Financial Review
Three months ended Six months ended
($ millions, except per June June March June June
share amounts; 30, 30, 31, 30, 30,
unaudited) 2012 2011 2012 2012 2011
----------------------------------------------------------------------------
Revenue $ 418.0 $ 421.7 $ 716.4 $1,134.3 $ 956.3
Operating
income/(loss)
(i) (28.3) 78.3 161.8 133.6 223.6
Profit/(loss) (50.9) 30.1 89.4 38.5 112.5
Earnings/(loss)
per share (basic) $ (0.35) $ 0.21 $ 0.61 $ 0.26 $ 0.78
(diluted) $ (0.35) $ 0.21 $ 0.61 $ 0.26 $ 0.77
Adjusted
profit/(loss)
(i) (48.6) 33.3 92.3 43.7 118.8
Adjusted
profit/(loss)
per share(i) (basic) $ (0.33) $ 0.23 $ 0.63 $ 0.30 $ 0.82
(diluted) $ (0.33) $ 0.23 $ 0.63 $ 0.30 $ 0.81
Funds provided
by/(used in)
operations(i) (49.1) 60.9 $ 136.1 87.0 202.6
----------------------------------------------------------------------------
Notes:
(i) Trican makes reference to operating income/(loss), adjusted
profit/(loss) and funds provided by/(used in) operations. These are
measures that are not recognized under International Financial
Reporting Standards (IFRS). Management believes that, in addition
to profit, operating income/(loss), adjusted profit/(loss) and
funds provided by/(used in) operations are useful supplemental
measures. Operating income/(loss) provides investors with an
indication of earnings/(loss) before depreciation, foreign exchange
gains and losses, other income, taxes and interest. Adjusted
profit/(loss) provides investors with information on profit/(loss)
excluding one-time non-cash charges and the non-cash effect of
stock-based compensation expense. Funds provided by/(used in)
operations provide investors with an indication of cash available
for capital commitments, debt repayments and other expenditures.
Investors should be cautioned that operating income/(loss),
adjusted profit/(loss), and funds provided by/(used in) operations
should not be construed as an alternative to profit/(loss) and cash
flow from operations determined in accordance with IFRS as an
indicator of Trican's performance. Trican's method of calculating
operating income/(loss), adjusted profit/(loss) and funds provided
by/(used in) operations may differ from that of other companies and
accordingly may not be comparable to measures used by other
companies.
SECOND QUARTER HIGHLIGHTS
Consolidated revenue for the second quarter of 2012 was $418.0
million, a decrease of 1% compared to the second quarter of 2011.
Consolidated net loss was $50.9 million and diluted loss per share
was $0.35 compared to profit of $30.1 million and diluted earnings
per share of $0.21 for the same period in 2011. Funds used in
operations were $49.1 million compared to funds provided by
operations of $60.9 million in the second quarter of 2011.
Second quarter revenue was $140.2 million for our Canadian
operations, which was 16% lower than the second quarter of 2011.
Canadian results were negatively impacted by wet weather in May and
June that led to road bans and road weight restrictions throughout
most of the second quarter. Unlike 2011, no Horn River projects
were completed in Canada during the second quarter, which also
contributed to the year-over-year reductions in revenue and
operating income. However, we expect to complete a large Horn River
project in the third quarter, which will positively impact third
quarter results. Horizontal drilling activity continued to dominate
the Canadian market as 71% of wells drilled during the second
quarter were horizontal compared to 59% in the second quarter of
2011. This trend continues to benefit all of our service lines in
Canada.
U.S. operations second quarter revenue was $206.8 million, 20%
higher than the second quarter of 2011. U.S. results were
negatively impacted by a decrease in pricing, primarily in our dry
gas areas of operation, and a significant increase in guar costs
which is a key ingredient in many fracturing fluids. A number of
cost cutting measures were initiated during the second quarter;
however, they did not have a significant impact on the financial
results for the quarter. Management anticipates the financial
impact of these cost cutting measures will increase during the
third and fourth quarters of 2012. The U.S. operations took
delivery of three new fracturing spreads from its 2012 capital
program. One of the fracturing spreads has been deployed in the
North Dakota Bakken and is expected to commence operations during
the third quarter. In addition, four cementing units and two coiled
tubing units were also deployed resulting in a significant increase
in activity in these two service lines during the second
quarter.
International revenue was $71.0 million during the second
quarter of 2012, which was a 13% year-over-year decrease and a 10%
sequential increase. Our Russian and Kazakhstan operations comprise
the majority of our international results, and second quarter
activity levels in these areas benefitted from improved weather
conditions compared to the first quarter of 2012. However, our
customers' work programs were behind schedule and second quarter
activity levels and operating margins were below expectations and
lower on a year-over-year basis. Russian results were also
negatively impacted by a weaker Russian ruble as the average ruble
to Canadian dollar exchange rate for the second quarter of 2012
decreased by 6% compared to the second quarter of 2011.
COMPARATIVE QUARTERLY INCOME STATEMENTS
----------------------------------------------------------------------------
($ thousands; unaudited)
Quarter-
Over-
Three months ended % of % of Quarter %
June 30, 2012 Revenue 2011 Revenue Change Change
----------------------------------------------------------------------------
Revenue 417,975 100.0% 421,701 100.0% (3,726) -1%
Expenses
Materials and
operating 426,468 102.0% 319,061 75.7% 107,407 34%
General and
administrative 19,762 4.7% 24,363 5.8% (4,601) -19%
----------------------------------------------------------------------------
Operating
income/(loss)(i) (28,255) -6.8% 78,277 18.6% (106,532) -136%
Finance costs 7,395 1.8% 5,416 1.3% 1,979 37%
Depreciation and
amortization 38,171 9.1% 28,554 6.8% 9,617 34%
Foreign exchange
loss 2,914 0.7% 81 0.0% 2,833 3,498%
Other income (736) -0.2% (1,287) -0.3% 551 -43%
----------------------------------------------------------------------------
Profit/(loss) before
income taxes (75,999) -18.2% 45,513 10.8% (121,512) -267%
Income tax
expense/(recovery) (25,139) -6.0% 15,437 3.7% (40,576) -263%
----------------------------------------------------------------------------
Profit/(loss) before
non-controlling
interest (50,860) 12.2% 30,076 7.1% (80,936) -269%
Non-controlling
interest (75) -0.0% - - (75) 100%
----------------------------------------------------------------------------
Profit/(loss) (50,785) 12.2% 30,076 7.1% (80,861) -269%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page
of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Three months June 30, % of June 30, % of March % of
ended, 2012 Revenue 2011 Revenue 31, 2012 Revenue
----------------------------------------------------------------------------
Revenue 140,178 167,805 433,111
Expenses
Materials and
operating 136,127 97.1% 130,008 77.5% 265,966 61.4%
General and
administrative 5,222 3.7% 6,510 3.9% 8,135 1.9%
---------- --------- ---------
Total expenses 141,349 100.8% 136,518 81.4% 274,101 63.3%
Operating income/
(loss)(i) (1,171) -0.8% 31,287 18.6% 159,010 36.7%
Number of jobs 3,334 3,725 7,153
Revenue per job 41,959 44,369 60,353
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended,
(unaudited) June 30, 2012 June 30, 2011 March 31, 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 57% 67% 70%
Cementing 18% 16% 17%
Nitrogen 8% 6% 7%
Coiled Tubing 6% 3% 3%
Acidizing 5% 3% 2%
Other 6% 5% 1%
----------------------------------------------------------------------------
Total 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations Review
As expected, road weight restrictions and road bans to remote
areas limited Canadian oil and gas industry activity levels during
the second quarter. The number of active drilling rigs in Canada
decreased by 70% and well completions decreased by 33% compared to
the first quarter of 2012. Activity levels were also lower on a
year-over-year basis as the rig count was down 4% and completions
activity was down 36% compared to the second quarter of 2011.
During the second quarter of 2011, we completed a large Horn
River project that benefitted utilization levels and contributed to
a record breaking quarter. We were expecting to start a Horn River
project in early June 2012 but the wet weather delayed the project
until late June. As a result, Horn River activity had virtually no
impact on the second quarter of 2012, which contributed to the
year-over-year reductions in revenue and operating income.
We continue to see an increase in horizontal drilling activity
as 71% of wells drilled during the second quarter of 2012 were
horizontal compared to 59% in the second quarter of 2011. This
increase benefits all of our service lines and has led to a
substantial increase in revenue per job for our fracturing service
line. Almost all of our second quarter fracturing revenue was from
horizontal wells.
Q2 2012 versus Q2 2011
Revenue decreased by 16% compared to the second quarter of 2011
due to a decrease in job count and revenue per job. The job count
decreased by 10% due to the decline in year-over-year drilling and
completions activity as well as the reduction in Horn River
activity for Trican. Revenue per job decreased by 5% as a 2%
increase in price and an increase in fracturing job size were more
than offset by a reduction in fracturing revenue as a percentage of
total revenue.
Second quarter materials and operating expenses increased to
97.1% of revenue compared to 77.5% in the second quarter of 2011.
The substantial growth of our Canadian operations over the past
year has led to a higher fixed cost structure in this region. In
particular, employee costs increased as a percentage of revenue
relative to the second quarter of 2011 due to the reduced operating
leverage on our Canadian fixed cost structure. In addition, product
costs such as sand, acid and guar have increased on a
year-over-year basis. The price of guar in the second quarter
increased by approximately 275% compared to the second quarter of
2011, which reduced operating margins by 235 basis points.
General and administrative expenses decreased by $1.3 million
compared to the second quarter of 2011 due largely to lower share
based and profit sharing expenses.
Q2 2012 versus Q1 2012
Canadian revenue decreased by 68% sequentially due to the
expected reduction in industry activity caused by spring break-up.
The 70% sequential decrease in Canadian rig count contributed to
the 53% decrease in job count. Revenue per job decreased by 30% due
to the lower proportion of fracturing revenue relative to total
revenue, and to a lesser extent, the 2% decrease in price.
Materials and operating expenses increased as a percentage of
revenue to 97.1% compared to 61.4% in the first quarter of 2012,
due largely to reduced operating leverage on our fixed cost
structure. Guar costs increased by approximately 60% sequentially
and also had a negative impact on second quarter operating margins.
General and administrative expenses decreased by $2.9 million due
mainly to lower share based and profit sharing expenses.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Three months June 30, % of June 30, % of March % of
ended, 2012 Revenue 2011 Revenue 31, 2012 Revenue
----------------------------------------------------------------------------
Revenue 206,777 172,404 218,536
Expenses
Materials and
operating 224,923 108.8% 118,635 68.8% 193,869 88.7%
General and
administrative 3,986 1.9% 4,013 2.3% 2,963 1.4%
---------- --------- ---------
Total expenses 228,909 110.7% 122,648 71.1% 196,832 90.1%
Operating
income/(loss)(i) (22,132) (10.7%) 49,756 28.9% 21,704 9.9%
Number of jobs 1,915 1,178 1,680
Revenue per job 108,394 146,229 130,499
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Operations Review
The U.S. rig count continued to decline in the dry gas regions;
however, the rig count continued to increase in the oil and
liquids-rich gas regions of our U.S. operations. The activity
decline in the dry gas regions marginally lowered the job count in
the Marcellus, Haynesville, Barnett and Oklahoma regions, and
significant pricing pressure continued in these areas during the
quarter. Activity increases in the oil and liquids-rich gas regions
resulted in an increase in job count in the Eagle Ford and Permian
basins; however, marginal pricing pressure was experienced in these
basins as well. Overall pricing during the second quarter decreased
by 11% and this pricing pressure was the largest contributor to the
operating loss recorded during the quarter. Equipment utilization
was consistent with utilization experienced during the first
quarter of 2012; however, it did not increase as anticipated by
management, largely as a result of the lower job count in the dry
gas areas of operation.
Guar pricing increased approximately 80% during the quarter
relative to the first quarter of 2012. Guar is a significant
component of many fracturing fluids and is used as a thickening
agent assisting in carrying the proppant into the fracture during a
fracturing job. Management has restructured guar pricing charged in
most of the customer contracts; however, overall pricing pressure
has largely eroded the gains made by this restructuring. The
increase in guar costs was the second largest contributor to the
operating loss recorded during the quarter.
The U.S. operations initiated many cost cutting measures during
the quarter; however, the cost savings expected from these measures
did not have a significant impact on the second quarter financial
results. Management is focused on optimizing the cost structure and
reducing costs wherever practical and expects the most meaningful
decreases in product costs, freight costs, unit expenses, wage
expenses and base expenses during the second half of 2012.
One new fracturing spread was delivered to our new operating
base in North Dakota. The North Dakota Bakken is currently very
active and we are still seeing increasing activity in this oil
play. We expect this fracturing spread will commence operations
during the third quarter. Four cementing units and two coiled
tubing units were deployed during the quarter resulting in a
significant increase in activity in these two service lines. The
cementing and coiled tubing service lines now account for
approximately 8% of the U.S. operations sales mix.
Q2 2012 versus Q2 2011
2012 second quarter revenue increased by approximately 20%
compared to the second quarter of 2011. The job count increased by
63% while revenue per job decreased by 26%. The job count increase
is primarily a result of fracturing, cementing and coiled tubing
equipment additions and an increase in the year-over-year rig count
resulting in an increase in demand for these services. Overall the
U.S. operations experienced reasonable equipment utilization. A
reduction in demand for our services in dry gas regions was
partially offset by higher utilization in oil and liquids-rich gas
regions. Revenue per job decreased approximately 26% primarily due
to pricing pressure in the U.S. market combined with the increase
in work performed in the cementing and coiled tubing service lines
and smaller jobs typically performed in the Permian basin.
Materials and operating expenses increased to 108.8% from 68.8%
as a percentage of revenue. Operating margins were negatively
impacted by the decrease in pricing and a significant increase in
guar costs. Increases in freight, repairs and maintenance and
accommodation expenses also contributed to the increase in
materials and operating expenses.
General and administrative costs were consistent with the second
quarter of 2011 as an increase in travel expenses was largely
offset by a decrease in stock based compensation expense.
Q2 2012 versus Q1 2012
Second quarter revenue in 2012 decreased 5% relative to the
first quarter of 2012. The job count increased by 14% largely as a
result of job count increases in the cementing and coiled tubing
service lines. Four cementing units and two coiled tubing units
were deployed during the quarter and largely account for the job
count increase in these two service lines. Job count for the
fracturing service line marginally increased as significant job
count increases in the Eagle Ford and Permian basins were largely
offset by job count decreases in the Marcellus, Barnett and
Oklahoma regions. Revenue per job decreased by 17% primarily as a
result of an 11% decrease in pricing combined with the increase in
work from the cementing and coiled tubing service lines and
increased work performed in the Permian basin. Revenue per job for
the cementing and coiled tubing service lines is typically lower
than the fracturing service line and fracturing jobs performed in
the Permian Basin are typically smaller relative to other regions
resulting in lower revenue per job.
Materials and operating expenses increased to 108.8% from 88.7%
as a percentage of revenue. A significant increase in the cost of
guar largely accounts for this increase with the average price of
guar realized during the second quarter increasing approximately
80% relative to the average price realized during the first quarter
of 2012. Increases in freight, repairs and maintenance and
accommodation expenses also contributed to the increase in
materials and operating expenses. Repairs and maintenance expense
largely increased due to an increase in the expenses relating to
fluid ends and treating iron. We are currently working with one of
our fluid end suppliers to determine the root cause of the increase
in fluid end usage.
General and administrative expenses increased by approximately
$1 million as a result of an increase in salary expenses combined
with an increase in travel expenses.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Three months June 30, % of June 30, % of March % of
ended, 2012 Revenue 2011 Revenue 31, 2012 Revenue
----------------------------------------------------------------------------
Revenue 71,020 81,492 64,709
Expenses
Materials and
operating 60,523 85.2% 66,450 81.5% 61,302 94.7%
General and
administrative 2,985 4.2% 3,885 4.8% 3,696 5.7%
--------- --------- ----------
Total expenses 63,508 89.4% 70,335 86.3% 64,998 100.4%
Operating
income(i) 7,512 10.6% 11,157 13.7% (289) -0.4%
Number of jobs 1,057 1,254 942
Revenue per job 62,506 62,442 64,435
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended,
(unaudited) June 30, 2012 June 30, 2011 March 31, 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 76% 79% 80%
Coiled Tubing 13% 10% 7%
Cementing 8% 7% 9%
Nitrogen 2% 4% 3%
Other 1% 0% 1%
----------------------------------------------------------------------------
Total 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations Review
Our International operations include the financial results for
our operations in Russia, Kazakhstan, Algeria, and Australia. Our
operations in Russia and Kazakhstan comprise the majority of our
international results and revenue and activity levels in these
regions improved sequentially due to improved weather conditions.
However, some of our Russian customers' work programs remained
behind schedule during the quarter, which contributed to second
quarter results that were below management's expectations.
Horizontal drilling and completions activity has increased in
Russia during 2012. Approximately 10% of our Russian fracturing
revenue was from horizontal wells during the second quarter
compared to 3% in the second quarter of 2011. We believe this trend
will continue and result in increased pressure pumping demand in
Russia.
The Russian ruble weakened by 2% relative to the Canadian dollar
compared to the first quarter of 2012 and by 6% compared to the
second quarter of 2011. This negatively impacted revenue and
operating margins for our International operations as approximately
25% of our Russian operations expenses are incurred in Canadian
dollars and other international currencies.
Results for our Algerian operations improved during the second
quarter as utilization levels for our coiled tubing and cementing
operations increased relative to the first quarter of 2012. Results
for our Australian operations were below expectations during the
second quarter as utilization of equipment remained low. We will
continue to establish our cementing service line in Australia and
expect results to improve as new work tenders are obtained.
Q2 2012 versus Q2 2011
International revenue decreased by 13% compared to the second
quarter of 2011. Job count decreased by 16% as our customers' work
programs in Russia are behind schedule relative to 2011. Revenue
per job was relatively unchanged on a year-over-year basis as
pricing increases obtained during the 2012 tendering process were
offset by a 6% weakening of the ruble and a lower proportion of
fracturing revenue relative to total revenue.
Materials and operating expenses as a percentage of revenue
increased to 85.2% compared to 81.5% in the second quarter of 2011.
Year-over-year price increases were offset by lower than expected
utilization in Russia due to delays in our Russian customers' 2012
work program. The low utilization led to decreased operational
leverage on our fixed cost structure, in particular for employee
costs. General and administrative expenses were down $0.9 million
on a year-over-year basis due to lower share based expenses.
Q2 2012 versus Q1 2012
Revenue for our International operations increased by 10% on a
sequential basis. The number of jobs completed increased by 12% due
to improved weather conditions in the second quarter relative to
the first quarter. Revenue per job decreased sequentially by 3% due
to a lower proportion of fracturing revenue relative to total
revenue combined with a weakening of the ruble relative to the
Canadian dollar.
Materials and operating expenses as a percentage of revenue
decreased to 85.2% from 94.7% on a sequential basis. Improved
operational leverage on our fixed cost structure contributed to the
higher second quarter margins. General and administrative expenses
decreased by $0.7 million due largely to lower share based
expenses.
CORPORATE
----------------------------------------------------------------------------
($ thousands, unaudited)
Three months June 30, % of June 30, % of March % of
ended, 2012 Revenue 2011 Revenue 31, 2012 Revenue
----------------------------------------------------------------------------
Expenses
Materials and
operating 4,895 1.2% 3,968 0.9% 6,409 0.9%
General and
administrative 7,569 1.8% 9,955 2.4% 12,171 1.7%
---------- ---------- ----------
Total expenses 12,464 3.0% 13,923 3.3% 18,580 2.6%
Operating
loss(i) (12,464) (13,923) (18,580)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Q2 2012 versus Q2 2011
Corporate expenses decreased $1.5 million from the same quarter
last year due primarily to lower share based and profit sharing
expenses. These factors were partially offset by increased salary
expenses.
Q2 2012 versus Q1 2012
Corporate expenses decreased by $6.1 million on a sequential
basis due to lower profit sharing and donation expenses.
OTHER EXPENSES AND INCOME
Finance costs for the second quarter of 2012 increased by $2.0
million on a year-over-year basis mainly due to interest on the new
private placement debt. Depreciation and amortization increased by
$9.6 million in the second quarter of 2012 compared to the same
period last year, due primarily to capital additions relating to
our capital expansion program.
The foreign exchange loss of $2.9 million in the quarter versus
a loss of $0.1 million in the same quarter last year was due to the
net impact of fluctuations in the U.S. dollar and Russian ruble
relative to the Canadian dollar. Other income was $0.7 million in
the quarter versus $1.3 million for the same period in the prior
year. Other income is mainly comprised of interest income on a loan
to an unrelated third party and interest income earned on cash
balances.
INCOME TAXES
Trican recorded an income tax recovery of $25.1 million in the
quarter versus an expense of $15.4 million for the comparable
period of 2011. The decrease in tax expense is attributable to
lower taxable income.
COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS
----------------------------------------------------------------------------
($ thousands; unaudited)
Period-
Over-
Six months ended % of % of Period
June 30, 2012 Revenue 2011 Revenue Change % Change
----------------------------------------------------------------------------
Revenue 1,134,331 100.0% 956,329 100.0% 178,002 19%
Expenses
Materials and
operating 954,013 84.1% 683,723 71.5% 270,290 40%
General and
administrative 46,727 4.1% 48,997 5.1% (2,270) -5%
----------------------------------------------------------------------------
Operating
income(i) 133,590 11.8% 223,609 23.4% (90,018) -40%
Finance costs 14,428 1.3% 7,427 0.8% 7,001 94%
Depreciation
and
amortization 74,003 6.5% 58,659 6.1% 15,344 26%
Foreign
exchange
(gain)/loss 2,222 0.2% (228) 0.0% 2,450 -1,075%
Other income (2,082) -0.2% (3,043) -0.3% 960 -32%
----------------------------------------------------------------------------
Profit before
income taxes 45,019 4.0% 160,794 16.8%(115,775) -72%
Provision for
income taxes 6,497 0.6% 48,292 5.0% (41,166) -87%
----------------------------------------------------------------------------
Profit before
non-controlling
interest 38,522 3.4% 112,502 11.8% (73,980) -66%
Non-controlling
interest (153) -0.0% - - (153) 100%
----------------------------------------------------------------------------
Profit 38,675 3.4% 112,502 11.8% (73,827) -66%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Period-
Over-
June 30, % of June 30, % of Period
Six months ended, 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 573,289 494,182 16%
Expenses
Materials and operating 402,092 70.1% 327,398 66.2% 23%
General and administrative 13,358 2.3% 13,775 2.8% (3%)
--------- --------- ----------
Total expenses 415,450 72.5% 341,173 69.0% 22%
Operating income(i) 157,839 27.5% 153,009 31.0% 3%
Number of jobs 10,487 11,323 (7%)
Revenue per job 54,384 43,020 26%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Revenue for the six months ending June 30, 2012, for our
Canadian operations was 16% higher compared to the same period in
2011. Revenue per job increased by 26% due to larger job sizes
combined with an 8% increase in price. Job size benefitted from a
higher proportion of fracturing revenue relative to total revenue
and an increase in the average cement and fracturing job size due
to the increase in horizontal drilling activity. Job count
decreased by 7% due to lower second quarter activity as well as a
change in customer mix for our cementing and fracturing service
lines as larger but fewer jobs were completed for our Canadian
customers.
As a percentage of revenue, materials and operating expenses
increased to 70.1% from 66.2% for the comparable period in 2011.
Increased pricing was more than offset by higher product and
employee costs. General and administrative costs were down $0.4
million as an increase in administrative salaries was more than
offset by decreased share based expenses.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Period-
Over-
June 30, % of June 30, % of Period
Six months ended, 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 425,313 315,956 35%
Expenses
Materials and operating 418,792 98.5% 220,639 69.8% 90%
General and
administrative 6,949 1.6% 6,246 2.0% 11%
---------- --------- ----------
Total expenses 425,741 100.1% 226,885 71.8% 88%
Operating income(i) (428) (0.1%) 89,071 28.2% (100%)
Number of jobs 3,595 2,125 69%
Revenue per job 118,724 148,663 (20%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
U.S. revenue for the first six months of 2012 increased 35%
relative to the first six months of 2011. Job count increased 69%
and is largely due to increased demand for our services combined
with the significant fracturing capacity additions and expansion of
the cementing and coiled tubing service lines. Revenue per job
declined by 20% largely as a result of the decrease in fracturing
pricing experienced during the first half of 2012. Increased
industry fracturing capacity combined with slowing growth in the
U.S. market has created a very competitive market which has
significantly reduced pricing particularly in the dry gas
regions.
Material and operating expenses as a percentage of revenue
increased to 98.5% from 69.8% relative to the first half of 2011.
This increase is largely attributed to the decline in pricing and
the significant increase in guar costs. The 11% increase in general
and administrative expenses is largely attributable to an increase
in travel expenses, but has not increased in proportion to the
growth in revenue.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Period-
Over-
June 30, % of June 30, % of Period
Six months ended, 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 135,729 146,191 (7%)
Expenses
Materials and operating 121,825 89.8% 125,653 86.0% (3%)
General and administrative 6,680 4.9% 7,202 4.9% (7%)
--------- --------- ----------
Total expenses 128,505 94.7% 132,855 90.9% (3%)
Operating income(i) 7,224 5.3% 13,336 9.1% (46%)
Number of jobs 1,999 2,333 (10%)
Revenue per job 63,415 60,446 5%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
International revenue was down 7% for the six months ended June
30, 2012, compared to the same period in 2011. The number of jobs
completed is down 14% due to a slower than expected start to our
Russian customers' 2012 work programs. Revenue per job was up 5% as
a 4% weakening of the Russian ruble relative to the Canadian dollar
was more than offset by pricing increases and a higher proportion
of fracturing revenue relative to total revenue.
Materials and operating expenses as a percentage of revenue
increased to 89.8% compared to 86.0% in 2011. Pricing increases
were more than offset by reduced operating leverage on our fixed
cost structure combined with increased product costs. General and
administrative decreased by $0.5 million due largely to lower share
based expenses.
CORPORATE
----------------------------------------------------------------------------
($ thousands, unaudited)
Period-
Over-
June 30, % of June 30, % of Period
Six months ended, 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Expenses
Materials and operating 11,304 1.0% 10,033 1.0% 13%
General and
administrative 19,740 1.7% 21,774 2.3% (9%)
---------- ---------- ----------
Total expenses 31,044 2.7% 31,807 3.3% (2%)
Operating loss(i) (31,044) (31,807) (2%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Corporate expenses decreased $0.8 million from the same period
last year due to a lower profit sharing costs and shared based
expenses. These decreases were partially offset by increased salary
expenses and a $1.0 million charitable donation to the Alberta
Children's Hospital.
OTHER EXPENSES AND INCOME
For the six months ended June 30, 2012, finance costs increased
by $7.0 million compared to the same period in 2011 largely due to
interest on the new private placement debt. Depreciation and
amortization increased by $15.3 million compared to the same period
last year, due primarily to capital additions relating to our
capital expansion program.
Foreign exchange losses of $2.2 million have been recorded for
the six months ended June 30, 2012 compared to gains of $0.2
million for the same period in 2011. This change is due to the net
impact of fluctuations in the U.S. dollar and Russian ruble
relative to the Canadian dollar. Year-to-date other income was $2.1
million versus $3.0 million for the same period in the prior year.
Other income is mainly comprised of interest income on a loan to an
unrelated third party and interest income earned on cash
balances.
INCOME TAXES
Trican recorded income tax expense of $6.5 million for the six
months ended June 30, 2012, versus $48.3 million for the comparable
period of 2011. The decrease in tax expense is primarily
attributable to lower earnings.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Funds used in operations was $49.1 million for the second
quarter of 2012 compared to funds provided by operations of $60.9
million for the same period in 2011. The decrease was due largely
to lower earnings.
At June 30, 2012, Trican had working capital of $408.4 million
compared to $621.2 million at the end of 2011. The decrease is due
to lower cash on hand, lower accounts receivable due to a decrease
in second quarter activity, and higher accounts payable as we
continue to execute our 2012 capital budget.
Investing Activities
Capital expenditures for the second quarter of 2012 totaled
$148.3 million compared with $161.0 million for the same period in
2011. Capital expenditures for the six months ended June 30, 2012
were $304.2 million compared to $261.2 million for the same period
in 2011. Capital expenditures for the remainder of 2012 are
expected to be approximately $200 to $250 million.
Financing Activities
As at July 30, 2012, Trican had 146,438,677 common shares and
6,327,083 employee stock options outstanding.
In the second quarter of 2012, Trican entered into an
uncommitted shelf agreement that could allow for the issuance of up
to US$100 million in senior unsecured notes. The terms of the
notes, including the maturity date and coupon, would be negotiated
with the counterparty if and when Trican chooses to issue notes
from the shelf agreement and if the counterparty is willing to
commit funds at that time. The purpose of this shelf agreement is
to facilitate timely execution of future long term debt.
The Company received approval from the Toronto Stock Exchange to
purchase its own common shares, for cancellation, in accordance
with a Normal Course Issuer Bid ("NCIB") for the one year period of
March 2, 2012 to March 2, 2013. During the three months ended June
30, 2012, 520,400 common shares were purchased at a cost of $6.5
million, of which $1.9 million was charged to Share Capital and
$4.6 million to retained earnings. During the six months ended June
30, 2012, 755,400 common shares were purchased at a cost of $10.0
million, of which $2.7 million was charged to Share Capital and
$7.3 million to retained earnings.
OUTLOOK
Canadian Operations
We expect Canadian activity levels to increase sequentially
during the third quarter as weather conditions improve during the
summer months. We expect increased activity levels to result in
strong utilization for our equipment during the third quarter and
contribute to solid operating margins. We also expect pricing to
decrease in the third quarter due to additional pressure pumping
supply in Canada combined with recent reductions in our customers'
capital budgets for 2012. We expect the price decrease to result in
lower third quarter 2012 margins compared to the pre-spring
break-up margins from the first quarter of 2012.
We expect to add four fracturing crews totaling 92,500
horsepower to our Canadian fleet during the second half of the
year, as well as additional cementing, nitrogen, and acidizing
equipment as we complete our 2012 capital program.
We have relationships with a broad range of customers in Canada
and we will continue to monitor their capital budgets and cash
flows in light of low gas prices and the recent weakness in oil
prices. We expect that any additional reductions in capital
spending by our customers will decrease Canadian rig count and
place further pricing pressure on the Canadian pressure pumping
market.
U.S. Operations
The 2012 second quarter financial results were well below
expectations. Continued pricing pressure combined with the spike in
guar costs resulted in an operating loss during the quarter. We
have seen the price of guar decline recently and expect this trend
and the introduction of a guar alternative fluid to improve our
operating margins during the second half of the third quarter and
all of the fourth quarter. We expect this decline in this key cost
input for our business should substantially improve our financial
results for the second half of 2012. That being said, we believe
the decline in fracturing pricing experienced during the first half
of 2012 has been rapid and significant and is not sustainable in
the long-term. We are currently in discussions with many of our
customers to address this decline; however, current market
conditions will make it difficult to meaningfully increase pricing
in the near term. If we cannot pass through cost increases, we will
examine shutting down crews until market conditions improve.
Management is currently reviewing its cost optimization
strategies and undertaking a number of cost cutting measures
directed at improving the financial performance wherever possible.
We believe that successful implementation of these cost
optimization strategies and cost cutting measures is necessary to
get the U.S. operations financial results back to a level of
acceptability. We expect a more meaningful improvement to margins
as a result of these cost cutting measures during the third
quarter; however, the full benefit is not expected until the fourth
quarter. U.S. operations has taken delivery of two additional
fracturing crews at the end of the second quarter. Management does
not expect to deploy these crews given current market conditions.
We are actively seeking customers for this equipment, but
deployment of the crews doesn't make economic sense given current
operating conditions and pricing.
Management understands that pressure pumping is a cyclical
business and is well equipped to handle the current weakness in the
U.S. market. We still believe in the long-term potential of the
market and our strategy of becoming a full-service pressure pumping
company in the United States. Management is confident that our U.S.
operations will continue to be able to execute on the strategy
through the downturn and will emerge from it as a stronger
company.
International Operations
First half results for our International operations were below
expectations due to a slower than expected start to our Russian
customers' 2012 work plans and a 4% weakening of the Russian ruble
relative to the Canadian dollar. We expect activity levels to
increase in the second half of the year as our customers work
towards meeting 2012 spending and production targets; however, our
outlook for our international region will be slightly lower than
our previous guidance.
Our operations in Algeria are improving and we are establishing
our work programs and our customer base in Australia. However, we
do not expect operations in these regions to have a meaningful
impact on our operating results for the remainder of 2012.
NON-IFRS DISCLOSURE
Adjusted profit, operating income and funds provided by
operations do not have any standardized meaning as prescribed by
IFRS and, therefore, are considered non-IFRS measures.
Adjusted profit and funds provided by operations have been
reconciled to profit and operating income has been reconciled to
gross profit, being the most directly comparable measures
calculated in accordance with IFRS. The reconciling items have been
presented net of tax.
----------------------------------------------------------------------------
(thousands;
unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March June 30, June 30,
2012 2011 31, 2012 2012 2011
----------------------------------------------------------------------------
Adjusted
profit/(loss) $ (48,612) $ 33,328 $ 92,300 $ 43,688 $ 118,789
Deduct:
Non-cash share-
based compensation
expense 2,248 3,252 2,918 5,166 6,287
----------------------------------------------------------------------------
Profit/(loss) (IFRS
financial measure) $ (50,860) $ 30,076 $ 89,382 $ 38,522 $ 112,502
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands;
unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March June 30, June 30,
2012 2011 31, 2012 2012 2011
----------------------------------------------------------------------------
Funds provided
by/(used in)
operations $ (49,057) $ 60,912 $ 136,102 $ 87,045 $ 202,611
Charges to
income not
involving cash
Depreciation
and
amortization 38,171 28,554 35,832 74,003 58,659
Stock-based
compensation 2,248 3,252 2,918 5,166 6,287
Loss on
disposal of
property and
equipment 282 3 53 335 28
Unrealized
foreign
exchange
(gain)/loss 3,460 (992) 193 3,653 (982)
Income tax
expense/
(recovery) (25,139) 15,437 31,636 6,497 48,292
Income tax paid (17,219) (15,418) (23,912) (41,131) (22,175)
----------------------------------------------------------------------------
Profit/(loss)
(IFRS financial
measure) $ (50,860) $ 30,076 $ 89,382 $ 38,522 $ 112,502
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands;
unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March June 30, June 30.
2012 2011 31, 2012 2012 2011
----------------------------------------------------------------------------
Operating
income/ (loss) $ (28,255) $ 78,277 $ 161,845 $ 133,591 $ 223,609
Add:
Administrative
expenses 20,582 25,552 27,833 48,415 51,302
Deduct:
Depreciation
expense (38,171) (28,554) (35,832) (74,003) (58,659)
----------------------------------------------------------------------------
Gross profit/
(loss) (IFRS
financial
measure) $ (45,844) $ 75,275 $ 153,846 $ 108,002 $ 216,252
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Stated in thousands; unaudited) June 30, 2012 December 31, 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $61,269 $125,855
Trade and other receivables 422,819 607,672
Current tax assets 1,520 1,553
Inventory 217,610 173,515
Prepaid expenses 40,333 31,996
----------------------------------------------------------------------------
743,551 940,591
Property and equipment 1,416,334 1,178,410
Intangible assets 12,106 14,662
Deferred tax assets 52,630 33,369
Other assets 11,090 6,445
Goodwill 43,749 43,706
----------------------------------------------------------------------------
$ 2,279,460 $ 2,217,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans (note 3) $ 11,549 $ -
Trade and other payables 306,192 287,689
Contingent consideration (note 2) 2,803 2,867
Current tax liabilities 14,560 3,363
Current portion of long-term debt
(note 3) - 25,425
----------------------------------------------------------------------------
335,104 319,344
Loans and borrowings (note 3) 459,465 400,256
Deferred tax liabilities 104,375 132,031
Shareholders' equity
Share capital (note 4) 527,678 529,062
Contributed surplus 50,830 45,894
Accumulated other comprehensive
income (20,959) (22,805)
Retained earnings 822,667 813,238
----------------------------------------------------------------------------
Total equity attributable to
equity holders of the Company 1,380,216 1,365,389
Non-controlling interest 300 163
----------------------------------------------------------------------------
$ 2,279,460 $ 2,217,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Stated in Three Three
thousands, except Months Months Six Months Six Months
per share amounts; Ended June Ended June Ended June Ended June
unaudited) 30, 2012 30, 2011 30, 2012 30, 2011
----------------------------------------------------------------------------
Revenue $ 417,975 $ 421,701 $ 1,134,331 $ 956,329
Cost of sales 463,819 346,426 1,026,329 740,077
----------------------------------------------------------------------------
Gross profit/(loss) (45,844) 75,275 108,002 216,252
Administrative
expenses 20,582 25,552 48,415 51,302
Other income (205) (600) (894) (1,720)
----------------------------------------------------------------------------
Results from
operating
activities (66,221) 50,323 60,481 166,670
Finance income (531) (687) (1,188) (1,323)
Finance costs 7,395 5,416 14,428 7,427
Foreign exchange
loss/(gain) 2,914 81 2,222 (228)
----------------------------------------------------------------------------
Profit/(loss) before
income tax (75,999) 45,513 45,019 160,794
Income tax
expense/(recovery)
(note 6) (25,139) 15,437 6,497 48,292
----------------------------------------------------------------------------
Profit/(loss) for
the period $ (50,860) $ 30,076 $ 38,522 $ 112,502
----------------------------------------------------------------------------
Profit / (loss)
attributable to:
Owners of the
Company (50,785) 30,076 38,675 112,502
Non-controlling
interest (75) - (153) -
----------------------------------------------------------------------------
Profit/(loss) for
the period $ (50,860) $ 30,076 $ 38,522 $ 112,502
----------------------------------------------------------------------------
Other comprehensive
income/(loss)
Unrealized
gain/(loss) on
hedging
instruments (261) 2,753 442 2,753
Foreign currency
translation
differences (3,196) (5,231) 1,404 (4,333)
----------------------------------------------------------------------------
Total comprehensive
income/(loss) for
the period $ (54,317) $ 27,598 $ 40,368 $ 110,922
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total comprehensive
income/(loss)
attributable to:
Owners of the
Company (54,242) 27,598 40,521 110,922
Non- Controlling
interest (75) - (153) -
----------------------------------------------------------------------------
Total comprehensive
income/(loss) for
the period $ (54,317) $ 27,598 $ 40,368 $ 110,922
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings/(loss) per
share (note 5)
----------------------------------------------------------------------------
Basic $ (0.35) $ 0.21 $ 0.26 $ 0.78
Diluted $ (0.35) $ 0.21 $ 0.26 $ 0.77
----------------------------------------------------------------------------
Weighted average
shares outstanding
- basic 146,653 145,385 146,800 145,067
Weighted average
shares outstanding
- diluted 146,653 147,223 146,943 146,889
----------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Three
(Stated in Months Months Six Months Six Months
thousands; Ended June Ended June Ended June Ended June
unaudited) 30, 2012 30, 2011 30, 2012 30, 2011
----------------------------------------------------------------------------
Cash Provided By/
(Used In):
Operations
Profit/(loss) for
the period $ (50,860) $ 30,076 $ 38,522 $ 112,502
Charges to income
not involving
cash:
Depreciation and
amortization 38,171 28,554 74,003 58,659
Amortization of
debt issuance
costs 201 - 403 -
Stock-based
compensation 2,248 3,252 5,166 6,287
Loss on disposal
of property and
equipment 282 3 335 28
Net finance costs 6,864 4,729 13,240 6,104
Unrealized foreign
exchange
gain/(loss) 3,460 (992) 3,653 (982)
Income tax
expense/
(recovery) (25,139) 15,437 6,497 48,292
----------------------------------------------------------------------------
(24,773) 81,059 141,819 230,890
Change in
inventories (21,016) (10,004) (46,373) (36,780)
Change in trade and
other receivables 216,375 110,553 178,923 (4,454)
Change in
prepayments (2,413) (4,308) (8,146) (5,504)
Change in trade and
other payables (49,639) (20,884) (6,844) (8,165)
----------------------------------------------------------------------------
Cash generated from
operating
activities 118,534 156,416 259,379 192,317
Interest paid (1,582) (1,547) (2,777) (2,084)
Income tax paid (17,219) (15,418) (41,131) (22,175)
----------------------------------------------------------------------------
99,733 135,451 215,471 168,058
Investing
Interest received 225 621 710 1,151
Purchase of
property and
equipment (148,268) (160,953) (304,155) (261,216)
Proceeds from the
sale of property
and equipment 588 116 679 487
Payments received
on loan to an
unrelated third
party - 1,308 226 2,711
----------------------------------------------------------------------------
(147,455) (173,457) (302,540) (253,332)
Financing
Net proceeds from
issuance of share
capital 369 11,747 1,108 15,241
Repurchase and
cancellation of
shares under NCIB (6,505) - (10,011) -
Issuance
(repayment) of
bank loans 52,773 (6,810) 64,549 -
Issuance of long-
term debt, net of
financing fees - 295,824 - 295,824
Repayment of long-
term debt (25,425) - (25,425) -
Dividend paid - - (7,345) (7,232)
----------------------------------------------------------------------------
21,212 300,761 22,876 303,833
Effect of exchange
rate changes on
cash (328) (1,326) (393) (977)
----------------------------------------------------------------------------
Increase /
(decrease) in cash
and cash
equivalents (26,838) 261,429 (64,586) 217,582
Cash and cash
equivalents,
beginning of period 88,107 37,211 125,855 81,058
----------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ 61,269 $ 298,640 $ 61,269 $ 298,640
----------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
Selected Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)
----------------------------------------------------------------------------
For the three and six months ended June 30, 2012 and 2011
NOTE 3 - LOANS AND BORROWINGS
Long term debt
As at (Stated in thousands) June 30, 2012 December 31, 2011
----------------------------------------------------------------------------
Notes payable $ 387,982 $ 412,646
Finance lease obligations 36,655 26,766
Revolving credit facility 53,959 -
Bank loans 11,549 -
Hedge receivable (6,807) (4,903)
----------------------------------------------------------------------------
Total 483,338 434,509
Current portion of finance lease
obligations (1) (12,324) (8,828)
Russian demand revolving credit
facility (11,549) -
Current portion of long-term
debt - (25,425)
----------------------------------------------------------------------------
Non-current $ 459,465 $ 400,256
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Current portion of finance lease obligations is included in trade and
other payables.
On October 18, 2011, Trican entered into a new $450 million four
year extendible revolving credit facility (the "New Facility") with
a syndicate of banks. The New Facility, which replaced the previous
$250 million three year extendible facility, is unsecured and bears
interest at the applicable Canadian prime rate, U.S. prime rate,
Banker's Acceptance rate or at LIBOR plus 50 to 325 basis points,
dependent on certain financial ratios of the Company. The New
Facility requires Trican to comply with certain financial and
non-financial covenants that are typical for this type of
arrangement. Trican was in compliance with these covenants at June
30, 2012.
Notes payable
The Notes payable require the Company to comply with certain
financial and non-financial covenants that are typical for this
type of arrangement. At June 30, 2012, the Company was in
compliance with these covenants (2011 - in compliance). During the
quarter ended June 30, 2012, Trican repaid $25.0 million U.S. in
notes payable.
NOTE 4 - SHARE CAPITAL
Share capital
Authorized:
The Company is authorized to issue an unlimited number of common
and preferred shares, issuable in series. The shares have no par
value.
Issued and Outstanding - Common Shares:
----------------------------------------------------------------------------
(stated in thousands, except share
amounts) Number of Shares Amount
----------------------------------------------------------------------------
Balance, January 1, 2012 146,916,859 $ 529,062
Exercise of stock options 220,918 1,108
Reclassification from contributed
surplus on exercise of options - 230
Shares repurchased and cancelled
under NCIB (755,400) (2,722)
----------------------------------------------------------------------------
146,382,377 527,678
Shares repurchased, not yet
cancelled under NCIB - -
----------------------------------------------------------------------------
Balance, June 30, 2012 146,382,377 $ 527,678
----------------------------------------------------------------------------
----------------------------------------------------------------------------
All issued shares are fully paid.
Normal Course Issuer Bid
The Company received approval from the Toronto Stock Exchange to
purchase its own common shares, for cancellation, in accordance
with a Normal Course Issuer Bid ("NCIB") for the one year period of
March 2, 2012 to March 2, 2013. During the six months ended June
30, 2012, 755,400 common shares were purchased at a cost of $10.0
million, of which $2.7 million was charged to Share Capital and
$7.3 million to retained earnings.
NOTE 5 - EARNINGS PER SHARE
(Stated in
thousands, except
share and per
share amounts) For the three months ended For the six months ended
Basic earnings per June 30, June 30, June 30, June 30,
share 2012 2011 2012 2011
----------------------------------------------------------------------------
Profit attributable
to owners of the
company $ (50,785) $ 30,076 $ 38,675 $ 112,502
Weighted average
number of common
shares 146,652,770 145,385,235 146,800,377 145,067,097
Basic earnings per
share $ (0.35) $ 0.21 $ 0.26 $ 0.78
----------------------------------------------------------------------------
Diluted earnings
per share 2012 2011 2012 2011
----------------------------------------------------------------------------
Profit attributable
to owners of the
company $ (50,785) $ 30,076 $ 38,675 $ 112,502
Weighted average
number of common
shares 146,652,770 145,385,235 146,800,377 145,067,097
Diluted effect of
stock options - 1,837,446 142,802 1,821,653
----------------------------------------------------------------------------
Diluted weighted
average number of
common shares 146,652,770 147,222,682 146,943,179 146,888,750
Diluted earnings
per share $ (0.35) $ 0.21 $ 0.26 $ 0.77
----------------------------------------------------------------------------
At June 30, 2012, 5.9 million (2011 - 6.1 million) options were
excluded from the diluted weighted average number of ordinary
shares calculation as their effect would have been
anti-dilutive.
NOTE 6 - INCOME TAXES
(Stated in thousands)
Six months ended June 30, 2012 2011
----------------------------------------------------------------------------
Current income tax expense $ 53,367 $ 15,702
Deferred income tax
(recovery)/expense (46,870) 32,590
----------------------------------------------------------------------------
$ 6,497 $ 48,292
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The net income tax provision differs from that expected by
applying the combined federal and provincial income tax rate of
25.17% (2011 - 26.64%) to income before income taxes for the
following reasons:
(Stated in thousands)
Six months ended June 30, 2012 2011
----------------------------------------------------------------------------
Expected combined federal and
provincial income tax $ 10,703 $ 42,788
Statutory and other rate differences (7,356) 4,131
Non-deductible expenses 3,842 3,354
Translation of foreign subsidiaries (624) (120)
Changes to deferred income tax rates - (2,161)
Capital and other foreign tax 49 313
Other (117) (13)
----------------------------------------------------------------------------
$ 6,497 $ 48,292
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NOTE 9 - OPERATING SEGMENTS
The Company operates in Canada and the U.S. along with a number
of international operations. The international regions include
Russia, Algeria, Kazakhstan, Australia and Saudi Arabia. Each
geographic region has a General Manager that is responsible for the
operation and strategy of their region's business. Personnel
working within the particular geographic region report to the
General Manager; the General Manager reports to the corporate
executive.
The Company provides a comprehensive array of specialized
products, equipment, services and technology to customers through
three operating divisions:
-- Canadian operations provides cementing, fracturing, coiled tubing,
nitrogen, geological, and acidizing services, which are performed on new
and existing oil and gas wells, and industrial services.
-- U.S. operations provides cementing, fracturing, coiled tubing, nitrogen,
and acidizing services which are performed on new and existing oil and
gas wells.
-- International operations provides cementing, fracturing, coiled tubing,
and nitrogen services which are performed on new and existing oil and
gas wells.
Information regarding the results of each geographic region is
included below. Performance is measured based on Revenue and Gross
profit as included in the internal management reports which are
reviewed by the Company's executive management team. Each region's
Gross profit is used to measure performance as management believes
that such information is most relevant in evaluating regional
results relative to other entities that operate within the
industry.
Canadian United States
(Stated in thousands) Operations Operations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30, 2012
----------------------------------------------------------------------------
Revenue $ 140,178 $ 206,777
Gross profit/(loss) (8,212) (36,845)
Finance income - -
Finance costs - -
Tax expense/ (recovery) (7,310) (17,832)
Depreciation and amortization 12,864 18,750
Assets 829,960 1,063,951
Goodwill 22,690 -
Property and equipment 778,357 539,309
Capital expenditures 72,706 63,068
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30, 2011
----------------------------------------------------------------------------
Revenue $ 167,805 $ 172,404
Gross profit/(loss) 27,263 42,133
Finance income - -
Finance costs - -
Tax expense 1,965 11,996
Depreciation and amortization 11,732 11,682
Assets 638,071 471,706
Goodwill 22,690 -
Property and equipment 510,333 298,917
Capital expenditures 42,043 113,560
----------------------------------------------------------------------------
International
(Stated in thousands) Operations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30, 2012
----------------------------------------------------------------------------
Revenue $ 71,020 $ - $ 417,975
Gross profit/(loss) 3,928 (4,715) (45,844)
Finance income - (531) (531)
Finance costs - 7,395 7,395
Tax expense/ (recovery) 849 (846) (25,139)
Depreciation and amortization 6,613 (56) 38,171
Assets 288,315 97,234 2,279,460
Goodwill 6,833 14,226 43,749
Property and equipment 84,250 14,418 1,416,334
Capital expenditures 12,494 - 148,268
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30, 2011
----------------------------------------------------------------------------
Revenue $ 81,492 $ - $ 421,701
Gross profit/(loss) 10,017 (4,138) 75,275
Finance income - (687) (687)
Finance costs - 5,416 5,416
Tax expense 1,219 257 15,437
Depreciation and amortization 5,105 35 28,554
Assets 258,965 502,559 1,871,301
Goodwill 14,226 - 36,916
Property and equipment 86,786 7,540 903,576
Capital expenditures 5,350 - 160,953
----------------------------------------------------------------------------
Canadian United States
(Stated in thousands) Operations Operations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30, 2012
----------------------------------------------------------------------------
Revenue $ 573,289 $ 425,313
Gross profit/(loss) 147,479 (29,607)
Finance income - -
Finance costs - -
Tax expense/ (recovery) 25,055 (18,145)
Depreciation and amortization 24,854 36,211
Capital expenditures 105,593 173,713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30, 2011
----------------------------------------------------------------------------
Revenue $ 494,182 $ 315,956
Gross profit/(loss) 146,439 70,967
Finance income - -
Finance costs - -
Tax expense 26,657 20,594
Depreciation and amortization 22,244 24,441
Capital expenditures 70,730 180,350
----------------------------------------------------------------------------
International
(Stated in thousands) Operations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30, 2012
----------------------------------------------------------------------------
Revenue $ 135,729 $ - $1,134,331
Gross profit/(loss) 1,209 (11,079) 108,002
Finance income - (1,188) (1,188)
Finance costs - 14,428 14,428
Tax expense/ (recovery) (582) 169 6,497
Depreciation and amortization 12,829 109 74,003
Capital expenditures 24,849 - 304,930
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30, 2011
----------------------------------------------------------------------------
Revenue $ 146,191 $ - $ 956,329
Gross profit/(loss) 9,050 (10,204) 216,252
Finance income - (1,323) (1,323)
Finance costs - 7,427 7,427
Tax expense 954 87 48,292
Depreciation and amortization 11,669 305 58,659
Capital expenditures 9,193 943 261,216
----------------------------------------------------------------------------
The Corporate division does not represent an operating segment
and is included for informational purposes only. Corporate division
expenses consist of salary expenses, stock-based compensation and
office costs related to corporate employees, as well as public
company costs.
FORWARD-LOOKING INFORMATION
The MD&A contains certain forward-looking statements and
other information based on Trican's current expectations,
estimates, projections and assumptions that were made by the
Company in light of information available at the time the statement
was made. Statements and other information that address
expectations or projections about the future, and other statements
and information about the Company's strategy for growth, expected
and future expenditures, costs, operating and financial results,
future financing and capital activities are forward-looking
statements. Some forward-looking statements are identified by the
use of terms and phrases such as "anticipate," "achieve",
"achievable," "believe," "estimate," "expect," "intend", "plan",
"planned", and other similar terms and phrases. These statements
speak only as of the date of this document and we do not undertake
to publicly update these forward-looking statements except in
accordance with applicable securities laws. These forward-looking
statements include, among others:
-- expectation that we will complete a large Horn River project in the
third quarter, which will positively impact third quarter results for
our Canadian operations;
-- belief that the trend towards more horizontal drilling and completions
activity in Russia will continue and result in increased pressure
pumping demand in Russia;
-- expectation that we will continue to establish our cementing service
line in Australia and financial results will improve as new work tenders
are obtained;
-- expectation that capital expenditures for the remainder of 2012 will be
approximately $200 to $250 million;
-- expectation that Canadian activity levels will increase sequentially
during the third quarter as weather conditions improve during the summer
months;
-- expectation that increased activity levels in Canada will result in
strong utilization for our Canadian equipment during the third quarter
and contribute to solid operating margins in Canada;
-- expectation that Canadian pricing will decrease in the third quarter due
to additional pressure pumping supply in Canada combined with recent
reductions in our customers' capital budgets for 2012;
-- expectation that the Canadian price decrease will result in lower third
quarter 2012 margins compared to the pre spring break-up margins from
the first quarter of 2012;
-- expectation to add four fracturing crews or 92,500 horsepower to our
Canadian fleet during the second half of the year, as well as additional
cementing, nitrogen, and acidizing equipment as we complete our 2012
capital program;
-- expectation that any additional reductions in capital spending by our
Canadian customers will decrease Canadian rig count and place further
pricing pressure on the Canadian pressure pumping market;
-- expectation that Russian activity levels will increase in the second
half of the year as our customers work towards meeting 2012 spending and
production targets;
-- expectation that financial results for our international region will be
slightly lower than our previous guidance;
-- expectation that 2012 revenue and operating margins for our
International operations will be consistent with 2011 results;
-- expectation that operations in Algeria and Australia will not have a
meaningful impact on our operating results for the remainder of 2012;
-- expectation that the most meaningful cost cutting decreases for our U.S.
operations will be in product costs, freight costs, unit expenses, wage
expenses and base expenses during the second half of 2012;
-- expectation that our fracturing spread in the North Dakota Bakken will
commence operations during the third quarter;
-- expectation that declining guar prices will improve our operating
margins and financial results during the second half of the third
quarter and all of the fourth quarter;
-- belief that the decline in fracturing pricing experienced in the U.S.
during the first half of 2012 has been rapid and significant and is not
sustainable in the long-term;
-- belief that current market conditions will make it difficult to
meaningfully increase U.S. pricing in the near term;
-- belief that successful implementation of our cost optimization
strategies and cost cutting measures is necessary to get the U.S.
Operations financial results back to a minimum level of acceptability;
-- expectation of a more meaningful improvement to margins as a result of
cost cutting measures during the third quarter but the full benefit is
not expected until the fourth quarter;
-- expectation that management will not deploy the two new U.S. fracturing
crews given current market conditions;
-- management's belief in the long-term potential of the U.S. pressure
pumping market; and
-- belief that our U.S. Operations will continue to be able to execute on
our strategy to become a full service pressure pumping company through
the downturn, and that Trican will emerge from it as a stronger company.
Forward-looking information and financial outlook is based on
current expectations, estimates, projections and assumptions, which
we believe are reasonable but which may prove to be incorrect.
Trican's actual results may differ materially from those expressed
or implied and therefore such forward-looking information and
financial outlook should not be unduly relied upon. In addition to
other factors and assumptions which may be identified in this
document, assumptions have been made regarding, among other things:
industry activity; the general stability of the economic and
political environment; effect of market conditions on demand for
the Company's products and services; the ability to obtain
qualified staff, equipment and services in a timely and cost
efficient manner; the ability to operate its business in a safe,
efficient and effective manner; the performance and characteristics
of various business segments; the effect of current plans; the
timing and costs of capital expenditures; future oil and natural
gas prices; currency, exchange and interest rates; the regulatory
framework regarding royalties, taxes and environmental matters in
the jurisdictions in which the Company operates; and the ability of
the Company to successfully market its products and services.
Forward-looking information and financial outlook is subject to
a number of risks and uncertainties, which could cause actual
results to differ materially from those anticipated. These risks
and uncertainties include: fluctuating prices for crude oil and
natural gas; changes in drilling activity; general global economic,
political and business conditions; weather conditions; regulatory
changes; the successful exploitation and integration of technology;
customer acceptance of technology; success in obtaining issued
patents; the potential development of competing technologies by
market competitors; and availability of products, qualified
personnel, manufacturing capacity and raw materials. The foregoing
important factors are not exhaustive. In addition, actual results
could differ materially from those anticipated in forward-looking
information and financial outlook provided herein as a result of
the risk factors set forth under the section entitled "Risks
Factors" in our Annual Information Form dated March 22, 2012.
Readers are also referred to the risk factors and assumptions
described in other documents filed by the Company from time to time
with securities regulatory authorities.
Additional information regarding Trican including Trican's most
recent annual information form is available under Trican's profile
on SEDAR (www.sedar.com).
Please visit our website at www.trican.ca.
Contacts: Trican Well Service Ltd. Dale Dusterhoft Chief
Executive Officer (403) 266 - 0202 (403) 237 - 7716
(FAX)ddusterhoft@trican.ca Trican Well Service Ltd. Michael Baldwin
Vice President, Finance & CFO (403) 266 - 0202 (403) 237 - 7716
(FAX)mbaldwin@trican.ca Trican Well Service Ltd. Gary Summach
Director of Reporting and Investor Relations (403) 266 - 0202 (403)
237 - 7716 (FAX)gsummach@trican.ca Trican Well Service Ltd. 2900,
645 - 7th Avenue S.W. Calgary, Alberta T2P 4G8 (403) 266 - 0202
(403) 237 - 7716 (FAX) www.trican.ca
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