Petrowest Energy Services Trust announces 2007 results



    CALGARY, March 19 /CNW/ - Petrowest Energy Services Trust (TSX: PRW.UN)
announces its consolidated financial results for the three and twelve month
periods ended December 31, 2007. The consolidated financial results of the
Trust reflect the uncertainty facing the oil and gas industry in western
Canada and in particular the natural gas sector. There remains uncertainty
surrounding the Alberta royalty review and the future price of natural gas,
which has had significant effects on industry activity. The drilling activity
in the Western Canada Sedimentary Basin decreased approximately 13% in 2007
over 2006 according to the Canadian Association of Oilwell Drilling
Contractors, with a further 28% reduction forecast for 2008.

    
    FINANCIAL HIGHLIGHTS

    Financial Summary

                            Three months ended
                                December 31
                                                  For the year   For the 179
                                                         ended    days ended
    (Thousands, except                             December 31,  December 31,
     per unit amounts)        2007          2006          2007          2006
    -------------------------------------------------------------------------
    Revenue                 47,825        35,829       158,683        46,736
    Gross Margin(1)          7,964        10,742        31,437        13,894
    Gross Margin
     Percentage(1)             17%           30%           20%           30%
    EBITDA(1)                6,428         9,451        26,188        12,096
    EBITDA Percentage(1)       13%           26%           17%           26%
    Cash provided from
     operating activities   23,879         1,088        25,651         3,990
    Net earnings (loss)   (113,648)        2,617      (137,073)        3,379
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions
     declared                3,805         8,483        27,314        10,650
    Total units
     outstanding            33,266        28,275        33,266        28,275
    Weighted average
     units outstanding      33,202        28,275        31,202        28,275
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) See "Non-GAAP Measures" in Trust's MD&A (available at www.sedar.com)
    (2) Current assets less current liabilities
    

    Consolidated revenue for the three months ended December 31, 2007 was
$47.8 million, an increase of $12.0 from the $35.8 reported in the comparable
period of 2006. Included in the 2007 consolidated revenue is $16.7 of revenue
contribution from the companies acquired in May, 2007. The gross margin
percentage for the three months ended December 31, 2007 was 17% compared to
30% in the comparable period of 2006. Margins were affected by factors such as
lower equipment utilization and pricing pressures.
    Consolidated revenue for the year was $158.6 million, including
$36.3 million from the companies acquired in May, 2007. This compares to the
$46.7 million in revenue generated in the 179 day period ended December 31,
2006. The gross margin percentage for the year ended December 31, 2007 was 20%
compared to 30% for the 179 day period ended December 31, 2006.
    The Trust recognized a goodwill impairment of $71.3 million and an
intangible asset impairment of $35.7 million in the fourth quarter of 2007 as
a result of the carrying values of goodwill and intangible assets exceeding
the estimated fair values. This contributed to a loss for the year of
$137.0 million or $4.39 per unit on both a basic and fully diluted basis. The
factors impacting the activity in the oil and gas sector and reducing demand
for the Trust's services have resulted in lower utilization of the Trust's
capacity, reduced margins and an erosion of the Trust's enterprise value which
precipitated the requirement for an impairment of goodwill and intangible
assets.
    Ken Drysdale, President and Chief Executive Officer, stated that "The
financial results for 2007 are largely reflective of the reduced activity in
the oil and gas sector. The Alberta royalty review, continued softness of the
price of gas and the new SIFT legislation were all significant factors related
to our impairment of goodwill and intangibles at year end. We continue to take
action to improve our operating performance and balance sheet. We have the
available capacity to respond to a turnaround in this sector and continue to
pursue other revenue sources unrelated to the sector."

    Outlook

    Historically, Petrowest's businesses have been comprised of approximately
two thirds oil and gas related activities and one third industrial and
infrastructure activities. We made a concerted effort in 2007 to diversify
more into the industrial and infrastructure activities which we accomplished
based on our operations currently being divided almost evenly between them.
Although there has been a focus on diversification away from the natural gas
drilling sector, the sector remains a critical component of the business and
is expected to continue to be an important component. Infrastructure project
demand is expected to be strong over the next couple of years and we
anticipate more activity in this area. The current state of the natural gas
drilling sector has the effect of reducing utilization of equipment in many of
the Trust's business segments. At lower capacity utilization, operating
margins will continue to be negatively impacted.
    The Trust accomplished a number of proactive initiatives over the past
year to improve the strategic and financial position of the Trust and its
Balance Sheet. These include:

    
    -   Successful extension of the Trust's credit facility for another one
        year term until November 2008.
    -   Initiation of cost cutting measures, additional equipment cross
        utilization, less reliance on natural gas exploration and drilling
        activity and the completion of strategic acquisitions.
    -   Expanded relationships and alliances in the Peace River oil sands
        development.
    -   Acquisitions of five companies that were completed on May 18, 2007
        for aggregate consideration of $93.3 million, strengthening and
        expanding the Trust's Civil, Construction and Transportation business
        segments and expanding the Trust's geographical footprint further
        north to Peace River, High Level and Rainbow Lake areas of Alberta
        and Fort St. John and Fort Nelson in British Columbia. In addition to
        opening new markets, the acquisitions are beginning to contribute to
        the operating synergies of the Trust and reduce levels of third party
        subcontracting.
    

    During the past year the natural gas sector was negatively affected by
low gas prices due partially to weather and to high storage levels in North
America. The recent royalty review in Alberta has further complicated and
compounded this. Oil and gas exploration and producing companies are currently
assessing the impact of the new royalty structure on their businesses and the
economics of drilling for natural gas. In light of this uncertainty,
management of the Trust expects 2008 drilling activities to be negatively
impacted by the royalty changes and it is not clear when a future turnaround
in these activities will occur.
    As a result of the uncertainty in the oil and gas sector and the Trust's
financial results, distributions were reduced two times during 2007 to
effectively maintain the balance sheet and the liquidity of the Trust.
Subsequent to year end the Trust suspended distributions. The decision to
reinstate them will be determined significantly by the improvement of the gas
sector and ensuring the level of cash flow available for distributions is
sustainable. The Trust is currently in discussion with the banking syndicate
to restructure the "Credit Facility" to ensure compliance with financial
covenants continues, pending the increase in activity related to the oil and
gas sector.
    Management of the Trust is actively pursuing initiatives to improve
operating and financial performance regardless of the external factors
currently affecting the oil and gas sector. Civil infrastructure projects are
aggressively being pursued in addition to the geographic redeployment of
equipment and skilled personnel to capitalize on demand in nearby regions.
This is aimed at improving the Trust's utilization rates and financial
results. Management is also reviewing the Trust's assets to determine whether
any redundant assets can be sold. The reduction of our debt level remains a
continuing objective. Management will continue to review further alternatives
to reduce costs and enhance operational synergies and performance in order to
have a stronger operation moving forward and an organization that will be
positioned to benefit from an increased activity level in the gas sector.

    2007 Canadian Income Tax Information

    The Trust has determined that for Canadian unitholders, 100% of the 2007
distributions declared should be treated as income.

    SELECTED FINANCIAL INFORMATION

    Selected financial information for the quarter and year ended
December 31, 2007 is attached below. This information should be read in
conjunction with the audited 2007 consolidated financial statements and the
Trust's Management, Discussion and Analysis, available under the Trust's
profile on the SEDAR website at www.sedar.com and at www.petro-west.com.


    
    Petrowest Energy Services Trust
    Consolidated Balance Sheets
    -------------------------------------------------------------------------
                                                         As at         As at
                                                   December 31,  December 31,
    (In thousands of dollars)                             2007          2006
    -------------------------------------------------------------------------
    Assets
    Current assets
      Cash and cash equivalents                            215         9,312
      Accounts receivable                               44,281        38,498
      Prepaid expenses and other                         1,906         1,517
      Inventory                                          5,800         3,454
    -------------------------------------------------------------------------
                                                        52,202        52,781

    Property and equipment                             118,441        91,298
    Intangible assets                                   24,502        53,438
    Goodwill                                            49,402        98,068
    Future income taxes                                    698             -
    -------------------------------------------------------------------------

                                                       245,245       295,585
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities          28,758        20,296
      Corporate taxes payable                               17             -
      Distributions payable                                953         3,245
      Purchase consideration payable                         -         6,422
      Current portion of obligations under
       capital leases                                      489            87
    -------------------------------------------------------------------------
                                                        30,217        30,050

    Obligations under capital leases                       797           169
    Revolving bank term loan                            82,000        15,000
    Future income taxes                                 10,739             -
    -------------------------------------------------------------------------
                                                       123,753        45,219
    Unitholders' Equity
    Units                                              292,879       257,279
    Warrants                                               270             -
    Contributed surplus                                      -           358
    Accumulated (loss) earnings                       (133,694)        3,379
    Accumulated distributions to unitholders           (37,963)      (10,650)
    -------------------------------------------------------------------------
                                                       121,492       250,366
    -------------------------------------------------------------------------

                                                       245,245       295,585
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Petrowest Energy Services Trust
    Consolidated Statement of Loss, Comprehensive Loss and
    Accumulated Earnings (Loss)
    -------------------------------------------------------------------------

                      Three months  Three months  For the year   For the 179
                             ended         ended         ended    days ended
    (In thousands      December 31,  December 31,  December 31,  December 31,
     of dollars)              2007          2006          2007        2006(1)
    -------------------------------------------------------------------------

    Revenue                 47,825        35,829       158,683        46,736

    Expenses
      Operating expenses    39,861        25,087       127,246        32,842
      General and
       administrative        1,536         1,291         5,249         1,798
      Interest               2,266           141         5,439           273
      Amortization of
       property and
       equipment             8,576         4,682        28,954         5,824
      Amortization of
       intangible assets     3,036         2,113        10,777         2,785
      Impairment of
       goodwill and
       intangible assets   107,015             -       107,015             -
    -------------------------------------------------------------------------

                           162,290        33,314       284,680        43,522
    -------------------------------------------------------------------------

                          (114,465)        2,515      (125,997)        3,214
    -------------------------------------------------------------------------
    Other income
      Gain (loss) on
       disposal of
       property and
       equipment              (644)           20        (1,178)           78
      Interest income            -            82           143            87
    -------------------------------------------------------------------------

    Net earnings (loss)
     and comprehensive
     earnings (loss)
     before taxes         (115,109)        2,617      (127,032)        3,379

    Future income tax
     (recovery) expense     (1,461)                     10,041             -
    -------------------------------------------------------------------------

    Net earnings (loss)
     and comprehensive
     earnings (loss)      (113,648)        2,617      (137,073)        3,379

    Accumulated earnings
     (loss) - beginning
     of period             (20,046)          762         3,379             -
    -------------------------------------------------------------------------

    Accumulated earnings
     (loss) - end
     of period            (133,694)        3,379      (133,694)        3,379
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings (loss)
     per unit - basic
     and diluted            ($3.42)        $0.09        ($4.39)        $0.12
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Commercial operations of the Trust commenced September 7, 2006



    Petrowest Energy Services Trust
    Consolidated Statement of Cash Flows
    ------------------------------------

                      Three months  Three months  For the year   For the 179
                             ended         ended         ended    days ended
    (In thousands      December 31,  December 31,  December 31,  December 31,
     of dollars)              2007          2006          2007        2006(1)
    -------------------------------------------------------------------------
    Cash provided by
     (used in)
    Operating activities
    Net earnings (loss)
     for the period       (113,648)        2,617      (137,073)        3,379
    Items not affecting
     cash
      Amortization of
       property and
       equipment             8,576         4,682        28,954         5,824
      Amortization of
       intangible assets     3,037         2,113        10,777         2,785
      Impairment of
       goodwill and
       intangible assets   107,015             -       107,015             -
      Unit-based
       compensation
       (recovery)                -           252          (358)          358
      Units issued for
       services                  -             -            72             -
      Future income taxes   (1,461)            -        10,041             -
      Loss (gain) on
       disposal of
       property and
       equipment               644           (20)        1,178           (78)
    -------------------------------------------------------------------------
                             4,163         9,644        20,606        12,268
    Changes in non-cash
     working capital
      Accounts receivable   14,811        (2,171)        6,475          (850)
      Prepaid expenses
       and other                84           236         2,055          (837)
      Inventory             (1,293)          280        (1,872)          704
      Accounts payable and
       accrued liabilities   7,010        (6,907)         (577)       (7,295)
      Income taxes payable    (896)            6        (1,036)            -
    -------------------------------------------------------------------------
                            23,879         1,088        25,651         3,990
    -------------------------------------------------------------------------
    Financing activities
      Unitholder
       distributions        (4,879)       (7,405)      (26,393)       (7,405)
      Issue of trust
       units -
       net of costs                                          -       129,628
      Repayment of capital
       lease obligations        89            31          (275)            -
      Proceeds from
       revolving term
       bank loan                 -        15,000        80,000        15,000
      Repayment of
       revolving term
       bank loan            (8,000)                    (13,000)
    -------------------------------------------------------------------------
                           (12,790)        7,626        40,332       137,223
    -------------------------------------------------------------------------
    Investing activities
      Acquisition of
       acquired companies
       net of working
       capital adjustments
       and costs                           3,486       (52,027)      (95,114)
      Retirement of
       acquired debt                           -             -       (22,698)
      Business alliance       (575)            -        (2,074)            -
      Purchase of property
       and equipment        (5,007)      (17,557)      (18,067)      (18,474)
      Proceeds on property
       and equipment
       disposals             2,134         1,775         4,231         4,385
      Purchase price
       adjustment             (721)            -        (7,143)            -
    -------------------------------------------------------------------------
                            (4,169)      (12,296)      (75,080)     (131,901)
    -------------------------------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents             6,920        (3,582)       (9,097)        9,312
    Cash and cash
     equivalents,
     beginning of period    (6,705)       12,894         9,312             -
    -------------------------------------------------------------------------
    Cash and cash
     equivalents
     (bank overdraft),
     end of period             215         9,312           215         9,312
    -------------------------------------------------------------------------

    Supplementary cash
     flow information
    Interest paid            2,226           141         5,439           273
    Income taxes paid                                        -             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Non cash transactions
    Property and equipment
     financed by capital
     leases                     27           256         1,305           256
    Units issued on
     acquisition                 -             -        32,316       127,651
    Warrants issued              -             -           270             -
    Subordinated unit
     distributions applied
     to promissory notes       225             -           225             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Commercial operations of the Trust commenced September 7, 2006
    

    FORWARD LOOKING INFORMATION

    This news release contains forward-looking statements that involve
substantial known and unknown risks and uncertainties. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "achievable," "believe," "expect," "estimate," "plan," "intend,"
"project," "may," "should", "could", "predict", "may," "will," or similar
words suggesting future outcomes or language suggesting an outlook.
Forward-looking statements and information are based on Petrowest's current
beliefs as well as assumptions made by and information currently available to
Petrowest concerning anticipated business performance. Although management of
Petrowest considers these assumptions to be reasonable based on information
currently available to it, they may prove to be incorrect. Forward-looking
statements are subject to many external variables that are beyond Petrowest's
control, such as fluctuating prices for crude oil and natural gas, changes in
drilling activity, and general local and global economic, political, business
and weather conditions. If any of these, or other uncertainties, materialize
the actual results of Petrowest may vary materially from those expected.





For further information:

For further information: Kenneth N. Drysdale, President and Chief
Executive Officer at (780) 830-0881; or Lloyd A. Wiggins, Chief Financial
Officer, at (403) 237-0881; or info@petro-west.com

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PETROWEST ENERGY SERVICES TRUST

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