Total Energy Services Trust
TSX : TOT.UN

Total Energy Services Trust

November 03, 2005 13:45 ET

Total Energy Services Trust Announces Q3 2005 Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) - Total Energy Services Trust (TSX:TOT.UN) ("Total Energy" or the "Trust"), is pleased to announce its consolidated financial results for the three and nine-month periods ending September 30, 2005. On April 29, 2005 the assets and operations of Total Energy Services Ltd. ("TESL") were converted into an income trust pursuant to a Plan of Arrangement. The Plan of Arrangement involved the creation of the Trust, which is accounted for as a continuity of interest. Therefore, commencing with May 2005, the consolidated financial statements of the Trust reflect the financial position, results of operations and cash flows as if the Trust had always carried on the business formerly carried on by TESL. Units outstanding includes all Units issuable upon conversion of Exchangeable Shares outstanding as at September 30, 2005.



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

Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
(Unaudited) (Unaudited)
2005 2004 %Change 2005 2004 %Change
-------------------------------------------------------
Revenue $ 35,486 $ 18,907 88% $106,685 $ 76,036 40%
Operating
Earnings (1) 9,745 2,893 237% 23,834 14,644 63%
EBITDA (1) 12,644 4,347 191% 31,082 19,655 58%
Cashflow (1) 11,795 4,669 152% 24,802 17,307 43%
Net Earnings 8,456 1,955 333% 18,679 9,919 88%

Per Unit Data
(Diluted)
EBITDA (1) $ 0.45 $ 0.16 181% $ 1.11 $ 0.71 56%
Cashflow (1) 0.42 0.17 147% 0.89 0.62 44%
Net Earnings 0.30 0.08 275% 0.67 0.36 86%

Sept. 30 Dec. 31
2005 2004
(Unaudited)(Audited) %Change
Financial
Position
Total Assets $185,002 $135,491 37%
Long-Term Debt
and Obligations
Under Capital
Leases 18,950 15,675 21%
Working
Capital (2) 19,718 13,070 51%
Net Debt (3) Nil 2,605 (100%)
Unitholders'
Equity 111,913 74,807 50%

Units
Outstanding
(000's)
Basic 29,806 27,490 8%
Diluted 29,806 28,098 6%

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 September 30, 2005 represent record third quarter results, driven by solid performance in all business segments. Despite wet weather conditions during the third quarter, particularly in more southern areas of operation, Total Energy's Contract Drilling Services and Drilling and Production Rentals divisions realized substantial year over year increases in revenue and operating earnings. Continued focus on natural gas drilling in Western Canada resulted in significant year over year increases in the Gas Compression division results. For the three months ended September 30, 2005 the Trust generated EBITDA of $12.6 million ($0.45 per unit diluted), cashflow of $11.8 million ($0.42 per unit diluted) and net earnings of $8.5 million ($0.30 per unit diluted). Included in the 2005 nine month results are non-recurring trust reorganization costs and stock based compensation expense of approximately $4.1 million. During the second quarter, Total Energy eliminated the use of stock options and implemented a cash based compensation plan for directors and officers that is accrued for on a quarterly basis. Total Energy's balance sheet remains very strong with a long-term debt to unitholder equity ratio of 0.16 and no net debt at September 30, 2005.

Total Energy's Contract Drilling Services division achieved 582 operating days (spud to release) with a fleet of nine rigs during the third quarter of 2005, which translates into a utilization rate of 70%. During the third quarter of 2004 the Contract Drilling Services segment operated eight rigs and achieved 257 operating days (spud to release) or 36% utilization. The Drilling and Production Rentals division achieved a utilization rate on major rental equipment of 60% during the third quarter of 2005 as compared to a 51% utilization rate during the third quarter of 2004. The Gas Compression Services saw increasing demand for its products and services with third quarter revenues increasing 51% from the prior year. At September 30, 2005 the Gas Compression Services division had a fabrication backlog of over $44 million (compared to a backlog of $1.7 million as at September 30, 2004 and the previous record backlog of $18.7 million at June 30, 2005) and had over 11,000 horsepower of compression equipment on rent. The gas compression rental fleet operated at an average utilization rate of 85% during the first nine months of 2005.

During the third quarter of 2005, Total Energy continued to execute on its 2005 capital expenditure program and initiated its 2006 capital build program, with capital expenditures of approximately $25.1 million ($24.8 million net of disposals). Included in the third quarter capital expenditures was the acquisition of the operating assets of RIGBOSS Rentals for $8.7 million effective July 15, 2005 and $7.3 million of capital accruals relating to the construction of Rigs 12 and 13. For the first nine months of 2005 capital expenditures totaled $44.2 million ($39.2 million net of disposals).

The Trust declared distributions of $0.21 per unit for the three months ended September 30, 2005. Total distributions for the third quarter were $5.7 million.

OUTLOOK

Total Energy is well positioned to capitalize on what is expected to be a very busy upcoming winter drilling season. Within the Contract Drilling Services division, Rig 10 was recently completed on budget and commenced drilling on October 21, 2005. Rig 11 is expected to be completed and commence drilling this month. Completion of Rigs 10 and 11 was delayed by over one month due to construction delays. The Drilling and Production Rentals division enters the fourth quarter with approximately 3,150 pieces of rental equipment and 57 heavy trucks, an increase of approximately 65% and 50%, respectively, from the prior year. This larger equipment fleet includes the assets acquired effective October 1, 2005, when Total Energy completed the $4.3 million acquisition of the rental and trucking assets of Black Gold. A continued focus on natural gas drilling in western Canada has resulted in a record fabrication backlog in the Trust's Gas Compression Services division that provides significant visibility for this division into 2006. In the context of strong third quarter operating results and the anticipated impact of capital equipment additions going into the busy winter drilling season, the Trust increased its monthly distribution 14% from $0.07 to $0.08 per Unit commencing for the month of October 2005.

Total Energy's preliminary 2006 capital expenditure budget is $20.8 million. Included in the preliminary budget is the previously announced construction of Rigs 12 and 13 at a cost of $12.0 million (of which $7.3 million has been accrued for as at September 30, 2005), the replacement and upgrade of certain heavy trucks and trailers at a cost of $4.1 million and the expansion of the heavy truck and trailer fleet at a cost of $4.3 million. Extended lead times for new equipment requires earlier order placement than previous years. A complete 2006 capital expenditure budget is expected to be approved in January 2006, the details of which will be announced at that time.

The Government of Canada's recent announcement of a public consultation process on flow-through entities, including income trusts, has caused significant market uncertainty. The outcome of this process is uncertain but could have a material adverse effect on income trusts and their unitholders. Total Energy encourages its unitholders and interested stakeholders to get involved in the policy making process by making their views known to the Government of Canada, particularly the federal Minister of Finance.

CONFERENCE CALL

At 2:30 p.m. MST today, Total Energy will conduct a conference call to discuss its third 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) 461-2814. Those who are unable to listen to the call live may listen to a recording of it by calling (888) 509-0082. The recording will be available until November 10, 2005.

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and nine-month periods ended September 30, 2005 and 2004 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 third quarter report.



Consolidated Balance Sheets
(in thousands of dollars) September 30 December 31
2005 2004
(unaudited) (audited)
------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 9,142 $ -
Accounts receivable 26,688 26,727
Income taxes recoverable - 199
Investment tax credit recoverable - 200
Inventory 22,360 15,515
Prepaid expenses and deposits 1,054 591
-------------------------
59,244 43,232

Property, plant and equipment 121,705 88,206

Goodwill 4,053 4,053

-------------------------
$ 185,002 $ 135,491
-------------------------
-------------------------

Liabilities & Unitholders' Equity
Current liabilities:
Bank indebtedness $ - $ 6,802
Accounts payable and accrued liabilities 29,570 15,074
Income taxes payable 183 -
Current portion of obligation
under stock based compensation - 153
Current portion of long-term debt 8,982 6,782
Current portion of obligations
under capital lease 791 1,351
-------------------------
39,526 30,162

Long-term debt 18,434 15,219

Obligations under capital lease 516 456

Obligation under stock based compensation - 77

Future income taxes 14,613 14,770

Unitholders' equity:
Unitholders' capital 60,426 -
Exchangeable shares 1,545 -
Share capital - 34,242
Contributed surplus - 440
Accumulated trust distributions (8,862) -
Accumulated earnings 58,804 40,125
-------------------------
111,913 74,807

-------------------------
$ 185,002 $ 135,491
-------------------------
-------------------------
Supplemental Information:
Number of units and exchangeable
shares outstanding (000's) - Basic 29,806 27,490
Number of units and exchangeable
shares outstanding (000's) - Diluted 29,806 28,098


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

Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue $ 35,486 $ 18,907 $ 106,685 $ 76,036

Expenses
Operating 19,613 11,743 61,532 48,024
Selling, general
and administration 3,307 2,697 9,602 8,094
Stock based compensation - - 4,285 208
Depreciation 2,363 1,374 6,350 4,297
Other interest 122 21 276 163
Interest on
long-term debt 336 179 806 606
----------------------------------------------
25,741 16,014 82,851 61,392

----------------------------------------------
Operating earnings 9,745 2,893 23,834 14,644

Reorganization costs - - (844) -
Gain (loss) on
disposal of equipment 78 (120) 660 (55)
----------------------------------------------
Earnings before
income taxes 9,823 2,773 23,650 14,589

Income tax expense
Current 313 (229) 5,128 2,015
Future (recovery) 1,054 1,047 (157) 2,655
----------------------------------------------
1,367 818 4,971 4,670

----------------------------------------------
Net earnings 8,456 1,955 18,679 9,919
----------------------------------------------

Accumulated earnings,
beginning of period 50,348 32,599 40,125 24,635

Repurchase and
cancellation of common
shares in excess of
stated share capital - (483) - (483)

----------------------------------------------
Accumulated earnings,
end of period $ 58,804 $ 34,071 $ 58,804 $ 34,071
----------------------------------------------
----------------------------------------------

Earnings per unit:
Basic $ 0.30 $ 0.07 $ 0.67 $ 0.36
Diluted $ 0.30 $ 0.08 $ 0.67 $ 0.36


Consolidated Statements of Cash Flows
(in thousands of dollars)

Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------------------------------------

Cash flows from (used in):

Operations:
Net earnings $ 8,456 $ 1,955 $ 18,679 $ 9,919
Add (deduct) items
not effecting cash:
Depreciation 2,363 1,374 6,350 4,297
Gain on disposal
of equipment (78) 120 (660) 55
Stock based
compensation - 173 590 381
Future income
taxes (recovery) 1,054 1,047 (157) 2,655
----------------------------------------------
11,795 4,669 24,802 17,307

Changes in non-cash
working capital items:
Accounts receivable (2,606) 1,017 39 5,670
Inventory (3,997) (168) (6,845) 362
Investment tax
credit recoverable - - 200 -
Income taxes
recoverable 276 - 199 741
Prepaid expenses
and deposits (495) 91 (463) (205)
Accounts payable
and accrued
liabilities 8,558 (2,910) 14,496 (279)
Obligation under
stock based
compensation - - (230) -
Income taxes payable 183 (34) 183 425
----------------------------------------------
13,714 2,665 32,381 24,021
Investments:
Purchase of property,
plant and equipment (25,124) (5,463) (44,172) (18,621)
Proceeds on disposal
of property, plant
and equipment 295 833 4,982 1,735
----------------------------------------------
(24,829) (4,630) (39,190) (16,886)
Financing:
Advances under
long-term debt 9,000 - 11,000 -
Advances of
obligations under
capital leases 652 - 652 -
Repayment of
long-term debt (2,192) (1,392) (5,584) (4,149)
Repayment of
obligations under
capital leases (324) (296) (1,152) (885)
Distributions
to unitholders (5,700) - (8,862) -
Issue of trust units 27,000 190 28,084 393
Unit issue costs (1,385) - (1,385) -
Repurchase of
common shares - (631) - (631)
Increase/(decrease)
in bank indebtedness (6,794) 4,094 (6,802) (1,863)
----------------------------------------------
20,257 1,965 15,951 (7,135)
----------------------------------------------

Change in cash 9,142 - 9,142 -

Cash, beginning of period - - - -

----------------------------------------------
Cash, end of period $ 9,142 $ - $ 9,142 $ -
----------------------------------------------
----------------------------------------------

Supplemental information:
Interest paid $ 368 $ 757 $ 629 $ 1,335
Income taxes paid $ - $ - $ 6,621 $ 1,691


SEGMENTED INFORMATION

The Trust operates in three main industry segments, which are substantially in one geographic area. 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 September 30, 2005 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other(3) Total
------------------------------------------------------------------------
Revenue $ 8,519 $ 14,221 $ 12,746 $ - $ 35,486
Operating earnings
(loss) (1) 2,254 6,697 1,525 (729) 9,745
Depreciation 831 1,287 240 5 2,363
Assets 53,317 76,203 39,126 16,356 185,002
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures(2) 8,342 15,559 1,223 - 25,124


As at and for the three months ended September 30, 2004 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other(3) Total
------------------------------------------------------------------------
Revenue $ 3,389 $ 7,103 $ 8,415 $ - $ 18,907
Operating earnings
(loss) (1) 351 2,192 1,013 (663) 2,893
Depreciation 317 834 214 9 1,374
Assets 38,850 45,538 30,810 256 115,454
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures(2) 1,569 1,943 1,952 - 5,463


As at and for the nine months ended September 30, 2005 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other(3) Total
------------------------------------------------------------------------
Revenue $ 25,406 $ 38,250 $ 43,029 $ - $106,685
Operating earnings
(loss) (1) 7,378 17,568 5,235 (6,347) 23,834
Depreciation 2,324 3,297 709 21 6,350
Assets 53,317 76,203 39,126 16,356 185,002
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures(2) 19,027 19,723 5,419 2 44,172


As at and for the nine months ended September 30, 2004 (unaudited)

Drilling
Contract and Gas
Drilling Production Compression
Services Rentals Services Other(3) Total
------------------------------------------------------------------------
Revenue $ 12,633 $ 25,318 $ 38,085 $ - $ 76,036
Operating earnings
(loss) (1) 2,536 9,335 4,852 (2,079) 14,644
Depreciation 1,136 2,536 600 25 4,297
Assets 38,850 45,538 30,810 256 115,454
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures(2) 11,285 3,957 3,359 20 18,621

(1) Operating earnings (loss) are earnings before gain (loss) on sale
of equipment 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. Investors 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 oil and gas service 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 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. 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 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
    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
    or
    Total Energy Services Trust
    2410, 520 - 5th Avenue S.W.
    Calgary, Alberta T2P 3R7