“Our diversification strategies continue to progress, offsetting the decline in activity levels that has affected our core oilfield supply business, said Michael West, president and chief executive officer.

Capital project business comprised 62% of total sales (2008 – 55%), and increased $9.5 million (12%) over the prior year period because of continued growth of oil sands revenues. Gross profit was down $0.7 million with margins reducing by 0.4% from the prior year period. Selling, general and administrative expenses remained flat at $16.9 million for the quarter with increased facility costs being offset by lower variable compensation costs and reduced selling and marketing costs. Lower interest expense was associated with lower floating interest rates in the first quarter of 2009 compared to the same period in 2008. Income taxes decreased by $0.2 million (3%) in the first quarter compared to the prior year period due to lower pre-tax earnings. The weighted average number of shares outstanding during the first quarter decreased by 0.3 million shares (2%) from the prior year period principally due to shares purchased for cancellation pursuant to the company’s normal course issuer bid.

Business Outlook

The recent upheaval in global credit markets has contributed to significant capital market volatility, resulting in deleveraging, repricing of risk and ultimately the retrenchment of consumption. Oil and gas markets have experienced similar upheaval. While crude oil prices have recently rebounded from first quarter lows, natural gas prices are currently at the lowest levels seen in a decade. CE Franklin’s customers continue to assess the impact of these changes on their businesses and capital expenditure plans in 2009. Oil and gas well completions and rig counts have declined sharply at the end of the first quarter compared to 2008 levels and the company expects the decline will continue through 2009 and into 2010. About 60% of the company’s sales are driven by CE Franklin’s customers’ capital project expenditures.

The company expects these conditions will contribute to increased consolidation of oil and gas customers, stable to deflationary product costs and improved labor availability. For the balance of 2009, sales levels are expected to decline compared to 2008 as expected lower oilfield sales are partially offset by expected increased sales to oil sands, midstream and industrial product end use markets. The company has a strong balance sheet and is positioned to pursue CE Franklin strategies to increase market share in both the conventional oilfield and oil sands markets.

Over the medium to longer term, the company is confident that it can continue to strengthen and improve the profitability of its distribution network by expanding its product lines, supplier relationships and capability to service additional oil and gas and industrial end use markets.

First Quarter Results

Net income for the first quarter of 2009 was $6 million, down $0.3 million from the first quarter of 2008. Sales were $140.7 million, consistent with the first quarter of 2008. Capital project business comprised 62% of sales (2008 – 55%), and increased $9.5 million (12%) over the prior year period due to continued growth of oil sands revenues. Gross profit was down $0.7 million with margins reducing by 0.4% from the prior year period due to the increase in lower margin oil sands and increased competitive pressure. Selling, general and administrative expenses remained flat at $16.9 million for the quarter with increased facility costs being offset by lower variable compensation costs and reduced selling and marketing costs.

Lower interest expense was associated with lower floating interest rates in the first quarter of 2009 as compared to the same period in 2008. Income taxes decreased by $0.2 million (3%) in the first quarter compared to the prior year period due to lower pre-tax earnings. The weighted average number of shares outstanding during the first quarter decreased by 0.3 million shares (2%) from the prior year period, principally due to shares purchased for cancellation pursuant to the company’s Normal Course Issuer Bid. Net income per share (basic) was $0.33 in the first quarter of 2009, down 3% from that earned in the first quarter of 2008.

The company uses oil and gas well completions and average rig counts as industry activity measures to assess demand for oilfield equipment used in capital projects. Oil and gas well completions require the products sold by the company to complete a well and bring production on stream and are a good general indicator of energy industry activity levels. Average drilling rig counts are also used by management to assess industry activity levels as the number of rigs in use ultimately drives well completion requirements. The relative level of oil and gas commodity prices are a key driver of industry capital project activity as product prices directly impact the economic returns realized by oil and gas companies. Well completion, rig count and commodity price information for the first quarter 2009 and 2008 are provided in the table below.

Sales of capital project related products were $87.5 million in the first quarter of 2009, up 12% ($9.5 million) from the first quarter of 2008 due to increased oil sands, midstream and industrial project sales. Total well completions decreased by 14% in the first quarter of 2009 and the average working rig count decreased by 36% compared to the prior year period. Gas wells comprised 76% of the total wells completed in western Canada in the first quarter of 2009 compared to 72% in the first quarter of 2008.

Spot gas and oil prices ended the first quarter at $3.81 per GJ (AECO) and $62.27 per bbl (Synthetic Crude), a decrease of 22% and an increase of 11%, respectively, from first quarter average prices. Oil and gas capital expenditure activity has been declining through the first quarter as a result of continued depressed oil and gas prices and reduced access to capital experienced by the oil and gas industry. This is expected to result in reduced industry cash flow, access to capital and capital expenditure economics, which in turn is expected to decrease demand for the company’s products through the remainder of 2009.

MRO product sales are related to overall oil and gas industry production levels and tend to be more stable than capital project sales. MRO product sales for the quarter ended March 31, 2009 decreased by $9.4 million (15%) to $53.2 million compared to the quarter ended March 31, 2008 and comprised 38% of the company’s total sales.

Sales of oilfield products to conventional Western Canada oil and gas end use applications were $126.3 million for the first quarter of 2009, down 6% from the first quarter of 2008. This decrease was driven by the 14% decrease in well completions compared to the prior year period, partially offset by increased midstream and industrial project revenue.

Sales to oil sands end use applications increased to $12.4 million in the first quarter compared to $2.5 million in the first quarter of 2008. The company continues to position its sales focus and Distribution Centre and Fort McMurray branch to penetrate this emerging market for capital project and MRO products.

Production service sales were $2 million in the first quarter of 2009 compared to $4.3 million in the first quarter of 2008 as customers deferred maintenance activities in the face of challenging commodity prices.

Gross profit was $26.4 million in the first quarter of 2009, and gross profit margins were 18.8%, a decrease of $0.7 million and 0.4% from the prior year first quarter. Gross profit composition in the first quarter of 2009 saw a shift from pumps, production equipment, services and general categories into pipe, fitting and flange categories reflecting the increase in capital projects sales and the reduction in MRO sales.