Calfrac Announces Fourth Quarter Results

CALGARY, Feb. 28 /CNW/ - Calfrac Well Services Ltd. ("Calfrac" or "the Company") (TSX-CFW) announces its financial and operating results for the three months and year ended December 31, 2010.

HIGHLIGHTS            
  Three Months Ended December 31,       Year Ended December 31,
  2010 2009 Change 2010 2009 Change
(000s, except per share and unit data) ($) ($) (%) ($) ($) (%)
(unaudited)            
             
Financial            
Revenue 268,710 173,124 55 935,927 591,500 58
Operating income(1) 62,261 23,157 169 185,442 71,135 161
EBITDA(2) 66,741 23,398 185 190,166 68,795 176
  Per share - basic 1.54 0.58 166 4.41 1.79 146
  Per share - diluted 1.51 0.57 165 4.35 1.79 143
Net income (loss) 19,434 864 2,149 53,807 (5,536) 1,072
  Per share - basic 0.45 0.02 2,150 1.25 (0.14) 993
  Per share - diluted 0.44 0.02 2,100 1.23 (0.14) 979
Funds provided by operations(3) 52,576 19,580 169 161,263 54,620 195
  Per share - basic 1.22 0.48 154 3.74 1.42 163
  Per share - diluted 1.19 0.48 148 3.69 1.42 160
Working capital (end of period) 342,783 128,243 167 342,783 128,243 167
Shareholders' equity (end of period) 517,543 459,932 13 517,543 459,932 13
Weighted average common
shares outstanding (#)
           
  Basic 43,247 40,653 6 43,090 38,475 12
  Diluted 44,124 40,956 8 43,742 38,475 14
             
Operating (end of period)            
Pumping horsepower (000s)       481 456 5
Coiled tubing units (#)       29 28 4
Cementing units (#)       21 21 -

(1) Operating income is defined as net income (loss) before depreciation, interest, foreign exchange gains or losses, gains or losses on disposal of capital assets, income taxes and non-controlling interest. 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 generally accepted accounting principles ("GAAP") and, accordingly, may not be comparable to similar measures used by other companies.

(2) EBITDA is defined as net income (loss) before interest, taxes, depreciation and non-controlling interest. EBITDA is presented because it is frequently used by securities analysts and others for evaluating companies and their ability to service debt. EBITDA is a measure that does not have any standardized meaning prescribed under GAAP and, accordingly, may not be comparable to similar measures used by other companies.

(3) Funds provided by operations is defined as cash provided by operating activities before the net change in non-cash operating assets and liabilities. Funds provided by operations is a measure that provides shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes this measure to assess the Company's ability to finance operating activities and capital expenditures. Funds provided by operations is a measure that does not have any standardized meaning prescribed under GAAP and, accordingly, may not be comparable to similar measures used by other companies.

CEO's MESSAGE
I am pleased to present Calfrac's operating and financial highlights for the three months and year ended December 31, 2010 and to discuss our prospects for 2011. During the fourth quarter, our Company:

  • achieved record fourth quarter revenue, resulting from high levels of pressure pumping activity in the unconventional oil and natural gas plays of western Canada and the United States;
  • commenced fracturing operations in North Dakota to serve customers operating in the Bakken oil shale play;
  • closed a private offering of US$450.0 million of 7.50 percent senior notes, which will mature on December 1, 2020. The Company used a portion of the net proceeds to repay its outstanding indebtedness, including the tender offer for its 7.75 percent senior notes due in 2015 and its outstanding credit facilities and to fund the 2010 and 2011 capital programs; and
  • in December announced an increase of 50 percent to its semi-annual dividend, from $0.05 per share to $0.075 per share, beginning with the January dividend.

Financial Highlights


For the three months ended December 31, 2010, the Company recorded:

  • quarterly revenue of $268.7 million versus $173.1 million in the comparable quarter of 2009, led by higher year-over-year activity in Canada and the United States;
  • operating income of $62.3 million versus $23.2 million in the comparable period in 2009, resulting from strong activity and improved pricing in Canada and the United States combined with a continued focus on cost control; and
  • net income of $19.4 million or $0.44 per share diluted, compared to net income of $0.9 million or $0.02 per share diluted in the fourth quarter of 2009. During the fourth quarter of 2010, Calfrac incurred a $22.7 million pre-tax charge related to the refinancing of the Company's senior notes due in 2015 (after-tax $0.23 per share diluted) which will provide additional long-term financial flexibility to the Company.

For the year ended December 31, 2010, Calfrac generated:

  • revenue of $935.9 million, an increase of 58 percent from 2009;
  • operating income of $185.4 million versus $71.1 million in 2009, resulting from strong activity levels in Canada and the United States;
  • net income of $53.8 million or $1.23 per share diluted compared to a net loss of $5.5 million or $0.14 per share diluted in 2009; and
  • end-of-period working capital of $342.8 million, an increase of 167 percent from December 31, 2009.

Operational Highlights


Canada

In the fourth quarter of 2010, drilling activity, and specifically the horizontal well count, continued to improve. As a result, Calfrac experienced very strong demand for its fracturing and coiled tubing services. This activity was concentrated in the unconventional natural gas and oil resource plays of western Canada, including gas-focused plays such as the Montney and Deep Basin as well as the Cardium, Viking and Bakken oil plays.

Calfrac has remained focused on bringing further efficiencies to customers operating in the natural gas-producing areas of western Canada. A significant portion of the Company's activity during the fourth quarter was in the Montney formation, which is evolving into one of the most economic gas plays in North America. Fracturing programs in this play typically involve high rates and large volumes of product, which demand significant pumping capacity and efficient logistical capabilities to properly execute these jobs. The liquids-rich Deep Basin has also become an area of growth for the Company's Canadian operations due to the success of producers in generating repeatable high production rates from horizontal wells completed with multiple fractures.

Oil well completions represented the most significant growth area for Calfrac during the second half of 2010. For most of the last decade, oil completions in western Canada were a relatively small proportion of overall pressure pumping activity. This changed significantly in 2010 and the increasing oil-focused activity gained momentum throughout the year and was largely focused in the Cardium, Bakken and Viking formations. In the fourth quarter, oil and liquids-rich natural gas work represented approximately 55 percent of Calfrac's total revenue. This trend has provided increased commodity diversification to Calfrac's Canadian operations. During the fourth quarter, the Company signed a long-term minimum commitment contract with one of the leading companies in western Canada focused on developing the Cardium oil play. Calfrac also signed a multi-year agreement for the provision of shallow gas fracturing services with a major oil and natural gas producer.

United States

The Company's operations in the United States continued to deliver solid financial and operational performance during the fourth quarter. In Arkansas, fracturing and cementing activity levels remained strong, resulting in high levels of equipment utilization. The Company experienced a decrease in activity just before year-end and took advantage of the opportunity to perform additional preventative maintenance on its equipment fleet in anticipation of a very active 2011. The Company also continued to experience strong demand for its services in the Marcellus shale play. The Company operated one large fracturing spread in this region during the fourth quarter and in mid-February deployed a second crew to the area. Equipment for the second crew was constructed based on a long-term minimum commitment contract with a significant oil and natural gas producer. Activity levels in the Rocky Mountain region of Colorado remained relatively stable, although not as strong as in some of the emerging unconventional resource plays.

Calfrac undertook several initiatives in the fourth quarter to diversify its United States operations into oil plays in order to capitalize on the renewed focus from operators to target oil-producing formations. The Company commenced fracturing operations in the Bakken play of North Dakota by transferring a crew from the Rocky Mountain region. Calfrac experienced strong demand for its services in the Bakken formation and continues to focus on job execution to this growing customer base. Encouraged by this region's potential, the Company purchased a facility in Williston, North Dakota, positioning Calfrac to participate in the region's future growth. The Company also expects the emerging Niobrara oil shale play in northeast Colorado and southeast Wyoming to continue to develop and drive further commodity diversification in its U.S. operations.

Russia

Activity levels in Western Siberia during the fourth quarter were strong as the Company's customers were focused on completing their 2010 capital programs. As expected, weather became a larger factor during the late fall months and margins declined from the third quarter primarily due to slightly lower activity levels and higher fuel prices and consumption. The Company deployed an additional fracturing spread late in the fourth quarter in preparation for the 2011 tendering process and a seventh coiled tubing unit is scheduled to be operational by the second quarter of 2011.

Latin America

The fourth quarter of 2010 represented a disappointing quarter for Calfrac's Mexican operations as the full impact of low activity levels due to Pemex's budgetary constraints was reflected in the Company's financial results. In response to these market conditions, Calfrac rationalized its cost structure and redeployed some fracturing and cementing equipment to other areas. The Company is hopeful that this represents the trough in the market and is cautiously optimistic based on activity levels experienced in early 2011. Calfrac remains firmly committed to improving the profitability of its Mexican operations and continues to focus on applying new technological solutions to improve the economics of the basins where it operates.

During the fourth quarter, cementing activity levels in Argentina remained consistent. A shallow coiled tubing unit was deployed from Canada to Argentina and commenced operations late in 2010.

Outlook and Business Prospects


In Canada and the United States, exploration and development activity in the unconventional natural gas and oil plays continues to be focused on the use of horizontal wells incorporating multi-stage fracturing. As a result of this trend, strong levels of equipment utilization are expected during 2011. Strong natural gas liquids and crude oil prices are also anticipated to drive incremental completions activity in liquids-rich natural gas and oil formations throughout North America. Calfrac expects the industry trend towards multi-well pads and 24-hour operations to increase as customers remain committed to improving the economics of these plays.

The Company's optimistic outlook for the Canadian market is supported by the Petroleum Services Association of Canada's encouraging drilling forecast of 12,750 wells to be drilled across Canada in 2011, of which an increasing proportion are projected to be horizontal wells. Fracturing and coiled tubing activity in the Montney and Deep Basin plays of northwest Alberta and northeast British Columbia is expected to remain strong as these regions are amongst the most economic natural gas plays in western Canada. Deep Basin activity is expected to be particularly robust due to the high liquids content in certain zones of this play as well as to the very strong recent successes a number of producers have experienced in developing several Deep Basin horizons with horizontal wells. Activity in unconventional light oil plays, such as the Cardium, Viking, Slave Point and Bakken, is expected to be strong as the price of crude oil remains at attractive levels. There are also several other emerging oil and liquids-rich plays which may provide further growth opportunities in 2011 and beyond. The Company expects that at least 70 percent of its operations in 2011 will be focused on oil and liquids-rich natural gas formations, which will provide greater commodity-based diversification to Calfrac's Canadian operations. As a result, the Company expects high levels of equipment utilization in Canada and strong financial performance during 2011.

In the United States, demand for pressure pumping services remains strong. Supported by two long-term minimum commitment contracts with significant oil and natural gas companies, the Company has deployed a newly constructed large fracturing spread to the Marcellus shale gas play and will be deploying another spread and crew during the first half of 2011. By mid-2011, Calfrac anticipates that three large fracturing spreads, with a total of approximately 140,000 hydraulic horsepower, will be servicing the Marcellus shale play. A new facility in Pennsylvania is currently under construction and is expected to be available in late 2011.

The Company recently commenced fracturing operations in the Bakken oil shale play of North Dakota with one large fracturing spread and expects to deploy at least one more fracturing spread into this region during 2011 based on strong demand for Calfrac's services. The Company is encouraged about this play's prospects and the commodity diversification it will bring to its United States operations. High customer demand in the Fayetteville shale play of Arkansas is expected to provide strong levels of fracturing and cementing activity throughout 2011 as this region continues to be one of the most economic basins in North America. Fracturing activity levels in the Rocky Mountain region of Colorado are expected to remain relatively high for the remainder of 2011 with the development of the Niobrara oil shale play in northern Colorado providing a significant growth opportunity in this market. As a result, strong financial performance is expected from the United States segment in 2011.

Calfrac has recently culminated the tender process related to its operations in Russia. This resulted in the award of a mix of annual and multi-year agreements, which is expected to equate into full utilization of the Company's operating fleet. The Company currently has five fracturing spreads and six coiled tubing units operating in this oil-focused market and plans to deploy a seventh coiled tubing unit by the end of the second quarter of 2011. Calfrac is optimistic that the financial performance of this segment will trend higher in 2011.

Activity levels in Mexico during the early part of 2011 have improved from the low levels experienced in the latter half of 2010 due to the easing of Pemex's budget constraints. Calfrac is cautiously optimistic that activity in the Chicontepec play will continue to recover as the year progresses. The Company continues to believe in the long-term potential of this region and will continue to focus on providing new technologies to this market in an effort to improve the efficiencies of this play.

The Company commenced coiled tubing operations in Argentina during the fourth quarter of 2010. This new service line augments its existing cementing and acidizing operations, which are anticipated to be active throughout 2011. Calfrac is also planning to enter the Colombian pressure pumping market with the commencement of cementing operations during 2011. As Colombian activity is predominately focused on oil, it provides further commodity and geographical diversification to the Company and provides another platform for future growth in Latin America.

In December 2010, Calfrac announced a $280.0 million capital program for 2011 that is focused on bolstering the Company's fracturing, coiled tubing and cementing capacity, as well as its infrastructure and logistical capabilities as it continues to expand its presence in the evolving North American unconventional oil and natural gas markets. Additional equipment is also being constructed to support Calfrac's growing Russian and Latin America operations, including the anticipated entry into the Colombian pressure pumping market. Most of this equipment is expected to become operational in the latter part of 2011.

Calfrac's Board of Directors also recently approved a 50 percent increase to the Company's semi-annual cash dividend from $0.05 to $0.075 per share, beginning with the dividend paid on January 15, 2011, thereby increasing the total annual dividend to $0.15 per share in 2011.

On behalf of the Board of Directors,

Douglas R. Ramsay
Chief Executive Officer

February 28, 2010

2010 Overview


In the fourth quarter of 2010, the Company:

  • achieved record fourth quarter revenue of $268.7 million, an increase of 55 percent from the comparable quarter of 2009 driven primarily by strong growth in Calfrac's Canadian and the United States operations;
  • reported operating income of $62.3 million versus $23.2 million in the same quarter of 2009, an increase of 169 percent, mainly as a result of high levels of fracturing activity in the unconventional plays of western Canada and the United States;
  • reported net income of $19.4 million or $0.44 per share, including the impact of $22.7 million of refinancing costs, on a pre-tax basis, resulting from the retirement of the Company's senior notes originally due in 2015, compared to net income of $0.9 million or $0.02 per share in the fourth quarter of 2009. These non-recurring refinancing charges were incurred to provide additional long-term financial flexibility to the Company and, exclusive of these additional expenses, net income would have been $0.67 per share;
  • announced a total 2010 capital program of $236.0 million which is mainly comprised of equipment for Calfrac's growing operations in Canada and the United States, including the construction of two large fracturing spreads supported by long-term minimum commitment contracts with large customers focused on the Marcellus shale play in Pennsylvania and West Virginia;
  • generated funds provided by operations of $52.6 million or $1.19 per share versus $19.6 million or $0.48 per share in the fourth quarter of 2009;
  • closed a private offering of US$450.0 million of 7.50 percent senior notes, which will mature on December 1, 2020. The Company used a portion of the net proceeds to repay its outstanding indebtedness, including to fund the tender offer for its 7.75 percent senior notes due in 2015 and its outstanding credit facilities, as well as for general corporate purposes and to pay related fees and expenses. At December 31, 2010, US$4.3 million of the 2015 senior notes remained outstanding and this balance was fully repaid in February 2011;
  • increased its semi-annual dividend by 50 percent from $0.05 per share to $0.075 per share during December 2010 and declared dividends of $5.4 million in 2010 compared to $4.0 million or $0.10 per share in 2009; and
  • announced a capital budget for 2011 of $280.0 million. The capital program will focus on further bolstering Calfrac's fracturing, coiled tubing and cementing capacity, infrastructure and logistical capabilities as it continues to expand its presence in the emerging North American unconventional oil and natural gas markets. Additional equipment is also being constructed to support Calfrac's growing Russian and Latin America operations, including the anticipated entry into the Colombian pressure pumping market.

In the year ended December 31, 2010, the Company:

  • increased revenue by 58 percent to $935.9 million from $591.5 million in 2009 driven primarily by strong growth in Calfrac's Canadian and United States operations and the contributions from the purchase of fracturing assets from Pure Energy Services Ltd. ("Pure") in August 2009 and the acquisition of Century Oilfield Services Inc. ("Century") in November 2009;
  • reported operating income of $185.4 million, an increase of 161 percent from 2009, mainly as a result of high levels of fracturing activity in the unconventional resource plays of western Canada and the United States;
  • reported net income of $53.8 million or $1.23 per share, which included the pre-tax impact of $22.7 million of refinancing costs resulting from the retirement of the Company's senior notes originally due in 2015, compared to a net loss of $5.5 million or $0.14 per share in 2009. Excluding these additional costs, net income would have been $1.46 per share; and
  • generated funds provided by operations of $161.3 million or $3.69 per share versus $54.6 million or $1.42 per share in 2009.

Financial Overview - Three Months Ended December 31, 2010 Versus 2009


Canada                
Three Months Ended December 31,           2010 2009 Change
(000s, except operational information)           ($) ($) (%)
(unaudited)                
Revenue           160,967 84,754 90
Expenses                
  Operating           102,440 63,344 62
  Selling, General and Administrative (SG&A)           4,024 2,653 52
            106,464 65,997 61
Operating income(1)           54,503 18,757 191
Operating income (%)           33.9% 22.1% 53
Fracturing revenue per job ($)           131,653 91,134 44
Number of fracturing jobs           1,104 868 27
Coiled tubing revenue per job ($)           22,128 23,442 (6)
Number of coiled tubing jobs           706 241 193

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

Revenue

Revenue from Calfrac's Canadian operations during the fourth quarter of 2010 was $161.0 million versus $84.8 million in the comparable three-month period of 2009. The 90 percent increase in revenue was primarily due to improved pricing and the completion of more and larger jobs in the unconventional natural gas resource plays of northern Alberta and northeast British Columbia, combined with an increase in oil-related fracturing in the resource plays of Saskatchewan and west central Alberta. In addition, higher coiled tubing activity levels in western Canada and larger job sizes also contributed to the increase in revenue during the fourth quarter. This increase was partially driven by incremental revenue following the acquisition of Century in mid-November 2009, which added 70,000 horsepower and 10 coiled tubing units to the Canadian equipment fleet. In Canada, a total of 4,070 wells were drilled during the fourth quarter of 2010 compared to 2,671 wells in the comparable period of 2009.

Operating Expenses

Operating expenses in Canada increased by 62 percent to $102.4 million during the fourth quarter of 2010 from $63.3 million in the same period of 2009. The increase in Canadian operating expenses was mainly due to higher overall fracturing and coiled tubing activity levels in the unconventional oil and natural gas resource plays of western Canada, a larger Canadian equipment fleet, increased 24-hour operations and higher annual bonus expenses.

SG&A Expenses

SG&A expenses for Calfrac's Canadian operations during the fourth quarter of 2010 increased from the corresponding period in 2009 by 52 percent to $4.0 million, primarily due to a significant increase in revenue base and personnel costs following the acquisition of Century in November 2009 and higher annual bonus expenses.

United States                
Three Months Ended December 31,           2010 2009 Change
(000s, except operational and exchange rate information)           ($) ($) (%)
(unaudited)                
Revenue           84,190 54,256 55
Expenses                
  Operating           59,913 48,760 23
  SG&A           3,202 2,091 53
            63,115 50,851 24
Operating income(1)           21,075 3,405 519
Operating income (%)           25.0% 6.3% 297
Fracturing revenue per job ($)           66,751 59,263 13
Number of fracturing jobs           1,204 867 39
Cementing revenue per job ($)           22,221 21,458 4
Number of cementing jobs           172 134 28
Cdn$/US$ average exchange rate(2)           1.0128 1.0563 (4)

(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 during the fourth quarter of 2010 to $84.2 million from $54.3 million in the comparable quarter of 2009. The increase was due primarily to higher fracturing activity levels in the Fayetteville shale play in Arkansas and the Marcellus shale formation in Pennsylvania and West Virginia, combined with the commencement of fracturing operations in the Bakken play of North Dakota. The revenue increase was also a result of improved pricing and higher cementing activity in Arkansas. It was partially offset by lower fracturing activity levels in the Rocky Mountain region of Colorado and a 4 percent decline in the United States dollar against the Canadian dollar.

Operating Expenses

Operating expenses in the United States were $59.9 million for the fourth quarter of 2010, an increase of 23 percent from the comparative period in 2009. The increase in operating expenses was primarily due a significantly higher revenue base resulting from higher fracturing activity in Arkansas and the Marcellus shale play of Pennsylvania and West Virginia combined with the start-up expenses related to the commencement of fracturing operations in the Bakken play of North Dakota during the fourth quarter of 2010, and higher annual bonus expenses. These factors were offset partially by the impact of the depreciation of the United States dollar versus the Canadian dollar.

SG&A Expenses

SG&A expenses in the United States during the fourth quarter of 2010 increased by 53 percent from the comparable period in 2009 to $3.2 million. This increase was primarily due to higher personnel expenses related to the Company's larger revenue base resulting from the expansion of operations in the Marcellus shale play, commencement of fracturing operations in the Bakken play during the fourth quarter of 2010 and higher annual bonus expenses. These factors were offset partially by the impact of the decline in the value of the United States dollar versus the Canadian dollar.

Russia      
Three Months Ended December 31, 2010 2009 Change
(000s, except operational and exchange rate information) ($) ($) (%)
(unaudited)      
Revenue 19,095 14,698 30
Expenses      
  Operating 16,232 10,667 52
  SG&A 1,410 984 43
  17,642 11,651 51
Operating income(1) 1,453 3,047 (52)
Operating income (%) 7.6% 20.7% (63)
Fracturing revenue per job ($) 81,272 74,379 9
Number of fracturing jobs 153 120 28
Coiled tubing revenue per job ($) 44,697 52,959 (16)
Number of coiled tubing jobs 149 109 37
Cdn$/rouble average exchange rate(2) 0.0330 0.0358 (8)

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

(2) Source: Bank of Canada.

Revenue

During the fourth quarter of 2010, the Company's revenue from Russian operations increased by 30 percent to $19.1 million from $14.7 million in the corresponding three-month period of 2009. The increase in revenue was mainly due to higher fracturing and coiled tubing activity levels in Western Siberia as well as larger fracturing job sizes. The increase in revenue was offset partially by the completion of smaller coiled tubing jobs combined with the depreciation of the Russian rouble by 8 percent versus the Canadian dollar.

Operating Expenses

Operating expenses in Russia in the fourth quarter of 2010 were $16.2 million compared to $10.7 million in the corresponding period of 2009. The increase in operating expenses was primarily due to job mix, the provision of proppant and additional services for a new customer in Western Siberia and higher fuel prices, offset partially by the depreciation in the Russian rouble against the Canadian dollar.

SG&A Expenses

SG&A expenses in Russia were $1.4 million for the three-month period ended December 31, 2010 versus $1.0 million in the same quarter of 2009. The increase in SG&A expenses was primarily due to additional personnel supporting the Company's broader scope of operations in Western Siberia, offset partially by the depreciation of the Russian rouble versus the Canadian dollar.

Latin America      
Three Months Ended December 31, 2010 2009 Change
(000s, except operational and exchange rate information) ($) ($) (%)
(unaudited)      
Revenue 4,458 19,416 (77)
Expenses      
  Operating 7,535 16,389 (54)
  SG&A 909 430 111
  8,444 16,819 (50)
Operating income (loss)(1) (3,986) 2,597 (253)
Operating income (loss) (%) -89.4% 13.4% (767)
Cdn$/Mexican peso average exchange rate(2) 0.0817 0.0809 1
Cdn$/Argentine peso average exchange rate(2) 0.2505 0.2765 (9)

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

(2) Source: Bank of Canada.

Revenue

Calfrac's Latin America operations generated total revenue of $4.5 million during the fourth quarter of 2010 versus $19.4 million in the comparable three-month period in 2009. The decrease in revenue was primarily due to significantly lower Mexican fracturing and cementing activity resulting from Pemex budget constraints combined with the completion of smaller cementing jobs in Latin America. Revenue for the three months ended December 31, 2010 also decreased due to a $2.9 million non-recurring revenue adjustment resulting from a comprehensive review of work performed and associated charges.

Operating Expenses

Operating expenses in Latin America for the three months ended December 31, 2010 decreased by 54 percent from the comparable period in 2009 to $7.5 million. The decrease was primarily due to the impact of lower fracturing and cementing activity levels in Mexico, and a $0.9 million adjustment to reverse over-accrued subcontractor costs associated with the review of charges noted above.

SG&A Expenses

SG&A expenses in Latin America increased to $0.9 million from $0.4 million in the comparable quarter of 2009 primarily due to a larger scope of operations.

Corporate      
Three Months Ended December 31, 2010 2009 Change
(000s) ($) ($) (%)
(unaudited)      
Expenses      
  Operating 1,371 520 164
  SG&A 9,413 4,129 128
  10,784 4,649 132
Operating loss(1) (10,784) (4,649) (132)

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

Operating Expenses

Operating expenses primarily relate to global operations and R&D personnel located in the Corporate headquarters who directly support the Company's global field operations. The 164 percent increase in Corporate operating expenses from the fourth quarter of 2009 is mainly due to higher compensation expenses as a result of an increase in the number of personnel supporting the growth in the Company's operations, higher annual bonus expenses and the reinstatement of wages that were rolled back in 2009.

SG&A Expenses

For the three months ended December 31, 2010, Corporate SG&A expenses increased by 128 percent from the comparable 2009 period to $9.4 million, mainly due to higher stock-based compensation expenses, including approximately $1.2 million related to the estimated fair value of a benefit associated with a loan to a senior officer, and higher annual bonuses. In addition, the reversal of wage rollbacks and costs arising from additional corporate personnel supporting the Company's broader scale of operations and higher professional fees, some of which were related to the transition to IFRS, contributed to the increase in corporate SG&A expenses.

Depreciation

For the three months ended December 31, 2010, depreciation expense increased by 17 percent to $20.6 million from $17.6 million in the corresponding quarter of 2009. The increase was mainly a result of a larger fleet of equipment operating in North America from the Company's 2009 and 2010 capital programs and the 2009 acquisition of Century in November 2009. This increase was offset partially by the depreciation of the United States dollar versus the Canadian dollar.

Interest, Net

The Company's net interest expense of $30.2 million for the fourth quarter of 2010 represented an increase of $25.9 million from $4.3 million in the comparable period of 2009. This increase was primarily due to incurring $22.7 million of refinancing costs related to the early redemption of US$230.7 million of the unsecured senior notes originally due in February 2015. These factors were offset partially by the impact of the depreciation of the United States dollar versus the Canadian dollar.

Foreign Exchange Losses or Gains

The Company realized a foreign exchange gain of $4.4 million during the fourth quarter of 2010 versus $0.1 million in the comparative three-month period of 2009. Foreign exchange gains and losses arise primarily from the impact of foreign exchange fluctuations on the parent company's net monetary assets and liabilities as well as the translation of Calfrac's international operations in Russia, Mexico and Argentina using the temporal method. The foreign exchange gain recorded in the fourth quarter of 2010 was primarily related to the translation of a U.S. dollar-denominated inter-company loan from a subsidiary in the United States to the parent company. As the U.S. subsidiary is translated using the current rate method, the associated foreign exchange loss is recorded in the Consolidated Statements of Other Comprehensive Income (Loss).

Income Tax Expenses

The Company recorded an income tax recovery of $3.5 million during the fourth quarter of 2010 compared to income tax expense of $0.6 million in the comparable period of 2009. The effective income tax rate for the three months ended December 31, 2010 was negative 22 percent compared to 41 percent in the same quarter of 2009. The decrease in the effective tax rate, although partially offset by significantly higher profitability in Canada, was primarily due to lower profitability in Latin America and Russia combined with substantial refinancing costs related to the redemption of US$230.7 million of unsecured notes resulting in a net recovery of current income tax. The utilization of a capital loss carryforward, the benefit of which was not previously recorded, also contributed to the decrease in the effective tax rate for the quarter.

Summary of Quarterly Results          
Quarters Ended       Mar. 31,       June 30,       Sept. 30,       Dec. 31,       Total
(000s, except per share and operating data) ($) ($) ($) ($) ($)
(unaudited)          

2010

         

Financial

         

Revenue

227,123 164,849 275,245 268,710 935,927

Operating income(1)

38,908 14,907 69,366 62,261 185,442
EBITDA(1) 40,867 11,976 70,582 66,741 190,166
  Per share - basic 0.95 0.28 1.64 1.54 4.41
  Per share - diluted 0.94 0.28 1.62 1.51 4.35
Net income (loss) 13,636 (10,457) 31,194 19,434 53,807
  Per share - basic 0.32 (0.24) 0.72 0.45 1.25
  Per share - diluted 0.31 (0.24) 0.72 0.44 1.23
Funds provided by operations(1) 36,512 6,159 66,016 52,576 161,263
  Per share - basic 0.85 0.14 1.53 1.22 3.74
  Per share - diluted 0.84 0.14 1.52 1.19 3.69
Capital expenditures 14,938 26,825 30,099 47,079 118,941
Working capital (end of period) 157,688 139,581 177,716 342,783 342,783
Shareholders' equity (end of period) 474,718 466,746 497,911 517,543 517,543
           
Operating (end of period)          
Pumping horsepower (000s) 465 472 481 481  
Coiled tubing units (#) 28 28 28 29  
Cementing units (#) 21 21 21 21  

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

           
Quarters Ended       Mar. 31,       June 30,       Sept. 30,       Dec. 31,       Total
(000s, except per share and operating data) ($) ($) ($) ($) ($)
(unaudited)          

2009

         

Financial

         

Revenue

180,388 104,727 133,261 173,124 591,500

Operating income(1)

27,427 4,052 16,499 23,157 71,135
EBITDA(1) 25,945 4,340 15,112 23,398 68,795
  Per share - basic 0.69 0.11 0.40 0.58 1.79
  Per share - diluted 0.69 0.11 0.40 0.57 1.79
Net income (loss) 5,528 (14,770) 2,842 864 (5,536)
  Per share - basic 0.15 (0.39) 0.08 0.02 (0.14)
  Per share - diluted 0.15 (0.39) 0.08 0.02 (0.14)
Funds provided by operations(1) 22,713 128 12,199 19,580 54,620
  Per share - basic 0.60 - 0.32 0.48 1.42
  Per share - diluted 0.60 - 0.32 0.48 1.42
Capital expenditures 15,857 9,862 58,212 18,245 102,176
Working capital (end of period) 129,532 111,864 103,331 128,243 128,243
Shareholders' equity (end of period) 402,537 380,515 378,972 459,932 459,932
           
Operating (end of period)          
Pumping horsepower (000s) 303 319 371 456  
Coiled tubing units (#) 18 18 18 28  
Cementing units (#) 20 20 21 21  

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

Financial Overview - Year Ended December 31, 2010 Versus 2009


Canada      
Years Ended December 31, 2010 2009 Change
(000s, except operational information) ($) ($) (%)
(unaudited)      
Revenue 507,247 241,821 110
Expenses      
  Operating 343,764 199,214 73
  SG&A 14,583 9,743 50
  358,347 208,957 71
Operating income(1) 148,900 32,864 353
Operating income (%) 29.4% 13.6% 116
Fracturing revenue per job ($) 124,580 90,741 37
Number of fracturing jobs 3,702 2,372 56
Coiled tubing revenue per job ($) 26,046 19,280 35
Number of coiled tubing jobs 1,768 1,193 48

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

Revenue

Revenue from Calfrac's Canadian operations was $507.2 million in 2010 versus $241.8 million in 2009. The 110 percent increase was primarily due to higher fracturing activity levels, pricing increases and the completion of larger jobs in the unconventional resource plays located in northern Alberta and northeast British Columbia. In addition, the Company's operations in western Canada during 2010 experienced a significant increase in oil-related fracturing in the Bakken and Viking formations of Saskatchewan and the Cardium play of west central Alberta. This increase was also partially driven by incremental revenue as a result of the acquisition of Century in mid-November 2009, which added 70,000 horsepower and 10 coiled tubing units to the Canadian equipment fleet, combined with higher coiled tubing activity levels and the completion of larger coiled tubing jobs. In 2010, 12,140 wells were drilled in western Canada, an increase of 45 percent from 2009. Of the total wells drilled in 2010, 41 percent were horizontal wells, compared to 29 percent of total wells drilled in 2009.

Operating Expenses

Operating expenses in Canada were $343.8 million during 2010 versus $199.2 million in 2009 mainly due to higher fracturing and coiled tubing activity levels combined with larger job sizes in the unconventional oil and natural gas resource plays of western Canada. In addition, higher operating expenses resulted from Calfrac's larger equipment fleet and the impact of increased 24-hour operations.

SG&A Expenses

SG&A expenses for Calfrac's Canadian operations were $14.6 million during 2010, an increase of 50 percent from 2009, primarily due to a larger scope of operations and an increase in personnel and related costs following the acquisition of Century in November 2009, combined with higher annual bonus expenses.

United States      
Years Ended December 31, 2010 2009 Change
(000s, except operational and exchange rate information) ($) ($) (%)
(unaudited)      
Revenue 301,512 218,276 38
Expenses      
  Operating 225,567 184,973 22
  SG&A 10,513 7,410 42
  236,080 192,383 23
Operating income(1) 65,432 25,893 153
Operating income (%) 21.7% 11.9% 82
Fracturing revenue per job ($) 64,726 71,515 (9)
Number of fracturing jobs 4,459 2,840 57
Cementing revenue per job ($) 22,015 20,259 9
Number of cementing jobs 586 749 (22)
Cdn$/US$ average exchange rate(2) 1.0299 1.1420 (10)

(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 during 2010 to $301.5 million from $218.3 million in 2009 primarily due to higher fracturing activity levels in the Rocky Mountain region of Colorado, the Fayetteville shale play in Arkansas and the Marcellus shale play in Pennsylvania and West Virginia, which began operations during the fourth quarter of 2009. In addition, the commencement of fracturing operations in the Bakken play of North Dakota during the fourth quarter of 2010 and larger cementing job sizes contributed to the increase in revenue. This increase was partially offset by the 10 percent decline in the United States dollar against the Canadian dollar and lower cementing activity levels.

Operating Expenses

Operating expenses in the United States were $225.6 million for 2010, an increase of 22 percent from 2009. This increase in operating expenses was primarily due to a higher revenue base and larger equipment fleet resulting from the acquisition of fracturing assets from Pure during the third quarter of 2009 and the 2010 capital program. In addition, operating expenses increased from 2009 due to the commencement of fracturing operations in the Marcellus shale play of Pennsylvania and West Virginia as well as the Bakken oil shale play in North Dakota. These factors were offset partially by the impact of the depreciation of the United States dollar.

SG&A Expenses

SG&A expenses in the United States during 2010 increased by 42 percent from 2009 to $10.5 million primarily due to higher personnel expenses related to the Company's larger scope of operations and higher annual bonus expenses. The Company acquired Pure's fracturing assets during August 2009 and expanded into the Marcellus shale play during the fourth quarter of 2009. In the fourth quarter of 2010, Calfrac also commenced fracturing operations in the Bakken formation of North Dakota. This increase in SG&A expenses was offset slightly by the impact of the decline in the value of the United States dollar against the Canadian dollar.

Russia      
Years Ended December 31, 2010 2009 Change
(000s, except operational and exchange rate information) ($) ($) (%)
(unaudited)      
Revenue 76,595 66,630 15
Expenses      
  Operating 62,791 44,032 43
  SG&A 4,860 3,631 34
  67,651 47,663 42
Operating income(1) 8,944 18,967 (53)
Operating income (%) 11.7% 28.5% (59)
Fracturing revenue per job ($) 82,151 75,204 9
Number of fracturing jobs 603 558 8
Coiled tubing revenue per job ($) 43,926 46,983 (7)
Number of coiled tubing jobs 616 525 17
Cdn$/rouble average exchange rate(2) 0.0339 0.0360 (6)

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

(2) Source: Bank of Canada.

Revenue

During 2010, the Company's revenue from Russian operations increased by 15 percent to $76.6 million from $66.6 million in 2009 primarily due to higher overall fracturing and coiled tubing activity levels, resulting from a larger equipment fleet and contract base combined with an increase in fracturing job sizes. This increase in revenue was offset partially by the impact on equipment downtime due to long periods of cold weather during January and February 2010. Activity was also impacted negatively by lower fracturing activity during the second quarter resulting from a slower pace of development by the Company's customers. In addition, smaller coiled tubing job sizes and the depreciation of the Russian rouble by 6 percent versus the Canadian dollar also slightly offset the increase in reported revenue.

Operating Expenses

Operating expenses in Russia were $62.8 million in 2010 compared to $44.0 million in 2009 primarily due to the higher levels of activity as well as additional expenses related to the provision of proppant and other materials for a new customer in Western Siberia. These factors were offset partially by the depreciation of the Russian rouble against the Canadian dollar.

SG&A Expenses

SG&A expenses in Russia were $4.9 million for 2010 versus $3.6 million in 2009 primarily due to increased personnel supporting Calfrac's larger operating scale in Western Siberia and higher annual bonus expenses, offset partially by the depreciation of the Russian rouble against the Canadian dollar.

Latin America      
Years Ended December 31, 2010 2009 Change
(000s, except operational and exchange rate information) ($) ($) (%)
(unaudited)      
Revenue 50,573 64,773 (22)
Expenses      
  Operating 53,687 52,046 3
  SG&A 3,203 2,115 51
  56,890 54,161 5
Operating income (loss)(1) (6,317) 10,612 (160)
Operating income (loss) (%) -12.4% 16.4% (176)
Cdn$/Mexican peso average exchange rate(2) 0.0816 0.0845 (3)
Cdn$/Argentine peso average exchange rate(2) 0.2593 0.3037 (15)

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

(2) Source: Bank of Canada.

Revenue

Calfrac's Latin American operations generated total revenue of $50.6 million during 2010 versus $64.8 million in 2009. Revenue generated through subcontractors decreased in 2010 by $0.4 million to $13.3 million as compared to 2009. The decrease in annual revenue was primarily due to smaller fracturing job sizes and reduced activity in Mexico due to Pemex budget constraints during the latter half of 2010 and security issues throughout the year, smaller cementing job sizes in Argentina and the depreciation of the Mexican and Argentine pesos versus the Canadian dollar. This decrease was offset partially by higher cementing activity in Latin America.

Operating Expenses

Operating expenses in Latin America for 2010 increased by 3 percent from 2009 to $53.7 million. The increase was primarily due to broader scope of operations, including the start-up and commencement of cementing operations in Mexico during the third quarter of 2009 and the start-up costs for the commencement of coiled tubing operations in Argentina. The increase in operating expenses was partially offset by the impact of the decline in the Mexican and Argentine pesos versus the Canadian dollar.

SG&A Expenses

SG&A expenses in Latin America increased by $1.1 million from 2009 to $3.2 million in 2010 primarily due to higher personnel expenses and professional fees, partially offset by the impact of the depreciation of the Mexican and Argentine pesos against the Canadian dollar.

Corporate      
Years Ended December 31, 2010 2009 Change
(000s) ($) ($) (%)
(unaudited)      
Expenses      
  Operating 5,072 2,418 110
  SG&A 26,445 14,783 79
  31,517 17,201 83
Operating loss(1) (31,517) (17,201) (83)

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

Operating Expenses

Operating expenses relate primarily to global operations and research and development (R&D) personnel located in the Corporate headquarters who directly support the Company's global field operations. The 110 percent increase in Corporate operating expenses from 2009 is mainly due to higher compensation expenses as a result of an increase in the number of personnel supporting the Company's significant capital programs and larger scope of operations stemming from the acquisition of Century and of Pure's fracturing assets as well as the reversal of 2009 wage rollbacks and higher annual bonus expenses.

SG&A Expenses

For 2010, Corporate SG&A expenses increased by 79 percent to $26.4 million, mainly due to higher annual bonus and stock-based compensation expenses as well as the reversal of wage rollbacks and additional corporate personnel supporting the Company's broader scale of operations.

Depreciation

For 2010, depreciation expense increased by 26 percent to $79.8 million from $63.2 million in 2009. The increase was mainly a result of a larger fleet of equipment operating in North America, resulting from Calfrac's 2009 and 2010 capital programs, the Company's 2009 acquisition of fracturing assets from Pure and the fracturing and coiled tubing equipment acquired in the acquisition of Century in November 2009. This increase was offset partially by the depreciation of the United States dollar versus the Canadian dollar.

Interest, Net

The Company's net interest expense of $48.8 million for 2010 represented an increase of $33.6 million from $15.2 million in 2009. This increase was primarily due to $22.7 million of refinancing costs related to the redemption of US$230.7 million of unsecured senior notes in the fourth quarter of 2010 and the issuance of an additional US$100.0 million in senior unsecured notes during December 2009 primarily to fund the purchase of Pure's fracturing assets and the acquisition of Century in November 2009. This increase was partially offset by lower interest expense related to the Company's senior unsecured notes resulting from the depreciation of the United States dollar.

Foreign Exchange Losses or Gains

The Company incurred a foreign exchange gain of $3.8 million during 2010 versus a foreign exchange loss of $3.8 million in 2009. Foreign exchange gains and losses arise primarily from the impact of foreign exchange fluctuations on the net monetary assets and liabilities of the parent company combined with the translation of Calfrac's international operations in Russia, Mexico and Argentina using the temporal method. The foreign exchange gain recorded in 2010 was primarily related to the translation of a U.S. dollar-denominated inter-company loan from a subsidiary in the United States to the parent company. As the United States subsidiary is translated using the current rate method, the associated foreign exchange loss is recorded in the Consolidated Statements of Other Comprehensive Income (Loss).

Income Tax Expenses

The Company recorded an income tax expense of $7.8 million during 2010 versus an income tax recovery of $4.2 million during 2009. The effective income tax rate for 2010 was 13 percent compared to 44 percent in 2009. The Company's consolidated income tax provision and effective tax rate are impacted by the mix of earnings or losses from the different jurisdictions in which it operates. Taxable earnings during 2010 were higher in Canada and the United States and lower in Russia and Mexico than in 2009. Furthermore, the effective tax rate on Canadian earnings was reduced during the first quarter of 2010 by the elimination of the deferred credit balance, which resulted from the amalgamation with Denison Energy Inc. Thereafter, Canadian earnings or losses are subject to income taxes at full statutory rates. In the fourth quarter, the Company incurred substantial refinancing costs related to the redemption of US$230.7 million of unsecured notes due in 2015, which resulted in a net recovery of current income tax and also contributed to the decrease in the effective income tax rate. In addition, Calfrac utilized a capital loss carryforward in the fourth quarter, the benefit of which was not previously recorded, that also contributed to the decrease in the effective tax rate for the year.

Liquidity and Capital Resources    
     
Years Ended December 31, 2010 2009
(000s) ($) ($)
(unaudited)    
Cash provided by (used in):    
  Operating activities 119,219 55,927
  Financing activities 185,285 70,282
  Investing activities (99,437) (129,114)
  Effect of exchange rate changes on cash and cash equivalents (13,533) (8,517)
Increase (decrease) in cash and cash equivalents 191,534 (11,422)

Operating Activities

The Company's cash provided by operating activities for the year ended December 31, 2010 was $119.2 million versus $55.9 million in 2009. The change was primarily due to a $106.6 million increase in funds provided by operations (refer to "Non-GAAP Measures" on page 17) offset partially by a $43.3 million net increase in non-cash working capital. At December 31, 2010, Calfrac's working capital was approximately $342.8 million, an increase of 167 percent from December 31, 2009. The Company reviewed its year-end accounts receivable in detail and determined that a provision for doubtful accounts receivable totalling $1.5 million was adequate. The majority of this provision related to a customer that filed for Chapter 11 restructuring under United States bankruptcy law in 2008.

Financing Activities

Net cash provided by financing activities for 2010 was $185.3 million compared to $70.3 million in 2009. The net issuance of long-term debt in 2010 was $184.8 million compared to $108.9 million in 2009. The net repayment of the bank loan was nil for the year ended December 31, 2010 and $34.6 million for 2009. At December 31, 2010, the Company's total long-term debt was $443.3 million compared to $267.4 million at December 31, 2009.

On November 18, 2010, Calfrac completed a private placement of senior unsecured notes for an aggregate principal amount of US$450.0 million due on December 1, 2020, which bears semi-annual interest of 7.50 percent per annum. The Company used the net proceeds of the offering to repay indebtedness, including to fund the tender offer for its 7.75 percent senior notes due in 2015, as well as for general corporate purposes and to pay related fees and expenses. At December 31, 2010, US$4.3 million of the 2015 senior notes remained outstanding and this balance was fully repaid in February 2011.

In November 2010, the Company loaned Fernando Aguilar, the Company's President and Chief Operating Officer, $2.5 million for the purpose of facilitating the purchase of 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 the rate of 3.375% per annum, payable annually. The market value of the shares that secure the loan was approximately $2.9 million as of December 31, 2010. In accordance with applicable accounting standards regarding share purchase loans receivable, this loan has been 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. As a result, the estimated fair value of the benefit associated with the loan of approximately $1.2 million was recognized as a charge to selling, general and administrative expenses and a credit to contributed surplus.

On September 28, 2010, the Company restructured and renewed its credit facilities with a syndicate of Canadian chartered banks to increase the operating facility from $10.0 million to $15.0 million and decrease the extendible revolving term syndicated facility from $165.0 million to $160.0 million. The interest rate on the revolving term facility is based upon the parameters of certain bank covenants. For prime-based loans, the rate ranges from prime plus 0.75 percent to prime plus 2.25 percent. For LIBOR-based loans and Bankers' Acceptance-based loans, the margin thereon ranges from 2.00 percent to 3.50 percent above the respective base rates for such loans. As of December 31, 2010, the Company had utilized $0.8 million of its syndicated facility for letters of credit, leaving $174.2 million in available credit.

At December 31, 2010, the Company had cash and cash equivalents of $216.6 million, including restricted cash of $4.3 million. A portion of these funds was invested in short-term investments with an institution in the Company's banking syndicate, which consisted primarily of bearer deposit notes and an overnight money market fund.

The Company pays semi-annual common share dividends to shareholders at the discretion of the Board of Directors, which qualify as "eligible dividends" as defined by the Canada Revenue Agency. In December 2010, the Company increased its semi-annual cash dividend from $0.05 to $0.075 per share, beginning with the dividend paid on January 15, 2011, thereby increasing the annual dividend to $0.15 per share beginning in 2011. Dividends were funded by funds provided by operations (refer to "Non-GAAP Measures" on page 17) and totalled $5.4 million and $4.0 million in 2010 and 2009, respectively.

Investing Activities

For 2010, Calfrac's net cash used for investing activities was $99.4 million versus $129.1 million for 2009. Capital expenditures were $118.9 million in 2010 compared to $102.2 million in 2009, which included the acquisition of Pure's fracturing assets for $44.5 million. Capital expenditures were primarily related to supporting the Company's fracturing operations throughout North America.

In March 2010, the Company acquired a non-controlling interest in one of its subsidiaries for approximately $2.0 million. The agreement required an immediate cash payment of approximately $1.5 million as well as a second cash payment to be made in 2011, which is based upon a formula incorporating the earnings generated by the subsidiary during 2010. The second cash payment is estimated to be approximately $0.5 million. The acquisition was accounted for as a step acquisition and the consideration paid has been assigned to goodwill as the fair value of the subsidiary's tangible assets, net of liabilities, was nominal.

On November 10, 2009, the Company acquired all of the issued and outstanding common shares of Century, a privately held fracturing services company operating in Western Canada. Under the terms of the agreement, the purchase price of $90.0 million consisted of approximately $13.5 million of cash plus 5,144,344 common shares of the Company, with an agreed value of $76.5 million. For accounting purposes, the shares issuable in the transaction have a fair value of approximately $82.2 million based on the weighted average price of the Company's shares for the three trading days preceding and the three trading days following the date of the announcement of the agreement. The fair value of the share consideration for accounting purposes is calculated on a different basis than the agreed value and results in a higher recorded purchase price. Including transaction costs, the total consideration was $100.9 million for accounting purposes.

Additionally, net cash used for investing activities in 2010 decreased by $16.3 million from the net change in non-cash working capital from the purchase of capital assets. In 2009, the net change in working capital from the purchase of capital assets increased the net cash used for investing activities by $10.5 million.

The effect of changes in foreign exchange rates on the Company's cash and cash equivalents during 2010 was a loss of $13.5 million versus a loss of $8.5 million during 2009. These gains and losses relate to cash and cash equivalents held by the Company in a foreign currency.

With its strong working capital position, unutilized 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 2011 and beyond.

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 February 28, 2011, there were 43,509,398 common shares issued and outstanding, and 3,427,725 options to purchase common shares.

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 "anticipates", "can", "may", "could", "expect", "believe", "intend", "forecast", "will", or similar words suggesting future outcomes, are forward-looking statements. Forward-looking statements in this document include, but are not limited to, statements with respect to future capital expenditures, future financial resources, future oil and natural gas well activity, future costs or potential liabilities, outcome of specific events, trends in the oil and natural gas industry and the Company's growth prospects including, without limitation, its international growth strategy and prospects. These statements are derived from certain assumptions and analyses made by the Company based on its experience and interpretation of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances, including assumptions related to commodity pricing, North American drilling activity and the expectation that access to capital will continue to be restricted for many of Calfrac's customers. 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. The most significant risk factors to Calfrac relate to prevailing economic conditions; commodity prices; sourcing, pricing and availability of raw materials, component parts, equipment, suppliers, facilities and skilled personnel; dependence on major customers; uncertainties in weather and temperature affecting the duration of the service periods and the activities that can be completed; and regional competition. Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Further information about these risks and uncertainties can be found 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. 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 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 T2P 1E3, or at www.calfrac.com, or by facsimile at 403-266-7381.

Non-GAAP Measures

Certain measures in this press release do not have any standardized meaning as prescribed under Canadian GAAP and are therefore considered non-GAAP measures. These measures include operating income, funds provided by operations and EBITDA. 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.

Fourth Quarter Conference Call

Calfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2010 fourth quarter results at 10:00 a.m. (Mountain Time) on Tuesday, March 1, 2011. The conference call dial-in number is 1-888-231-8191 or 647-427-7450. The seven-day replay numbers are 1-800-642-1687 or 416-849-0833 (once connected, enter 39875058). A webcast of the conference call may be accessed via the Company's website at www.calfrac.com.

CONSOLIDATED BALANCE SHEETS    
As at December 31, 2010 2009
(000s) ($) ($)
ASSETS    
Current assets    
  Cash and cash equivalents 216,604 25,070
  Accounts receivable 177,652 135,775
  Income taxes recoverable 3,284 1,780
  Inventory 59,321 44,297
  Prepaid expenses and deposits 8,385 6,746
  465,246 213,668
Capital assets 603,145 579,233
Goodwill (note 9) 12,547 10,523
Future income taxes 34,598 37,466
  1,115,536 840,890
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities    
  Accounts payable and accrued liabilities 116,315 82,212
  Current portion of long-term debt (note 4) 4,854 1,996
  Current portion of capital lease obligations (note 5) 1,294 1,217
  122,463 85,425
Long-term debt (note 4) 443,346 267,351
Capital lease obligations (note 5) 2,515 3,808
Other long-term liabilities 1,062 1,227
Future income taxes 28,506 20,474
Deferred credit - 2,505
Non-controlling interest) 101 168
  597,993 380,958
Shareholders' equity    
Capital stock (note 6) 263,490 251,282
Contributed surplus (note 7) 15,225 10,808
Loan receivable for purchase of common shares (note 11) (2,500) -
Retained earnings 250,476 202,083
Accumulated other comprehensive income (loss) (9,148) (4,241)
  517,543 459,932
  1,115,536 840,890

Contingencies (note 12)

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
  Three Months Ended Dec. 31, Year Ended Dec. 31,
  2010 2009 2010 2009
(000s, except per share data) (unaudited) ($) ($) ($) ($)
Revenue 268,710 173,124 935,927 591,500
Expenses        
  Operating 187,491 139,681 690,882 482,682
  Selling, general and administrative 18,958 10,286 59,603 37,683
  Depreciation 20,610 17,625 79,794 63,188
  Interest, net 30,224 4,297 48,785 15,248
  Foreign exchange losses (gains) (4,424) (79) (3,794) 3,823
  Gain on disposal of capital assets (56) (162) (930) (1,483)
  252,803 171,648 874,340 601,141
Income (loss) before income taxes and non-controlling interest 15,907 1,476 61,587 (9,641)
Income tax expense (recovery)        
  Current (3,555) 619 (1,901) 1,853
  Future 76 (20) 9,748 (6,082)
  (3,479) 599 7,847 (4,229)
Income (loss) before non-controlling interest 19,386 877 53,740 (5,412)
Non-controlling interest (48) 13 (67) 124
Net income (loss) for the period 19,434 864 53,807 (5,536)
Retained earnings, beginning of period 234,303 203,365 202,083 211,652
Dividends (3,261) (2,146) (5,414) (4,033)
Retained earnings, end of period 250,476 202,083 250,476 202,083
Earnings (loss) per share (note 6)        
  Basic 0.45 0.02 1.25 (0.14)
  Diluted 0.44 0.02 1.23 (0.14)

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
  Three Months Ended Dec. 31, Year Ended Dec. 31,
  2010 2009 2010 2009
(000s) (unaudited) ($) ($) ($) ($)
Net income (loss) for the period 19,434 864 53,807 (5,536)
Other comprehensive loss        
  Change in foreign currency translation adjustment (3,566) (1,121) (4,907) (9,955)
Comprehensive income (loss) 15,868 (257) 48,900 (15,491)
Accumulated other comprehensive income (loss),
beginning of period
(5,582) (3,120) (4,241) 5,714
  Other comprehensive income (loss) for the period (3,566) (1,121) (4,907) (9,955)
Accumulated other comprehensive loss, end of period (9,148) (4,241) (9,148) (4,241)

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three Months Ended Dec. 31, Year Ended Dec. 31,
  2010 2009 2010 2009
(000s) (unaudited) ($)   ($) ($)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES        
  Net income (loss) for the period 19,434 864 53,807 (5,536)
  Items not involving cash        
    Depreciation 20,610 17,625 79,794 63,188
    Amortization of debt issue costs and debt discount             9,846 317 11,944 849
    Stock-based compensation 2,714 943 6,967 3,560
    Gain on disposal of capital assets (56) (162) (930) (1,483)
    Future income taxes 76 (20) 9,748 (6,082)
    Non-controlling interest (48) 13 (67) 124
         52,576 19,580 161,263 54,620
  Net change in non-cash operating assets and liabilities (13,411) 11,057 (42,044) 1,307
  39,165 30,637 119,219 55,927
FINANCING ACTIVITIES        
  Bank loan proceeds - - - 5,000
  Issuance of long-term debt 448,741 153,562 473,671 216,103
  Bank loan repayments - (19,634) - (39,634)
  Long-term debt repayments (274,808) (107,143) (288,913) (107,201)
  Capital lease obligation repayments (311) (166) (1,217) (166)
  Net proceeds on issuance of common shares 6,812 - 9,658 213
  Loan receivable for purchase of common shares  (note 11) (2,500) 213 (2,500) -
  Dividends (3,261) (2,146) (5,414) (4,033)
  174,673 24,686 185,285 70,282
INVESTING ACTIVITIES        
  Purchase of capital assets (47,079) (18,245) (118,941) (102,176)
  Proceeds on disposal of capital assets 166 155 5,243 2,288
  Acquisitions, net of cash acquired (note 9) 17 (18,692) (2,024) (18,692)
  Net change in non-cash working capital from purchase of capital assets 16,693 (3,266) 16,285 (10,534)
  (30,203) (40,048) (99,437) (129,114)
Effect of exchange rate changes on cash and cash equivalents (10,968) (827) (13,533) (8,517)
Increase (decrease) in cash and cash equivalents 172,667 14,448 191,534 (11,422)
Cash and cash equivalents, beginning of period 43,937 10,622 25,070 36,492
Cash and cash equivalents, end of period 216,604 25,070 216,604 25,070

See accompanying notes to the consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



As at and for the years ended December 31, 2010 and 2009
(figures in text and tables are in 000s, except share data and certain other exceptions as indicated) (unaudited)

1.BASIS OF PRESENTATION

The interim financial statements of Calfrac Well Services Ltd. (the "Company") do not conform in all respects to the requirements of Canadian generally accepted accounting principles (GAAP) for annual financial statements. The interim financial statements should be read in conjunction with the most recent annual financial statements.

2. SEASONALITY OF OPERATIONS

The Company's Canadian business is seasonal in nature. The lowest activity levels are typically experienced during the second quarter of the year when road weight restrictions are in place due to spring break-up and access to wellsites in Canada is reduced.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          (a) The interim financial statements follow the same accounting policies and methods of application as the most recent annual financial statements.
          (b) In February 2008, the Canadian Accounting Standards Board (AcSB) confirmed that International Financial Reporting Standards (IFRS) will replace Canadian GAAP in 2011 for profit-oriented Canadian publicly accountable enterprises. As a result, the Company will be required to report its results in accordance with IFRS beginning in 2011. The Company has developed and implemented a changeover plan to complete the transition to IFRS, including the preparation of required comparative information. The full impact of IFRS on the Company's consolidated financial statements is not reasonably determinable at this time.

4. LONG-TERM DEBT

As at December 31, 2010 2009
(000s) ($) ($)
US$450,000 senior unsecured notes due December 1, 2020,
bearing interest at 7.50% payable semi-annually
  447,570   -
US$4,320 senior unsecured notes (December 31, 2009 - US$235,000)
due February 15, 2015, bearing interest at 7.75% payable semi-annually
    4,297     246,985
Less: unamortized debt issue costs and unamortized debt discount (8,638) (11,768)
  443,229 235,217
$160,000 extendible revolving term loan facility, secured by the Canadian and
U.S. assets of the Company
  -   24,699
Less: unamortized debt issue costs (887) (1,128)
  (887) 23,571
Mortgage obligations maturing between December 2012 and March 2014
bearing interest at rates ranging from 5.15% to 6.69%, repayable $35 per month
principal and interest, secured by certain real property
    3,176     7,379
US$2,697 mortgage maturing May 2018 bearing interest at U.S. prime less 1%,
repayable US$33 per month principal and interest, secured by certain real property
    2,682     3,180
  448,200 269,347
Less: current portion of long-term debt (4,854) (1,996)
  443,346 267,351

The fair value of the senior unsecured notes based on the closing market price at December 31, 2010 was $457,682 (December 31, 2009 - $239,575). The carrying value of the revolving credit facility approximates its fair value due to its variable interest rate and first priority security position. The carrying values of the mortgage obligations approximate their fair values as the interest rates are not significantly different than current mortgage rates for similar loans.

The interest rate on the term revolving facility is based upon the parameters of certain bank covenants. For prime-based loans the rate ranges from prime plus 0.75 percent to prime plus 2.25 percent. For LIBOR-based loans and Bankers' Acceptance-based loans the margin thereon ranges from 2 percent to 3.5 percent above the respective base rates for such loans. The facility is repayable in equal quarterly principal instalments representing one-twentieth of the outstanding principal drawn on the facility, plus a final payment representing the remaining principal outstanding on September 27, 2013, assuming the facility is not extended. The term and commencement of principal repayments under the facility may be extended by one year on each anniversary at the request of the Company and acceptance by the lenders. The Company also has the ability to prepay principal without penalty. Debt issue costs related to this facility are amortized over its three-year term.

Interest on long-term debt (including the amortization of debt issue costs and debt discount) for the year ended December 31, 2010 was $48,758 (year ended December 31, 2009 - $14,641).

The US$4,320 senior unsecured notes were repaid in full on February 15, 2011 (plus accrued interest and call premium of US$335) and as a result, these notes have been included in the current portion of long-term debt as at December 31, 2010.

The aggregate scheduled principal repayments required in each of the next five years as at December 31, 2010 are as follows:

                      Amount
(000s)                     ($)
2011                     4,854
2012                     2,625
2013                     447
2014                     935
2015                     368
                      9,229

The Company also has an extendible operating loan facility, which includes overdraft protection in the amount of $15,000. The interest rate is based upon the parameters of certain bank covenants in the same fashion as the revolving term facility. Drawdowns under this facility are repayable on September 27, 2013, assuming the facility is not extended. The term and commencement of principal repayments may be extended by one year on each anniversary at the request of the Company and acceptance of the lender. The operating facility is secured by the Canadian and U.S. assets of the Company.

At December 31, 2010, the Company had utilized $835 of its loan facility for letters of credit, leaving $174,165 in available credit.

5. OBLIGATIONS UNDER CAPITAL LEASES

As at December 31, 2010 2009
(000s) ($) ($)
Capital lease contracts bearing interest at rates ranging from
5.68% to 6.58%, repayable $124 per month, secured by certain equipment
    4,110     5,599
Less: interest portion of contractual payments (301) (574)
  3,809 5,025
Less: current portion of capital lease obligations (1,294) (1,217)
  2,515 3,808

The carrying values of the capital lease obligations approximate their fair values as the interest rates are not significantly different from current rates for similar leases.

The minimum lease payments required in each of the next five years from December 31, 2010, are as follows:

  Amount
(000s) ($)
2011 1,490
2012 1,868
2013 752
2014 -
2015 -
  4,110
Less: interest portion of contractual payments (301)
  3,809

6. CAPITAL STOCK

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

Continuity of Common Shares 2010 2009
  Shares Amount Shares Amount
  (#) ($000s) (#) ($000s)
Balance, January 1 42,898,880 251,282 37,741,561 168,813
Issued upon exercise of stock options 586,885 12,130 12,975 262
Issued on acquisitions (note 9) - - 5,144,344 82,207
Issued for compensation 2,334 78 - -
Balance, December 31 43,488,099 263,490 42,898,880 251,282

The weighted average number of common shares outstanding for the year December 31, 2010 was 43,089,918 basic and 43,741,923 diluted (year ended December 31, 2009 - 38,475,444 basic and 38,475,444 diluted). The difference between basic and diluted shares for 2010 is attributable to the dilutive effect of stock options issued by the Company. For 2009, outstanding options were not included in the calculation of diluted shares, as they would have had an anti-dilutive effect.

7. CONTRIBUTED SURPLUS

Continuity of Contributed Surplus 2010 2009
(000s) ($) ($)
Balance, January 1 10,808 7,297
  Stock-based compensation 6,889 3,560
  Stock options exercised (2,472) (49)
Balance, December 31 15,225 10,808

8. STOCK OPTIONS

Continuity of Stock Options 2010 2009
 
 
 
 
 
Options
Average
Exercise
Price
 
 
Options
Average
Exercise
Price
  (#) ($) (#) ($)
Balance, January 1 2,508,143 16.70 2,043,344 21.69
  Granted during the period 1,113,200 20.95 865,000 8.60
  Exercised for common shares (586,885) 16.46 (12,975) 16.43
  Forfeited (93,341) 19.88 (222,826) 22.59
  Expired (357,292) 23.71 (164,400) 32.59
Balance, December 31 2,583,825 17.50 2,508,143 16.70

    Options Outstanding Options Exercisable
Exercise Price Per Option   Number of
Options
Weighted
Average
Remaining Life
Weighted
Average
Exercise Price
Number of
Options
Weighted
Average
Exercise Price
$8.35 - $16.75   1,013,250 2.75 $11.33 371,537 $15.31
$16.76 - $21.25   1,021,200 3.90 $20.68 43,125 $20.39
$21.26 - $23.25   470,875 2.61 $22.37 289,250 $22.48
$23.26 - $31.25   78,500 3.38 $26.45 26,250 $27.08
$8.35 - $31.25   2,583,825 3.20 $17.50 730,162 $18.87

Stock options vest equally over three or four years and expire three-and-one-half or five years from the date of grant. When stock options are exercised the proceeds, together with the amount of compensation expense previously recorded in contributed surplus, are added to capital stock.

9. ACQUISITIONS

          (a)     Subsidiary
          In March 2010, the Company acquired a non-controlling interest in one of its subsidiaries for $2,024. The agreement required an immediate cash payment of $1,527 as well as a second cash payment to be made in 2011, which is based upon a formula incorporating the earnings generated by the subsidiary during 2010, subject to a minimum payment. The second cash payment is currently estimated to be $497. The acquisition was accounted for as a step acquisition and the consideration paid has been assigned to goodwill as the fair value of the subsidiary's tangible assets, net of liabilities, was nominal.
          (b)     Asset Acquisition
          On August 14, 2009, the Company purchased the fracturing assets of a competitor for $44,513 including related transaction costs. The Company acquired $42,252 of capital assets comprised of fracturing equipment and certain real property, as well as $2,261 of the vendor's parts and materials inventory. The purchase price was satisfied through payment of $41,071 in cash and the assumption of long-term debt in the amount of $3,442.
          (c)     Century Oilfield Services Inc.
       


On November 10, 2009, the Company acquired all of the issued and outstanding shares of Century Oilfield Services Inc. for aggregate consideration of $100,898. The Company issued 5,144,344 common shares at a value of $15.98 per share (based on the volume-weighted average share price for the three days prior to and after the announcement date of September 20, 2009) with a value of $82,207 in conjunction with the acquisition, in addition to cash of $13,506 and transaction costs of $5,185. Net assets acquired and liabilities assumed were as follows:
          (000s) ($)
          Working capital 18,216
          Capital assets 108,930
          Future income tax asset 21,014
          Bank loan and long-term debt (42,069)
          Obligation under capital leases (5,193)
          Total consideration 100,898

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 the Company's 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 defined as cash provided by operating activities before the net change in non-cash operating assets and liabilities as reflected in the consolidated statement of cash flows. The ratio of long-term debt to cash flow does not have any standardized meaning prescribed under GAAP and may not be comparable to similar measures used by other companies.

At December 31, 2010, the long-term debt to cash flow ratio was 2.78:1 (December 31, 2009 - 4.93:1) calculated on a 12-month trailing basis as follows:

As at December 31, 2010 2009
(000s) ($) ($)
Long-term debt (net of unamortized debt issue costs and
debt discount) (note 4)
448,200 269,347
Cash flow 161,263 54,620
Long-term debt to cash flow ratio 2.78:1 4.93:1

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 have remained unchanged over the periods presented.

11. RELATED PARTY TRANSACTIONS

An entity controlled by a director of the Company provides ongoing real estate advisory services to the Company. The aggregate fees charged during 2010 for such services following the election of said director on May 11, 2010 was $83, as measured at the exchange amount.

In November 2010, the Company loaned a senior officer $2,500 for the purpose of facilitating the purchase of 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 the rate of 3.375% per annum, payable annually. The market value of the shares that secure the loan was approximately $2.9 million as of December 31, 2010. In accordance with applicable accounting standards regarding share purchase loans receivable, this loan has been 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. As a result, the estimated fair value of the benefit associated with the loan of approximately $1.2 million was recognized as a charge to selling, general and administrative expenses and a credit to contributed surplus.

12. CONTINGENCIES

Greek Operations

As a result of the acquisition and amalgamation with Denison Energy Inc. ("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 have 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 $9,118 (6,846 euros) plus interest was 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 and the Company are assessing available rights of appeal to any other levels of court in any jurisdiction where such an appeal is warranted. Counsel to NAPC has obtained a judicial order entitling NAPC to obtain certain employment information in respect of the plaintiffs which is required in order to assess the extent to which the plaintiffs have mitigated any damages which may otherwise be payable.

Several other smaller groups of former employees have filed similar cases 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 $46 (35 euros), plus interest. The appeal of this decision was heard on June 2, 2009, at which time an additional claim by the plaintiff seeking damages of $297 (223 euros), plus interest, was also heard. A decision in respect of the hearing has been rendered which accepted NAPC's appeal and rejected the additional claim of the plaintiff. Another one of the lawsuits seeking salaries in arrears of $170 (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 $585 (439 euros) plus interest, was scheduled to be heard before the Athens Court of First Instance on October 1, 2009, but was adjourned until November 18, 2011 as a result of the Greek elections.

The Company has signed an agreement with a Greek exploration and production company pursuant to which it has agreed to assign approximately 90 percent of its entitlement under an offshore licence agreement for consideration including a full indemnity in respect of the Greek legal claims described above. The completion of the transactions contemplated by such agreement is subject to certain conditions precedent, the fulfillment of which is not in the Company's control.

The direction and financial consequences of the potential decisions in these actions cannot be determined at this time and, consequently, no provision has been recorded in these financial statements.

Potential Claim

The Company has a potential claim related to a contract the outcome of which is not reasonably determinable at this time. The amount of the claim on an after-tax basis is estimated to be approximately $2,100.

13. SEGMENTED INFORMATION

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

  Canada Russia United States Latin America Corporate Consolidated
(000s) ($) ($) ($) ($) ($) ($)
Three Months Ended December 31, 2010        
Revenue 160,967 19,095 84,190 4,458 - 268,710
Operating income (loss)(1) 54,503 1,453 21,075 (3,986) (10,784) 62,261
Segmented assets 647,078 120,439 316,177 31,842 - 1,115,536
Capital expenditures (7,000) 6,172 46,991 916 - 47,079
Goodwill 7,236 979 2,308 2,024 - 12,547
Three Months Ended December 31, 2009        
Revenue 84,754 14,698 54,256 19,416 - 173,124
Operating income (loss)(1) 18,757 3,047 3,405 2,597 (4,649) 23,157
Segmented assets 447,889 110,372 240,975 41,654 - 840,890
Capital expenditures 11,487 4,663 1,668 427 - 18,245
Goodwill 7,236 979 2,308 - - 10,523
Year Ended December 31, 2010        
Revenue 507,247 76,595 301,512 50,573 - 935,927
Operating income (loss)(1) 148,900 8,944 65,432 (6,317) (31,517) 185,442
Segmented assets 647,078 120,439 316,177 31,842 - 1,115,536
Capital expenditures 36,797 14,085 66,115 1,944 - 118,941
Goodwill 7,236 979 2,308 2,024 - 12,547
Year Ended December 31, 2009        
Revenue 241,821 66,630 218,276 64,773 - 591,500
Operating income (loss)(1) 32,864 18,967 25,893 10,612 (17,201) 71,135
Segmented assets 447,889 110,372 240,975 41,654 - 840,890
Capital expenditures 35,196 7,798 56,558 2,624 - 102,176
Goodwill 7,236 979 2,308 - - 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 capital assets, income taxes and non-controlling interest.

The following table sets forth consolidated revenue by service line:

                   
            Three Months Ended Dec. 31, Year Ended Dec. 31,
            2010 2009 2010 2009
(000s)           ($) ($) ($) ($)
Fracturing           241,576 151,391 828,892 504,441
Coiled tubing           22,330 11,422 73,156 47,667
Cementing           5,594 5,942 20,530 25,696
Other           (790) 4,369 13,349 13,696
            268,710 173,124 935,927 591,500

The Company's customer base consists of over 220 oil and natural gas exploration and production companies, ranging from large multinational public companies to small private companies. Notwithstanding the Company's broad customer base, Calfrac has four significant customers that collectively accounted for approximately 30 percent of the Company's revenue for the year ended December 31, 2010 (year ended December 31, 2009 - four significant customers for approximately 49 percent) and of such customers, one customer accounted for approximately 8 percent of the Company's revenue for the year ended December 31, 2010 (year ended December 31, 2009 - 17 percent).

SOURCE Calfrac Well Services Ltd.

For further information:

Douglas R. Ramsay   
Chief Executive Officer   
Telephone:  403-266-6000   
Fax:  403-266-7381   
Laura A. Cillis    
Senior Vice President, Finance 
and Chief Financial Officer  
Telephone:  403-266-6000  
Fax:  403-266-7381  
Tom J. Medvedic
Senior Vice President,
Corporate Development
Telephone:  403-266-6000
Fax:  403-266-7381


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