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Cabo Announces Quarterly and Annual Results

North Vancouver, BC – Cabo Drilling Corp. (“Cabo” or the “Company”) (TSX-V:CBE) today reported results for its fourth quarter and the fiscal year 2006 ended June 30.

The Company reports:

  • Increased quarterly revenue of $7.56 million in the 4th quarter of 2006, an increase of $224,820 compared to 4th quarter revenue of $7.34 million of fiscal 2005.
     
  • Net 4th quarter 2006 earnings before interest, tax, amortization, stock-based compensation and other items of $7,316 and a net loss of $782,211 after interest, tax, amortization, stock-based compensation and other items resulting in earnings of $0.00 per share and a loss of $0.03 per share, respectively. This compares with the 4th quarter 2005 earnings before interest, tax, amortization, and stock-based compensation of $94,748 and a net loss of $574,423 after interest, tax, amortization, and stock-based compensation resulting in earnings of $0.00 per share and a loss of $0.02 per share respectively.
     
  • Net after tax loss for the fiscal year 2006 of $2.76 million compared to net after tax loss for the fiscal 2005 of $752,329.
  • Gross margin percentage for the 4th quarter fiscal 2006 was 20.0%, compared with a gross margin of 21.1% in the 4th quarter of fiscal 2005 and 20.0% in fiscal 2006 compared to 16.9% in fiscal 2005.
  • Cash from operations, before changes in non-cash working capital items, was $155,625 for the 4th quarter 2006 and $407,240 for fiscal 2006, compared to 4th quarter 2005 cash from operations of $23,358 and $454,358 for the fiscal year 2005.
  • A current asset balance of $10.89 million and working capital of $3.30 million.
  • Total assets of $22.22 million and total liabilities of $9.43 million.

“Our second year in the drilling business, and first full year of operations with all of our divisions, was the clean up year in which we have written down our mineral properties, software, goodwill and other non-recurring general and administrative expenditures. Consequently we have a net after tax loss of $2.76 million,” said John A. Versfelt, Chairman, President and CEO of Cabo Drilling Corp. “Now we can look forward to a third year without the overhanging history and expand our capabilities and significant expertise not only in Canada, but also in United States, Mexico and other Spanish speaking countries.”

“4th quarter revenues were strong as last year at $7.56 million compared to 4th quarter fiscal 2005 of $7.34 million – a $224,820 difference.” Mr. Versfelt stated, “All our mineral drilling divisions are busy; however there is potential to increase the utilization of our drills, which can be achieved as we recruit or train more drillers, mechanics and field supervisors. This will be a primary focus of our new Human Resources Coordinator.”

“Gross margin performance of 20% for the 4th quarter (21.1% 4th quarter fiscal 2005) and for the fiscal year 2006 (16.9% for 2005) was good, but there is room for improvement.” Mr. Versfelt said “We expect that all of our divisions will strive to increase their gross margins, whereby on a consolidated basis we can achieve no less than 23%. We remain focused on greater cost controls, better pricing from our suppliers and improved revenue margins on our contracts.”

“Growing a company through acquisitions and organically from practically no revenue in fiscal year 2004 to almost $29 million in gross revenue two years later, while maintaining positive cash flow, is fairly aggressive, but does have its growing pains which we experienced in our second year,” continued Mr. Versfelt, “It takes time to pull the operations together into one cohesive, profitable operation, but it is happening: we are not an instant story, we are a growing story.”

“Our Canadian divisions have been rewarded with good contracts over the past year with more senior mining companies such as Inco Limited and Aur Resources Inc. as well as a number of aggressive exploration companies that have a very good reputation in the financial markets. We are building a base of good long term clients which makes the outlook for the future quite positive” explained Mr. Versfelt.

“Exploration budgets worldwide have increased for the fourth consecutive year. Metals Economics Group is projecting worldwide exploration budgets to reach $7.1 billion, a 45% increase over 2005 expenditures of $5.1 billion. Considering that approximately 52% of all exploration dollars are expended on drilling, Cabo will continue to strengthen its existing operations with significant contract revenue and selectively expand its market share both nationally and internationally.”

Fourth quarter ended June 30, 2006

The Company’s fourth quarter revenue of $7.56 million increased $224,820 from the fourth quarter in fiscal 2005. The increase in sales can be attributed to continuing strong contracts in the mining sector.

Gross margin percentage was marginally lower in the fourth quarter in fiscal 2006 compared to fourth quarter of fiscal 2005. Improvements by the Petro Drilling and Heath & Sherwood division were offset by lower margins earned by Advanced Drilling due to higher start up costs and delays on projects during the quarter.

General and administrative (“G&A”) costs increased by $159,935 from $1.21 million in the fourth quarter of fiscal 2005 compared to $1.45 million in the fourth quarter of fiscal 2006. The increase is primarily due to the non-recurring charges of a settlement with the Ontario Workplace and Insurance Safety Board and bad debt expense.

Amortization expense for the 4th quarter was $389,528 as compared to $284,537 in the 4th quarter of 2005. The increase can be attributed to the increase of capital assets acquired during the year.

Interest expense increased by $12,238 during the fourth quarter of fiscal 2006 to $59,544 compared to $39,912 in the fourth quarter of fiscal 2005. The increase is a result of the new HSBC credit facilities and a larger Business Development Bank of Canada term loan.

Net earnings for the quarter before interest, tax, amortization, stock-based compensation and other items was $7,316 with a net loss of $782,211 after interest, tax, amortization, stock-based compensation and other items resulting in earnings of $0.000 per share basic and a loss of $0.03 per share basic respectively. This compares with 4th quarter fiscal 2005 earnings of $94,748 before interest, tax, amortization, and stock-based compensation and a loss of $574,423 after interest, tax, amortization, and stock-based compensation resulting in earnings of $0.000 per share basic and a loss of $0.02 per share basic respectively.

Year ended June 30, 2006

The results of operations reflect the consolidated performance of Cabo and its drilling subsidiaries. The Company does not have revenue from its mineral properties.

In 2006, the first full year of all division operations, Cabo’s revenue increased 24% to $28.79 million compared to $23.22 million, a $5.57 million increase. Revenue from underground drilling increased to $9.95 million in fiscal 2006 from $7.38 million in fiscal 2005, a 35 % increase primarily from the Advanced Drilling Group and Petro Drilling Company divisions. Additionally the Company has expanded operations into Mexico and recorded revenues from Mexico operations of $785,455 during fiscal 2006.

Gross margins for the year increased 18% to 20.0% in fiscal 2006 compared to 16.96% in fiscal 2005. The improved margins are a result of increased pricing, improved cost rationalization and benefits of longer term contracts. The Company believes that there will be additional improvements in the gross margin in fiscal 2007 due to longer term projects, continual efforts to improve utilization and efficiency and increasing technological and technical expertise across all divisions.

General and administrative (“G&A”) costs for the fiscal year 2006 were $5.29 million compared to $3.43 million for fiscal 2005 an increase of $1.85 million. The increase can be attributed to the addition of twelve months of G&A from Advanced Drilling and Forages Cabo compared to five months of Advanced and three months of Forages Cabo in fiscal 2005, non-recurring charges totalling $384,799 to establish the credit facility with HSBC, to pay the Ontario Workplace and Insurance Safety Board settlement and to settle legal action with a former consultant.

Cabo reported a pre-tax loss of $2.87 million for the 12 months ended June 30, 2006, compared to a pre-tax loss of $1.11 million for the 12 months ended June 30, 2005. This loss is largely due to $1.65 million write down of the resource properties in anticipation of the sale to International Millennium Mining Corp. (IMMC); $37,500 for valuation report on resource properties, $86,602 goodwill write down, and $206,626 write down of software, plus the impact of the non-recurring G&A changes specified above.

The Company recorded EBITDA (earnings before interest, tax, amortization, stock-based compensation and other items such as write-downs of the resource properties, software costs and goodwill) of $530,335 a slight increase from $525,108 in fiscal 2005. The increase in EBITDA is lower than anticipated due to the non-recurring general and administrative expenses incurred in fiscal 2006.

Cash flow from operations (before changes in non-cash operating working capital items) was $407,240 for the 12 months ended June 30, 2006, compared to $454,358 for the year ended June 30, 2005. The lower cash flow is a direct consequence of the non-recurring general and administration expenses.

Working capital decreased from $4.70 million in fiscal 2005 to $3.33 million in fiscal 2006 primarily due to capital asset acquisitions purchased with cash and new capital lease obligations for drilling equipment in anticipation of the summer drilling season.

The Company remains in a relatively strong financial position with cash reserves of $1.43 million and working capital of $3.33 million. It does not anticipate any problems over the next year in financing any capital requirements within its drilling operations and will maintain its mineral properties in good standing until the transaction with IMMC is completed.

During fiscal 2006, the Company also continued its mineral exploration activities. Mineral exploration expenses and mineral property expenditures for 2006 were $442,201 compared to $1.69 million for 2005. During the year, the Company recorded an asset write-down of $1.65 million for the resource properties in anticipation of the sale of the properties to IMMC, which was approved by the Company’s Shareholders at an Annual General and Special meeting held January 23, 2006, subject to conditions listed in the following paragraph:.

Pursuant to the transaction and subject to certain conditions specified below, the Company proposes to transfer all of its Properties to IMMC in exchange for 10,000,000 units of IMMC, each unit consisting of one (1) IMMC common share and one-third (1/3) of a warrant. Each full warrant entitling the holder to purchase one (1) share in the capital stock of IMMC for thirty-five cents ($0.35) for a period of two (2) years following the date of issue (the “Units”). The Company shall subsequently redistribute no less than 75% of the Units to its Shareholders on a ratio of one IMMC unit for each four (4) shares of the Company that they will hold on a record date to be determined. A four month hold period from the date of issuance will apply to the IMMC shares redistributed to the Shareholders. The net effect will be that Shareholders will continue to hold their shares of the Company and receive units in the capital of IMMC.

The effect of this Transaction is to dispose of the Properties in a manner which will allow the Shareholders to continue to own, collectively, a majority interest therein, through their share ownership in IMMC; and, allow the Company to concentrate on its core business of providing drilling services to the mineral exploration and mining industries. The transaction will only close upon satisfaction of the following conditions:

(i) IMMC completing a private placement financing of no less than $2.50 million of which no less than $1.00 million would be expended on the Cabo properties;
(ii) IMMC acquiring a TSX Venture Exchange listing; and
(iii) the TSX Venture Exchange accepting the Company’s sale of the Properties to IMMC (received conditional approval.).

The Company has worked towards its strategic objective of becoming a drilling service provider of sufficient size to benefit from economies of scale and to provide the foundation from which to pursue new opportunities. Business acquisitions have been an important tool in this pursuit and will continue to be so in the future.

Cabo Drilling Corp. is a drilling services company headquartered in North Vancouver, British Columbia, Canada. The Company provides mining related and specialty drilling services through its subsidiaries Advanced Drilling Ltd. of Surrey, British Columbia; Forages Cabo Inc. of Montréal, Quebec; Heath & Sherwood Drilling Inc., of Kirkland Lake, Ontario; and Petro Drilling Company Limited of Springdale, Newfoundland. The Company’s common shares trade on the TSX Venture Exchange under the symbol: CBE.

ON BEHALF OF THE BOARD

(signed “John A. Versfelt”)

John A. Versfelt
Chairman, President and CEO

Further information about the Company can be found on the Cabo website (http://www.cabo.ca) and SEDAR (www.sedar.com) or by contacting Investor Relations Ms. Sheri Barton at 403-217-5830 or Mr. John A. Versfelt, Chairman, President & CEO of the Company at 604-984-8894.
* * * *
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release. This news release may contain forward-looking statements including but not limited to comments regarding the timing and content of upcoming work programs, geological interpretations, potential mineral recovery processes and other business transactions timing. Forward-looking statements address future events and conditions and therefore, involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements.


Last Updated: 11/01/2006