CALGARY, May 7, 2013 /CNW/ – Canyon Services Group Inc. TSX: FRC (“Canyon”) is pleased to announce its first quarter 2013 results. The following should be read in conjunction with the Management’s Discussion and Analysis, the consolidated financial statements and notes of Canyon Services Group Inc. for the three months ended March 31, 2013 and should also be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012, and which are available on SEDAR at www.sedar.com
The main operating and financial highlights for the first quarter 2013 are as follows (000’s of dollars except for horsepower amounts):
- Average fracturing revenue per job for the three months ended March 31, 2013 increased by 8%, as Canyon completed larger jobs in emerging oil and natural gas liquids rich plays such as the Duvernay shale. The larger job size was more than offset by an uncertain commodity price and macro-economic environment that led to reduced producer activity and pricing pressure in 2012 and that has continued into 2013. As a result, Q1 2013 consolidated revenues decreased by 36% to $86,949 from $135,935 in Q1 2012.
- Canyon exited the quarter with 225,500 HHP, the major portion of which is relatively new, at three years old or less, and has heavy-duty capability. As at March 31, 2013 Canyon has $7 million in commitments to complete its 2012 capital programs, which when combined with the previously announced 2013 preliminary capital program of $15 million, will be funded out of funds from operations.
- Canyon added sales and operations staff in its Estevan, Saskatchewan base to build activity in the Bakken and Spearfish plays.
- Canyon remains in a very strong financial position with undrawn credit facilities of $60 million plus working capital of $63 million, including cash of $31 million, as at March 31, 2013.
- On March 27, 2013, Canyon declared a quarterly dividend of $0.15 per common share, or $9.3 million, which was paid to shareholders on April 25, 2013.
OVERVIEW OF FIRST QUARTER 2013
|000’s except per share, job amounts and hydraulic pumping capacity(Unaudited)||Three Months Ended March 31|
|Profit and comprehensive income||$8,527||$37,167||$30,118|
|EBITDA before share-based payments(1)||$20,426||$58,015||$47,950|
|Funds from operations(1)||$18,648||$46,584||$37,775|
|Total jobs completed (2)||470||934||736|
|Consolidated average revenue per job (2) (3)||$185,065||$145,138||$135,330|
|Average fracturing revenue per job(3)||$246,932||$228,564||$195,282|
|Hydraulic Pumping Capacity|
|000’s except per share amounts(Unaudited)||As atMarch 31,2013||As atDecember 31,2012||As atDecember 31,2011|
|Cash and cash equivalents||$30,520||$22,584||$42,481|
|Total long-term financial liabilities||$3,143||$3,475||$3,530|
|Cash dividends declared per share||$0.15||$0.60||$0.1125|
Note (1): See Non-GAAP MeasuresNote (2): Includes all jobs from each service line, specifically hydraulic fracturing; coiled tubing; nitrogen fracturing; acidizing and remedial cementingNote (3): 2012 revenue per job numbers are restated to include invoice adjustments.
In the second half of 2012, uncertainty around the commodity price outlook prompted by unstable macroeconomic factors led to reduced producer spending and declining pricing across the Western Canadian Sedimentary Basin (“WCSB”). This trend of weak producer activity and pricing pressure continued into 2013 even though natural gas prices have been strengthening and oil prices have remained relatively strong.
NYMEX natural gas prices have strengthened by 50% to average US$3.20 per mmbtu in Q1 2013 from US$2.13 per mmbtu in Q1 2012, while the West Texas oil price averaged US$94.30 per barrel in Q1 2013 compared to $102.99 per barrel in Q1 2012 and has increased by 7% from the average of US$88.17 in Q4 2012.
However, other factors have resulted in producers continuing to maintain a cautious approach to spending, such as concern over oil price differentials due to WCSB takeaway capacity issues, ongoing global macroeconomic uncertainty and scarcity of equity capital. As a result, the weak producer activity and pricing pressure that characterized Q4 2012 carried over into Q1 2013 resulting in lower job counts with pricing in the current quarter approximately 25-30% below Q1 2012 levels. This is evident from key industry metrics such as drilling rig utilization and well licenses issued which decreased by 10% and 6% respectively in Q1 2013 compared to Q1 2012, while well completions remained flat quarter over quarter. Compared to Q4 2012, well completions were down by 18% in Q1 2013.
Q1 2013 was a story of two halves for drilling and completions activity with the first half of the quarter getting off to a slow start as producers were slow to resume activity in January after an early shutdown in December. During February and March, activity increased as producers looked to drill wells before spring breakup conditions came into effect. Although we recorded consistent revenue throughout Q1, Canyon had to turn away work in the last six weeks as its staff was fully utilized due to the increased customer activity and the demands of twenty-four hour operations which now accounts for over 50% of Canyon’s revenues. In the prior year’s Q1 2012, 24-hr operations accounted for less than 10% of Canyon’s revenues.
In Q1 2013, Canyon’s average fracturing revenue per job increased by 8% over the comparable 2012 quarter due to larger job sizes. Canyon derives over 90% of consolidated revenues from hydraulic fracturing. The aforementioned pricing pressure and reduced producer activity resulted in Q1 2013 consolidated revenues decreasing by 36% to $86,949 from $135,935 in Q1 2012. Jobs completed decreased by 50% to 470 in Q1 2013 from 934 in Q1 2012 due to the lower producer activity and a high proportion of cement jobs in Q1 2012. These industry conditions resulted in Q1 2013 profit and comprehensive income of $8,527, or $0.14 per share fully diluted, compared to $37,167, or $0.59 per share fully diluted, in Q1 2012.
NON-GAAP MEASURESThe Company’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Certain measures in this document do not have any standardized meaning as prescribed by International Financial Reporting Standards (“IFRS”) and are considered non-GAAP measures.
EBITDA before share-based payments and funds from operations are not recognized measures under IFRS. Management believes that in addition to profit and comprehensive income, EBITDA before share-based payments and funds from operations are useful supplemental measures as they provide an indication of the results generated by the Company’s business activities prior to consideration of how those activities are financed, amortized or taxed, as well as the cash generated by the Company’s business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that EBITDA before share-based payments and funds from operations should not be construed as an alternative to profit and comprehensive income determined in accordance with IFRS as an indicator of the Company’s performance. Canyon’s method of calculating EBITDA before share-based payments and funds from operations may differ from other companies and accordingly, EBITDA before share-based payments and funds from operations may not be comparable to measures used by other companies. Canyon calculates EBITDA before share-based payments as profit and comprehensive income for the year adjusted for depreciation and amortization, equity settled share-based payment transactions, loss on sale of property and equipment, finance costs and income tax expense. Reconciliations of these non-GAAP measures to the most directly comparable IFRS measures are outlined below.
The Company describes revenue less cost of services as gross profit.
EBITDA before share-based payments
|000’s(Unaudited)||Three Months EndedMarch 31|
|Profit and comprehensive income||$8,527||$37,167|
|Depreciation and amortization||7,705||7,086|
|Share-based payment transactions||910||942|
|Loss on sale of property and equipment||(32)||41|
|Income tax expense||3,160||12,618|
|EBITDA before share-based payments||$20,426||$58,015|
Funds from Operations
|000’s (Unaudited)||Three Months EndedMarch 31|
|Net cash from operating activities||$19,334||$12,930|
|Income Tax paid||1,155||19,550|
|Change in working capital||(219)||25,374|
|Funds from operations||$18,648||$46,584|
QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS
|000’s except per share amounts(Unaudited)||Three Months Ended March 31|
|Cost of services||(69,582)||(80,453)|
|Results from operating activities||11,843||49,946|
|Profit before income tax||11,687||49,785|
|Income tax expense||(3,160)||(12,618)|
|Profit and comprehensive income||$8,527||$37,167|
|EBITDA before share-based payments(1)||$20,426||$58,015|
|Earnings per share:|
Note (1): See Non-GAAP Measures.
Lower producer activity combined with equipment capacity across the industry in 2012 resulted in pricing that was about 25% to 30% lower in Q1 2013 compared to Q1 2012 levels. As a result, Q1 2013 consolidated revenues decreased by 36% to $86,949 from $135,935 in Q1 2012. Jobs completed decreased by 50% to 470 in Q1 2013 from 934 in Q1 2012 due to the lower producer activity and a high proportion of cement jobs in Q1 2012. However, the lower job count and pricing pressure was partly mitigated by higher average revenues per job. Over 90% of Q1 2013 consolidated revenues were provided by hydraulic fracturing services with average fracturing revenue per job increasing by 8% to $246,932 from $228,564 in Q1 2012. The increase in average fracturing revenue per job is due to the completion of larger jobs such as Duvernay shale gas wells.
Cost of services
Cost of services for the three months ended March 31, 2013 totaled $69,582 (2012: $80,453) and includes materials, products, transportation and repair costs of $42,875 (2012: $53,598), employee benefits expense of $19,359 (2012: $20,067), and depreciation of property and equipment of $7,348 (2012: $6,788).
The decrease in materials, products, transportation and repair costs is mostly due to the lower job count in Q1 2013 compared to the prior year comparable quarter. The decrease in employee benefits expense is mainly due to lower variable field pay in the quarter due to the reduced industry-wide producer activity and resulting job count, partially offset by increased field staff to support equipment additions in 2012. The increase in depreciation of property and equipment is due to additional depreciation pertaining to equipment additions.
Administrative expenses for the three months ended March 31, 2013 totaled $5,524 compared to $5,536 in Q1 2012 and include employee benefits expense of $2,717 (2012: $2,984) and share-based payments expense of $910 (2012: $942). Administrative expenses also include depreciation of buildings and office equipment and amortization of intangibles of $357 (2012: $298). In addition, other administrative expenses totaled $1,540 in Q1 2013 compared to $1,312 in Q1 2012. The decrease in employee benefits expense is mostly attributable to lower sales commissions due to the lower job count partially offset by staff additions to support the increased scale of Canyon’s operations. The increase in other administrative expenses is due to costs associated with systems’ upgrades.
Share-based payments expense represents the value assigned to the granting of options and incentive-based units under the Company’s Share Purchase Option Plan and Stock Based Compensation Plan respectively, using the Black-Scholes model. For Q1 2013, $1,000 (Q1 2012 – $763) was charged to expenses and included in contributed surplus in respect of these two plans. In addition, obligations for payments under the Company’s Deferred Share Unit Plan are accrued as share-based payments expense over the vesting period. The accrued liability increases or decreases with fluctuations in the price of the Company’s common shares, with a corresponding increase or decrease in the share-based payments expense. In Q1 2013, share-based payments expense was reduced by $90 (Q1 2012 – an increase of $179) for the Company’s Deferred Share Unit Plan to reflect changes in the price of the common shares of the Company.
EBITDA before share-based payments (See Non-GAAP Measures)
In Q1 2013, EBITDA before share-based payments (see NON-GAAP MEASURES) was $20,426 compared to $58,015 in the comparable 2012 quarter. As previously discussed, reduced producer activity and pricing pressure resulted in the decreased EBITDA.
Finance costs include interest on finance lease obligations and automobile loans and totaled $156 in Q1 2013 (Q1 2012: $161).
Income Tax Expense
At the expected combined income tax rate of 25%, the profit before income tax for Q1 2013 of $11,687 would have resulted in an expected expense of $2,922, compared to the actual income tax expense of $3,160. The actual income tax expense was increased by non-deductible expenses.
Profit and comprehensive income and earnings per share
Profit and comprehensive income totaled $8,527 in Q1 2013 compared to $37,167 in Q1 2012. As previously discussed, the decrease is mostly due to reduced producer activity across the industry and pricing pressure.
Basic and diluted earnings per share were $0.14 and $0.14, respectively, for the three months ended March 31, 2013 compared to basic and diluted earnings per share of $0.61 and $0.59 respectively for the comparable 2012 quarter.
This document contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “should”, “believe”, “plans” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this document contains forward-looking information and statements pertaining to the following: future oil and natural gas prices; future results from operations; future liquidity and financial capacity and financial resources; future costs, expenses and royalty rates; future interest costs; future capital expenditures; future capital structure and expansion; the making and timing of future regulatory filings; and the Company’s ongoing relationship with major customers.
The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions of the Company including, without limitation: that the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; certain commodity price and other cost assumptions; the continued availability of adequate debt and/or equity financing and cash flow to funds its capital and operating requirements as needed; and the extent of its liabilities. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of the Company’s services; unanticipated operating results; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in the development plans of third parties; increased debt levels or debt service requirements; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; reliance on industry partners; attracting and retaining skilled personnel and certain other risks detailed from time to time in the Company’s public disclosure documents (including, without limitation, those risks identified in this document and the Company’s Annual Information Form).
The forward-looking information and statements contained in this document speak only as of the date of the document, and none of the Company or its subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.
SOURCE: Canyon Services Group Inc.