Total Energy Services Trust
TSX : TOT.UN

Total Energy Services Trust

November 09, 2006 13:16 ET

Total Energy Services Trust Announces Q3 2006 Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 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 nine-month periods ending September 30, 2006. Units outstanding includes all Units issuable upon conversion of Exchangeable Shares outstanding as at September 30, 2006.



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

Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
(Unaudited) (Unaudited)
% %
2006 2005 Change 2006 2005 Change
--------------------------------------------------------
Revenue $ 49,937 $ 35,486 41% $ 154,447 $ 106,685 45%
Operating
Earnings (1) 15,406 9,745 58% 46,989 23,834 97%
EBITDA (1) 19,111 12,644 51% 57,104 31,082 84%
Cashflow (1) 17,337 11,795 47% 51,341 24,802 107%
Net Earnings 13,778 8,456 63% 43,242 18,679 132%

Per Unit Data
(Diluted)
EBITDA (1) $ 0.64 $ 0.45 42% $ 1.91 $ 1.11 72%
Cashflow (1) 0.58 0.42 38% 1.72 0.89 93%
Net Earnings 0.46 0.30 53% 1.45 0.67 116%

Sept. 30 Dec. 31
2006 2005 %
(Unaudited) (Audited) Change

Financial
Position
Total Assets $ 217,544 $ 205,674 6%
Long-Term Debt
and Obligations
Under Capital
Leases 14,617 16,875 (13%)
Working Capital (2) 22,152 16,438 35%
Net Debt (3) nil 437 (100%)
Unitholders'
Equity 137,411 118,056 16%

Units Outstanding
(000's)
Basic 29,874 29,859 0%
Diluted 29,874 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 September 30, 2006 represent record third quarter financial results, highlighted by a record quarterly performance in the Gas Compression Services division. Performance in the Contract Drilling and Drilling and Production Rentals divisions was strong through to mid-September when drilling activity levels began to decrease, due in part to wet weather conditions.

Total Energy's Contract Drilling division achieved 664 operating days (spud to release) with a fleet of twelve rigs during the third quarter of 2006, which translates into a utilization rate of 63%. During the quarter, Rig 12 was completed on budget and commenced drilling on August 23, 2006. During the third quarter of 2005 the Contract Drilling division operated nine rigs and achieved 582 operating days (spud to release) or 70% utilization. The Drilling and Production Rentals division achieved a utilization rate on major rental equipment of 58% during the third quarter of 2006 as compared to a 60% utilization rate during the third quarter of 2005. The Gas Compression Services division generated revenues of $20.5 million for the three months ended September 30, 2006 compared to $12.7 million for the third quarter of 2005. Operating earnings margins continued to improve in this division during the third quarter. At September 30, 2006 the Gas Compression Services division had a fabrication backlog of approximately $30.4 million, compared to a backlog of $44 million as at September 30, 2005, and had over 9,900 horsepower of compression equipment on rent. The gas compression rental fleet operated at an average utilization rate of 95% during the first nine months of 2006.

During the third quarter of 2006, Total Energy continued to execute on its capital build program for 2006, with capital equipment additions of approximately $9.8 million ($7.1 million net of disposals) for the three months ended September 30, 2006. For the first nine months of 2006 capital expenditures totaled $23.3 million ($19.5 million net of disposals).

The Trust declared distributions of $0.285 per unit for the three months ended September 30, 2006. Total distributions for the third quarter were $8.3 million.

OUTLOOK

Despite a slowdown in drilling activity that commenced in September and has continued into the fourth quarter, current indications are that the upcoming winter drilling season will be reasonably active in Total Energy's areas of operation. Visibility beyond the upcoming winter drilling season is limited due to uncertainty over commodity prices, particularly near term natural gas prices. Decreased industry drilling rig utilization has put pressure on spot market rates, particularly in the shallow end of the market. The construction of Rig 13 was completed on budget and that rig commenced drilling on October 23, 2006. The previously announced conversion of an existing extended reach single rig into a conventional telescopic double is underway with completion scheduled for the first quarter of 2007. Upon completion of this conversion, Total Energy's drilling rig fleet will consist of 11 telescopic doubles and two conventional single rigs, with an average age of less than 3.5 years. The Drilling and Production Rentals division continues to execute on its 2006 capital build program which will see its equipment fleet grow to approximately 3,500 rental pieces and 67 heavy trucks by the first quarter of 2007, as compared to 3,150 rental pieces and 57 heavy trucks at the end of 2005. The heavy truck additions combined with dispositions undertaken during 2006 will result in a modern heavy truck fleet with an average age of approximately 1.7 years.

Total Energy's balance sheet continues to strengthen, with a long term debt to equity ratio of less than 0.11 to 1 and a strong positive working capital position. During the third quarter, long-term debt was reduced by $2.0 million in addition to $1.2 million of regular principal repayments. As at September 30, 2006, Total Energy had approximately $6.0 million of remaining capital expenditure commitments that are not reflected on the balance sheet, including $4.4 million of equipment to be added to its Drilling and Production Rentals division and $1.6 million remaining on the rig conversion. Total Energy is well positioned to pursue opportunities as they may arise.

The recent announcement by the federal government regarding the proposed taxation of income trusts has caused some uncertainty. Total Energy is monitoring and assessing this development and will respond to any legislative changes in a manner that serves the long term interests of Total Energy and its unitholders.

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) 888-4210. Those who are unable to listen to the call live may listen to a recording of it by calling (888) 509-0081 (password 634051). The recording will be available until November 16th, 2006.

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and nine month periods ended September 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 third quarter report.



Consolidated Balance Sheets
(in thousands of Canadian dollars)

September December
30 31
2006 2005
---------------------------------------------------------------------------
(unaudited) (audited)

Assets
Current assets:
Accounts receivable $ 41,484 $ 44,965
Inventory 28,815 25,771
Prepaid expenses and deposits 1,191 891
------------------------------
71,490 71,627
Property, plant and equipment 142,001 129,994

Goodwill 4,053 4,053
------------------------------
$ 217,544 $ 205,674
------------------------------
------------------------------
Liabilities & Unitholders' Equity
Current liabilities:
Bank indebtedness $ 7,128 $ 11,355
Accounts payable and accrued liabilities 31,302 29,948
Distributions payable 2,770 2,317
Income taxes payable 2,925 2,223
Current portion of long-term debt 4,805 8,565
Current portion of obligations under
capital lease 408 781
------------------------------
49,338 55,189

Long-term debt 14,617 16,654

Obligations under capital lease - 221

Future income taxes 16,178 15,554

Unitholders' equity:
Trust unit capital 61,028 60,802
Exchangeable share capital 855 1,124
Retained earnings 75,528 56,130
------------------------------
137,411 118,056
------------------------------
$ 217,544 $ 205,674
------------------------------
------------------------------
Supplemental Information:
Number of units and exchangeable shares
outstanding (000's) - Basic 29,874 29,859
Number of units and exchangeable shares
outstanding (000's) - Diluted 29,874 29,859


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

Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
------------------------------------------------------ ------------------
(unaudited)(unaudited)(unaudited)(unaudited)

Revenue $ 49,937 $ 35,486 $ 154,447 $ 106,685

Expenses
Operating 26,849 19,613 84,510 61,532
Selling, general and
administration 4,399 3,307 13,528 9,602
Stock based compensation - - - 4,285
Depreciation 2,904 2,363 8,169 6,350
Other interest 66 122 245 276
Interest on long-term debt 313 336 1,006 806
--------------------- ---------------------
34,531 25,741 107,458 82,851
--------------------- ---------------------
Operating earnings 15,406 9,745 46,989 23,834

Reorganization costs - - - (844)
Gain on disposal of equipment 422 78 695 660

--------------------- ---------------------
Earnings before income taxes 15,828 9,823 47,684 23,650

Income tax expense
Current 973 313 3,817 5,128
Future (recovery) 1,077 1,054 625 (157)
--------------------- ---------------------
2,050 1,367 4,442 4,971
--------------------- ---------------------
Net earnings 13,778 8,456 43,242 18,679
--------------------- ---------------------

Retained earnings, beginning of
period 70,183 47,186 56,130 40,125

Trust distributions (8,309) (5,700) (23,594) (8,862)
Repurchase and cancellation of
trust units in excess of
stated trust unit capital (124) - (250) -

--------------------- ---------------------
Retained earnings, end of period $ 75,528 $ 49,942 $ 75,528 $ 49,942
--------------------- ---------------------
--------------------- ---------------------

Earnings per unit:
Basic $ 0.46 $ 0.30 $ 1.45 $ 0.67
Diluted $ 0.46 $ 0.30 $ 1.45 $ 0.67


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

Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
------------------------------------------------------ ------------------
(unaudited)(unaudited)(unaudited)(unaudited)

Cash flows provided by
(used in):

Operations:
Net earnings $ 13,778 $ 8,456 $ 43,242 $ 18,679
Add (deduct) items not
effecting cash:
Depreciation 2,904 2,363 8,169 6,350
Gain on disposal of equipment (422) (78) (695) (660)
Stock based compensation - - - 590
Future income taxes (recovery) 1,077 1,054 625 (157)
--------------------- ---------------------
17,337 11,795 51,341 24,802
Changes in non-cash working
capital items:
Accounts receivable (5,341) (2,606) 3,481 39
Inventory (3,136) (3,997) (3,044) (6,845)
Income taxes recoverable - 276 - 199
Prepaid expenses and deposits (621) (495) (300) (463)
Accounts payable and accrued
liabilities (1,409) 8,245 1,354 12,492
Obligation under stock based
compensation - - - (230)
Income taxes payable 1,070 183 702 183
------------------ ---------------------
7,900 13,401 53,534 30,177
Investments:
Purchase of property, plant and
equipment (9,762) (25,124) (23,263) (44,172)
Proceeds on disposal of
property, plant and equipment 2,673 295 3,781 4,982
Investment tax credit
recoverable - - - 200
------------------ ---------------------
(7,089) (24,829) (19,482) (38,990)
Financing:
Advances under long-term debt - 9,000 - 11,000
Advances of obligations under
capital leases - 652 - 652
Repayment of long-term debt (3,166) (2,192) (5,797) (5,584)
Repayment of obligations under
capital leases (199) (324) (594) (1,152)
Issue of trust units - 27,000 - 27,000
Unit issue costs - (1,385) - (1,385)
Issue of common shares - - - 1,084
Repurchase of trust units (145) - (293) -
Distributions to unitholders (8,309) (5,700) (23,594) (8,862)
Distributions payable - 313 453 2,004
------------------ ---------------------
Increase / (decrease) in bank
indebtedness 7,128 (6,794) (4,227) (6,802)
------------------ ---------------------
(4,691) 20,570 (34,052) 17,955
------------------ ---------------------

Change in cash (3,880) 9,142 - 9,142

Cash, beginning of period 3,880 - - -

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

Supplemental information:
Interest paid $ 576 $ 368 $ 1,346 $ 629
Income taxes paid $ (98) $ - $ 3,115 $ 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 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 September 30, 2006 (unaudited)

Contract Drilling and Gas
Drilling Production Compression Other
Services Rentals Services (3) Total
---------------------------------------------------------------------------

Revenue $ 11,886 $ 17,567 $ 20,484 $ - $ 49,937
Operating
earnings
(loss) (1) 4,503 7,984 4,126 (1,207) 15,406
Depreciation 970 1,684 247 3 2,904
Assets 70,986 94,821 50,736 1,001 217,544
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures (2) 1,663 7,986 109 4 9,762


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

Contract Drilling and Gas
Drilling Production Compression Other
Services Rentals Services (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 nine months ended September 30, 2006 (unaudited)

Contract Drilling and Gas
Drilling Production Compression Other
Services Rentals Services (3) Total
---------------------------------------------------------------------------

Revenue $ 33,369 $ 57,286 $ 63,792 $ - $ 154,447
Operating
earnings
(loss) (1) 11,023 28,187 11,333 (3,554) 46,989
Depreciation 2,581 4,831 742 15 8,169
Assets 70,986 94,821 50,736 1,001 217,544
Goodwill - 2,514 1,539 - 4,053
Capital
expenditures (2) 9,541 12,860 847 15 23,263


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

Contract Drilling and Gas
Drilling Production Compression Other
Services Rentals Services (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

(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 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. 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 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 2005 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
    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
    Email: investorrelations@totalenergy.ca
    Website: www.totalenergy.ca