Canyon Services Group Inc. (TSX:FRC) reports record results in third quarter 2008



    CALGARY, Oct. 29 /CNW/ - Canyon Services Group Inc. today announced its
third quarter 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.

    Certain statements in this document may constitute "forward-looking"
statements which involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. When used in this document, such statements use
such words as "may", "would", "could", "will", "intend", "expect", "believe",
"plan", "anticipate", "estimate" and other similar terminology. These
statements reflect the Company's current expectations regarding future events
and operating performance and speak only as of the date of this document.
Forward-looking statements involve significant risks and uncertainties, should
not be read as guarantees of future performance or results, and will not
necessarily be accurate indications of whether or not such results will be
achieved. A number of factors could cause actual results to differ materially
from the results discussed in the forward-looking statements, including, but
not limited to price volatility for oil and natural gas and the consequent
effect on demand for oilfield services, competition, availability of materials
and personnel, and general political, economic and weather conditions. Actual
results may vary materially from those anticipated depending on the outcome of
any of these uncertainties.

    OVERVIEW OF THIRD QUARTER 2008

    Canyon is pleased to report that Q3 2008 represents a record quarter for
the Company with 481 jobs completed generating $20.7 million of revenues. The
operating and financial highlights for the third quarter of 2008 may be
summarized as follows:

    
    Operating and Financial Highlights

        -  In Q3 2008, Revenues reached an all-time quarterly record
           increasing by 87% to $20.7 million from $11.1 million in the prior
           year comparable quarter. Year to date Revenues total
           $43.4 million, an increase of 53% from Revenues of $28.4 million
           in the first nine months of 2007.

        -  Canyon generated income before income taxes of $1.2 million for
           Q3 2008, a significant improvement over the loss before income
           taxes of $3.9 million in Q3 2007. For the nine months ended
           September 30, 2008, the loss before income taxes was $6.7 million,
           compared to the loss before income taxes of $12.1 million in the
           comparable period of 2007.

        -  In Q3 2008, Canyon completed 481 jobs, more than double the 215
           jobs completed in Q3 2007, for an increase of 124%. For the nine
           months ended September 30, 2008, Canyon's job count was 1,113,
           more than double the 527 jobs achieved in the comparable period of
           2007, for an overall increase of 111%.

        -  Canyon's Conventional Fracturing Division enjoyed significant
           growth in Q3 2008 contributing 41% of the job count with 195 jobs
           completed, up significantly from the 25%, or 54 jobs, contributed
           in Q3 2007. For the year to date, this division represented 460
           jobs, or 41% of total jobs completed versus 128 jobs, or 24% of
           total jobs in the 2007 comparable period.

        -  A new operating base was opened in Medicine Hat allowing Canyon to
           better service customers with operations in Southeast Alberta and
           Southeast Saskatchewan where the Company has commenced fracturing
           operations in the Estevan area.

        -  In Q3 2008, Canyon completed its first trial well using light
           weight proppant and produced water to frac the Bakken formation.
           Further trials will continue in Q4.

        -  During the quarter, Canyon added to its CO2 transportation and
           infrastructure which will allow Canyon to better serve its
           customers from its Grande Prairie operating base and significantly
           reduce third party equipment costs

        -  Pricing remains very competitive in the pumping services industry
           and as a result, revenue per job decreased to $43,231 in Q3 2008
           from $51,674 in the comparable 2007 quarter. In the nine months
           ended September 30, 2008, revenue per job decreased to $39,188
           from $53,742 in the comparable 2007 period.



    QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS

                                                 September 30,  September 30,
    Quarter Ended                                        2008           2007
    -------------------------------------------------------------------------
    ($, except per share amounts)                  (Unaudited)    (Unaudited)

    Revenues                                      $20,719,250    $11,102,225

    Expenses
      Operating                                    15,015,838     10,132,033
      Selling, general and administrative           1,763,046      1,758,043
      Interest on long-term debt                      368,989        371,205
      Other interest                                   44,313         70,779
      Depreciation and amortization                 2,284,163      2,703,197
                                                  ---------------------------
    Income (loss) before income taxes               1,242,901     (3,933,032)
                                                  ---------------------------

      Income taxes-current (recovery)                       -            966
      Income taxes-future (reduction)                       -     (1,082,740)
                                                  ---------------------------
                                                            -     (1,081,774)
                                                  ---------------------------
    Net income (loss)                              $1,242,901    ($2,851,258)
                                                  ---------------------------
                                                  ---------------------------

    EBITDA before stock option expense - Note(1)   $4,134,589      ($494,203)

    Income (loss) per share:

      Basic                                             $0.06         ($0.13)
      Diluted                                           $0.06         ($0.13)

    Note (1): See Non-GAAP Measures.
    


    Revenues

    In Q3 2008, each of Canyon's service divisions, High Rate 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 124% to 481 from 215 in the prior year's
quarter, while revenues increased by 87% to $20.7 million from $11.1 million
over the same periods. The percentage increase in job count was not matched by
a comparable increase in job revenues due to the impact of pricing pressures
felt across the oil and gas services sector since late 2007. As a result,
revenue per job declined to $43,231 in Q3 2008, from $51,674 for the prior
year's comparable quarter.

    Operating Expenses

    Operating expenses increased by 48% to $15.0 million in Q3 2008 from
$10.1 million in Q3 2007. This increase is less than the twofold increase in
the Q3 2008 job count compared to Q3 2007, because of a significant fixed
operating cost component.

    Selling, General and Administrative Expenses

    Selling, general and administrative expenses remain largely unchanged at
$1.8 million in Q3 2008 from Q3 2007. Included in this category of expense is
non-cash stock-based compensation expense of $0.2 million in Q3 2008, compared
to the $0.3 million recorded in Q3 2007.

    EBITDA (See Non-GAAP Measures)

    In Q3 2008, EBITDA before stock option expense has increased
significantly to $4.1 million from negative $0.5 million in Q3 2007, due to
increased job activity and revenues. The Q3 2008 amount of $4.1 million
consists of Income before income taxes of $1.2 million, plus Depreciation and
amortization of $2.3 million, plus Interest on long-term debt of $0.3 million,
plus Other interest of $0.1 million, plus stock option expense of
$0.2 million. The comparable Q3 2007 amount of negative $0.5 million consists
of Loss before income taxes of ($3.9) million, plus Depreciation and
amortization of $2.7 million, plus Interest on long-term debt of $0.3 million,
plus Other interest of $0.1 million, plus stock option expense of
$0.3 million.

    Interest Expense

    Interest on long-term debt and Other interest was $0.4 million for Q3
2008, unchanged from $0.4 million for Q3 2007.

    Depreciation Expense

    Depreciation expense was recorded at $2.3 million in Q3 2008, compared to
$2.7 million recorded in Q3 2007. Effective October 1, 2007 in consultation
with suppliers and operations management, Canyon changed 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 Q3 2008 by $0.5 million. This reduction in
depreciation expense was partially offset by additional depreciation in Q3
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 2007.

    Income Tax Expense

    At the expected combined income tax rate of 29.5%, income before income
taxes for Q3 2008 of $1.2 million would have resulted in income tax expense of
approximately $0.4 million compared to the actual provision of $0.0 million.
The future income tax expense was reduced by a reduction in the future tax
valuation allowance of $0.4 million, and increased by $61,000 as a result of
the effect of stock based compensation and other non-deductible expenses.

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

    Net income totaled $1.2 million for Q3 2008, a significant improvement
over the net loss of ($2.9) million in Q3 2007, primarily due to the 87%
increase in revenues in the current quarter.
    For the quarter ended September 30, 2008, basic and diluted Income per
share was $0.06, compared to Loss per share of ($0.13) recorded in Q3 2007.


    
    2008 YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS

                                                 September 30,  September 30,
    Period Ended                                         2008           2007
    -------------------------------------------------------------------------
    ($, except per share amounts)                  (Unaudited)    (Unaudited)

    Revenues                                      $43,364,536    $28,363,859

    Expenses
      Operating                                    36,010,228     26,571,583
      Selling, general and administrative           5,791,489      5,102,725
      Interest on long-term debt                    1,105,495        937,174
      Other interest                                  136,962        163,639
      Depreciation and amortization                 7,020,856      7,710,766
                                                  ---------------------------
    Loss before income taxes                       (6,700,494)   (12,122,028)
                                                  ---------------------------

      Income taxes-current (recovery)                       -       (814,163)
      Income taxes-future (reduction)                (395,727)    (2,551,991)
                                                  ---------------------------
                                                     (395,727)    (3,366,154)
                                                  ---------------------------
    Net loss                                      ($6,304,767)   ($8,755,874)
                                                  ---------------------------
                                                  ---------------------------

    EBITDA before stock option expense - Note(1)   $2,160,508    ($2,692,589)

    Loss:
      Basic                                            ($0.28)        ($0.40)
      Diluted                                          ($0.28)        ($0.40)

    Note (1): See Non-GAAP Measures.
    


    Revenues

    For the nine months ended September 30, 2008, each of Canyon's divisions
achieved increases in activity levels as the total job count increased by 111%
with 1,113 jobs completed compared to 527 jobs in the nine months ended
September 30, 2007. Importantly, the Conventional Fracturing division
accounted for 41% of the jobs completed in the nine months ended September 30,
2008 compared to 24% in the comparable period of 2007. The additions to the
sales team in the last half of 2007 and in March 2008 largely contributed to
the growth in this division. However, the downturn in the demand by E&P
companies for well stimulation services that commenced in 2007, reduced
margins further in 2008 and, as a result, Revenues increased by 53% to
$43.4 million over $28.4 in the nine months ended September 30, 2007.

    Operating Expenses

    Operating expenses for the nine months ended September 30, 2008 increased
by 36% to $36.0 million from $26.6 million due to the increased job activity.
Canyon's current level of fixed operating costs 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
$5.8 million for the nine months ended September 30, 2008 from $5.1 million
for the prior year's comparable period. 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, an increase in the sales
force along with one-time hiring costs. In addition, SG&A includes non-cash
stock option expense of $0.6 million for the nine months ended September 30,
2008 compared to $0.6 million in the comparable 2007 period. 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 nine months ended September 30, 2008 of positive
$2.2 million, a significant improvement over the negative $2.7 million of
EBITDA before stock option expenses recorded in the nine months ended
September 30, 2007. The 2008 positive amount of $2.2 million consists of Loss
before income taxes of ($6.7) million, plus Depreciation and amortization of
$7.0 million, plus Interest on long-term debt of $1.1 million, plus Other
interest of $0.1 million, plus stock option expense $0.6 million. The
comparable 2007 amount of negative $2.7 million consists of Loss before income
taxes of ($12.1) million, plus Depreciation and amortization of $7.7 million,
plus Interest on long-term debt of $0.9 million, other interest of
$0.2 million and stock option expense of $0.6 million.

    Interest Expense

    Interest on long-term debt and other interest increased slightly to
$1.2 million for the nine months ended September 30, 2008 from $1.1 million
for the 2007 comparable period, as the average level of long-term debt
outstanding increased to partially fund Canyon's equipment build program that
was completed in the last half of 2007.

    Depreciation Expense

    Depreciation expense has decreased to $7.0 million for the nine months
ended September 30, 2008 from $7.7 million for the comparable 2007 period. As
discussed previously, the reduction in depreciation expense is attributable to
the change in estimate of salvage values that was implemented effective
October 1, 2007, and has been partially offset by higher depreciation charges
relating to the introduction of the Grande Prairie facility to commercial
operations and to equipment additions in the last half of 2007.

    Income Tax Expense

    At the expected combined income tax rate of 29.5%, Loss before income
taxes for the nine months ended September 30, 2008 of $6.7 million would have
resulted in income tax recovery of approximately ($2.0) million compared to
the actual provision of ($0.4) million. The future income tax recovery was
reduced by a future tax valuation allowance of $1.4 million despite
expectations of future profits, and by $192,000 as a result of the effect of
stock based compensation and other non-deductible expenses.

    Net Loss and Loss per Share

    Net loss totaled ($6.3) million for the nine months ended September 30,
2008, lower than the net loss of ($8.8) million for the comparable 2007
period, primarily due to higher activity levels and revenues and in the
period.
    Basic and diluted loss per share for the nine months ended September 30,
2008 was ($0.28), an improvement over the basic and diluted loss per share of
($0.40) in the comparable period of 2007.

    NON-GAAP MEASURES

    The Company's Consolidated Financial Statements are prepared in
accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and
are reported in Canadian currency.
    The term "EBITDA" is used in this document to refer to Earnings from
continuing operations before interest, taxes, depreciation and amortization.
EBITDA is not a term recognized under Canadian GAAP and does not have a
standardized meaning prescribed by GAAP. While management of the Company
believes that EBITDA is commonly used, and is a useful measure for readers in
evaluating financial performance of the Company, the Company's method of
calculating EBITDA may differ from, and therefore, not be comparable to
similar measures provided by other reporting issuers.





For further information:

For further information: Brad Fedora, President, Canyon Technical
Services Ltd, No. 1600, 510-5th St. 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, No. 1600, 510-5th St. S.W., Calgary,
Alberta, T2P 3S2, Phone (403) 290-2478, Fax: (403) 355-2211

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CANYON TECHNICAL SERVICES

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Canyon Services Group Inc.

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