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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| TSXV:ABL | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
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GASFRAC Energy Services Inc. (TSX:GFS) -
COMPARATIVE QUARTERLY FINANCIAL INFORMATION
March 31 2014 March 31 2013 March 31 2012
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CAD$ CAD$ CAD$
Revenue 12,173 31,458 44,969
Operating expenses 16,467 26,044 35,243
Selling, general and
administrative expenses 4,319 4,643 5,997
Adjusted EBITDA(1) (6,468) 468 2,259
(Loss) for the period (14,169) (7,884) (4,926)
(Loss) per share - basic (0.22) (0.12) (0.08)
(Loss) per share - diluted (0.22) (0.12) (0.08)
Weighted average number of
shares - basic 63,610 63,472 62,496
Total assets 219,509 257,002 331,130
Total non-current liabilities 36,908 35,625 35,828
Revenue days 25 73 84
Revenue per revenue day 487 431 535
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(1) Defined under Non-IFRS Measures
OVERVIEW OF THE QUARTER ENDED MARCH 31, 2014
While our two major customers were inactive during the quarter, activity for the
Canadian customer recommenced in April. In the U.S., our customer has indicated
its intent to recommence in early June with a six well pad. Highlights from the
quarter were:
-- Six field trials completed with five new customers.
-- Hiring of a new President with a strong sales focus.
-- Sale of $9.3 million of equipment.
-- Winning Gold for the 2014 Edison Award in Energy & Sustainability.
-- Continued broadening of fluid offering.
-- Prototyping of our high reid vapour pressure ("HRVP") system for in-
field fluids.
-- Bank debt, net of cash, reduced to $13.1 million.
FINANCIAL OVERVIEW - FOR THE THREE MONTHS ENDED
March 31, 2014
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Canada U.S. Corporate Total
-----------------------------------------------------------
CAD$ CAD$ CAD$ CAD$
Revenue 12,159 100.0% 14 100.0% 12,173 100.0%
Cost of sales 8,719 71.7% 10 71.4% - 8,729 71.7%
Variable
operating costs 2,044 16.8% 232 1657.1% - 2,276 18.7%
Fixed operating
costs 3,627 29.8% 1,835 13107.1% - 5,462 44.9%
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Operating
expenses 14,390 118.3% 2,077 14835.7% - 16,467 135.3%
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Selling, general
and
administration 2,392 19.7% 679 4850.0% 1,248 4,319 35.5%
Number of revenue
days 25 0 25
Revenue per day 486 N/A 487
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March 31, 2013
-----------------------------------------------------------
Canada U.S. Corporate Total
-----------------------------------------------------------
CAD$ CAD$ CAD$ CAD$
Revenue 28,462 100.0% 2,996 100.0% 31,458 100.0%
Cost of sales 14,590 51.3% 1,641 54.7% - 16,231 51.6%
Variable
operating costs 2,840 10.0% 819 27.3% - 3,659 11.6%
Fixed operating
costs 3,891 13.7% 2,263 75.5% - 6,154 19.6%
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Operating
expenses 21,321 79.4% 4,723 157.6% - 26,044 82.8%
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Selling, general
and
administration 2,661 9.3% 1,187 39.6% 795 4,643 11.8%
Number of revenue
days 65 8 73
Revenue per day 438 375 431
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Revenue
Revenue for the first quarter decreased 61.3% to $12.2 million from $31.5
million in the first quarter of 2013. This decrease is primarily due to two
major customers delaying projects from first quarter of 2014 to second quarter
2014. These two customers contributed approximately $18 million in revenue
during first quarter 2013.
During the quarter, the Company earned revenues from six customers with the top
three customers representing 86.1% of the total revenue. During the first
quarter of 2013, the top three customers represented 83.1% of the total revenue.
Canadian Operations
First quarter revenue from the Canadian operations decreased 57.3% to $12.2
million from $28.5 million in the first quarter of 2013. The Canadian operations
performed 25 revenue days in the first quarter of 2014 with average daily
revenue of $486 compared to 65 revenue days in the first quarter of 2013 with
average daily revenue of $438. The increase in average daily revenue is due to
the increase in the price and cost of LPG. During the first quarter of 2014, a
repeat customer provided $7.4 million in revenue compared to $6.4 million in the
first quarter of 2013. The remaining $4.8 million in revenue was contributed by
five new customers.
During the quarter, revenue was generated from six customers with the top three
customers representing 86.1% of the total revenue. During the first quarter of
2013, the top three customers represented 91.9% of the total revenue.
U.S. Operations
First quarter revenue from the U.S. operations was nil compared to $3.0 million
in the first quarter of 2013. In the first quarter of 2013, GASFRAC performed 8
revenue days with average daily revenue of $375. The Company's major US customer
contributed approximately half of the $3.0 million in revenue in first quarter
2013. This customer is expected to re-start in second quarter of 2014. The
Company and the customer are currently negotiating a renewal to the contract
that expired in first quarter of 2014. However, there can be no assurance at
this time that such renewal will be obtained or, if obtained, what the terms of
such renewal will be.
During the first quarter of 2013, revenue was generated from three customers
with the top customer generating 52.6% of the total revenue.
Operating Expenses
Operating expenses consist of the following categories:
-- cost of sales (variable costs directly attributable to a fracturing
treatment),
-- variable operating costs (variable costs not directly attributable to a
fracturing treatment), and
-- fixed operating costs (costs that do not fluctuate with the Company's
level of activity).
During the quarter, the Company's operating expenses decreased 36.8% to $16.5
million (135.3% of revenue) from $26.0 million (82.8% of revenue) in the first
quarter of 2013. This is primarily due to the decrease in the Company's
activity.
As a percentage of revenue, cost of sales increased to 71.7% of revenue ($8.7
million) from 51.6% ($16.2 million) of revenue in the first quarter of 2013. The
increase in cost of sales as a percentage of revenue was largely attributable to
lowering the price of our services in order to attract new customers.
As a percentage of revenue, variable operating expenses increased to 18.7% of
revenue ($2.3 million) from 11.6% of revenue ($3.7 million) of revenue in the
first quarter of 2013. The percentage increase in variable operating expenses is
due to selling services at a reduced price.
Fixed operating costs decreased 11.2% to $5.5 million in the first quarter of
2014 as compared to $6.2 million in the first quarter of 2013. The decrease in
fixed operating costs is due to a reduction in salaries and benefits realized
from operating headcount decreases.
Canadian Operations
Total operating expenses for the quarter were $14.4 million (cost of sales -
$8.7 million, variable operating costs - $2.0 million and fixed operating costs
- $3.6 million) as compared to $21.3 million (cost of sales - $14.6 million,
variable operating costs - $2.8 million and fixed operating costs - $3.9
million) in the first quarter of 2013.
Cost of sales were 71.7% of revenue for the quarter as compared to 51.3% of
revenue in the first quarter of 2013. The increase in cost of sales as a
percentage of revenue was largely attributable to lowering the price of our
services in order to attract new customers.
Variable operating expenses increased to 16.8% of revenue ($2.0 million) from
10.0% of revenue ($2.8 million) in the first quarter of 2013. The percentage
increase in variable operating expenses is due to selling services at a reduced
price.
Fixed operating costs decreased to $3.6 million from $3.9 million in the first
quarter of 2013. The decrease is due to a reduction in salaries and benefits
realized from operating headcount decreases.
U.S. Operations
Total operating expenses for the quarter were $2.1 million (cost of sales -
$nil, variable operating costs - $0.2 million and fixed operating costs - $1.8
million) as compared to $4.7 million (cost of sales - $1.6 million, variable
operating costs - $0.8 million and fixed operating costs - $2.3 million) in the
first quarter of 2013.
Variable operating costs of $0.2 million increased to 100.0+% of revenue from
27.3% of revenue ($0.8 million) in the first quarter of 2013. The variable
operating costs primarily consist of repairs and maintenance, shop supplies and
fuel incurred to maintain our fleet.
Fixed operating costs decreased to $1.8 million from $2.3 million in the first
quarter of 2013. The decrease in fixed operating costs is due to a reduction in
salaries and benefits realized from operating headcount decreases.
Sales, General & Administrative ("SG&A") Expenses
For the first quarter, SG&A expenses decreased 7.0% to $4.3 million from $4.6
million in the first quarter of 2013. The decrease is primarily due to decreased
salaries and benefits associated with the reductions of the executive and
administrative staffing levels. These savings were offset by approximately $0.3
million in severance costs incurred in the first quarter of 2014.
Gain on Disposition of Assets
During the first quarter of 2014, the Company sold certain parked equipment for
proceeds of $9.3 million and a book gain of $1.6 million. The proceeds were used
to pay down existing bank debt. The equipment sold was in excess of the
Company's current needs and does not affect the Company's revenue generating
capabilities. The Company did not have a formal plan to dispose of the
equipment, however, when the Company was approached it made the decision to
sell.
Adjusted EBITDA
For the first quarter of 2014, Adjusted EBITDA decreased to a loss of $6.5
million from $0.5 million in the first quarter of 2013. The Adjusted EBITDA
includes the gain on disposal of assets of $1.6 million. The decrease in
Adjusted EBITDA was the result of a 61.3% decrease in revenue as well as an
increase in the cost of sales.
Net Loss
For the first quarter of 2014, the net loss increased to $14.1 million compared
to a net loss of $7.9 million during the first quarter of 2013. As discussed
above, the decrease in revenue is the largest contributor to the increase in net
loss. Depreciation and amortization decreased $0.3 million from first quarter
2013 to first quarter 2014 due to the sale of assets and minimal capital
expenditures throughout 2013. Finance costs also decreased by approximately $0.4
million as a result of lower overall debt levels in first quarter 2014. The
Company does not recognize any current tax expense as it has tax losses to
offset any taxable income.
FINANCIAL OVERVIEW - SUMMARY OF QUARTERLY RESULTS
Jun 30, Sept 30, Dec 31, Mar 31,
2012 2012 2012 2013
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CAD$ CAD$ CAD$ CAD$
Revenue 16,734 40,851 46,888 31,458
(Loss) for the period (16,949) (7,144) (48,450) (7,884)
(Loss) per share - basic (0.27) (0.11) (0.77) (0.12)
(Loss) per share - diluted (0.27) (0.11) (0.77) (0.12)
Adjusted EBITDA(1) (10,450) 1,081 7,676 468
Capital expenditures 15,404 4,955 6,593 509
Working capital
(deficiency)(2) 8,994 (1,092) 25,740 (4,384)
Shareholders' equity 247,519 237,201 190,444 184,266
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Jun 30, Sept 30, Dec 31, Mar 31,
2013 2013 2013 2014
----------------------------------------------------------------------------
CAD$ CAD$ CAD$ CAD$
Revenue 30,561 30,423 29,381 12,173
(Loss) for the period (4,811) (5,061) (6,673) (12,093)
(Loss) per share - basic (0.08) (0.08) (0.10) (0.22)
(Loss) per share - diluted (0.08) (0.08) (0.10) (0.22)
Adjusted EBITDA(1) 3,246 3,016 1,213 (6,468)
Capital expenditures 1,404 274 963 2,425
Working capital
(deficiency)(2) 2,627 4,108 7,070 4,679
Shareholders' equity 181,951 175,884 171,209 159,164
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(1) Defined under Non-IFRS Measures
(2) Working capital is defined as current assets less current liabilities
The Company's North American business is seasonal. The lowest activity is
typically experienced during the second quarter of the year when road weight
restrictions are in place due to spring break-up weather conditions and access
to well sites in Canada is reduced. Also, in certain areas of the U.S. in which
the Company operates, access to work locations is limited or entirely banned
during hunting season which typically occurs December through February.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
As at March 31, 2014, the Company had $4.7 million of working capital compared
to $7.1 million as at December 31, 2013 and a working capital deficit of $4.4
million as at March 31, 2013. Included in the working capital as at March 31,
2014 is $16.3 million of inventory that primarily consists of ceramic proppant.
The sequential decrease in working capital is due to cash used in operating
activities and offset somewhat by an increase in inventory and the sale of
surplus equipment.
The significant decrease in working capital from December 31, 2012 is primarily
due to the reclassification of the Company's credit facility from non-current to
current.
Debt
On May 17, 2013, the credit facility was amended and restated, with the major
amendments being that the credit facility resized to $50 million and the
maturity date extended to April 30, 2014. The credit facility has since been
extended and now matures on June 30, 2014.
The credit facility consists of a $10 million revolving operating facility and a
$40 million revolving facility. The facilities bear interest at prime plus 0.75%
to prime plus 4.25%. Both facilities are secured by a floating charge over all
of the assets (excluding leased assets). The amended and restated credit
facility is subject to financial and non-financial covenants typical of this
type of facility.
The amended and restated credit facility is subject to financial covenants as
follows:
-- Funded Debt to EBITDA Ratio: Funded debt (excludes convertible
debentures) at balance sheet date to 12 month trailing earnings before
interest, taxes, depreciation and amortization, and share based
compensation expense (Bank EBITDA) not to exceed 3.00 to 1.00
-- EBITDA to Interest Expense Ratio: 12 month trailing Bank EBITDA to 12
month trailing interest expense to exceed 3.00 to 1.00
-- Funded Debt to Capitalization Ratio: Funded debt to capitalization (the
aggregate of funded debt plus equity) not to exceed 0.50 to 1.00
As at March 31, 2014, the Company is not in compliance with its Funded Debt to
EBITDA Ratio and EBITDA to Interest Expense Ratio. Subsequent to March 31, 2014,
the Company received a covenant waiver from its bank. The facility, if not
renewed, is due on maturity. Pursuant to IAS 1, the Company has presented the
entire credit facility as current in the Company's consolidated financial
statements as at the reporting date.
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. Generally the Company ensures that it
has sufficient cash or available credit facilities to meet expected operational
requirements. The Company's credit facility matures June 30, 2014. Should the
Company be unable to renew these facilities in the amount it requires or on
terms acceptable to it, liquidity issues could result.
The Company is negotiating with its current bank to structure a new credit
facility prior to the current facility maturing. The Company has also hired an
independent third party to assist the Company with possibly obtaining an asset
backed loan ("ABL") facility. This facility would be longer term and supported
by the value of the Company's property and equipment, accounts receivable and
inventory. The Company is negotiating with a specific ABL lender. The outcome
from either financing alternative is not certain.
The Company's borrowing requirements fluctuate with its level of working
capital, particularly accounts receivable. Amounts borrowed are anticipated to
be repaid through collection of accounts receivable, operating cash generated,
the sale of assets and proceeds, if any, of a new credit facility being
negotiated, as noted above.
During the first quarter of 2014, the Company sold certain parked equipment for
proceeds of $9.3 million and a book gain of $1.6 million. The proceeds were used
to pay down the existing bank debt. The equipment sold was in excess of the
Company's current needs and does not affect the Company's revenue generating
capabilities. In addition, the Company has planned minimal capital expenditures
in 2014 and manages the timing of its capital expenditures based on the ongoing
financial results.
Consolidated Cash Flow Summary
Mar 31, 2014 Mar 31, 2013
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CAD$ CAD$
Cash provided by (used in)
Operating activities (3,385) 3,776
Financing activities (3,768) (6,366)
Investing activities 6,896 (844)
----------------------------------------------------------------------------
Net decrease in cash and cash equivalents (257) (3,434)
Effects of exchange rate changes on the
balance of cash held in foreign currencies 204 151
Cash and cash equivalents, beginning of year 1,955 7,927
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 1,902 4,644
----------------------------------------------------------------------------
Operating Activities
Net cash used in operating activities was $3.4 million as compared to cash
provided by operating activities of $3.8 million in the first quarter of 2013,
an absolute change of $7.2 million. Two factors contributed to this change. The
first was the net loss caused by the decrease in first quarter 2014 revenue and
the second was the net change in non-cash working capital. The net change in
non-cash working capital consisted of:
Mar 31, 2014 Mar 31, 2013
----------------------------------------------------------------------------
CAD$ '000 CAD$ '000
Accounts receivable 17,794 12,238
Accounts payable (not including capital
purchases) (7,096) (5,729)
Inventory (3,634) (1,920)
Performance and deferred share unit liability 22 (358)
Other (21) 620
----------------------------------------------------------------------------
Net change in non-cash working capital 7,065 4,851
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financing Activities
Net cash used by financing activities was $3.8 million compared to $6.4 million
of cash used in the first quarter of 2013. The cash used in both the first
quarter of 2013 and 2014 consists primarily of payments to the Company's credit
facility.
Investing Activities
Net cash provided by investing activities was $6.9 million compared to $0.8
million of cash used in the first quarter of 2013. During the quarter, the
Company sold excess plant and equipment for gross proceeds of $9.3 million
partially offset by the purchase of property and equipment of $2.4 million.
Included in the $2.4 million is $1.6 million for a field office and shop that
was purchased by the Company due to the landlord selling the facility. At a
future date, the Company may consider entering into a sale-leaseback transaction
for this facility.
Contractual Obligations
The timing of cash outflows relating to financial liabilities are outlined in
the following table:
Greater
Contractual Less than 1 to 3 4 to 5 than 5
cash flows 1 year years years years
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CAD$ CAD$ CAD$ CAD$ CAD$
Trade payables and accrued
liabilities 5,907 5,907 - - -
Provisions 748 748 - - -
Finance lease obligation 2,138 1,211 927 - -
Credit facility (including
expected interest) 15,309 15,309 - - -
Debentures (including.
expected interest) 48,703 2,818 45,885 - -
Operating lease payments 8,875 1,797 2,739 2,138 2,201
Commitment to purchase
proppant 60,276 6,068 40,187 13,167 854
Commitment to purchase
plant and equipment 1,273 1,273 - - -
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Total 143,229 35,131 89,738 15,305 3,055
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To meet these financial obligations, the Company has available the following
resources available within 1 year:
Mar 31, 2014 Dec 31, 2013
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CAD$ CAD$
Cash and cash equivalents 1,902 1,955
Trade receivables 8,477 26,037
Unused credit facility - subject to applicable
debt ceiling 34,963 31,427
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45,342 59,419
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OFF-BALANCE SHEET ARRANGEMENTS
The Company is not party to any off balance sheet arrangements or transactions.
RELATED PARTY TRANSACTIONS
There were no related party transactions for the period ended March 31, 2014 or
March 31, 2013.
ACCOUNTING ESTIMATES
This MD&A summarizes GASFRAC's financial condition and results of operations and
is based upon its Interim Financial Statements, which have been prepared in
accordance with Canadian GAAP and comply with IAS 34 Interim Financial
Reporting. The Interim Financial Statements require management to select
significant accounting policies and make certain critical accounting estimates
that affect the reported assets, liabilities, revenue and expenses. A
description of critical accounting estimates can be found beginning on page 12
of the December 31, 2013 MD&A. As at March 31, 2014, GASFRAC's critical
accounting estimates have not changed from such description.
CHANGE IN ACCOUNTING POLICIES
Effective January 1, 2014, the Company adopted IFRIC 21 - Levies and the
amendments made to IAS 32 - Financial Instruments presentation.
IFRIC 21 established the principles under which the Company accounts for
government levies. This standard provided guidance on when to recognize a
liability to pay a government levy. The adoption of this standard did not have a
material effect on the Company's financial results.
The amendments made to IAS 32 clarified existing requirements for offsetting
financial assets and financial liabilities. The amendments made to this standard
did not have a material effect on the Company's financial results.
BUSINESS RISK
A description of business risks can be found on pp. 17-22 of the December 31,
2013 MD&A. As at March 31, 2014, these business risks have not changed
significantly from those descriptions.
COMMON SHARES AND CONVERTIBLE DEBENTURES
At March 31, 2014 and May 7, 2014, GASFRAC had 63,611,919 common shares
outstanding (December 31, 2013: 63,607,668). At March 31, 2014 and May 7, 2014,
GASFRAC had 3,435,834 share options outstanding (December 31, 2013: 3,295,000)
at a weighted average exercise price of $2.15 per share (December 31, 2013:
$2.31).
At March 31, 2014 and May 7, 2014, the Company had $40.25 million convertible
debentures outstanding that were convertible to 3,833,334 common shares based on
the applicable conversion price.
NON-IFRS MEASURES
Certain supplementary measures in this MD&A do not have any standardized meaning
as prescribed under IFRS and, therefore, are considered non-IFRS measures. These
measures have been described and presented in order to provide shareholders and
potential investors with additional information regarding the Company's
financial results, liquidity and ability to generate funds to finance its
operations. These measures may not be comparable to similar measures presented
by other entities, and are further explained as follows:
Adjusted EBITDA is defined as net income (loss) before interest income and
interest expense, income taxes, depreciation and amortization. Net income (loss)
includes gains and losses on the disposition of assets. Adjusted EBITDA is
presented because it is frequently used by securities analysts and others for
evaluating companies and their ability to service debt. Bank EBITDA is defined
as Adjusted EBITDA plus share based compensation. Bank EBITDA is used in the
calculation of GASFRAC's financial covenants related to its credit facility.
Adjusted EBITDA and Bank EBITDA were calculated as follows:
Year ended: March 31, 2014 March 31, 2013
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Net loss (1) (14,169) (7,884)
(Deduct) Add back:
Interest expense - net 1,398 1,759
Depreciation and amortization 6,303 6,593
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Adjusted EBITDA (6,468) 468
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(Deduct) Add Back:
----------------------------------------------------------------------------
Share based compensation 72 265
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Bank EBITDA (6,396) 733
----------------------------------------------------------------------------
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(1) Net loss for March 31, 2014 includes $1,602 thousand gain on the
disposition of assets. There were no gains or losses on asset dispositions
at March 31, 2013.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in the Company's internal controls over financial
reporting during the quarter ended March 31, 2014, which have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
OUTLOOK
The North American pressure pumping market has been oversupplied during the last
several years as a result of significant equipment builds in 2010 through 2012
and the addition of numerous small entrants during that period. This
overcapacity has resulted in depressed margins during the last several years as
capacity has been gradually absorbed. It is anticipated that 2014 industry
activity will allow for sufficient increase in utilization levels to result in
commencement of price increases in the second half of the year. In both Canada
and the U.S. natural gas prices have increased due to low gas storage levels,
driven by an unseasonably cold winter, as we enter the gas injection season.
Further, in Canada, and to a lessor extent in the U.S., approvals of LNG
facilities for export are increasing the likelihood of additional natural gas
drilling to supply these facilities. In Canada, assuming commodity prices remain
firm, it is expected that additional activity in the Duvernay and Montney will
drive demand for additional horsepower in Canada for 2014. In the U.S. activity
is much more regionally sensitive and continues to be strongest in oil rich
areas. The current scarcity of equity capital for Exploration and Production
("E&P") companies and their more conservative use of debt cause the level of
future capital expenditures to be highly leveraged to commodity prices. As such,
anticipated 2014 E&P capital expenditures are highly dependent on commodity
price assumptions for both oil and natural gas.
While the fundamentals of the overall pressure pumping market are an important
factor in our operations, the most significant factor remains the pace of
adoption of our technology by E&P companies. The industry as a whole has
experienced significant change over the last decade with the emergence of
multi-stage horizontal fracturing in resource formations. Although there have
been positive production results, in some ways, the technology of fracturing in
resource plays is just beginning. There are some indications that, as past
results and economics are examined, the industry is beginning to examine methods
to optimize fracturing operations and move away from simply using brute force
along the horizontal section. We believe that the GASFRAC technology and
resultant production benefits in targeted formations provide our customers an
advantage and that the major challenge for the Company is increasing our market
share through succinct demonstration of this benefit. The key barriers we have
encountered impacting the pace of adoption are; demonstration of the
cost/benefit, safety considerations, awareness and "inertia". Operators tend to
be cautious in their adoption of new technologies, particularly given the
significance of fracturing costs as a percentage of total drilling and
completions costs. The current E&P market is very focused on cost efficiencies
as they develop large resource plays. Free cash flow generation remains under
pressure for a large segment of the sector with overall return on capital
employed ("ROCE") down during 2013. As such, the higher up front cost of
GASFRAC's service can be a key criteria in purchasing decisions. Thus, the keys
on the cost/benefit side are:
a) the collection of basin by basin production data to provide more case
studies to potential customers showing the positive impact on production
and net present values,
b) continued reduction in the up-front costs of our service through
enhancements such as engineered fluids,
c) recruiting of strong technical sales and sales support staff and
d) focus on areas where the GASFRAC technology creates the most benefit or
is the enabling technology.
We expect that the service delivery initiatives we undertook over the last few
quarters, particularly engineered fluids that allow significant recovery of frac
load fluids, will reduce the net cost of our service to our customers. This
change in our value proposition creates an opportunity to attract customers to
trial our technology and observe the specific impact on their wells and
production. Due to the significant investment by operators in fracturing
services, the sales and trial process is relatively long. We would anticipate a
time from of six to nine months from initial trial to ultimate adoption of our
services. We have added and will continue to add technical resources to assist
our sales team in demonstrating the production benefits of our technology. In
addition we are actively recruiting strong technical sales staff that can work
with our customers to demonstrate technical benefits as well as assist in
demonstrating our service execution capabilities. While safety will always
remain a key focus for the Company, the equipment and procedures put in place
during 2011 have largely removed this as a barrier for most customers - although
education and safety audits will remain part of the sales cycle. We have
observed an increased awareness and expressed interest in GASFRAC services in
the basins we are targeting. During the first quarter of 2014 we had six trials
with customers who are still evaluating the results. While these have not
resulted in converted customers at this time, the success in achieving these
trials is a positive sign and a demonstration that our expanded delivery and
fluid systems are attracting market interest.
During this period of adoption, our operations in both Canada and the U.S.
remain concentrated with a few key customers and our revenues are subject to
fluctuation dependent on the level of drilling operations by these customers in
the areas in which we are servicing them. Their levels of drilling activity can
be impacted by numerous factors including, but not limited to, operational
difficulties, project scheduling, infrastructure limitations, weather
conditions, hunting restrictions, and budgetary priorities. While our two major
customers were not active during the first quarter, the Company has both a four
well pad and two well pad programmed with Husky commencing in April and
BlackBrush has indicated an intent to recommence operations in early June with a
six well pad.
These fluctuations add uncertainty to the timing of our cash flows, and can and
have resulted in breaches to bank covenants. The Company does however have
significant asset backing (receivables and capital equipment) providing support
for its credit facility. Our Bank has historically worked with us during these
periods, recognizing the near term fluctuations and the value of the supporting
assets. The Company is negotiating with its current Bank to structure a new
facility prior to the current facility maturing. The Company has also engaged an
independent third party to assist the Company with obtaining an asset backed
loan ("ABL") facility. This facility would be longer term and supported by the
value of the Company's property and equipment, accounts receivable and
inventory. The Company has had an independent third party appraisal of its
equipment indicating that the asset value of its equipment, together with
current assets is well above the amount of its current borrowing requirements.
Although, the Company expects to be able to secure new financing the outcome
from either financing alternative is not certain.
FORWARD-LOOKING STATEMENTS
This document contains certain statements that constitute forward-looking
statements under applicable securities legislation. All statements other than
statements of historical fact are forward-looking statements. In some cases,
forward-looking statements can be identified by terminology such as "may",
"will", "should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential", "continue", or the negative of these terms or other
comparable terminology. These statements are only as of the date of this
document and we do not undertake to publicly update these forward looking
statements except in accordance with applicable securities laws. These forward
looking statements include, among other things:
-- expectations that the Company's innovative technology will provide the
Company with opportunities to expand the Company's market share in
Canada and the U.S.;
-- expectations of securing financing for 2014 and beyond;
-- expectations as to the level of funding available under the Company's
credit facility;
-- expectations as to the degree of activity by key customers;
-- expectations as to fluctuations in revenue due to customer
concentration;
-- expectations of the impact of weather on activity in Canada in 2014;
-- expectations as to activity levels in North America;
-- expectations as to capital development programs of major customers;
-- expectations as to the rate of trials and adoption of the Company's
technology by E&P companies;
-- expectations as to the Company's future market position in the industry;
-- expectations as to the supply of raw materials and timing of purchase
commitments;
-- expectations as to the pricing of the Company's services in Canada and
the U.S.;
-- expectations as to obtaining long term contracts with customers;
-- expectations of fracturing industry pricing and the pricing of the
Company services in North America in 2014 and beyond;
-- expectations of oil and natural gas commodity prices in 2014; and
-- expectations of propane and other LPG prices in 2014 and forward.
These statements are only predictions and are based on current expectations,
estimates, projections and assumptions, which we believe are reasonable but
which may prove to be incorrect and therefore such forward-looking statements
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; effect of market conditions on the demand
for the Company's services; the ability to obtain qualified staff, equipment and
services in a timely manner; the effect of current plans; the timing of capital
expenditures and receipt of added equipment operating capacity; future oil and
natural gas prices and the ability of the Company to successfully market its
services.
By its nature, forward-looking information involves numerous assumptions, known
and unknown risks and uncertainties, both general and specific, that contribute
to the possibility that the predictions, forecasts, projections and other
forward-looking statements will not occur. These risks and uncertainties
include: changes in drilling activity; fluctuating oil and natural gas prices;
general economic conditions; weather conditions; regulatory changes; the
successful development and execution of technology; customer acceptance of new
technology; the potential of competing technologies by market competitors; the
availability of qualified staff, raw materials and property and equipment.
Condensed Interim Consolidated Statement of Financial Position
Unaudited
As at: Mar 31, 2014 Dec 31, 2013
----------------------------------------------------------------------------
CAD$ '000 CAD$ '000
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,902 1,955
Trade and other receivables 8,477 26,037
Inventory 16,288 12,645
Prepaid expenses 1,449 1,459
----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 28,116 42,096
----------------------------------------------------------------------------
NON-CURRENT ASSETS
Plant and equipment 184,376 193,612
Intangible assets 691 780
Other assets 6,326 6,309
----------------------------------------------------------------------------
TOTAL NON-CURRENT ASSETS 191,393 200,701
----------------------------------------------------------------------------
TOTAL ASSETS 219,509 242,797
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables and accrued liabilities 6,715 14,352
Provisions 795 742
Current portion of finance lease obligation 1,115 1,359
Current portion of credit facility 15,037 18,573
----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 23,662 35,026
----------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Finance lease obligation 863 835
Operating lease obligation 90 79
Convertible debentures 35,955 35,648
Commitments and contingencies
----------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES 36,908 36,562
----------------------------------------------------------------------------
TOTAL LIABILITIES 60,570 71,588
----------------------------------------------------------------------------
CAPITAL & RESERVES
Share capital 259,841 259,823
Contributed surplus 6,491 6,461
Foreign currency translation reserve 7,177 5,326
Retained earnings deficit (114,570) (100,401)
----------------------------------------------------------------------------
TOTAL EQUITY 158,939 171,209
----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 219,509 242,797
----------------------------------------------------------------------------
Condensed Interim Consolidated Statements of Comprehensive Loss
Unaudited
For the three months ended
--------------------------------
March 31, 2014 March 31, 2013
----------------------------------------------------------------------------
CAD$ '000 CAD$ '000
REVENUE 12,173 31,458
----------------------------------------------------------------------------
EXPENDITURES
Direct operating costs 16,467 26,044
Selling, general and administrative 4,319 4,643
Share based compensation 72 265
Depreciation and amortization 6,303 6,593
Finance cost 1,400 1,770
Foreign exchange (gain) loss (615) 38
----------------------------------------------------------------------------
27,946 39,353
----------------------------------------------------------------------------
OTHER INCOME
Gain on disposition of assets 1,602 -
Interest income 2 11
----------------------------------------------------------------------------
1,604 11
----------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (14,169) (7,884)
Income tax expense - -
----------------------------------------------------------------------------
LOSS FOR THE PERIOD (14,169) (7,884)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME
ITEMS THAT WILL BE RECLASSIFIED TO PROFIT
AND LOSS
Exchange differences on translating foreign
operations 1,851 1,502
----------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME 1,851 1,502
----------------------------------------------------------------------------
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD (12,318) (6,382)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(LOSS) PER SHARE
Basic (per share) (0.22) (0.12)
Diluted (per share) (0.22) (0.12)
----------------------------------------------------------------------------
Condensed Interim Consolidated Statements of Cash Flows
Unaudited
For the three months ended
--------------------------------
March 31,2014 March 31,2013
----------------------------------------------------------------------------
CAD$ '000 CAD$ '000
CASH FLOWS PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss for the period (14,169) (7,884)
Adjusted for:
Depreciation and amortization 6,303 6,593
Equity settled share based compensation 48 204
Finance cost per income statement 1,400 1,770
Unrealized foreign exchange loss / (gain) (707) 68
Gain on disposition of assets (1,602) -
----------------------------------------------------------------------------
(8,727) 751
Net change in non-cash operating working
capital 7,065 4,851
----------------------------------------------------------------------------
Cash provided by (used in) operating
activities (1,662) 5,602
Interest paid (1,723) (1,826)
----------------------------------------------------------------------------
Net cash provided (used) by operating
activities (3,385) 3,776
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of plant and equipment (2,410) (468)
Acquisition of intangible assets (15) (41)
Proceeds from sale of plant and equipment
and assets held for sale 9,324 -
Net change in non-cash investing working
capital (3) (335)
----------------------------------------------------------------------------
Net cash provided (used) by investing
activities 6,896 (844)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Net finance lease repayments (232) (224)
Credit facility repayment (3,536) (6,142)
----------------------------------------------------------------------------
Net cash used by financing activities (3,768) (6,366)
----------------------------------------------------------------------------
Net decrease in cash and cash equivalents (257) (3,434)
Cash and cash equivalents at beginning of
period 1,955 7,927
Effects of exchange rate changes on the
balance of cash held in foreign currencies 204 151
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF THE
PERIOD 1,902 4,644
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company will host a conference call on Thursday, May 8, 2014 at 9:00 a.m. MT
(11:00 a.m. ET) to discuss the Company's results for the first quarter of 2014.
To listen to the webcast of the conference call, please enter:
http://www.gowebcasting.com/5471 in your web browser or visit the Investor
Information section of our website www.gasfrac.com.
To participate in the Q&A session, please call the conference call operator at
1-800-769-8320 or 1-416-340-8530 and ask for "GASFRAC First Quarter Results
Conference Call".
A replay of the call will be available until May 15, 2014 by dialing
1-800-408-3053 (North America) or 1-905-694-9451 (outside North America).
Playback passcode: 5684777. The Company will also archive the conference on its
website at www.gasfrac.com.
GASFRAC is an oil and gas technology and service company headquartered in
Calgary, Alberta, Canada, and the sole provider of LPG fracturing technology in
North America.
This press release contains certain statements that constitute forward-looking
statements under applicable securities legislation. All statements other than
statements of historical fact are forward-looking statements. In some cases,
forward-looking statements can be identified by terminology such as "may",
"will", "should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential", "continue", or the negative of these terms or other
comparable terminology. These statements are only as of the date of this
document and we do not undertake to publicly update these forward looking
statements except in accordance with applicable securities laws. Forward-looking
statements are based on current expectations, estimates, projections and
assumptions, which we believe are reasonable but which may prove to be incorrect
and therefore such forward-looking statements 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 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 statements are
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. In addition, actual results could differ materially
from those anticipated in these forward-looking statements as a result of the
risk factors set forth under the section entitled "Business Risks" in the
Company's MD&A.
Requests for shareholder information should be directed to James M Hill.
FOR FURTHER INFORMATION PLEASE CONTACT:
GASFRAC Energy Services Inc.
James M Hill
Chief Executive Officer
403-515-3387
jhill@gasfrac.com
www.gasfrac.com
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