Canyon Services Group Inc. reports fourth quarter and year end 2013 results and appointment of Director

CALGARY, March 6, 2014 /CNW/ - Canyon Services Group Inc. ("Canyon" or the "Company") is pleased to announce its fourth quarter and year end 2013 results and the appointment of Mr. Ken Mullen as a Director of Canyon.  The following results 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 and twelve months ended December 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.

HIGHLIGHTS SUMMARY

The operating and financial highlights for the three and twelve months ended December 31, 2013 are summarized as follows:

  • Canyon continues to expand its customer base to include multinational E&P companies with long-term development plans in Northeast B.C. and Northwest Alberta.

  • Canyon had a very busy Q4 2013 with jobs completed increasing by 34% to 654 from 489 in Q4 2012 and revenues increasing by 23% to $104.2 million from $84.8 million in the comparable quarter of 2012.

  • In 2013, Canyon continued its successful expansion into Southeast Saskatchewan more than doubling the revenue earned in the year compared to 2012.

  • In 2013, Canyon took advantage of the slower industry conditions to continue investing in staff and physical infrastructure including significantly increasing our training and staff development.

  • Staffing in the year increased by approximately 15% to prepare for an anticipated increase in our customers' activity in 2014.

  • Canyon remains in a very strong financial position.  As at December 31, 2013, Canyon had undrawn credit facilities of $100 million including a $40 million accordion feature plus positive working capital of $42 million, including cash of $21 million.

  • On December 19, 2013, Canyon declared a quarterly dividend of $0.15 per common share, or $9.4 million, which was paid to shareholders on January 24, 2014.

OVERVIEW OF FOURTH QUARTER AND YEAR ENDED 2013

               
000's except per share, job amounts and hydraulic pumping capacity
(Unaudited)
Three Months Ended
December 31
  Year Ended
December 31
  2013 2012 2011   2013 2012 2011
Consolidated revenues $104,198 $84,809 $144,965   $299,790 $353,119 $372,096
Profit (loss) and comprehensive income (loss) $377 $7,146 $40,932   $(4,375) $54,409 $95,270
Per share-basic $0.01 $0.12 $0.67   $(0.07) $0.89 $1.57
Per share-diluted $0.01 $0.11 $0.65   $(0.07) $0.87 $1.53
EBITDA before share-based payments(1) $11,004 $18,814 $65,421   $32,667 $107,774 $156,798
Funds from operations(1) $17,574 $18,501 $51,503   $38,716 $95,535 $127,871
Total jobs completed (2) 654 489 854   1,828 2,198 2,482
Consolidated average revenue per job (2) $159,835 $176,162 $170,063   $164,529 $161,668 $150,107
Average fracturing revenue per job $225,675 $280,671 $234,765   $232,460 $240,369 $209,855
Hydraulic Pumping Capacity              
Average HHP 225,500 225,500 160,500   225,500 215,000 137,000
Exit HHP 225,500 225,500 175,500   225,500 225,500 175,500
Capital expenditures $7,442 $5,419 $20,019   $14,840 $69,940 $101,293

       
000's except per share amounts
(Unaudited)
As at
December 31,
2013
As at
December 31,
2012
As at
December 31,
2011
Cash and cash equivalents $21,308 $22,584 $42,481
Working capital $41,730 $56,245 $67,009
Total long-term financial liabilities $3,096 $3,475 $3,530
Total assets $402,707 $406,113 $407,330
Cash dividends declared per share $0.60 $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 remedial cementing

Canyon's equipment fleet was very active in Q4 2013.  Although well completions were down by approximately 8% in the WCSB compared to Q4 2012, Canyon had one of its busiest quarters in its history resulting from market share expansion with certain international oil and gas production companies operating in the deep basin and our successful expansion into southeast Saskatchewan and southwest Manitoba.  Jobs completed increased by 34% to 654 in Q4 2013 from 489 in Q4 2012 and revenues increased by 23% to $104.2 million from $84.8 million in the comparable quarter of 2012.  However, the increased activity was not matched with improved customer pricing as competition continued to erode pricing in the quarter as competitors jockeyed to add market share in anticipation of expected improved industry activity levels in 2014.  In particular in Q4 2013, due to competition from other pumping providers, Canyon had no choice but to accept very low pricing in order to defend our market share with certain key customers.  These customers are well financed and are expected to ramp up activity levels in 2014 justifying the decision to accept the temporary impact of low pricing.  In Q1 2014, much of the very intense pricing pressure from Q4 2013 has subsided.

Well licenses issued for the WCSB began to strengthen over the second half of 2013 increasing by 8% in Q4 2013 over Q4 2012, even though licensing year over year was slightly down by about 2% for the entire basin.  Importantly, the deeper and more service intensive segments of the basin, especially the Montney and Duvernay plays, have been the increasing focus of exploration and production ("E&P") companies supported by early-stage LNG related activity and an increasing demand for diluent to meet supply shortfalls.  In particular, well licensing activity in the Montney play increased by 21% over the second half of 2013 compared to the same period of 2012.  This play straddles the Alberta and BC border and currently represents approximately 25% of WCSB activity.  In the liquids-rich Duvernay, well licensing also increased by approximately 20% in the second half of 2013 compared to the same period of 2012.  Wells spudded in the deeper segments of the basin such as in the Montney and Duvernay plays increased by over 20% in the second half of 2013 compared to the same period in 2012.  The trend in lower completions activity compared to higher licensing and drilling activity in 2013 suggests a demand backlog for fracturing services as we enter 2014.

While Q4 2013 consolidated revenues increased by 23% due to higher activity, the lower pricing combined with a fixed cost structure designed for higher revenue levels has significantly impacted profitability in the quarter with EBITDA decreasing to $11.0 million from $18.8 million in Q4 2012.  As a result, Canyon recorded a profit and comprehensive profit of $0.4 million in Q4 2013 compared to a profit and comprehensive profit of $7.1 million in Q4 2012.

For the year ended December 31, 2013, even though Canyon's equipment utilization in 2013 was similar to slightly higher than 2012 levels, consolidated revenues decreased by 15% to $299.8 million from $353.1 million due to price compression.  The jobs completed decreased by 17% to 1,828 for the year ended December 31, 2013 compared to 2,198 in 2012 due to Canyon completing larger jobs and to the impact of 24-hour operations as described below.  Even though customer pricing across the industry has declined by approximately 35% from peak 2012 levels, average consolidated revenue per job actually increased by 2% to $164,529 from $161,668 in 2012.  This difference is due to a change in customer invoicing methodology related primarily to the increase in 24-hour operations.  In the past, customers requested to be invoiced on the basis of work completed in a single shift (one invoice per 12-hour shift) or on a per stage basis.  The evolution of 24-hour operations, which now represents approximately 50% of revenue, has meant that many customers have requested to be billed for services provided per 24-hour shift which led to fewer but larger invoices (jobs) in 2013.  This change has resulted in reporting higher consolidated average revenue per job even though industry prices have significantly declined.  Although the job count shows a decline, overall, Canyon completed a similar amount of work for our customers in 2013 compared to 2012, albeit at lower prices.  The aforementioned industry conditions combined with the ramp-up in fixed costs in advance of more robust industry activity have resulted in a loss and comprehensive loss of $4.4 million for the year ended December 31, 2013 compared to a profit and comprehensive income of $54.4 million in the comparable 2012 year.

Also in 2013, Canyon took advantage of the slower industry conditions to continue investing in staff and physical infrastructure in anticipation of a more active industry in 2014.  In 2013, Canyon increased its field staff by approximately 15% from the beginning of the year.  In addition to hiring new staff, we significantly increased our training and staff development and upgraded business systems throughout the organization.  These initiatives resulted in 10% higher fixed operating and general and administrative costs in 2013 compared to 2012.

NON-GAAP MEASURES

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 (loss) and comprehensive income (loss), 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, gain or 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 (loss).

EBITDA before share-based payments

         
000's
(Unaudited)
Three Months Ended
December 31
Year Ended
December 31
  2013 2012 2013 2012
Profit (loss) and comprehensive income (loss) $377 $7,146 $(4,375) $54,409
Add (Deduct):        
Depreciation and amortization 9,568 8,241 33,035 30,023
Finance costs 192 175 658 747
Share-based payment transactions 1,238 667 4,189 1,086
Cash settlement of deferred share units - - - 2,298
(Gain) Loss on sale of property and equipment 7 (14) (5) 179
Income tax expense (recovery) (378) 2,599 (835) 19,032
EBITDA before share-based payments $11,004 $18,814 $32,667 $107,774

Funds from Operations

         
000's
(Unaudited)
Three Months Ended
December 31
Year Ended
December 31
  2013 2012 2013 2012
Net cash from operating activities $22,777 $41,698 $51,450 $87,912
Income Tax paid - (17) 5,135 31,454
Change in non-cash working capital (11,965) (23,042) (24,576) (14,637)
Cash settlement of deferred share units - - - 2,298
Less: current tax recovery (expense) 6,762 (138) 6,707 (11,492)
Funds from operations $17,574 $18,501 $38,716 $95,535

QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS

       
000's except per share amounts
(Unaudited)
Three Months Ended
December 31
  2013   2012
Revenues $104,198   $84,809
Cost of services 96,764   68,627
Gross profit 7,434   16,182
Administrative expenses 7,243   6,262
Results from operating activities 191   9,920
Finance costs 192   175
Profit (loss)  before income tax (1)   9,745
Income tax expense (recovery) (378)   2,599
Profit and comprehensive income $377   $7,146
EBITDA before share-based payments(1) $11,004   $18,814
Earnings  per share:      
  Basic $0.01   $0.12
  Diluted $0.01   $0.11

Note (1):  See NON-GAAP MEASURES.

Revenues

The increased job count resulting from improved industry activity resulted in consolidated revenues increasing by 23% to $104,198 in Q4 2013 from $84,809 in Q4 2012.  Jobs completed increased by 34% to 654 in Q4 2013 from 489 in Q4 2012.  The increase in the job count did not result in a relative increase in revenue due to lower pricing and job mix.  Over 90% of Q4 2013 consolidated revenues were provided by hydraulic fracturing services with average fracturing revenue per job decreasing by 20% to $225,675 from $280,671 in Q4 2012 due to pricing pressure across the industry and job mix.

Cost of services

Cost of services for the three months ended December 31, 2013 totaled $96,764 (2012: $68,627) and included materials, products, transportation and repair costs of $64,992 (2012: $42,486), employee benefits expense of $22,743 (2012: $18,296), and depreciation of property and equipment of $9,029 (2012: $7,845).

Materials, products, transportation and repair costs increased by 53% to $64,992 in Q4 2013 from $42,486 in Q4 2012 not only due to the increase in the job count to 654 jobs from 489 in Q4 2012, but also mainly due to the completion of larger jobs.  Employee benefits expense has increased mainly due to field staff additions in anticipation of increased 2014 activity and inflation in labour rates experienced in 2013.  The increase in depreciation of property and equipment was due to additional depreciation pertaining to equipment introduced into service in the last half of 2013, and accelerated depreciation relating to the replacement of a number of pump components.

Administrative expenses

Administrative expenses for the three months ended December 31, 2013 totaled $7,243 compared to $6,262 in Q4 2012 and included employee benefits expense of $3,751 (2012: $3,488) and share-based payments expense of $1,238 (2012: $667).  Administrative expenses also include depreciation of buildings and office equipment and amortization of intangibles of $538 (2012: $398).  In addition, other administrative expenses totaled $1,716 in Q4 2013 compared to $1,709 in Q4 2012.  The increase in employee benefits expense is mainly attributable to staff additions and the implementation of a cost of living increase effective October 2013.

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 Q4 2013, $1,131 (2012 - $883) 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 Q4 2013, share-based payments were increased by $108 (2012 - a reduction of $216) 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 Q4 2013, EBITDA before share-based payments (see NON-GAAP MEASURES) was $11,004 compared to $18,814 in the comparable 2012 quarter.  As previously discussed, continued pricing pressure combined with an expanded fixed cost structure appropriate for higher revenue levels has significantly impacted profitability in Q4 2013 and resulted in the decreased EBITDA.

Finance costs

Finance costs include interest on finance lease obligations and automobile loans and totaled $192 in Q4 2013 (2012: $175).

Income Tax Expense

At the expected combined income tax rate of 25%, the income (loss) before income tax for Q4 2013 of $(1) would have resulted in a recovery of NIL, compared to the actual income tax recovery of $378.  The income tax recovery is due to the carry back to prior years of current period non-capital losses.

Profit and comprehensive income and earnings per share

Profit and comprehensive income totaled $377 in Q4 2013 compared to profit and comprehensive income of $7,146 in Q4 2012. As previously discussed, the reduced profit is mostly due to industry-wide lower customer pricing combined with a fixed cost structure appropriate for higher revenue levels.

Basic and diluted earnings per share were $0.01 for the three months ended December 31, 2013 compared to basic and diluted earnings per share of $0.12 and $0.11 respectively for the comparable 2012 quarter.

YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS

       
000's except per share amounts
(Unaudited)
Year Ended
December 31
  2013   2012
Revenues $299,790   $353,119
Cost of services 279,805   255,843
Gross profit 19,985   97,276
Administrative expenses 24,537   23,088
Results from operating activities (4,552)   74,188
Finance costs 658   747
Profit  (loss) before income tax (5,210)   73,441
Income tax expense (recovery) (835)   19,032
Profit (loss) and comprehensive income (loss)  $(4,375)   $54,409
EBITDA before share-based payments(1) $32,667   $107,774
Earnings  (loss) per share:      
  Basic $(0.07)   $0.89
  Diluted $(0.07)   $0.87

Note (1):  See NON-GAAP MEASURES.

Revenues

For the year ended December 31, 2013, consolidated revenues decreased by 15% to $299,790 from $353,119 in 2012 due to price compression.  The jobs completed decreased by 17% to 1,828 for the year ended December 31, 2013 compared to 2,198 in 2012.  Even though customer pricing across the industry has declined by approximately 35% from peak 2012 levels, average consolidated revenue per job actually increased by 2% to $164,529 from $161,668 in 2012.  This difference is primarily due to a change in customer invoicing methodology related to the increase in 24-hour operations, as discussed above.  Over 90% of consolidated revenues in the twelve months ended December 31, 2013 were provided by hydraulic fracturing services with average fracturing revenue per job decreasing 3% to $232,460 from $240,369 in the 2012 comparable period even though customer pricing has declined by about 35% year over year.  This is due to the completion of larger jobs such as Duvernay shale gas wells in 2013 as well as to the impact of 24-hour operations as discussed above.

Cost of services

Cost of services for the year ended December 31, 2013 totaled $279,805 (2012: $255,843) and includes materials, products, transportation and repair costs of $174,965 (2012: $158,071), employee benefits expense of $73,539 (2012: $69,079), and depreciation of property and equipment of $31,301 (2012: $28,693).

Although jobs completed decreased by 17% in 2013 compared to 2012, materials, products, transportation and repair costs increased by 11% to $174,965 in 2013 from $158,071 in 2012 mainly due to the completion of larger job sizes.  Employee benefits expense has increased due to staff additions to prepare for 2014 activity levels and due to inflation in labour rates experienced throughout 2013.  The increase in depreciation of property and equipment is mainly due to additional depreciation pertaining to equipment acquired in 2012 and introduced into service in 2013.

Administrative expenses

Administrative expenses for the year ended December 31, 2013 totaled $24,537 compared to $23,088 in the 2012 comparable year and include employee benefits expense of $11,719 (2012: $12,244) and share-based payments expense of $4,189 (2012: $3,384).  Administrative expenses also include depreciation of buildings and office equipment and amortization of intangibles of $1,734 (2012: $1,331).  In addition, other administrative expenses totaled $6,895 compared to $6,129 in the 2012 comparable period.  The decrease in employee benefits expense is mostly attributable to lower sales commissions due to the lower revenues as well as a decrease in the payout of the corporate annual discretionary incentive program due to lower than anticipated financial results, partially offset by staff additions to support the increased scale of Canyon's operations.  The increase in other administrative expenses is mainly 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 the year ended December 31, 2013, $3,914 (2012 - $3,427) 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.  For the year ended December 31, 2013, share-based payments expense was $275 (2012 - a reduction of $43) 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)

For the year ended December 31, 2013, EBITDA before share-based payments (see NON-GAAP MEASURES) was $32,667 compared to $107,774 in the comparable 2012 year.  As previously discussed, even though activity levels for Canyon were similar to slightly higher in 2013 compared to 2012, industry-wide lower customer pricing combined with a fixed cost structure appropriate for higher revenue levels resulted in the decreased EBITDA.

Finance costs

Finance costs include interest on finance lease obligations and automobile loans and totaled $658 for the year ended December 31, 2013 (2012: $747).

Income Tax Expense

At the expected combined income tax rate of 25%, the loss before income tax for the year ended December 31, 2013 of $5,210 would have resulted in an expected recovery of $1,303, compared to the actual income tax recovery of $835.  The actual income tax recovery was reduced by non-deductible expenses.

Profit (loss) and comprehensive income (loss) and earnings (loss) per share

Loss and comprehensive loss totaled $4,375 for the year ended December 31, 2013 compared to profit and comprehensive income of $54,409 in the 2012 comparable period. As previously discussed, even though activity levels for Canyon were similar in 2013 compared to 2012, industry-wide lower customer pricing combined with a fixed cost structure appropriate for higher revenue levels resulted in the loss for the year.

Basic and diluted loss per share were $0.07 for the year ended December 31, 2013 compared to basic and diluted earnings per share of $0.89 and $0.87 respectively for the comparable 2012 year.

APPOINTMENT OF DIRECTOR

Canyon is pleased to announce that its Board of Directors has appointed Mr. Ken Mullen as a Director effective March 17, 2014.

Mr. Mullen is one of the founding members of Savanna Energy Services Corp. ("Savanna"), and has been President and CEO of Savanna since its inception.  Under Mr. Mullen's leadership, Savanna has successfully grown from four employees and no equipment to one of the largest drilling and well servicing operators in Canada.

Prior to founding Savanna, Mr. Mullen was President and CEO of a publicly traded oilfield services company, Plains Energy Services Corp.  Mr. Mullen is a former director of the CAODC and PSAC, as well as a past director for several public and private oilfield services and oil and gas companies.  Mr. Mullen is a chartered accountant and lawyer, having spent over a decade advising oil and gas and oilfield services companies.

Richard E. Peterson, will not be standing for re-election at Canyon's next annual general meeting due to time and business conflicts resulting from his numerous investments in the oilfield services sector.  Canyon would like to thank Mr. Peterson for his contribution over the past four years and wishes him the best of luck in all his business and personal endeavors.

FORWARD-LOOKING STATEMENTS

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.

For further information:

Brad Fedora 
President and CEO 

Canyon Services Group Inc.
2900 Bow Valley Square III 
255 - 5 Avenue SW 
Calgary, Alberta, T2P 3G6 
Phone:  403-290-2491 
Fax:  403-355-2211 

Or 

Barry O'Brien
Vice President, Finance and CFO

Canyon Services Group Inc.
2900 Bow Valley Square III
255 - 5 Avenue SW
Calgary, Alberta, T2P 3G6
Phone:  403-290-2478
Fax:  403-355-2211