Trican Well Service Ltd. (TSX:TCW)
----------------------------------------------
Three months ended Twelve months ended
($ millions, except per share Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
amounts; unaudited) 2012 2011 2012 2012 2011
----------------------------------------------------------------------------
Revenue $485.9 $694.2 $593.2 $2,213 $2,309.6
Operating income (i) 35.1 197.3 71.4 240.1 614.5
Net income (loss) (7.7) 114.9 22.6 53.3 338.6
Net income (loss)
per share (basic) ($0.05) $0.78 $0.16 $0.37 $2.32
(diluted) ($0.05) $0.78 $0.16 $0.37 $2.30
Adjusted net income
(loss) (i) (5.4) 117.9 24.7 63.0 351.0
Adjusted net income
(loss) per share(i) (basic) ($0.04) $0.80 $0.17 $0.43 $2.41
(diluted) ($0.04) $0.80 $0.17 $0.43 $2.39
Funds provided by
(used in)
operations(i) (14.0) 181.9 49.3 122.8 588.8
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Notes:
(i) Trican makes reference to operating income, adjusted net income (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 net income (loss), operating
income, adjusted net income (loss) and funds provided by (used in)
operations are useful supplemental measures. Operating income provides
investors with an indication of earnings before depreciation, foreign
exchange, taxes and interest. Adjusted net income (loss) provides investors
with information on net income (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, adjusted net income
(loss), and funds provided by (used in) operations should not be construed
as an alternative to net income (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, adjusted net income (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.
FOURTH QUARTER HIGHLIGHTS
Consolidated revenue for the fourth quarter of 2012 was $485.9
million, a decrease of 30% compared to the fourth quarter of 2011.
Consolidated net loss was $7.7 million compared to net income of
$114.9, and diluted loss per share was $0.05 compared to diluted
income per share of $0.78 for the same period in 2011. Funds used
in operations were $14.0 million compared to fund provided by
operations of $181.9 million in the fourth quarter of 2011.
Our Canadian operations generated quarterly revenue of $244.2
million and operating income of $51.0 million during the fourth
quarter of 2012. Canadian revenue decreased by 41% and operating
income decreased by 69% compared to the fourth quarter of 2011.
Sequentially, Canadian revenue decreased by 24% and operating
income decreased by 49%. The decreases were indicative of lower
year-over-year activity levels in Canada due to reduced customer
spending as 2012 capital programs came to a close. Pricing
decreased by 13% compared to the fourth quarter of 2011 and by 7%
sequentially, which also had a negative impact on Canadian revenue
and operating margins. We believe that fourth quarter pricing
levels reflect a balanced Canadian pressure pumping market and
expect the market to remain balanced throughout 2013. In addition,
we expect activity levels to rebound in the first quarter of 2013
as we enter the 2013 winter drilling season in Canada.
Fourth quarter U.S. revenue was $173.6 million and the operating
loss was $2.1 million. U.S. operating margins improved sequentially
by 1,050 basis points as we began to see the benefits of reduced
guar costs and cost cutting initiatives. Trican pricing remained
relatively stable on a sequential basis for both contracted and
spot market crews. Despite the improved margins and stable pricing,
U.S. activity levels weakened during the fourth quarter of 2012.
U.S. rig count decreased in our areas of operations by 13% compared
to the fourth quarter of 2011 and by 5% compared to the third
quarter of 2012. The drop in U.S. demand was largely due to reduced
activity over the U.S. Thanksgiving and Christmas holiday
periods.
Revenue from our international operations was $68.0 million in
the fourth quarter of 2012, up 11% year-over-year but down 6%
sequentially. Russia comprises the majority of our international
results and Russian activity levels were up year over year as
several customers increased their work scope to meet 2012 capital
spending budgets. Russian fracturing activity was particularly
strong due to an increase in work performed on horizontal wells.
Approximately 12% of our 2012 fourth quarter Russian fracturing
revenue was from work performed on horizontal wells, compared to
approximately 3% in the fourth quarter of 2011. Russian activity
levels were down sequentially due to cold temperatures typically
experienced near the end of the fourth quarter.
Technology Update
Trican has taken a significant step into the global horizontal
multi-stage completion market with the acquisition of i-TEC Well
Solutions, which closed in January of 2013. i-TEC is a
privately-owned company based in Norway that has developed a
field-proven portfolio of completion systems and intervention
tools. This acquisition complements Trican's existing completion
systems and tools business, and is expected to provide positive
growth opportunities, as well as enhance our other pressure pumping
service lines.
Trican is pleased to announce a joint business agreement with
Geotomo LLC to offer customers an integrated service that will
combine hydraulic fracturing engineering with microseismic software
capabilities. The joint business agreement will leverage Geotomo's
advanced geophysical software capabilities and Trican's depth of
experience in geological and pressure pumping services to offer
customized solutions to our customers. This service will help our
customers optimize fracture performance and improve the production
of the well.
The acquisition of i-TEC and joint business agreement with
Geotomo reflect Trican's continued commitment to provide innovative
technological solutions to our customers.
Senior Management Changes
Effective January 31, 2013, Michael Kelly has resigned from
Trican to pursue other opportunities. Michael joined Trican in 1997
as the CFO and remained in that position until March 2009. He then
became the Senior Vice President of Business Development and in
June 2012 transferred to Russia as Senior Vice President, Russia
and the Middle East. In January 2012, Michael was appointed our
Senior Vice President, EAME & CIS, where he managed our
operations in Russia, Kazakhstan, Algeria and the Middle East.
Michael had a large influence on the direction of Trican and was
part of the corporate executive group that saw the company grow
from a Canadian operation with a few hundred employees to one with
close to 6,000 employees worldwide in nine operating countries. We
wish Michael the best in his future endeavors and thank him for his
many years of service to Trican.
We are pleased to announce that David Jones, Vice President of
Business Development, will assume the duties of Michael Kelly and
will become the new Vice President, EAME & CIS. David will
continue to oversee our Business Development group until a
successor has been named.
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
----------------------------------------------------------------------------
Quarter-
Over-
Three months ended % of % of Quarter %
December 31, 2012 Revenue 2011 Revenue Change Change
----------------------------------------------------------------------------
Revenue 485,865 100% 694,214 100.0% (208,349) (30%)
Expenses
Materials and
operating 422,999 87.1% 473,693 68.2% (50,694) (10.7%)
General and
administrative 27,743 5.7% 23,226 3.3% 4,517 19.5%
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Operating income(i) 35,123 7.2% 197,295 28.4% (162,172) (82.2%)
Finance costs 8,373 1.7% 6,557 0.9% 1,816 27.7%
Depreciation and
amortization 41,564 8.6% 36,443 5.2% 5,121 14.1%
Foreign exchange
gain (3,467) (0.7%) (3,975) -0.6% 508 (12.8%)
Other income (560) (0.1%) (1,405) -0.2% 845 (60.1%)
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Income (loss) before
income taxes (10,787) (2.2%) 159,675 23.0% (170,462) (106.8%)
Income tax expense
(recovery) (2,957) (0.6%) 44,805 6.5% (47,762) (106.6%)
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Net Income (loss) (7,830) (1.6%) 114,870 16.5% (122,700) (106.8%)
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(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
($ thousands, except
revenue per job,
unaudited) Dec. 31, % of Dec. 31, % of Sept. 30, % of
Three months ended, 2012 Revenue 2011 Revenue 2012 Revenue
----------------------------------------------------------------------------
Revenue 244,237 417,021 321,948
Expenses
Materials and
operating 187,313 76.7% 246,363 59.1% 215,022 66.8%
General and
administrative 5,897 2.4% 5,898 1.4% 7,095 2.2%
--------- --------- ---------
Total expenses 193,212 79.1% 252,261 60.5% 222,117 69.0%
Operating income(i) 51,025 20.9% 164,760 39.5% 99,831 31.0%
Number of jobs 5,572 7,108 6,368
Revenue per job 43,545 58,296 50,140
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(i) see first page of this report
Sales Mix
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Three months ended, Dec. 31, Dec. 31, Sept. 30,
(unaudited) 2012 2011 2012
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% of Total Revenue
Fracturing 61% 68% 68%
Cementing 21% 16% 17%
Nitrogen 6% 8% 6%
Coiled Tubing 5% 4% 4%
Acidizing 3% 2% 3%
Other 4% 2% 2%
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Total 100% 100% 100%
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Operations Review
Canadian pressure pumping activity was down during the fourth
quarter of 2012 and led to year-over-year and sequential decreases
in Canadian revenue and operating income. In the fourth quarter of
2012, the number of active drilling rigs in Canada decreased by 22%
and the number of Canadian wells drilled was down 19% compared to
the fourth quarter of 2011. Sequentially, Canadian rig count
increased by 10% but the number of wells drilled was down by 4%.
Despite the sequential increase in Canadian rig count, fracturing
activity was down substantially near the end of the quarter during
the holiday season, when Canadian rig count fell to approximately
200 rigs. In addition, many Trican customers reduced their
fracturing activity levels during the fourth quarter as 2012
capital budgets came to a close.
Canadian pricing decreased by 7% compared to the third quarter
of 2012 and by 13% compared to peak pricing levels seen in the
fourth quarter of 2011. Additional pressure pumping supply combined
with reduced activity levels led to the pricing decrease; however,
peak pricing seen in the fourth quarter of 2011 occurred when the
Canadian market was significantly undersupplied and we did not
expect these pricing levels to be sustained. We believe that fourth
quarter pricing levels reflect a balanced Canadian pressure pumping
market.
Current Quarter versus Q4 2011
Fourth quarter revenue decreased by 41% or $173 million compared
to the fourth quarter of 2011. Revenue per job decreased by 25% due
to a 13% decrease in price combined with a lower proportion of
fracturing revenue relative to total revenue. The job count
decreased by 22% and was consistent with the 22% decrease in
Canadian rig count. Available Canadian equipment increased by
approximately 30% year-over-year but was more than offset by the
decline in Canadian activity, in particular for the fracturing
service line. Fracturing activity was down approximately 40% due to
a slowdown over the holiday season and as customers completed 2012
capital budgets.
As a percentage of revenue, materials and operating expenses
increased to 76.7% from 59.1% due to decreased pricing and reduced
operational leverage on our fixed cost structure. General and
administrative expenses were relatively flat on a year-over-year
basis.
Current Quarter versus Q3 2012
Canadian revenue decreased by 24% sequentially in the fourth
quarter of 2012. Revenue per job decreased by 13% due to a 7%
pricing decline combined with less fracturing revenue as a
percentage of total revenue. The job count also decreased by 13%
relative to the third quarter of 2012. The completion of a large
Horn River project and relatively strong activity levels by our
Canadian customers led to exceptional activity levels for Trican in
the third quarter of 2012. The strong activity levels in the third
quarter combined with reduced fourth quarter activity levels over
the holiday season contributed to the sequential decrease in
Canadian job count.
Materials and operating expenses increased as a percentage of
revenue to 76.7% compared to 66.8% in the third quarter of 2012 due
largely to decreased pricing and reduced operational leverage on
our fixed cost structure. General and administrative expenses
decreased by $1.2 million due mainly to a decrease in profit
sharing and bad debt expenses.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except
revenue per job,
unaudited) Dec. 31, % of Dec. 31, % of Sept. 30, % of
Three months ended, 2012 Revenue 2011 Revenue 2012 Revenue
----------------------------------------------------------------------------
Revenue 173,589 215,672 198,881
Expenses
Materials and
operating 171,140 98.6% 164,632 76.3% 216,283 108.7%
General and
administrative 4,553 2.6% 3,819 1.8% 5,768 2.9%
--------- --------- ----------
Total expenses 175,693 101.2% 168,451 78.1% 222,051 111.7%
Operating income
(loss)(i) (2,104) (1.2%) 47,221 21.9% (23,170) (11.7%)
Number of jobs 1,654 1,495 1,861
Revenue per job 105,077 145,151 106,962
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----------------------------------------------------------------------------
(i) see first page of this report
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Three months ended, Dec. 31, Dec. 31, Sept. 30,
(unaudited) 2012 2011 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 90% 97% 91%
Cementing 7% 2% 6%
Coiled Tubing 3% 1% 3%
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Total 100% 100% 100%
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Operations Review
Overall U.S. activity levels weakened during the fourth quarter
of 2012. U.S. rig count decreased in our areas of operation by 13%
compared to the fourth quarter of 2011 and by 5% compared to the
third quarter of 2012. The drop in U.S. demand was largely due to
reduced activity over the U.S. Thanksgiving and Christmas holiday
periods. As a result of the reduced activity levels, the U.S.
pressure pumping market continued to be oversupplied during the
fourth quarter and no significant improvements in overall market
conditions were noted. Despite the oversupplied market, Trican
pricing remained relatively stable on a sequential basis for both
contracted and spot market crews.
We made good progress on cost cutting initiatives during the
fourth quarter of 2012 with meaningful decreases in product,
logistics, and discretionary costs, which contributed to an
improvement in sequential operating margins. In addition, guar
costs continued to decline as realized guar prices decreased by
approximately 28% sequentially and led to an approximate 500 basis
point improvement in operating margins.
Due to the weak U.S. operating environment, four U.S. fracturing
crews remained idle during the fourth quarter including two new
crews that have not been manned and two crews that were previously
active. The four idle U.S. crews are expected to remain inactive
until U.S. market conditions improve, or a strategic opportunity
arises in North America or internationally.
Current Quarter versus Q4 2011
Year-over-year U.S. revenue decreased by 20% as an increase in
the job count was more than offset by a decrease in revenue per
job. Job count increased by 11% and benefitted from an increase in
cementing and coiled tubing activity. Fourth quarter cementing job
count increased by 166% and coiled tubing job count increased by
157% compared to the same period in 2011. These increases were
offset partially by a 6% decline in fracturing jobs, which compares
to the 13% decrease in U.S. rig count. Fourth quarter revenue per
job decreased by 28% compared to the fourth quarter of 2011. A
year-over-year pricing decline of 13%, a decrease in fracturing
revenue as a percentage of total revenue, and a decrease in
fracturing job size led to the revenue per job decrease. Fracturing
job size has declined due to increased work performed in oil plays,
such as the Permian, where job size is generally lower.
As a percentage of revenue, materials and operating expenses
increased to 98.6% from 76.3% because of decreased pricing and
reduced operational leverage on our fixed cost structure. Despite
the recent reductions in guar prices, realized guar costs remained
approximately 110% higher compared to the fourth quarter of 2011.
The year-over-year increase in guar costs contributed to the lower
margins. General and administrative costs increased by $0.7 million
due largely to higher insurance and travel costs.
Current Quarter versus Q3 2012
Revenue for the fourth quarter decreased by 13% relative to the
third quarter of 2012. The job count decreased by 11% due to
reduced oilfield activity as rig count decreased sequentially by 5%
in our areas of operations. Fracturing activity was down by
approximately 18% as very few fracturing jobs were performed over
the Thanksgiving and Christmas holiday period. In addition,
fracturing activity in the fourth quarter was particularly slow for
our Bakken crew as job count decreased by 50% sequentially. We are
still building our presence in the Bakken and activity levels are
expected to be erratic until we establish consistent customer
relationships in the region. This decrease was partially offset by
increased cement and coiled tubing jobs as we continued to grow
these service lines.
Materials and operating expenses decreased to 98.6% from 108.7%
as a percentage of sales. Decreased guar costs and progress made on
cost cutting initiatives led to the improved margins. General and
administrative costs decreased by $1.2 million due largely to lower
employee costs.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except
revenue per job,
unaudited) Dec. 31, % of Dec. 31, % of Sept. 30, % of
Three months ended, 2012 Revenue 2011 Revenue 2012 Revenue
----------------------------------------------------------------------------
Revenue 68,039 61,521 72,375
Expenses
Materials and
operating 57,941 85.2% 56,290 91.5% 59,202 81.8%
General and
administrative 4,216 6.2% 3,964 6.4% 3,590 5.0%
--------- --------- ---------
Total expenses 62,157 91.4% 60,254 97.9% 62,792 86.8%
Operating income(i) 5,882 8.6% 1,267 2.1% 9,583 13.2%
Number of jobs 951 1,180 1,057
Revenue per job 68,586 48,178 64,873
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----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, Dec. 31, Dec. 31, Sept. 30,
( unaudited) 2012 2011 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 82% 74% 80%
Coiled Tubing 9% 13% 10%
Cementing 6% 8% 6%
Nitrogen 1% 5% 2%
Other 2% - 2%
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Total 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations Review
Our international operations include the financial results for
operations in Russia, Kazakhstan, Algeria, Australia, Saudi Arabia
and Colombia.
Our Russian operations comprise the majority of our
international results and revenue and activity levels in this
region were up year-over-year as several customers increased their
work scope to meet 2012 capital spending budgets. Fracturing
activity was particularly strong as job count increased slightly
and fracturing job size increased substantially year-over-year due
to an increase in work performed on horizontal wells. The increase
in fracturing activity was partially offset by reduced cementing
and coiled tubing activity. Despite the improved fourth quarter
results, some Russian customers did not meet spending targets for
2012, which contributed to 2012 results that were below
expectations. Russian activity levels were down sequentially due to
cold temperatures typically experienced near the end of the fourth
quarter.
The emergence of horizontal completions and multi-stage
fracturing continues to be a positive development in Russia.
Approximately 12% of our 2012 fourth quarter Russian fracturing
revenue was from work performed on horizontal wells, compared to
approximately 3% in the fourth quarter of 2011. This is an
important development for the pressure pumping industry in Russia,
as the shift towards more unconventional drilling and completions
is expected to increase the demand for horsepower in the region and
place a larger emphasis on technology.
Relative to the Canadian dollar, the Russian ruble strengthened
by 2% compared to the third quarter of 2012 and weakened by 3%
compared to the fourth quarter of 2011. Changes in the ruble
exchange rate impacted our Russian results as approximately 25% of
our costs in Russia are denominated in Canadian dollars and other
foreign currencies.
Fourth quarter operating results were strong in Kazakhstan for
our two fracturing crews operating in the 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 solid revenue
growth for our cementing service line during the fourth quarter of
2012. Despite the improvements in Algeria and Australia, financial
results during the fourth quarter were below expectations in these
regions.
Current Quarter versus Q4 2011
International revenue increased by 11% compared to the fourth
quarter of 2011. Revenue per job increased by 42% as increased
horizontal work in Russia led to increased fracturing and coiled
tubing job sizes. Increased pricing and more fracturing revenue as
a percentage of total revenue also contributed to the higher
revenue per job. Job count decreased by 19% due largely to declines
in Russian cementing and coiled tubing activity, offset slightly by
an increase in fracturing jobs.
Fourth quarter materials and operating expenses as a percentage
of revenue decreased to 85.2% from 91.5% compared to the fourth
quarter of 2011. The decrease was due to improved operating
leverage on our fixed cost structure and increased pricing. General
and administrative costs increased by $0.3 million due largely to
higher employee costs.
Current Quarter versus Q3 2012
Revenue for our international operations decreased by $4.3
million on a sequential basis. Job count decreased by 10% due to
colder weather in Russia near the end of the fourth quarter that
reduced industry activity levels. Revenue per job increased by 6%
due largely to an increase in fracturing revenue as a percentage of
total revenue and larger fracturing job sizes in Russia due to
customer mix.
Materials and operating expenses increased to 85.2% from 81.8%
due to reduced operating leverage on our fixed cost structure.
General and administrative expenses increased by $0.6 million due
primarily to higher employee costs.
CORPORATE
----------------------------------------------------------------------------
($ thousands, except
revenue per job,
unaudited) Dec. 31, % of Dec. 31, % of Sept. 30, % of
Three months ended, 2012 Revenue 2011 Revenue 2012 Revenue
----------------------------------------------------------------------------
Expenses
Materials and
operating 6,603 1.4% 6,408 0.9% 5,907 1.0%
General and
administrative 13,077 2.7% 9,545 1.4% 8,891 1.5%
--------- --------- ----------
Total expenses 19,680 4.1% 15,953 2.3% 14,888 2.5%
Operating loss(i) (19,680) (15,953) (14,888)
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----------------------------------------------------------------------------
(i) see first page of this report
Current Quarter versus Q4 2011
Corporate expenses increased $3.7 million from the same quarter
last year due primarily to transaction costs associated with the
acquisition of i-TEC, a large charitable donation and increased
salaries and benefits expenses. These increases were partially
offset by lower employee profit sharing costs.
Current Quarter versus Q3 2012
Corporate expenses increased $4.8 million compared to the third
quarter of 2012 due largely to transaction costs associated with
the acquisition of i-TEC, a large charitable donation and higher
training and travel costs for corporate employees.
OTHER EXPENSES AND INCOME
Finance costs in the fourth quarter of 2012 increased by $1.8
million on a year-over-year basis due to increased debt balances.
Depreciation and amortization increased by $5.1 million compared to
the same period last year, largely due to capital additions
relating to our capital expansion program in North America.
The foreign exchange gain of $3.5 million in the quarter versus
a gain of $4.0 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 $0.6 million in
the quarter versus $1.4 million for the same period in the prior
year. Other income is largely 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 $3.0 million in the
quarter compared to an income tax expense of $44.8 million for the
fourth quarter of 2011. The change was largely due to a decrease in
income before tax. The effective tax rate was 27.4% in the fourth
quarter of 2012, which was comparable to an effective tax rate of
28.0% recognized in the fourth quarter of 2011.
COMPARATIVE ANNUAL INCOME STATEMENTS
----------------------------------------------------------------------------
($ thousands;
unaudited)
Year-
Over-
Year ended December % of % of Year %
31, 2012 Revenue 2011 Revenue Change Change
----------------------------------------------------------------------------
Revenue 2,213,400 100% 2,309,647 100.0% (96,247) (4.2%)
Expenses
Materials and
operating 1,870,889 84.5% 1,598,470 69.2% 272,419 17.0%
General and
administrative 102,443 4.6% 96,653 4.2% 5,790 6.0%
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Operating income(i) 240,068 10.8% 614,524 26.6% (374,456) (60.9%)
Finance costs 30,497 1.4% 20,041 0.9% 10,456 52.2%
Depreciation and
amortization 152,837 6.9% 126,576 5.5% 26,261 20.7%
Foreign exchange
(gain)/loss 408 0.0% (4,275) (0.2%) 4,683 (109.5%)
Other income (1,837) (0.1%) (5,985) (0.3%) 4,148 (69.3%)
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Income before
income taxes 58,163 2.6% 478,167 20.7% (420,004) (87.8%)
Income tax expense 4,824 0.2% 139,531 6.0% (134,707) (96.5%)
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Net income 53,339 2.4% 338,636 14.7% (285,297) (84.2%)
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(i) See first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
Year-
Year ended December 31, Over-
($ thousands, except revenue % of % of Year
per job, unaudited) 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 1,139,474 1,282,684 (11%)
Expenses
Materials and operating 804,429 70.6% 790,508 61.6% 2%
General and administrative 26,352 2.3% 27,486 2.1% (4%)
--------- ---------
Total expenses 830,781 72.9% 817,994 63.8% 2%
Operating income(i) 308,693 27.1% 464,690 36.2% (34%)
Number of jobs 22,427 25,393 (12%)
Revenue per job 50,486 49,964 1%
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(i) See first page of this report
2012 Canadian revenue decreased by 11% compared to 2011. Revenue
per job increased by only 1% as 2012 annual pricing, job size, and
sales mix were largely consistent with 2011. The job count
decreased by 12% as increases in available equipment were more than
offset by reductions in Canadian activity levels. On an annual
basis, 2012 Canadian rig count was down 13% compared to 2011. As a
percentage of revenue, materials and operating expenses increased
to 70.6% compared to 61.6% due to reduced operating leverage on our
fixed cost structure, pricing declines and higher employee costs.
General and administrative expenses decreased by $1.1 million due
to declines in employee profit sharing and share based
expenses.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
Year-
Year ended December 31, Over-
($ thousands, except revenue % of % of Year
per job, unaudited) 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 797,783 738,916 8%
Expenses
Materials and operating 803,677 100.7% 535,550 72.5% 50%
General and administrative 19,808 2.5% 12,539 1.7% 58%
--------- ---------
Total expenses 823,485 103.2% 548,089 74.2% 50%
Operating income (loss)(i) (25,702) (3.2%) 190,827 25.8% (113%)
Number of jobs 7,110 5,065 40%
Revenue per job 112,471 146,457 (23%)
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(i) See first page of this report
2012 U.S. revenue increased by 8% compared to 2011. Job count
increased by 40% as increased equipment availability led to
substantial increases for our fracturing, cementing and coiled
tubing service lines. Revenue per job decreased by 23% due to a 14%
decrease in pricing, a reduction in fracturing revenue relative to
total revenue, and lower fracturing job sizes due to increased work
performed on oil wells. As a percentage of revenue, 2012 materials
and operating expenses increase to 100.7% compared to 72.5% in
2011. A reduction in pricing, increased guar costs, and increased
logistics, infrastructure and employee expenses contributed to the
reduced margins. General and administrative costs increased by $7.3
million due to higher travel, insurance, and employee costs.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
Year-
Year ended December 31, Over-
($ thousands, except revenue % of % of Year
per job, unaudited) 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Revenue 276,143 288,047 (4%)
Expenses
Materials and operating 238,967 86.5% 250,424 86.9% (5%)
General and administrative 14,486 5.2% 14,936 5.2% (3%)
--------- ---------
Total expenses 253,453 91.8% 265,360 92.1% (4%)
Operating income(i) 22,690 8.2% 22,687 7.9% 0%
Number of jobs 4,007 4,901 (18%)
Revenue per job 65,027 55,902 16%
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(i) See first page of this report
Annual revenue for our International operations was down 4%
compared to the same period in 2011. The job count decreased by 18%
due largely to lower activity in Russia. Many of our Russian
customers did not complete their 2012 work programs, which led to
lower than expected activity levels in Russia. Revenue per job
increased by 16% as increased horizontal work in Russia led to
larger fracturing job sizes. In addition, increased fracturing
revenue as a percentage of total revenue contributed to the higher
revenue per job.
Materials and operating expenses as a percentage of revenue
decreased slightly to 86.5% from 86.9% compared to the same period
in 2011. Improved pricing was offset by cost inflation. General and
administrative expenses decreased slightly by $0.5 million largely
due to lower share based expenses.
CORPORATE
----------------------------------------------------------------------------
Year-
Year ended December 31, Over-
($ thousands, except revenue % of % of Year
per job, unaudited) 2012 Revenue 2011 Revenue Change
----------------------------------------------------------------------------
Expenses
Materials and operating 23,814 1.1% 21,988 1.0% 8%
General and administrative 41,799 1.9% 41,692 1.8% 0%
--------- ---------
Total expenses 65,613 3.0% 63,680 2.8% 3%
Operating loss(i) (65,613) (63,680) 3%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) See first page of this report
Corporate expenses increased $1.9 million compared to last year
due primarily to an increase in salaries and benefits for corporate
employees and transactions costs relating to the i-TEC acquisition.
These increases were partially offset by a decrease in share based
expenses and profit sharing costs.
OTHER EXPENSES AND INCOME
2012 finance costs increased by $10.5 million relative to 2011
due to increased debt levels. Depreciation and amortization
increased by $26.3 million as a result of the North American
focused capital asset additions.
Foreign exchange losses of $0.4 million have been recognized in
2012 compared to gains of $4.3 million in 2011. The 2012 loss is
due to the net impact of fluctuations in the U.S. dollar and
Russian ruble relative to the Canadian dollar. Other income
decreased by $4.1 million from the same period in 2011 due largely
to proceeds from an insurance claim recognized in 2011.
INCOME TAXES
The income tax expense for the year ended December 31, 2012 was
$4.8 million compared to $139.5 million in 2011. The decrease in
the tax provision is largely attributable to significantly lower
earnings. The effective tax rate in 2012 was 8.3% compared to an
effective tax rate of 29.1% in 2011. The decrease is due primarily
to tax losses in the U.S., which are partially offsetting taxable
income in Canada.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Funds used in operations was $14.0 million in the fourth quarter
of 2012 compared to funds provided by operations of $181.9 million
in the fourth quarter of 2011 largely as a result of decreased
operating income.
Trican's ending 2012 working capital decreased to $547.4 million
compared to $621.2 million at the end of 2011. The decrease is
predominantly due to year-over-year decreased activity levels in
North America, causing trade receivables, inventory, and prepaid
expenses to decline, partially offset by decreased accounts
payable.
Investing Activities
Capital expenditures in 2013 are expected to be approximately
$130 to $150 million based on our current 2013 budget and remaining
capital expenditures on previously approved budgets. Capital
expenditures for the fourth quarter of 2012 totaled $58.7 million
compared with $162.8 million for the same period in 2011. Total
capital expenditures for 2012 were $444.6 million compared to
$578.5 million in 2011. The expenditures were largely directed at
North American expansion initiatives in 2012 and 2011. The year
over year decreases are due to a reduction in our 2012 budget
compared to the 2011 budget.
Financing Activities
As at February 26, 2013, Trican had 148,831,558 common shares
and 7,030,786 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. During the fourth
quarter of 2012, Trican issued $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.
During the fourth quarter of 2012, Trican's syndicate of banks
unanimously agreed to extend the Company's four-year revolving
credit facility for an additional year. In addition, Trican
received approval to add a new bank to its syndicate and increased
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
December 31, 2012, no common shares were purchased under the NCIB.
During the twelve months ended December 31, 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. Trican intends to renew the NCIB in the first quarter of
2013.
Trican Well Service Ltd. announced an increase to its
semi-annual dividend from $0.05 to $0.15 per share in the first
quarter of 2012, thereby increasing the annual dividend to $0.30
per share. The increase reflected our expectation that Trican can
sustain strong earnings in the future and maximize shareholder
value while remaining committed to investing in the growth of our
existing operations and future growth opportunities. Total dividend
payments during 2012 were $29.3 million and we expect 2013 dividend
payments to be approximately $44.0 million.
OUTLOOK
Canadian Operations
Demand for pressure pumping services in Canada is expected to be
stable in 2013 compared to 2012, with recent industry forecasts
reflecting a 3% increase in the number of wells drilled compared to
2012. Oil and liquids-rich gas directed activity is expected to
continue to dominate the Canadian oil and gas market given the
continued weakness in natural gas prices. Horizontal drilling
activity is also expected to remain strong, as it has become the
leading drilling method in the Canadian market.
The amount of available equipment in Canada has increased
substantially over the past year, as the industry continued to
respond to an undersupplied pressure pumping market during 2012.
Despite the steady Canadian pressure pumping activity anticipated
in 2013, increased supply is expected to result in a year-over-year
reduction in pricing. However, most of the price declines occurred
in the second half of 2012 and we do not expect any significant
additional pricing decreases in Canada during 2013. Despite the
relatively flat demand and increased supply, we believe the
Canadian market is currently balanced and will remain so throughout
2013. We do not expect a meaningful increase in Canadian horsepower
supply in 2013 and believe that sustained demand levels will keep
the market in balance. However, our Canadian operations are
significantly dependant on the capital budgets of our customers and
changes to commodity prices. We will continue to closely monitor
the Canadian market and react appropriately should market
conditions change.
We expect 2013 first quarter activity levels to increase
relative to the fourth of 2012 as we enter the busy Canadian
drilling season; however, we do not expect first quarter activity
levels to be as strong as the first quarter of 2012. As a result,
we expect first quarter operating margins will be higher
sequentially due to increased activity but lower year-over-year due
to the declines in pricing and activity levels.
U.S. Operations
U.S. pressure pumping demand will continue to be driven by
commodity prices and the cash flows and capital budgets of our U.S.
customers. Based on the current commodity price and capital
spending environment in the U.S., we are not expecting a
significant change in 2013 pressure pumping demand relative to
demand levels seen in the second half of 2012.
The U.S. pressure pumping market is currently oversupplied and
as a result, we are not anticipating a meaningful amount of new
horsepower to enter the U.S. market in 2013. There is potential for
modest declines in available U.S. horsepower to occur in 2013 if
equipment is redeployed out of North America and into international
markets, and if older U.S. equipment is permanently retired;
however, we are not expecting a significant drop in U.S. pressure
pumping supply in 2013.
Given our expectation of a relatively flat supply and demand
environment during 2013, we believe the U.S. pressure pumping
market will remain oversupplied throughout the upcoming year;
however, we do not expect the supply/demand imbalance to grow
throughout 2013. That being said, the U.S. pressure pumping market
can change quickly and we will continue to monitor commodity prices
and the spending of our customers and react appropriately as market
conditions change.
U.S. pricing declined substantially during the first half of
2012 as the market became oversupplied, but remained relatively
flat in the second half of the year. We expect pricing to remain
stable in 2013 given the expectations of a steady supply and demand
environment in the U.S.; however, pricing could soften slightly in
some of the more active oil and liquids-rich gas plays if equipment
continues to be redeployed into these areas. In addition,
approximately 60% of our active U.S. fracturing equipment is
currently under contracts that will be expiring in 2013. We will be
working with new and existing customers to obtain work for these
crews as contracts expire. We expect to realize moderate pricing
declines in 2013 due to the contract expirations but expect 2013
utilization of our U.S. fracturing fleet to remain consistent with
2012.
Despite the prospect of an oversupplied U.S. pressure pumping
market in 2013, we believe Trican's U.S. operating margins will
increase gradually throughout the year. We have undertaken
substantial cost cutting initiatives that are expected to improve
margins and have already started to see some of the benefits of
these initiatives in the fourth quarter of 2012. In addition, we
are expecting realized guar prices to continue to decline in the
first quarter of 2013 as we work through our higher priced
inventory.
We expect to grow our cementing and coiled tubing service lines
in the U.S. during 2013 by increasing utilization on existing
equipment. A substantial amount of new cementing and coiled tubing
equipment was built in 2012, and with a full year of equipment
availability in 2013, we anticipate sales from these service lines
to increase as a percentage of total sales. An important part of
our U.S. strategy is to become a full service pressure pumping
company, and we will continue to execute on this strategy in
2013.
International
Based on the results of the 2013 contract tendering process for
our Russian operations, we expect 2013 revenue to increase by
approximately 25%, as measured in Russian roubles, compared to
2012. The estimated revenue increase is based on a 2% expected rise
in overall activity combined with a 23% expected increase in
average revenue per job. The expected increase in average revenue
per job is the combined result of the trend towards larger
fracturing job sizes in multi-stage completions, a shift in the
sales mix toward more fracturing work relative to coiled tubing and
cementing, and a modest increase in pricing.
A high rate of inflation in the Russian market and strong
competition continues to challenge the Russian operation's
profitability. However, we are anticipating moderate improvements
in operating margins in 2013 as a result of a shift in our work
scope to higher margin work and multi-stage activity, including
completion tool revenue, and a continued focus on optimizing the
Russian operations' cost structure.
2012 was a successful year for our two fracturing crews in
Kazakhstan, and we expect the Kazakhstan pressure pumping market to
be stable in 2013. Activity levels are expected to be down
slightly; however, operating margins are expected to remain strong
in this region.
Our Algeria operations improved modestly in 2012, in particular
for our coiled tubing service line. We expect Algerian coiled
tubing activity and pricing to remain stable in 2013 and we will
look to secure additional contracts for this service line to keep
equipment utilization strong. The cementing market in Algeria was
very competitive in 2012 and we expect this to continue in 2013. We
will look to increase pricing and utilization for our cementing
equipment in Algeria in 2013. We will also continue to closely
monitor the political instability in this region and react
appropriately should the instability negatively impact our Algeria
operations and, more importantly, the safety of our people.
Our 2013 strategy in Australia will be to continue to expand our
cementing service line and build new customer relationships. We
expect to see moderate growth in Australian cementing revenue and
operating income improvements in 2013. However, Australia oil and
gas activity continues to develop slowly and we do not expect this
region to generate a meaningful level of profitability in 2013.
Through our joint business arrangements in Saudi Arabia and
Colombia, we are working to establish our presence in these markets
and expect to participate in pressure pumping tenders in 2013.
Initially, we will look to add cementing and coiled tubing
services, with an eventual goal of being full service pressure
pumping companies in these regions.
2013 Capital Budget
Trican's 2013 capital budget is expected to be $32.3 million.
This capital budget is directed at maintaining Trican's global
equipment fleet and infrastructure. Given the current operating
environment in all of our key regions, minimal expansion capital
initiatives have been included in the 2013 capital budget. Although
the 2013 budget is modest, Trican stands by our commitment to
provide service to our customers with a state-of-the-art and well
maintained fleet of equipment. Many of our maintenance spending
requirements for 2013 were incurred in 2012 and we are confident
our fleet will be maintained in top operating condition throughout
the coming year. Trican will continue to closely monitor its
capital program and make any necessary modifications as greater
visibility is obtained throughout 2013.
NON-IFRS DISCLOSURE
Adjusted net income, 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 net income and funds provided by operations have been
reconciled to net income 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.
----------------------------------------------------------------------------
Three months ended Twelve months ended
----------------------------------------------------------------------------
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2012 2011 2012 2012 2011
----------------------------------------------------------------------------
Adjusted net income ($5,375) $117,873 $24,716 $63,028 $351,014
Deduct:
Non-cash share-based
compensation expense 2,455 3,003 2,068 9,689 12,378
----------------------------------------------------------------------------
Net income (IFRS financial
measure) ($7,830) $114,870 $22,648 $53,339 $338,636
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Twelve months ended
----------------------------------------------------------------------------
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2012 2011 2012 2012 2011
----------------------------------------------------------------------------
Funds provided by
operations ($13,976) $181,916 $49,682 $122,750 $558,811
Charges to income not
involving cash
Depreciation and
amortization 41,564 36,443 37,270 152,837 126,576
Stock-based compensation 2,455 3,003 2,068 9,689 12,378
Loss/ (gain) on disposal
of property and
equipment 352 678 1,736 2,423 (369)
Unrealized foreign
exchange (gain)/loss (4,863) (2,273) 1,160 (50) (3,157)
Income tax expense (2,957) 44,805 1,284 4,824 139,531
Income tax paid (42,697) (15,610) (16,484) (100,312) (54,784)
----------------------------------------------------------------------------
Net income (IFRS financial
measure) ($7,830) $114,870 $22,648 $53,339 $338,636
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Twelve months ended
----------------------------------------------------------------------------
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2012 2011 2012 2012 2011
----------------------------------------------------------------------------
Operating income $35,123 $197,295 $71,355 $240,068 $614,524
Add:
Administrative expenses 23,083 25,398 28,408 108,289 102,514
Deduct:
Depreciation expense (41,564) (36,443) (37,270) (152,837) (126,576)
----------------------------------------------------------------------------
Gross profit (IFRS
financial measure) $16,642 $186,250 $62,493 $195,520 $590,462
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information and
financial outlook 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. Forward-looking information and financial outlook 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 information and
financial outlook 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. This forward-looking information and
financial outlook speak only as of the date of this document and we
do not undertake to publicly update this forward-looking
information and financial outlook except in accordance with
applicable securities laws. This forward-looking information and
financial outlook include, among others:
-- The belief that fourth quarter Canadian pricing levels reflect a
balanced Canadian pressure pumping market and the expectation that the
market will remained balanced throughout 2013;
-- The expectation that Canadian activity levels will rebound in the first
quarter of 2013 as we enter the 2013 winter drilling season in Canada;
-- The expectation that the four idle U.S. crews will remain inactive until
U.S. market conditions improve or a strategic opportunity arises in
North America or internationally;
-- The expectation that the growth of horizontal drilling and multi-stage
completions in Russia is an important development for the pressure
pumping industry in Russia, as the shift towards more unconventional
drilling and completions will increase the demand for horsepower in the
region and place a larger emphasis on technology;
-- The expectation that Trican will initially provide cementing services in
the Colombian market, growing over time to become a full service
pressure pumping company in the region;
-- The expectation that Trican will commence operations in Colombia during
the first half of 2013;
-- The belief that the i-TEC acquisition complements Trican's existing
completion systems and tools business, and is expected to provide
positive growth opportunities, as well as enhance our other pressure
pumping service lines;
-- Many of our maintenance spending requirements for 2013 were incurred in
2012 and we are confident our fleet will be maintained in top operating
condition throughout the coming year. Trican will continue to closely
monitor its capital program and make any necessary modifications as
greater visibility is obtained throughout 2013.
-- Demand for pressure pumping services in Canada is expected to be stable
throughout 2013, with recent industry forecasts reflecting a 3% increase
in the number of wells drilled compared to 2012. Oil and liquids-rich
gas directed activity is expected to continue to dominate the Canadian
oil and gas market given the continued weakness in natural gas prices.
Horizontal drilling activity is also expected to remain strong, as it
has become the leading drilling method in the Canadian market.
-- The expectation that demand for pressure pumping services in Canada will
be stable in 2013 compared to the 2012;
-- The expectation that oil and liquids-rich gas directed activity will
continue to dominate the Canadian oil and gas market;
-- The expectation that horizontal drilling activity will remain strong in
Canada;
-- The expectation that increased equipment supply in Canada will result in
a year-over-year reduction in pricing;
-- The belief that most of the 2012 price declines in Canada occurred in
the second half of 2012 and we do not expect any significant additional
pricing decreases in Canada during 2013;
-- The expectation that a meaningful increase in Canadian horsepower supply
will not occur in 2013 and that sustained demand levels will keep the
market in balance;
-- The expectation that 2013 first quarter activity levels will increase
relative to the fourth of 2012 as we enter the busy the Canadian
drilling season;
-- The expectation that first quarter activity levels will not be as strong
as the first quarter of 2012. As a result, we expect first quarter
operating margins will be higher sequentially due to increased activity
but lower year-over-year due to the declines in pricing and activity
levels;
-- The expectation that U.S. pressure pumping demand will continue to be
driven by commodity prices and the cash flows and capital budgets of our
U.S. customers;
-- The expectation that based on the current commodity price and capital
spending environment in the U.S., no significant change in 2013 pressure
pumping demand will occur relative to demand levels seen in the second
half of 2012.
-- The expectation that a meaningful amount of new horsepower will not
enter the U.S. market in 2013;
-- The potential for modest declines in available U.S. horsepower to occur
in 2013 if equipment is redeployed out of North American and into
international markets and if older U.S. equipment is permanently
retired;
-- The expectation that a significant drop in U.S. pressure pumping supply
in 2013 will not occur;
-- The belief that the U.S. pressure pumping market will remain
oversupplied throughout the upcoming year;
-- The expectation that the supply/demand imbalance in the U.S. will not
grow throughout 2013;
-- The expectation that U.S. pricing will remain stable in 2013 given the
expectations of a steady supply and demand environment in the U.S.;
-- The expectation that we will be working with new and existing customers
to obtain work for U.S. fracturing crews that have expiring contracts in
2013;
-- The expectation that we will realize moderate pricing declines in the
U.S. in 2013 due to the contract expirations but expect 2013 utilization
of our U.S. fracturing fleet to remain consistent with 2012;
-- The belief that U.S. pricing could soften slightly in some of the more
active oil and liquids-rich gas plays if equipment continues to be
redeployed into these areas;
-- The belief that Trican's U.S. operating margins will increase gradually
throughout the year;
-- The expectation that cost cutting initiatives will improve U.S.
operating margins in 2013;
-- The expectation that realized guar prices will continue to decline in
the first quarter of 2013 as we work through our higher priced
inventory;
-- The expectation that we will grow our cementing and coiled tubing
service lines in the U.S. during 2013 by increasing utilization on
existing equipment;
-- The expectation that sales from our U.S. cementing and coiled tubing
service lines will increase as a percentage of total sales;
-- The expectation that 2013 Russia revenue will increase by approximately
25%, as measured in Russian roubles, compared to 2012;
-- The expectation that the estimated revenue increase is based on a 2%
rise in overall activity combined with a 23% increase in average revenue
per job.
-- The expectation that the increase in average revenue per job is the
combined result of the trend towards larger fracturing job sizes in
multi-stage completions, a shift in the sales mix toward more fracturing
work relative to coiled tubing and cementing and a modest increase in
pricing;
-- The expectation of moderate improvements in Russian operating margins in
2013;
-- The expectation that the Kazakhstan pressure pumping market will be
stable in 2013;
-- The expectation that activity levels in Kazakhstan will be down
slightly; however, operating margins are expected to remain strong in
this region;
-- The expectation that Algerian coiled tubing activity and pricing will
remain stable in 2013;
-- The expectation that the cementing market in Algeria will be very
competitive in 2013;
-- The expectation of moderate growth in Australian cementing revenue and
operating income improvements in 2013;
-- The expectation that Australia will not generate a meaningful level of
profitability in 2013;
-- The expectation that Trican will participate in pressure pumping tenders
in 2013 in Saudi Arabia and Colombia;
-- The expectation that Trican will renew the NCIB in the first quarter of
2013;
-- The expectation that 2013 dividend payments will be approximately $44.0
million.
Forward-looking information and financial outlook are 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).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31, December 31,
(Stated in thousands) 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $113,506 $125,855
Trade and other receivables 437,038 607,672
Current tax assets 647 1,553
Inventory 211,794 173,515
Prepaid expenses 33,002 31,996
----------------------------------------------------------------------------
795,987 940,591
Property and equipment 1,458,562 1,178,410
Intangible assets 10,081 14,662
Deferred tax assets 76,302 33,369
Other assets 11,898 6,445
Goodwill 43,689 43,706
----------------------------------------------------------------------------
$2,396,519 2,217,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans (note 3) $9,119 $-
Trade and other payables 228,788 287,689
Contingent consideration (note 2) 2,860 2,867
Current tax liabilities 7,853 3,363
Current portion of long-term debt (note 3) - 25,425
----------------------------------------------------------------------------
248,620 319,344
Loans and borrowings (note 3) 694,972 400,256
Deferred tax liabilities 77,012 132,031
Shareholders' equity
Share capital (note 4) 527,860 529,062
Contributed surplus 55,352 45,894
Accumulated other comprehensive income (24,100) (22,805)
Retained earnings 815,700 813,238
----------------------------------------------------------------------------
Total equity attributable to equity holders of
the Company 1,374,812 1,365,389
Non-controlling interest 1,103 163
----------------------------------------------------------------------------
$2,396,519 $2,217,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contractual obligations (note 19)
Contingencies (note 22)
Subsequent event (note 25)
See accompanying notes to the consolidated
financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Stated in Three Months Three Months Twelve Months Twelve Months
thousands, except Ended Dec 31, Ended Dec 31, Ended Dec 31, Ended Dec 31,
per share amounts) 2012 2011 2012 2011
----------------------------------------------------------------------------
Revenue $485,865 $694,214 $2,213,400 $2,309,647
Cost of sales 463,378 507,964 2,017,880 1,719,185
----------------------------------------------------------------------------
Gross profit 22,487 186,250 195,520 590,462
Administrative
expenses 28,928 25,398 108,289 102,514
Other income (10) 167 375 (2,089)
----------------------------------------------------------------------------
Results from
operating
activities (6,431) 160,685 86,856 490,037
Finance income (550) (1,572) (2,212) (3,896)
Finance costs 8,374 6,557 30,497 20,041
Foreign exchange
loss/(gain) (3,468) (3,975) 408 (4,275)
----------------------------------------------------------------------------
Profit/(loss) before
income tax (10,787) 159,675 58,163 478,167
Income tax
expense/(recovery)
(note 6) (2,957) 44,805 4,824 139,531
----------------------------------------------------------------------------
Profit/(loss) for
the period ($7,830) 114,870 53,339 338,636
----------------------------------------------------------------------------
Other comprehensive
income/(loss)
Unrealized
loss/(gain) on
hedging
instruments 207 (3,011) (898) 1,358
Foreign currency
translation
differences (10,311) 10,886 2,193 2,219
----------------------------------------------------------------------------
Total comprehensive
income for the
period $2,274 $106,995 $52,044 $335,059
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Profit / (loss)
attributable to:
Owners of the
Company (7,741) 114,921 53,674 338,707
Non-controlling
interest (89) (51) (335) (71)
----------------------------------------------------------------------------
Profit/(loss) for
the period $(7,830) $114,870 $53,339 $338,636
----------------------------------------------------------------------------
Total comprehensive
income/(loss)
attributable to:
Owners of the
Company 2,363 107,111 52,379 335,175
Non- Controlling
interest (89) (116) (335) (116)
----------------------------------------------------------------------------
Total comprehensive
income/(loss) for
the period $2,274 $106,995 $52,044 $335,059
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings/(loss) per
share (note 5)
----------------------------------------------------------------------------
Basic ($0.05) $0.78 $0.37 $2.32
Diluted ($0.05) $0.78 $0.37 $2.30
----------------------------------------------------------------------------
Weighted average
shares outstanding
- basic 146,450 146,762 146,620 145,805
Weighted average
shares outstanding
- diluted 146,450 147,466 146,690 147,085
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Three Months Twelve Months Twelve Months
(Stated in Ended Dec 31, Ended Dec 31, Ended Dec 31, Ended Dec 31,
thousands) 2012 2011 2012 2011
----------------------------------------------------------------------------
Cash Provided By/
(Used In):
Operations
Profit/(loss) for
the period ($7,830) $114,870 $53,339 $338,636
Charges to income
not involving
cash:
Depreciation and
amortization 41,564 36,443 152,837 126,576
Amortization of
debt issuance
costs 208 202 813 375
Stock-based
compensation 2,455 3,003 9,689 12,378
(Gain)Loss on
disposal of
property and
equipment 352 678 2,423 (369)
Net Finance Costs 7,824 4,985 28,285 16,145
Unrealized foreign
exchange
gain/(loss) (4,863) (2,273) (50) (3,157)
Income tax
expense/
(recovery) (2,957) 44,805 4,824 139,531
----------------------------------------------------------------------------
36,753 202,713 252,160 630,115
Change in
inventories 6,704 (16,395) (39,471) (67,225)
Change in trade and
other receivables 96,141 (6,278) 167,427 (232,628)
Change in
prepayments 10,444 (1,899) (1,463) (21,995)
Change in trade and
other payables (70,701) (1,407) (67,688) 72,061
----------------------------------------------------------------------------
Cash generated from
operating
activities 79,341 176,733 310,965 380,328
Interest paid (8,373) (12,795) (24,278) (17,454)
Income tax paid (42,697) (15,610) (100,312) (54,784)
----------------------------------------------------------------------------
28,271 148,329 186,375 308,090
Investing
Interest received 250 389 1,163 1,851
Purchase of
property and
equipment (58,688) (162,812) (444,550) (578,457)
Proceeds from the
sale of property
and equipment 1,848 61 3,325 2,489
Payments received
on loan to an
unrelated third
party (250) 1,750 (24) 6,175
Business
acquisitions - - - (9,372)
----------------------------------------------------------------------------
(56,840) (160,612) (440,086) (577,314)
Financing
Net proceeds from
issuance of share
capital - 942 1,289 33,065
Repurchase and
cancellation of
shares under NCIB - - (10,011) -
Issuance of loans
and borrowings,
net of financing
fees 243,634 - 304,756 294,118
Repayment of loans
and borrowings (157,688) (1,706) - -
Repayment of long-
term debt 0 - (25,425) -
Dividend paid 0 - (29,300) (14,517)
----------------------------------------------------------------------------
85,946 (764) 241,309 312,666
Effect of exchange
rate changes on
cash 796 (60) 51 1,355
----------------------------------------------------------------------------
Increase /
(decrease) in cash
and cash
equivalents 58,173 (13,108) (12,349) 44,797
Cash and cash
equivalents,
beginning of period 55,333 138,963 125,855 81,058
----------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $113,506 $125,855 $113,506 $125,855
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Selected Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 5 - TRADE AND OTHER RECEIVABLES
(Stated in thousands)
December 31, 2012 2011
----------------------------------------------------------------------------
Trade receivables $434,568 $599,669
Allowance for doubtful accounts (4,085) (4,528)
Loans and other receivables 17,222 18,078
----------------------------------------------------------------------------
Total $447,705 $613,219
----------------------------------------------------------------------------
Non-current (Note 9) $10,667 $5,547
Current $437,038 $607,672
----------------------------------------------------------------------------
The company's exposure to credit risk related to trade and other
receivables is disclosed in Note 16.
NOTE 6 - INVENTORY
(Stated in thousands)
December 31, 2012 2011
----------------------------------------------------------------------------
Product inventory
Chemicals and consumables $93,502 $73,376
Coiled tubing 19,669 21,310
Parts 98,623 78,829
----------------------------------------------------------------------------
$211,794 $173,515
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The total amount of inventory recognized as cost of sales during
the year was $818 million (2011 - $676.5 million). There were no
significant write-downs of inventory during the year-ended December
31, 2012 (2011 - nil).
NOTE 7 - PROPERTY AND EQUIPMENT
(stated in thousands) Land and Fixtures and
buildings Equipment fittings Total
----------------------------------------------------------------------------
Cost
Balance at January 1,
2011 $82,000 $965,657 $32,025 $1,079,682
Additions 17,026 573,857 6,009 596,892
Acquisitions through
business combinations - 5,495 - 5,495
Disposals - (28,711) - (28,711)
Effect of movements in
exchange rates 74 2,498 (11) 2,561
----------------------------------------------------------------------------
Balance at December 31,
2011 $99,100 $1,518,796 $38,023 $1,655,919
Additions 14,781 424,127 3,535 442,443
Disposals (27) (18,529) (92) (18,648)
Effect of movements in
exchange rates (457) (7,710) (167) (8,334)
----------------------------------------------------------------------------
Balance at December 31,
2012 $113,397 $1,916,684 $41,299 $2,071,380
----------------------------------------------------------------------------
Accumulated Depreciation
Balance at January 1,
2011 $15,620 $343,211 $20,096 $378,927
Depreciation 3,355 112,850 5,386 121,591
Disposals - (20,848) - (20,848)
Effect of movements in
exchange rates (48) (2,094) (19) (2,161)
----------------------------------------------------------------------------
Balance at December 31,
2011 $18,927 $433,119 $25,463 $477,509
Depreciation 4,011 141,031 3,398 148,440
Disposals - (12,587) - (12,587)
Effect of movements in
exchange rates (20) (498) (26) (544)
----------------------------------------------------------------------------
Balance at December 31,
2012 $22,918 $561,065 $28,835 $612,818
----------------------------------------------------------------------------
Carrying amounts
At December 31, 2011 $80,173 $1,085,677 $12,560 $1,178,410
At December 31, 2012 $90,479 $1,355,619 $12,464 $1,458,562
----------------------------------------------------------------------------
Included within equipment are assets held under finance lease
with a gross value of $53.7 million (2011 - $35.2 million) and
accumulated depreciation of $18.4 million (2011 - $9.4 million).
The lease obligations are secured by the leased equipment. At
December 31, 2012, Trican had $93.0 million in idle equipment and
$326.5 million in assets under construction which have not been
depreciated. At December 31, 2012, there were no impairment losses
recognized (2011 - nil).
NOTE 8 - INTANGIBLE ASSETS AND GOODWILL
Total
(stated in Non-compete Customer CBM intangible
thousands) Goodwill agreements relationships process asset
----------------------------------------------------------------------------
Cost
Balance at January
1, 2011 $36,916 $22,987 $13,154 $8,503 $44,644
Acquisitions
through business
combinations 6,551 - - - -
Effect of movements
in exchange rates 239 468 191 - 659
----------------------------------------------------------------------------
Balance at December
31, 2011 $43,706 $23,455 $13,345 $8,503 $45,303
----------------------------------------------------------------------------
Effect of movements
in exchange rates (17) (462) (188) (3) (653)
----------------------------------------------------------------------------
Balance at December
31, 2012 $43,689 $22,993 $13,157 $8,500 $44,650
----------------------------------------------------------------------------
Amortization and
impairment losses
Balance at January
1, 2011 $- $10,775 $9,866 $3,188 $23,829
Amortization - 2,859 2,620 850 6,329
Effect of movements
in exchange rates - 293 190 - 483
----------------------------------------------------------------------------
Balance at December
31, 2011 $- $13,927 $12,676 $4,038 $30,641
----------------------------------------------------------------------------
Amortization - 2,992 554 849 4,395
Effect of movements
in exchange rates - (394) (73) - (467)
----------------------------------------------------------------------------
Balance at December
31, 2012 $- $16,525 $13,157 $4,887 $34,569
----------------------------------------------------------------------------
Carrying amounts
At December 31,
2011 $43,706 $9,528 $669 $4,465 $14,662
At December 31,
2012 $43,689 $6,468 $- $3,613 $10,081
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the purposes of impairment testing, goodwill is allocated to
the Company's operating segments. The aggregate carrying amount of
goodwill allocated to each region is as follows:
December 31, December 31,
(Stated in thousands) 2012 2011
----------------------------------------------------------------------------
Canada $22,690 $22,690
International 20,999 21,016
----------------------------------------------------------------------------
$43,689 $43,706
----------------------------------------------------------------------------
The recoverable amount was determined by discounting the future
cash flows to be generated from the continuing operations of each
cash generating unit, to which goodwill has been allocated. . For
both the Canadian and International operations the recoverable
amount was in excess of the carrying amount attributable to each
cash generating unit. No impairment was recorded relating to the
year ended December 31, 2012 (2011 - no impairment).
NOTE 10 - TRADE AND OTHER PAYABLES
December 31, December 31, December 31,
(Stated in thousands) 2012 2011
----------------------------------------------------------------------------
Trade payables 112,141 167,692
Accrued liabilities 55,603 78,693
Dividend payable 21,968 7,346
Finance lease obligations 13,275 8,828
Other payables 25,801 25,130
----------------------------------------------------------------------------
Total trade and other payables $228,788 $287,689
----------------------------------------------------------------------------
The Company's exposure to currency and liquidity risk related to
trade and other payables is disclosed in note 16.
NOTE 11 - LOANS AND BORROWINGS
Bank loans
The Company's Russian subsidiary has a U.S. $20 million
(Canadian equivalent of $19.9 million) demand revolving facility
with a large international bank. This facility is unsecured, bears
interest at LIBOR plus a premium, as determined by the bank, plus
2.75% and has been guaranteed by the Company. As at December 31,
2012, the amount drawn from this facility was $9.1 million
(December 31, 2011 - nil).
Long term debt
December 31, December 31,
(Stated in thousands) 2012 2011
----------------------------------------------------------------------------
Notes payable $430,408 $412,646
Finance lease obligations 36,324 26,766
Revolving credit facilities 255,693 -
Hedge receivable (5,059) (4,903)
----------------------------------------------------------------------------
Total $717,366 $434,509
Current portion of finance lease obligations
(1) 13,275 8,828
Russian demand revolving credit facility 9,119 -
Current portion of long-term debt - 25,425
----------------------------------------------------------------------------
Non-current $694,972 $400,256
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Current portion of finance lease obligations is included in trade and
other payables.
NOTE 17 - CAPITAL MANAGEMENT
The Company's strategy is to carry a capital base to maintain
investor, creditor and market confidence and to sustain future
development of the business. The Company seeks to maintain a
balance between the level of long-term debt and shareholders'
equity to ensure access to capital markets to fund growth and
working capital given the cyclical nature of the oilfield services
sector. On a historical basis, the Company maintained and continues
to maintain a conservative ratio of long-term debt to total
capitalization. The Company may occasionally need to increase these
levels to facilitate acquisition or expansionary activities.
As at December 31, these ratios were as follows:
December 31,
(Stated in thousands, except ratios) 2012 2011
----------------------------------------------------------------------------
Loans and borrowings $694,972 $400,256
Shareholders' equity 1,374,812 1,365,389
----------------------------------------------------------------------------
Total capitalization $2,069,784 $1,765,645
----------------------------------------------------------------------------
Long-term debt to total capitalization 0.34 0.23
----------------------------------------------------------------------------
The Company is subject to various financial and non-financial
covenants associated with existing debt facilities. The covenants
are monitored on a regular basis and controls are in place to
maintain compliance with these covenants. The Company complied with
all financial covenants for the year ended December 31, 2012.
NOTE 21 - OPERATING SEGMENTS
The Company operates in Canada and the U.S. along with a number
of international regions which include Russia, Algeria, Kazhakstan,
Saudi Arabia, Colombia and Australia. 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, reservoir management, industrial
cleaning and pipeline, and completion systems and downhole tool
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,
acidizing, completion systems 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
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Year ended
December 31,
2012
----------------------------------------------------------------------------
Revenue $1,139,474 $797,783 $276,143 $- $2,213,400
Gross
profit/(loss) 286,271 (77,379) 11,363 (24,735) 195,520
Finance income - - - (2,212) (2,212)
Finance costs - - - 30,497 30,497
Tax expense/
(recovery) 46,884 (43,471) 883 528 4,824
Depreciation and
amortization 53,810 71,683 26,422 922 152,837
Assets 910,888 1,109,657 323,134 52,840 2,396,519
Goodwill 22,690 - 20,999 - 43,689
Property and
equipment 534,235 797,841 111,632 14,854 1,458,562
Capital
expenditures 137,477 258,363 41,666 7,044 444,550
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Year ended
December 31,
2011
----------------------------------------------------------------------------
Revenue $1,282,684 $738,916 $288,047 $- $2,309,647
Gross
profit/(loss) 448,895 150,311 13,923 (22,667) 590,462
Finance income - - - (3,896) (3,896)
Finance costs - - - 20,041 20,041
Tax expense 93,704 43,997 1,814 16 139,531
Depreciation and
amortization 47,687 54,274 23,935 680 126,576
Assets 911,635 882,391 257,441 165,716 2,217,183
Goodwill 22,690 - 21,016 - 43,706
Property and
equipment 505,781 573,548 88,287 10,794 1,178,410
Capital
expenditures 183,156 374,768 18,848 1,685 578,457
Goodwill
expenditures - - 6,551 - 6,551
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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.
Revenue reported above represents revenue generated from
external customers. There are no intersegment sales. Revenue from
one external customer for the year ended December 31, 2012,
amounted individually to greater than 10% of the Company's total
revenue. The customer's revenue is exclusively within the U.S. and
totals $338.2 million (2011 - $359.7 million).
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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