Bonnett's Energy Services Trust Announces 2007 Third Quarter Results



    CALGARY, Nov. 12 /CNW/ - The Trust's 2007 third quarter results were
affected by wet weather conditions and significantly lower industry
utilization levels than the third quarter of 2006. Higher than usual rainy
weather conditions in the third quarter hampered the Trust's ability to move
equipment and contributed to lower activity levels. The average active
drilling rig count in Canada was approximately 370 in the third quarter of
2007 versus 550 in the third quarter of 2006 and 510 for the same period in
2005.
    The Trust generated revenue of $18.3 million in the third quarter of 2007
compared to $29.7 million for the same period in 2006. EBITDAC(1) declined by
82% to $1.6 million in the third quarter of 2007 compared to $8.8 million in
2006. Net earnings declined by 590% in the third quarter of 2007 to a loss of
$30.6 million ($-2.62 per diluted unit) compared to $6.2 million in 2006
($0.53 per diluted unit).
    This significant decline in net earnings is primarily a result of a write
down of $31.7 million in the carrying value of goodwill. The value of the
goodwill on the Trust's balance sheet has been negatively affected by the
Federal government's decision to change the taxation rules as they apply to
income trusts, a general slowdown in natural gas drilling activity and the
uncertainty created by the Alberta government's decision to change the royalty
structure on natural gas production.
    The Trust has been aggressive with its cost reduction program to help
offset the effects of the reduced activity levels. The first round of cuts
announced in March of 2007 has resulted in approximately $7 million of
annualized cost savings. The second round announced in August should result in
an additional $2 million of annualized savings. The Trust will continue to
diligently monitor the industry activity levels and make any further
adjustments as required. In addition, the capital budget has been scaled back
to include only what has been previously committed to. No additional expansion
capital is anticipated until activity levels improve.
    The Trust also announced in September its intention to convert to a
publicly traded corporation. In conjunction with this plan, distributions have
been eliminated. This, along with the changes to the capital budget and the
cost reduction program, should have the effect of strengthening the Trust's
balance sheet over the next year.
    On November 6, 2007, the Trust accepted an offer to sell certain
fracturing assets for an aggregate purchase price of $24.8 million, which
approximates the current book value of the assets. Proceeds from this sale
will be used to reduce the current outstanding long-term debt.

    
    Highlights
    ----------

                        -----------------------------------------------------
    ($000's except per          Three Months Ended          Nine Months Ended
     unit amounts and                 September 30               September 30
     jobs completed)       2007     2006  % Change    2007     2006  % Change
                        -----------------------------------------------------
    Revenue              18,288   29,684      (38)  67,829   85,460      (21)
    EBITDAC(1)            1,609    8,758      (82)   8,162   25,338      (68)
    Funds flow from
     operations(2)          181    8,275      (98)   4,486   24,325      (82)
    Funds flow from
     operations per unit
      Per Unit - Basic     0.02     0.74      (97)    0.39     2.17      (82)
      Per Unit - Fully
       diluted             0.02     0.71      (97)    0.39     2.09      (81)
    Net earnings (loss) (30,568)   6,233     (590) (33,872)  15,483     (319)
    Impairment loss on
     goodwill(4)         31,658        -      100   31,658        -      100
    Earnings (loss)
     per unit
      Per Unit - Basic    (2.62)    0.55     (576)   (2.92)    1.38     (430)
      Per Unit - Fully
       diluted            (2.62)    0.53     (594)   (2.92)    1.33     (320)
    Distribution to
     unitholders          2,336    5,064      (54)  10,409   14,510      (28)
      Distribution per
       unit - basic        0.20     0.45      (56)    0.90     1.29      (30)
    Weighted average
     units
      Basic              11,645   11,246        4   11,582   11,213        3
      Diluted            11,646   11,657        -   11,615   11,638        -
    Jobs completed(3)     2,870    5,660      (49)  11,533   16,344      (29)
                        -----------------------------------------------------
                        -----------------------------------------------------
    

    Results From Operations
    -----------------------

    For the quarter ended September 30, 2007, the Trust generated revenues of
$18.3 million, a decrease of $11.4 million from revenues generated for the
same quarter in 2006. The Testing Services division, with a decrease of 77%,
showed the largest decrease in revenue generated due to decreased activity
levels. The Wireline Services division showed a year over year decrease in
quarterly revenue of 48% for the period as a result of wet weather conditions
and reduced industry activity levels. Offsetting the decline in revenues for
the Testing Services and Wireline Services divisions, the Well Stimulation and
Fishing and Rentals divisions both showed significant increases. The Well
Stimulation division increased revenue by 134% primarily due to the
commencement of the fracturing operations. The Fishing and Rentals division
increased revenue 72% due to the expansion of the fishing and pipe recovery
operations to three additional locations.
    Utilization rates in the third quarter of 2007 for the Wireline Services
division were 42% lower than the third quarter of 2006. Fewer jobs were
performed in 2007; and there was a slight decrease in average pricing of 1%.
    Utilization rates for the Testing Services division in the third quarter
of 2007 were 40% lower than for the same period in 2006. Pricing was 6% higher
in the third quarter of 2007; however, the number of jobs performed was lower
than the third quarter of 2006. The Testing Services division was impacted
significantly by the decrease in new well completion activity and increased
competition due to the migration of equipment from central Alberta to the
Grande Prairie region. Testing services tend to be very portable allowing
competitors to move equipment very easily without the need for support
infrastructure. The more severe slowdown in completion activity in Southern
Alberta has caused a migration of testing equipment into the Northern areas
where completion activity was more active. Once activity levels increase in
Southern Alberta, we expect utilization of our testing equipment to improve.
    The Well Stimulation division increased the average price per job in the
third quarter of 2007 versus the second quarter of 2006 due to the
commencement of fracturing operations. The first frac job was performed on
January 6, 2007. The Well Stimulation division completed 155 jobs during the
third quarter of 2007.
    The Fishing and Rentals division performed 28% more jobs at an average
35% higher rate in the third quarter of 2007 versus the third quarter of 2006.
The increase in the number of jobs performed was due to the expansion of this
division to three additional locations in 2007. Components of this division
have not been in operation for longer than a year and are still considered to
be in the start-up phase.
    Overall, the Trust had significantly lower utilization levels during the
third quarter of 2007 compared with the third quarter of 2006. Concerns over
natural gas storage levels and pricing in the last half of 2006 and the first
nine months of 2007 had the effect of reducing drilling and new well
completion budgets. The Trust's primary areas of operations also had
significant rainfall throughout the third quarter of 2007 versus 2006.
    Gross margin as a percentage of revenue of 15% for the third quarter of
2007 was 75% lower than the same quarter of 2006. This decrease was primarily
as a result of the fixed costs relating to the extensive internal expansion
combined with lower levels of drilling and completion activities.

    
                        -----------------------------------------------------
    ($000's except jobs             Three Months Ended September 30
     completed, and                 % of              % of
     utilization rates)    2007  Revenue     2006  Revenue   Change        %
                        -----------------------------------------------------
    Revenue
      Wireline Services  11,556       63   22,433       76  (10,877)     (48)
      Testing Services      990        5    4,372       15   (3,382)     (77)
      Well Stimulation    2,980       16    1,274        4    1,706      134
      Fishing and
       Rentals            2,762       16    1,605        5    1,157       72
                        -----------------------------------------------------
                         18,288      100   29,684      100  (11,396)     (38)
    Operating costs      15,581       85   18,718       63   (3,137)     (17)
                        -----------------------------------------------------
    Gross margin          2,707       15   10,966       37   (8,259)     (75)
                        -----------------------------------------------------
    Revenue per job
     completed
      Wireline Services    5.81        -     5.89        -    (0.08)      (1)
      Testing Services     3.52        -     3.31        -     0.21        6
      Well Stimulation    19.23        -     6.96        -    12.27      176
      Fishing and
       Rentals             6.19        -     4.60        -     1.59       35
                        -----------------------------------------------------
    Weighted average       6.37        -     5.24        -     1.13       22
                        -----------------------------------------------------
    Jobs completed
     (number)(1)
      Wireline Services   1,988        -    3,807        -   (1,819)     (48)
      Testing Services      281        -    1,321        -   (1,040)     (79)
      Well Stimulation      155        -      183        -      (28)     (15)
      Fishing and
       Rentals              446        -      349        -       97       28
                        -----------------------------------------------------
                          2,870        -    5,660        -   (2,790)     (49)
                        -----------------------------------------------------
    Utilization (%)(2)
      Wireline Services      32        -       74        -      (42)       -
      Testing Services       10        -       50        -      (40)       -
      Well Stimulation       17        -       40        -      (23)       -
                        -----------------------------------------------------
                        -----------------------------------------------------



                        -----------------------------------------------------
    ($000's except jobs              Nine Months Ended September 30
     completed, and                 % of              % of
     utilization rates)    2007  Revenue     2006  Revenue   Change        %
                        -----------------------------------------------------
    Revenue
      Wireline Services  45,687       67   62,778       73  (17,091)     (27)
      Testing Services    7,070       10   15,114       18   (8,044)     (53)
      Well Stimulation    8,221       12    3,444        4    4,777      139
      Fishing and
       Rentals            6,851       11    4,124        5    2,727       66
                        -----------------------------------------------------
                         67,829      100   85,460      100  (17,631)     (21)
    Operating costs      55,574       82   55,072       64      502        1
                        -----------------------------------------------------
    Gross margin         12,255       18   30,388       36  (18,133)     (60)
                        -----------------------------------------------------
    Revenue per job
     completed
      Wireline Services    5.83        -     6.19        -    (0.36)      (6)
      Testing Services     3.82        -     3.39        -     0.43       13
      Well Stimulation    16.81        -     6.40        -    10.41      163
      Fishing and
       Rentals             5.04        -     3.41        -     1.63       48
                        -----------------------------------------------------
    Weighted average       5.88        -     5.23        -     0.65       12
                        -----------------------------------------------------
    Jobs completed
     (number)(1)
      Wireline Services   7,832        -   10,136        -   (2,304)     (23)
      Testing Services    1,853        -    4,461        -   (2,608)     (58)
      Well Stimulation      489        -      538        -      (49)      (9)
      Fishing and
       Rentals            1,359        -    1,209        -      150       12
                        -----------------------------------------------------
                         11,533        -   16,344        -   (4,811)     (29)
                        -----------------------------------------------------
    Utilization (%)(2)
      Wireline Services      42        -       74        -      (32)       -
      Testing Services       24        -       60        -      (36)       -
      Well Stimulation       19        -       43        -      (24)       -
                        -----------------------------------------------------
                        -----------------------------------------------------


    Capital Expenditures
    --------------------

    During the third quarter of 2007, the Trust added the following:

    -   The Wireline Services division added associated wireline tools and
        equipment.
    -   The Well Stimulation division took delivery of the remaining pieces
        of the second fracturing spread with the exception of 4 pieces
        delivered in the fourth quarter of 2007.
    -   The Fishing and Rentals division added rentals, and fishing and pipe
        recovery tools for the new fishing and rentals locations.
    -   The Trust continued to convert divisions to its electronic field
        ticketing system.
    

    Liquidity
    ---------

    The Trust's working capital ratio at September 30, 2007 was 2.05
(December 31, 2006 - 1.59) (calculated as current assets divided by current
liabilities excluding current portion of long-term debt).
    The Trust's working capital deficiency, including current portion of
long-term debt, was $68.1 million at September 30, 2007. The Trust is
committed to fully repay its credit facilities as described in note 5 of its
September 30, 2007 financial statements. Management is currently negotiating
with its lenders with a view to putting longer term credit facilities in place
for the Trust. As well, management is considering various alternatives to
optimize the composition of its assets.
    On November 6, 2007, the Trust accepted an offer to sell certain
fracturing assets for an aggregate purchase price of $24.8 million. The
proceeds from the sale of these assets will be used to reduce the current
outstanding long-term debt.

    Long-term debt
    --------------

    At September 30, 2006, the Trust had aggregate debt of $79.2 million
comprised of $79.2 million of current portion of long-term debt.
    Of the total aggregate debt, term debt of $47,000 represents finance
contracts on specific equipment. This term debt is repayable in various
monthly installments and bears interest at a rate up to 2.9%, maturing between
2007 and 2008. Collateral for the term debt is specific equipment. Obligations
under capital leases equate to $96,000 and are repayable in monthly
installments including interest at rates from 6.9% to 9.2%. Collateral for the
capital leases is specific equipment. Monthly installments for the term debt
and capital leases total approximately $25,000 per month.
    Amounts owing under these Credit Facilities rank in priority to amounts
payable to the Trust from Bonnett's Energy Services, L.P., Bonnett's Energy
Services Ltd. and Bonnett's Holding Trust, and the payments of any such
amounts will be prohibited upon a default under the credit agreement. Subject
to certain cash flow tests, the Trust may make distributions to the
unitholders so long as no default has occurred or would result from such
distribution. Default has been made during the third quarter ended
September 30, 2007 and distributions suspended.
    On August 7, 2007, the Trust negotiated credit facilities with a
syndicate of Canadian banks. The credit facilities consist of an extendible
revolving acquisition facility of up to $30.0 million and an extendible
revolving operating facility of up to $20.0 million subject to certain margin
calculations and $50.0 million non-revolving term facility. The revolving
operating and non-revolving term facilities are interest only until March 31,
2008. The revolving acquisition facility was to be retired October 31, 2007.
    As of October 31, 2007, the Trust was in breach of certain financial
covenants under the facility. An amending agreement was signed with the
banking syndicate who have agreed to waive the breaches of the specific
financial covenants until January 31, 2008. Each of the Trust's revolving
operating facility, revolving capital acquisition facility and non-revolving
term facility will now mature on January 31, 2008. Management expects that the
amendment of the credit agreement will, among other things, result in (a) the
amount of the revolving capital acquisition facility being repaid and the
amount of the revolving operating and non-revolving term facilities remaining
unchanged, with the revolving operating facility subject to certain margin
calculations. Management is currently negotiating with its lenders with a view
to putting longer term credit facilities in place for the Trust. As well,
management is considering various alternatives to optimize the composition of
its assets.
    Collateral for the facility is a general assignment of book debts and a
general security agreement over all assets of the Trust. The revolving
acquisition facility and the non-revolving term facility are for the purposes
of acquiring new capital.

    Outlook
    -------

    General industry conditions

    Concerns over natural gas inventory levels have caused prices to weaken
during the second half of 2006 and into 2007. The result has been a decrease
in activity levels that has extended into 2007. These lower levels of activity
are also expected to continue into the fourth quarter of 2007. Shallow areas
of the Western Canadian Sedimentary Basin ("WCSB") have seen the most
significant decrease in activity; however, activity levels in deeper areas of
the basin have also seen a slowdown in the fourth quarter of 2006 and the
first nine months of 2007. Further affecting activity in the deeper areas of
the basin is increased competition resulting from the migration of equipment
from other areas. As activity levels increase in the shallow areas of the
WCSB, this migration is expected to reverse.
    The rising Canadian dollar has also negatively impacted activity. As the
Canadian dollar rises, oil and gas producers see a decrease in revenue priced
in US dollars. Since most of their costs are priced in Canadian dollars, this
has the effect of reducing their profits.
    Significant uncertainty surrounds the markets in regards to the royalty
framework in Alberta. On October 25, 2007, the Alberta government released its
"New Royalty Framework". The new framework contains increases in royalties on
energy development; oil sands, conventional oil and natural gas. Royalties
will be set by a single sliding rate formula containing separate elements that
account for commodity prices and production. All changes take effect January
2009 with no grandfathering of existing projects. Various oil and gas
producers have expressed their concern over the increase in royalties and
their anticipated decrease in profits, and as such, may significantly reduce
spending beyond 2008.
    The Trust executed a large capital program in 2006, which has increased
capacity significantly. Most of this equipment has been deployed at the end of
the third quarter of 2007. The benefits of this expansion are expected to be
realized once drilling activity levels increase. Most analysts expect this
recovery to happen later in 2008.

    
    Notes:

    (1) Earnings before interest, taxes, depreciation, amortization and unit
        based compensation and certain other items ("EBITDAC") is not a
        recognized measure under Canadian Generally Accepted Accounting
        Principles (GAAP). Management believes that in addition to net
        earnings, EBITDAC is a useful supplemental measure as it provides an
        indication of the results generated by the Trust's principal business
        activities prior to consideration of how those activities are
        financed or how the results are taxed. These measures are identified
        and presented, where appropriate, together with reconciliations to
        the equivalent GAAP measure. However, they should not be used as an
        alternative to GAAP, because they may not be consistent with
        calculations of other companies or trusts.
    (2) Funds flow or funds flow from operations, refers to cash flow from
        operations before changes in non-cash working capital. The Trust
        views cash flow from operating activities before changes in non-cash
        working capital balances, hereafter referred to as Funds Flow, as a
        measure of liquidity, and believes that Funds Flow is a metric used
        by many investors to assess the financial performance of the Trust.
        As the Trust may distribute a portion of its cash on an ongoing
        basis, the Trust believes that Funds Flow is an appropriate
        consideration in determining funds available for distribution to
        unitholders. Although changes in non-cash working capital balances
        will impact cash available to finance distributions, these changes
        will be a source of cash in one period and a use of cash in another
        depending on changes in the level of activity in a particular period
        due to seasonality and other factors. Absent a sustained period of
        growth in the Trust's business, changes in non-cash working capital
        will generally not be a use of cash by the Trust over a longer period
        of time, although that may be the case from one quarter to the next.
        Given that these changes are not predictable and tend to even out
        over time, management does not believe it is appropriate to include
        such changes in determining cash flow from operating activities being
        a measure used to indicate capacity of the Trust to generate cash
        flow for paying distributions in the future. Any use of cash from an
        increase in working capital in a particular period will be financed
        by the Trust's credit facilities and repaid when non cash working
        capital decreases and cash is generated. See the heading "Funds flow
        from Operations" for a reconciliation to the equivalent GAAP measure.
        Funds flow should not be used as an alternative to GAAP, because it
        may not be consistent with calculations of other companies or trusts.
    (3) The Trust's method of calculating jobs completed may differ from
        other companies or trusts and may not be comparable to measures used
        by other companies or trusts. Jobs completed are the total of all
        jobs completed during the period.
    (4) Impairment tests were performed on intangible assets and goodwill at
        September 30, 2007. The results of the tests indicated that the
        carrying amount of goodwill exceeded fair value. The conditions which
        precipitated the impairment of goodwill were impacted by external
        factors such as commodity pricing, new government regulations
        regarding income trusts and royalties, currency exchange rates which
        in turn impacted industry activity levels and equipment utilization
        rates. Cost pressures combined with the increased value of the
        Canadian dollar have adversely impacted operating margins and future
        expectations of activity levels in the oil and gas service industry.
        These conditions have resulted in the enterprise value of the Trust
        being eroded, which is reflected in the value of the Trust at
        September 30, 2007. Accordingly, $31.7 million was recorded as
        goodwill impairment in the current period and the carrying value of
        goodwill was reduced from $ 46.7 million to $ 15.0 million.
    

    Disclosure Regarding Forward-Looking Statements
    -----------------------------------------------
    Certain statements contained in this news release constitute
forward-looking statements. When used in this document, the words "may",
"would", "could", "will", "intend", "plan", "anticipate", "believe", "seek",
"propose", "estimate", "expect", and similar expressions, as they relate to
the Trust, are intended to identify forward-looking statements. Such
statements reflect the Trust's current views with respect to future events and
are subject to certain risks, uncertainties and assumptions, including,
without limitation, those described in this news release under the heading
"Risks and uncertainties", and "Outlook". Many factors could cause the Trust's
actual results, performance or achievements to vary from those anticipated in
this news release. Should one or more of these risks or uncertainties
materialize, or should assumptions underlying forward-looking statements prove
incorrect, actual results may vary materially from those described in this
news release as intended, planned, anticipated, believed, estimated or
expected. Except where required by law, the Trust does not assume any
obligation to update these forward-looking statements if conditions or
opinions should change. Readers should not place undue reliance on
forward-looking statements.

    Additional Information
    ----------------------
    Additional information relating to the Trust is filed on SEDAR and can be
viewed at www.sedar.com. This information includes the Trust's Annual
Information Form dated March 31, 2007. Information can also be obtained by
contacting the Trust at Bonnett's Energy Services Ltd., R.R. 2, Site 33,
Box 1, Grande Prairie, Alberta T8V 2Z9. Information is also available at the
Trust's website at www.bonnettsenergy.com.

    %SEDAR: 00022595E




For further information:

For further information: Murray Toews, Chief Executive Officer or Kelvin
Torgerson, Chief Financial Officer at (780) 830-2705, Fax: (780) 532-4811,
Email: info@bonnettsenergy.com

Organization Profile

BONNETT'S ENERGY SERVICES TRUST

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890