Canyon Reports Results for First Quarter 2013
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 2013 2012 2011 Consolidated revenues $86,949 $135,935 $99,037 Profit and comprehensive income $8,527 $37,167 $30,118 Per share-basic $0.14 $0.61 $0.50 Per share-diluted $0.14 $0.59 $0.48 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 Average HHP 225,500 175,500 120,500 Exit HHP 225,500 175,500 125,500 Capital expenditures $3,501 $34,128 $23,143 000's except per share amounts As at As at As at (Unaudited) March 31, December 31, December 31, 2013 2012 2011 Cash and cash equivalents $30,520 $22,584 $42,481 Working capital $62,766 $56,245 $67,009 Total long-term financial $3,143 $3,475 $3,530 liabilities Total assets $403,540 $406,113 $407,330 Cash dividends declared per share $0.15 $0.60 $0.1125
Note (1): See Non-GAAP Measures
Note (2): Includes all jobs from each service line, specifically
hydraulic fracturing; coiled tubing; nitrogen fracturing; acidizing and
Note (3): 2012 revenue per job numbers are restated to include invoice
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.
The 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 Three Months Ended (Unaudited) March 31 2013 2012 Profit and comprehensive income $8,527 $37,167 Add (Deduct): Depreciation and amortization 7,705 7,086 Finance costs 156 161 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 Three Months Ended (Unaudited) March 31 2013 2012 Net cash from operating activities $19,334 $12,930 Add (Deduct): Income Tax paid 1,155 19,550 Change in working capital (219) 25,374 Current tax (1,622) (11,270) Funds from operations $18,648 $46,584
QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS
000's except per share amounts (Unaudited) Three Months Ended March 31 2013 2012 Revenues $86,949 $135,935 Cost of services (69,582) (80,453) Gross profit 17,367 55,482 Administrative expenses (5,524) (5,536) Results from operating activities 11,843 49,946 Finance costs (156) (161) 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: Basic $0.14 $0.61 Diluted $0.14 $0.59
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
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
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
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
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
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.