Total Energy Services Trust
TSX : TOT.UN

Total Energy Services Trust

August 10, 2006 13:11 ET

Total Energy Services Trust Announces Q2 2006 Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 10, 2006) - Total Energy Services Trust (TSX:TOT.UN) ("Total Energy" or the "Trust"), is pleased to announce its consolidated financial results for the three and six-month periods ending June 30, 2006. Units outstanding includes all Units issuable upon conversion of Exchangeable Shares outstanding as at June 30, 2006.



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

Three Months Ended June 30 Six Months Ended June 30
(Unaudited) (Unaudited)
% %
2006 2005 Change 2006 2005 Change
------------------------------------------------------
Revenue $ 38,426 $ 28,998 33% $104,510 $ 71,199 47%
Operating
Earnings (1) 7,433 1,156 543% 31,583 14,089 124%
EBITDA (1) 10,325 2,766 273% 37,993 18,438 106%
Cashflow (1) 11,474 1,573 629% 34,004 13,007 161%
Net Earnings 10,571 1,175 800% 29,464 10,223 188%

Per Unit Data
(Diluted)
EBITDA (1) $ 0.35 $ 0.10 250% $ 1.27 $ 0.66 92%
Cashflow (1) 0.39 0.06 550% 1.14 0.47 143%
Net Earnings 0.36 0.05 620% 0.99 0.37 168%

June 30 Dec. 31
2006 2005 %
(Unaudited) (Audited) Change
Financial Position
Total Assets $ 207,720 $ 205,674 1%
Long-Term Debt and Obligations
Under Capital Leases 17,841 16,875 6%
Working Capital (2) 23,582 16,438 43%
Net Debt (3) nil 437 (100%)
Unitholders' Equity 132,088 118,056 12%

Units Outstanding (000's)
Basic 29,871 29,859 0%
Diluted 29,871 29,859 0%

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 June 30, 2006 represent record second quarter results. The Contract Drilling division generated solid results during what is typically a slow quarter for drilling activity due to spring break-up, while the Drilling and Production Rentals and Gas Compression Services divisions each contributed record second quarter financial results. Included in 2006 second quarter results is a reduction in future income taxes of approximately $2.3 million ($0.08 per unit on a diluted basis) resulting from federal and provincial government enacted current and future income tax rate reductions. Total's 2005 second quarter results included non-recurring reorganization costs and stock based compensation expense totaling $4.1 million ($0.11 per unit on a diluted basis) compared to nil in the second quarter of 2006 as Total Energy completed its trust conversion process on April 29, 2005.

Total Energy's Contract Drilling division achieved 308 operating days (spud to release) with a fleet of eleven rigs during the second quarter of 2006, which translates into a utilization rate of 31%. During the second quarter of 2005 the Contract Drilling division operated nine rigs and achieved 437 operating days (spud to release) or 53% utilization. The reduced rig utilization for the second quarter of 2006 was a result of customers undertaking less pad drilling work as compared to the prior year. The Drilling and Production Rentals division achieved a utilization rate on major rental equipment of 46% during the second quarter of 2006 as compared to a 40% utilization rate during the second quarter of 2005. The Gas Compression Services division generated revenues of $19.9 million for the three months ended June 30, 2006 compared to $15.6 for the second quarter of 2005. Operating earnings margins continued to improve in this division during the second quarter. At June 30, 2006 the Gas Compression Services division had a fabrication backlog of approximately $37.0 million, compared to a backlog of $18.7 million as at June 30, 2005, and had over 10,600 horsepower of compression equipment on rent. The gas compression rental fleet operated at an average utilization rate of 95% during the first six months of 2006.

During the second quarter of 2006, Total Energy continued to execute on its capital build program for 2006, with capital equipment additions of approximately $8.1 million ($7.1 million net of disposals) for the three months ended June 30, 2006. For the first six months of 2006 capital expenditures totaled $13.5 million ($12.4 million net of disposals).

The Trust declared distributions of $0.275 per unit for the three months ended June 30, 2006. Total distributions for the second quarter were $8.0 million.

OUTLOOK

Continued strong commodity prices and resultant high levels of industry activity have contributed to record second quarter financial results for Total Energy. Current drilling activity in Western Canada remains relatively strong. During the second quarter, Total Energy contracted four of its drilling rigs for term commitments averaging 18 months at current market rates and with minimum annual 250 operating day commitments. The construction of rigs 12 and 13 is on time and on budget with completion scheduled for the third quarter of 2006. Total Energy has increased its capital expenditure budget for 2006 by $3.6 million to $42.1 million. Included in this increase is $2.1 million for the conversion of Total's existing extended reach single drilling rig into a conventional telescopic double drilling rig in response to customer demand and $0.8 million for expansion of the Drilling and Production Rentals division's infrastructure to accommodate a larger equipment fleet. The Trust intends to finance its 2006 capital expenditure budget with 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 second quarter financial results. Messrs. Daniel Halyk, Chief Executive Officer, Larry Coston, President & Chief Operating Officer, and David Hawkins, Vice-President Finance & Chief Financial Officer will host the conference call. The call is open to analysts, investors, and all interested parties. If you wish to participate, call (877) 888-4210. Those who are unable to listen to the call live may listen to a recording of it by calling (888) 509-0081. The recording will be available until August 18, 2006.

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and six-month periods ended June 30, 2006 and 2005 is attached to this press release. This information should be read in conjunction with the unaudited 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 second quarter report.



Consolidated Balance Sheets
(in thousands of Canadian dollars)

June 30 December 31
2006 2005
------------------------------------------------------------------------
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 3,880 $ -
Accounts receivable 36,143 44,965
Inventory 25,678 25,771
Prepaid expenses and deposits 570 891
------------------------
66,271 71,627

Property, plant and equipment 137,396 129,994

Goodwill 4,053 4,053

------------------------
$ 207,720 $ 205,674
------------------------
------------------------

Liabilities & Unitholders' Equity
Current liabilities:
Bank indebtedness $ - $ 11,355
Accounts payable and accrued liabilities 32,711 29,948
Distributions payable 2,770 2,317
Income taxes payable 1,854 2,223
Current portion of long-term debt 4,805 8,565
Current portion of obligations under capital
lease 549 781
------------------------
42,689 55,189

Long-term debt 17,784 16,654

Obligations under capital lease 57 221

Future income taxes 15,102 15,554

Unitholders' equity:
Trust unit capital 61,037 60,802
Exchangeable share capital 868 1,124
Retained earnings 70,183 56,130
------------------------
132,088 118,056

------------------------
$ 207,720 $ 205,674
------------------------
------------------------

Supplemental Information:
Number of units and exchangeable shares
outstanding (000's) - Basic 29,871 29,859
Number of units and exchangeable shares
outstanding (000's) - Diluted 29,871 29,859



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

Three months ended Six months ended
June 30 June 30
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------------ -----------------------
Revenue $ 38,426 $ 28,998 $104,510 $ 71,199

Expenses
Operating 24,245 19,524 57,661 41,919
Selling, general and
administration 4,072 2,932 9,129 6,295
Stock based compensation - 3,214 - 4,285
Depreciation 2,305 1,874 5,265 3,987
Other interest 31 70 179 154
Interest on long-term debt 340 228 693 470
----------------------- -----------------------
30,993 27,842 72,927 57,110

----------------------- -----------------------
Operating earnings 7,433 1,156 31,583 14,089

Reorganization costs - (844) - (844)
Gain on disposal of
equipment 216 282 273 582

----------------------- -----------------------
Earnings before income
taxes 7,649 594 31,856 13,827

Income tax expense
Current (recovery) (1,736) 132 2,844 4,815
Future (recovery) (1,186) (713) (452) (1,211)
----------------------- -----------------------
(2,922) (581) 2,392 3,604

----------------------- -----------------------
Net earnings 10,571 1,175 29,464 10,223
----------------------- -----------------------

Retained earnings,
beginning of period 67,757 49,173 56,130 40,125

Trust distributions (8,019) (3,162) (15,285) (3,162)
Repurchase and
cancellation of trust
units in excess of stated
trust unit capital (126) - (126) -
----------------------- -----------------------

Retained earnings,
end of period $ 70,183 $ 47,186 $ 70,183 $ 47,186
----------------------- -----------------------
----------------------- -----------------------

Earnings per unit:
Basic $ 0.36 $ 0.04 $ 0.99 $ 0.37
Diluted $ 0.36 $ 0.05 $ 0.99 $ 0.37



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

Three months ended Six months ended
June 30 June 30
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------------ -----------------------
Cash flows from (used in):

Operations:
Net earnings $ 10,571 $ 1,175 $ 29,464 $ 10,223
Add (deduct) items not
effecting cash:
Depreciation 2,305 1,874 5,265 3,987
Gain on disposal of
equipment (216) (282) (273) (582)
Stock based compensation - (481) - 590
Future income taxes
(recovery) (1,186) (713) (452) (1,211)
----------------------- -----------------------
11,474 1,573 34,004 13,007

Changes in non-cash
working capital items:
Accounts receivable 17,499 10,899 8,822 2,645
Inventory (3,346) (1,595) 93 (2,848)
Income taxes recoverable - (276) - (77)
Prepaid expenses and
deposits 98 275 321 32
Accounts payable and
accrued liabilities 2,134 (5,919) 2,763 4,355
Obligation under stock
based compensation - (230) - (230)
Income taxes payable (2,213) (4,093) (368)
----------------------- -----------------------
25,646 634 45,635 16,884

Investments:
Purchase of property,
plant and equipment (8,053) (4,768) (13,501) (19,048)
Proceeds on disposal of
property, plant and
equipment 904 2,165 1,108 4,687
Investment tax credit
recoverable - 200 - 200
----------------------- -----------------------
(7,149) (2,403) (12,393) (14,161)

Financing:
Advances under long-term
debt - 2,000 - 2,000
Repayment of long-term
debt (1,068) (1,733) (2,631) (3,392)
Repayment of obligations
under capital leases (199) (414) (396) (828)
Repurchase of trust units (148) - (148) -
Issue of common shares - 1,053 - 1,084
Distributions to
unitholders (8,019) (3,162) (15,285) (3,162)
Distributions payable 293 1,583 453 1,583
Increase / (decrease)
in bank indebtedness (5,476) 2,442 (11,355) (8)
----------------------- -----------------------
(14,617) 1,769 (29,362) (2,723)
----------------------- -----------------------
Change in cash 3,880 - 3,880 -
Cash, beginning of period - - - -
----------------------- -----------------------
Cash, end of period $ 3,880 $ - $ 3,880 $ -
----------------------- -----------------------
Supplemental information:
Interest paid $ 266 $ 306 $ 770 $ 629
Income taxes paid $ 478 $ 4,526 $ 3,213 $ 6,621


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 operations 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 June 30, 2006 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other (3) Total
------------------------------------------------------------------------
Revenue $ 5,476 $ 13,068 $ 19,882 $ - $ 38,426
Operating earnings
(loss) (1) 544 4,442 3,491 (1,044) 7,433
Depreciation 449 1,601 250 5 2,305
Assets 61,933 94,669 62,591 (11,473) 207,720
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures (2) 4,603 3,019 421 10 8,053

As at and for the three months ended June 30, 2005 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other (3) Total
------------------------------------------------------------------------
Revenue $ 6,419 $ 6,991 $ 15,588 $ - $ 28,998
Operating earnings
(loss) (1) 1,369 1,651 2,048 (3,912) 1,156
Depreciation 622 1,012 233 7 1,874
Assets 52,968 55,194 37,959 375 146,496
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures (2) 1,476 1,246 2,046 - 4,768

As at and for the six months ended June 30, 2006 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other (3) Total
------------------------------------------------------------------------
Revenue $ 21,483 $ 39,719 $ 43,308 $ - $104,510
Operating earnings
(loss) (1) 6,520 20,203 7,207 (2,347) 31,583
Depreciation 1,611 3,147 495 11 5,264
Assets 61,933 94,669 62,591 (11,473) 207,720
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures (2) 7,878 4,874 738 12 13,502

As at and for the six months ended June 30, 2005 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other (3) Total
------------------------------------------------------------------------
Revenue $ 16,887 $ 24,029 $ 30,283 $ - $ 71,199
Operating earnings
(loss) (1) 5,124 10,871 3,710 (5,616) 14,089
Depreciation 1,493 2,010 469 15 3,987
Assets 52,968 55,194 37,959 375 146,496
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures (2) 10,685 4,164 4,197 2 19,048


(1) Operating earnings (loss) are earnings before gain (loss) on sale of equipment, reorganization costs and income taxes. Operating earnings is not a recognized measure under Canadian generally accepted accounting principles (GAAP). Management believes in addition to net earnings, operating earnings is a useful supplemental measure as it provides an indication of the results generated by the Trust's primary business activities prior to consideration of how those results are taxed in various jurisdictions or gains and losses from the sale of equipment in those businesses. Readers should be cautioned, however, that operating earnings should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of the Trust's performance. The Trust's method of calculating operating earnings may differ from other organizations and, accordingly, operating earnings may not be comparable to measures used by other organizations.

(2) Excludes acquisitions.

(3) Other includes the Trust's corporate activities.

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, reorganization costs 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 flows from 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. Readers 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 gas and related products and services, political and economic conditions, the demand for services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors.

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

Contact Information

  • Total Energy Services Trust
    Mr. Daniel K. Halyk
    Chief Executive Officer
    (403) 216-3921
    (403) 234-8731 (FAX)
    or
    Total Energy Services Trust
    Mr. David A. Hawkins
    Vice-President Finance and Chief Financial Officer
    (403) 216-3920
    (403) 234-8731 (FAX)
    Email: investorrelations@totalenergy.ca
    Website: www.totalenergy.ca