Peak Energy Services Trust
TSX : PES.UN

Peak Energy Services Trust

June 27, 2005 08:00 ET

Peak Energy Services Trust: News Release

CALGARY, ALBERTA--(CCNMatthews - June 26, 2005) -

PEAK ENERGY SERVICES TRUST (TSX:PES.UN) REPORTS:

1. Acquisition of Competition Wireline Services Ltd. for $32.5 million

2. Increase in Trust unit distributions to $0.085 per unit per month

1. ACQUISITION OF COMPETITION WIRELINE SERVICES LTD.

Peak Energy Services Trust ("Peak" or the "Trust") is pleased to announce that it has entered into a definitive agreement to acquire all of the issued and outstanding shares of Competition Wireline Services Ltd. ("Competition") for proceeds of $32.5 million plus a maximum earn-out of $6.0 million payable one year after the first anniversary date of the effective date of the transaction. Final closing of the transaction will be June 30, 2005 with an effective date of July 1, 2005. This transaction will be financed by $26 million cash and the issuance of $6.5 million in Peak trust units. The number of trust units issued will be based on the weighted average trading price for the 10 trading days prior to the effective date. Peak utilized a portion of its existing $60 million acquisition facility to finance the cash portion of the transaction. Peak also has the option to pay for the earn-out in cash or trust units after the first anniversary date of the effective date.

Competition represents an excellent opportunity for Peak to further diversify its operations by adding a significant new product offering to its Production Services segment. Competition, formed in 1997 by the current owners, has 22 quality wireline units and eight strategic locations in western Canada including Dawson Creek, Grande Prairie, Fox Creek, Whitecourt, Vegreville, Rocky Mountain House, Red Deer and Okotoks. By September 2005, Competition will have 25 wireline units in its fleet. This acquisition also brings approximately 80 experienced employees that will remain a key part of the future and success of this business line for Peak.

Competition is primarily in the business of providing production and completion wireline services to oil & gas producers in the northwest and central areas of the basin in Alberta and British Columbia. Production wireline services are used for the ongoing maintenance and optimization of existing producing wells, whereas completion related wireline services are geared toward assisting in initializing production in new wells drilled. Production wireline work comprises approximately 60% of the Competition's revenue stream with the balance being related to the completions area of the business.

Through its 22 high quality wireline units, Competition provides a wide variety of downhole services using slick line and braided line along with a number of specialized tools. In the production area, the main services provided by the company include the running of bottom hole recorders for reserve analysis, zone changes in multi-zone well bores, choke change outs, fishing services, paraffin clean outs and sand bailing. In the completions area the primary services that Competition provides are recorders for flow testing wells, running of bridge plugs for the isolation of zones in multi zone applications, installation of plugs for the snubbing process and "through tubing" perforating services.

In addition to adding a significant immediate cash flow stream to the Trust, this acquisition enables Peak to execute on its longer term plans to balance out its Drilling and Production Services segments on a revenue basis as it is projected to bring this ratio into the 55%/45% range in favor of Drilling Services compared to the current ratio of 75%/25%.

For the twelve months ended December 31, 2004, Competition generated revenue of $20.7 million and normalized Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") of approximately $9.0 million. During the first three months of 2005, Competition generated revenue of $8.2 million and normalized EBITDA of approximately $4.6 million. For 2005, Competition is on pace to generate revenue of approximately $27-28 million and EBITDA of approximately $12-13 million. Based on these results, Peak expects Competition to incrementally add revenue of approximately $14 million, EBITDA of $6-7 million and cash flow of $5-6 million during the last six months of 2005. In 2006, this acquisition is expected to add incremental revenue of $29-30 million, EBITDA of $13-14 million and cash flow of $11-12 million.

From a balance sheet perspective, Competition will add tangible assets of approximately $17.5 million, an intangible asset of $2.1 million (non-competition agreements) and goodwill initially of $14.9 million. The amount of goodwill will be increased proportionately by the amount of the earn-out after the first anniversary date.

Competition offers a strong customer base with approximately 65% of its revenue to May 31, 2005 generated by six of the major operators in the industry.

In addition to the above, Peak will be funding an additional $2 million on closing to cover the capital required to take the fleet from 22 units to 25 units over the next two months. After this transaction, Peak will have net debt of $37 million, working capital of $25 million, tangible assets of $187 million and trust equity of $146 million.

In summary, Competition represents an excellent acquisition opportunity for Peak for the following reasons:

1. It represents a sizable transaction on the production side of the business that will have a significant impact on Peak.

2. This transaction enables Peak to execute on its long-term objective to provide a better balance between its Drilling and Production segments.

3. Competition represents a new product line and service for Peak with substantial growth potential in the near future.

4. All three prior owners have agreed to stay involved with Peak in their current roles for a minimum two year term to ensure the earnings potential from this business is maximized.

5. The transaction provides for immediate cash flow that is accretive to Peak's unitholders from the outset.

6. This transaction will provide Peak with significant additional cash flow. This ultimately enables Peak to comfortably increase its trust unit distributions from $0.08/unit per month to $0.085/unit per month immediately upon completion.

2. TRUST UNIT DISTRIBUTION INCREASE

In light of the above acquisition and the outlook for Peak's current operations, an increase in planned monthly Trust unit distributions to $0.085 per Trust unit was approved by the Board of Directors ("Board") of Peak. The increase is effective for the planned Trust unit distribution payment to be made on August 15, 2005 on Trust earnings to July 31, 2005, which is subject to normal course Board approval. After incorporating this increase in trust unit distributions monthly, the payout ratio based on operating cash flow reduces from approximately 69% for 2005 prior to the transaction to approximately 62% for 2005.

This acquisition and distribution increase is evidence of Peak's on-going execution of our strategic plan. Specifically, we have successfully met several goals including; increasing distributions while reducing our payout ratio, obtaining a stronger balance between drilling and production services and generating significant increases in cash flow per unit and return on capital. Peak management remains committed to growing the Trust for the benefit of our unitholders through a combination of internal expansion and acquisitions.

Conference Call

Management will hold a conference call to discuss this press release at 9:30 a.m. (MST) on Monday June 27, 2005. To listen, please dial toll-free access 1-877-888-4210 (North America) or (416) 695-5259 (Toronto or overseas). For those unable to listen to the live event, a rebroadcast will be available until July 4, 2005. For the rebroadcast, please dial toll-free 1-888-509-0081 (North America) or (416) 695-5275 (Toronto or overseas).

About Peak Energy Services Trust

Peak Energy Services Trust is a diversified energy services organization providing oilfield equipment and related services to the energy industry in western Canada. Peak Energy Services Trust units are list on the Toronto Stock Exchange under the symbol "PES.UN".

Certain information set forth in this document, including management's assessment of Peak's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond these parties' control, including the impact of general economic conditions, industry conditions, currency fluctuations, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Peak's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Peak will derive there from. Peak disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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

Contact Information

  • Peak Energy Services Trust
    Mr. Christopher E. Haslam
    Chairman & Chief Executive Officer
    (403) 543-7325
    (403) 543-7320 (FAX)
    or
    Peak Energy Services Trust
    Mr. Matt J. Huber
    Chief Financial Officer
    (403) 543-7325
    (403) 543-7320 (FAX)
    or
    Peak Energy Services Trust
    Suite 1800, 530-8th Avenue SW
    Calgary, Alberta T2P 3S8
    (403) 543-7325
    (403) 543-7320 (FAX)