Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd.

November 11, 2009 07:00 ET

Wenzel Downhole Tools Ltd Announces Third Quarter Results for 2009

CALGARY, ALBERTA--(Marketwire - Nov. 11, 2009) - Wenzel Downhole Tools Ltd. (the "Company") (TSX:WZL) announces financial results for the third quarter ended September 30, 2009.

2009 Third Quarter Results

Consolidated revenues for the third quarter were $9.0 million, a modest improvement from the second quarter but down significantly from the record revenues of $17.2 for the same quarter in 2008. These reduced revenues are attributable to the world recession and the related and consequential drop in oil and natural gas prices from the very high levels of 2008. This in turn led to significant reductions in the number of wells drilled by the oil and gas industry. On a global basis drilling activity was down 40% in Q3 of 2009 compared to the same period in 2008. The number of rigs working during the quarter was down by a 56% in Canada and in the US the reduction was 46%. This decreased drilling activity also led to intense pricing pressures, particularly in the US, and thus lower margins.

Compared to the second quarter of 2009, consolidated revenues for Q3 are up by $135 thousand and while the net profits for the quarter were a negative $843 thousand, this is a $482 thousand improvement over Q2. EBITDA for Q3 was $743 thousand compared to $186 thousand in Q2. The improvement in profits and EBITDA reflect improved operating efficiency and cost reductions implemented by the Company including a reduction in headcount by 32%.

In Canada, Q3 revenues are well up from Q2 which is normally the slowest quarter for drilling activity but are down 52% from the same quarter in 2008. This reflects the 63% reduction in drilling activity in Q3 2009 compared to 2008. Pricing pressures due to increased competition for the available jobs also reduced revenues. With oil and natural gas prices gradually increasing from the very low levels experienced earlier in the year drilling activity is also gradually increasing. For the Company this has produced a growing increase in business throughout the quarter. Going into the fourth quarter the growth in business has required the Company to add a second shift to its service operations in Edmonton. While the Company is hopeful this upward trend will continue, industry trade groups representing drilling contractors and service companies have produced forecasts suggesting a continuing low level of activity into 2010. In recognition of this the Company continues to careful monitor costs, to introduce new and improved products and to seek new market opportunities.

US revenues for Q3, 2009 were $3.5 million, a decrease of 60% from the same period in 2008. This reduction in revenues reflects the decreased drilling activity compared to 2009 as well as the increased pricing pressures. The 8% increase in the Canadian dollar between the start and the end of the third quarter also reduced US revenues as expressed in Canadian dollars, as well as reducing margins. While the reduction in rigs working in the US is 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 and in the Bakken oil play in North Dakota. The Company has rental tools in use in all these 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 $2.6 million for the third 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. This notwithstanding, third quarter revenue from international sales is essentially the same in 2009 as compared to 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 an after tax loss for the third quarter of $0.8 million of which $0.4 million 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 $0.03.

With oil and gas prices on the rise, albeit at modest rates, there will likely be a continuing increase in total wells drilled in North America for the foreseeable future. In addition it is evident that directional and horizontal wells will be making up a growing percentage of these new wells. Both of these trends are bullish for the Company's growth prospects. The Company intends to retain its policy of continuing product improvement and to ensure that its reputation for producing the highest quality downhole tools is matched by the quality of its service.

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 regions 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. Year-to-date cash flow remains positive and the Company continues to pay down its long term debt obligations.

($000's except for earnings per share)
12 Months
3 Months Ended 9 Months Ended Ended
September 30 September 30 December 31
2009 2008 2009 2008 2008
Revenue 9,031 17,154 33,955 50,841 71,767
Gross profit 1,935 8,277 10,119 21,813 31,527
Gross profit percentage 21% 48% 30% 43% 44%
EBITDA (1) 743 7,511 4,792 18,142 25,429
Earnings (loss) before
income taxes (1,440) 5,615 (1,596) 12,376 18,053
Net earnings (loss) (843) 3,805 (1,066) 8,533 12,425
Net earnings (loss) per share
- basic & diluted (0.03) 0.12 (0.03) 0.28 0.41
Total assets 60,174 62,842 60,174 62,842 66,750
Long term debt 1,001 2,470 1,001 2,470 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 and loss
on re-measurement of derivative asset have been excluded so as to make year
to year comparisons more meaningful.

12 Months
3 Months Ended 9 Months Ended Ended
Sep 30 Sep 30 December 31
2009 2008 2009 2008 2008
Net earnings (loss) $ (843) $ 3,805 $(1,066) $ 8,533 $12,425
Income taxes (597) 1,810 (529) 3,843 5,628
Depreciation and amortization 2,032 1,684 5,764 5,005 6,726
Interest 122 188 351 628 775
Stock based compensation 2 24 9 133 138
Loss on re-measurement of
derivative asset 27 - 263 - (263)
EBITDA $ 743 $ 7,511 $ 4,792 $ 18,142 $25,429

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 US headquarters and service facilities are in Conroe, Texas, with service and sales offices in Casper, Wyoming and Morganton, West Virginia and a sales office in Oklahoma City, Oklahoma. Wenzel Downhole Tools Ltd. is listed for trading on the TSX, symbol WZL. The Company's Third Quarter Consolidated Financial Statements and Management's Discussion and Analysis will be posted on SEDAR (www.sedar.com) on or about November 12, 2009.

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.


Contact Information

  • Wenzel Downhole Tools Ltd.
    Harvie Andre
    President and CEO
    (403) 262-3050
    (403) 265-8154 (FAX)
    Wenzel Downhole Tools Ltd.
    William T. Spence
    Chief Financial Officer
    (403) 262-3050
    (403) 265-8154 (FAX)