Wellco Energy Services Trust
TSX : WLL.UN

Wellco Energy Services Trust

November 03, 2005 06:00 ET

Wellco Announces Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) - Wellco Energy Services Trust (TSX:WLL.UN) is pleased to announce its financial results for the three and nine months ended September 30, 2005, with comparisons to the comparable periods for the previous year.

PROFILE

Wellco Energy Services Trust ("Wellco" or "the Trust") provides a comprehensive array of integrated oilfield drilling and production services to organizations engaged in the search for oil and natural gas in Western Canada.



FINANCIAL HIGHLIGHTS

(Expressed in thousands of dollars, except per unit amounts)

For the 3 months For the 9 months
ended September 30, ended September 30,
--------------------------- ---------------------------
% %
2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
Revenue $ 18,517 $ 13,771 34% $ 54,119 $ 40,637 33%
------------------------------------------------------------------------
Direct costs 10,888 8,194 33% 32,083 23,724 35%
------------------------------------------------------------------------
Gross margin 7,629 5,577 37% 22,036 16,913 30%
------------------------------------------------------------------------
G & A 3,064 1,982 55% 8,386 5,838 44%
------------------------------------------------------------------------
Cash flow (1) 4,398 3,474 27% 13,220 10,303 28%
Per unit
diluted 0.30 0.25 20% 0.92 0.87 6%
------------------------------------------------------------------------
EBITDA (1) 4,565 3,595 27% 13,650 11,075 23%
Per unit
diluted 0.31 0.26 19% 0.95 0.93 2%
------------------------------------------------------------------------
Net earnings
(loss) 2,689 1,948 38% 8,155 6,122 33%
Per unit
diluted 0.18 0.14 29% 0.56 0.52 8%
------------------------------------------------------------------------
Number of
units
outstanding
Basic 14,544,696 13,601,810 7% 14,227,854 11,639,892 22%
Diluted 14,779,426 13,781,164 7% 14,442,231 11,870,397 22%
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Refer to the "NON-GAAP Measures" section for further details.


MANAGEMENT DISCUSSION AND ANALYSIS ("MD & A")

(Expressed in thousands of dollars, except per unit amounts)

The following MD&A for the Trust, dated November 3, 2005, focuses on key statistics from the consolidated financial statements and pertains to known risks and uncertainties relating to the oilfield services industry. This discussion should not be considered all-inclusive, as it excludes changes that may occur in general economic, political and environmental conditions. This discussion and analysis of the financial condition and results of operations for the three months and nine months ended September 30, 2005, should be read in conjunction with the unaudited interim consolidated financial statements for the three months and nine months ended September 30, 2005 and related notes and material contained in other parts of this report. As well, this discussion and analysis of the financial condition and results of operations for the three months and six months ended September 30, 2005, should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2004 and related notes and material contained in other parts of the 2004 annual report as well as the Trust's Annual Information Form ("AIF"). Additional information relating to Wellco, including Wellco's AIF, may be found on SEDAR at www.sedar.com, and is supplemental to, the consolidated financial statements and related notes contained in this interim report for the three and nine months ended September 30, 2005 and in the Trust's 2004 Annual Report. This MD&A was prepared effective November 3, 2005. The consolidated financial statements contained in this Interim Report have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") in Canadian dollars.



Revenues
Nine months ended September 30
($ thousands)

2003 2004 2005
----------------------------
Revenues 14,083 40,637 54,119
----------------------------
----------------------------


Declared Distributions vs. Cash Flow
Nine months ended September 30
($ thousands)

2003 2004 2005
----------------------------
Declared Distributions 3,208 8,509 9,983
Cash Flow 2,812 10,303 13,220
----------------------------
----------------------------


OVERVIEW

There was an average 468 drilling rigs reported working in Canada during the first nine months of 2005, up 15% over the same period last year. During the third quarter of 2005, the industry reported an average of 524 drilling rigs working, up 35% from the 387 working in 2004(1). Rig demand remains extremely strong and the wet weather throughout the second quarter further increased the demand in the third quarter as ground conditions improved in most areas that we operate in. The pent up demand has led to substantial increases in drilling rig activity in the third quarter and is expected to continue into the winter months.

(1) CAODC Statistics

Revenues increased 34% for the three months and 33% for the nine months ended September 30, 2005 compared to the same periods of 2004 as a result of increased equipment capacity coming from both internal growth and through acquisitions. This growth has been driven by strong demand for services as a result of the strength of oil and gas commodity prices. Wellco generated net earnings of $2.7 million ($0.18 per unit diluted) for the three month period ended September 30, 2005 compared to net earnings of $1.9 million ($0.14 per unit diluted) for the comparable period of 2004. Cash flow for the three months ended September 30, 2005 was $4.4 million ($0.30 per unit diluted) compared to $3.5 million ($0.25 per unit diluted) achieved in the same period of the prior year, representing an increase of 27%.

For the nine months ended September 30, 2005 net earnings were $8.2 million ($0.56 per unit diluted), an increase of 33% as compared with $6.1 million ($0.52 per unit diluted), reported for the comparable period in 2004. Cash flow from operations for the first nine months of 2005 was $13.2 million ($0.92 per unit diluted), a 28% increase over the $10.3 million ($0.87 per unit diluted), that was generated for the first nine months of 2004. For the nine month period both net earnings and cash flow per unit amounts have increased period over period as a result of strong demand for services, the impact of acquisitions and continued internal growth.

Overall we are very pleased with the results of operations for the third quarter and year to date.

OPERATIONS REVIEW

Drilling Services

Our camp and catering and well-site accommodation product lines, both of which are focused on work in the far north were in line with expectations for the third quarter even though costs have increased as a result of wage increases and increased catering costs. We anticipate continued strong demand and high utilization of equipment in the winter drilling season. Consistent with much of the industry we have experienced some delays in the arrival of new equipment due to high fabrication demand in the oil and gas service industry. However, we expect to have all of our additions of equipment generating revenue before the end of the fourth quarter.

Strong demand continues for Wellco's waste water treatment systems, and utilization for this product line met our expectations for the quarter. Our 2005 capital build program will add 72 treatment systems for a fleet total of 140. We continue to evaluate our capital program in light of increased demand. Wellco has experienced some delay with the delivery of some of the waste water treatment plants; however, we expect to have all of the additional equipment operational in time for the winter drilling season.

Surface equipment rental revenue has exceeded our expectations for the quarter and year to date. However, gross margins were impacted slightly by increased salaries and wages, higher repairs and maintenance cost and increased fuel costs. We expect higher than normal utilization rates in the winter months as oil and gas producers are expected to increase their drilling programs to make up for the lost days from unusually wet weather in the second and third quarter.

Vacuum and Water service activity fell below our expectations for the quarter. Vacuum and Water trucks are deployed in southern Alberta for summer drilling programs. Southern Alberta was subject to higher than normal amounts of rain in August and September leading to decreased rig activity in this region. We expect activity to increase in the fourth quarter as the winter freeze up begins and rig activity improves. Rig activity increases are already being noticed in October with overall utilization rates approaching 80%(2), compared to the prior year of 66%(2). We expect high utilization rates and fourth quarter price increases to address some if not all of the shortfalls we have experienced in this product line this year.

(2) CAODC Statistics

Environmental services were adversely impacted in the quarter and year to date as a result of the significant wet weather through much of southern Alberta in the second and third quarters. Our environmental group was committed to a number of projects for a single operator, and this operator did not execute its expected drilling program as a result of wet weather. In addition, the group lost work to some smaller competitors. We are expecting a return to normal activity in the fourth quarter as this operator commences its winter drilling program, and we continue to look for opportunities to more broadly distribute our commitments in the future.

Directional drilling service, although busier during the third quarter as compared to the previous two quarters, continued to fall below our expectations. Having determined that directional drilling was non-core to our existing operations, management committed to a plan to dispose of these assets, and effective October 21, 2005, the Trust disposed of the directional drilling assets for cash consideration of $5.0 million. After anticipated severance and disposal costs, the net proceeds will be approximately $4.8 million. In addition the net proceeds could be further reduced by a maximum of $0.75 million based on certain conditions contained in the purchase and sale agreement.

Production Services

Service rig activity in the quarter was hampered slightly by periods of wet weather in southern Alberta during August and September. On a year to date basis our service rig revenues are in line with expectations. Price increases will take effect in the fourth quarter driven by high levels of rig activity as high commodity prices continue to support strong exploration and development initiatives in this area.

Blow-back tanks, the utilization of which tracks fracturing activity, was slightly below expectations in the quarter, and for the nine months ended September 30, 2005. We expect to recover the shortfall through the fourth quarter as completions activity levels increase, particularly in south-eastern Alberta.

The third quarter provided us with the first full quarter of contribution from our newly acquired Production Testing services. Revenues and cash flow have met our expectations for the third quarter. There is natural lag in the demand for production services as drilling programs were hampered by record setting wet weather pushing back drilling and completions in the areas we operate. We expect increased production testing activity as oil and gas producers try to make up lost time in the fourth quarter.

Effective October 3, 2005, the Trust acquired all of the issued and outstanding shares of Flo-Safe Systems Inc. ("Flo-Safe") for cash consideration of $8.85 million including transaction costs. The Trust utilized its' acquisition loan facility to fund the transaction.

Flo-Safe provides production testing units and various ancillary rentals to oil and gas producers in the northwest and central areas of the Alberta. Flo-safe represents an excellent opportunity for Wellco to further diversify its operations by adding significant additional equipment capacity complementary to the earlier acquisition of Trueline Oilfield Services. Flo-Safe provides improved revenue balance for Wellco between its Drilling and Production Services operating segments.

We are also continuing the work of reorganizing our operational management to a geographic basis, and over the remainder of the year will focus on deploying all Wellco services into regions of best opportunity.

Note 11 to the September 30, 2005 consolidated interim financial statements includes a detailed breakdown of results and activity for each of our operating segments for the three and nine month periods ending September 30, 2005.



FINANCIAL SUMMARY OF QUARTERLY RESULTS
(Expressed in thousands of $'s, except per unit amounts)

Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
2005 2005 2005 2004 2004 2004 2004 2003

Revenue $18,517 $10,795 $24,807 $18,936 $13,771 $9,029 $17,838 $6,860
Net
earnings
(loss) 2,689 (192) 5,658 3,841 1,948 297 3,877 77
Per unit
- basic $0.18 $ (0.01) $ 0.40 $ 0.28 $ 0.14 $ 0.02 $ 0.49 $ 0.02
Per unit
- diluted $0.18 $ (0.01) $ 0.40 $ 0.27 $ 0.14 $ 0.02 $ 0.48 $ 0.02


REVENUE

Revenue of $18.5 million was generated during the quarter ended September 30, 2005 compared to $13.8 million for the same period in 2004, an increase of 34%. For the nine months ended September 30, 2005, Wellco recorded revenue of $54.1 million compared to $40.6 million in the same period of 2004. The period over period increase of 33% is due to the increased activity within our current product lines and the effect of acquisitions and internal capital expenditures. These acquisitions and internal capital expenditures have also affected the mix of Wellco's revenues from its two operating segments, drilling services and production services, as shown in the following table:



Three months Nine months
September 30, September 30,
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
------------------------------------------------------------------------
REVENUE SOURCE
------------------------------------------------------------------------
Drilling Services:
------------------------------------------------------------------------
Accommodations & Catering 33% 39% 41% 48%
Surface Equipment Rentals 32% 38% 34% 34%
Directional Drilling 6% 11% 5% 9%
------------------------------------------------------------------------
TOTAL - DRILLING SERVICES 71% 88% 80% 91%
------------------------------------------------------------------------
Production Services:
------------------------------------------------------------------------
Service rigs 16% 12% 14% 9%
Production testing/blow back
tanks 13% 0% 6% 0%
------------------------------------------------------------------------
TOTAL - PRODUCTION SERVICES 29% 12% 20% 9%
------------------------------------------------------------------------
TOTAL 100% 100% 100% 100%
------------------------------------------------------------------------
------------------------------------------------------------------------


For the fiscal year ending December 31, 2005, Wellco anticipates that the allocation between Drilling Services and Production Services revenue will be 77% and 23% respectively.

DIRECT COSTS AND GROSS MARGIN

For the three month period ended September 30, 2005 direct costs were $10.9 million (59% of revenue) as compared to $8.2 million (60% of revenue) in 2004. Direct costs for the nine months ended September 30, 2005 were $32.1 million (59% of revenue) as compared to $23.7 million (58% of revenue) in the corresponding period of 2004.

Gross margin for the three months ended September 30, 2005 was $7.6 million (41% of revenue) compared to $5.6 million (40% of revenue) in the corresponding period of 2004. Gross margin for the nine month period increased 30% to $22.0 million (41% of revenue) at September 30, 2005 as compared to $16.9 million (42% of revenue) in the same period of 2004. We expect our fiscal year 2005 gross margin to be in the 42-43% range.

Direct costs as a percentage of revenue decreased marginally during the third quarter of 2005 as compared to the third quarter in 2004. This slight decrease was in spite of higher wage costs, fuel cost increases and increased repairs and maintenance. The decrease is a result of higher activity levels and improved utilization rates on equipment in the third quarter. We are confident that with increased activity and the backlog of work being experienced by producers and drilling contractors there will be upward pressure on pricing in the fourth quarter of 2005 and into 2006.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses ("G & A") for the three month period ending September 2005 were $3.1 million (17% of revenue) compared to $2.0 million (14% of revenue) in 2004. General and administrative expenses increased from $5.8 million (14% of revenue) for the nine months ended September 30, 2004 to $8.4 million (16% of revenue) for the same period in 2005. The increase for the nine month period is due to the company wide integration program discussed earlier and in particular the increased staffing levels in the Human Resources, Safety and Finance areas of the Company that were initiated in the later part of the first quarter and also in the third quarter of 2005. We anticipate that our G&A as a percentage of revenue will be in the 14-15% range for fiscal 2005.

DEPRECIATION AND AMORTIZATION

For the three months ended September 30, 2005 depreciation and amortization was $1.9 million or 24% higher than the same period in 2004. For the nine month period ended September 30, 2005 depreciation expense was $5.1 million and amortization of intangibles and deferred financing costs totalled $0.3 million compared to $3.9 million of depreciation and less than $30 thousand of amortization in the corresponding period of 2004 for an overall increase of 37%. The increases are a direct result of the Trust's investment in corporate acquisitions, internal property and equipment additions and the new credit facility that was entered into at the end of May 2005. Depreciation and amortization was 10% of revenues in the first nine months of 2005 and 2004.

INTEREST - LONG-TERM AND OTHER DEBT

Interest expense on long-term and other debt was $0.2 and $0.5 million lower for the three and nine months ended September 30, 2005 as compared to the previous respective periods in 2004. The decrease is due to the aggressive program of debt reduction that had been taking place late in 2004 and early 2005 principally to pay off high interest rate debt that was inherited with the corporate acquisitions that were closed in the prior year. Going forward we expect to increase the Trust's leverage to take advantage of our new credit facility that was executed in the second quarter of 2005.

INCOME TAXES

Total income tax (reduction) for the three month period ending September 30, 2005 was $(0.2) million as compared to $(0.3) million in the corresponding period of 2004. The total expense (reduction) for income taxes for the nine months ended September 30, 2005 totalled $(0.4) million compared to $(0.2) million in the prior corresponding period of 2004. At the expected combined federal and provincial tax rate of 33.6%, net earnings before income taxes for the nine month period ended September 30, 2005 of $7.7 million would have resulted in an income tax provision of $2.6 million compared to the actual reduction provision booked of $(0.4) million. The resulting $3.0 million positive variance is the result of allocating $9 million of taxable income to unitholders for the first nine months of 2005.

DISTRIBUTIONS

The Trust declared distributions to unit holders of $10.0 million ($0.72/unit), or 76% of cash flow for the first nine months of 2005 compared to declared distributions of $8.5 million ($0.72/unit) or 83% of cash flow for the period ended September 30, 2004. The Trust's target for fiscal 2005 is to distribute in the range of 60% to 65% of its cash flow. Although weather materially hampered our results in the second quarter and partially in the third quarter, we continue to foresee distributions as compared to cash flow to be in the range of 60-65% as high activity levels are anticipated during the fourth quarter of 2005. The Trust also recently announced the acquisition of Flo-Safe Systems on October 3, 2005 which is expected to have an accretive effect on the cash flow of the Trust immediately.

For Canadian tax purposes, the non-taxable portion of distributions reduces a unit holder's adjusted cost base of Trust units. Further corporate acquisitions could serve to increase or decrease the non-taxable portion of distributions. The ultimate proportion of taxability of distributions will be determined at December 31, 2005 based on the Trust's activities. The Trust recommends that unitholders consult their tax advisors regarding the tax implications of their investment in Trust units.

PROPERTY AND EQUIPMENT

For the first nine months of 2005, $11.2 million was expended on additions to property and equipment, excluding corporate acquisitions and disposals. The additions consisted of:



- $ 2.2 million for wastewater treatment systems and surface rental
equipment;
- $ 2.2 million for service rig equipment;
- $ 1.4 million for land and buildings;
- $ 1.4 million for vacuum, hauling and service trucks;
- $ 1.2 million for office and shop equipment;
- $ 1.0 million for directional drilling equipment;
- $ 0.9 million for production testing and blow back tank equipment;
and
- $ 0.9 million for accommodations and related equipment.
-----
$11.2 million
-----
-----


The remaining 2005 capital build program, totalling approximately $14.7 million, will be completed and ready for service during the fourth quarter of this year with the exception of seven well shacks, which will be delivered in January and February of 2006. The remaining 2005 capital build program consists of the following:



- $ 8.0 million for accommodations and related equipment;
- $ 4.2 million for wastewater treatment systems and surface rental
equipment;
- $ 1.2 million for vacuum, hauling and service trucks;
- $ 0.8 million for production testing and blow back tank equipment;
and
- $ 0.5 million for office and shop equipment.
-----
$14.7 million
-----
-----


On March 31, 2005 we closed the purchase of the operating assets of BK Oilfield Disposal Ltd., a business involving oilfield garbage bin rentals and services for $2.2 million which was paid with cash.

On May 31, 2005, the Trust acquired all of the issued and outstanding shares of Trueline Oilfield Services Inc., a business involving production testing units and various ancillary rentals. The purchase price of $6.9 million, plus the assumption of $1.9 million in debt was paid by way of $2.7 million in cash and the issue of 454,060 Trust units at $9.36 per unit.

Proceeds on disposal of property and equipment for the nine month period ended September 30, 2005 totalled $10.1 million. Proceeds were received as follows:



Land and buildings $ 8.3 million
Hauling trucks 1.5
Miscellaneous other 0.3
-----
$10.1 million
-------------


LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2005 Wellco had working capital $9.5 million including the current portion of long-term debt. In addition on May 26, 2005 the Trust announced that it had executed a $40 million credit agreement. The facility consists of an extendible revolving operating credit line of $15 million, which includes a $5 million seasonality increase for peak activity periods, and an extendible revolving acquisition facility of up to $25 million to finance corporate and internal growth. Both facilities are currently being charged at bank prime rate of 4.5%. Management also believes that, dependent on capital and market conditions, the Trust has the ability to raise additional capital through the public or private issue of additional Trust units, if required. Management considers the resources available sufficient to fund Wellco's existing commitments and working capital requirements for at least the next year.

All covenants of the new banking facility were satisfied at September 30, 2005. The Trust does not anticipate any covenant issues restricting its future operating, investing or financing activities.



Wellco's contractual financial obligations are summarized as follows:

Payments Due by Period
------------------------------------------------------------------------
------------------------------------------------------------------------
Contractual Next 12 1-3 4-5 After 5
Obligations Total months years Years years
------------------------------------------------------------------------
Long-term debt $ 14,254 $ 2,650 $ 8,952 $ 2,652 $ -
------------------------------------------------------------------------
Operating leases $ 12,437 $ 2,211 $ 5,148 $ 1,559 $ 3,519
------------------------------------------------------------------------
Total Contractual
Obligations $ 26,691 $ 4,861 $ 14,100 $ 4,211 $ 3,519
------------------------------------------------------------------------
------------------------------------------------------------------------


CAPITALIZATION

The following table summarizes changes to Wellco's capitalization as
of October 31, 2005:

Outstanding Balance
January 1, 2005 Oct. 31, 2005
--------------------------------
Trust units 13,423,176 14,161,459
Series 'A' exchangeable shares 20,001 -
Series 'B' exchangeable shares 327,500 306,833
Series 'C' exchangeable shares 104,000 46,800
Trust unit options 1,184,835 1,078,543


Fiscal year to date as of October 31, 2005 Trust Unit issues
------------------------------------------------------------
Issued on acquisition of Trueline Oilfield Services Inc. 454,060
Issued on exchange of Series 'A' Exchangeable Shares 28,793
Issued on exchange of Series 'B' Exchangeable Shares 24,118
Issued on exchange of Series 'C' Exchangeable Shares 63,527
Issued on exercise of options 167,785
------------------------------------------------------------------------
Total trust units issued during period 738,283
Beginning trust units, January 1, 2005 13,423,176
------------------------------------------------------------------------
Ending trust units, October 31, 2005 14,161,459
------------------------------------------------------------------------
------------------------------------------------------------------------


OFF BALANCE SHEET ARRANGEMENTS

Wellco has not entered into any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of its operations or its financial condition.

TRANSACTIONS WITH RELATED PARTIES

There were no transactions with related parties during the first nine months ended September 30, 2005.

SEASONALITY AND WEATHER

The Trust's operations are carried out exclusively in western Canada. The industry's ability to relocate heavy equipment in the traditional Canadian exploration and production areas is dependent on weather conditions. With the onset of spring, melting snow together with frost leaving the ground, render many secondary roadways incapable of supporting the weight of heavy equipment until such time as they have thoroughly dried out. During excessively rainy periods, equipment moves may be delayed, thereby adversely affecting operations. In addition, the exploration areas of northern Canada are typically only accessible during winter months, when the surface is frozen hard enough to support heavy equipment. The timing of these periods, "spring break-up" and "winter freeze-up", have a direct bearing upon the Trust's activity levels. Accordingly, the Trust's prime operating seasons are late November through mid March and July through late September.

CRITICAL ACCOUNTING ESTIMATES

In the opinion of management, the material accounting estimates in the financial statements as contained herein, involve property and equipment, unit based compensation, goodwill, intangibles, the determination of depreciation and amortization expense and allowance for doubtful accounts receivable.

The value of property and equipment, goodwill and intangibles are subject to market conditions in the oil and gas industry. Depreciation is determined taking into account the estimated useful lives of assets and their residual values. These estimates could change for a variety of reasons, including, but not limited to, abnormal wear and tear conditions, changes in technology and other economic factors that could result in obsolescence. Such changes could have a material effect on future depreciation expense. A schedule of these estimates is contained in the notes to the audited annual consolidated financial statements.

Unit based compensation expense, associated with unit options at grant date, is subject to changes in risk free interest rates, unit price volatility and distribution yield rates. This estimate may vary due to changes in actual unit price.

The Trust performs credit evaluations of its customers and grants credit based on past payment history, financial conditions and anticipated industry conditions. Customer payments are monitored regularly and an allowance for doubtful accounts provision is established based on specific situations. Given the cyclical nature of the oil and gas industry, these credit risks are subject to change.

NON-GAAP MEASURES

The financial statements have been prepared in accordance with GAAP. Certain supplementary information and measures not recognized under GAAP are provided where Management believes they assist the reader in understanding Wellco's results. These measures include:

1. Cash flow - Cash flow is defined as funds 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. Investors should be cautioned, however, that cash flow should not be construed as an alternative to cash flow provided by (used in) operating activities, determined in accordance with GAAP, as an indicator of the Trust's performance. The Consolidated Statement of Cash Flows in the interim financial statements at September 30, 2005 includes a reconciliation of funds from operations. Wellco's method of calculating cash flow may differ from those of other companies, and accordingly, cash flow may not be directly comparable to measures used by other companies.

2. EBITDA - EBITDA is defined as earnings before interest, taxes, depreciation and amortization and (gain) or loss on sale of property and equipment. EBITDA is not a recognized measure under GAAP. Management believes however that EBITDA is a useful supplementary measure as it provides an indication of the operating results without regard to how these activities were financed or the how the results were taxed. Investors should be cautioned, however, that EBITDA should not be construed as an alternative to net income determined in accordance with GAAP as an indicator of the Trust's performance. 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.



The following is a reconciliation of EBITDA to net income:

Three months ended Nine months ended
September 30, September 30,
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
------------------------------------------------------------------------
Net Income $2,689 $1,948 $8,155 $6,122
Add:
Depreciation and amortization 1,862 1,504 5,343 3,886
Interest on long-term debt 160 410 486 1,089
Interest - other 46 3 103 28
Loss on disposal of
property and equipment 12 22 11 119
------------------------------------------------------------------------
4,769 3,887 14,098 11,244
Income taxes:
Current (recovery) 10 (2) 1 43
Future reduction (214) (290) (449) (212)
------------------------------------------------------------------------
EBITDA 4,565 3,595 13,650 11,075
------------------------------------------------------------------------
------------------------------------------------------------------------


CHANGES IN ACCOUNTING POLICIES

Management does not expect to change existing accounting policies during the 2005 fiscal year but will adopt new accounting policies as required under Canadian GAAP.

FINANCIAL INSTRUMENTS

Wellco's financial instruments consist of accounts receivable, an operating line of credit, long-term debt and accounts payable and accrued liabilities. There are no significant differences between the carrying values of these financial instruments and their estimated fair values. Of Wellco's financial instruments, only its accounts receivable represents credit risk. Management views the credit risks with its customers as normal for the industry. Approximately 13% of the Trust's total sales for the nine month period were derived from one customer. The customer is considered a senior oil and gas producer and is one of the largest in the industry.

OUTLOOK

Strong commodity prices continue to drive demand for services in the western Canadian sedimentary basin and it is expected to continue into 2006. Most industry analysts are indicating continuing high levels of activity for the western Canadian oilfield through the remainder of 2005 and into 2006.

Overall the oil and gas service industry should benefit from higher prices driven by the demand for services as oil and gas producers continue with active investment programs. In our service rig product line, price increases have taken effect. In our other service lines, we have been able to implement price increases to account for both demand peaks and increased operating costs. We expect to implement further increases through late fourth quarter and early in the first quarter of 2006.

At Wellco we are looking forward to a busy winter season. Activity levels in all product lines have accelerated and we expect to benefit from the effort across the industry to make up for time lost during the first half of the year. With the significant investment in equipment and key acquisitions, Wellco is committed to meeting customer demand and is well positioned to deliver solid financial and operational performance.



"Kenneth M. Bagan" "Corey Zahn"
----------------------------- ------------------------------
Kenneth M. Bagan Corey Zahn
President & Vice President, Finance &
Chief Executive Officer Chief Financial Officer


This MD&A may contain forward looking statements. All statements other than statements of historical fact contained herein are forward-looking statements, including without limitation, statements regarding Wellco Trust's future financial position, business strategy, projected costs and plans and objectives of management for future operations. Many of these statements can be identified by looking for words such as "believe", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. Wellco Trust cannot assure that the plan, intentions or expectations upon which its forward-looking statements are based will occur. Wellco Trust's forward-looking statements are subject to risks, uncertainties and assumptions, including those discussed elsewhere in this MD&A. Although Wellco Trust believes that the expectations represented in such forward-looking statements are reasonable, Wellco Trust cannot assure that its expectations will prove to be correct. Some of the risks which could affect Wellco Trusts' future results and could cause results to differ materially from those expressed in Wellco Trust's forward-looking statements include: risks inherent in the future prices of oil and natural gas, risks inherent in the United States to Canadian dollar exchange rates, risks inherent in the prices for services and government fiscal regimes and the risk that actual results will vary from the results forecasted and such variations may be material.



WELLCO ENERGY SERVICES TRUST
Consolidated Balance Sheets

(Expressed in thousands of dollars)

------------------------------------------------------------------------
September 30, December 31,
2005 2004
------------------------------------------------------------------------
(unaudited) (audited)
Assets

Current assets:
Accounts receivable $ 17,596 $ 18,869
Inventory 515 517
Prepaid expenses and deposits 3,002 684
Property and equipment held for
sale (note 4) 3,279 6,815
------------------------------------------------------------------------
24,392 26,885

Property and equipment (note 5) 66,626 61,777

Intangible assets 1,204 -

Goodwill 20,004 14,989

Deferred financing costs 155 218
------------------------------------------------------------------------
$ 112,381 $ 103,869
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current liabilities:
Operating line of credit (note 6) $ 4,690 $ 1,162
Accounts payable and accrued
liabilities 6,358 10,013
Distributions payable 1,132 1,074
Income taxes payable 53 170
Current portion of long-term
debt (note 7) 2,650 3,066
------------------------------------------------------------------------
14,883 15,485
------------------------------------------------------------------------

Long-term debt (note 7) 11,604 6,305

Future income tax liability 5,547 5,300

Unitholders' equity:
Trust units (note 8(a)) 84,710 78,916
Exchangeable shares (note 8(a)) 1,756 2,266
Contributed surplus (note 8(b)) 255 143
Accumulated earnings 21,325 13,170
Accumulated cash distributions (27,699) (17,716)
------------------------------------------------------------------------
80,347 76,779
Commitments (note 9)
Subsequent events (note 12)
------------------------------------------------------------------------
$ 112,381 $ 103,869
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board of Directors of Wellco Energy Services
Inc., Administrator of Wellco Energy Services Trust:

"Kenneth M. Bagan" Director "Martin Hall" Director
------------------- --------------------


WELLCO ENERGY SERVICES TRUST
Consolidated Statements of Earnings and Accumulated Earnings

(Expressed in thousands of dollars, except per unit amounts)
(Unaudited)

------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
2005 2004 2005 2004
------------------------------------------------------------------------

Revenue $ 18,517 $ 13,771 $ 54,119 $ 40,637

Direct costs 10,888 8,194 32,083 23,724
------------------------------------------------------------------------
7,629 5,577 22,036 16,913

Expenses:
General and administrative 3,064 1,982 8,386 5,838
Interest - long-term debt 160 410 486 1,089
Interest - other 46 3 103 28
Depreciation and
amortization 1,862 1,504 5,343 3,886
Loss on disposal of
property and equipment 12 22 11 119
------------------------------------------------------------------------
5,144 3,921 14,329 10,960

------------------------------------------------------------------------
Earnings before income taxes 2,485 1,656 7,707 5,953

Income taxes:
Current (recovery) 10 (2) 1 43
Future reduction (214) (290) (449) (212)
------------------------------------------------------------------------
(204) (292) (448) (169)
------------------------------------------------------------------------
Net earnings 2,689 1,948 8,155 6,122

Accumulated earnings,
beginning of period 18,636 7,381 13,170 3,207
------------------------------------------------------------------------
Accumulated earnings,
end of period $ 21,325 $ 9,329 $ 21,325 $ 9,329
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per unit:
Basic $ 0.18 $ 0.14 $ 0.57 $ 0.53
Diluted $ 0.18 $ 0.14 $ 0.56 $ 0.52
------------------------------------------------------------------------

Weighted average number
of units outstanding:
Basic 14,544,696 13,601,810 14,227,854 11,639,892
Diluted 14,779,426 13,781,164 14,442,231 11,870,397
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


WELLCO ENERGY SERVICES TRUST
Consolidated Statements of Cash Flows

(Expressed in thousands of dollars)
(Unaudited)

------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
2005 2004 2005 2004
------------------------------------------------------------------------

Cash provided by
(used in):
Operating:
Net earnings $ 2,689 $ 1,948 $ 8,155 $ 6,122
Items not affecting
cash:
Depreciation 1,790 1,495 5,087 3,858
Amortization 72 9 256 28
Trust unit option
compensation 49 140 160 238
Future income taxes
reduction (214) (290) (449) (212)
Loss on disposal of
property and equipment 12 22 11 119
Redemption premium on
debentures - 150 - 150
------------------------------------------------------------------------
Funds from operations 4,398 3,474 13,220 10,303

Net change in non-cash
working capital items
(note 10) (4,270) 250 (4,815) (5,287)
------------------------------------------------------------------------
128 3,724 8,405 5,016

Financing:
Proceeds of long-term debt 6,200 - 11,450 680
Distribution payments (3,386) (3,095) (9,925) (7,846)
Increase (decrease) in
operating line of credit 1,611 - 3,528 (4,475)
Repayment of long-term debt (380) (2,805) (6,834) (7,338)
Issue of trust units 370 304 986 58,052
Increase in deferred
financing charges - - (97) (50)
Repayment of debentures - (3,150) - (3,150)
Trust unit issue costs - (2) - (3,286)
------------------------------------------------------------------------
4,415 (8,748) (892) 32,587
Investing:
Purchase of property
and equipment (5,061) (12,685) (11,169) (19,720)
Proceeds on disposal
of property and
equipment 9 46 10,111 479
Business acquisitions
net of cash acquired
(note 3) - - (4,352) (8,428)
Change in non-cash working
capital (note 10) 509 - (2,103) -
------------------------------------------------------------------------
(4,543) (12,639) (7,513) (27,669)
------------------------------------------------------------------------
Increase (decrease) in cash
position - (17,663) - 9,934

Cash, beginning of period - 27,836 - 239

------------------------------------------------------------------------
Cash, end of period $ - $ 10,173 $ - $ 10,173
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


WELLCO ENERGY SERVICES TRUST
Notes to Consolidated Financial Statements

Three and nine months ended September 30, 2005
(Expressed in thousands of dollars, except per unit amounts)
(Unaudited)


1. Basis of presentation:

Wellco Energy Services Trust ("Wellco" or "the Trust") is a diversified Canadian energy services trust operating in western Canada. The Trust has two operating segments which provide a diversified suite of drilling and production services to oil and gas contractors and producers.

These interim unaudited consolidated financial statements of Wellco Energy Services Trust include the accounts of Wellco Energy Services Trust and its wholly-owned subsidiaries, (collectively referred to as "Wellco" or "the Trust"). The financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles for interim financial statements and following the same accounting policies and methods of computation as the consolidated financial statements for the fiscal year ended December 31, 2004 except as follows:

Intangible assets:

In conjunction with the acquisitions disclosed in note 3, the Trust has acquired intangible assets of $1,300 all of which are subject to amortization. The aggregate carrying amount is comprised of identifiable intangible assets including customers relationships and non-competition agreements. These assets are amortized on a straight-line basis over their estimated useful lives. From the date of acquisition $96 has been recorded as amortization expense relating to the intangible assets.

The disclosures provided below are incremental to those included in the annual consolidated financial statements such that these interim financial statements and the notes thereto should be read in conjunction with the Trust's audited financial statements for the year ended December 31, 2004 contained in the Trust's 2004 annual report.

2. Seasonality of operations:

The Trust's operations are carried out exclusively in western Canada. The industry's ability to relocate heavy equipment in the traditional Canadian exploration and production areas is dependent on weather conditions. With the onset of spring, melting snow together with frost leaving the ground, render many secondary roadways incapable of supporting the weight of heavy equipment until such time as they have thoroughly dried out. During excessively rainy periods, equipment moves may be delayed, thereby adversely affecting operations. In addition, the exploration areas of northern Canada are typically only accessible during winter months, when the surface is frozen hard enough to support heavy equipment. The timing of these periods, "spring breakup" and "winter freeze up", have a direct bearing upon the Trust's activity levels. Accordingly, the Trust's prime operating seasons are late November through mid March and July through late September.

3. Acquisitions:

(a) BK Oilfield Disposal Ltd.:

On March 31, 2005, the Trust purchased substantially all of the operating assets of BK Oilfield Disposal Ltd. and BK Disposal Ltd. for $2,200 plus transaction costs of $14.

(b) Trueline Oilfield Services Inc.:

On May 31, 2005, the Trust acquired all of the issued and outstanding shares of Trueline Oilfield Services Inc., a business involving the deployment of production testing units and various ancillary rentals. The purchase price of $6,934 was paid by way of $2,660 and 454,060 Trust Units at a price of $9.36 per unit, plus transaction costs of $24.



The allocation of the purchase prices are as follows.

------------------------------------------------------------------------
BK Disposal Trueline Oilfield
------------------------------------------------------------------------

Acquired cash $ - $ 546
Current assets 16 1,231
Property and equipment 1,805 3,548
Intangibles 200 1,100
Goodwill 193 4,822
Current liabilities - (3,350)
Long-term debt - (267)
Future income tax liability - (696)

------------------------------------------------------------------------
$ 2,214 $ 6,934
------------------------------------------------------------------------

Consideration:
Cash, including costs $ 2,214 $ 2,684
Trust units - 4,250

------------------------------------------------------------------------
$ 2,214 $ 6,934
------------------------------------------------------------------------
------------------------------------------------------------------------


4. Property and equipment held for sale:

During the third quarter of fiscal 2005 management evaluated and determined that the directional drilling assets were non-core to its existing operations. As a result, management committed to a plan to dispose of these assets, which closed on October 21, 2005 (see note 12). As a result, the assets have been reclassified to property and equipment held for sale. The directional drilling assets were classified in Drilling Services for segmented information purposes.



------------------------------------------------------------------------
September 30,
2005
Accumulated Net book
Cost depreciation value
------------------------------------------------------------------------

Service equipment $ 6,160 $ 2,881 $ 3,279

------------------------------------------------------------------------
$ 6,160 $ 2,881 $ 3,279
------------------------------------------------------------------------
------------------------------------------------------------------------


5. Property and equipment:

------------------------------------------------------------------------
September 30, December 31,
2005 2004
Accumulated Net book Net book
Cost depreciation value value
------------------------------------------------------------------------

Service equipment $ 77,415 $ 14,051 $ 63,364 $ 59,485
Office and shop
equipment 2,739 742 1,997 915
Building and
leasehold improvements 146 5 141 743
Land 1,124 - 1,124 634

------------------------------------------------------------------------
$ 81,424 $ 14,798 $ 66,626 $ 61,777
------------------------------------------------------------------------
------------------------------------------------------------------------


Included in property and equipment at September 30, 2005 is certain equipment under capital lease with a net book value of $1,694 (2004 - $1,839).

6. Operating line of credit:

The Trust has a $15,000 extendible revolving operating credit facility, which includes a $5,000 seasonality increase for peak activity periods. Drawings bear interest at bank prime rate. The facility is secured by a general security agreement covering all of the assets of the Trust. The effective interest rate at September 30, 2005 was 4.50%. At September 30, 2005, $4,690 (December 31, 2004 - $1,162) was drawn on the facility.



7. Long-term debt:

------------------------------------------------------------------------
September 30, December 31,
2005 2004
------------------------------------------------------------------------

Extendible revolving acquisition facility of
up to $25,000 requiring no principal payments
during the term, secured by a general
assignment of book debts and a security
arrangement covering all assets of the Trust; the
effective interest rate at September 30, 2005 was
4.50%. The facility expires on May 25, 2006
renewable at the lenders option, for an
additional 364 day period. If not renewed,
the facility is repayable over a period of three
years $ 11,450 $ -

Term debt, repayable in monthly instalments of
$87 plus interest at rates varying from 1.9% to
10.9%, maturing between October 2005 and January
2010, secured by the specific equipment 1,850 2,896

Obligations under capital leases, repayable in
monthly installments of $55 plus interest at
rates varying from 8.3% to 16.5%, secured by
the specific equipment 954 1,163

Term debt, repayable in monthly instalments of
$108, plus interest at the lenders' base rate
plus 3% and secured by fixed and floating
charges on specific equipment subordinate to
the bank operating facility - 5,312
------------------------------------------------------------------------
14,254 9,371

Less current portion 2,650 3,066

------------------------------------------------------------------------
$ 11,604 $ 6,305
------------------------------------------------------------------------
------------------------------------------------------------------------


8. Trust units and exchangeable shares:

(a) Issued:

------------------------------------------------------------------------
Trust Units: Number Amount
------------------------------------------------------------------------

Balance, December 31, 2004 13,423,176 $ 78,916

Issued on exchange of exchangeable shares 116,438 510
Issued on exercise of options 151,286 986
Issued on acquisition of Trueline Oilfield
Services Inc. 454,060 4,250
Transfer from contributed surplus on exercise
of trust options - 48

------------------------------------------------------------------------
Balance, September 30, 2005 14,144,960 $ 84,710
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
Exchangeable Shares: Number Amount
------------------------------------------------------------------------

Series A
Balance, December 31, 2004 20,001 $ 54
Exchanged for trust units (20,001) (54)
-----------------------------------------------------------------------
Balance, September 30, 2005 - -

Series B:
Balance, December 31, 2004 327,500 1,562
Exchanged for trust units (20,667) (99)
-----------------------------------------------------------------------
Balance, September 30, 2005 306,833 1,463

Series C:
Balance, December 31, 2004 104,000 650
Exchanged for trust units (57,200) (357)
-----------------------------------------------------------------------
Balance, September 30, 2005 46,800 293

------------------------------------------------------------------------
Balance, September 30, 2005 353,633 $ 1,756
------------------------------------------------------------------------
------------------------------------------------------------------------


The Exchangeable Shares are not eligible to receive cash distributions from the Trust.

The Exchangeable Shares are exchangeable for Trust Units based upon an exchange ratio, initially being one-to-one but then cumulatively adjusted each time a distribution is made to unitholders. Effective September 15, 2005 the exchange ratio of the Exchangeable Shares was 1.20275 Trust Units per Series B Exchangeable Share and 1.17408 Trust Units per Series C Exchangeable Share.

(b) Trust unit option plan:

In January 2003 a trust unit option plan was established providing for the issue of units with a term not to exceed 5 years. The options vest equally over a 3 year period from the date of issue. The initial exercise price cannot be less than the current market price of the Trust Units at the time of grant. The exercise price may be adjusted downwards if trust distributions exceed certain levels.

Changes in the number of options, with their weighted average exercise prices are summarized below:



------------------------------------------------------------------------
Number of Weighted average
options exercise price
------------------------------------------------------------------------

Total options outstanding,
beginning of period 1,184,835 $ 8.22
Granted 323,500 10.36
Exercised (151,286) 6.51
Cancelled (245,172) 9.00
------------------------------------------------------------------------
Outstanding, September 30, 2005 1,111,877 $ 8.90
------------------------------------------------------------------------
------------------------------------------------------------------------
Exercisable at September 30, 2005 236,349 $ 8.10
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
Options outstanding Options exercisable
----------------------------------- -----------------------

Weighted Number
Number average exercisable
Range of outstanding remaining Weighted at Weighted
Exercise at contractual average exercise average
Prices September 30, life exercise September 30, exercise
Outstanding 2005 (months) price 2005 price
------------------------------------------------------------------------

$5.00 - 6.35 216,539 35 $ 5.41 58,196 $ 5.09
$8.70 - 11.45 895,338 47 $ 9.64 178,153 $ 9.08
------------------------------------------------------------------------
------------------------------------------------------------------------


The Trust recorded trust unit option compensation expense and contributed surplus of $160 (2004 - $238) for the nine months ended September 30, 2005. The fair value of options issued during the period was estimated using a modified Black-Scholes pricing model with the following assumptions: risk-free interest rate ranging from 3.2% to 3.4%, volatility ranging from 18% to 22%, life of 5 years, distribution yield rates between 8% and 9.6%, and corresponding changes in exercise prices during the life of the option.

Contributed surplus was reduced and unit capital was increased by $48 (2004 - $ Nil) for options that were exercised during the nine months ended September 30, 2005.

9. Commitments:

The Trust rents premises and equipment under multiple operating contracts with varying expiration dates. The minimum lease payments under these leases over the next five fiscal years are as follows:



------------------------------------------------------------------------
2005 $ 572
2006 2,185
2007 2,013
2008 1,838
2009 1,001
------------------------------------------------------------------------
$ 7,609
------------------------------------------------------------------------
------------------------------------------------------------------------

10. Supplemental cash flow information:

------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Interest paid $ 206 $ 413 $ 589 $ 1,141
Interest received 5 74 12 231
------------------------------------------------------------------------
Income taxes paid $ - $ 604 $ 184 $ 604
------------------------------------------------------------------------

Changes in non-cash working
capital components:
Accounts receivable $ (764) $ (4,529) $ 2,490 $ 1,152
Income taxes recoverable - - - 489
Inventory (140) (212) 18 (96)
Prepaid expenses and
deposits (2,218) 1,367 (2,304) (236)
Accounts payable and
accrued liabilities (1,171) 4,228 (4,879) (5,955)
Income taxes payable 23 (604) (140) (641)
------------------------------------------------------------------------
(4,270) 250 (4,815) (5,287)

Changes in non-cash working
capital in investing
activities 509 - (2,103) -
------------------------------------------------------------------------
$ (3,761) $ 250 $ (6,918) $ (5,287)
------------------------------------------------------------------------
------------------------------------------------------------------------


11. Segmented information:

The Trust operates in two industry segments which are in one geographic segment. Drilling services includes accommodations and catering, directional drilling, wastewater treatment systems, hauling, vacuum and water trucks, oilfield surface equipment rentals and environmental technicians. Production services include service rigs, production testing and the rental of frac blow back tanks.

The drilling services operating segment includes services and rentals which assist oil and gas companies and contractors in drilling the oil and gas wells. The production services operating segment includes services and rentals which assist oil and gas companies produce from the successful drilling of the oil and gas wells.



------------------------------------------------------------------------
Drilling Production
Services Services Corporate Total
------------------------------------------------------------------------

Three months ended September
30, 2005:
Revenue $ 13,188 $ 5,329 $ - $ 18,517
Depreciation and
amortization 1,500 218 144 1,862
Interest on long-term debt - - 160 160
Net earnings (loss) 2,391 1,777 (1,479) 2,689
Goodwill 12,695 7,309 - 20,004
Property and equipment 50,043 14,678 1,905 66,626
Capital expenditures(a) 3,469 936 656 5,061
------------------------------------------------------------------------

Three months ended September
30, 2004:
Revenue $ 12,058 $ 1,713 $ - $ 13,771
Depreciation and
amortization 1,354 113 37 1,504
Interest on long-term debt - - 410 410
Net earnings (loss) 2,804 454 (1,310) 1,948
Goodwill 12,502 1,483 - 13,985
Property and equipment 54,262 7,830 429 62,521
Capital expenditures 9,546 2,991 148 12,685
------------------------------------------------------------------------
------------------------------------------------------------------------

(a) Excludes business acquisitions


Approximately 18.4% (2004 - 23.6% from two customers) of the Trust's total sales for the period were derived from one customer. This accounts for 35.2% (2004 - Nil) of the revenue in the production services division and 11.4% (2004 - 25.7%) of the drilling services revenue.



------------------------------------------------------------------------
Drilling Production
Services Services Corporate Total
------------------------------------------------------------------------

Nine months ended September
30, 2005:
Revenue $ 43,026 $ 11,093 $ - $ 54,119
Depreciation and
amortization 4,389 512 442 5,343
Interest on long-term debt - - 486 486
Net earnings (loss) 8,998 3,578 (4,421) 8,155
Goodwill 12,695 7,309 - 20,004
Property and equipment 50,043 14,678 1,905 66,626
Capital expenditures(a) 6,164 3,229 1,776 11,169
------------------------------------------------------------------------

Nine months ended September
30, 2004:
Revenue $ 36,791 $ 3,646 $ 200 $ 40,637
Depreciation and
amortization 3,541 254 91 3,886
Interest on long-term debt - - 1,089 1,089
Net earnings (loss) 9,313 1,098 (4,289) 6,122
Goodwill 12,502 1,483 - 13,985
Property and equipment 54,262 7,830 429 62,521
Capital expenditures(a) 16,014 3,360 346 19,720
------------------------------------------------------------------------
------------------------------------------------------------------------

(a) Excludes business acquisitions


Approximately 13.4% (2004 - 10.1%) of the Trust's total sales for the period were derived from one customer. This accounts for 24.6% (2004 - Nil) of the revenue in the production services division and 10.4% (2004 - 11.1%) of the drilling services revenue.

12. Subsequent Events:

(a) On October 3, 2005, the Trust acquired all of the issued and outstanding shares of Flo-Safe Systems Inc., a business involving the deployment of production testing units and various ancillary rentals. The purchase price of $8,850 including transaction costs was financed by the acquisition facility.

(b) On October 21, 2005, the Trust closed the sale of the directional drilling assets (see note 4) for cash consideration of $5,000. After anticipated severance and disposal costs, the net proceeds will be approximately $4,800. In addition the net proceeds could be further reduced by a maximum of $750 based on certain conditions contained in the purchase and sale agreement.

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

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