Caspian Services Reports Lower Q1 Profit

Caspian Services, Inc. has filed its quarterly report with the Securities and Exchange Commission reporting results for its fiscal first quarter 2007.

Caspian Services reported continued strong growth in revenue. Revenue for the quarter totaled $19,066,000 as compared to $11,814,000 for the same period in 2006, an increase of 61%. Net income for the first quarter 2007 was $1,806,000 or $0.04 per share, compared to $2,062,000 or $0.05 per share for the same reporting period of fiscal 2006.

Vessel revenues totaled $5,817,000 as compared to $3,094,000 in the first fiscal quarter 2006, an 88% increase. The growth in revenue resulted from a number of factors including expanded fleet size, full utilization and generally higher day rates for our vessels. Vessel costs increased to $4,273,000 in the first fiscal quarter 2007 as compared to $2,505,000 in the same reporting period 2006, a 71% increase. The increase in vessel operating costs is the result of several factors, including limited profitability on the vessels we operate under agreement with Rederij Waterweg and higher costs for consumables such as fuel. We expect gross margins to improve in future periods, in part, because we were able to successfully negotiate a 30% operational charter rate reduction with Rederij Waterweg effective January 2007.

Geophysical revenue from the Company's two seismic subsidiaries grew strongly in the first fiscal quarter 2007, totaling $12,921,000 compared to $8,422,000 in the same period 2006, a 53% increase. The majority of this increase was due to a new short-term contract completed by Kazmorgeophysica during the quarter, which was the primary contributing factor to a revenue increase from $1,224,000 to $4,736,000 in the 2007 reporting period. Also, as a result of increased demand for onshore seismic services in the region, and the investment in additional equipment, TatArka also performed more work during the first fiscal quarter of 2007 than for the same period in 2006. TatArka was also able to improve its gross margins during the first fiscal quarter 2007 by mobilizing a second crew and using its own employees and equipment to meet the increased demand for onshore seismic data acquisition services. By comparison, KMG did not have sufficient personnel and equipment to meet the increased demand for its services and was forced to hire subcontractors to fulfill some of its contracts. This resulted in an increase in geophysical costs of revenues in the first fiscal quarter 2007 from $4,107,000 to $5,402,000. Despite this overall increase in geophysical costs of revenue during the quarter, our gross margin improved to 58% compared to 51% for the same period last year. The improvement in gross margin is the result of increased sales and improving prices.

During the first quarter 2007, revenue from water desalinization increased 10% from $298,000 to $328,000. Revenue from water sales, less the cost of water sales decreased to $109,000 during the first fiscal quarter 2007, compared to $209,000 during the first fiscal quarter 2006. These increases in revenue and costs are the result of increased demand for water arising from increased activity in the port of Bautino. The decrease in gross margin from water sales is due to increased cost of materials resulting from a change in suppliers of plastic forms for water bottles.

Commenting on the financial results, Laird Garrard, CEO of Caspian Services, Inc. said "The results for the first fiscal quarter 2007 are encouraging. Our vessel business turned in a healthy quarter and is positioned well for the full 2007 work season. Our investment in new equipment for TatArka is providing a solid return. We expect 2007 to be the busiest year to date with regards to offshore seismic exploration in the Kazakh sector of the Caspian Sea; our subsidiary Kazmorgeophysica is well positioned to play a leading role in these activities. In addition, we continue to push ahead with the Atash Marine base project and, subject to final financing, should break ground on construction in late Spring. This all makes us very optimistic about the financial and operational outlook for Caspian Services in 2007."

Caspian Services provides a range of oil field services in the north Caspian Sea region of western Kazakhstan, principally in the marine support sector, where it operates a fleet of vessels commissioned to oil and gas exploration companies and the geophysical and seismic data acquisition sector.


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