Trican Well Service Ltd. (TSX:TCW)
The following corrects and replaces the release issued on
November 6, 2012. In the Liquidity and Capital Resources section
under Investing Activities, the original release stated "remaining
capital expenditures for all existing capital programs are expected
to be approximately $200 to $250 million." This statement has been
replaced with "remaining capital expenditures for all existing
capital programs are expected to be approximately $150 to $200
million."
Financial Review
---------------------------------------------
Three months ended Nine months ended
($ millions, except
per share amounts; Sept 30, Sept 30, June 30, Sept 30, Sept 30,
unaudited) 2012 2011 2012 2012 2011
----------------------------------------------------------------------------
Revenue $593.2 $659.1 $418.0 $1,727.5 $1,615.4
Operating
income/(loss) (i) 71.4 193.6 (28.3) 204.9 417.2
Profit/(loss) 22.6 111.3 (50.9) 61.2 223.8
Earnings/(loss) per
share (basic) $ 0.16 $ 0.76 $(0.35) $ 0.42 $ 1.54
(diluted) $ 0.16 $ 0.75 $(0.35) $ 0.42 $ 1.52
Adjusted profit/(loss)
(i) 24.7 114.4 (48.6) 68.4 233.1
Adjusted profit/(loss)
per share(i) (basic) $ 0.17 $ 0.78 $(0.33) $ 0.47 $ 1.60
(diluted) $ 0.17 $ 0.77 $(0.33) $ 0.47 $ 1.58
Funds provided
by/(used in)
operations(i) 49.3 174.3 (49.1) 136.7 376.9
----------------------------------------------------------------------------
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.
THIRD QUARTER HIGHLIGHTS
Consolidated revenue for the third quarter of 2012 was $593.2
million, a decrease of 10% compared to the third quarter of 2011.
Consolidated profit was $22.6 million and diluted profit per share
was $0.16 compared to $111.3 million and $0.75 per share for the
same period in 2011. Funds provided by operations were $49.3
million compared to $174.3 million in the third quarter of
2011.
Third quarter revenue was $321.9 million for our Canadian
operations, which was 13% lower than the third quarter of 2011.
Canadian operating margins remained strong at 31% and benefitted
from a large Horn River project that was completed early in the
quarter. Despite the strong margins, Canadian results were
negatively impacted by a decline in drilling and completions
activity as the number of active drilling rigs decreased by 28% and
well completions were down 31% on a year-over-year basis. Canadian
pricing decreased by 6% compared to the third quarter of 2011 due
to the drop in demand combined with a continued increase in
equipment supply.
U.S. operations third quarter revenue was $198.9 million down 4%
compared to the second quarter of 2012. U.S. operating margins
decreased to a loss of 11.7% as a percentage of revenue compared to
a loss of 10.7% in the second quarter of 2012. U.S. results were
significantly impacted by low utilization in July when pricing was
being renegotiated with many of our U.S. customers. Our U.S.
results improved in August and September due to the pricing
increases obtained and progress made on cost cutting initiatives.
U.S. pricing increased by 3% in the third quarter of 2012 compared
to the second quarter of 2012. Financial results for our U.S.
operations improved as the third quarter progressed due to
declining guar prices and the commencement of operations in the
Bakken where activity levels and demand for our equipment was
strong.
International revenue was $72.4 million during the third quarter
of 2012, which was a 10% year-over-year decrease and a 2%
sequential increase. Our operations in Russia comprise the majority
of our international results and revenue and operating income in
this region improved sequentially due to increased activity levels
from our customers. However, our Russian customers' work programs
remain behind schedule and overall revenue is expected to come in
below our initial expectations for this region. Russian results
were also negatively impacted by a weaker Russian ruble as the
average ruble to Canadian dollar exchange rate for the third
quarter of 2012 decreased by 8% compared to the third quarter of
2011.
Trican is pleased to announce its entry into Colombia through a
joint business arrangement with Independence Drilling S.A.
("Independence"). Independence is a privately held company
headquartered in Bogota, Colombia and has extensive experience in
the provision of drilling services in the region. We intend to
initially provide cementing services in the Colombian market
growing over time to become a full service pressure pumping company
in the region. We expect to commence operations in Colombia during
the first half of 2013.
Capital Budget and Financing Update
Given the weak operating conditions in the U.S. and reduced
activity levels in Canada, we have decreased our capital budget by
an additional $90 million. The reductions include support equipment
and infrastructure initiatives for our North American operations.
After these reductions, remaining capital expenditures for all
existing capital programs are expected to be approximately $150 to
$200 million. We expect to incur approximately $70 to $90 million
of these expenditures during the fourth quarter of 2012, with the
remainder carried forward into 2013. We have now reduced our
original capital budget by over $300 million and we will continue
to look at additional reducations on the remaining amount.
Subsequent to September 30, 2012, and subject to final approval
by the investor, Trican intends to issue $50 million in senior
unsecured notes on a private placement basis. The notes have a
seven-year final maturity, five-year average term and a coupon of
4.05%. The notes are unsecured and rank equally with Trican's bank
facilities and other outstanding senior notes. Trican intends to
use the net proceeds to fund a portion of its 2012 capital program
and for general corporate purposes.
Subsequent to September 30, 2012, Trican's syndicate of banks
has unanimously agreed to extend the Company's four year revolving
credit facility for an additional year. In addition, Trican has
received approval to add a new bank to its syndicate and intends to
increase its extendible revolving credit facility from $450 million
to $500 million.
COMPARATIVE QUARTERLY INCOME STATEMENTS
----------------------------------------------------------------------------
Quarter-
($ thousands; unaudited) Over-
Three months ended % of % of Quarter %
September 30, 2012 Revenue 2011 Revenue Change Change
----------------------------------------------------------------------------
Revenue 593,204 100.0% 659,104 100.0% (65,900) (10.0%)
Expenses
Materials and
operating 493,877 83.3% 441,054 66.9% 52,823 12.0%
General and
administrative 27,972 4.7% 24,430 3.7% 3,542 14.5%
----------------------------------------------------------------------------
Operating
income/(loss)(i) 71,355 12.0% 193,620 29.4% (122,265) (63.1%)
Finance costs 7,696 1.3% 6,057 0.9% 1,639 27.0%
Depreciation and
amortization 37,270 6.3% 31,474 4.8% 5,796 18.4%
Foreign exchange (2,393.
(gain)/loss 1,651 0.3% (72) -0.0% 1,723 1%)
Other (income)/loss 806 0.1% (1,537) -0.2% 2,343 (152.4%)
----------------------------------------------------------------------------
Profit/(loss) before
income taxes 23,932 4.0% 157,698 23.9% (133,766) (84.8%)
Income tax
expense/(recovery) 1,284 0.2% 46,434 7.0% (45,150) (97.2%)
----------------------------------------------------------------------------
Profit/(loss) before
non-controlling
interest 22,648 3.8% 111,264 16.9% (88,616) (79.6%)
Non-controlling interest (94) 0.0% - 0.0% (94) 0.0%
----------------------------------------------------------------------------
Profit/(loss) 22,742 3.8% 111,264 16.9% (88,522) (79.6%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
($ thousands, except
revenue per job,
unaudited) Sept, 30, % of Sept 30, % of June 30, % of
Three months ended, 2012 Revenue 2011 Revenue 2012 Revenue
----------------------------------------------------------------------------
Revenue 321,948 371,481 140,178
Expenses
Materials and
operating 215,022 66.8% 216,746 58.3% 136,127 97.1%
General and
administrative 7,095 2.2% 7,813 2.1% 5,222 3.7%
--------- -------- ---------
Total expenses 222,117 69.0% 224,559 60.4% 141,349 100.8%
Operating
income/(loss)(i) 99,831 31.0% 146,922 39.6% (1,171) (0.8%)
Number of jobs 6,368 6,960 3,334
Revenue per job 50,140 52,766 41,959
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, Sept 30, Sept 30, June 30,
(unaudited) 2012 2011 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 68% 67% 57%
Cementing 17% 17% 18%
Nitrogen 6% 8% 8%
Coiled Tubing 4% 4% 6%
Acidizing 3% 2% 5%
Other 2% 2% 6%
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Total 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations Review
Canadian oil and gas activity levels were significantly lower
during the third quarter of 2012 compared to the third quarter of
2011. The average number of active drilling rigs during the quarter
was 28% lower and the number of wells completed was 31% lower on a
year-over-year basis. Despite the reduced activity levels,
utilization of our equipment was strong in the early part of the
quarter due to the completion of a large Horn River project and a
backlog of completions work coming out of the second quarter.
However, utilization decreased near the end of the quarter as
drilling and completions activity slowed.
Third quarter Canadian pricing decreased by 6% compared to the
third quarter of 2011 as continued increases in Canadian pressure
pumping equipment supply and reduced demand placed downward
pressure on pricing. Trican did not deploy any additional
fracturing equipment in Canada during the third quarter of
2012.
Q3 2012 versus Q3 2011
Canadian revenue decreased by 13% compared to the third quarter
of 2011 due to a decrease in job count and revenue per job. The job
count decreased by 9% due to the decline in year-over-year drilling
and completions activity; however, lower activity was partially
offset by the large Horn River project that was completed during
the third quarter of 2012. Revenue per job decreased by 5% due
largely to the 6% price decrease, which was offset slightly by the
larger jobs performed in Horn River during the quarter.
Third quarter materials and operating expenses increased to
66.8% of revenue compared to 58.3% in the third quarter of 2011.
The 6% year-over-year reduction in our pricing combined with an
increase in product costs such as sand, acid and guar has
contributed to the lower margins. In addition, lower revenue
resulted in reduced operating leverage on our fixed cost structure.
General and administrative expenses decreased by $0.7 million
compared to the third quarter of 2011 due largely to lower share
based and profit sharing expenses.
Q3 2012 versus Q2 2012
Canadian revenue increased by 130% sequentially due to the
expected rise in industry activity as spring break-up conditions
subsided early in the third quarter. The 79% sequential increase in
Canadian rig count and the completion of a large Horn River project
contributed to the 91% increase in job count. Revenue per job
increased by 19% due largely to the higher proportion of fracturing
revenue relative to total revenue, offset partially by a 4%
sequential decrease in price.
Materials and operating expenses decreased as a percentage of
revenue to 66.8% compared to 97.1% in the second quarter of 2012,
due largely to increased operating leverage on our fixed cost
structure. General and administrative expenses increased by $1.9
million due mainly to higher share based and profit sharing
expenses.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except
revenue per job,
unaudited) Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2012 Revenue 2011 Revenue 2012 Revenue
----------------------------------------------------------------------------
Revenue 198,881 207,288 206,777
Expenses(i)
Materials and
operating 216,283 108.8% 150,279 72.5% 224,084 108.4%
General and
administrative 5,768 2.9% 2,474 1.2% 4,825 2.3%
--------- -------- ---------
Total expenses 222,051 111.7% 152,753 73.7% 228,909 110.7%
Operating
income/(loss)(ii) (23,170) (11.7%) 54,535 26.3% (22,132) (10.7%)
Number of jobs 1,861 1,445 1,915
Revenue per job 106,962 144,361 108,394
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Certain prior period expenses have been reclassified from materials and
operating to general and administrative to conform to the current period
classification
(ii) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, Sept 30, Sept 30, June 30,
(unaudited) 2012 2011 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 91% 98% 92%
Cementing 6% 1% 5%
Coiled Tubing 3% 1% 3%
----------------------------------------------------------------------------
Total 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations Review
Overall pricing for our U.S. operations increased by 3%
sequentially as pricing increases were negotiated for many of our
fracturing crews under contract. As pricing was being renegotiated
in July, U.S. equipment utilization was substantially lower, which
had a significant negative impact on U.S. operating margins in
July. Utilization levels recovered in August, and we saw a
meaningful improvement in the financial performance of our U.S.
operations during August and September.
Overall U.S. activity levels were down slightly as the rig count
decreased sequentially by 4% in the areas where we operate. The
U.S. rig count continued to decline in dry gas regions and was
relatively stable in the oil and liquids-rich gas regions. Our
Bakken fracturing crew began operations in August and utilization
was strong throughout the remainder of the quarter for this crew.
Increased activity in the Bakken was more than offset by lower
utilization early in the third quarter for our crews under contract
when pricing was being renegotiated.
Our U.S. operations currently have 670,000 of fracturing
horsepower; however, in addition to the two newly completed crews
from our 2012 capital program that have not been manned, we have
idled two operating crews during the third quarter of 2012.
Our realized guar price decreased sequentially by approximately
15% in the U.S. during the third quarter of 2012. Guar spot prices
decreased substantially more than 15% during the third quarter;
however, our third quarter guar usage was primarily driven from
higher priced guar purchased during the second quarter and early in
the third quarter. Guar usage levels were also down sequentially
during the third quarter due to the decrease in activity.
Our U.S. operations continued to focus on many cost cutting
measures and we began to see the benefit of these measures during
the third quarter of 2012. We continue to focus on optimizing our
cost structure and reducing costs wherever practical and expect to
see additional benefit from these measures in the fourth quarter of
2012 and into 2013.
We continue to see strong growth for our cementing service line
in the U.S., which operates in the Eagle Ford, Permian and
Haynesville plays. Cementing revenue represented 6% of total U.S.
revenue, and increased by 28% sequentially and 330% year-over-year.
We intend to expect the growth of our cementing business in the
U.S., as well as our coiled tubing service line, to continue as we
move towards becoming a full service pressure pumping company in
the U.S.
Q3 2012 versus Q3 2011
2012 third quarter revenue decreased by approximately 4%
compared to the third quarter of 2011 for our U.S. operations. The
job count increased by 29% while revenue per job decreased by 26%.
The job count increase is primarily a result of fracturing,
cementing and coiled tubing equipment additions, offset partially
by low utilization early in the quarter during price
renegotiations. 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 an increase in jobs 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 72.5%
as a percentage of revenue. Operating margins were negatively
impacted by the decrease in pricing, a significant increase in guar
costs, and low utilization in July. Increases in repairs and
maintenance and accommodation expenses also contributed to the
increase in materials and operating expenses.
General and administrative costs increased by $3.3 million due
largely to an increase wage, travel, and office expenses.
Q3 2012 versus Q2 2012
Third quarter revenue in 2012 decreased 4% relative to the
second quarter of 2012 for our U.S. operations. The job count
decreased by 3% largely as a result of low utilization in the early
part of the third quarter while pricing was being renegotiated.
These decreases were partially offset by a job count increase in
the cementing service line and the start-up of our Bakken
fracturing crew. Revenue per job decreased by 1% primarily as a
result of an increase in work from the cementing service line and
increased work performed in the Permian basin. These factors were
partially offset by a 3% increase in pricing.
Materials and operating expenses remained relatively consistent
at 108.8% of revenue compared to 108.4% in the second quarter of
2012. Operating margins benefitted from a 3% increase in pricing, a
15% decrease in the realized price of guar, and cost cutting
measures, which led to reductions in freight and unit costs. These
factors were offset by low utilization in July during price
renegotiations.
General and administrative expenses increased by approximately
$0.9 million due to increases in insurance and office expenses.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except
revenue per job,
unaudited) Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2012 Revenue 2011 Revenue 2012 Revenue
----------------------------------------------------------------------------
Revenue 72,375 80,335 71,020
Expenses
Materials and
operating 59,202 81.8% 68,481 85.2% 60,523 85.2%
General and
administrative 3,590 5.0% 3,770 4.7% 2,985 4.2%
--------- -------- ---------
Total expenses 62,792 86.8% 72,251 89.9% 63,508 89.4%
Operating income(i) 9,583 13.2% 8,084 10.1% 7,512 10.6%
Number of jobs 1,057 1,388 1,057
Revenue per job 64,873 54,686 62,506
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, Sept 30, Sept 30, June 30,
(unaudited) 2012 2011 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 80% 76% 76%
Coiled Tubing 10% 11% 13%
Cementing 6% 8% 8%
Nitrogen 2% 5% 2%
Other 2% 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 comprise the majority of our international
results, and revenue and operating income in this region improved
sequentially due to increased activity levels from our customers.
However, our Russian customers' work programs remain behind
schedule and overall revenue is expected to be below our initial
expectations for this region.
Horizontal drilling and completions activity has increased in
Russia during 2012. Approximately 10% of our Russian fracturing
revenue was from horizontal wells during the third quarter compared
to 3% in the third quarter of 2011. We believe this trend will
continue and result in increased pressure pumping demand in
Russia.
Customer delays in Kazakhstan led to lower sequential revenue in
the region, although we continue to produce solid operating margins
in this region. We continue to see improved results for our
Algerian operations as year-over-year margins improved
substantially. We are also continuing to grow and establish our
cementing business in Australia and had an 80% sequential increase
in revenue for our cementing and environmental service lines in
Australia during the third quarter of 2012.
Q3 2012 versus Q3 2011
International revenue decreased by 10% compared to the third
quarter of 2011. Job count decreased by 24% as our customers' work
programs in Russia are behind schedule relative to 2011. Activity
for our cementing and coiled tubing service lines in Russia was
particularly slow and contributed to the majority of the job count
decrease. This was partially offset by increased activity in
Australia. Revenue per job increased by 19% due largely to Russian
pricing increases and the rise in fracturing revenue relative to
total revenue as fracturing jobs generally have significantly
higher revenue per job than other service lines. These factors were
partially offset by an 8% year-over-year decline in the value of
the Russian ruble relative to the Canadian dollar.
Materials and operating expenses as a percentage of revenue
decreased to 81.8% compared to 85.2% in the third quarter of 2011.
Increased fracturing activity as a percentage of total activity
contributed to the improved margins as fracturing work is typically
performed at higher margins. A reduction in repairs and maintenance
also factored into the margin improvement. General and
administrative costs were relatively consistent on a year-over-year
basis.
Q3 2012 versus Q2 2012
Revenue for our International operations increased by 2% on a
sequential basis. The number of jobs completed in the third quarter
was consistent with the second quarter of 2012 as increases in
Russia and Australia were offset by sequential decreases in
Kazakhstan and Algeria. Kazakhstan revenue was lower due to reduced
customer activity levels that are expected to be made up in the
fourth quarter. Algeria revenue was lower due to overall reduced
activity levels in the region due to Ramadan. Revenue per job
increased sequentially by 4% due to a higher proportion of
fracturing revenue relative to total revenue, which was offset
partially by lower revenue per job in Russia caused by a 5%
weakening of the ruble relative to the Canadian dollar.
Materials and operating expenses as a percentage of revenue
decreased to 81.8% from 85.2% on a sequential basis. Increased
fracturing activity as a percentage of total activity contributed
to the improved margins as fracturing work is generally performed
at higher margins. Improved operational leverage on our fixed cost
structure also contributed to the higher third quarter margins.
General and administrative expenses increased by $0.6 million due
largely to higher share based expenses.
CORPORATE
----------------------------------------------------------------------------
($ thousands, Sept
unaudited) Sept 30, % of 30, % of June 30, % of
Three months ended, 2012 Revenue 2011 Revenue 2012 Revenue
----------------------------------------------------------------------------
Expenses
Materials and
operating 5,907 1.0% 5,548 0.8% 4,895 1.2%
General and
administrative 8,981 1.5% 10,373 1.6% 7,569 1.8%
--------- -------- ---------
Total expenses 14,888 2.5% 15,921 2.4% 12,464 3.0%
Operating loss(i) (14,888) (15,921) (12,464)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Q3 2012 versus Q3 2011
Corporate expenses decreased by $1.0 million from the same
quarter last year due primarily to lower profit sharing expenses.
These factors were partially offset by increased share unit and
salary expenses.
Q3 2012 versus Q2 2012
Corporate expenses increased by $2.4 million on a sequential
basis due largely to higher profit sharing and share unit
expenses.
OTHER EXPENSES AND INCOME
Finance costs for the third quarter of 2012 increased by $1.6
million on a year-over-year basis mainly due to interest on the
existing private placement debt and revolving credit facility.
Depreciation and amortization increased by $5.8 million in the
third 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 $1.7 million in the quarter versus
a gain 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 loss was $0.8 million in the
quarter versus income of $1.5 million for the same period in the
prior year. The third quarter other loss was a result of losses on
disposal of equipment, which was offset partially by interest
income on a loan to an unrelated third party and interest income
earned on cash balances.
INCOME TAXES
Trican recorded an income tax expense of $1.3 million in the
quarter versus $46.4 million for the comparable period of 2011. The
decrease in tax expense is largely attributable to lower taxable
income.
COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS
----------------------------------------------------------------------------
($ thousands; Year -
unaudited) Over-
Nine months ended % of % of Year - %
Sept 30, 2012 Revenue 2011 Revenue Change Change
----------------------------------------------------------------------------
Revenue 1,727,535 100% 1,615,433 100.0% 112,102 6.9%
Expenses
Materials and
operating 1,447,890 83.8% 1,124,777 69.6% 323,113 28.7%
General and
administrative 74,700 4.3% 73,427 4.5% 1,273 1.7%
----------------------------------------------------------------------------
Operating income(i) 204,945 11.9% 417,229 25.8% (212,284) (50.9%)
Finance costs 22,123 1.3% 13,484 0.8% 8,639 64.1%
Depreciation and
amortization 111,273 6.4% 90,133 5.6% 21,140 23.5%
Foreign exchange
(gain)/loss 3,876 0.2% (300) 0.0% 4,176 1,392.0%
Other income (1,277) -0.1% (4,580) -0.3% 3,303 (72.1%)
----------------------------------------------------------------------------
Profit before
income taxes 68,950 4.0% 318,492 19.7% (249,542) (78.4%)
Provision for
income taxes 7,781 0.5% 94,726 5.9% (86,945) (91.8%)
----------------------------------------------------------------------------
Profit before non-
controlling
interest 61,169 3.5% 223,766 13.9% (162,597) (72.7%)
Non-controlling
interest (246) 0.0% (20) 0.0% (226) 11.3%
----------------------------------------------------------------------------
Profit 61,415 3.6% 223,786 13.9% (162,371) (72.6%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
Year-
($ thousands, except revenue per Over-
job, unaudited) Sept 30, % of Sept 30, % of Year
Nine months ended, 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 895,237 865,663 3%
Expenses
Materials and operating 617,114 68.9% 544,144 62.9% 13%
General and administrative 20,453 2.3% 21,588 2.5% (5%)
--------- -------- --------
Total expenses 637,567 71.2% 565,732 65.4% 13%
Operating income(i) 257,670 28.8% 299,931 34.6% (14%)
Number of jobs 16,855 18,151 (7%)
Revenue per job 52,781 46,772 13%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Revenue for the nine months ending September 30, 2012, for our
Canadian operations was 3% higher compared to the same period in
2011. Revenue per job increased by 13% due to larger job sizes
combined with a 4% 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 largely to a 10% decrease in year to date
average Canadian rig count.
As a percentage of revenue, materials and operating expenses
increased to 68.9% from 62.9% for the comparable period in 2011.
Increased pricing was more than offset by higher product and
employee costs. General and administrative costs were down $1.1
million due mainly to lower share based and profit sharing
expenses.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
Year-
($ thousands, except revenue per Over-
job, unaudited) Sept 30, % of Sept 30, % of Year
Nine months ended, 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 624,194 523,244 19%
Expenses
Materials and operating 632,537 101.3% 370,918 70.9% 71%
General and administrative 15,255 2.4% 8,720 1.7% 75%
--------- -------- --------
Total expenses 647,792 103.8% 379,638 72.6% 71%
Operating income(i) (23,598) (3.8%) 143,606 27.4% (116%)
Number of jobs 5,456 3,570 53%
Revenue per job 114,712 147,005 (22%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
U.S. revenue for the nine months ended September 30, 2012
increased 19% relative to the same period in 2011. Job count
increased 53% largely due to the significant fracturing capacity
additions and expansion of the cementing and coiled tubing service
lines. Revenue per job declined by 22% largely as a result of the
decrease in fracturing pricing experienced during the first nine
months of 2012 as well as an 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 as a percentage of revenue
increased to 101.3% from 70.9% relative to the same period in 2011.
This increase is largely attributed to the decline in pricing and
the significant increase in guar costs. The $6.5 million increase
in general and administrative expenses is largely attributable to
an increase in travel, office and employee expenses.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
Year-
($ thousands, except revenue per Over-
job, unaudited) Sept 30, % of Sept 30, % of Year
Nine months ended, 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 208,104 226,526 (8%)
Expenses
Materials and operating 181,027 87.0% 194,134 85.7% (7%)
General and administrative 10,270 4.9% 10,972 4.8% (6%)
--------- -------- --------
Total expenses 191,297 91.9% 205,106 90.5% (7%)
Operating income(i) 16,807 8.1% 21,420 9.5% (22%)
Number of jobs 3,056 3,721 (18%)
Revenue per job 63,919 58,292 10%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
International revenue was down 8% for the nine months ended
September 30, 2012, compared to the same period in 2011. The number
of jobs completed is down 18% due to a reduction in our Russian
customers' 2012 activity levels, in particular for the coiled
tubing and cementing service lines. Revenue per job is up 10% as a
5% 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 87.0% compared to 85.7% 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 expenses decreased by $0.7 million due largely to
lower share based expenses.
CORPORATE
----------------------------------------------------------------------------
Year-
Over-
($ thousands, unaudited) Sept 30, % of Sept 30, % of Year
Nine months ended, 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Expenses
Materials and operating 17,211 1.0% 15,581 1.0% 10%
General and administrative 28,721 1.7% 32,147 2.0% (11%)
--------- ---------- ---------
Total expenses 45,932 2.7% 47,728 3.0% (4%)
Operating loss(i) (45,932) (47,728) (4%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Corporate expenses decreased $1.8 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 nine months ended September 30, 2012, finance costs
increased by $8.6 million compared to the same period in 2011
largely due to interest on the existing private placement debt and
revolving credit facility. Depreciation and amortization increased
by $21.1 million compared to the same period last year, due
primarily to capital additions relating to our capital expansion
program.
Foreign exchange losses of $3.9 million have been recorded for
the nine months ended September 30, 2012 compared to gains of $0.3
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 $1.3
million versus $4.6 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,
offset partially by losses on disposal of equipment.
INCOME TAXES
Trican recorded income tax expense of $7.8 million for the nine
months ended September 30, 2012, versus $94.7 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 provided by operations was $49.3 million for the third
quarter of 2012 compared to $174.3 million for the same period in
2011. The decrease was due largely to lower earnings.
At September 30, 2012, Trican had working capital of $519.7
million compared to $621.2 million at the end of 2011. The decrease
is due to lower cash on hand as we continue to execute our 2012
capital budget.
Investing Activities
Given the weak operating conditions in the U.S. and reduced
activity levels in Canada, we have decreased our capital budget by
an additional $90 million. The reductions include support equipment
and infrastructure initiatives for our North American operations.
After these reductions, remaining capital expenditures for all
existing capital programs are expected to be approximately $150 to
$200 million. We expect to incur approximately $70 to $90 million
of these expenditures during the fourth quarter of 2012, with the
remainder carried forward into 2013.
Capital expenditures for the third quarter of 2012 totaled $81.7
million compared with $158.0 million for the same period in 2011.
Capital expenditures for the nine months ended September 30, 2012,
were $386.0 million compared to $415.6 million for the same period
in 2011.
Financing Activities
As at November 6, 2012, Trican had 146,450,177 common shares and
6,494,453 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 U.S.$100 million in senior unsecured notes. Subsequent to the
third quarter of 2012, and subject to final approval by the
investor, Trican intends to issue $50 million in senior unsecured
notes from this shelf agreement. The notes have a seven-year final
maturity, five-year average term, and a coupon of 4.05%. The notes
are unsecured and rank equally with Trican's bank facilities and
other outstanding senior notes. Trican intends to use the net
proceeds to fund a portion of its 2012 capital budget and for
general corporate purposes.
Subsequent to September 30, 2012, Trican's syndicate of banks
has unanimously agreed to extend the Company's four year revolving
credit facility for an additional year. In addition, Trican has
received approval to add a new bank to its syndicate and intends to
increase its extendible revolving credit facility from $450 million
to $500 million.
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
September 30, 2012, no common shares were purchased under the NCIB.
During the nine months ended September 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 2012 fourth quarter revenue to decrease
relative to the third quarter of 2012. Early fourth quarter
drilling and completions activity is expected to remain consistent
with activity levels seen in the third quarter; however, activity
levels are expected to decrease near the end of the quarter as we
move into the holiday season and our customers complete their 2012
budgets. We also expect pricing to decrease sequentially in the
fourth quarter due to additional pressure pumping supply in Canada
combined with the expectation of reduced activity levels near the
end of the quarter. We expect these factors to result in a
reduction in fourth quarter 2012 operating margins in Canada.
We expect 2013 first quarter activity levels to be strong in
Canada based on current commodity prices and an expectation that
2013 producer budgets will be consistent with 2012. We will
continue to monitor the capital budgets and cash flows of our
customers, keeping in mind that any year-over-year additions or
reductions in capital spending by our customers will increase or
decrease Canadian rig count.
U.S. Operations
Financial results for our U.S. Operations have gradually
improved since July as a result of a reduction in guar expenses,
the partial impact of cost cutting initiatives and a modest
improvement in equipment utilization and pricing. We believe these
trends will be maintained as we expect guar price reductions to
continue and expect to make further progress on our cost cutting
initiatives. We have experienced some cost relief relating to
product, freight, unit, wage and base expenses and expect more
meaningful cost reductions in these areas in the fourth quarter of
2012 and into 2013. However, the U.S. pressure pumping market
remains oversupplied and very competitive, and we expect any
improvements in operating margins will be gradual and dependent on
a relatively stable pricing environment.
Despite the recent weakness in the U.S. market, we remain
confident in our ability to manage our business through the current
downturn. We will continue to focus on cost cutting initiatives and
improving our operational efficiency in the U.S., and believe that
these efforts are necessary to get our U.S. financial results back
to an acceptable level. We still believe in the long-term potential
of the U.S. pressure pumping market, and remain confident that with
our people, management team, technology and operational excellence,
we will emerge from the downturn as a stronger company.
International Operations
Year-to-date 2012 results for our International operations have
been below expectations due to slower than expected activity levels
from our Russian customers and a 5% weakening of the Russian ruble
relative to the Canadian dollar. We expect strong activity levels
in Russia in the early part of the fourth quarter as our customers
work towards meeting 2012 spending and production targets; however,
consistent with previous years, we expect activity levels to
decrease near the end of the fourth quarter as we move into the
holiday season and face challenging weather conditions in western
Siberia.
Contracts for 2013 work in Russia are currently being tendered
and we expect to have greater visibility on our 2013 outlook in
Russia by the end of the year.
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 Nine months ended
----------------------------------------------------------------------------
Sept 30, Sept 30, June 30, Sept 30, Sept 30,
2012 2011 2012 2012 2011
----------------------------------------------------------------------------
Adjusted profit/(loss) $ 24,716 $ 114,352 $ (48,612) $ 68,403 $ 233,141
Deduct:
Non-cash share-based
compensation expense 2,068 3,088 2,248 7,234 9,375
----------------------------------------------------------------------------
Profit/(loss) (IFRS
financial measure) $ 22,648 $ 111,264 $ (50,860) $ 61,169 $ 223,766
----------------------------------------------------------------------------
----------------------------------------------------------------------------
------------------------------------------------------------------------
(thousands; unaudited) Three months ended Nine months ended
------------------------------------------------------------------------
Sept 30, Sept 30, June 30, Sept 30, Sept 30,
2012 2011 2012 2012 2011
------------------------------------------------------------------------
Funds provided
by/(used in)
operations $ 49,682 $ 174,284 $ (49,057)$ 136,726 $ 376,895
Charges to income not
involving cash
Depreciation and
amortization 37,270 31,474 38,171 111,273 90,133
Stock-based
compensation 2,068 3,088 2,248 7,234 9,375
Loss/(gain) on
disposal of property
and equipment 1,736 (1,075) 282 2,071 (1,047)
Unrealized foreign
exchange (gain)/loss 1,160 98 3,460 4,813 (884)
Income tax
expense/(recovery) 1,284 46,434 (25,139) 7,781 94,726
Income tax paid (16,484) (16,999) (17,219) (57,615) (39,174)
------------------------------------------------------------------------
Profit/(loss) (IFRS
financial measure) $ 22,648 $ 111,264 $ 50,860 $ 61,169 $ 223,766
------------------------------------------------------------------------
------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Nine months ended
----------------------------------------------------------------------------
Sept 30, Sept 30, June 30, Sept 30, Sept 30.
2012 2011 2012 2012 2011
----------------------------------------------------------------------------
Operating
income/(loss) $ 71,355 $ 193,620 $ (28,255) $ 204,945 $ 417,229
Add:
Administrative
expenses 28,408 25,814 20,582 79,361 77,116
Deduct:
Depreciation expense (37,270) (31,474) (38,171) (111,273) (90,133)
----------------------------------------------------------------------------
Gross profit
/(loss)(IFRS
financial measure) $ 62,493 $ 187,960 $ (45,844) $ 173,033 $ 404,212
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
September 30, December 31,
(Stated in thousands; unaudited) 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 55,333 $ 125,855
Trade and other receivables 526,390 607,672
Current tax assets 330 1,553
Inventory 215,385 173,515
Prepaid expenses 42,989 31,996
----------------------------------------------------------------------------
840,427 940,591
Property and equipment 1,433,856 1,178,410
Intangible assets 10,938 14,662
Deferred tax assets 67,571 33,369
Other assets 11,120 6,445
Goodwill 43,611 43,706
----------------------------------------------------------------------------
$2,407,523 $2,217,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans (note 3) $ 11,310 $ -
Trade and other payables 278,729 287,689
Contingent consideration (note 2) 2,827 2,867
Current tax liabilities 27,886 3,363
Current portion of long-term debt (note 3) - 25,425
----------------------------------------------------------------------------
320,752 319,344
Loans and borrowings (note 3) 602,751 400,256
Deferred tax liabilities 91,853 132,031
Shareholders' equity
Share capital (note 4) 527,860 529,062
Contributed surplus 52,897 45,894
Accumulated other comprehensive income (34,204) (22,805)
Retained earnings 845,407 813,238
----------------------------------------------------------------------------
Total equity attributable to equity holders of
the Company 1,391,960 1,365,389
Non-controlling interest 207 163
----------------------------------------------------------------------------
$2,407,523 $2,217,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated
financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Three
Months Months Nine Months Nine Months
Ended Ended Ended Sept Ended Sept
(Stated in thousands, except Sept 30, Sept 30, 30, 30,
per share amounts; unaudited) 2012 2011 2012 2011
----------------------------------------------------------------------------
Revenue $593,204 $659,104 $1,727,535 $1,615,433
Cost of sales 530,711 471,144 1,554,502 1,211,221
----------------------------------------------------------------------------
Gross profit 62,493 187,960 173,033 404,212
Administrative expenses 28,408 25,814 79,361 77,116
Other loss/(income) 1,280 (536) 385 (2,256)
----------------------------------------------------------------------------
Results from operating
activities 32,805 162,682 93,287 329,352
Finance income (474) (1,001) (1,662) (2,324)
Finance costs 7,696 6,057 22,123 13,484
Foreign exchange loss/(gain) 1,651 (72) 3,876 (300)
----------------------------------------------------------------------------
Profit before income tax 23,932 157,698 68,950 318,492
Income tax expense (note 6) 1,284 46,434 7,781 94,726
----------------------------------------------------------------------------
Profit for the period 22,648 111,264 61,169 223,766
----------------------------------------------------------------------------
Profit attributable to:
Owners of the Company 22,742 111,284 61,415 223,786
Non-controlling interest (94) (20) (246) (20)
----------------------------------------------------------------------------
Profit for the period $ 22,648 $111,264 $ 61,169 $ 223,766
----------------------------------------------------------------------------
Other comprehensive income
Unrealized gain/(loss) on
hedging instruments 663 (522) 1,105 (1,069)
Foreign currency translation
differences (13,908) 13,000 (12,504) 8,667
----------------------------------------------------------------------------
Total comprehensive income for
the period $ 9,403 $123,742 $ 49,770 $ 231,364
----------------------------------------------------------------------------
Total comprehensive income
attributable to:
Owners of the Company 9,497 123,778 50,016 231,400
Non- Controlling interest (94) (36) (246) (36)
----------------------------------------------------------------------------
Total comprehensive income for
the period $ 9,403 $123,742 $ 49,770 $ 231,364
----------------------------------------------------------------------------
Earnings per share (note 5)
----------------------------------------------------------------------------
Basic $ 0.16 $ 0.76 $ 0.42 $ 1.54
Diluted $ 0.16 $ 0.75 $ 0.42 $ 1.52
----------------------------------------------------------------------------
Weighted average shares
outstanding - basic 146,432 146,299 146,677 145,482
Weighted average shares
outstanding - diluted 146,446 147,866 146,773 147,261
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
(Stated in thousands; unaudited) 2012 2011 2012 2011
----------------------------------------------------------------------------
Cash Provided By/ (Used In):
Operations
Profit for the period $ 22,648 $ 111,264 $ 61,169 $ 223,766
Charges to income not involving
cash:
Depreciation and amortization 37,270 31,474 111,273 90,133
Amortization of debt issuance
costs 202 173 605 173
Stock-based compensation 2,068 3,088 7,234 9,375
Loss/(gain)on disposal of
property and equipment 1,736 (1,075) 2,071 (1,047)
Net Finance Costs 7,223 5,056 20,461 11,160
Unrealized foreign exchange
(gain)/loss 1,160 98 4,813 (884)
Income tax expense 1,284 46,434 7,781 94,726
----------------------------------------------------------------------------
73,591 196,512 215,407 427,402
Change in inventories 198 (14,050) (46,175) (50,830)
Change in trade and other
receivables (107,637) (223,218) 71,288 (226,349)
Change in prepayments (3,761) (14,592) (11,907) (20,096)
Change in trade and other payables 9,856 66,625 3,013 73,467
----------------------------------------------------------------------------
Cash generated from operating
activities (27,753) 11,277 231,626 203,594
Interest paid (13,128) (2,575) (15,905) (4,659)
Income tax paid (16,484) (16,999) (57,615) (39,174)
----------------------------------------------------------------------------
(57,365) (8,297) 158,106 159,761
Investing
Interest received 203 311 913 1,462
Purchase of property and equipment (81,707) (157,964) (385,862) (415,645)
Proceeds from the sale of property
and equipment 798 1,941 1,477 2,428
Payments received on loan to an
unrelated third party - 1,714 226 4,425
Business acquisitions - (9,372) - (9,372)
----------------------------------------------------------------------------
(80,706) (163,370) (383,246) (416,702)
Financing
Net proceeds from issuance of
share capital 181 16,882 1,289 32,123
Repurchase and cancellation of
shares under NCIB - - (10,011) -
Funds received from bank loans - - 11,310 -
Funds drawn on revolving credit
facility 154,261 207,500
Issuance of long-term debt, net of
financing fees - - - 295,824
Repayment of long-term debt - - (25,425) -
Dividend paid (21,957) (7,284) (29,302) (14,516)
----------------------------------------------------------------------------
132,485 9,598 155,361 313,431
Effect of exchange rate changes on
cash (350) 2,392 (743) 1,415
----------------------------------------------------------------------------
(Decrease)/increase in cash and cash
equivalents (5,936) (159,677) (70,522) 57,905
Cash and cash equivalents, beginning
of period 61,269 298,640 125,855 81,058
----------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 55,333 $ 138,963 $ 55,333 $ 138,963
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Selected Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)
For the three and nine months ended September 30, 2012 and 2011
NOTE 3 - LOANS AND BORROWINGS
Long term debt
September
As at 30, December 31,
(Stated in thousands) 2012 2011
----------------------------------------------------------------------------
Notes payable $ 376,841 $ 412,646
Finance lease obligations 37,505 26,766
Revolving credit facility 205,274 -
Bank loans 11,310 -
Hedge receivable (4,154) (4,903)
----------------------------------------------------------------------------
Total 626,776 434,509
Current portion of finance lease obligations (1) (12,715) (8,828)
Russian demand revolving credit facility (11,310) -
Current portion of long-term debt - (25,425)
----------------------------------------------------------------------------
Non-current $ 602,751 $ 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. On October 18, 2012, Trican extended the New
Facility by an additional year. 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 September 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 September 30, 2012, the Company was in
compliance with these covenants (2011 - in compliance). During the
quarter ended June 30, 2012, Trican repaid U.S. $25.0 million 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:
----------------------------------------------------------------------------
Number of
(stated in thousands, except share amounts) Shares Amount
----------------------------------------------------------------------------
Balance, January 1, 2012 146,916,859 $ 529,062
Exercise of stock options 288,718 1,289
Reclassification from contributed surplus on exercise
of options - 231
Shares repurchased and cancelled under NCIB (755,400) (2,722)
----------------------------------------------------------------------------
Balance, September 30, 2012 146,450,177 $ 527,860
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 nine months ended
September 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 For the three months ended For the nine months ended
share amounts) September 30, September 30,
Basic earnings per share 2012 2011 2012 2011
----------------------------------------------------------------------------
Profit attributable to
owners of the company $ 22,742 $ 111,284 $ 61,415 $ 223,786
Weighted average number
of common shares 146,431,602 146,299,022 146,676,555 145,482,252
Basic earnings per share $ 0.16 $ 0.76 $ 0.42 $ 1.54
----------------------------------------------------------------------------
Diluted earnings per
share 2012 2011 2012 2011
----------------------------------------------------------------------------
Profit attributable to
owners of the company $ 22,742 $ 111,284 $ 61,415 $ 223,786
Weighted average number
of common shares 146,431,602 146,299,022 146,676,555 145,482,252
Diluted effect of stock
options 14,444 1,566,739 96,275 1,779,133
----------------------------------------------------------------------------
Diluted weighted average
number of common shares 146,446,046 147,865,761 146,772,830 147,261,385
Diluted earnings per
share $ 0.16 $ 0.75 $ 0.42 $ 1.52
----------------------------------------------------------------------------
At September 30, 2012, 5.8 million (2011 - 5.3 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)
Nine months ended September 30, 2012 2011
----------------------------------------------------------------------------
Current income tax expense $ 84,177 $ 39,903
Deferred income tax (recovery)/expense (76,396) 54,823
----------------------------------------------------------------------------
$ 7,781 $ 94,726
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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)
Nine months ended September 30, 2012 2011
----------------------------------------------------------------------------
Expected combined federal and provincial income tax $ 17,354 $ 84,847
Statutory and other rate differences (15,678) 6,905
Non-deductible expenses 6,658 6,018
Translation of foreign subsidiaries (740) 15
Changes to deferred income tax rates - (3,925)
Capital and other foreign tax 45 608
Other 142 258
----------------------------------------------------------------------------
$ 7,781 $ 94,726
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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.
United
(Stated in Canadian States International
thousands) Operations Operations Operations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended September
30, 2012
----------------------------------------------------------------------------
Revenue $ 321,948 $ 198,881 $ 72,375 $ - $ 593,204
Gross profit/(loss) 93,758 (31,946) 6,554 (5,873) 62,493
Finance income - - - (474) (474)
Finance costs - - - 7,696 7,696
Tax
expense/(recovery) 17,289 (16,972) 976 (9) 1,284
Depreciation and
amortization 13,880 16,544 6,696 150 37,270
Assets 903,794 1,130,052 322,453 51,224 2,407,523
Goodwill 22,690 - 6,695 14,226 43,611
Property and
equipment 529,353 773,920 115,079 15,504 1,433,856
Capital
expenditures 6,183 67,487 1,844 6,193 81,707
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended September
30, 2011
----------------------------------------------------------------------------
Revenue $ 371,481 $ 207,288 $ 80,335 $ - $ 659,104
Gross profit/(loss) 145,635 42,181 6,009 (5,865) 187,960
Finance income - - - 1,001 1,001
Finance costs - - - 6,057 6,057
Tax expense 31,505 13,604 2,150 (825) 46,434
Depreciation and
amortization 10,472 14,937 5,882 183 31,474
Assets 834,635 791,171 246,901 229,931 2,102,638
Goodwill 22,690 - 20,791 - 43,481
Property and
equipment 439,123 514,796 90,410 9,720 1,054,049
Capital
expenditures 60,920 93,354 3,110 580 157,964
Goodwill
expenditures - - 6,565 - 6,565
----------------------------------------------------------------------------
United
(Stated in Canadian States International
thousands) Operations Operations Operations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September
30, 2012
----------------------------------------------------------------------------
Revenue $ 895,237 $ 624,194 $ 208,104 $ - $1,727,535
Gross profit/(loss) 241,237 (59,015) 7,763 (16,952) 173,033
Finance income - - - (1,662) (1,662)
Finance costs - - - 22,123 22,123
Tax
expense/(recovery) 42,334 (35,106) 243 310 7,781
Depreciation and
amortization 38,734 52,755 19,525 259 111,273
Capital
expenditures 111,776 241,200 26,693 6,193 385,862
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September
30, 2011
----------------------------------------------------------------------------
Revenue $ 865,663 $ 523,244 $ 226,526 $ - $1,615,433
Gross profit/(loss) 292,074 113,148 15,059 (16,069) 404,212
Finance income - - - 2,324 2,324
Finance costs - - - 13,484 13,484
Tax expense 58,159 34,261 2,355 (49) 94,726
Depreciation and
amortization 32,716 39,378 17,551 488 90,133
Capital
expenditures 128,115 273,704 12,303 1,523 415,645
Goodwill
expenditures - - 6,565 - 6,565
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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:
-- Remaining capital expenditures for the 2012 capital program are expected
to be approximately $70 to $120 million;
-- Trican intends to use the net proceeds from the issuance of senior
unsecured notes to fund a portion of its 2012 capital program and for
general corporate purposes;
-- We intend to consider removing additional U.S. fracturing crews from
service if warranted by deteriorating market conditions;
-- We expect a more meaningful U.S. operating margin improvement during the
fourth quarter of 2012 as a result of the significant decrease in guar
prices;
-- We expect to see additional benefit from cost cutting measures in the
U.S. in the fourth quarter of 2012 and into 2013;
-- We intend to continue to focus on growing our cementing business in the
U.S., as well as our coiled tubing service line, as we move towards
becoming a full service pressure pumping company in the U.S.;
-- Our Russian customers' work programs remain behind schedule and overall
revenue is expected to come in below our initial expectations for this
region;
-- We believe the trend towards more horizontal drilling and completions
work in Russia will continue and result in increased pressure pumping
demand in the region;
-- Expectation that activity levels will increase in Kazakhstan during the
fourth quarter of 2012;
-- We expect our Canadian 2012 fourth quarter revenue to decrease relative
to the third quarter of 2012;
-- Early fourth quarter drilling and completions activity in Canada is
expected to remain consistent with activity levels seen in the third
quarter; however, activity levels are expected to decrease near the end
of the quarter as we move into the holiday season and our customers
complete their 2012 budgets;
-- We expect Canadian pricing to decrease sequentially in the fourth
quarter due to additional pressure pumping supply in Canada combined
with the expectation of reduced activity levels near the end of the
quarter;
-- We expect a reduction in fourth quarter 2012 operating margins in
Canada;
-- We expect 2013 first quarter activity levels to be strong in Canada
based on current commodity prices and an expectation that 2013 producer
budgets will be consistent with 2012;
-- We have seen the price of guar decline recently and expect this trend to
improve our operating margins during the fourth quarter of 2012;
-- We expect any improvements in U.S. operating margins will be gradual and
dependent on a relatively stable pricing environment;
-- If the U.S. operating environment deteriorates any further, we intend to
examine shutting down additional U.S. fracturing crews until market
conditions improve;
-- We anticipate seeing additional benefit in the U.S. from cost cutting
measures in the fourth quarter of 2012 with the most meaningful
improvements in product, freight, unit, wage and base expenses;
-- Despite the recent weakness in the U.S. market, we remain confident in
our ability to manage our business through the current downturn;
-- We expect strong activity levels in Russia in the early part of the
fourth quarter as our customers work towards meeting 2012 spending and
production targets; however, consistent with previous years, we expect
activity levels to decrease near the end of the fourth quarter as we
move into the holiday season and face challenging weather conditions in
western Siberia;
-- Contracts for 2013 work in Russia are currently being tendered and we
expect to have greater visibility on our 2013 outlook in Russia by the
end of the year; and
-- We do not expect operations in Australia and Algeria to have a
meaningful impact on our operating results for the remainder of 2012.
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).
Requests for shareholder information should be directed to Dale
Dusterhoft, Michael Baldwin or Gary Summach.
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 www.trican.ca
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