Phoenix Oilfield Hauling Inc.
TSX VENTURE : PHN

Phoenix Oilfield Hauling Inc.

November 26, 2007 19:37 ET

Phoenix Oilfield Hauling Inc. Announces Financial Results for the Third Quarter Ended September 30, 2007

NISKU, ALBERTA--(Marketwire - Nov. 26, 2007) -

THIS PRESS RELEASE IS NOT TO BE DISTRIBUTED TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

Phoenix Oilfield Hauling Inc. (TSX VENTURE:PHN) is pleased to announce its financial and operating results for the third quarter of 2007.

"Reader Advisory

This news release contains certain forward-looking statements, which include assumptions with respect to (i) future operations; (ii) future economic conditions; (iii) future capital expenditures; and (iv) cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. All such forward looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, loss of markets, volatility of commodity prices, currency fluctuations, environmental risks, competition from other companies, ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances 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, including the amount of proceeds, that the Corporation will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Corporation does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws."



Financial Summary

The following table summarizes selected financial data for:

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(In thousands of dollars, Three months ended Nine months ended
except per share data) September 30, September 30,
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2007 2006 2007 2006

Revenue $ 4,863 $ 6,018 $ 18,563 $ 17,490
Operating expenses 3,123 3,550 10,927 10,063
Operating expenses, % of revenue 64% 59% 59% 58%
Selling, general and
administrative expenses 984 970 3,022 2,189
Due diligence costs respecting
abandoned acquisition - - 330 -
(Gain) on disposal of assets 38 - 26 (118)
EBITDA (1) 718 1,498 4,258 5,356
EBITDA, % of revenue 15% 25% 23% 31%
Net income (loss) (265) 542 1,170 2,696
Earnings per share - basic - 0.01 0.02 0.09
Earnings per share - diluted - 0.01 0.02 0.09
Funds flow from operations $(1,307) $ 93 $ 5,607 $ 1,762
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September 30, December 31,
2007 2006
(In thousands of dollars) (unaudited)
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Total assets $ 53,040 $ 56,066
Long-term financial liabilities 1,997 1,861
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(1) EBITDA is not a recognized measure under GAAP and consequently does not
have a standard prescribed meaning. EBITDA is equal to Net Income
adjusted to exclude amortization expense, depreciation expense,
interest expense, and income taxes. EBITDA includes stock based
compensation expense. EBITDA is commonly used by investors and financial
analysts in the oilfield services industry as a supplementary non-GAAP
financial measure in order to evaluate a company's operating
performance. Phoenix's method of calculating EBITDA may differ from
other companies, and accordingly, it may not be comparable to a
similarly described measure used by another company.

EBITDA (1) is calculated by the Company as follows:

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Three months ended Nine months ended
(In thousands of dollars) September 30, September 30,
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2007 2006 2007 2006
Net income (loss) $ (265) $ 542 $ 1,170 $ 2,696
Add (Deduct):
Depreciation 657 448 1,945 966
Interest on long-term debt 192 81 591 217
Other interest (income) 2 12 35 (33)
Amortization of intangible assets 317 131 990 158
Income taxes (185) 284 (473) 1,352
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EBITDA (1) $ 718 $ 1,498 $ 4,258 $ 5,356
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Seasonality of Business

The Company's earnings follow the seasonal activity pattern of western Canada's oil and gas industry. The oil and gas industry in western Canada is typically more active during the winter months as the movement of heavy equipment over frozen ground is generally easier. During the spring the effect of road bans that limit load weights and wet weather ("spring break-up") can adversely impact the Company's ability to generate revenue. Rain through the spring, summer and fall also reduces activity levels because of the weather's effect on ground conditions and consequently its load bearing capacity.

Results of Operations

The Company operates in one dominant industry segment, which involves the transportation of products, materials, and equipment required for the exploration, development and production of petroleum resources. All of the Company's assets are located in Western Canada.



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Three months ended Nine months ended
(In thousands of dollars) September 30, September 30,
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2007 2006 2007 2006
Revenue $ 4,863 $ 6,018 $ 18,563 $ 17,490
Operating expenses 3,123 3,550 10,927 10,063
Operating expenses, % of revenue 64% 59% 59% 58%
Selling, general and
administrative expenses 984 970 3,022 2,189
Due diligence costs respecting
abandoned acquisition - - 330 -
Gain on disposal of assets 38 - 26 (118)
EBITDA (1) 718 1,498 4,258 5,356
EBITDA, % of revenue 15% 25% 23% 31%
Depreciation 657 448 1,945 966
Interest on long-term debt 192 81 591 217
Other interest (income) 2 12 35 (33)
Amortization of intangible assets 317 131 990 158
Income taxes (185) 284 (473) 1,352
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Net income (loss) $ (265) $ 542 $ 1,170 $ 2,696
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Results of Operations for the Three Months Ended September 30, 2007

Revenue

Revenue for the three months ended September 30, 2007 was $4.9 million, versus $6.0 million for the three months ended September 30, 2006. Industry conditions were extremely active in the four sequential quarters from Q3 2005 through Q2 2006 (See - "Outlook") and consequently utilization of the Company's equipment was high during these periods. Reduced drilling activity and softening industry conditions commencing in Q3 2006 (See - "Outlook") have continued through Q3 2007 resulting in reduced fleet utilization and a year over year revenue decline.

Operating Expenses

Operating expenses were $3.1 million or 64% of revenue for the three months ended September 30, 2007. Comparable operating expenses were $3.6 million for the three month period ended September 30, 2006 or 59% of revenue. The Company's operating cost ratio was higher for the three month period ended September 30, 2007 versus the comparable period in 2006 principally due to lower utilization of its equipment. Operating expenses, which are not all variable costs, are typically highest as a percentage of revenue in the second and third quarters when utilization of the fleet is at its lowest (see - "Seasonality of Business"). Lower fleet utilization contributed to a higher cost ratio when compared to the prior year.

The Company's principle expenses are variable costs paid to owner operators, wages paid to drivers and the cost of insuring, maintaining and operating its fleet.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were $1.0 million or 20% of revenue for the three months ended September 30, 2007. Comparative SG&A expenses were $1.0 million or 16.0% of revenue for the three month period ended September 30, 2006. The increase in SG&A expense as a percentage of revenue versus the comparative period in 2006 relates to lower utilization during softer industry conditions in the third quarter of 2007 (see - "Outlook") where largely fixed SG&A increased in proportion to sales volumes.

Depreciation

Depreciation expense was $0.7 million for the three months ended September 30, 2007 versus comparative expense of $0.4 million for the three month period ended September 30, 2006. Increased depreciation expense reflects the purchase of equipment and the purchase of equipment in connection with business acquisitions that occurred in 2006.

Interest on Long-term Debt

Interest on long-term debt was $0.2 million for the three months ended September 30, 2007 versus comparative expense of $0.1 million for the three month period ended September 30, 2006. Interest expense reflects interest charges on debt used to fund that portion of equipment purchases and business acquisitions not funded through cash flow from operations. The Company has demand loans, long-term debt and obligations under capital lease, including current portion, of $10.4 million as at September 30, 2007.

Income taxes

Income taxes were a recovery of ($0.2) million for the three months ended September 30, 2007 or 41% of pre-tax income versus $0.3 million or 34% of pre-tax income for the three months ended September 30, 2006. The income tax provision in 2007 reflects a reduction in tax expense of approximately $0.1 million realized from the drawdown of the deferred credit which is being amortized into income on a basis that is pro rata to the expensing of a related future income tax asset.

Net earnings

Net loss for the three months ended September 30, 2007 were ($0.3) million versus net earnings of $0.6 million or 9.0% of revenue for the three months ended September 30, 2006.

Results of Operations for the Nine Months Ended September 30, 2007

Revenue

Revenue for the nine months ended September 30, 2007 was $18.6 million, versus $17.5 for the nine months ended September 30, 2007. Acquisitions contributed to the increase in revenue and offset revenue declines due to lower fleet utilization. Industry conditions were extremely active in the four sequential quarters from Q3 2005 through Q2 2006 (See - "Outlook") and consequently utilization of the Company's equipment was higher during these periods. Lower utilization and sales volumes were offset by revenue from acquisitions in the first nine months of 2007.

Operating Expenses

Operating expenses were $10.9 million or 59% of revenue for the nine months ended September 30, 2007. Comparable operating expenses were $10.1 million for the nine month period ended September 30, 2007 or 58% of revenue. The Company's operating cost ratio was similar for the nine month period ended September 30, 2007 versus the comparable period in 2006. Operating expenses, which are not all variable costs, are typically highest as a percentage of revenue in the second and third quarters when utilization of the fleet is at its lowest (see - "Seasonality of Business").

The Company's principle expenses are variable costs paid to owner operators, wages paid to drivers and the cost of insuring, maintaining and operating its fleet.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were $3.0 million or 16% of revenue for the nine months ended September 30, 2007. Comparative SG&A expenses were $2.2 million or 13% of revenue for the nine month period ended September 30, 2006. The increase in SG&A expense as a percentage of revenue versus the comparative period in 2007 relates to (i) lower utilization during softer industry conditions in the first nine months of 2007 (see - "Outlook") where largely fixed SG&A increased in proportion to sales volumes and (ii) costs related to being a Public Company that were not applicable for part of the comparative period in 2006.

Depreciation

Depreciation expense was $1.9 million for the nine months ended September 30, 2007 versus comparative expense of $1.0 million for the nine month period ended September 30, 2006. Increased depreciation expense reflects the purchase of equipment and the purchase of equipment in connection with business acquisitions that occurred in 2006.

Interest on Long-term Debt

Interest on long-term debt was $0.6 million for the nine months ended September 30, 2007 versus comparative expense of $0.2 million for the nine month period ended September 30, 2006. Interest expense reflects interest charges on debt used to fund that portion of equipment purchases and business acquisitions not funded through cash flow from operations. The Company has demand loans, long-term debt and obligations under capital lease, including current portion, of $10.4 million as at September 30, 2007.

Income taxes

Income taxes were a recovery of ($0.5) million for the nine months ended September 30, 2007 versus $1.4 million or 33% of pre-tax income for the nine months ended September 30, 2006. The income tax provision in 2007 reflects a reduction in tax expense of approximately $0.8 million realized from the drawdown of the deferred credit which is being amortized into income on a basis that is pro rata to the expensing of a related future income tax asset.

Net earnings

Net earnings for the nine months ended September 30, 2007 were $1.2 million or 6% of revenue versus $2.7 million or 15% of revenue for the nine months ended September 30, 2006.

Subsequent Events

On October 2, 2007 the Company acquired the operating assets of Marcels Truck Service Ltd. ("Marcels"), a company engaged in the contract transportation of products, materials, supplies and equipment required for the exploration, development and production of petroleum resources. The purchase price was approximately $9.8 million, including certain estimated transaction costs, and included Marcels shop and land and working capital. The purchase price was paid by way of issuance of 200,000 common shares of Phoenix, cash of approximately $7.3 million, and the assumption of the mortgage of $2.4 million. To fund the cash portion of the purchase price the Company entered into a credit agreement with its principal lender to provide a non-revolving facility in the amount of $6.1 million that is due in equal monthly installments of principal and interest over 60 months and due September 30, 2012. The loan bears interest at a rate of prime plus 1.75%. The value of the common shares exchanged in the transaction has been estimated at $0.33 based on the weighted average trading value of the Company's common shares for the 5 day period including the period 2 days before and 2 days after the transaction was announced. The Company is in the process of obtaining third-party valuations and assigning values to the assets acquired.

On October 16, 2007 the Company acquired the operating assets of Finnie Hauling & Storage Ltd. ("Finnie"), a company engaged in the contract transportation of products, materials, supplies and equipment required for the exploration, development and production of petroleum resources. The purchase price was approximately $12.3 million, including certain estimated transaction costs. The purchase price was paid by way of issuance of approximately 3.5 million common shares of Phoenix and cash of approximately $10.9 million. The value of the common shares exchanged in the transaction has been estimated at $0.40 based on the weighted average trading value of the Company's common shares for the 5 day period including the period 2 days before and 2 days after the transaction was announced. To fund a portion of the cash portion of the purchase price the Company entered into a credit agreement with its principal lender to provide a non-revolving facility in the amount of $5.3 million that is due in equal monthly installments of principal and interest over 60 months and due October 31, 2012. The loan bears interest at a rate of prime plus 1.75%. Also to fund a portion of the cash portion of the purchase price the Company entered into a credit agreement with the merchant bank of its principal lender to provide a non-revolving facility in the amount of $5.0 million that is due in principal installments of $200,000 per quarter commencing December 2008 and due October 15, 2012. The loan bears interest at a rate of prime and additionally requires the payment of a 10% per annum fee that is payable monthly. The loan is repayable without penalty subject to the lender having earned a minimum compensation of $250,000 respecting the fee. The Company is in the process of obtaining third-party valuations and assigning values to the assets acquired.

Subsequent to September 30, 2007, the Company amended its existing credit facilities such that the maximum amount available under its authorized line of credit decreased from $9.0 million to $5.0 million. The interest rate on advances remained at prime plus 0.75%. The interest rate on advances had been previously reduced during the three months ended June 30, 2007 from prime plus 1.5%. There was no change to the security for the advances or the borrowing base for the facility which continues to be calculated as a percentage of qualifying accounts receivable. At September 30, 2007 the Company had no amounts drawn against its authorized line of credit.

Subsequent to September 30, 2007, the Company amended its existing credit facilities such that certain demand loans classified as current liabilities will be due on demand in the case of default or material adverse change in the financial condition of the Company, but in the absence of default or material adverse change in the financial condition of the Company, will be due with notice to the Company of one year.

On November 5, 2007 the Company had a total of 1,125,000 warrants expire, after which the Company had 450,000 warrants outstanding.

Risks and Uncertainties

The MD&A for the year ended December 31, 2006 includes a discussion of the risks and uncertainties that face the Company. The risks and uncertainties are unchanged at the date of this MD&A with the exception that in October 2007 the Government of Alberta announced changes to the royalty regime for oil and natural gas in the Province of Alberta. This decision may adversely impact many of the Company's customers and could negatively impact the number of oil and natural gas wells completed in Alberta in the future (see - "Outlook"). The MD&A for the year ended December 31, 2006 is available on SEDAR at www.sedar.com.

Outlook

The Company earns revenue by providing specialized contract transportation of products, materials, supplies and equipment required for the exploration, development and production of petroleum resources. Demand for the Company's transportation services is therefore linked to the economic conditions of the energy industry and the general level of exploration, development and production of petroleum resources in Western Canada. Activity in the Western Canadian Sedimentary Basin ("WCSB") has in recent history been supported by record levels of oil and gas drilling. The last two quarters of 2005 and the first two quarters of 2006 were particularly active and demand for the Company's services was high. Amongst other things, lower natural gas prices and higher than normal natural gas inventory in storage since the second quarter of 2006 have affected the number of gas wells drilled in the WCSB and are likely, in the view of management, to impact drilling and activity levels through the balance of fiscal 2007 and potentially through all of calendar year 2008. The second quarter, where spring breakup particularly affects drilling activity and demand for the Company's services, was substantially weaker than the comparative quarter in 2006 and the third quarter of 2007 also was weaker, when viewed in terms of active rigs in the WCSB or the percentage of the rig fleet that was being utilized, on a comparative basis. The Canadian Association of Oilwell Drilling Contractors ("CAODC") forecasts, in its most recent forecast dated October 29, 2007, 16,393 well completions in 2007, a reduction of approximately 26% versus 2006 and 13,735 well completions in 2008, a reduction of approximately 16% versus 2007, with the principal reductions relating to reduced activity in natural gas drilling. While the Company maintains good relationships with its customers and has a balanced exposure to gas related drilling activity, versus service work that is not as highly correlated to new drilling, the Company is likely to be affected by reduced capital spending and drilling activity.

The Company's financial statements are available on SEDAR.

The securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any State in which such offer, solicitation or sale would be unlawful.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy and accuracy of the contents of this news release.

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