CALGARY, ALBERTA--(Marketwire - Feb. 11, 2009) - Essential Energy Services Trust ("Essential" or the "Trust") (TSX:ESN.UN) announced today the cash distribution for the period February 1, 2009 to February 28, 2009 has been set at $0.015 per trust unit.
The cash distribution will be paid on March 16, 2009 to unitholders of record on February 27, 2009. The ex-distribution date is February 25, 2009.
2009 OUTLOOK
By all indications, 2009 is expected to be a very difficult year for the oil and gas industry. Compounded by the general economic slow down, early commodity price and activity indicators in the first quarter are not encouraging. Oil and natural gas drilling in western Canada is expected to be much lower in 2009 relative to 2008, resulting in an anticipated reduction in the demand for Essential's oilfield services.
Last month, the Petroleum Services Association of Canada forecast 13,500 wells will be drilled in Canada in 2009. This represents a 21% decrease compared to the 2008 well count of 17,043. Drilling activity declines in 2009 are expected to occur in all of the western Canadian provinces except British Columbia and due to the new Alberta royalty program, the activity declines are expected to be particularly severe in Alberta where Essential has most of its operations.
On a comparative basis, during the first part of 2009, drilling rig utilization is running at 46% compared to 60% for the same period of 2008. Most concerning is that this pullback is occurring in the first quarter which, due to winter drilling, is typically the busiest quarter of the year for the industry and Essential.
Essential believes that industry activity in western Canada could be worse than these estimates. Despite these challenging industry conditions, management believes Essential's business units will continue to perform relatively well in a rapidly shrinking market. This is largely due to the Trust's experienced field managers, local customer relationships and the strength of its local brands. In addition, approximately 50% of Essential's services are focused on production-related activities, which is typically less affected during industry downturns and may provide somewhat of a buffer from a significant decrease in drilling activity.
Essential has taken proactive steps to reduce costs and preserve cash flow in anticipation of a severe industry downturn. The Trust recently announced it is suspending company matching on its employee savings plan and suspending the 2009 annual incentive plan. The Trust has also implemented a hiring freeze and wage freeze for salaried employees. The senior management team has voluntarily accepted a 10% wage rollback. Management continues to monitor industry conditions and will assess the need for further cost reductions. These steps will ensure that Essential continues to proactively manage its cost structure during a period of reduced industry activity. Essential's objective is to continue to operate profitably during this challenging period while retaining its workforce to the extent possible.
Even with the negative industry outlook and the difficult cost reduction steps that are being taken, Essential remains well-positioned financially with a low level of debt and strong balance sheet. This translates into low debt servicing costs and possible opportunities for growth during this economic down-cycle.
As the Trust obtains clarity on future industry conditions, the Board of Directors will continue to monitor the cash distribution on a month-to-month basis.
2009 CAPITAL SPENDING
In light of current industry conditions and the outlook for 2009, the Board of Directors has approved a conservative 2009 capital spending budget of $8 million comprised of $5 million of growth capital and $3 million of net maintenance capital. Of the $5 million planned for growth capital, $4 million is to complete the capital programs announced in 2008.
In 2008, a number of projects were announced including two new service rigs, one deep coil tubing unit, one sour service electric wireline unit and accompanying equipment, one slickline unit and additional pipe for the rentals business. Net equipment expenditures in 2008 were $13 million and the Trust put into service one of the two service rigs and the sour service electric wireline unit just prior to year end. The 2009 budget includes completion of a double free-standing service rig expected to go into service in February 2009, completion of the equipment to accompany the sour service electric wireline unit and spending on the deep coil tubing unit. The previously announced slickline unit and a portion of rental pipe was cancelled late in 2008.
Essential will continue to assess the appropriate level of capital spending relative to industry activity as the year progresses.
Essential Energy Services Trust provides oilfield services to oil and gas producers in western Canada related to the ongoing servicing of producing wells and new drilling activity.
This press release may contain forward-looking statements including expectations of future cash flow and earnings, expectations with respect to the demand for and price of oil and natural gas, expectations regarding the implementation of legislation relating to oil and natural gas royalties, expectations regarding the cash distributions of the Trust, expectations regarding capital spending, the sources of capital and uses of such capital, expectations regarding the level of drilling and production activity in the Western Canadian Sedimentary Basin and expectations regarding the business, operations, debt levels and revenues of the Trust in addition to general economic conditions. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to: risks associated with the oilfield services sector (e.g. demand, pricing and terms for oilfield services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery rates; pipeline and transportation capacity; weather, health, safety and environmental risks), integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or capital expenditures and changes in legislation, including but not limited to tax laws, royalties and environmental regulations. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Trust's operations or financial results are included in the Trust's documentation and filings with Canadian securities regulatory authorities. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this press release. The Trust does not assume any obligation to update these forward-looking statements, except as required by law.
FOR FURTHER INFORMATION PLEASE CONTACT:
Essential Energy Services Trust Garnet K. Amundson President and CEO (403) 513-7272 Email: service@essentialenergy.caor
Essential Energy Services Trust Jeff B. Newman Chief Financial Officer (403) 513-7272 Email: service@essentialenergy.caor
Essential Energy Services Trust Karen Perasalo Investor Relations (403) 513-7272 Email: service@essentialenergy.ca
The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.
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