Deepwell Energy Services Trust reports third quarter results



    /NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN
    THE UNITED STATES./

    CALGARY, Nov. 8 /CNW/ - Deepwell Energy Services Trust ("Deepwell" or the
"Trust") is pleased to announce results from the third quarter of 2007. In the
third quarter, Deepwell achieved a seven percent increase in EBITDA(1) and
funds from operations(1) over the same period in 2006. Deepwell recorded
revenue of $3,513,654, net income of $241,069, funds from operations of
$1,298,617, EBITDA of $1,409,458 and paid cash distributions to unitholders of
$1,284,092. The Trust's margins increased significantly, with EBITDA as a
percentage of revenue improving from 35 percent in the third quarter of 2006
to 40 percent in the third quarter of 2007 and gross margin as a percentage of
revenue for the third quarter improving from 46 percent in 2006 to 55 percent
in 2007. Also significant is the Trust's clean balance sheet as a result of
the issuance of Trust units through a private placement and rights offering
during the quarter.

    
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    Financial Review(1)
    -------------------------------------------------------------------------
                                                    Nine months
                                Three months ended        ended     154 days
                              Sept 30,     Sept 30,     Sept 30,     Sept 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Revenue                $3,513,654   $3,808,795  $10,473,315   $5,587,724
    Net income (loss)         241,069      450,993     (286,987)     473,455
    Net income (loss)
     per unit
      Basic                      0.04         0.10        (0.06)        0.11
      Diluted                    0.04         0.10        (0.06)        0.11

    EBITDA                  1,409,458    1,319,723    4,103,765    1,930,437
      Basic                      0.22         0.30         0.82         0.44
      Diluted                    0.22         0.29         0.82         0.44

    Funds from operations   1,298,617    1,217,254    3,774,424    1,746,232
      Basic                      0.21         0.28         0.75         0.40
      Diluted                    0.21         0.27         0.75         0.39
    


    The third quarter results are very positive, when viewed in the light of
the challenging industry environment. During the third quarter, the oilfield
services sector experienced impacts of commodity price instability, weather
factors, and uncertainty surrounding the Alberta royalty review. The strong
results in a challenging environment, coupled with the Trust's clean balance
sheet and the growth potential offered by the upcoming completion of the
Trust's fourth facility demonstrate the underlying strength of the Trust's
business.
    The Trust completed a rights offering and private placement during the
quarter, with total gross proceeds of $16,604,891, positioning the Trust with
minimal debt levels and a strong capital base to support future growth. The
financings were completed in July and proceeds were initially used to repay
outstanding debt, which can be redrawn as required - at September 30, 2007 the
Trust had drawn $898,261 on its credit facilities which carry limits in the
aggregate of $17,500,000.
    Progress continues on construction of Deepwell's fourth facility, near
Claresholm, Alberta and the facility is anticipated to be operational in the
first quarter of 2008 with construction costs near the previous estimate of
$9,000,000. Deepwell is optimistic about the market for services at the
Claresholm facility, due to its location in an active region of oil and
natural gas production and exploration which is not currently served by any
third party oilfield waste management facility in the local area.

    (1) EBITDA and Funds from operations, are non-GAAP measures and are
    defined in the attached Management's Discussion & Analysis


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following Management's Discussion and Analysis (MD&A) of Deepwell
Energy Services Trust (the "Trust") has been prepared taking into
consideration information available to November 6, 2007 and should be read in
conjunction with the Trust's unaudited interim consolidated financial
statements as at and for the three months ended September 30, 2007 and in
conjunction with the Trust's audited consolidated financial statements as at
December 31, 2006. This MD&A discusses operations and events for the
three-month period ended September 30, "2007" and unless otherwise noted,
references to the "period" or "quarter" in this MD&A refer to the three-month
period ended September 30, 2007. References to "2006" refer to the three
months ended September 30, 2006. References to "2007" refer to the nine months
ended September 30, 2007. Due to the difficulty in comparing periods of
different lengths, Deepwell has not analyzed the 154 day period ending
September 30, 2006.

    -------------------------------------------------------------------------
    Non-GAAP measures
    -------------------------------------------------------------------------

    The MD&A has been prepared in accordance with Canadian generally accepted
accounting principles (GAAP). Certain supplementary information and measures
not recognized under GAAP are also provided where management of the Trust
believes they assist the reader in understanding the Trust's results. These
measures include:

    
      -  Earnings before interest, taxes, depreciation and amortization
         (EBITDA); and
      -  Funds from operations, which refers to cash flow from operating
         activities before changes in non-cash working capital
    

    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.

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    Deepwell overview
    -------------------------------------------------------------------------

    The Trust is an unincorporated investment trust governed by the laws of
the Province of Alberta. The business of the Trust is conducted through its
direct and indirect wholly owned subsidiaries, Deepwell Energy Services
Commercial Trust, Deepwell Energy Services Ltd., and Deepwell Energy Services
LP ("Deepwell LP"). The Trust and its subsidiaries (collectively "Deepwell")
are based in Calgary, Alberta and were established to acquire and operate
businesses that engage in oilfield waste management services. The principal
undertaking of Deepwell is to provide a variety of services to oil and natural
gas exploration and production companies in western Canada.

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    Strategy
    -------------------------------------------------------------------------

    Deepwell is committed to building value for its Unitholders through
disciplined management and the implementation of its long-term strategy. The
key aspects of Deepwell's strategy are:

    
      -  Focus on oilfield waste management: Deepwell currently operates
         exclusively in the oilfield waste management business and intends to
         continue that focus;
      -  Growth: Deepwell is primarily focused on organic growth through
         adding new facilities and increasing capacity and services provided
         at existing facilities;
      -  Operational efficiency: Attain and maintain efficient operations and
         a high standard of customer service within a safe working
         environment; and
      -  Environmental stewardship: Meet or exceed regulatory requirements
         and industry standards.
    

    Selected financial information

    The following is a summary of selected financial information that has
been derived from and should be read in conjunction with the consolidated
financial statements of the Trust.

    
    -------------------------------------------------------------------------
    Financial Highlights
                              For the      For the      For the
                         three months three months  nine months     154 days
                                ended        ended        ended        ended
                              Sept 30,     Sept 30,     Sept 30,     Sept 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Revenue                $3,513,654   $3,808,795  $10,473,315   $5,587,724
    Operating costs         1,584,125    2,040,285    4,693,785    2,989,222
    -------------------------------------------------------------------------
    Gross Margin            1,929,529    1,768,510    5,779,530    2,598,502
    Selling and
     administrative           520,071      448,787    1,675,765      668,065
    -------------------------------------------------------------------------

    EBITDA                  1,409,458    1,319,723    4,103,765    1,930,437
    Depreciation,
     accretion and
     amortization             915,875      712,640    2,736,408    1,219,156
    Unit-based
     compensation             141,673       53,621      676,111       53,621
    Interest                  110,841      102,469      545,852      194,826
    Gain on sale of
     property and
     equipment                      -            -      (10,239)           -
    Loss on write-off of
     property and equipment         -            -      367,702            -
    Fire-related expenses           -            -      162,119            -
    Future income taxes             -            -      (87,201)           -
    -------------------------------------------------------------------------

    Net income (loss)         241,069      450,993     (286,987)     462,834

    Add:
    Depreciation,
     amortization and
     accretion                915,875      712,640    2,736,408    1,219,156
    Unit-based compensation
     expense                  141,673       53,621      676,111       53,621
    Loss on sale of
     property and equipment         -            -      (10,239)           -
    Loss on write-off
     of property and
     equipment                      -            -      746,332            -
    Future income taxes             -            -      (87,201)           -
    -------------------------------------------------------------------------

    Funds from operations  $1,298,617   $1,217,254   $3,774,424   $1,735,611
    Changes in non-cash
     working capital         (442,031)   2,729,106     (716,908)   3,430,511
    -------------------------------------------------------------------------
    Cash flow from
     operating activities    $856,586   $3,946,360   $3,057,516   $5,166,122
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income (loss)        $241,069     $450,993    $(286,987)    $462,834
    Per unit, basic              0.04         0.10        (0.06)        0.11
    Per unit, diluted            0.04         0.10        (0.06)        0.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA                 $1,409,458   $1,319,723   $4,103,765   $1,930,437
    Per unit, basic              0.22         0.30         0.82         0.44
    Per unit, diluted            0.22         0.29         0.82         0.44
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Funds from operations  $1,298,617   $1,217,254   $3,774,424   $1,735,611
    Per unit, basic              0.21         0.28         0.75         0.40
    Per unit, diluted            0.21         0.27         0.75         0.39
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions paid to
     Unitholders           $1,284,092   $1,669,220   $3,164,607   $2,114,478
    Per unit, basic              0.20         0.38         0.63         0.49
    Per unit, diluted            0.20         0.37         0.63         0.48
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross margin as a
     percentage of revenue        55%          46%          55%          47%
    Selling and
     administrative as
     a percentage of
     revenue                      15%          12%          16%          12%
    EBITDA as a
     percentage of revenue        40%          35%          39%          35%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures   $2,846,290   $3,313,792   $5,298,219   $3,507,560
    Total assets, end
     of period            $55,349,356  $51,554,944  $55,349,356  $51,554,944
    Long-term debt, end
     of period (includes
     current portion)              $0   $7,000,000           $0   $7,000,000
    Trust units, end
     of period            $56,175,472  $40,509,489  $56,175,472  $40,509,489
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     Trust units, basic     6,324,139    4,356,000    5,015,016    4,356,000
    Weighted average
     Trust units, diluted   6,327,260    4,477,793    5,015,143    4,427,827
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Revenue for the quarter was $3,513,654 ($3,808,795 - 2006), with a gross
margin of $1,929,529 or 55 percent of revenue ($1,768,510 or 46 percent of
revenue - 2006), EBITDA of $1,409,458 or 40 percent of revenue, ($1,319,723 or
37 percent of revenue - 2006) and net income of $241,069 ($450,993 - 2006).
    On a basic and diluted per unit basis, net income for the period was
$0.04 per unit, ($0.10 - 2006) and funds from operations were $0.21 per unit
($0.28 per unit basic and $0.27 per unit diluted - 2006). Basic and diluted
distributions declared to Unitholders in the quarter were $1,284,092 or $0.20
per unit, ($1,669,220 or $0.38 per unit basic and $0.27 per unit diluted -
2006).

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    Results of operations
    -------------------------------------------------------------------------

    Revenue

    Revenues for the quarter were $3,513,654 ($3,808,795 - 2006) generating
67 percent (65 percent - 2006) from processing and disposal fees and 33
percent (37 percent - 2006) from the sale of recovered oil. Deepwell
experienced a reduction of $295,141 (8 percent) in overall revenue from the
third quarter of 2006. Unusually inclement weather conditions led to more road
bans than are generally seen in the third quarter - limiting customers'
ability to move equipment and transport waste to Deepwell's facilities. Gross
oil revenues decreased by 49 percent, or $760,000, primarily due to a
reduction of waste and frac oil volumes during the quarter. Water revenues
increased by 18 percent or $310,000 due primarily to increased capacity at the
Trust's Rycroft facility. Waste revenues increased from the prior year's
quarter by 27 percent or $194,000 due to the receipt of more dry solids.
Flushes and trucking revenues decreased slightly from the third quarter of
2006.

    Operating expenses

    Operating expenses were $1,584,125 for the third quarter of 2007
($2,040,285 - 2006) and the relationship to revenues remained consistent with
management's expectations. The decrease is primarily due to lower oil credits
repaid to customers on recovered oil. Operating expenses for the quarter
include $134,757 ($574,121 - 2006) in oil credits repaid to customers. Certain
expenses, such as oil credits, trucking and landfill expenses, are
activity-driven; however, a significant portion of expenses can be considered
fixed.

    Selling and administrative

    Selling and administrative costs for the period were $520,071 or 15
percent of revenue ($448,787 or 12 percent of revenue - 2006) exceeding
management's expectations primarily due to public issuer-associated costs and
computing costs.

    Depreciation, accretion and amortization

    Depreciation, accretion and amortization expenses totalled $915,875 for
the third quarter ($712,640 - 2006) and were in line with management's
expectations. During the third quarter of 2007, the Trust recorded
depreciation on fixed assets of $808,642, ($546,006 - 2006), accretion of
$15,454 ($14,243 - 2006), amortization of intangible assets of $82,234,
($136,803 - 2006), and amortization of deferred financing charges of $9,545
($15,588 - 2006). Intangible assets consist of regulatory approvals, customer
relationships, and non-competition agreements. Accretion represents the
recognition of future closure costs for facilities.

    Interest

    Total cash interest expense for the period was $110,841 ($102,469 -
2006), comprised of interest on long-term debt of $99,606 ($97,868 - 2006) and
interest on short-term debt of $11,235 ($4,601 - 2006). Interest rates are
floating, with a range from 0.125 percent to 1.4 percent over the lender's
prime rate, depending on the Trust's ratio of consolidated funded debt to
earnings before interest, taxes depreciation, amortization, accretion, and
unit-based compensation.

    -------------------------------------------------------------------------
    Investing activities
    -------------------------------------------------------------------------

    Net cash used in investing activities during the period was $1,507,598
($3,556,231 - 2006).

    Capital expenditures

    In the third quarter of 2007, the Trust invested in property and
equipment at a cost of $2,846,290 ($3,331,792 - 2006). A significant portion
of the capital expenditures were for the Trust's first expansion facility near
Claresholm, Alberta. Construction of the Claresholm Facility is continuing and
proceeding well and expectations are that the facility will be operational in
the first quarter of 2008, with construction costs in line with the previous
estimates of $9,000,000. Other capital investments during the third quarter
include site improvements, oilfield service equipment, buildings, pipelines,
computing equipment and in the development of a production accounting and
billing system.

    -------------------------------------------------------------------------
    Unitholders' equity
    -------------------------------------------------------------------------

    Trust unit option plan

    As at September 30, 2007, a total of 506,971 options issued pursuant to
the Trust incentive unit option plan ("Option Plan") were outstanding (nil -
September 2006). On September 17, 2007, 130,171 Trust Unit options were
granted at an exercise price of $6.30. At September 30, 2007, 170,133 options
were exercisable and the weighted average contractual life remaining was 4.29
years. The total number of outstanding options shall not exceed 10 percent of
the outstanding trust units. The options (except the 73,800 issued in the
second quarter) carry a five-year term and vest equally over a period of three
years from the date of grant. The exercise price of each option is based upon
the weighted average trading price for a period prior to the date of grant.
The exercise price is adjusted downwards by 100 percent of the amount of
distributions paid on outstanding trust units. As at September 30, 2007, the
exercise prices of outstanding options ranged from $6.30 to $9.62 per unit and
the weighted average exercise price of granted options was $7.93 per unit. The
Trust recorded unit option compensation expense and contributed surplus of
$141,673 during the period.

    Private Placement and rights offering

    On July 9th, 2007, Deepwell closed a private placement of 582,362 units
for gross proceeds of $3,499,996. On July 31, 2007, the Trust completed its
rights offering and issued 2,180,515 units for gross proceeds of $13,104,895.
Combined gross proceeds of the offerings were $16,604,891 with expenses of
$1,059,725 for total net proceeds of $15,545,166. Proceeds were initially used
to repay outstanding debt, which can be redrawn. The purposes of the offerings
were to fund the estimated $9,000,000 construction cost of an oilfield waste
management facility near Claresholm, Alberta, to fund improvements and
expansions at existing facilities, to fund preliminary costs of future
facilities and for general corporate purposes.

    Distributions to Unitholders

    During the quarter, distributions declared to Unitholders were $1,284,092
($1,669,220 - 2006).

    Distribution re-investment plan

    During the quarter 17,508 units were issued under the Trust's
distribution re-investment plan at an average price of $6.22 per unit.

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    Liquidity
    -------------------------------------------------------------------------

    As at September 30, 2007, the Trust had issued cheques in excess of bank
balance of $898,261. On the date of this MD&A the Trust has credit facilities
in place of $17,500,000.
    Net cash received from financing activities for the quarter was $913,017
(net cash used by financing activities of $1,768,279 - 2006). As at September
30, 2007, the Trust had $15,500,000 available on its long-term credit
facility. A total of $9,545 of deferred financing costs was amortized during
the quarter. Other financing activities for the quarter include the payment of
$1,284,092 in distributions to Unitholders.

    Credit facilities

    As at September 30, 2007, the borrowing base for the demand revolving
loan was $1,877,268 and the amount drawn was $850,000.

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    Summary of Quarterly Results
    -------------------------------------------------------------------------

    The following table shows selected financial information for the past
five quarters plus the partial quarter representing the Trust's initial
operating period. The information has been obtained from quarterly financial
statements, which have been prepared in accordance with Canadian GAAP and, in
the opinion of management, have been prepared using accounting policies
consistent with the audited financial statements and include all adjustments
necessary for the fair presentation of the results of the interim periods. The
Trust expects its operating results to vary significantly from quarter to
quarter and they should not be relied upon to predict future information.

    
    -------------------------------------------------------------------------
    Summary of Quarterly information

                                      Three months Three months Three months
                                             ended        ended        ended
                                            Sep 30,      Jun 30,      Mar 31,
                                              2007         2007         2007
    -------------------------------------------------------------------------
    Revenue                             $3,513,654   $2,532,151   $4,427,510
    Operating costs                      1,584,125    1,190,739    1,919,221
    -------------------------------------------------------------------------
    Gross Margin                         1,929,529    1,341,412    2,508,289
    Selling and administrative             520,071      558,849      596,545
    -------------------------------------------------------------------------

    EBITDA                               1,409,458      782,563    1,911,744

    Depreciation, amortization
     and accretion                         915,875      897,865      922,669
    Unit-based compensation                141,673      359,600      175,137
    Interest                               110,841      229,450      205,561
    Loss on sale of property
     and equipment                               -      (17,500)       7,261
    Net loss on write-down of
     property and equipment
     destroyed in fire                           -            -      367,701
    Fire-related expenses                        -            -      162,119
    Future income taxes                          -      (62,651)     (24,550)
    -------------------------------------------------------------------------
    Net income (loss)                      241,069     (624,201)      95,845

    Add:
    Depreciation, amortization
     and accretion                         915,875      897,865      922,669
    Unit-based compensation                141,673      359,600      175,137
    Loss on sale of property
     and equipment                               -      (17,500)       7,261
    Loss on write-off of
     property and
     equipment                                   -            -      746,332
    Future income taxes                          -      (62,651)     (24,550)
    -------------------------------------------------------------------------
    Funds from operations                1,298,617      553,113    1,922,694
    Changes in non-cash working
     capital                              (442,031)   1,404,547   (1,324,968)
    -------------------------------------------------------------------------
    Cash flow from operating
     activities                           $856,586   $1,957,660     $597,726
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss) per trust unit:
      Basic                                  $0.04       ($0.14)       $0.02
      Diluted                                $0.04       ($0.14)       $0.02
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of Trust
     Units outstanding
      Basic                              6,324,139    4,357,724    4,356,000
      Diluted                            6,327,260    4,357,744    4,356,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    Summary of Quarterly information

                                      Three months Three months      64 days
                                             ended        ended        ended
                                            Dec 31,      Sep 30,      Jun 30,
                                              2006         2006         2006
    -------------------------------------------------------------------------
    Revenue                             $4,059,296   $3,808,795   $1,778,929
    Operating costs                      1,605,492    2,040,285      948,937
    -------------------------------------------------------------------------
    Gross Margin                         2,453,804    1,768,510      829,992
    Selling and administrative             730,354      448,787      229,889
    -------------------------------------------------------------------------

    EBITDA                               1,723,450    1,319,723      600,103

    Depreciation, amortization
     and accretion                         993,621      712,640      480,317
    Unit-based compensation                197,812       53,621            -
    Interest                               149,325      102,469      107,946
    Loss on sale of property
     and equipment                          34,295            -            -
    Net loss on write-down of
     property and equipment
     destroyed in fire                           -            -            -
    Fire-related expenses                        -            -            -
    Future income taxes                    (47,799)           -            -
    -------------------------------------------------------------------------
    Net income (loss)                      396,196      450,993       11,840

    Add:
    Depreciation, amortization
     and accretion                         993,621      712,640      480,317
    Unit-based compensation                197,812       53,621            -
    Loss on sale of property
     and equipment                          34,295            -            -
    Loss on write-off of
     property and
     equipment                                   -            -            -
    Future income taxes                    (47,799)           -            -
    -------------------------------------------------------------------------
    Funds from operations                1,574,125    1,217,254      492,157
    Changes in non-cash working
     capital                              (373,713)   2,729,106    1,219,763
    -------------------------------------------------------------------------
    Cash flow from operating
     activities                         $1,200,412   $3,946,360   $1,711,920
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss) per trust unit:
      Basic                                  $0.09        $0.10        $0.00
      Diluted                                $0.09        $0.10        $0.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of Trust
     Units outstanding
      Basic                              4,356,000    4,356,000    4,356,000
      Diluted                            4,356,000    4,477,793    4,356,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


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    Outlook
    -------------------------------------------------------------------------

    Deepwell continues its commitment to improving results at the three
existing facilities. The main tools for improving results are the targeting of
higher-yield waste streams and increasing capacities by adding well capacity
through the addition of new disposal wells, or stimulation to improve
performance of existing wells. In addition, Deepwell believes that approval by
Alberta Energy and Utilities Board (EUB) of the Rycroft Facility as an
Oilfield Waste Management Facility is forthcoming. Currently, Rycroft is
classified as an Injection Facility and upgrading the approval to an Oilfield
Waste Management Facility will permit Rycroft to receive additional waste
streams, at higher prices and permit the facility to offer custom treating.
    Consistent with Deepwell's focus from inception are the efforts to grow
through addition of greenfield facilities. Construction of the Claresholm
facility is anticipated to be complete in January 2007 with final costs of
construction near $9 million as previously estimated. Claresholm is located in
an active region of oil and natural gas production and exploration which is
not currently served by any third-party oilfield waste management facility in
the local area. The facility will include equipment and processes which are
anticipated to provide improved operating efficiencies and environmental
advantages over Deepwell's existing facilities. Deepwell has also initiated
the approval process for its fifth facility and is prospecting for suitable
sites for construction beyond 2008.
    On October 25, 2007 the Premier of Alberta delivered a proposal for a new
royalty framework. The proposals include increases to royalties levied on
natural gas, conventional oil and oil sands produced in Alberta with most
changes proposed to take effect in January 2009. Deepwell's revenues are not
directly impacted by royalties or the proposed changes to royalties. However,
these recommendations, if enacted as proposed, may have a negative impact on
Deepwell's customers and may impact oil and natural gas activity in Alberta.
Because Deepwell's cash flow is more dependent on activity in the production
of oil and natural gas than on exploration, management believes that impacts
may be less pronounced than in other oilfield service sectors.
    Traditionally the strongest demand for Deepwell's services is in the
fourth and first quarters of the year, and Deepwell anticipates that trend to
continue for the fourth quarter of 2007 and the first quarter of 2008.
Deepwell is exposed to the price of oil due to sales of recovered oil and
anticipates that prices will continue to be volatile but strong through the
end of 2007. Deepwell anticipates that the cash flow of the Trust will be
sufficient to continue distributions at the current level through the end of
2007.

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    Internal controls
    -------------------------------------------------------------------------

    During the quarter, no changes were made that materially affected, or are
reasonably likely to materially affect, internal control over financial
reporting.

    -------------------------------------------------------------------------
    Seasonality and weather
    -------------------------------------------------------------------------

    In Canada, the level of activity in the oil and natural gas industry is
influenced by seasonal weather patterns. Spring break-up during the second
quarter of each year leaves many secondary roads temporarily incapable of
supporting the weight of heavy equipment, which results in severe restrictions
in the level of energy services. The timing and duration of spring break-up is
dependent on weather patterns and the duration of this period will have a
direct impact on the level of business of Deepwell. Additionally, if an
unseasonably warm winter prevents sufficient freezing, well sites may be
rendered inaccessible, shortening the drilling season and reducing demand for
oilfield waste management services. Additionally, a warm winter can reduce
demand for oil and natural gas for heating purposes, which may reduce activity
for oil and natural gas exploration and development and demand for the
oilfield services offered by Deepwell.
    The volatility in the weather and temperature can therefore create
unpredictability in activity, demand for oilfield services and equipment
utilization rates, which could have a material adverse effect on the financial
results, cash flows, and the overall financial condition of the Trust and its
subsidiaries.

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    Forward-looking statements
    -------------------------------------------------------------------------

    Certain statements in this MD&A constitute "forward-looking" statements
that involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Trust or Deepwell
LP, or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. When used in this MD&A, such statements use such words as "may",
"will", "intend", "should", "expect", "believe", "plan", "anticipate",
"estimate", "predict", "potential", "continue" or the negative of these terms
or other similar terminology. These statements reflect current expectations
regarding future events and operating performance and speak only as of the
date of this MD&A.
    Forward-looking statements involve significant risks and uncertainties,
should not be read as guarantees of future performance or results, and will
not necessarily be accurate indications of whether such results will be
achieved. A number of factors could cause actual results to differ materially
from the results discussed in the forward-looking statements.
    Although the forward-looking statements contained in this MD&A are based
upon what management believes are reasonable assumptions, the Trust cannot
assure investors that actual results will be consistent with these
forward-looking statements. These forward-looking statements are made as of
the date of this MD&A. The Trust does not assume any obligation to update or
revise them to reflect new events or circumstances, except as required by
applicable securities legislation.


    INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF

    DEEPWELL ENERGY SERVICES TRUST

    AS AT AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007
    (unaudited)


    As per the disclosure requirements of the National Instrument 51-102,
    Part 4, subsections 4.3(3)(a), this note is to inform readers that
    Deepwell has elected not to review these financial statements and notes
    with its auditors.

    The accompanying unaudited interim financial statements of the Trust as
    at and for the three and nine months ended September 30, 2007 have been
    internally prepared and are the responsibility of Deepwell's management.

    
    DEEPWELL ENERGY SERVICES TRUST
    INTERIM CONSOLIDATED BALANCE SHEETS

                                                      September     December
                                                       30, 2007     31, 2006
    As at                                            (unaudited)    (audited)
    -------------------------------------------------------------------------
    Assets
    Current assets:
      Cash                                                    -      $28,861
      Accounts receivable                           $ 2,966,485    2,729,106
      Inventory (Note 5)                                187,234       80,205
      Deferred financing costs                           25,454       39,880
      Prepaid expenses and deposits                     397,634      203,110
    -------------------------------------------------------------------------
                                                      3,576,807    3,081,162

    Property and equipment                           41,607,811   39,565,606
    Intangible assets                                 3,007,336    3,254,037
    Goodwill                                          7,157,402    7,157,402
    Financial security deposits                               -    1,433,474

    -------------------------------------------------------------------------
                                                    $55,349,356  $54,491,681
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities:
      Bank indebtedness                             $   898,261            -
      Accounts payable and accrued liabilities        2,118,449  $ 3,538,986
      Distributions payable                             428,485      417,305
    -------------------------------------------------------------------------
                                                      3,445,195    3,956,291

    Long-term debt                                            -   11,500,000
    Future income taxes (Note 4)                              -       87,201
    Asset retirement obligations                        760,106      713,744
    -------------------------------------------------------------------------
                                                      4,205,301   16,257,236
    -------------------------------------------------------------------------

    Unitholders' Equity
    Trust units (Note 3)                             56,175,472   40,490,377
    Contributed surplus                                 927,541      251,432
    Deficit                                          (5,958,958)  (2,507,364)
    -------------------------------------------------------------------------
                                                     51,144,055   38,234,445

    -------------------------------------------------------------------------
                                                    $55,349,356  $54,491,681
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim consolidated financial statements.



    DEEPWELL ENERGY SERVICES TRUST
    INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS)
    AND ACCUMULATED DEFICIT
    (unaudited)
                         Three months Three months  Nine months     154 days
                                ended        ended        ended        ended
                            September    September    September    September
                             30, 2007     30, 2006     30, 2007     30, 2006
    -------------------------------------------------------------------------
    Revenues              $ 3,513,654  $ 3,808,795  $10,473,315  $ 5,587,724
    -------------------------------------------------------------------------

    Expenses
      Operating             1,584,125    2,040,285    4,693,785    2,989,222
      Selling and
       administrative         520,071      448,787    1,675,765      668,055
      Depreciation and
       accretion              824,096      560,249    2,422,782    1,045,541
      Amortization of
       intangible assets       82,234      136,803      246,701      136,803
      Unit-based
       compensation           141,673       53,621      676,111       53,621
      Interest on
       short-term debt         11,235        4,601       41,876       15,046
      Interest on
       long-term debt          99,606       97,868      503,976      179,781
      Amortization of
       deferred financing
       costs                    9,545       15,588       66,925       36,821
      Gain on sale of
       property and equipment       -            -      (10,239)           -
      Loss on write-off of
       property and equipment
       (net of accrued
        insurance proceeds)         -            -      367,702            -
      Fire-related expenses         -            -      162,119            -
    -------------------------------------------------------------------------
                            3,272,585    3,357,802   10,847,503    5,124,890

    Income (loss) before
     taxes                    241,069      450,993     (374,188)     462,834

    Future income tax
     recovery (Note 4)              -            -       87,201            -

    -------------------------------------------------------------------------
    Net income (loss)         241,069      450,993     (286,987)     462,834

    Accumulated deficit,
     beginning of period   (4,915,935)    (433,417)  (2,507,364) $         0
      Distributions to
       unitholders         (1,284,092)  (1,669,220)  (3,164,607)  (2,114,478)
    -------------------------------------------------------------------------
    Accumulated deficit,
     end of period        $(5,958,958) $(1,651,644) $(5,958,958) $(1,651,644)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss)
     per trust unit:
      Basic               $      0.04  $      0.10  $     (0.06) $      0.11
      Diluted             $      0.04  $      0.10  $     (0.06) $      0.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average
     trust units
     outstanding:
      Basic                 6,324,139    4,356,000    5,015,016    4,356,000
      Diluted               6,327,260    4,477,793    5,015,143    4,427,827
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim consolidated financial statements.



    DEEPWELL ENERGY SERVICES TRUST
    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)

                         Three months Three months  Nine months     154 days
                                ended        ended        ended        ended
                            September    September    September    September
                             30, 2007     30, 2006     30, 2007     30, 2006
    -------------------------------------------------------------------------
    Operating activities
      Net income (loss)   $   241,069  $   450,993  $  (286,987) $   462,834

      Non-cash items:
      Depreciation and
       accretion              824,096      560,249    2,422,782    1,182,335
      Amortization of
       intangible assets       82,234      136,803      246,701            -
      Unit-based
       compensation           141,673       53,621      676,111       53,621
      Amortization of
       deferred financing
       costs                    9,545       15,588       66,925       36,821
      Gain on sale of
       property and equipment       -            -      (10,239)           -
      Loss on write-off of
       property and equipment       -            -      746,332            -
      Future income tax
       recovery (Note 4)            -            -      (87,201)           -
      Change in non-cash
       working capital       (442,031)   2,729,106     (716,908)   3,430,511
    -------------------------------------------------------------------------
    Cash flow from
     operating activities     856,586    3,946,360    3,057,516    5,166,122
    -------------------------------------------------------------------------

    Investing activities
      Financial security
       deposits             1,470,336     (194,552)   1,433,474   (1,414,200)
      Business acquisitions
       (net of cash
       of $259,925)                 -      (47,887)           -  (42,881,776)
      Purchase of property
       and equipment       (2,846,290)  (3,313,792)  (5,298,219)  (3,507,560)
      Proceeds on sale of
       property and equipment       -            -      143,500            -
      Change in non-cash
       investing working
       capital               (131,644)           -   (1,231,381)           -
    -------------------------------------------------------------------------
    Cash flow from
     investing activities  (1,507,598)  (3,556,231)  (4,952,626) (47,803,536)
    -------------------------------------------------------------------------

    Financing activities
      Proceeds from
       issuance of units   16,604,891            -   16,604,891   36,925,374
      Units issued from
       distribution
       re-investment plan     108,869            -      139,929            -
      Deferred financing
       costs                  (35,000)           -      (52,500)           -
      Net proceeds from
       (repayments to)
       long-term debt     (13,500,000)     (15,711) (11,500,000)   6,904,289
      Unit issuance costs    (981,651)     (83,348)  (1,059,725)           -
      Distributions to
       unitholders         (1,284,092)  (1,669,220)  (3,164,607)  (2,114,478)
    -------------------------------------------------------------------------
    Cash flow from
     financing activities     913,017   (1,768,279)     967,988   41,715,185
    -------------------------------------------------------------------------

      Change in cash          262,005   (1,378,150)    (927,122)    (922,229)

    Cash (bank
     indebtedness),
     beginning of period   (1,160,266)     455,921       28,861            -

    -------------------------------------------------------------------------
    Cash (bank
     indebtedness),
     end of period        $  (898,261) $  (922,229) $  (898,261) $  (922,229)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary
     information
      Cash interest paid  $   110,841  $   102,469  $   545,852  $   194,827
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim consolidated financial statements.



    DEEPWELL ENERGY SERVICES TRUST
    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    As at and for the periods ended September 30, 2007 and 2006
    (unaudited)

    1. Nature of the Organization

    Deepwell Energy Services Trust (the "Trust" or "Deepwell") is an open
    ended un-incorporated investment trust governed by the laws of the
    Province of Alberta and created pursuant to a Declaration of Trust dated
    April 21, 2006. The principal undertaking of the Trust is to engage in
    the oilfield waste management business indirectly through its wholly
    owned subsidiary, Deepwell Energy Services LP ("Deepwell LP") and its
    subsidiaries Deepwell Energy Services Commercial Trust and Deepwell
    Energy Services Ltd. Deepwell LP provides oilfield waste management
    services, including treating, processing and disposing of oilfield wastes
    and custom treating of oil/water emulsions.

    2. Significant Accounting Policies

    Basis of presentation

    The interim consolidated financial statements have been prepared by
    management in accordance with Canadian generally accepted accounting
    principles, are reported in Canadian dollars, and are consistent with
    those set out in the audited consolidated financial statements for the
    247 day period ended December 31, 2006. Management is required to make
    estimates and assumptions that affect the reported amounts of assets and
    liabilities and disclosure of contingent assets and liabilities at the
    date of the financial statements and the reported amounts of revenue and
    expenses during the period. The most significant estimates relate to
    depreciation, amortization, asset retirement obligations, accretion,
    unit-based compensation and recoverability of goodwill and intangibles.
    Actual results could differ from those estimates. The financial
    statements have, in management's opinion, been properly prepared using
    careful judgment with reasonable limits of materiality and within the
    framework of the Trust's accounting policies as summarized in the notes
    to the consolidated financial statements for the 247 day period ended
    December 31, 2006.

    Certain information and disclosure normally required to be included in
    notes to annual consolidated financial statements have been condensed or
    omitted from these notes. The interim consolidated financial statements
    should be read in conjunction with the audited consolidated financial
    statements and the notes thereto in the Trust's annual report for the
    247 day period ended December 31, 2006. The consolidated interim
    financial statements have been prepared following the same accounting
    policies and methods of computation as the audited financial statements
    for the year ended December 31, 2006, except for the adoption of new
    accounting standards presented in the notes to the interim consolidated
    financial statements for the period ending March 31, 2007.

    Certain comparative amounts have been reclassified to conform to the
    current period's presentation and no nine-month comparative numbers have
    been presented because Deepwell and its subsidiaries commenced operations
    on April 28th, 2006.

    3. Unitholders' equity

    (a) Trust unit options and unit-based compensation

    The total number of outstanding options shall not exceed 10 percent of
    the outstanding Trust units. The options carry a five-year term and vest
    equally over a period of three years from the date of grant. The exercise
    price of each option is based upon the weighted average trading price for
    a period prior to the date of grant. The exercise price is adjusted
    downwards by 100 percent of the amount of distributions paid on
    outstanding Trust units. The following table summarizes the Trust unit
    options:

    -------------------------------------------------------------------------
                                                      September     December
                                                       30, 2007     31, 2006
    -------------------------------------------------------------------------
    Trust unit options outstanding                      506,971      314,500
    Trust unit options exercisable                      170,133            -
    Range of exercise prices (per unit)                 6.30 to     $9.62 to
                                                          $9.62       $10.26
    Weighted average remaining contractual
     life (years)                                          4.29         4.65
    Weighted average exercise price (per unit)      $      7.93  $      9.63
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Trust recorded unit based compensation expense in respect of Trust
    unit options of $141,673 during the three months ended September, 2007,
    and $676,111 for the nine months September 30, 2007 with an offsetting
    increase to contributed surplus. The fair value of options issued was
    estimated using the Black-Scholes pricing model with the following
    assumptions: risk free interest rate of 4.25 percent, volatility rate of
    45 percent; life of 5 years; the impact of monthly distributions and
    corresponding changes in exercise price. During the period 130,171 Trust
    unit options were granted.

    -------------------------------------------------------------------------
    Unitholders' Equity                                  Number       Amount
    -------------------------------------------------------------------------
    Issued on redemption of Class B units             4,356,000  $43,560,000
    Units issued - rights offering                    2,180,515   13,104,895
    Units issued - private placement                    582,362    3,499,996
    Distibution re-investment plan                       22,539      139,929
    Trust Unit issue costs                                    -   (4,129,348)
    -------------------------------------------------------------------------
    September 30, 2007                                7,141,416  $56,175,472
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (b) Distributions to Unitholders

    The Trust has declared distributions to Unitholders in accordance with
    the following schedule:

    -------------------------------------------------------------------------
                        Record          Payment       Cash per
    2007                  date             date     Trust unit        Amount
    -------------------------------------------------------------------------
    January         January 31      February 15        $0.0958      $417,305
    February       February 28         March 15         0.0958       417,305
    March             March 31         April 13           0.06       261,360
    April             April 30           May 15           0.06       261,360
    May                 May 31          June 15           0.06       261,523
    June               June 30          July 14           0.06       261,662
    July               July 31        August 15           0.06       427,655
    August           August 31     September 14           0.06       427,952
    September     September 30       October 15           0.06       428,485
    -------------------------------------------------------------------------
    Distributions declared to unitholders                         $3,164,607
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (c) Weighted average units outstanding

    -------------------------------------------------------------------------
                         Three months Three months  Nine months     154 days
                                ended        ended        ended        ended
                            September    September    September    September
                             30, 2007     30, 2006     30, 2007     30, 2006
    -------------------------------------------------------------------------

    Basic                   6,324,139    4,356,000    5,015,016    4,356,000
    Diluted                 6,327,260    4,477,793    5,015,143    4,356,000
    -------------------------------------------------------------------------

    (d) Dividend re-investment plan

    During the third quarter of 2007, a total of $108,869 was reinvested by
    unitholders under the Trust's distribution reinvestment plan, resulting
    in the issuance of 17,508 Trust units.

    (e) Private placement and rights offering

    On July 9th, 2007, Deepwell closed a private placement of 582,362 units
    for gross proceeds of $3,499,996. On July 31, 2007, Deepwell's closed a
    rights offering, which was fully subscribed for 2,180,515 units and gross
    proceeds of $13,104,895.

    4. Income taxes

    On June 22, 2007, Bill C-52, an Act to implement certain provisions of
    the March 19, 2007 federal budget, received royal assent. Bill C-52
    includes legislative provisions, the SIFT Trust Legislation, to implement
    proposals originally announced on October 31, 2006, which are now in
    force, relating to the taxation of certain publicly-traded trusts and
    their unitholders under the Tax Act. The SIFT Trust Legislation generally
    will apply to trusts that are resident in Canada for purposes of the Tax
    Act, that hold one or more "non-portfolio properties", and the units of
    which are listed on a stock exchange or other public market (a "specified
    investment flow-through trust" or "SIFT trust"). A SIFT trust effectively
    is subject to tax on its income from non-portfolio properties and taxable
    capital gains from dispositions of non-portfolio properties paid, or made
    payable, to unitholders at a rate comparable to the combined federal and
    provincial corporate income tax rate. Distributions of such income to
    unitholders should be treated as eligible dividends paid by a taxable
    Canadian corporation.

    GAAP requires Deepwell to recognize future income tax assets and
    liabilities based on estimated temporary differences expected as at
    January 1, 2011 and on the basis of its structure at the balance sheet
    date. The Trust has completed preliminary consolidated analysis and has
    estimated a future income tax asset. A valuation allowance has been
    applied against this amount and therefore the potential impact is not
    reflected in the interim consolidated financial statements as at and for
    the nine months ended September 30, 2007.

    5. Inventories

    As of January 1, 2008, Deepwell is required to replace the existing
    inventory accounting policy. The new policy requires inventory to be
    valued on a first-in, first-out or weighted average basis. The
    application of this standard is not expected to have a material impact on
    the interim consolidated financial statements.

    -------------------------------------------------------------------------

    Certain statements in this press release constitute "forward-looking"
    statements that involve known and unknown risks, uncertainties and other
    factors that may cause the actual results, performance or achievements of
    the Trust or its subsidiaries, or industry results, to be materially
    different from any future results, performance or achievements expressed
    or implied by such forward looking statements. Without limiting the
    foregoing, such forward-looking statements include statements made in
    this press release regarding the anticipated timing for commencing
    construction of the oilfield waste management facility and the
    anticipated completion date of the facility. There is no assurance that
    the expected timeframes will be met as all are subject to risks which
    include, without limitation, the possibility for equipment failures,
    labour disputes, work stoppages, equipment delivery delays, and the
    potential for delays arising from injuries and safety concerns at the
    worksite. Forward-looking statements involve significant risks and
    uncertainties, should not be read as guarantees of future performance or
    results, and will not necessarily be accurate indications of whether or
    not such results will be achieved. A number of factors, including those
    discussed above, could cause actual results to differ materially from the
    results discussed in the forward-looking statements. Deepwell's forward-
    looking statements are expressly qualified in their entirety by this
    cautionary statement. Unless otherwise required by applicable securities
    laws, Deepwell does not intend nor does it undertake any obligation to
    update or review any forward-looking statements to reflect subsequent
    information, events, results or circumstances or otherwise.

    




For further information:

For further information: Robert Dodds, President and CEO, Deepwell
Energy Services Ltd., administrator of the Trust, (403) 508-6001 or: Scott
Gerecke, Vice-President Finance and CFO, Deepwell Energy Services Ltd.,
administrator of the Trust, (403) 508-6005  Email:
investing@deepwellenergy.com

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DEEPWELL ENERGY SERVICES TRUST

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