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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Trican Well Service Ltd | TSX:TCW | Toronto | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.04 | -0.93% | 4.28 | 4.27 | 4.29 | 4.30 | 4.26 | 4.30 | 30,702 | 14:46:35 |
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Trican Well Service Ltd. (TSX:TCW)
Financial Review
----------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
($ millions, except per
share amounts; unaudited) 2014 2013 2014 2013
----------------------------------------------------------------------------
Revenue $534.6 $396.6 $1,177.8 $1,015.0
Operating income / (loss)
(i) 1.3 (14.8) 43.7 71.4
Profit / (loss) (43.1) (56.4) (51.6) (31.2)
Earnings / (loss) per
share (basic) ($0.29) ($0.38) ($0.35) ($0.21)
(diluted) ($0.29) ($0.38) ($0.35) ($0.21)
Adjusted profit / (loss)
(i) (41.2) (50.4) ($47.5) (23.0)
Adjusted profit / (loss)
per share(i) (basic) ($0.28) ($0.34) ($0.32) ($0.15)
(diluted) ($0.28) ($0.34) ($0.32) ($0.15)
Funds provided by / (used
in) operations(i) (11.5) (29.1) 26.5 28.9
----------------------------------------------------------------------------
Notes:
(i) Trican makes reference to operating income/(loss), adjusted profit/(loss)
and funds provided by/(used in) operations. These are measures that are not
recognized under International Financial Reporting Standards (IFRS). Management
believes that, in addition to net income/(loss), operating income/(loss),
adjusted profit/(loss) and funds provided by/(used in) operations are useful
supplemental measures. Operating income/(loss) provides investors with an
indication of net income/(loss) before depreciation and amortization, foreign
exchange gains and losses, other income, finance costs and income tax expense.
Adjusted profit/(loss) provides investors with information on net income/(loss)
excluding one-time non-cash charges and the non-cash effect of stock-based
compensation expense. Funds provided by/(used in) operations provide investors
with an indication of cash available for capital commitments, debt repayments
and other expenditures. Investors should be cautioned that operating
income/(loss), adjusted profit/(loss), and funds provided by/(used in)
operations should not be construed as an alternative to net income/(loss) and
cash provided/(used in) operations determined in accordance with IFRS as an
indicator of Trican's performance. Trican's method of calculating operating
income/(loss), adjusted profit/(loss) and funds provided by/(used in) operations
may differ from that of other companies and accordingly may not be comparable to
measures used by other companies.
SECOND QUARTER HIGHLIGHTS
Consolidated revenue for the second quarter of 2014 was $534.6 million, an
increase of 35% compared to the second quarter of 2013. The adjusted
consolidated net loss was $41.2 million compared to $50.4 million, and adjusted
diluted loss per share was $0.28 compared to $0.34 for the same period in 2013.
Funds used in operations were $11.5 million compared to $29.1 million in the
second quarter of 2013.
Our Canadian operations generated quarterly revenue of $171.9 million and an
operating loss of $8.0 million during the second quarter of 2014. Canadian
revenue increased year-over-year by 48% and operating margins improved by 640
basis points as demand for services during the second quarter increased
substantially compared to the second quarter of 2013. The second quarter in
Canada is typically impacted by spring break-up conditions; however, an
improving macro-economic environment for the Canadian pressure pumping market,
combined with an extended winter drilling season in April, contributed to the
year-over-year increases. Although Canadian operating margins benefitted from
higher activity during the second quarter, increased costs combined with weak
pricing continued to negatively impact operating income. To improve
profitability, a 7% price book increase was released in the second quarter and
is expected to be phased-in over the second half of 2014. Given the strong
demand expected in Canada during the second half of 2014, we anticipate that
pricing improvement initiatives will be successful and expect second half
margins to benefit from sequential pricing increases.
Our U.S. operations generated second quarter revenue of $267.6 million, an
increase of 33% compared to the second quarter of 2013. Strong demand and
operational performance in the Marcellus and Permian regions contributed to the
increase in revenue and led to sequential improvements in operating margins.
Pricing increases were obtained in both regions late in the second quarter that
are expected to benefit U.S. operations in the second half of 2014. Demand for
our services continued to be strong in the Bakken region during the second
quarter due to strong operational performance. A second crew will be deployed in
the Bakken region during the third quarter of 2014 in response to the strong
demand in the region. Gains in the Marcellus, Permian and Bakken regions were
partially offset by losses relating to the closure of our operating base in
Woodward, Oklahoma. The Woodward fracturing crew was re-located to the Permian
region during the second quarter and we are currently working to place this crew
into an acceptable contract later in 2014. Operations in the Barnett, Oklahoma
and Haynesville regions performed below expectations during the second quarter
and also had a negative impact on second quarter operating margins. We have
recently obtained contracts with customers in the Barnett and Oklahoma regions
that are expected to improve utilization and profitability in these regions
during the third quarter.
Second quarter revenue for our international operations was $95.1 million, an
increase of 20% compared to the second quarter of 2014. The substantial increase
in revenue led to a quarterly operating margin of 16.4% for our international
operations. Our Russian operations comprise the majority of our international
results, and record quarterly revenue was achieved in Russia during the second
quarter. A rise in horizontal drilling and completions activity continued to
benefit pressure pumping demand in Russia. In addition, our Russian customers
were able to catch-up up on work programs that were behind schedule due to cold
weather in the first quarter of 2014. Our international operations also
benefitted from strong results from our North Sea completions tools business as
year-over-year revenue for this division increased by almost 200% during the
second quarter. Positive results in Russia and the North Sea were partially
offset by operating losses in Algeria and start-up costs in Saudi and Colombia.
Active operations commenced in both Saudi Arabia and Colombia during the second
quarter, which is expected to improve the financial results for these regions
during the second half of 2014.
On July 17, 2014, we increased our Revolving Credit Facility (the "Facility")
from $500.0 million to $575.0 million. Commitments for the increase came from
both existing and new banks. All other terms and conditions of the Facility
remained unchanged, including its current maturity date of October 17, 2017.
In addition, subsequent to the end of the second quarter of 2014, we obtained a
commitment from an institutional investor to issue $20 million of senior
unsecured notes. The notes will have a ten year maturity, a coupon of 5.75% and
will rank equally with all other senior indebtedness. Management expects this
note issuance to close and fund during the third quarter of 2014.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Headquartered in Calgary, Alberta, Trican has operations in Canada, the U.S.,
Russia, Kazakhstan, Algeria, Australia, Saudi Arabia, Colombia and Norway.
Trican provides a comprehensive array of specialized products, equipment and
services that are used during the exploration and development of oil and gas
reserves.
COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
----------------------------------------------------------------------------
Quarter-
Over-
Three months ended % of % of Quarter %
June 30, 2014 Revenue 2013 Revenue Change Change
----------------------------------------------------------------------------
Revenue 534,599 100.0% 396,607 100.0% 137,992 35%
Expenses
Materials and
operating 498,052 93.2% 384,069 96.8% 113,983 30%
General and
administrative 35,264 6.6% 27,352 6.9% 7,912 29%
----------------------------------------------------------------------------
Operating
income/(loss)(i) 1,283 0.2% (14,814) (3.7%) 16,097 (109%)
Finance costs 9,536 1.8% 8,554 2.2% 982 11%
Depreciation and
amortization 49,136 9.2% 50,613 12.8% (1,477) (3%)
Goodwill
impairment - 0.0% 4,123 1.0% (4,123) (100%)
Foreign exchange
(gain)/loss 4,992 0.9% (1,510) (0.4%) 6,502 (431%)
Other income (1,359) (0.3%) (1,454) (0.4%) 95 (7%)
----------------------------------------------------------------------------
Loss before income
taxes (61,022) (11.4%) (75,140) (18.9%) 14,118 (19%)
Income tax recovery (17,470) (3.3%) (18,751) (4.7%) 1,281 7%
Non-controlling
interest (448) (0.1%) (125) 0.0% (323) 258%
----------------------------------------------------------------------------
Net loss (43,104) 8.1% (56,264) (14.2%) 13,160 23%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
June 30, % of June 30, % of March 31, % of
Three months ended, 2014 Revenue 2013 Revenue 2014 Revenue
----------------------------------------------------------------------------
Revenue 171,937 116,061 353,342
Expenses
Materials and
operating 171,763 99.9% 121,446 104.6% 283,280 80.2%
General and
administrative 8,213 4.8% 7,443 6.4% 7,543 2.1%
--------- --------- ---------
Total expenses 179,976 104.7% 128,889 111.1% 290,823 82.3%
Operating
income/(loss)(i) (8,039) (4.7%) (12,828) (11.1%) 62,519 17.7%
Number of jobs 3,628 3,096 6,396
Revenue per job 47,568 37,046 55,200
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, (unaudited) June 30, June 30, March 31,
2014 2013 2014
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 62% 61% 67%
Cementing 19% 14% 19%
Nitrogen 7% 5% 6%
Industrial services 4% 9% 1%
Coiled Tubing 4% 4% 3%
Acidizing 2% 3% 2%
Other 2% 4% 2%
----------------------------------------------------------------------------
Total 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations Review
Canadian activity levels in the second quarter of 2014 were up significantly
compared to the second quarter of 2013 as demand for Canadian pressure pumping
services benefitted from increased customer spending. Customer cash flows have
increased throughout the first half of 2014 as Canadian commodity prices and a
stronger U.S. dollar have improved the economics of the key Canadian oil and gas
plays. The improved cash flows contributed to the year-over-year increase in
second quarter activity levels and are also expected to result in higher
pressure pumping demand in the second half of 2014. Demand for fracturing
services also benefitted from an increase in fracturing intensity per well
during the second quarter. We continue to see an increase in sand volumes and
fracturing stages per well, which is leading to an increase in fracturing
demand.
Cold weather throughout March and early April led to an extended winter drilling
season and activity levels in early April were stronger compared to previous
years. For the remainder of the second quarter and consistent with expectations,
activity was impacted by spring break-up conditions when frozen ground begins to
thaw and road bans and weight restrictions limit oil and gas activity levels.
The favorable weather conditions in April combined with increased customer
spending contributed to a 34% year-over-year increase in the second quarter
average Canadian rig count.
Although Canadian operating margins benefitted from higher activity during the
second quarter, increased costs combined with weak pricing continued to
negatively impact operating income. Our Canadian cost structure increased
compared to the second quarter of 2013 due to product and product transportation
cost increases, wage inflation, higher diesel prices, and a weaker Canadian
dollar. In addition, no significant fixed cost reductions were contemplated in
the second quarter in anticipation of the strong second half activity in Canada.
Given the increased cost structure, one of the primary areas of focus in Canada
continues to be on raising prices. A new Trican price book was released in
mid-May that reflected a 7% price increase. The new price book will be gradually
phased-in to our Canadian customer base with full implementation expected by the
end of 2014. The new price book had a minimal impact on our second quarter
Canadian results as most of the implementation is expected in the second half of
2014.
Our completions tools business in Canada was also negatively impacted by spring
break-up during the second quarter, which led to sequential declines in revenue
and operating income for this segment of our Canadian operations. However, this
business continues to grow and revenue increased by 40% on a year-over-year
basis in the second quarter of 2014. We expect continued growth of the Canadian
completions tools business in the second half of 2014 with a continued focus on
improving and increasing our tool manufacturing capabilities and leveraging off
of our Canadian pressure pumping customer base.
Q2 2014 versus Q2 2013
Canadian revenue for the second quarter of 2014 increased by 48% compared to the
second quarter of 2013. The job count increased by 17% due to increased customer
spending combined with favorable weather conditions early in the second quarter.
Revenue per job increased by 28% as larger fracturing job sizes and a higher
proportion of fracturing revenue were partially offset by lower pricing.
Materials and operating expenses decreased to 99.9% of revenue compared to
104.6% for the same period in 2013. Increased activity led to improved
operational leverage on our fixed cost structure in Canada, which was partially
offset by increased costs and lower pricing compared to the second quarter of
2013. General and administrative expenses increased by $0.8 million due largely
to higher share-based employee expenses.
Q2 2014 versus Q1 2014
Canadian revenue for the second quarter of 2014 decreased by 51% compared to the
first quarter of 2014. The job count decreased by 43%, which compared to the 61%
sequential drop in the Canadian rig count during the quarter caused by spring
break-up conditions. Revenue per job decreased by 14% largely due to the
decrease in fracturing revenue relative to total revenue.
As a percentage of revenue, materials and operating expenses increased to 99.9%
compared to 80.2% in the first quarter of 2014. Lower activity levels led to
reduced operating leverage on our cost structure, which contributed to most of
the operating margin decrease. General and administrative costs increased by
$0.7 million due mainly to higher share-based employee expenses.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
March
June 30, % of June 30, % of 31, % of
Three months ended, 2014 Revenue 2013 Revenue 2014 Revenue
----------------------------------------------------------------------------
Revenue 267,564 201,538 211,040
Expenses
Materials and
operating 246,540 92.1% 186,795 92.7% 205,207 97.2%
General and
administrative 9,071 3.4% 6,246 3.1% 6,868 3.3%
--------- --------- ---------
Total expenses 255,611 95.5% 193,041 95.8% 212,075 100.5%
Operating income
(loss)(i) 11,953 4.5% 8,497 4.2% (1,035) (0.5%)
Number of jobs 3,002 2,208 3,218
Revenue per job 86,387 92,096 61,776
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, (unaudited) June 30, June 30, March 31,
2014 2013 2014
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 92% 90% 90%
Cementing 6% 7% 6%
Coil Tubing 2% 3% 4%
----------------------------------------------------------------------------
Total 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations Review
Second quarter results for our U.S. operations benefitted from sequential
revenue and operating margin increases for our Marcellus and Permian operations.
The first quarter of 2014 was negatively impacted by cold weather in both of
these regions, which contributed to sequential utilization improvement. Revenue
generated by our Marcellus operations during the second quarter also benefitted
from the addition of a fourth fracturing crew in late May. The utilization of
this crew was strong upon deployment as demand remained robust in this region.
Revenue generated by our Permian operations also benefitted from improved
operational performance, which led to utilization increases for all crews in
this region.
Improvements in the Marcellus and Permian regions were partially offset by costs
incurred in closing our operating base in Woodward, Oklahoma. One fracturing
crew had been operating out of Woodward and was transferred to the Permian basin
during the second quarter. We are currently working to place this crew into an
acceptable contract later in 2014.
Second quarter financial results were also negatively impacted by weak
utilization for our fracturing crews operating in the Barnett and Oklahoma
regions, and weak pricing and operating margins for our Haynesville fracturing
crew. We have recently obtained contracts with customers in the Barnett and
Oklahoma regions that are expected to improve utilization and profitability in
these regions in the third quarter.
Stable regional demand combined with strong operational performance, led to
sequential improvements in revenue and operating margins for our Bakken
operations. We will be deploying a second crew into this region during the third
quarter of 2014. Activity remained stable for our two fracturing crews operating
in the Eagle Ford basin.
U.S. pricing levels are trending up in high activity areas such as the Permian
and Marcellus plays. Pricing improvements were obtained in both regions late in
the second quarter and are expected to benefit third quarter financial results.
Product and product transportation cost increases were noted during the second
quarter, but these were largely passed on to customers across all regions. Cost
flow-through aside, pricing remains competitive in all other operating regions
and remained relatively flat sequentially during the second quarter of 2014.
Revenue and operating income decreased sequentially for the U.S. Completion
Tools division as one of our major customers reduced activity levels during the
second quarter. Despite the lower financial results, we were able to expand our
customer base for this division during the second quarter, which is expected to
have a favorable impact on operating margins going forward. We also focused on
improving manufacturing and supply-chain capabilities during the second quarter
that will allow us to respond to increasing U.S. demand for our completion tools
technology. Overall, we are pleased with the customer acceptance of this
technology in the U.S. and expect financial results to improve for this division
over the second half of 2014.
Q2 2014 versus Q2 2013
U.S. revenue in the second quarter of 2014 was up 33% compared to the second
quarter of 2013. Revenue per job decreased by 6% due to pricing reductions and a
change in fracturing job mix, which was partially offset by a stronger U.S.
dollar relative to the Canadian dollar. The job count increased by 36% due
largely to increased fracturing activity in the Marcellus, Permian and Bakken
regions.
As a percentage of revenue, materials and operating expenses decreased to 92.1%
from 92.7%. Increased operational leverage due to higher revenue was largely
offset by lower average pricing, costs relating to the closure of the Woodward
base, and higher product transportation costs. General and administrative costs
increased by $2.8 million due largely to increased share-based compensation,
office and insurance costs.
Q2 2014 versus Q1 2014
On a sequential basis, U.S. revenue increased by 27%. Revenue per job increased
by 40% due to an increase in fracturing job size combined with a change in
customer mix. Fewer jobs per crew were completed due to the substantial increase
in fracturing job sizes. As a result, the job count decreased by 7% despite the
increased activity levels.
Materials and operating expenses decreased to 92.1% from 97.2% due to increased
operational leverage on our fixed cost structure from higher activity. This was
partially offset by costs relating to the closure of the Woodward base and
higher product transportation expenses. General and administrative expenses
increased by $2.2 million due mainly to increased share-based compensation
costs.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue per job, unaudited)
June 30, % of June 30, % of March 31, % of
Three months ended, 2014 Revenue 2013 Revenue 2014 Revenue
----------------------------------------------------------------------------
Revenue 95,099 79,007 78,835
Expenses
Materials and
operating 74,066 77.9% 70,723 89.5% 73,299 93.0%
General and
administrative 5,469 5.8% 4,637 5.9% 5,256 6.7%
--------- --------- ---------
Total expenses 79,535 83.6% 75,360 95.4% 78,555 99.7%
Operating (loss)
income(i) 15,564 16.4% 3,647 4.6% 280 0.3%
Number of jobs 1,225 962 966
Revenue per job 75,917 76,235 73,520
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Sales Mix
----------------------------------------------------------------------------
Three months ended, (unaudited) June 30, June 30, March 31,
2014 2013 2014
----------------------------------------------------------------------------
% of Total Revenue
Fracturing 79% 83% 85%
Coiled Tubing 9% 8% 6%
Cementing 6% 5% 5%
Nitrogen 4% 2% 2%
Other 2% 2% 2%
----------------------------------------------------------------------------
Total 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations Review
Our international operations include the financial results for operations in
Russia, Kazakhstan, Algeria, Australia, Saudi Arabia, Colombia and Norway.
Our Russian operations comprise the majority of our international results and
activity levels in Russia were strong during the second quarter of 2014.
Increased horizontal drilling and completions activity in Russia contributed to
strong utilization for our pressure pumping fleet during the quarter. In
addition, our Russian customer base was able to catch-up on programs that were
behind schedule due to cold weather throughout most of the first quarter.
An additional fracturing fleet was deployed in Russia during the second quarter
using existing spare capacity in the region. The additional crew combined with
strong demand led to record quarterly revenue during the second quarter for our
Russian operations.
We are continuing to monitor the conflict in the Ukraine and the impact that
existing and potential economic sanctions may have on our Russian operations.
Currently, the impact on our Russian operations has been minimal and we do not
anticipate any disruptions to our Russian business throughout the remainder of
2014 based upon the sanctions that have been imposed to date. However, we will
continue to monitor this situation closely as it does raise additional business
risks in the region. The potential financial impact, if any, to Trican from
existing and additional economic sanctions in the future is unknown at this
time.
Second quarter financial results were strong in Kazakhstan for our two
fracturing crews operating in the region and remained relatively consistent with
the first quarter of 2014. Our Algerian operations incurred an operating loss
during the second quarter due to continued weak utilization in the region.
Revenue for our Australian business increased sequentially by 15% during the
second quarter. We continued to focus on expanding our customer base and
increasing work volumes with existing customers during the quarter.
We began active operations in both Colombia and Saudi Arabia during the second
quarter with positive operational results. We are currently offering cementing
services in Colombia and coiled tubing and industrial services in Saudi Arabia.
Both regions incurred operating losses in the second quarter; however, both
Colombia and Saudi Arabia are expected to generate positive operating cash-flows
in the second half of 2014 as utilization increases.
Second quarter financial results were strong for the Norwegian Completion Tools
division for the second consecutive quarter. Customer acceptance of the
technology, combined with strong operational execution, led to a year-over-year
revenue increase of almost 200% for this international division.
Q2 2014 versus Q2 2013
Second quarter revenue in 2014 for our international operations increased by 20%
compared to the second quarter of 2013. The job count increased by 27% due
largely to higher activity in Russia, and to a lesser extent, higher activity in
Saudi, Colombia and Australia. Revenue per job decreased by less than 1% as a
decrease in fracturing revenue relative to total revenue was offset by an
increase in job size. The increase in horizontal completions and multi-stage
fracturing for our Russian operations led to an increase in job size for all
pressure pumping service lines in the region.
As a percentage of revenue, materials and operating expenses decreased to 77.9%
from 89.5% compared to the second quarter of 2013. International operating
margins benefitted from increased activity in Russia and higher margins in
Norway, offset partially by operating losses in Algeria. General and
administrative costs increased by $0.8 million due largely to an increase in
share-based employee costs in Russia.
Q2 2014 versus Q1 2014
International revenue increased by 21%, sequentially, due largely to job count
increases in Russia and, to a lesser extent, increased activity in Saudi Arabia
and Colombia. The revenue per job increased by 3% due to larger job sizes in
Russia, which was offset by less fracturing revenue relative to total revenue.
Materials and operating expenses decreased to 77.9% compared to 93.0% in the
first quarter of 2013 due largely to increased operational leverage on our fixed
cost structure in Russia. General and administrative costs were up $0.2 million
due to increased share-based expenses.
CORPORATE
----------------------------------------------------------------------------
($ thousands,
unaudited)
March
June 30, % of June 30, % of 31, % of
Three months ended, 2014 Revenue 2013 Revenue 2014 Revenue
----------------------------------------------------------------------------
Expenses
Materials and
operating 5,683 1.1% 5,413 1.4% 6,491 1.0%
General and
administrative 12,511 2.3% 9,026 2.3% 12,869 2.0%
--------- --------- ---------
Total expenses 18,194 3.4% 14,439 3.6% 19,360 3.0%
Operating loss(i) (18,194) (14,439) (19,360)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Q2 2014 versus Q2 2013
Corporate expenses for the second quarter of 2014 increased by $3.8 million
compared to the second quarter of 2013 due largely to an increase in the accrual
for share-based employee expenses. Trican's share price increased by
approximately 23% during the second quarter of 2014 compared to a decrease of
approximately 6% during the second quarter of 2013.
Q2 2014 versus Q1 2014
Sequentially, corporate expenses decreased by $1.2 million as an increase in
share-based employee expenses was more than offset by lower profit sharing
expenses due to the decrease in second quarter consolidated operating income.
OTHER EXPENSES AND INCOME
Finance costs for the second quarter of 2014 increased by $1.0 million compared
to the same period in 2013 due to higher average debt balances. Depreciation and
amortization decreased slightly by $1.5 million compared to the same period last
year as capital additions have been minimal for the last twelve months.
Foreign exchange losses of $5.0 million have been recorded in the second quarter
of 2014, compared to gains of $1.5 million for the same period in 2013. This
change is largely due to the net impact of fluctuations in the U.S. dollar and
the Russian ruble relative to the Canadian dollar. Other income for the second
quarter of 2014 was relatively consistent with the second quarter of 2013. Other
income is mainly comprised of interest income earned on cash balances and gains
on asset sales.
COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS ($ thousands, unaudited)
----------------------------------------------------------------------------
Quarter-
Over-
Six months ended % of % of Quarter %
June 30, 2014 Revenue 2013 Revenue Change Change
----------------------------------------------------------------------------
Revenue 1,177,816 100% 1,014,983 100% 162,833 16%
Expenses
Materials and
operating 1,066,329 90.5% 886,094 87.3% 180,235 20%
General and
administrative 67,800 5.8% 57,539 5.7% 10,261 18%
----------------------------------------------------------------------------
Operating income(i) 43,687 3.7% 71,350 7.0% (27,663) (39%)
Finance costs 19,763 1.7% 16,535 1.6% 3,228 20%
Depreciation and
amortization 101,887 8.7% 97,672 9.6% 4,215 4%
Goodwill
impairment, net - 0.0% 4,123 0.4% (4,123) (100%)
Foreign exchange
(gain)/loss 2,700 0.2% (3,236) (0.3%) 5,922 (183%)
Other income (3,963) (0.3%) (3,524) (0.3%) (439) 12%
----------------------------------------------------------------------------
Income/(loss)
before income
taxes (76,700) (6.5%) (40,220) (4.0%) (36,480) 91%
Income tax
expense/(recovery) (24,038) (2.0%) (9,024) (0.9%) (15,014) 166%
Non-controlling
interest (1,077) (0.1%) (296) (0.0%) (781) (264%)
----------------------------------------------------------------------------
Net Income/(loss) (51,585) (4.6%) (30,900) (3.1%) (20,685) 67%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
CANADIAN OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue
per job, unaudited)
Period-
Over-
June 30, % of June 30, % of Period
Six months ended, 2014 Revenue 2013 Revenue Change
----------------------------------------------------------------------------
Revenue 525,279 454,774 16%
Expenses
Materials and operating 455,043 86.6% 362,919 79.8% 25%
General and administrative 15,756 3.0% 14,312 3.1% 10%
--------- --------- ---------
Total expenses 470,798 89.6% 377,231 82.9% 25%
Operating income(i) 54,481 10.4% 77,543 17.1% (30%)
Number of jobs 10,024 10,051 (0%)
Revenue per job 52,438 44,819 17%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Canadian revenue for the six months ended June 30, 2014, was 16% higher than the
same period in 2013. A significant portion of this increase arose in the second
quarter of 2014 when fracturing and cementing activity levels were up
substantially compared to the second quarter of 2013. Increased second quarter
activity was partially offset by lower year-over-year pricing. Revenue has also
benefitted from larger fracturing job sizes as we continue to see a trend in
Canada towards increased sand volumes and more fracturing stages per well.
As a percentage of revenue, materials and operating expenses increased to 86.8%
from 79.8% compared to the same period in 2013. Increased activity levels, which
led to improved operating leverage on our cost structure, was more than offset
by lower pricing and increased costs. Higher product costs, wage inflation,
increased diesel costs and a weaker Canadian dollar have all contributed to the
higher cost structure. General and administrative expenses increased by $1.4
million due largely to increased share-based costs.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue
per job, unaudited)
Period-
Over-
June 30, % of June 30, % of Period
Six months ended, 2014 Revenue 2013 Revenue Change
----------------------------------------------------------------------------
Revenue 478,604 412,223 16%
Expenses
Materials and operating 451,747 94.4% 373,008 90.5% 21%
General and administrative 15,939 3.3% 12,729 3.1% 25%
--------- --------- ---------
Total expenses 467,686 97.7% 385,738 93.6% 21%
Operating income/(loss)(i) 10,918 2.3% 26,486 6.4% 59%
Number of jobs 6,220 4,243 47%
Revenue per job 73,655 97,660 (25%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
U.S. revenue for the first six months of 2014 increased by 16% compared to the
first six months of 2013. The job count increased by 46% due to substantially
higher fracturing activity in the Marcellus, Permian and Bakken regions. The
addition of a fourth fracturing crew during the second quarter, combined with
strong utilization, contributed to the increase in the Marcellus region. A
substantial increase in utilization for our fracturing crews operating in the
Permian and Bakken plays led to job count growth in these regions. These
increases were offset partially by decreased utilization for our fracturing
crews in the Haynesville and Oklahoma regions. Revenue per job decreased by 25%
due to pricing reductions and a change in fracturing job mix, which was
partially offset by a stronger U.S. dollar.
As a percentage of revenue, materials and operating expenses increased to 94.4%
from 90.5%. An increase in product and product transportation costs combined
with lower pricing led to the decrease in operating margins. These factors were
partially offset by an increase in operating leverage on our fixed cost
structure caused by higher revenue. General and administrative costs increased
by $3.2 million due largely to increased share-based and insurance expenses.
INTERNATIONAL OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue Period-
per job, unaudited) Over-
June 30, % of June 30, % of Period
Six months ended, 2014 Revenue 2013 Revenue Change
----------------------------------------------------------------------------
Revenue 173,934 149,118 17%
Expenses
Materials and operating 147,365 84.7% 139,107 93.3% 6%
General and administrative 10,725 6.2% 8,485 5.7% 26%
--------- --------- ---------
Total expenses 158,090 90.9% 147,592 99.0% 7%
Operating income(i) 15,844 9.1% 1,526 1.0% 938%
Number of jobs 2,191 1.876 17%
Revenue per job 77,178 76,235 1%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
International revenue increased by 17% during the first half of 2014 compared to
the same period in 2013. An increase in Russian activity contributed to the
majority of the increase. Russian activity benefitted from a rise in horizontal
drilling and completions activity, which has led to an increase in pressure
pumping demand in the region. Increased activity in Norway, Colombia, Saudi
Arabia and Australia also contributed to the rise in international revenue.
Revenue per job remained relatively flat on a year-over-year basis.
Materials and operating expenses decreased to 84.7% of revenue compared to 93.3%
of revenue in the same period of 2013. An increase in Russian revenue led to
improved operational leverage, which contributed to the majority of the margin
improvement. Strong margins for the completion tools business in Norway also led
to margin improvement. Continued weakness in Algeria and start-up costs in Saudi
Arabia and Colombia offset a portion of the Russian and Norwegian gains. General
and administrative costs increased by $2.2 million due largely to an increase in
share-based employee expenses.
CORPORATE
----------------------------------------------------------------------------
($ thousands, unaudited) Period-
Over-
June 30, % of June 30, % of Period
Six months ended, 2014 Revenue 2013 Revenue Change
----------------------------------------------------------------------------
Expenses
Materials and operating 12,174 1.0% 12,076 1.2% 1%
General and administrative 25,380 2.2% 22,013 2.2% 15%
--------- --------- ---------
Total expenses 37,555 3.2% 34,089 3.4% 10%
Operating loss(i) (37,555) (34,089) 10%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) see first page of this report
Corporate costs are up $3.4 million for the first six months of 2014 compared to
the same period in 2013 due largely to increased share-based expenses.
OTHER EXPENSES AND INCOME
For the six months ended June 30, 2014, finance costs increased by $3.2 million
compared to the same period in 2013 due to increased debt balances. Depreciation
and amortization increased by $4.2 million compared to the same period last year
due to capital additions related to our capital expansion program.
Foreign exchange losses of $2.7 million have been recorded for the six months
ended June 30, 2014, compared to gains of $3.2 million for the same period in
2013. This change is due to the net impact of fluctuations in the U.S. dollar
and the Russian ruble relative to the Canadian dollar. Other income for the
first half of 2014 was $4.0 million compared to $3.5 million for the same period
of 2013. Other income is largely comprised of gains on asset sales and interest
income on cash balances.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Funds used in operations decreased to $11.5 million for the second quarter of
2014 compared to $29.1 million for the same period in 2013. The decrease was due
largely to a smaller consolidated net loss.
At June 30, 2014, Trican had working capital of $511.4 million compared to
$413.2 million at the end of 2013. The increase is due to additional cash
combined with higher U.S. activity, which has led to more U.S. inventory and
trade accounts receivable. These were offset partially by repayment of US$75
million in current debt at the end of June.
Investing Activities
Capital expenditures for the second quarter of 2014 totaled $24.3 million,
compared with $30.0 million for the same period in 2013. Capital expenditures
for the six months ended June 30, 2014, were $41.0 million compared to $61.0
million in the same period of 2013. Capital expenditures continue to decrease on
a year-over-year basis due to declines in our 2013 and 2014 capital programs
relative to 2012.
During the second quarter of 2014, no significant changes were made to our 2014
capital budget. Remaining expenditures on approved capital budgets are expected
to be approximately $60 million to $70 million.
Financing Activities
As at July 29, 2014, Trican had 149,612,995 common shares and 9,746,173 employee
stock options outstanding.
During the first six months of 2014, Trican withdrew net $133.1 million on its
$500.0 million revolving credit facility. The balance of the facility at June
30, 2014, was $345.0 million leaving $155 million of available debt under the
facility. In addition, during the second quarter of 2014, Trican repaid $75
million of private placement notes.
On July 17, 2014, Trican exercised the Accordion feature of its Revolving Credit
Facility and increased it from $500.0 million to $575.0 million. All other terms
and conditions of the Revolving Credit Facility remained unchanged, including
its current maturity date of October 17, 2017. At July 29, 2014, $230 million
was available under the Facility.
Subsequent to the end of the second quarter of 2014, Trican obtained a
commitment from an institutional investor to issue $20 million of senior
unsecured notes. The notes will have a 10 year maturity, a coupon of 5.75% and
will rank equally with all other senior indebtedness. The transaction is
expected to close and fund during the third quarter of 2014.
During the first quarter of 2014, Trican received approval from the Toronto
Stock Exchange to purchase its own common shares, for cancellation, in
accordance with a Normal Course Issuer Bid ("NCIB") that expires on March 12,
2015. There were no common shares purchased through the NCIB during the first
half of 2014.
Trican currently pays a semi-annual dividend of $0.15 per share. During the
first quarter of 2014, $22.3 million in dividend payments were made. During the
second quarter of 2014, Trican accrued $22.4 million in dividends that will be
paid during the third quarter of 2014.
OUTLOOK
Canadian Operations
Demand for pressure pumping services is expected to be strong in Canada during
the second half of 2014. Strong demand is expected to be driven by cash flow
increases for Canadian customers and a continued increase in fracturing
intensity per well. We expect the strongest demand to be generated from the
Montney, Cardium and Deep Basin plays. Drilling and completions activity is also
expected to increase in the Duvernay play during the second half of 2014
compared to the second half of 2013.
We expect to complete a large Horn River project with a 60,000 horsepower crew
over the first five to six weeks of the third quarter. Approximately 33% of the
horsepower used on this project will run on engines fuelled by a combination of
natural gas sourced on site and diesel. Using natural gas in a conventional
diesel engine has quickly evolved and we are optimistic that the most recent
technology has led to a product design that is well suited for our service
conditions. This is an exciting development for our industry and we will
continue to actively participate in this development with our engine
manufacturers. We are also using our proprietary recycled water fracturing fluid
in the Horn River this year, which will significantly reduce the fresh water
used on this project. Third quarter operating margins are expected to benefit
from the Horn River work given the strong utilization anticipated over the
duration of this project.
We expect to complete two small projects in the Liard basin during the third
quarter. These will be the first fracturing projects completed by Trican in the
Liard basin and reflects potential long-term customer interest in this region in
light of Canadian LNG export opportunities.
Significant increases to our cost structure have negatively impacted operating
margins over the last several quarters and pricing increases are required to
achieve acceptable operating margins in Canada. As a result, pricing
improvements will continue to be a key area of focus for our Canadian management
team for the remainder of 2014. Given the strong demand expected in Canada
during the second half of 2014, we anticipate that pricing improvement
initiatives will be successful and expect second half margins to benefit from
sequential pricing increases.
We expect to deploy a new fracturing crew into the Canadian market during the
fourth quarter of 2014. The crew size is expected to be 20,000 to 25,000
horsepower and the equipment will be drawn from our existing inactive fleet.
U.S. Operations
Activity in the third quarter of 2014 is expected to remain strong in the
Marcellus play, which is our most profitable U.S. region. Pricing improvements
obtained at the end of the second quarter combined with a full quarter of
activity from the fourth Marcellus crew are expected to result in sequential
increases in revenue and operating income for this region.
We also expect financial results to continue to improve in the Permian region.
Strong and growing demand in the Permian region, improvements in service quality
and strategic sales initiatives have led to recent price increases, which are
expected to positively impact third quarter results. In addition, we will
continue to focus on increasing utilization and reducing costs, both of which
are required to achieve acceptable return on capital in this region.
Due to strong operational performance, demand for our services in the Bakken
region is increasing. As a result, we will be adding a second crew to this
region during the third quarter of 2014, which is expected to result in stronger
regional operating margins for our Bakken operations. The equipment for this
crew will be drawn from our existing idle U.S. operating fleet.
To meaningfully advance our financial performance in the U.S., underperforming
regions such as Barnett, Haynesville and Oklahoma must improve. New contracts
have recently been obtained for fracturing crews in the Oklahoma and Barnett
regions, and if operational execution is strong, sequential financial
improvements are expected in these regions. In addition, we will continue to
focus on increasing the utilization of the Haynesville crew through discussions
with customers operating in Eastern Texas.
With recent improvements in operational execution, pricing increases, new
contracts, and equipment deployed to high profitability areas, we were pleased
with the progress made by our U.S. pressure pumping business during the second
quarter. We still have significant improvements to make in the U.S. and must
continue to execute on our strategic initiatives to achieve acceptable financial
and operational results in this region in the future.
International Operations
With a strong second quarter making up for weak first quarter results, our
annual 2014 outlook for Russia has not changed. We continue to expect revenue to
increase by approximately 5% relative to 2013 with modest improvements in
operating margins. When combined with year-over-year revenue growth in the North
Sea, Australia, Colombia, and Saudi, overall international revenue for 2014 is
expected to increase by approximately 10%.
We expect to grow our Saudi Arabia and Colombia operations during the second
half of 2014 as we continue to establish our operations in these regions. In
addition, we will continue to focus on expanding our cementing customer base in
Australia and expect to achieve modest growth in this market over the second
half of 2014.
Our Algerian operations continue to incur operating losses at current
utilization levels. If utilization does not improve over the second half of
2014, we will consider exiting this region upon completion of our current
customer commitments, which are expected to be fulfilled by the end of 2014.
We expect our North Sea completions tools business to continue to achieve good
financial results over the second half of 2014. We will also focus on growing
our manufacturing and supply-chain capabilities and expanding our customer base
over the second half of 2014 in order to position this business for future
growth.
NON-IFRS DISCLOSURE
Adjusted net income/(loss), operating income and funds provided by/(used in)
operations do not have any standardized meaning as prescribed by IFRS and,
therefore, are considered non-IFRS measures.
Adjusted net income/(loss) and funds provided by operations have been reconciled
to profit and operating income has been reconciled to gross profit, being the
most directly comparable measures calculated in accordance with IFRS. The
reconciling items have been presented net of tax.
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March 31, June 30, June 30,
2014 2013 2013 2014 2013
----------------------------------------------------------------------------
Adjusted net income/(loss) ($41,175) ($50,407) ($6,330) ($47,505) ($23,027)
Deduct:
Goodwill impairment - 4,123 - - 4,123
Non-cash share-based
compensation expense 1,929 1,859 2,151 4,080 4,047
----------------------------------------------------------------------------
Profit/(loss) for the
period (IFRS financial
measure) ($43,104) ($56,389) ($8,481) ($51,585) ($31,197)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March 31, June 30, June 30,
2014 2013 2013 2014 2013
----------------------------------------------------------------------------
Funds provided by/(used
in) operations ($11,532) ($29,073) $37, 999 $26,465 $28,883
Charges to income not
involving cash
Depreciation and
amortization (49,137) (50,613) (52,751) (101,887) (97,672)
Amortization of debt
issuance costs (216) (216) (216) (432) (432)
Stock-based compensation (1,929) (1,859) (2,151) (4,080) (4,047)
Gain/(loss) on disposal
of property and
equipment 480 (183) 90 570 277
Net finance costs (8,830) (7,984) (9,816) (18,646) (15,516)
Unrealized foreign
exchange gain / (loss) (6,609) 5,282 2,773 (3,836) 8,578
Goodwill impairment, net - (4,123) - - (4,123)
Income tax
recovery/(expense) 17,470 18,752 6,568 24,038 9,025
Interest paid 14,103 12,865 5,659 19,762 15,656
Income tax paid 3,096 763 3,365 6,461 28,174
----------------------------------------------------------------------------
Profit/(loss) for the
period (IFRS financial
measure) ($43,104) ($56,389) ($8,481) ($51,585) ($31,197)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Six months ended
----------------------------------------------------------------------------
June 30, June 30, March 31, June 30, June 30,
2014 2013 2013 2014 2013
----------------------------------------------------------------------------
Operating income $1,283 ($14,814) $42,404 $43,687 $71,349
Add:
Administrative expenses 37,597 29,252 33,989 71,586 60,041
Deduct:
Depreciation expense (49,136) (50,613) (52,751) (101,887) (97,672)
----------------------------------------------------------------------------
Gross profit/(loss) (IFRS
financial measure) ($10,256) ($36,175) $23,642 $13,386 $33,718
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information and financial outlook
based on Trican's current expectations, estimates, projections and assumptions
that were made by the Company in light of information available at the time the
statement was made. Forward-looking information and financial outlook that
address expectations or projections about the future, and other statements and
information about the Company's strategy for growth, expected and future
expenditures, costs, operating and financial results, future financing and
capital activities are forward-looking statements. Some forward-looking
information and financial outlook are identified by the use of terms and phrases
such as "anticipate," "achieve", "achievable," "believe," "estimate," "expect,"
"intend", "plan", "planned", and other similar terms and phrases. This
forward-looking information and financial outlook speak only as of the date of
this document and we do not undertake to publicly update this forward-looking
information and financial outlook except in accordance with applicable
securities laws. This forward-looking information and financial outlook include,
among others:
-- The expectation that a 7% price book increase released in Canada during
the second quarter will be phased-in over the second half of 2014;
-- The expectation that pricing improvement initiatives in Canada will be
successful and that second half margins will benefit from sequential
pricing increases;
-- The expectation that contracts with customers in the Barnett and
Oklahoma regions will improve utilization and profitability in these
regions during the third quarter of 2014;
-- The expectation that financial results for Saudi Arabia and Colombia
will improve during the second half of 2014;
-- The expectation that improved cash flows for our Canadian customers will
result in higher Canadian pressure pumping demand in the second half of
2014;
-- The expectation that the Canadian completions tools business will
continue to grow in the second half of 2014 with a continued focus on
improving and increasing our tool manufacturing capabilities and
leveraging off of our Canadian pressure pumping customer base;
-- The expectation that pricing improvements obtained in both the Permian
and Marcellus regions late in the second quarter will benefit third
quarter 2014 financial results;
-- The expectation that a growing customer base for the U.S. completion
tools division will have a favorable impact on operating margins for
this business going forward;
-- The expectation that remaining expenditures on approved capital budgets
will be approximately $40 million to $50 million;
-- The expectation that the issuance from an institutional investor of $20
million of senior unsecured notes will close and fund during the third
quarter of 2014;
-- The expectation that demand for pressure pumping services will be strong
in Canada during the second half of 2014 and will be driven by cash flow
increases for Canadian customers and a continued increase in fracturing
intensity per well;
-- The expectation that the strongest demand in Canada over the second half
of 2014 will be generated from the Montney, Cardium and Deep Basin
plays;
-- The expectation that drilling and completions activity will increase in
the Duvernay play during the second half of 2014 compared to the second
half of 2013;
-- The expectation to complete a large Horn River project with a 60,000
horsepower crew over the first five to six weeks of the third quarter of
2014;
-- The belief that using natural gas in a conventional diesel engine has
quickly evolved and that the most recent technology has led to a product
design that is well suited for our service conditions;
-- The expectation that the use of our proprietary recycled water
fracturing fluid in the Horn River will significantly reduce the fresh
water used on the Horn River project in 2014;
-- The belief that third quarter operating margins will benefit from the
Horn River work given the strong utilization anticipated over the
duration of this project;
-- The expectation to complete two small projects in the Liard basin during
the third quarter;
-- The expectation that pricing improvements will continue to be a key area
of focus for our Canadian management team for the remainder of 2014;
-- The expectation to deploy a new fracturing crew into the Canadian market
during the fourth quarter of 2014;
-- The expectation that activity in the third quarter of 2014 will remain
strong in the Marcellus region;
-- The expectation that pricing improvements obtained at the end of the
second quarter combined with a full quarter of activity from the fourth
Marcellus crew are will result in sequential increases in revenue and
operating income for the Marcellus region;
-- The expectation that financial results will continue to improve in the
Permian region;
-- The expectation that strong and growing demand in the Permian region,
improvements in service quality and strategic sales initiatives will
positively impact third quarter results;
-- The expectation that the second Bakken fracturing crew will result in
stronger regional operating margins for our Bakken operations;
-- The expectation that Russian revenue will increase by approximately 5%
relative to 2013 with modest improvements in operating margins;
-- The expectation that international revenue for 2014 will increase by
approximately 10% relative to 2013;
-- The expectation that our Saudi Arabia and Colombia operations will grow
during the second half of 2014 as we continue to establish our
operations in these regions;
-- The expectation to achieve modest growth in Australia over the second
half of 2014;
-- The expectation that if utilization does not improve over the second
half of 2014, we will consider exiting Algeria upon completion of our
current customer commitments, which are expected to be fulfilled by the
end of 2014;
-- The expectation that our North Sea completions tools business will
achieve good financial results over the second half of 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 "Risk Factors" in our Annual
Information Form dated March 21, 2014. 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
(Stated in thousands; unaudited) June 30, December 31,
2014 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $108,135 $63,869
Trade and other receivables 467,516 459,210
Current tax assets 12,934 5,186
Inventory 246,980 232,898
Prepaid expenses 33,308 34,407
----------------------------------------------------------------------------
868,873 795,570
Property and equipment 1,308,409 1,374,212
Intangible assets 40,242 44,285
Deferred tax assets 141,968 122,745
Other assets 13,563 17,360
Goodwill 59,475 59,475
----------------------------------------------------------------------------
2,432,530 $2,413,647
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans $15,255 $-
Trade and other payables 342,175 301,920
Deferred consideration - 650
Current tax liabilities - 14
Current portion of loans and borrowings - 79,770
----------------------------------------------------------------------------
357,430 382,354
Loans and borrowings 707,398 593,786
Deferred tax liabilities 83,696 87,005
Shareholders' equity
Share capital 571,956 559,723
Contributed surplus 64,193 63,074
Accumulated other comprehensive loss (5,775) (1,020)
Retained earnings 651,150 725,172
----------------------------------------------------------------------------
Total equity attributable to equity holders of
the Company 1,281,524 1,346,949
Non-controlling interest 2,482 3,553
----------------------------------------------------------------------------
2,432,530 $2,413,647
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Months Six Months
Ended June 30, Ended June 30,
(Stated in thousands, except
per share amounts;
unaudited) 2014 2013 2014 2013
Three months ended June 30,
----------------------------------------------------------------------------
Revenue 534,599 $396,607 1,177,816 $1,014,983
Cost of sales 544,855 432,782 1,164,430 981,265
----------------------------------------------------------------------------
Gross (loss)/profit (10,256) (36,175) 13,386 33,718
Administrative expenses 37,597 29,252 71,586 60,041
Other income (653) (1,391) (2,846) (2,505)
----------------------------------------------------------------------------
Results from operating
activities (47,200) (64,036) (55,354) (23,818)
Finance income (706) (63) (1,117) (1,019)
Finance costs 9,536 8,554 19,763 16,535
Foreign exchange loss /
(gain) 4,992 (1,510) 2,700 (3,236)
Goodwill impairment, net - 4,123 - 4,123
----------------------------------------------------------------------------
Loss before income tax (61,022) (75,140) (76,700) (40,221)
Income tax recovery (17,470) (18,751) (24,038) (9,024)
----------------------------------------------------------------------------
Loss for the period (43,552) ($56,389) (52,662) ($31,197)
----------------------------------------------------------------------------
Other comprehensive (loss) /
income
Unrealized gain / (loss) on
hedging instruments (49) (57) (1,583) 43
Foreign currency translation
differences (8,023) 7,616 (3,166) 14,645
----------------------------------------------------------------------------
Total comprehensive loss for
the period (51,624) ($48,830) (57,411) ($16,509)
----------------------------------------------------------------------------
Loss attributable to:
Owners of the Company (43,104) (56,264) (51,585) (30,901)
Non-controlling interest (448) (125) (1,077) (296)
----------------------------------------------------------------------------
Loss for the period (43,552) ($56,389) (52,662) ($31,197)
----------------------------------------------------------------------------
Total comprehensive loss
attributable to:
Owners of the Company (51,176) (48,840) (56,334) (16,509)
Non-controlling interest (448) 10 (1,077) -
----------------------------------------------------------------------------
Total comprehensive loss for
the period (51,624) ($48,830) (57,411) ($16,509)
----------------------------------------------------------------------------
Loss per share
----------------------------------------------------------------------------
Basic ($0.29) ($0.38) ($0.35) ($0.21)
Diluted ($0.29) ($0.38) ($0.35) ($0.21)
----------------------------------------------------------------------------
Weighted average shares
outstanding - basic 149,129 148,845 149,029 148,720
Weighted average shares
outstanding - diluted 149,129 148,845 149,029 148,720
----------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Six Months
Ended June 30, Ended June,
(Stated in thousands;
unaudited) 2014 2013 2014 2013
----------------------------------------------------------------------------
Cash Provided By / (Used
In):
Operations
Loss for the period ($43,552) ($56,389) (52,662) ($31,197)
Charges to income not
involving cash:
Depreciation and
amortization 49,136 50,613 101,887 97,672
Amortization of debt
issuance costs 216 216 432 432
Stock-based compensation 1,929 1,859 4,080 4,047
Loss on disposal of
property and equipment (480) 184 (570) (277)
Net finance costs 8,830 7,984 18,646 15,516
Unrealized foreign
exchange loss / (gain) 6,609 (5,282) 3,836 (8,578)
Goodwill impairment, net - 4,123 - 4,123
Income tax recovery (17,470) (18,751) (24,038) (9,025)
----------------------------------------------------------------------------
5,218 (15,443) 51,611 72,713
Change in inventories (11,509) (2,805) (17,572) (16,008)
Change in trade and other
receivables 119,281 187,997 (26,259) 87,159
Change in prepayments (4,072) (1,091) 1,014 1,748
Change in trade and other
payables (29,364) (44,857) 45,286 28,163
----------------------------------------------------------------------------
Cash provided by operating
activities 79,554 123,801 54,080 173,775
Interest paid (14,103) (12,865) (19,762) (15,656)
Income taxes paid (3,096) (763) (6,461) (28,174)
----------------------------------------------------------------------------
62,355 110,173 27,857 129,945
Investing
Payments received on a
loan to unrelated third
party 1,235 155 2,850 155
Purchase of property and
equipment (24,316) (30,045) (41,032) (61,031)
Proceeds from the sale of
property and equipment 506 1,761 1,096 2,690
Purchase of other assets - - - (4,600)
Payment of deferred
consideration - - (650) -
Business acquisitions - - - (31,009)
----------------------------------------------------------------------------
(22,575) (28,129) (37,736) (93,795)
Financing
Net proceeds from issuance
of share capital 9,024 906 9,272 906
Funds received from bank
loans 4,151 - 15,255 -
Funds drawn on revolving
credit facility 40,658 - 133,107 26,354
Repayment of long-term
debt (80,483) (103,000) (80,483) (103,000)
Dividend paid - - (22,338) (21,968)
----------------------------------------------------------------------------
(26,650) (102,094) 54,813 (97,708)
Effect of exchange rate
changes on cash (401) 856 (668) 438
----------------------------------------------------------------------------
Increase / (decrease) in
cash and cash equivalents 12,729 (19,194) 44,266 (61,120)
Cash and cash equivalents,
beginning of period 95,406 71,580 63,869 113,506
----------------------------------------------------------------------------
Cash and cash equivalents,
end of period 108,135 $52,386 108,135 $52,386
----------------------------------------------------------------------------
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
LOANS AND BORROWINGS
Long term debt
June 30, December 31,
2014 2013
----------------------------------------------------------------------------
Notes payable $378,617 $456,935
Finance lease obligations 19,230 25,904
Revolving credit facilities 344,984 212,625
Hedge receivable (9,427) (9,970)
----------------------------------------------------------------------------
Total 733,404 685,494
Current portion of finance lease obligations
(1) 10,751 11,938
Russian demand revolving credit facility 15,255 -
Current portion of loans and borrowings - 79,770
----------------------------------------------------------------------------
Non-current 707,398 $593,786
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Current portion of finance lease obligations is included in trade and
other payables.
On June 30, 2014 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 July 17, 2014, Trican added two additional banks to its banking
syndicate and increased its Revolving Credit Facility from $500.0 million to
$575.0 million. On October 17, 2013 the Revolving facility was extended by one
additional year to until 2017. The Revolving Credit Facility requires Trican to
comply with certain financial and non-financial covenants that are typical for
this type of arrangement. Trican was in compliance with these covenants at June
30, 2014 (2013 - in compliance).
Notes payable
On June 22, 2014, Trican repaid US$ 75 million retiring its 2007 Series B Senior
Notes.
The Notes payable require the Company to comply with certain financial and
non-financial covenants that are typical for this type of arrangement. At June
30, 2014, the Company was in compliance with these covenants (2013 - in
compliance).
LOSS PER SHARE
For the three months For the six months
ended, ended
June 30, June 30,
Basic earnings per share 2014 2013 2014 2013
----------------------------------------------------------------------------
Loss available to common
shareholders ($43,104) ($56,264) ($51,585) ($30,901)
Weighted average number of
common shares 149,129,488 148,845,211 149,028,946 148,720,011
Basic loss per share ($0.29) ($0.38) ($0.35) ($0.21)
----------------------------------------------------------------------------
For the three months For the six months
ended June 30, ended June 30,
Diluted earnings per share 2014 2013 2014 2013
----------------------------------------------------------------------------
Loss available to common
shareholders ($43,104) ($56,264) ($51,585) ($30,901)
Weighted average number of
common shares 149,129,488 148,845,211 149,028,946 148,720,011
Diluted effect of stock
options - - - -
----------------------------------------------------------------------------
Diluted weighted average
number of common shares 149,129,488 148,845,211 149,028,946 148,720,011
Diluted loss per share ($0.29) ($0.38) ($0.35) ($0.21)
----------------------------------------------------------------------------
INCOME TAXES
(Stated in thousands)
Three months ended June 30, 2014 2013
----------------------------------------------------------------------------
Current income tax expense ($4,596) ($10,982)
Deferred income tax recovery (12,874) (7,769)
----------------------------------------------------------------------------
($17,470) ($18,751)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stated in thousands)
Six months ended June 30, 2014 2013
----------------------------------------------------------------------------
Current income tax expense ($1,408) $1,440
Deferred income tax recovery (22,630) (10,464)
----------------------------------------------------------------------------
($24,038) ($9,024)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 who is
responsible for the operation and strategy of his 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 provide cementing, fracturing, coiled tubing,
nitrogen, geological, acidizing, reservoir management, industrial
cleaning and pipeline, and completion systems and downhole tool
services. These services are performed on new and existing oil and gas
wells and industrial facilities.
-- U.S. operations provide cementing, fracturing, coiled tubing, nitrogen,
acidizing, industrial cleaning, completion systems and downhole tool
services. These services are performed on new and existing oil and gas
wells and industrial facilities.
-- International operations provide cementing, fracturing, coiled tubing,
acidizing, nitrogen, industrial cleaning, completion systems and
downhole tool services. These services are performed on new and existing
oil and gas wells and industrial facilities.
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.
United
Canadian States International
Operations Operations Operations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30,
2014
Revenue $171,937 $267,564 $95,098 $- $534,599
Gross
profit/(loss) (15,620) (2,058) 14,025 (6,603) (10,256)
Finance income - - - (706) (706)
Finance costs - - - 9,536 9,536
Tax expense/
(recovery) (12,939) (6,331) 1,800 - (17,470)
Depreciation
and
amortization 17,465 23,617 7,137 917 49,136
Assets 857,379 1,144,328 380,742 50,081 2,432,530
Goodwill 45,248 - 14,227 - 59,475
Property and
equipment 469,466 698,737 123,457 16,749 1,308,409
Capital
expenditures 4,475 6,797 12,710 334 24,316
----------------------------------------------------------------------------
Three months ended June 30,
2013
Revenue $116,062 $201,538 $79,007 - $396,607
Gross
profit/(loss) (24,068) (7,272) 1,324 (6,159) (36,175)
Finance income - - - ($63) (63)
Finance costs - - - 8,554 8,554
Tax expense/
(recovery) (10,928) (7,261) (562) - (18,751)
Depreciation
and
amortization 18,141 24,724 7,001 747 50,613
Assets 850,519 1,117,887 334,074 50,103 2,352,583
Goodwill 62,492 - 14,226 - 76,718
Property and
equipment 565,050 758,916 105,917 14,563 1,444,446
Capital
expenditures 10,838 13,793 5,414 - 30,045
United
Canadian States International
Operations Operations Operations Corporate Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30,
2014
----------------------------------------------------------------------------
Revenue $525,279 $478,604 $173,933 $- $1,177,816
Gross
profit/(loss) 36,702 (21,812) 12,585 (14,089) 13,386
Finance income - - - (1,117) (1,117)
Finance costs - - - 19,763 19,763
Tax expense/
(recovery) (5,495) (19,425) 882 - (24,038)
Depreciation
and
amortization 36,426 49,497 14,051 1,913 101,887
Capital
expenditures 9,025 9,033 20,719 2,255 41,032
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30,
2013
----------------------------------------------------------------------------
Revenue $453,642 $412,223 $149,118 $ - $1,014,983
Gross
profit/(loss) 56,257 (5,325) (3,915) (13,299) 33,718
Finance income - - - (1,019) (1,019)
Finance costs - - - 16,535 16,535
Tax expense/
(recovery) 3,066 (10,508) (1,582) - (9,024)
Depreciation
and
amortization 34,824 47,631 13,994 1,223 97,672
Capital
expenditures 24,151 29,356 7,524 - 61,031
----------------------------------------------------------------------------
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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