Peak Energy Services Trust
TSX : PES.UN

Peak Energy Services Trust

November 07, 2006 20:12 ET

Peak Energy Services Trust Reports Its Financial Results for the Three and Nine Months Ended September 30, 2006

CALGARY, ALBERTA--(CCNMatthews - Nov. 7, 2006) - Peak Energy Services Trust (TSX:PES.UN)



Financial Highlights
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Three months ended Nine months ended
September 30 September 30
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(in '000 of CAD, % %
except otherwise noted) 2006 2005 Change 2006 2005 Change
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Revenue 31,974 32,541 -2% 97,216 73,719 32%
Net Income 5,221 7,973 -35% 19,127 15,469 24%
Per unit - diluted 0.19 0.32 -41% 0.72 0.66 9%
EBITDA (1) 10,659 14,160 -25% 31,099 27,778 12%
Per unit - diluted 0.40 0.55 -28% 1.16 1.14 2%
Funds from operations (1) 9,894 13,380 -26% 29,025 26,325 10%
Per unit - diluted 0.37 0.52 -30% 1.09 1.08 1%
Distributions declared to
Unitholders 7,275 6,113 19% 21,467 17,139 25%
Per unit 0.270 0.255 6% 0.805 0.735 10%
Percentage of funds from
operations 74% 46% 74% 65%
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(1) Refer to the "Non-GAAP Measures" section for further details


Financial Summary

During the third quarter of 2006, natural gas prices continued to show near-term weakness and oil prices have recently retreated from their year-to-date highs which has culminated in near-term industry uncertainty. Long-term strong commodity price fundamentals still exist to motivate oil and gas producers and explorers, however this near-term weakness has negatively influenced industry drilling activity levels for the later part of the third quarter and is expected to continue for the fourth quarter of 2006. These factors influenced drilling rig activity, as the industry achieved 41,596 drilling rig operating days, which was a 3 percent decrease from the third quarter of 2005 total of 42,670 days. Rig utilization over this time period was down 6 percent from an average of 63 percent in the third quarter of 2005 to 57 percent in the third quarter of 2006. Contributing to the higher reduction in rig utilization relative to drilling rig operating days was the lower level of shallow drilling activity, coupled with the increase in the number of drilling rigs available. Peak's revenue for the three months ended September 30, 2006 as compared to the prior year period, decreased by $0.6 million or 2 percent to $32.0 million. For the third quarter of 2006 as compared to the prior year period, EBITDA decreased $3.5 million or 25 percent to $10.7 million and as a percentage of revenue was 33 percent (2005 - 44 percent), while funds from operations decreased $3.5 million or 26 percent to $9.9 million. Meanwhile, net income was $5.2 million for the three months ended September 30, 2006 ($0.19 per Unit diluted) a decrease of $2.8 million or 35 percent over the prior year period.

Year-to-date, the industry achieved 122,745 drilling rig operating days, a 12 percent increase over the prior year-to-date total of 109,589 days. Rig utilization during this time period was up marginally to 58 percent in 2006 compared to 56 percent during the first nine months of 2005. Peak's revenue for the nine months ended September 30, 2006 as compared to the prior year period, increased by $23.5 million or 32 percent to $97.2 million. For the first nine months of fiscal 2006 as compared to the prior year period, EBITDA increased $3.3 million or 12 percent to $31.1 million and as a percentage of revenue was 32 percent (2005 - 38 percent), while funds from operations increased $2.7 million or 10 percent to $29.0 million. Meanwhile, net income was $19.1 million for the nine months ended September 30, 2006 ($0.72 per Unit diluted) an increase of $3.7 million or 24 percent over the prior year period.

Distributions declared to Unitholders were $21.5 million (2005 - $17.1 million) or $0.805 per Unit (2005 - $0.735 per Unit), which represented 74 percent (2005 - 65 percent) of funds from operations for the nine months ended September 30, 2006. Peak's Distribution Reinvestment Plan ("DRIP") and Premium Distribution Reinvestment Plan ("Premium DRIP") were introduced in April 2006. The impact of the DRIP and Premium DRIP was the reinvestment of $4.7 million of distributions into additional Trust Units. Factoring in the impact of the DRIP and the Premium DRIP reduces Peak's net distributions to 57 percent of funds from operations.

On October 31, 2006, the federal government announced its intentions to change the tax laws for income trusts, effectively requiring income trusts to pay taxes at the same rate as corporations. If enacted into law, this announcement will impact Peak commencing in 2011, given the suggested grandfathering of existing trusts. In light of this announcement, the Trust will be evaluating the impact of this announcement over the next several months to determine the optimal capital structure for Peak on a go-forward basis.

Total assets increased by $15.2 million or 6 percent from $269.4 million at December 31, 2005 to $284.6 million at September 30, 2006. Total liabilities increased $11.6 million or 13 percent from $90.1 million at December 31, 2005 to $101.6 million at September 30, 2006. Unitholders' equity increased $3.7 million or 2 percent from $179.3 million at December 31, 2005 to $183.0 million at September 30, 2006.

Revenue

For the three months ended September 30, 2006, Peak generated revenue of $32.0 million compared to $32.5 million for the same period of 2005, representing a decrease of 2 percent compared to a decrease of 3 percent in drilling rig operating days over this time period. Total drilling rig operating days for the third quarter of 2006 were 41,596 days compared to 42,670 days for the same period of 2005.

Year-to date, Peak generated revenue of $97.2 million compared to $73.7 million for the same period of 2005, representing an increase of 32 percent compared to an increase of 12 percent in drilling rig operating days over this time period. Total drilling rig operating days for the first nine months of 2006 were 122,745 days compared to 109,589 days for the same period of 2005.

Drilling Services Revenue

Drilling Services revenue decreased by $0.9 million or 4 percent as it generated $20.0 million in revenue or 63 percent of the Trust's total revenue for the three months ended September 30, 2006, compared to $20.9 million or 64 percent for the prior year period. The revenue decrease for the third quarter was consistent with the decrease of 3 percent or 1,074 drilling rig operating days.

Year-to-date, drilling services increased revenue by $9.1 million or 18 percent as it generated $60.2 million in revenue or 62 percent of the Trust's total revenue, compared to $51.1 million or 69 percent for the prior year period. In comparison to the year-to-date increase of 12 percent or 13,156 drilling rig operating days, Peak's Drilling Services operating segment posted good results.

There were a number of factors impacting revenue for the current quarter and year-to-date revenue.

Factors having a positive affect on revenue for the operating segment were:

- solids control capacity added September 15, 2005, with the acquisition of 33 drilling fluid recovery systems, 29 high capacity shale tanks and other related equipment from Source Oilfield Rentals Inc. ("Source") for total consideration of $9.5 million;

- significant internal growth capital expenditures, in addition to the acquisition identified above, made throughout fiscal 2005 and 2006 to expand Peak's drilling equipment product mix; and

- improved day rates realized.

Factors contributing downward pressure on revenue for the operating segment were:

- decreases in utilization of certain product lines, primarily the result of some of Peak's primary customer's drilling programs not being executed on during the third quarter. The Trust is actively marketing its services to both existing and non Peak customers and expects that as winter approaches its primary customer's drilling programs will ramp-up; and

- recent increases of industry capacity in the form of more equipment in certain product lines has increased the competitive nature of the market place.

Production Services Revenue

Production Services improved revenue by $0.3 million or 2 percent as it contributed $11.9 million in revenue or 37 percent of the Trust's total revenue for the three months ended September 30, 2006, compared to $11.6 million or 36 percent for the prior year period.

There were a number of factors impacting revenue.

The primary factor attributing to the increase in revenue for this operating segment were:

- significant internal growth capital expenditures made throughout fiscal 2005 and 2006 to expand Peak's production equipment product mix.

Factors contributing downward pressure on revenue for this operating segment were:

- a decrease in shallow gas programs (including coal bed methane ("CBM")), resulting from near-term weakness in natural gas commodity prices due to increased inventory levels; and

- extended periods of poor road access conditions as a result of wet weather in certain areas that Peak operates.

Year-to-date, production services improved revenue by $14.4 million or 64 percent as it contributed $37.0 million in revenue or 38 percent of the Trust's total revenue, compared to $22.6 million or 31 percent for the prior year period. In addition to the factors detailed above, the introduction of the Wireline services product line added July 1, 2005, with the acquisition of 22 wireline units and other related equipment from Competition Wireline Services Ltd. and 1177868 Alberta Ltd. (collectively referred to as "Competition") for total consideration of $33.1 million contributed to the increase in revenue.

Expenses

Operating expenses - For the three months ended September 30, 2006, operating expenses were higher than the prior year period by $2.8 million or 21 percent. As a percentage of revenue, operating expenses were 50 percent compared to the prior year period of 41 percent. For the first nine months of fiscal 2006, operating expenses were higher than the prior year period by $15.8 million or 49 percent. As a percentage of revenue, operating expenses were 50 percent compared to the prior year period of 44 percent. The primary drivers of the increase in operating expenses as a percentage of revenue were:

- an increase in employee related compensation costs incurred as a result of the industry wide increase in demand for employees placing upward pressure on these costs;

- an increase in vehicle and related costs incurred as a result of the increase in the number of employees due to the recent strategic business acquisitions and industry activity level; and

- the weaker than expected revenue performance not offsetting the relatively high fixed portion of Peak's operating expenses.

General and administrative expenses - For the third quarter of 2006, general and administrative expenses (G&A) were $0.2 million or 4 percent higher than the prior year period. However, as a percentage of revenue, G&A remained relatively consistent as it was 17 percent for the current quarter as compared to 16 percent for the prior year period. The primary contributors to the net dollar increase were increased facility rental costs primarily resulting from the recent build out of "super shops" in Grande Prairie, Alberta and Leduc, Alberta to support Peak's recent and anticipated growth and increased number of employees and related costs due to the recent strategic business acquisition activities and industry activity levels, offset by decreased variable compensation (bonuses) as a result of the current quarter's weaker financial performance. For the nine months ended September 30, 2006, G&A were $4.3 million or 33 percent higher than the prior year period. However, as a percentage of revenue, G&A remained relatively consistent as it was 18 percent for the current and prior year period, respectively. In addition to the above current quarter factors, the primary contributors to the dollar increase were increased communication costs associated with the increased number of employees and related industry activity levels and professional consulting fees associated with the Trust's regulatory compliance activities.

Depreciation and amortization expenses - For the three months ended September 30, 2006, depreciation and amortization expenses were higher than the prior year period by $1.5 million or 44 percent. Meanwhile, year-to-date depreciation and amortization expenses were $5.6 million or 64 percent higher than the prior year period.

Interest on long-term debt expense - Interest on long-term debt expense increased to $0.8 million for the third quarter of 2006, representing an increase of $0.2 million or 40 percent over the same quarter of 2005. Interest on long-term debt expense increased to $2.0 million for the first nine months of fiscal 2006, representing an increase of $1.0 million or 90 percent over the same period of 2005. Of the debt facility currently outstanding, $30.0 million is at a fixed rate of 5.8 percent, $10.0 million is at a fixed rate of 6.7 percent with the remaining $17.8 million at a floating rate tied to prime.

Loss on sale of equipment - For the three and nine months ended September 30, 2006, the losses on sale of equipment amounted to $0.5 million and $0.4 million compared to losses of $0.3 million and $1.2 million for the prior year periods, respectively.

Provision for income taxes - The current tax expense of $0.1 million and future tax recovery of $0.9 million, resulted in a net income tax recovery of $0.8 million and an effective income tax rate of negative 19 percent for the three months ended September 30, 2006. Meanwhile, for the nine months ended September 30, 2006, the current tax provision of $0.2 million and future tax recovery of $4.9 million, resulted in a net income tax recovery of $4.7 million and an effective income tax rate of negative 32 percent. Contributing to the significant year-to-date future income tax recovery was the impact of the Federal and Provincial (Alberta) government's approval of reductions in the general tax rates to be phased in over the next five years. In addition, the effective income tax rate differs significantly from the statutory corporate rate of 33 percent primarily driven by the reduction in the provision resulting from Trust distributions to Unitholders. The federal government has recently announced its intentions to change the tax laws for income trusts. Refer to "Subsequent Event" section of this press release for further details.

Non-controlling interest - Income attributable to non-controlling interest was nil for the third quarter of 2006 as compared to $0.3 million for the third quarter of 2005. Meanwhile, year-to-date income attributable to non-controlling interest was $0.1 million as compared to $0.6 million for the prior year period. This represents the respective consolidated income of the Trust attributable to the non-controlling interest.

Net Income

For the three months ended September 30, 2006, net income decreased 35 percent to $5.2 million ($0.19 per Unit diluted) compared to net income of $8.0 million ($0.32 per Unit diluted) for the same period of 2005. For the nine months ended September 30, 2006, net income increased 24 percent to $19.1 million ($0.72 per Unit diluted) compared to net income of $15.5 million ($0.66 per Unit diluted) for the same period of 2005.

Balance Sheet

The Trust's balance sheet remains strong with working capital (defined as current assets less current liabilities excluding current portion of long-term debt) of $22.8 million, net debt (defined as interest bearing debt less cash and cash equivalents) of $53.5 million on tangible assets of $200.6 million and Unitholders' equity of $183.0 million at September 30, 2006.

Cash Flow

Funds from operations were $9.9 million ($0.37 per Unit diluted) for the third quarter of 2006 and $29.0 million ($1.09 per Unit diluted) year-to-date. The $3.5 million or 26 percent decrease over the third quarter of 2005 and $2.7 million or 10 percent increase over the first nine months of fiscal 2005 was directly related to income before non-cash items experienced during the periods.

Net cash used in investing activities during the third quarter of fiscal 2006 was $15.7 million (2005 - $10.3 million) and year-to-date was $36.5 million (2005 - $40.4 million). For the nine months ended September 30, 2006, the activities were the result of the business acquisition of all of the issued and outstanding shares of Premium Rentals Inc. ("Premium") on June 1, 2006 for cash consideration of $2.5 million, a $1.6 million post-closing earn-out adjustment relating to the business acquisition of Competition, $30.9 million of net equipment purchases including proceeds on sale of equipment of $3.0 million and $1.6 million net working capital decrease in accounts payable and accruals.

Net cash provided by financing activities for the three months ended September 30, 2006 was $5.5 million (2005 - $0.2 million) and year-to-date was $3.2 million (2005 - $19.3 million). For the nine months ended September 30, 2006, the activities were the result of the payment of financing costs of $0.2 million related to the renewal of the Trust's long-term debt facilities, an increase in long-term debt of $20.0 million used to fund a business acquisition and internal capital expenditures, the issuance of Trust Units in the amount of $4.7 million associated with the Trust's DRIP and a Premium DRIP and the payment of $21.3 million in Trust distributions to Unitholders.



Capital Expenditure Program

For the nine months ended September 30, 2006 the Trust expended the
following, by segment, on capital related items:

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Nine months ended September 30, 2006 Drilling Production
(in '000 of CAD) Services Services Total
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Growth 12,889 12,880 25,769
Maintenance 3,775 963 4,738
Infrastructure - - 3,312
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16,664 13,843 33,819
Proceeds on sale of equipment (2,969)
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30,850
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Peak's capital expenditure program for fiscal 2006 has decreased from what was previously disclosed in the MD&A of the 2005 Annual Report. The primary drivers of the decrease are lower than expected industry activity levels and a lack of supplier resources to complete the necessary work. Management now expects to expend the following for fiscal 2006:




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Nine months ended September 30, 2006 Drilling Production
(in '000 of CAD) Services Services Total
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Growth 17,626 19,093 36,719
Maintenance 5,454 1,547 7,001
Infrastructure - - 4,213
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23,080 20,640 47,933
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Trust Distributions

The Trust declared distributions of $0.805 per Unit for a total of $21.5 million, of which $2.4 million was paid on October 16, 2006, in respect of earnings to September 30, 2006. Distributions declared represented 74 percent (2005 - 65 percent) of funds from operations (this does not take into account the impact of maintenance capital expenditures) for the nine months ended September 30, 2006. The Trust's Indentures (for both Peak and Peak Commercial Trust) govern the amounts that the Trustee and the Administrator (PESL) can distribute to Unitholders. These Indentures give management the latitude to withhold reasonable reserves for operations. Currently, management's objective is to pay in the range of 50 to 60 percent of the Trust's funds from operations on an annual basis. Management believes that this distribution ratio level will allow it to fulfill its vision and execute on its strategy, while maintaining a stable financial position that will insulate the Trust from any short-term fluctuations in industry activity levels without having to reduce or eliminate the current distribution amount per Unit. Based on current distribution levels and forecasts of operating activities, management estimates that for fiscal 2006 it will distribute approximately 71 percent of funds from operations, which is slightly higher than its objective range, however the conservative distribution position that management has taken should facilitate Peak's ability to maintain its distributions during recent decreases in activity levels. It should be noted that there can be no assurances made that the Trust will make any future distributions.

Starting with the April 2006 distribution, Peak introduced its DRIP and Premium DRIP to its Unitholders. The DRIP allows eligible Unitholders of Peak to direct that their cash distributions be reinvested in additional Trust Units at 95 percent of the average market price for the applicable period. The Premium DRIP further allows eligible Unitholders to elect to have these additional Trust Units delivered to the designated Premium DRIP broker in exchange for a premium cash distribution equal to 102 percent of the cash distribution that such Unitholders would otherwise have received on the applicable distribution payment date. Peak reserves the right to limit the amount of new equity available under the DRIP and Premium DRIP on any particular distribution date. Accordingly, participation may be prorated in certain circumstances. Peak experienced an average participation rate of 38 percent of Trust Unitholders for the distribution payments to date which has resulted in the reinvestment of $4.7 million of distributions into additional Trust Units. Factoring in the impact of the DRIP and Premium DRIP reduces Peak's net distribution to 57 percent of funds from operations for the first nine months of 2006.

Subsequent Event

On October 31, 2006, the federal government announced its intentions to change the tax laws for income trusts, effectively requiring income trusts to pay taxes at the same rate as corporations. If enacted into law, this announcement will impact Peak commencing in 2011, given the suggested grandfathering of existing trusts. In light of this announcement, the Trust will be evaluating the impact of this announcement over the next several months to determine the optimal capital structure for Peak on a go-forward basis.

Corporate Governance

The regulatory and statutory compliance environment in Canada is rapidly evolving to ensure effective corporate governance frameworks exist within publicly held entities. These standards involve ensuring more timely, accurate and complete financial reporting and disclosures. Of the recently added compliance requirements, the most significant expenditure of resources for the Trust has and will involve the requirements of the Canadian Securities Administrators' ("CSA") Multilateral Instrument ("MI") 52-109.

Currently, MI 52-109 requires Peak's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") to personally file quarterly and annual certificates on the accuracy and completeness of Peak's financial reporting. In addition, the certificates require the CEO and CFO to certify that there are adequate disclosure controls and procedures in place, which they have evaluated the effectiveness thereof (only required for annual certificates), and have concluded are effective for the period covered (commonly referred to as "Modified" certifications). Peak's CEO and CFO have filed the necessary certifications to date.

Peak's disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the CEO and CFO, on a timely basis so that decisions regarding required disclosures in the Trust's annual filings, interim filings and other disclosure mediums can be made. These disclosure controls and procedures are not expected to prevent or detect errors or fraud. A control system, no matter how well designed or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Outlook

The outlook for the fourth quarter of 2006 could be regarded as one of "guarded optimism". Indications are that the winter drilling season will be relatively busy compared to current activity levels, however the historical "ramp up" in activity normally experienced during the fourth quarter of each year is not currently materializing as would be expected. Management expects drilling rig activity levels for the fourth quarter of 2006 to be flat or up marginally from the activity levels experienced in the third quarter of this year and believes that on a year-over-year basis that drilling rig activity will be down for the fourth quarter of 2006 by approximately 14 percent. Activity levels have continued to be adversely affected by the lingering effects of lower hydrocarbon pricing although there has been some strengthening on this front in recent weeks brought on by colder weather.

Peak has continued to execute on its longstanding strategy of growth as evidenced by its acquisitions and aggressive capital build program during fiscal 2005 and 2006. This aggressive growth profile has enabled Peak to generate revenue of $97.2 million for the nine months ended September 2006, which represents an increase of 32 percent as compared to the prior year period while drilling rig operating days increased only 12 percent for the corresponding period. Although the Trust's 2006 organic growth plan was cut back by approximately 13 percent due to lower than budgeted industry activity levels, a total capital expenditure program of approximately $47.9 million remains in place and will be expended by fiscal year end. The majority of this internal growth has been focused on the following products: solids control -$15.0 million, wireline services - $12.5 million, fluids handling - $4.8 million, access matting - $3.5 million, well-site accommodation - $3.3 million and production rentals - $2.3 million. This substantial growth profile will allow Peak to generate strong results relative to industry activity levels and continue to move toward its objective of a more equitable revenue split between drilling and production services. The combination of Peak's equipment fleet being subjected to a rigorous repair and maintenance program over the past several months, the aggressive 2006 capital expenditure program and price increases implemented June 1, 2006 remaining intact, leave the Trust well positioned as demand for Peak's products and services are expected to strengthen relative to drilling rig activity for the fourth quarter into the upcoming winter drilling season.

Management believes that the long term outlook for the oil and gas industry in North America is very positive and that the Trust remains well positioned to continue to generate significant growth and value for its stakeholders as more robust activity levels return in the latter part of 2007. Peak's main focus for the short term going into 2007 will be on internal controls and to stay the course on a "best practices" approach to creating operational efficiencies that ultimately drive profitability and enhanced returns for its unitholders. In addition, the company will remain vigilant and will pursue any strategic growth opportunities as they may arise in the future.

Non-GAAP Measures

EBITDA is defined as earnings before interest, taxes, depreciation and amortization and other items. EBITDA is not a recognized measure under Canadian GAAP. Management believes, in addition to net income, EBITDA is a useful supplemental measure as it provides an indication of the results generated by Peak's principle business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions. Readers should be cautioned, however, that EBITDA should not be construed as an alternative to net income determined in accordance with Canadian GAAP as an indicator of the Trust's performance. Peak's method of calculating EBITDA may differ from other companies and, accordingly, EBITDA may not be comparable to measures used by other companies.

Funds from operations is defined as funds generated from operating activities before changes in non-cash working capital balances. Funds from operations is not a recognized measure under Canadian GAAP. Management believes, in addition to cash flow provided by operating activities, funds from operations is a useful supplemental measure as it provides an indication of funds generated by operations before working capital adjustments. Readers should be cautioned, however, that funds from operations should not be construed as an alternative to cash flow provided by operating activities, determined in accordance with Canadian GAAP, as an indicator of the Trust's performance. Peak's method of calculating funds from operations, may differ from other companies and, accordingly, funds from operations may not be comparable to measures used by other companies.

Conference Call

Management will hold a conference call to discuss the quarter end results at 9:30 a.m. MT (11:30 a.m. ET) on Wednesday November 8, 2006. To participate, please dial 1 (888) 789-0150 or 1 (416) 695-6130. Participants are asked to call at least 10 minutes before the start of the call. For those unable to participate in the live event, a replay will be available until Wednesday, November 15, 2006 by dialing 1 (888) 509-0081 or 1 (416) 695-5275, verbal passcode 634105#.

Financial Results

The following selected financial information summarizes Peak's consolidated financial results for the three and nine months ended September 30, 2006. Peak's quarterly report, including the consolidated financial statements and management's discussion and analysis for the three and nine months ended September 30, 2006 and 2005 will be available at www.sedar.com on or about November 9, 2006.



CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
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Three months ended Nine months ended
September 30, September 30,
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(in thousands of CAD, except
per Unit amounts, unaudited) 2006 2005 2006 2005
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Revenue $ 31,974 $ 32,541 $ 97,216 $ 73,719

Expenses:
Operating 15,969 13,216 48,479 32,631
General and administrative 5,346 5,165 17,638 13,310
Depreciation and amortization 5,018 3,474 14,206 8,653
Interest on long-term debt 776 556 2,007 1,054
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27,109 22,411 82,330 55,648
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Income before other items 4,865 10,130 14,886 18,071

Other items:
Loss on sale of equipment 490 287 390 1,231
Gain on sale of equipment
held for sale - - - (24)
Impairment loss on equipment - - - 100
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490 287 390 1,307
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Income before income taxes
and non-controlling interest 4,375 9,843 14,496 16,764

Provision for income taxes:
Current 53 264 244 487
Future (reduction) (899) 1,332 (4,945) 249
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(846) 1,596 (4,701) 736
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Income before non-controlling
interest 5,221 8,247 19,197 16,028

Income attributable to
non-controlling interest - 274 70 559
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Net income 5,221 7,973 19,127 15,469

Retained earnings,
beginning of period
As previously reported (123) (3,590) 163 337
Change in method of
accounting for non-controlling
interest - - - (397)
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As restated (123) (3,590) 163 (60)

Distributions declared
to Unitholders (7,275) (6,113) (21,467) (17,139)
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Deficit, end of period $ (2,177) $ (1,730) $ (2,177) $ (1,730)
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Earnings per Unit:
Basic $ 0.19 $ 0.32 $ 0.72 $ 0.67
Diluted $ 0.19 $ 0.32 $ 0.72 $ 0.66
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three months ended Nine months ended
September 30, September 30,
--------------------------------------------
(in thousands of CAD,
unaudited) 2006 2005 2006 2005
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Operating activities:
Net income $ 5,221 $ 7,973 $ 19,127 $ 15,469
Add (deduct) items not
affecting cash:
Amortization of deferred
financing costs 64 40 177 88
Depreciation and
amortization 5,018 3,474 14,206 8,653
Loss on sale of equipment 490 287 390 1,231
Gain on sale of equipment
held for sale - - - (24)
Impairment loss on equipment - - - 100
Future income taxes (reduction) (899) 1,332 (4,945) 249
Income attributable to
non-controlling interest - 274 70 559
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9,894 13,380 29,025 26,325

Changes in non-cash working
capital items (5,619) (9,837) 2,796 (4,946)
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4,275 3,543 31,821 21,379

Investing activities:
Business acquisition - (31,471) (4,106) (32,136)
Funds held in trust for
future acquisition - - - (26,000)
Funds removed from trust
for future acquisition - 26,000 - 26,000
Purchase of equipment (15,461) (5,828) (33,819) (11,822)
Proceeds on sale of
equipment and equipment
held for sale 863 1,020 2,969 3,515
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(14,598) (10,279) (34,956) (40,443)

Changes in non-cash working
capital items (1,124) - (1,589) -
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(15,722) (10,279) (36,545) (40,443)

Financing activities:
Increase in deferred
financing costs - (387) (168) (557)
Repayment of obligations
under capital lease (14) - (42) -
Increase in long-term debt 10,000 6,500 20,000 36,750
Issue of Trust Units,
net of costs 2,784 (40) 4,655 20
Distributions paid to
Unitholders (7,240) (5,895) (21,285) (16,903)
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5,530 178 3,160 19,310

Increase (decrease) in cash
and cash equivalents (5,917) (6,558) (1,564) 246
Cash and cash equivalents,
beginning of period 10,179 13,999 5,826 7,195
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Cash and cash equivalents,
end of period $ 4,262 $ 7,441 $ 4,262 $ 7,441
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CONSOLIDATED BALANCE SHEETS
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September 30, December 31,
(in thousands of CAD, unaudited) 2006 2005
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ASSETS
Current assets:
Cash and cash equivalents $ 4,262 $ 5,826
Accounts receivable 31,100 35,319
Income taxes recoverable 444 176
Prepaid expenses 815 1,237
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36,621 42,558

Property and equipment 200,606 180,805

Deferred financing costs 614 626

Intangibles 11,698 12,978

Goodwill 35,063 32,395
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$ 284,602 $ 269,362
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 11,317 $ 14,483
Distributions payable 2,433 2,251
Current portion of long-term debt 1,275 918
Current portion of obligations under
capital lease 56 56
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15,081 17,708

Long-term debt 56,475 36,832

Obligations under capital lease 61 103

Future income taxes 30,008 34,437

Non-controlling interest - 987

Unitholders' equity:
Trust Unit capital 183,671 177,649
Contributed surplus 1,483 1,483
Retained earnings (deficit) (2,177) 163
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182,977 179,295
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$ 284,602 $ 269,362
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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 throughout western Canada and the mid-west United States of America. Peak Energy Services Trust units are listed 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. Curtis W. Whitteron
    President and Chief Operating Officer
    (403) 543-7325
    (403) 543-7335 (FAX)
    or
    Peak Energy Services Trust
    Mr. Matthew J. Huber
    Chief Financial Officer
    (403) 543-7325
    (403) 543-7335 (FAX)
    or
    Peak Energy Services Trust
    Suite 1800, 530-8th Avenue SW
    Calgary, Alberta T2P 3S8