Canyon Services Group Inc. surpasses previous record results in fourth quarter 2008



    CALGARY, Feb. 26 /CNW/ - Canyon Services Group Inc. today announced its
fourth quarter and annual 2008 results. The following should be read in
conjunction with the Management's Discussion and Analysis, the consolidated
financial statements and notes of Canyon Services Group Inc. which are
available on SEDAR at www.sedar.com.

    OVERVIEW OF THE FOURTH QUARTER AND YEAR 2008

    Canyon has defied the trends of the industry and has increased revenues
and cash flows significantly in the past 18 months. Since mid-2006, the
Western Canadian well stimulation services industry has experienced a slow
down as lower natural gas prices reduced E&P companies' drilling activities.
More recently, since summer 2008, oil and natural gas prices have declined
further amid global financial market crisis. Nevertheless, during these
periods of reduced activity across the well stimulation services industry,
Canyon has dramatically grown in both market share and revenues, attributable
to new fracturing methods, including the patented Grand Canyon process, a
re-vamped sales team, a modern and technologically-advanced equipment fleet
and new operating bases in Grande Prairie and Medicine Hat.
    The operating and financial highlights for the fourth quarter and year
ended December 31, 2008 may be summarized as follows:

    
    Operating and Financial Highlights

    -   In Q4 2008, revenues and jobs reached record levels, increasing by
        47% to $29.0 million and by 55% to 611 respectively, compared to Q4
        2007.  Q4 2008 revenues were 40% higher than the previous quarterly
        record achieved in Q3 2008.

    -   For the 2008 year, Canyon's job count almost doubled to 1,724 from
        922 in 2007, while revenues increased by 51% to $72.4 million from
        $48.1 million in the prior year.  Revenues were not proportionate to
        the increase in jobs due a different job mix in 2008 and due to price
        pressure that commenced in late 2006, the effect of lower demand by
        E&P companies for well stimulation services in response to lower
        natural gas prices.

    -   Canyon completed its third major shallow gas project with its Grand
        Canyon technology.  In Q3 and Q4 2008, 165 wells were fractured using
        our fluid free, light weight proppant technology.  Based on the
        production uplift and completion cost savings of this technology, our
        customer (an intermediate sized operator) has awarded an additional
        project for the adjacent area estimated to commence in mid-2009.

    -   In Q4 2008, Canyon generated EBITDA before stock based compensation
        expense (see Non-GAAP Measures) of $7.6 million compared to $3.3
        million in the prior year's quarter.

    -   As at December 31, 2008, the Company's available credit facilities
        total $18.1 million.

    -   For the 2008 year, EBITDA before stock based compensation expense was
        $9.8 million, a significant increase over the $0.6 million recorded
        in 2007.

    -   In Q4 2008, Canyon generated income before income taxes of
        $4.3 million, a significant improvement over the income before income
        taxes of $198 thousand in Q4 2007.  For the year ended December 31,
        2008, the loss before income taxes was $2.4 million, compared to the
        loss before income taxes of $11.9 million in 2007.

    -   An expanded market share resulted in significantly increased job
        counts across all divisions, with the Conventional Fracturing
        Division accounting for a significant proportion of the increase.

    -   In June 2008, Canyon commenced remedial cementing, thereby increasing
        the utilization of equipment in the Chemical Stimulation and Remedial
        Services Division. In Q4 2008, this division completed 115 jobs.

    -   A new operating base was opened in Medicine Hat allowing Canyon to
        better service customers with operations in Southeast Alberta and
        Southeast Saskatchewan.

    -   In June 2008, Canyon completed a reorganization of its debt
        facilities by replacing a portion of its short-term debt with a long-
        term facility, resulting in an estimated annual reduction of
        $2.1 million in debt service costs (loan principal and interest) and
        an increase in available credit to fund operating activities.

    -   Canyon added to its CO2 transportation and infrastructure in Q3 and
        Q4 2008 resulting in $3.8 million of capital expenditures.  The
        addition of this equipment has enabled Canyon to better serve its
        customers from its Grande Prairie operating base and significantly
        reduce third party equipment costs.


    QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS

                                                  December 31,   December 31,
    Quarter Ended                                        2008           2007
    -------------------------------------------------------------------------
                                                   (unaudited)    (unaudited)

    Revenues                                      $29,006,991    $19,706,099

    Expenses
      Operating                                    19,246,032     14,905,484
      Selling, general and administrative           2,695,520      1,744,925
      Interest on long-term debt                      307,916        402,573
      Other interest                                   29,775         50,930
      Depreciation and amortization                 2,382,322      2,404,446
                                             --------------------------------
    Income before income taxes                      4,345,426        197,741
                                             --------------------------------
      Income taxes-current                                  -          1,228
      Income taxes-future                              69,550        197,514
                                             --------------------------------
                                                       69,550        198,742
                                             --------------------------------
    Net income (loss)                              $4,275,876        $(1,001)
                                             --------------------------------
                                             --------------------------------

    EBITDA before stock option expense(1)          $7,636,357     $3,271,642
                                             --------------------------------
                                             --------------------------------

    Income (loss) per share:

      Basic                                             $0.19         ($0.00)
      Diluted                                           $0.19         ($0.00)
                                             --------------------------------
                                             --------------------------------
    Note (1): See Non-GAAP Measures.


    Revenues
    
    In Q4 2008, each of Canyon's service divisions, High Rate Nitrogen
Fracturing, Conventional Fracturing, and Chemical Stimulation and Remedial
Services, achieved significant increases in activity levels as the total
number of jobs completed by Canyon increased by 55% to 611 from 395 in the
prior year's quarter, while revenues increased by 47% to $29.0 million from
$19.7 million over the same periods. Revenue per job declined by 6% to $47,513
in Q4 2008 from $50,388 for the prior year's comparable quarter, mostly due to
a higher proportion of jobs in the lower-priced Chemical Stimulation and
Remedial Services Division.

    Operating Expenses

    Operating expenses increased by 29% to $19.2 million in Q4 2008 from
$14.9 million in Q4 2007. This increase is less than the 55% increase in the
Q4 2008 job count compared to Q4 2007, because of a significant fixed
operating cost structure.

    Selling, General and Administrative Expenses

    Selling, general and administrative expenses increased to $2.7 million in
Q4 2008 from $1.7 million in Q4 2007 due to higher selling costs, operating
costs associated with both the Medicine Hat base which opened in July 2008 and
Grande Prairie which opened in January 2008, and an increase in non-cash
stock-based compensation expense. In Q4 2008, non-cash stock-based
compensation expense increased to $0.6 million from $0.2 million in Q4 2007,
due to one-time charges resulting from modifications to and cancellation of
stock options.

    EBITDA (See Non-GAAP Measures)

    In Q4 2008, EBITDA (before stock option expense) has increased
significantly to $7.6 million from $3.3 million in Q4 2007, due to the
significant increase in job activity and revenues. The Q4 2008 amount of $7.6
million consists of income before income taxes of $4.3 million, plus
depreciation and amortization of $2.4 million, plus Interest on long-term debt
of $0.3 million, plus other interest of $0.0 million, plus stock option
expense of $0.6 million. The comparable Q4 2007 amount of $3.3 million
consists of income before income taxes of $0.2 million, plus depreciation and
amortization of $2.4 million, plus interest on long-term debt of $0.4 million,
plus other interest of $0.1 million, plus stock option expense of $0.2
million.

    Interest Expense

    Interest on long-term debt and other interest was $0.3 million for Q4
2008, compared to $0.5 million for Q4 2007. The decrease is mostly due to
lower debt levels and interest rates in Q4 2008.

    Depreciation Expense

    Depreciation expense was recorded at $2.4 million in Q4 2008, unchanged
from the $2.4 million recorded in Q4 2007.

    Income Tax Expense

    At the expected combined income tax rate of 29.5%, income before income
taxes for Q4 2008 of $4.5 million would have resulted in income tax expense of
approximately $1.3 million compared to the actual provision of $0.1 million.
The future income tax expense was increased by $0.2 million as a result of the
effect of stock based compensation and other non-deductible expenses, and
decreased by $1.4 million as result of a reduction of the future income tax
valuation allowance.

    Net Income (Loss) and Income (Loss) per Share

    Net income totaled $4.3 million for Q4 2008, a significant improvement
over the net loss of one thousand dollars in Q4 2007, primarily due to the 47%
increase in revenues in the current quarter.
    For the quarter ended December 31, 2008, basic and diluted Income per
share was $0.19, compared to Loss per share of ($0.00) recorded in Q4 2007.

    
    2008 YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS

                                                  December 31,   December 31,
    Year Ended                                           2008           2007
    -------------------------------------------------------------------------
                                                  (unaudited)    (unaudited)
    Revenues                                      $72,371,527    $48,069,958

    Expenses
      Operating                                    55,256,260     41,477,067
      Selling, general and administrative           8,487,009      6,847,650
      Interest on long-term debt                    1,413,411      1,339,747
      Other interest                                  166,737        214,569
      Depreciation and amortization                 9,403,178     10,115,212
                                             --------------------------------
    Loss before income taxes                       (2,355,068)   (11,924,287)
                                             --------------------------------

      Income taxes-current (recovery)                       -       (812,935)
      Income taxes-future (reduction)                (326,177)    (2,354,477)
                                             --------------------------------
                                                     (326,177)    (3,167,412)
                                             --------------------------------
    Net loss                                      ($2,028,891)   ($8,756,875)
                                             --------------------------------
                                             --------------------------------

    EBITDA before stock option expense(1)          $9,796,865       $579,053
                                             --------------------------------
                                             --------------------------------

    Loss per share:
      Basic                                            ($0.09)        ($0.40)
      Diluted                                          ($0.09)        ($0.40)
                                             --------------------------------
                                             --------------------------------
    Note (1): See Non-GAAP Measures.

    Revenues
    
    For the year ended December 31, 2008, each of Canyon's operating
divisions achieved significant increases in activity levels with the
Conventional Fracturing Division accounting for a significant proportion of
the increase. The total job count increased by 87% to 1,724 jobs completed
compared to 922 jobs in the year ended December 31, 2007. For the 2008 year,
Revenues increased by 51% to $72.4 million over $48.1 in 2007. This increase
was not in proportion to the 87% increase in the job count due to an increase
in contribution of lower priced cementing and acidizing jobs and overall price
pressure in the high rate nitrogen market. As a result, the average revenue
per job declined by 19% to $42,139 in 2008 from $52,305 in 2007.

    Operating Expenses

    Operating expenses for the year ended December 31, 2008 increased by 33%
to $55.3 million from $41.5 million due to the increased job activity. The 33%
increase in operating costs is less than the 87% increase in jobs due to the
large fixed operating cost component of the fracturing and stimulation
business. Canyon's current level of fixed operating costs which increased by
2% in 2008 compared to 2007, will support a much higher level of activity,
with the result that, when the industry returns to more normal activity
levels, Canyon will incur fixed costs at a proportionately lesser rate for the
additional job activity, as the necessary operating infrastructure is mostly
in place.

    Selling, General and Administrative Expenses

    Selling, general and administrative expenses have increased to $8.5
million for the year ended December 31, 2008 from $6.8 million for the prior
year. The increase is mostly due to the expansion in the Company's scope of
operations including the opening of new operating bases in Grande Prairie and
Medicine Hat and an increase in the sales force. In addition, SG&A includes
non-cash stock option expense of $1.2 million for the 2008 year compared to
$0.8 million in the comparable 2007 year. The increase in stock option expense
is due to one-time charges resulting from modifications to and cancellation of
stock options. Management expects that SG&A will grow at a proportionately
lesser rate as the Company's operating activities continue to expand, as much
of the back-office infrastructure necessary to support expanded operational
activities is in place.

    EBITDA (See NON-GAAP MEASURES)

    The increased job activity and revenues has resulted in EBITDA before
stock option expense for the year ended December 31, 2008 of $9.8 million, a
significant improvement over the $0.6 million of EBITDA before stock option
expenses recorded in the year ended December 31, 2007. The 2008 amount of $9.8
million consists of loss before income taxes of ($2.4) million, plus
depreciation and amortization of $9.4 million, plus interest on long-term debt
of $1.4 million, plus other interest of $0.2 million, plus stock option
expense $1.2 million. The comparable 2007 amount of $0.6 million consists of
loss before income taxes of ($11.9) million, plus depreciation and
amortization of $10.1 million, plus interest on long-term debt of  $1.4
million, other interest of $0.2 million and stock option expense of  $0.8
million.

    Interest Expense

    Interest on long-term debt and other interest amounted to $1.6 million
for the year ended December 31, 2008, unchanged from the prior year amount.

    Depreciation Expense

    Depreciation expense has decreased to $9.4 million for the year ended
December 31, 2008 from $10.1 million for the prior year. Effective October 1,
2007 in consultation with suppliers and operations management, Canyon
increased its estimate for salvage value used in the calculation of
depreciation on fracturing equipment which is amortized over ten years on a
straight line basis. Previously, salvage values had been estimated to be
insignificant. This change impacted the depreciation expense in 2008 by
approximately $1.1 million compared to 2007. This reduction in depreciation
expense was partially offset by additional depreciation in 2008 attributable
to the Grande Prairie facility which became operational in January 2008, and
additional depreciation attributable to equipment added in the second half of
2008.

    Income Tax Expense

    At the expected combined income tax rate of 29.5%, loss before income
taxes for the Year ended December 31, 2008 of $2.4 million would have resulted
in income tax recovery of approximately ($0.7) million compared to the actual
provision for a future income tax recovery of ($0.3) million. The future
income tax recovery was reduced by $0.4 million as a result of the effect of
stock based compensation and other non-deductible expenses.

    Net Loss and Loss per Share

    Net loss totaled ($2.0) million for the year ended December 31, 2008,
lower than the net loss of ($8.8) million for the comparable 2007 year,
primarily due to higher activity levels and revenues and in the period.
    Basic and diluted loss per share for the year ended December 31, 2008 was
($0.09), an improvement over the basic and diluted loss per share of ($0.40)
in 2007.

    FORWARD-LOOKING STATEMENTS

    This document contains certain forward-looking information and statements
within the meaning of applicable securities laws. The use of any of the words
"expect", "anticipate", "continue", "estimate", "guidance", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans", "intends",
"budget", "strategy" and similar expressions are intended to identify
forward-looking information or statements. In particular, but without limiting
the foregoing, this document contains forward-looking information and
statements pertaining to the following: future oil and natural gas prices;
future results from operations; future liquidity and financial capacity and
financial resources; future costs, expenses and royalty rates; future interest
costs; future capital expenditures; future capital structure and expansion;
the making and timing of future regulatory filings; and the Company's ongoing
relationship with major customers.
    The forward-looking information and statements contained in this document
reflect several material factors and expectations and assumptions of the
Company including, without limitation: that the Company will continue to
conduct its operations in a manner consistent with past operations; the
general continuance of current or, where applicable, assumed industry
conditions; the continuance of existing (and in certain circumstances, the
implementation of proposed) tax, royalty and regulatory regimes; certain
commodity price and other cost assumptions; the continued availability of
adequate debt and/or equity financing and cash flow to funds its capital and
operating requirements as needed; and the extent of its liabilities. The
Company believes the material factors, expectations and assumptions reflected
in the forward-looking information and statements are reasonable but no
assurance can be given that these factors, expectations and assumptions will
prove to be correct.
    The forward-looking information and statements included in this document
are not guarantees of future performance and should not be unduly relied upon.
Such information and statements involve known and unknown risks, uncertainties
and other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking information or statements
including, without limitation: changes in commodity prices; changes in the
demand for or supply of the Company's services; unanticipated operating
results; changes in tax or environmental laws, royalty rates or other
regulatory matters; changes in the development plans of third parties;
increased debt levels or debt service requirements; limited, unfavourable or a
lack of access to capital markets; increased costs; a lack of adequate
insurance coverage; the impact of competitors; reliance on industry partners;
and certain other risks detailed from time to time in the Company's public
disclosure documents (including, without limitation, those risks identified in
this document and the Company's Annual Information Form).
    The forward-looking information and statements contained in this document
speak only as of the date of the document, and none of the Company or its
subsidiaries assumes any obligation to publicly update or revise them to
reflect new events or circumstances, except as may be required pursuant to
applicable laws.





For further information:

For further information: Brad Fedora, President, Canyon Technical
Services Ltd, Suite 1600, 510-5th Street S.W., Calgary, Alberta, T2P 3S2,
Phone (403) 290-2491, Fax (403) 355-2211; Or Barry O'Brien, Vice President,
Finance and CFO, Canyon Technical Services Ltd, Suite 1600, 510-5th Street
S.W., Calgary, Alberta, T2P 3S2, Phone (403) 290-2478, Fax (403) 355-2211


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