Total Energy Services Trust
TSX : TOT.UN

Total Energy Services Trust

March 06, 2008 13:06 ET

Total Energy Services Trust Announces 2007 Results

CALGARY, ALBERTA--(Marketwire - March 6, 2008) - Total Energy Services Trust (TSX:TOT.UN) ("Total Energy" or the "Trust") announces its consolidated financial results for the three and twelve month periods ending December 31, 2007.



Financial Highlights
($000's except per unit data)

Three Months Ended Dec. 31 Twelve Months Ended Dec. 31
(Unaudited) (Audited)
% %
2007 2006 Change 2007 2006 Change
---------------------------------------------------------
Revenue $ 41,528 $ 48,219 (14%) $135,584 $202,666 (33%)
Operating Earnings(1) 7,082 12,031 (41%) 25,437 59,020 (57%)
EBITDA(1) 11,104 15,169 (27%) 39,682 72,273 (45%)
Cashflow(1) 11,822 15,203 (22%) 42,160 66,544 (37%)
Net Earnings 10,415 11,335 (8%) 30,858 54,577 (43%)

Per Unit Data
(Diluted)
EBITDA(1) $ 0.37 $ 0.51 (27%) $ 1.33 $ 2.42 (45%)
Cashflow(1) 0.40 0.51 (22%) 1.42 2.23 (36%)
Net Earnings 0.35 0.37 (5%) 1.04 1.82 (43%)

Dec. 31 Dec. 31
2007 2006 %
(Audited)(Audited) Change
Financial Position
Total Assets $228,617 $213,648 7%
Long-Term Debt and
Obligations
Under Capital Leases 21,383 13,947 53%
Working Capital(2) 13,438 15,907 (16%)
Net Debt(3) 7,945 nil n/m
Unitholders' Equity 134,796 136,686 (1%)

Units Outstanding
(000's)
Basic 29,500 29,879 (1%)
Diluted 29,500 29,879 (1%)

Notes 1 through 3 please refer to the Notes to the Financial Highlights set
forth at the end of this release.


Total Energy's financial results for the three and twelve months ended December 31, 2007 reflect challenging industry conditions in Western Canada. Continued natural gas price weakness and industry uncertainty arising from the Alberta government's decision to increase royalties on oil and natural gas resulted in lower drilling activity levels in Western Canada which negatively impacted Total's business. Weakness in the domestic natural gas compression market was somewhat offset by international sales in the Gas Compression Services division. Included in net earnings for the three and twelve months ended December 31, 2007 are future income tax recoveries of $2.7 million ($0.09 per unit diluted) and $3.4 million ($0.12 per unit diluted) respectively, arising from enacted Canadian federal income tax rate reductions.

Total Energy's Contract Drilling Services division achieved 476 operating days (spud to release) with an average fleet of 13 rigs operating during the fourth quarter of 2007, which translates into a utilization rate of 40%. During the fourth quarter of 2006 the Contract Drilling Services division operated 11.5 rigs and achieved 440 operating days (spud to release) or 41% utilization. For the twelve months ended December 31, 2007, the Contract Drilling Services division achieved 1,660 operating days (spud to rig release) or 36% utilization, compared to 2,221 operating days and 56% utilization during 2006. The Drilling and Production Rentals division achieved a utilization rate on rental equipment of 38% during the fourth quarter of 2007 as compared to a 41% utilization rate during the fourth quarter of 2006. For 2007, equipment utilization averaged 36% as compared to 54% for 2006. Equipment utilization in this division was adversely impacted by lower drilling activity as compared to the prior year. The revenue reported from Total's Gas Compression Services division decreased to $21.0 million in the fourth quarter of 2007 as compared to record quarterly revenues of $23.8 million achieved during the same period in 2006. For 2007, the Gas Compression Services division generated revenues of $54.1 million as compared to $87.5 million for 2006. At December 31, 2007 the Gas Compression Services division had a fabrication backlog of approximately $3.1 million compared to a backlog of $12.4 million as at December 31, 2006. At December 31, 2007, there was approximately 12,500 horsepower of compression equipment on rent compared to approximately 8,800 horsepower on rent as at December 31, 2006. The gas compression rental fleet operated at an average utilization rate of 92% during 2007.

The Trust declared regular distributions of $0.155 per unit for the three months ended December 31, 2007. The trust declared total distributions of $1.01 per unit during 2007. The Trust's distribution levels in 2007 resulted in the elimination of current taxes and the recovery of prior year income taxes paid subsequent to Total Energy's trust conversion in April 2005. Such income tax recovery is expected to be $5.7 million and be realized in the second quarter of 2008.

OUTLOOK

While drilling activity has increased during the seasonally strong first quarter, continued uncertainty surrounding natural gas prices, a strong Canadian dollar, continued uncertainty surrounding the impact of government royalty changes on certain oil and natural gas production in Alberta and increased Canadian service industry capacity have resulted in a more challenging business environment. In this environment, Total Energy is focused on efficiently managing its operations and pursuing opportunities to grow its business. Efforts to expand the Drilling and Production Rentals division into Saskatchewan and to grow international natural gas compression sales will continue. The Gas Compression Services division will look to grow its share of the Canadian natural gas compression market in light of recent market developments. Reasonable acquisition opportunities within existing business lines will also be pursued in order to continue to achieve greater economies of scale.

Total Energy's previously announced 2008 preliminary capital expenditure budget of $6.8 million includes $5.1 million for expansion of the natural gas compression rental fleet and $1.7 million of equipment maintenance and upgrades and is intended to provide Total with substantial flexibility given current industry conditions. Total Energy's balance sheet remains very strong with net debt of $7.9 million and a long-term debt to equity ratio of 0.16 to 1.0 as at December 31, 2007. Total Energy's strong balance sheet positions the Trust to pursue growth opportunities as they may arise.

2007 CANADIAN INCOME TAX INFORMATION

Distributions received by Canadian residents during 2007 outside of tax-deferred plans will be 100% taxable as income. Olympia Trust Company will issue T3 Supplementary Information forms directly to registered unitholders in due course. Non-registered unitholders can expect to receive T3 Supplementary Information forms directly from their broker or intermediary. Unitholders are advised to consult their personal tax advisors with respect to their particular circumstances.

All outstanding exchangeable shares (the "Shares") of Total Energy Services Ltd. were redeemed on June 6, 2007. In conjunction with the redemption, 465,786 trust units of Total Energy were issued for the account of former holders of the Shares. Holders of the Shares can expect to receive T5 Return of Investment Income forms directly from their broker or intermediary on account of the dividend that is deemed to have been received as a result of the Share redemption. Holders of these Shares are advised to consult their personal tax advisors with respect to their particular circumstances.

CONFERENCE CALL

At 2:30 p.m. MST today, Total Energy will conduct a conference call to discuss its 2007 financial results. Daniel Halyk, President and Chief Executive Officer, Mark Kearl, Vice-President Finance and Chief Financial Officer and Brad Macson, Vice President Operations will host the conference call. The call is open to analysts, investors, and all interested parties. If you wish to participate, call (866) 225-0198. Those who are unable to listen to the call live may listen to a recording of it by calling (800) 408-3053 (passcode 3251914). The recording will be available until March 13, 2008.

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and twelve month periods ended December 31, 2007 and 2006 is attached to this press release. This information should be read in conjunction with the audited consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Trust's 2007 annual report.



Consolidated Balance Sheets
(in thousands of Canadian dollars)

2007 2006
----------------------------------------------------------------------------
(audited) (audited)
Assets
Current assets:
Accounts receivable $ 28,284 $ 34,257
Inventory 31,909 25,924
Income taxes receivable 5,742 -
Prepaid expenses and deposits 1,580 1,033
-----------------------
67,515 61,214

Property, plant and equipment 157,049 148,381

Goodwill 4,053 4,053

-----------------------
$ 228,617 $ 213,648
-----------------------
-----------------------

Liabilities & Unitholders' Equity
Current liabilities:
Bank indebtedness $ 28,379 $ 6,244
Accounts payable and accrued liabilities 16,405 24,836
Distributions payable 885 6,264
Income taxes payable - 2,579
Current portion of long-term debt 8,000 4,703
Current portion of obligations under capital leases 408 681
-----------------------
54,077 45,307

Long-term debt 21,383 13,545

Obligations under capital leases - 402

Future income taxes 18,361 17,708

Unitholders' equity:
Trust Unit capital 60,984 60,984
Exchangeable Share capital - 855
Retained earnings 73,812 74,847
-----------------------
134,796 136,686

-----------------------
$ 228,617 $ 213,648
-----------------------
-----------------------

Supplemental Information:
Number of units and exchangeable shares
outstanding (000's) - Basic and diluted 29,500 29,879



Consolidated Statements of Earnings and Retained Earnings
(in thousands of Canadian dollars except per unit amounts)

Three months ended Twelve months ended
December 31 December 31
2007 2006 2007 2006
----------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Revenue $ 41,528 $ 48,219 $ 135,584 $ 202,666

Expenses:
Operating 26,621 28,946 81,507 113,456
Selling, general and
administration 3,829 4,327 15,001 17,855
Depreciation 3,000 2,562 11,255 10,731
Other interest 432 64 1,017 309
Interest on long-term debt 564 289 1,367 1,295
-----------------------------------------------
34,446 36,188 110,147 143,646

-----------------------------------------------
Operating earnings 7,082 12,031 25,437 59,020

Gain on disposal of equipment 26 223 606 918

-----------------------------------------------
Earnings before income taxes 7,108 12,254 26,043 59,938

Income tax expense (recovery)
Current (1,740) (610) (5,468) 3,207
Future (1,567) 1,529 653 2,154
-----------------------------------------------
(3,307) 919 (4,815) 5,361

-----------------------------------------------
Net earnings 10,415 11,335 30,858 54,577
-----------------------------------------------

Retained earnings,
beginning of period 68,731 75,528 74,847 56,130

Trust distributions (4,599) (11,804) (29,842) (35,398)
Repurchase and cancellation
of trust units in excess of
stated trust unit capital (735) (212) (2,051) (462)

-----------------------------------------------
Retained earnings,
end of period $ 73,812 $ 74,847 $ 73,812 $ 74,847
-----------------------------------------------
-----------------------------------------------

Earnings per unit:
Basic $ 0.35 $ 0.38 $ 1.04 $ 1.83
Diluted $ 0.35 $ 0.37 $ 1.04 $ 1.82



Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)

Three months ended Twelve months ended
December 31 December 31
2007 2006 2007 2006
----------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Cash provided by (used in):

Operations:
Net earnings $ 10,415 $ 11,335 $ 30,858 $ 54,577
Add (deduct) items not
effecting cash:
Depreciation 3,000 2,562 11,255 10,731
Gain on disposal of
equipment (26) (223) (606) (918)
Future income taxes (1,567) 1,529 653 2,154
-----------------------------------------------
11,822 15,203 42,160 66,544
Changes in non-cash working
capital items:
Accounts receivable (6,624) 7,227 5,973 10,708
Inventory 5,942 2,891 (5,985) (153)
Prepaid expenses and
deposits 1,390 158 (547) (142)
Accounts payable and
accrued liabilities (2,298) (6,466) (8,431) (5,112)
Income taxes payable (1,532) (346) (8,321) 356
-----------------------------------------------
8,700 18,667 24,849 72,201
Investments:
Purchase of property,
plant and equipment (13,896) (10,397) (22,803) (33,660)
Proceeds on disposal of
property, plant and
equipment 53 1,679 3,486 5,460
-----------------------------------------------
(13,843) (8,718) (19,317) (28,200)
Financing:
Advances (repayment) of
long-term debt 654 (1,174) 11,135 (6,971)
Advances (repayment) of
obligations under capital
leases (114) 675 (675) 81
Repurchase of trust units (1,235) (256) (2,906) (549)
Distributions to Unitholders (4,599) (11,804) (29,842) (35,398)
Distributions payable (1,939) 3,494 (5,379) 3,947
Increase (decrease) in bank
indebtedness 12,376 (884) 22,135 (5,111)
-----------------------------------------------
5,143 (9,949) (5,532) (44,001)
-----------------------------------------------

Change in cash - - - -

Cash, beginning of period - - - -

-----------------------------------------------
Cash, end of period $ - $ - $ - $ -
-----------------------------------------------
-----------------------------------------------

Supplemental information:
Interest paid $ 838 $ 353 $ 2,232 $ 1,699
Income taxes paid $ (208) $ (264) $ 2,853 $ 2,851


SEGMENTED INFORMATION

The Trust operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Drilling and Production Rentals, which includes the rental and transportation of surface equipment used in drilling and production processes and Gas Compression Services, which includes the manufacturing, sale, rental and servicing of natural gas compression equipment.



As at and for the three months ended December 31, 2007 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression Other
Services Rentals Services (1) Total
----------------------------------------------------------------------------
Revenue $ 7,852 $ 12,751 $ 20,925 $ - $ 41,528
Operating earnings 1,929 2,271 3,796 (914) 7,082
Depreciation and
amortization 813 1,893 282 12 3,000
Assets 68,029 100,335 53,158 7,095 228,617
Goodwill - 2,514 1,539 - 4,053
Capital expenditures(2) (50) 10,266 3,677 3 13,896

As at and for the three months ended December 31, 2006 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression Other
Services Rentals Services (1) Total
----------------------------------------------------------------------------
Revenue $ 8,655 $ 15,812 $ 23,752 $ - $ 48,219
Operating earnings 2,638 6,252 3,911 (770) 12,031
Depreciation and
amortization 677 1,635 244 6 2,562
Assets 69,634 99,387 43,503 1,124 213,648
Goodwill - 2,514 1,539 - 4,053
Capital expenditures(2) 1,035 9,262 95 5 10,397

As at and for the year ended December 31, 2007 (audited)

Drilling
Contract and Gas
Drilling Production Compression Other
Services Rentals Services (1) Total
----------------------------------------------------------------------------
Revenue $ 29,062 $ 52,396 $ 54,126 $ - $135,584
Operating earnings 6,696 15,138 7,684 (4,081) 25,437
Depreciation and
amortization 2,753 7,430 1,033 39 11,255
Assets 68,029 100,335 53,158 7,095 228,617
Goodwill - 2,514 1,539 - 4,053
Capital expenditures (2) 1,665 14,015 7,014 109 22,803

As at and for the year ended December 31, 2006 (audited)

Drilling
Contract and Gas
Drilling Production Compression Other
Services Rentals Services (1) Total
----------------------------------------------------------------------------
Revenue $ 42,024 $ 73,098 $ 87,544 $ - $202,666
Operating earnings 13,661 34,439 15,244 (4,324) 59,020
Depreciation and
amortization 3,258 6,466 986 21 10,731
Assets 69,634 99,387 43,503 1,124 213,648
Goodwill - 2,514 1,539 - 4,053
Capital expenditures (2) 10,576 22,122 942 20 33,660

(1) Other includes the Trust's corporate activities and in 2007 "Assets"
includes income taxes receivable of $5.7 million.

(2) Included in capital expenditures in the Drilling and Production Rentals
division for 2007 is the $9.4 million purchase of the operating assets
of a private company.


Total Energy Services Trust is a growth oriented energy services income trust involved in contract drilling services, drilling and production rentals and natural gas compression equipment fabrication, sales, rental and service. The trust units of Total Energy are listed and trade on the TSX under the symbol TOT.UN.

Notes to Financial Highlights

(1) Operating earnings are earnings before gain (loss) on sale of equipment and income taxes. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to earnings before income taxes plus interest on long-term debt plus other interest expense plus depreciation. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under Canadian generally accepted accounting principles ("GAAP"). Management believes in addition to net earnings, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Trust's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Trust's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Investors should be cautioned, however, that operating earnings, EBITDA and cashflow should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of Total Energy's performance. Total Energy's method of calculating operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.

(2) Working capital equals current assets minus current liabilities.

(3) Net Debt equals long-term debt plus obligations under capital lease plus current liabilities minus current assets.

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.

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