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Cabo Reports 3rd Quarter Results

North Vancouver, BC– Cabo Drilling Corp. (“Cabo” or the “Company”) (TSX-V: CBE) today reported results for its third quarter ended March 31, 2006.

3rd QUARTER HIGHLIGHTS

(CDN $000s, except earnings per share)
 

3 months ending Mar 31-06

3 months ending Mar 31-05

9 months ending
Mar 31-06

9 months ending
Mar 31-05

Revenue

 5,998 5,898  21,228 15,883

Net Earnings (Loss) Before Interest, Tax, Amortization, Stock-based Compensation and Other Items (EBITDA)

 (409) (23) 522 430

Net Earnings (Loss) After Taxes

 (2,206) 239  (1,980)  (178) 

Earnings (Loss) per Share ($) Basic Before Interest, Tax, Amortization, Stock-based Compensation and Other Items (EBITDA)

 (0.013) 0.000 0.017  0.016 
Write-down Resource Properties 1,543 Nil 1,543 Nil

Earnings (Loss) per Share ($) Basic

 (0.071) 0.009  (0.064)  (0.006) 

Cash from operations*

 (0.424) 0.030 0.252  0.430 

Gross Margin %

 19.14% 11.35%  20.07%  14.52% 

Working Capital

 4,556 6,324     

 *before changes in non-cash working capital items

The Company reports:

  • 3rd quarter revenue of $5.998 million in FY2006, a 2% increase over revenue of $5.898 million in the 3rd quarter of FY2005.
  • Net 3rd quarter FY2006 loss before interest, tax, amortization, stock based compensation and write-down of resource properties of $0.409 million compared to a 3rd quarter FY2005 loss before interest, tax, amortization and stock based compensation of $23,527.
  • Write down resource properties $1.543 million.
  • Net loss after taxes for the 3rd quarter of FY2006 of $2.206 million compared to a 3rd quarter FY2005 net profit after taxes of $0.239 million resulting in a 3rd quarter FY2006 loss of $0.071 per share compared to earnings of 0.009 per share in 3rd quarter FY2005.
  • Gross margin percentage for the 3rd quarter FY2006 was 19.14% compared with a gross margin of 11.35% in the 3rd quarter of FY2005.
  • Decrease in cash from operations, before changes in non-cash working capital items, was $0.424 million for the 3rd quarter FY2006 compared to 3rd quarter FY2005 cash from operations of $29,473.
  • A current asset balance of $9.893 million and working capital of $4.556 million.
  • Total assets of $20.634 million and total liabilities of $7.172 million.

“Much like last year and similar to other drilling companies, January and February of 2006 proved to be difficult months due to holiday downtime, high maintenance requirements resulting in a later than normal return to drilling productivity and abnormally warmer winter temperatures, which all contributed to a mediocre quarter,” said Mr. John A. Versfelt, Chairman, President & CEO of Cabo Drilling Corp.

“Revenues for the quarter were $5.998 million, 2% higher than the revenues recorded during the similar quarter last fiscal year of $5.898 million. Gross margin during the quarter increased to 19.14% compared to 11.35% during the 3rd quarter in fiscal 2005 and slightly lower than the gross margin for the first six months of fiscal 2006 of 20.44%. Gross margin increased to $1.148 million in 3rd Quarter of fiscal 2006 from $0.669 million in the 3rd quarter of fiscal 2005 a 72% increase. The improvement in gross margin in the first nine months of this fiscal year, compared to the same period last year, is a result of volume rebates, better cost rationalization and improved pricing. The decrease in gross margin during this spring quarter, compared to the previous six months, is primarily due to additional maintenance costs in preparation for the summer drilling season. ”

“The Company recorded EBITDA loss of $0.409 million during the third quarter of fiscal 2006 for a combined EBITDA for the nine months ending March 31, 2005 of $0.522 million compared to $0.430 million EBITDA recorded during the first nine months of fiscal 2005. The improvement for the nine months is primarily due to the improved gross margin and higher revenues earned during fiscal 2006,” stated Mr. Versfelt. “EDITDA during the quarter was negatively affected by the non-recurring charges that resulted in lower income.”

“During the third quarter, the Company’s cash reserves decreased by $0.607 million to $0.975 million compared to $1.582 million at the end of last quarter, “said Mr. Versfelt. “The decrease in cash is due to lower sales revenue than in the previous quarter, a net reduction of current payables and increased inventories. Working capital decreased during this quarter to $4.556 million from $5.294 million, a $0.738 million decrease. The Company does not anticipate any problems over the next year in financing any capital requirements within its drilling operations.”

“The Company recorded a pre-tax loss of $2.309 million compared to a pre-tax income of $0.161 million in the last quarter and a pre-tax loss of $0.181 million for the 3rd quarter of fiscal 2005,” said Mr. Versfelt. “During the 3rd quarter a net loss of $2.207 million was recorded compared to a net income of $0.239 million during the same period of fiscal 2005. The primary reason for the loss in the third quarter of fiscal 2006 is the $1.543 million write down of the resource properties and the mineral properties valuation report, plus non-recurring consulting and legal fess for the HSBC credit facility, an allowance for bad debts and the lawsuit settlement with a former consultant.”

“High metal prices and significant increases in financing levels for mineral exploration, development and production improvements in existing mines in Canada and globally have breathed new life into the mining industry, and therefore the drilling industry, worldwide,” said Mr. Versfelt. “However, the growing demand can only be met with increased hiring and training of drillers, mechanics and all levels of supervision. Initially, the costs per unit are higher, but as Cabo’s employees gain in experience, the Company anticipates an ability to improve drill utilization, drill and employee efficiencies and mechanical, consumable and servicing costs. Increased demand for drills throughout the industry should also lead to higher unit prices and opportunities to improve margins, especially in Canada where the competition has been high.”

3rd Quarter Ended March 31, 2006 – Results of Operations
The Company’s third quarter revenue of $5.998 million represents a 2% increase from $5.898 million in the same quarter last year. Revenues from our Advanced Drilling Group increased by $0.500 million during the 3rd quarter in fiscal 2006 compared to the 3rd quarter in fiscal 2005. This increase is mainly attributed to the additional operating month of Advanced in the 3rd quarter of fiscal 2006 as Advanced Drilling Group was acquired on January 31, 2005. Increased revenues from Advanced Drilling Group and revenues from Forages Cabo Inc. are offset by decrease revenues of $0.566 million from the Heath & Sherwood division during the 3rd quarter of fiscal 2006 compared to the same period in fiscal 2005. Petro Drilling Company recorded a slight decrease in revenues of $93,000 during the quarter due to difficult drilling conditions at one of its major projects.

A later than normal start-up after the December/January holiday season and warmer than normal weather shortened projects in Northern Ontario and in Saskatchewan resulting in lower rig utilization and lower revenues during the 3rd quarter. The Company’s operations follow seasonal patterns, with the first and fourth quarters (April through September) being the most active. The summer and fall months generally provide the best drilling conditions. The months of December through early February are typically the weakest due to general slowdown in the mineral exploration activity, as well as the holiday season.

The gross margin for the third quarter of fiscal 2006 was 19.1% compared to fiscal 2005 (11.4%) but lower than the 20.4% earned in the first six months of fiscal 2006. The improved margins from last fiscal year to the current fiscal year are a result of improved pricing, improved labour productivity and cost controls implemented. The decrease in gross margin in the third quarter of spring fiscal 2006 compared to the first six months of fiscal 2006 is due to higher maintenance costs in preparation for the summer drilling season.

General and administrative expenses (“G&A”) increased by $0.456 million for the previous quarter to $1.613 million in the third quarter of 2006 and by $0.698 million compared to the third quarter of fiscal 2005. The increase in G&A expenses in the third quarter of fiscal 2006 compared to the first six months of 2006 can be largely attributed to non-recurring legal and consulting fees for establishing the credit facility with HSBC, the resource properties valuation report, settlement of a lawsuit with a former consultant, an allowance for bad debts and higher costs incurred on trade shows, travel, and investor relations costs. Additional increases included in fiscal 2006 G&A costs are three months of Advanced Drilling Group and Forages Cabo Inc. compared to two months in fiscal 2005 of Advanced Drilling Group (acquired Feb 1, 2005) and nil costs from Forages Cabo Inc. (acquired April 1, 2005).

Amortization expense for the third quarter of fiscal 2006 was $0.274 million as compared to $0.268 million in the second quarter of fiscal 2006 and $0.158 million in the third quarter of 2005. The minimal change in amortization is a result of additions and disposals during the third quarter of fiscal 2006 and the higher asset base compared to the third quarter of fiscal 2005.

Net income decreased from $0.110 million in the second quarter of fiscal 2006 to a net loss of $2.207 million in the third quarter of fiscal 2006 and decreased by $2.446 million compared to net income of $0.239 million earned in the 3rd quarter of fiscal 2005. The losses can be attributed to the write down of the resource properties, an allowance for bad debts, non-recurring legal and professional fees and stock based compensation in fiscal 2006, compared to a bad debt recovery and future tax recovery on flow through shares in fiscal 2005.

Cabo’s current cash (marketable securities and cash equivalents) position at March 31, 2006, is $1.004 million as compared to $1.611 million at December 31, 2005. The decrease in cash can be attributed to lower revenues during this quarter, regular payments on long term debt, reduced accounts payable and increased inventories.
Cash flow from operations in the third quarter of fiscal 2006 (before changes in non-cash operating working capital items) was a cash loss of $0.424 million, compared to cash flow of $29,473 in the quarter ended March 31, 2005. Cash flow for the nine months ending March 31, 2006 decreased from the same period last year to $0.252 million from $0.431 million. The cash flow for the nine months ending March 31 fiscal 2005 is higher due to a bad debt recovery.

Working capital decreased by $0.738 million during the quarter due to lower sales, regular payments on long term debt and accruals for non-recurring items.
Mineral exploration expenses and mineral property payments for the third quarter of 2006 were $50,295 compared to $0.319 million for the same period in fiscal 2005. Cabo remains committed to funding and operating its exploration activities separately from its drilling operations until the proposed sale of the resource properties to International Millennium Mining Corp. has closed.

Increased metals demand and, therefore prices, while undergoing corrections from time to time, should continue to flourish for the next few years. Few deposits have been discovered in the past ten years and most mines are producing at full capacity. Consequently, Cabo expects that financings for exploration, development and reserve delineation will continue to grow, leading to a continued increase in the demand for drilling over the next few years. At the same time, Cabo is assimilating its assets and experiencing more team effort between divisions. The Company believes all these factors should help Cabo improve its business model and increase its profitability, thereby providing a better return to its shareholders.

Cabo Drilling Corp. is a drilling services company headquartered in North Vancouver, British Columbia, Canada. The Company provides 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 DRAFT)
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.

* * * *
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: 06/28/2006