Flint Energy Services Ltd. Announces Q4 and 2007 Results



    (TSX: FES)

    CALGARY, March 19 /CNW/ - Flint Energy Services Ltd (the "Company" or
"Flint") reported Flint's net earnings for the year ended December 31, 2007
were $50.3 million ($1.05 per common share - diluted) compared to
$54.6 million ($1.41 per common share - diluted) in 2006. Revenue increased
24.6% to $1,813.8 million from $1,455.7 million in 2006, while gross margins
were maintained at levels similar to 2006.
    The increase in revenue was primarily due to the acquisition late in 2006
of Transco Energy Services Ltd. ("Transco"), an oilfield transportation and
logistics and tubular management company with operations in British Columbia,
Alberta, Saskatchewan and the Northwest Territories. This acquisition added
two new operating segments, Oilfield Transportation and Tubular Management.
Other portions of the acquisition included additional Fluid Hauling operations
which were combined into the Company's Production Service operating segment
and a joint venture in the North which has been combined with the Plant
Maintenance and Other operating segment. This acquisition generated revenue of
$238.0 million in 2007, compared to $25.0 million in 2006 as the acquisition
closed on December 1, 2006. The increase in revenues did not translate into
higher earnings before tax as the Oilfield Transportation operating segment
generated $8.6 million earnings before income taxes, depreciation and
amortization ("EBITDA") in 2007 and a loss before taxes as a result of reduced
drilling activity, competitive pricing, and restructuring costs.
    "While we are very pleased with our revenue growth and the performance of
our United States, Oil Sands Infrastructure and Plant Maintenance operations,
our Oilfield Transportation operations were negatively impacted by the
downturn in natural gas related activity in western Canada. In late 2007, we
made the necessary changes to reduce costs and consolidate our Oilfield
Transportation operations and this will begin to have an impact in the First
quarter of 2008," stated Mr. Lingard, President and CEO of the Company. "Our
Tubular Management operations in western Canada were also impacted by reduced
drilling activities however, while revenues were reduced, EBITDA margins
remained positive."
    "Flint's Production Services division with operations in both western
Canada and the United States brought in revenues of just under $1 billion
demonstrating the resilience of our midstream services businesses", according
to Mr. Lingard.
    During 2007 Flint's Facility Infrastructure operating segment generated
$423.5 million in revenues, and secured additional multi-year projects
totaling approximately $1 billion in oil sands construction work. Work under
these new contracts commenced in late 2007.
    In 2007 the Company, through its 50% owned joint venture,
Flint Transfield Services Limited ("FT Services") secured a $1 billion, 5 year
maintenance contract with Suncor Energy. The transition of the management of
the contract occurred in stages with significant operations commencing in the
fourth quarter of 2007. Together with Flint's other joint venture companies as
reported in Plant Maintenance and Other, the companies generated combined
revenues of $49.8 million in 2007.

    
    Summary of Consolidated Financial Results
    ($ millions, except per share data)
                                        2007                    2006
    -------------------------------------------------------------------------

    Revenue                     $1,813.8       100.0%   $1,455.7       100.0%
    Direct costs                 1,476.0        81.4     1,168.2        80.3
    -------------------------------------------------------------------------
                                   337.8        18.6       287.5        19.7

    General & administrative
     expense                       162.7         9.0       125.1         8.6
    Stock based compensation
     expense                         4.7         0.3         3.6         0.2
    Amortization                    72.0         4.0        36.3         2.5
    Interest                        28.8         1.6        16.2         1.1
    -------------------------------------------------------------------------
    Earnings before income
     taxes                          69.6         3.8       106.3         7.3

    Income taxes                    19.3         1.1        51.7         3.6
    -------------------------------------------------------------------------
    Net earnings                    50.3         2.8%       54.6         3.7%
      Per common share -
       basic                        1.06                    1.44
      Per common share -
       diluted                      1.05                    1.41

    Total assets                 1,494.9                 1,469.2
    Total long-term
     liabilities                   416.6                   441.0

    Funds provided by
     operations before
     changes in non-cash
     working capital(1)            102.6                    94.0

    (1) The Company presents "funds provided by operations before changes in
        non-cash working capital" as it is used to measure funds generated
        from operations. Funds provided by operations before changes in non-
        cash working capital is equal to net earnings adjusted for items not
        affecting cash. Funds provided by operations before changes in non-
        cash working capital is a non-GAAP financial measure that does not
        have any standardized meaning prescribed by GAAP, and may not be
        comparable to similar measures presented by other issuers.
    

    Fourth Quarter

    Net earnings for the quarter ended December 31, 2007 were $9.6 million on
revenue of $465.0 million compared to net earnings of $16.9 million on revenue
of $426.6 million for the comparative quarter in 2006. Diluted earnings per
share for the fourth quarter of 2007 decreased to $0.21 from $0.39 for the
comparative quarter in 2006. Funds provided by operations before changes in
non-cash working capital for the three-month period were $14.1 million
compared to $33.4 million for the comparative period in 2006.
    The reasons for the quarter's lower net earnings were a decline in
margins combined with higher general and administrative, interest, and
depreciation expenses. The fourth quarter consolidated gross margin of 15.4%
was lower than the prior year's margin of 19.5% primarily due to the Oilfield
Transportation, Tubular Management, and Infrastructure operating segments.
Oilfield Transportation's margins were lower by 22% when comparing the fourth
quarter of 2007 to the fourth quarter of 2006. This decline is due to lower
activity levels and competitive pricing resulting in reduced revenue. Fixed
operating costs in the Oilfield Transportation operating segment were not
reduced quickly enough to offset the impact of the lower revenue. The Tubular
Management division accrued costs of $0.6 million to cover warranty claims and
wrote off $1.2 million in obsolete inventory in the fourth quarter of 2007.
The Infrastructure operating division took allowances of $4.6 million of costs
on its projects to reflect costs to complete projects not yet charged to
customers. The Plant Maintenance & Other operating segment earned margins of
11.5% as expected. This operating segment has limited capital and general and
administrative requirements.
    Included in the 2007 fourth quarter general and administration expenses
was $0.3 million of restructuring costs for the Oilfield Transportation
operating segment. Tax audits for the years 2003 to 2005 were completed in the
fourth quarter of 2007 resulting in tax reassessments, including interest of
$1.5 million. Overall fourth quarter 2007 general and administrative expenses
were $1.9 million lower than the fourth quarter of 2006 as the Company
continued to focus on balancing overhead costs in operating segments that are
experiencing lower activity levels.
    Amortization of property, plant and equipment of $16.3 million in the
fourth quarter of 2007 was $4.9 million higher than the same period in 2006.
In 2007, a full quarter of amortization on equipment acquired through the
Transco acquisition was recorded while in 2006, only one month of amortization
of equipment was required.
    Interest expense was $3.6 million higher in the fourth quarter of 2007
than the same period in 2006 as the Company did not utilize its operating
lines for periods in 2006 due to the receipt of cash from a primary share
offering in May 2006. The cash from the May 2006 offering and an additional
primary share offering in November 2006 was fully utilized to partially fund
the acquisition of Transco in December 2006. Increased activity levels in 2007
required a use of cash to support working capital requirements. Interest
expense continues to have $1.6 million of interest accrued annually for the
Quebec tax reassessments in 2006.

    
    Quarterly Information
    ($ millions, except per share data)
                           2007                            2006
              ------------------------------  ------------------------------
                  Q4      Q3      Q2      Q1      Q4      Q3      Q2      Q1
    ------------------------------------------------------------------------

    Revenues  $465.0  $424.3  $421.8  $502.7  $426.6  $341.5  $354.7  $332.8
    Net
     earnings    9.6    12.2     6.3    22.2    16.9    12.9     6.0    18.8
      Per
       common
       share-
       basic    0.20    0.26    0.13    0.47    0.39    0.33    0.16    0.56
      Per
       common
       share-
       diluted  0.21    0.25    0.13    0.46    0.37    0.33    0.16    0.55
    ----------------------------------------  ------------------------------
    ----------------------------------------  ------------------------------
    

    Segment Reporting

    Flint modified its segmented reporting for the year ended in 2007 to
combine three joint venture companies into one operating segment called Plant
Maintenance and Other, replacing the Plant Maintenance and Asset Management
segment. The new segment is comprised of FT Services, a 50% owned joint
venture previously reported in the Plant Maintenance and Asset Management
operating segment; Mackenzie Valley Construction Ltd ("MVC"), a 49% owned
incorporated joint venture formerly reported as part of the Production
Services operating segment; and S.R.P. North Ventures ("SRP"), a 33 1/3% owned
joint venture formerly included in the Oilfield Transportation operating
segment. The Company now reports operations under five operating segments,
Production Services, Facility Infrastructure, Oilfield Transportation, Tubular
Management and Manufacturing, and Plant Maintenance and Other. The segment
reporting was applied retroactively with restatement of prior periods.

    
    Selected Segmented Annual Information
    ($ millions)
                                        2007                    2006
    -------------------------------------------------------------------------

    Revenue by operating
     segment
      Production Services      $  994.9        55.0%   $  910.0        62.5%
      Facility Infrastructure     423.5        23.3       426.5        29.3
      Oilfield Transportation     155.3         8.6        17.0         1.2
      Tubular Management and
       Manufacturing              190.3        10.5        98.1         6.7
      Plant Maintenance and
       Other                       49.8         2.6         4.1         0.3
    -------------------------------------------------------------------------
      Total                    $1,813.8       100.0%   $1,455.7       100.0%

    EBITDA(1) by operating
     segment
      Production Services      $  101.8        58.1%   $   97.7        60.1%
      Facility Infrastructure      30.7        17.5        44.3        27.3
      Oilfield Transportation       6.3         3.6         3.9         2.4
      Tubular Management and
       Manufacturing               32.5        18.6        17.0        10.5
      Plant Maintenance and
       Other                        3.8         2.2        (0.5)       (0.3)
    -------------------------------------------------------------------------
      Total                    $  175.1       100.0%   $  162.4       100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) The Company presents EBITDA as a supplemental earnings measure as it
        is used by the chief operating decision makers of the Company to
        measure operating segment profitability. EBITDA is equal to earnings
        before interest, taxes, depreciation, amortization and stock based
        compensation. Management uses EBITDA to establish performance
        benchmarks for incentive compensation for employees, to evaluate the
        performance of its operating segments, and in valuing existing
        operations to determine potential goodwill impairment. EBITDA is a
        non-GAAP financial measure that does not have any standardized
        meaning prescribed by GAAP, and may not be comparable to similar
        measures presented by other issuers.
    

    Liquidity and Capital Resources

    The Company's principal sources of capital are cash flows from operations
and borrowings under its senior credit facility. The Company's principal uses
of cash are for the financing of working capital and capital expenditures. In
2006, the Company raised $242.2 million of capital net of share issuance costs
through two primary share offerings. The major use of the capital raised was
to fund two acquisitions: Denmar on July 4, 2006 and Transco on December 1,
2006. The Company's credit agreement was also amended and restated prior to
the Transco acquisition to fund this transaction. This replaced existing
Transco debt with the Company's syndicated lending facilities, and provided
increased capacity for working capital and capital spending requirements. In
the first quarter of 2007, the Company increased the availability of its
revolving operating line by $35.0 million to meet seasonal working capital
requirements caused as a result of the increased scope of operations.
    Cash provided by operating activities for the year ended December 31,
2007 increased by $66.2 million to $90.4 million compared to $24.2 million for
the prior year as the Company increased the focus on billing and collection of
receivables during the period of increased activity.
    At December 31, 2007, the Company's net working capital position was
$324.5 million compared to $301.1 million at December 31, 2006. The increase
in net working capital was primarily due to an increase in cash balances in
the United States.

    
    Selected Cash Flow and Capitalization Data
    ($ millions, except ratios)                               2007      2006
    -------------------------------------------------------------------------

    Funds provided by operations before changes in
     non-cash working capital(1)                           $ 102.6   $  94.0
    Cash provided by operating activities                     90.4      24.2
    Gross proceeds from primary share offerings                  -     253.7
    Proceeds from long-term debt                             123.6     399.7
    Long-term debt, at end of year (including current
     portion)                                                368.5     377.0

    Ratios(2)
    Debt to total capitalization (%)(3)                       30.9      32.7
    Cash flow to interest bearing debt (%)(4)                 27.8      24.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) The Company presents "funds provided by operations before changes in
        non-cash working capital" as it is used to measure funds generated
        from operations. Funds provided by operations before changes in non-
        cash working capital is equal to net earnings adjusted for items not
        affecting cash. Funds provided by operations before changes in non-
        cash working capital is a non-GAAP financial measure that does not
        have any standardized meaning prescribed by GAAP, and may not be
        comparable to similar measures presented by other issuers.

    (2) Ratios contained in this table do not have any standard meaning under
        GAAP and may not be comparable to similar statistics published by
        other companies. The ratios are presented since they are commonly
        referred to by lenders and other interested parties in evaluating the
        Company's financial position.

    (3) Debt to total capitalization, expressed as a percentage, is equal to
        debt divided by total capitalization. Debt is equal to long-term debt
        including the current portion. Total capitalization is equal to long-
        term debt including the current portion plus shareholders' equity.

    (4) Cash flow to interest bearing debt, expressed as a percentage, is
        equal to cash flow divided by interest bearing debt. Cash flow is
        equal to funds provided by operations before changes in non-cash
        working capital. Interest bearing debt is equal to long-term debt
        including the current portion.
    

    Outlook

    Continued strong global demand for crude oil led to record prices through
the second half of 2007. This, in turn, resulted in increased demand for
Flint's field services primarily in the heavy oil producing regions of
northeastern Alberta and Saskatchewan. As well, there were record levels of
capital investments announced for bitumen production in the Fort McMurray
region of Alberta in 2007. Statistics Canada reported that $16 billion in
capital was spent in 2007 on bitumen exploration and production in Alberta,
with a projected $19 billion in capital spending for 2008. The Canadian
Association of Petroleum Producers ("CAPP") estimates $140 billion in
announced capital projects are planned over the next seven years.
    Natural gas prices, which weakened in late 2006, remained flat throughout
most of 2007 due to a combination of mild weather and high inventories of gas
in storage. The Alberta Government also released its decision to increase
royalties late in 2007. These factors led to a marked slowdown in natural gas
drilling in Canada in 2007. As a result, natural gas drilling activity in
Canada was down by almost 30% compared to 2006. CAPP estimated conventional
drilling expenditures were reduced by $5 billion in 2007. In contrast,
conventional natural gas drilling in the United States remained strong
throughout 2007 with approximate rig counts remaining in the 1,750 range
compared with 2006 when it was approximately 1,668 rigs. Flint's United States
customers are currently forecasting 2008 expenditure levels similar to 2007.
Flint management believes that the fundamentals of the upstream conventional
energy sector in western Canada will be dependent on the price of natural gas.
"We saw that winter activity levels were stronger than industry forecasts and
there have been some announcements of additional drilling programs for later
in 2008 as natural gas prices are currently above the $9 per MmBtu mark",
stated Mr. Lingard.
    Flint's core businesses were positively impacted by strong capital
spending in oil sands infrastructure and increased drilling in 2005 and 2006.
These factors led to significant backlogs in Production Services' work that
continued throughout 2007. Flint's Production Services division is seeing
increased pipeline construction opportunities associated with oil sands
development work, while the fluid hauling and pressure and vacuum services
have also expanded with increased oil sands and heavy oil production in
northeastern Alberta. Additionally, U.S. drilling activity continued to be
strong throughout 2007, creating high demand for Flint's well production
equipment and field production services and resulting in a backlog of work for
2008.
    Flint's Infrastructure Services operating segment largely completed work
on the Long Lake oil sands project in late 2007. In 2007, Flint was also
awarded contracts by Royal Dutch Shell for the Albian Sands froth treatment
plant and by Suncor Energy for in-situ expansion projects, resulting in a
$1 billion backlog of work for 2008 and 2009. Flint continues to participate
in contractor selection processes for a number of oil sands projects in
various planning stages.
    The trend for major energy producers to outsource non-core activities
continues to provide strong demand for Flint's integrated full service
business model. In 2007, FT Services was awarded a five year maintenance
contract in excess of $1 billion with Suncor Energy to provide asset
management and maintenance services at Suncor's oil sands projects and its
refinery in Sarnia, Ontario. FT Services will be bidding on other oil sands
maintenance projects in the near future. Flint's Oilfield Transportation
operating segment, has expanded its heavy hauling capabilities fourfold and is
bidding on major contracts for oil sands module hauling work, which is
expected to grow substantially in 2008 and beyond. Flint's Tubular Management
and Manufacturing Services operating segment has benefited from heavy oil
activity through its sucker rod and production tubing repair and refurbishment
services.
    During 2008, Flint expects to see continued growth in all divisions
associated with heavy oil and oil sands development. U.S. Production Services
and manufacturing services will continue to benefit from strong backlogs of
work resulting from record drilling levels in 2007. The threat of a slowdown
in the U.S. economy could affect overall demand for energy resulting in weaker
energy prices and reduced demand for Flint's services. Flint anticipates any
reduction in demand for its services resulting from weaker energy prices will
be offset by oil sands project work and maintenance work, which is generally
not directly impacted by short-term commodity price volatility.

    Additional Information

    Complete copies of the Company's 2007 Management Discussion and Analysis
(MD&A), Annual Financial Statements and the Notes to Financial Statements are
available on SEDAR. Additional information related to the Company is available
on SEDAR at www.sedar.com, including a copy of the latest Annual Information
Form of the Company. Electronic copies of the company's annual report and
other public filings may also be obtained by visiting www.flintenergy.com.
    A conference call with Flint management is scheduled for 11:00 AM Eastern
Time on Thursday March 20, 2008. Information on how to participate in the call
or listen to live or archived playback of the call is available on Flint's
website www.flintenergy.com




For further information:

For further information: W.J. (Bill) Lingard, President & Chief
Executive Officer; Paul Boechler, Chief Financial Officer; or Guy Cocquyt,
Director of Investor Relations, Telephone: (403) 218-7100, Fax: (403)
215-5481

Organization Profile

FLINT ENERGY SERVICES LTD.

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