Phoenix Oilfield Hauling Inc.
TSX VENTURE : PHN

Phoenix Oilfield Hauling Inc.

November 29, 2006 18:17 ET

Phoenix Oilfield Hauling Inc. Announces Third Quarter 2006 Financial Results

NISKU, ALBERTA--(CCNMatthews - Nov. 29, 2006) -

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 three and nine-month periods ended September 30, 2006.

Financial and operational highlights during the three and nine-month periods ended September 30, 2006 include:

- The Company recorded revenue of $6.0 million and net earnings of $542,000 during the three-months ended September 30, 2006 compared to revenue of $4.1 million and a net loss of $452,000 for the comparable period in 2005. Revenue increased by 47% year-over-year during the three-month period. For the nine-months ended September 30, 2006 the Company recorded revenue of $17.5 million, an increase of 63% over the $10.8 million recorded for the nine-months ended September 30, 2005. Net earnings for the nine-month period ended September 30, 2006 was $2.7 million versus $434,000 in net earnings recorded for the comparable nine-month period in 2005.

- Subsequent to the period end the Company acquired the operating assets of Ability Hauling Ltd., a company engaged in the contract transportation of products, materials, supplies and equipment required for the exploration, development and production of petroleum resources. Based in Calgary, Alberta the acquisition expands the Company's heavy-haul capabilities and operating footprint.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION OF PHOENIX OILFIELD HAULING INC.

The following discussion is management's assessment of Phoenix Oilfield Hauling Inc.'s ("Phoenix" or the "Company") financial condition and operating results for the three and nine months ended September 30, 2006, and has been prepared by management with information up to and as at November 28, 2006. This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited interim financial statements of Phoenix as at and for the three and nine months ended September 30, 2006.

This discussion contains statements that are not historical facts and are forward looking statements. The words "would", "could", "plan", "may", "expect" and other similar words and expressions are intended to identify forward-looking statements. These statements are subject to a number of risks and uncertainties which may cause actual results to differ materially from those contained in such forward looking statements. Such statements reflect management's current views and are based on certain assumptions. This discussion should not be considered all-inclusive, as it excludes changes that may occur in general economic, political and environmental conditions and other elements that may, or may not, occur which could affect the Company in the future. The Company does not assume any obligation to update these forward-looking statements if economic conditions or management's views or opinions change.

Summary

The following Management's Discussion and Analysis is for the interim consolidated financial statements of Phoenix Oilfield Hauling Inc. (the "Company", formerly Marine BioProducts International Corporation ("Marine"), its wholly-owned subsidiaries, Phoenix Oilfield Hauling Ltd. and Alberta Loader Rentals Inc. (the "Phoenix Group"), Robin's Oilfield Hauling and Hot Shot Service Ltd. ("Robin's"), acquired by the Company on June 12, 2006, Marine Bioproducts Inc. and various holding companies with no active business operations. The Phoenix Group was acquired by the Company on May 9, 2006. Subsequent to the acquisition the former shareholders of the Phoenix Group held the largest shareholding of the common shares of the Company and therefore the Phoenix Group was deemed to be the acquirer for accounting purposes. Accordingly, the transaction was accounted for as a reverse takeover on the basis that the continuing management and business is that of the Phoenix Group. The consolidated unaudited interim financial statements and this MD&A have been prepared as a continuation of the Phoenix Group, the Company's legal subsidiaries. This MD&A and the consolidated unaudited interim financial statements have been prepared with comparative figures and results up to the transaction date that combine Phoenix Oilfield Hauling Ltd. and Alberta Loader Rentals Inc. on a continuity of interests basis.

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. Transportation services are provided using assets which are either owned by the Company, or leased under long-term leases ("company equipment"), or through owner operators who provide trucks and, in some cases trailers, exclusively for the benefit of the Company under annual contracts, or through sub-contractors who own their equipment and are contracted by the Company during times of peak demand. Transportation services include both the equipment necessary to move the load as well as a trained, professional driver capable of securing, moving and manipulating the load at its origin and destination.

The following table summarizes select financial data for the three and nine months ended September 30, 2006:



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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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2006 2005 2006 2005

Revenue $ 6,018 $ 4,082 $ 17,490 $ 10,761
Operating expenses 3,550 1,972 10,063 6,343
Operating expenses, % of revenue 59% 48% 58% 59%
Selling, general and
administrative expenses, net of
stock based compensation expense 868 2,049 2,087 2,868
(Gain) on disposal of assets - - (118) (10)
EBITDA (1) 1,600 61 5,458 1,560
EBITDA % 27% 1% 31% 14%
Net income (loss) 542 (452) 2,696 434
Earnings per share - basic 0.01 (0.03) 0.09 0.03
Earnings per share - diluted 0.01 (0.03) 0.09 0.03
Funds flow from operations $ 93 $ 738 $ 1,762 $ 2,469
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September December
(In thousands of dollars) 30, 2006 31, 2005
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Total assets $ 42,589 $ 11,129
Long-term financial liabilities $ 2,168 $ 2,191
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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 and excludes 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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2006 2005 2006 2005

Net income (loss) $ 542 $ (452) $ 2,696 $ 434
Add (Deduct):
Depreciation 448 244 966 594
Interest on long-term debt 81 72 217 148
Other interest 12 12 (33) 20
Amortization of intangible assets 131 - 158 -
Stock based compensation expense 102 - 102 -
Income taxes 284 185 1,352 364
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EBITDA (1) $ 1,600 $ 61 $ 5,458 $ 1,560
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Acquisition of Robin's

On June 12, 2006 the Company acquired all of the issued and outstanding shares of Robin's Oilfield Hauling and Hot Shot Service Ltd. ("Robin's"). The aggregate purchase price was approximately $21.5 million including approximately $12.0 million of cash and approximately 9.5 million common shares valued at $9.5 million. The value of the 9.5 million common shares issued was determined based on the average market price of the Company's common shares over a two-day period before and after the terms of the acquisition were agreed to and announced. The results of operations of Robin's have been included in the interim consolidated financial statements and in this MD&A from June 12, 2006. Robin's provides oilfield trucking and other related services to the oil and gas industry in Western Canada.

Private Placement Financing completed May 5, 2006

In May 2006, the Company completed a brokered private placement financing for the issuance of 25.0 million common shares at a price of $1.00. The funds were raised to complete the acquisition of the Phoenix Group and for general working capital purposes. Working capital was subsequently used, in part, to fund the cash portion of the acquisition of Robin's.

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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2006 2005 2006 2005

Revenue $ 6,018 $ 4,082 $ 17,490 $ 10,761
Direct operating expenses 3,550 1,972 10,063 6,343
Operating expenses, % of revenue 59% 48% 58% 59%
Selling, general and
administrative expenses, net of
stock based compensation expense 868 2,049 2,087 2,868
(Gain) on disposal of assets - - (118) (10)
EBITDA (1) 1,600 61 5,458 1,560
EBITDA % 27% 1% 31% 14%
Stock based compensation expense 102 - 102 -
Depreciation 448 244 966 594
Interest on long-term debt 81 72 217 148
Other interest 12 12 (33) 20
Amortization of intangible assets 131 - 158 -
Income taxes 284 185 1,352 364
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Net income (loss) $ 542 $ (452) $ 2,696 $ 434
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Results of Operations for the Three Months Ended September 30, 2006

Revenue

Revenue for the three months ended September 30, 2006 was $6.0 million, an increase of 47% over the $4.1 million in revenue recorded for the three months ended September 30, 2005. The month of September was particularly wet and weather affected overall utilization in the quarter. The acquisition of Robin's, which occurred June 12, 2006, contributed to the increase in revenue. Sequentially revenue increased by $1.4 million over the second quarter.

Operating Expenses

Operating expenses were $3.6 million or 59% of revenue for the three months ended September 30, 2006. Comparable expenses were $2.0 million same for the same period in 2005 or 48% of revenue. The Company's operating costs were consistent sequentially at 59% of revenue in the third quarter versus 60% in the second quarter of 2006. Operating expenses, which are not all variable costs, are highest 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, the cost of insuring, maintaining and operating its fleet and the fixed costs associated with its facility rent and dispatch and administrative functions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, net of stock based compensation costs, decreased in the quarter from $2.0 million in 2005 to $868,000 in 2006. Phoenix Oilfield Hauling Ltd. (see - "Summary") was a private company in the comparative period and the results for the three month's ended September 30, 2005 include discretionary management bonuses paid to the principals of the company at that time.

Depreciation

Depreciation expense increased in the quarter from $244,000 in 2005 to $448,000 in 2006. Increased depreciation expense reflects the acquisition of capital equipment and the addition of Robin's from June 12, 2006.

Interest on Long-term Debt

Interest on long-term debt increased in the quarter from $72,000 in 2005 to $81,000 in 2006. Interest expense reflects interest charges on debt used to fund that portion of capital acquisitions not funded through cash flow from operations. The Company has long-term debt and obligations under capital lease of $4.5 million as at September 30, 2006.

Income taxes

Income taxes were $284,000 in the quarter or 34% of pre-tax income versus $184,000 on a loss before income taxes of $267,000 in the three months ended September 30, 2005. The Company has certain tax losses and other carry forward amounts that it expects will reduce tax provisions in the future, however tax provisions in the third quarter reflect public company income tax rates. The tax provision in 2005 includes the effect of rate changes from the Canadian Controlled Private Corporation income tax rate to the public company income tax rate on, amongst other things, timing differences subject to future taxation.

Net earnings (loss)

Net earnings for the quarter were 542,000 or 9% of revenue versus a net loss of $452,000 in the quarter in 2005. Net earnings reflect strong demand for the Company's transportation services during the typically second weakest quarter of operations.

Results of Operations for the Nine Months Ended September 30, 2006

Revenue

Revenue for the nine months ended September 30, 2006 was $17.5 million, an increase of 63% over the $10.8 million in revenue recorded for the nine months ended September 30, 2005. An increase in the size of the Company's fleet, higher levels of asset utilization and increased selling prices for its transportation services contributed to the higher revenue. The acquisition of Robin's, which occurred June 12, 2006, also contributed to the increase.

Operating Expenses

Operating expenses were $10.1 million or 58% of revenue for the nine months ended September 30, 2006. Comparable expenses were $6.3 million for the same period in 2005 or 59% of revenue. A slightly lower cost ratio, and improved contribution margin, in 2006 versus 2005 resulted from improved equipment utilization versus 2005, as well as market conditions in which the Company was able to increase selling prices at a faster rate than operating costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, net of stock based compensation costs, decreased for the nine months ended September 30th from $2.9 million in 2005 to $2.2 million in 2006. Phoenix Oilfield Hauling Ltd. (see - "Summary") was a private company in the comparative period and the results for the nine month's ended September 30, 2005 include discretionary management bonuses paid to the principals of the company at that time. The acquisition of Robin's and the consolidation of its operating results from the date of acquisition on June 12th, 2006 contributed to an increase in costs year-over-year. In addition to inflationary increases, the Company has also added or incurred certain costs with respect to its status as a public company. These costs include the addition of a Chief Financial Officer in January 2006 and normal listing, governance and compliance costs incurred by a reporting issuer.

Depreciation

Depreciation expense increased for the nine months ended September 30th from $594,000 in 2005 to $966,000 in 2006. Increased depreciation expense reflects the acquisition of additional capital equipment as well as the amortization of the fair value of equipment acquired with Robin's from date of acquisition June 12, 2006.

Interest on Long-term Debt

Interest on long-term debt increased for the nine months ended September 30th from $148,000 in 2005 to $217,000 in 2006. Interest expense reflects interest charges on increased debt used to fund that portion of capital acquisitions not funded through cash flow from operations. The Company has long-term debt and obligations under capital lease of $4.5 million as at September 30, 2006.

Income taxes

Income taxes were $1.4 million for the nine months ended September 30, 2006 or 33% of pre-tax income versus $364,000 or 46% of pre-tax income for the nine months ended September 30, 2005. The continuing Phoenix Group business, since becoming a public company following its acquisition is now taxed at public company income tax rates. The tax provision in 2005 includes the effect of rate changes from the Canadian Controlled Private Corporation income tax rate to the public company income tax rate on, amongst other things, timing differences subject to future taxation.

The Company has certain tax losses and other carry forward amounts that it expects will reduce tax provisions in the future, however tax provisions for the nine months ended September 30, 2006 reflect public company income tax rates currently in effect.

Net earnings (loss)

Net earnings for the nine months ended September 30, 2006 were $2.7 million or 15% of revenue versus net earnings of $434,000, or 4% of revenue, for the same period in 2005. Net earnings reflected strong demand for the Company's transportation services during the first nine months of the year and correspondingly high asset utilization.



Summary of Quarterly Results

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(In thousands of dollars, except 2006
per share data) Q3 Q2 Q1
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Revenue $ 6,018 $ 4,605 $ 6,868
Operating expenses 3,550 2,757 3,757
Operating expenses, % of revenue 59% 60% 55%
Selling, general and administrative
expenses, net of stock based
compensation expense 868 643 576
(Gain) on disposal of assets - (77) (41)
EBITDA (1) 1,600 1,282 2,576
EBITDA % 27% 28% 38%
Net income (loss) 542 659 1,496
Weighted average shares - basic 48,641 30,605 13,912
Weighted average shares - diluted 48,830 30,674 13,912
Earnings per share - basic 0.01 0.02 0.11
Earnings per share - diluted 0.01 0.02 0.11
Funds flow from operations $ 93 $ 1,425 $ 244
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(In thousands of dollars, except 2005
per share data) Q4 Q3 Q2 Q1
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Revenue $ 5,334 $ 4,082 $ 1,954 $ 4,725
Operating expenses 3,034 1,972 1,419 2,952
Operating expenses, % of revenue 57% 48% 73% 62%
Selling, general and administrative
expenses, net of stock based
compensation expense 576 2,049 428 391
(Gain) on disposal of assets (46) - (3) (7)
EBITDA (1) 1,770 61 110 1,389
EBITDA % 33% 1% 6% 29%
Net income (loss) 976 (452) (126) 1,012
Weighted average shares - basic 13,912 13,912 13,912 13,912
Weighted average shares - diluted 13,912 13,912 13,912 13,912
Earnings per share - basic 0.07 (0.03) (0.01) 0.07
Earnings per share - diluted 0.07 (0.03) (0.01) 0.07
Funds flow from operations $ 547 $ 738 $ 1,321 $ 409
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The Company's financial information for the past seven quarters is presented above. Reliable information is not available by quarter prior to that time. The information is that for the Phoenix Group (see-"Summary") for the period up the acquisition of the Phoenix Group by Marine on May 9, 2006. The results of Marine, which are not significant and principally include public company costs, are included in consolidated operating results from that date forward. The results include the operations of Robin's from the date of acquisition on June 12, 2006. The Phoenix Group were Canadian Controlled Private Corporations ("CCPC's") up to the date of their acquisition and as is typical for CCPC's, management bonuses were declared to reduce taxable income to limits of the favourable small business deduction. Selling, general and administrative expenses in the 3rd quarter of 2005 include management bonuses to the principals of Phoenix at that time.

The results of operations reflect, in general, increased revenue from a combination of growth in the Company's fleet of equipment and increased selling prices for its services as well as the normal seasonal nature of the oilfield services business (see - "Seasonality of Business").

Liquidity & Capital Resources

Historically the oilfield services business has been cyclical and management of the Company has maintained a strong balance sheet to manage the risk of this volatility and to meet its obligations as they become due. The Company, as at September 30, 2006, had cash balances of $1.1 million, long-term debt and obligations under capital lease of $4.5 million, and a working capital surplus of $683,000. In the opinion of management the Company has sufficient resources to fund its business plan.

Phoenix generated cash flow from operations, before changes in the investment in non-cash working capital, of $3.8 million for the nine months ended September 30, 2006 an increase of $2.6 million over the nine months ended September 30, 2005. The increase was principally attributable to an increase in net income from $434,000 in the 2005 period to $2.7 million in 2006.

The purchase of equipment and leasehold improvements which principally relate to the acquisition of new trucks and trailers was $2.3 million, and included $1.1 million of equipment acquired under capital lease for the nine months ended September 30, 2006. The Company acquired equipment and leasehold improvements of $3.6 million, including $2.6 million of equipment acquired under capital lease, for the nine months ended September 30, 2005. The Company, including its Robin's subsidiary, is forecast to acquire approximately $1.8 million in new equipment over the remaining three months of fiscal 2006 and has not yet finalized its capital budget for fiscal 2007. The Company expects to fund the remaining fiscal 2006 additions through a combination of cash flow from operations and through debt facilities that it has specifically arranged for that purpose.

On October 27, 2006 the Company acquired the operating assets of Ability Hauling Ltd., (see - "Subsequent Events"). The purchase price was approximately $10.8 million, plus $400,000 of working capital subject to adjustment, and was paid by way of issuance of 5 million common shares of Phoenix and cash of approximately $6.2 million. To fund the cash portion of the purchase price of approximately $6.2 million the Company entered into a credit agreement with its principal lender to provide a non-revolving facility that is due on demand, under certain conditions, but is otherwise due in installments of $100,000 per month and is due October 31, 2011.

As at September 30, 2006 the Company had 48,640,774 common shares outstanding. The Company had 1,575,000 warrants to purchase common shares of the Company outstanding at September 30, 2006 and 1,755,000 stock options. A total of 5,000,000 common shares were issued subsequent to September 30, 2006 to fund a portion of the acquisition price of the operating assets of Ability Hauling (see - "Subsequent Event").

Transactions with Related Parties

All related party transactions are measured at the exchange amount, which is the amount agreed to by the related parties. Management has determined that these amounts approximate fair market value.



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

2006 2005 2006 2005

888018 Alberta Ltd. $ 25,500 $ 24,500 $ 76,500 $ 69,500
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888018 Alberta Ltd.

The Company leases its facility in Nisku, Alberta from 888018 Alberta Ltd., which is owned by the President of the Company. The amounts paid for the periods noted are rental charges per the terms of the lease.

1098872 Alberta Ltd.

The Company leases its facility in Devon, Alberta from 1098872 Alberta Ltd., a company owned by one of its employees who is a significant shareholder. The lease commenced on June 12, 2006 with monthly rent of $8,000.

The Company purchased legal services from a legal firm in which one of the Company's directors is a partner and the Board Secretary is an employee. Legal fees paid were $33,183 for the three months ended September 30, 2006 (nil for the three months ended September 30, 2005) and $451,098 for the nine months ended September 30, 2006 ($nil for the nine months ended September 30, 2005).

Subsequent Events

Acquisition of the operating assets of Ability Hauling Ltd. ("Ability"):

On October 27, 2006 the Company acquired the operating assets of Ability Hauling Ltd., 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 $10.8 million, plus $400,000 of working capital subject to adjustment, and was paid by way of issuance of 5 million common shares of Phoenix and cash of approximately $6.2 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 that is due on demand, under certain conditions, but is otherwise due in installments of $100,000 per month. The loan is due October 31, 2011.

Stock options expense

During the third quarter the Company issued 1,755,000 stock options to various management and directors of Phoenix. The Company accounts for all stock-based compensation expense for stock options granted to employees, officers and directors using the fair value based method of accounting. Under this method, compensation cost is measured using the Black-Scholes model and stock based compensation expense is recorded over the vesting period of the option. The Company recorded $101,747 of compensation expense related to these stock options in the third quarter as part of its selling, general and administrative expense for the period.

Adoption of New Accounting Pronouncements

Financial instruments:

In January 2005, the CICA issued Handbook Section 3855, "Financial Instruments - Recognition and Measurement", Handbook Section 1530, "Comprehensive Income", and Handbook Section 3865, "Hedges". The new standards are effective for interim and annual financial statements for fiscal years beginning on or after October 1, 2006, specifically for the fiscal year beginning on January 1, 2006 for the Company. Earlier adoption is permitted. The new standards will require presentation of a separate statement of comprehensive income under specific circumstances. Foreign exchange gains and losses on the translation of financial statements of self-sustaining subsidiaries previously recorded in a separate section of shareholder's equity will be presented in comprehensive income. Derivative financial instruments will be recorded in the balance sheet at fair value and the changes in fair value of derivatives designated as cash flow hedges will be reported in comprehensive income. The Company is currently assessing the impact of the new standards.

Critical Accounting Estimates

This Management's Discussion and Analysis of Phoenix's financial condition and results of operations is based on its financial statements which are prepared in accordance with Canadian generally accepted accounting principles. The Company's significant accounting policies are described in Note 2 to its interim consolidated financial statements however inherent in the preparation of those statements are estimates and judgements that affect the reported assets, liabilities, revenues and expenses. These estimates and judgements are based on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Anticipating future events cannot be done with certainty, therefore these estimates may change as new events occur, more experience is acquired and as the Company's operating environment changes.

Identified below are the critical accounting policies and estimates that management believes require significant judgement in the preparation of results of operations and financial position.

Allowance for Doubtful Accounts

The Company performs ongoing credit evaluations of its customers and maintains an effective process to grant credit based upon a customer's credit history and financial condition. Notwithstanding this process the Company's customer base is generally engaged in some aspect of the exploration, development or production of hydrocarbons where a customer's ability to fulfill its obligations is affected by the business risks associated with the industry, including, but not limited to, success in finding new reserves, demand for drilling and completion services, and commodity prices. A customer's ability to fulfill its obligations can change suddenly and without notice.

Useful Life of Equipment and Leasehold Improvement and Intangible Assets

The Company depreciates its equipment and leasehold improvements and intangible assets using rates sufficient to amortize the asset's cost over its useful life. These estimates are made using historical experience and knowledge of current market conditions however are subject to change as market conditions shift or technological advances are made.

Income Taxes

The Company uses the asset and liability method to account for income taxes whereby future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years for tax purposes, to the extent that they are likely to be realized. Actual income taxes could vary from these estimates as a result of future events, including changes to income tax law or changes in the company's circumstances.

Goodwill

Goodwill represents the excess purchase price paid by the Company over the fair value of the tangible and identifiable intangible assets and liabilities acquired. Goodwill is not amortized but instead is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit, including goodwill, is compared with its fair value. When the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case, the implied fair value of the reporting unit's goodwill, determined in the same manner as the value of goodwill is determined in a business combination, is compared with its carrying amount to measure the amount of the impairment loss, if any.

The process of determining fair values is subjective and requires us to exercise judgement in making assumptions about future results, including revenue and cash flow projections at the reporting unit level, and discount rates.

Goodwill represents a significant component of the assets of the Company and its value can be materially impacted by changes in market conditions.

Off-Balance Sheet Arrangements

Operating Leases

We have entered into operating leases for the rental of premises and automotive equipment. The effect of terminating any one lease agreement would not have an adverse effect on the company as a whole.

Risks and Uncertainties

Sources, Pricing and Availability of Equipment and Equipment Parts

Phoenix sources its equipment and equipment parts from a variety of suppliers, most of whom are located in Canada and the United States. Should any suppliers of Phoenix be unable to provide the necessary equipment or parts or otherwise fail to deliver products in the quantities required, any resulting delays in the provision of services or in the time required to find new suppliers could have a material adverse effect on Phoenix's business, financial condition, results of operations and cash flows.

Government Regulation

The operations of Phoenix are subject to a variety of federal, provincial and local laws, regulations, and guidelines, including laws and regulations relating to health and safety, the conduct of operations, the protection of the environment, the operation of equipment used in its operations and the transportation of materials and equipment it provides for its customers. Phoenix believes that it is currently in compliance with such laws and regulations. Phoenix intends to invest financial and managerial resources to ensure such compliance and will continue to do so in the future. Although such expenditures historically have not been material to Phoenix, such laws or regulations are subject to change. Accordingly, it will be impossible for Phoenix to predict the cost or impact of such laws and regulations on Phoenix's future operations.

Kyoto Protocol

Canada is a signatory to the United Nations Framework Convention on Climate Change and has ratified the Kyoto Protocol established thereunder to set legally binding targets to reduce nation-wide emissions of carbon dioxide, methane, nitrous oxide and other so-called "greenhouse gases". The Government of Canada has put forward a Climate Change Plan For Canada which suggests further legislation will set greenhouse gases emission reduction requirements for various industrial activities, including oil and gas exploration and production. Future federal legislation, together with provincial emission reduction requirements, such as those which may be established under Alberta's Climate Change and Emissions Management Act, may require the reduction of emissions or emissions intensity from the oil and gas industry. Mandatory emissions reductions may result in increased operating costs and capital expenditures for oil and gas producers, thereby decreasing the demand for Phoenix's services. Management is unable to predict the impact of the Kyoto Protocol and greenhouse gas emission legislation on Phoenix and it is possible that it will adversely affect Phoenix's business, financial condition, results of operations and cash flows.

Operating Risks and Insurance

Phoenix's operations are subject to hazards inherent in the oil and gas industry, such as equipment defects, malfunction and failures, and natural disasters which result in fires, vehicle accidents, explosions and uncontrollable flows of natural gas or well fluids that can cause personal injury, loss of life, suspension of operations, damage to formations, damage to facilities, business interruption and damage to or destruction of property, equipment and the environment. These risks could expose Phoenix to substantial liability for personal injury, wrongful death, property damage, loss of oil and gas production, pollution, and other environmental damages. The frequency and severity of such incidents will affect operating costs, insurability and relationships with customers, employees and regulators.

Phoenix monitors its activities for quality control and safety. However, there are no assurances that Phoenix's safety procedures will always prevent such damages. Although Phoenix maintains insurance coverage that it believes to be adequate and customary in the industry, there can be no assurance that such insurance will be adequate to cover its liabilities. In addition, there can be no assurance that Phoenix will be able to maintain adequate insurance in the future at rates it considers reasonable and commercially justifiable. The occurrence of a significant uninsured claim, a claim in excess of the insurance coverage limits maintained by Phoenix or a claim at a time when it is not able to obtain liability insurance, could have a material adverse effect on Phoenix's ability to conduct normal business operations and on its financial condition, results of operations and cash flows.

Agreements and Contracts

The business operations of Phoenix depend on verbal, performance based agreements with its customer base that are generally cancellable at any time by either Phoenix or its customers. The key factors which will determine whether a client continues to use Phoenix are service quality and availability, reliability and performance of equipment used to perform its services, technical knowledge and experience, reputation for safety and competitive price. There can be no assurance that Phoenix's relationship with its customers will continue, and a significant reduction or total loss of the business from these customers, if not offset by sales to new or existing customers, could have a material adverse effect on Phoenix's business, financial condition, results of operations and cash flows.

Key Personnel

The successful operation of Phoenix's business depends upon the abilities, expertise, judgment, discretion, integrity and good faith of Phoenix's executive officers, general managers, employees and consultants. In addition, the ability of Phoenix to expand its services will depend upon the ability of the Company to attract qualified personnel as needed. The demand for skilled oilfield employees is high, and the supply is limited. The unexpected loss of Phoenix's key personnel, or the inability to retain or recruit skilled personnel could have a material adverse effect on Phoenix's business, financial condition, results of operations and cash flows.

Competition

Phoenix operates in highly competitive segments of the economy - the oil and gas service industry and the oilfield transportation industry. As a result of the competitive nature of the business Phoenix must compete on price and quality of service. Furthermore, to remain competitive Phoenix must continue to upgrade and expand its fleet to meet customer requirements.

Phoenix also actively competes for acquisitions and skilled industry personnel with a substantial number of other oilfield transportation companies, many of which have significantly greater financial resources than Phoenix. Phoenix's competitors include major integrated trucking companies and numerous other independent trucking companies and individual operators.

Merger and Acquisition Risk

Merger and acquisition activity, in any of the segments in which Phoenix operates can impact the demand for services as customers concentrate on reorganization activities prior to proceeding with projects or committing to capital investment. While merger and acquisition activity may have a short-term impact on our business, management believes that in the long-term a more active, stronger market will result providing further opportunities for Phoenix.

Reduced levels of activity in the oil and natural gas industry can intensify competition and result in lower revenue to Phoenix. Variations in the exploration and development budgets of oil and natural gas companies which are directly affected by fluctuations in energy prices, the cyclical nature and competitiveness of the oil and natural gas industry and governmental regulation, will have an affect upon Phoenix's ability to generate revenue and earnings.

Trends and 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. Lower natural gas prices and higher than normal natural gas inventories since the second quarter however 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 in the fourth quarter and into fiscal 2007. According to the Canadian Association of Oilwell Drilling Contractors ("CAODC"), there will be 22,298 well completions in 2006, a decline of 1,529 wells from its June forecast. CAODC forecasts 19,023 well completions in 2007 with the principal reductions versus 2006 tracing to reduced activity in shallow gas and coal bed methane production. While the Company maintains good relationships with its customers, balanced exposure to gas related drilling activity and has a higher dependence on service work that is not as highly correlated to new drilling as other transportation services, the Company could be affected by reduced capital spending and drilling activity.

The Company's financial statements are available on SEDAR.

This press release contains forward-looking statements subject to various risk factors and uncertainties, which may cause the actual results, performances or achievements of Phoenix to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, fluctuations in the market for oil and gas and related products and services, political and economic conditions, the demand for services provided by Phoenix, industry competition and Phoenix's ability to attract and retain both customers and key personnel.

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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