Deepwell Energy Services Trust reports second quarter results



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

    CALGARY, Aug. 13 /CNW/ - Deepwell Energy Services Trust ("Deepwell" or
the "Trust") today announced its financial results for the three months ended
June 30, 2007. For the three months ended June 30, 2007, Deepwell recorded
revenue of $2,532,151, a net loss of $624,201, funds from operations(1) of
$553,113, EBITDA(1) of $782,563, and paid cash distributions to unitholders of
$753,183.

    
    Financial Highlights(1)
                                    Three months    Six months       64 days
                                           ended         ended         ended
                                         June 30,      June 30,      June 30,
                                            2007          2007          2006
    -------------------------------------------------------------------------
    Revenue                           $2,532,151    $6,959,661    $1,778,929
    Net income (loss)                   (624,201)     (528,356)       11,840
    Net income (loss) per unit
      Basic                                (0.14)        (0.12)         0.00
      Diluted                              (0.14)        (0.12)         0.00

    EBITDA                               782,563     2,694,307       600,103
      Basic                                 0.18          0.62          0.14
      Diluted                               0.18          0.62          0.14

    Funds from operations                553,113     2,475,808       492,157
      Basic                                 0.13          0.57          0.11
      Diluted                               0.13          0.57          0.11

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

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                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    

    The following Management's Discussion and Analysis (MD&A) of Deepwell
Energy Services Trust ("Deepwell" or the "Trust") has been prepared taking
into consideration information available to August 10, 2007 and should be read
in conjunction with the Trust's unaudited interim consolidated financial
statements as at and for the three-months ended June 30, 2007 and in
conjunction with the Trust's audited consolidated financial statements as at
and for the 247-day period ended December 31, 2006. This MD&A discusses
operations and events for the three-month period ended June 30, 2007 and
unless otherwise noted, references to the "period" or "quarter" in this MD&A
refer to the three-month period ended June 30, 2007. References to "2006"
refer to the 64 days ended June 30, 2006. References to "2007" refer to the
six months ended June 30, 2007. Due to the difficulty in comparing periods of
different lengths, we have not analyzed the 64 day period ending June 30,
2006. Our analysis refers to management expectations for the second quarter of
2007.

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

    This 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 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: Deepwell intends to attain and maintain
        efficient operations and a high standard of customer service within a
        safe working environment; and
    -   Environmental stewardship: Deepwell intends to 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:

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    Financial Highlights                 For the       For the       For the
                                    three months    six months       64 days
                                           ended         ended         ended
                                         June 30,      June 30,      June 30,
                                            2007          2007          2006
    -------------------------------------------------------------------------

    Revenue                           $2,532,151    $6,959,661    $1,778,929
    Operating costs                    1,190,739     3,109,961       948,937
    -------------------------------------------------------------------------
    Gross Margin                       1,341,412     3,849,700       829,992
    Selling and administrative           558,849     1,155,393       229,889
    -------------------------------------------------------------------------

    EBITDA                               782,563     2,694,307       600,103
    Depreciation, accretion and
     amortization                        897,865     1,820,534       480,317
    Unit-based compensation              359,600       534,737             -
    Interest                             229,450       435,011       107,946
    Gain on sale of property and
     equipment                           (17,500)      (10,239)            -
    Loss on write-off of property
     and equipment                             -       367,702             -
    Fire-related expenses                      -       162,119             -
    Future income tax recovery           (62,651)      (87,201)            -
    -------------------------------------------------------------------------

    Net income (loss)                   (624,201)     (528,356)       11,840

    Add:
    Depreciation, accretion and
     amortization                        897,865     1,820,535       480,317
    Unit-based compensation
     expense                             359,600       534,737             -
    Gain on sale of property and
     equipment                           (17,500)      (10,239)            -
    Loss on write-off of property
     and equipment                             -       746,332             -
    Future income tax recovery           (62,651)      (87,201)            -
    -------------------------------------------------------------------------

    Funds from operations               $553,113    $2,475,808      $492,157
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net income (loss)                  ($624,201)    ($528,356)      $11,840
    Per unit, basic                        (0.14)        (0.12)         0.00
    Per unit, diluted                      (0.14)        (0.12)         0.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA                              $782,563    $2,694,307      $600,103
    Per unit, basic                         0.18          0.62          0.14
    Per unit, diluted                       0.18          0.62          0.14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Funds from operations               $553,113    $2,475,808      $492,157
    Per unit, basic                         0.13          0.57          0.11
    Per unit, diluted                       0.13          0.57          0.11
    -------------------------------------------------------------------------
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    Distributions paid to
     Unitholders                        $753,183    $1,849,153      $445,258
    Per unit, basic                         0.17          0.42          0.10
    Per unit, diluted                       0.17          0.42          0.10
    -------------------------------------------------------------------------
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    Gross margin as a percentage
     of revenue                              53%           55%           47%
    Selling and administrative
     as a percentage of revenue              22%           17%           13%
    EBITDA as a percentage of
     revenue                                 31%           39%           34%
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    Capital expenditures              $1,613,245    $2,451,930      $193,768
    Total assets, end of period      $53,839,846   $53,839,846   $48,546,448
    Long-term debt, end of period
     (includes current portion)      $13,500,000   $13,500,000    $7,000,000
    Trust units, end of period       $40,443,363   $40,443,363   $40,568,721
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    Weighted average Trust units,
     basic                             4,357,724     4,356,867     4,356,000
    Weighted average Trust units,
     diluted                           4,357,744     4,356,867     4,356,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Revenue for the quarter was $2,532,151 (2007 - $6,959,661, 2006 -
$1,778,929), with a gross margin of $1,341,412 or 53 percent of revenue
(2007 - $3,849,700 or 55 percent of revenue, 2006 - $829,992 or 47 percent of
revenue), EBITDA of $782,563 or 31 percent of revenue (2007 - $2,694,307 or 39
percent of revenue, 2006 - $600,103 or 34 percent of revenue), and a net loss
of $624,201 (2007 - $528,356, and a net income for 2006 - $11,840).
    On a basic and diluted per unit basis, net loss for the period was $0.14
per unit, (2007 - $0.12) and funds from operations were $0.13 per unit,
(2007 - $0.57, 2006 - $0.11 per unit). Basic and diluted distributions
declared to unitholders in the quarter were $784,243 or $0.18 per unit, (2007
- $1,880,213 or $0.43, 2006 - $445,258 or $0.10).

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

    Revenue

    Revenues for the quarter were $2,532,151 (2007 - $6,959,661, 2006 -
$1,778,929), generating 67 percent (2007 & 2006 - 65 percent) from processing
and disposal fees and 33 percent (2007 & 2006 - 35 percent) from the sale of
recovered oil. During the second quarter, Deepwell experienced low volumes
primarily due to poor weather, spring break-up and, to a lesser extent, due to
continued uncertainty over the economics in the oil and gas sector leading our
customers to limit spending. In particular, Grand Cache and Mayerthorpe were
substantially under quarterly norms in waste and water processing, although
decreased activity and revenue is consistent within the industry. The seasonal
decline was partially offset with custom treating revenues doubling
management's expectations. In contrast, Deepwell's Rycroft facility
experienced unprecedented quarterly water volumes due to well capacity
improvements.

    Operating expenses

    Operating expenses were $1,190,739 for the quarter (2007 - $3,109,961,
2006 - $948,937), and the relationship to revenues remained consistent with
management's expectations. Operating expenses for the quarter include $27,168,
(2007 - $683,988, 2006 - $188,638) in oil credits repaid to customers which
mitigates the impact of changes to oil prices or Deepwell's revenues. 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 $558,849 or 22
percent of revenue (2007 - $1,155,393 or 17 percent of revenue, 2006 -
$229,889 or 13 percent of revenue), and exceeded management's expectations
primarily due to legal and public company costs associated with the first full
year of operations.

    Depreciation, amortization and accretion

    Depreciation, amortization and accretion expense was $897,865 for the
quarter (2007 - $1,820,534, 2006 - $480,317), and consists of depreciation of
fixed assets of $766,725 (2007 - $1,567,778, 2006 - $469,705), amortization of
intangible assets of $82,234 (2007 - $164,468), accretion of $15,454 (2007 -
$30,908), amortization of deferred financing charges of $33,452 (2007 -
$57,380, 2006 - $10,612). Intangible assets consist of regulatory approvals,
customer relationships, and non-competition agreements.

    Interest

    Total cash interest expense for the period was $229,450 (2007 - $435,011,
2006 - $107,946), comprised of interest on long-term debt of $216,309 (2007 -
$404,370, 2006 - $107,946) and interest on the Trust's operating loan of
$13,141. 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. The effective interest
rate for the period was 7.03%.

    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 six months ended June 30,
2007.

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    Distributions to Unitholders
    -------------------------------------------------------------------------

    On April 25, 2007, the Trust announced the adoption of a distribution
reinvestment plan (the "DRIP"). The DRIP, to the extent that Unitholders
participate, will provide the Trust with additional cash for growth. The DRIP
allows eligible Unitholders of the Trust to direct that their cash
distributions be reinvested in additional trust units. The cash distributions
are reinvested at the discretion of Deepwell Energy Services Ltd. either by
acquiring trust units issued from treasury at 95% of the Average Market Price
(as defined in the DRIP) or by acquiring trust units at prevailing market
prices. The Trust issued 5,030 Trust Units resulting in $31,060 being
reinvested during the period.
    During the quarter, distributions declared to unitholders were $784,243
(2007 - $1,880,213, 2006 - $445,258). Cash distributions for the period were
decreased by $31,060 from distributions re-invested.

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

    Net cash used in investing activities during the period was $1,277,961,
(2007 - $3,352,341, 2006 - $44,247,305).
    In the second quarter of 2007, the Trust invested in property and
equipment valued at $1,613,245, (2007 - $2,451,930, 2006 - $193,768). The
Trust invested $592,053 to restore assets damaged in the December 2006 fire at
Grande Cache. $482,000 was committed to Claresholm, $432,510 for the Rycroft
pipeline and $106,682 in various costs for oilfield service equipment,
computing equipment and software.
    During the period, Deepwell secured three letters of guarantee in the
aggregate amount of $1,909,296. These letters automatically renew and carry an
initial term of one year. Two of the letters of guarantee replace $1,377,648
in cash deposits previously held by the Alberta Energy Utilities Board for
abandonment and reclamation - refund of these deposits was received subsequent
to the end of the period. The third letter of guarantee establishes security
for the Trust's Claresholm facility.

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

    Trust unit option plan

    As at June 30, 2007, a total of 375,300 options issued pursuant to the
Trust incentive stock option plan ("Option Plan") were outstanding (2006 -
nil). At June 30, 2007 73,800 options were exercisable, and the weighted
average contractual life remaining is 4.31 years. The total number of
outstanding options shall not exceed 10 percent of the outstanding Trust
Units. Except for the 73,800 options issued to executives during the period in
lieu of a cash bonus for 2006 (vesting immediately), all 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. As at June 30, 2007, the exercise prices of
outstanding options ranged from $6.42 to $9.80 per unit and the weighted
average exercise price of granted options was $9.00 per unit. The Trust
recorded unit option compensation expense and contributed surplus of $359,600
during the quarter, (2007- $534,737).

    Financings

    During the quarter, the Trust announced two financings, both of which
closed subsequent to June 30, 2007. On July 9, 2007, the Trust closed a
private placement of Trust units (the Private Placement). Upon closing 582,362
units of the Trust were issued for gross proceeds of $3,500,000. The issue
price for the Private Placement was set at the same price as the Trust's
rights offering, which expired on July 31, 2007 (the Rights Offering). The
Rights Offering was fully subscribed and a total of 2,180,515 Trust units were
issued at a price of $6.01 per Trust unit for gross proceeds of $13,104,895.

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

    As at June 30, 2007, the Trust had issued cheques in excess of bank
balance of $1,160,266. The Trust also has credit facilities in place in the
aggregate of $17,500,000.
    Net cash used by financing activities for the quarter was $590,379,
(2007 - $236,227, 2006 - $43,483,463). As at June 30, 2007, the Trust had
drawn $13,500,000 on its long-term credit facility, an increase of $500,000
from March 31, 2007. A total of $16,726 of deferred financing costs were
amortized during the period. Other financing activities include the payment of
$753,183 in distributions to Unitholders. Prepaid unit issue costs of $337,556
were incurred during the period for the rights offering.

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    Credit facilities
    -------------------------------------------------------------------------

    As at June 30, 2007, the borrowing base for the demand revolving loan was
$1,719,079 and the amount drawn was $1,150,000. As at June 30 2007, an
aggregate of $13,500,000 was drawn on the revolving term loan. During the
quarter, Deepwell renewed its credit agreements to May 31, 2008.

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    Summary of Quarterly Results
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    The following table shows selected financial information for the past
three 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.

    
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    Summary of         Three       Three       Three       Three
     Quarterly        months      months      months      months     64 days
     information       ended       ended       ended       ended       ended
                      Jun 30,     Mar 31,     Dec 31,     Sep 30,     Jun 30,
                        2007        2007        2006        2006        2006
    -------------------------------------------------------------------------
    Revenue       $2,532,151  $4,427,510  $4,059,296  $3,808,795  $1,778,929
    Operating
     costs         1,190,739   1,919,221   1,605,492   2,040,285     948,937
    -------------------------------------------------------------------------
    Gross Margin   1,341,412   2,508,289   2,453,804   1,768,510     829,992
    Selling and
     administrative  558,849     596,545     730,354     448,788     229,889
    -------------------------------------------------------------------------

    EBITDA           782,563   1,911,744   1,723,450   1,319,722     600,103

    Depreciation,
     amortization
     and accretion   897,865     922,669     993,621     712,640     480,317
    Unit-based
     compensation    359,600     175,137     197,812      53,620           -
    Interest         229,450     205,561     149,325     102,469     107,946
    Loss (gain)
     on sale of
     property and
     equipment       (17,500)      7,261      34,295           -           -
    Net loss on
     write-down of
     property and
     equipment
     destroyed
     in fire               -     367,701           -           -           -
    Fire-related
     expenses              -     162,119           -           -           -
    Future income
     tax recovery    (62,651)    (24,550)    (47,799)          -           -
    -------------------------------------------------------------------------
    Net income
     (loss)         (624,201)     95,845     396,196     450,993      11,840

    Add:
    Depreciation,
     amortization
     and accretion   897,865     922,669     993,621     712,640     480,317
    Unit-based
     compensation    359,600     175,137     197,812      53,620           -
    Loss on sale of
     property and
     equipment       (17,500)      7,261      34,295           -           -
    Loss on write-off
     of property
     and equipment         -     746,332           -           -           -
    Future income
     tax recovery    (62,651)    (24,550)    (47,799)          -           -
    -------------------------------------------------------------------------
    Funds from
     operations     $553,113  $1,922,694  $1,574,125  $1,217,253    $492,157
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss)
     per trust unit:
      Basic           ($0.14)      $0.02       $0.09       $0.10       $0.00
      Diluted         ($0.14)      $0.02       $0.09       $0.10       $0.00
    -------------------------------------------------------------------------
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    Weighted average
     number of
     Trust Units
     outstanding
      Basic        4,357,724   4,356,000   4,356,000   4,356,000   4,356,000
      Diluted      4,357,744   4,356,000   4,356,000   4,477,793   4,356,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

    The Trust entered the third quarter with all facilities operating well,
although some softness in the market for services persisted until mid-July. As
a result of investments in well capacity, the Rycroft facility's capacity is
significantly improved from when it was acquired in April of 2006. Because the
Trust's cash flow is more dependent on activity in the production of oil and
natural gas (as opposed to exploration), management believes that demand will
be strong for the balance of 2007.
    In July, Deepwell commenced construction of an oilfield waste management
facility near Claresholm, Alberta and completion is planned approximately six
months after the start of construction. The Claresholm site 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 planned Deepwell facility, expected to be operational in the
first quarter of 2008, would be Deepwell's fourth facility. Financing is in
place for the Claresholm facility, and for other 2007 projects as a result of
the completion of a private placement and rights offering in July, 2007.
    Deepwell has successfully completed the first phase of public
consultation for its next proposed greenfield facility. Deepwell anticipates
submitting an application to the EUB in the third quarter for approval to
construct and operate an oilfield waste management facility at that site in
2008. Prospecting is also in progress for suitable facility sites for
construction beyond the 2008 horizon, as the Trust continues to be focused on
achieving growth through addition of greenfield facilities and capacity
improvements at existing facilities.

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

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

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

    In Canada, the level of activity in the oil and 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 SIX MONTHS ENDED JUNE 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 infom readers that
    Deepwell has elected not to review these financial statements and notes
    with its auditors.

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



    
    DEEPWELL ENERGY SERVICES TRUST
    INTERIM CONSOLIDATED BALANCE SHEETS
    (unaudited)


                                                       June 30,      June 30,
    As at                                                 2007          2006
    -------------------------------------------------------------------------

    Assets
    Current assets:
      Cash                                                   -      $455,921
      Accounts receivable                           $2,033,158     1,836,955
      Inventory (Note 4)                               121,584       123,129
      Prepaid expenses and deposits (Note 5)         1,867,970       194,605
    -------------------------------------------------------------------------
                                                     4,022,712     2,610,610

    Property and equipment                          39,570,163    34,946,579
    Intangible assets                                3,089,569     3,572,762
    Goodwill                                         7,157,402     6,196,849
    Financial security deposits  (Note 5)                    -     1,219,648
    -------------------------------------------------------------------------

                                                   $53,839,846   $48,546,448
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities:
      Bank indebtedness                             $1,160,266             -
      Accounts payable and accrued liabilities       1,859,970      $376,177
      Distributions payable                            261,360       417,305
      Current portion of long-term debt                375,000       194,444
    -------------------------------------------------------------------------
                                                     3,656,596       987,926

    Long-term debt                                  13,125,000     6,736,168
    Asset retirement obligations                       744,652       687,051
    -------------------------------------------------------------------------
                                                    17,526,248     8,411,145
    -------------------------------------------------------------------------

    Unitholders' Equity
    Trust units (Note 3)                            40,443,363    40,568,721
    Contributed surplus                                786,170             -
    Deficit                                         (4,915,935)     (433,418)
    -------------------------------------------------------------------------
                                                    36,313,598    40,135,303
    -------------------------------------------------------------------------

                                                   $53,839,846   $48,546,448
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to interim consolidated financial statements.



    DEEPWELL ENERGY SERVICES TRUST
    INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS)
    AND ACCUMULATED DEFICIT
    (unaudited)

                                                                     For the
                                    Three months    Six months       64 days
                                           ended         ended         ended
                                         June 30,      June 30,      June 30,
                                            2007          2007          2006
    -------------------------------------------------------------------------

    Revenues                          $2,532,151    $6,959,661    $1,778,929
    -------------------------------------------------------------------------

    Expenses
      Operating                        1,190,739     3,109,961       948,937
      Selling and administrative         558,849     1,155,393       229,889
      Depreciation and accretion         782,179     1,598,686       480,317
      Amortization of intangible
       assets                             82,234       164,468             -
      Unit-based compensation            359,600       534,737             -
      Interest on short-term debt         13,141        30,641             -
      Interest on long-term debt         216,309       404,370       107,946
      Amortization of deferred
       financing costs                    33,452        57,380             -
      Gain on sale of property
       and equipment (Note 7)            (17,500)      (10,239)            -
      Loss on write-off of property
       and equipment (net of accrued
       insurance proceeds)                     -       367,702             -
      Fire-related expenses                    -       162,119             -
    -------------------------------------------------------------------------
                                       3,219,003     7,575,218     1,767,089

    Income (loss) before taxes          (686,852)     (615,557)       11,840

    Future income tax recovery
     (Note 6)                             62,651        87,201             -

    -------------------------------------------------------------------------
    Net income (loss)                   (624,201)     (528,356)       11,840

    Accumulated surplus (deficit),
     beginning of period              (3,507,491)      859,027             -
      Distributions to unitholders      (784,243)   (5,246,606)     (445,258)
    -------------------------------------------------------------------------
    Accumulated surplus (deficit),
     end of period                   $(4,915,935)  $(4,915,935)    $(433,418)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss) per trust
     unit:
      Basic                               $(0.14)       $(0.12)        $0.00
      Diluted                             $(0.14)       $(0.12)        $0.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of
     trust units outstanding:
      Basic                            4,357,724     4,356,867     4,356,000
      Diluted                          4,357,744     4,356,867     4,356,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to interim consolidated financial statements.



    DEEPWELL ENERGY SERVICES TRUST
    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)
                                                                     For the
                                    Three months    Six months       64 days
                                           ended         ended         ended
                                         June 30,      June 30,      June 30,
                                            2007          2007          2006
    -------------------------------------------------------------------------

    Operating activities
      Net income (loss)                $(624,201)    $(528,356)      $11,840

      Non-cash items:
      Depreciation and accretion         782,179     1,598,686       480,317
      Amortization of deferred
       financing costs                    33,452        57,380             -
      Amortization of intangibles         82,234       164,468             -
      Future income tax recovery
       (Note 6)                          (62,651)      (87,201)            -
      Unit-based compensation            359,600       534,738             -
      Loss on write-off of property
       and equipment                           -       746,332             -
      Gain on sale of property and
       equipment (Note 7)                (17,500)      (10,239)            -
      Change in non-cash working
       capital                         1,404,547       (76,367)      727,606
    -------------------------------------------------------------------------
    Cash flow from operating
     activities                        1,957,660     2,399,441     1,219,763
    -------------------------------------------------------------------------

    Investing activities
      Financial security deposits
       (Note 5)                           70,404        55,826    (1,219,648)
      Business acquisitions (PDS
       and Rycroft)                            -             -   (42,833,889)
      Purchase of property and
       equipment                      (1,613,245)   (2,451,930)     (193,768)
      Proceeds on sale of property
       and equipment                      80,000       143,500             -
      Change in non-cash investing
       working capital                   184,880    (1,099,737)            -
    -------------------------------------------------------------------------
    Cash flow from investing
     activities                       (1,277,961)   (3,352,341)  (44,247,305)
    -------------------------------------------------------------------------

    Financing activities
      Net proceeds from issuance
       of units                                -             -    37,008,721
      Net proceeds from long-term
       debt                              500,000     2,000,000     6,920,000
      Unit issuance costs               (337,556)     (387,074)            -
      Distributions to unitholders      (753,183)   (1,849,153)     (445,258)
    -------------------------------------------------------------------------
    Cash flow from financing
     activities                         (590,739)     (236,227)   43,483,463
    -------------------------------------------------------------------------

      Change in cash                      88,960    (1,189,127)      455,921

    Cash (bank indebtedness),
     beginning of period              (1,249,226)       28,861             -

    -------------------------------------------------------------------------
    Cash (bank indebtedness),
     end of period                   $(1,160,266)  $(1,160,266)     $455,921
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary information
      Cash interest paid                $229,450      $435,011      $107,946
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to interim consolidated financial statements.



    DEEPWELL ENERGY SERVICES TRUST
    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    AS AT AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
    (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, 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 interim notes to the consolidated
    financial statements for the three months ended March 31, 2007.

    Certain comparative amounts have been reclassified to conform to the
    current period's presentation and no six-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

    As at June 30, 2007, a total of 375,300 options issued pursuant to the
    Trust incentive stock option plan ("Option Plan") were outstanding
    (2006 - nil). As at June 30, 2007 73,800 options were exercisable and the
    weighted average contractual life remaining is 4.31 years. The total
    number of outstanding options shall not exceed 10 percent of the
    outstanding Trust Units. Except for the 73,800 issued to executives
    during the period in lieu of a cash bonus for 2006 (vesting immediately),
    all 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. As at
    June 30, 2007, the exercise prices of outstanding options ranged from
    $6.42 to $9.80 per unit and the weighted average exercise price of
    granted options was $9.00 per unit. The Trust recorded unit option
    compensation expense and contributed surplus of $359,600 during the
    period.

    -------------------------------------------------------------------------
                                                               June 30, 2007
    -------------------------------------------------------------------------
    Trust unit options outstanding                                   375,300
    Trust unit options exercisable                                    73,800
    Range of exercise prices (per Unit)                       $6.42 to $9.80
    Weighted average remaining contractual life (years)                 4.31
    Weighted average exercise price (per Unit)                         $9.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (b) Regular Trust units

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

    -------------------------------------------------------------------------
    Opening balance                                              $40,440,860
    Unit issue costs                                                ($28,557)
    Distribution re-investment plan                                  $31,060
    -------------------------------------------------------------------------
                                                                 $40,443,363
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (c) Distributions to Unitholders

    For the six months ended June 30, 2007, the Trust declared distributions
    to Unitholders in accordance with the following schedule:

    -------------------------------------------------------------------------
                                                         Cash per
                              Record            Payment     Trust
    Period                      date               date      unit     Amount
    -------------------------------------------------------------------------
    January 2007    January 31, 2007  February 15, 2007   $0.0958   $417,305
    February 2007  February 28, 2007     March 15, 2007   $0.0958    417,305
    March 2007        March 31, 2007     April 13, 2007   $0.0600    261,360
    April 2007        April 30, 2007       May 15, 2007   $0.0600    261,360
    May 2007            May 31, 2007      June 15, 2007   $0.0600    261,221
    June 2007          June 30, 2007      July 13, 2007   $0.0600    261,662
    -------------------------------------------------------------------------
    Distributions declared to unitholders for
     the six months ended, June 30, 2007                           1,880,213
    Accumulated distributions, December 31, 2006                   3,366,393
    -------------------------------------------------------------------------
    Accumulated distributions, June 30, 2007                      $5,246,606
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (d) Weighted average units outstanding

    -------------------------------------------------------------------------
                                    Three months    Six months    For the 64
                                           ended         ended    days ended
                                         June 30,      June 30,      June 30,
                                            2007          2007          2006
    -------------------------------------------------------------------------
    Basic                              4,357,724     4,356,867     4,356,000
    Diluted                            4,357,744     4,356,867     4,356,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (e) Dividend re-investment plan

    During the three months ended June 30, 2007, the Trust adopted a
    distribution reinvestment plan (the "DRIP"). The DRIP, to the extent that
    Unitholders participate, will provide the Trust with additional cash for
    growth. The DRIP allows eligible Unitholders of the Trust to direct that
    their cash distributions be reinvested in additional Trust units. The
    cash distributions will be re-invested at the discretion of Deepwell
    Energy Services Ltd. either by acquiring Trust units issued from treasury
    at 95 percent of the average market price (as defined in the DRIP) or by
    acquiring Trust units at prevailing market prices.

    4.  Inventory

    As of January 1, 2008, Deepwell is required to replace the existing
    inventory policy of lower of weighted average cost and net realizable
    value. The new standard 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 consolidated financial
    statements.

    5.  Financial security deposits

    During the three months ended June 30, 2007, Deepwell secured three
    letters of guarantee in the aggregate amount of $1,909,296. These letters
    automatically renew and carry an initial term of one year. Two of the
    letters of guarantee replace $1,377,648 in cash deposits previously held
    by the Alberta Energy Utilities Board for abandonment and reclamation -
    refund of these deposits was received subsequent to the end of the
    period. The third letter of guarantee establishes security for the
    Trust's Claresholm facility.

    6.  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 Income Tax Act. The SIFT Trust Legislation
    generally will apply to trusts that are resident in Canada for purposes
    of the Income 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 six months ended June 30, 2007.

    7.  Gain on sale of property and equipment

    For the three months ended June 30, 2007, non-operating assets were sold
    for total proceeds of $80,000 with a recognized gain on disposal of
    $17,500.

    8.  Subsequent events

    On July 9, 2007, the Trust closed a private placement of Trust units (the
    Private Placement). Upon closing, 582,362 units of the Trust were issued
    for gross proceeds of $3.5 million. The issue price for the Private
    Placement was set at the same price as the Trust's rights offering, which
    expired on July 31, 2007 (the Rights Offering). The Rights Offering was
    fully subscribed and a total of 2,180,515 Trust units were issued at a
    price of $6.01 per Trust unit for gross proceeds of $13.1 million.
    


    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, labor disputes, work stoppages, equipment delivery delays, and the
potential for delays arising from injuries and safety concerns at the
worksite. There can be no assurance that the Rights Offering will be
completed. 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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