Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd.

August 13, 2009 07:00 ET

Wenzel Downhole Tools Ltd Announces Second Quarter Results for 2009

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2009) - Wenzel Downhole Tools Ltd. (the "Company") (TSX:WZL) announces financial results for the second quarter ended June 30, 2009.

2009 Second Quarter Results

Consolidated revenues for the second quarter were $8.9 million, compared to $17.7 for the same quarter in 2008. This 49% drop is attributable to the world recession and the related and consequential drop in oil and natural gas prices, which in turn led to significant reductions in the number of wells drilled by the oil and gas industry.

In Canada, Q2 is normally the slowest quarter for drilling activity due to spring breakup and the related difficulty in moving equipment. A cooler and wetter spring, plus the reduced spending by the E & P sector, resulted in the average number of rigs working being at their lowest levels since 1999. Canadian drilling activity was down by 52% for the quarter compared to 2008. Pricing pressures due to increased competition for the available jobs also reduced revenues. With natural gas prices continuing at current low levels, drilling activity remains sluggish and will likely remain so for some months. In response to these conditions the Company is cutting costs, introducing improved products and seeking new market opportunities.

U.S. revenues for Q2, 2009 were $3.5 million, a decrease of 58% from the same period in 2008. This reduction in revenues reflects the decrease in drilling activity of 46% and the increased pricing pressures. The 9% increase in the Canadian dollar between the start and the end of the second quarter also reduced US revenues as expressed in Canadian dollars, as well as reducing margins. While the reduction in rigs working in the US appears to be reversing, the overall activity level remains much lower than in the equivalent periods for the last several years. There is however increased activity in the shale gas plays of northwestern Louisiana and along the western slopes of the Appalachian Mountains of West Virginia and Pennsylvania. The Company has rental tools in use in both areas and its new service center in Morgantown West Virginia will be fully operational in the current quarter. Management believes that the current upward trend in drilling activity will accelerate, even if modestly, and that the Company is well positioned to maintain and grow its position in the US market.

Revenues from sales outside of North America were $4.2 million for the second quarter of 2009. The Company's international orders tend to be fewer in number but larger in size and thus quarter to quarter comparisons can be misleading. While second quarter revenue from international sales was down 17% from the previous year, year-to-date revenue from international sales was up 30% from 2008. The Company expects that for the full year, 2009 revenues from international sales will match and perhaps exceed the sales of 2008, even though the worldwide reduction in petroleum prices has had a negative effect on international activity, albeit not to the same extent as in North America.

Overall Performance

The decrease in revenues produced a net pre tax loss for the second quarter of $2.0 million of which $950 thousand was due to foreign exchange losses caused by the appreciation in the Canadian dollar versus the US dollar and the re-measurement of the back-orders denominated in euros, which are deemed to be derivative assets. The after tax loss per share was $0.04. In response to these current market conditions the Company has reduced it head count by 32 % since year-end and continues to seek cost reductions which will not handicap the Company when current conditions change.

While there does not appear to be a consensus as to when natural gas prices will regain strength, it appears that the bottom has been reached and that the next moves in prices will be upward. The Canadian market remains stagnant with some exceptions and the US market is growing but currently at a slow rate. The Company is endeavoring to position itself to fully participate in the next upward moves when they occur.

Internationally the Company is experiencing a growing interest from current and potential customers. The directional and horizontal drilling techniques developed and extensively used in North America are being applied in petroleum basins around the world, thus creating a growing market for the equipment, including downhole tools, needed for such drilling. The Company is receiving requests for quotations on Downhole tools from a variety of areas and expects to see, in the coming months, growing sales into the Middle East, Latin America and North Africa. In anticipation new machine tools have been added to our manufacturing operations which will improve their efficiency and productivity.

Financially the Company remains in good shape. Current assets exceed total liabilities. Cash flow remains positive and the Company continues to pay down its long term debt obligations.

($000's except for earnings per share)
3 months ended 6 months ended 12 months ended
June 30 June 30 December 31,
2009 2008 2009 2008 2008
Revenue 8,896 17,692 24,924 33,686 71,767
Gross profit 2,520 6,998 8,184 13,537 31,527
Gross profit percentage 28% 40% 33% 40% 44%
EBITDA (1) 35 5,351 3,813 10,633 25,692
Earnings (loss) before
income taxes (1,981) 3,386 (156) 6,761 18,053
Net earnings (loss) (1,325) 2,410 (223) 4,729 12,425
Net earnings (loss) per
share - basic &
diluted (0.04) 0.08 (0.01) 0.15 0.41
Total assets 61,222 57,556 61,222 57,556 66,750
Long term debt 1,253 2,827 1,253 2,827 2,220

Note (1) EBITDA, or earnings before interest, taxes, depreciation and
amortization is calculated by adding these items back to reported
net earnings. In addition to EBITDA, stock based compensation
expense has been excluded so as to make year to year comparisons
more meaningful. Management uses EBITDA as a measurement to
determine the ability of the Company to generate cash from normal
operations. EBITDA does not have a standardized meaning for
Canadian generally accepted accounting principles ("GAAP") and
therefore may not be comparable with calculations of similar
measures presented by other issuers. EBITDA is not intended to
represent net income for the period nor should it be viewed as an
alternative to operating or net income or other measures of
financial performance calculated in accordance with GAAP.

About Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd. is a manufacturer, seller and renter of drilling tools used in oil and gas exploration. In Canada the company has its manufacturing and servicing facilities located in Edmonton, Alberta and its corporate offices in Calgary, Alberta. Its U.S. headquarters and service facilities are in Conroe, Texas, with a service and sales office in Casper, Wyoming and a sales office in Oklahoma City, Oklahoma. Wenzel Downhole Tools Ltd. is listed for trading on the TSX, symbol WZL. The Company's Second Quarter Consolidated Financial Statements and Management's Discussion and Analysis will be posted on SEDAR (www.sedar.com).

This news release may contain forward-looking information. Actual future results may differ materially from those contemplated. The risks, uncertainties and other factors, both known and unknown, that could influence actual results may be substantial and include those described in documents filed with regulatory authorities, such as the Company's most recently filed Annual Report and Annual Information Form. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive therefrom. Please refer to the Company's public disclosure documents for more information on these risks and uncertainties as they apply to the Company.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy and accuracy of this news release.

Contact Information

  • Wenzel Downhole Tools Ltd.
    Harvie Andre
    President and CEO
    (403) 265-8154 (FAX)
    Wenzel Downhole Tools Ltd.
    William T. Spence
    Chief Financial Officer
    (403) 265-8154 (FAX)
    Website: www.downhole.com