Canadian Sub-Surface Energy Services Corp.
TSX : CSE

Canadian Sub-Surface Energy Services Corp.

April 04, 2006 08:00 ET

Canadian Sub-Surface Energy Services Corp. 'Formerly Canada West Capital Inc.' Announces 2005 Financial Results of CanSub

CALGARY, ALBERTA--(CCNMatthews - April 4, 2006) - Canadian Sub-Surface Energy Services Corp. (TSX:CSE) -

Canadian Sub-Surface Energy Services Inc., Canadian Sub-Surface Gas Testing Inc. and 1156853 Alberta Ltd. (collectively "CanSub"), is pleased to announce a summary of its financial and operating results for the fourth quarter and year ended December 31, 2005. The CanSub group of companies was privately owned until the transaction with Canada West Capital Inc. effective February 14, 2006 which was previously announced. Although not a required filing, the audited financial statements of CanSub for the 2005 year have been posted on SEDAR.

CanSub provides primarily cased-hole wireline and production testing services to oil and gas companies operating in the Western Canadian Sedimentary Basin. The group's head office is located in Calgary, with 7 field stations located across Alberta and 1 field station located in southeast Saskatchewan. CanSub exited fiscal 2005 with an available fleet in its wireline division consisting of 30 wireline trucks (16 electric line and 14 slickline) and 4 swabbing trucks. A total of 11 of the 30 wireline trucks were owned by three owner-operators. The testing division exited fiscal 2005 with 32 major testing packages, all owned by CanSub.

Following are selected financial highlights from CanSub's fourth quarter and year ended December 31, 2005 results. Included are comparative figures from the prior audited period (for the three months ended December 31, 2004), which resulted from CanSub changing its year end from September 30 to December 31 effective September 30, 2004.



Selected financial information:

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Three-month Year Ended Three-month
period ended Dec. 31, 2005 period ended
Dec. 31, 2005 Dec. 31, 2004

(In $000's) (unaudited)(1)

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Revenue 16,269 49,429 9,402

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Operating expenses 11,401 34,565 7,116

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Operating Margin 4,868 14,864 2,286

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Selling, general
and administrative
expenses (before
stock-based
compensation
expense)(2) 1,235 5,087 1,045

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EBITDA(3)(4) 3,633 9,777 1,241

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Normalized
EBITDA(3)(4) 3,842 10,659 1,406

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Normalized EBITDA
as a % of revenue 23.6% 21.6% 15.0%

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(1) The fourth quarter financial results for 2005 are derived by
subtracting the unaudited results for the nine-month period ended
September 30, 2005 from the results for the year ended December
31, 2005. The September 30, 2005 results are disclosed in the
Information Circular of Canada West Capital Inc. dated December
30, 2005 which is posted on SEDAR.

(2) Reflects selling, general and administrative expenses as
recorded in the financial statements for the related period
less stock-based compensation expense. Stock-based compensation
expense was $1.868 million for both the three-month and
twelve-month periods ended December 31, 2005 and nil for the
three-month period ended December 31, 2004.

(3) Refer to the "Non-GAAP measures" section below for details.

(4) EBITDA means earnings before interest, taxes, depreciation and
amortization. Normalized EBITDA means EBITDA adjusted for certain
equipment lease expenses that are included in operating expenses.
Refer to the section below titled "Reconciliation of EBITDA and
Normalized EBITDA to Net Earnings".


As a result of the robust industry conditions during 2005, CanSub experienced higher utilization rates than in 2004. CanSub added a significant amount of equipment during the year, including 5 wireline trucks (3 electric line and 2 slickline), 2 swabbing trucks and 5 major testing packages. Revenue from the wireline division during the 2005 year amounted to $30.3 million (or 61.3% of total CanSub revenue) with an average of 29.5 units (wireline and swabbing combined) in service. The production testing division earned revenue of $19.1 million, with an average of 26.0 testing packages in service during the year. The owner operators were responsible for generating approximately $10.5 million or 34.6% of the wireline division revenue recorded for the year ended December 31, 2005.

Operating margins for the year ended December 31, 2005 averaged 25.5% for the wireline division and 37.3% for the production testing division. The wireline margins were impacted, in part, by owner operator sales, which provide average margins of 17.8%. Normalized EBITDA as a percentage of sales increased from 15.0% for the three-month period ended December 31, 2004 to 21.6% and 23.6% for the year and three-month periods ended December 31, 2005 respectively.

During 2005, CanSub added a significant amount of staff in its sales, accounting, administration and well optimization departments reflecting the company's growth and the go-public transaction completed in February, 2006. As a result, general, administrative and selling expenses increased from $1.0 million to $1.2 million from the fourth quarter of 2004 to the fourth quarter of 2005.

Effective February 14, 2006, CanSub was acquired by CWC. The net purchase price of $49.132 million (subject to adjustment) paid to the shareholders of Cansub consisted of $24.566 million in cash and $24.566 million in shares of CWC. To finance the cash portion of the purchase price, CWC completed a $34.0 million equity financing involving the issuance of 8,095,238 Class A shares at a price of $4.20 per share. The share component of the purchase price was comprised of 5,491,905 Class A shares and 357,143 Class B shares (both share classes valued at $4.20 per share). As part of the transaction, CWC changed its name to Canadian Sub-Surface Energy Services Corp. The 13,960,832 Class A shares outstanding of the newly formed entity commenced trading on the TSX on February 17, 2006.

CAPITAL EXPENDITURE BUDGET FOR 2006

The Board of Directors of Canadian Sub-Surface Energy Services Corp. approved the following capital expenditure budget for 2006:



$000
---------

8 Wireline trucks (3 electric line, 5 slickline) 4,780

5 Swabbing trucks 2,075

11 Testing packages 4,830

Auxiliary equipment 1,630

Maintenance Capital 1,000
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Total $14,315
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Note: Actual capital expenditures during 2006, including the allocations to each type of equipment category may vary materially from the above, depending on industry conditions, profitability of each division, available capital, and other factors.



RECONCILIATION OF EBITDA AND NORMALIZED EBITDA TO NET EARNINGS
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Three-month Year Ended Three-month
period ended Dec. 31, 2005 period ended
Dec. 31, 2005 Dec. 31, 2004

(In $000's) (unaudited)(1)

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Net earnings (loss) (889) 1,279 360
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Add back (deduct):

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Depreciation and
amortization
expense 871 2,128 314

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Long-term and other
interest expense 171 407 90

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Gain on retirement
and disposals of
capital assets (2) (127) (12)

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Income taxes 857 2,448 307

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Non-controlling
interest 757 1,774 182

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Stock-based
compensation
expense 1,868 1,868 -

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EBITDA(1) 3,633 9,777 1,241

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Normalization
adjustments:

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Equipment lease
expenses included
in operating
expenses(2) 209 882 165

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Normalized EBITDA(1) 3,842 10,659 1,406

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(1) Refer to "Non-GAAP Measures" section below.

(2) Certain of CanSub's fleet of wireline units, swabbing units,
testing packages and related equipment is leased through
operating leases (with the related lease payments being expensed
as a component of operating expenses in the statement of
operations). If CanSub had owned these assets, the related
depreciation expense would have been an add back in determining
an EBITDA figure. In order to be comparable to companies that own
their capital assets (as compared to CanSub which uses operating
leases to finance a portion of its fleet), the equipment lease
payments expensed are reflected as an add back in CanSub's
normalized EBITDA calculation.


NON-GAAP MEASURES

EBITDA represents earnings before interest, income taxes, depreciation and amortization and is a widely used financial indicator in the oilfield services sector. Normalized EBITDA represents EBITDA adjusted for certain equipment lease expenses that are recorded in operating expenses. EBITDA and normalized EBITDA should not be considered as an alternative to operating income or operating earnings, as an indicator of financial performance. EBITDA and normalized EBITDA are not measures determined in accordance with Canadian Generally Accepted Accounting Principals ("GAAP") and therefore EBITDA and normalized EBITDA as presented may not be comparable to similarly titled measures of other companies.

This news release contains forward-looking statements that involve risks and uncertainties, which may cause actual results to differ materially from the statements made. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect" and similar expressions are intended to identify forward-looking statements. Such statements reflect the views of Canadian Sub-Surface Energy Services Corp. with respect to future events and are subject to such risks and uncertainties. Many factors could cause our actual results to differ materially from the statements made including those factors detailed from time to time in filings made by the company with Canadian securities regulatory authorities. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated or expected. Canadian Sub-Surface Energy Services Corp. does not intend and does not assume any obligation to update these forward-looking statements.

Contact Information

  • Canadian Sub-Surface Energy Services Corp.
    Brad Gabel
    President & CEO
    (403) 262-3247
    Email: bgabel@cansub.com
    or
    Canadian Sub-Surface Energy Services Corp.
    Chris Martin
    Vice President, Finance & CFO
    (403) 262-3247
    Email: cmartin@cansub.com