Calfrac Announces Second Quarter Results

CALGARY, July 29, 2014 /CNW/ - Calfrac Well Services Ltd. ("Calfrac" or "the Company") (TSX-CFW) announces its financial and operating results for the three and six months ended June 30, 2014.

HIGHLIGHTS

               
  Three Months Ended June 30,       Six Months Ended June 30,
  2014 2013 Change 2014 2013 Change
(C$000s, except per share and unit data) ($) ($) (%) ($) ($) (%)
(unaudited)            
Financial            
Revenue 502,957 288,701 74 1,050,595 712,098 48
Operating income(1) 44,833 16,307 175 108,950 78,977 38
  Per share - basic(3) 0.48 0.18 167 1.17 0.87 34
  Per share - diluted(3) 0.47 0.18 161 1.16 0.86 35
Net income (loss) attributable to            
  the shareholders of Calfrac            
  before foreign exchange            
  losses or gains(2) (9,446) (14,969) 37 1,346 7,707 (83)
  Per share - basic(3) (0.10) (0.17) 41 0.01 0.09 (89)
  Per share - diluted(3) (0.10) (0.17) 41 0.01 0.09 (89)
Net income (loss) attributable to            
  the shareholders of Calfrac (12,905) (14,584) 12 (3,959) 10,061 (139)
  Per share - basic(3) (0.14) (0.16) 13 (0.04) 0.11 (136)
  Per share - diluted(3) (0.14) (0.16) 13 (0.04) 0.11 (136)
Working capital (end of period) 334,320 319,982 4 334,320 319,982 4
Total equity (end of period) 794,615 784,247 1 794,615 784,247 1
Weighted average common            
  shares outstanding (#)            
  Basic(3) 93,946 91,232 3 93,440 90,784 3
  Diluted(3) 94,894 91,808 3 94,255 91,450 3
             
Operating (end of period)            
Pumping horsepower (000s)       1,217 1,025 19
Coiled tubing units (#)       36 29 24
Cementing units (#)       31 30 3

(1)  Operating income is defined as net income (loss) before depreciation, interest, foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, and income taxes. Management believes that operating income is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac's business segments prior to consideration of how these segments are financed or how they are taxed. Operating income is a measure that does not have any standardized meaning under International Financial Reporting Standards (IFRS) and, accordingly, may not be comparable to similar measures used by other companies.
(2)  Net income attributable to the shareholders of Calfrac before foreign exchange gains or losses is defined as net income (loss) attributable to the shareholders of Calfrac before foreign exchange gains or losses on an after-tax basis. Management believes that net income attributable to the shareholders of Calfrac before foreign exchange gains or losses is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac without the impact of foreign exchange fluctuations, which are not fully controllable by the Company. Net income attributable to the shareholders of Calfrac before foreign exchange gains or losses is a measure that does not have any standardized meaning prescribed under IFRS and, accordingly, may not be comparable to similar measures used by other companies.
(3)  Prior year adjusted to reflect the two-for-one common share split that occurred on June 2, 2014.
   

Quarterly Overview


             
Consolidated Highlights            
Three Months Ended June 30, 2014   2014   2013   Change
(C$000s, except operational information)   ($)   ($)   (%)
(unaudited)            
Revenue   502,957   288,700   74
Expenses            
  Operating   427,752   250,391   71
  Selling, general and administrative (SG&A)   30,372   22,002   38
    458,124   272,393   68
Operating income(1)   44,833   16,307   175
Operating income (%)   8.9%   5.6%   59
Fracturing revenue per job ($)   75,982   84,427   (10)
Number of fracturing jobs   6,027   3,121   93
Pumping horsepower, end of period (000s)   1,217   1,025   19
Coiled tubing revenue per job ($)   40,934   39,112   5
Number of coiled tubing jobs   524   243   116
Coiled tubing units, end of period (#)   36   29   24
Cementing revenue per job ($)   35,563   29,770   19
Number of Cementing jobs   581   417   39
Cementing units, end of period (#)   31   30   3

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
   

Revenue in the second quarter of 2014 for Calfrac was $503.0 million, which increased by 74 percent from the same period in 2013 and declined 8 percent from the first quarter of 2014. On a year over year basis, consolidated fracturing jobs increased by 93 percent, but consolidated revenue per fracturing job declined by 10 percent, primarily due to lower pricing. Sequentially, revenue per job decreased by 10 percent due to a greater proportion of revenue coming from the United States, which typically generates lower revenue per job compared to Canada, combined with lower pricing in Canada.

Pricing in Canada was lower in the second quarter of 2014 when compared to the first quarter of 2014, as the Company tried to encourage customers to complete more work, which is a typical strategy used during spring break-up. In the United States, pricing was higher in certain areas due to a limited amount of commodity-linked pricing agreements, but market pricing was unchanged from the previous quarter. In Russia, pricing is determined by contract awards which resulted in the Company experiencing minimal pricing changes during the quarter. Similarly, a significant portion of Calfrac's work in Argentina is under contract, resulting in immaterial pricing changes compared to the prior quarter.

Operating income for the second quarter of 2014 was $44.8 million, an increase of 175 percent from the comparable period in 2013 and a decline of 30 percent compared to the first quarter of 2014. Operating income as a percentage of revenue in 2014 was higher by 330 basis points compared to the same period last year due to significantly higher fracturing activity in the United States and Argentina. Further improvements were offset by weaker pricing in Canada. Sequentially, operating income as a percentage of revenue declined 280 basis points due to lower activity and pricing in Canada due to spring break-up.

In Canada, revenue declined by 64 percent sequentially to $96.2 million due to the onset of spring break-up. Operating income as a percentage of revenue decreased to negative 10 percent from positive 20 percent in the prior quarter, due to significantly lower activity levels related to spring break-up, weaker pricing and continued use of subcontractors.

In the United States, revenue increased by 50 percent compared to the first quarter of 2014 to $316.0 million in the second quarter of 2014 mainly as a result of higher activity across all of the Company's operating areas and improved pricing from select commodity-linked pricing agreements. The higher activity was a function of increased demand for completions work from Calfrac's customers and a reduction in weather-related issues. Operating income as a percentage of revenue increased to 19 percent in the second quarter of 2014 from 10 percent in the previous quarter. United States operating income margins increased due to higher activity, commodity-linked pricing agreements and reduced weather-related interruptions.

In Russia, revenue increased to $51.2 million in the second quarter of 2014 from $38.9 million in the first quarter of 2014. The increase resulted from the Company being able to complete more jobs as weather conditions improved and the completion of larger fracturing jobs. Operating income as a percentage of revenue increased to 14 percent in the second quarter of 2014 from 2 percent in the prior quarter due to higher activity and a reduction in costs related to the harsh weather conditions in the first quarter of 2014.

In Latin America, revenue increased by 32 percent quarter over quarter to $39.6 million due to higher activity in Mexico. Operating income as a percentage of revenue decreased to 10 percent from 20 percent due to higher costs in the Company's Mexico operations, while Argentina's operations had higher subcontractor expenses and incurred additional costs in preparation for the start-up of the second unconventional fracturing crew.

Net loss attributable to shareholders of Calfrac was $12.9 million or $0.14 per share diluted, compared to $14.6 million or $0.16 per share diluted in the same period last year and a decrease from a net income of $8.9 million or $0.19 per share diluted in the previous quarter. Net income per share on a fully diluted basis was negatively impacted quarter over quarter by a reduction in Canadian activity due to spring break-up. As well, the Company incurred higher income taxes, interest and depreciation expenses, which were partially offset by lower foreign exchanges losses.

The Company believes its mix of customer commitments and spot market exposure leaves it well-positioned in the North American market. In both Latin America and Russia, Calfrac has the vast majority of its equipment under contract.

In the second quarter of 2014, Calfrac completed a two-for-one common share split and declared a post common share split quarterly dividend of $0.125 per share.

Outlook and Business Prospects


Spot natural gas prices have declined significantly in recent months due to higher-than-expected storage injections in the United States. Current pricing remains above the level seen at this time last year and should continue to underpin existing activity levels. Canadian natural gas storage levels remain relatively low and provide support for improved activity. Crude oil prices continue to warrant strong sustained activity levels. Calfrac continues to see a trend of greater service intensity through larger multi-well pad designs, more fracturing stages per horizontal well and increased tonnage per stage. Internationally, the trend towards greater unconventional development continues with the Company benefitting from greater use of multi-stage completion technology.

In western Canada, horizontal well completion activity is expected to be strong through the remainder of 2014 and into 2015. The Company expects activity levels to be greater than those realized in the second half of 2013 due to stronger commodity prices which have resulted in certain customers increasing 2014 capital programs to accelerate development. Other developments that Calfrac believes will lead to an increased pace of completions activity include the weaker Canadian dollar, improved access to capital and LNG-related development. These trends have allowed Calfrac to implement pricing increases which will become effective throughout the second half of 2014.

Calfrac is maintaining a leadership position in the most important natural gas plays in western Canada and expects to be a key participant in the long-term development of these plays. The Company's customers in the Montney, Deep Basin and Duvernay are expected to increase their activity in the second half of 2014 which should positively benefit the Company. In particular, the Company is committed to increasing the percentage of its fleet that is focused on 24-hour operations which should be a catalyst for improved financial performance in the future.

Calfrac expects oil-focused activity in western Canada to be higher in the second half of 2014, when compared to the second half of 2013, due to increased demand in the Viking play, while activity in the Cardium is expected to remain stable. The Company continues to focus on increasing the percentage of its operations that are on a 24-hour basis in the oil plays of western Canada to improve equipment utilization. In addition, asset consolidation by certain oil and gas companies may present an opportunity for Calfrac to increase its activity.

In the United States, Calfrac expects activity to remain strong in upcoming quarters. The Company continues to have strong visibility across its U.S. operating areas, but believes delivering the efficiencies seen during the second quarter of 2014 will be challenging given the size of well pads that were completed. The Company believes that its Marcellus operations will continue to achieve high utilization levels for the remainder of 2014 due to this play's low cost structure and proximity to natural gas consuming markets. Calfrac's fifth Marcellus crew became operational in June 2014 and has seen strong customer demand. As well, producers continue to develop the Utica which could provide further opportunities for Calfrac. In the Fayetteville, Calfrac is expecting activity to remain stable for the remainder of the year. The Company temporarily deployed a third crew into this play during the second quarter of 2014 from Texas, but that crew has since returned to its original location, where it is expected to experience improved utilization levels. In the Eagle Ford, the Company continues to optimize its operations and pricing is expected to remain stable. The Company's Rockies operations and pricing are expected to be strong due to Niobrara activity. The Company continues to be optimistic about the Rockies region due to customer spending patterns and new entrants into the region. Calfrac's operations in North Dakota are expected to achieve strong utilization in the second half of 2014 due to improved customer demand and a reduction in competitors servicing this play. Pricing in the U.S. remains competitive across all of Calfrac's operating areas.

With higher product volumes being used for fracturing across North America there has been an increase in the industry's need for the use of third-party subcontractors. These subcontractors help facilitate the movement of product volumes to the well site when quantities are outside the scope of Calfrac's in-house capabilities. The Company continues to analyze and identify ways in which it can optimize its supply chain and logistical network in North America. A number of initiatives have been launched and will continue in upcoming quarters to balance the need for subcontract services and Calfrac's own logistical assets.

Calfrac continues to believe in the long-term potential of Argentina's conventional and unconventional oil and gas development. The increasing customer demand for the Company's services is providing the opportunity to deploy additional equipment into the country. Currently, an additional 32,000 horsepower is being deployed into Argentina and is expected to become active late in the third quarter of 2014. The new spread is expected to be used for unconventional development in the Vaca Muerta shale play. Calfrac believes that its service quality and technical expertise are leading to its growing reputation as a service provider of choice in Argentina, thereby providing the foundation for long-term growth.

In Mexico, Calfrac remains optimistic over activity in the longer-term, once the national reform of the energy industry is completed. Calfrac believes this will set the stage for increased spending levels by PEMEX and create an avenue for new entrants to Mexico. In the near-term, the Company will continue to prudently manage its cost structure in Mexico and closely monitor ongoing developments to remain prepared to take advantage of new opportunities.

In Russia, Calfrac expects activity to remain stable for the remainder of 2014. The Company believes that the expanded use of multi-stage completion technologies in Western Siberia, such as horizontal drilling and multi-stage completions will continue. In particular, Calfrac believes that initial work on the Bazhenov shale play could begin as early as 2015, which would be the first unconventional development in Russia. The Company expects the accelerating trend towards multi-stage completions will continue to drive demand for its services over the short and long term as Russia's producing sector gains confidence in this approach.

Calfrac recently announced an increase in its capital budget for 2014 to $360.0 million. The capital program will be focused on increasing the Company's fracturing and cementing capacity, as well as support and infrastructure initiatives. In addition, a portion of the capital will fund ongoing proactive maintenance programs which will improve the efficiency and useful life of the Company's equipment. Approximately $172.0 million will be spent on growth initiatives and $38.0 million will be used for support and infrastructure initiatives. The Company intends to deliver 80,000 horsepower to its U.S. fleet, 35,000 horsepower to its Canadian fleet, and 40,000 horsepower and two cementing units to its Argentina fleet. Delivery of this equipment is expected to begin in early 2015 and continue throughout the first half of the year.

In summary, Calfrac's confidence in its business continues to increase due to customer indications of a higher level of oil and natural gas development in a number of Calfrac's operating areas. Furthermore, the trend in North America towards pad drilling, 24-hour operations, more stages per well and greater tonnage per stage is having a positive impact on Calfrac's equipment utilization. Internationally, careful planning has helped develop a number of unconventional markets leading to additional opportunities for Calfrac. The Company's people, service quality, technology, and HSE practices will make it a key partner in these developments. The Company considers itself well-positioned to take advantage of these opportunities.

Financial Overview - Three Months Ended June 30, 2014 Versus 2013


Canada            
Three Months Ended June 30,   2014   2013   Change
(C$000s, except operational information)   ($)   ($)   (%)
(unaudited)            
Revenue   96,213   80,719   19
Expenses            
  Operating   101,738   74,751   36
  SG&A   3,797   3,932   (3)
    105,535   78,683   34
Operating income(1)   (9,322)   2,036   (558)
Operating income (%)   -9.7%   2.5%   (488)
Fracturing revenue per job ($)   250,346   195,191   28
Number of fracturing jobs   360   402   (10)
Pumping horsepower, end of period (000s)   384   404   (5)
Coiled tubing revenue per job ($)   32,732   27,128   21
Number of coiled tubing jobs   186   83   124
Coiled tubing units, end of period (#)   17   21   (19)

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
   

Revenue

Revenue from Calfrac's Canadian operations during the second quarter of 2014 was $96.2 million versus $80.7 million in the same period of 2013. The increase in revenue was a result of revenue per job increasing 28 percent, primarily due to higher service intensity and increased activity in the Duvernay liquids-rich natural gas resource play. The oil-focused plays of western Canada saw strong activity exiting the first quarter; however, this was partially offset by wet weather in the last two weeks of June. The industry trend of more fracturing stages per well also contributed to the increase in revenue. Pricing, however, was significantly weaker on a year over year basis.

Operating (Loss) Income

An operating loss of $9.3 million was incurred in Canada during the second quarter of 2014 compared to income of $2.0 million in the same period of 2013. The reversal to an operating loss was primarily due to lower pricing and a reduction in multi-well pad work, combined with increased subcontractor transportation costs and equipment repair expenses resulting from a very active first quarter. Higher subcontractor transportation costs were incurred due to larger product volumes and longer average travel distances to well sites in the unconventional oil and natural gas resource plays of western Canada.

United States            
Three Months Ended June 30,   2014   2013   Change
(C$000s, except operational information)   ($)   ($)   (%)
(unaudited)            
Revenue   315,971   146,275   116
Expenses            
  Operating   249,563   116,916   113
  SG&A   7,694   4,184   84
    257,257   121,100   112
Operating income(1)   58,714   25,175   133
Operating income (%)   18.6%   17.2%   8
Fracturing revenue per job ($)   59,473   61,649   (4)
Number of fracturing jobs   5,086   2,254   126
Pumping horsepower, end of period (000s)   660   501   32
Coiled tubing revenue per job ($)   45,469   -   -
Number of coiled tubing jobs   61   -   -
Coiled tubing units, end of period (#)   8   -   -
Cementing revenue per job ($)   40,454   32,670   24
Number of cementing jobs   265   224   18
Cementing units, end of period (#)   18   17   6
US$/C$ average exchange rate(2)   1.0905   1.0233   7

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
(2)  Source: Bank of Canada
   

Revenue

Revenue from Calfrac's United States operations increased to $316.0 million during the second quarter of 2014 from $146.3 million in the comparable quarter of 2013. The growth was primarily due to significantly higher activity across all of the Company's operating regions and a greater level of 24-hour operations along with the commencement of Calfrac's operations in the Eagle Ford during the fourth quarter of 2013. In addition, the weaker Canadian dollar increased reported revenue. Pricing in the United States was weaker than in the second quarter of 2013, but was offset by materially larger job sizes. Sand usage increased by 91 percent in the second quarter of 2014 from the second quarter of 2013.

Operating Income

Operating income in the United States was $58.7 million for the second quarter of 2014, a 133 percent increase from the comparative period in 2013. The increase was mainly due to the higher activity in the quarter. Operating income as a percentage of revenue increased to 19 percent from 17 percent year over year due to increased operating utilization. The gain in operating income was limited due to weaker pricing combined with significantly higher subcontractor costs and equipment repair costs.

Russia            
Three Months Ended June 30,   2014   2013   Change
(C$000s, except operational information)   ($)   ($)   (%)
(unaudited)            
Revenue   51,209   37,305   37
Expenses            
  Operating   42,524   32,259   32
  SG&A   1,463   1,689   (13)
    43,987   33,948   30
Operating income(1)   7,222   3,357   115
Operating income (%)   14.1%   9.0%   57
Fracturing revenue per job ($)   126,584   98,337   29
Number of fracturing jobs   327   312   5
Pumping horsepower, end of period (000s)   70   48   46
Coiled tubing revenue per job ($)   57,068   52,158   9
Number of coiled tubing jobs   172   127   35
Coiled tubing units, end of period (#)   7   7   -
Rouble/C$ average exchange rate(2)   0.0312   0.0323   (3)

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
(2)  Source: Bank of Canada.
   

Revenue

During the second quarter of 2014, the Company's revenue from its Russian operations increased by 37 percent to $51.2 million from $37.3 million in the corresponding three-month period of 2013. The increase was mainly due to the completion of larger fracturing jobs, particularly in the Nefteugansk region, the Company expanding its operations into Usinsk during 2014 and improved coiled tubing activity. During the second quarter of 2014, approximately 35 percent of the Company's total fracturing jobs were multi-stage completions within horizontal wellbores versus 31 percent in the comparable quarter of 2013.

Operating Income

Operating income in Russia was $7.2 million during the second quarter of 2014 compared to $3.4 million in the corresponding period of 2013. The increase was due to the higher revenue base combined with a larger contribution from multi-stage fracturing jobs and lower SG&A expenses. Operating income as a percentage of revenue increased to 14 percent from 9 percent in the same period of the prior year due to higher utilization and a reduction in equipment repair costs.

Latin America            
Three Months Ended June 30,   2014   2013   Change
(C$000s, except operational and exchange rate information)   ($)   ($)   (%)
(unaudited)            
Revenue   39,564   24,402   62
Expenses            
  Operating   31,800   23,898   33
  SG&A   4,000   1,470   172
    35,800   25,368   41
Operating income(1)   3,764   (966)   490
Operating income (%)   9.5%   -4.0%   338
Pumping horsepower, end of period (000s)   103   72   43
Cementing units, end of period (#)   13   13   -
Coiled tubing units, end of period (#)   4   1   300
Mexican peso/C$ average exchange rate(2)   0.0839   0.0820   2
Argentinean peso/C$ average exchange rate(2)   0.1354   0.1953   (31)

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
(2)  Source: Bank of Canada.
   

Revenue

Calfrac's Latin American operations generated revenue of $39.6 million during the second quarter of 2014 versus $24.4 million in the comparable three-month period in 2013. The increase was due mainly to the significant increase in fracturing, cementing and coiled tubing activity in Argentina. This was offset by significantly lower activity in Mexico resulting from budget constraints experienced by the Company's major customer in the region. The Colombian cementing market also remained challenging as permitting and infrastructure issues continue to result in lower than expected activity.

Operating Income

Operating income in Latin America for the three months ended June 30, 2014 was $3.8 million compared to a loss of $1.0 million in the comparative quarter in 2013. The improvement can be wholly attributed to the commencement of fracturing operations in Argentina during May 2013. Offsetting the improvement were operating losses incurred in Calfrac's Mexico and Colombia operations.

Corporate            
Three Months Ended June 30,   2014   2013   Change
(C$000s, except operational information)   ($)   ($)   (%)
(unaudited)            
Expenses            
  Operating   2,127   2,567   (17)
  SG&A   13,418   10,728   25
    15,545   13,295   17
Operating loss(1)   (15,545)   (13,295)   17
             
% of Revenue   3.1%   4.6%   (33)

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
   

Operating Loss

The 17 percent increase in corporate expenses from the second quarter of 2013 was mainly due to higher quarter over quarter stock-based compensation expenses of $1.4 million resulting from an improved stock price in 2014. In addition, a non-recurring legal settlement in the second quarter of 2013 resulted in a $1.0 million reduction in professional fees in that period.

Depreciation

For the three months ended June 30, 2014, depreciation expense increased by 32 percent to $34.4 million from $26.0 million in the corresponding quarter of 2013. The increase was mainly a result of the acquisition of assets from Mission at the beginning of the fourth quarter of 2013 combined with asset additions in Canada and the United States.

Foreign Exchange Losses or Gains

The Company recorded a primarily unrealized foreign exchange loss of $4.9 million during the second quarter of 2014 versus a $0.1 million loss in the comparative three-month period of 2013. Foreign exchange gains and losses arise primarily from the translation of net monetary assets or liabilities that were held in United States dollars in Canada, Russia and Latin America. The Company's second-quarter 2014 foreign exchange loss was largely attributable to the translation of United States dollar-denominated liabilities held in Argentina and United States dollar-denominated assets held in Canada. The Argentinean peso weakened while the Canadian dollar strengthened against the United States dollar since the end of the first quarter resulting in a foreign exchange loss. The loss was partially offset by a gain on United States dollar-denominated liabilities held in Russia. The Russian rouble strengthened against the United States dollar from the beginning of the quarter, resulting in a foreign exchange gain.

Interest

The Company's net interest expense of $14.5 million for the second quarter of 2014 was $5.2 million higher than in the comparable period of 2013. The increase was related to the issuance of an additional US$150.0 million of Calfrac's 7.50 percent senior notes to finance the acquisition of assets from Mission combined with a weaker Canadian dollar relative to the United States dollar quarter over quarter. Loans under Calfrac's revolving credit facility during the second quarter of 2014 were higher than in the comparable period in 2013. Additional short-term borrowing in Latin America to fund the operational expansion in Argentina combined with higher interest rates in that country also contributed to the increase in interest expense during the quarter.

Income Tax Expenses

The Company recorded income tax expense of $4.0 million during the second quarter of 2014 compared to a recovery of $4.1 million in the comparable period of 2013. The increase in total income tax expense was primarily due to increased profitability in the United States and Argentina combined with $2.3 million of income tax adjustments relating to prior periods for Canada and Mexico that were recorded in the second quarter of 2014. The effective tax rate was impacted by the mix of earnings; with losses incurred in a lower tax rate jurisdiction, partially offset by earnings in a higher tax rate jurisdiction.

Summary of Quarterly Results


                               
Three Months Ended Sept. 30,    Dec. 31,   Mar. 31,   June 30,   Sept. 30,   Dec. 31,   Mar. 31,   June 30,
  2012   2012   2013   2013   2013   2013   2014   2014
(unaudited) ($)   ($)   ($)   ($)   ($)   ($)   ($)   ($)
Financial                              
(C$000s, except per share and operating data)                              
Revenue 417,842   367,487   423,397   288,701   388,662   463,054   547,638   502,957
Operating income(1) 70,604   43,218   62,670   16,307   51,683   57,416   64,117   44,833
  Per share - basic(2) 0.79   0.48   0.69   0.18   0.56   0.62   0.69   0.48
  Per share - diluted(2) 0.79   0.48   0.69   0.18   0.56   0.62   0.68   0.47
Net income (loss) attributable                              
  to the shareholders of Calfrac 26,917   11,243   24,645   (14,584)   6,089   11,764   8,946   (12,905)
  Per share - basic(2) 0.30   0.13   0.28   (0.16)   0.07   0.13   0.10   (0.14)
  Per share - diluted(2) 0.30   0.13   0.27   (0.16)   0.07   0.13   0.10   (0.14)
Capital expenditures 63,962   55,694   43,989   46,618   34,683   45,227   27,331   35,585
Working capital (end of period) 353,182   322,857   332,241   319,982   292,854   319,934   338,916   334,320
Total equity (end of period) 783,091   780,759   802,581   784,247   786,933   795,207   803,904   794,615
                               
Operating (end of period)                              
Pumping horsepower (000s) 845   977   1,013   1,025   1,025   1,194   1,215   1,217
Coiled tubing units (#) 29   29   29   29   31   38   34   36
Cementing units (#) 25   26   28   30   30   31   31   31

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
(2)  Comparative amounts were adjusted to reflect the Company's two-for-one common share split that occurred on June 2, 2014.
   

Seasonality of Operations


Certain of the Company's Canadian and United States businesses are seasonal. The lowest activity is typically experienced during the second quarter of the year when road weight restrictions are in place due to spring break-up weather conditions and access to well sites in Canada and North Dakota is reduced (refer to "Business Risks - Seasonality" in the 2013 Annual Report).

Foreign Exchange Fluctuations


The Company's consolidated financial statements are reported in Canadian dollars. Accordingly, the quarterly results are directly affected by fluctuations in the United States, Russian, Mexican, Argentinean and Colombian currency exchange rates (refer to "Business Risks - Fluctuations in Foreign Exchange Rates" in the 2013 Annual Report).

Financial Overview - Six Months Ended June 30, 2014 Versus 2013


Canada            
Six Months Ended June 30,   2014   2013   Change
(C$000s, except operational information)   ($)   ($)   (%)
(unaudited)            
Revenue   363,887   312,295   17
Expenses            
  Operating   312,257   246,546   27
  SG&A   8,473   7,802   9
    320,730   254,348   26
Operating income(1)   43,157   57,947   (26)
Operating income (%)   11.9%   18.6%   (36)
Fracturing revenue per job ($)   226,774   215,011   5
Number of fracturing jobs   1,515   1,384   9
Pumping horsepower, end of period (000s)   384   404   (5)
Coiled tubing revenue per job ($)   28,788   24,371   18
Number of coiled tubing jobs   706   604   17
Coiled tubing units, end of period (#)   17   21   (19)

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
   

Revenue

Revenue from Calfrac's Canadian operations during the first six months of 2014 was $363.9 million versus $312.3 million in the comparable period of 2013. The 17 percent increase was due to the completion of significantly larger jobs during the period and higher activity primarily focused in the first quarter of 2014. In particular, activity in the Montney, Cardium, Deep Basin and Duvernay plays was higher although pricing was considerably weaker during the six months ended June 30, 2014 than in the same period of 2013.

Operating Income

Operating income in Canada decreased by 26 percent to $43.2 million during the first six months of 2014 from $57.9 million in the same period of 2013. The decrease in absolute terms and as a percentage of revenue was due to a more competitive pricing environment and customer mix combined with higher subcontractor costs and equipment repair costs. The increase in subcontractor expenses was due to longer travel distances to job locations, higher product usage and the impact of a weaker Canadian dollar on certain product costs.

United States            
Six Months Ended June 30,   2014   2013   Change
(C$000s, except operational and exchange rate information)   ($)   ($)   (%)
(unaudited)            
Revenue   527,010   273,285   93
Expenses            
  Operating   433,469   220,765   96
  SG&A   13,150   9,306   41
    446,619   230,071   94
Operating income(1)   80,391   43,214   86
Operating income (%)   15.3%   15.8%   (3)
Fracturing revenue per job ($)   57,643   58,418   (1)
Number of fracturing jobs   8,746   4,438   97
Pumping horsepower, end of period (000s)   660   501   32
Coiled tubing revenue per job ($)   52,949   -   -
Number of coiled tubing jobs   84   -   -
Coiled tubing units, end of period (#)   8   -   -
Cementing revenue per job ($)   37,286   32,539   15
Number of cementing jobs   494   431   15
Cementing units, end of period (#)   18   17   6
US$/C$ average exchange rate(2)   1.0965   1.0156   8

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
(2)  Source: Bank of Canada.
   

Revenue

Revenue from Calfrac's United States operations during the first six months of 2014 increased to $527.0 million from $273.3 million in the comparable period of 2013. The increase resulted from significantly higher activity across all of the Company's operating regions and the commencement of operations in the Eagle Ford. Revenue improved in the Rockies, the Marcellus, the Fayetteville and the Bakken. Weaker pricing in the United States was offset by an increase in job sizes and more multi-stage pad work which resulted in higher utilization through the greater use of 24-hour operations. Sand consumption in the first six months of 2014 has increased by 95 percent over the same period in the prior year.

Operating Income

Operating income in the United States was $80.4 million for the six months ended June 30, 2014 compared to $43.2 million in the first six months of 2013. The increase was primarily due to higher utilization in the second quarter of 2014 partially offset by higher subcontractor transportation costs as larger quantities of sand were required by Calfrac's customers. The increased sand usage also increased repair and maintenance expense. Calfrac has used 95 percent more sand in the first six months of 2014 than in the comparable period of 2013, which also increased reliance on subcontractors. Operating income as a percentage of revenue in the first six months of 2014 was consistent with the comparative period of 2013.

Russia            
Six Months Ended June 30,   2014   2013   Change
(C$000s, except operational and exchange rate information)   ($)   ($)   (%)
(unaudited)            
Revenue   90,123   74,466   21
Expenses            
  Operating   78,996   65,836   20
  SG&A   3,088   3,283   (6)
    82,084   69,119   19
Operating income(1)   8,039   5,347   50
Operating income (%)   8.9%   7.2%   24
Fracturing revenue per job ($)   118,014   102,013   16
Number of fracturing jobs   616   587   5
Pumping horsepower, end of period (000s)   70   48   46
Coiled tubing revenue per job ($)   57,703   56,746   2
Number of coiled tubing jobs   302   257   18
Coiled tubing units, end of period (#)   7   7   -
Rouble/C$ average exchange rate(2)   0.0313   0.0327   (4)

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
(2)  Source: Bank of Canada.
   

Revenue

During the first six months of 2014, the Company's revenue from Russian operations increased by 21 percent to $90.1 million from $74.5 million in the corresponding period of 2013. The increase was mainly due to the commencement of operations at Calfrac's fourth Russian operating base located in Usinsk, which typically performs larger fracturing jobs. Coiled tubing activity increased as a result of customer requirements in Khanty-Mansiysk, but was partially offset by a reduction in coiled tubing activity in other operating areas due to a greater number of horizontal well completions.

Operating Income

Operating income in Russia in the first six months of 2014 was $8.0 million compared to $5.3 million in the corresponding period of 2013. The increase was primarily a result of operational efficiencies associated with greater activity and multi-stage fracturing jobs forming a larger proportion of total activity in 2014. During the first six months of 2014, approximately 42 percent of the Company's total fracturing jobs were multi-stage completions within horizontal wellbores versus 32 percent in the comparable period of 2013.

Latin America            
Six Months Ended June 30,   2014   2013   Change
(C$000s, except operational and exchange rate information)   ($)   ($)   (%)
(unaudited)            
Revenue   69,575   52,052   34
Expenses            
  Operating   53,007   49,064   8
  SG&A   6,912   2,802   147
    59,919   51,866   16
Operating income(1)   9,656   186   -
Operating income (%)   13.9%   0.4%   -
Pumping horsepower, end of period (000s)   103   72   43
Cementing units, end of period (#)   13   13   -
Coiled tubing units, end of period (#)   4   1   300
Mexican peso/C$ average exchange rate(2)   0.0836   0.0809   3
Argentinean peso/C$ average exchange rate(2)   0.1405   0.1982   (29)

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
(2)  Source: Bank of Canada.
   

Revenue

Calfrac's Latin America operations generated revenue of $69.6 million during the first six months of 2014, a 34 percent increase from $52.1 million in the comparable period in 2013. Revenue increased due to significantly higher fracturing activity in Argentina combined with higher cementing and coiled tubing activity in that country. The increase was partially offset by significantly lower activity in Mexico resulting from customer budget constraints and lower activity in Colombia as a result of infrastructure and permitting issues.

Operating Income

For the six months ended June 30, 2014, Calfrac's Latin America division generated operating income of $9.7 million compared to $0.2 million in the comparative period in 2013. The increase in operating income was primarily due to higher fracturing and cementing activity in Argentina, partially offset by low utilization in Mexico and Colombia.

Corporate            
Six Months Ended June 30,   2014   2013   Change
(C$000s)   ($)   ($)   (%)
(unaudited)            
Expenses            
  Operating   4,420   4,777   (7)
  SG&A   27,873   22,940   22
    32,293   27,717   17
Operating loss(1)   (32,293)   (27,717)   17
% of Revenue   3.1%   3.9%   21

(1)  Refer to "Non-GAAP Measures" on page 17 for further information.
   

Operating Loss

The 17 percent increase in corporate expenses for the six months ended June 30, 2014 over the comparative period in 2013 was mainly due to a $2.7 million increase in stock-based compensation expenses resulting from additional restricted share units vesting and a higher stock price in 2014 as well as higher personnel and occupancy costs. In addition, a non-recurring legal settlement in the second quarter of 2013 resulted in a $1.0 million reduction in professional fees in that period.

Depreciation

For the six months ended June 30, 2014, depreciation expense increased by 34 percent to $67.9 million from $50.8 million in the corresponding period of 2013. The increase is mainly a result of the acquisition of the Eagle Ford assets at the beginning of the fourth quarter of 2013, a larger fleet of equipment operating in North America and Latin America, and foreign exchange impacts.

Foreign Exchange Gains or Losses

The Company recorded a primarily unrealized foreign exchange loss of $7.8 million during the first six months of 2014 versus a gain of $2.3 million in the comparative period of 2013. Foreign exchange gains and losses arise primarily from the translation of net monetary assets or liabilities that were held in United States dollars in Canada, Russia and Latin America. The Company's 2014 foreign exchange loss was largely attributable to the translation of United States dollar-denominated liabilities held in Argentina and Russia. The Argentinean peso and Russian rouble weakened from the beginning of the year, resulting in a consolidated net foreign exchange loss.

Interest

The Company's interest expense during the first six months of 2014 increased from the comparable period of 2013 by $10.9 million to $29.4 million. The increase was related to the issuance of an additional US$150.0 million of Calfrac's 7.50 percent senior notes to finance the acquisition of assets from Mission, combined with a weaker Canadian dollar relative to the United States dollar. Loans under the Company's revolving credit facility during the first six months of 2014 were higher than in the comparable period in 2013. Additional short-term borrowing in Latin America to fund the operational expansion in Argentina combined with higher interest rates in that country also contributed to the increase in interest expense.

Income Tax Expenses

The Company recorded an income tax expense of $6.6 million during the first six months of 2014 compared to $2.9 million in the comparable period of 2013. The increase in total income tax expense was primarily due to $3.1 million in tax adjustments relating to prior years recorded during the period that related to Canada and Mexico. The effective tax rate for the first six months of 2014 was impacted by a higher percentage of taxable income in the United States, which has a higher average statutory tax rate, and lower tax recoveries in certain other jurisdictions.

Liquidity and Capital Resources


           
  Three Months Ended June 30,   Six Months Ended June 30,
  2014 2013   2014 2013
(C$000s) ($) ($)   ($) ($)
(unaudited)          
Cash flows provided by (used in):          
  Operating activities 27,322 3,400   47,101 44,902
  Financing activities 9,988 24,587   (1,871) 41,472
  Investing activities (42,160) (44,720)   (66,790) (104,374)
  Effect of exchange rate changes on
cash and cash equivalents
(7,384) 465   (7,869) 6,462
Decrease in cash and cash equivalents (12,234) (16,268)   (29,429) (11,538)
             

Operating Activities

The Company's cash provided by operating activities for the quarter ended June 30, 2014 was $27.3 million versus $3.4 million in the comparative quarter in 2013. The increase was primarily due to increased profitability in the United States. At June 30, 2014, Calfrac's working capital was approximately $334.3 million, a 4 percent increase from December 31, 2013. At June 30, 2014, the Company had accounts receivable of US$39.5 million (December 31, 2013 - US$40.8 million) from a customer operating in Mexico that were outstanding for greater than 120 days, for which no provision has been made. The payment delay is consistent with the experience of many other oilfield service companies in this market. Collection is expected in its entirety; however, the timing is uncertain.

Financing Activities

Net cash provided by financing activities was $10.0 million during the second quarter of 2014 compared to $24.6 million in the comparable quarter of 2013. During the quarter, the Company drew net $8.4 million on its credit facility, issued $9.1 million of common shares for cash and paid cash dividends of $7.6 million.

On August 8, 2013, the Company extended the term of its credit facilities by one year to September 27, 2017. The maturity may be extended by one or more years at the Company's request and lenders' acceptance. The Company also may prepay principal without penalty. The facilities consist of an operating facility of $20.0 million and a syndicated facility of $280.0 million. The interest rates are based on the parameters of certain bank covenants. For prime-based loans and U.S. base-rate loans, the rate ranges from prime or U.S. base rate plus 0.50 percent to prime plus 1.25 percent. For LIBOR-based loans and bankers' acceptance-based loans, the margin thereon ranges from 1.50 percent to 2.25 percent above the respective base rates. As at June 30, 2014, the Company had used $31.5 million of its credit facilities for letters of credit and had $21.9 million outstanding under its credit facility, leaving $246.6 million in available credit.

On October 8, 2013, the Company closed a private offering of US$150.0 million aggregate principal of its 7.50 percent senior notes yielding net proceeds of $150.2 million (US$145.4 million) after applicable discount and debt issuance costs. Fixed interest on the notes is payable semi-annually on June 1 and December 1 of each year. The notes will mature on December 1, 2020. The net proceeds from this offering were used to finance the Mission asset acquisition.

On June 2, 2014, the Company's common shares were split on a two-for-one basis to shareholders on record as of May 23, 2014. Calfrac pays a quarterly dividend of $0.125 per share to shareholders at the discretion of the Board of Directors, which qualify as "eligible dividends" as defined by the Canada Revenue Agency.

Investing Activities

Calfrac's net cash used for investing activities was $42.2 million for the quarter ended June 30, 2014 versus $44.7 million for the same period in 2013. Cash outflows relating to capital expenditures were $42.5 million during 2014 compared to $45.1 million in the comparable period in 2013. Capital expenditures were primarily to support the Company's Canadian, United States and Argentinean fracturing operations.

On July 3, 2014, Calfrac announced its plan to increase its 2014 capital budget to approximately $360.0 million from $150.0 million. The majority of the capital program increase is related to the construction of two fracturing fleets totaling 80,000 horsepower for Calfrac's United States operations, a 35,000 horsepower fracturing fleet for Canada and a 40,000 horsepower fracturing fleet that will operate in the Vaca Muerta shale play in Argentina. In addition, two new twin cementing units will be constructed for Calfrac's Argentina operations. Delivery of the new equipment is expected to begin in early 2015. The increase in capital also includes approximately $38.0 million of additional support and maintenance capital to optimize fleet utilization in North America and Latin America. Approximately $120.0 million of the increased capital spending is expected to occur in 2015.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

The effect of changes in foreign exchange rates on the Company's cash and cash equivalents during the second quarter of 2014 was a loss of $7.4 million versus a gain of $0.5 million during the comparable period of 2013. These gains relate to cash and cash equivalents held by the Company in a foreign currency.

With its substantial working capital position, available credit facilities and anticipated funds provided by operations, the Company expects to have adequate resources to fund its financial obligations and planned capital expenditures for 2014 and beyond.

At June 30, 2014, the Company had cash and cash equivalents of $12.8 million.

Outstanding Share Data

The Company is authorized to issue an unlimited number of common shares. Employees have been granted options to purchase common shares under the Company's shareholder-approved stock option plan. The number of shares reserved for issuance under the stock option plan is equal to 10 percent of the Company's issued and outstanding common shares. As at July 25, 2014, there were 94,758,485 common shares issued and outstanding and 4,530,575 options to purchase common shares.

The Company has a Dividend Reinvestment Plan that allows shareholders to direct that cash dividends paid on all or a portion of their common shares be reinvested in additional common shares that will be issued at 95 percent of the volume-weighted average price of the common shares traded on the Toronto Stock Exchange (TSX) during the last five trading days preceding the relevant dividend payment date.

Advisories


Forward-Looking Statements

In order to provide Calfrac shareholders and potential investors with information regarding the Company and its subsidiaries, including management's assessment of Calfrac's plans and future operations, certain statements contained in this Press Release, including statements that contain words such as "seek", "anticipates", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "forecast" or similar words suggesting future outcomes, are forward-looking statements.

In particular, forward-looking statements in this Press Release include, but are not limited to, statements with respect to expected operating strategies, capital expenditure programs and equipment delivery dates, future financial resources, anticipated equipment utilization levels, future oil and natural gas well activity in each of the Company's operating jurisdictions, results of acquisitions, the impact of environmental regulations on the Company's business, future costs or potential liabilities, projections of market prices and costs, supply and demand for oilfield services, expectations regarding the Company's ability to maintain its competitive position, anticipated benefits of the Company's competitive position, expectations regarding the Company's ability to raise capital, treatment under government regulatory regimes, commodity prices, anticipated outcomes of specific events, trends in and the growth prospects of the global oil and natural gas industry, the Company's growth prospects including, without limitation, its international growth strategy and prospects, and the impact of changes in accounting policies and standards on the Company and its financial statements. These statements are derived from certain assumptions and analyses made by the Company based on its experience and perception of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances, including, but not limited to, the general stability of the economic and political environment in which the Company operates, the Company's expectations for its current and prospective customers' capital budgets and geographical areas of focus, the Company's existing contracts and the status of current negotiations with key customers and suppliers, the focus of the Company's customers on oil and liquids-rich plays in the current natural gas pricing environment in North America, the effect unconventional gas projects have had on supply and demand fundamentals for natural gas and the likelihood that the current tax and regulatory regimes will remain substantially unchanged.

Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Company's expectations. Such risk factors include: general economic conditions in Canada, the United States, Russia, Mexico, Argentina and Colombia; the demand for fracturing and other stimulation services during drilling and completion of oil and natural gas wells; volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally; regional competition; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; changes in legislation and the regulatory environment; sourcing, pricing and availability of raw materials, component parts, equipment, suppliers, facilities and skilled personnel; the ability to integrate technological advances and match advances by competitors; the availability of capital on satisfactory terms; intellectual property risks; uncertainties in weather and temperature affecting the duration of the service periods and the activities that can be completed; dependence on, and concentration of, major customers; the creditworthiness and performance by the Company's counterparties and customers; liabilities and risks associated with prior operations; the effect of accounting pronouncements issued periodically; failure to realize anticipated benefits of acquisitions and dispositions; and currency exchange rate risk. Further information about these and other risks and uncertainties may be found under "Business Risks" in the Company's most recently filed Annual Information Form.

Consequently, all of the forward-looking statements made in this Press Release are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized, or that they will have the expected consequences or effects on the Company or its business or operations. These statements speak only as of the respective date of this Press Release or the document incorporated by reference herein. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities laws.

Business Risks

The business of Calfrac is subject to certain risks and uncertainties. Prior to making any investment decision regarding Calfrac, investors should carefully consider, among other things, the risk factors set forth in the Company's most recently filed Annual Information Form, which are specifically incorporated by reference herein.

The Annual Information Form is available through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR), which can be accessed at www.sedar.com. Copies of the Annual Information Form may also be obtained on request without charge from Calfrac at 411 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1E3, or at www.calfrac.com, or by facsimile at 403-266-7381.

Non-GAAP Measures

Certain supplementary measures in this press release do not have any standardized meaning as prescribed under IFRS and are therefore considered non-GAAP measures. These measures may not be comparable to similar measures presented by other entities. These measures have been described and presented in this press release in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. Management's use of these measures has been disclosed further in this press release as these measures are discussed and presented.

Additional Information

Further information regarding Calfrac Well Services Ltd., including the most recently filed Annual Information Form, can be accessed on the Company's website at www.calfrac.com or under the Company's public filings found at www.sedar.com.

Second Quarter Conference Call

Calfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2014 second quarter results at 10:00 a.m. (Mountain Time) on Tuesday, July 29, 2014. The conference call dial-in number is 1-888-231-8191 or 647-427-7450. The seven-day replay numbers are 1-855-859-2056 or 416-849-0833 (once connected, enter 72025208). A webcast of the conference call may be accessed via the Company's website at www.calfrac.com.

CONSOLIDATED BALANCE SHEETS      
  June 30,   December 31,
As at 2014   2013
(C$000s) (unaudited) ($)   ($)
ASSETS      
Current assets      
  Cash and cash equivalents 12,766   42,195
  Accounts receivable 394,536   395,845
  Income taxes recoverable -   1,146
  Inventories 147,920   134,140
  Prepaid expenses and deposits 19,097   17,189
  574,319   590,515
Non-current assets      
  Property, plant and equipment 1,234,227   1,245,009
  Goodwill 10,523   10,523
  Deferred income tax assets 24,048   23,884
Total assets 1,843,117   1,869,931
         
LIABILITIES AND EQUITY      
Current liabilities      
  Accounts payable and accrued liabilities 221,822   245,899
  Income taxes payable 257   -
  Bank loan (note 3) 17,530   24,298
  Current portion of long-term debt (note 4) 390   384
  239,999   270,581
Non-current liabilities      
  Long-term debt (note 4) 651,773   651,553
  Other long-term liabilities 88   198
  Deferred income tax liabilities 156,642   152,392
Total liabilities 1,048,502   1,074,724
Equity attributable to the shareholders of Calfrac      
Capital stock (note 5) 364,553   332,287
Contributed surplus (note 6) 23,339   27,658
Loan receivable for purchase of common shares (note 11) (2,500)   (2,500)
Retained earnings 412,715   440,179
Accumulated other comprehensive loss (2,521)   (839)
  795,586   796,785
Non-controlling interest (971)   (1,578)
Total equity 794,615   795,207
Total liabilities and equity 1,843,117   1,869,931
       
See accompanying notes to the consolidated financial statements.

     
CONSOLIDATED STATEMENTS OF OPERATIONS  
  Three Months Ended June 30,   Six Months Ended June 30,
  2014 2013   2014 2013
(C$000s, except per share data) (unaudited) ($) ($)   ($) ($)
Revenue 502,957 288,701   1,050,595 712,098
Cost of sales (note 12) 462,174 276,363   950,091 637,772
Gross profit 40,783 12,338   100,504 74,326
Expenses          
  Selling, general and administrative 30,372 22,002   59,497 46,134
  Foreign exchange losses (gains) 4,936 86   7,778 (2,293)
  (Gain) loss on disposal of property, plant and equipment (117) (14)   723 (134)
  Interest 14,470 9,285   29,384 18,488
  49,661 31,359   97,382 62,195
Income (loss) before income tax (8,878) (19,021)   3,122 12,131
Income tax expense (recovery)          
  Current 2,751 (756)   3,406 1,726
  Deferred 1,219 (3,326)   3,144 1,156
  3,970 (4,082)   6,550 2,882
Net income (loss) for the period (12,848) (14,939)   (3,428) 9,249
           
Net income (loss) attributable to:          
  Shareholders of Calfrac (12,905) (14,584)   (3,959) 10,061
  Non-controlling interest 57 (355)   531 (812)
  (12,848) (14,939)   (3,428) 9,249
           
Earnings (loss) per share (note 5)          
  Basic (0.14) (0.16)   (0.04) 0.11
  Diluted (0.14) (0.16)   (0.04) 0.11
           
See accompanying notes to the consolidated financial statements.

   
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
  Three Months Ended June 30,   Six Months Ended June 30,
  2014 2013   2014 2013
(C$000s) (unaudited) ($) ($)   ($) ($)
Net income (loss) for the period (12,848) (14,939)   (3,428) 9,249
Other comprehensive income (loss)          
Items that may be subsequently reclassified to profit or loss:          
  Change in foreign currency translation adjustment 1,489 (785)   (1,606) (1,249)
Comprehensive income (loss) for the period (11,359) (15,724)   (5,034) 8,000
           
Comprehensive income (loss) attributable to:          
  Shareholders of Calfrac (11,416) (15,326)   (5,641) 8,858
  Non-controlling interest 57 (398)   607 (858)
  (11,359) (15,724)   (5,034) 8,000
           
See accompanying notes to the consolidated financial statements.

 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
       
  Equity Attributable to the Shareholders of Calfrac    
  Share
Capital
Contributed
Surplus
Loan
Receivable for
Purchase of
Common
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total Non-
Controlling
Interest
Total
Equity
(C$000s) (unaudited) ($) ($) ($) ($) ($) ($) ($) ($)
Balance - January 1, 2014 332,287 27,658 (2,500) (839) 440,179 796,785 (1,578) 795,207
Net income (loss) - - - - (3,959) (3,959) 531 (3,428)
Other comprehensive income (loss):                
  Cumulative translation adjustment - - - (1,682) - (1,682) 76 (1,606)
Comprehensive income - - - (1,682) (3,959) (5,641) 607 (5,034)
Stock options:                
  Stock-based compensation recognized - 1,787 - - - 1,787 - 1,787
  Proceeds from issuance of shares 23,940 (6,106) - - - 17,834 - 17,834
Dividend Reinvestment Plan shares                
  issued (note 17) 8,326 - - - - 8,326 - 8,326
Dividends - - - - (23,505) (23,505) - (23,505)
Balance - June 30, 2014 364,553 23,339 (2,500) (2,521) 412,715 795,586 (971) 794,615
                 
Balance - January 1, 2013 300,451 27,546 (2,500) (2,403) 458,543 781,637 (878) 780,759
Net income (loss) - - - - 10,061 10,061 (812) 9,249
Other comprehensive income (loss):                
  Cumulative translation adjustment - - - (1,203) - (1,203) (46) (1,249)
Comprehensive income - - - (1,203) 10,061 8,858 (858) 8,000
Stock options:                
  Stock-based compensation recognized - 2,861 - - - 2,861 - 2,861
  Proceeds from issuance of shares 16,496 (4,248) - - - 12,248 - 12,248
Dividend Reinvestment Plan shares                
  Issued (note 17) 3,108 - - - - 3,108 - 3,108
Dividends - - - - (22,847) (22,847) - (22,847)
Non-controlling interest contribution - - - - - - 118 118
Dilution of non-controlling interest - - - - (325) (325) 325 -
Balance - June 30, 2013 320,055 26,159 (2,500) (3,606) 445,432 785,540 (1,293) 784,247
   
See accompanying notes to the consolidated financial statements.

   
CONSOLIDATED STATEMENTS OF CASH FLOWS  
  Three Months Ended June 30,   Six Months Ended June 30,
  2014 2013   2014 2013
(C$000s) (unaudited) ($) ($)   ($) ($)
CASH FLOWS PROVIDED BY (USED IN)          
OPERATING ACTIVITIES          
  Net income (loss) for the period (12,848) (14,939)   (3,428) 9,249
  Adjusted for the following:          
    Depreciation 34,422 25,971   67,943 50,785
    Stock-based compensation 698 1,382   1,787 2,861
    Unrealized foreign exchange losses (gains) 3,530 2,385   8,825 (2,586)
     (Gain) loss on disposal of property, plant and equipment (117) (14)   723 (134)
     Interest 14,470 9,285   29,384 18,488
    Deferred income taxes 1,219 (3,326)   3,144 1,156
  Interest paid (26,296) (17,708)   (28,175) (17,961)
  Changes in items of working capital (note 9) 12,244 364   (33,102) (16,956)
Cash flows provided by operating activities 27,322 3,400   47,101 44,902
FINANCING ACTIVITIES          
  Bank loan proceeds 3,795 3,403   8,013 12,549
  Issuance of long-term debt, net of debt issuance costs 24,456 25,920   24,456 25,920
  Bank loan repayments (3,630) -   (9,951) -
  Long-term debt repayments (16,111) (120)   (27,275) (238)
  Finance lease obligation repayments - (603)   - (740)
  Net proceeds on issuance of common shares 9,072 4,254   17,834 12,248
  Dividends paid, net of DRIP (note 17) (7,594) (8,267)   (14,948) (8,267)
Cash flows provided by (used in) financing activities 9,988 24,587   (1,871) 41,472
INVESTING ACTIVITIES          
  Purchase of property, plant and equipment (note 9) (42,471) (45,073)   (67,396) (105,296)
  Proceeds on disposal of property, plant and equipment 311 235   606 804
  Other - 118   - 118
Cash flows used in investing activities (42,160) (44,720)   (66,790) (104,374)
Effect of exchange rate changes on cash and cash equivalents (7,384) 465   (7,869) 6,462
Increase (decrease) in cash and cash equivalents (12,234) (16,268)   (29,429) (11,538)
Cash and cash equivalents, beginning of period 25,000 47,211   42,195 42,481
Cash and cash equivalents, end of period 12,766 30,943   12,766 30,943
         
See accompanying notes to the consolidated financial statements.
             

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


As at and for the three and six months ended June 30, 2014 and 2013

(Amounts in text and tables are in thousands of Canadian dollars, except share data and certain other exceptions as indicated) (unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Calfrac Well Services Ltd. (the "Company") was formed through the amalgamation of Calfrac Well Services Ltd. (predecessor company originally incorporated on June 28, 1999) and Denison Energy Inc. ("Denison") on March 24, 2004 under the Business Corporations Act (Alberta). The registered office is at 411 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1E3. The Company provides specialized oilfield services, including hydraulic fracturing, coiled tubing, cementing and other well completion services to the oil and natural gas industries in Canada, the United States, Russia, Mexico, Argentina and Colombia.

These condensed consolidated interim financial statements were prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and interpretations by the International Financial Reporting Interpretations Committee (IFRIC). They should be read in conjunction with the annual financial statements for the year ended December 31, 2013. The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect.

These financial statements were approved by the Audit Committee of the Board of Directors for issuance on July 28, 2014.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These interim consolidated financial statements follow the same accounting policies and methods of application as the most recent annual financial statements.

For purposes of calculating income taxes during interim periods, the Company utilizes estimated annualized income tax rates. Current income tax expense is only recognized when taxable income is such that current income taxes become payable.

3. BANK LOAN

The Company's Argentinean subsidiary has two operating lines of credit with a total of ARS133,621 ($17,530) drawn at June 30, 2014 (December 31, 2013 - ARS148,975 ($24,298)). The interest rate ranges from 32.0 percent to 38.0 percent and both lines of credit are secured by bank letters of credit issued on behalf of the Company.

4. LONG-TERM DEBT

       
  June 30,   December 31,
As at 2014   2013
(C$000s) ($)   ($)
US$600,000 senior unsecured notes due December 1, 2020,      
  bearing interest at 7.50% payable semi-annually 640,200   638,160
Less: unamortized debt issuance costs and debt discount (10,391)   (11,161)
  629,809   626,999
$280,000 extendible revolving credit facility, secured by      
  Canadian and U.S. assets of the Company 21,874   24,463
Less: unamortized debt issuance costs (1,100)   (1,291)
  20,774   23,172
US$1,481 mortgage maturing May 2018 bearing interest      
  at U.S. prime less 1%, repayable at US$33 per month      
  principal and interest, secured by certain real property 1,580   1,766
  652,163   651,937
Less: current portion of long-term debt (390)   (384)
  651,773   651,553
     

The fair value of the senior unsecured notes, as measured based on the closing quoted market price at June 30, 2014, was $688,215 (December 31, 2013 - $652,921). The carrying values of the mortgage obligations and revolving credit facilities approximate their fair values as the interest rates are not significantly different from current interest rates for similar loans.

The interest rate on the $280,000 revolving credit facility is based on the parameters of certain bank covenants. For prime-based loans, the rate ranges from prime plus 0.50 percent to prime plus 1.25 percent. For LIBOR-based loans and bankers' acceptance-based loans, the margin thereon ranges from 1.50 percent to 2.25 percent above the respective base rates for such loans. The facility is repayable on or before its maturity of September 27, 2017, assuming it is not extended. The maturity may be extended by one or more years at the Company's request and lenders' acceptance. The Company may also prepay principal without penalty. Debt issuance costs related to this facility are amortized over its term.

Interest on long-term debt (including the amortization of debt issuance costs and debt discount) for the six months ended June 30, 2014 was $26,523 (six months ended June 30, 2013 - $18,452).

The Company also has an extendible operating facility, which includes overdraft protection in the amount of $20,000. The interest rate is based on the parameters of certain bank covenants in the same fashion as the revolving credit facility. Drawdowns under this facility are repayable on September 27, 2017, assuming the facility is not extended. The term and commencement of principal repayments may be extended by one year on each anniversary at the Company's request and lenders' acceptance. The operating facility is secured by the Company's Canadian and U.S. assets.

At June 30, 2014, the Company had utilized $31,556 of its credit facility for letters of credit and had borrowed $21,874 against this facility, leaving $246,570 in available credit.

5. CAPITAL STOCK

Authorized capital stock consists of an unlimited number of common shares.

           
  Six Months Ended   Year Ended
  June 30, 2014   December 31, 2013
Continuity of Common Shares Shares   Amount   Shares   Amount
  (#)   (C$000s)   (#)   (C$000s)
Balance, beginning of period 92,597,148   332,287   90,041,282   300,451
Issued upon exercise of stock options 1,320,900   23,940   1,793,674   21,132
Dividend Reinvestment Plan shares issued (note 17) 529,628   8,326   762,192   10,704
Balance, end of period 94,447,676   364,553   92,597,148   332,287
           

The weighted average number of common shares outstanding for the three months ended June 30, 2014 was 93,946,458 basic and 94,894,078 diluted (three months ended June 30, 2013 - 91,232,276 basic and 91,808,274 diluted). The weighted average number of common shares outstanding for the six months ended June 30, 2014 was 93,439,536 basic and 94,254,620 diluted (six months ended June 30, 2013 - 90,783,376 basic and 91,449,968 diluted). The difference between basic and diluted shares is attributable to the dilutive effect of stock options issued by the Company as disclosed in note 7.

On May 8, 2014, the Company's shareholders approved a split of its common shares on a two-for-one basis to all shareholders on record as of May 23, 2014. The weighted average number of shares, stock options and share-based plans (such as RSUs, DSUs and PSUs) during the period and for all periods presented have been adjusted for this two-for-one share split, without a corresponding change in dollar amounts. Earnings per share have been adjusted to reflect the impact of the two-for-one share split.

6. CONTRIBUTED SURPLUS

         
    Six Months   Year Ended
    Ended   December 31,
Continuity of Contributed Surplus   June 30, 2014   2013
(C$000s)   ($)   ($)
Balance, beginning of period   27,658   27,546
  Stock options expensed   1,787   5,454
  Stock options exercised   (6,106)   (5,342)
Balance, end of period   23,339   27,658
           

7. STOCK-BASED COMPENSATION

(a) Stock Options

         
Six Months Ended June 30,   2014   2013
        Average       Average
        Exercise       Exercise
Continuity of Stock Options   Options   Price   Options   Price
    (#)   (C$)   (#)   (C$)
Balance, beginning of period   5,002,750   13.99   5,840,824   12.84
  Granted   1,231,800   15.72   1,394,400   12.27
  Exercised for common shares   (1,320,900)   13.50   (1,488,324)   8.23
  Forfeited   (319,950)   14.52   (205,600)   14.06
  Expired   -   -   (1,250)   11.24
Balance, end of period   4,593,700   14.56   5,540,050   13.88
                   

Stock options vest equally over four years and expire five years from the date of grant. The exercise price of outstanding options ranges from $10.37 to $19.05 with a weighted average remaining life of 2.92 years. When stock options are exercised the proceeds, together with the compensation expense previously recorded in contributed surplus, are added to capital stock.

For the six months ended June 30, 2014, $1,787 of compensation expense was recognized for stock options (six months ended June 30, 2013 - $2,861) and was included in selling, general and administrative expenses.

(b) Share Units

     
Six Months Ended June 30, 2014   2013
  Deferred   Performance   Restricted   Deferred   Performance   Restricted
  Share   Share   Share   Share   Share   Share
Continuity of Share Units Units   Units   Units   Units   Units   Units
  (#)   (#)   (#)   (#)   (#)   (#)
Balance, beginning of period 70,000   90,000   1,027,590   70,000   90,000   494,460
  Granted 70,000   120,000   774,900   70,000   90,000   778,750
  Exercised (70,000)   (90,000)   (391,014)   (70,000)   (90,000)   (164,820)
  Forfeited -   -   (62,110)   -   -   (52,000)
Balance, end of period 70,000   120,000   1,349,366   70,000   90,000   1,056,390
                         

The Company grants deferred share units to its outside directors. These units vest in November of the year of grant and are settled either in cash (equal to the market value of the underlying shares at the time of exercise) or in Company shares purchased on the open market. The fair value of the deferred share units is recognized equally over the vesting period, based on the current market price of the Company's shares. During the six months ended June 30, 2014, $702 of compensation expense was recognized for deferred share units (six months ended June 30, 2013 - $509). This amount is included in selling, general and administrative expenses. At June 30, 2014, the liability pertaining to deferred share units was $698 (December 31, 2013 - $1,085).

The Company grants performance share units to its senior officers who do not participate in the stock option plan. The amount of the grants earned is linked to corporate performance and the grants vest over three years on the approval of the Board of Directors at the meeting held to approve the consolidated financial statements for the year in respect of which performance is being evaluated. As with the deferred share units, performance share units are settled either in cash or Company shares purchased on the open market. During the six months ended June 30, 2014, $1,091 of compensation expense was recognized for performance share units (six months ended June 30, 2013 - $754). This amount is included in selling, general and administrative expenses. At June 30, 2014, the liability pertaining to performance share units was $865 (December 31, 2013 - $1,395).

The Company grants restricted share units to its employees. These units vest equally over three years and are settled either in cash (equal to the market value of the underlying shares at the time of exercise) or in Company shares purchased on the open market. The fair value of the restricted share units is recognized over the vesting period, based on the current market price of the Company's shares. During the six months ended June 30, 2014, $8,009 of compensation expense was recognized for restricted share units (six months ended June 30, 2013 - $4,716). This amount is included in selling, general and administrative expenses. At June 30, 2014, the liability pertaining to restricted share units was $12,625 (December 31, 2013 - $10,696).

Changes in the Company's obligations under the deferred, performance and restricted share unit plans, which arise from fluctuations in the market value of the Company's shares underlying these compensation programs, are recorded as the share value changes.

8. FINANCIAL INSTRUMENTS

Financial instruments included in the Company's consolidated balance sheets are comprised of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, bank loan and long-term debt.

The fair values of financial instruments included in the consolidated balance sheets, except long-term debt, approximate their carrying amounts due to the short-term maturity of those instruments. The fair value of the senior unsecured notes based on the closing market price at June 30, 2014 was $688,215 before deduction of unamortized debt issuance costs (December 31, 2013 - $652,921). The carrying value of the senior unsecured notes at June 30, 2014 was $640,200 before deduction of unamortized debt issuance costs and debt discount (December 31, 2013 - $638,160). The fair values of the remaining long-term debt instruments approximate their carrying values, as described in note 4.

9. SUPPLEMENTAL CASH FLOW INFORMATION

   
Changes in non-cash operating assets and liabilities are as follows:  
   
  Three Months Ended June 30,   Six Months Ended June 30,
  2014 2013   2014 2013
(C$000s)          
Accounts receivable 47,538 89,675   1,310 7,627
Income taxes payable (recoverable) 1,766 (3,247)   1,404 (2,681)
Inventory (11,738) 2,615   (13,780) 3,110
Prepaid expenses and deposits (3,480) (9,424)   (1,908) (7,361)
Accounts payable and accrued liabilities (21,787) (79,179)   (20,018) (17,524)
Other long-term liabilities (55) (76)   (110) (127)
  12,244 364   (33,102) (16,956)
   
Purchase of property, plant and equipment is comprised of:  
   
  Three Months Ended June 30,   Six Months Ended June 30,
  2014 2013   2014 2013
(C$000s)          
Property, plant and equipment additions (35,585) (46,618)   (62,916) (90,607)
Changes in liabilities related to the purchase          
  of property, plant and equipment (6,886) 1,545   (4,480) (14,689)
  (42,471) (45,073)   (67,396) (105,296)
             

10. CAPITAL STRUCTURE

The Company's capital structure is comprised of shareholders' equity and long-term debt. The Company's objectives in managing capital are (i) to maintain flexibility so as to preserve its access to capital markets and its ability to meet its financial obligations, and (ii) to finance growth, including potential acquisitions.

The Company manages its capital structure and makes adjustments in light of changing market conditions and new opportunities, while remaining cognizant of the cyclical nature of the oilfield services sector. To maintain or adjust its capital structure, the Company may revise its capital spending, adjust dividends paid to shareholders, issue new shares or new debt or repay existing debt.

The Company monitors its capital structure and financing requirements using, amongst other parameters, the ratio of long-term debt to cash flow. Cash flow for this purpose is calculated on a 12-month trailing basis and is defined as follows:

         
  June 30,   December 31,
For the Twelve Months Ended 2014   2013
(C$000s) ($)   ($)
Net income 14,056   26,733
Adjusted for the following:      
  Depreciation 127,164   110,006
  Amortization of debt issuance costs and debt discount 1,845   1,464
  Stock-based compensation 4,380   5,454
  Unrealized foreign exchange losses   12,761   1,350
  Gain on business combination, net of tax (2,747)   (2,747)
  Gain on disposal of property, plant and equipment (657)   (1,514)
  Deferred income taxes 5,344   3,356
Cash flow 162,146   144,102
         

The ratio of long-term debt to cash flow does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

At June 30, 2014, the long-term debt to cash flow ratio was 4.02:1 (December 31, 2013 - 4.52:1) calculated on a 12-month trailing basis as follows:

       
  June 30,   December 31,
For the Twelve Months Ended 2014   2013
(C$000s, except ratio) ($)   ($)
Long-term debt (net of unamortized debt issuance costs and      
  debt discount) (note 4) 652,163   651,937
Cash flow 162,146   144,102
Long-term debt to cash flow ratio 4.02:1   4.52:1
         

The Company is subject to certain financial covenants relating to working capital, leverage and the generation of cash flow in respect of its operating and revolving credit facilities. These covenants are monitored on a monthly basis. The Company is in compliance with all such covenants.

The Company's capital management objectives, evaluation measures and targets remained unchanged over the periods presented.

11. RELATED-PARTY TRANSACTIONS

In November 2010, the Company provided a $2,500 loan to a senior officer to purchase common shares of the Company on the Toronto Stock Exchange. The loan is on a non-recourse basis and is secured by the common shares acquired with the loan proceeds. It is for a term of five years and bears interest at 3.375 percent per annum, payable annually. The market value of the shares that secure the loan was approximately $3,376 as at June 30, 2014 (December 31, 2013 - $2,623). In accordance with applicable accounting standards regarding share purchase loans receivable, this loan is classified as a reduction of shareholders' equity due to its non-recourse nature. In addition, the shares purchased with the loan proceeds are considered to be, in substance, stock options.

The Company leases certain premises from an entity controlled by a director of the Company. The rent charged for these premises for the six months ended June 30, 2014 was $404 (six months ended June 30, 2013 - $208), as measured at the exchange amount.

12. PRESENTATION OF EXPENSES

The Company presents its expenses on the consolidated statements of operations using the function of expense method whereby expenses are classified according to their function within the Company. This method was selected as it is more closely aligned with the Company's business structure. The Company's functions under IFRS are as follows:

  • operations; and
  • selling, general and administrative.

Cost of sales includes direct operating costs (including product costs, direct labour and overhead costs) and depreciation on assets relating to operations.

Additional information on the nature of expenses is as follows:

             
Six Months Ended June 30,     2014     2013
(C$000s)     ($)     ($)
Product costs     315,203     218,299
Depreciation     67,943     50,785
Amortization of debt issuance costs and debt discount     1,020     639
Employee benefits expense (note 13)     246,797     179,472
             

13. EMPLOYEE BENEFITS EXPENSE

Employee benefits include all forms of consideration given by the Company in exchange for services rendered by employees.

             
Six Months Ended June 30,     2014     2013
(C$000s)     ($)     ($)
Salaries and short-term employee benefits     231,610     167,626
Post-employment benefits (group retirement savings plan)     2,430     2,089
Share-based payments     11,589     8,840
Termination benefits     1,168     917
      246,797     179,472
             

14. CONTINGENCIES

Greek Litigation

As a result of the acquisition and amalgamation with Denison in 2004, the Company assumed certain legal obligations relating to Denison's Greek operations.

In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a Greek subsidiary of a consortium in which Denison participated (and which is now a majority-owned subsidiary of the Company), terminated employees in Greece as a result of the cessation of its oil and natural gas operations in that country. Several groups of former employees filed claims against NAPC and the consortium alleging that their termination was invalid and that their severance pay was improperly determined.

In 1999, the largest group of plaintiffs received a ruling from the Athens Court of First Instance that their termination was invalid and that salaries in arrears amounting to approximately $10,002 (6,846 euros) plus interest were due to the former employees. This decision was appealed to the Athens Court of Appeal, which allowed the appeal in 2001 and annulled the above-mentioned decision of the Athens Court of First Instance. The said group of former employees filed an appeal with the Supreme Court of Greece, which was heard on May 29, 2007. The Supreme Court of Greece allowed the appeal and sent the matter back to the Athens Court of Appeal for the consideration of the quantum of awardable salaries in arrears. On June 3, 2008, the Athens Court of Appeal rejected NAPC's appeal and reinstated the award of the Athens Court of First Instance, which decision was further appealed to the Supreme Court of Greece. The matter was heard on April 20, 2010 and a decision rejecting such appeal was rendered in June 2010. NAPC is assessing available rights of appeal to any other levels of court in any jurisdiction where such an appeal is warranted. NAPC is also the subject of a claim for approximately $4,181 (2,862 euros) from the Greek social security agency for social security obligations associated with the salaries in arrears that are the subject of the above-mentioned decision and penalties and interest of approximately $4,247 (2,907 euros) payable on such amounts as at June 30, 2014. 

Several other smaller groups of former employees have filed similar claims in various courts in Greece. One of these cases was heard by the Athens Court of First Instance on January 18, 2007. By judgment rendered November 23, 2007, the plaintiff's allegations were partially accepted, and the plaintiff was awarded compensation for additional work of approximately $51 (35 euros), plus interest. The appeal of this decision was heard on June 2, 2009, at which time an additional claim by the plaintiff was also heard. A decision in respect of the hearing has been rendered which accepted NAPC's appeal of the initial claim and partially accepted the additional claim of the plaintiff, resulting in an award of approximately $16 (11 euros), plus interest.

Another one of the lawsuits seeking salaries in arrears of $187 (128 euros) plus interest was heard by the Supreme Court of Greece on November 6, 2007, at which date the appeal of the plaintiffs was denied for technical reasons due to improper service. A rehearing of this appeal was heard on September 21, 2010 and the decision rendered declared once again the appeal inadmissible due to technical reasons. The remaining action, which is seeking salaries in arrears of approximately $641 (439 euros) plus interest, was scheduled to be heard before the Athens Court of First Instance on October 1, 2009, but has been postponed a total of four times, including the most recent postponement on February 22, 2013. No new hearing date has been set.

The maximum aggregate interest and penalties payable under the claims noted above amounted to $22,594 (15,465 euros) as at June 30, 2014.

Management is of the view that it is improbable there will be a material financial impact to the Company as a result of these claims. Consequently, no provision has been recorded in these consolidated financial statements.

U.S. Litigation

A class and collective action complaint was filed against the Company in September 2012 in the United States District Court for the Western District of Pennsylvania. The complaint alleges failure to pay U.S. employees the correct amount of overtime pay required by the Fair Labor Standards Act (FLSA) and under the Pennsylvania Minimum Wage Act. In May 2013, the plaintiffs amended their complaint to add a Colorado wage-hour claim. In June 2013, the parties filed a joint stipulation for conditional certification of the FLSA collective action with certain current and former employees as the defined class. Notice of the right to opt-in to the class was mailed to 1,204 current and former employees in September 2013. The opt-in period expired on November 15, 2013 and 359 individuals opted in. A discovery plan approved by the court extends through July 23, 2014. Discovery as to a mutually agreed-upon sample of the conditionally-certified opt-in class has been ongoing.

The Company timely filed answers to each complaint and believes it has defences to each claim. At this time no motion for final class certification as to the FLSA claim or motion for certification of the Pennsylvania or Colorado state law claims has been filed. Thus no FLSA, Pennsylvania or Colorado class has been certified. Plaintiffs have not claimed or demanded an amount of damages, so at this time it is not possible to predict the amount of any potential recovery. Given the stage of the proceedings and the existence of available defences, no provision has been recorded in the Company's financial statements regarding these claims, since the direction and financial consequences of the claims in the amended complaint cannot be determined at this time. The Company does not have insurance coverage for these claims.

On June 18, 2014, the U.S. Department of Labor (the "USDOL") commenced a wage and hour investigation in relation to the district office in Smithfield, Pennsylvania. The initial information requests from the USDOL covered all employees, going back two years from June 18, 2014. The USDOL was advised by the Company's external counsel of the class and collective action complaint discussed above, and subsequently agreed to limit its investigation to employees not subject to the complaint, which would be those in the Office Services, Coiled Tubing and Maintenance departments. The Company has provided the payroll and employee information for these departments for three pay periods, as requested by the USDOL. The direction and financial consequences of the investigation cannot be determined at this time.

15. SEGMENTED INFORMATION

The Company's activities are conducted in four geographical segments: Canada, the United States, Russia and Latin America. All activities are related to hydraulic fracturing, coiled tubing, cementing and other well completion services for the oil and natural gas industry.

The business segments presented reflect the Company's management structure and the way its management reviews business performance. The Company evaluates the performance of its operating segments primarily based on operating income, as defined below.

                         
        United       Latin        
    Canada   States   Russia   America   Corporate   Consolidated
(C$000s)   ($)   ($)   ($)   ($)   ($)   ($)
Three Months Ended June 30, 2014                    
Revenue   96,213   315,971   51,209   39,564   -   502,957
Operating income (loss)(1)   (9,322)   58,714   7,222   3,764   (15,545)   44,833
Segmented assets   631,664   866,514   167,000   177,939   -   1,843,117
Capital expenditures   (3,528)(2)   33,199   2,957   2,684   -   35,312
Goodwill   7,236   2,308   979   -   -   10,523
Three Months Ended June 30, 2013                    
Revenue   80,719   146,275   37,305   24,402   -   288,701
Operating income (loss)(1)   2,036   25,175   3,357   (966)   (13,295)   16,307
Segmented assets   655,600   627,853   136,132   162,433   -   1,582,018
Capital expenditures   28,116   11,349   4,533   2,620   -   46,618
Goodwill   7,236   2,308   979   -   -   10,523
Six Months Ended June 30, 2014                    
Revenue   363,887   527,010   90,123   69,575   -   1,050,595
Operating income (loss)(1)   43,157   80,391   8,039   9,656   (32,293)   108,950
Segmented assets   631,664   866,514   167,000   177,939   -   1,843,117
Capital expenditures   10,169   40,217   6,600   5,657   -   62,643
Goodwill   7,236   2,308   979   -   -   10,523
Six Months Ended June 30, 2013                        
Revenue   312,295   273,285   74,466   52,052   -   712,098
Operating income (loss)(1)   57,947   43,214   5,347   186   (27,717)   78,977
Segmented assets   655,600   627,853   136,132   162,433   -   1,582,018
Capital expenditures   45,407   32,158   6,964   6,078   -   90,607
Goodwill   7,236   2,308   979   -   -   10,523

(1)       Operating income (loss) is defined as net income (loss) before depreciation, interest, foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, and income taxes.
(2)      Negative capital expenditures in the second quarter of 2014 were due to equipment built in Canada that was subsequently transferred to the United States.
   
   
  Three Months Ended June 30,   Six Months Ended June 30,
  2014 2013   2014 2013
(C$000s)          
Net income (loss) (12,848) (14,939)   (3,428) 9,249
Add back (deduct):          
  Depreciation 34,422 25,971   67,943 50,785
  Interest 14,470 9,285   29,384 18,488
  Foreign exchange losses (gains) 4,936 86   7,778 (2,293)
  (Gain) loss on disposal of property, plant and equipment (117) (14)   723 (134)
  Income taxes 3,970 (4,082)   6,550 2,882
Operating income 44,833 16,307   108,950 78,977
           

Operating income does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

The following table sets forth consolidated revenue by service line:

             
    Three Months Ended June 30,   Six Months Ended June 30,
    2014 2013   2014 2013
(C$000s)            
Fracturing   457,942 263,496   961,760 647,641
Coiled tubing   21,449 9,505   47,922 31,106
Cementing   20,662 12,414   36,419 24,277
Other   2,904 3,286   4,494 9,074
    502,957 288,701   1,050,595 712,098
         

16. SEASONALITY OF OPERATIONS

Certain of the Company's Canadian and United States businesses are seasonal in nature. The lowest activity levels in these areas are typically experienced during the second quarter of the year when road weight restrictions are in place and access to wellsites in Canada and North Dakota is reduced.

17. DIVIDEND REINVESTMENT PLAN

The Company's Dividend Reinvestment Plan (DRIP) allows shareholders to direct cash dividends paid on all or a portion of their common shares to be reinvested in additional common shares that are issued at 95 percent of the volume-weighted average price of the common shares traded on the Toronto Stock Exchange during the last five trading days preceding the relevant dividend payment date.

A dividend of $0.125 per common share ($11,806) was declared on June 13, 2014, to be paid on July 15, 2014.

A dividend of $0.125 per common share was declared on February 26, 2014 and paid on April 15, 2014. Of the total dividend of $11,699, $4,105 was reinvested under the DRIP into 245,404 common shares of the Company.

A dividend of $0.125 per common share was declared on December 5, 2013 and paid on January 15, 2014. Of the total dividend of $11,575, $4,221 was reinvested under the DRIP into 284,224 common shares of the Company.

A dividend of $0.125 per common share was declared on September 17, 2013 and paid on October 15, 2013. Of the total dividend of $11,531, $4,282 was reinvested under the DRIP into 288,956 common shares of the Company.

A dividend of $0.125 per common share was declared on June 14, 2013 and paid on July 15, 2013. Of the total dividend of $11,472, $3,313 was reinvested under the DRIP into 223,188 common shares of the Company.

A dividend of $0.125 per common share was declared on February 26, 2013 and paid on April 15, 2013. Of the total dividend of $11,375, $3,108 was reinvested under the DRIP into 250,048 common shares of the Company. 

SOURCE Calfrac Well Services Ltd.

For further information:

Fernando Aguilar
President & Chief Executive Officer
Telephone:  403-266-6000
Fax:  403-266-7381

Michael (Mick) J. McNulty
Chief Financial Officer
Telephone:  403-266-6000
Fax:  403-266-7381

Ian Gillies
Manager, Investor Relations
Telephone:  403-266-6000
Fax:  403-266-7381