words "expect", "anticipate", "estimate" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated in the forward-looking statements. Forward-looking statements are based on the estimates and opinions of management at the date that the statements are made, and the Trust undertakes no obligation to update forward-looking statements if conditions or opinions should change.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis ("MD&A") of Builders Energy Services Trust ("Builders" or the "Trust") is an update to, and should be read in conjunction with, the March 31, 2006 interim report and annual MD&A included in the 2005 Annual Report to Unitholders, in addition to the attached financial statements as at and for the three and six months ended June 30, 2006, to which readers are referred. No update is provided where an item is not material or there has been no material change from the discussion in the aforementioned interim report or annual MD&A. This MD&A was prepared effective August 9, 2006.

Forward-Looking Statements

When used in this MD&A, the words "expect", "anticipate", "estimate" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated in the forward-looking statements. Forward-looking statements are based on the estimates and opinions of management at the date that the statements are made, and the Trust undertakes no obligation to update forward-looking statements if conditions or opinions should change.

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, management believes that certain measures not recognized under GAAP assist management and the reader in assessing the performance and understanding the Trust's results. Each of these measures provides the reader with additional insight into the Trust's ability to generate ongoing funds flow and fund future distributions.

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

- Funds flow or funds flow from operations - This measure is an indicator of the Trust's ability to generate funds flow in order to make distributions, fund ongoing operating commitments, service debt, fund capital programs, and pay interest and income tax charges. Funds flow or funds flow from operations is defined as cash flow from operations before changes in non-cash working capital.

- Maintenance capital - Equipment additions that are incurred to refurbish or replace previously acquired equipment. Such additions do not provide incremental increases in revenue.

- Maintenance capital is a key component to sustainability of the Trust, as cash retained within the Trust must be sufficient to replenish assets for future cash generation.

- Growth capital - Growth capital is expenditures on equipment with expected incremental increases in revenue and funds flow to the Trust.

- Payout ratio - This ratio is defined as cash distributions declared expressed as a percentage of funds flow from operations. This ratio is an indicator of the Trust's ability to meet its distribution levels while still maintaining adequate funds flow to fund the Trust's ongoing operations.

- Working capital - This term is defined as current assets less current liabilities excluding the current portion of long-term debt.

- Distributable cash - Distributable cash is a key measure of the Trust's ability to fund cash distributions to Unitholders. Distributable cash is determined by subtracting net maintenance capital (Maintenance capital less proceeds on disposal of equipment) and scheduled debt repayments from funds flow from operations.

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.

Where disclosed, these non-GAAP measures have been reconciled to GAAP measures in the tables throughout the MD&A.

Additional Information

Additional information regarding Builders, including the March 31, 2006 MD&A and financial statements, the 2005 Annual Report and Annual Information Form, can be found on SEDAR at www.sedar.com.

BUILDERS OVERVIEW

Based in Calgary, Builders 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.

Builders offers its customers operational excellence through a range of oilfield services including oilfield transport, service rigs, wireline services and downhole services and rentals. Builders' equipment and services are used in conventional crude oil and natural gas wells and related production activities.

COMPARATIVE AND CURRENT PERIOD

Builders was formed on January 25, 2005, through an Initial Public Offering ("IPO") which included the concurrent closing of the acquisitions of nine oilfield service companies ("IPO Acquisitions"). The comparative period for the 157-days ended June 30, 2005 includes the operations of the IPO Acquisitions and the net assets of Tryton Tool Services Ltd. ("Tryton") commencing on January 25 and June 1, 2005, respectively. Readers should note that the 157 day comparative period does not represent a complete six months of operations.

Builders has continued to acquire entrepreneurial oilfield service companies that fit strategically and complement its existing service offerings. Acquisitions include Endeavor E-line Services Inc. ("Endeavor") acquired on July 21, 2005; the net assets of Puma Well Service Ltd. ("Puma") acquired October 14, 2005; Leachman Enterprises Ltd. ("Leachman") acquired February 1, 2006; and Kodiak Well Service Ltd. ("Kodiak") acquired on May 8, 2006. The operations and financial results of each acquisition have been included in the June 30, 2006 financial statements and MD&A of the Trust from the date of acquisition.



DISCUSSION OF FINANCIAL RESULTS

Revenue and Gross Margin
Six months 157-days
Three months ended ended ended
(Thousands except as June 30, June 30, June 30,
otherwise stated) 2006 2005 2006 2005
------------------------------------------------------------------------
Revenue $ 34,590 $ 17,303 $ 97,344 $ 37,524
Operating expenses 25,930 12,942 64,566 23,726
------------------------------------------------------------------------
Gross margin $ 8,660 $ 4,361 $ 32,778 $ 13,798
------------------------------------------------------------------------
------------------------------------------------------------------------
Gross margin as a percentage of
revenue 25% 25% 34% 37%
------------------------------------------------------------------------
------------------------------------------------------------------------


Oil and natural gas drilling and production activity in the Western Canadian Sedimentary Basin ("WCSB") remained robust throughout the first half of 2006. Working drilling rigs, on average, have increased 18 percent over the first half of 2005 and approximately 11,000 wells were drilled, a 21 percent increase over the first half of 2005. In addition to increased drilling activity, producing wells continue to require on-going maintenance. With high crude oil pricing in the current quarter, oil well maintenance activity remains a priority to oil producers. These industry activity levels combined with the following factors have positively impacted Builders' gross margin on a year-to-date and quarterly basis over the prior period:

- Improved weather conditions allowed for better utilization rates as compared to the second quarter of 2005 when heavy rains throughout the WCSB impacted the ability to get equipment into the field. During the second quarter of 2006, Builders' services were impacted by wet weather in southern Alberta. The impact on the overall results was offset by the geographic diversity of Builders' services in that the operations in the central and northern areas of the province experienced seasonal weather and higher activity. The second quarter is traditionally a slow period in the industry as road bans, due to spring break up, reduce the ability to move heavy equipment in the field.

- Additional gross margin of $19.0 million for the year-to-date and $4.3 million for the three months ended June 30 reflects equipment expansion to meet current and anticipated activity levels, higher utilization of existing equipment and the acquisitions of Tryton, Endeavor, Puma, Leachman and Kodiak. Further, the year-to-date results reflect a full six months of operations versus 157 days in 2005.

- Acquisition of new oilfield services with modestly lower gross margin percentages relative to our existing service offerings have reduced Builders' average gross margin as a percentage of revenue from 37 to 34 percent for the six months ended June 30, 2006 as compared to the 157-days ended June 30, 2005. Higher activity levels offset both the services mix ratio and operating costs resulting in comparable gross margin percentages for the three months ended June 30, 2006 and 2005.



Net Earnings
Six months 157-days
Three months ended ended ended
(Thousands except as June 30, June 30, June 30,
otherwise stated) 2006 2005 2006 2005
------------------------------------------------------------------------

Gross margin $ 8,660 $ 4,361 $ 32,778 $ 13,798
Expenses
General and administrative 3,969 2,474 7,883 4,351
Depreciation and amortization 4,272 2,287 8,038 3,885
Unit-based compensation 506 351 941 598
Interest 647 206 1,122 369
Other 239 (81) 438 (64)
------------------------------------------------------------------------
9,633 5,237 18,422 9,139
Earnings (loss) before income
taxes and non-controlling
interest (973) (876) 14,356 4,659
Income tax recoveries (5,141) (967) (2,363) (99)
Non-controlling interest
earnings 190 8 871 426
------------------------------------------------------------------------
Net earnings $ 3,978 $ 83 $ 15,848 $ 4,332
------------------------------------------------------------------------
------------------------------------------------------------------------
Per unit - basic $ 0.26 $ 0.01 $ 1.04 $ 0.42
------------------------------------------------------------------------
------------------------------------------------------------------------
Per unit - diluted $ 0.25 $ 0.01 $ 1.02 $ 0.39
------------------------------------------------------------------------
------------------------------------------------------------------------


Net earnings for the six months ended June 30, 2006 increased by $11.5 million from the 157-days ended June 30, 2005 and $3.9 million for the three months ended June 30, 2005. This mainly reflects the increased operational growth primarily associated with new equipment and corporate acquisitions combined with a future tax recovery related to Alberta and Federal corporate tax rate reductions.



General and administrative
Six months 157-days
Three months ended ended ended
(Thousand except as June 30, June 30, June 30,
otherwise stated) 2006 2005 2006 2005
------------------------------------------------------------------------
General and administrative
expense $ 3,969 $ 2,474 $ 7,883 $ 4,351

General and administrative
expense as a percentage of
revenue 11% 14% 8% 12%
------------------------------------------------------------------------
------------------------------------------------------------------------


The Trust's general and administrative expenses include primarily Calgary personnel and office costs and certain personnel in the field offices associated with administrative functions. The increase in costs over previous periods reflects an increase in administrative costs associated with the growth in Builders' operations. The percentage of general and administrative costs has declined relative to revenue as a result of Builders' operational size.

Depreciation and amortization

Depreciation and amortization has increased as a result of growth capital and acquisitions made throughout 2005 and 2006 combined with a full six months of operating activity in 2006 compared to 157 days in the comparative period.

Income tax recoveries

Year-to-date current income tax expense resulted from the strong operating results of the Trust. During the second quarter ended June 30, 2006, the Trust recognized $2.9 million in future tax recoveries due to Alberta and Federal corporate tax rate reductions.



FINANCIAL RESOURCES

Funds Flow from Operations

Six months 157-days
Three months ended ended ended
(Thousands except June 30, June 30, June 30,
per unit amounts) 2006 2005 2006 2005
------------------------------------------------------------------------
Net Earnings $ 3,978 $ 83 $ 15,848 $ 4,332
Add back non-cash charges:
Depreciation and amortization 4,272 2,287 8,038 3,885
Unit-based compensation 506 351 941 598
Non-controlling interest
earnings 190 8 871 426
Future tax recoveries (3,638) (158) (3,491) (99)
Loss (gain) on disposal of
capital assets 411 (39) 425 (22)
------------------------------------------------------------------------
Funds flow from operations $ 5,719 $ 2,532 $ 22,632 $ 9,120
------------------------------------------------------------------------
------------------------------------------------------------------------
Per unit - basic $ 0.37 $ 0.24 $ 1.48 $ 0.89
------------------------------------------------------------------------
------------------------------------------------------------------------
Per unit - diluted $ 0.35 $ 0.20 $ 1.46 $ 0.82
------------------------------------------------------------------------
------------------------------------------------------------------------


Funds flow from operations increased in 2006, compared to 2005 for both the year-to-date and the quarter, reflecting strong operational performance supported by the successful integration of acquisitions.



Payout Ratio
Six months 157-days
Three months ended ended ended
(Thousand except where June 30, June 30, June 30,
otherwise indicated) 2006 2005 2006 2005
------------------------------------------------------------------------

Funds flow from operations $ 5,719 $ 2,532 $ 22,632 $ 9,120
Cash distributions declared $ 6,393 $ 3,808 $ 12,275 $ 6,500
------------------------------------------------------------------------
Payout ratio on funds flow from
operations 112% 150% 54% 71%
------------------------------------------------------------------------
------------------------------------------------------------------------


Commencing with the May 2006 distribution, Builders increased its monthly cash distribution by eight percent to $0.14 per Trust unit ($1.68 per annum). This distribution increase is a result of strong operational performance and accretive acquisitions. As at June 30, 2005, Builders' monthly cash distribution was $0.12 per Trust unit ($1.44 per annum).

Cash distributions declared have increased significantly, reflecting two distribution increases each of $0.01 per unit per month announced May 2006 and September 2005, combined with Trust unit issuances mainly related to private placement unit offerings and units issued as partial consideration for acquisitions. Strong operating results have led to a favourable payout ratio between the current and prior periods, providing support for sustainable distributions.

Acquisitions

Builders continues to evaluate and acquire organizations that fit into its diversified oilfield services strategy. On May 8, 2006, Builders added Kodiak, a service rig operation located in Fort St. John, B.C. and on February 1, 2006, Builders acquired Leachman, an oilfield trucking operation located in Provost, Alberta. Both acquisitions expanded Builders' geographic presence in key, high activity areas of the oil and gas industry.

The purchase price for Kodiak was $18.5 million, funded by payment of $10.3 million in cash consideration and the issuance by the Trust of 499,327 Trust units at a unit price of $16.52.

Leachman was acquired for $8.6 million, funded by payment of $5.1 million in cash consideration and the issuance by the Trust of 150,307 Trust units and 64,417 Series B Exchangeable shares at $16.30 per security.

Capital Equipment

Builders continues to add equipment in areas where it believes it has operational growth opportunities to meet current and anticipated industry activity levels. For the six month period ended June 30, 2006 (2005 - 157-days ended), capital expenditures of $22.1 million (2005 - $8.8 million) included $8.4 million for oilfield transport, $4.4 million for service rigs and $9.3 million for wireline services and downhole services and rentals. Of the $22.1 million in equipment expenditures incurred in the first half of 2006, substantially all of this equipment is ready to be put into service in the second half of this year.

Trust Units and Non-controlling Interest

During the six months ended June 30, 2006, in addition to the 649,634 Trust units and 64,417 Series B Exchangeable shares issued as partial consideration for the acquisitions of Kodiak and Leachman, Builders issued 391,706 Trust units in exchange for 356,703 Series A Exchangeable shares and 66,978 Trust units for 64,417 Series B Exchangeable shares (35,000 and nil respectively for the 157-days ended June 30, 2005). The Series B Exchangeable share conversion represented the entire outstanding Series B Exchangeable shares. As such, there are no outstanding Series B Exchangeable shares as at June 30, 2006. For the six months ended June 30, 2006, Builders issued 70,165 Trust units on exercise of Trust unit options (nil for the 157-days ended June 30, 2005).

As at August 9, 2006, there were 16,339,620 Trust units outstanding.

As at June 30, 2006, the 588,988 Series A Exchangeable shares were convertible into 671,352 Trust units (1,029,574 Trust units as at December 31, 2005).

Credit Facilities and Other Long-term Debt

On May 31, 2006, Builders amended its credit facility with three major Canadian chartered banks increasing the total available facility to $85.0 million, comprised of an operating line of credit of $20.0 million and a term acquisition loan facility of $65.0 million. The unutilized portions of the operating and acquisition facilities are expected to be sufficient to meet existing operating commitments and capital spending for the remainder of the year. As at June 30, 2006, all financial debt covenants were satisfied and all banking requirements were up to date. The Trust does not anticipate any covenant issues restricting its future operating, investing or financing activities.

OUTLOOK

The outlook for the oilfield services industry continues to remain strong, with over 12,000 wells estimated to be drilled in western Canada during the second half of 2006. In addition, existing producing wells in Alberta, B.C. and Saskatchewan require ongoing maintenance to ensure their productive capability is maintained or enhanced. These factors, combined with expectations of relatively strong commodity pricing for crude oil and natural gas, bode well for the oilfield services sector, which is expected to remain strong throughout 2006. Recent softening in the price of natural gas has created some short-term concern about new gas drilling, primarily shallow gas wells. To date, the impact of lower natural gas prices has not had a significant impact on operations and, as of early August 2006, natural gas prices have begun to strengthen.

The demand for oilfield services is affected by fluctuations in commodity pricing and weather-related seasonality. The weather can affect Builders' ability to deploy its heavy equipment and provide oilfield services, as field locations may not be accessible. Typically Builders' third quarter will have modest seasonal-related delays while the fourth quarter is expected to have substantially full equipment utilization.

In this environment, Builders will continue to evaluate strategic acquisitions as industry consolidation in the oilfield services sector is expected to continue. Builders will also continue its equipment expansion program in areas where it believes it has growth opportunities. This growth is expected to be tempered by the availability of skilled labour to crew and operate such equipment and the ability to obtain equipment in a timely manner. With the 2006 acquisitions of Leachman, Kodiak and Prime Oilfield Hauling Ltd. ("Prime"), forecasted equipment additions for the second half of 2006 are approximately $20.0 million, resulting in 2006 forecasted equipment additions of $42.0 million, an increase of $12.0 million from earlier expectations. During the second half of 2006, Builders expects equipment additions for oilfield transport to be approximately $9.0 million, service rigs to be approximately $6.0 million and $5.0 million in wireline services and downhole services and rentals.

Builders targets an annualized payout ratio on distributable cash of 65 to 70 percent. Cash flows not distributed to Unitholders will be used to fund new equipment and oilfield services acquisitions.

Builders' second half of 2006 will include the oilfield transport activities of Leachman and Prime, plus growth in our truck fleet through new equipment purchased during the first half of 2006. In addition, Builders has added the Kodiak acquisition in conjunction with three newly constructed service rigs. These acquisitions in the first half of 2006 and equipment expenditures of $22.1 million should result in significant growth year-over-year in the second half of 2006.



BUILDERS ENERGY SERVICES TRUST
CONSOLIDATED BALANCE SHEETS
(unaudited)

As at As at
(Thousands) June 30, 2006 December 31, 2005
------------------------------------------------------------------------

Assets (note 4 and 5)
Current assets
Cash $ 848 $ 1,461
Accounts receivable 31,159 38,862
Inventory 6,128 5,730
Prepaid expenses and deposits 2,198 764
------------------------------------------------------------------------
40,333 46,817
Capital assets 134,638 104,403
Intangible assets 14,739 13,798
Goodwill 77,229 66,876
Deferred charges 488 475
------------------------------------------------------------------------
$ 267,427 $ 232,369
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities
Current liabilities
Operating line of credit (note 4) $ 2,195 $ 5,700
Accounts payable and accrued liabilities 17,744 18,767
Distributions payable 2,211 1,901
Income taxes payable 290 2,009
Current portion of long-term debt (note 5) 3,505 5,559
------------------------------------------------------------------------
25,945 33,936

Long-term debt (note 5) 39,884 16,369
Future income tax liability 20,808 19,086

Non-controlling interest (note 6) 7,431 10,807

Unitholders' Equity
Trust units (note 7) 167,651 150,790
Contributed surplus 2,354 1,600
Accumulated net earnings 32,360 16,512
Accumulated distributions (29,006) (16,731)
------------------------------------------------------------------------
173,359 152,171
------------------------------------------------------------------------
$ 267,427 $ 232,369
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to unaudited consolidated interim financial
statements

BUILDERS ENERGY SERVICES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED NET EARNINGS
(unaudited)

Six months 157-days
Three months ended ended ended
(Thousands except June 30, June 30, June 30,
per unit amounts) 2006 2005 2006 2005
------------------------------------------------------------------------

Revenue $ 34,590 $ 17,303 $ 97,344 $ 37,524
Operating expenses 25,930 12,942 64,566 23,726
------------------------------------------------------------------------
8,660 4,361 32,778 13,798
------------------------------------------------------------------------

Expenses
General and administrative 3,969 2,474 7,883 4,351
Depreciation 3,704 1,961 6,948 3,381
Amortization 568 326 1,090 504
Interest on long-term debt 500 206 975 369
Unit-based compensation (note 8) 506 351 941 598
Other 239 (50) 438 (33)
Other interest 147 (31) 147 (31)
------------------------------------------------------------------------
9,633 5,237 18,422 9,139
------------------------------------------------------------------------

Earnings (loss) before income
taxes and non-controlling
interest (973) (876) 14,356 4,659

Income tax expenses (recoveries)
Current (1,503) (809) 1,128 -
Future (3,638) (158) (3,491) (99)
------------------------------------------------------------------------
(5,141) (967) (2,363) (99)
------------------------------------------------------------------------

Earnings before non-controlling
interest 4,168 91 16,719 4,758

Non-controlling interest
earnings (note 6) 190 8 871 426
------------------------------------------------------------------------

Net earnings $ 3,978 $ 83 $ 15,848 $ 4,332

Accumulated net earnings,
beginning of period 28,382 4,249 16,512 -
------------------------------------------------------------------------
Accumulated net earnings,
end of period $ 32,360 $ 4,332 $ 32,360 $ 4,332
------------------------------------------------------------------------
------------------------------------------------------------------------
Net earnings per unit (note 9)
Basic $ 0.26 $ 0.01 $ 1.04 $ 0.42
Diluted $ 0.25 $ 0.01 $ 1.02 $ 0.39
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to unaudited consolidated interim financial
statements

BUILDERS ENERGY SERVICES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months 157-days
Three months ended ended ended
June 30, June 30, June 30,
(Thousands) 2006 2005 2006 2005
------------------------------------------------------------------------

Operating activities
Net earnings $ 3,978 $ 83 $ 15,848 $ 4,332
Items not affecting cash:
Depreciation and amortization 4,272 2,287 8,038 3,885
Future income tax recoveries (3,638) (158) (3,491) (99)
Unit-based compensation (note 8) 506 351 941 598
Non-controlling interest
earnings (note 6) 190 8 871 426
Loss (gain) on disposal of
capital assets 411 (39) 425 (22)
------------------------------------------------------------------------
5,719 2,532 22,632 9,120
Changes in non-cash operating
working capital (note 10) 8,920 3,153 4,414 2,220
------------------------------------------------------------------------
14,639 5,685 27,046 11,340
------------------------------------------------------------------------

Financing activities
Issue of Trust units, net of
issue costs (note 7) 338 13,986 677 60,977
Issue of Subordinated units - - - 2,500
Distributions paid (6,156) (3,589) (11,965) (5,085)
Increase (decrease) in
operating line of credit 2,195 - (3,505) -
Increase in long-term debt 8,600 10,856 23,100 10,856
Repayment of long-term debt (929) (5,149) (1,639) (19,857)
Deferred charges (92) (112) (108) (316)
------------------------------------------------------------------------
3,956 15,992 6,560 49,075
------------------------------------------------------------------------

Investing activities
Capital assets (9,330) (6,868) (22,111) (8,751)
Business acquisitions (note 3) (10,260) (12,339) (15,677) (44,504)
Proceeds on disposal of capital
assets 1,757 1,177 1,979 1,329
Changes in non-cash investing
working capital 1,131 - 1,590 -
------------------------------------------------------------------------
(16,702) (18,030) (34,219) (51,926)
------------------------------------------------------------------------
Increase (decrease) in cash 1,893 3,647 (613) 8,489
Cash (bank indebtedness),
beginning of period (1,045) 4,842 1,461 -
------------------------------------------------------------------------
Cash, end of period $ 848 $ 8,489 $ 848 $ 8,489
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplementary cash flow
information
Income taxes paid $ 1,791 $ - $ 2,854 $ -
Interest paid $ 670 $ 70 $ 1,176 $ 233
------------------------------------------------------------------------
------------------------------------------------------------------------

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 June 30, 2006 and 2005
(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 its wholly-owned subsidiaries.

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 341-day period ended December 31, 2005. These interim consolidated financial statements do not include all disclosures provided in the December 31, 2005 financial statements and should be read in conjunction with the Trust's consolidated annual financial statements for the 341-day period ended December 31, 2005 and with the consolidated interim financial statements for the period ended March 31, 2006. In management's opinion, these interim consolidated financial statements include all adjustments to present fairly such information.

3. Business Acquisitions

During the six months ended June 30, 2006, Builders completed two acquisitions. These acquisitions have been accounted for by the purchase method with the results of operations of Kodiak Well Service Ltd. ("Kodiak") and Leachman Enterprises Ltd. ("Leachman") being included in the financial statements from the dates of acquisition. The final determination of the cost of the acquisitions and the allocations of net asset fair values is still pending.

A summary of the net assets acquired and the allocation of the purchase prices are as follows:



Kodiak(i) Leachman(ii) Total
Net assets acquired

Non-cash working capital $ 1,890 $ 985 $ 2,875
Capital assets 12,342 5,134 17,476
Intangible assets 1,550 386 1,936
Goodwill 6,741 3,329 10,070
Future income taxes (4,023) (1,190) (5,213)
------------------------------------------------------------------------
18,500 $ 8,644 $ 27,144
------------------------------------------------------------------------
------------------------------------------------------------------------

Consideration
Cash $ 7,572 $ 5,144 $ 12,716
Payable subsequent to closing 2,678 - 2,678
Trust units (note 7) 8,250 2,450 10,700
Series B Exchangeable shares
(note 6) - 1,050 1,050
------------------------------------------------------------------------
$ 18,500 $ 8,644 $ 27,144
------------------------------------------------------------------------
------------------------------------------------------------------------
Issued:
Trust units (note 7) 499 150 649
Series B Exchangeable shares
(note 6) - 64 64
------------------------------------------------------------------------
------------------------------------------------------------------------



(i) Kodiak

On May 8, 2006, Builders completed the acquisition of all the issued and outstanding shares of Kodiak for an aggregate purchase price of $18.5 million. The combined purchase price was funded by payment of $10.3 million in cash and the issuance by the Trust of 499,327 Trust units at a price of $16.52 per Trust unit.

(ii) Leachman

On February 1, 2006, Builders completed the acquisition of all the issued and outstanding shares of Leachman for an aggregate purchase price of $8.6 million. The combined purchase price was funded by payment of $5.1 million in cash, the issuance by the Trust of 150,307 Trust units at a price of $16.30 per Trust unit and the issuance by Builders Energy Services Ltd., a subsidiary of the Trust, of 64,417 Series B Exchangeable shares at a price of $16.30 per Series B Exchangeable share.

4. Operating Line of Credit

On May 31, 2006, the Trust amended its agreement with three major Canadian chartered banks comprised of an operating line of credit and a term acquisition loan facility (note 5). Under this agreement, the operating line of credit is limited to the lesser of $20.0 million or 75 percent of the Trust's accounts receivable, less specific items. The line of credit has no required principal repayments during the term and bears interest at the bank's prime rate. The line of credit expires on May 30, 2007 and can be renewed, at the lender's option, for an additional 364-day period. 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.



5. Long-term Debt
As at As at
June 30, 2006 December 31, 2005
------------------------------------------------------------------------

Term acquisition loan facility $ 37,995 $ 14,895
Term debt 4,985 6,502
Capital leases 409 531
------------------------------------------------------------------------
43,389 21,928
Less: current portion of long-term
debt 3,505 5,559
------------------------------------------------------------------------
Long-term debt $ 39,884 $ 16,369
------------------------------------------------------------------------
------------------------------------------------------------------------


On May 31, 2006, the Trust amended its agreement with three major Canadian chartered banks comprised of an operating line of credit (note 4) and a term acquisition loan facility. Under this agreement, the term acquisition loan facility is limited to the lesser of $65.0 million or 60 percent of the unencumbered net tangible assets. The facility has no required principal repayments during the term and bears interest at the bank's prime rate plus 0.75 percent. The facility expires on May 30, 2007 and can be renewed, at the lender's 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 June 30, 2006 is $1.1 million ($2.9 million at December 31, 2005). The term acquisition loan facility is collateralized by a general security agreement and a general assignment of book debts.



6. Non-controlling Interest
Six months ended
June 30, 2006
------------------------------------------------------------------------
Securities Amount
------------------------------------------------------------------------
Series A Exchangeable shares
Balance, beginning of period 946 $ 10,807
Conversion to Trust units (note 7) (357) (4,210)
Non-controlling interest earnings - 834
------------------------------------------------------------------------
Balance, end of period 589 $ 7,431
------------------------------------------------------------------------
Exchange ratio, end of period 1.13984
Trust units issuable upon conversion, end
of period 671
------------------------------------------------------------------------
------------------------------------------------------------------------

Series B Exchangeable shares

Balance, beginning of period - $ -
Consideration for acquisition (note 3) 64 1,050
Conversion to Trust units (note 7) (64) (1,087)
Non-controlling interest earnings - 37
------------------------------------------------------------------------
Balance, end of period - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

Series A and Series B Exchangeable shares

Balance, beginning of period 946 $ 10,807
Consideration for acquisition (note 4) 64 1,050
Conversion to Trust units (note 7) (421) (5,297)
Non-controlling interest earnings - 871
------------------------------------------------------------------------
Balance, end of period 589 $ 7,431
------------------------------------------------------------------------
Trust units issuable upon conversion, end
of period 671
------------------------------------------------------------------------
------------------------------------------------------------------------


The Exchangeable shares are not eligible to receive cash distributions from the Trust and have voting attributes equivalent to the number of Trust units issuable upon conversion of the Exchangeable shares from time-to-time. The Series A Exchangeable shares are required to be converted prior to January 31, 2008. The Series B Exchangeable shares were converted during the interim period resulting in nil outstanding as at June 30, 2006.



7. Trust Units
Six months ended
June 30, 2006
------------------------------------------------------------------------
Units Amount
------------------------------------------------------------------------
Balance, beginning of period 14,624 $ 150,790
Consideration for acquisitions (note 3) 649 10,700
Conversion of Exchangeable shares (note 6) 459 5,297
Exercise of Trust unit options 71 677
Non-cash transfer from contributed surplus - 187
------------------------------------------------------------------------
Balance, end of period 15,803 $ 167,651
------------------------------------------------------------------------
------------------------------------------------------------------------


8. Unit-based Compensation

The following table summarizes the Trust unit options outstanding:

As at As at
June 30, 2006 December 31, 2005
------------------------------------------------------------------------
Trust unit options outstanding 1,368 1,322
Trust unit options exercisable 275 -
Range of exercise prices (Per Unit) $10.00 - $18.79 $10.00 - $16.79
Weighted average remaining
contractual life (years) 3.8 4.2
Weighted average exercise price
(Per Unit) $11.92 $11.21
------------------------------------------------------------------------
------------------------------------------------------------------------


The Trust recorded unit-based compensation expense in respect of Trust unit options of $0.5 million for the three months ended June 30, 2006 ($0.4 million for the three months ended June 30, 2005) and $0.9 million for the year-to-date ended June 30, 2006 ($0.6 million for the 157-days ended June 30, 2005) with an offsetting increase to contributed surplus. The amount of unit-based compensation expense has been reduced for options forfeited during the period prior to vesting.



9. Net Earnings Per Unit

Six months 157-days
Three months ended ended ended
June 30, June 30, June 30,
2006 2005 2006 2005
------------------------------------------------------------------------

Numerator:
Basic net earnings $ 3,978 $ 83 $ 15,848 $ 4,332
Non-controlling interest
earnings 90 8 - -
------------------------------------------------------------------------
Diluted net earnings $ 4,168 $ 91 $ 15,848 $ 4,332
------------------------------------------------------------------------
------------------------------------------------------------------------

Denominator:
Weighted average units for
basic net earnings 15,530 10,565 15,243 10,298
Exchangeable shares converted
to units at the average
exchange ratio during the
period 722 1,001 - -
Options convertible to units 243 822 272 804
------------------------------------------------------------------------
Weighted average units for
diluted net earnings 16,495 12,388 15,515 11,102
------------------------------------------------------------------------
------------------------------------------------------------------------

Net earnings per unit:
Basic $ 0.26 $ 0.01 $ 1.04 $ 0.42
Diluted $ 0.25 $ 0.01 $ 1.02 $ 0.39
------------------------------------------------------------------------
------------------------------------------------------------------------


Builders' Exchangeable shares for the six months ended June 30, 2006 and 2005 are not included in the computation of diluted net earnings per unit as their effect is anti-dilutive.



10. Changes in Non-cash Operating Working Capital

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


Six months 157-days
Three months ended ended ended
June 30, June 30, June 30,
2006 2005 2006 2005
------------------------------------------------------------------------

Accounts receivable $ 21,161 $ 7,199 $ 14,005 $ 7,898
Inventory (147) - (398) -
Prepaid expenses and deposits (448) (410) (1,354) (564)
Accounts payable and accrued
liabilities (8,355) (2,560) (6,116) (3,791)
Income taxes payable (3,291) (1,076) (1,723) (1,323)
------------------------------------------------------------------------
$ 8,920 $ 3,153 $ 4,414 $ 2,220
------------------------------------------------------------------------
------------------------------------------------------------------------


11. 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 exploration 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.

12. Comparative Amounts

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

13. Subsequent Event

On August 1, 2006, Builders completed the acquisition of all the issued and outstanding shares of Prime Oilfield Hauling Ltd. ("Prime") for an aggregate purchase price of $19.0 million. The purchase price consideration was comprised of $8.7 million in cash, the issuance by the Trust of 536,099 Trust units at a price of $16.13 per Trust unit and $1.7 million in assumed debt. Prime provides oilfield transport and rentals from Grande Prairie, Alberta.

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

Contact Information

  • Builders Energy Services Trust
    Garnet K. Amundson
    President and Chief Executive Officer
    (403) 296-0344
    Email: IR-BEST@BuildersEnergy.com
    or
    Builders Energy Services Trust
    John W. Nearing
    Vice President, Finance and Chief Financial Officer
    (403) 296-0344
    Email: IR-BEST@BuildersEnergy.com
    or
    Builders Energy Services Trust
    Karen Perasalo
    Manager, Finance and Investor Relations
    (403) 296-0344
    Email: IR-BEST@BuildersEnergy.com