Trican Well Service Ltd. (TSX:TCW) -
-------------------------------------------
Three months ended Six months ended
($ millions, except per share June 30, June 30, June 30, June 30,
amounts; unaudited) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue $ 396.6 $ 418.0 $ 1,015.0 $ 1,134.3
Operating income /
(loss) (i) (14.8) (28.3) 71.4 133.6
Profit / (loss) (56.4) (50.9) (31.2) 38.5
Earnings / (loss) per
share (basic) $ (0.38) $ (0.35) $ (0.21) $ 0.26
(diluted) $ (0.38) $ (0.35) $ (0.21) $ 0.26
Adjusted profit /
(loss) (i) (50.4) (48.6) (23.0) 43.7
Adjusted profit /
(loss) per share(i) (basic) $ (0.34) $ (0.33) $ (0.15) $ 0.30
(diluted) $ (0.34) $ (0.33) $ (0.15) $ 0.30
Funds provided by /
(used in)
operations(i) (29.1) (43.6) 28.9 97.5
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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 net
income/(loss), 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 net
income/(loss) before depreciation and amortization, foreign exchange
gains and losses, other income, finance costs and income tax expense.
Adjusted profit/(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/(loss), adjusted
profit/(loss), and funds provided by/(used in) operations should not be
construed as an alternative to net income/(loss) and cash provided/(used
in) operations determined in accordance with IFRS as an indicator of
Trican's performance. Trican's method of calculating operating
income/(loss), adjusted profit/(loss) and funds provided by/(used in)
operations may differ from that of other companies and accordingly may
not be comparable to measures used by other companies.
SECOND QUARTER HIGHLIGHTS
Consolidated revenue for the second quarter of 2013 was $396.6
million, a decrease of 5% compared to the second quarter of 2012.
The adjusted consolidated net loss was $50.4 million compared to
$48.6 million, and adjusted diluted loss per share was $0.34
compared to $0.33 for the same period in 2012. Adjusted loss per
share for the second quarter of 2013 excludes a goodwill impairment
write-down of $4.1 million relating to our Australia operations and
$1.9 million in non-cash stock-based compensation expense. Funds
used in operations were $29.1 million compared to $43.6 million in
the second quarter of 2012.
Our Canadian operations generated quarterly revenue of $116.1
million and an operating loss of $12.8 million during the second
quarter of 2013. Canadian revenue decreased by 17% and operating
income decreased by 1030 basis points compared to the second
quarter of 2012. The second quarter in Canada is typically impacted
by spring break-up conditions; however, spring break-up extended
later into the quarter during 2013. Operating conditions were also
negatively impacted by increased rainfall throughout much of
western Canada during the second quarter. The adverse weather
conditions led to a decrease in second quarter industry activity
levels compared to the second quarter of 2012. Despite the weak
quarterly results in Canada, we expect strong demand for our
services in Canada throughout the second half of 2013 and we expect
to recover most of the second quarter activity that was lost due to
weather.
Our U.S. operations generated second quarter revenue of $201.5
million, a decrease of 4% compared to the first quarter of 2013.
Second quarter activity levels in the U.S. were relatively stable
compared to the first quarter of 2013 as the U.S. rig count
remained virtually unchanged. Our U.S. operating margins decreased
by 430 basis points sequentially, as pricing declines were
partially offset by further progress made on cost-cutting
initiatives. Pricing decreased on a sequential basis by 8%, due
largely to the renewal of three fracturing contracts late in the
first quarter where pricing was adjusted down to reflect current
market pricing. Activity levels and utilization remained strong in
the Marcellus during the second quarter, and in response to this
strong demand, we deployed a third full time fracturing crew in
this region late in the second quarter. We have also deployed a
fourth fracturing crew, relocated from an existing region, early in
July as we expect customer demand in this region to remain strong
for the balance of 2013. Our fracturing contract in the Haynesville
expired near the end of the second quarter and we were unable to
renew this contract with our customer at acceptable prices. We are
currently looking to replace this work in the Haynesville but will
also consider redeploying this equipment into a more active region,
if necessary.
Second quarter revenue for our International operations was
$79.0 million and the operating income was $3.6 million. Our
Russian operations comprise the majority of our International
results, and revenue was up year-over-year in this region as an
increase in horizontal drilling and completions activity led to
increased customer demand in Russia. Despite the revenue increases,
second quarter results in Russia were slightly below expectations
due to continued customer delays. In addition, operating margins
are down year-over-year in Russia as pricing increases obtained in
the 2013 work tenders have been more than offset by cost inflation.
We believe third quarter activity levels will be strong in Russia
and continue to expect Russian revenue to increase by 15-20%
relative to 2012, with modest improvements in operating
margins.
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
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Quarter-
Over-
Three months ended % of % of Quarter %
June 30, 2013 Revenue 2012 Revenue Change Change
----------------------------------------------------------------------------
Revenue 396,607 100% 417,975 100.0% (21,368) (5%)
Expenses
Materials and
operating 384,069 96.8% 426,468 102.0% (42,399) (10%)
General and
administrative 27,352 6.9% 19,762 4.7% 7,590 38%
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Operating
income/(loss)(i) (14,814) (3.7%) (28,255) (6.8%) 13,441 (48%)
Finance costs 8,554 2.2% 7,395 1.8% 1,159 16%
Depreciation and
amortization 50,613 12.8% 38,171 9.1% 12,442 33%
Goodwill
impairment 4,123 1.0% - - 4,123 -
Foreign exchange
(gain)/loss) (1,510) (0.4%) 2,914 0.7% (4,424) (152%)
Other income (1,454) (0.4%) (736) (0.2%) (718) 98%
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Loss before income
taxes (75,140) (18.9%) (75,999) (18.2%) 859 (1%)
Income tax
recovery (18,751) (4.7%) (25,139) (6.0%) 6,388 25%
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Net loss (56,389) (14.2%) (50,860) 12.2% (5,529) 11%
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(i) see first page of this report
CANADIAN OPERATIONS
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($ thousands, except revenue per job, unaudited)
Three months June 30, % of June 30, % of March 31, % of
ended, 2013 Revenue 2012 Revenue 2013 Revenue
----------------------------------------------------------------------------
Revenue 116,061 140,178 338,649
Expenses
Materials and
operating 121,446 104.6% 136,127 97.1% 241,473 71.3%
General and
administrative 7,443 6.4% 5,222 3.7% 7,376 2.2%
---------- ---------- ----------
Total expenses 128,889 111.1% 141,349 100.8% 248,849 73.5%
Operating
income/(loss)(i) (12,828) (11.1%) (1,171) (0.8%) 89,800 26.5%
Number of jobs 3,096 3,334 6,955
Revenue per job 37,046 41,959 48,280
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(i) see first page of this report
Sales Mix
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Three months ended, (unaudited) June 30, June 30, March 31,
2013 2012 2013
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 61% 57% 64%
Cementing 14% 18% 20%
Industrial Services 9% 3% 1%
Nitrogen 5% 8% 7%
Coiled Tubing 4% 6% 4%
Other 4% 3% 1%
Acidizing 3% 5% 3%
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Total 100% 100% 100%
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Operations Review
Second quarter Canadian activity levels were weak due to spring
break-up conditions that led to road bans and road weight
restrictions throughout most of the quarter. The wet weather in the
second quarter was more severe and prolonged in Canada than in
previous years, which was reflected in the drilling activity
levels. Second quarter Canadian rig count was down 11% and the
number of wells drilled was down 13% compared to the same period in
2012. These lower activity levels had a negative impact on all of
our pressure pumping service lines in Canada.
Overall pricing for our Canadian operations decreased by 10%
sequentially, and 26% compared to the second quarter of 2012. We
typically see pricing weakness in the second quarter due to low
activity levels, which caused a portion of the second quarter
pricing drop. In addition, pricing levels weakened due to
competitive Canadian market conditions as an increase in available
pressure pumping equipment in Canada compared to 2012 has led to
pricing decreases over the past several quarters.
We continued to integrate i-TEC's completion tools into our
Canadian operations. With the low Canadian activity levels during
the second quarter, i-TEC's Canadian operations did not have a
meaningful impact on our overall financial results. We will
continue to focus on establishing a market presence for i-TEC and
our Canadian completion tools division throughout the remainder of
2013.
Q2 2013 versus Q2 2012
Canadian revenue for the second quarter of 2013 decreased by 17%
compared to the second quarter of 2012. Revenue per job decreased
by 12% as the 26% reduction in pricing was partially offset by an
increase in fracturing revenue relative to total revenue. In
addition, we continued to see an increase in fracturing job sizes
in Canada, which also offset the pricing reduction. The job count
decreased by 7% because of the year-over-year decrease in overall
Canadian activity levels.
Materials and operating expenses increased to 104.6% of revenue
compared to 97.1% for the same period in 2012. We are expecting
strong Canadian activity levels in the third quarter of 2013, and
we maintained our Canadian staffing levels, infrastructure and
equipment in order to be well positioned to capitalize on the
expected increase in activity. Consequently, we were unable to make
any substantial reductions to our fixed cost structure in Canada
during the second quarter, which had a negative impact on operating
margins.
General and administrative expenses increased by $2.2 million
due largely to higher share-based employee expenses.
Q2 2013 versus Q1 2013
Canadian revenue for the second quarter of 2013 decreased by 66%
compared to the first quarter of 2013. The job count decreased by
55%, which compared to the 57% sequential drop in the Canadian rig
count during the quarter. Revenue per job decreased by 23% due to
the 10% decrease in price combined with a change in service line
mix. Due to the low volume of pressure pumping work combined with a
strong quarter for our Canadian industrial services group,
industrial services revenue was substantially higher as a
percentage of total revenue. Industrial services jobs are generally
lower revenue compared to our pressure pumping service lines.
As a percentage of revenue, materials and operating expenses
increased to 104.6% compared to 71.3% in the first quarter of 2013.
Lower activity levels led to reduced operating leverage on our cost
structure, which contributed to most of the operating margin
decrease. Operating margins were also negatively impacted by the
price reduction. General and administrative costs for the second
quarter were relatively consistent with the first quarter of
2013.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Three months June 30, % of June 30, % of March 31, % of
ended, 2013 Revenue 2012 Revenue 2013 Revenue
----------------------------------------------------------------------------
Revenue 201,538 206,777 210,685
Expenses(i)
Materials and
operating 186,795 92.7% 224,084 108.4% 186,213 88.4%
General and
administrative 6,246 3.1% 4,825 2.3% 6,483 3.1%
---------- ---------- ----------
Total expenses 193,041 95.8% 228,909 110.7% 192,696 91.5%
Operating income
(loss)(ii) 8,497 4.2% (22,132) (10.7%) 17,989 8.5%
Number of jobs 2,208 1,915 2,035
Revenue per job 92,096 108,394 103,696
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(i) certain prior period expenses have been reclassified from materials and
operating to general and administrative to conform to current period
classification
(ii) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, (unaudited) June 30, June 30, March 31,
2013 2012 2013
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 90% 92% 92%
Cementing 7% 4% 6%
Coil Tubing 3% 4% 2%
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Total 100% 100% 100%
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Operations Review
Overall U.S. activity levels were flat sequentially, as the
average U.S. rig count for the second quarter of 2013 was
relatively consistent with the first quarter. Trican's U.S.
equipment utilization in the second quarter was also unchanged on a
sequential basis. We continued to see strong utilization from our
fracturing crews operating in the Eagle Ford and Marcellus plays.
In response to the strong demand in the Marcellus, we deployed an
additional fracturing crew in this region near the end of the
second quarter, resulting in a total of three crews operating in
the Marcellus region. Conversely, overall activity levels were flat
in the Permian and down in the Bakken and Oklahoma, as these areas
remained very competitive and over-supplied with fracturing
equipment throughout the second quarter. Flooding and wet weather
in the Bakken and tornados in Oklahoma also had a negative impact
on activity levels in these regions during the second quarter. As a
result, Trican's equipment utilization levels did not increase
sequentially in the Permian, Bakken and Oklahoma regions.
Fracturing contracts in the Haynesville and Barnett expired
during the second quarter of 2013. The contract in the Barnett was
extended and utilization for this crew was stable throughout the
quarter. The Haynesville contract expired near the end of the
second quarter and we were unable to renew this contract at
acceptable prices. We are currently looking to replace this work in
the Haynesville, but will also consider redeploying this equipment
into a more active region, if necessary.
Second quarter U.S. pricing decreased by 8% compared to the
first quarter of 2013. The majority of the decrease was due to the
renewal of three fracturing contracts late in the first quarter
where pricing was adjusted down to reflect current market pricing.
In addition, spot market pricing decreased slightly in the Permian,
Oklahoma and Bakken plays on a sequential basis. We continued to
implement cost-cutting measures in the second quarter of 2013 and
made additional progress in reducing product, transportation and
logistics costs. The progress made on cost-cutting initiatives
helped to offset the impact of lower pricing during the
quarter.
We continued to see growth in our U.S. cementing service line
during the second quarter of 2013. Cementing revenue increased by
25% sequentially, and by 57% year-over-year as we continue to see
good customer acceptance of our U.S. cementing business. The U.S.
coiled tubing market remained very competitive during the second
quarter and as a result, we did not see any growth in this service
line during the quarter.
We are pleased with the progress made by our U.S. completion
tools division during the second quarter of 2013. We are seeing
good customer acceptance of our i-TEC tools in the U.S. and saw a
substantial increase in sequential revenue for this U.S. division.
We will continue to focus on building the market presence and
customer base for i-TEC and our U.S. completion tools division
throughout the remainder of 2013.
Q2 2013 versus Q2 2012
U.S. revenue in the second quarter of 2013 was down 3% compared
to the second quarter of 2012. Revenue per job decreased by 15% due
to pricing reductions, a smaller proportion of fracturing revenue
relative to total revenue, and a decrease in fracturing job sizes.
The job count increased by 15% due largely to increased cementing
activity combined with higher utilization for our Marcellus and
Eagle Ford fracturing crews, which was offset slightly by lower
activity in the Haynesville and Oklahoma regions.
As a percentage of revenue, materials and operating expenses
decreased to 92.7% from 108.4%. Cost reductions for guar and
product transportation and logistics contributed to a majority of
the decrease. These factors were offset partially by a decrease in
our pricing. General and administrative costs increased by $1.4
million due largely to increased share-based compensation.
Q2 2013 versus Q1 2013
On a sequential basis, U.S. revenue decreased by 4%. Revenue per
job decreased by 11% due to an 8% drop in price and a smaller
proportion of fracturing revenue relative to total revenue. The job
count increased by 9% due primarily to increased activity in the
Marcellus combined with higher cementing activity. These increases
were offset partially by decreased utilization in the Haynesville
and Oklahoma regions.
Materials and operating expenses increased to 92.7% from 88.4%
as a percentage of revenue due to the 8% decrease in price that led
to reduced operating leverage on our cost structure. This factor
was partially offset by continued progress made on reducing product
transportation and logistics costs. General and administrative
costs were down slightly as increased share-based expenses were
offset by lower administrative salary costs.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Three months June 30, % of June 30, % of March 31, % of
ended, 2013 Revenue 2012 Revenue 2013 Revenue
----------------------------------------------------------------------------
Revenue 79,007 71,020 70,111
Expenses
Materials and
operating 70,723 89.5% 60,523 85.2% 68,384 97.5%
General and
administrative 4,637 5.9% 2,985 4.2% 3,848 5.5%
---------- ---------- -----------
Total expenses 75,360 95.4% 63,508 89.4% 72,232 103.0%
Operating (loss)
income(i) 3,647 4.6% 7,512 10.6% (2,121) (3.0%)
Number of jobs 962 1,057 914
Revenue per job 76,235 62,506 73,249
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----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, (unaudited) June 30, June 30, March 31,
2013 2012 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 83% 76% 84%
Coiled Tubing 8% 13% 8%
Cementing 5% 8% 5%
Nitrogen 2% 2% 2%
Other 2% 1% 1%
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Total 100% 100% 100%
----------------------------------------------------------------------------
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Operations Review
Our International operations include the financial results for
operations in Russia, Kazakhstan, Algeria, Australia, Saudi Arabia,
Colombia and Norway.
Our Russian operations comprise the majority of our
International results and activity levels in Russia were slightly
below expectations during the second quarter of 2013. Several of
our Russian customers' work programs were slightly behind schedule,
which contributed to the lower than expected revenue.
Second quarter financial results were strong in Kazakhstan for
our two fracturing crews operating in the region and remained
relatively consistent with the first quarter of 2013.
Financial results in Algeria have weakened year-over-year and
are also down slightly, sequentially, due to a decrease in
cementing activity for Trican in the region. We continue to see
strong operating margins from our coiled tubing operations in
Algeria but gains from the coiled tubing service line were more
than offset by losses for our cementing service line during the
second quarter. In response to the weak cementing activity in
Algeria, we parked two cement units during the second quarter and
are currently focused on growing our coiled tubing business in the
region.
Cementing and environmental services activity increased
sequentially, for our Australian operations and we are seeing
improvement in this market. However, the Australian market has been
slow to develop and is behind our initial activity level
expectations for this region. We still believe that the Australian
market has good growth potential and are committed to maintaining
our presence in the region.
The i-TEC International division is based in Norway and we are
continuing to integrate this division into our International
operations. We are seeing good customer acceptance of the i-TEC
tools in Russia and we will continue to focus on building i-TEC's
market presence in this region.
We are continuing to participate in tenders in Saudi Arabia and
Colombia but did not perform any work in these regions during the
second quarter of 2013.
Q2 2013 versus Q2 2012
Second quarter revenue in 2013 for our International operations
increased by 11% compared to the second quarter of 2012. Revenue
per job increased by 22% due primarily to an increase in fracturing
revenue relative to total revenue, an increase in fracturing job
size, and a slight increase in Russian pricing. The increase in
horizontal completions and multi-stage fracturing for our Russian
operations led to an increase in fracturing job size. The job count
decreased by 9% due largely to a year-over-year decrease in coiled
tubing and cementing activity for our Russian operations.
As a percentage of revenue, materials and operating expenses
increased to 89.5% from 85.2% compared to the second quarter of
2012. Operating margins were negatively impacted by higher product
costs in Russia as well as operating losses in Algeria. General and
administrative costs increased by $1.7 million due largely to an
increase in share-based employee costs in Russia.
Q2 2013 versus Q1 2013
International revenue increased by 13% sequentially, due to
increases in both the job count and revenue per job. The job count
increased by 5% due to increased activity in Russia for all our
major service lines. Increased activity in Russia was largely due
to seasonal improvements as the first quarter was impacted by cold
weather. Increased cementing activity in Australia also contributed
to the job count increase. Revenue per job increased by 4% due
primarily to an increase in fracturing revenue relative to total
revenue.
Materials and operating expenses decreased to 89.5% compared to
97.5% in the first quarter of 2013 due largely to increased
operational leverage on our fixed cost structure in Russia. The
improvements in Russia were partially offset by operating losses in
Algeria. General and administrative costs are up $0.8 million due
to increased share-based expenses.
CORPORATE
----------------------------------------------------------------------------
($ thousands,
unaudited)
Three months June 30, % of June 30, % of March 31, % of
ended, 2013 Revenue 2012 Revenue 2013 Revenue
----------------------------------------------------------------------------
Expenses
Materials and
operating 5,413 1.4% 4,895 1.2% 6,663 1.4%
General and
administrative 9,026 2.3% 7,569 1.8% 12,987 2.7%
---------- ---------- -----------
Total expenses 14,439 3.6% 12,464 3.0% 19,650 4.1%
Operating loss(i) (14,439) (12,464) (19,650)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Q2 2013 versus Q2 2012
Corporate expenses for the second quarter of 2013 increased by
$2.0 million compared to the second quarter of 2012 due largely to
an increase in share-based expenses.
Q2 2013 versus Q1 2013
Sequentially, corporate expenses decreased by $5.2 million due
to decreases in profit sharing and share-based expenses.
OTHER EXPENSES AND INCOME
Finance costs for the second quarter of 2013 decreased by $1.2
million compared to the same period in 2012. Depreciation and
amortization increased by $12.4 million compared to the same period
last year due to capital additions related to our capital expansion
program.
Foreign exchange gains of $1.5 million have been recorded for
the quarter ended June 30, 2013, compared to losses of $2.9 million
for the same period in 2012. This change is due to the net impact
of fluctuations in the U.S. dollar and the Russian ruble relative
to the Canadian dollar. Other income, for the second quarter of
2013 was $1.4 million compared to $0.7 million in the same period
of 2012. Other income is mainly comprised of interest income earned
on cash balances and gains on asset sales.
During the three months ended June 30, 2013, due to slower than
anticipated growth in the region, Trican identified impairment
indicators for the goodwill balance related to the Australian
operations. As a result of the analysis performed, Trican concluded
that the recoverable value of the continuing Australian operations
was less than its carrying amount, and a goodwill impairment charge
of $6.4 million was recorded. Somewhat offsetting the goodwill
impairment is a gain of $2.3 million recognized through the
reversal of the performance-based contingency payment owed to the
former owners of the Australian entity. Trican continues to believe
in the viability of the Australian market and will continue to
focus on growing our presence in the region.
INCOME TAXES
Trican recorded an income tax recovery of $18.8 million for the
three months ended June 30 2013, versus a recovery of $25.1 million
for the same period of 2012. The decrease in the tax recovery is
primarily attributable to a larger taxable loss in Canada and
smaller taxable loss in the U.S. compared to the second quarter of
2012. Canada has a lower corporate tax rate compared to the
U.S.
COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS ($ thousands, unaudited)
----------------------------------------------------------------------------
Quarter-
Over-
Six months ended % of % of Quarter %
June 30, 2013 Revenue 2012 Revenue Change Change
----------------------------------------------------------------------------
Revenue 1,014,983 100% 1,134,331 100.0% (119,348) (11%)
Expenses
Materials and
operating 886,094 87.3% 954,013 102.0% (67,919) (7%)
General and
administrative 57,539 5.7% 46,727 4.7% 10,812 23%
----------------------------------------------------------------------------
Operating
income(i) 71,350 7.0% 133,590 (6.8%) (62,241) (47%)
Finance costs 16,535 1.6% 14,428 1.8% 2,107 15%
Depreciation and
amortization 97,672 9.6% 74,003 9.1% 23,669 32%
Goodwill
impairment, net 4,123 0.4% - 0.0% 4,123 100%
Foreign exchange
(gain)/loss (3,236) (0.3%) 2,222 0.7% (5,458) (246%)
Other income (3,524) (0.3%) (2,082) (0.2%) (1,442) 69%
----------------------------------------------------------------------------
Income/(loss)
before income
taxes (40,221) (4.0%) 45,019 (18.2%) (81,118) (180%)
Income tax
expense/
(recovery) (9,024) (0.9%) 6,497 (6.0%) (15,521) (239%)
----------------------------------------------------------------------------
Net Income/(loss) (31,197) (3.1%) 38,675 12.2% (69,643) (181%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
($ thousands, except Period-
revenue per job, Over-
unaudited) June 30, % of June 30, % of Period
Six months ended, 2013 Revenue 2012 Revenue Change
----------------------------------------------------------------------------
Revenue 454,774 573,289 (21%)
Expenses
Materials and
operating 362,919 79.8% 402,092 70.1% (10%)
General and
administrative 14,312 3.1% 13,358 2.3% 7%
---------- ---------- ------------
Total expenses 377,231 82.9% 415,450 72.5% (9%)
Operating income(i) 77,543 17.1% 157,839 27.5% (51%)
Number of jobs 10,051 10,487 (4%)
Revenue per job 44,819 54,384 (18%)
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----------------------------------------------------------------------------
(i) see first page of this report
Canadian revenue for the six months ended June 30, 2013, was 21%
lower than the same period in 2012. Revenue per job decreased by
18% as the 23% year-to-date decrease in pricing was offset
partially by larger fracturing jobs performed in 2013 compared to
2012. The job count was also down 4% due to lower Canadian activity
levels as rig count was down 11% for the first six months of 2013
compared to 2012.
As a percentage of revenue, materials and operating expenses
increased to 79.8% from 70.1% compared to the same period in 2012.
Lower pricing and activity levels resulted in lower operating
leverage on our cost structure, which caused the decrease in
operating margins. General and administrative expenses increased by
$1.0 million as an increase in share-based costs was offset by a
decrease in profit sharing expenses.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except Period-
revenue per job, Over-
unaudited) June 30, % of June 30, % of Period
Six months ended, 2013 Revenue 2012 Revenue Change
----------------------------------------------------------------------------
Revenue 412,223 425,313 (3%)
Expenses(i)
Materials and
operating 373,008 90.5% 416,254 97.9% (10%)
General and
administrative 12,729 3.1% 9,487 2.2% 34%
---------- ---------- ------------
Total expenses 385,738 93.6% 425,741 100.1% (9%)
Operating
income/(loss)(ii) 26,486 6.4% (428) (0.1%) 6,088%
Number of jobs 4,243 3,595 18%
Revenue per job 97,660 118,724 (18%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) certain prior period expenses have been reclassified from materials
and operating to general and administrative to conform to current period
classification
(ii) see first page of this report
U.S. revenue for the first six months of 2013 decreased by 3%
compared to the first six months of 2012. Revenue per job decreased
by 18% due to an 8% drop in pricing, a decrease in fracturing
revenue relative to total revenue, and smaller fracturing job sizes
performed. Job count increased by 18% due to an increase in
cementing activity combined with higher utilization in the
Marcellus and Eagle Ford. These increases were offset partially by
decreased utilization for our fracturing crews in the Haynesville
and Oklahoma regions.
As a percentage of revenue, materials and operating expenses
decreased to 90.5% from 97.9%. Cost reductions for guar and product
transportation and logistics led to an increase in operating
margins. These cost reductions were offset partially by reduced
pricing. General and administrative costs increased by $3.2 million
due to increased share-based, profit sharing and U.S. head office
expenses.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except Period-
revenue per job, Over-
unaudited) June 30, % of June 30, % of Period
Six months ended, 2013 Revenue 2012 Revenue Change
----------------------------------------------------------------------------
Revenue 149,118 135,729 10%
Expenses
Materials and
operating 139,107 93.3% 121,825 89.8% 14%
General and
administrative 8,485 5.7% 6,680 4.9% 27%
---------- ---------- ------------
Total expenses 147,592 99.0% 128,505 94.7% 15%
Operating income(i) 1,526 1.0% 7,224 5.3% (79%)
Number of jobs 1,876 1,999
Revenue per job 76,235 63,415 20%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Year-to-date International revenue is up 10% compared to the
same period in 2012. Revenue per job has increased by 20% due to an
increase in fracturing revenue relative to total revenue, an
increase in fracturing job size, and a slight increase in Russian
pricing. The job count has decreased by 6% due to a decrease in
cementing and coiled tubing in Russia.
Materials and operating expenses increased to 93.3% of revenue
compared to 89.8% of revenue in the same period in 2012. An
increase in Russian product costs as well as operating losses in
Algeria contributed to the year-over-year decrease in operating
margins. General and administrative costs increased by $1.8 million
due largely to an increase in share-based employee expenses.
CORPORATE
----------------------------------------------------------------------------
($ thousands, Period-
unaudited) June 30, % of June 30, % of Over-Period
Six months ended, 2013 Revenue 2012 Revenue Change
----------------------------------------------------------------------------
Expenses
Materials and
operating 12,076 1.2% 11,304 1.0% 7%
General and
administrative 22,013 2.2% 19,740 1.7% 12%
---------- ---------- ------------
Total expenses 34,089 3.4% 31,044 2.7% 10%
Operating loss(i) (34,089) (31,044) 10%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Corporate costs are up $3.0 million for the first six months of
2013 compared to the same period in 2012. Increased share-based
expenses account for the majority of the increase.
OTHER EXPENSES AND INCOME
For the six months ended June 30, 2013, finance costs increased
by $2.1 million compared to the same period in 2012 due to
increased debt balances. Depreciation and amortization increased by
$23.7 million compared to the same period last year due to capital
additions related to our capital expansion program.
Foreign exchange gains of $3.2 million have been recorded for
the six months ended June 30, 2013, compared to losses of $2.2
million for the same period in 2012. This change is due to the net
impact of fluctuations in the U.S. dollar and the Russian ruble
relative to the Canadian dollar. Year-to-date other income was $3.5
million compared to $2.1 million for the same period of 2012. Other
income is largely comprised of gains on asset sales and interest
income on cash balances.
INCOME TAXES
Trican recorded an income tax recovery of $9.0 million for the
six months ended June 30, 2013, versus and expense of $6.5 million
for the same period of 2012. The decrease in tax expense is
primarily attributable to lower earnings.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Funds used in operations decreased to $33.1 million for the
second quarter of 2013 compared to $49.1 million for the same
period in 2012. The decrease was due largely to less taxes paid
during the quarter.
At June 30, 2013, Trican had working capital of $350.2 million
compared to $547.4 million at the end of 2012. The decrease is due
to lower cash on hand and lower accounts receivable primarily due
to a decrease in second quarter activity.
Investing Activities
Capital expenditures for the second quarter of 2013 totaled
$30.0 million, compared with $148.3 million for the same period in
2012. Capital expenditures for the six months ended June 30, 2013,
were $61.0 million compared to $304.2 million in the same period of
2012. A substantial decrease in our 2013 capital program relative
to the 2012 program resulted in a significant decline in capital
expenditures.
During the second quarter of 2013, we increased our 2013 capital
budget by $27 million. The increase is largely directed at
maintenance and infrastructure initiatives for our Canadian and
U.S. operations. Capital expenditures for the remainder of 2013 are
expected to be approximately $100 million to $120 million based on
current 2013 budgets and remaining capital expenditures on prior
year budgets.
During the first quarter of 2013, Trican closed the previously
announced acquisition of i-TEC in exchange for cash consideration
of $31.0 million and 2.4 million Trican common shares valued at
$30.3 million.
Financing Activities
As at July 30, 2013, Trican had 148,896,934 common shares and
8,306,690 employee stock options outstanding.
During the first six months of 2013, Trican's repaid net $74.9
million on its $500.0 million revolving credit facility. The
balance of the facility at June 30, 2013, was $171.7 million
leaving $328.3 million of available debt under the facility.
During the first quarter of 2013, Trican received approval from
the Toronto Stock Exchange to renew the normal course issuer bid to
purchase its own common shares, for cancellation, for the one-year
period of March 8, 2013, to March 7, 2014. During the six months
ended June 30, 2013, no common shares were purchased under the
normal course issuer bid.
Trican currently pays a semi-annual dividend of $0.15 per share.
During the first quarter of 2013, $22.0 million in dividend
payments were made. During the second quarter of 2013, Trican
accrued $22.3 million in dividends that will be paid during the
third quarter of 2013.
OUTLOOK
Canadian Operations
We expect Canadian demand for our services to be strong in the
third quarter of 2013. Canadian rig count has recently rebounded
from second quarter lows, and based on discussions with our
Canadian customers, we believe our activity levels for the third
quarter of 2013 will be higher than the third quarter of 2012. We
will complete a large Horn River project and expect to be working
for several customers in the Duvernay during the third quarter.
These large projects are anticipated to keep equipment utilization
levels strong for our fracturing service line.
Third quarter pricing is expected to improve compared to the
second quarter of 2013 but is not expected to return to first
quarter pricing levels. Despite the anticipated increase in
activity, the Canadian market remains competitive and we do not
believe that Canadian prices will increase substantially until
activity levels and equipment utilization remain strong over a
sustained period of time. Given the expectation of lower
year-over-year pricing, we believe operating margins in the third
quarter of 2013 will be lower than the third quarter of 2012.
Based on early indications from our Canadian customers, we
expect Canadian demand and activity levels to sequentially drop in
the fourth quarter of 2013 but remain above 2012 levels. We also
believe that the Canadian market is poised to grow in 2014 based on
further development of the Duvernay play and LNG related activity
in gas plays such as the Montney and Horn River; however, this
expectation is dependent on several market factors including
commodity prices and the spending levels of our customers.
U.S. Operations
We expect the U.S. pressure pumping market to remain competitive
for the rest of 2013 as there continues to be excess pumping
equipment in the market. For this reason, we do not believe that
there will be an opportunity to increase pricing in 2013; however,
we expect spot market pricing to remain stable for the remainder of
2013. All of our long term contracts for 2013 have been
renegotiated, with all renewed except for one crew in the
Haynesville shale. We do not foresee additional price drops on
these contracted crews throughout the remainder of 2013.
We will continue to focus on increasing U.S. equipment
utilization in the upcoming quarters. Despite the competitive and
challenging market conditions, we believe there will be
opportunities to increase utilization through high-technology
product offerings including water recycling services, fluid systems
and completion tools. We believe we have differentiating technology
and our focus in the U.S. will be to effectively market this
technology to new and existing U.S. customers in order to increase
utilization.
We will also continue to focus on U.S. cost-cutting initiatives
for the second half of 2013. We believe that we can continue to
lower our product handling and transportation costs through better
logistics management. In addition, we expect that improvements to
our U.S. infrastructure will provide opportunities to lower
outsourcing costs for repairs and maintenance and product storage
in the second half of 2013.
In addition to the third Marcellus fracturing crew that was
deployed during the second quarter, we deployed a fourth fracturing
crew in the Marcellus early in the third quarter of 2013 due to
strong customer demand in the region. We expect to realize the full
benefit of these additional Marcellus crews during the third
quarter of 2013. Increased Marcellus activity, combined with
additional cost control, is expected to have a positive impact on
U.S. margins in the third quarter of 2013. However, U.S. operating
margins in the second half of 2013 will depend significantly on
maintaining high equipment utilization levels in a low price
environment in all of our regions.
International Operations
Although the second quarter results in Russia were below
expectations, our 2013 outlook for this region has not changed. We
continue to expect revenue to increase by 15-20% relative to 2012
with modest improvements in operating margins. Revenue increases
are being driven by an increase in horizontal drilling and
multi-stage fracturing as the Russian market continues to trend
towards more unconventional work.
Our Kazakhstan operations continued to be profitable although
year-over-year activity was down in the region. We expect activity
levels to be down slightly year-over-year with strong operating
margins for the remainder of 2013.
The Algerian cementing business has been shut down due to low
demand levels in the region. With the focus now on the more
profitable coiled tubing business, we expect Algerian operating
margins to improve during the second half of 2013.
Our cementing business in Australia improved during the second
quarter and we expect to continue this momentum into the second
half of 2013 as we have been awarded additional cementing contracts
in this region. We continue to focus on increasing utilization in
Australia for our cementing service line and will look to obtain
new work tenders during the second half of 2013.
NON-IFRS DISCLOSURE
Adjusted net income/(loss), operating income and funds provided
by /(used in) operations do not have any standardized meaning as
prescribed by IFRS and, therefore, are considered non-IFRS
measures.
Adjusted net income/(loss) and funds provided by operations have
been reconciled to profit and operating income has been reconciled
to gross profit, being the most directly comparable measures
calculated in accordance with IFRS. The reconciling items have been
presented net of tax.
----------------------------------------------------------------------------
(thousands;
unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March 31, June 30, June 30,
2013 2012 2013 2013 2012
----------------------------------------------------------------------------
Adjusted net
income/(loss) $ (50,407) $ (48,612) $ 27,380 $ (23,027) $ 43,688
Deduct:
Goodwill impairment 4,123 - - 4,123 -
Non-cash share-
based compensation
expense 1,859 2,248 2,188 4,047 5,166
----------------------------------------------------------------------------
Profit/(loss) for the
period (IFRS
financial measure) $ (56,389) $ (50,860) $ 25,192 $ (31,197) $ 38,522
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands;
unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March 31, June 30, June 30,
2013 2012 2013 2013 2012
----------------------------------------------------------------------------
Funds provided
by/(used in)
operations(i) $ (29,073) $ (43,574) $ 57,956 $ 28,883 $ 97,508
Charges to income not
involving cash
Depreciation and
amortization (50,613) (38,171) (47,059) (97,672) (74,003)
Amortization of debt
issuance costs (216) (201) (216) (432) -
Stock-based
compensation (1,859) (2,248) (2,188) (4,047) (5,166)
Gain/(loss) on
disposal of
property and
equipment (183) (282) 460 277 (335)
Net finance costs (7,984) (6,864) (7,532) (15,516) (13,240)
Unrealized foreign
exchange gain /
(loss) 5,282 (3,460) 3,296 8,578 (3,653)
Goodwill impairment,
net (4,123) - - (4,123) -
Income tax
recovery/(expense) 18,752 25,139 (9,727) 9,025 (6,497)
Interest paid 12,865 1,582 2,791 15,656 2,777
Income tax paid 763 17,219 27,411 28,174 41,131
----------------------------------------------------------------------------
Profit/(loss) for the
period (IFRS
financial measure) $ (56,389) $ (50,860) $ 25,192 $ (31,197) $ 38,522
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) this reconciliation has been modified for certain prior period to
conform to the current year presentation
----------------------------------------------------------------------------
(thousands;
unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March 31, June 30, June 30.
2013 2012 2013 2013 2012
----------------------------------------------------------------------------
Operating income $ (14,814) $ (28,255) $ 86,670 $ 71,349 $ 133,591
Add:
Administrative
expenses 29,252 20,582 30,282 60,041 48,415
Deduct:
Depreciation
expense (50,613) (38,171) (47,059) (97,672) (74,003)
----------------------------------------------------------------------------
Gross profit/(loss)
(IFRS financial
measure) $ (36,175) $ (45,844) $ 69,893 $ 33,718 $ 108,003
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 expectation of strong demand for our services in Canada throughout
the second half of 2013 and the expectation to recover most of the
second quarter activity that was lost due to weather;
-- The expectation that customer demand in the Marcellus region in the U.S.
will remain strong for the balance of 2013;
-- The intention of replacing fracturing work in the Haynesville as a
result of an expired contract, but will also consider redeploying the
equipment into a more active region, if necessary;
-- The belief that third quarter activity levels will be strong in Russia
and continue to expect Russian revenue to increase by 15 - 20% relative
to 2012 with modest improvements in operating margins;
-- The expectation of strong Canadian activity levels in the third quarter
of 2013, and the expectation of capitalizing on the increase in activity
through maintaining Canadian staffing levels, infrastructure and
equipment;
-- The intention of continued focus on establishing a market presence for
i-TEC and our Canadian and U.S. completion tools division throughout the
remainder of 2013;
-- The plan to focus on growing our Algerian coiled tubing business with
the shutdown of the Algeria cement service line;
-- The belief that the Australian market has good growth potential, and our
commitment to maintaining our presence in the region;
-- The belief that Trican will continue to focus on building i-TEC's market
presence in Russia;
-- The belief in the viability of the Australian market and the continued
focus on growing our presence in the market;
-- The expectation that capital expenditures for the remainder of 2013 will
be $100 to $120 million based on current 2013 budgets and remaining
capital expenditures on prior year budgets;
-- The expectation that approximately $22.3 million in additional dividend
payments will be made in the third quarter of 2013;
-- The belief that our third quarter Canadian activity levels will be
higher than the third quarter of 2012;
-- The expectation that our Canadian operations will complete a large Horn
River project and that we will be working for several customers in the
Duvernay during the third quarter;
-- The anticipation that equipment utilization levels will remain strong
for our Canadian fracturing service line;
-- The expectation that third quarter Canadian pricing will improve
compared to the second quarter of 2013, but is not expected to return to
first quarter pricing levels;
-- The expectation that the Canadian market remains competitive and that
Canadian prices will not increase substantially until activity levels
and equipment utilization remain strong over a sustained period of time;
-- The expectation of lower year-over-year pricing in Canada in the third
quarter 2013;
-- The belief that Canadian operating margins in the third quarter 2013
will be lower than the third quarter 2012;
-- The expectation, based on early indications from our Canadian customers,
that Canadian demand and activity levels will sequentially drop in the
fourth quarter of 2013 but remain above 2012 levels; however, this
belief will be dependent on several market factors including commodity
prices and the spending levels of our customers;
-- The intention to focus on increasing equipment utilization in the
upcoming quarters;
-- The expectation that the U.S. pressure pumping market will remain
competitive for the rest of 2013 as there continues to be excess pumping
equipment in the market;
-- The belief that there is not an opportunity to increase pricing in 2013,
and an expectation that U.S. spot market pricing will remain stable for
the remainder of 2013;
-- The belief that we will not see any additional pricing declines
throughout the remainder of 2013 on crews contracted in the U.S.;
-- The belief that there will be opportunities in the U.S. to increase
utilization through high-technology product offerings including water
recycling services, fluid systems and completion tools;
-- We believe we have differentiating technology and our focus in the U.S.
will be to effectively market this technology to new and existing U.S.
customers in order to increase utilization;
-- The expectation that we will continue to focus on our U.S. cost-cutting
initiatives for the second half of 2013;
-- The belief that we can continue to lower our U.S. product handling and
transportation costs through better logistics management;
-- The expectation that improvements to our U.S. infrastructure will
provide opportunities to lower outsourcing costs for repairs and
maintenance and product storage in the second half of 2013;
-- The expectation that we will realize the full benefit of the additional
Marcellus crews during the third quarter of 2013;
-- The expectation that increased activity in the Marcellus region,
combined with additional cost control, will have a positive impact on
U.S. margins in the third quarter of 2013;
-- The belief that U.S. operating margins, in the second half of 2013, will
depend significantly on maintaining high equipment utilization levels in
a low price environment in all of our U.S. regions;
-- The expectation that the increase in revenue of 15-20% will generate
only a modest improvement in Russian operating margins relative to 2012;
-- The belief that our outlook in Russia has not changed;
-- The belief that the Russian revenue increases are being driven by an
increase in horizontal drilling and multi-stage fracturing as the
Russian market continues to trend towards more unconventional work;
-- The expectation that activity levels will be down slightly year-over-
year in Kazakhstan with strong operating margins for the remainder of
2013;
-- The expectation that Algerian operating margins will improve during the
second half of 2013, due to the focus on the more profitable coiled
tubing business;
-- The expectation that the improvements in the cementing business in
Australia will continue into the second half of 2013;
-- The expectation that we will continue to focus on increasing utilization
in Australia for our cement service line and will look to obtain new
work tenders during the second half of 2013;
-- The intention to participate in tenders in Saudi Arabia and Colombia.
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 21, 2013.
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).
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
June 30, December 31,
(Stated in thousands; unaudited) 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 52,386 $ 113,506
Trade and other receivables 365,625 437,038
Current tax assets 19,528 647
Inventory 230,979 211,794
Prepaid expenses 32,461 33,002
----------------------------------------------------------------------------
700,979 795,987
Property and equipment 1,444,446 1,458,562
Intangible assets 8,477 10,081
Deferred tax assets 102,075 76,302
Other assets 19,888 11,898
Goodwill 76,718 43,689
----------------------------------------------------------------------------
$ 2,352,583 $ 2,396,519
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans $ 9,431 $ 9,119
Trade and other payables 262,448 228,788
Contingent consideration - 2,860
Current tax liabilities - 7,853
Current portion of long-term debt 78,885 -
----------------------------------------------------------------------------
350,764 248,620
Loans and borrowings 548,359 694,972
Deferred tax liabilities 79,823 77,012
Shareholders' equity
Share capital 559,381 527,860
Contributed surplus 59,099 55,352
Accumulated other comprehensive loss (9,412) (24,100)
Retained earnings 762,467 815,700
----------------------------------------------------------------------------
Total equity attributable to equity holders of
the Company 1,371,535 1,374,812
Non-controlling interest 2,102 1,103
----------------------------------------------------------------------------
$ 2,352,583 $ 2,396,519
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the condensed consolidated interim financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Months Six Months
Ended June 30, Ended June 30,
(Stated in thousands, except
per share amounts;
unaudited) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue $ 396,607 $ 417,975 $1,014,983 $1,134,331
Cost of sales 432,782 463,819 981,265 1,026,329
----------------------------------------------------------------------------
Gross (loss)/profit (36,175) (45,844) 33,718 108,002
Administrative expenses 29,252 20,582 60,041 48,415
Other income (1,391) (205) (2,505) (894)
----------------------------------------------------------------------------
Results from operating
activities (64,036) (66,221) (23,818) 60,481
Finance income (63) (531) (1,019) (1,188)
Finance costs 8,554 7,395 16,535 14,428
Foreign exchange (gain)/loss (1,510) 2,914 (3,236) 2,222
Goodwill impairment, net 4,123 - 4,123 -
----------------------------------------------------------------------------
(Loss)/Profit before income
tax (75,140) (75,999) (40,221) 45,019
Income tax
expense/(recovery) (18,751) (25,139) (9,024) 6,497
----------------------------------------------------------------------------
(Loss)/Profit for the period $ (56,389) $ (50,860) $ (31,197) $ 38,522
----------------------------------------------------------------------------
Other comprehensive
(loss)/income
Items which may subsequently
be recycled through profit
or loss
Unrealized (loss)/gain on
hedging instruments (57) (261) 43 442
Foreign currency
translation differences 7,616 (3,196) 14,645 1,404
----------------------------------------------------------------------------
Total comprehensive
(loss)/income for the
period $ (48,830) $ (54,317) $ (16,509) $ 40,368
----------------------------------------------------------------------------
(Loss)/profit attributable
to:
Owners of the Company (56,264) (50,785) (30,901) 38,675
Non-controlling interest (125) (75) (296) (153)
----------------------------------------------------------------------------
(Loss)/profit for the period $ (56,389) $ (50,860) $ (31,197) $ 38,522
----------------------------------------------------------------------------
Total comprehensive
(loss)/income attributable
to:
Owners of the Company (48,840) (54,242) (16,509) 40,521
Non-controlling interest 10 (75) - (153)
----------------------------------------------------------------------------
Total comprehensive
(loss)/income for the
period $ (48,830) $ (54,317) $ (16,509) $ 40,368
----------------------------------------------------------------------------
(Loss)/Earnings per share
----------------------------------------------------------------------------
Basic $ (0.38) $ (0.35) $ (0.21) $ 0.26
Diluted $ (0.38) $ (0.35) $ (0.21) $ 0.26
----------------------------------------------------------------------------
Weighted average shares
outstanding - basic 148,845 146,653 148,720 146,800
Weighted average shares
outstanding - diluted 148,845 146,653 148,720 146,943
----------------------------------------------------------------------------
See accompanying notes to the condensed consolidated interim financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Six Months
Ended June 30, Ended June 30,
(Stated in thousands;
unaudited) 2013 2012 2013 2012
----------------------------------------------------------------------------
Cash Provided By/ (Used In):
Operations
(Loss)/ profit for the
period $ (56,389) $ (50,860) $ (31,197) $ 38,522
Charges to income not
involving cash:
Depreciation and
amortization 50,613 38,171 97,672 74,003
Amortization of debt
issuance costs 216 201 432 403
Stock-based compensation 1,859 2,248 4,047 5,166
Loss/(gain) on disposal
of property and
equipment 184 282 (277) 335
Net finance costs 7,984 6,864 15,516 13,240
Unrealized foreign
exchange (loss)/gain (5,282) 3,460 (8,578) 3,653
Goodwill impairment, net 4,123 - 4,123 -
Income tax
(recovery)/expense (18,751) (25,139) (9,025) 6,497
----------------------------------------------------------------------------
(15,445) (24,773) 72,713 141,819
Change in inventories (2,805) (21,016) (16,008) (46,373)
Change in trade and other
receivables 187,997 216,375 87,159 178,923
Change in prepayments (1,091) (2,413) 1,748 (8,146)
Change in trade and other
payables (44,857) (49,639) 28,163 (6,844)
----------------------------------------------------------------------------
Cash generated from
operating activities 123,799 118,534 173,775 259,379
Interest paid (12,865) (1,582) (15,656) (2,777)
Income tax paid (763) (17,219) (28,174) (41,131)
----------------------------------------------------------------------------
110,171 99,733 129,945 215,471
Investing
Interest received - 225 - 710
Purchase of property and
equipment (30,045) (148,268) (61,031) (304,155)
Proceeds from the sale of
property and equipment 1,761 588 2,690 679
Purchase of other assets - - (4,600) -
Payments received on loan
to an unrelated third-
party 155 - 155 226
Business acquisitions - - (31,009) -
----------------------------------------------------------------------------
(28,129) (147,455) (93,795) (302,540)
Financing
Proceeds from issuance of
share capital, net 906 369 906 1,108
Repurchase and
cancellation of shares
under NCIB - (6,505) - (10,011)
Issuance of long-term
debt, net of debt
issuance costs - 52,773 26,354 64,549
Repayment of long-term
debt (103,000) (25,425) (103,000) (25,425)
Dividend paid - - (21,968) (7,345)
----------------------------------------------------------------------------
(102,094) 21,212 (97,708) 22,876
Effect of exchange rate
changes on cash 858 (328) 438 (393)
----------------------------------------------------------------------------
Decrease in cash and cash
equivalents (19,194) (26,838) (61,120) (64,586)
Cash and cash equivalents,
beginning of period 71,580 88,107 113,506 125,855
----------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 52,386 $ 61,269 $ 52,386 $ 61,269
----------------------------------------------------------------------------
See accompanying notes to the condensed consolidated interim financial
statements.
BUSINESS ACQUISITIONS
Effective January 11, 2013, Trican acquired all of the issued
and outstanding shares and discharged the existing debt of Petro
Tools Holding AS, the holding company for i-TEC and its
subsidiaries (collectively "i-TEC"), for consideration of $61.3
million, which is made up of cash of $31.0 million and 2,381,381
Trican common shares, issued at $12.73 per share. The initial
accounting for the acquisition is incomplete, as Trican is working
to quantify the opening fair values of the assets acquired,
liabilities assumed and intangible assets arising from the
acquisition. Furthermore, the value of goodwill arising from the
synergies created through the i-TEC acquisition will be determined
once the values at acquisition have been established. In
conjunction with the acquisition, Trican has agreed to pay
contingent consideration of up to U.S. $45 million subject to
agreed upon financial targets for i-TEC for the year ended December
31, 2013. Trican has determined the acquisition fair value of the
contingent consideration to be nil. All of i-TEC's earnings have
been included in Trican's condensed consolidated statement of
comprehensive income since January 11, 2013.
The preliminary acquisition fair values have been determined as
follows:
----------------------------------------------------------------------------
Fair value of acquired net assets:
Net working capital (including cash) $ 8,809
Property and equipment 4,880
Deferred tax assets 7,275
Goodwill 40,360
----------------------------------------------------------------------------
$ 61,324
----------------------------------------------------------------------------
Financed as follows:
Cash $ 31,009
Shares issued out of treasury 30,315
----------------------------------------------------------------------------
$ 61,324
----------------------------------------------------------------------------
Final fair value determinations will be made once the accounting
for the transaction has been completed.
GOODWILL IMPAIRMENT
During the three months ended June 30, 2013, the accrual for the
performance based contingency payment of $2.3 million, payable to
the former owners of Viking Energy Pty. Limited, was reversed as
the performance criteria were not met. The Company identified this
reversal as an indicator of impairment at June 30, 2013, and as a
result completed an impairment test of the related goodwill, within
the Australia cash generating unit ("CGU"), included within the
International operations segment. Trican concluded that the
recoverable amount, determined by discounting the future cash flows
to be generated from the continuing operations of the Australian
CGU, was less than its carrying amount and a goodwill impairment
charge of $6.4 million was recorded. The Company used a discount
rate of 11% and a useful life of nine years to calculate the
recoverable amount.
LOANS AND BORROWINGS
Long term debt
June 30, December 31,
2013 2012
----------------------------------------------------------------------------
Notes payable $ 452,079 $ 430,408
Finance lease obligations 30,986 36,324
Revolving credit facility 181,146 255,693
Hedge receivable (9,609) (5,059)
----------------------------------------------------------------------------
Total 654,602 717,366
Current portion of finance lease obligations (1) 17,927 13,275
Russian demand revolving credit facility 9,431 9,119
Current portion of long-term debt 78,885 -
----------------------------------------------------------------------------
Non-current $ 548,359 $ 694,972
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Current portion of finance lease obligations is included in trade and
other payables.
Trican has a $500.0 million four-year extendible revolving
credit facility ("Revolving Credit Facility") with a syndicate of
banks. The Revolving Credit 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. On October
18, 2012, Trican extended its Revolving Credit Facility by an
additional year to 2016. The Revolving Credit Facility requires
Trican to comply with certain financial and non-financial covenants
that are typical for this type of arrangement. Trican was in
compliance with these covenants at June 30, 2013 (2012 - in
compliance).
Notes payable
The Notes payable require the Company to comply with certain
financial and non-financial covenants that are typical for this
type of arrangement. At June 30, 2013, the Company was in
compliance with these covenants (2012 - in compliance).
INCOME TAXES
Three months Six months
ended June 30, ended June 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Current income tax expense $ (10,982) $ 8,675 $ 1,440 $ 53,367
Deferred income tax recovery (7,769) (33,814) (10,464) (46,870)
----------------------------------------------------------------------------
$ (18,751) $ (25,139) $ (9,024) $ 6,497
----------------------------------------------------------------------------
The net income tax provision differs from that expected by
applying the combined federal and provincial income tax rate of
25.26% (2012 - 25.17%) to income before income taxes for the
following reasons:
Six months ended June 30, 2013 2012
----------------------------------------------------------------------------
Expected combined federal and provincial income tax $ (9,092) $ 10,703
Statutory and other rate differences (3,766) (7,356)
Non-deductible expenses 2,612 3,276
Stock based compensation 1,022 566
Changes to deferred income tax rates 299 -
Translation of foreign subsidiaries (93) (624)
Other (6) (68)
----------------------------------------------------------------------------
$ (9,024) $ 6,497
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The change in the combined federal and provincial income tax
rate is due to an increase in the British Columbia provincial tax
rate from 10% to 11% effective April 1, 2013.
OPERATING SEGMENTS
The Company operates in Canada and the U.S. along with a number
of international regions, which include Russia, Kazakhstan,
Algeria, Australia, Saudi Arabia, Colombia and Norway. 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, acidizing, reservoir management, industrial
cleaning and pipeline, and completion systems and downhole tool
services, which are performed on new and existing oil and gas wells.
-- U.S. operations provides cementing, fracturing, coiled tubing, nitrogen,
acidizing and completion systems and downhole tool services, which are
performed on new and existing oil and gas wells.
-- International operations provides cementing, fracturing, coiled tubing,
acidizing, nitrogen, and completion systems and downhole tool 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. Transactions between the segments are recorded at cost
and have been eliminated upon consolidation.
Canadian United States International
Operations Operations Operations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30, 2013
----------------------------------------------------------------------------
Revenue $ 116,125 $ 201,538 $ 79,007
Gross (loss) / profit (24,068) (6,964) 1,324
Finance income - - -
Finance costs - - -
Tax (recovery) / expense (10,928) (7,261) (562)
Depreciation and
amortization 18,141 24,724 7,001
Assets 850,635 1,117,887 334,074
Goodwill 62,492 - 14,226
Property and equipment 565,050 758,916 105,917
Capital expenditures 10,838 13,793 5,414
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30, 2012
----------------------------------------------------------------------------
Revenue $ 140,178 $ 206,777 $ 71,020
Gross (loss) / profit (8,212) (36,845) 3,928
Finance income - - -
Finance costs - - -
Tax (recovery) / expense (7,310) (18,678) 849
Depreciation and
amortization 12,864 18,750 6,613
Assets 829,960 1,063,951 302,541
Goodwill 22,690 - 21,059
Property and equipment 778,357 539,309 84,250
Capital expenditures 72,706 63,068 12,494
----------------------------------------------------------------------------
Intersegment
Eliminations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June
30, 2013
----------------------------------------------------------------------------
Revenue $ (63) $ - $ 396,607
Gross (loss) / profit (308) (6,159) (36,175)
Finance income - (63) (63)
Finance costs - 8,554 8,554
Tax (recovery) / expense - - (18,751)
Depreciation and
amortization - 747 50,613
Assets (116) 50,103 2,352,583
Goodwill - 76,718
Property and equipment - 14,563 1,444,446
Capital expenditures - - 30,045
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June
30, 2012
----------------------------------------------------------------------------
Revenue $ - $ - $ 417,975
Gross (loss) / profit - (4,715) (45,844)
Finance income - (531) (531)
Finance costs - 7,395 7,395
Tax (recovery) / expense - - (25,139)
Depreciation and
amortization - (56) 38,171
Assets - 83,008 2,279,460
Goodwill - - 43,749
Property and equipment - 14,418 1,416,334
Capital expenditures - - 148,268
----------------------------------------------------------------------------
Canadian United States International
Operations Operations Operations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30, 2013
----------------------------------------------------------------------------
Revenue $ 454,774 $ 412,223 $ 149,118
Gross profit / (loss) 57,273 (5,325) (3,915)
Finance income - - -
Finance costs - - -
Tax expense / (recovery) 3,066 (10,508) (1,582)
Depreciation and
amortization 34,824 47,631 13,994
Capital expenditures 24,151 29,356 7,524
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30, 2012
----------------------------------------------------------------------------
Revenue $ 573,289 $ 425,313 $ 135,729
Gross profit / (loss) 147,479 (29,607) 1,209
Finance income - - -
Finance costs - - -
Tax expense / (recovery) 25,055 (18,124) (434)
Depreciation and
amortization 24,854 36,211 12,829
Capital expenditures 105,593 173,713 24,849
----------------------------------------------------------------------------
Intersegment
Eliminations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30,
2013
----------------------------------------------------------------------------
Revenue $ (1,132) $ - $ 1,014,983
Gross profit / (loss) (1,016) (13,299) 33,718
Finance income - (1,019) (1,019)
Finance costs - 16,535 16,535
Tax expense / (recovery) - - (9,024)
Depreciation and
amortization - 1,223 97,672
Capital expenditures - - 61,031
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30,
2012
----------------------------------------------------------------------------
Revenue $ - $ - $ 1,134,331
Gross profit / (loss) - (11,079) 108,002
Finance income - (1,188) (1,188)
Finance costs - 14,428 14,428
Tax expense / (recovery) - - 6,497
Depreciation and
amortization - 109 74,003
Capital expenditures - - 304,155
----------------------------------------------------------------------------
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.
Contacts: Trican Well Service Ltd. Dale Dusterhoft Chief
Executive Officerddusterhoft@trican.ca Trican Well Service Ltd.
Michael Baldwin Vice President, Finance & CFOmbaldwin@trican.ca
Trican Well Service Ltd. Gary Summach Director of Reporting and
Investor Relationsgsummach@trican.ca Trican Well Service Ltd. (403)
266 - 0202 (403) 237 - 7716 (FAX) 2900, 645 - 7th Avenue S.W.
Calgary, Alberta T2P 4G8
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