Forecast prolonged oilfield activity downturn precipitates restructuring and cost cutting initiatives



    CALGARY, Oct. 31 /CNW/ - HSE Integrated Ltd. ("HSE" or the "Company")
announces that it has undertaken a series of restructuring and cost-cutting
initiatives in order to improve financial performance and assure the Company's
ability to continue to exploit the growth opportunity it has identified and
created for itself as Canada's first national supplier of industrial health,
safety and environment services.
    The actions described herein have been precipitated by a major and
prolonged downturn in conventional oilfield service activity, particularly
drilling and exploration for natural gas. Low gas prices and a high Canadian
dollar have already caused activity to contract in 2007. Industry associations
are forecasting a further reduction in 2008. The recently announced Crown
royalty rate increases in Alberta have added a further level of uncertainty to
future spending levels by HSE's customers in the conventional upstream
petroleum industry.
    Therefore, HSE has undertaken a series of cost-reduction and asset
redeployment initiatives to maintain financial strength, position the Company
for continued growth in Industrial safety markets, and keep HSE's valuable
team of skilled and trained safety service technicians intact.
    HSE's ongoing operating cost reviews have identified potential cost
reductions exceeding $3 million on an annualized basis (when compared to the
cost structure in 2007). Although some fixed cost reductions have already been
realized, the bulk will be realized in 2008.

    Market Diversification Since 2004

    Since 2004 HSE has been continuously diversifying its revenue base away
from conventional oil and gas ("Oilfield safety") into numerous other
industries ("Industrial safety"). A field service location was opened in Fort
McMurray in September 2005. Since 2005 HSE has also expanded into
Saskatchewan, Ontario, New Brunswick, Nova Scotia and Michigan.
    With 2007's impending downturn apparent, a year ago HSE stepped up its
market diversification efforts in Alberta. This included petroleum midstream
and downstream asset operators, oil sands operations, heavy oil operations,
chemical and fertilizer plants, forestry and pulp and paper, utilities,
construction and other safety intensive industries.
    In the first six months of 2007, HSE's strategy proved highly successful.
Revenues were virtually the same as in the prior year despite a significant
downturn in demand for conventional oilfield safety services. Revenue from
Oilfield safety declined to $21 million from $34 million the prior year.
Industrial safety doubled to $20 million in 2007 from $10 million in the
previous year. This Industrial sector growth was achieved without acquisitions
or major capital investment.
    As a result of this strategy, HSE has been able to keep all of its
front-line safety technicians employed. HSE has, from time to time, been
required to contract third party labor to meet client demand.

    Adapting To A Different Business Model

    While the market opportunity is large, HSE's growing Industrial safety
service business is characterized by lower overall margins at the operating
level than Oilfield. As an overall business strategy, however, Industrial
safety is significantly less capital intensive and therefore generates an
attractive rate of return on invested capital
    To adapt to current market realities, HSE has undertaken a broad range of
operational changes to reduce the size of the Oilfield division to match
market demand and improve operating margins company-wide without decreasing
revenue generating capability. Some have already taken place and substantial
implementation will be completed by December 31, 2007.
    With anticipated demand for Industrial safety services expanding in 2008
and beyond, HSE is committed to keeping all of its revenue generating
technical services personnel to the greatest degree possible.

    
    Restructuring Highlights

    -   Facilities consolidation and rationalization. Field service locations
        will be closed or downsized.
    -   Fleet rationalization and equipment redeployment. Mobile safety
        service equipment surplus to requirements in Alberta will be
        redeployed in B.C., Saskatchewan, Ontario, Michigan, Nova Scotia, New
        Brunswick and to one or more new service locations in the continental
        United States.
    -   Elimination of non-core divisions. All operating divisions have been
        reviewed to ensure a long-term strategic fit and those that don't
        offer synergies or contribute to HSE's integrated services packages
        will be divested.
    -   Flattened management and reporting structure. Several senior
        management positions will be eliminated to reduce costs and improve
        effectiveness.
    

    Outlook for Oilfield Safety Services

    The operating environment for Oilfield safety services in Alberta will be
challenging for the foreseeable future. HSE has been relocating mobile safety
equipment to other markets for two years, and will continue to downsize this
division until supply and demand are in balance. This will involve moving
equipment out of Alberta and shrinking support infrastructure accordingly.
    Due to steady growth in demand for Industrial safety services in Alberta
and other markets, HSE has been able to avoid major layoffs of safety
technicians thus far because they have been successfully redeployed in the
Industrial division. No layoffs of field safety technicians are planned at
this time.
    Should demand for Oilfield safety services increase in the future, HSE
will have the manpower available and ready to go. Required equipment will be
much easier to source than the trained and skilled personnel.

    Outlook for Industrial Safety Services

    HSE's entry into Industrial safety services over three years ago has
provided the Company with significant growth opportunities in all markets in
which it operates. The integrated health, safety and environment services
business model that HSE created continues to attract clients because it meets
the need for cost-effective and comprehensive protection of workers, assets
and the community.
    Industrial safety projects have more lead time and therefore offers
increased sales forecasting visibility. At this time and based upon projects
for next year that HSE has already been awarded, HSE believes that its
Industrial safety services business will experience meaningful organic growth
without material capital investment.
    David Yager, Chairman and CEO of HSE, had the following comments.
    "In the past three years HSE has undertaken a consistent program of
client, sector and geographical diversification using essentially the same
equipment and personnel. With the continued weakness in conventional oilfield
services, our business strategy has been validated. We at HSE remain convinced
our business strategy is sound and our growth potential and future prospects
are exciting.
    We invite investors to take a closer look at HSE and realize that our
Company is not exclusively tied to the natural gas drilling. We have a bright
future in multiple industries in multiple markets".
    HSE is Canada's only national supplier of integrated industrial Health,
Safety and Environmental services. From its head office in Calgary, Alberta
HSE serves its clients from field service locations in Alberta, British
Columbia, Saskatchewan, Ontario, Nova Scotia, New Brunswick and Michigan. HSE
trades on the TSX under the symbol "HSL".

    Forward Looking Statements

    This news release may contain forward-looking statements concerning,
among other things, the Company's prospects, expected revenues, expenses,
profits, financial position, strategic direction, and growth initiatives, all
of which are subject to risks, uncertainties and assumptions. These
forward-looking statements are identified by their use of terms and phrases
such as expect, anticipate, estimate, believe, may, will, intend, plan,
continue, project, objective and other similar terms and phrases. These
statements are based on certain assumptions and analyses made by the Company
based on its experience and assessment of current conditions, known trends,
expected future developments and other factors it believes are appropriate
under the circumstances. Such statements are subject to numerous external
variables, both known and unknown, such as changes in commodity prices for
natural gas and oil, changes in drilling activity, weather conditions,
industry-specific and general economic conditions and exchange rate
fluctuations. If any of these risks and uncertainties materializes or if
assumptions are incorrect, actual results may differ materially from those
expressed or implied in the forward-looking statements. The forward looking
statements included in this news release are not guarantees of future
performance and should not be unduly relied upon.

    %SEDAR: 00011733E




For further information:

For further information: David Yager, Chairman & CEO, Telephone: (403)
266-1833, E-Mail: dyager@hseintegrated.com; Tony Hidalgo, Chief Financial
Officer, Telephone (905) 825-7835, E-Mail: thidalgo@hseintegrated.com

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HSE Integrated Ltd.

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