Builders Energy Services Trust
TSX : BET.UN

Builders Energy Services Trust

August 09, 2007 18:57 ET

Builders Energy Services Trust Reports Second Quarter Earnings

CALGARY, ALBERTA--(Marketwire - Aug. 9, 2007) - Builders Energy Services Trust (TSX: BET.UN) ("Builders", or the "Trust") announces second quarter results for 2007.



Three months Six months
(Thousands, except per ended June 30, ended June 30,
unit amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------

Revenue $ 23,024 $ 34,590 $ 85,037 $ 97,344

Gross margin(1) $ 1,016 $ 8,660 $ 22,196 $ 32,778
Gross margin as a percentage of
revenue(1) 4% 25% 26% 34%

EBITDA(1) $ (2,911) $ 4,357 $ 13,702 $ 23,941

Funds flow from operations(1) $ (3,907) $ 5,719 $ 12,089 $ 22,632
Per unit - diluted $ (0.21) $ 0.36 $ 0.64 $ 1.46

Net earnings (loss) $ (7,376) $ 3,978 $ 1,692 $ 15,848
Per unit - diluted $ (0.39) $ 0.25 $ 0.09 $ 1.02

Cash distributions to
Unitholders $ 7,934 $ 6,392 $ 15,836 $ 12,275
Per unit $ 0.42 $ 0.41 $ 0.84 $ 0.80
Payout ratio(1) - (2) 112% 131% 54%

Equipment expenditures $ 4,780 $ 9,330 $ 12,189 $ 22,111
----------------------------------------------------------------------------

Trust units:
Outstanding, end of period 18,896 15,803 18,896 15,803
Weighted average, basic 18,876 15,530 18,786 15,243
Weighted average, diluted 18,876 15,773 18,821 15,515
----------------------------------------------------------------------------

(1) 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.
(2) Not presented as the denominator is negative.


We anticipate an increase in oilfield services activity for the second half of 2007 with further strengthening of the oilfield services sector during 2008. A moderate recovery in the third quarter of 2007 is expected, as third quarter weather conditions generally permit greater accessibility of well sites. In addition, there may be some incremental demand from exploration and production companies as they attempt to initiate delayed drilling programs resulting from the extended spring break-up and late spring wet weather. The fourth quarter of 2007 is expected to continue to strengthen from the third quarter. However, activity levels are still expected to be moderate as a result of the overhang of natural gas supply which has delayed the recovery in natural gas pricing. Natural gas prices are expected to recover during 2008 as supply is curtailed by declining production rates and reduced drilling.

Weak natural gas prices combined with other industry fundamentals have contributed to reduced drilling expectations for the Western Canadian Sedimentary Basin ("WCSB") in 2007. Per the Canadian Association of Oilwell Drilling, expectations are that 16,339 wells are to be completed during 2007, a 27 percent reduction relative to the 22,298 completed wells during 2006. However, oilfield service equipment is still required to maintain the 200,000 existing producing wells in the WCSB that typically need maintenance throughout the year. Builders' services are weighted towards drilling activity, with a portion related to production activity. It is helpful that the price of oil remains high, which ensures crude oil production-related work is requested by customers on a stable basis, but conventional oil drilling opportunities in the WCSB are less prevalent than natural gas prospects. Expectations are that during 2008, exploration and production customers will begin to increase their capital programs to take advantage of improving production margins resulting from anticipated natural gas pricing increases. Coincident with this timing, oilfield service activity is expected to begin to recover.

Although a slow-down in the conventional Canadian oilfield services sector has been reflected in activity levels since the fourth quarter of 2006, we had anticipated that signs of recovery would begin to show during 2007 and early 2008. Recent industry news has led many, including us, to delay our expectation of an activity recovery to 2008. This change was largely driven by the sustained North American natural gas storage levels supported by the apparent ongoing success in U.S. natural gas drilling and liquefied natural gas imports. The recent strengthening of the Canadian dollar relative to the U.S. dollar has compounded the challenge that the WCSB is perceived as a more expensive location to explore for and produce crude oil and natural gas than the U.S.

The magnitude of these deteriorating industry conditions led us to determine that it was prudent to reduce our monthly distribution by $0.02 per unit, to $0.12 per Trust unit per month ($1.44 per Trust unit per annum), as previously announced on July 18, 2007.

Our immediate focus continues to be on cost management and divisional synergies. In consideration of the current operating conditions, the Officers and Board of Directors have elected to receive reduced compensation and each of our operating units is focused on cost reductions and deferrals. Our long-term strategy is one of growth through internal expansion, acquisitions and mergers. In this difficult sector environment, attractive private oilfield service company acquisition opportunities may become available. While current industry conditions are expected to temporarily constrain large scale organic growth, we continue to believe the oilfield services sector is ripe for consolidation. As a result we continue to consider and evaluate potential merger opportunities.

Our operations have been successfully operated through cyclical business environments such as the one we currently find ourselves in today. As we look forward into the future, we will continue to operate in the same prudent manner that made our businesses successful in the past. As a result, we expect that we will be well-positioned to capitalize on additional opportunities as industry fundamentals recover.

While current conditions cast a negative outlook for the balance of 2007, we remain firm believers in the long-term underlying fundamentals for Canadian natural gas drilling programs and Canadian-based oilfield services. We expect that over the next several quarters, high production decline rates combined with rising natural gas consumption from North American economic growth will work in tandem to eventually restore balance to North American gas storage levels and stimulate Canadian natural gas drilling demand and associated oilfield services.

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 an update to, and should be read in conjunction with, the March 31, 2007 interim report and the annual consolidated financial statements and MD&A included in the Trust's 2006 Annual Report to Unitholders, in addition to the attached financial statements as at and for the three and six months ended June 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 August 9, 2007.

Additional Information

Additional information regarding Builders, including the March 31, 2007 MD&A and financial statements, the 2006 Annual Report and Annual Information Form, can be found on SEDAR at www.sedar.com.

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.

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 (loss) and net earnings (loss) per unit in accordance with GAAP, we believe that certain measures not recognized under GAAP assist us 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 (loss) and net earnings (loss) 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 (loss) and losses or gains on disposal of equipment) - 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 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. We use net equipment expenditures to assess our 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. We consider growth capital 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 in order to fund distributions, working capital, principal debt repayments and capital programs. Funds flow or funds flow from operations is defined as cash flow from operations before changes in non-cash operating working capital. We use this measure 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. 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 from the GAAP measure, revenue, in the table "Results of Operations".

(2) EBITDA and EBITDA as a percentage of revenue are reconciled from 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 from 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".

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. We provide services to both producing and newly drilled conventional crude oil and natural gas wells in the oil and gas industry.

Our 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.

CURRENT AND COMPARATIVE PERIODS

The current periods for the three months and six months ended June 30, 2007 include 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 (Prime Oilfield Hauling Ltd. ("Prime") acquired August 1, 2006 and Leachman Enterprises Ltd. ("Leachman") acquired February 1, 2006).

The operations and financial results of the Leachman and Kodiak acquisitions have been included in the June 30, 2006 consolidated financial statements and MD&A of the Trust since February 1, 2006 and May 8, 2006 respectively.

THE INDUSTRY

The Canadian oilfield services sector is cyclical and is significantly affected by the activity levels of exploration and production companies. Additionally, the oilfield services sector is seasonal with typical second quarter activity levels being less than the first and fourth quarters which are the most active periods.

OVERVIEW OF SECOND QUARTER 2007 INDUSTRY ACTIVITY

Typically the second quarter is expected to have the lowest activity levels of the year, but the second quarter of 2007 was lower than expected due to deteriorating industry fundamentals, an extended spring break-up and wet weather. This resulted in what was generally a very weak quarter for the Canadian oilfield services sector, with the lowest level of oilfield services activity in the past seven years.

The second quarter of 2007 continued to be impacted by low natural gas prices that are partially attributable to high natural gas inventory storage. Active U.S. natural gas drilling programs and liquefied natural gas imports contributed to continuing high natural gas inventory storage levels. In contrast, in Canada, natural gas drilling has slowed significantly. The high level of storage, a weaker U.S. dollar relative to the Canadian dollar, expectations of lower natural gas prices, and the perception that western Canada is a relatively high cost exploration and production area have all combined to reduce natural gas drilling programs, which historically represent approximately 70 percent of Western Canadian Sedimentary Basin ("WCSB") activity. Drilling rig utilization rates in the WCSB, which act as a barometer for oilfield services activity, were at a seven year low during the second quarter of 2007. Per the Canadian Association of Oilwell Drilling Contractors ("CAODC"), a total of 2,085 natural gas wells were drilled in the WCSB, a 44 percent decline from the 3,739 wells drilled in the second quarter of 2006. In addition, the weakness in the quarter was exacerbated by additional equipment added to the Canadian oilfield service sector fleets over the past few years, thus increasing the availability of equipment and increased competition and corresponding pricing pressure.

The Canadian oilfield services sector also experienced an extended spring break-up during the second quarter of 2007 as a result of record winter snow falls creating wet conditions that cause road bans which delayed or prevented the movement of equipment required to perform oilfield services. Further wet weather conditions, especially during late spring and early summer, delayed an already extended spring break-up.



SELECTED FINANCIAL INFORMATION

Three months Six months
(Thousands, except per ended June 30, ended June 30,
unit amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------
Revenue $ 23,024 $ 34,590 $ 85,037 $ 97,344
Gross margin $ 1,016 $ 8,660 $ 22,196 $ 32,778
Gross margin as a percentage
of revenue 4% 25% 26% 34%

EBITDA $ (2,911) $ 4,357 $ 13,702 $ 23,941
EBITDA as a percentage of
revenue (13)% 13% 16% 25%

Net earnings (loss): $ (7,376) $ 3,978 $ 1,692 $ 15,848
Per unit - basic $ (0.39) $ 0.26 $ 0.09 $ 1.04
Per unit - diluted $ (0.39) $ 0.25 $ 0.09 $ 1.02

Funds flow from operations: $ (3,907) $ 5,719 $ 12,089 $ 22,632
Per unit - basic $ (0.21) $ 0.37 $ 0.64 $ 1.48
Per unit - diluted $ (0.21) $ 0.36 $ 0.64 $ 1.46
Payout ratio -(1) 112% 131% 54%

Cash distributions to
Unitholders: $ 7,934 $ 6,392 $ 15,836 $ 12,275
Per unit $ 0.42 $ 0.41 $ 0.84 $ 0.80
----------------------------------------------------------------------------
Total assets $ 305,407 $ 267,427 $ 305,407 $ 267,427

Operating line of credit and
total long-term debt $ 64,649 $ 45,584 $ 64,649 $ 45,584

Unitholders' equity $ 204, 770 $ 173,359 $ 204,770 $ 173,359
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Not presented as the denominator is negative.


OVERVIEW OF SECOND QUARTER RESULTS

Overall, given the reduction in industry fundamentals, extended spring break-up and wet weather conditions, the current quarter's financial results are the weakest to date despite our growth during 2006 through acquisitions and equipment expenditures. Compared to the second quarter of 2006, when weather was less of a factor and industry fundamentals were much stronger, 2007 results have declined, but were partially offset by the benefit of a full quarter of operations from acquisitions closed in 2006 in our Service Rigs and Oilfield Transport segments. The reduced gross margin for the current quarter and year-to-date reflects weak 2007 service utilization levels and pricing pressure in the oilfield services sector.

- Net earnings decreased by $11.4 million (to a net loss of $7.4 million from net earnings of $4.0 million) and $14.2 million (to $1.7 million from $15.8 million) for the three and six months ended June 30, 2007, respectively.

- Funds flow from operations decreased by $9.6 million (to funds flow of ($3.9 million) from funds flow of $5.7 million) and $10.5 million (to $12.1 million from $22.6 million) for the three and six months ended June 30, 2007, respectively.

- Gross margin as a percentage of revenue decreased to 4 percent from 25 percent for the three months ended June 30, 2007 and 2006, respectively, and to 26 percent from 34 percent for the six months ended June 30, 2007 and 2006, respectively.



RESULTS OF OPERATIONS

Three months Six months
(Thousands, except per ended June 30, ended June 30,
unit amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------
Revenue by segment:
Service Rigs $ 6,978 $ 8,525 $ 30,957 $ 23,495
Oilfield Transport 7,632 10,272 24,323 28,041
Downhole Services & Rentals 8,414 15,793 29,757 45,808
----------------------------------------------------------------------------
Revenue 23,024 34,590 85,037 97,344
Operating expenses 22,008 25,930 62,841 64,566
----------------------------------------------------------------------------
Gross margin 1,016 8,660 22,196 32,798
Gross margin as a percentage of
revenue 4% 25% 26% 34%

General and administrative and
other cash expenses 3,927 4,303 8,494 8,857
----------------------------------------------------------------------------
EBITDA (2,911) 4,357 13,702 23,941
EBITDA as a percentage of
revenue (13)% 13% 16% 25%

Depreciation and amortization 5,800 4,272 11,276 8,038
Interest 1,209 647 2,147 1,122
Loss on disposal of equipment 608 411 594 425
----------------------------------------------------------------------------
Earnings (loss) before income
taxes and non
controlling interest (10,528) (973) (315) 14,356

Income tax recovery (3,004) (5,141) (2,126) (2,363)
Non-controlling interest
earnings (loss) (148) 190 119 871
----------------------------------------------------------------------------
Net earnings (loss) $ (7,376) $ 3,978 $ 1,692 $ 15,848
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per unit - basic $ (0.39) $ 0.26 $ 0.09 $ 1.04
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per unit - diluted $ (0.39) $ 0.25 $ 0.09 $ 1.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Our revenue decreased for the second quarter 2007 compared to 2006 as the industry slowdown, extended spring break-up and wet weather conditions offset the growth in our operations during 2006 from four acquisitions and new equipment additions. Our current year-to-date revenue was further impacted by the earlier arrival of spring break-up relative to the extended winter drilling season during 2006. Although our Service Rigs segment performed well, revenues declined for the second quarter of 2007 over 2006 as a result of industry conditions, earlier arrival of spring break-up and wet weather. Drilling rig utilization reductions, primarily driven by reduced natural gas activity throughout the WCSB combined with a relatively short spring drilling season, resulted in reductions in revenue for both our Oilfield Transport and DS&R segments. Record snow pack in areas of Alberta and wet weather, especially during June, were particularly challenging for our western and southeastern Alberta Oilfield Transport and central Alberta DS&R businesses. All of our segments experienced pricing pressures as lower utilization levels made the oilfield services sector more competitive.

Gross margin and EBITDA for the second quarter decreased as a result of the reduction in industry activity levels and the extended spring break-up and wet weather compared to 2006. In addition, earnings (loss) before income taxes and non-controlling interest and net earnings (loss) for the quarter were further impacted by increased depreciation and amortization reflecting the acquisitions and growth capital investment in the Service Rigs and Oilfield Transport segments in 2006.

Gross margin and EBITDA percentages have declined from 2006 due to pricing pressure from our customers and overall lower utilization rates.

Service Rigs

This segment, on a relative basis, continued to be our strongest earnings segment in the second quarter of 2007, despite current industry fundamentals and wet weather conditions. Production-related services continue to be required on the 200,000 producing wells in the WCSB, although the current quarter did have considerable industry and weather challenges. As discussed, the current industry conditions, impacted by lower natural gas pricing, had an adverse impact on completion services. Also, the current quarter was significantly impacted by an extended spring-break-up and the wet weather experienced during June throughout Alberta relative to 2006. For the three months ended June 30, 2007, our Service Rigs segment had a total of 9,749 hours, a reduction of 2,257 hours relative to 2006. For the six months ended June 30, 2007, our Service Rigs segment had a total of 37,593 hours, an increase of 7,179 hours mainly attributable to 2006 acquisitions of Kodiak and Murphy's.

Revenue was $7.0 million and loss before taxes and non-controlling interest was $1.3 million, decreases of $1.5 million and $2.8 million, respectively, from the second quarter of 2006. Revenue was $31.0 million, an increase of $7.5 million whereas earnings before taxes and non-controlling interest was $6.3 million, a decrease of $0.6 million from the six months ended June 30, 2006.

Equipment utilization during the three months ended June 30, 2007 was lower than the second quarter of 2006. Industry service rig utilization rates were reduced relative to 2006, due to the decline in industry fundamentals, wet weather and the increase in available service rigs in western Canada. The CAODC estimated that available service rigs averaged 1,050 rigs in the second quarter of 2007 compared to 970 rigs in 2006.

Oilfield Transport

During the three and six months ended June 30, 2007, our Oilfield Transport operations were affected by the industry slowdown, extended spring break-up and wet weather. This slowdown in natural gas drilling activity reduced utilization rates at both our pipe hauling operation in central Alberta and the rig moving business in southeastern Alberta. An extended spring break-up as a result of record winter snow falls especially impacted our northwestern Alberta oilfield transport operations. Revenue for the current quarter for this segment was $7.6 million, a decrease of $2.6 million from $10.3 million in 2006. Year-to-date revenue for this segment was $24.3 million, a decrease of $3.7 million from $28.0 million in 2006.

The loss before income taxes and non-controlling interest increased from $0.9 million to $3.0 million for the second quarter of 2006 and 2007, respectively. The Oilfield Transport segment had a reduction in earnings from $2.9 million for the six months ended June 30, 2006, to a loss of $1.9 million for the six months ended June 30, 2007, which reflects a decrease in revenue, increased operating costs and depreciation and amortization associated with the acquisitions of Prime and Leachman in 2006 and depreciation and amortization related to growth capital in this segment throughout 2006.

Downhole Services & Rentals ("DS&R")

Our downhole tools business within our DS&R segment continued to provide strong operating results throughout the second quarter of 2007, despite current industry fundamentals and wet weather conditions, largely driven by heavy oil activity in eastern Alberta. However, our DS&R segment was adversely impacted by the reduction in natural gas well activity in central Alberta. This led to a significant reduction in utilization rates, especially for our coil tubing and nitrogen services, and to a lesser extent for our wireline services, all located in central Alberta. In addition, our rental business, which is heavily reliant on drilling rig utilization, has been adversely impacted by the reduction in drilling rig activity.

Revenue for the DS&R segment for the three months ended June 30, 2007 was $8.4 million and loss before taxes and non-controlling interest was $2.1 million, decreases of $7.4 million and $4.9 million, respectively, from the same period in 2006. For the six months ended June 30, 2007 revenue was $29.8 million and earnings before taxes and non-controlling interest was $4.0 million, decreases of $16.1 million and $8.4 million, respectively, from the same period in 2006.

Corporate

Interest expense for the three and six months ended June 30, 2007 has increased primarily as a result of higher average debt outstanding. Interest rates on our operating line of credit and term acquisition loan facility averaged 6.6 percent for the second quarter of 2007, compared with 6.0 percent in the second quarter of 2006. For the six months ended June 30, 2007, interest rates on our credit facility averaged 6.6 percent for 2007 compared with 5.8 percent for 2006.

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 and amounted to $0.2 million and $0.5 million, respectively, for the second quarter of 2007 compared to unit option plan costs of $0.5 million for the second quarter of 2006. For the six months ended June 30, 2007, the Option Plan and LTIP expenses amounted to $0.5 million and $0.6 million, respectively, for 2007 compared to the Option Plan expenses of $0.9 million for 2006.

On August 8, 2007 there were 1,419,650 LTIP units outstanding, none of which were exercisable.

Income Taxes

Our Trust structure includes certain subsidiaries which are subject to the payment of corporate income taxes. Current income tax expense for the six months ended June 30, 2007 decreased $1.1 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.

As described in our financial statements, in June 2007 the Government of Canada enacted legislation imposing additional income taxes on trusts for taxation years commencing January 1, 2011. During the second quarter ended June 30, 2007, we recognized $2.2 million in future tax expense due to this enacted legislation. During the second quarter ended June 30, 2006, we recognized $2.9 million in future tax recoveries due to Alberta and Federal corporate tax rate reductions.

FINANCIAL RESOURCES AND LIQUIDITY

On an annual basis, financing of our distributions is expected to occur through funds flow. Since our sector is seasonal, it is expected that our payout ratio may, during occasional quarters, exceed 100%, particularly in the second quarter. Overall, we base our distribution level on the future expected funds flow from operations rather than seasonal fluctuations, with the goal of providing a distribution level that is sustainable.

During the quarter, our funds flow from operations was ($3.9 million). The change in our non-cash working capital, mainly comprised of collections of accounts receivable, was used to finance our second quarter distributions and the seasonal shortfall in funds flow whereas our credit facilities were used to finance net equipment expenditures and temporary changes in non-cash working capital.



Funds Flow from Operations

Three months Six months
(Thousands, except per ended June 30, ended June 30,
unit amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------
Cash flow from operations $ 17,375 $ 14,639 $ 20,313 $ 27,046

Less:

Changes in non-cash operating
working capital 21,282 8,920 8,224 4,414
----------------------------------------------------------------------------
Funds flow from operations $ (3,907) $ 5,719 $ 12,089 $ 22,632
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per unit - basic $ (0.21) $ 0.37 $ 0.64 $ 1.48

Per unit - diluted $ (0.21) $ 0.36 $ 0.64 $ 1.46
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Funds flow from operations for the three months ended June 30, 2007 was ($3.9 million), which represents a decrease of $9.6 million from the funds flow of $5.7 million reported in the second quarter of 2006. The decrease is due to weaker industry fundamentals and an extended spring break-up compounded by exceptionally wet weather during the quarter.



Payout Ratio

Three months Six months
(Thousands, except per ended June 30, ended June 30,
unit amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------
Funds flow from operations(1) $ (3,907) $ 5,719 $ 12,089 $ 22,632

Distributions:

Paid 5,289 4,181 13,191 10,064

Payable 2,645 2,211 2,645 2,211
----------------------------------------------------------------------------
Distributions declared $ 7,934 $ 6,392 $ 15,836 $ 12,275
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total distributions per unit $ 0.42 $ 0.41 $ 0.84 $ 0.80
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Payout ratio -(2) 112% 131% 54%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Funds flow from operations is a non-GAAP measure and is reconciled from
the most relevant GAAP measure, cash flow from operations, in the "Funds
Flow from Operations" table.
(2) Not presented as the denominator is negative.


The payout ratios for the second quarter of 2007 and 2006 are high relative to the payout ratios from other quarters of each year. This reflects the seasonal nature of funds flow from operations from oilfield services.

Distributions declared for the three months ended June 30, 2007 have increased significantly from the same period in 2006. The quarter-over-quarter increase in distributions can be attributed to the May 2006 distribution increase combined with the Trust unit issuances for the August 2006 Trust unit prospectus offering, Trust unit consideration for the 2006 acquisitions of Kodiak, Prime and Murphy's, the conversion of Exchangeable shares during 2007 and 2006 and the exercise of Trust unit options. Distributions declared for the six months ended June 30, 2007 have increased from the relative period in 2006 for the explanations noted above, in addition to Trust unit consideration for the 2006 acquisition of Leachman.



Equipment Expenditures

Three months Six months
ended June 30, ended June 30,
(Thousands) 2007 2006 2007 2006
----------------------------------------------------------------------------
Equipment expenditures:

Service Rigs $ 2,763 $ 2,215 $ 4,554 $ 4,208

Oilfield Transport 970 4,986 4,318 8,392

Downhole Services & Rentals 717 1,807 2,540 9,099

Corporate 330 322 777 412
----------------------------------------------------------------------------
Investment in equipment 4,780 9,330 12,189 22,111

Proceeds on disposal of equipment 293 1,757 1,281 1,979
----------------------------------------------------------------------------
Net equipment expenditures 4,487 7,573 10,908 20,132
----------------------------------------------------------------------------
----------------------------------------------------------------------------


We incurred $4.5 million and $10.9 million in net equipment expenditures during the three and six months ended June 30, 2007 respectively, a decrease of $3.1 million and $9.2 million from the comparative periods of 2006. The current year-to-date net equipment expenditures is comprised of $7.5 million in growth capital, $2.6 million in net maintenance capital and $0.8 million for information systems, operational facilities and leasehold improvements. The reduced level of equipment expenditures reflects the industry slowdown and weak oilfield services sector utilization levels during 2007.

Trust Units and Non-controlling Interest

During the six months ended June 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 - 70,165) Trust units were issued on exercise of Trust unit options.

As at August 8, 2007, there were 18,896,018 Trust units and 1,528,027 Trust unit options outstanding. Of the 1,528,027 Trust unit options, 717,278 were exercisable of which nil were "in-the-money".

As at August 8, 2007, there were 294,495 Series A Exchangeable shares outstanding that were convertible at a ratio of 1.3180 per share into 388,144 Trust units.

Credit Facilities and Other Long-term Debt

On May 30, 2007, we amended our credit facility agreement with four major Canadian chartered banks. The total available facility is $100.0 million, comprised of an operating line of credit of $20.0 million and a term acquisition loan facility of $80.0 million. The operating line of credit and the term acquisition loan facility expire on May 28th, 2008 and we expect that the facilities will be renewed for another year. Since the term date occurs within one year, as at June 30, 2007, $1.7 million of the acquisition facility has been recognized as part of the current portion of long-term debt in current liabilities. We believe that the unutilized portions of the operating and acquisition facilities are sufficient to meet existing operating commitments and capital spending for the remainder of the year.

As at June 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 will restrict our future operating, investing or financing activities.



SUMMARY OF QUARTERLY DATA
(Thousands, Three months ended
except per unit June 30, Mar. 31, Dec. 31, Sept. 30,
amounts) 2007 2007 2006 2006
----------------------------------------------------------------------------

Revenue $ 23,024 $ 62,013 $ 51,799 $ 50,422
Net earnings (loss) (7,376) 9,068 5,242 6,554
Per-unit - basic (0.39) 0.49 0.28 0.39
Per-unit - diluted (0.39) 0.48 0.28 0.38
Funds flow from operations (3,907) 15,996 9,418 11,852
Per-unit - basic (0.21) 0.86 0.51 0.71
Per-unit - diluted (0.21) 0.86 0.51 0.70
Distributions per unit $ 0.42 $ 0.42 $ 0.42 $ 0.42
Payout ratio -(1) 49% 82% 61%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

Revenue $ 34,590 $ 62,754 $ 50,772 $ 37,164
Net earnings (loss) 3,978 11,870 7,220 4,960
Per-unit - basic 0.26 0.79 0.53 0.39
Per-unit - diluted 0.25 0.78 0.52 0.38
Funds flow from operations 5,719 16,913 12,544 9,234
Per-unit - basic 0.37 1.13 0.93 0.73
Per-unit - diluted 0.36 1.11 0.90 0.71
Distributions per unit $ 0.41 $ 0.39 $ 0.39 $ 0.37
Payout ratio 112% 35% 44% 51%
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) Not presented as the denominator is negative.


During the first quarter of 2007, relative to the comparative quarter, our revenues, net earnings and funds flow 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 continued into the second quarter of 2007. This factor, 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 our revenue, net earnings and funds flow from operations.

During the fourth quarter of 2006, relative to the comparative quarter, our net earnings and funds flow 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. The increase in the third quarter results of 2006 relative to the comparative quarters are mainly due to strong oilfield services demand, and growth in our operations and cash flow from acquisitions and equipment expenditures.

The second quarter of both 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 in the first quarter of each year has been substantially more than the distributions declared, which is expected. This excess funds flow was used to partially finance the distributions in the second quarter. As utilization levels increase during the third quarter, funds flow is primarily used to finance increases in non-cash working capital and distributions.

OUTLOOK

We anticipate an increase in oilfield services activity for the second half of 2007 with further strengthening of the oilfield services sector during 2008. A moderate recovery in the third quarter of 2007 is expected, as third quarter weather conditions generally permit greater accessibility of well sites. In addition, there may be some incremental demand from exploration and production companies as they attempt to initiate delayed drilling programs resulting from the extended spring break-up and late spring wet weather. The fourth quarter of 2007 is expected to continue to strengthen from the third quarter. However, activity levels are still expected to be moderate as a result of the overhang of natural gas supply which has delayed the recovery in natural gas pricing. Natural gas prices are expected to recover during 2008 as supply is curtailed by declining production rates and reduced drilling.

Weak natural gas prices combined with other industry fundamentals have contributed to reduced drilling expectations for the WCSB in 2007. Per CAODC, expectations are that 16,339 wells are to be completed during 2007, a 27 percent reduction relative to the 22,298 completed wells during 2006. However, oilfield service equipment is also still required to maintain the 200,000 existing producing wells in the WCSB that typically need maintenance throughout the year. Builders' services are weighted towards drilling activity, with a portion related to production activity. It is helpful that the price of oil remains high, which ensures crude oil production-related work is requested by customers on a stable basis, but conventional oil drilling opportunities in the WCSB are less prevalent than natural gas prospects. Expectations are that during 2008, exploration and production customers will begin to increase their capital programs to take advantage of improving production margins resulting from anticipated natural gas pricing increases. Coincident with this timing, oilfield service activity is expected to begin to recover.

Although a slow-down in the conventional Canadian oilfield services sector has been reflected in activity levels since the fourth quarter of 2006, we had anticipated that signs of recovery would begin to show during 2007 and early 2008. Recent industry news has led many, including us, to delay our expectation of an activity recovery to 2008. This change was largely driven by the sustained North American natural gas storage levels supported by the apparent ongoing success in U.S. natural gas drilling and liquefied natural gas imports. The recent strengthening of the Canadian dollar relative to the U.S. dollar has compounded the challenge that the WCSB is perceived as a more expensive location to explore for and produce crude oil and natural gas than the U.S..

The magnitude of these deteriorating industry conditions led us to determine that it was prudent to reduce our monthly distribution by $0.02 per unit, to $0.12 per Trust unit per month ($1.44 per Trust unit per annum), as previously announced on July 18, 2007.

Our ability to finance through public or private offerings of Trust units continues to be impacted by the "Tax Fairness Plan" legislation which was enacted into law on June 22, 2007. At this time, we expect to maintain our trust status for the foreseeable future in order to create additional Unitholder value through returns of pre-tax distributions.

We plan to continue with our 2007 capital program of $21 million. Included in this program is the addition of three new service rigs and related equipment. We will use our Brooks fabrication facilities to construct the service rigs and expect to deploy them in the fourth quarter of 2007 and the first quarter of 2008. Utilization of service rigs that we experienced in the first half of 2007 is expected to continue in the latter half of 2007 and into 2008. We will continue to re-evaluate the 2007 capital program throughout the year in relation to industry conditions and business opportunities.

Our immediate focus continues to be on cost management and divisional synergies. In consideration of the current operating conditions, the Officers and Board of Directors have elected to receive reduced compensation and each of our operating units is focused on cost reductions and deferrals. Our long-term strategy is one of growth through internal expansion, acquisitions and mergers. In this difficult sector environment, attractive private oilfield service company acquisition opportunities may become available. While current industry conditions are expected to temporarily constrain large scale organic growth, we continue to believe the oilfield services sector is ripe for consolidation. As a result we continue to consider and evaluate potential merger opportunities.

Our operations have been successfully operated through cyclical business environments such as the one we currently find ourselves in today. As we look forward into the future, we will continue to operate in the same prudent manner that made our businesses successful in the past. As a result, we expect that we will be well-positioned to capitalize on additional opportunities as industry fundamentals recover.

While current conditions cast a negative outlook for the balance of 2007, we remain firm believers in the long-term underlying fundamentals for Canadian natural gas drilling programs and Canadian-based oilfield services. We expect that over the next several quarters, high production decline rates combined with rising natural gas consumption from North American economic growth will work in tandem to eventually restore balance to North American gas storage levels and stimulate Canadian natural gas drilling demand and associated oilfield services.



BUILDERS ENERGY SERVICES TRUST
CONSOLIDATED BALANCE SHEETS
(unaudited)

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

Assets (notes 4 and 5)
Current assets
Accounts receivable $ 23,226 $ 40,835
Inventory 6,262 5,753
Prepaid expenses and deposits 3,556 2,359
----------------------------------------------------------------------------
33,044 48,947
Equipment 161,693 161,260
Intangible assets 16,932 18,327
Goodwill 93,738 94,015
Deferred charges (note 3) - 484
----------------------------------------------------------------------------
$ 305,407 $ 323,033
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Current liabilities
Bank indebtedness $ 645 $ 236
Operating line of credit (note 4) 1,150 2,650
Accounts payable and accrued liabilities 9,266 20,112
Distributions payable (note 11) 2,645 2,583
Income taxes payable - 1,525
Current portion of long-term debt (note 5) 3,288 11,432
----------------------------------------------------------------------------
16,994 38,538

Long-term debt (note 5) 60,211 40,790
Future income tax liability (note 3 and 6) 19,997 22,278
----------------------------------------------------------------------------
97,202 101,606

Non-controlling interest (note 7) 3,967 7,881

Unitholders' Equity
Trust units (note 8) 214,937 210,083
Contributed surplus (note 9) 3,656 3,345
Accumulated net earnings 45,519 44,156
Accumulated distributions (note 11) (59,874) (44,038)
----------------------------------------------------------------------------
204,238 213,546
----------------------------------------------------------------------------
$ 305,407 $ 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 Six months
(Thousands, except per ended June 30, ended June 30,
unit amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------

Revenue (note 15) $ 23,024 $ 34,590 $ 85,037 $ 97,344
Operating expenses 22,008 25,930 62,841 64,566
----------------------------------------------------------------------------
1,016 8,660 22,196 32,778
----------------------------------------------------------------------------

Expenses
General and administrative
(note 10) 3,942 4,475 8,350 8,824
Depreciation 5,098 3,704 9,881 6,948
Amortization 702 568 1,395 1,090
Interest on long-term debt 947 500 1,823 975
Other 855 386 1,062 585
----------------------------------------------------------------------------
11,544 9,633 22,511 18,422
----------------------------------------------------------------------------

Earnings (loss) before income
taxes and non-controlling
interest (note 15) (10,528) (973) (315) 14,356

Income tax expenses (recoveries)
Current - (1,503) - 1,128
Future (note 6) (3,004) (3,638) (2,126) (3,491)
----------------------------------------------------------------------------
(3,004) (5,141) (2,126) (2,363)
----------------------------------------------------------------------------

Earnings (loss) before
non-controlling interest (7,524) 4,168 1,811 16,719
Non-controlling interest
earnings (loss) (note 7) (148) 190 119 871
----------------------------------------------------------------------------

Net earnings (loss) and
comprehensive income
(loss) (note 3) $ (7,376) $ 3,978 $ 1,692 $ 15,848

Accumulated net earnings,
beginning of period 52,895 28,382 44,156 16,512

Prospective adoption of new
accounting standard (note 3) - - (329) -
----------------------------------------------------------------------------

Accumulated net earnings, end
of period $ 45,519 $ 32,360 $ 45,519 $ 32,360
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net earnings (loss) per unit
(note 12)
Basic $ (0.39) $ 0.26 $ 0.09 $ 1.04
Diluted $ (0.39) $ 0.25 $ 0.09 $ 1.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to unaudited consolidated interim financial
statements



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

Three months Six months
ended June 30, ended June 30,
(Thousands) 2007 2006 2007 2006
----------------------------------------------------------------------------

Operating activities
Net earnings (loss) and
comprehensive income (loss) $ (7,376) $ 3,978 $ 1,692 $ 15,848
Items not affecting cash:
Depreciation and amortization 5,800 4,272 11,276 8,038
Future income tax recovery (3,004) (3,638) (2,126) (3,491)
Unit-based compensation
(note 10) 213 506 534 941
Non-controlling interest
earnings (loss) (note 7) (148) 190 119 871
Loss on disposal of capital
assets 608 411 594 425
----------------------------------------------------------------------------
(3,907) 5,719 12,089 22,632

Changes in non-cash operating
working capital (note 13) 21,282 8,920 8,224 4,414
----------------------------------------------------------------------------
17,375 14,639 20,313 27,046
----------------------------------------------------------------------------

Financing activities
Issue of Trust units, net of
issue costs (note 8) 479 338 598 677
Distributions paid (7,924) (6,156) (15,774) (11,965)
Increase (repayment) of
operating line of credit (1,125) 2,195 (1,500) (3,505)
Increase in long-term debt - 8,600 12,400 23,100
Repayment of long-term debt (3,143) (929) (1,123) (1,639)
Other - (92) - (108)
----------------------------------------------------------------------------
(11,713) 3,956 (5,399) 6,560
----------------------------------------------------------------------------

Investing activities
Equipment (4,780) (9,330) (12,189) (22,111)
Business acquisitions - (10,260) - (15,677)
Proceeds on disposal of equipment 293 1,757 1,281 1,979
Changes in non-cash investing
working capital (note 13) (244) 1,131 (4,415) 1,590
----------------------------------------------------------------------------
(4,731) (16,702) (15,323) (34,219)
----------------------------------------------------------------------------

Increase (decrease) in cash 931 1,893 (409) (613)

Cash (bank indebtedness),
beginning of period (1,576) (1,045) (236) 1,461
----------------------------------------------------------------------------
Cash (bank indebtedness),
end of period $ (645) $ 848 $ (645) $ 848
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplementary cash flow
information
Income taxes paid $ - $ 1,791 $ 1,525 $ 2,854
Interest paid $ 1,216 $ 670 $ 2,178 $ 1,176
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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, 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, 2007. In management's opinion, these interim consolidated financial statements include all adjustments to present fairly such information.

3. Adoption of New Accounting Policies

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 (loss) 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 prospectively adopted.

4. Operating Line of Credit

In May, 2007, the Trust amended its credit agreement with its banking syndicate 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 that fluctuates with the bank's prime rate. The weighted average interest rate for the three and six months ended June 30, 2007 was 6.0 and 6.0 percent, respectively (5.9 and 5.5 percent respectively for the three and six months ending June 30, 2006).

The line of credit expires on May 28, 2008 and can be renewed, at the lenders' 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, 2007 December 31, 2006
----------------------------------------------------------------------------
Term acquisition loan $ 60,895 $ 48,495
Term debt and capital leases 2,604 3,727
----------------------------------------------------------------------------
63,499 52,222
Less: current portion of long-term debt 3,288 11,432
----------------------------------------------------------------------------
Long-term debt $ 60,211 $ 40,790
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In May, 2007, the Trust amended its credit agreement with its banking syndicate 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 $80.0 million or 60 percent of the otherwise unencumbered net tangible assets. The 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 six months ended June 30, 2007 is 6.6 and 6.7 percent, respectively (6.5 and 6.3 percent respectively for the three and six months ending June 30, 2006).

The 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 June 30, 2007 is $1.7 million ($9.4 million at December 31, 2006). The term acquisition loan facility is collateralized by a general security agreement and a general assignment of book debts.

6. Future Income Tax

In June 2007, the Government of Canada enacted legislation imposing additional income tax on the Trust for taxation years commencing January 1st, 2011. This enacted legislation has resulted in the Trust recognizing $2.2 million in future tax expense, with a corresponding increase in future income tax liability, with respect to temporary timing differences of accounting and tax bases.



7. Non-controlling Interest
Six months ended
June 30, 2007
----------------------------------------------------------------------------
Securities Amount
----------------------------------------------------------------------------
Balance, beginning of period 589 $ 7,881
Conversion to Trust units (note 8) (295) (4,033)
Earnings attributable to non-controlling
interest - 119
----------------------------------------------------------------------------
Balance, end of period 294 $ 3,967
----------------------------------------------------------------------------
Exchange ratio, end of period 1.3020
Trust units issuable upon conversion, end of
period 383
---------------------------------------------------------
---------------------------------------------------------


8. Trust Units
Six months ended
June 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 - (232)
----------------------------------------------------------------------------
Balance, end of period 18,896 $ 214,937
----------------------------------------------------------------------------
----------------------------------------------------------------------------


9. Contributed Surplus
Six months ended
June 30, 2007
----------------------------------------------------------------------------
Balance, beginning of period $ 3,345
Unit option plan unit-based compensation
expense, net of forfeitures (note 10) 534
Fair value of exercised Trust unit options (note 8) (223)
----------------------------------------------------------------------------
Balance, end of period $ 3,656
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

Outstanding, beginning of period 1,461 $ 12.11
Issued 190 11.54
Exercised (83) 10.00
Forfeitures (69) 13.52
----------------------------------------------------------------------------
Outstanding, end of period 1,499 $ 12.09
----------------------------------------------------------------------------
Exercisable, end of period 670 $ 11.33
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Trust recorded unit-based compensation expense in respect of the Option Plan of $0.2 million and $0.5 million for the three and six months ended June 30, 2007, respectively (2006 - $0.5 million and $0.9 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
Six months ended
June 30, 2007
----------------------------------------------------------------------------
Weighted
Long-term Average
Incentive Plan Exercise Price
Units (Per Unit)
----------------------------------------------------------------------------
Outstanding, beginning of period - $ -
Issued 1,499 10.67
Forfeitures (64) 10.59
----------------------------------------------------------------------------
Outstanding, end of period 1,435 $ 10.01
----------------------------------------------------------------------------
Exercisable, end of period - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Trust recorded unit-based compensation expense in respect of cash-settled LTIP of $0.5 million and $0.6 million for the three and six months ended June 30, 2007, respectively (nil for the three and six months ended June 30, 2006) with a corresponding increase in accounts payable.



11. Accumulated Distributions and Distributions Payable

Six months ended
June 30, 2007
----------------------------------------------------------------------------
Per Unit Amount
----------------------------------------------------------------------------

Accumulated distributions, beginning of period $ 44,038
Distributions declared and paid $ 0.28 13,191
Distributions declared and payable 0.14 2,645
----------------------------------------------------------------------------
Accumulated distributions, for the period $ 0.42 15,836
----------------------------------------------------------------------------
Accumulated distributions, end of period $ 59,874
----------------------------------------------------------------------------
----------------------------------------------------------------------------


12. Net Earnings (Loss) Per Unit

Three Months Six Months
ended June 30, ended June 30,
2007 2006 2007 2006
----------------------------------------------------------------------------

Numerator:
Basic and diluted net earnings
(loss) $ (7,376) $ 3,978 $ 1,692 $ 15,848

Denominator:
Weighted average units for basic
net earnings 18,876 15,530 18,786 15,243
Options convertible to units - 243 35 272
----------------------------------------------------------------------------
Weighted average units for
diluted net earnings 18,876 15,773 18,821 15,515
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net earnings (loss) per unit:
Basic $ (0.39) $ 0.26 $ 0.09 $ 1.04
Diluted $ (0.39) $ 0.25 $ 0.09 $ 1.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------


13. Changes in Non-cash Working Capital

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

Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
----------------------------------------------------------------------------


Accounts receivable $ 26,716 $ 21,161 $ 17,609 $ 14,005
Inventory 15 (147) (509) (398)
Prepaid expenses and deposits (283) (448) (1,197) (1,354)
Trade accounts payable and
accrued liabilities (5,166) (8,363) (6,388) (6,116)
Income taxes payable - (3,283) (1,291) (1,723)
----------------------------------------------------------------------------
$ 21,282 $ 8,920 $ 8,224 $ 4,414
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
Equipment accounts payable and
accrued liabilities $ (248) $ 875 $ (1,022) $ 215
Acquisition consideration
payable subsequent to closing 4 256 (725) 1,375
Acquired accounts payable and
income taxes payable - - (2,668) -
----------------------------------------------------------------------------
$ (244) $ 1,131 $ (4,415) $ 1,590
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 June 30, 2007
----------------------------------------------------------------------------
Downhole
Service Oilfield Services &
Rigs Transport Rentals Corporate Consolidated
----------------------------------------------------------------------------

Revenue $ 6,978 $ 7,632 $ 8,414 $ - $ 23,024
Loss before
income taxes
and non-
controlling
interest $ (1,348) $ (2,988) $ (2,135) $ (4,057) $ (10,528)

Goodwill &
intangible
assets $ 27,455 $ 32,930 $ 50,285 $ - $ 110,670
Total assets $ 100,488 $ 92,332 $ 110,466 $ 2,121 $ 305,407
Equipment
expenditures $ 2,763 $ 970 $ 717 $ 330 $ 4,780
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at and for the three months ended June 30, 2006
----------------------------------------------------------------------------
Downhole
Service Oilfield Services &
Rigs Transport Rentals Corporate Consolidated
----------------------------------------------------------------------------

Revenue $ 8,525 $ 10,272 $ 15,793 $ - $ 34,590
Earnings
(loss) before
income taxes
and non-
controlling
interest $ 1,466 $ (926) $ 2,759 $ (4,272) $ (973)

Goodwill &
intangible
assets $ 21,625 $ 18,374 $ 51,969 $ - $ 91,968
Total assets $ 79,378 $ 69,486 $ 117,465 $ 1,098 $ 267,427
Equipment
expenditures $ 2,215 $ 4,986 $ 1,807 $ 322 $ 9,330
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at and for the six months ended June 30, 2007
----------------------------------------------------------------------------
Downhole
Service Oilfield Services &
Rigs Transport Rentals Corporate Consolidated
----------------------------------------------------------------------------
Revenue $ 30,957 $ 24,323 $ 29,757 $ - $ 85,037
Earnings
(loss) before
income taxes
and non-
controlling
interest $ 6,348 $ (1,893) $ 3,974 $ (8,744) $ (315)

Goodwill &
intangible
assets $ 27,455 $ 32,930 $ 50,285 $ - $ 110,670
Total assets $ 100,488 $ 92,332 $ 110,466 $ 2,121 $ 305,407
Equipment
expenditures $ 4,554 $ 4,318 $ 2,540 $ 777 $ 12,189
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at and for the six months ended June 30, 2006
----------------------------------------------------------------------------
Downhole
Service Oilfield Services &
Rigs Transport Rentals Corporate Consolidated
----------------------------------------------------------------------------
Revenue $ 23,495 $ 28,041 $ 45,808 $ - $ 97,344
Earnings
(loss) before
income taxes
and non-
controlling
interest $ 6,943 $ 2,900 $ 12,325 $ (7,812) $ 14,356

Goodwill &
intangible
assets $ 21,625 $ 18,374 $ 51,969 $ - $ 91,968
Total assets $ 79,378 $ 69,486 $ 117,465 $ 1,098 $ 267,427
Equipment
expenditures $ 4,208 $ 8,392 $ 9,099 $ 412 $ 22,111
----------------------------------------------------------------------------
----------------------------------------------------------------------------


16. Comparative Amounts

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

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