Flint Energy Services Ltd. announces Q2 2007 results



    (TSX: FES)

    CALGARY, Aug. 9 /CNW/ -

    ADVISORY REGARDING FORWARD LOOKING STATEMENTS

    This press release contains forward-looking statements under the heading
"Outlook" and elsewhere concerning future events or the Company's future
performance, including the Company's projected operating results for 2007 and
beyond, and anticipated capital expenditure trends and drilling activity in
the oil and gas industry. Forward-looking statements are often, but not
always, identified by the use of words such as "seek", "anticipate", "plan",
"continue", "estimate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should", "believe" and
similar expressions. Actual events or results may differ materially from those
reflected in the Company's forward-looking statements due to a number of known
and unknown risks, uncertainties and other factors affecting the Company's
business and the oil and gas industry generally. These factors, include, but
are not limited to, fluctuations in oil and gas prices, fluctuations in the
level of oil and gas industry capital expenditures and expenditures on
production and remedial work and other factors that affect demand for the
Company's services, industry competition, the need to effectively integrate
acquired businesses, uncertainties as to the Company's ability to implement
its business strategy effectively in Canada and the United States, political
and economic conditions, the Company's ability to attract and retain key
personnel, and other risks and uncertainties described under the heading "Risk
Factors" and elsewhere in the Company's Annual Information Form for the year
ended December 31, 2006 and other documents filed with Canadian provincial
securities authorities. These documents are available to the public at
www.sedar.com. The Company believes that the expectations reflected in these
forward-looking statements are reasonable, but no assurance can be given that
these expectations will prove to be correct and such forward-looking
statements included in this report should not be unduly relied upon. These
statements speak only as of the date of this report. The Company does not
undertake to update any forward-looking statement, whether written, or oral
that may be made from time to time by the Company or on the Company's behalf,
except as may be required under applicable securities laws. The
forward-looking statements contained in this press release are expressly
qualified by this statement.
    Unless otherwise indicated, all financial information in this press
release is presented in Canadian dollars and in accordance with the Canadian
Generally Accepted Accounting Principles ("GAAP").
    The following Management's Discussion and Analysis ("MD&A"), prepared as
at August 8, 2007, should be read in conjunction with the Company's audited
Consolidated Financial Statements and MD&A for the year ended December 31,
2006.

    Net earnings for Flint Energy Services Ltd. ("Flint" or the "Company")
for the quarter ended June 30, 2007 were $6.3 million on revenues of
$421.8 million compared to net earnings of $6.0 million on revenues of
$354.7 million for the same quarter in 2006. Funds provided by operations
before changes in non-cash working capital for the three-month period were
$28.3 million compared to $15.5 million for the comparative period. Diluted
earnings per share for the second quarter of 2007 were $0.13 compared to $0.16
for the second quarter in 2006.

    Highlights

    Revenue increased by $67.1 million or 18.9%, as a result of growth in the
Production Services Division and from operations acquired during 2006. The
Oilfield Transportation and the Canadian portion of the Tubular Management and
Manufacturing operating segments were acquired on December 1, 2006. During the
second quarter of 2007, these two groups contributed $20.3 million and
$16.5 million in revenue respectively. Transportation revenue was
significantly below expectations due to demand for its services being closely
tied to oil field drilling activity. Production Services increased revenue by
$42.0 million partially due to growth in the United States operating centers.
Facility Infrastructure revenue decreased by $23.8 million quarter over
quarter due to the ramping down of activity levels as some oil sands projects
near completion, while new projects are not commencing until later in the
year. Demand for engineering on major oil sands projects has resulted in the
delays in receiving specifications to commence the construction of modules.
Included in the Tubular Management and Manufacturing segment is the Company's
United States manufacturing subsidiary, J.W. Williams. This division had
record revenue this quarter as recent increases to capacity, specifically the
opening of the Odessa, Texas facility, allowed for greater production of
equipment and shipments to customers.
    Consolidated gross margin in the second quarter of 2007 was 17.5%
compared to 20.9% in 2006. The decrease is primarily due to the Oilfield
Transportation operating segment, which incurred operating losses in the
quarter due to a sharp decline in drilling activity in Canada. This
significant under-utilization of transportation equipment during the quarter
impacted the Company's overall margin by 3.0%. The Company continued to incur
operating costs during this period as the Company retained staff and increased
its repair and maintenance activities to catch up on work not possible when
the equipment was being fully utilized. The lower gross margin percentage
offset the benefit of the increased revenue in the quarter and therefore gross
profit in the quarter was down at $73.9 million as compared to $74.4 million
in the second quarter of 2006.
    Revenue in Flint's Plant Maintenance and Asset Management operating
segment is derived from a 50% owned subsidiary, Flint Transfield Services Ltd.
("FT Services"). FT Services' revenue of $2.3 million in the quarter remains
small as the initial secured contracts with Suncor will result in increased
activity during the third and fourth quarters of 2007. FT Services is
currently involved in the transition phase with the client to ensure a smooth
transition from prior suppliers. Cost recoveries comprise the only revenue
earned by this operating segment during the quarter. Contract transition to FT
Services will result in over 1,500 people being added to this group by the end
of the year.

    
    Consolidated Financial Results

    Summary of Consolidated Financial
     Results
    (in millions of Canadian dollars,       Three months          Six months
     except share data)                    ended June 30       ended June 30
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
                                     ----------------------------------------

    Revenue                           $  421.8  $  354.7  $  924.5  $  687.5
    EBITDA(1)                             35.5      46.0      95.1      86.8
    Net earnings                           6.3       6.0      28.5      24.9
      per common share - basic            0.13      0.16      0.60      0.71
      per common share - diluted          0.13      0.16      0.59      0.69
    Funds provided by operations
     before changes in non-cash
     working capital                      28.3      15.5      54.4      37.0
    -------------------------------------------------------------------------

                                                              June  December
                                                                30        31
                                                              2007      2006
    -------------------------------------------------------------------------

    Working capital                                       $  352.6  $  301.1
    Total assets                                           1,486.4   1,471.3
    Shareholders' equity                                     805.3     777.2
    -------------------------------------------------------------------------
    (1)  In addition to providing earnings measures in accordance with GAAP,
         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.
    

    Revenues

    Revenues for the three-month and six-month periods ended June 30, 2007
increased to $421.8 million and $924.5 million respectively from
$354.7 million and $687.5 million for the same periods in the prior year. Of
the $67.1 million quarterly increase in revenue, 55.1% or $37.0 million is due
to the addition of the Oilfield Transportation and the Canadian portion of the
Tubular Management and Manufacturing operating segments acquired in December
2006. These same operating segments contributed 53.7% or $127.4 million of the
$237.0 million year-to-date increase in revenue. The Production Services
operating segment increased revenue by $42.0 million in the quarter and $95.2
million year-to-date compared to the same periods in 2006 as activity levels
increased in Texas, the Rocky Mountain regions of the United States and in
Northeast and Southern Alberta operating centers. These increases were
partially offset by decreases in revenue in the Northern and Central Alberta
regions as an early spring breakup was extended due to poor weather and a
curtailment of customer activity. The Facility Infrastructure operating
segment's revenue decreased by $23.8 million for the quarter and by $9.4
million for the year-to-date as compared to the same periods in 2006. This was
due to the ramping down of activity levels in the second quarter of 2007 on
some oil sands projects as they near substantial completion, while
experiencing project delays on commencement of new contracts. The Company's
United States manufacturing company, J.W. Williams, experienced record
quarterly revenue in both the first two quarters of 2007 as recent increases
to capacity, specifically the opening of the Odessa, Texas facility, allowed
for greater production of equipment and shipments to customers.

    
    Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA")

                                            Three months          Six months
    (in thousands of Canadian dollars)     ended June 30,      ended June 30,
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
                                     ----------------------------------------
    Earnings before income taxes      $  9,037  $ 32,348  $ 42,922  $ 61,213
    Interest expense, net of income      7,626     6,000    14,430     9,725
    Stock based compensation             1,340       928     2,486     1,710
    Amortization                        17,531     6,728    35,305    14,175
    -------------------------------------------------------------------------
    EBITDA(1)                         $ 35,534  $ 46,004  $ 95,143  $ 86,823
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1)  In addition to providing earnings measures in accordance with GAAP,
         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.
    

    The $10.5 million or 22.8% second quarter decrease in EBITDA as compared
to the second quarter of 2006 is primarily due to the Oilfield Transportation
operating segment incurring an EBITDA loss during the period from low revenues
as a result of a sharp decline in drilling activity and the continued
incurrence of operating overhead and integration costs. The Production
Services' second quarter 2007 EBITDA was impacted by a $0.4 million operating
loss on a project in the United States, increased costs due to weather related
issues, and higher equipment costs and reliance on leased equipment to support
the revenue growth. Also contributing to the lower EBITDA is the lower revenue
in the Facility Infrastructure operating segment and a decline in EBITDA
margin from 13.4% in 2006 to 10.1% in 2007. The combination of lower customer
activity levels in some of the Company's business lines and geographic areas,
higher equipment and weather related costs, and the need to maintain personnel
to position for future work under contract resulted in a decrease in the
EBITDA margin percentage to 8.4% in the second quarter of 2007 from 12.9% in
the second quarter of 2006.
    Year-to-date, EBITDA is $8.3 million or 9.5% higher than the same period
in 2006 as the first quarter Oilfield Transportation operating activity was
not as severely impacted by reduced drilling activity. Prior to spring breakup
the first quarter EBITDA for Oilfield Transportation was positive and was only
partially offset by the loss incurred in the second quarter. The 2007
year-to-date gross margin percentage for the Production Services operating
segment was lower than the prior year due primarily to cost increases that
were not fully passed on to customers during the first quarter of 2007 in the
United States, as well as lower utilization, in some areas, of the Company's
expanded workforce in Canada. The Facility Infrastructure operating segment
also had a year-to-date lower average gross margin due to the realizable
margin on the Long Lake project and the need to maintain personnel to position
for future work under contract.
    General and administrative expenses as a percentage of revenue increased
to 9.0% and 9.2% for the respective three-month and six-month periods ending
June 30, 2007 from the 8.0% and 8.1% respective figures achieved in the same
periods in 2006. The increase in general and administrative expenses both in
terms of dollars and in percentage of revenue is primarily due to the addition
of the Oilfield Transportation and Canadian Tubular Management and
Manufacturing operating segments. These business units have had historically
higher general and administrative expenses than Flint's other business units.
Other factors affecting the 2007 quarter and year-to-date general and
administrative costs are the integration of the recent Transco acquisition,
additional office space acquired to meet Facility Infrastructure requirements,
and the Company's proportional share of FT Services' start up costs.

    Net Earnings

    Net earnings for the second quarter of 2007 increased marginally by $0.3
million to $6.3 million. Earnings in the second quarter of 2006, however,
included income tax expense of $15.5 million from Quebec assessed tax related
to a trust structure implemented by the Company in 2002. The reassessments
from Quebec were for the years 2002 to 2005. Excluding the Quebec tax
reassessments and assessed interest of $3.3 million, the second quarter net
income for 2006 would have been $18.8 million higher than the current quarter.
Lower gross margins in 2007 and higher general and administrative costs as
described above, combined with losses in the Transportation division and
increased amortization and interest expense were the primary causes of the
change.
    Amortization of property, plant and equipment and intangible assets for
the three-month period ended June 30, 2007 increased by $8.3 million and $2.5
million respectively primarily due to the addition of tangible and intangible
assets made through business acquisitions completed in the second half of
2006.
    Interest expense in the second quarter of 2006 included $3.3 million of
interest assessed by Quebec on a Quebec Trust which froms part of the
Company's corporate structure. The assessed interest was recorded upon receipt
of reassessments. The Company continues to accrue interest on the
reassessments as Notice of Objections have been filed and no payments have
been made. The amount of interest accrued on the reassessments in the second
quarter of 2007 is $0.5 million. Interest expense for the three-month period
ended June 30, 2007 increased by $1.3 million from the three-month period
ended June 30, 2006; however if the impact of interest from the 2006 Quebec
tax reassessments is excluded, the increase is $4.1 million. The increase in
interest expense is due to the increased use of term and operating line
facilities to finance a portion of the acquisition costs for Transco and
Denmar Energy Services Ltd ("Denmar") during 2006 and to fund an increase in
working capital. Interest income declined by $0.4 million as the Company's
surplus cash position throughout the second quarter of 2007 was lower than the
corresponding period in 2006.
    Income tax expense in the second quarter of 2006 included $15.5 million
of retroactive tax assessed by Quebec. The decrease in income tax expense for
the three-month period ended June 30, 2007 is primarily due to no similar tax
being assessed in 2007 and due to lower earnings before tax in the second
quarter of 2007 as compared to the second quarter of 2006.

    Comparative Quarterly Results

    A number of factors contribute to variations in the Company's results
between periods. These factors include weather; customer capital spending,
including drilling programs affected by oil and natural gas commodity prices;
seasonal behavior in customer spending; the Company's ability to manage its
project related business to minimize periods of relative inactivity; and
changes and additions within the Company's service offerings.
    Certain Company business lines relate to the maintenance and operation of
oilfield facilities, which produce generally consistent revenues; however,
other business lines relate to large projects with less linear revenue streams
over a period of time. While a significant amount of the business activity
related to the maintenance and operation of oilfield facilities is under
long-term contract, the work is still primarily call-out and provided on an
"as needed" basis and, therefore, does not always generate a consistent
revenue stream between periods. On December 1, 2006, Flint added
transportation and tubular management services to the Company's business
lines. The primary business drivers of these services are related to the
drilling cycle in the Western Canadian Sedimentary Basin. Certain segments of
these new services, such as the specialized heavy haul division, have specific
business drivers related to movement of large pieces of equipment and module
components. Customer capital expenditure programs related to large oil sands
projects have a significant effect on the results of the Facility
Infrastructure operating segment by impacting activity levels. Margin as a
percentage of revenue can also fluctuate based on the contractual terms of
major projects and its overall weighting to the total revenue earned in any
given period, fluctuation in activity levels, and the ability of the company
to average fixed operating costs related to fabrication facilities and field
construction management overheads.
    As Flint has United States operations, the Company's consolidated
financial results may vary between periods due to the effect of foreign
exchange fluctuations in translating the revenues and expenditures of its
United States operations to Canadian dollars.

    
    Quarterly Information

    (in millions of
    Canadian dollars,
    except share data)      2007                 2006                 2005
                         Q2     Q1     Q4     Q3     Q2     Q1     Q4     Q3
    -------------------------------------------------------------------------
    Revenue          $421.8 $502.7 $426.6 $341.5 $354.7 $332.8 $292.8 $247.5
    Net earnings
     (loss)             6.3   22.2   16.9   12.9    6.0   18.8   11.6   11.8
      per common
       share-basic     0.13   0.47   0.39   0.33   0.16   0.56   0.34   0.35
      per common
       share-diluted   0.13   0.46   0.39   0.33   0.16   0.55   0.34   0.35
    -------------------------------------------------------------------------
    

    Increases in revenue in the most recent three quarters are primarily due
to securing contracts related to oil sands development and from increased
demand for the Company's services from customers developing natural gas
reserves. Additional revenue was added in the third and fourth quarter of 2006
through the acquisition of Denmar on July 4, 2006. Only one month of revenue
from the Oilfield Transportation and Canadian Tubular Management and
Manufacturing operating segments was added to the 2006 fourth quarter revenue.
A full quarter of revenue earned from the addition of these business lines is
included in the first and second quarter of 2007. Second quarter 2006 net
earnings were negatively impacted by the recording of $18.8 million in taxes
and interest related to retroactive Quebec tax legislation. Second quarter
2007 net earnings were negatively impacted from a sharp decline in drilling
activities in Canada, resulting in insufficient revenue to offset operating
and general and administrative costs in the Oilfield Transportation operating
segment. The last four quarters for the Company have been the highest revenues
on a quarterly basis since the Company became publicly traded, with the first
quarter of 2007 being the highest revenue quarter.

    Results of Operations

    The Company operates under five operating segments: Production Services,
Facility Infrastructure, Oilfield Transportation, Tubular Management and
Manufacturing, and Plant Maintenance and Asset Management. The Production
Services operating segment provides pipeline work, day-to-day field facility
installation and maintenance services, electrical, instrumentation,
mechanical, safety, pressure and vacuum, fluid hauling and plant shutdown and
turnaround services. The Facility Infrastructure operating segment provides
major facility project construction services to the energy and natural
resources sector, providing a full-cycle approach to all phases of project
development from concept and design to fabrication and installation. Customer
capital expenditure programs related to large oil sands projects have a
significant effect on the results of this operating segment by impacting
activity levels. The Oilfield Transportation operating segment includes
activities such as specialized heavy and oversized hauling, drilling rig
moving, service rig moving and light hauling. The Tubular Management and
Manufacturing operating segment includes inspection, threading and
refurbishment of drill pipe, pipe storage facilities, and manufacturing of
plastic pipe product and gas processing equipment. The Plant Maintenance and
Asset Management operating segment includes maintenance on large oil sands
facilities and refineries.

    
    Selected Segmented
     Information
    (in millions of
     Canadian dollars)
                          Three months ended           Six months ended
                               June 30                     June 30
    -------------------------------------------------------------------------
                          2007          2006          2007          2006
                    ---------------------------------------------------------
    Revenue by
     operating
     segment
      Production
       Services      $255.9  60.7% $213.9  60.3% $530.3  57.4% $435.0   63.3%
      Facility
       Infrast-
       ructure         95.1   22.5  118.9   33.5  200.9   21.7  210.3   30.6
      Oilfield
       Transpor-
       tation          20.3    4.8      -      -   86.9    9.4      -      -
      Tubular
       Management
       and Manufac-
       turing          48.1   11.4   21.9    6.2  103.1   11.1   42.2    6.1
      Plant
       Maintenance
       and Asset
       Management       2.4    0.6      -      -    3.3    0.4      -      -
    -------------------------------------------------------------------------
     Total           $421.8 100.0% $354.7 100.0% $924.5 100.0% $687.5  100.0%
    -------------------------------------------------------------------------

    EBITDA(1) by
     operating
     segment
      Production
       Services      $ 26.3  74.1% $ 26.6  57.8% $ 54.0  56.8% $ 56.8   65.4%
      Facility
       Infrast-
       ructure          9.6   27.0   15.9   34.6   16.2   17.0   23.4   27.0
      Oilfield
       Transpor-
       tation         (8.0) (22.5)      -      -    6.9    7.3      -      -
      Tubular
       Management
       and Manufac-
       turing           7.8   22.0    3.5    7.6   18.2   19.1    6.6    7.6
      Plant
       Maintenance
       and Asset
       Management     (0.2)  (0.6)      -      -  (0.2)  (0.2)      -      -
    -------------------------------------------------------------------------
     Total           $ 35.5 100.0% $ 46.0 100.0% $ 95.1 100.0% $ 86.8  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.
    

    Production Services

    Production Services revenues for the three-month and six-month periods
ended June 30, 2007 increased by 19.6% and 21.8% to $255.9 million and $530.2
million respectively as compared to the same periods in 2006. The second
quarter and year-to-date increases are primarily driven from activity levels
in Texas and the Rocky Mountain regions of the United States and in Northeast
and Southern Alberta operating centers. In addition the first and second
quarters of 2006 did not include the operations of Denmar, which was acquired
on July 4, 2006. The Denmar acquisition increased the Company's activity in
the Northeast region of Alberta. These increases were partially offset by
decreases in revenue in the Northwest and Central Alberta regions as lower
activity levels due to an early spring breakup was extended due to poor
weather and a curtailment of customer activity in these areas.
    Although the Production Services operating segment revenues increased,
EBITDA for this segment decreased by $0.3 million and $2.8 million in the
three-month and six-month periods respectively. In 2007 a combination of
factors resulted in a reduced EBITDA percentage in the second quarter and
year-to date; including a loss on a large project in the United States
operations in the second quarter of 2007, attributed to a loss of continuity
of staff on the project, a higher reliance on leased versus owned equipment in
the United States needed to meet higher activity levels, and increased costs
due to second quarter wet weather conditions in many geographic locations. The
lower year-to-date EBITDA is also due to first quarter cost increases in the
United States that could not be passed on to the customer and lower
utilization of the Company's expanded workforce in Canada, particularly in the
Northern and Central regions of Alberta where decreases in revenue for these
regions could not be matched with a similar decrease in fixed operating and
general administrative costs.

    Facility Infrastructure

    Facility Infrastructure revenue for the three-month and six-month periods
ended June 30, 2007 decreased by 19.9% and 4.5% to $95.1 million and $200.9
million respectively. In the second quarter of 2007 current projects were
manning down due to portions of these projects nearing completion. EBITDA for
this operating segment is lower in the three-month and six-month periods ended
June 30, 2007 as compared to the same periods in the prior year due to the
lower revenue and gross margins pursuant to certain long term contracts. Also
the Facility Infrastructure operating segment is expanding its construction
management capacity to meet projected increases in work, which is resulting in
an increase in operating and general and administration costs that will not be
offset by earned revenues until contracts are finalized and job activity on
these new projects commences.

    Oilfield Transportation

    Oilfield Transportation was added in December 2006. Revenue for this
operating segment in the three-month and six-month periods ended June 30, 2007
was $20.3 million and $86.9 million respectively. Due to a reduction in
drilling activity in Canada, an early spring break up and wet weather
conditions in some geographic areas, revenues for this operating segment have
been considerably lower this year compared to the predecessor company's
previous year's revenue. The rig hauling operations in this segment were most
directly impacted by the reduction in drilling activity in both of the
quarters of this year, while the specialty heavy haul division was impacted
more in the second quarter due to the spring break up and wet weather
conditions. Operating staff in this operating segment remained on payroll
during this slow period, in part to increase the level of repairs and
maintenance on equipment, made possible with the equipment not being utilized
on moves.

    Tubular Management and Manufacturing

    Tubular Management and Manufacturing revenue for the three-month and
six-month periods ended June 30, 2007 increased by 119.9% and 144.0% to $48.1
million and $103.1 million respectively. EBITDA also increased by $4.4 million
and $11.6 million to $7.9 million and $18.2 million for the same periods. The
Canadian portion of the Tubular Management and Manufacturing segment was
acquired in December 2006. The Tubular Management operations performed as
expected in the first quarter of the year but were negatively impacted by
reduced drilling activities in the second quarter of this year. The Canadian
manufacturing division included in this operating segment, Global Poly
Systems, had lower than expected margins due to higher input costs and poor
operating performance in both the second quarter and year-to-date periods in
2007. The United States manufacturing division, J.W. Williams, continues to
experience high demand for its products and achieved record sales and margins
in both the first and second quarters this year.

    Plant Maintenance and Asset Management

    In 2007 the Company is reporting the proportional 50% share of the
revenue and earnings from the operations of FT Services, which is in a startup
phase. The $1 billion, five year contract that FT Services has secured with
Suncor is being transitioned with maintenance operations commencing in the
latter part of the third quarter of 2007.
    A small EBITDA loss has been incurred in the Plant Maintenance and Asset
Management operating segment, representing start up costs for FT Services
which cannot be recovered under the terms of the contract.

    Consolidated Financial Position

    As at June 30, 2007, the Company's net working capital position was
$352.6 million compared to $301.1 million as at December 31, 2006. The $67.1
million increase in revenues from the previous quarter increased the Company's
accounts receivable and revenue in excess of billings accounts. Working
capital decreased by $27.3 million as compared to the previous quarter end due
to a decrease in revenue quarter-over-quarter.
    Income taxes payable decreased from $30.3 million as at December 31, 2006
to $30.2 million as at June 30, 2007. The June 30, 2007 income taxes payable
balance relates to taxes due for the current year's earnings and $20.6 million
related to tax and interest reassessed by the Government of Quebec in 2006 as
well as interest accrued on these reassessments. The Company filed a notice of
objection in 2006 on these reassessments.
    Long-term debt, including operating facilities, increased by $21.1
million at June 30, 2007 from the balance at the end of the prior fiscal year
due to the increased utilization of the Company's operating facilities to fund
the increased activity during the first two quarters of 2007. From the
previous quarter-end, long-term debt decreased by $28.8 million due to a
reduction in working capital from the previous quarter.

    Liquidity and Capital Resources

    The Company's principal sources of capital are cash flows from operations
and borrowings under its long-term debt. The Company's principal uses of cash
are for the financing of working capital and capital expenditures.

    
    Selected Cash Flow and
     Capitalization Data
    (in millions of                  Three Months Ended     Six Months Ended
     Canadian dollars)                     June 30               June 30
    -------------------------------------------------------------------------
                                       2007       2006       2007       2006
                                  -------------------------------------------
    Funds provided by operations
     before changes in non-cash
     working capital               $   28.3   $   15.5   $   54.9   $   37.0
    Cash (used in) provided by
     operating activities              61.1       63.3       23.4       55.0
    Cash flow to interest bearing
     debt (%)(1)(2)                    28.7       42.1       27.5       50.2


                                                          June 30   December
                                                             2007   31  2006
                                                         --------------------
    Long-term debt  (including current portion)          $  400.2   $  379.1
    Debt to total capitalization (%)(1)(3)                   33.2       32.8
    -------------------------------------------------------------------------
    (1)  Ratios contained in this table do not have any standard meaning
         under generally accepted accounting principles 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.
    (2)  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 on an annualized basis. Interest bearing debt is
         equal to long-term debt including the current portion.
    (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.
    -------------------------------------------------------------------------
    

    Cash Flow and Liquidity

    Funds provided by operations before changes in non-cash working capital
for the second quarter of 2007 increased 81.9%, compared to the same period in
2006 despite the second quarter net earnings being lower than the prior year.
Amortization, which is a non-cash item added back to net income to arrive at
the funds provided by operations before changes in non-cash working capital,
is higher in 2007 as compared to the prior year due to the addition of
tangible and intangible assets purchased through business acquisitions in the
latter half of 2006.
    During the three-month period ended June 30, 2007, the Company incurred
capital expenditures totaling $23.4 million. Capital expenditures in the
second quarter of 2007 included the continued expansion of a manufacturing
facility in Casper, Wyoming, equipment purchased to replace older vehicles and
equipment in the Production Services operating segment, and to expand capacity
in the Oilfield Transportation heavy haul division. During the same period,
the Company realized proceeds from the disposal of property, plant and
equipment totaling $3.2 million related to the sale of retired vehicles and
equipment.
    During the six-month period ended June 30, 2007, the Company increased
its long-term debt position (including current portion) by $21.1 million due
to increased utilization of the Company's operating line to fund the increase
in Company activity. On April 3, 2007, the Company increased its Canadian
operating line availability from $175.0 million to $210.0 million through the
partial exercise of an accordion feature included in the credit agreement
which was amended on November 27, 2006. As at June 30, 2007, $114.9 million of
the Canadian operating line was utilized.

    
    Debt Repayment Obligations
    (in millions of
     Canadian dollars)                      Maturity
    -------------------------------------------------------------------------
                   Less than       2 - 3       4 - 5   In excess
                      1 year       years       years  of 5 years       Total
                  -----------------------------------------------------------
                     $  13.1    $  162.8    $  153.5    $   70.8    $  400.2
    -------------------------------------------------------------------------
    

    Changes in Accounting Policies

    On January 1, 2007, the Company adopted the Canadian Institute of
Chartered Accountants ("CICA") Handbook Section 3855, "Financial Instruments -
Recognition and Measurement"; Section 3861, "Financial Instruments -
Disclosure and Presentation", Section 1530, "Comprehensive Income" and Section
3865 "Hedges". Prior periods have not been restated as a result of
implementing the new accounting standards, except as required by the new
standards to classify unrealized foreign currency translation gains or losses
on net investments in self-sustaining foreign operations in accumulated other
comprehensive loss.
    The adoption of these standards has had no material impact on the
Company's net earnings or cash flows. The other effects of the implementation
of the new standards are discussed below.

    Financial Instruments - Recognition and Measurement

    CICA Handbook Section 3855 provides guidance on when a financial asset,
financial liability or non-financial derivative is to be recognized on the
balance sheet of the Company and on what basis these assets, liabilities and
derivatives should be valued. Under the new standard, financial instruments
must be classified into one of five categories: held-for-trading,
held-to-maturity, loans and receivables, available-for-sale financial assets,
and other financial liabilities. All financial instruments, including
derivatives, are measured on the balance sheet at fair value except loans and
receivables, held to maturity investments and other financial liabilities,
which are measured at amortized cost. Subsequent measurement and changes in
fair value will depend on its initial classification. Held-for-trading
financial assets are measured at fair value and changes in fair value are
recognized in earnings. Available-for-sale financial instruments are measured
at fair value with changes in fair value recorded in other comprehensive
earnings until the investment is derecognized or impaired at which time the
amounts would be recorded in net earnings.
    With the adoption of these new standards, the Company has classified its
cash and cash equivalents as held-for-trading, accounts receivable, revenue in
excess of billings and certain other long-term assets classified as loans and
receivables, accounts payable and accrued liabilities, long-term debt, capital
lease obligations and certain other long-term liabilities as other financial
liabilities.
    Transaction costs that are directly attributable to the acquisition or
issuance of financial assets or liabilities are accounted for as a part of the
respective asset or liability's carrying value at inception. As such, deferred
financing costs related to the issuance of long-term debt were previously
presented as a separate asset on the consolidated balance sheet and are now
included in the carrying value of long-term debt. This change in accounting
policy resulted in a decrease in long-term debt and intangible assets and
deferred charges of $2.0 million at January 1, 2007. The costs capitalized
within long-term debt are being amortized using the effective interest method,
which is consistent with the amortization method utilized in prior periods.
    The standard requires derivative instruments to be recorded as either
assets or liabilities measured at their fair value unless exempted from
derivative treatment as a normal purchase and sale. Certain derivatives
embedded in other contracts must also be measured at fair value. The Company
has reviewed all significant contractual arrangements and determined there are
no material embedded derivatives that must be separated from the host contract
and fair valued and there are no non-financial derivatives that need to be
fair valued.

    Financial Instruments - Disclosure and Presentation

    Revised CICA Handbook Section 3861 replaces Handbook Section 3860,
Financial Instruments - Disclosure and Presentation, and establishes standards
for presentation of financial instruments and non-financial derivatives, and
identifies information that should be disclosed. There was no material effect
on the Company's financial statements when we adopted the CICA Handbook
Section 3861 on January 1, 2007.

    Comprehensive Income

    CICA Handbook Section 1530 establishes standards for reporting and
presenting comprehensive earnings, which is defined as the change in equity
from transactions and other events from non-owner sources. Accordingly, a new
statement of comprehensive earnings now forms part of the Company's
consolidated financial statements and displays current period net earnings and
other comprehensive earnings. Other comprehensive earnings consist of changes
in the foreign currency translation adjustment from the Company's
self-sustaining foreign operations net of income taxes. The cumulative changes
in other comprehensive earnings are included in accumulated other
comprehensive loss, which is a new category within shareholders' equity in the
consolidated balance sheet. The accumulated foreign currency translation
adjustment, formerly presented as a separate category within shareholders'
equity called the cumulative translation account, is now included in
accumulated other comprehensive loss. The continuity of the accumulated other
comprehensive loss is presented in note 3 of the Company's 2007 second quarter
financial statements.

    Hedges

    CICA Handbook Section 3865 specifies circumstances under which hedge
accounting is permissible and how hedge accounting may be performed. The
Company currently does not have any hedges.

    Changes in Internal Control Over Financial Reporting

    During the most recent interim period, there have been no changes in the
Company's policies and procedures and other processes that comprise its
internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, the Company's internal control
over financial reporting. The Company continues to execute its Enterprise
Resource Planning Systems implementation strategy to standardize controls and
processes. In March 2007, Mr. Paul M. Boechler was appointed the Company's
Chief Financial Officer upon the retirement of Mr. Terry D. Freeman who joined
the Company's Board of Directors. Mr. Boechler is a Chartered Accountant and
was the former Chief Financial Officer of IPEC Ltd, which was acquired by
Flint through a reverse takeover in November 2001. Mr. Boechler previously
held the positions of Vice President Finance for Flint and President of
Flint's United States operations prior to his appointment as Chief Financial
Officer.

    Outstanding Share Data

    The Company is authorized to issue an unlimited number of common shares
and an unlimited number of preferred shares. As at June 30, 2007, 47,441,948
common shares were outstanding compared to 47,168,794 as at December 31, 2006.
No preferred shares were outstanding during or at the end of either of these
periods. Certain employees, officers and directors of the Company have been
granted options to purchase common shares under the Company's stock option
incentive plan. At June 30, 2007, 2,693,994 options were outstanding.

    Outlook:

    The addition of Transportation and Tubular Management has broadened the
base of services provided by Flint to include services tied directly to
drilling activity in the Western Canadian Sedimentary Basin. The current
downturn in Canadian drilling activity has had a negative impact on some of
Flint's recently acquired service lines. Oilfield Transportation and the
connection of newly completed wells and the demand for polyethylene pipe are
the first areas impacted.
    The softness in demand for Flint's new drilling related services
continued through the second and into the third quarter of this year. We have
some optimism that an increase in working rig counts will lessen the gap in
activity from the same time in 2006. We have seen drilling activity recover
somewhat to close to 400 rigs now working, however drilling is expected to
remain somewhat soft for the last half of 2007 and not get into higher
utilization rates until January 2008.
    Flint's Canadian Production Services operating activities, which are tied
to post drilling activity and maintenance of existing production, are expected
to see moderate slowing of demand in the second half of 2007 due to fewer well
completions. On the other hand, with continued strong drilling activity in the
US, Flint continues to experience robust demand for our Production Services
activities and for production processing equipment south of the border.
    Flint is expanding its Facility Infrastructure capacity for major project
construction work to meet obligations for both existing contracts and those
under negotiation. Fabrication work on the Shell Albian Froth Treatment Unit
is underway and activity will increase in the fourth quarter of 2007.
Additional "Early Work" on Suncor's Firebag Three Plus has been released and
will be underway in the second half of 2007. The commencement of work on the
Suncor asset management contract through FT Services is expected to start in
September with operating revenues beginning in the fourth quarter of this
year.


    
    CONSOLIDATED BALANCE SHEETS

    (unaudited)
    (in thousands of Canadian dollars)
                                                        June 30, December 31,
    As at                                                  2007         2006
    -------------------------------------------------------------------------

    ASSETS

    Current assets:
      Cash and cash equivalents                      $   14,080   $   11,520
      Accounts receivable                               275,858      291,230
      Revenue in excess of billings                     211,045      183,718
      Inventories                                        42,940       38,483
      Prepaid expenses and other current assets          21,187       20,106
      Future income tax assets                            5,342        4,870
      Income taxes receivable                             4,117        2,246
    -------------------------------------------------------------------------
                                                        574,569      552,173

    Property, plant and equipment                       453,573      449,861
    Goodwill                                            404,136      406,563
    Intangible assets and deferred charges               52,148       59,323
    Other long-term assets                                1,952        2,938
    Future income tax assets                                 58          427
    -------------------------------------------------------------------------
                                                     $1,486,436   $1,471,285
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current  liabilities:
      Accounts payable and accrued liabilities       $  164,428   $  187,768
      Billings in excess of revenue                      10,857        9,690
      Income taxes payable (note 8)                      30,161       30,347
      Future income tax liabilities                       3,401       11,233
      Current portion of long-term debt                  13,086       11,997
    -------------------------------------------------------------------------
                                                        221,933      251,035
    -------------------------------------------------------------------------


    Long-term debt                                      387,103      367,112
    Future income tax liabilities                        71,284       75,158
    Other long-term liabilities                             800          800
    -------------------------------------------------------------------------
                                                        459,187      443,070
    -------------------------------------------------------------------------


    Shareholders' equity:
      Capital stock (note 6)                            573,917      569,096
      Contributed surplus                                 7,809        6,475
      Accumulated other comprehensive loss
       (Note 2(a) and 3)                                (19,572)     (13,086)
      Retained earnings                                 243,162      214,695
    -------------------------------------------------------------------------
                                                        805,316      777,180


    Commitments and contingencies (Note 10)
    -------------------------------------------------------------------------
                                                     $1,486,436   $1,471,285
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

    (unaudited)
    (in thousands of     Three months Three months   Six months   Six months
     Canadian dollars,     ended June   ended June   ended June   ended June
     except share data)      30, 2007     30, 2006     30, 2007     30, 2006
    -------------------------------------------------------------------------

    Revenue               $   421,788  $   354,708  $   924,482  $   687,515
    Direct costs              347,879      280,323      744,017      545,139
    -------------------------------------------------------------------------
    Gross profit               73,909       74,385      180,465      142,376

    General and
     administrative
     expenses                  38,375       28,381       85,322       55,553
    Amortization on
     property, plant
     and equipment             14,901        6,602       30,100       13,903
    Amortization on
     intangible assets
     and other deferred
     charges                    2,630          126        5,205          272
    Stock based
     compensation expense       1,340          928        2,486        1,710
    -------------------------------------------------------------------------
                               16,663       38,348       57,352       70,938

    Interest expense
     (note 8)                   7,696        6,427       14,730       10,152
    Interest income               (70)        (427)        (300)        (427)
    -------------------------------------------------------------------------
    Earnings before
     income taxes               9,037       32,348       42,922       61,213
    -------------------------------------------------------------------------

    Income taxes:
      Current (note 8)         (1,103)      24,560       25,869       40,074
      Future (reduction)        3,857        1,759      (11,414)      (3,721)
    -------------------------------------------------------------------------
                                2,754       26,319       14,455       36,353
    -------------------------------------------------------------------------

    Net earnings                6,283        6,029       28,467       24,860

    Retained earnings,
     beginning of period      236,879      178,893      214,695      160,062
    -------------------------------------------------------------------------
    Retained earnings,
     end of period        $   243,162  $   184,922  $   243,162  $   184,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic (Note 6)      $      0.13  $      0.16  $      0.60  $      0.71
      Diluted
       (Note 6 and 7)     $      0.13  $      0.16  $      0.59  $      0.69
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average
     common shares:
      Basic (Note 6)       47,334,796   36,631,842   47,268,746   35,201,632
      Diluted
       (Note 6 and 7)      47,948,687   37,634,090   47,895,783   36,063,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements



    CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

    (unaudited)          Three months Three months   Six months   Six months
    (in thousands of       ended June   ended June   ended June   ended June
     Canadian dollars)       30, 2007     30, 2006     30, 2007     30, 2006
    -------------------------------------------------------------------------

    Net earnings          $     6,283  $     6,029  $    28,467  $    24,860
    -------------------------------------------------------------------------

    Other comprehensive
     loss, net of
     income taxes:
      Unrealized loss on
       translation of
       self-sustaining
       foreign operations      (5,771)      (3,130)      (6,486)      (2,643)
    -------------------------------------------------------------------------
    Other comprehensive
     loss                      (5,771)      (3,130)      (6,486)      (2,643)
    -------------------------------------------------------------------------

    Comprehensive
     earnings             $       512  $     2,899  $    21,981  $    22,217
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (unaudited)          Three months Three months   Six months   Six months
    (in thousands of       ended June   ended June   ended June   ended June
     Canadian dollars)       30, 2007     30, 2006     30, 2007     30, 2006
    -------------------------------------------------------------------------

    Cash and cash
     equivalents provided
     by (used in):

    Operating activities:
      Net earnings        $     6,283  $     6,029  $    28,467  $    24,860
      Items not affecting
       cash:
        Amortization of
         property, plant
         and equipment         14,901        6,602       30,100       13,903
        Amortization of
         intangible assets
         and other
         deferred charges       2,630          126        5,205          272
        Amortization of
         deferred finance
         charges                  148           66          286          132
        (Gain) loss on
         disposal of
         property, plant
         and equipment           (901)          23         (695)        (178)
        Stock based
         compensation
         expense                1,340          928        2,486        1,710
        Future income taxes     3,857        1,759      (11,414)      (3,721)
    -------------------------------------------------------------------------
      Funds provided by
       operations before
       changes in non-cash
       working capital         28,258       15,533       54,435       36,978

      Changes in non-cash
       balances relating
       to operations           32,794       47,739      (31,062)      18,068
    -------------------------------------------------------------------------
                               61,052       63,272       23,373       55,046
    -------------------------------------------------------------------------

    Investing activities:
      Business combination
       (Note 4)                (9,780)        (500)     (11,933)        (500)
      Deposit on acquisition        -      (30,597)           -      (30,597)
      Purchase of property,
       plant and equipment    (23,404)     (10,265)     (39,323)     (16,603)
      Proceeds from disposal
       of property, plant
       and equipment            3,225        1,868        3,872        2,940
    -------------------------------------------------------------------------
                              (29,959)     (39,494)     (47,384)     (44,760)
    -------------------------------------------------------------------------

    Financing activities:
      Proceeds from
       long-term debt          25,348       33,618      100,154       74,644
      Repayments of
       long-term debt         (54,181)    (106,040)     (77,080)    (144,169)
      Deferred financing
       costs                     (152)           -         (172)           -
      Proceeds from issue
       of capital stock on
       exercise of options      2,131        3,774        3,669        5,028
      Proceeds from
       primary share
       offering                     -      116,000            -      116,000
      Issue costs related
       to primary share
       offering                     -       (5,077)           -       (5,077)
    -------------------------------------------------------------------------
                              (26,854)      42,275       26,571       46,426
    -------------------------------------------------------------------------

    Increase in cash and
     cash equivalents           4,239       66,053        2,560       56,712
    Cash and cash
     equivalents,
     beginning of period        9,841        1,133       11,520       10,474
    -------------------------------------------------------------------------

    Cash and cash
     equivalents,
     end of period        $    14,080  $    67,186  $    14,080  $    67,186
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash
     flow information:
      Net cash (paid)
       received during
       the period for:
        Interest paid     $    (7,371) $    (2,897) $   (14,029) $    (6,546)
        Interest received          77          169          306          169
        Income taxes paid $   (18,396) $    (5,916) $   (28,759) $   (17,435)

    See accompanying notes to the consolidated financial statements.



    NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
    Six Months Ended June 30, 2007
    (tabular amounts in thousands of Canadian dollars, except share data and
     stock option exercise prices)

    1.  BASIS OF PRESENTATION

        These interim consolidated financial statements are expressed in
        Canadian dollars and have been prepared in accordance with accounting
        principles generally accepted in Canada. They do not include all the
        disclosures as required for annual financial statements under
        Canadian generally accepted accounting principles. The interim
        consolidated financial statements include the accounts of Flint
        Energy Services Ltd. and all subsidiary companies. All subsidiary
        companies are wholly owned and all material intercompany accounts and
        transactions have been eliminated. The Company proportionately
        consolidates its interests in joint ventures. The interim
        consolidated financial statements follow the same significant
        accounting policies as described and used in the most recent annual
        report of the Company for the year ended December 31, 2006, except as
        described in Note 2 a) below, and should be read in conjunction with
        that report.

        The preparation of the interim consolidated financial statements
        require management to make estimates and assumptions that affect the
        reported amounts of assets, liabilities, revenues and expenses and
        disclosures of contingent assets and liabilities. Actual results may
        differ from those estimates and assumptions.

        A number of factors contribute to variations in the Company's results
        between periods such as weather, customer capital spending affected
        by oil and natural gas commodity prices, seasonal behaviors in
        customer spending such as plant shutdown work, the Company's ability
        to manage its project related business so as to avoid or minimize
        periods of relative inactivity due to project scheduling,
        fluctuations in the Canada U.S. exchange rate applicable to
        translating the revenue and expenses of the Company's U.S. operations
        to Canadian dollars, and changes with the Company's service offerings
        as it strives to find the optimum portfolio of services to meet
        customer needs.

    2.  a)  Accounting Policy Changes

        On January 1, 2007, the Company adopted the Canadian Institute of
        Chartered Accountants ("CICA") Handbook Section 3855, "Financial
        Instruments - Recognition and Measurement"; Section 3861, "Financial
        Instruments - Disclosure and Presentation", Section 1530,
        "Comprehensive Income" and Section 3865 "Hedges". Prior periods have
        not been restated as a result of implementing the new accounting
        standards, except as required by the new standards to classify
        unrealized foreign currency translation gains or losses on net
        investments in self-sustaining foreign operations in accumulated
        other comprehensive loss.

        The adoption of these standards has had no material impact on the
        Company's net earnings or cash flows. The other effects of the
        implementation of the new standards are discussed below.

        Financial Instruments - Recognition and Measurement

        CICA Handbook Section 3855 provides guidance on when a financial
        asset, financial liability or non-financial derivative is to be
        recognized on the balance sheet of the Company and on what basis
        these assets, liabilities and derivatives should be valued. Under the
        new standard, financial instruments must be classified into one of
        five categories: held-for-trading, held-to-maturity, loans and
        receivables, available-for-sale financial assets, and other financial
        liabilities. All financial instruments, including derivatives, are
        measured on the balance sheet at fair value except loans and
        receivables, held to maturity investments and other financial
        liabilities, which are measured at amortized cost. Subsequent
        measurement and changes in fair value will depend on its initial
        classification. Held-for-trading financial assets are measured at
        fair value and changes in fair value are recognized in earnings.
        Available-for-sale financial instruments are measured at fair value
        with changes in fair value recorded in other comprehensive earnings
        until the investment is derecognized or impaired at which time the
        amounts would be recorded in net earnings.

        With the adoption of these new standards, the Company has classified
        its cash and cash equivalents as held-for-trading, accounts
        receivable, revenue in excess of billings and certain other long-term
        assets classified as loans and receivables, accounts payable and
        accrued liabilities, long-term debt, capital lease obligations and
        certain other long-term liabilities as other financial liabilities.

        Transaction costs that are directly attributable to the acquisition
        or issuance of financial assets or liabilities are accounted for as a
        part of the respective asset or liability's carrying value at
        inception. As such, deferred financing costs related to the issuance
        of long-term debt were previously presented as a separate asset on
        the consolidated balance sheet and are now included in the carrying
        value of long-term debt. This change in accounting policy resulted in
        a decrease in long-term debt and intangible assets and deferred
        charges of $2.0 million at January 1, 2007. The costs capitalized
        within long-term debt are being amortized using the effective
        interest method, which is consistent with the amortization method
        utilized in prior periods.

        The standard requires derivative instruments to be recorded as either
        assets or liabilities measured at their fair value unless exempted
        from derivative treatment as a normal purchase and sale. Certain
        derivatives embedded in other contracts must also be measured at fair
        value. The Company has reviewed all significant contractual
        arrangements and determined there are no material embedded
        derivatives that must be separated from the host contract and fair
        valued and there are no non-financial derivatives that need to be
        fair valued.

        Financial Instruments - Disclosure and Presentation

        Revised CICA Handbook Section 3861 replaces Handbook Section 3860,
        Financial Instruments - Disclosure and Presentation, and establishes
        standards for presentation of financial instruments and non-financial
        derivatives, and identifies information that should be disclosed.
        There was no material effect on the Company's financial statements
        when CICA Handbook Section 3861 was adopted on January 1, 2007.

        Comprehensive Income

        CICA Handbook Section 1530 establishes standards for reporting and
        presenting comprehensive earnings, which is defined as the change in
        equity from transactions and other events from non-owner sources.
        Accordingly, a new statement of comprehensive earnings now forms part
        of the Company's consolidated financial statements and displays
        current period net earnings and other comprehensive earnings. Other
        comprehensive earnings consist of changes in the foreign currency
        translation adjustment from the Company's self-sustaining foreign
        operations net of income taxes. The cumulative changes in other
        comprehensive earnings are included in accumulated other
        comprehensive loss, which is a new category within shareholders'
        equity in the consolidated balance sheet. The accumulated foreign
        currency translation adjustment, formerly presented as a separate
        category within shareholders' equity called the cumulative
        translation account, is now included in accumulated other
        comprehensive loss. The continuity of the accumulated other
        comprehensive loss is presented in note 3 below.

        Hedges

        CICA Handbook Section 3865 specifies circumstances under which hedge
        accounting is permissible and how hedge accounting may be performed.
        The Company currently does not have any hedges.

        b)  Recently Issued Accounting Pronouncements

        Inventory

        In June 2007, the CICA issued Section 3031, "Inventories", which
        requires inventory to be measured at the lower of cost and net
        realizable value and which includes guidance on the determination of
        cost, including allocation of overheads and other costs to inventory.
        Further, it requires the reversal of previous write-downs to net
        realizable value when the economic circumstances have changed to
        support an increased inventory value. This standard is effective for
        fiscal years beginning on or after January 1, 2008. The Company is in
        the process of evaluating the impact of this standard.

    3.  ACCUMULATED OTHER COMPREHENSIVE LOSS

                                                  Six months      Six months
                                                       ended,          ended,
                                               June 30, 2007   June 30, 2006
        ---------------------------------------------------------------------
        Accumulated other comprehensive loss,
         beginning of period                    $    (13,086)   $    (14,086)
        Unrealized loss on translation of
         self-sustaining foreign operations           (6,486)         (2,643)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Accumulated other comprehensive loss,
         end of period                          $    (19,572)   $    (16,729)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    4.  BUSINESS COMBINATION

        Transco Energy Services Ltd.

        On December 1, 2006, the Company acquired 100% of the issued and
        outstanding shares of Transco Energy Services Ltd. ("Transco").
        Transco was a privately held energy services company with operations
        in British Columbia, Alberta, Saskatchewan and the Northwest
        Territories in Canada. The company operated in two business segments;
        oilfield transportation and tubular management.

        At December 31, 2006 the Company accrued $10.2 million to the
        previous Transco shareholders on the finalization of the working
        capital and net debt adjustments. During the first quarter of 2007,
        the Company paid $2.1 million in relation to the working capital and
        net debt adjustments. The remaining $8.1 million was paid in the
        second quarter of 2007.

        The Company is in the process of finalizing its valuation of the net
        assets acquired, including goodwill and other intangible assets on
        the Transco acquisition, thus the allocation of the purchase price is
        subject to refinement.

        All Other Acquisitions

        On April 1, 2007, the Company acquired the business and assets of Pro
        Safe Safety and Rescue Ltd. ("Pro Safe") for cash consideration of
        $1.9 million. Pro Safe was a privately held safety services company
        with operations based in Alberta, Canada.

        The aggregate consideration given and fair values of net assets
        acquired in the acquisition of Pro Safe described above are as
        follows:

        The combined purchase price is as follows:
        ---------------------------------------------------------------------
          Cash                                                  $      1,900
          Acquisition costs                                               22
        ---------------------------------------------------------------------
                                                                $      1,922
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The combined net assets acquired at assigned values:
        ---------------------------------------------------------------------
          Property, plant and equipment                         $      1,713
          Non-competition agreements                                     145
          Future tax liability                                           (47)
          Goodwill                                                       111
        ---------------------------------------------------------------------
                                                                $      1,922
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company is in the process of finalizing the valuation of the net
        assets acquired, including goodwill and other intangible assets, thus
        the allocation of the purchase price is subject to refinement.

    5.  INVESTMENT IN JOINT VENTURES

        On September 28, 2006 the Company announced the establishment of an
        operation and maintenance joint venture, Flint Transfield Services
        Limited, with Transfield Services Limited, an Australian company. The
        Company has a fifty percent interest in the new joint venture, which
        will provide operations, maintenance, asset management and project
        management services to the North American energy sector.

        In the first quarter of 2007, the Company and Transfield Services
        Limited each advanced $1.5 million in the form of a non-interest
        bearing demand promissory note to Flint Transfield Services Limited.
        In the second quarter, the Company obtained a $15 million letter of
        credit as security for the revolving loan of Flint Transfield
        Services Limited.

    6.  CAPITAL STOCK

        On October 11, 2006, the Board of Directors of the Company approved a
        two-for-one stock split of the outstanding common shares of the
        Company. The common shares began trading on a split basis on the
        Toronto Stock Exchange on December 13, 2006. The number of authorized
        but unissued shares of the Company's common stock were not changed as
        a result of the stock split. Unless otherwise stated, all references
        to share and per share amounts in these interim consolidated
        financial statements have been retroactively restated to give effect
        to this stock split.

        a)  Issued capital stock

                                               Common Shares          Amount
        ---------------------------------------------------------------------
        Balances at December 31, 2006             47,168,794    $    569,096
        Shares issued in conjunction with:
          Exercised employee stock options           273,154           3,669
          Transfer from contributed surplus
           for stock options exercised                     -           1,152
        ---------------------------------------------------------------------
        Balances at June 30, 2007                 47,441,948    $    573,917
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        b)  The Company has an incentive stock option plan for certain
            employees, officers and directors. Options issued under the plan
            vest at a rate of one third on the three subsequent award date
            anniversaries, except for 150,000 options which vested one year
            after their award date. All the options must be exercised over
            specified periods not to exceed five years from the date granted.
            In 2006, the Company amended the incentive stock option plan to
            increase the number of shares reserved for issuance from
            3,209,514 to twelve percent of the total number of issued and
            outstanding shares of the Company from time to time. At June 30,
            2007, 2,999,040 common shares remained reserved for issuance
            under the option plan.

                                                             Weighted Average
        Options                                       Shares   Exercise Price
        ---------------------------------------------------------------------
        Outstanding at December 31, 2006           2,146,114    $      18.77
          Granted                                    875,000           27.21
          Forfeited                                  (53,566)          25.53
          Expired                                       (400)          11.50
          Exercised                                 (273,154)          13.43
        ---------------------------------------------------------------------
          Outstanding at June 30, 2007             2,693,994    $      21.92
        ---------------------------------------------------------------------
          Options exercisable at June 30, 2007       965,378    $      15.87
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  EARNINGS PER SHARE

        Included in the diluted number of common shares for the six-month
        period ended June 30, 2007 is 627,037 of stock options (861,918 at
        June 30, 2006).

    8.  INCOME TAXES

        In 2002 the Company commenced using a Quebec Trust as part of its
        corporate structure. The Quebec National Assembly recently passed
        into law Bill 15 to amend the Quebec Taxation Act and other
        legislative provisions. Bill 15 includes retroactive changes to the
        Act that has the impact of creating Quebec taxable income for the
        Company for the 2002, 2003, 2004 and 2005 taxation years. Notice of
        reassessments, dated June 28, 2006 for these years amount to
        $15.5 million of income taxes and $3.3 million of interest for a
        total reassessment of $18.8 million.

        On September 25, 2006, the Company filed the Notice of objections in
        relation to the Notice of reassessments received from the government
        of Quebec. The Company continues to consider alternatives to reduce
        the potential exposure for Quebec tax created as a result of this
        retroactive legislation. The Company has recorded $0.9 million in
        interest expense for the six month period ended June 30, 2007. There
        remains the possibility that the eventual exposure under the
        legislation may be reduced and the Company will pursue all avenues of
        appeal and planning available to mitigate the tax liability.

        Actual income tax expense differs from the "expected" income tax
        expense that would have been computed by applying the statutory
        income tax rates as follows:

        Six Months Ended June 30                        2007            2006
        ---------------------------------------------------------------------

        Federal, provincial and state statutory
         income tax rates                              32.1%           32.9%

        Expected income tax expense             $     13,777    $     20,139
        Changes in income tax expense
         resulting from:
          Jurisdictional tax rate differences          1,483             853
          Changes in tax rates impacting
           future income tax balances                   (759)         (2,044)
          Quebec retroactive tax reassessment              -          15,455
          Non-deductible interest from Quebec
           tax reassessments                             290           1,101
          Tax adjustments and reassessments
           relating to prior years                      (585)              -
          Other non-deductible items                   1,119             700
          Other                                         (870)            149
        ---------------------------------------------------------------------

        Actual income tax expense               $     14,455    $     36,353
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  SEGMENTED INFORMATION

        As at June 30, 2007 the Company is operating within five reportable
        business segments, each of which are distinct business units that
        offer different products and services within the oil and natural gas
        industry. These reportable business segments include Production
        Services, Facility Infrastructure, Oilfield Transportation, Tubular
        Management and Manufacturing and Plant Maintenance and Asset
        Management.

        During 2006, the Company operated principally in two business
        segments; Production Services and Facility Infrastructure. On
        December 1, 2006, the Company added the Oilfield Transportation and
        Tubular Management and Manufacturing segments through the acquisition
        of Transco (Note 4). In addition during the first quarter of 2007,
        Flint Transfield Services Limited, a joint venture in which the
        Company has a fifty percent ownership interest (Note 5), secured a
        long term asset management service contract. As a result, the Company
        has disclosed an additional operating segment, Plant Maintenance and
        Asset Management, beginning in the first quarter of 2007. The Company
        has reclassified its segment disclosures to include these new
        business segments and has provided comparative information where
        applicable.

        The Production Services operating segment provides pipeline work,
        day-to-day field facility installation and maintenance services, as
        well as electrical, instrumentation, mechanical, safety, pressure and
        vacuum, and fluid hauling.

        The Facility Infrastructure operating segment provides major facility
        project development services to the energy and natural resources
        sector, providing a full-cycle approach to all phases of project
        development from concept and design to fabrication and installation.

        The Oilfield Transportation operating segment includes specialized
        hauling of oversized and over weight modules, vessels, equipment and
        machinery, tank truck services, drilling rig moving and heavy hauling
        of associated drilling rig equipment, heavy construction equipment,
        service rig and light hauling services to and from drilling site
        locations.

        The Tubular Management and Manufacturing operating segment includes
        inspection, threading, refurbishment and bucking of drill and line
        pipe, manufacturing of high density pipe, the assembly of oil and
        natural gas process piping and equipment design, manufacturing and
        distribution of oilfield production equipment.

        The Plant Maintenance and Asset Management operating segment provides
        operations, maintenance, asset management and project management
        services to the North American energy sector.

    Operating Segments

    (unaudited)
    (in thousands
     of Canadian
     dollars)

    Three                                                   Plant
    months                                     Tubular    Mainten-
    ended                                       Manage-      ance
    June                Facility   Oilfield     ment &  and Asset
    30,    Production      Infra-  Transpor-   Manufac-    Manage-
    2007     Services  structure     tation     turing       ment      Total
    -------------------------------------------------------------------------

    Revenue  $255,903   $ 95,132   $ 20,332   $ 48,134   $  2,287   $421,788
    EBITDA(1)  26,288      9,620     (8,043)     7,879       (210)    35,534
    Amorti-
     zation     7,837      2,109      4,999      2,586          -     17,531
    Capital
     expendi-
     tures     11,326      2,031      5,432      3,471      1,144     23,404
    Additions
     to
     goodwill  (1,954)         -          8          2          -     (1,944)
    Goodwill  170,712     28,900    158,192     46,332          -    404,136
    Total
     assets   711,166    281,804    331,525    155,171      6,770  1,486,436
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Three                                                   Plant
    months                                     Tubular    Mainten-
    ended                                       Manage-      ance
    June                Facility   Oilfield     ment &  and Asset
    30,    Production      Infra-  Transpor-   Manufac-    Manage-
    2006     Services  structure     tation     turing       ment      Total
    -------------------------------------------------------------------------

    Revenue  $213,931   $118,891   $      -   $ 21,886   $      -   $354,708
    EBITDA(1)  26,619     15,941          -      3,444          -     46,004
    Amorti-
     zation     4,558      1,723          -        447          -      6,728
    Capital
     expendi-
     tures      8,202      1,503          -        560          -     10,265
    Additions
     to
     goodwill    (792)         -          -          -          -       (792)
    Goodwill  159,337     28,900          -      9,259          -    197,496
    Total
     assets   542,968    250,301          -     54,632          -    847,901
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Six                                                     Plant
    months                                     Tubular    Mainten-
    ended                                       Manage-      ance
    June                Facility   Oilfield     ment &  and Asset
    30,    Production      Infra-  Transpor-   Manufac-    Manage-
    2007     Services  structure     tation     turing       ment      Total
    -------------------------------------------------------------------------

    Revenue  $530,239   $200,900   $ 86,939   $103,114   $  3,290   $924,482
    EBITDA(1)  54,018     16,158      6,880     18,256       (169)    95,143
    Amorti-
     zation    15,206      4,092     10,891      5,116          -     35,305
    Capital
     expendi-
     tures     17,122      3,789     11,330      5,938      1,144     39,323
    Additions
     to
     goodwill  (2,477)         -         40         10          -     (2,427)
    Goodwill  170,712     28,900    158,192     46,332          -    404,136
    Total
     assets   711,166    281,804    331,525    155,171      6,770  1,486,436
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


    Six                                                     Plant
    months                                     Tubular    Mainten-
    ended                                       Manage-      ance
    June                Facility   Oilfield     ment &  and Asset
    30,    Production      Infra-  Transpor-   Manufac-    Manage-
    2006     Services  structure     tation     turing       ment      Total
    -------------------------------------------------------------------------

    Revenue  $435,006   $210,259   $      -   $ 42,250   $      -   $687,515
    EBITDA(1)  56,856     23,365          -      6,602          -     86,823
    Amorti-
     zation     9,867      3,367          -        941          -     14,175
    Capital
     expendi-
     tures     13,152      2,597          -        854          -     16,603
    Additions
     to
     goodwill    (680)         -          -          -          -       (680)
    Goodwill  159,337     28,900          -      9,259          -    197,496
    Total
     assets   542,968    250,301          -     54,632          -    847,901
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Geographic Segments

    (unaudited)
    (in thousands of Canadian dollars)

                                                           United
    Three months ended June 30, 2007            Canada     States      Total
    -------------------------------------------------------------------------

    Revenue                                  $ 296,550  $ 125,238  $ 421,788
    Property, plant and equipment              405,073     48,500    453,573
    Goodwill                                   379,390     24,746    404,136
    Total assets                             1,370,662    115,774  1,486,436
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                           United
    Three months ended June 30, 2006            Canada     States      Total
    -------------------------------------------------------------------------

    Revenue                                  $ 266,498  $  88,210  $ 354,708
    Property, plant and equipment              163,623     36,509    200,132
    Goodwill                                   172,397     25,099    197,496
    Total assets                               753,649     94,252    847,901
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                           United
    Six months ended June 30, 2007              Canada     States      Total
    -------------------------------------------------------------------------

    Revenue                                  $ 684,635  $ 239,847  $ 924,482
    Property, plant and equipment              405,073     48,500    453,573
    Goodwill                                   379,390     24,746    404,136
    Total assets                             1,370,662    115,774  1,486,436
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                           United
    Six months ended June 30, 2006              Canada     States      Total
    -------------------------------------------------------------------------

    Revenue                                  $ 517,245  $ 170,270  $ 687,515
    Property, plant and equipment              163,623     36,509    200,132
    Goodwill                                   172,397     25,099    197,496
    Total assets                               753,649     94,252    847,901
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) In addition to providing earnings measures in accordance with GAAP,
        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 do not have any standardized meaning
        prescribed by GAAP, and may not be comparable to similar measures
        presented by other issuers.


    10. COMMITMENTS AND CONTINGENCIES

        At June 30, 2007, the Company was involved in various legal claims
        related to the normal course of operations. Management believes that
        it has adequately provided for these legal claims.

    11. COMPARATIVE FIGURES

        Certain comparative figures have been reclassified to conform to
        current period presentation.
    





For further information:

For further information: Guy Cocquyt, Director, Investor Relations and
Market Research, gcocquyt@flintenergy.com, tel (403) 218-7195, fax (403)
215-5445; or Paul M. Boechler, Chief Financial Officer,
pboechler@flintenergy.com, tel (403) 218-7100, fax (403) 215-5481

Organization Profile

FLINT ENERGY SERVICES LTD.

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