Total Energy Services Trust
TSX : TOT.UN

Total Energy Services Trust

May 08, 2008 13:07 ET

Total Energy Services Trust Announces Q1 2008 Results and Increased 2008 Capital Expenditure Budget

CALGARY, ALBERTA--(Marketwire - May 8, 2008) - Total Energy Services Trust (TSX:TOT.UN) ("Total Energy" or the "Trust") announces its consolidated financial results for the three months ending March 31, 2008.



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

Three Months Ended March 31
(Unaudited)
2008 2007 % Change
-------------------------------------
Revenue $ 43,526 $ 53,486 (19)%
Operating Earnings (1) 12,441 16,300 (24)%
EBITDA (1) 16,721 20,056 (17)%
Cashflow (1) 13,827 17,677 (22)%
Net Earnings 9,594 13,932 (31)%

Per Unit Data (Diluted)
EBITDA (1) $ 0.57 $ 0.67 (15)%
Cashflow (1) 0.47 0.59 (20)%
Net Earnings 0.33 0.47 (30)%

Mar. 31 Dec. 31
2008 2007
(Unaudited) (Audited) % Change
Financial Position
Total Assets $ 237,268 $ 228,617 4%
Long-Term Debt 21,777 21,383 2%
Working Capital (2) 22,457 13,438 67%
Net Debt (3) nil 7,945 (100)%
Unitholders' Equity 141,489 134,796 5%

Units Outstanding (000's)
Basic 29,450 29,500 nil
Diluted 29,450 29,500 nil

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 months ended March 31, 2008 reflect continuing challenging industry conditions in western Canada. Reduced drilling activity, particularly in natural gas prone areas of Alberta, combined with excess service industry capacity, negatively impacted pricing and equipment utilization in the Contract Drilling and Drilling and Production Rentals divisions. Mitigating the effects of such negative industry conditions were increased capacity and geographic diversification within the Drilling and Production Rentals division, including the expansion into southeastern Saskatchewan during the fourth quarter of 2007 and the $9.4 million purchase of the operating assets of Oilpatch Rentals Ltd. of Fort St. John, British Columbia that was completed effective December 1, 2007. The results from the Gas Compression Services division were also weaker during the first quarter of 2008 compared to the first quarter of 2007 following several quarters of lower natural gas drilling activity in western Canada that began during the second half of 2006. Despite decreased year over year activity levels, Total Energy's balance sheet continued to strengthen during the first quarter with a long-term debt to unitholder equity ratio of 0.15 to 1.0, $22.5 million of positive working capital and no net debt as at March 31, 2008.

Total Energy's Contract Drilling Services division achieved 680 operating days (spud to release) with a fleet of 13 rigs operating during the first quarter of 2008, which translates into a utilization rate of 57%. Utilization was adversely impacted by unexpected interruptions and reductions in the drilling programs scheduled for three rigs that made it difficult to market such rigs to third parties. During the first quarter of 2007 the Contract Drilling Services division operated 12 rigs and achieved 752 operating days (spud to release) or 70% utilization. Revenue per operating day decreased by approximately 11% during the first quarter of 2008 compared to the first quarter of 2007 due primarily to decreased pricing. The Drilling and Production Rentals division achieved a utilization rate on major rental equipment of 59% during the first quarter of 2008 as compared to a 50% utilization rate during the first quarter of 2007. Increased equipment utilization in this division resulted in part from the relocation of equipment to more active areas of western Canada. The operating earnings margin in this division decreased as compared to the first quarter of 2007 due to lower pricing and increased costs, including significantly higher fuel costs. The Drilling and Production Rentals division exited the first quarter of 2008 with approximately 3,900 pieces of rental equipment and a fleet of 71 heavy trucks. Weakness in demand for natural gas compression equipment in Canada resulted in 2008 first quarter revenues in the Gas Compression Services division decreasing 50% from the prior year comparable period. At March 31, 2008 the Gas Compression Services division had a fabrication backlog of $3.7 million (compared to a backlog of $3.5 million as at March 31, 2007) and had approximately 10,900 horsepower of compression equipment on rent. The gas compression rental fleet operated at an average utilization rate of 86% during the first quarter of 2008.

The Trust declared distributions of $0.09 per unit for the three months ended March 31, 2008. Total distributions declared for the first quarter of 2008 were $2.7 million.

OUTLOOK

Industry conditions in Canada entering the first quarter of 2008 were challenging, particularly in natural gas prone areas of Alberta. Weak natural gas prices, uncertainty over Alberta royalties and excess service industry capacity contributed to lower demand for the products and services provided by the Trust. However, record high oil prices and the recent strengthening of natural gas prices have improved the outlook for western Canadian industry activity levels. As well, relocation of service equipment out of western Canada to more active international markets and the retirement of older equipment are expected to mitigate somewhat excess service industry capacity in western Canada. As such, Total Energy is cautiously optimistic that industry conditions are improving in western Canada.

2008 CAPITAL EXPENDITURE BUDGET INCREASE

In response to specific growth opportunities, Total Energy has increased its 2008 capital expenditure budget by approximately $6.3 million to $13.2 million. Included in this increase is $4.3 million for the purchase of approximately 125 new rental equipment pieces and one heavy truck for deployment in southeastern Saskatchewan and northeastern British Columbia, $1.2 million for the purchase of a new portable top drive and other equipment for use on an existing drilling rig currently operating with a rented top-drive in northeastern British Columbia and $0.8 million for service infrastructure expansion. It is expected that most of the equipment will be delivered during the third quarter of 2008. Upon delivery of this equipment, the Drilling and Production Rentals division will have a rental equipment fleet of approximately 4,025 pieces and a fleet of 72 heavy trucks. Included in the service infrastructure expansion is a significant expansion of the Gas Compression Services division's parts and service capacity that is being pursued in light of current market opportunities. Total Energy intends to finance its increased 2008 capital expenditure budget from operating cash flow and existing credit facilities.

CONFERENCE CALL

At 2:30 p.m. MST today, Total Energy will conduct a conference call to discuss its Q1 2008 financial results. Daniel Halyk, President and Chief Executive Officer will host the conference call. The call is open to unitholders and other interested persons. If you wish to participate, call (866) 303-7746. Those who are unable to listen to the call live may listen to a recording of it by calling (800) 408-3053 (password 3259650). The recording will be available until May 15, 2008.

ANNUAL MEETING

Unitholders and other interested persons are invited to attend the annual meeting of Unitholders which will commence at 10:00 a.m. (Calgary time) on May 22, 2008 at the Calgary Petroleum Club, 319 - 5th Avenue S.W., Calgary, Alberta.

SELECTED FINANCIAL INFORMATION

Selected financial information relating to first quarter of 2008 and first quarter of 2007 is attached to this press release. That information should be read in conjunction with the unaudited financial statements of the Trust and the attached notes to the financial statements and management's discussion and analysis to be issued in due course and reproduced in the Trust's first quarter report.



Consolidated Balance Sheets
(in thousands of Canadian dollars)
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
(unaudited)

Assets
Current assets:
Accounts receivable $ 37,862 $ 28,284
Inventory 31,986 31,909
Income taxes receivable 5,742 5,742
Prepaid expenses and deposits 1,721 1,580
--------------------------
77,311 67,515

Property, plant and equipment 155,904 157,049

Goodwill 4,053 4,053

--------------------------
$ 237,268 $ 228,617
--------------------------
--------------------------

Liabilities & Unitholders' Equity
Current liabilities:
Bank indebtedness $ 25,361 $ 28,379
Accounts payable and accrued liabilities 17,540 16,405
Distributions payable 884 885
Income taxes payable 2,176 -
Current portion of long-term debt 8,600 8,000
Obligations under capital leases 293 408
--------------------------
54,854 54,077

Long-term debt 21,777 21,383

Future income taxes 19,148 18,361

Unitholders' equity:
Trust Unit capital 60,876 60,984
Retained earnings 80,613 73,812
--------------------------
141,489 134,796

--------------------------
$ 237,268 $ 228,617
--------------------------
--------------------------
Supplemental Information:
Number of trust units outstanding (000's)
- Basic and diluted 29,450 29,500


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

Three months ended
March 31
2008 2007
----------------------------------------------------------------------------
(unaudited) (unaudited)

Revenue $ 43,526 $ 53,486

Expenses:
Operating 22,399 28,712
Selling, general and administration 4,412 4,805
Depreciation 3,452 3,243
Other interest 395 159
Interest on long-term debt 427 267
--------------------------
31,085 37,186

--------------------------
Operating earnings 12,441 16,300

Gain on disposal of equipment 6 87

--------------------------
Earnings before income taxes 12,447 16,387

Income tax expense
Current 2,066 1,866
Future 787 589
--------------------------
2,853 2,455

--------------------------
Net earnings 9,594 13,932
--------------------------

Retained earnings, beginning of period 73,812 74,847

Trust distributions (2,650) (8,339)
Repurchase and cancellation of trust units
in excess of stated trust unit capital (143) (271)

--------------------------
Retained earnings, end of period $ 80,613 $ 80,169
--------------------------
--------------------------

Earnings per unit:
Basic and diluted $ 0.33 $ 0.47


Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Three months ended
March 31
2008 2007
----------------------------------------------------------------------------
(unaudited) (unaudited)

Cash provided by (used in):

Operations:
Net earnings $ 9,594 $ 13,932
Add (deduct) items not effecting cash:
Depreciation 3,452 3,243
Gain on disposal of equipment (6) (87)
Future income taxes 787 589
--------------------------
13,827 17,677

Changes in non-cash working capital items:
Accounts receivable (9,578) (5,458)
Inventory (77) 1,070
Prepaid expenses and deposits (141) (24)
Accounts payable and accrued liabilities 1,135 (3,023)
Income taxes payable 2,176 (1,067)
--------------------------
7,342 9,175

Investments:
Purchase of property, plant and equipment (2,501) (4,603)
Proceeds on disposal of property, plant and
equipment 200 250
--------------------------
(2,301) (4,353)

Financing:
Advances (repayment) of long-term debt 994 (1,175)
Repayment of obligations under capital leases (115) (196)
Repurchase of trust units (251) (336)
Distributions to Unitholders (2,650) (8,339)
Distributions payable (1) (3,471)
Increase (decrease) in bank indebtedness (3,018) 8,695
--------------------------
(5,041) (4,822)
--------------------------

Change in cash - -

Cash, beginning of period - -

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

Supplemental information:
Interest paid $ 969 $ 426
Income taxes paid (received) $ (110) $ 2,933


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 fabrication, sale, rental and servicing of natural gas compression equipment.



As at and for the three months ended March 31, 2008 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other(2) Total
----------------------------------------------------------------------------

Revenue $11,604 $23,118 $ 8,804 $ - $43,526
Operating earnings
(loss) (1) 3,113 9,575 974 (1,221) 12,441
Depreciation 1,104 2,034 305 9 3,452
Assets 69,372 110,735 49,805 7,356 237,268
Goodwill - 2,514 1,539 - 4,053
Capital expenditures 689 787 1,025 - 2,501

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

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other(2) Total
----------------------------------------------------------------------------

Revenue $14,472 $21,269 $17,745 $ - $53,486
Operating earnings
(loss) (1) 5,222 9,719 2,564 (1,205) 16,300
Depreciation 1,160 1,840 236 7 3,243
Assets 72,833 105,720 39,649 1,056 219,258
Goodwill - 2,514 1,539 - 4,053
Capital expenditures 454 2,863 1,219 67 4,603

(1) Operating earnings (loss) are earnings before gain (loss) on disposal
of equipment and income taxes.

(2) Other includes the Trust's corporate activities and for March 31, 2008
"Assets" includes an income tax receivable of $5.7 million.


Total Energy 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 disposal 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 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 leases 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.

Contact Information

  • Total Energy Services Trust
    Daniel Halyk
    President and Chief Executive Officer
    (403) 216-3921
    or
    Total Energy Services Trust
    Mark Kearl
    Vice-President Finance and Chief Financial Officer
    (403) 216-3920
    Email: investorrelations@totalenergy.ca
    Website: www.totalenergy.ca