Total Energy Services financial results for the three months ended March 31, 2009 reflect difficult industry conditions in Western Canada. The global economic recession, difficult financial markets and a substantial turn down in oil and natural gas prices ever since mid-2008 contributed to a major reduction in Canadian oil and natural gas drilling activity. Mitigating the impact of lower industry drilling activity levels was Total Energy Services increasing exposure to completion and production related activity in its drilling and production rentals division and raised first quarter contribution from its gas compression services division relative to 2008. Despite challenging industry conditions, the company’s balance sheet remains strong with a long-term debt to long-term debt plus unitholder equity ratio of 0.14-1, $15.5 million of positive working capital and less than $700,000 of net debt as at March 31, 2009.
Total Energy Services’ contract drilling services division achieved 409 operating days (spud to release) with an average fleet of 13 rigs operating during the first quarter of 2009, which translates into a utilization rate of 35%, as compared to 680 operating days (57% utilization) with a fleet of 13 rigs during the year-ago quarter. The drilling and production rentals division achieved a utilization rate on rental equipment of 54% during the first three months of 2009 as compared to a 59% utilization rate during the year-ago quarter.
The revenue reported from the company’s gas compression services division during the first quarter of 2009 increased to $16 million compared to $8.8 million achieved during the same period in 2008. At March 31, 2009 the gas compression services division had a fabrication backlog of about $9.1 million compared to a backlog of $3.7 million as at March 31, 2008. At March 31, 2009, there was about 13,200 horsepower of compression equipment on rent as compared to about 10,900 at March 31, 2008. The gas compression rental fleet operated at an average utilization rate of 84% during the first three months of 2009 (based on fleet horsepower).
The trust declared regular distributions of $0.09 per unit for the three months ended March 31, 2009. Total distributions declared for the first quarter of 2009 were $2.6 million.
Outlook
Weak commodity prices and complicated financial markets resulted in multi-year low first quarter drilling rig utilization during what is typically the most active period of drilling in Western Canada. Existing industry conditions in Canada are as challenging as any faced by Total Energy Services in the past with Western Canadian drilling rig fleet utilization at historic lows. Excess service industry capacity is compounding the negative impact of low activity levels on the Canadian energy services industry. Current high natural gas storage levels in North American are anticipated to carry on putting pressure on natural gas prices in the near term.
In the context of this complicated environment, on March 19, 2009 Total Energy Services announced its purpose to convert back to a corporate structure pursuant to a statutory plan of arrangement. Unitholders of the trust will be asked to approve the conversion transaction at the annual and special meeting of unitholders on May 15, 2009. Should unitholders approve the conversion transaction, it is anticipated that the conversion would be completed before May 31, 2009.
As producers seek to lower their natural gas production costs, Total Energy Services gas compression services division, Bidell Equipment, will be introducing its proprietary high horsepower mobile compression unit, the NOMAD(TM), to the North American and select international markets during the second quarter. With 38,000 horsepower of NOMAD(TM) mobile compression (36 units) at present in operation in Western Canada and the northeastern US and with over 620,000 hours of field runtime to date, the substantial cost savings to natural gas producers associated with this unique patent pending technology have been quantified and confirmed. The NOMAD(TM) is particularly well suited for shale gas wells that experience high initial production decline rates as the NOMAD(TM) allows producers to right size their compression needs having regard to the production profile of the well without the substantial transportation and mobilization/demobilization costs associated with traditional skid-mounted compression units.
