Wellco Energy Services Trust

Wellco Energy Services Trust

March 14, 2005 09:02 ET

Wellco Announces Fourth Quarter and Year End Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: WELLCO ENERGY SERVICES TRUST

TSX SYMBOL: WLL.UN

MARCH 14, 2005 - 09:02 ET

Wellco Announces Fourth Quarter and Year End Results

CALGARY, ALBERTA--(CCNMatthews - March 14, 2005) - Wellco Energy
Services Trust (TSX:WLL.UN)

Units outstanding at March 1, 2005 - 13,551,945

Last close - 3/11/05 - $10.32

Mr. Ken Bagan reports

WELLCO ENERGY SERVICES TRUST IS PLEASED TO ANNOUNCE ITS CONSOLIDATED
RESULTS FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2004



Financial Highlights
(in 000's of $CDN, except per trust unit amounts)

For the 12 months ended December 31,
------------------------------------
2004 2003 Change
------------------------------------------------------------------------
Revenue $ 59,573 $ 20,943 +184%
------------------------------------------------------------------------
Direct costs 33,505 12,208 +174%
------------------------------------------------------------------------
Gross margin 26,068 8,735 +198%
------------------------------------------------------------------------
G & A 8,638 4,064 +113%
------------------------------------------------------------------------
EBITDA 17,430 4,671 +273%
Per trust unit (diluted) $ 1.38 $ 1.02 +35%
------------------------------------------------------------------------
Cash flow 16,257 3,387 +380%
Per trust unit (diluted) $ 1.29 $ 0.74 +74%
------------------------------------------------------------------------
Net earnings 9,963 1,296 +669%
Per trust unit (diluted) $ 0.79 $ 0.28 +182%
------------------------------------------------------------------------
Weighted average number of trust
units outstanding
Basic 12,404,139 4,583,305 +171%
Diluted 12,628,137 4,599,150 +175%
------------------------------------------------------------------------

For the 3 months ended December 31,
-----------------------------------
2004 2003 Change
------------------------------------------------------------------------
Revenue $ 18,936 $ 6,860 +176%
------------------------------------------------------------------------
Direct costs 9,781 4,470 +119%
------------------------------------------------------------------------
Gross margin 9,155 2,389 +283%
------------------------------------------------------------------------
G & A 2,800 1,204 +133%
------------------------------------------------------------------------
EBITDA 6,355 1,184 +437%
Per trust unit (diluted) $ 0.45 $ 0.26 +73%
------------------------------------------------------------------------
Cash flow 5,954 726 +720%
Per trust unit (diluted) $ 0.42 $ 0.16 +163%
------------------------------------------------------------------------
Net earnings 3,841 77 +4888%
Per trust unit (diluted) $ 0.27 $ 0.02 +1250%
------------------------------------------------------------------------
Weighted average number of trust
units outstanding
Basic 13,904,532 4,583,305 +203%
Diluted 14,157,119 4,599,150 +208%
------------------------------------------------------------------------



Wellco Energy Services Trust continued its business strategy of
achieving growth through a combined program of accretive acquisitions
and internal property and equipment build. During the 2004 fiscal year
five corporate acquisitions were completed, three of which resulted in
increases to Wellco's rental fleet of camps, flare tanks and wastewater
treatment facilities. The remaining two purchases diversified the
Company's product offerings to include service rigs and frac blow back
tanks, which now represents the newly formed Production Services
division.

Two equity financings totaling 6,725,000 trust units were completed
during the first quarter of the fiscal year, at an average price of
$8.49 per trust unit. The aggregate net proceeds realized were $54.8
million. The proceeds were used to finance the $9.9 million cash
component of the corporate acquisitions, retire $14.9 million in
long-term debt and carry out a $26.6 million build program.

Despite unusually wet weather throughout the third quarter of the year,
the industry set a record for drilling activity, with more than 21,500
wells drilled in calendar 2004. These buoyant industry conditions
enabled Wellco to achieve high utilization rates for its expanded asset
base, particularly during the fourth quarter of the fiscal year.

Results of Operations - Fourth Quarter

Fourth quarter revenues of $18.9 million represented an increase of 176%
over the $6.9 million reported for the comparable period of fiscal 2003.
Fourth quarter EBITDA of $6.4 million, cash flow of $6.0 million, and
net earnings of $3.8 million increased considerably from the $1.2
million, $0.7 million and $0.1 million reported for Q4-2003.

Per trust unit EBITDA, cash flow and net earnings increased 73%, 163%
and 1250% respectively over the results achieved during the comparable
period of fiscal 2003.

Fourth quarter operating margin increased significantly to 48.3% from
the 34.8% achieved during Q4-2003, as a result of improved leverage on
fixed costs. General and administrative expense as a percentage of
revenues improved to 14.8% from the 17.6% reported during the fourth
quarter of the previous fiscal year.

Results of Operations - Fiscal 2004

Wellco's revenues for the 2004 fiscal year increased 184% to a record
$59.6 million. Drilling services, consisting of Accommodations and
catering, Surface equipment rentals and Directional and horizontal
drilling, accounted for 89% of revenues for the year, with Wellco's
newly acquired production services division providing the balance.

EBITDA increased 273% to $17.4 million ($1.38 per trust unit diluted).
Cash flow increased 380% to $16.3 million ($1.29 per trust unit
diluted). Net earnings of $10.0 million ($0.79 per trust unit diluted)
represented an increase of 669% over that achieved during the previous
fiscal year.

Per trust unit EBITDA, cash flow and net earnings demonstrated the
accretive nature of Wellco's acquisitions program, increasing 35%, 74%
and 182% respectively over the results achieved during 2003.

Gains in operating efficiencies were realized during the year as well.
The gross operating margin of 43.8% for the year ended December 31, 2004
increased from 41.7% during the previous fiscal year. General and
administrative expenses represented 14.5% of revenue as compared with
19.4% in 2003. If not for certain severance obligations, general and
administrative expenses would have been 13.2% of 2004 revenues.

Depreciation and amortization expense increased 94% to $5.4 million,
reflecting the 178% increase in property and equipment during the year.

Balance Sheet

Wellco's balance sheet was strengthened considerably during the 2004
fiscal year. Working capital at December 31, 2004 totaled $11.4 million
as compared with a working capital deficiency of $2.2 million reported
at the close of the 2003 fiscal year.

Long-term debt, including current portion, was reduced from $12.8
million as reported at December 31, 2003 to $9.4 million at the end of
fiscal 2004. Unitholders' equity increased by 498% to $76.8 million at
December 31, 2004, as a result of the two private placements conducted
during the first quarter of the fiscal year.

Distributions

During the 2004 fiscal year Wellco declared distributions of $11.7
million to unitholders ($0.96 per trust unit), which accounted for 72%
of cash flow for the year. The Trust's goal is to distribute in the
range of 60% to 70% of its cash flow. Distributions are reviewed on a
quarterly basis.

Outlook

The outlook for the oilfield services industry continues to be very
buoyant, and industry analysts are predicting that 2005 drilling
activity levels will exceed the record achieved during 2004. In light of
the current economic climate, the corporate acquisitions made during
2004, and the aggressive capital expenditure program carried out during
the second half of the year, Wellco expects to achieve record results
during the 2005 fiscal year.

Wellco management will continue to pursue growth through both corporate
acquisitions and capital investment. Expanding the newly acquired
production services division will remain a priority in an attempt to
achieve a balance between drilling and production service revenues.

This news release may contain forward-looking statements including,
without limitation, statements regarding Wellco's future financial
position, operating results, business strategy and proposed
acquisitions. Wellco's forward-looking statements are based upon
assumptions and are subject to risks and uncertainties. These include,
without limitation, risks associated with oil and natural gas commodity
prices, levels of industry drilling activity, prevailing interest rates,
the credit worthiness of its customers, government policies,
competitors, some of whom have significantly greater financial resources
at their disposal, and other factors that could have a negative effect
on Wellco's financial position and/or operating results. Although Wellco
believes that the expectations represented in such forward-looking
statements are reasonable, there can be no assurance that these
expectations will prove correct.

(1) EBITDA is defined as earnings before interest, taxes, depreciation
and amortization. EBITDA is not a recognized measure under Canadian
generally accepted accounting principles ("GAAP"). Management believes
however that EBITDA is a useful supplementary measure as it provides an
indication of the results of Wellco's typical business operations
without regard to how these activities were financed or how the results
were taxed. Wellco's method of calculating EBITDA may differ from those
of other companies, and accordingly EBITDA may not be directly
comparable to measures used by other companies.

(2) Cash flow is defined as cash flow from operations before changes in
non-cash working capital items. Cash flow is not a recognized measure
under GAAP. Management believes that cash flow is a useful supplementary
measure as it provides an indication of cash flow generated by
operations before working capital adjustments.



WELLCO ENERGY SERVICES TRUST
Consolidated Statements of Earnings and Accumulated Earnings

Years ended December 31, 2004 and 2003
(Expressed in thousands of dollars, except per unit amounts)

------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
(restated)

Revenue $ 59,573 $ 20,943

Direct costs 33,505 12,208
------------------------------------------------------------------------
26,068 8,735

Expenses:
General and administrative 8,638 4,064
Interest on long-term debt 1,294 1,117
Other interest 55 179
Depreciation and amortization 5,421 2,795
Loss on disposal of capital assets 366 12
------------------------------------------------------------------------
15,774 8,167

------------------------------------------------------------------------
Earnings before income taxes 10,294 568

Income taxes:
Current 118 -
Future (reduction) 213 (728)
------------------------------------------------------------------------
331 (728)

------------------------------------------------------------------------
Net earnings 9,963 1,296

Accumulated earnings, beginning of year 3,207 1,911

------------------------------------------------------------------------
Accumulated earnings, end of year $ 13,170 $ 3,357
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per unit:
Basic $ 0.80 $ 0.28
Diluted 0.79 $ 0.28
------------------------------------------------------------------------
------------------------------------------------------------------------


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Wellco Energy Services Trust
    Ken Bagan
    President & C.E.O.
    (403) 232-6334
    (403) 232-6338 (FAX)
    Email: info@wellcoenergy.com
    TSX has not reviewed and does not accept responsibility for the adequacy
    or accuracy of this news release.