Q3 2006 FLINT ENERGY SVCS LTD Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning, ladies and gentlemen, and welcome to the Flint Energy Third Quarter Results Conference Call. [OPERATOR INSTRUCTIONS.] As a reminder, the conference is being recorded Friday, November 10, 2006.

I would now like to go ahead and turn the call over to Bill Lingard, President and CEO of Flint Energy Services, Ltd. Please go ahead, sir.

BILL LINGARD, PRESIDENT AND CEO, FLINT ENERGY SERVICES LTD.: Thank you, Mike. And good morning, everyone. We're here this morning to talk about our third quarter financial and operating results. We're very pleased to report that, in the third quarter of 2006, we continued to have the highest quarterly revenues in the Company's history, with third quarter revenues reaching $341 million, up 38% from last year, and only $13 million short of the record revenues set in the third quarter of 2006. Additionally, in the first nine months of 2006 we have revenues of just over $1 billion, and just $2 million short of our 12-month revenue for the whole of 2005.

I'll start this call with an overview of our third quarter operating highlights, and Terry Freeman, our Chief Financial Officer, will follow with a summary of our financial results, along with a discussion of the Transco acquisition and the Transfield joint venture. After some closing comments and our outlook for the remainder of the year, we will conclude with a question-and-answer period.

Also here with Terry and me this morning is our Director of Investor Relations, [inaudible].

Approximately one hour after we're done, a replay of this call will be available by telephone and over the Internet. Please check our website for those details on how to catch the replay at www.flintenergy.com.

During the course of this conference call, we may provide forward-looking information concerning the Company's projected operating results for 2006, our anticipated capital expenditure trends, and activity levels in the oil and gas industry. Actual events or results may differ materially from those reflected in our forward-looking statements due to a number of risks, uncertainties, and other factors affecting the Company's business, as well as the oil and gas industry in general.

These risks, uncertainties, and other factors are described under the heading Risk Factors in the Company's annual information form for the year ended December 31st, 2005, and other documents filed with the Canadian Provincial Security Authorities and available to the public at www.sedar.com.

Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars, and in accordance with Canadian Generally Accepted Accounting Principles.

We released our third quarter 2006 results after the market closed yesterday, and we'll comment on the quarter assuming that you've had an opportunity to review those results.

On the quarter. The third quarter saw a continuation of strong revenue, generating a good performance over the last four quarters. Our trailing 12-month revenues exceeded $1.3 billion. We are a lot excited about our margin performance in the quarter, and Terry will cover the specific details around the margins during his comments.

We were able to increase our revenues $94 million compared to the third quarter of 2005, with strong showings from Production Services operations, both in Canada and the United States, and increased revenues in our infrastructure Service segment from our large oil sands projects.

Looking at the specifics of our two operating segments, Production Services as a whole contributed three-quarters of the revenue increase for an additional 70 million, up 46% from the third quarter last year.

Canadian Production Services benefited from the addition of Denmar on the 4th of July of 2006, as well as from increased activity from our core customers in the northern region. Also, increases in third party pass-through items as we manage more things for our core plants.

The United States Production Services business grew by 50% over last year as we continue to see growth in natural gas well tie-ins and related work in southwest United States, serviced by our East Texas offices in Bridgeport, Kilgore, Cleburne, and Fairfield, as well as other areas of Texas covered by our Mission and Odessa offices.

The Production Services business segment generated 65% of our revenues in the quarter. Its service range includes small diameter pipeline work, weld tie-ins, day-to-day field maintenance services, as well as electrical, instrumentation, mechanical, safety, pressure and back, fluid hauling, plant shutdown and turnaround services.

Our other core business is Facility Infrastructure business segment. This business segment provides major facility project development services to the energy and natural resource sector. It includes our major contracts in oil sands region of Northeastern Alberta. Flint also designs and fabricates process equipment through our U.S. subsidiary, J.W. Williams, and installs mid-inch pipeline from 10 to 24 inch in diameter within this division.

Revenue from the Infrastructure business segment experienced a $24 million or 35% increase this quarter compared to the third quarter of 2005 as we continue to execute on a backlog of work related to oil sales projects for Suncor and Opti/Nexen.

Looking ahead, Flint continues to see higher levels of activity in the United States, where drilling has been 20% busier this year despite the lower commodity prices. Our U.S. based wellhead equipment operations are at capacity and we are undertaking an expansion on a Casper, Wyoming facility, and we're opening a rented facility in Odessa, Texas to meet the increasing customer demand.

In Canada we've seen some softening in demand in Southeastern Alberta related to shale gas and coal bed methane drilling. We're seeing strong activity in deep gas and oil directed drilling.

The Canadian facility infrastructure revenues will continue to be driven by major project schedules and continue the backlogs related to oil sands projects. The addition of the Denmar Group and the pending acquisition of Transco will augment the strong organic growth we've experienced to date in 2006.

We recently announced a joint venture with Transfield. This will not impact revenues for the balance of 2006, but we are excited about the opportunities we see coming in 2007.

I'd now like to turn things over to Terry Freeman to present our financial results for the third quarter '06.

TERRY FREEMAN, CHIEF FINANCIAL OFFICER, FLINT ENERGY SERVICES LTD.: Thank you, Bill.

As you mentioned, revenue through the three months ended September 30, 2006 were $341.5 million, up $94 million or 38% from $247.5 million in Q3 2005. Of the $94 million increase in revenue, $24 million, or 25% was from Facility Infrastructure, with the remaining $70 million or 75% coming from our Production Services business segment.

All but one of our United States district offices was running well above planned revenues. And in Canada, all of our operations were above plan with the exception of Southeast Alberta due to the drop in shale gas and coal bed methane drilling and tie-ins. Infrastructure work in oil sands projects was $24.4 million ahead of last year as we continue to execute on existing backlogs.

Sequentially from Q2, infrastructure revenues declined by approximately $25 million as we completed the majority of shop work on large oil sands projects in progress, and focused the majority of our attention on field inflation. We are pleased to be able to …