My but we are touchy !! read this stuff and dont shoot the messenger.!!
Westrend Natural Gas Inc
WRN VSE Add to Portfolio
August 21, 1998
Explanation and Comparison of Assumptions
WESTREND NATURAL GAS INC ("WRN-V;WTNGF-L")
- Explanation and Comparison of Assumptions
Mark S. Roberts, President of Westrend Natural Gas Inc. reports:
The following is an explanation and a comparison of the assumptions the company released on March 3, 1997 and subsequently further defined on March the 5th, 1997. In March of 1997, as referred to in our press release dated March 5th, 1997, the company was closing on two placements of $780,000 CDN and approximately $1.6 Million Cdn. These placements did in fact close and the company received $2,350,000 CDN. The company paid the legal and expenses attributable to the financings, leaving approximately $1.5 Million US funds available for investment into the company's subsidiaries, Alamo, Taylor, and Precision.
The company was given the opportunity to buy an additional 32.5% for a total of 72.5% of Taylor Rigs, by one of Taylor's Shareholders. The management of the company decided that this was a good use of some of its available funds through its recent financings. This additional interest plus the remainder of funds to purchase our original 40% of Taylor Rig totaled $850,000 US. Leaving us $650,000 US from our original two placements. The management of Westrend, was presented through Precision's management, an opportunity to buy the assets of another Wireline company like Precision. This purchase plus additional Wireline equipment and repairs needed to place these three older trucks into service cost $450,000 US. The remainder $200,000 US was invested in the purchase and equipping of a new truck, not through Taylor Rigs, for Alamo. This series of investments used our placement funds.
In our press release dated March 5th, 1997, we made certain assumptions and hypotheses of revenues and orders for Taylor Rigs from May 1st 1997 through May 1st 1998. These assumptions were based on Taylor selling and delivering in this period 23 service rigs and 15 Wireline trucks. In fact, no Wireline trucks were sold to Alamo as assumed. Alamo bought, through a third party, its additional truck because it could not wait on Taylor to design and build this truck in the time frame Alamo needed. Subsequently, since Taylor did have this original order the management of Taylor decided it was not going to pursue the cost and expense of building a new spec Wireline truck in order to show to the market. Rather, it would use its available funds for design and manufacturing for its well known service and drilling rig product lines. In fact, Taylor has only delivered through January 31st 1998, one service rig. It subsequently delivered an additional four service rigs, five service rig carriers, and is currently building two additional service rigs. These revenues do not reflect themselves on our year end financial statements because sales and any subsequent profits do not appear on our consolidated financial statements as a profit until a service rig is delivered and final payment is received. The reasons why the projected 23 service rigs were not sold and delivered by May 1st 1998 are attributable to a longer period of start up for design and a collapse in the price of oil and gas in this period, to an all time low of $11.50 US a barrel dramatically hurt Taylor's ability to sell their rigs. One assumption made in our March 5th release was "significantly increased demand for the services at Westrend is planning to be able to offer to the Oil and Gas industry". This one issue dramatically effected Taylor, Alamo and Precision projected numbers. At the time of the press release the price of oil was $20 US plus, and the demand for the services and product lines our subsidiaries offered made our projections valid in our opinion.
Alamo's hypotheses and assumptions were based on Alamo acquiring, through its cash flow, up to seven Wireline trucks during this period. With the dramatic decrease in demand for Alamo's services, brought about by the collapse in the domestic oil industry, the cash flow from its original three trucks and lack of business, made it impossible and un-economic at the time, to purchase the additional four trucks. Section 2.F of our press release of March 5th 1997 stated "the current expansion in oil and gas activity which has engendered strong demand for Wireline logging services is assumed to hold steady during the period." This had a dramatic impact on Alamo's business and prevented it from acquiring its additional four trucks from cash flow.
The following hypotheses and assumption were made for Precision Horizontal Inc. in our March 5th 1997 press release. Precision would be able to demand certain day rates and keep its equipment busy, on an average, 22 days per month. It was further assumed these day rates would hold and subsequent profits were made because of these day rate. The lack of profits, due to the collapse in the oil and gas industry, prevented the purchased of the MWD equipment assumed in our projections. section 3.D and specifically 3.G of our press release of March 5th 1997, assumed that the certain expansion in oil and gas activity would create strong demand for Precision's services, Precision's day rates, its ability to purchase MWD equipment out of cash flow, dramatically decreased its profitability to a point whereby Precision was actually loosing money as a corporation.
In summary, all three subsidiaries hypotheses and assumptions failed due to the collapse of the domestic and international oil and gas business during the period of our projections. This was unforeseeable, with the information at our disposal at the time of these projections, according to all the information available then pointing to the increased demand for our specific services and products. This generated a substantial loss across the board from all three subsidiaries of Westrend totalling the net loss reflected on our financial statements. These loses through January 31st 1998 are as follows; Precision $368,608.89 US, Taylor $649,466.64 US. Alamo $227,195.14 US, combined with Westrend's loss of $1,022,170.12 US resulted after deducting taxes and minority interest for a total loss of $2,591,440.57 US.
TEL: (210) 308-7360 Mark S. Roberts, President FAX: (210) 308-5946 Westrend Natural Gas Inc.
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This Report Updated by Canstock at 11:06:50 Pacific Time
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