Builders Energy Services Trust
TSX : BET.UN

Builders Energy Services Trust

November 10, 2005 18:27 ET

Builders Energy Services Trust Reports Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 10, 2005) - Builders Energy Services Trust (TSX:BET.UN) ("Builders", or the "Trust") announced today that cash flow from operations(1) for the third quarter was $9.2 million ($0.66 diluted per unit) and $18.4 million ($1.48 diluted per unit) for the 249-day period ended September 30, 2005. Builders commenced operations as a Trust on January 25, 2005. Builders' net earnings for the quarter were $5.0 million ($0.38 diluted per unit) and $9.3 million ($0.82 diluted per unit) from January 25, 2005 to September 30, 2005.

"Our third quarter results demonstrate the cash flow potential of Builders" said Garnet Amundson, President and Chief Executive Officer of Builders. "Our underlying businesses generated strong net earnings and cash flows, despite the effect of wet weather in the third quarter. Our outlook for the fourth quarter of 2005 remains exceptionally strong as a result of pent-up demand for oil and gas services. We are well-positioned in the sector as we enter what is expected to be one of the busiest winters on record."

Highlights

- Cash flow from operations(1) was $9.2 million for the third quarter and $18.4 million for the 249-day period ended September 30, 2005. Net earnings were $5.0 million for the third quarter and $9.3 million for the 249-day period ended September 30, 2005. Cash flow from operations(1) and net earnings continue to meet management's internal estimates reflecting Builders' capital additions and accretive acquisitions.

- Builders experienced continued growth through two strategic acquisitions. The Endeavor E-Line Services Inc. ("Endeavor") and Puma Well Service Ltd. ("Puma") acquisitions were completed on July 21 and October 14, 2005, respectively. Endeavor performs e-line services with 12 wireline units, including logging and perforating for the oil and gas industry. Puma adds four service rigs and the exclusive rights to Puma's service rig fabrication and service facility.

- An eight percent increase in the monthly distribution to $0.13 per Trust unit per month ($1.56 per annum) commencing with the month of September, reflecting the continued strong financial results of the Trust and the benefit of recent accretive acquisitions.

- Capital spending of $8.3 million for the quarter and $17.0 million for the year to date reflects the continued internal growth in oilfield transportation, service rigs, and coil tubing services.



Financial Summary

------------------------------------------------------------------------
As at and for As at and for the
(in thousands of dollars, the three months 249-day period
except per unit amounts ended Sept. 30, ended Sept. 30,
or otherwise noted) 2005 2005
------------------------------------------------------------------------

Revenue $ 37,164 $ 74,688
------------------------------------------------------------------------

Gross margin(1) $ 14,078 $ 27,876
------------------------------------------------------------------------

EBITDA(1) $ 9,646 $ 19,093
------------------------------------------------------------------------

Cash flow from operations(1) $ 9,234 $ 18,354
------------------------------------------------------------------------

Net earnings $ 4,960 $ 9,292
------------------------------------------------------------------------
Per unit - basic $ 0.39 $ 0.84
Per unit - diluted $ 0.38 $ 0.82
EBITDA(1)
Per unit - basic(1) $ 0.77 $ 1.72
Per unit - diluted(1) $ 0.69 $ 1.54
Cash flow from operations
Per unit - basic(1) $ 0.73 $ 1.65
Per unit - diluted(1) $ 0.66 $ 1.48
Distributions to unitholders
Per unit(1) $ 0.37 $ 1.00
As a percentage of cash flow
("Payout ratio")(1) 51% 61%
Gross margin(1) as a percent
of revenue 38% 37%
General and administrative
expenses as a percent of revenue 12% 12%
Capital expenditures (net) (1) $ 7,956 $ 15,378
------------------------------------------------------------------------

------------------------------------------------------------------------
Long-term debt $ 34,862 $ 34,862
Unitholders' equity $ 122,839 $ 122,839
Working capital(1) $ 17,207 $ 17,207
Trust units - outstanding,
end of period (thousands) 12,814 12,814
Trust units - weighted average,
basic (thousands) 12,599 11,113
Trust units - weighted average,
diluted (thousands) 13,997 12,382
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Refer to the "Non-GAAP measures" section for further detail.


Management's Discussion and Analysis

The following interim Management's Discussion and Analysis ("MD&A") is an update to, and should be read in conjunction with, the June 30, 2005 and March 31, 2005 interim reports, and should also be read in conjunction with the attached financial statements as at and for the 249-day period ended September 30, 2005. This MD&A was prepared as of November 10, 2005.

No comparative information is provided because financial results for the comparative periods are not available and are not considered directly comparable due to the complexity of harmonizing the accounting periods and policies for the financial information of the companies that have been acquired by Builders Energy Services Trust ("Builders" or the "Trust") since its inception on January 25, 2005.

Formation of Builders and 249-day reporting period

On January 25, 2005, the Trust completed its Initial Public Offering ("IPO") which included the concurrent closing of the acquisitions of nine oilfield service companies (the "Acquired Companies"). The operations and financial results of the Acquired Companies are included in the September 30, 2005 financial statements and MD&A of the Trust from the January 25, 2005 closing of the acquisitions. The operations and financial results of Tryton Tool Services Ltd. ("Tryton") and Endeavor, additional acquisitions which closed on June 1 and July 21, 2005 respectively, are included in the September 30, 2005 financial statements and MD&A of the Trust from June 1, 2005 and July 21, 2005, respectively. The financial information for Builders is for the 249-day period ended September 30, 2005. Readers should bear in mind that this 249-day period does not represent a complete nine months of operations.

Results of Operations

The Trust's net earnings for the quarter and the 249-day period ended September 30, 2005, were $5.0 million and $9.3 million, respectively. Cash flow from operations(1) during these periods was $9.2 million and $18.4 million, respectively. Net earnings and cash flow from operations(1) continue to meet management's internal estimates.

During September, the Trust declared an eight percent increase in its monthly distributions to $0.13 per unit per month ($1.56 per annum). During the third quarter, distributions of $0.37 per unit to unitholders represented a payout ratio(1) of 51% of cash flow from operations. Over the 249-day period, distributions declared were $1.00 per unit, representing a payout ratio(1) of 61% of cash flow from operations(1).

The strong net earnings and cash flows result from a gross margin(1) for the quarter of $14.1 million (38% of revenue) and $27.9 million (37% of revenue) for the 249-day period, reflecting high equipment and crew utilization rates and increased service pricing levels resulting from strong industry fundamentals. Increases in prices were driven by higher labour costs as a result of industry-wide labour shortages caused by robust demand, combined with increased costs for fuel. Although equipment utilization rates met expectations, wet weather in the second quarter, and to a lesser extent, the third quarter, impacted the Trust's ability to move equipment to many sites. Margins in the fourth quarter of the year are expected to exceed 40%, leading to an expected annualized gross margin of approximately 40%.

General and administrative expenses, at 12% of revenue for the third quarter and the 249-day period ended September 30, 2005, are consistent with management's expectations. The Trust's general and administrative expenses include primarily Calgary personnel and office costs and certain personnel in the field offices.

Cash flow from Operations and Distributions

The table below highlights cash distributions and the payout ratio(1) from January 25, 2005. During September, the Trust announced an eight percent increase of its monthly distributions by $0.01 to $0.13 per Trust unit, resulting from the recent accretive acquisitions of Tryton and Endeavor and strong cash flows.



------------------------------------------------------------------------
(in thousands of dollars, 249-day Period Ended
except per unit amounts) Sept. 30, 2005
------------------------------------------------------------------------
Total Per unit
------------------------------------------------------------------------
Cash flow from operations(1) $ 18,354 $ 1.65
------------------------------------------------------------------------
------------------------------------------------------------------------
Distributions
- paid 9,568
- payable 1,666
------------------------------------------------------------------------
Total distributions $ 11,234 $ 1.00
------------------------------------------------------------------------
------------------------------------------------------------------------
Distributions as a percentage of cash flow
from operations 61% 61%
------------------------------------------------------------------------
------------------------------------------------------------------------


Investing Activities

On July 21, 2005, the Trust acquired all of the issued and outstanding shares of Endeavor E-line Services Inc. (Endeavor) including its operating assets, name, distribution rights, management and staff for consideration of $13.2 million and 988,947 Trust units. Endeavor performs e-line services with 12 wireline units, including logging and perforating for the oil and gas industry. One additional wireline unit is expected to be added in early 2006.

Asset additions for the third quarter ended September 30, 2005 were $8.3 million. This equipment includes $4.3 million for new tractors and trailers and $4.0 million for other oilfield service equipment.

Asset additions for the 249-day period ended September 30, 2005 were $17.0 million. This equipment includes $9.3 million for rig relocation and oilfield hauling tractors and trailers, $2.6 million for the purchase and construction of two coil tubing units and one nitrogen pumping unit, $2.1 million for the construction of two service rigs and $3.0 million for other oilfield service equipment.

Proceeds on disposal of oilfield equipment, primarily tubulars and oilfield transportation tractors, totaled $1.7 million during the 249-day period.

In the fourth quarter of 2005, the Trust expects capital expenditures of approximately $10 to $15 million on further organic fleet expansion. Most of this equipment has either been ordered, or is in progress, and is expected to be in service by the first quarter of 2006. Anticipated additional oilfield equipment includes two nitrogen pumping units, one service rig, two slickline units, and several tractors, pickers and trailers for further expansion of our oilfield transportation businesses. Builders continues to anticipate that net capital spending for 2005 will be in the range of $25 to $30 million, dependent on timing of equipment delivery.

Operating line of credit and long-term debt

In early May, the Trust obtained a $45 million credit facility with two major Canadian chartered financial institutions. The facility is split into an operating component of $10 million from June 1 to October 31, increasing to $15 million for the period November 1 to May 31, and an acquisition component of $30 million. At September 30, 2005, the Trust had drawn $1.8 million of the $10 million operating line and $27.2 million of the $30 million term acquisition loan facility. In addition, the Trust had $7.6 million of debt outstanding related to other third party loans and obligations under capital leases.

The term date of the operating line of credit and the acquisition facility is May 31, 2006. At this time, it is management's intent to renew the facilities for an additional 364 days. Since the term date occurs within one year, as at September 30, 2005, the entire operating line and a portion of the acquisition facility have been recognized as current liabilities.

All covenants of the credit facility were satisfied at September 30, 2005. All banking requirements were up to date and the Trust does not anticipate any covenant issues restricting its future operating, investing or financing activities.

Liquidity

As a result of significant investment in growth capital, combined with the acquisition of Endeavor during the quarter, the Trust's cash decreased by $8.2 million. The Trust is currently negotiating expansion of its current credit facilities to fund its planned growth capital and to position the Trust for further acquisitions.

In addition, management believes that the Trust has the ability to raise additional capital, if required, through the public or private issue of additional Trust units. Current resources are expected to be sufficient to meet existing working capital and operating needs for at least the next year.

On June 2, 2005 the Trust closed a bought deal private placement of 1,200,000 Trust units at a price of $12.50 per Trust unit for total gross proceeds of $15.0 million. These funds were used to fund ongoing operations, including capital expenditures, and a portion of the cash component of the Endeavor acquisition which closed on July 21, 2005.

Outlook

The Trust anticipates high levels of activity and demand for its services for the balance of 2005. Activity in the oil and gas exploration and production sector is the main driver of the oilfield services industry. Oil and gas prices are expected to remain relatively strong for at least the next two years and ongoing declines in conventional oil and gas reserves in North America are expected to continue. As a result, oil and gas drilling, production and service activity in the Western Canadian Sedimentary Basin is expected to remain strong.

On October 14, 2005, the Trust purchased four service rigs and related assets from Puma Well Service Ltd. ("Puma"), thus expanding the Trust's service rigs into southern Alberta. The purchase includes a long-term arrangement for exclusive use of Puma's service rig fabrication and service facilities. Under the terms of the asset purchase agreement, the Trust will also retain Puma's operating name and experienced management, service rig crews and fabricators. Total consideration paid was $3.0 million and 222,222 Trust units. As a result of this acquisition, the total issued and outstanding Trust units were 13,036,371 as at November 10, 2005.

The oilfield services sector remains highly fragmented, and industry consolidation is expected to continue. This is expected to provide further acquisition opportunities for the Trust.

Management expects to generate sufficient cash to maintain the current level of distributions of $0.13 per unit per month ($1.56 per annum) for the next 12 months.

(1) Non-GAAP measures

In addition to the primary measures of net earnings and net earnings per unit in accordance with Canadian generally accepted accounting principles (GAAP), management believes that certain measures not recognized under GAAP assist the reader in understanding the Trust's results. Each of these measures provides the reader with additional insight into the Trust's ability to generate ongoing cash flow which is key to the sustainability of the Trust model.

- Gross margin - This measure is considered a primary indicator that highlights the operating component of the cash flow generated by the Trust through its business units.

- EBITDA (Earnings before interest, income taxes, depreciation, amortization and non-cash charges) - This measure is used extensively in our financial covenants and is also considered an indicator of the Trust's ability to generate cash flow in order to meet distributions, ongoing operating commitments, servicing of debt and funding for capital programs.

- Cash flow or cash flow from operations - Management believes this measure, consistent with EBITDA, provides the reader an indicator of the Trust's ability to generate cash flow in order to meet distributions, ongoing operating commitments, servicing of debt and funding for capital programs.

- Capital expenditures (net) (Capital expenditures less proceeds on disposal of oilfield equipment) - Management believes that this measure is an indicator of the net cash outlay required to fund capital expenditures.

- Payout ratio - (Distributions as a percentage of cash flow from operations before non-cash working capital) - This ratio is an indicator of the Trust's ability to meet its distribution levels while still maintaining adequate cash flow to fund the Trust's ongoing operations, debt principal repayments, and capital programs.

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

The following table summarizes these measures in comparison to recognized GAAP measures;



------------------------------------------------------------------------
Three months
(Thousands of dollars, ended Jan. 25 -
except per unit amounts) Sept. 30, 2005 Sept. 30, 2005
------------------------------------------------------------------------

Revenue $ 37,164 $ 74,688
Operating expenses 23,086 46,812
------------------------------------------------------------------------
Gross margin 14,078 27,876
General and Administrative 4,432 8,783
------------------------------------------------------------------------
EBITDA 9,646 19,093
Interest on long-term debt 377 746
Other expense 190 126
Add back loss on oilfield equipment (155) (133)
------------------------------------------------------------------------
Cash flow from operations 9,234 18,354
Depreciation and amortization 3,048 6,933
Unit-based compensation 468 1,066
Non-controlling interest 402 828
Loss on oilfield equipment 155 133
Future income taxes 201 102
------------------------------------------------------------------------
Net earnings 4,960 9,292
------------------------------------------------------------------------
------------------------------------------------------------------------


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.

Forward-Looking Statements

Certain statements contained in this MD&A constitute forward-looking statements. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "seek", "propose", "estimate", "expect", and similar expressions, as they relate to the Trust, are intended to identify forward-looking statements. Such statements reflect the Trust's current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation, those described in this MD&A under the heading "Outlook". Many factors could cause the Trust's actual results, performance or achievements to vary from those anticipated in this MD&A. 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 as intended, planned, anticipated, believed, estimated or expected. The Trust does not assume any obligation to update these forward-looking statements if conditions or opinions should change.

Additional Information

Additional information regarding the Trust can be found in the Annual Information Form dated March 30, 2005, and the initial prospectus of the Trust dated January 13, 2005. These documents can be found on SEDAR at www.sedar.com.



Consolidated Balance Sheet
(unaudited)
------------------------------------------------------------------------
As at
(Thousands of dollars) Sept. 30, 2005
------------------------------------------------------------------------
Assets (notes 5 and 6)

Current assets
Cash $ 260
Accounts receivable 28,423
Inventory 4,765
Prepaid expenses and deposits 1,214
------------------------------------------------------------------------
34,662

Oilfield equipment 88,889
Intangible assets 14,279
Goodwill 65,623
Other assets 256
------------------------------------------------------------------------
$ 203,709
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current liabilities
Operating line of credit (note 5) $ 1,750
Accounts payable and accrued liabilities 14,039
Distributions payable 1,666
Current portion of long-term debt (note 6) 5,763
------------------------------------------------------------------------
23,218

Long-term debt (note 6) 29,099
Future income tax liability 18,300
Non-controlling interest (note 7) 10,253
------------------------------------------------------------------------
80,870
------------------------------------------------------------------------
Commitments (note 14)

Unitholders' equity
Trust units (note 8) 123,715
Contributed surplus (note 9) 1,066
Accumulated earnings 9,292
Accumulated distributions (11,234)
------------------------------------------------------------------------
122,839
------------------------------------------------------------------------
$ 203,709
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.




Consolidated Statement of Operations and Accumulated Earnings
From inception of operations of the Trust on January 25, 2005
to September 30, 2005
(unaudited)
------------------------------------------------------------------------
(Thousands of dollars, Three months ended January 25 -
except per unit amounts) Sept. 30, 2005 Sept. 30, 2005
------------------------------------------------------------------------
Revenue $ 37,164 $ 74,688
Operating expenses 23,086 46,812
------------------------------------------------------------------------
14,078 27,876
------------------------------------------------------------------------

Expenses
General and administrative 4,432 8,783
Depreciation 2,520 5,901
Amortization 528 1,032
Unit-based compensation 468 1,066
Interest on long-term debt 377 746
Other expense 190 126
------------------------------------------------------------------------
8,515 17,654
------------------------------------------------------------------------
Net earnings before income
taxes and non-controlling interest 5,563 10,222

Future income taxes 201 102
------------------------------------------------------------------------

Net earnings before non-controlling
interest 5,362 10,120

Non-controlling interest (note 7) 402 828
------------------------------------------------------------------------
Net earnings 4,960 9,292

Accumulated earnings,
beginning of period 4,332 -
------------------------------------------------------------------------
Accumulated earnings,
end of period $ 9,292 $ 9,292
------------------------------------------------------------------------
------------------------------------------------------------------------

Net earnings per unit (note 10):
Basic $ 0.39 $ 0.84
Diluted $ 0.38 $ 0.82
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


Consolidated Statement of Cash Flows

From inception of operations of the Trust on January 25, 2005 to
September 30, 2005
(unaudited)

------------------------------------------------------------------------
(Thousands of dollars, Three months ended January 25 -
except per unit amounts) Sept. 30, 2005 Sept. 30, 2005
------------------------------------------------------------------------
Operating
Net earnings $ 4,960 $ 9,292
Items not affecting cash:
Depreciation and amortization 3,048 6,933
Unit-based compensation 468 1,066
Non-controlling interest 402 828
Future income tax expense 201 102
Loss on disposal of oilfield
equipment 155 133
------------------------------------------------------------------------
Cash flow from operations before
changes in non-cash working capital 9,234 18,354
Net change in non-cash working capital (8,475) (6,255)
------------------------------------------------------------------------
759 12,099
------------------------------------------------------------------------
Financing
Issue of Trust units net of
issue costs - 60,977
Issue of subordinated units - 2,500
Distributions paid (4,483) (9,568)
Increase in operating
line of credit 1,750 1,750
Increase in long-term debt 18,172 29,028
Repayment of long-term debt (1,023) (8,630)
Repayment of long-term debt
related to the Acquired
Companies (note 4) - (12,250)
Other assets 20 (296)
------------------------------------------------------------------------
14,436 63,511
------------------------------------------------------------------------
Investing
Purchase of oilfield equipment (8,282) (17,033)
Business acquisitions (note 4) (15,468) (59,972)
Proceeds on disposal of
oilfield equipment 326 1,655
------------------------------------------------------------------------
(23,424) (75,350)
------------------------------------------------------------------------
Increase (decrease) in cash (8,229) 260

Cash, beginning of period 8,489 -
------------------------------------------------------------------------
Cash, end of period $ 260 $ 260
------------------------------------------------------------------------
------------------------------------------------------------------------
Supplementary cash flow information
Interest paid $ 513 $ 746
Taxes paid $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


Notes to Interim Consolidated Financial Statements
As at and for the Period Ended September 30, 2005
(unaudited)
(All amounts in thousands of dollars 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 the oilfield services business indirectly, through its wholly-owned subsidiaries.

On January 25, 2005, the Trust completed its Initial Public Offering ("IPO") whereby 5,100,000 Trust units were issued at $10 per Trust unit for net proceeds of $47.0 million.

The beneficiaries of the Trust are the holders of Trust units. The Trust intends to make monthly distributions to unitholders of record on the last business day of each calendar month.

2: Summary of Significant Accounting Policies

The Trust's accounting policies are in accordance with accounting principles generally accepted in Canada and are consistent with those outlined in the 2005 First Quarter Report, except as described in note 3. These interim consolidated financial statements do not include all disclosures provided in annual financial statements and should be read in conjunction with the Trust's consolidated interim financial statements for the periods ended March 31, 2005 and June 30, 2005. In management's opinion, these interim consolidated financial statements include all adjustments to present fairly such information.

3: Change in Accounting Policy

In the second quarter of 2005, the Trust adopted the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee abstract 151 "Exchangeable Securities Issued by Subsidiaries of Income Trusts" ("EIC-151"). EIC-151 describes conditions which must be met as of June 30, 2005 in order to include exchangeable securities issued by subsidiaries of income trusts as part of unitholders' equity. If these conditions are not met, the exchangeable securities must be presented as non-controlling interest or as debt on the consolidated balance sheet. EIC-151 must be applied retroactively, with restatement of prior periods.

Management has determined that the exchangeable shares issued by the Trust do not meet the conditions contained in EIC-151 necessary for inclusion of the exchangeable shares as part of unitholders' equity. Accordingly, the exchangeable shares were retroactively presented as non-controlling interest for the June 30, 2005 interim period and the consolidated financial statements for March 31, 2005 were restated to reflect this change. The effect of the restatement of this change is outlined in the interim consolidated financial statements for the period ended June 30, 2005.



4: Business Acquisitions

During the 249-day period, Builders completed a number of acquisitions
with net assets acquired and consideration as follows:

------------------------------------------------------------------------
Acquired
Net Assets Acquired Endeavor(i) Tryton(ii) Companies(iii) Total
------------------------------------------------------------------------
Acquired cash
(bank indebtedness) $ - $ - $ (2,016) $ (2,016)

Non-cash working capital 2,093 4,099 7,952 14,144

Oilfield equipment 5,781 1,109 72,619 79,509

Intangible assets 3,138 2,751 9,382 15,271

Goodwill 17,814 10,543 37,266 65,623

Long-term debt (890) - (25,824) (26,714)

Future income taxes (1,607) - (16,591) (18,198)
------------------------------------------------------------------------

$ 26,329 $ 18,502 $ 82,788 $127,619
------------------------------------------------------------------------
------------------------------------------------------------------------

Consideration
------------------------------------------------------------------------
Cash $ 13,226 $ 10,402 $ 34,328 $ 57,956
Trust units 13,103 8,100 38,353 59,556
Exchangeable shares - - 10,107 10,107
------------------------------------------------------------------------

$ 26,329 $ 18,502 $ 82,788 $127,619
------------------------------------------------------------------------
------------------------------------------------------------------------


i) On July 21, 2005 Builders completed the acquisition of all the issued and outstanding shares of Endeavor E-line Services Inc., ("Endeavor") for an aggregate purchase price of $26.3 million. The combined purchase price was funded by payment of $13.2 million in cash and the issuance of 988,947 Trust units at a price of $13.25 per Trust unit. Endeavor performs e-line services including logging and perforating for the oil and gas industry.

The Endeavor acquisition has been accounted for as a business combination using the purchase method with the results of Endeavor's operations included in the consolidated financial statements of the Trust from the date of acquisition.

ii) On June 1, 2005 Builders completed the acquisition of the net assets of Tryton Tool Services Ltd., ("Tryton") including its name, distribution rights, management and staff for an aggregate purchase price of $18.5 million. The combined purchase price was funded by payment of $10.4 million in cash and the issuance by the Trust of 623,077 Trust units at a price of $13.00 per Trust unit. Tryton specializes in the sale, rental, installation and servicing of downhole tools and accessories.

The Tryton acquisition has been accounted for as a business combination using the purchase method with the results of Tryton's operations included in the consolidated financial statements from the date of acquisition.

iii) On January 25, 2005, Builders completed the acquisition of all the issued and outstanding shares of nine separate oilfield service companies ("Acquired Companies") for an aggregate purchase price of $82.8 million. The combined purchase price was funded by payment of $34.3 million in cash, the issuance by the Trust of an aggregate of 3,835,226 Trust units at a price of $10.00 per Trust unit and the issuance by Builders Energy Services Ltd., a subsidiary of the Trust, of an aggregate of 1,010,691 Exchangeable shares, at $10.00 per share.

The Acquired Companies have been accounted for as business combinations using the purchase method with the results of the Acquired Companies' operations included in the consolidated financial statements from the date of acquisition.

5: Line of Credit

At September 30, 2005, the Trust has an operating line of credit with two major banks to a maximum of the lesser of $10 million or a minimum of 75 percent of the Trust's accounts receivable less specific items. The operating line of credit on November 1, 2005 increases by a seasonal bulge of $5 million providing a maximum of the lesser of $15 million or a minimum of the Trust's accounts receivable less specific items. The line of credit bears interest at the bank prime rate or at banker's acceptance rates plus a variable stamping fee of 0.75 to 1.00 percent. The operating line of credit is secured by a general security agreement and a general assignment of accounts receivable.



6: Long-Term Debt

------------------------------------------------------------------------
------------------------------------------------------------------------
As at Sept. 30, 2005
------------------------------------------------------------------------
Term acquisition loan (i) $ 27,230
Term debt (ii) 7,154
Obligations under capital leases (ii) 478
Less: current portion (5,763)
------------------------------------------------------------------------
Long-term debt $ 29,099
------------------------------------------------------------------------


i) The term acquisition loan facility is held by two major banks to a maximum of the lesser of $30 million or 60% 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 or at banker's acceptance rates plus a variable stamping fee of 1.75 to 2.00 percent. The facility expires on May 31, 2006 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. The acquisition loan facility is collateralized by a general security agreement and a general assignment of book debts.

ii) The term debt and obligations under capital leases are repayable in monthly installments and are collateralized by specific equipment.



7: Non-controlling Interest

------------------------------------------------------------------------
------------------------------------------------------------------------
Thousands
of Shares Amount
------------------------------------------------------------------------
Exchangeable shares issued, January 25, 2005,
as consideration for the Acquired Companies 1,011 $ 10,107
Redeemed upon conversion to Trust units (65) (682)
Allocation of earnings to non-controlling interest - 828
------------------------------------------------------------------------
Balance, end of period 946 $ 10,253
------------------------------------------------------------------------
------------------------------------------------------------------------
Exchange ratio, end of period 1.06334
------------------------------------------------------------
Trust units issuable upon conversion 1,006
------------------------------------------------------------
------------------------------------------------------------


The Exchangeable shares are convertible at the option of the holder into units of the Trust at any time. The number of Trust units issuable upon conversion is based upon the exchange ratio in effect at the conversion date. The exchange ratio, which was initially at one to one, is cumulatively adjusted each time a distribution is made to Unitholders.

The Exchangeable shares are not eligible to receive cash distributions from the Trust. The exchangeable shares are required to be converted over a three-year period ending January 31, 2008.



8: Trust Units

Trust units issued and outstanding:

------------------------------------------------------------------------
------------------------------------------------------------------------
Thousands
of Units Amount
------------------------------------------------------------------------
Issued pursuant to Initial Public Offering 5,100 $ 51,000
Issue costs - Public Offering - (4,009)
Issued as consideration for the Acquired Companies 3,835 38,353
Issued on acquisition of Tryton 623 8,100
Issued on acquisition of Endeavor 989 13,103
Issued on conversion of Exchangeable shares 67 682
Issued on Private Placement 1,200 15,000
Private Placement issue costs - (1,014)
------------------------------------------------------------------------
11,814 $ 121,215
------------------------------------------------------------------------
------------------------------------------------------------------------

Subordinated units
------------------------------------------------------------------------
Subordinated units issued for cash on January 25,
2005 1,000 $ 2,500
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Trust units and Subordinated units
at September 30, 2005 12,814 $ 123,715
------------------------------------------------------------------------
------------------------------------------------------------------------


9: Unit-based Compensation

The Trust has a unit option plan under which directors, officers, employees, and consultants of the Trust are eligible to receive Trust unit options to acquire Trust units, with terms not to exceed five years from the date of the grant. The exercise price is based on the weighted-average price of the units for the five trading days immediately prior to the grant date. Under the unit option plan, vesting periods are determined by the Board of Directors of the Trust at the time of the grant. For options granted to September 30, 2005, one-third of the options are exercisable on each anniversary date from the date of the original grant.

The maximum number of trust units issuable under this plan may not exceed 10 percent of the Trust's outstanding units and exchangeables at any time, which at September 30, 2005 totaled 13,759,840.



Trust Unit Options
------------------------------------------------------------------------
Three months ended January 25 -
Sept. 30, 2005 Sept. 30, 2005
------------------------------------------------------------------------
Outstanding at beginning of period 1,081,986 -
Issued 177,300 1,278,800
Forfeitures (4,479) (23,993)
------------------------------------------------------------------------
Outstanding at end of period 1,254,807 1,254,807
------------------------------------------------------------------------
------------------------------------------------------------------------


Trust Unit Option Pricing
------------------------------------------------------------------------
Weighted average
remaining Weighted average Number exercisable at
Range of prices contractual life exercise price Sept 30, 2005
$10.00 - $16.79 4.4 years $10.92 -
------------------------------------------------------------------------
------------------------------------------------------------------------

The Trust recorded compensation expense of $1.1 million with an
offsetting increase to contributed surplus in respect of the options
granted for the 249 days ended September 30, 2005.

10: Earnings per unit

The following table summarizes the computation of earnings per unit:

------------------------------------------------------------------------
Three months ended January 25 -
Sept. 30, 2005 Sept. 30, 2005
------------------------------------------------------------------------

Numerator:
Earnings for basic earnings per unit $ 4,960 $ 9,292
Add non-controlling interest 402 828
------------------------------------------------------------------------
Numerator for diluted earnings
per unit $ 5,362 $ 10,120
------------------------------------------------------------------------
------------------------------------------------------------------------

Denominator:
Weighted average units for basic
earnings per unit 12,599 11,113
Exchangeable shares converted to
units at the average exchange
ratio during the period 994 973
Options converted to units 404 296
------------------------------------------------------------------------
Denominator for diluted earnings
per share 13,997 12,382
------------------------------------------------------------------------
------------------------------------------------------------------------

Basic earnings per unit $ 0.39 $ 0.84
Diluted earnings per unit $ 0.38 $ 0.82
------------------------------------------------------------------------
------------------------------------------------------------------------


11: Segmentation

The Trust views its operations as a single business segment due to the integration of the operations, common customer base, geographic concentration in the Western Canadian Sedimentary Basin, and the single focus on the oilfield services sector.

12: Seasonality of Operations

The Trust's operations are carried out in western Canada. The 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 render many secondary roadways incapable of supporting heavy equipment until sufficient time has passed for them to dry out. In addition, the exploration areas in northern 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.

13: Related Party Transactions

During the normal course of operations, on commercial terms established and agreed to by the related parties, the Trust rents land, buildings and certain light oilfield equipment from the previous owners of certain of the businesses acquired. Total related party transactions included in operating costs were $0.6 million for the quarter and $1.3 million for the 249-day period ended September 30, 2005.

14: Committments

The Trust is committed to future minimum payments under lease contracts for office equipment, office space and vehicles with varying expiration dates.

15: Subsequent Event

On October 14, 2005, the Trust purchased four service rigs and related assets from Puma Well Service Ltd. ("Puma"). In addition to the asset purchase, Builders has entered into a long-term arrangement for exclusive use of Puma's fabrication facilities. Under the terms of the asset purchase agreement, Builders will retain Puma's operating name, management, service rig crews and fabricators. The cost of the asset acquisition was $3.0 million in cash and 222,222 Trust units.

Additional Information

Additional information regarding Builders can be found in the Annual Information Form dated March 30, 2005, and the initial prospectus of the Trust dated January 13, 2005. These documents can be found on SEDAR at www.sedar.com.

Based in Calgary, Builders Energy Services Trust is an open-end unincorporated investment trust governed by the laws of the Province of Alberta and was established to acquire and operate entities that engage in oilfield services. The principal undertaking of the Trust, through its indirect wholly-owned subsidiaries, is to provide a variety of services to oil and gas exploration and production companies in western Canada, including oilfield services, oilfield transportation and oilfield equipment sales and rentals. Builders' Trust Units are listed on the Toronto Stock Exchange and trade under the symbol "BET.UN".

Certain measures are not recognized under Canadian generally accepted accounting principles (GAAP) and are provided where Management believes they assist the reader in understanding the Trust's results. These measures include: earnings before interest, income taxes, depreciation, amortization and non-cash charges (EBITDA); gross margin, which refers to revenues less operating expenses; cash flow or cash flow from operations, which refers to cash flow from operations before changes in non-cash working capital; and payout ratio, which refers to distributions as a percentage of cash 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.

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.


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 & Chief Executive Officer
    (403) 693-3426
    or
    Builders Energy Services Trust
    John W. Nearing
    V.P., Finance and Chief Financial Officer
    (403) 693-3426
    Email: IR-BEST@BuildersEnergy.com