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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Gasfrac Energy Services | TSXV:GFS | 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. ("GASFRAC") (TSX VENTURE:GFS) achieved revenue of
$41.1 million in the fourth quarter of 2010 as compared to $7.1 million in the
fourth quarter of 2009. EBITDA was $6.1 million as compared to an EBITDA loss of
($1.3 million) in 2009.
Dwight Loree, Chief Executive Officer commented, "The results this quarter show
that GASFRAC has achieved a firm foothold in the Canadian market. Revenues for
the quarter were well above our revenues for the entire 2009 year and more than
five times 2009 fourth quarter results. Revenue of $96.9 million for 2010 were
more than triple that of $30.4 million in 2009. At the same time EBITDA for the
year of $16.1 million is more than five times the $3.0 million earned in 2009.
I am confident that we have the team that can support continued growth in Canada
as we add revenue producing capacity with our new equipment build. Further, I am
optimistic that our USA operations in Texas will contribute to our growth with
the delivery of two sets of fracturing equipment in March and April."
Management's Discussion and Analysis
December 31, 2010
The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). Readers should also
refer to the "Forward-Looking Statements" legal advisory at the end of this
management discussion and analysis ("MD&A"). This MD&A has been prepared using
information that is current to March 10, 2011.
All references to dollar amounts are in Canadian dollars. Figures are in 000s
except share and per share data or as otherwise noted.
Unless the context otherwise requires, all references in this MD&A to "we", "us"
or "our" mean GASFRAC.
Business of GASFRAC
GASFRAC Energy Services Company Inc. ("GASFRAC" or the "Company") was
incorporated on February 13, 2006 in Canada under the Business Corporations Act
in the Province of Alberta. The Company is an oil and gas well fracturing
company that has developed new technology, the "LPG Fracturing Process", to
enable wells to be fractured safely with LPG, more specifically propane and
butane. The Company has three wholly-owned subsidiaries, GASFRAC Services GP
Inc., GASFRAC Energy Services Limited Partnership and GASFRAC Inc. (a U.S.
incorporated entity).
Comparative Annual Financial Information
2010 2009 2008
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Revenue 96,906 30,428 23,522
Operating expenses 72,190 21,016 16,803
Selling, general and
administrative expenses 10,579 6,227 3,844
EBITDA (1) 16,112 2,973 4,549
Net income 5,053 (2,210) 4,096
Net income per share - basic 0.13 (0.07) 0.05
Weighted average number of shares
- basic 38,920,602 32,380,356 21,380,384
Treatments performed 419 142 142
Revenue per treatment 231 214 165
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(1) Defined under Non-GAAP Measures
Overview of 2010
2010 was a year of transition and expansion for GASFRAC. The changes,
improvements and additions that took place should allow the Company to continue
to expand its operations to meet a growing demand for its services. During the
year advances made in our business strategy included:
- Growing revenue to $96.9 million from $30.4 million in 2009;
- Achieving a net income of $5.1 million compared to a loss of ($2.2 million) in
2009;
- Performing 419 fracturing treatments as compared to 142 in 2009;
- Building a strong management team with the addition of several well
experienced personnel in operating, technical, sales and financial positions;
- Increasing our revenue generating capacity with the addition of equipment in
2010 and commitment to add further equipment - three sets to be delivered in Q1
of 2011 and 4 additional sets in Q4 of 2011;
- Performance of our first fracturing operations in Texas;
- Becoming a publicly traded company;
- Maintaining a strong balance sheet with equity financings of $65 million in
June 2010 and $109 million in December 2010.
Financial Overview
Revenues
Revenue for the year increased 219% to $96.9 million from $30.4 million in 2009.
The increase reflects an increase of 195% in the number of treatments performed
in 2010 (419) as compared to 2009 (142) combined with an increase in average
revenue per treatment to $231 in 2010 from $214 in 2009. The increase in number
of treatments was driven by continued acceptance of the Company's technology in
Canada and an increase in equipment capacity for service delivery. The Company
continues to balance the demands of its significant customers for limited
equipment with the requests of new customers to utilize the LPG technology.
During the year, the Company earned revenues from more than forty customers with
three of these customers representing 63% of revenue.
Operating Expenses
With the increase in revenue, operating expenses increased to $72.2 million
(74.5% of revenue) during 2010 from $21.0 million (69.1% of revenue) in 2009.
The increase as a percentage of revenue reflects the cost of maintaining the US
operation during the fourth quarter ($1.3 million), mobilization costs for
equipment redeployed to Canada ($0.3 million) and recruiting and training
personnel for equipment to be delivered in the first quarter of 2011 ($3.0
million). Operating costs consist primarily of product costs (propane, proppant,
chemicals), cost of field staff, equipment costs and the cost for maintaining
two operational bases. Components of the current operational infrastructure have
been developed to maintain and support a larger scale of operations than GASFRAC
has experienced to date.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased to $10.6 million (10.9% of revenue) during 2010 from
$6.2 million (20.5% of revenue) in 2009. The increase is due to the hiring of
administrative and operations staff to support the growth in both our Canadian
and US operations. The relative decrease in SG&A as a percentage of revenue
reflects the scalability of this cost base.
Amortization
Amortization increased to $7.9 million in 2010 from $5.0 million in 2009
reflecting an increase in operating capital assets of $83.4 million during 2010.
EBITDA
EBITDA increased to $16.1 million during 2010 from $3.0 million in 2009 as a
result of increased revenues and margins.
Other Income
Other income during 2010 included $2.8 million for insurance proceeds related to
a business interruption loss from a mobilization incident that took place in
November 2009 and which has been settled in full.
Other income for 2009 is comprised of $638 business interruption claim from 2008
which has been settled in full, $583 from Scientific Research and Experimental
Development credits resulting from the Company's research activities and $201 of
interest income relating to interest earned on short-term investments.
Net Income
As the Company has increased its activity and revenue levels the fixed costs
have reduced as a percentage of revenue. In addition, as equipment becomes more
effectively utilized, the relative cost of amortization is reducing. As a
result, the Company had net income for the year of $5,053 compared to a net loss
in 2009 of ($2,210).
Summary of Quarterly Results
(000s)
MAR. 31 JUN. 30 SEP. 30 DEC. 31
2009 2009 2009 2009
----------------------------------------------------------------------------
Revenue $ 11,326 $ 2,295 $ 9,662 $ 7,145
Net income (loss) $ 901 $ (1,055) $ 782 $ (2,838)
Net income (loss)
per share (basic) $ 0.03 $ (0.03) $ 0.02 $ (0.09)
EBITDA (1) $ 2,376 $ (477) $ 2,396 $ (1,322)
Capital expenditures $ 5,724 $ 9,739 $ 6,658 $ 5,358
Working capital (2) $ 39,156 $ 29.031 $ 25,430 $ 19,513
Shareholders' equity $ 85,555 $ 84,553 $ 85,970 $ 83,731
MAR. 31 JUN. 30 SEP. 30 DEC. 31
2010 2010 2010 2010
----------------------------------------------------------------------------
Revenue $ 15,906 $ 13,323 $ 26,590 $ 41,087
Net income (loss) $ 1,672 $ (1,266) $ 2,585 $ 2,062
Net income (loss)
per share (basic) $ 0.05 $ (0.04) $ 0.06 $ 0.04
EBITDA (1) $ 4,039 $ 624 $ 5,336 $ 6,113
Capital expenditures $ 6,247 $ 7,430 $ 35,871 $ 33,897
Working capital (2) $ 17,792 $ 13,484 $ 42,005 $ 118,744
Shareholders' equity $ 85,808 $ 85,379 $ 150,999 $ 258,721
(1) Defined under Non-GAAP Measures
(2) Working capital is defined as current assets less current liabilities
Revenues
Revenue for the fourth quarter of 2010 was $41.1 million, an almost six-fold
increase compared to $7.1 million in the fourth quarter of 2009. There were 148
treatments performed in the fourth quarter of 2010 at an average revenue of $278
per treatment as compared to 46 treatments in the same quarter of 2009 at an
average revenue per treatment of $155. The increased volume of treatments
reflects both the increased acceptance of the Company's LPG fracturing
technology and the increased number of equipment sets(crews) the Company has in
place. The improved average revenue per treatment in the quarter results from
larger average job size in 2010 as compared to 2009 as the Company has deployed
its 100 tonne equipment in 2010 whereas only 32 tonne equipment was available in
2009. In addition, during the fourth quarter of 2010 the Company had a greater
percentage of large vertical fracture jobs which tend to have a greater average
treatment revenue than horizontal fractures. The Company continues to balance
the demands of its significant customers for limited equipment with the requests
of new customers to utilize the LPG technology. During the quarter two customers
accounted for 65.5% of the Company's revenue.
Operating Expenses
With the increase in revenue, operating expenses increased to $31.7 million
(77.1% of revenue) during the fourth quarter of 2010 from $6.3 million (88.7% of
revenue) in the fourth quarter of 2009. During the fourth quarter the Company
redeployed fracturing equipment from Texas to Canada to meet the market demand
in Canada. In anticipation of mobilizing equipment back to the USA in the first
quarter of 2011, the Company did not downsize USA operations and, as such,
incurred $1.3 million of operating costs associated with those operations during
the quarter. Further, the Company incurred costs of approximately $0.3 million
to mobilize the equipment to Canada and approximately $0.8 million of training
and staffing costs for crews hired in anticipation of delivery of additional
fracturing sets in Q1 2011. Operating costs consist primarily of product costs
(propane, proppant, chemicals), cost of field staff, equipment costs and the
cost for two operational bases. Components of the current operational
infrastructure have been developed to maintain and support a larger scale of
operations than GASFRAC has experienced to date.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased to $3.3 million (8.0% of revenue) during the fourth
quarter of 2010 from $0.8 million (11.8% of revenue) in the fourth quarter of
2009. The increase is primarily due to the hiring of administrative and
operations staff to support the growth in both our Canadian and US operations.
These costs represent the necessary costs of building a support infrastructure
for the Company's added revenue base and are anticipated to be able to support
future revenue growth without significant additional growth to this cost base.
Amortization
Amortization increased to $2.5 million in the fourth quarter of 2010 from $1.6
million in fourth quarter of 2009 reflecting an increase in operating capital
assets during the year.
EBITDA
EBITDA increased to $6.1 million during the fourth quarter of 2010 from an
EBITDA loss of ($1.3) million in the fourth quarter of 2009 as a result of
increased revenues and margins.
Other Income
Other income for the fourth quarter of 2010 included $0.7 million for insurance
proceeds related to a business interruption loss from mobilization incident that
took place in November 2009 and which has been settled in full.
Net Income
As the Company has increased its activity and revenue levels, the fixed costs
have reduced as a percentage of revenue. In addition, as equipment becomes more
effectively utilized, the relative cost of amortization is reducing. As a
result, the Company had net income for the fourth quarter of 2010 of $2.1
million compared to a net loss in the fourth quarter of 2009 of ($2,838).
Liquidity and Capital Resources
Year ended December 31, 2010 2009
----------------------------------------------------------------------------
Cash Provided by (used in)
Operating Activities $ 3,326 $ (438)
Financing Activities 167,135 100
Investing Activities (83,403) (5,972)
----------------------------------------------------------------------------
$ 87,058 $ (6,310)
----------------------------------------------------------------------------
As at December 31, 2010 the Company had $119 million of working capital compared
to $19.5 million at December 31, 2009. The increase in working capital is
primarily due to funds provided from operations(as defined under Non-GAAP
Measures) of $16.9 million and $166.3 million raised through the Company's June
private placement and December bought deal financing offset by $83.2 million of
capital expenditures made to increase the revenue earning capacity.
The Company had approximately $41 million of capital commitments remaining in
respect of its 2010 capital program and has initiated a 2011 capital program of
$150 million. The Company anticipates being able to fund these capital
expenditures through cash on hand, operating cash flows and current debt
facilities.
Operating
The Company's funds provided by operations (as defined under Non-GAAP Measures)
was $16.9 million for 2010 as compared to $4.4 million in 2009. The increase is
due to the Company's increased revenue. With the Company's growth, a large
portion of these funds from operations was invested in added working capital
($13.6 million as compared to $4.9 million in 2009).
Financing
Net cash provided by financing activities for 2010 was $167.1 million largely
consisting of a private placement of equity in June of $61.6 million and a
bought deal equity financing in December of $104.7 million. This compares to net
cash from financing in 2009 of $100 from the exercise of stock options.
As at December 31, 2010 the Company had a $15 million demand revolving loan
facility and a $35 million committed revolving facility (see Note 10 of the
consolidated financial statements). No amounts were drawn on these facilities as
at December 31, 2010 or as at the date of this MD&A. The Company is in
compliance with all its debt covenants.
Investing
For 2010 the Company's net cash used for investing activities was $83.4 million
as compared to $6.0 million in 2009. For 2010, the Company invested $83.2
million in capital equipment to add revenue producing capacity and $1.4 million
of long-term deposits on supplier agreements for key raw materials. Offsetting
these investments was an increase of $1.4 million in accounts payable for
capital equipment. In 2009, The Company invested $27.3 million in capital
equipment which was offset by an increase in accounts payable of $1.5 million
and a reduction in short term investments of $19.9 million.
Commitments and contractual obligations
The Company has operating lease commitments for vehicles and office space
as follows:
Year 2011 2012 2013 2014 2015
----------------------------------------------------------------------------
Amount $ 2,197 $ 1,606 $ 911 $ 573 $ 573
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at December 31, 2010, the Company has commitments totaling approximately $41
million (2009 - $8 million) relating to the construction of fixed assets in 2011
and $86 million (2009 - $3 million) for the purchase of operating supplies.
Critical Accounting Policies and Estimates
This MD&A is based on the Company's annual consolidated financial statements
that have been prepared in accordance with Canadian GAAP. Management is required
to make assumptions, judgments and estimates in the application of GAAP.
GASFRAC's significant accounting policies are described in note 2 of the
December 31, 2010 audited consolidated financial statements. The preparation of
the consolidated financial statements requires that certain estimates and
judgments be made concerning the reported amount of revenue and expenses and the
carrying values of assets and liabilities. These estimates are based on
historical experience and management's judgment. Anticipating future events
involves uncertainty and, consequently, the estimates used by management in the
preparation of the consolidated financial statements may change as future events
unfold, additional experience is acquired or the environment in which the
Company operates changes. The following accounting policies and practices
involve the use of estimates that have a significant impact on the Company's
financial results.
Revenue Recognition
The Company's revenue is comprised of services and other revenue and is
generally sold on agreed upon priced purchase orders or contracts with the
customer. Contract terms do not include provisions for significant post-service
delivery obligations. Service and other revenue is recognized when the services
are provided and collectability is reasonably assured.
Allowance for Doubtful Accounts Receivable
The Company performs ongoing credit evaluations of its customers and grants
credit based upon a review of historical collection experience, current aging
status, financial condition of the customer and anticipated industry conditions.
Customer payments are regularly monitored and a provision for doubtful accounts
is established based upon specific situations and overall industry conditions.
In situations where the creditworthiness of a customer is uncertain, services
are provided on receipt of cash in advance or services are declined. GASFRAC's
management believes that the provision for doubtful accounts is adequate.
Amortization
Amortization of the Company's property and equipment incorporates estimates of
useful lives and residual values. These estimates may change as more experience
is obtained or as general market conditions change, thereby impacting the
operation of the Company's property and equipment.
Income Taxes
The Company follows the liability method of accounting for income taxes, which
evaluates the differences between the financial statement treatment and tax
treatment of certain transactions, assets and liabilities. Future tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement amounts of existing assets and
liabilities and their respective tax bases. Estimates of the Company's future
taxable income have been considered in assessing the utilization of available
tax losses. GASFRAC's business is complex and the calculation of income taxes
involves many complex factors as well as the Company's interpretation of
relevant tax legislation and regulations. GASFRAC's management believes that the
future income tax provision is adequate.
Stock based Compensation
The Company has a stock-based compensation plan, which is described in Note 7.
The Company applies the Black-Scholes option pricing model to value its stock
options. Under this method, compensation cost attributable to stock options
granted is measured at fair value at the grant date and expensed over the
vesting period with a corresponding increase to contributed surplus. Upon
exercise of the stock options, consideration paid together with the amount
previously recognized in contributed surplus is recorded as share capital. The
Company has not incorporated an estimated forfeiture rate for stock options that
will not vest, rather the Company will account for actual forfeitures as they
occur.
The Company has a performance share unit and a restricted share plan as
described in note 7.
Recent Accounting Pronouncements
There have been no Canadian or US accounting pronouncements issued for the 2010
fiscal year which may have a material impact on the Company's financial
statements.
Off-Balance Sheet Arrangements
The Company is not party to any off balance sheet arrangements or transactions.
Related Party Transactions
During the year, the Company paid $287 (2009 - $334) in consulting fees to two
Directors. These transactions were in the normal course of operations and have
been measured at the exchange amounts.
Outstanding Share Data
Common Shares Warrants Stock Options
----------------------------------------------------------------------------
Balance - December 31, 2008 32,370,000 2,602,500 2,621,000
Issued / granted 230,000 - 435,000
Issued / exercised 50,000 - (50,000)
Cancelled / forfeited - - (40,000)
----------------------------------------------------------------------------
Balance - December 31, 2009 32,650,000 2,602,500 2,966,000
Issued / granted 26,061,700 - 670,000
Issued / exercised 1,514,666 (845,000) (669,666)
Cancelled / forfeited - - (246,167)
----------------------------------------------------------------------------
Balance - December 31, 2010 60,226,366 1,757,500 2,720,167
Issued / exercised 368,500 (319,000) (49,500)
----------------------------------------------------------------------------
Balance - March 10, 2011 60,594,866 1,438,500 2,670,667
----------------------------------------------------------------------------
Financial Instruments
The Company's financial instruments recognized on the balance sheet consist of
cash and cash equivalents, short term investments, accounts receivable, unearned
revenue, accounts payable, and accrued liabilities. The following is a summary
of the accounting model the Company has elected to apply to each of its
significant categories of financial instruments:
Cash and cash equivalents Held for trading
----------------------------------------------------------------------------
Short term investments Held for trading
----------------------------------------------------------------------------
Accounts receivable Loans and receivables
----------------------------------------------------------------------------
Accounts payable and accrued liabilities Held for trading
----------------------------------------------------------------------------
Credit risk
The Company's accounts receivable balances are with customers in the oil and gas
industry and are subject to normal industry credit risks. The Company assesses
the credit worthiness of all of its customers. The Company's trade receivables
as at December 31, 2010 are aged as follows:
December 31, 2010 December 31, 2009
----------------------------------------------------------------------------
Current (0 - 30 days) $ 9,752 $ 2,838
31 - 60 days 11,339 3,590
Over 61 Days 745 2,258
----------------------------------------------------------------------------
Total $ 21,836 $ 8,686
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair values
The fair value of the Company's financial instruments included on the
consolidated balance sheet approximate their carrying amounts due to their short
term maturity.
The additional disclosures regarding fair value measurements of financial
instruments as required by recent amendments made to Section 3862 Financial
Instruments - presentation and disclosure of the Canadian Institute of Chartered
Accountants ("CICA") handbook are presented below. A fair value hierarchy is
presented below that distinguishes the significance of the inputs used in
determining the fair value measurements of various financial instruments. The
hierarchy contains the following levels: Level 1 uses inputs based on quoted
prices, Level 2 uses observable inputs other than quoted prices and Level 3 uses
inputs that are not based on observable market data.
Carrying Value as at Estimated Fair Value as at
December 31, December 31, 2010
2010 2009 Level 1 Level 2 Level 3
----------------------------------------------------------------------------
Cash and cash equivalents $ 98,701 $ 11,643 $ - $98,701 $ -
----------------------------------------------------------------------------
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company has a positive cash position
and further manages its liquidity risk by continuously monitoring forecasts and
actual cash flows and has secured a credit line with a major Canadian bank.
Currently, the Company's cash and cash equivalents and the Company's secured
line of credit are sufficient to meet its financial obligations.
Market risk
Market risk is the risk that changes in market prices, such as interest rates or
foreign exchange rates will affect the Company's income or the value of its
financial instruments. The Company does not believe that the results of
operations or cash flow would be affected to a significant degree by a sudden
change in market interest rates. The Company does not believe that that the
results of operations or cash flow would be affected to a significant degree by
a sudden change in foreign exchange rate.
Business Risks
The business of GASFRAC is subject to certain risks and uncertainties, including
those listed below. Prior to making any investment decision regarding GASFRAC,
investors should carefully consider, among other things, the risk factors set
forth below.
Volatility of Industry Conditions
The demand, pricing and terms for GASFRAC's fracturing and well stimulation
services largely depend upon the level of exploration and development activity
for North American natural gas and, to a lesser extent, oil. Industry conditions
are influenced by numerous factors over which GASFRAC has no control, including
the level of oil and natural gas prices, expectations about future oil and
natural gas prices, the cost of exploring for, producing and delivering oil and
natural gas, the decline rates for current production, the discovery rates of
new oil and natural gas reserves, available pipeline and other oil and natural
gas transportation capacity, weather conditions, political, military, regulatory
and economic conditions, and the ability of oil and natural gas companies to
raise equity capital or debt financing. A material decline in global oil and
natural gas prices or North American activity levels as a result of any of the
above factors could have a material adverse effect on GASFRAC's business,
financial condition, results of operations and cash flows. Because of the
current economic environment and related decrease in demand for energy, natural
gas exploration and development in North America has decreased from peak levels
in 2008. Warmer than normal winters in North America, among other factors, may
adversely impact demand for natural gas and, therefore, demand for oilfield
services. If the economic conditions deteriorate further or do not improve, the
decline in natural gas exploration and development could cause a decline in the
demand for GASFRAC's services. Such decline could have a material adverse effect
on GASFRAC's business, financial condition, results of operations and cash
flows.
Demand for Oil and Natural Gas
Fuel conservation measures, alternative fuel requirements, increasing consumer
demand for alternatives to oil and natural gas, and technological advances in
fuel economy and energy generation devices could reduce the demand for crude oil
and other hydrocarbons. GASFRAC cannot predict the impact of changing demand for
oil and natural gas products, and any major changes could have a material
adverse effect on GASFRAC's business, financial condition, results of operations
and cash flows.
Seasonality
GASFRAC's financial results are directly affected by the seasonal nature of the
North American oil and natural gas industry. The first quarter incorporates the
winter drilling season when a disproportionate amount of the activity takes
place in western Canada. During the second quarter, soft ground conditions
typically curtail oilfield activity in all of GASFRAC's Canadian operating areas
such that many rigs are unable to move about due to road bans. This period,
commonly referred to as "spring breakup", occurs earlier in the year in
southeastern Alberta than it does in northern Alberta and northeastern British
Columbia. Consequently, this is GASFRAC's weakest three-month revenue period.
Additionally, if an unseasonably warm winter prevents sufficient freezing,
GASFRAC may not be able to access well sites and GASFRAC's operating results and
financial condition may therefore be adversely affected. The demand for
fracturing and well stimulation services may also be affected by severe winter
weather in North America. In addition, during excessively rainy periods in any
of GASFRAC's operating areas, equipment moves may be delayed, thereby adversely
affecting revenues. The volatility in the weather and temperature can therefore
create unpredictability in activity and utilization rates, which can have a
material adverse effect on GASFRAC's business, financial condition, results of
operations and cash flows.
Concentration of Customer Base
GASFRAC's customer base consists of over forty oil and natural gas exploration
and production companies, ranging from large multinational public companies to
small private companies. Notwithstanding GASFRAC's broad customer base, GASFRAC
had three significant customers that collectively accounted for approximately 63
percent of GASFRAC's revenue for the year ended December 31, 2010. GASFRAC's
strong relationships with exploration and production companies may result in
increased concentration of revenues during periods of reduced activity levels
such as the first three months of the year. However, there can be no assurance
that GASFRAC's relationship with its primary customers will continue, and a
significant reduction or total loss of the business from these customers, if not
offset by sales to new or existing customers, would have a material adverse
effect on GASFRAC's business, financial condition, results of operations and
cash flows.
Competition
Each of the markets in which GASFRAC participates is highly competitive. To be
successful, a service provider must provide services that meet the specific
needs of oil and natural gas exploration and production companies at competitive
prices. The principal competitive factors in the markets in which GASFRAC
operates are product and service quality and availability, technical knowledge
and experience, reputation for safety and price. GASFRAC competes with large
national and multinational oilfield service companies that have greater
financial and other resources. These companies offer a wide range of well
stimulation services in all geographic regions in which GASFRAC operates. In
addition, GASFRAC competes with several regional competitors. As a result of
competition, it may suffer from a significant reduction in revenue or be unable
to pursue additional business opportunities.
Equipment Inventory Levels
Because of the long-life nature of oilfield service equipment and the lag
between when a decision to build additional equipment is made and when the
equipment is placed into service, the inventory of oilfield service equipment in
the industry does not always correlate with the level of demand for service
equipment. Periods of high demand often spur increased capital expenditures on
equipment, and those capital expenditures may add capacity that exceeds actual
demand. This capital overbuild could cause GASFRAC's competitors to lower their
rates and could lead to a decrease in rates in the oilfield services industry
generally, which could have a material adverse effect on GASFRAC's business,
financial condition, results of operations and cash flows.
Sources, Pricing and Availability of Raw Materials and Component Parts
GASFRAC sources its raw materials, such as proppant, chemicals, nitrogen, carbon
dioxide and diesel fuel, and component parts, from a variety of suppliers in
North America. Should GASFRAC's suppliers be unable to provide the necessary raw
materials and component parts at an acceptable price or otherwise fail to
deliver products in the quantities required, any resulting delays in the
provision of services could have a material adverse effect on GASFRAC's
business, financial condition, results of operations and cash flows.
Capital-Intensive Industry
GASFRAC's business plan is subject to the availability of additional financing
for future costs of operations or expansion that might not be available, or may
not be available on favourable terms. GASFRAC's activities may also be financed
partially or wholly with debt, which could increase GASFRAC's debt levels above
industry standards. The level of GASFRAC's indebtedness from time to time could
impair GASFRAC's ability to obtain additional financing in the future on a
timely basis to take advantage of business opportunities that may arise. If
GASFRAC's cash flow from operations is not sufficient to fund GASFRAC's capital
expenditure requirements, there can be no assurance that additional debt or
equity financing will be available to meet these requirements or, if available,
on favourable terms.
Patents and Proprietary Technology
GASFRAC's success will depend, in part, on its ability to obtain patents,
maintain trade secret protection and operate without infringing on the rights of
third parties. The LPG Fracturing Process patents for the U.S., Canada and
International markets remain in examination. However, there can be no assurance
that any issued patents will provide GASFRAC with any competitive advantages or
will not be successfully challenged by any third parties, or that the patents of
others will not have an adverse effect on the ability of GASFRAC to do business.
In addition, there can be no assurance that others will not independently
develop similar products, duplicate some or all of GASFRAC's products, or, if
patents are issued to GASFRAC, design their products so as to circumvent the
patent protection that may be held by GASFRAC. In addition, GASFRAC could incur
substantial costs in lawsuits in which GASFRAC attempts to enforce its own
patents against other parties.
Operational Risks
GASFRAC's operations are subject to hazards inherent in the oil and natural gas
industry, such as equipment defects, malfunction and failures, and natural
disasters which result in fires, vehicle accidents, explosions and
uncontrollable flows of natural gas or well fluids that can cause personal
injury, loss of life, suspension of operations, damage to formations, damage to
facilities, business interruption and damage to or destruction of property,
equipment and the environment. These hazards could expose GASFRAC to substantial
liability for personal injury, wrongful death, property damage, loss of oil and
natural gas production, pollution, contamination of drinking water and other
environmental damages. GASFRAC continuously monitors its activities for quality
control and safety, and although it maintains insurance coverage that it
believes to be adequate and customary in the industry, such insurance may not be
adequate to cover GASFRAC's liabilities and may not be available in the future
at rates that GASFRAC considers reasonable and commercially justifiable.
Availability of Qualified Staff
Attracting and retaining qualified workers is necessary for GASFRAC to provide
reliable services to its customers. With high industry activity there is also
high demand for qualified workers and, as such, it is a challenge for GASFRAC to
add a significant number of workers to support its planned growth. The Company
attempts to overcome this challenge by offering an attractive compensation
package, providing an in-depth training program, and offering career growth
opportunities.
Availability of Debt Financing
The Company has facilities with its bank for $50 million of debt financing as
discussed in Note 5 of the 2010 Consolidated Audited Financial Statements.
Should GASFRAC be unable to renew these facilities in the amount it requires or
on terms acceptable to it, significant liquidity issues could result.
Financing of future growth
GASFRAC's future growth strategy is subject to the availability of financing to
support the acquisition of additional capital equipment. This growth may be
fully or partially financed with debt which may or may not be available at the
time required. Should such debt financing not be available as required it could
result in a delay in the Company's ability to grow its operations. Should the
Company obtain debt financing there are no assurances that debt levels may
increase above industry standards due to the impact of seasonal or cyclical
trends or other factors.
Management Stewardship
The successful operation of GASFRAC's business depends upon the abilities,
expertise, judgment, discretion, integrity and good faith of GASFRAC's executive
officers, employees and consultants. In addition, GASFRAC's ability to expand
its services depends upon its ability to attract qualified personnel as needed.
The demand for skilled oilfield employees is high, and the supply is limited. If
GASFRAC loses the services of one or more of its executive officers or key
employees, it could have a material adverse effect on GASFRAC's business,
financial condition, results of operations and cash flows.
Regulations Affecting the Oil and Natural Gas Industry
The operations of GASFRAC's customers are subject to or impacted by a wide array
of regulations in the jurisdictions in which they operate. As a result of
changes in regulations and laws relating to the oil and natural gas industry,
GASFRAC's customers' operations could be disrupted or curtailed by governmental
authorities. The high cost of compliance with applicable regulations could cause
customers to discontinue or limit their operations and may discourage companies
from continuing development activities. As a result, demand for GASFRAC's
services could be substantially affected by regulations adversely impacting the
oil and natural gas industry. Changes in environmental requirements may
negatively impact demand for GASFRAC's services. For example, oil and natural
gas exploration and production may decline as a result of environmental
requirements (including land use policies responsive to environmental concerns).
A decline in exploration and production, in turn, could materially and adversely
affect GASFRAC.
Government Regulations
GASFRAC's operations are subject to a variety of federal, provincial, state and
local laws, regulations and guidelines in all the jurisdictions in which it
operates, including laws and regulations relating to health and safety, the
conduct of operations, taxation, the protection of the environment and the
manufacture, management, transportation and disposal of certain materials used
in GASFRAC's operations. GASFRAC has invested financial and managerial resources
to ensure such compliance and expects to continue to make such investments in
the future. Such laws or regulations are subject to change and could result in
material expenditures that could have a material adverse effect on GASFRAC's
business, financial condition, results of operations and cash flows. It is
impossible for GASFRAC to predict the cost or impact of such laws and
regulations on GASFRAC's future operations. In particular, GASFRAC is subject to
increasingly stringent laws and regulations relating to importation and use of
hazardous materials, radioactive materials and explosives, environmental
protection, including laws and regulations governing air emissions, water
discharges and waste management. GASFRAC incurs, and expects to continue to
incur, capital and operating costs to comply with environmental laws and
regulations. The technical requirements of these laws and regulations are
becoming increasingly complex, stringent and expensive to implement. These laws
may provide for "strict liability" for damages to natural resources or threats
to public health and safety. Strict liability can render a party liable for
damages without regard to negligence or fault on the part of the party. Some
environmental laws provide for joint and several strict liabilities for
remediation of spills and releases of hazardous substances.
GASFRAC uses and generates hazardous substances and wastes in its operations. In
addition, some of GASFRAC's current properties are, or have been, used for
industrial purposes. Accordingly, GASFRAC could become subject to potentially
material liabilities relating to the investigation and cleanup of contaminated
properties, and to claims alleging personal injury or property damage as the
result of exposures to, or releases of, hazardous substances. In addition,
stricter enforcement of existing laws and regulations, new laws and regulations,
the discovery of previously unknown contamination or the imposition of new or
increased requirements could require GASFRAC to incur costs or become the basis
of new or increased liabilities that could reduce GASFRAC's earnings and cash
available for operations. GASFRAC believes it is currently in substantial
compliance with applicable environmental laws and regulations.
GASFRAC is a provider of hydraulic fracturing services, a process that creates
fractures extending from the well bore through the rock formation to enable
natural gas or oil to move more easily through the rock pores to a production
well. Bills pending in the United States House of Representatives and Senate
have asserted that chemicals used in the fracturing process could adversely
affect drinking water supplies. The proposed legislation would require the
reporting and public disclosure of chemicals used in the fracturing process.
This legislation, if adopted, could establish an additional level of regulation
at the federal level that could lead to operational delays and increased
operating costs. The adoption of any future federal or state laws or
implementing regulations imposing reporting obligations on, or otherwise
limiting, the hydraulic fracturing process could make it more difficult to
complete natural gas and oil wells and could have a material adverse effect on
GASFRAC's business, financial condition, results of operations and cash flows.
Climate Change Initiatives
Canada is a signatory to the United Nations Framework Convention on Climate
Change and has adopted the Kyoto Protocol established thereunder to set legally
binding targets to reduce nation-wide emissions of carbon dioxide, methane,
nitrous oxide and other so-called "greenhouse gases". Details regarding Canada's
implementation of the Kyoto Protocol remain unclear. On April 26, 2007, the
Government of Canada released its Regulatory Framework for Air Emissions which
outlines proposed new requirements governing the emission of greenhouse gases
and industrial air pollutants in accordance with the Government's Notice of
Intent to Develop and Implement Regulations and Other Measures to Reduce Air
Emissions, which was released on October 19, 2006. A further plan setting out
the federal government's proposed framework for regulating greenhouse gas
emissions was released on March 10, 2008. The framework and associated public
documents provide some, but not full, detail on new greenhouse gas and
industrial air pollutant limits and compliance mechanisms that the government
intends to apply to various industrial sectors, including oil and natural gas
producers. Details on potential legislation to enact the proposed regulatory
framework for greenhouse gases remain unavailable.
Since November 2008, the Government of Canada has expressed an interest in
pursuing a potential harmonization of future Canadian greenhouse gas regulation
with future regulation in the United States, pursuant to a bilateral treaty,
raising uncertain implications for greenhouse gas emission requirements to be
applied to Canadian industry, including the oil and natural gas sector. Future
federal legislation, including potential international or bilateral requirements
enacted under Canadian law, together with provincial emission reduction
requirements, such as those in effect under Alberta's Climate Change and
Emissions Management Act, and potential further provincial requirements, may
require the reduction of emissions or emissions intensity from GASFRAC's
operations and facilities. Mandatory emissions reductions may result in
increased operating costs and capital expenditures for oil and natural gas
producers, thereby decreasing the demand for GASFRAC's services. The mandatory
emissions reductions may also impair GASFRAC's ability to provide GASFRAC's
services economically. GASFRAC is unable to predict the impact of current and
pending emission reduction legislation on GASFRAC and it is possible that such
impact may have a material adverse effect on GASFRAC's business, financial
condition, results of operations and cash flows.
Customers
Customers are generally invoiced for our services in arrears. As a result, we
are subject to our customers delaying or failing to pay invoices. Risk of
payment delays or failure to pay is increased during periods of weak economic
conditions due to potential reduction in cash flow and access to capital of our
customers.
The Market Price of the Common Shares May Be Volatile
The trading price of securities of oilfield service companies is subject to
substantial volatility. The volatility is often based on factors both related to
and not related to the financial performance or prospectus of the companies
involved. The market price of the GASFRAC Common Shares could be subject to
significant fluctuations in response to our operating results, financial
condition and other internal factors. Factors that could affect the market price
that are not directly related to GASFRAC's performance include commodity prices
and market perceptions of the attractiveness of particular industries for
investment. The price at which the Common Shares will trade cannot be accurately
predicted.
Internal Controls Over Financial Reporting
During the fourth quarter, GASFRAC initiated an evaluation of the Company's
internal controls under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as defined in National Instrument 52-109.
Based on the evaluation, the Company's management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Company's disclosure
controls and procedures were designed to provide a reasonable level of assurance
over the disclosure of material information, and are effective as of December
31, 2010.
There have been no changes in the Company's internal controls over financial
reporting during the period ended December 31, 2010 that have materially
affected, or are reasonably likely to materially effect, the Company's internal
controls over financial reporting.
International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standards Board ("AcSB") published a new strategic plan
that outlines the convergence of Canadian generally accepted accounting
principles with IFRS over an expected five year transitional period. The
changeover date for publicly-listed companies to use IFRS, replacing Canada's
own generally accepted accounting principles is interim and annual financial
statements for fiscal years beginning on or after January 1, 2011 with the
restatement for comparative purposes of amounts reported by the Company for the
year ended December 31, 2010.
The Company has completed a high-level review and preliminary assessment of the
differences between Canadian GAAP and IFRS and the potential effects of IFRS to
its accounting and reporting processes, information systems, business processes
and external disclosures. This assessment has provided insight into what are
anticipated to be the most significant areas of difference applicable to the
Company. The next step is to perform an in-depth review of the significant areas
of difference and formulate ongoing accounting policies. Key areas addressed
will also be reviewed to determine any information technology issues, the impact
on internal controls over financial reporting and the impact on business
activities including the effect, if any, on covenants and compensation
arrangements.
The Company will also continue to monitor standards development as issued by the
AcSB as well as regulatory developments as issued by the Canadian Securities
Administrators, which may affect the timing, nature or disclosure of its
adoption of IFRS.
The following IFRS standards are considered most relevant to the Company's
conversion process:
IFRS 1 - First-time Adoption of IFRS, which generally requires that an entity
apply all IFRS standards retrospectively, with specific mandatory exemptions,
and a limited number of optional exemptions. A preliminary assessment of the
available exemptions has been completed.
Elections made upon transition to IFRS can have a significant impact on the
level of time and effort needed for the conversion to IFRS. The following
optional exemptions are the most applicable to the Company:
a) Fair value as deemed cost - This exemption provides the Company with the
option to elect specific fair values as the deemed cost of any qualifying item
of property and equipment;
b) Business combinations - This exemption provides the Company with the option
of not applying IFRS 3, Business Combinations to business combinations that took
place before the date of transition; and
c) Share-based payments - This exemption provides the Company with the option of
not applying IFRS 2, Share-Based Payments to equity-settled share-based payment
transactions issued after November 7, 2002 and which have vested before the date
of transition.
The Company has completed a more detailed analysis of each of the specific areas
identified in the high-level comparison of Canadian GAAP to IFRS.
GASFRAC does not anticipate that the transition to IFRS will require significant
changes to its accounting systems. The most significant system changes relate to
its fixed asset sub-system in order to separately track the components of its
fixed assets.
During the fourth quarter of 2010 GASFRAC substantially completed calculations
for IFRS compliant quarterly financial statements for each of the first three
quarters of 2010 as these comparatives will be required for 2011 reporting. In
addition, during the fourth quarter of 2010 GASFRAC has substantially completed;
white-papers for accounting policies and IFRS 1 elections; preparation of
required transition disclosures and schedules; January 1, 2010 IFRS opening
balance sheet amounts; testing of the calculation of the opening balance sheet
amounts as well as the quarterly financial statements for each of the first
three quarters of 2010.
Changes in Accounting Policies
There were no new or amended accounting policies issued for adoption in the
current period.
Non-GAAP Measures
Certain supplementary measures in this MD&A do not have any standardized meaning
as prescribed under Canadian GAAP and, therefore, are considered non-GAAP
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:
EBITDA is defined as net income before interest income and expense, taxes,
depreciation, amortization and non-controlling interest. EBITDA is presented
because it is frequently used by securities analysts and others for evaluating
companies and their ability to service debt.
EBITDA was calculated as follows:
($000s) Three months ended Twelve months ended
December 31 December 31
----------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Net income 2,062 (2,838) 5,053 (2,210)
Add back (deduct):
Interest income (71) (16) (107) (201)
Amortization 2,452 1,525 7,929 5,024
Future income tax provision 1,670 7 3,237 360
----------------------------------------------------------------------------
EBITDA 6,113 (1,322) 16,112 2,973
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds provided by operations is defined as cash and cash equivalents provided by
(used for) operating activities before the net change in non-cash operating
working capital. Funds provided by operations is a measure that provides
shareholders and potential investors with additional information regarding the
Company's liquidity and its ability to generate funds to finance its operations.
Management utilizes these measures to assess the Company's ability to finance
operating activities and capital expenditures.
Funds provided by operations was calculated as follows:
($000s) Three months ended Twelve months ended
December 31 December 31
----------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Cash and cash equivalents provided by
(used for) operating activities 1,004 404 3,326 (438)
Add back (deduct):
Net changes in non-cash working
capital 5,621 (1,209) 13,601 4,885
----------------------------------------------------------------------------
Funds provided by operations 6,625 (805) 16,927 4,447
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outlook
We expect the North American pressure pumping market will remain strong in 2011
due to the service intensity of the wells being drilled, energy demand and
service supply levels. Although there is projected to be a significant amount of
new horsepower being added to the market in 2011, it is still estimated that the
market will be undersupplied based on projected rig activity. As natural gas
prices continue to be soft we have observed customers targeting more of their
capital budgets in oil and liquids-rich reservoirs. Further, development
activity is focused on deep, unconventional and horizontal wells often requiring
multi-stage fracturing.
As noted above, we expect that overall demand for fracturing services will
continue to be strong for 2011 and this, combined with growing knowledge and
acceptance of the Company's LPG fracturing technology, should support continued
growth of our Canadian revenue base. We do note however that we anticipate a
reduction in anticipated revenues for the first quarter of 2011 due to the
Company's self imposed cessation of operations for 19 days while it investigated
(and resolved) a well-site incident as described in our press releases of
January 16, 2011 and January 20, 2011. The incident has been fully resolved and
we do not expect any further interruption of services as a result of this
incident.
As in Canada, more drilling activity in the USA is being focused on oil and
liquids rich gas. While industry dynamics are similar to Canada for GASFRAC, the
key element of our initial growth in the USA will be obtaining customer
acceptance of our LPG fracturing technology and on focusing on key basins where
we can quickly reach sufficient mass to ensure high utilization rates. We are
planning for deployment of two sets of equipment to USA locations early in 2011
and are optimistic that customer acceptance of the technology will result in
significant utilization of the equipment.
With the backdrop of anticipated strong demand in the overall fracturing
industry in North America, growing acceptance of the Company's technology and
added revenue producing capacity at GASFRAC with the added capital equipment, we
expect to be able to continue to increase our revenue base through 2011.
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 GASFRAC's innovative technology will provide GASFRAC with
opportunities to expand GASFRAC's market share in Alberta and British Columbia;
- estimates of additional investment required to complete ongoing capital projects;
- expectations of securing financing for additional capital expenditures beyond
2010;
- expectations that GASFRAC has or can obtain sufficient funding to meet its
capital plan;
- expectations that additional operating equipment will be delivered and provide
GASFRAC the ability to service demand for large multi-stage treatments;
- expectations that additional fluid management equipment will allow the Company
to increase the utilization of its horsepower;
- assumption that environmental protection requirements will not have a
significant impact on GASFRAC's operations or capital budget;
- expectations as to GASFRAC's future market position in the industry;
- expectations as to the supply of raw materials;
- expectations as to the pricing of GASFRAC's services;
- expectations as to the timing of additional capital equipment in Canada and
the USA;
- expectations as to the potential for GASFRAC's services in the United States;
- expectations of fracturing industry pricing and the pricing of GASFRAC
services in North America in 2011;
- expectations of oil and natural gas commodity prices in 2011;
- expectations of the amount of net fracturing horsepower being added to the
North American market in 2011 and its impact on GASFRAC's service prices;
- expected timing for completion of the assessment and implementation phases of
GASFRAC's project plan for transition to IFRS;
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 capital equipment.
GASFRAC ENERGY SERVICES INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 2010
GASFRAC ENERGY SERVICES INC.
Consolidated Balance Sheets
(000s)
As at: Dec 31, 2010 Dec 31, 2009
----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 98,701 $ 11,643
Accounts receivable 24,500 9,469
Inventory 7,018 5,499
Prepaid expenses 6,839 519
----------------------------------------------------------------------------
137,058 27,130
FUTURE INCOME TAX BENEFIT (Note 6) - 775
LONG TERM DEPOSITS 3,176 1,790
PROPERTY AND EQUIPMENT (Note 3) 136,749 61,295
OTHER ASSETS (Note 4) 420 358
----------------------------------------------------------------------------
$ 277,403 $ 91,348
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 14,828 $ 7,617
Unearned revenue 3,486 -
----------------------------------------------------------------------------
18,314 7,617
FUTURE INCOME TAX (Note 6) 368 -
----------------------------------------------------------------------------
18,682 7,617
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7) 251,326 81,293
CONTRIBUTED SURPLUS (Note 8) 1,712 1,808
RETAINED EARNINGS 5,683 630
----------------------------------------------------------------------------
258,721 83,731
----------------------------------------------------------------------------
$ 277,403 $ 91,348
----------------------------------------------------------------------------
See accompanying notes
On behalf of the Board:
Dwight Loree, Director
Gerald Roe, Director
GASFRAC ENERGY SERVICES INC.
Consolidated Statements of Operations, Comprehensive Income (Loss) and
Retained Earnings (000s)
Twelve Months Ended Dec 31, 2010 Dec 31, 2009
----------------------------------------------------------------------------
REVENUE $ 96,906 $ 30,428
----------------------------------------------------------------------------
EXPENDITURES
Operating 72,190 21,016
Selling, general and administrative 10,579 6,227
Stock based compensation (Note 2) 708 1,273
Amortization 7,929 5,024
Foreign exchange loss 73 160
----------------------------------------------------------------------------
91,479 33,700
----------------------------------------------------------------------------
OTHER INCOME
Business interruption claim (Note 15) 2,756 638
Scientific research and experimental
development - 583
Interest income 107 201
----------------------------------------------------------------------------
2,863 1,422
----------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE INCOME TAXES 8,290 (1,850)
FUTURE INCOME TAXES EXPENSE (Note 6) 3,237 360
----------------------------------------------------------------------------
NET INCOME (LOSS) / COMPREHENSIVE
INCOME (LOSS) 5,053 (2,210)
RETAINED EARNINGS
BALANCE, BEGINNING OF THE YEAR 630 2,840
----------------------------------------------------------------------------
BALANCE, END OF THE YEAR $ 5,683 $ 630
----------------------------------------------------------------------------
Income (Loss) per share
Basic $ 0.13 ($ 0.07)
----------------------------------------------------------------------------
Diluted $ 0.12 ($ 0.07)
----------------------------------------------------------------------------
See accompanying notes
GASFRAC ENERGY SERVICES INC.
Consolidated Statements of Cash Flows (000s)
Twelve Months Ended Dec 31, 2010 Dec 31, 2009
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS PROVIDED BY (USED
FOR):
OPERATING ACTIVITIES
Net Income (Loss) / Comprehensive Income (Loss) $ 5,053 $ (2,210)
Items not effecting cash:
Amortization 7,929 5,024
Future income taxes expense 3,237 360
Stock based compensation 708 1,273
----------------------------------------------------------------------------
16,927 4,447
Net change in non-cash working capital (Note 12) (13,601) (4,885)
----------------------------------------------------------------------------
3,326 (438)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common shares (net of share issue
costs) 167,135 100
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Decrease in short term investments - 19,883
(Increase) decrease in long term deposits (1,386) 162
Purchase of property and equipment (83,248) (27,349)
Purchase of other assets (197) (130)
Net changes in non-cash working capital 1,428 1,462
----------------------------------------------------------------------------
(83,403) (5,972)
----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents
For the year 87,058 (6,310)
Cash and cash equivalents at beginning of year 11,643 17,953
----------------------------------------------------------------------------
BALANCE, END OF THE YEAR $ 98,701 $ 11,643
----------------------------------------------------------------------------
See accompanying notes
GASFRAC ENERGY SERVICES INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and December 31, 2009
(Figures in text and tables are in 000s except share data and certain other
exceptions as indicated)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
GASFRAC Energy Services Inc. ("GASFRAC" or the "Company") was incorporated on
February 13, 2006 in Canada under the Business Corporations Act in the Province
of Alberta. The Company is a an oil and gas well fracturing company that has
developed new technology, the "LPG Fracturing Process", to enable wells to be
fractured safely with LPG, more specifically propane and butane.
These consolidated financial statements include the accounts of the Company's
wholly owned subsidiaries GASFRAC Energy Services Limited Partnership, GASFRAC
Services GP Inc., and GASFRAC Inc. (a US incorporated entity).
The Company's financial statements have been prepared in Canadian dollars in
accordance with Canadian generally accepted accounting principles ("GAAP").
Management is required to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reported period. The significant estimates of
the Company include estimates relating to accounts receivable, property and
equipment, stock based compensation, and future income tax. Actual results could
differ from these estimates.
The Company's financial results are directly affected by the seasonal nature of
the North American oil and natural gas industry. The first and fourth quarter
incorporates the winter drilling season when a disproportionate amount of the
activity takes place in western Canada. During the second quarter, commonly
referred to as "spring breakup", soft ground conditions typically curtail
oilfield activity in all of the Company's Canadian operating areas. In addition,
during excessively rainy periods in any of the Company's operating areas,
equipment moves may be delayed, thereby adversely effecting revenues.
On August 6, 2010, the Company amalgamated with Kierland Capital Corporation
("Kierland"). The amalgamation was accounted for as a reverse takeover of
Kierland, an entity that did not constitute a business by the Company. Pursuant
to the terms of the transaction: (i) all of the issued and outstanding common
shares of Kierland were exchanged for 156,250 common shares of Amalco; and (ii)
each of the 46,585,833 issued and outstanding GASFRAC shares were exchanged for
one Amalco share. Upon completion of the transaction, the continuing entity
changed its name to GASFRAC Energy Services Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies used in the
preparation of these financial statements:
Consolidation
These consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All inter-company balances and
transactions have been eliminated on consolidation.
Cash and cash equivalents
Cash and cash equivalents are held for the purpose of meeting short-term cash
commitments and include bank balances and short-term investments with maturities
of less than 90 days.
Scientific research and experimental development ("SRED")
Non-refundable investment tax credits for SRED activities are recorded when the
Company has reasonable assurance that the credit will be realized. Management
makes a number of estimates and assumptions in determining the expenditures
eligible for the investment tax credit claim.
Inventory
Inventory consists of liquefied petroleum gas, chemicals, and proppants used to
stimulate well production and is stated at the lower of cost and net realizable
value. Cost is determined using the weighted average method.
Property and equipment
Property and equipment are recorded at cost and are amortized over their
estimated economic useful lives using the straight-line method over the
following terms:
Equipment 3 - 10 Years
----------------------------------------------------------------------------
Leasehold Improvements Lease term
----------------------------------------------------------------------------
Furniture and fixtures 5 Years
----------------------------------------------------------------------------
Assets under construction are not amortized until put into service.
Management estimates the useful life and salvage value of property and equipment
on expected utilization, effectiveness of maintenance programs and expected
impact of technological change. Although management believes the estimated
useful lives of the property and equipment are reasonable, it is possible that
changes in estimates could occur which may affect the expected useful lives and
salvage values of the property and equipment.
Major betterments are capitalized. Repairs and maintenance expenditures which do
not extend the useful life of the property and equipment are expensed.
Impairment of Long-Lived Assets
Long-lived assets include property and equipment and other assets. They are
tested for impairment when events or changes in circumstances indicate that the
carrying value may not be recoverable. An impairment loss is recognized when the
carrying amount of the assets exceeds the sum of the undiscounted future cash
flows expected from use and eventual disposal. Estimates of undiscounted future
net cash flows are calculated using estimated future utilization, sales prices
and margins, operating expenditures and other costs. These estimates are subject
to risk and uncertainties, and it is possible that changes in estimates could
occur which may impact the expected recoverability of the Company's long-lived
assets.
Other assets
Other assets including deferred development costs, patents and intellectual
property that meet certain criteria related to technology, market and financial
feasibility under Canadian generally accepted accounting principles, are
deferred. Such costs are amortized over the estimated economic life of the
related product starting upon commencement of commercial sales. Costs that do
not meet such criteria are charged to income in the period of expenditure.
Revenue recognition
The Company's revenue is comprised of services and other revenue and is
generally sold on agreed upon priced purchase orders or contracts with the
customer. Contract terms do not include provisions for significant post-service
delivery obligations. Service and other revenue is recognized when the services
are provided and collectability is reasonably assured.
Income taxes
The Company follows the liability method of determining the provision for income
taxes. Under this method, future incomes taxes are determined based on temporary
differences between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, using the substantively enacted tax rates.
Future tax assets are recognized where their recoverability is more likely than
not.
The calculation of the provision for income taxes involves tax regulations,
legislation and interpretations which are subject to change. There are also tax
matters that have yet to be confirmed by taxation authorities; however;
management believes the provision for income taxes is reasonable.
Stock based compensation
The Company has a stock-based compensation plan, which is described in Note 7.
The Company applies the Black-Scholes option pricing model to value its stock
options. Under this method, compensation cost attributable to stock options
granted is measured at fair value at the grant date and expensed over the
vesting period with a corresponding increase to contributed surplus. Upon
exercise of the stock options, consideration paid together with the amount
previously recognized in contributed surplus is recorded as share capital. The
Company has not incorporated an estimated forfeiture rate for stock options that
will not vest, rather the Company will account for actual forfeitures as they
occur.
The Company has a performance share unit and a restricted share plan as
described in note 7.
Translation of foreign currencies
Transactions in foreign currencies are translated into Canadian dollars at rates
in effect at the date of the transaction. Assets and liabilities denominated in
foreign currencies are translated at the exchange rates in effect at each
accounting period end date. Exchange gains or losses are included in net income.
For the Company's wholly owned integrated foreign subsidiary, the temporal
method of translating foreign currencies has been used. Under this method,
monetary items are translated into Canadian dollars at the exchange rates in
effect at each accounting period end date. Non-monetary items and their related
amortization are translated at their historical exchange rates. Revenues and
expenses are translated at average exchange rates during the period. Gains or
losses arising from the translation of the financial statements of these foreign
subsidiaries are included in net income.
Earnings per share
Basic earnings per share is calculated using the weighted average number of
shares outstanding during the year. Under the treasury stock method, diluted
earnings per share is calculated based on the weighted average number of shares
outstanding during the year, adjusted by the total of additional common shares
that would have been issued assuming exercise of all stock options, restricted
shares and warrants with exercise prices at or below the average market price
for the year, offset by the reduction in common shares that would be purchased
with the exercise proceeds.
Recently issued accounting pronouncements
Business combinations, consolidated financial statements and non-controlling
interests
In January 2009, CICA issued Section 1582, Business Combinations; Section 1601,
Consolidated Financial Statements; and Section 1602, Non-controlling Interests.
These sections replace the former Section 1581, Business Combinations, and
Section 1600, Consolidated Financial Statements, and establish new sections for
accounting for a non-controlling interest in a subsidiary. Section 1582 is
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
January 1, 2011. Sections 1601 and 1602 apply to interim and annual consolidated
financial statements relating to years beginning on or after January 1, 2011.
The Company is currently assessing the effect these standards may have on its
results of operations and consolidated financial statements.
3. PROPERTY AND EQUIPMENT
December 31, December 31,
As at: 2010 2009
----------------------------------------------------------------------------
Cost:
Equipment $ 103,983 $ 59,037
Furniture & Fixtures 156 59
Leasehold Improvements 55 51
Assets Under Construction 47,392 9,194
----------------------------------------------------------------------------
151,586 68,341
----------------------------------------------------------------------------
Accumulated Depreciation:
Equipment 14,788 7,019
Furniture & Fixtures 38 21
Leasehold Improvements 11 6
Assets Under Construction - -
----------------------------------------------------------------------------
14,837 7,046
----------------------------------------------------------------------------
Net Book Value:
Equipment 89,195 52,018
Furniture & Fixtures 118 38
Leasehold Improvements 44 45
Assets Under Construction 47,392 9,194
----------------------------------------------------------------------------
$ 136,749 $ 61,295
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at December 31, 2010 and December 31, 2009, assets under construction are not
subject to amortization as the assets are not yet available for use.
4. OTHER ASSETS
December 31, December 31,
2010 2009
----------------------------------------------------------------------------
Cost:
Patents & Intellectual Property $ 477 $ 312
Deferred Development Costs 230 198
Prepaid Lease Agreements 31 31
----------------------------------------------------------------------------
738 541
----------------------------------------------------------------------------
Accumulated Depreciation:
Patents & Intellectual Property 163 82
Deferred Development Costs 131 84
Prepaid Lease Agreements 24 17
----------------------------------------------------------------------------
318 183
----------------------------------------------------------------------------
Net Book Value:
Patents & Intellectual Property 314 230
Deferred Development Costs 99 114
Prepaid Lease Agreements 7 14
----------------------------------------------------------------------------
$ 420 $ 358
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. LONG-TERM DEBT
During 2010, the Company entered into the new credit facility with a Canadian
chartered bank. The new credit facility includes a $15 million demand revolving
loan ("Operating Loan") and a $35 million committed revolving facility
("Revolving Facility"). The Operating Loan bears interest at prime plus 1.25%
and is margined by the Company's accounts receivable. The Revolving Facility
bears interest at prime plus 1.4% to prime plus 1.9%, shall not exceed 50% of
the net book value of the Company's capital assets, may be extended annually, if
not extended shall be repayable in eight equal quarterly instalments. Both
facilities are secured by a floating charge over all of the assets of the
Company and are subject to certain financial covenants.
6. FUTURE INCOME TAX
The net income tax provision differs from that expected by applying the combined
federal and provincial income tax rate of 28.65% (2009 - 29.85%) to income taxes
for the following reasons:
Year ended December 31, 2010 2009
----------------------------------------------------------------------------
Expected combined federal and provincial income tax $ 2,375 $ (530)
Statutory and other rate differences 299 441
Non-deductible expenses 203 177
Future income tax rate reduction (294) 64
Valuation allowance 654 208
----------------------------------------------------------------------------
Effective / Actual $ 3,237 $ 360
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The components of the future income tax asset and liability are as follows:
As at December 31, 2010 2009
----------------------------------------------------------------------------
Property and equipment and other assets $ (4,809) $ (3,274)
Non-capital loss carry forwards 2,338 3,062
Financing costs 2,571 830
Other 394 394
Valuation Allowance (862) (237)
----------------------------------------------------------------------------
Total future income tax (liability) benefit $ (368) $ 775
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company has $ 5,897 (2009 - $ 10,413) of tax pools related to non-capital
losses available for carry forward to reduce taxable income in future years and
expire between 2027 and 2029. The Company also has $ 1,569 (2009 - $1,569) of
tax pools related to SR&ED available for carry forward to reduce taxable income
in future years and do not expire.
7. SHARE CAPITAL
Authorized
Unlimited number of common shares.
Unlimited number of preferred shares issuable in series with the designation,
rights, privileges, restrictions and conditions of each series to be determined
by the board of directors.
Issued common shares
2010 2009
----------------------------------------------------------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------
(#) ($) (#) ($)
Balance - January 1 32,650,000 81,293 32,370,000 80,205
Issued on private placement 13,000,000 61,551 - -
Issued on bought deal 12,929,450 104,698 - -
Issued on exercise of options 669,666 1,397 50,000 110
Issued on share exchange (Note 1) 156,250 453 - -
Issued upon exercise of warrants 845,000 2,030 -
Issued for services 30,000 128 230,000 978
Reclassified as restricted shares (130,000) (552) - -
Released from restricted shares 76,000 328 - -
----------------------------------------------------------------------------
Balance - December 31 60,226,366 251,326 32,650,000 81,293
----------------------------------------------------------------------------
----------------------------------------------------------------------------
On June 30, 2010 GASFRAC closed a private placement of 13,000,000 subscription
receipts by the Company at a price of $5.00 per receipt for gross proceeds of
$65 million (net cash proceeds of $60.6 million after broker fees and
transaction costs and deferred tax recovery of $1.0 million).
On December 22, 2010 GASFRAC closed a bought deal of 12,929,450 common shares by
the Company at a price of $8.45 for gross proceeds of $109 million (net cash
proceeds of $104 million after broker fees and transaction costs and deferred
tax recovery of $1.1 million).
Restricted shares
2010 2009
----------------------------------------------------------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------
(#) ($) (#) ($)
Balance - January 1 127,917 542 - -
Granted 310,000 1,394 130,000 553
Released to common shares (76,000) (329) (2,083) (11)
----------------------------------------------------------------------------
Balance - December 31 361,917 1,607 127,917 542
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company has granted restricted shares for certain employees with an annual
vesting period over five years from the date of the grant. During the year, the
Company granted 310,000 restricted shares and restricted stock compensation of
$163 was recognized.
Performance share units
The Company grants performance share units to officers and employees with the
amount of the grant earned being linked to corporate performance and grants
vesting over three years from date of grant. The performance stock units are
settled either in cash or Company shares. During the year, the Company granted
250,000 performance share units and 20,833 vested (2009 - nil). During the
year, $191 of compensation expense was recognized for performance share units
(2009 - nil).
Changes in the Company's obligations under performance share units, which arise
from fluctuations in the market value of the Company's shares underlying the
compensation program, are recorded as the share price changes.
Stock options
The Company calculates the fair value of its options using the Black-Scholes
option pricing model. The following weighted average assumptions were used to
determine the fair value of the options at the date of grant.
----------------------------------------------------------------------------
Risk-free interest rate 1.5%
Expected life 3 years
Maximum life 5 years
Volatility 0% - 55%
Expected dividend 0
----------------------------------------------------------------------------
A summary of the status of the Company's outstanding stock options is
presented below:
2010 2009
----------------------------------------------------------------------------
Average Average
Exercise Exercise
Options Price Options Price
----------------------------------------------------------------------------
(#) ($) (#) ($)
Balance - January 1 2,966,000 2.89 2,621,000 2.63
Granted 670,000 4.51 435,000 4.25
Exercised for common shares (669,666) 2.00 (50,000) 2.00
Forfeited and expired (246,167) 3.14 (40,000) 2.00
----------------------------------------------------------------------------
Balance - December 31 2,720,167 3.47 2,966,000 2.89
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock options vest over three years and expire five years from the date of
grant. The 2,720,167 options outstanding (1,295,333 exercisable) at December 31,
2010 had exercise prices ranging from $2.00 to $5.00 per share with expiry dates
ranging from 2011 to 2015. When stock options are exercised the proceeds,
together with the amount of compensation expense previously recorded in
contributed surplus are added to share capital. During the year, $229 of
compensation expense was recognized.
Warrants
2010 2009
----------------------------------------------------------------------------
Average Average
Exercise Exercise
Warrants Price Warrants Price
----------------------------------------------------------------------------
(#) ($) (#) ($)
Balance - January 1 2,602,500 1.32 2,602,500 1.32
Exercised for common shares (845,000) 1.57 - -
----------------------------------------------------------------------------
Balance - December 31 1,757,500 1.20 2,602,500 1.32
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As part of an employment agreement with the founding officer of the Company,
1,500,000 share purchase warrants were issued effective May 10, 2006, entitling
the founding officer to purchase common shares of the Company at $1.00 per
share, vesting based on performance conditions and expiring on August 12, 2012.
As at August 12, 2010 all of the purchase warrants were vested. As at December
31, 2010 1,400,000 (2009 - 1,500,000) founder warrants were outstanding.
In 2006, as part of the terms of a financing agreement, the Company issued
262,500 brokers warrants, entitling the holders to purchase common shares of the
Company at $1.00 per share. In 2007, as part of the terms of a financing
agreement, the Company issued 840,000 brokers warrants, entitling the holders to
purchase common shares of the Company at $2.00 per share. As at December 31,
2010, 357,500 (2009 - 1,102,500) broker warrants, expiring May 22, 2011, were
outstanding.
During the year, $49 of compensation expense was recognized ($49 - founders
warrants, Nil - broker warrants).
8. CONTRIBUTED SURPLUS
2010 2009
----------------------------------------------------------------------------
Amount Amount
----------------------------------------------------------------------------
Balance - January 1 $ 1,808 $ 1,527
Stock option SBC expense 229 255
Fair value of warrants 49 36
Exercise of stock options (133) (10)
Exercise of warrants (629) -
Issuance of restricted stock 388 -
----------------------------------------------------------------------------
Balance - December 31 $ 1,712 $ 1,808
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. CONTRACTUAL OBLIGATIONS
The Company has operating lease commitments for vehicles and office space as
follows:
Year 2011 2012 2013 2014 2015
----------------------------------------------------------------------------
Amount $ 2,197 $ 1,606 $ 911 $ 573 $ 573
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at December 31, 2010, the Company has commitments totaling approximately $41
million (2009 - $8 million) relating to the construction of fixed assets in 2011
and $86 million (2009 - $3 million) for the purchase of operating supplies over
the two year period ending December 31, 2012.
10. CAPITAL MANAGEMENT
The Company's strategy is to maintain a capital structure to sustain future
growth of the business and retain creditor, investor and market confidence.
Recognizing the cyclical nature of the oilfield services industry, the Company
strives to maintain a conservative balance between long-term debt and
shareholders' equity. The Company's capital structure is currently comprised of
shareholders\' equity and undrawn long-term bank debt. The Company may
occasionally need to increase its level of long-term debt to total
capitalization to facilitate growth activities.
The company has a $15 million operating demand revolving loan facility and a $35
million committed revolving facility which are subject to various financial and
non financial covenants. The covenants are monitored on a regular basis and
controls are in place to ensure the Company maintains compliance with these
covenants. As at December 31, 2010, the Company is in compliance with all the
covenants related with this facility.
The Company monitors its capital structure and makes adjustments in light of
changing market conditions and new opportunities, while remaining cognizant of
the cyclical nature of the oilfield services sector. To maintain or adjust its
capital structure, the Company may revise its capital spending, issue new
shares, issue new debt, or draw on its current operating line facility.
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's financial instruments recognized on the balance sheet consist of
cash and cash equivalents, short term investments, accounts receivable, unearned
revenue, accounts payable, and accrued liabilities. The following is a summary
of the accounting model the Company has elected to apply to each of its
significant categories of financial instruments:
Cash and cash equivalents Held for trading
----------------------------------------------------------------------------
Accounts receivable Loans and receivables
----------------------------------------------------------------------------
Accounts payable and accrued liabilities Held for trading
----------------------------------------------------------------------------
Credit risk
The Company's accounts receivable balances are with customers in the oil and gas
industry and are subject to normal industry credit risks. These balances
represent the Companies total credit exposure. During the year, the Company
earned revenues from more than forty customers with three of these customers
representing 63% of revenue. The Company assesses the credit worthiness of all
of its customers and none of these balances are impaired (2009 - Nil). The
Company's trade receivables as at December 31, 2010 are aged as follows:
December 31, December 31,
2010 2009
----------------------------------------------------------------------------
Current (0 - 30 days) $ 9,752 $ 2,838
31 - 60 days 11,339 3,590
Over 61 Days 745 2,258
----------------------------------------------------------------------------
Total $ 21,836 $ 8,686
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair values
The fair value of the Company's financial instruments included on the
consolidated balance sheet approximate their carrying amounts due to their short
term maturity.
The additional disclosures regarding fair value measurements of financial
instruments as required by recent amendments made to Section 3862 are presented
below. A fair value hierarchy is presented below that distinguishes the
significance of the inputs used in determining the fair value measurements of
various financial instruments. The hierarchy contains the following levels:
Level 1 uses inputs based on quoted prices, Level 2 uses observable inputs other
than quoted prices and Level 3 uses inputs that are not based on observable
market data.
Estimated Fair Value as at
Carrying Value as at December 31, 2010
December 31,2010 Level 1 Level 2 Level 3
----------------------------------------------------------------------------
Cash and cash equivalents $ 98,701 $ - $ 98,701 $ -
----------------------------------------------------------------------------
Estimated Fair Value as at
Carrying Value as at December 31, 2009
December 31,2009 Level 1 Level 2 Level 3
----------------------------------------------------------------------------
Cash and cash equivalents $ 11,643 $ - $ 11,643 $ -
----------------------------------------------------------------------------
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company has a positive cash position
and further manages its liquidity risk by continuously monitoring forecasts and
actual cash flows and has secured a credit line with a major Canadian bank (Note
10). Currently, the Company's cash and cash equivalents and the Company's
secured line of credit are sufficient to meet its financial obligations.
Market risk
Market risk is the risk that changes in market prices, such as interest rates or
foreign exchange rates will affect the Company's income or the value of its
financial instruments. The Company does not believe that the results of
operations or cash flow would be affected to a significant degree by a sudden
change in market interest rates. The Company does not believe that that the
results of operations or cash flow would be affected to a significant degree by
a sudden change in foreign exchange rate.
12. SUPPLEMENTAL CASH FLOW INFORMATION
December 31, December 31,
Year Ended 2010 2009
----------------------------------------------------------------------------
Changes in non-cash working capital from
Operations:
Accounts receivable $ (15,031) $ (1,319)
Inventory (1,519) (4,702)
Prepaid expenses (6,320) 1,038
Accounts payable and accrued liabilities 5,783 98
Unearned revenue 3,486 -
----------------------------------------------------------------------------
Net change in non-cash working capital $ (13,601) $ (4,885)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
13. GEOGRAPHICAL AREAS
During the year, the Company had revenue in the US of $5,623 (2009 - $2,601).
14. RELATED PARTY TRANSACTIONS
During the year, the Company paid $287 (2009 - $334) in consulting fees to two
Directors. These transactions were in the normal course of operations and have
been measured at the exchange amounts.
15. BUSINESS INTERRUPTION CLAIM
In 2010, the Company submitted an insurance claim for repair costs and business
interruption loss from a mobilization incident that occurred in 2009.
The Company will host a conference call on Friday, March 11, 2011 at 10:00 a.m.
MT (11:00 a.m. ET) to discuss the Company's 2010 results.
To participate in the Q&A session, please call the conference call operator at
1-866-226-1792 fifteen minutes prior to the call's start time and ask for
"GASFRAC Fourth Quarter Results Conference Call".
A replay of the call will be available until March 19, 2011 by dialing
1-800-408-3053 (North America) or 1-905-694-9451 (outside North America).
Playback passcode: 7636633.
GASFRAC is an oil and gas service company headquartered in Calgary, Alberta,
Canada, whose primary business is to provide LPG fracturing services to oil and
gas companies in Canada and the USA.
Requests for shareholder information should be directed to James M Hill.
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