Peak Energy Services Trust
TSX : PES.UN

Peak Energy Services Trust

February 19, 2009 18:18 ET

Peak Energy Services Trust Announces 2009 Outlook, Cost Reduction Plan and Capital Expenditure Plan

CALGARY, ALBERTA--(Marketwire - Feb. 19, 2009) -

2009 Outlook

Peak Energy Services Trust ("Peak" or the "Trust") (TSX:PES.UN) initially expected the oil and gas industry in western Canada to drill between 15,000 and 15,500 wells for 2009 which represented a reduction in activity of approximately 9% to 12% from the 16,978 wells drilled in 2008 (per Petroleum Services Association of Canada). Unfortunately, industry activity during the first six weeks of 2009 has been significantly less than originally expected with 266 fewer rigs running on average in mid-February 2009 compared to the same week in the prior year, representing a year over year reduction of approximately 40%.

While a reduced level of drilling activity during the first quarter of 2009 was not unexpected given the challenges experienced by the industry in the fourth quarter of 2008, activity has been unseasonable in nature and significantly lower than what was originally anticipated for this time of the year. The worldwide economic crisis has put significant downward pressure on commodity prices due to the reduction in global oil demand and the demand for natural gas in North America. Tight credit from lending institutions coupled with a lack of equity capital, at an economically feasible cost, makes it increasingly difficult for our customers to support their drilling and production programs. All of the above factors have contributed to the reduced levels of activity year to date. Proven by a slow start, Peak's outlook for the number of wells to be drilled in western Canada for 2009 is now in the 13,000 range, representing a 25% reduction from the prior year.

In light of these circumstances, Peak has re-visited its internal operating plan for 2009 to ensure the Trust remains financially sound through what appears to be a turbulent and protracted downturn. Peak has a history of being proactive when faced with these challenging situations and as a result will be undergoing a number of significant restructuring initiatives over the next few months of which the more significant initiatives include:

- Workforce reduction of approximately 15% (in addition to the release of seasonal employees)

- Temporary salary/wage reductions of between 5.0% and 7.5%

- Mandatory 5 days unpaid leave of absence for all employees

- Suspension of all incentive compensation programs for 2009

- Suspension of the corporate match of employee contributions towards the Trust Unit Purchase Plan and Group Registered Savings Plan

In summary, all of these initiatives will enable Peak to reduce its cost structure by approximately $8.0 to $10.0 million for fiscal 2009 ($13.0 million on an annualized basis).

2009 Capital Expenditure Plan

Given the current uncertainty surrounding the oil and gas industry in North America, Peak has also significantly curtailed its capital expenditure plans for 2009 relative to prior years to preserve cash flow, strengthen its balance sheet and better position itself to take advantage of opportunities that may present themselves. For 2009, the Trust has earmarked capital expenditures to be $7.3 million or a net $3.7 million (after sale proceeds of $3.6 million realized in January 2009 from the sale of a property located in east Calgary). Included in the $7.3 million capital plan for 2009 is approximately $2.0 million of deferred capital from 2008 related to the expansion of Peak's camp and catering assets and an additional $0.7 million of new capital for 2009. The balance is comprised of sustaining capital expenditures of $2.4 million and infrastructure capital of $2.2 million. Sustaining and infrastructure capital expenditures will be reviewed on a monthly basis and adjusted as required.

About Peak Energy Services Trust

Peak Energy Services Trust is a diversified energy services organization operating in western Canada and the mid-west United States of America. Through its various operating divisions, Peak provides drilling and production services to its customers both in the conventional oil and gas industry as well as the oil sands regions of western Canada. The Trust also provides water technology solutions to a variety of customers throughout North America. Peak's units are listed on the Toronto Stock Exchange under the symbol "PES.UN".

Forward-looking statements

This news release contains forward-looking statements relating to the future activity levels for the oil and gas industry in North America, cost reduction initiatives and 2009 capital expenditure estimates. Such forward-looking statements are subject to important risks, uncertainties and assumptions. The results or events predicated in these forward-looking statements may differ materially from actual results or events. As a result, you are cautioned not to place undue reliance on these forward-looking statements.

Certain material factors or assumptions that we used in developing these forward-looking statements include: the level of wells expected to be drilled in 2009 in western Canada, estimated savings from the cost reduction initiatives and estimated capital expenditures for 2009. Material risk factors that could cause actual results to differ materially from the forward-looking information include: fluctuations in the price and demand for oil and natural gas; currency fluctuations; fluctuations in the level of oil and natural gas exploration and development activities; fluctuations in the demand for oilfield services that the Trust provides; the effects of weather conditions on operations; the existence of competition from other oilfield service entities; general economic, market or business conditions; public market volatility and the related ability to access sufficient capital to fund activities; availability to access debt financing to fund activities; government policy changes; changes in laws or regulations, including taxation and environmental regulations; the lack of availability of qualified personnel or management; and other unforeseen conditions which could impact the use of services supplied by the Trust.

The forward-looking statements contained in this press release are made as of the date of this press release. Except as required by law, Peak disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, Peak undertakes no obligation to comment on expectations of, or statements made by, third parties in respect of the Agreement.

The TSX have neither approved nor disapproved the information contained herein.

Contact Information

  • Peak Energy Services Trust
    Mr. Curt Whitteron
    President and Chief Executive Officer
    (403) 543-7325
    (403) 543-7335 (FAX)
    or
    Peak Energy Services Trust
    Mr. Monty Balderston
    Chief Financial Officer
    (403) 543-7325
    (403) 543-7335 (FAX)