Essential Energy Services Trust is a new business trust with its recent spin-off in May 2006. Essential is an independent oilfield services organization based in Calgary, Alberta. Company provides essential production services to existing oil & gas wells in BC, Alberta & Saskatchewan.
The trust services are centered on activities that maintain and enhance production from producing oil and gas wells and related facilities. Thus the company’s revenues come from operating budgets as opposed to capex budgets. Therefore the Company’s revenues are less affected by changes in decisions involving drilling activities. IMHO this is a very big positive. Most oil servicing companies are focused on drilling activities. The Company believes that by focusing on “essential” services they will be less exposed to the cyclicality of the drilling cycle.
Quarterly Revenues were up 364% to $ 19.5 Million at 3/31/06
Yield 12.1% (Most service trusts yield around 8%)
TSX- ESN.un Symbol US EEYUF
Basic Units Outstanding as at May 31, 2006
27 Million
Market Cap $ 196 Million US
Very High Growth Company—See Business Brochure.
Overview of Company------ Business Brochure
essentialenergy.ca
Quote in U.S. Dollars tinyurl.com
Monthly Distribution per Unit
$0.083 CDN or annual $ .996 CDN
$ .0735 US or annual US $ .8825
Distribution Payout Ratio Objective 60-65%
Website www.essentialenergy.ca
• Independent Oilfield Services Trust
• Accretive Growth Through Aggregation of
Smaller Operations
• Strong Balance Sheet
• Board and Management in place,
Calgary based
• Focused on Essential Production Services
STRATEGY
• Continue to aggregate smaller operators
• Maintain and strengthen core brands
• Expand new equipment acquisitions
• Expand and improve recruitment, training,
safety and benefits programs
• Increase geographic diversification
• Profitability before growth
First Quarter Results:
essentialenergy.ca
Quarter 3/31/06 Change
Revenue 19,521 364%
EBITDA 7,368 387%
EBITDA margin (%) 37.7%
Net income 3,063 254%
Net income margin (%) 15.7%
Funds From Operations (FFO) 7,056 375%
Total Assets 116,721
ESSENTIAL ENERGY SERVICES TRUST
950, 330 - 5th Avenue SW
Calgary, Alberta T2P 0L4
Phone: (403) 263-6778
Fax: (403) 263-6737
Found this "interview" from Wall Street Reporter:
WSR: Bring us up to speed on the company’s services and operations.
ESN.UN: We are an oil and gas service company based in Calgary. We operate throughout Western Canada from Northern British Columbia into Saskatchewan, all the way through Alberta. We offer services in two broad areas -- rig-based services and truck-based services. On the rig side, we have 57 rigs. These are not drilling rigs – they are service rigs, coil-tubing units, swabbing rigs, and rod rigs. On the truck-based side, we have 127 units comprised of pressure trucks, vacuum trucks, tank trucks, hydro-vacs, steamers and hot oilers. We are not as exposed to the fluctuations in numbers of wells drilled that the drilling
and seismic-focused companies are. We are a post-drilling production service company.
WSR: Expand on the company’s target markets and its market share.
ESN.UN: Our annualized gross revenues are CAN$100 million, which is approximately US$90 million. Our target market is the Western Canadian Sedimentary Basin with a strong presence in Southeastern Alberta at present. We are currently developing a bigger base of services in Central Alberta. Much of our services are focused on the maintenance and production enhancement in low-productivity wells, shallow gas wells, coal bed methane wells, and pumping oil wells. We do fluid hauling, cleanouts, and re-completions, all which is ongoing in terms of oilfield maintenance. Our customers are the Who’s Who of oil and gas companies in Western Canada.
WSR: Talk about the key drivers in place here, the major trends affecting Essential’s core business, and how Essential is positioned.
ESN.UN: A very productive well, a strong new well in a new field will produce uninterrupted continuously and doesn’t need a lot of work done on it. Older wells need to be cleaned out and the equipment needs to be repaired. As the basin matures, there are a larger number of low-productivity older wells. This is where Essential makes most of its profits. Our revenue comes out of the operating budgets of oil and gas companies. We are focused on this portion of the market and have focused on acquiring both established and private companies that serve this market.
WSR: Does the company have the infrastructure in place to handle this additional growth in demand?
ESN.UN: We have grown over the past 12 months by four times. We have just published our first quarter numbers as we were spun out of another trust on May 31. Our ability to satisfy the market out there for our services is the challenge for us going forward, not in finding new business.
WSR: Will the company look to additional M&A activities as a catalyst towards continued growth?
ESN.UN: One of the trends in Western Canada right now is towards consolidation of smaller private service companies by larger public companies. We believe this trend will continue for some time. M&A will play a role in it, and continued organic growth will also be a portion of our strategy.
WSR: Tell us about the present Board and management team in place.
ESN.UN: We have a strong, independent Board made up of five members – two (Bill Gallagher, CEO, and Gary Dundas, CFO) from Avenir Diversified Income Trust, the predecessor company of Essential; Dennis Balderston, a retired Ernst & Young Audit Partner; as well as two other experienced oil and gas gentlemen -- Neil MacKenzie of Challenger Energy, and Jeff Scott, of Postell Energy. Our management team is comprised of Duncan Au, our CFO and Vice President of Business Development, whose experience is in the M&A energy services field; Stuart King, is our Controller – Stuart completed the financial due diligence on our acquisitions for the past two years while working for Ernst & Young. Ken Wagner is our Vice President of Operations.
WSR: Does the investment community understand the direction that Essential Energy is going in?
ESN.UN: Although we haven’t been around that long to start with, we have been growing quite rapidly over the last two years. There is a knowledge gap in the market. Given the current downside volatility in the market, particularly in the Canadian markets, for anything related to energy, it has been challenging to get investors to listen to our story and to buy into a new and exciting growth company. Once people become more aware of our company, we believe they will recognize its value.
WSR: In closing, why should investors consider Essential Energy Services Trust as a long-term investment opportunity?
ESN.UN: We are exposed to one of the least volatile sectors of the oil and gas industry, which will provide stable and growing cash flows for a long period of time. The demand for our services by the oil and gas companies are not determined by the up and down fluctuation in the commodity prices. In large part, we believe our story is still unknown by the market and people are not aware of us yet. We have a very experienced and committed management team and we are focused on providing value and a good return for our investors in the long-term.
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