Trican Well Service Ltd. (TSX:TCW)
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Three months ended Nine months ended
Sept 30, Sept 30, Sept 30, Sept 30,
($ millions, except per
share amounts; unaudited) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue $548.3 $593.2 $1,563.3 $1,727.5
Operating income(i) 72.7 71.4 144.1 204.9
Profit / (loss) 5.7 22.6 (25.5) 61.2
Earnings / (loss) per share (basic) $0.04 $0.16 ($0.17) $0.42
(diluted) $0.04 $0.16 ($0.17) $0.42
Adjusted profit / (loss)(i) 9.7 24.7 (13.3) 68.4
Adjusted profit / (loss)
per share(i) (basic) $0.07 $0.17 ($0.09) $0.47
(diluted) $0.07 $0.17 ($0.09) $0.47
Funds provided by
operations(i) 71.1 49.3 100.0 136.7
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Notes:
(i) Trican makes reference to operating income, adjusted profit/(loss) and
funds provided by operations. These are measures that are not recognized
under International Financial Reporting Standards (IFRS). Management
believes that, in addition to profit/(loss), operating income, adjusted
profit/(loss) and funds provided by operations are useful supplemental
measures. Operating income provides investors with an indication of
profit/(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 profit/(loss) excluding
certain one-time 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 profit/(loss), and funds provided by operations should not be
construed as an alternative to net income/(loss) and cash provided
operations determined in accordance with IFRS as an indicator of Trican's
performance. Trican's method of calculating operating income, adjusted
profit/(loss) and funds provided by operations may differ from that of other
companies and accordingly may not be comparable to measures used by other
companies.
THIRD QUARTER HIGHLIGHTS
Consolidated revenue for the third quarter of 2013 was $548.3 million, a
decrease of 8% compared to the third quarter of 2012. The adjusted consolidated
profit was $9.7 million compared to $24.7 million, and adjusted profit per share
was $0.07 compared to $0.17 for the same period in 2012. Adjusted profit
excludes a one-time tax adjusted loss of $2.1 million relating to deposits held
with an insolvent vendor. Funds provided by operations were $71.1 million
compared to $49.3 million in the third quarter of 2012.
Our Canadian operations generated quarterly revenue of $279.9 million and
operating income of $72.1 million during the third quarter of 2013. Canadian
revenue decreased by 13% and operating margins decreased by 530 basis points
compared to the third quarter of 2012. These declines were caused largely by a
20% average decrease in overall Canadian pricing compared to the third quarter
of 2012. Canadian activity levels in the third quarter of 2013 were also
negatively impacted by wet weather during the first two weeks of the quarter.
Despite the decrease in year-over-year financial results, Canadian fracturing
and cementing demand were steady throughout most of the quarter, led by
increased demand in the Duvernay and strong activity levels in key Canadian
plays such as the Montney, Cardium and Deep Basin. Canadian fracturing results
also benefitted from a large Horn River project that was completed during the
quarter. Strong activity levels for our Canadian fracturing and cementing
service lines were partially offset by weakness in coiled tubing demand. The
Canadian market remained very competitive during the quarter but a modest price
recovery of 4% was realized compared to the second quarter of 2013.
Our U.S. operations generated third quarter revenue of $183.1 million, a
decrease of 8% compared to the third quarter of 2012 and 9% compared to the
second quarter of 2013. In addition, U.S. operating margins decreased
sequentially by 110 basis points. The U.S. pressure pumping market remained very
competitive and over-supplied with equipment during the third quarter of 2013.
Overall U.S. pricing stabilized somewhat and was down 2% compared to the second
quarter of 2013. Activity levels were down sequentially and year-over-year for
our operations in Oklahoma and we did not perform any fracturing jobs in the
Haynesville during the third quarter of 2013. As a result, we have deactivated
our Haynesville fracturing crew until activity in the region improves or another
opportunity becomes available. Decreases in the Haynesville and Oklahoma were
partially offset by steady demand and activity levels in the Marcellus, which
led to sequential and year-over-year revenue and operating income growth for our
four Marcellus fracturing crews.
Third quarter revenue for our International operations was $88.2 million, an
increase of 22% compared to the third quarter of 2012. Our Russian operations
comprise the majority of our International results, and revenue was up
year-over-year in this region as an increase in horizontal drilling and
completions activity led to increased customer demand in Russia. In addition,
International revenue benefitted from growth in Australia as well as growth for
our international completion tools division. We anticipate that 2013 annual
Russian revenue will only be 10-15% higher compared to 2012 with operating
margins that are consistent with 2012. This guidance is down from previous
disclosure due to lower than expected 2013 activity levels from certain large
Russian customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Headquartered in Calgary, Alberta, Trican has operations in Canada, the U.S.,
Russia, Kazakhstan, Algeria, Australia, Norway, Saudi Arabia, and Colombia.
Trican provides a comprehensive array of specialized products, equipment and
services that are used during the exploration and development of oil and gas
reserves.
COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
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Quarter-
Over-
Three months ended % of % of Quarter %
September 30, 2013 Revenue 2012 Revenue Change Change
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Revenue 548,345 100.0% 593,204 100.0% (44,859) (7.6%)
Expenses
Materials and
operating 449,412 82.0% 493,877 83.3% (44,465) (9.0%)
General and
administrative 26,231 4.8% 27,972 4.7% (1,741) (6.2%)
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Operating income(i) 72,702 13.3% 71,355 12.0% 1,347 1.9%
Finance costs 9,370 1.7% 7,696 1.3% 1,674 21.8%
Depreciation and
amortization 54,646 10.0% 37,270 6.3% 17,376 46.6%
Foreign exchange
loss 4,345 0.8% 1,651 0.3% 2,694 163.2%
Other loss 1,481 0.3% 806 0.1% 675 83.7%
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Profit before income
taxes 2,860 0.5% 23,932 4.0% (21,073) (88.1%)
Income tax (recovery)
/ expense (2,848) (0.5%) 1,284 0.2% (4,132) (321.8%)
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Net Income 5,708 1.0% 22,648 3.8% (16,940) (74.8%)
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(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
----------------------------------------------------------------------------
Revenue 279,899 321,948 116,061
Expenses
Materials and
operating 201,217 71.9% 215,022 66.8% 121,446 104.6%
General and
administrative 6,610 2.4% 7,095 2.2% 7,443 6.4%
---------- ---------- ----------
Total expenses 207,827 74.3% 222,117 69.0% 128,889 111.1%
Operating income /
(loss)(i) 72,072 25.7% 99,831 31.0% (12,828) (11.1%)
Number of jobs 6,082 6,368 3,096
Revenue per job 45,393 50,140 37,046
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(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, (unaudited) Sept 30, Sept 30, June 30,
2013 2012 2013
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 70% 68% 62%
Cementing 18% 17% 14%
Nitrogen 4% 6% 5%
Coiled Tubing 3% 4% 4%
Acidizing 2% 3% 3%
Industrial services 2% 1% 9%
Other 1% 1% 3%
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Total 100% 100% 100%
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Operations Review
Third quarter average Canadian rig count increased by 10% and the number of
wells drilled increased by 6% on a year-over-year basis. Although an extended
spring break-up impacted activity levels at the start of the third quarter,
increased industry activity led to steady demand for our fracturing and
cementing service lines in Canada. The number of third quarter fracturing jobs
performed increased by 11% and cementing jobs increased by 2% compared to the
third quarter of 2012. The strength in fracturing and cementing was partially
offset by weaker coiled tubing and acidizing demand due to increased competition
for these service lines.
Canadian fracturing activity benefitted from a Horn River project that was
completed during the third quarter of 2013. The six-week project exceeded our
efficiency targets as we completed 6.8 fracs per day, which compared to 6.3
fracs per day performed during the 2012 project and 4.4 fracs during the 2011
project. We believe we are well positioned in the Horn River and will benefit
when activity increases in this region.
Canadian third quarter fracturing results also benefitted from increased
activity in the Duvernay. Fracturing work performed in the Duvernay represented
16% of total third quarter Canadian fracturing revenue compared to 6% in the
third quarter of 2012. We have worked with several customers in this region to
date, and believe we are well-positioned to capitalize on the growth of this
play as it develops over the next several years.
Canadian pricing levels improved sequentially by 4% but were 20% lower than the
third quarter of 2012 and 6% below the first quarter of 2013. The Canadian
market remained competitive in the third quarter and opportunities to increase
price were limited.
We were pleased with the progress made by our Canadian Completion Tools Division
during the third quarter of 2013. We continue to integrate this division into
our Canadian operations and are seeing good customer acceptance of the tools and
technology thus far. We expect the Completion Tools Division to have a more
meaningful impact on Canadian financial results during 2014.
Q3 2013 versus Q3 2012
Canadian revenue decreased by 13% on a year-over-year basis. Revenue per job
decreased by 9% due to a 20% decrease in price, offset partially by an increase
in fracturing revenue relative to total revenue and an increase in fracturing
job size. The job count decreased by 5% as an increase in fracturing and
cementing activity was more than offset by a decrease in coiled tubing activity.
Lower coiled tubing demand also had a negative impact on our nitrogen and
acidizing job count as these service lines are closely correlated with coiled
tubing.
Materials and operating expenses increased to 71.9% of revenue compared to 66.8%
of revenue in the same period of 2012. Lower pricing led to reduced operational
leverage on our fixed cost structure; however, the impact of lower pricing was
partially offset by product cost reductions for guar and sand, and cost cutting
measures implemented during 2013.
General and administrative costs decreased by $0.5 million, as lower profit
sharing and employee based expenses were partially offset by an increase to
share-based expenses. The increase in share-based expenses was due to an
increase in the size of plan combined with a year-over-year increase in the
volume weighted average share price used to calculate the share-based
liabilities.
Q3 2013 versus Q2 2013
Canadian revenue increased by 141% sequentially due to the expected rise in
industry activity as spring break-up conditions subsided early in the third
quarter. Higher activity led to a 96% sequential increase in the Canadian job
count. Revenue per job increased by 23% due to an increase in fracturing revenue
relative to total revenue, an increase in fracturing job sizes, and a 4%
increase in price. Third quarter industrial services revenue remained relatively
consistent on a sequential basis but declined as a percentage of total revenue
due to the increases in the other service lines.
Materials and operating expenses decreased to 71.9% of revenue compared to
104.6% of revenue in the second quarter of 2013. The margin improvement was
largely due to higher revenue, which led to increased leverage on our fixed cost
structure. General and administrative costs decreased by $0.8 million due to
lower share-based costs and bad debt expenditures. Share-based expenses
decreased due to a sequential decline in the volume weighted average share price
used to calculate the share-based liabilities.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
----------------------------------------------------------------------------
Revenue 183,080 198,881 201,538
Expenses(i)
Materials and
operating 170,862 93.3% 216,283 108.8% 186,795 92.7%
General and
administrative 6,541 3.6% 5,768 2.9% 6,246 3.1%
---------- ---------- ----------
Total expenses 177,403 96.9% 222,051 111.7% 193,041 95.8%
Operating income /
(loss)(ii) 5,677 3.1% (23,170) (11.7%) 8,497 4.2%
Number of jobs 2,284 1,861 2,208
Revenue per job 80,437 106,962 92,096
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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) Sept 30, Sept 30, June 30,
2013 2012 2013
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 88% 91% 90%
Cementing 8% 6% 7%
Coiled Tubing 4% 3% 3%
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Total 100% 100% 100%
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Operations Review
Third quarter U.S. industry activity levels were relatively flat compared to the
second quarter of 2013 and the U.S. pumping market remained very competitive and
substantially over-supplied. We continued to see pricing pressure across all of
our U.S. operating regions as pricing decreased by 2% sequentially and by 10%
compared to the third quarter of 2012.
Revenue and operating income increased sequentially for our Marcellus base
during the third quarter. Four fracturing crews were active in the Marcellus and
demand was strong throughout most of the quarter, although activity levels
declined near the end of the quarter as some of our key customers reduced
activity levels in the region. The increased Marcellus activity was more than
offset by declines for our crews operating in the Haynesville and Oklahoma
regions. Haynesville activity levels continued to be weak due to low natural gas
prices and our fracturing crew in this region was inactive during the third
quarter. Activity levels in Oklahoma were negatively impacted by low gas prices
as well as reduced activity levels for several key customers operating in the
region.
The Permian, Eagle Ford and Bakken continued to be the most active U.S. plays,
although these areas remained very competitive and over-supplied with fracturing
equipment throughout the quarter. Utilization for our two Eagle Ford fracturing
crews remained stable and the utilization of our Permian and Bakken crews
increased on a sequential basis. Despite the improvements, utilization for our
Bakken and Permian fracturing crews remained below expectations. We continue to
focus on expanding our customer base to increase utilization of our equipment in
these areas with the expectation that this will meaningfully improve our U.S.
operations' financial results.
We continued to make progress on cost cutting initiatives and realized
sequential reductions in product logistics and handling expenses as well as
other discretionary costs. The impact of the cost reductions was more than
offset by reduced operating leverage on our cost structure due to lower
sequential revenue, which led to the decrease in operating margins compared to
the second quarter of 2013.
We continued to execute on our strategy to become a full service U.S. pressure
pumping company during the third quarter with sequential growth for our U.S.
cementing, coiled tubing and completion tools service lines. U.S. completion
tools revenue grew by 20% sequentially and we continued to see good customer
acceptance of our completion tools technology in the U.S. market.
Q3 2013 versus Q3 2012
Third quarter U.S. revenue was down 8% compared to the third quarter of 2012.
Revenue per job decreased by 25% due to a 10% decline in price, a decrease in
fracturing revenue relative to total revenue and a change in revenue mix by
region. Jobs performed in the Haynesville region are generally larger relative
to other areas such as the Marcellus, Permian and Bakken and the reduction in
jobs performed in the Haynesville region significantly contributed to the
decline in revenue per job. The job count increased by 23% due to increases in
the Marcellus and Eagle Ford plays combined with increased cementing and coiled
tubing activity. These increases were partially offset by decreases in the
Haynesville and Oklahoma regions.
As a percentage of revenue, materials and operating expenses decreased to 93.3%
compared to 108.8% in the third quarter of 2012. Cost decreases for guar,
product handling and logistics, and other discretionary items led to the
improvement in margins. These improvements were partially offset by reduced
operating leverage on our fixed cost structure due largely to pricing declines.
General and administrative expenses increased by $0.8 million due primarily to
an increase in share-based employee expenses and an increase in the U.S. bad
debt provision. The increase in share-based expenses was due to an increase in
the size of the restricted share unit employee plan combined with a
year-over-year increase in the volume weighted average share price used to
calculate the share-based liabilities.
Q3 2013 versus Q2 2013
Third quarter U.S. revenue decreased by 9% compared to the second quarter of
2013. Revenue per job decreased by 13% due largely to a change in revenue mix by
region as less work was performed in the Haynesville region on a sequential
basis. A decrease in fracturing revenue relative to total revenue and 2%
sequential drop in price also contributed to the decrease in revenue per job.
The job count increased by 3% due to an increase in work performed in the
Marcellus region combined with increases in cementing and coiled tubing
activity. These increases were partially offset by job decreases in the
Haynesville and Oklahoma regions.
As a percentage of revenue, materials and operating expenses remained consistent
on a sequential basis. Lower revenue resulted in decreased operational leverage
on our fixed cost structure, which was offset by continued progress made on cost
cutting initiatives. General and administrative expenses increased by $0.3
million due primarily to an increase in the bad debt provision and insurance
costs, which was offset partially by a decrease in share-based expenses.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
----------------------------------------------------------------------------
Revenue 88,161 72,375 79,007
Expenses
Materials and
operating 71,523 81.1% 59,202 81.8% 70,723 89.5%
General and
administrative 4,176 4.8% 3,590 5.0% 4,637 5.9%
---------- ---------- ----------
Total expenses 75,699 85.9% 62,792 86.8% 75,360 95.4%
Operating income(i) 12,462 14.1% 9,583 13.2% 3,647 4.6%
Number of jobs 1,232 1,057 962
Revenue per job 69,180 64,873 76,235
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----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, (unaudited) Sept 30, Sept 30, June 30,
2013 2012 2012
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 81% 80% 83%
Coiled Tubing 10% 10% 8%
Cementing 5% 6% 5%
Nitrogen 2% 2% 2%
Other 2% 2% 2%
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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, Norway, Saudi Arabia and Colombia.
Our Russian operations comprise the majority of our International results and
Russian activity levels were strong during the third quarter. Summer months are
more active with long daylight hours and favorable operating conditions, which
allowed our Russian customers to execute on their work plans. In addition,
horizontal and multi-stage fracturing activity has increased in Russia compared
to 2012 and as a result, fracturing job size and activity levels have increased.
International completion tools revenue grew sequentially by 50%. Most of this
revenue was generated in the offshore Norwegian market and we continue to see
good customer acceptance of Trican's completion tools in this region. Demand for
completion tools also increased in Russia on a sequential and year-over-year
basis, in particular for our Burst Port System (BPS(R)) tool.
Third quarter financial results were strong for our two fracturing crews in
Kazakhstan as revenue and operating margins increased on a sequential and
year-over-year basis. Activity levels remained low in Algeria during the third
quarter, which resulted in weak financial results for this region. In addition,
we continue to see good growth in cementing revenue in Australia but it did not
have a significant impact on our International results.
No work was performed in both Saudi Arabia and Colombia during the third quarter
of 2013. We are currently deploying equipment into these regions and expect to
begin active operations in early 2014. We have been awarded a contract in Saudi
Arabia for one coiled tubing unit and associated pumping and nitrogen equipment.
We continue to negotiate additional contracts in this area.
Q3 2013 versus Q3 2012
Third quarter 2013 revenue for our International operations increased by 22%
compared to third quarter of 2012. The year-over-year job count increased by 17%
due largely to increased activity for all service lines in Russia. Favorable
weather conditions and an overall rise in unconventional activity contributed to
the increase. Higher year-over-year activity levels in Australia also
contributed to the job count growth. Revenue per job increased by 7% due to an
increase in fracturing job size in Russia and a slight increase in Russian
pricing.
As a percentage of revenue, materials and operating expenses decreased slightly
to 81.1% from 81.8%. Increased operating leverage from higher revenue was offset
by increased product costs in Russia and operating losses in Algeria. General
and administrative expenses increased by $0.6 million due largely to costs
associated with the international completion tools business, which did not exist
in the third quarter of 2012.
Q3 2013 versus Q2 2013
International revenue increased sequentially by 12%. The job count increased by
28% due largely to increased activity for all service lines in Russia. The
increase in job count was offset by a 9% decline in revenue per job caused by a
decrease in fracturing revenue relative to total revenue. A 2% sequential
weakening of the Russian ruble also had a slight negative impact on revenue per
job.
As a percentage of revenue, materials and operating expenses decreased to 81.1%
from 89.5%. Increased revenue from Russia, Kazakhstan, and completion tools led
to increased leverage on our fixed cost structure. General and administrative
expenses decreased by $0.5 million due largely to a decrease in share-based
expenses. Share-based expenses decreased due to a sequential decline in the
volume weighted average share price used to calculate the share-based
liabilities.
CORPORATE
----------------------------------------------------------------------------
($ thousands,
unaudited) Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
----------------------------------------------------------------------------
Expenses
Materials and
operating 5,835 1.1% 5,907 1.0% 5,413 1.4%
General and
administrative 8,904 1.6% 8,981 1.5% 9,026 2.3%
---------- ---------- ----------
Total expenses 14,739 2.7% 14,888 2.5% 14,439 3.6%
Operating loss(i) (14,739) (14,888) (14,439)
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(i) see first page of this report
Q3 2013 versus Q3 2012
Corporate expenses decreased slightly by $0.1 million on a year-over-year basis.
A decrease in administrative salaries was offset by an increase in share based
expenses.
Q3 2013 versus Q2 2013
Sequentially, corporate expenses increased by $0.3 million. There were no
significant variations of note in sequential corporate expenses.
OTHER EXPENSES AND INCOME
Finance costs for the third quarter of 2013 increased by $1.7 million compared
to the third quarter of 2012. The increase was due to higher debt balances
combined with a higher average interest rate on the outstanding debt.
Depreciation and amortization expenses increased by $17.4 million compared to
the third quarter of 2012. An increase in the amount of depreciable property and
equipment caused the higher depreciation and amortization expense.
Foreign exchange losses of $4.3 million have been recorded for the quarter ended
September 30, 2013, compared to losses of $1.7 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 loss, for the third quarter of 2013, was $1.5 million compared to a loss
of $0.8 million in the same period of 2012. The current quarter includes a
one-time $2.9 million loss relating to the write-down of unsecured deposits with
an insolvent vendor. In addition, at September 30, 2013, Trican has $8.8 million
in assets under construction with this vendor included in property and equipment
in the statement of financial position. Trican believes that it currently has
legal title to these assets and is confident in its ability to defend this
position. The loss on the unsecured deposits was partially offset by interest
income earned on cash balances and gains on asset sales. The loss recognized in
the third quarter of 2012 was due primarily due to losses on asset sales.
INCOME TAXES
An income tax recovery of $2.8 million was recorded during the third quarter of
2013, as tax recoveries on taxable losses in the U.S. more than offset tax
expenses recorded in Canada and internationally. In the third quarter of 2012, a
tax expense of $1.3 million was incurred as tax expenses in Canada and
internationally more than offset tax recoveries in the U.S.
COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS ($ thousands, unaudited)
----------------------------------------------------------------------------
Quarter-
Over-
Nine months ended % of % of Quarter %
Sept 30, 2013 Revenue 2012 Revenue Change Change
----------------------------------------------------------------------------
Revenue 1,563,328 100% 1,727,535 100.0% (164,207) (9.5%)
Expenses
Materials and
operating 1,335,507 85.4% 1,447,890 83.8% (112,383) (7.8%)
General and
administrative 83,770 5.4% 74,700 4.3% 9,070 12.1%
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Operating income(i) 144,051 9.2% 204,945 11.9% (60,894) (29.7%)
Finance costs 25,905 1.7% 22,123 1.3% 3,782 17.1%
Depreciation and
amortization 152,318 9.7% 111,273 6.4% 41,045 36.9%
Goodwill
impairment, net 4,123 0.3% - 0.0% 4,123 -%
Foreign exchange
loss 1,109 0.1% 3,876 0.2% (2,767) (71.4%)
Other income (2,043) (0.1%) (1,277) (0.1%) (766) 60.0%
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(Loss) / income
before income taxes (37,361) (2.4%) 68,950 4.0% (106,311) (154.2%)
Income tax
(recovery) /
expense (11,872) (0.8%) 7,781 0.5% (19,653) (252.6%)
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Net (loss) / income (25,489) (1.6%) 61,169 3.6% (86,658) (141.7%)
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(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
Period-
($ thousands, except revenue Over-
per job, unaudited) Sept 30, % of Sept 30, % of Period
Nine months ended, 2013 Revenue 2012 Revenue Change
----------------------------------------------------------------------------
Revenue 734,673 895,237 (17.9%)
Expenses
Materials and operating 564,136 76.8% 617,114 68.9% (8.6%)
General and administrative 20,922 2.8% 20,453 2.3% 2.3%
---------- ---------- -----------
Total expenses 585,058 79.6% 637,567 71.2% (8.2%)
Operating income(i) 149,615 20.4% 257,670 28.8% (41.9%)
Number of jobs 16,133 16,855 (4.3%)
Revenue per job 45,036 52,781 (14.7%)
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----------------------------------------------------------------------------
(i) see first page of this report
Canadian revenue for the nine months ended September 30, 2013 was down 18%
compared to the same period in 2012. The number of wells drilled in Canada
during 2013 was similar to 2012 for the nine months ended September 30. Our
cementing activity was in-line with industry activity levels as cementing job
count for 2013 was consistent with 2012. Fracturing job count decreased slightly
and coiled tubing, nitrogen and acidizing job count decreased significantly on a
year-over-year basis. The Canadian coiled tubing market remains very
competitive, which has led to the activity declines for this service line.
Overall, the Canadian job count was down 4% on a year-over-year basis.
Canadian revenue per job was down 15% due largely to the 22% decrease in price.
The price drop was partially offset by an increase in fracturing revenue
relative to total revenue and an increase in fracturing job size.
Materials and operating expenses increased to 76.8% of revenue compared to 68.9%
of revenue for the same period in 2012. The decrease in operating margins was
due largely to the drop in revenue, which led to lower operating leverage on our
fixed cost structure. Reductions in product and people costs helped to offset
the impact of lower margins. General and administrative costs are up slightly
due to higher share-based costs, offset partially by lower profit sharing
expenses. The increase in share-based expenses was due to an increase in the
size of plan combined with a year-over-year increase in the volume weighted
average share price used to calculate the share-based liabilities.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
Period-
($ thousands, except revenue Over-
per job, unaudited) Sept 30, % of Sept 30, % of Period
Nine months ended, 2013 Revenue 2012 Revenue Change
----------------------------------------------------------------------------
Revenue 595,303 624,194 (4.6%)
Expenses(i)
Materials and operating 543,870 91.4% 632,537 101.4% (14.2%)
General and administrative 19,270 3.2% 15,255 2.4% 26.3%
---------- ---------- -----------
Total expenses 563,140 94.6% 647,792 103.8% (13.1%)
Operating income/(loss)(ii) 32,163 5.4% (23,598) (3.8%) 236.3%
Number of jobs 6,527 5,456 19.6%
Revenue per job 91,633 114,712 (20.1%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 decreased by 5% for the nine months ended September 30, 2013,
compared to the same period for 2012. Revenue per job decreased by 20% due to a
9% decrease in year-over-year pricing, a decrease in fracturing revenue relative
to total revenue, and a change in revenue mix by region. In particular, we have
performed less work in the Haynesville region during 2013, which generates
larger revenue per job compared to other plays.
The job count increased by 20% due to an increase in cementing and coiled tubing
activity combined with higher utilization in the Marcellus and Eagle Ford
regions. These increases were partially offset by decreased activity in the
Haynesville and Oklahoma regions.
As a percentage of revenue, materials and operating expenses decreased to 91.4%
from 101.4%. Cost reductions for guar and product transportation and logistics
contributed to the increase in operating margins. These cost reductions were
partially offset by lower revenue, which led to reduced operating leverage on
our cost structure.
General and administrative expenses increased by $4.0 million due to increased
share-based employee costs, insurance costs and profit sharing expenses. The
increase in share-based expenses was due to an increase in the size of the
restricted share unit employee plan combined with a year-over-year increase in
the volume weighted average share price used to calculate the share-based
liabilities.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
Period-
($ thousands, except revenue Over-
per job, unaudited) Sept 30, % of Sept 30, % of Period
Nine months ended, 2013 Revenue 2012 Revenue Change
----------------------------------------------------------------------------
Revenue 237,279 208,104 14.0%
Expenses
Materials and operating 210,630 88.8% 181,027 87.0% 16.4%
General and administrative 12,661 5.3% 10,270 4.9% 23.3%
---------- ---------- -----------
Total expenses 223,291 94.1% 191,297 91.9% 16.7%
Operating income(i) 13,988 5.9% 16,807 8.1% (16.8%)
Number of jobs 3,108 3,056 1.7%
Revenue per job 73,438 63,919 14.9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Year-to-date International revenue increased by 14% compared to the same period
in 2012. The job count increased by 2% due to a slight increase in Russian
activity combined with an increase in Australian activity. Revenue per job
increased by 15% due to an increase in fracturing revenue relative to total
revenue and an increase in fracturing job size in Russia.
As a percentage of revenue, materials and operating expenses increased to 88.8%
from 87.0%. Increased leverage due to higher revenue was more than offset by
operating losses in Algeria, increased product costs in Russia and start-up and
integration costs related to the international completion tools business.
General and administrative costs increased by $2.4 million due largely to costs
associated with the international completion tools business, which did not exist
in 2012, growth in Australia, and an increase in share-based expenses.
CORPORATE
----------------------------------------------------------------------------
Period-
Over-
($ thousands, unaudited) Sept 30, % of Sept 30, % of Period
Nine months ended, 2013 Revenue 2012 Revenue Change
----------------------------------------------------------------------------
Expenses
Materials and operating 17,911 1.1% 17,211 1.0% 4.1%
General and administrative 30,917 2.0% 28,721 1.7% 7.6%
---------- ---------- ----------
Total expenses 48,828 3.1% 45,932 2.7% 6.3%
Operating loss(i) (48,828) (45,932) 6.3%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Corporate expenses increased by $2.9 million for the nine months ended September
30, 2013, compared to the same period in 2012. The increase was due largely to a
rise in share-based expenses.
OTHER EXPENSES AND INCOME
For the nine months ended September 30, 2013, finance costs increased by 17% due
to higher average debt balances and an increase in average interest rates
compared to 2012. Depreciation and amortization for the 2013 period-to-date has
increased by 37% compared to same period for 2012. A large portion of the
equipment built as part of our 2011 and 2012 capital budgets became active, and
subject to deprecation, beginning in the middle of 2012. Therefore, our average
depreciable asset base is significantly larger in 2013 compared to 2012.
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. The goodwill impairment write down was
recognized during the second quarter of 2013 and is included in the nine month
period ending September 30, 2013.
Other income, for the nine months ended September 30, 2013, was $2.0 million
compared to $1.3 million in the same period of 2012. Other income for the
current period includes a one-time loss of $2.9 million relating to a vendor
insolvency issue. This loss was more than offset by interest income earned on
cash balances and gains on asset sales.
Foreign exchange losses of $1.1 million have been recorded for the nine months
ended September 30, 2013, compared to losses of $3.9 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.
INCOME TAXES
Trican recorded a total income tax recovery of $11.9 million for the nine months
ended September 30, 2013, versus a total income tax expense of $7.8 million for
the comparable period of 2012. The increase in tax recovery is primarily
attributable to lower earnings.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Funds provided by operations was $68 million during the third quarter of 2013
compared to $44 million for the third quarter of 2012. The increase was due
largely to less interest and taxes paid during the quarter, which was offset
partially by lower earnings.
Investing Activities
Capital expenditures for the third quarter of 2013 were $26 million compared to
$82 million for the third quarter of 2012. Capital expenditures for the nine
months ended September 30, 2013, were $87 million compared to $386 million for
the same period in 2012. A substantial decrease in our 2013 capital program
compared to 2012 led to a significant decline in capital expenditures.
There were no significant changes made to our 2013 capital budget during the
third quarter of 2013. Capital expenditures for the fourth quarter of 2013 are
expected to be approximately $25 million to $35 million and approximately $75
million to $85 million of remaining capital expenditures are expected to be
carried forward into 2014.
Financing Activities
As at November 5, 2013, Trican had 148,914,753 shares and 9,397,122 employee
stock options outstanding.
During the nine months ended September 30, 2013, Trican repaid $71 million on
its $500 million revolving credit facility. The balance of the facility at
September 30, 2013 was $208 million leaving $292 million of available debt under
the facility. Trican also had $444 million of outstanding notes payable at
September 30, 2013. On October 17, 2013 Trican extended its revolving credit
facility by an additional year to 2017.
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 nine months ended September 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 and during
the third quarter of 2013, $22.3 million in dividends were made.
OUTLOOK
Canadian Operations
Based on discussions with our Canadian customers, we believe Canadian demand for
pressure pumping services in the fourth quarter will increase over 2012 levels
but decrease sequentially due to the normal December slowdown experienced in our
industry. Activity levels are expected to be supported by growth in the Duvernay
as well continued strong demand in the Montney, Cardium and Deep Basin plays.
Although the Canadian market remains very competitive, we expect fourth quarter
Canadian pricing to remain stable compared to the third quarter of 2013.
Furthermore, we do not expect Canadian pricing to increase until activity levels
and equipment utilization remain strong over a sustained period of time. At the
present time, the Canadian market remains slightly oversupplied to balanced with
fracturing equipment. We will continue to monitor the Canadian competitive
environment and will look to increase pricing should the opportunity arise.
Our customers are currently finalizing their budgets for 2014; however, early
indications are that there will be a similar number of wells drilled in 2014
compared to 2013. We believe there will continue to be an increase in fracturing
stages per well and an increase in fracturing horsepower intensity per well. As
a result, we expect 2014 fracturing demand to increase compared to 2013. In
addition, we believe there will be more investment in the Duvernay play and that
Trican is well positioned to capitalize on growth in this area. We anticipate
that there will also be some level of LNG gas related drilling next year but the
majority of LNG related drilling will occur past 2014.
U.S. Operations
Due to weak demand in the region, we have deactivated the Haynesville crew and
expect it to remain inactive until Haynesville activity levels improve or
another opportunity becomes available. With this change, we are now operating
fourteen U.S. fracturing crews. Our Haynesville base in Longview, Texas will
remain open as we continue to offer cementing services from this location as
well as support fracturing operations in the Eagle Ford and East Texas.
We expect the U.S market to remain over-supplied in the fourth quarter of 2013
and into 2014. Pricing appears to have stabilized in most of our U.S. operating
areas and we expect it to remain stable in the fourth quarter. However, given
the current competitive landscape in the U.S., we will continue to face the risk
of downward pricing pressure and do not expect U.S. pricing to improve over the
next several quarters.
We expect there will be a seasonal slow-down in U.S. activity in the fourth
quarter during the Thanksgiving and Christmas holiday periods and also as U.S.
producers complete 2013 capital programs. Furthermore, some of our key U.S.
customers have indicated that their activity levels will be reduced in the
fourth quarter, in particular for our customers in the Marcellus region. As a
result, we expect fourth quarter revenue and operating income to be lower on a
sequential basis for our U.S. operations; however, we have recently secured a
significant amount of fracturing work in the Marcellus beginning in the first
quarter of 2014 and initial indications from our customers suggest that first
quarter 2014 activity levels will recover in many of our U.S. operating regions.
In order to improve our U.S. financial results, we must continue to focus on
controlling and reducing costs, and more importantly, increasing equipment
utilization. In certain regions, we believe that our technology will allow us to
improve the utilization of our fracturing crews, and in other areas, broadening
and strengthening our customer base will improve utilization. We have been
pleased with the growth of our cementing service line and will continue to focus
on diversifying our service offerings in the United States in the upcoming
quarter and into 2014.
Our completion tool business in the United States has grown rapidly this past
quarter and we are very pleased with customer acceptance of this technology. We
will focus on improving logistics and reducing our manufacturing costs to
increase margins in this service line going into 2014.
International Operations
We expect fourth quarter activity levels in Russia and Kazakhstan to be down
sequentially due to cold weather near the end of the fourth quarter. Given this
expectation, we anticipate that 2013 annual Russian revenue will be 10-15%
higher compared to 2012 with operating margins that are consistent with 2012.
This guidance is down from previous disclosure due to lower than expected 2013
activity levels from certain large Russian customers. Despite 2013 results that
have been below expectations, the Russian market continues to trend towards more
horizontal drilling and multi-stage fracturing, which bodes well for growth
prospects as we move into the tendering season for 2014.
We are currently operating two coiled tubing crews in Algeria and have shut-down
our primary cementing operations in the country. We expect continued weakness in
the Algerian market during the fourth quarter of 2013. We will continue to focus
on improving the utilization of our coiled tubing crews in order to increase
profitability in 2014. Steady growth is expected for our Australian cementing
business in the fourth quarter of 2013 and we are encouraged by Australia growth
prospects heading into 2014.
Customer acceptance of our completion tools is growing internationally and we
expect to see good revenue growth for our international tools business in 2014.
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 Nine months ended
----------------------------------------------------------------------------
Sept 30, Sept 30, June 30, Sept 30, Sept 30,
2013 2012 2013 2013 2012
----------------------------------------------------------------------------
Adjusted net income/(loss) $9,693 $24,716 ($50,407) ($13,334) $68,403
Deduct:
Goodwill impairment - - 4,123 4,123 -
Non-cash share-based
compensation expense 1,840 2,068 1,859 5,887 7,234
Loss on deposit with
vendor (net of $725 in
tax recoveries) 2,145 - - 2,145
----------------------------------------------------------------------------
Profit/(loss) for the
period (IFRS financial
measure) $5,708 $22,648 ($56,389) ($25,489) $61,169
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Nine months ended
----------------------------------------------------------------------------
Sept 30, Sept 30, June 30, Sept 30, Sept 30,
2013 2012 2013 2013 2012
----------------------------------------------------------------------------
Funds provided by/(used
in) operations(i) $71,087 $43,979 ($29,073) $99,970 $141,887
Charges to income not
involving cash
Depreciation and
amortization (54,646) (37,270) (50,613) (152,318) (111,273)
Amortization of debt
issuance costs (216) (202) (216) (648) (605)
Stock-based compensation (1,840) (2,068) (1,859) (5,887) (7,234)
Gain/(loss) on disposal
of property and
equipment (585) (1,736) (183) (308) (2,071)
Net finance costs (9,111) (7,223) (7,984) (24,627) (20,461)
Unrealized foreign
exchange gain / (loss) (2,984) (1,160) 5,282 5,594 (4,813)
Asset impairments, net (2,870) - (4,123) (6,993) -
Income tax
recovery/(expense) 2,847 (1,284) 18,752 11,872 (7,781)
Interest paid 6,182 13,128 12,865 21,838 15,905
Income tax
paid/(recovered) (2,156) 16,484 763 26,018 57,615
----------------------------------------------------------------------------
Profit/(loss) for the
period (IFRS financial
measure) $5,708 $22,648 ($56,389) ($25,489) $61,169
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) this reconciliation has been modified for certain prior periods to
conform to the current year presentation
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Nine months ended
----------------------------------------------------------------------------
Sept 30, Sept 30, June 30, Sept 30, Sept 30,
2013 2012 2013 2013 2012
----------------------------------------------------------------------------
Operating income $72,702 $71,355 ($14,814) $144,051 $204,945
Add:
Administrative expenses 28,730 28,408 29,252 88,771 79,361
Deduct:
Depreciation expense (54,646) (37,270) (50,613) (152,318) (111,273)
----------------------------------------------------------------------------
Gross profit/(loss) (IFRS
financial measure) $46,786 $62,493 ($36,175) $80,504 $173,033
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 anticipation that 2013 annual Russian revenue will only be 10-15%
higher compared to 2012 with operating margins that are consistent with
2012;
-- The belief that Canadian operations are well positioned in the Horn
River and will benefit when activity increases in this region;
-- The belief that Canadian operations are well-positioned to capitalize on
the growth of Duvernay play as it develops over the next several years;
-- The expectation that the Canadian Completion Tools Division will have a
more meaningful impact on Canadian financial results during 2014;
-- The plan to continue to focus on expanding our U.S. customer base to
increase utilization of our equipment in Bakken and Permian with the
expectation that this will meaningfully improve our U.S. Operations'
financial results;
-- The expectation to begin active operations in Saudi Arabia and Colombia
in early 2014;
-- The expectation to continue to negotiate additional contracts in Saudi
Arabia and Colombia;
-- The belief that currently Trican has legal title to assets under
construction with an insolvent vendor and is confident in its ability to
defend this position;
-- The expectation that capital expenditures for the remainder of 2013 will
be approximately $25 million to $35 million and that capital
expenditures between approximately $75 million and $85 million will be
carried forward into 2014;
-- The belief that Canadian demand for pressure pumping services in the
fourth quarter will increase over 2012 levels but decrease sequentially
due to the industry typical December slowdown;
-- The expectation that Canadian activity levels will be supported by
growth in the Duvernay region and by strong demand in the Monteny,
Cardium and Deep Basin plays;
-- The expectation that fourth quarter Canadian pricing will remain stable
compared to the third quarter of 2013;
-- The expectation that Canadian pricing will not increase until activity
levels and equipment utilization remain strong over a sustained period
of time;
-- The expectation that we will look to increase Canadian pricing should
the opportunity arise;
-- The expectation that there will be a similar number of wells drilled in
Canada in 2014 compared to 2013;
-- The belief that there will continue to be an increase in fracturing
stages per well and an increase in fracturing horsepower intensity per
well;
-- The expectation that 2014 fracturing demand will increase compared to
2013;
-- The belief that there will be more investment in the Duvernay play and
that Trican is well positioned to capitalized on growth in this area;
-- The anticipation that there will be some LNG gas related drilling in
2014 but the majority of wells drilling for LNG export will occur past
2014;
-- The expectation that our U.S. operations will remain inactive in
Haynesville until the activity levels there improve or another
opportunity comes;
-- The plan to keep our U.S. operations base in Haynesville open and
continue to offer cementing services from this location as well as
support to the fracturing operations in the Eagle Ford and East Texas;
-- The expectation that the U.S. market will remain over-supplied in the
fourth quarter of 2013 and in 2014;
-- The expectation that U.S. pricing will remain stable in the fourth
quarter of 2013 and will not improve over the next several quarters;
-- The expectation of seasonal slow-down in the U.S. activity in the fourth
quarter of 2013 due to holiday periods and as U.S. producers complete
2013 capital programs;
-- The expectation that the U.S. revenue and operating income will be lower
on a sequential basis;
-- The expectation that a significant amount of fracturing work in the
Marcellus region that was secured will start as planned in the first
quarter of 2014;
-- The expectation that activity levels will recover in the first quarter
of 2014 in many U.S. operating regions;
-- The expectation to continue to focus on controlling and reducing costs
and increasing equipment utilization in the U.S. operating regions;
-- The belief that Trican technology will allow improving utilization of
the fracturing crews and broaden and strengthen our customer base in the
U.S. operating regions;
-- The plan to continue to focus on diversifying our service offerings in
the United States in the fourth quarter and 2014;
-- The plan to focus on improving logistical and reducing manufacturing
costs to increase margins in the U.S. completion tools business in 2014;
-- The expectation of lower activity levels in Russia and Kazakhstan
sequentially due to cold weather around the end of the fourth quarter;
-- The anticipation that 2013 Russian revenue will be 10-15% higher
compared to 2012 and operating margins consistent with 2012;
-- The belief that the Russian market continues to trend towards more
horizontal drilling and multi-stage fracturing which bodes well for
growth prospects;
-- The expectation of continued weakness in the Algerian market during the
fourth quarter of 2013;
-- The plan to continue to focus on improving the utilization of coiled
tubing crews in Algeria in order to increase profitability in 2014;
-- The expectation of steady growth for the Australian cementing business
in the fourth quarter of 2013; and
-- The expectation to see good revenue growth in the international tool
business in 2014.
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
September 30, December 31,
(Stated in thousands; unaudited) 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $74,359 $113,506
Trade and other receivables 423,560 437,038
Current tax assets 12,809 647
Inventory 232,387 211,794
Prepaid expenses 35,122 33,002
----------------------------------------------------------------------------
778,237 795,987
Property and equipment 1,396,637 1,458,562
Intangible assets 6,425 10,081
Deferred tax assets 109,978 76,302
Other assets 19,615 11,898
Goodwill 77,716 43,689
----------------------------------------------------------------------------
$2,388,608 $2,396,519
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans $- $9,119
Trade and other payables 270,657 228,788
Contingent consideration - 2,860
Current tax liabilities - 7,853
Current portion of loans and borrowings 77,273 -
----------------------------------------------------------------------------
347,930 248,620
Loans and borrowings 582,612 694,972
Deferred tax liabilities 81,794 77,012
Shareholders' equity
Share capital 559,668 527,860
Contributed surplus 60,876 55,352
Accumulated other comprehensive loss (14,815) (24,100)
Retained earnings 768,344 815,700
----------------------------------------------------------------------------
Total equity attributable to equity holders of
the Company 1,374,073 1,374,812
Non-controlling interest 2,199 1,103
----------------------------------------------------------------------------
$2,388,608 $2,396,519
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the condensed consolidated interim financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Months Nine Months
Ended September 30, Ended September 30,
(Stated in thousands, except per
share amounts; unaudited) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue $548,345 $593,204 $1,563,328 $1,727,535
Cost of sales 501,559 530,711 1,482,824 1,554,502
----------------------------------------------------------------------------
Gross profit 46,786 62,493 80,504 173,033
Administrative expenses 28,729 28,408 88,770 79,361
Other (expense/(income) 1,740 1,280 (764) 385
----------------------------------------------------------------------------
Results from operating activities 16,317 32,805 (7,502) 93,287
Finance income (259) (474) (1,278) (1,662)
Finance costs 9,370 7,696 25,905 22,123
Foreign exchange loss 4,345 1,651 1,109 3,876
Goodwill impairment, net - - 4,123 -
----------------------------------------------------------------------------
Profit/(loss) before income tax 2,861 23,932 (37,361) 68,950
Income tax (recovery)/expense (2,847) 1,284 (11,872) 7,781
----------------------------------------------------------------------------
Profit/(loss) for the period $5,708 $22,648 ($25,489) $61,169
----------------------------------------------------------------------------
Other comprehensive income/(loss)
Items which may subsequently be
recycled through profit or loss
Unrealized (loss)/gain on hedging
instruments (144) 663 (101) 1,105
Foreign currency translation
differences (5,259) (13,908) 9,386 (12,504)
----------------------------------------------------------------------------
Total comprehensive income/(loss)
for the period $305 $9,403 ($16,204) $49,770
----------------------------------------------------------------------------
Profit/(loss) attributable to:
Owners of the Company 5,877 22,742 (25,024) 61,415
Non-controlling interest (169) (94) (465) (246)
----------------------------------------------------------------------------
Profit/(loss) for the period $5,708 $22,648 ($25,489) $61,169
----------------------------------------------------------------------------
Total comprehensive income/(loss)
attributable to:
Owners of the Company 305 9,497 (16,204) 50,016
Non-controlling interest - (94) - (246)
----------------------------------------------------------------------------
Total comprehensive income/(loss)
for the period $305 $9,403 ($16,204) $49,770
----------------------------------------------------------------------------
Earnings/(loss) per share
----------------------------------------------------------------------------
Basic $0.04 $0.16 ($0.17) $0.42
Diluted $0.04 $0.16 ($0.17) $0.42
----------------------------------------------------------------------------
Weighted average shares
outstanding - basic 148,902 146,432 148,781 146,677
Weighted average shares
outstanding - diluted 149,086 146,446 148,781 146,773
----------------------------------------------------------------------------
See accompanying notes to the condensed consolidated interim financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Nine Months
Ended September 30, Ended September 30,
(Stated in thousands; unaudited) 2013 2012 2013 2012
----------------------------------------------------------------------------
Cash Provided By/(Used In):
Operations
Profit/(loss) for the period $5,708 22,648 ($25,489) $61,169
Charges to income not involving
cash:
Depreciation and amortization 54,646 37,270 152,318 111,273
Amortization of debt issuance
costs 216 202 648 605
Stock-based compensation 1,840 2,068 5,887 7,234
Loss on disposal of property and
equipment 585 1,736 308 2,071
Net finance costs 9,111 7,223 24,627 20,461
Unrealized foreign exchange
gain/(loss) 2,984 1,160 (5,594) 4,813
Asset impairments, net 2,870 - 6,993 -
Income tax (recovery)/expense (2,847) 1,284 (11,872) 7,781
------------------------------------------------------------------------
75,113 73,591 147,826 215,407
Change in inventories (4,231) 198 (20,239) (46,175)
Change in trade and other
receivables (63,273) (107,637) 23,886 71,288
Change in prepayments (3,158) (3,761) (1,410) (11,907)
Change in trade and other payables 35,750 9,856 63,913 3,013
----------------------------------------------------------------------------
Cash generated from operating
activities 40,201 (27,753) 213,976 231,626
Interest paid (6,182) (13,128) (21,838) (15,905)
Tax refund/(income taxes paid) 2,156 (16,484) (26,018) (57,615)
----------------------------------------------------------------------------
36,175 (57,365) 166,120 158,106
Investing
Interest received 613 203 768 913
Purchase of property and equipment (25,859) (81,707) (86,890) (385,862)
Proceeds from the sale of property
and equipment 2,040 798 4,730 1,477
Purchase of other assets - - (4,600) -
Payments received on loan to an
unrelated third-party - - - 226
Business acquisitions - - (31,009) -
----------------------------------------------------------------------------
(23,206) (80,706) (117,001) (383,246)
Financing
Proceeds from issuance of share
capital, net 224 181 1,130 1,289
Repurchase and cancellation of
shares under NCIB - - - (10,011)
Funds received from bank loans - - - 11,310
Funds drawn on revolving credit
facility 31,747 154,261 - 207,500
Issuance of long-term debt, net of
debt issuance costs - - 26,354 -
Repayment of long-term debt - - (71,253) (25,425)
Dividend paid (22,332) (21,957) (44,300) (29,302)
----------------------------------------------------------------------------
9,639 132,485 (88,069) 155,361
Effect of exchange rate changes on
cash (635) (350) (197) (743)
----------------------------------------------------------------------------
Increase/(decrease) in cash and cash
equivalents 21,973 (5,936) (39,147) (70,522)
Cash and cash equivalents, beginning
of period 52,386 61,269 113,506 125,855
----------------------------------------------------------------------------
Cash and cash equivalents, end of
period $74,359 $55,333 $74,359 $55,333
----------------------------------------------------------------------------
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 date fair value of the
contingent consideration to be nil. At the end of the third quarter Trican has
determined the fair value of the contingent consideration still 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 date 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 nine months ended September 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
September 30, December 31,
2013 2012
----------------------------------------------------------------------------
Notes payable $444,233 $430,408
Finance lease obligations 28,543 36,324
Revolving credit facility 207,787 255,693
Hedge receivable (7,423) (5,059)
----------------------------------------------------------------------------
Total 673,140 717,366
Current portion of finance lease
obligations(1) 13,255 13,275
Russian demand revolving credit facility - 9,119
Current portion of loans and borrowings 77,273 -
----------------------------------------------------------------------------
Non-current $582,612 $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 and on October 17, 2013 the Revolving facility was extended until 2017. 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 September 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
September 30, 2013, the Company was in compliance with these covenants (2012 -
in compliance).
INCOME TAXES
----------------------------------------------------------------------------
(Stated in thousands)Three months ended
September 30, 2013 2012
----------------------------------------------------------------------------
Current tax expense
Current year $5,942 $30,015
Adjustment for prior years (1,401) 795
----------------------------------------------------------------------------
4,541 30,810
----------------------------------------------------------------------------
Deferred income tax expense/(recovery)
Current year (7,851) (29,526)
Adjustment for prior years 463 -
----------------------------------------------------------------------------
(7,388) (29,526)
----------------------------------------------------------------------------
(2,847) $1,284
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Stated in thousands)Nine months ended
September 30, 2013 2012
----------------------------------------------------------------------------
Current tax expense
Current year $7,382 $83,631
Adjustment for prior years (1,401) 546
----------------------------------------------------------------------------
5,981 84,177
----------------------------------------------------------------------------
Deferred income tax expense/(recovery)
Current year (18,316) (76,220)
Adjustment for prior years 463 (176)
----------------------------------------------------------------------------
(17,853) (76,396)
----------------------------------------------------------------------------
(11,872) $7,781
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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:
(Stated in thousands)
Nine months ended June 30, 2013 2012
----------------------------------------------------------------------------
Expected combined federal and provincial
income tax ($9,411) $17,354
Statutory and other rate differences (9,608) (15,678)
Non-deductible expenses 5,766 4,837
Stock based compensation 1,487 1,821
Translation of foreign subsidiaries 335 (740)
Adjustments related to prior years (622) -
Changes to deferred income tax rates 321 -
Other (140) 187
----------------------------------------------------------------------------
($11,872) $7,781
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 September 30, 2013
----------------------------------------------------------------------------
Revenue $279,899 $183,080 $88,161
Gross profit/(loss) 60,444 (16,318) 10,875
Finance income - - -
Finance costs - - -
Tax expense/(recovery) 6,693 (11,225) 1,685
Depreciation and amortization 18,631 28,907 6,598
Assets 946,227 1,056,247 332,236
Goodwill 63,490 - 14,226
Property and equipment 549,901 728,413 100,691
Capital expenditures 6,767 13,377 5,715
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended September 30, 2012
----------------------------------------------------------------------------
Revenue $321,948 $198,881 $72,375
Gross profit/(loss) 93,758 (31,946) 6,554
Finance income - - -
Finance costs - - -
Tax expense/(recovery) 17,279 (16,981) 986
Depreciation and amortization 13,880 16,544 6,696
Assets 903,794 1,130,052 322,453
Goodwill 22,690 - 20,921
Property and equipment 529,353 773,920 115,079
Capital expenditures 6,183 67,487 1,844
----------------------------------------------------------------------------
Intersegment
Eliminations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended September 30, 2013
----------------------------------------------------------------------------
Revenue ($2,795) $- $548,345
Gross profit/(loss) (1,871) (6,344) 46,786
Finance income - (259) (259)
Finance costs - 9,370 9,370
Tax expense/(recovery) - - (2,847)
Depreciation and amortization - 510 54,646
Assets (1,046) 54,944 2,388,608
Goodwill - 77,716
Property and equipment - 17,632 1,396,637
Capital expenditures - - 25,859
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended September 30, 2012
----------------------------------------------------------------------------
Revenue $- $- $593,204
Gross profit/(loss) - (5,873) 62,493
Finance income - (474) (474)
Finance costs - 7,696 7,696
Tax expense/(recovery) - - 1,284
Depreciation and amortization - 150 37,270
Assets - 51,224 2,407,523
Goodwill - - 43,611
Property and equipment - 15,504 1,433,856
Capital expenditures - 6,193 81,707
----------------------------------------------------------------------------
Canadian United States International
Operations Operations Operations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September 30, 2013
----------------------------------------------------------------------------
Revenue $734,673 $595,303 $237,279
Gross profit/(loss) 117,717 (21,643) 6,960
Finance income - - -
Finance costs - - -
Tax expense/(recovery) 9,758 (21,733) 103
Depreciation and amortization 53,455 76,538 20,592
Capital expenditures 30,918 42,733 13,239
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September 30, 2012
----------------------------------------------------------------------------
Revenue $895,237 $624,194 $208,104
Gross profit/(loss) 241,237 (59,015) 7,763
Finance income - - -
Finance costs - - -
Tax expense/(recovery) 42,334 (35,105) 552
Depreciation and amortization 38,734 52,755 19,525
Capital expenditures 111,776 241,200 26,693
----------------------------------------------------------------------------
Intersegment
Eliminations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September 30, 2013
----------------------------------------------------------------------------
Revenue ($3,927) $- $1,563,328
Gross profit/(loss) (2,887) (19,643) 80,504
Finance income - (1,278) (1,278)
Finance costs - 25,905 25,905
Tax expense/(recovery) - - (11,872)
Depreciation and amortization - 1,733 152,318
Capital expenditures - - 86,890
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September 30, 2012
----------------------------------------------------------------------------
Revenue $- $- $1,727,535
Gross profit/(loss) - (16,952) 173,033
Finance income - (1,662) (1,662)
Finance costs - 22,123 22,123
Tax expense/(recovery) - - 7,781
Depreciation and amortization - 259 111,273
Capital expenditures - 6,193 385,862
----------------------------------------------------------------------------
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.
FOR FURTHER INFORMATION PLEASE CONTACT:
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
Sr. 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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