Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd.

November 13, 2007 07:00 ET

Wenzel Downhole Tools Ltd Announces Third Quarter and Nine Month Results for 2007

CALGARY, ALBERTA--(Marketwire - Nov. 13, 2007) - Wenzel Downhole Tools Ltd. (TSX:WZL) announces its unaudited financial results for the third quarter and the nine month period ended September 30, 2007.

2007 Third Quarter Results and Highlights of Operations.

The third quarter ending September 30, 2007 was for Wenzel Downhole Tools a period of mixed results. Continuing a trend started in 2006, the growth of revenue in the U.S., primarily from rental of drilling tools, was excellent. The Company's high quality drilling tools are getting very positive responses from users, producing growth rates constrained to a degree by capacity limitations to which the Company is responding. The Company expects the current growth in the U.S. to continue through 2008.

Contrary to the U.S., the situation in Canada is much less buoyant. The continuing surplus of natural gas with the ensuing lower prices, coupled with uncertainty associated with the Alberta Royalty Review and the rapid appreciation of the Canadian dollar compared to the U.S. dollar has produced a significant reduction in drilling activity and thus reduction in demand for the drilling tools the Company produces, rents and sells. The high quality of the Wenzel drilling motor with its patented technology is gaining wider recognition within the industry and several companies which had not previously been Wenzel customers have added Wenzel motors to their list of suppliers. The Company believes that this relatively new development will lead to increasing market share for Wenzel Downhole Tools. However industry predictions are for a decrease in drilling of 16% in 2008 compared to 2007.

Unlike the U.S. and Canada, sales to international customers tend to be fewer in number but larger in value. This creates an unevenness in international sales figures and thus makes quarter-to-quarter comparisons less meaningful. Quarter three of 2007 shows a very modest figure for international sales but this is not a reflection of stagnant international activity. Sales in Russia and in the Middle East, for the fourth quarter of 2007 should match those of the first three quarters of the year. Moreover the Company is optimistic that this sales growth will continue subject to the ongoing political risk associated with the Middle East.

Overall the Company remains very optimistic concerning U.S. sales and international sales. Canada will remaining a challenging market in the short term but the Company feels that its products and service retain a solid reputation for quality which will allow for it to operate profitably in Canada as well as the rest of the world.

($000's except for earnings per share)
3 Months Ended 9 Months ended Ended
September 30 September 30 December 31
2007 2006(2) 2007 2006(2) 2006
Revenue 11,192 14,198 36,657 35,896 55,552
Gross Profit 5,238 6,900 16,376 18,624 27,220
Gross Profit Percentage 47% 49% 45% 52% 49%
Earnings before interest,
amortization, stock based
compensation and other
expenses (Notes (1)
and (2)) 2,096 5,302 8,392 13,954 18,421
Operating earnings (loss)
before other expenses
and income taxes (Note (2)) (10) 3,655 2,291 8,385 11,241
Earnings (loss) before
income taxes (Note (2)) (18) 2,466 2,239 6,433 9,197
Net earning (loss)
(Note (2)) (70) 1,674 1,332 4,191 4,817
Net earnings (loss)
per share 0.00) 0.06 0.04 0.14 0.16
Total Assets 58,178 53,435 58,178 53,435 61,060
Long Term Debt 4,020 5,454 4,020 5,454 5,115

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 and other expenses, due mainly to extra professional costs
associated with the investigations arising from the cease trade
order, the recent takeover bid, and related regulatory matters have
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.

Note (2) The 3 month and 9 month periods ended September 30, 2006 as
previously reported have been adjusted for $0.225 million of
selling expenses that should have been recorded in the third
quarter of 2006.

Consolidated revenues for Q3, the three month period ending September 30, 2007, were $11.2 million, a decrease of 21% from the same period in 2006. Revenues for the nine month period ending on that date were $36.7 million, a 2% increase over the revenues for the first nine months of 2006. The reduction in revenues for Q3 and modest increase for the year to date, are attributable to three factors.

The most important factor is the decrease in drilling in Canada during 2007 in comparison to 2006. According to industry figures the total daily average number of rigs working in the first nine months of 2007 compared to 2006 is down by 34%. This decrease is caused by the decrease in natural gas prices and partially by the uncertainly flowing from the Alberta Royalty Review. A second significant factor was the increasing value of the Canadian dollar compared to the U.S. Significant increases in sales in the U.S. were moderated somewhat when translated into Canadian dollars. A third significant factor was a slippage in some of the international sales. While international sales for the nine months ending September 30, 2007 were similar to those for the same period in 2006, Q3 sales were down. However the current backlog of international orders to be delivered by year-end should equal those delivered in the first nine months.

The area with the greatest growth potential for the Company is in the U.S. which provided more than 50% of total Company sales in Q3 of 2007. Total U.S. revenue in Q3 of 2007 was $6 million, an increase of 36% over Q3 of 2006. For the nine month period ending September 30, 2007, the increase in sales in the U.S. was 63% compared to the same period in 2006. The level of drilling in the U.S. is very high and it is projected that total capital spending by the oil and gas industry on drilling will continue to increase in 2008. The Company will be moving more capital assets to the U.S. and expanding its operations there, so as to continue the growth in U.S. revenue.

Costs and Expenses

The Cost of Goods and Services for the third quarter has resulted in a 47% gross margin for the quarter, roughly in keeping with historic values for the Company. The slight decrease in margin compared to the third quarter of 2006 is due to additional depreciation resulting from the larger capital base. The Company believes a 50% gross margin is appropriate and attainable for the Company.

Approximately one-half of the increase in expenses in the third quarter of 2007 compared to the same quarter in 2006 is due to more employees in the U.S., necessitated by the increase in business. Other significant increases in expenses were increased professional fees and foreign exchange due to the appreciation of the Canadian dollar relative to the U.S. dollar.

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 Toronto Stock Exchange, symbol WZL. The Company's consolidated financial statements and Management's Discussion and Analysis are posted on SEDAR (www.sedar.com).

Forward Looking Statements

This press release contains certain forward looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control, including management's assessment of the future plans and operations of the Company and including the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond these parties' control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.

Actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward looking statements and 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, including the amount of proceeds, that the Company will derive there from. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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

Contact Information

  • Wenzel Downhole Tools Ltd.
    Harvie Andre
    President and CEO
    (403) 205-6696
    Wenzel Downhole Tools Ltd.
    William Spence
    (403) 205-6696
    (403) 265-8154 (FAX)