CALGARY, ALBERTA — (Marketwired) — 11/04/14 — Trican Well Service Ltd. (TSX: TCW) –
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.
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
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
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
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.
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
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
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
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.
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:
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 ().
SELECTED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 – LOANS AND BORROWINGS
Long term debt
(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
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)
(Stated in thousands)
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:
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:
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.
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)
Trican Well Service Ltd.
Michael Baldwin
Senior Vice President, Finance & CFO
(403) 266-0202
(403) 237-7716 (FAX)
Trican Well Service Ltd.
Gary Summach
Senior Finance Director
(403) 266-0202
(403) 237-7716 (FAX)
Trican Well Service Ltd.
2900, 645 – 7th Avenue S.W.
Calgary, Alberta T2P 4G8