CALGARY, ALBERTA -- (Marketwired) -- 11/04/14 -- Trican Well Service Ltd. (TSX: TCW) -
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($ millions, except per
share amounts; unaudited) Three months ended Nine months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2014 2013 2014 2013
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Revenue $770.6 $548.3 $1,948.4 $1,563.3
Operating income (i) 112.4 72.7 156.1 144.1
Profit / (loss) 40.8 5.7 (9.9) (25.0)
Earnings / (loss) per
share (basic) $0.28 $0.04 ($0.07) ($0.17)
(diluted) $0.28 $0.04 ($0.07) ($0.17)
Adjusted profit / (loss)
(i) 43.1 9.7 (5.5) (13.3)
Adjusted profit / (loss)
per share(i) (basic) $0.29 $0.07 ($0.04) ($0.09)
(diluted) $0.29 $0.07 ($0.04) ($0.09)
Funds provided by
operations(i) 114.0 71.1 139.4 100.0
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Notes:
(i) Trican makes reference to operating income, adjusted profit/(loss) and
funds provided by operations. These are measures that are not recognized
under International Financial Reporting Standards (IFRS). Management
believes that, in addition to profit/(loss), operating income, adjusted
profit/(loss) and funds provided by operations are useful supplemental
measures. Operating income provides investors with an indication of
profit/(loss) before depreciation and amortization, foreign exchange gains
and losses, other income, finance costs and income tax expense. Adjusted
profit/(loss) provides investors with information on profit/(loss) excluding
one-time non-cash charges and the non-cash effect of stock-based
compensation expense. Funds provided by operations provide investors with an
indication of cash available for capital commitments, debt repayments and
other expenditures. Investors should be cautioned that operating income,
adjusted profit/(loss), and funds provided by operations should not be
construed as an alternative to profit/(loss) determined in accordance with
IFRS as an indicator of Trican's performance. Trican's method of calculating
operating income, adjusted profit/(loss) and funds provided by operations
may differ from that of other companies and accordingly may not be
comparable to measures used by other companies.
THIRD QUARTER HIGHLIGHTS
Consolidated revenue for the third quarter of 2014 was $770.6 million, an increase of 41% compared to the third quarter of 2013. The adjusted consolidated profit was $43.1 million an increase of 344%, and adjusted diluted profit per share was $0.29 an increase of 314% compared to the same period in 2013. Funds provided by operations were $114.0 million compared to funds provided by operations of $71.1 million in the third quarter of 2013.
Our Canadian operations generated quarterly revenue of $360.9 million and operating income of $97.3 million during the third quarter of 2014 compared to revenue of $277.1 million and operating income of $69.3 million in the third quarter of 2013. Canadian fracturing demand growth was the most significant contributor to the 30% increase in year-over-year revenue. Canadian fracturing demand benefitted from an increase in fracturing intensity per well and a rise in customer cash flows that resulted in additional capital spending by our Canadian customer base. Strong demand, combined with our diverse Canadian customer base and first-rate service quality and technology also led to substantial pricing improvements during the third quarter. Canadian financial results for the third quarter of 2014 also benefitted from an increase in 24-hour operations and the successful completion of a large Horn River project.
Our U.S. operations generated third quarter revenue of $314.6 million, an increase of 72% compared to the third quarter of 2013. Increased fracturing demand due to a rise in fracturing intensity led to year-over-year and sequential utilization improvements in most U.S. regions, including the Permian, Bakken, Marcellus and Barnett. Strong demand provided us with opportunities to deploy existing idle fracturing capacity in the Bakken and Permian regions during the third quarter of 2014, which also contributed to the revenue increase. As of the end of the third quarter of 2014, we have 60,000 horsepower of idle capacity. Revenue in the third quarter also benefitted from pricing gains. Most of the pricing gains were realized in the Permian and reflected service quality improvements and strong overall activity levels in the region. U.S. operating margins improved sequentially by 170 basis points as gains from higher pricing and utilization were partially offset by increased sand logistics costs. Despite the challenging cost environment, operating margins improved throughout the quarter and exceeded 10% in the month of September.
Our International operations generated quarterly revenue of $95.2 million and operating income of $13.5 million during the third quarter of 2014 compared to revenue of $88.2 million and operating income of $12.5 million in the third quarter of 2013. Our Russian operations comprise the majority of our International results and Russian activity levels were strong during the third quarter and benefitted from a continued increase in horizontal drilling and completions activity in the region. Revenue growth from strong Russian activity was partially offset by a weaker Russian ruble that led to a revenue decrease in Canadian dollars. Our International operations also benefitted from strong results from our Norwegian completions tools business as revenue for this division increased by more than 200% year-over-year and 75% sequentially. Positive results in Russia, Kazakhstan and Norway were partially offset by operating losses in Algeria and start-up costs in Saudi Arabia and Colombia.
On October 31, 2014, the $575 million revolving credit facility was extended by an additional year, and now matures on October 18, 2018. All other terms and conditions of the facility remain unchanged.
On September 3, 2014, the Company closed a private placement of C$20 million senior guaranteed notes that mature on September 3, 2024 and bear interest at a fixed rate of 5.75% payable semi-annually on March 15 and September 15.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Headquartered in Calgary, Alberta, Trican has operations in Canada, the U.S., Russia, Kazakhstan, Algeria, Australia, Saudi Arabia, Colombia and Norway. Trican provides a comprehensive array of specialized products, equipment and services that are used during the exploration and development of oil and gas reserves.
COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
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Quarter-
Over-
Three months ended % of % of Quarter %
September 30, 2014 Revenue 2013 Revenue Change Change
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Revenue 770,625 100% 548,345 100.0% 222,280 41%
Expenses
Materials and
operating 629,316 81.7% 449,412 82.0% 179,904 40%
General and
administrative 28,892 3.7% 26,231 4.8% 2,661 10%
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Operating income(i) 112,417 14.6% 72,702 13.3% 39,715 55%
Finance costs 9,683 1.3% 9,370 1.7% 313 3%
Depreciation and
amortization 53,326 6.9% 54,646 10.0% (1,320) (2%)
Foreign exchange
(gain)/loss (2,115) (0.3%) 4,345 0.8% (6,460) (149%)
Other income/(loss) (348) (0.0%) 1,481 0.3% (1,829) (123%)
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Profit before income
taxes 51,871 6.7% 2,860 0.5% 49,011 1,714%
Income tax
expense/(recovery) 11,053 1.4% (2,848) (0.5%) 13,901 (488%)
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Net income 40,818 5.3% 5,708 1.0% 35,110 615%
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(i) see first page of this report
CANADIAN OPERATIONS
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($ thousands, except revenue per job, unaudited)
Sept. 30 % of Sept. 30, % of June 30, % of
Three months ended, 2014 Revenue 2013 Revenue 2014 Revenue
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Revenue 360,896 277,104 171,937
Expenses
Materials and
operating 257,851 71.4% 201,217 72.6% 171,763 99.9%
General and
administrative 5,738 1.6% 6,610 2.4% 8,213 4.8%
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Total expenses 263,589 73.0% 207,827 75.0% 179,976 104.7%
Operating
income/(loss)(i) 97,307 27.0% 69,277 25.0% (8,039) (4.7%)
Number of jobs 6,331 6,082 3,628
Revenue per job 56,810 45,393 47,568
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(i) see first page of this report
Sales Mix
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Sept. 30, Sept. 30, June 30,
Three months ended, (unaudited) 2014 2013 2014
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% of Total Revenue
Fracturing 67% 70% 62%
Cementing 19% 18% 19%
Nitrogen 6% 4% 7%
Industrial services 2% 2% 4%
Coil Tubing 3% 3% 4%
Acidizing 2% 2% 2%
Other 1% 1% 2%
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Total 100% 100% 100%
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Operations Review
Canadian demand was very strong throughout the third quarter and led to a 30% increase in revenue compared to the third quarter of 2013. Strong demand resulted from an increase in fracturing intensity per well that benefitted our fracturing service line. Fracturing intensity can be measured by both stages and sand volumes pumped per well. For the nine months ended September 30, 2014, fracturing stages per well increased by 25% and sand volume per well increased by 30% compared to the same period in 2013 for our fracturing service line.
An increase in crews working 24-hour shifts also contributed to the growth in revenue. Approximately 70% of third quarter revenue was generated from 24-hour crews compared to approximately 50% in the third quarter of 2013. Our Canadian customers continue to demand more 24-hour crews due to the associated efficiencies gains, and with our large Canadian presence, we were able to meet these demands during the third quarter and expect to be able to meet them going forward.
Third quarter demand benefitted from our ability to provide technological solutions to our Canadian customers. Our MVP fracturing system continued to gain market acceptance with recent case studies showing a 30% increase in well production based on a sample of Montney wells, and a 20% increase in production in the Cardium play. We believe this technology has led to market share gains for our fracturing business in the Montney and Cardium regions. We also believe the MVP system can be applied to other regions in North America and we will focus on expanding the geographical use of this technology moving forward.
We completed another successful Horn River project during the third quarter of 2014. An average of seven fracturing stages per day were completed over a five week period, which set another Trican record for pumping efficiency in this region. Due to the high utilization and efficiency of the 60,000 horsepower crew, third quarter financial results benefitted from this project.
Strong third quarter demand provided opportunities to increase Canadian pricing levels. Average pricing increased by approximately 10% in the third quarter compared to the second quarter of 2014. We completed work for over 180 different Canadian customers during the third quarter and we believe that our diverse customer base contributed to the pricing and utilization gains realized in the quarter.
Our ability to provide technical solutions to our customers, pricing increases, a successful Horn River project, and strong utilization all contributed to a substantial increase in operating income margins compared to the first half of 2014.
Our completions tools business in Canada continues to grow as year-over-year revenue increased by almost 240% during the third quarter of 2014. We will continue to focus on growing this division by improving and increasing our tool manufacturing capabilities and leveraging off of our Canadian pressure pumping customer base.
Q3 2014 versus Q3 2013
Canadian revenue for the third quarter of 2014 increased by 30% compared to the third quarter of 2013. The primary driver of higher revenue was an increase in fracturing intensity that led to a 25% increase in revenue per job. Year-over-year increases in pricing and demand arising from stronger customer cash flows also contributed to the third quarter revenue growth.
Materials and operating expenses decreased to 71.4% of revenue compared to 72.6% for the same period in 2013. Increased pricing and utilization led to higher operating leverage on our fixed cost structure, which was offset by increased costs. The most significant cost increases related to sand logistics. General and administrative expenses decreased by $0.9 million due largely to lower share-based employee expenses, offset partially by higher profit sharing costs.
Q3 2014 versus Q2 2014
Canadian revenue increased by 110% compared to the second quarter of 2014. The number of jobs increased by 75% compared to the 61% sequential increase in the Canadian rig count during the quarter. The increase in rig count was due to spring break-up conditions that led to low activity during the second quarter. Revenue per job rose by 19% largely due to the increase in fracturing job size.
As a percentage of revenue, materials and operating expenses decreased to 71.4% compared to 99.9% in the second quarter of 2014. Increased activity levels led to higher operating leverage on our cost structure, which contributed to most of the operating margin increase. Pricing increases also led to improved operating margins. General and administrative costs decreased by $2.5 million due mainly to lower share-based employee expenses.
UNITED STATES OPERATIONS
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($ thousands, except revenue per job, unaudited)
Sept. 30, % of Sept. 30, % of June 30, % of
Three months ended, 2014 Revenue 2013 Revenue 2014 Revenue
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Revenue 314,574 183,080 267, 564
Expenses
Materials and
operating 286,454 91.1% 170,862 93.3% 246,540 92.1%
General and
administrative 8,554 2.7% 6,541 3.6% 9,071 3.4%
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Total expenses 295,008 93.8% 177,403 96.9% 255,611 95.5%
Operating income(i) 19,566 6.2% 5,677 3.1% 11,953 4.5%
Number of jobs 2,996 2,284 3,002
Revenue per job 101,476 80,437 86,387
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(i) see first page of this report
Sales Mix
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Sept. 30, Sept. 30, June 30,
Three months ended, (unaudited) 2014 2013 2014
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% of Total Revenue
Fracturing 93% 88% 92%
Cementing 5% 8% 6%
Coil Tubing 2% 4% 2%
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Total 100% 100% 100%
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Operations Review
Third quarter revenue for our U.S. operations grew by 18% on a sequential basis due to increases in pricing, utilization and fracturing intensity. Most of the pricing gains were realized in the Permian region and reflected service quality improvements and strong overall activity levels in the region. Strong demand also led to sequential utilization improvements in the Permian region and the deployment of a fourth Permian crew in early September.
We deployed a second crew into the Bakken region during the third quarter based on customer demand in the region. We believe that our technology offering and service quality led to improved financial performance in the Bakken region as both fracturing crews were fully utilized throughout the third quarter of 2014.
Utilization also remained strong for our fracturing crews operating in the Marcellus and Eagle Ford plays, and utilization improved substantially in the Barnett shale. Strong utilization in these areas was partially negated by lower sequential utilization in the Oklahoma and Haynesville regions.
The positive impact on operating margins from increased utilization and revenue was partially offset by increased sand logistics costs. Average U.S. sand volumes pumped per well have increased by 60% in 2014 compared to 2013, which has placed significant strain on our logistics capabilities. A shortage of transloading facilities, rail cars, and sand hauling trucks has forced us to use more subcontractors, which has led to cost increases. Although we were able to pass some of these costs on to our customers through higher pricing later in the quarter, increased sand logistics costs had a negative impact on third quarter operating margins, in particular in August and September. Despite these challenges, September operating income margins increased to over 10% due to pricing increases obtained late in the quarter, combined with high utilization rates and improved cost management.
Revenue and operating income increased sequentially for our U.S. completions tools division. We continue to make progress on expanding our customer base for this service line and expect this division to continue to show solid growth going forward.
Q3 2014 versus Q3 2013
U.S. revenue in the third quarter of 2014 was up 72% compared to the third quarter of 2013. Revenue per job increased by 26% due to pricing increases, a stronger U.S. dollar relative to the Canadian dollar, and an increase in fracturing intensity that led to larger fracturing job sizes. The job count increased by 31% due largely to increased fracturing activity in the Marcellus, Permian, Barnett and Bakken regions.
As a percentage of revenue, materials and operating expenses decreased to 91.1% from 93.3%. Increased operational leverage due to higher utilization, additional deployed equipment, and higher pricing was largely offset by higher sand logistics costs. General and administrative costs increased by $2.0 million due largely to increased employee, office and insurance costs, offset partially by lower share-based employee expenses.
Q3 2014 versus Q2 2014
On a sequential basis, U.S. revenue increased by 18%. Revenue per job increased by 17% due to an increase in fracturing job size, increased pricing and a stronger U.S. dollar relative to the Canadian dollar. The job count was relatively consistent on a sequential basis despite increased activity and utilization levels for our fracturing crews. Increased horsepower per crew and larger job sizes have reduced the number of jobs that can be completed in a quarter.
Materials and operating expenses decreased to 91.1% from 92.1% due to increased operational leverage on our fixed cost structure from higher revenue as well as higher pricing. This was partially offset by higher costs, in particular increases in sand logistics expenses. General and administrative expenses decreased by $0.5 million due mainly to lower share-based compensation costs, offset partially by higher insurance expenses.
INTERNATIONAL OPERATIONS
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($ thousands, except revenue per job, unaudited)
Sept. 30, % of Sept. 30, % of June 30, % of
Three months ended, 2014 Revenue 2013 Revenue 2014 Revenue
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Revenue 95,155 88,161 95,099
Expenses
Materials and
operating 77,380 81.3% 71,523 81.1% 74,066 77.9%
General and
administrative 4,230 4.4% 4,176 4.7% 5,469, 5.8%
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Total expenses 81,610 85.8% 75,699 85.9% 79,535 83.6%
Operating income(i) 13,545 14.2% 12,462 14.1% 15,564 16.4%
Number of jobs 1,257 1,232 1,225
Revenue per job 74,484 69,180 75,917
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(i) see first page of this report
Sales Mix
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Three months ended, (unaudited)
Sept. 30, Sept. 30, June 30,
2014 2013 2014
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% of Total Revenue
Fracturing 86% 81% 79%
Coil Tubing 6% 10% 9%
Cementing 5% 5% 6%
Nitrogen 2% 2% 4%
Other 1% 2% 2%
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Total 100% 100% 100%
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Operations Review
Our International operations include the financial results for operations in Russia, Kazakhstan, Algeria, Australia, Saudi Arabia, Colombia and Norway.
Our Russian operations comprise the majority of our International results and activity levels in Russia were strong during the third quarter of 2014. Third quarter operating conditions are generally supported by favourable weather conditions in Russia and this was the case in 2014. An increase in horizontal drilling on conventional sandstones and completions activity in Russia also contributed to strong utilization for our pressure pumping fleet during the third quarter. Russian operating margins decreased slightly on a sequential basis due to changes in customer and job-type mix.
The Russian ruble weakened sequentially by approximately 11% during the third quarter relative to the Canadian dollar. This decline had an impact on Canadian dollar revenue and operating income as all revenue generated by our Russian operations is denominated in rubles. The decline had a minimal impact on Russian operating income as a percentage of revenue as most of the expenses in Russia are also denominated in rubles.
We continue to monitor the impact that existing and potential economic sanctions may have on our Russian operations. Currently, the financial impact of existing sanctions on our Russian operations has been minimal and we do not anticipate any disruptions to our Russian business throughout the remainder of 2014 based upon the sanctions that have been imposed to date. However, we will continue to monitor this situation closely. The potential financial impact, if any, to Trican from existing and additional economic sanctions in the future is unknown at this time.
Third quarter financial results were strong in Kazakhstan for our two fracturing crews operating in the region and increased compared to the second quarter of 2014 due to favorable weather conditions. Our Algerian operations incurred an operating loss during the third quarter due to continued weak utilization in the region. We expect to exit Algeria in the fourth quarter of 2014 when our current contractual commitments have been met.
We continued to develop customer relationships and establish a presence in growing international regions including Saudi Arabia and Colombia. These regions had a small negative impact on third quarter operating results. Our operations in Australia continue to grow sequentially but still did not have a meaningful impact on third quarter international operating income.
Revenue for the Norwegian completion tools division increased sequentially by 75% during the third quarter. Customer acceptance of the technology, combined with strong operational execution, led to the revenue growth as well as strong operating margins for this division.
Q3 2014 versus Q3 2013
International revenue in the third quarter of 2014 increased by 8% compared to the third quarter of 2013. The job count increased by 2% due to slightly higher activity in Russia and Kazakhstan. Revenue per job increased by 8% due to an increase in fracturing revenue relative to total revenue, offset partially by a weaker ruble. An increase in international completion tools activity also contributed to the increase in revenue.
As a percentage of revenue, materials and operating expenses increased to 81.3% from 81.1% compared to the third quarter of 2013. International operating margins benefitted from increased activity in Russia and Norway, which was more than offset by higher costs in Saudi Arabia and Colombia. General and administrative costs were relatively consistent on a year-over-year basis.
Q3 2014 versus Q2 2014
International revenue was flat, sequentially, as increased activity in Norway and Kazakhstan was offset by lower revenue in Russia due to a weaker ruble. Materials and operating expenses increased to 81.3% compared to 77.9% in the second quarter of 2014, due largely to changes in customer and job type mix in Russia. General and administrative costs were down $1.2 million due to decreased share-based expenses.
CORPORATE
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($ thousands,
unaudited) Sept. 30, % of Sept. 30, % of June 30, % of
Three months ended, 2014 Revenue 2013 Revenue 2014 Revenue
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Expenses
Materials and
operating 7,631 1.0% 5,835 1.1% 5,683 1.1%
General and
administrative 10,370 1.3% 8,904 1.6% 12,511 2.3%
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Total expenses 18,001 2.3% 14,739 2.7% 18,194 3.4%
Operating loss(i) (18,001) (14,739) (18,194)
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(i) see first page of this report
Q3 2014 versus Q3 2013
Corporate expenses for the third quarter of 2014 increased by $3.3 million compared to the third quarter of 2013 due largely to higher employee and profit sharing expenses.
Q3 2014 versus Q2 2014
Sequentially, corporate expenses decreased by $0.2 million as a decrease in share-based employee expenses was partially offset by higher profit sharing expenses.
OTHER EXPENSES AND INCOME
Finance costs for the third quarter of 2014 increased by 3% compared to the same period in 2013 due largely to a stronger U.S. dollar as interest expense is incurred in U.S. dollars on the portion of our debt that is denominated in U.S. dollar. Depreciation and amortization decreased by 2% compared to the same period last year as capital additions have been minimal for the last twelve months.
Foreign exchange gains of $2.1 million have been recorded in the third quarter of 2014, compared to losses of $4.3 million for the same period in 2013. This change is largely due to the net impact of fluctuations in the U.S. dollar and the Russian ruble relative to the Canadian dollar. Other income of $0.3 million for the third quarter of 2014 relates to interest income earned on cash balances offset by small losses on asset sales.
COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS ($ thousands, unaudited)
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Nine months ended % of % of Period %
September 30, 2014 Revenue 2013 Revenue Change Change
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Revenue 1,948,441 100% 1,563,328 100% 385,113 25%
Expenses
Materials and operating 1,695,645 87.0% 1,335,507 85.4% 360,138 27%
General and
administrative 96,692 5.0% 83,770 5.4% 12,922 15%
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Operating income(i) 156,104 8.0% 144,051 9.2% 12,053 8%
Finance costs 29,446 1.5% 25,905 1.7% 3,541 14%
Depreciation and
amortization 155,213 8.0% 152,318 9.7% 2,895 2%
Goodwill impairment,
net - 0.0% 4,123 0.3% (4,123) (100%)
Foreign exchange
(gain)/loss 585 0.0% 1,109 0.1% (524) (47%)
Other income (4,311) (0.2%) (2,043) (0.1%) (2,268) 111%
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Income/(loss) before
income taxes (24,829) (1.3%) (37,361) (2.4%) 12,532 34%
Income tax recovery (12,985) (0.7%) (11,872) (0.8%) (1,113) 9%
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Net Income/(loss) (11,844) (0.6%) (25,489) (1.6%) 13,645 54%
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(i) see first page of this report
CANADIAN OPERATIONS
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($ thousands, except
revenue per job,
unaudited)
Period-
Over-
Sept. 30, % of Sept. 30, % of Period
Nine months ended, 2014 Revenue 2013 Revenue Change
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Revenue 886,174 730,746 21%
Expenses
Materials and
operating 712,894 80.4% 563,096 77.1% 27%
General and
administrative 21,494 2.4% 20,922 2.9% 3%
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Total expenses 734,388 82.9% 584,018 79.9% 26%
Operating income(i) 151,786 17.1% 146,728 20.1% 3%
Number of jobs 16,355 16,133 1%
Revenue per job 54,130 45,036 20%
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(i) see first page of this report
Canadian revenue for the nine months ended September 30, 2014, was 21% higher than the same period in 2013. Most of the revenue increase was generated in the second and third quarters and was caused by an increase in fracturing intensity. Fracturing stages and sand volumes have increased substantially in 2014 and have led to larger fracturing job sizes and increased fracturing demand. The rise in demand also led to pricing improvements during the third quarter of 2014, which also contributed to the increase in revenue. Despite the strong demand in 2014, the number of jobs has only risen by 1%. Due to the increase in fracturing intensity and larger job sizes, crew sizes have grown and crews are on location for longer periods of time; therefore, the job count is not increasing to the same extent as demand and utilization.
As a percentage of revenue, materials and operating expenses increased to 80.4% from 77.1% compared to the same period in 2013. Increased costs were partially offset by improved operating leverage on our cost structure due to the increase in activity. Higher sand logistics costs, wage inflation, increased diesel costs and a weaker Canadian dollar have all contributed to the higher cost structure. General and administrative expenses increased by $0.6 million due largely to increased share-based costs.
UNITED STATES OPERATIONS
----------------------------------------------------------------------------
($ thousands, except revenue
per job, unaudited)
Period-
Over-
Sept. 30, % of Sept. 30, % of Period
Nine months ended, 2014 Revenue 2013 Revenue Change
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Revenue 793,178 595,303 33%
Expenses
Materials and operating 738,201 93.1% 543,870 91.4% 36%
General and administrative 24,493 3.1% 19,270 3.2% 27%
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Total expenses 762,694 96.2% 563,140 94.6% 35%
Operating income(i) 30,484 3.8% 32,163 5.4% 5%
Number of jobs 9,216 6,527 41%
Revenue per job 84,586 91,633 (8%)
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(i) see first page of this report
U.S. revenue for the period ending September 30, 2014, increased by 33% compared to the same period in 2013. The job count increased by 41% due to substantially higher fracturing activity in the Marcellus, Permian and Bakken regions. The addition of a fourth fracturing crew during the second quarter, combined with strong utilization, contributed to the increase in the Marcellus region. A substantial increase in utilization for our fracturing crews operating in the Permian and Bakken, as well as increased equipment during the third quarter, led to job count growth in these regions. Revenue in 2014 has also benefitted from a stronger U.S. dollar and larger fracturing job sizes. Despite these factors, revenue per job decreased by 8% due to a change in fracturing job mix.
As a percentage of revenue, materials and operating expenses increased to 93.1% from 91.4%. An increase in sand logistics costs contributed to the decrease in operating margins. These factors were partially offset by an increase in operating leverage on our fixed cost structure caused by higher revenue. General and administrative costs increased by $5.2 million due largely to increased share-based and insurance expenses.
INTERNATIONAL OPERATIONS
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($ thousands, except revenue
per job, unaudited)
Period-
Over-
Sept. 30, % of Sept. 30, % of Period
Nine months ended, 2014 Revenue 2013 Revenue Change
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Revenue 269,089 237,279 13.4%
Expenses
Materials and operating 224,745 83.5% 210,630 88.8% 6.7%
General and administrative 14,955 5.6% 12,661 5.3% 18.1%
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Total expenses 239,700 89.1% 223,291 94.1% 7.3%
Operating income(i) 29,389 10.9% 13,988 5.9% 110.1%
Number of jobs 3,448 3,108 10.9%
Revenue per job 76,196 73,438 3.8%
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(i) see first page of this report
International revenue increased by 13% for the period ending September 30, 2014, compared to the same period in 2013. An increase in Russian activity contributed to the majority of the increase. Russian activity benefitted from a rise in horizontal drilling and completions activity, which led to an increase in pressure pumping demand in the region. These increases were partially offset by a weaker Russian ruble during the third quarter of 2014. Increased activity in Norway, Colombia, Saudi Arabia and Australia also contributed to the rise in international revenue.
Materials and operating expenses decreased to 83.5% of revenue compared to 88.8% of revenue in the same period of 2013. An increase in Russian revenue led to improved operational leverage, which contributed to the majority of the margin improvement. Strong margins for the completion tools business in Norway also led to margin improvement. Continued weakness in Algeria and start-up costs in Saudi Arabia and Colombia offset a portion of the Russian and Norwegian gains. General and administrative costs increased by $2.3 million due largely to an increase in share-based employee expenses.
CORPORATE
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($ thousands, unaudited)
Period-
Over-
Sept. 30, % of Sept. 30, % of Period
Nine months ended, 2014 Revenue 2013 Revenue Change
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Expenses
Materials and operating 19,805 1.0% 17,911 1.1% 10.6%
General and administrative 35,750 1.8% 30,917 2.0% 15.6%
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Total expenses 55,555 2.9% 48,828 3.1% 13.8%
Operating loss(i) (55,555) (48,828) 13.8%
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(i) see first page of this report
Corporate costs were up $6.7 million for the first nine months of 2014 compared to the same period in 2013 due largely to increased employee based expenses.
OTHER EXPENSES AND INCOME
For the nine months ended September 30, 2014, finance costs increased by 14% compared to the same period in 2013 due to increased debt balances and a stronger U.S. dollar, which increased finance costs on U.S. dollar denominated debt. Depreciation and amortization increased by 2% compared to the same period last year due to changes in depreciation on foreign assets. An increase in the U.S. dollar relative to the Canadian dollar contributed to most of the increase and was offset partially by a decrease in the value of the Russian ruble.
Foreign exchange losses of $0.6 million have been recorded for the nine months ended September 30, 2014, compared to losses of $1.1 million for the same period in 2013. This change is due to the net impact of fluctuations in the U.S. dollar and the Russian ruble relative to the Canadian dollar. Other income for the year to date in 2014 was $4.3 million compared to $2.0 million for the same period of 2013. Other income is largely comprised of gains on asset sales and interest income on cash balances.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Funds provided by operations increased to $114.0 million for the third quarter of 2014 compared to $71.1 million for the same period in 2013. The increase was due largely to an improvement in earnings.
At September 30, 2014, Trican had working capital of $628.3 million compared to $413.2 million at the end of 2013. The increase is due to additional cash combined with higher Canadian and U.S. activity, which has led to more U.S. inventory and trade accounts receivable. These were offset partially by repayment of US$75 million in current debt at the end of June.
Investing Activities
Capital expenditures for the third quarter of 2014 totaled $27.9 million, compared with $25.9 million for the same period in 2013. Capital expenditures for the nine months ended September 30, 2014, were $68.9 million compared to $86.9 million in the same period of 2013. Capital expenditures were comprised primarily of maintenance programs for the past several quarters and are expected to remain between $20 million and $30 million per quarter until expansion initiatives are considered.
During the third quarter of 2014, no significant changes were made to our 2014 capital budget. Remaining expenditures on approved capital budgets are expected to be approximately $35 million to $45 million, as approximately $15 million of capital expenditures are expected to be carried over into 2015.
Financing Activities
As at November 4, 2014, Trican had 149,654,945 common shares and 10,715,518 employee stock options outstanding.
On September 3, 2014, the Company closed a private placement of C$20 million senior guaranteed notes that mature on September 3, 2024 and bear interest at a fixed rate of 5.75% payable semi-annually on March 15 and September 15.
On July 17, 2014, Trican exercised the Accordion feature of its Revolving Credit Facility and increased it from $500.0 million to $575.0 million. On October 31, 2014, the facility was extended by an additional year, and now matures on October 18, 2018. All other terms and conditions of the facility remain unchanged. During the first nine months of 2014, Trican withdrew net $164.4 million on the facility. The balance at September 30, 2014, was $377.0 million leaving $198.0 million of available debt under the facility.
During the first quarter of 2014, Trican received approval from the Toronto Stock Exchange to purchase its own common shares, for cancellation, in accordance with a Normal Course Issuer Bid ("NCIB") that expires on March 12, 2015. There were no common shares purchased through the NCIB during the first nine months of 2014.
Trican currently pays a semi-annual dividend of $0.15 per share. During the first quarter of 2014, $22.3 million in dividend payments were made. During the second quarter of 2014, Trican accrued $22.4 million in dividends that were paid during the third quarter of 2014.
OUTLOOK
Canadian Operations
Strong demand in Canada is expected to continue into the fourth quarter of 2014 and into the first quarter of 2015. Demand continues to be driven by an increase in fracturing intensity as well as an increase in customer cash flows that resulted from strong commodity prices and cash raised by our customers through equity financing in the first half of 2014. A typical seasonal slow-down is expected in Canada during the second half of December, which is expected to result in a slight decrease in fourth quarter revenue and operating income on a sequential basis.
Fourth quarter seasonality is expected to be partially offset by a sequential increase in 24-hour operations and an additional 25,000 horsepower fracturing crew that was deployed in early October using existing idle capacity. The newly deployed crew is expected to be fully utilized going forward based on existing customer commitments. In addition, given the expectations for strong demand, we expect Canadian pricing to remain stable during the fourth quarter of 2014. We will continue to seek pricing increases in Canada as opportunities arise.
With the recent declines in oil and gas prices, we will take a cautious approach when making decisions regarding new equipment deployment, capital spending and cost management during 2015. Our Canadian customers have not yet finalized capital budgets for 2015, but based on recent discussions and initial work programs, we expect to be fully utilized during the first quarter of 2015. Overall Canadian pressure pumping supply has not increased significantly, and we do not currently expect significant supply increases during 2015. Controlled supply growth, combined with a continued increase in fracturing intensity is expected to result in strong demand for our services throughout 2015. However, demand growth in 2015 will depend on commodity prices that drive the cash flows of our customer base.
U.S. Operations
Based on existing customer contracts and drilling and completions programs, we expect fourth quarter utilization to be strong outside of seasonal slow-downs over U.S. Thanksgiving and Christmas. We also expect to deploy additional horsepower to existing crews in our southern U.S. regions during the fourth quarter. Increased fracturing intensity is leading to demand for larger fracturing crews, and the deployment of this horsepower will help meet this demand. The incremental horsepower will come from existing idle capacity. As a result, we expect fourth quarter U.S. revenue to be flat sequentially as pricing improvements and additional active horsepower in the quarter are expected to be offset by typical fourth quarter seasonal slow-downs. We do not anticipate that seasonal slow-downs will be as large as last year as our Marcellus crews, which experienced a substantial slowdown in 2013, are expected to have strong utilization throughout the quarter. We anticipate the utilization of crews in our other regions to also be higher year-over-year despite the expected holiday slow-downs.
Pricing improvements obtained during the third quarter are expected to be fully realized during the fourth quarter of 2014. Therefore, we expect to see a sequential improvement in fourth quarter U.S. operating margins. With recent improvements in service quality and continued strong demand in areas such as the Permian, Eagle Ford, Marcellus, and the Bakken, we will continue to seek pricing increases as opportunities arise.
Despite the recent declines in oil prices, we expect demand to be strong through to the end of the first quarter of 2015 based on existing customer work programs; however, any additional declines in commodity prices could result in reduced demand in 2015. We will continue to monitor activity levels in all of our U.S. regions and react appropriately if market conditions change.
International Operations
We expect our Russian business to experience typical seasonal slow-downs during the fourth quarter of 2014 and, as a result, we expect revenue and operating income to decrease sequentially for this region. We also expect Russian revenue to decrease sequentially in the fourth quarter based on recent declines in the value of the Russian ruble relative to the Canadian dollar.
We have started the tendering process for the 2015 Russian work program. Increased demand from the continued growth in horizontal drilling and completions activity is expected to be offset by reduced spending from our Russian customers caused by existing economic sanctions. As a result, the current expectation is that 2015 revenue and operating margins will be relatively consistent with 2014; however, these expectations could change over the next few months as the tenders are finalized.
We will continue to focus on growing our presence in Saudi Arabia, Colombia and Australia during the fourth quarter of 2014 and into 2015 and expect to see continued revenue growth in these regions. We also expect to see continued growth for our international completions tools division.
NON-IFRS DISCLOSURE
Adjusted net income/(loss), operating income and funds provided by/(used in) operations do not have any standardized meaning as prescribed by IFRS and, therefore, are considered non-IFRS measures.
Adjusted net income/(loss) and funds provided by operations have been reconciled to profit and operating income has been reconciled to gross profit, being the most directly comparable measures calculated in accordance with IFRS. The reconciling items have been presented net of tax.
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Nine months ended
----------------------------------------------------------------------------
Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30,
2014 2013 2014 2014 2013
----------------------------------------------------------------------------
Adjusted net income/(loss) $43,122 $9,693 ($41,175) ($5,460) ($13,334)
Deduct:
Goodwill impairment - - - - 4,123
Non-cash share-based
compensation expense 2,304 1,840 1,929 6,384 5,887
Loss on deposit with
vendor (net of $725 in
tax recoveries) - 2,145 - - 2,145
----------------------------------------------------------------------------
Profit/(loss) for the
period (IFRS financial
measure) $40,818 $5,708 ($43,104) ($11,844) ($25,489)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Nine months ended
----------------------------------------------------------------------------
Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30,
2014 2013 2014 2014 2013
----------------------------------------------------------------------------
Funds provided by/(used
in) operations $114,035 $71,087 ($11,532) $139,423 $99,970
Charges to income not
involving cash
Depreciation and
amortization (53,326) (54,646) (49,137) (155,213) (152,318)
Amortization of debt
issuance costs (216) (216) (216) (648) (648)
Stock-based compensation (2,304) (1,840) (1,929) (6,384) (5,887)
Gain/(loss) on disposal
of property and
equipment (78) (585) 480 492 (308)
Net finance costs (8,873) (9,111) (8,830) (27,519) (24,627)
Unrealized foreign
exchange gain / (loss) 3,691 (2,984) (6,609) (145) 5,594
Asset impairments, net - (2,870) - - (6,993)
Income tax
recovery/(expense) (11,053) 2,847 17,470 12,985 11,872
Interest paid 4,488 6,182 14,103 24,250 21,838
Income tax (refund) /
paid (5,546) (2,156) 3,096 915 26,018
----------------------------------------------------------------------------
Profit/(loss) for the
period (IFRS financial
measure) $40,818 $5,708 ($43,104) ($11,844) ($25,489)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands; unaudited) Three months ended Nine months ended
----------------------------------------------------------------------------
Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30,
2014 2013 2014 2014 2013
----------------------------------------------------------------------------
Operating income $112,417 $72,702 $1,283 $156,104 $144,051
Add:
Administrative expenses 30,422 28,730 37,597 102,008 88,771
Deduct:
Depreciation expense (53,326) (54,646) (49,136) (155,213) (152,318)
----------------------------------------------------------------------------
Gross profit/(loss) (IFRS
financial measure) $89,513 $46,786 ($10,256) $102,899 $80,504
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information and financial outlook based on Trican's current expectations, estimates, projections and assumptions that were made by the Company in light of information available at the time the statement was made. Forward-looking information and financial outlook that address expectations or projections about the future, and other statements and information about the Company's strategy for growth, expected and future expenditures, costs, operating and financial results, future financing and capital activities are forward-looking statements. Some forward-looking information and financial outlook are identified by the use of terms and phrases such as "anticipate," "achieve", "achievable," "believe," "estimate," "expect," "intend", "plan", "planned", and other similar terms and phrases. This forward-looking information and financial outlook speak only as of the date of this document and we do not undertake to publicly update this forward-looking information and financial outlook except in accordance with applicable securities laws. This forward-looking information and financial outlook include, among others:
-- The expectation that we will be able to meet the demands of our Canadian
customers for more 24-hour crews due to our large Canadian presence;
-- The belief that our MVP Frac technology has led to market share gains
for our fracturing business in the Montney and Cardium regions;
-- The belief that the MVP Frac system can be applied to other regions in
North America;
-- The belief that our diverse customer base contributed to the pricing and
utilization gains realized in the third quarter of 2014;
-- The belief that our technology offering and service quality led to
improved financial performance in the Bakken region during the third
quarter of 2014;
-- The expectation that our completion tools division will continue to grow
going forward;
-- The expectation that the financial impact of existing sanctions on our
Russian operations will not cause any disruptions to our Russian
business throughout the remainder of 2014 based upon the sanctions that
have been imposed to date;
-- The belief that the potential financial impact, if any, to Trican from
existing and additional economic sanctions in the future is unknown at
this time;
-- The expectation that we will exit Algeria in the fourth quarter of 2014
when our current contractual commitments have been met;
-- The expectation that capital expenditures will remain between $20
million and $30 million per quarter until expansion initiatives are
considered;
-- The expectation that remaining expenditures on approved capital budgets
will be approximately $35 million to $45 million, as approximately $15
million of capital expenditures are expected to be carried over into
2015;
-- The expectation that strong demand in Canada will continue into the
fourth quarter of 2014 and into the first quarter of 2015;
-- The expectation of a typical seasonal slow-down in Canada during the
second half of December, which is expected to result in a slight
decrease in fourth quarter revenue and operating income on a sequential
basis;
-- The expectation that fourth quarter seasonality will be partially offset
by a sequential increase in 24-hour operations and an additional 25,000
horsepower fracturing crew that was deployed in early October;
-- The expectation that the newly deployed Canadian crew will be fully
utilized going forward based on existing customer commitments;
-- The expectation that Canadian pricing will remain stable during the
fourth quarter of 2014;
-- The expectation that we will be fully utilized in Canada during the
first quarter of 2015;
-- The belief that overall Canadian pressure pumping supply has not
increased significantly and we do not currently expect significant
supply increases during 2015;
-- The expectation that controlled supply growth, combined with a continued
increase in fracturing intensity will result in strong demand in Canada
throughout 2015;
-- The expectation that, based on existing customer contracts and drilling
and completions programs, fourth quarter utilization for our U.S. assets
will be strong outside of seasonal slow-downs over U.S. Thanksgiving and
Christmas;
-- The expectation to deploy additional horsepower to existing crews in our
southern U.S. regions during the fourth quarter of 2014;
-- The expectation that U.S. revenue in the fourth quarter will be flat
sequentially as pricing improvements and additional active horsepower in
the quarter are expected to be offset by typical fourth quarter seasonal
slow-downs;
-- The expectation that seasonal slow-downs will not be as large as last
year as our Marcellus crews, which experienced a substantial slowdown in
2013, are expected to have strong utilization throughout the fourth
quarter;
-- The expectation that the utilization of our U.S. crews will be higher
year-over-year despite the expected holiday slow-downs;
-- The expectation that pricing improvements obtained during the third
quarter are expected to be fully realized during the fourth quarter of
2014;
-- The expectation of a sequential improvement in fourth quarter U.S.
operating margins;
-- The expectation that, despite the recent declines in oil prices, demand
will be strong through to the end of the first quarter of 2015 based on
existing customer work programs;
-- The belief that any additional declines in commodity prices could result
in reduced demand in 2015;
-- The expectation that our Russian business will experience typical
seasonal slow-downs during the fourth quarter of 2014 and, as a result,
revenue and operating income are expected to decrease sequentially for
this region;
-- The expectation that Russian revenue will decrease sequentially in the
fourth quarter based on recent declines in the value of the Russian
ruble relative to the Canadian dollar;
-- The expectation that 2015 revenue and operating margins in Russia will
be relatively consistent with 2014; however, these expectations could
change over the next few months as the tenders are finalized;
-- The expectation of continued revenue growth in Saudi Arabia, Colombia
and Australia during the fourth quarter of 2014 and into 2015;
-- The expectation of continued growth for our international completions
tools division.
Forward-looking information and financial outlook is based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect. Trican's actual results may differ materially from those expressed or implied and therefore such forward-looking information and financial outlook should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: industry activity; the general stability of the economic and political environment; effect of market conditions on demand for the Company's products and services; the ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability to operate its business in a safe, efficient and effective manner; the performance and characteristics of various business segments; the effect of current plans; the timing and costs of capital expenditures; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its products and services.
Forward-looking information and financial outlook is subject to a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks and uncertainties include: fluctuating prices for crude oil and natural gas; changes in drilling activity; general global economic, political and business conditions; weather conditions; regulatory changes; the successful exploitation and integration of technology; customer acceptance of technology; success in obtaining issued patents; the potential development of competing technologies by market competitors; and availability of products, qualified personnel, manufacturing capacity and raw materials. The foregoing important factors are not exhaustive. In addition, actual results could differ materially from those anticipated in forward-looking information and financial outlook provided herein as a result of the risk factors set forth under the section entitled "Risks Factors" in our Annual Information Form dated March 21, 2014. Readers are also referred to the risk factors and assumptions described in other documents filed by the Company from time to time with securities regulatory authorities.
Additional information regarding Trican including Trican's most recent annual information form is available under Trican's profile on SEDAR (www.sedar.com).
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Stated in thousands; unaudited) September 30, December 31,
2014 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $93,814 $63,869
Trade and other receivables 639,560 459,210
Current tax assets 3,705 5,186
Inventory 253,019 232,898
Prepaid expenses 31,997 34,407
----------------------------------------------------------------------------
1,022,095 795,570
Property and equipment 1,306,936 1,374,212
Intangible assets 38,286 44,285
Deferred tax assets 154,730 122,745
Other assets 12,511 17,360
Goodwill 59,475 59,475
----------------------------------------------------------------------------
2,594,033 $2,413,647
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans (note 4) $13,579 $-
Trade and other payables 380,168 301,920
Deferred consideration - 650
Current tax liabilities - 14
Current portion of loans and borrowings
(note 4) - 79,770
----------------------------------------------------------------------------
393,747 382,354
Loans and borrowings (note 4) 773,517 593,786
Deferred tax liabilities 96,750 87,005
Shareholders' equity
Share capital 573,240 559,723
Contributed surplus 65,879 63,074
Accumulated other comprehensive loss (6,116) (1,020)
Retained earnings 692,789 725,172
----------------------------------------------------------------------------
Total equity attributable to equity holders of
the Company 1,325,792 1,346,949
Non-controlling interest 4,227 3,553
----------------------------------------------------------------------------
2,594,033 $2,413,647
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
Three Months Nine Months
Ended September 30, Ended September 30,
(Stated in thousands, except per
share amounts; unaudited) 2014 2013 2014 2013
----------------------------------------------------------------------------
Revenue $770,625 $548,345 $1,948,441 $1,563,328
Cost of sales 681,112 501,559 1,845,542 1,482,824
----------------------------------------------------------------------------
Gross profit / (loss) 89,513 46,786 102,899 80,504
Administrative expenses 30,422 28,729 102,008 88,770
Other income 462 1,740 (2,384) (764)
----------------------------------------------------------------------------
Results from operating activities 58,629 16,317 3,275 (7,502)
Finance income (810) (259) (1,927) (1,278)
Finance costs 9,683 9,370 29,446 25,905
Foreign exchange loss / (gain) (2,115) 4,345 585 1,109
Goodwill impairment, net - - - 4,123
----------------------------------------------------------------------------
Profit / (Loss) before income tax 51,871 2,861 (24,829) (37,361)
Income tax expense / (recovery)
(note 8) 11,053 (2,847) (12,985) (11,872)
----------------------------------------------------------------------------
Profit / (Loss) for the period $40,818 $5,708 ($11,844) ($25,489)
----------------------------------------------------------------------------
Other comprehensive income /
(loss)
Unrealized loss on hedging
instruments (554) (144) (2,137) (101)
Foreign currency translation
differences 206 (5,259) (2,960) 9,386
----------------------------------------------------------------------------
Total comprehensive profit/ (loss)
for the period $40,470 $305 ($16,941) ($16,204)
----------------------------------------------------------------------------
Profit / (Loss) attributable to:
Owners of the Company 41,640 5,877 (9,945) (25,024)
Non-controlling interest (822) (169) (1,899) (465)
----------------------------------------------------------------------------
Profit / (Loss) for the period 40,818 $5,708 (11,844) ($25,489)
----------------------------------------------------------------------------
Total comprehensive income /
(loss) attributable to:
Owners of the Company 41,292 305 (15,042) (16,204)
Non-controlling interest (822) - (1,899) -
----------------------------------------------------------------------------
Total comprehensive profit /
(loss) for the period 40,470 $305 (16,941) ($16,204)
----------------------------------------------------------------------------
Profit / (Loss) per share (note 6)
----------------------------------------------------------------------------
Basic $0.28 $0.04 ($0.07) ($0.17)
Diluted $0.28 $0.04 ($0.07) ($0.17)
----------------------------------------------------------------------------
Weighted average shares
outstanding - basic 149,630 148,902 149,231 148,781
Weighted average shares
outstanding - diluted 150,113 149,086 149,231 148,781
----------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Nine Months
Ended September 30, Ended September 30,
(Stated in thousands; unaudited) 2014 2013 2014 2013
----------------------------------------------------------------------------
Cash Provided By / (Used In):
Operations
Income / (Loss) for the period $40,818 $5,708 ($11,844) ($25,489)
Charges to income not involving
cash:
Depreciation and amortization 53,326 54,646 155,213 152,318
Amortization of debt issuance
costs 216 216 648 648
Stock-based compensation 2,304 1,840 6,384 5,887
Loss on disposal of property and
equipment 78 585 (492) 308
Net finance costs 8,873 9,111 27,519 24,627
Unrealized foreign exchange loss
/ (gain) (3,691) 2,984 145 (5,594)
Asset impairment, net - 2,870 - 6,993
Income tax recovery 11,053 (2,847) (12,985) (11,872)
------------------------------------------------------------------------
112,977 75,113 164,588 147,826
Change in inventories (9,263) (4,231) (26,835) (20,239)
Change in trade and other
receivables (150,565) (63,273) (176,824) 23,886
Change in prepayments 1,839 (3,158) 2,853 (1,410)
Change in trade and other payables 56,550 35,750 101,836 63,913
----------------------------------------------------------------------------
11,538 40,201 65,618 213,976
Interest paid (4,488) (6,182) (24,250) (21,838)
Income taxes refund / (paid) 5,546 2,156 (915) (26,018)
----------------------------------------------------------------------------
Cash generated/ (provided ) by
operating activities 12,596 36,175 40,453 166,120
Investing
Interest received 842 613 3,692 768
Purchase of property and equipment (27,892) (25,859) (68,924) (86,890)
Proceeds from the sale of property
and equipment 34 2,040 1,130 4,730
Purchase of other assets - - - (4,600)
Payment of deferred consideration - - (650) -
Business acquisitions - - - (31,009)
----------------------------------------------------------------------------
(27,016) (23,206) (64,752) (117,001)
Financing
Net proceeds from issuance of
share capital 666 224 9,938 1,130
Funds (repaid) / received from
bank loans (1,676) - 13,579 -
Issuance of long-term debt 23,636 31,747 156,743 26,354
Repayment of long-term debt - - (80,483) (71,253)
Dividend paid (22,438) (22,332) (44,776) (44,300)
----------------------------------------------------------------------------
188 9,639 55,001 (88,069)
Effect of exchange rate changes on
cash (89) (635) (757) (197)
----------------------------------------------------------------------------
Increase / (decrease) in cash and
cash equivalents (14,321) 21,973 29,945 (39,147)
Cash and cash equivalents, beginning
of period 108,135 52,386 63,869 113,506
----------------------------------------------------------------------------
Cash and cash equivalents, end of
period $93,814 $74,359 93,814 $74,359
----------------------------------------------------------------------------
SELECTED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 - LOANS AND BORROWINGS
Long term debt
September 30, December 31,
2014 2013
----------------------------------------------------------------------------
Notes payable $414,734 $456,935
Finance lease obligations 19,238 25,904
Revolving credit facilities 377,002 212,625
Hedge receivable (13,909) (9,970)
----------------------------------------------------------------------------
Total 797,065 685,494
Current portion of finance lease
obligations(1) 9,969 11,938
Russian demand revolving credit facility 13,579 -
Current portion of loans and borrowings - 79,770
----------------------------------------------------------------------------
Non-current $773,517 $593,786
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Current portion of finance lease obligations is included in trade and other payables.
On September 30, 2014, Trican had a $575.0 million four-year extendible revolving credit facility ("Revolving Credit Facility") with a syndicate of banks. The Revolving Credit Facility is unsecured and bears interest at the applicable Canadian prime rate, U.S. prime rate, Banker's Acceptance rate, or at LIBOR, plus 50 to 325 basis points, dependent on certain financial ratios of the Company. On July 17, 2014, Trican added two additional banks to its banking syndicate and increased its Revolving Credit Facility from $500.0 million to $575.0 million. On October 31, 2014, the Revolving Credit Facility was extended by an additional year to 2018. The Revolving Credit Facility requires Trican to comply with certain financial and non-financial covenants that are typical for this type of arrangement. Trican was in compliance with these covenants at September 30, 2014 (2013 - in compliance).
Notes payable
On September 3, 2014, the Company closed a private placement of C$20 million Senior Guaranteed Notes Series H maturing September 3, 2024, and bearing interest at a fixed rate of 5.75% payable semi-annually on March 15 and September 15.
On June 22, 2014, Trican repaid U.S. $75 million retiring its 2007 Series B Senior Notes.
The Notes payable require the Company to comply with certain financial and non-financial covenants that are typical for this type of arrangement. At September 30, 2014, the Company was in compliance with these covenants (2013 - in compliance).
NOTE 6 - PROFIT / (LOSS) PER SHARE
For the three months For the nine months
ended, September 30, ended September 30,
Basic earnings per share 2014 2013 2014 2013
----------------------------------------------------------------------------
Profit / (Loss) available to
common shareholders $41,640 $5,877 ($9,945) ($25,024)
Weighted average number of
common shares 149,629,774 148,902,304 149,231,423 148,781,443
Basic profit / (loss) per
share $0.28 $0.04 ($0.07) ($0.17)
----------------------------------------------------------------------------
For the three months For the nine months
ended September 30, ended September 30,
Diluted earnings per share 2014 2013 2014 2013
----------------------------------------------------------------------------
Profit / (Loss) available to
common shareholders $41,640 $5,877 ($9,945) ($25,024)
Weighted average number of
common shares 149,629,774 148,902,304 149,231,423 148,781,443
Diluted effect of stock
options 483,675 183,697 - -
----------------------------------------------------------------------------
Diluted weighted average
number of common shares 150,113,449 149,086,001 149,231,423 148,781,443
Diluted profit / (loss) per
share $0.28 $0.04 ($0.07) ($0.17)
----------------------------------------------------------------------------
In the third quarter of 2014, outstanding options of 10.4 million (2013 - 6.5 million) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive. For the nine months of 2014, outstanding options of 11.2 million (2013 - 6.4 million) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.
NOTE 8 - INCOME TAXES
(Stated in thousands)
Three months ended September 30, 2014 2013
----------------------------------------------------------------------------
Current income tax expense $3,691 $4,541
Deferred income tax expense/(recovery) 7,362 (7,388)
----------------------------------------------------------------------------
$11,053 ($2,847)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Stated in thousands)
Nine months ended September 30, 2014 2013
----------------------------------------------------------------------------
Current income tax expense $2,283 $5,981
Deferred income tax recovery (15,268) (17,853)
----------------------------------------------------------------------------
($12,985) ($11,872)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The net income tax provision differs from that expected by applying the combined federal and provincial income tax rate of 25.26% (2013 - 25.26%) to income before income taxes for the following reasons:
(Stated in thousands)
Nine months ended September 30, 2014 2013
----------------------------------------------------------------------------
Expected combined federal and provincial
income tax ($6,272) ($9,411)
Statutory and other rate differences (9,024) (9,608)
Non-deductible expenses 3,764 5,766
Stock based compensation 1,526 1,487
Adjustments related to prior years (596) (622)
Recognition of previously unrecognized losses (1,232) -
Changes to deferred income tax rates - 321
Translation of foreign subsidiaries (1,150) 335
Other (1) (140)
----------------------------------------------------------------------------
($12,985) ($11,872)
----------------------------------------------------------------------------
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NOTE 11 - OPERATING SEGMENTS
The Company operates in Canada and the U.S. along with a number of international regions, which include Russia, Kazakhstan, Algeria, Australia, Saudi Arabia, Colombia and Norway. Each geographic region has a General Manager who is responsible for the operation and strategy of his region's business. Personnel working within the particular geographic region report to the General Manager; the General Manager reports to the Corporate Executive.
The Company provides a comprehensive array of specialized products, equipment, services and technology to customers through three operating divisions:
-- Canadian operations provide cementing, fracturing, coiled tubing,
nitrogen, geological, acidizing, reservoir management, industrial
cleaning and pipeline, and completion systems and downhole tool
services. These services are performed on new and existing oil and gas
wells and industrial facilities.
-- U.S. operations provide cementing, fracturing, coiled tubing, nitrogen,
acidizing, industrial cleaning, completion systems and downhole tool
services. These services are performed on new and existing oil and gas
wells and industrial facilities.
-- International operations provide cementing, fracturing, coiled tubing,
acidizing, nitrogen, industrial cleaning, completion systems and
downhole tool services. These services are performed on new and existing
oil and gas wells and industrial facilities.
Information regarding the results of each geographic region is included below. Performance is measured based on revenue and gross profit as included in the internal management reports, which are reviewed by the Company's executive management team. Each region's gross profit is used to measure performance as management believes that such information is most relevant in evaluating regional results relative to other entities that operate within the industry. Transactions between the segments are recorded at cost and have been eliminated upon consolidation.
United
Canadian States International
Operations Operations Operations Corporate Total
Three months ended
September 30, 2014
Revenue $360,895 $314,575 $95,155 - $770,625
Gross profit/(loss) 86,765 (305) 11,309 (8,256) 89,513
Finance income - - - (810) (810)
Finance costs - - - 9,683 9,683
Tax
expense/(recovery) 16,883 (6,356) 526 - 11,053
Depreciation and
amortization 17,577 28,702 6,423 624 53,326
Assets 979,962 1,227,410 338,481 48,180 2,594,033
Goodwill 45,248 - 14,227 - 59,475
Property and
equipment 467,278 715,142 108,448 16,068 1,306,936
Capital expenditures 6,255 13,126 8,142 369 27,892
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Three months ended
September 30, 2013
Revenue $277,104 $183,080 $88,161 - $548,345
Gross profit/(loss) 58,573 (16,318) 10,875 (6,344) 46,786
Finance income - - - (259) (259)
Finance costs - - - 9,370 9,370
Tax
expense/(recovery) 6,693 (11,225) 1,685 - (2,847)
Depreciation and
amortization 18,631 28,907 6,598 510 54,646
Assets 945,181 1,056,247 332,236 54,944 2,388,608
Goodwill 63,490 - 14,226 - 77,716
Property and
equipment 549,901 728,413 100,691 17,632 1,396,637
Capital expenditures 6,767 13,377 5,715 - 25,859
United
Canadian States International
Operations Operations Operations Corporate Total
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Nine months ended
September 30, 2014
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Revenue $886,174 $793,178 $269,089 $- $1,948,441
Gross profit/(loss) 123,467 (22,117) 23,895 (22,346) 102,899
Finance income - - - (1,927) (1,927)
Finance costs - - - 29,446 29,446
Tax
expense/(recovery) 11,388 (25,781) 1,408 - (12,985)
Depreciation and
amortization 54,003 78,198 20,474 2,538 155,213
Capital
expenditures 15,280 22,159 28,861 2,624 68,924
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Nine months ended
September 30, 2013
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Revenue $730,746 $595,303 $237,279 $ - $1,563,328
Gross profit/(loss) 114,830 (21,643) 6,960 (19,643) 80,504
Finance income - - - (1,278) (1,278)
Finance costs - - - 25,905 25,905
Tax
expense/(recovery) 9,758 (21,733) 103 - (11,872)
Depreciation and
amortization 53,455 76,538 20,592 1,733 152,318
Capital
expenditures 30,918 42,733 13,239 - 86,890
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The Corporate division does not represent an operating segment and is included for informational purposes only. Corporate division expenses consist of salary expenses, stock-based compensation and office costs related to corporate employees, as well as public company costs.
Contacts:
Trican Well Service Ltd.
Dale Dusterhoft
Chief Executive Officer
(403) 266-0202
(403) 237-7716 (FAX)
ddusterhoft@trican.ca
Trican Well Service Ltd.
Michael Baldwin
Senior Vice President, Finance & CFO
(403) 266-0202
(403) 237-7716 (FAX)
mbaldwin@trican.ca
Trican Well Service Ltd.
Gary Summach
Senior Finance Director
(403) 266-0202
(403) 237-7716 (FAX)
gsummach@trican.ca
Trican Well Service Ltd.
2900, 645 - 7th Avenue S.W.
Calgary, Alberta T2P 4G8
www.trican.ca
