The trust generated CAD0.2 million in EBITDA, or CAD0.03 per unit, for the quarter ended March 31, 2009. In the first quarter 2008, EBITDA was CAD2 million (CAD0.27 per unit). While the results are disappointing, they are reflective of the general downturn in the economy and, in particular, the oil and gas sector.

Deepwell Energy Services continues to be in breach of its financial covenants with its credit facility, as reported at year end. Negotiations are continuing with the bank to reach a suitable financing solution.

Deepwell Energy Services’ Grande Cache disposal well capacity has been steadily declining over the past several years effectively limiting the trust’s ability to serve the market. During the quarter, the trust spent CAD0.8 million in sustaining capital to access additional disposal zones increasing injection capacity. The results of this project have exceeded management’s expectations, providing the facility with an increased injection rate of about 100% and extending the life of the reservoir by about 50%.

Deepwell Energy Services is experiencing the continuing tentative business environment, with oil activities down throughout the quarter and a generally weak economy. The trust’s focus has been on improving operational efficiencies, controlling costs and cash preservation. The trust is optimistic that the measures it has put in place, and continues to put in place, is strengthening its bottom line. However such measures are projected to be reflected in results in the later half of the year.

Results of operations:

Revenue:

In the first quarter of 2009 processing and disposal revenue decreased to CAD2.3 million from CAD2.9 million in the first quarter of 2008, due to reduced drilling activity as a result of the global downturn. During the first quarter of 2009, oil revenue fell to CAD1 million from CAD2.2 million in 2008 as a result of lower average oil prices and decreased volume.

Expenses:

Operating expenses:

During the first quarter of 2009, operating expenses decreased to CAD2.3 million from CAD2.7 million in the same quarter of 2008, resulting in an operating margin of 29% for the quarter compared with 47% in 2008. The majority of the decrease results from oil credits repaid to customers decreasing to CAD0.2 million (Q1-2008 – CAD1 million) offset by an increase in operating costs in 2009 to reflect the operations of the Claresholm facility for the full quarter, as compared to one half of the first quarter of 2008.

General and administrative expenses

General and administrative expenses, comprised primarily of costs associated with the trust’s corporate office, including senior management and public company costs, were CAD0.8 million or 23% of revenue for the first quarter compared to CAD0.5 million or 9% for the same quarter in 2008.

Depreciation, amortization and accretion

Depreciation expense was CAD1.1 million for the first quarter of 2009, an increase of CAD0.2 million over 2008 of CAD0.9 million primarily as a result of depreciation expense relating to the Claresholm and Palko facilities. Amortization of intangibles assets consists of the amortization of completions and contracts, customer relationships, and non-competition agreements that were acquired with the Producers Oilfield assets in 2006.

Interest and financing costs

Financing charges include interest on short term and long term borrowings and fees incurred to refinance the trust’s credit facility with its bank. Financing charges increased substantially for the first quarter of 2009 to CAD0.2 million (Q1-2008 – CAD0.1 million). Interest rates are floating at the lender’s prime rate plus 0.125% to 1.625%, based on the funded debt to EBITDA ratio, with any unused amounts subject to standby fees.

Funds from operations

Funds from operations, defined as cash flow from operations before changes in non-cash working capital, were nil for the first quarter of 2009 compared to CAD1.8 million for the same quarter of 2008 reflecting lower oil prices and the global down turn

Distributions to Unitholders

No distributions were paid to unitholders for the first quarter of 2009 compared to CAD1.3 million in the first quarter of 2008. In December 2008, the trust suspended all distributions to allow Deepwell Energy Services to conserve cash, reduce its debt levels and position the trust to capitalize on future growth opportunities as the economy improves.

Capital expenditures

The trust’s capital expenditures for purchase of property, plant and equipment for the quarter were CAD1.3 million compared to CAD2.9 million for the same quarter in 2008. Most of the capital expenditures in 2009 related to re-completion of the Grande Cache disposal well at a cost of CAD0.8 million and expansion of the Palko facility at a cost of CAD0.4 million.

Financial security deposits

Deepwell Energy Services has issued letters of guarantee in the amount of CAD2.3 million (first quartet (Q1-2008) – CAD2.3 million) to the ERCB as security for abandonment and reclamation of oilfield waste management facilities.

trust unit option plan

As at March 31 2009, a total of 392,948 options were outstanding (Q1-2008 – 506,971), pursuant to the trust’s incentive unit option plan. The options carry a five-year term and vest equally over a period of three years from the date of grant. The exercise price of each option is based upon the weighted average trading price for a period prior to the date of grant. The exercise price is adjusted downwards by 100% of the amount of distributions paid on outstanding trust units.

The fair value of unit options granted to employees and directors on or after August 22, 2006 is recognized as a compensation cost. During the first quarter of 2009, the trust granted 461,833 (Q1-2008 – nil). The fair value of options issued in the quarter was estimated using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.28%, volatility of 77% and expected life of fiveyears.

The impact of monthly distributions and corresponding changes in exercise price during the life of the options are assumed to be equal and offsetting, and so no provision is made in the pricing model for either factor.

The trust recognized a recovery of CAD0.3 million (Q1-2008 – CAD0.1 million expense) of stock unit based compensation related to the impact of options that have been forfeited, cancelled or granted and options that have been revalued for non-employees.

As such, the opening weighted average exercise price has not been adjusted to reflect the decrease in exercise price for distribution over the quarter.

Liquidity

As at March 31, 2009, the trust had a working capital deficit of CAD16.8 million of which CAD14.4 million is comprised of long term debt reclassified to current due to the breach of bank covenants (December 31, 2008 – CAD15.6 million) and an accumulated deficit of CAD21.4 million (December 31, 2008 – CAD20.4 million).

Should the trust be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. The trust ‘s ability to continue as a going concern is dependent upon its ability to attain and maintain profitable operations and to continue to obtain financing from investors and its creditor sufficient to meet current and future obligations.

Credit facilities

The trust renewed its existing credit facilities on September 19, 2008 with a Canadian chartered bank. Due to the breach of certain covenants, negotiations are continuing the bank.