Wellco Energy Services Trust

Wellco Energy Services Trust

April 16, 2007 17:06 ET

Wellco Announces Strategic Acquisition of Water and Wastewater Treatment Company and Adjustment to Distribution Level to Advance Growth

CALGARY, ALBERTA--(CCNMatthews - April 16, 2007) - Wellco Energy Services Trust (TSX:WLL.UN) ("Wellco" or the "Trust") is pleased to announce that it has reached substantial agreement for the acquisition of all of the outstanding shares of Sanitherm Engineering Ltd. ("Sanitherm"). Sanitherm is a Vancouver, British Columbia based private company engaged in the design and assembly of both permanent and portable water and wastewater treatment systems.

This acquisition provides Wellco with the following strategic benefits:

- Response to Drilling Related Market Share Growth: Sanitherm has been the exclusive supplier of Wellco's portable Wastewater Treatment Systems ("WWTS") since 2004. The Trust has grown its fleet from 5 units at the end of 2004 to a current fleet of 236. Despite a drilling activity decline in the Western Canadian Sedimentary Basin between Q1/06 and Q1/07, our WWTS product line maintained its year over year revenues, reflecting growth in our drilling-related market share. We estimate our current market share is 50-60%.

- Control of the Supply Chain: The Sanitherm unit uses ultra-filtration membranes resulting in a technologically superior system for which we have found no readily available or similarly priced alternative. Many of our customers have recognized and prefer the unmatched environmental performance these units provide.

- Response to Increasing Environmental Expectations: We expect greater attention to environmental responsibility will continue to influence our clients, improving the market for this product in the Western Canadian Sedimentary Basin and around the world.

- Expansion of Wellco's Scope of Business: A significant global "water" market is emerging. This acquisition provides Wellco with access to the growing industrial and municipal wastewater sectors.

The purchase price of the acquisition is $9.75 million, payable in cash, plus working capital adjustments and transaction costs. The Vendors have agreed to allocate 20% of the purchase price to open market purchases of Wellco Trust Units over a four month period following the closing. These Trust Units will be held in escrow by a third party and released to the Vendors in four increments of 25% over a two year period. The acquisition is expected to be financed with the Trust's credit facilities. The transaction has been approved by Wellco's Board of Directors, and is now subject only to regulatory approval and the completion of formal documentation. Closing is scheduled for April 30, 2007.

Sanitherm has been in business for approximately 60 years, providing design, assembly and installation of water and wastewater treatment plants around the world. The company recently completed a project for a major mining operation in Northern Ontario and its ongoing work includes a permanent waste-water facility for a large client in Fort McMurray as well as industrial and municipal clients in the United States.

Rick Smyth, co-owner of Sanitherm Engineering said, "We are very excited about the opportunities that lie ahead with Wellco. To date, our growth has been restricted not by a shortage of market opportunities, but rather by financial capacity. The ability to post larger bid and performance bonds will open many new doors for us.

Sanitherm has been involved in over 350 installations in countries around the world including South Korea, Indonesia, Mongolia, Russia, Kazakhstan, Peru, the United Arab Emirates and Nigeria. Given the number of markets available to us to expand our business, the financial backing of Wellco will allow us to accelerate our growth to take advantage of these global opportunities. The increasing demand for our systems, which Wellco recognized in the Alberta Oil Patch, was not an isolated situation and we plan to capitalize on this."

Sanitherm's cash flow before taxes for the 12 month period ending November 30, 2006 was approximately $2.2 million, 50% of which represented equipment purchased by Wellco. Sanitherm is expected to contribute $1.0 to $1.5 million in cash flow to the Trust in the first year, with the opportunity for significant growth thereafter as it expands beyond its current business. Management and staff of Sanitherm will be retained in the transaction.

In order to fund the growth opportunities available with Sanitherm, and based on current oil and gas industry activity levels, the Trust has determined that it is beneficial to retain additional cash flow. Wellco will therefore be reducing its distributions to unitholders by $0.02 per trust unit per month effective April 1, 2007. A distribution of $0.07/unit ($0.84/unit annualized) for the period April 1, 2007 to April 30, 2007 will be paid on May 15, 2007 to unitholders of record on April 30, 2007. The ex-distribution date is April 26, 2007. We believe that with this reduction, our annualized distribution rate will be within our desired range of 60 - 65% of funds from operations.

Kenneth M. Bagan, President & Chief Executive Officer and Corey Zahn, Vice President, Finance & Chief Financial Officer, will conduct a conference call relating to the Sanitherm acquisition on Tuesday, April 17, 2007 at 9:00 a.m. MST (11:00 a.m. EST).

To access the conference call, contact the conference call operator at 1-800-769-8320 (North America) and 416-695-9753 (Toronto and outside North America) approximately 10 minutes prior to the call and request the "Wellco Energy Services Trust" conference call. The call will be open to all analysts, investors and other interested parties.

A replay of the conference call will be available until Tuesday, April 24, 2007 by dialing 1-888-509-0081 (North America) or 416-695-5275 (Toronto and outside North America) and providing the verbal passcode of 643176. The conference call will also be available via webcast by going to Wellco's website (www.wellcoenergy.com) and clicking on the link on the main page. The webcast will be available until Tuesday, April 24, 2007.

Wellco Energy Services Trust provides the following products and services:

- Accommodations (both camps and wellsite trailers)

- Full service catering

- Water and Wastewater treatment

- Surface equipment rentals

- Production testing and frac blow-back tanks

- Service rigs

This press release may contain forward-looking statements based on the interpretation of industry indicators, reliance upon which involves substantial and unknown risk and uncertainty. These risks and uncertainties are beyond the control of Wellco Energy Services Trust, and no assurance can be given that any of these events or outcomes anticipated by these statements will transpire, or that Wellco Energy Services Trust will benefit therefrom.

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

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