Canyon reports results for fourth quarter and year end 2012
CALGARY, March 7, 2013 /CNW/ - Canyon Services Group Inc. TSX: FRC ("Canyon") is pleased to announce its fourth quarter and year end 2012 results. The following should be read in conjunction with Management's Discussion and Analysis, the consolidated financial statements and notes of Canyon Services Group Inc. for the three and twelve months and year ended December 31, 2012 and should also be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011, which are available on SEDAR at www.sedar.com.
Highlights Summary
The main operating and financial highlights for 2012 are as follows (000's of dollars except for job and horsepower amounts):
- Average fracturing revenue per job for the year ended December 31, 2012 increased by 15%, as Canyon completed larger jobs in emerging oil and natural gas liquids rich plays such as the Duvernay shale. The larger job size was more than offset by an uncertain commodity price and macro-economic environment that led to reduced producer activity and pricing pressure for most of the year. As a result, jobs completed decreased by 11% to 2,198 in 2012 compared to 2,482 in 2011 while consolidated revenues decreased by 5% to $353,119 from $372,096 in 2011.
- Q4 2012 average fracturing revenue per job increased by 20% over the comparable 2011 quarter, again due to larger job sizes. Industry conditions resulted in jobs completed and consolidated revenues decreasing by 43% and 41% respectively to 489 and $84,809 in Q4 2012 from 854 and $144,965 respectively in Q4 2011.
- Canyon added 50,000 HHP to its equipment fleet in 2012 and exited the year with 225,500 HHP, the major portion of which is relatively new, at three years old or less, and has heavy-duty capability.
- Canyon remains in a very strong financial position with undrawn credit facilities of $60 million and working capital of $56 million, including cash of $23 million, as at December 31, 2012.
- On December 18, 2012, Canyon declared a quarterly dividend of $0.15 per common share, or $9.3 million, which was paid to shareholders on January 25, 2013.
| OVERVIEW OF FOURTH QUARTER AND YEAR ENDED 2012 | |||||||
| 000's except per share, job amounts and hydraulic pumping capacity (Unaudited) |
Three Months Ended December 31 | Year Ended December 31 | |||||
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||
| Consolidated revenues | $84,809 | $144,965 | $85,153 | $353,119 | $372,096 | $215,891 | |
| Profit and comprehensive | |||||||
| income | $7,146 | $40,932 | $24,606 | $54,409 | $95,270 | $53,632 | |
| Per share-basic | $0.12 | $0.67 | $0.41 | $0.89 | $1.57 | $0.95 | |
| Per share-diluted | $0.11 | $0.65 | $0.40 | $0.87 | $1.53 | $0.92 | |
| EBITDA before share- | |||||||
| based payments(1) | $18,814 | $65,421 | $40,530 | $107,774 | $156,798 | $90,435 | |
| Funds from operations(1) | $18,501 | $51,503 | $32,076 | $95,535 | $127,871 | $75,961 | |
| Total jobs completed (2) | 489 | 854 | 651 | 2,198 | 2,482 | 2,194 | |
| Consolidated average | |||||||
| revenue per job (2) (3) | $176,162 | $170,063 | $131,576 | $161,668 | $150,107 | $98,785 | |
| Average fracturing | |||||||
| revenue per job(3) | $280,671 | $234,765 | $166,578 | $240,369 | $209,855 | $133,930 | |
| Hydraulic Pumping | |||||||
| Capacity | |||||||
| Average HHP | 225,500 | 160,500 | 96,000 | 215,000 | 137,000 | 74,000 | |
| Exit HHP | 225,500 | 175,500 | 110,500 | 225,500 | 175,500 | 110,500 | |
| Capital expenditures | $5,419 | $20,019 | $26,095 | $69,940 | $101,293 | $80,848 | |
| 000's except per share amounts (Unaudited) |
As at December 31, 2012 |
As at December 31, 2011 |
As at December 31, 2010 |
| Cash and cash equivalents | $22,584 | $42,481 | $41,247 |
| Working capital | $56,245 | $67,009 | $49,283 |
| Total long-term financial liabilities | $3,475 | $3,530 | $1,435 |
| Total assets | $406,113 | $407,330 | $273,148 |
| Cash dividends declared per share | $0.60 | $0.1125 | $0.05 |
| Note (1): | See Non-GAAP Measures |
| Note (2): | Includes all jobs from each service line, specifically hydraulic fracturing; coiled tubing; nitrogen fracturing; acidizing and remedial cementing |
| Note (3): | 2011 revenue per job numbers are restated to include invoice adjustments. |
2012 represented a much more difficult year in the Canadian pressure pumping market. The year, particularly the fourth quarter, was impacted by generally weaker producer activity and pricing pressure. Activity and pricing levels declined throughout the year resulting in lower job counts with pricing in Q4 2012, approximately 20% below Q1 2012 levels due to the combined effect of lower producer activity and equipment capacity additions across the industry over the past two years.
Since the first quarter, uncertainty around the commodity price outlook and unstable macroeconomic factors impacted drilling activity across the Western Canadian Sedimentary Basin ("WCSB"). In particular, low natural gas prices and volatile oil prices led to curtailed producer spending especially during the second half of 2012. NYMEX natural gas price averaged US$2.83 per mmbtu for 2012, about 30% below the 2011 average of US$4.03 per mmbtu. Although average oil prices have remained relatively flat, with the West Texas Intermediate price averaging US$94.10 per barrel in 2012 compared to US$95.05 per barrel in 2011, the past year experienced volatile oil prices prompted by ongoing global macroeconomic uncertainty. In the second half of 2012, take-away pipeline capacity concerns in Western Canada also led to widening and persisting oil price differentials that reduced industry cash flows and eroded producer confidence which is expected to impact pressure pumping activity throughout 2013. This is evident from key industry metrics such as equity capital raised in 2012 and to date, well completions, well licenses issued and drilling rig utilization. In 2012, well completions decreased by 28% to 11,708 compared to 16,199 in 2011 due to ongoing reluctance by E&P companies to complete wells in an uncertain commodity price and macroeconomic environment. Well licenses issued have declined by 17% to 13,508 in 2012 from 16,319 in 2011 while drilling rig utilization decreased by about 16% from 2011, averaging 43% in 2012 compared to 52% in 2011. In Q4 2012, drilling rig utilization, well completions and well licenses declined by 26%, 21% and 15% respectively over the comparable 2011 quarter.
Q4 2012 average fracturing revenue per job increased by 20% over the comparable 2011 quarter as Canyon completed larger jobs in emerging oil and natural gas liquids rich plays such as the Duvernay shale and, in particular, drastically increased the number of twenty four hour operations, which accounted for more than 50% of fracturing revenue in the quarter. The aforementioned pricing pressure and the reduced producer activity in the current quarter more than offset the larger job sizes to result in jobs completed and consolidated revenues decreasing by 43% and 41% respectively to 489 and $84,809 in Q4 2012 from 854 and $144,965 in Q4 2011.
Average fracturing revenue per job for the year ended December 31, 2012 increased by 15%, again due to larger job sizes. The impact of industry-wide reduced producer activity resulted in jobs completed decreasing by 11% to 2,198 in 2012 compared to 2,482 in 2011. The lower job count combined with lower pricing for services resulted in 2012 consolidated revenues decreasing by 5% to $353,119 from $372,096 in 2011. These industry conditions combined with higher fixed costs, mostly due to staff increases to support equipment additions and twenty four hour operations, resulted in profit and comprehensive income of $54 million in 2012 compared to $95 million earned in 2011.
NON-GAAP MEASURES
The Company's Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Certain measures in this document do not have any standardized meaning as prescribed by International Financial Reporting Standards ("IFRS") and are considered non-GAAP measures.
EBITDA before share-based payments and funds from operations are not recognized measures under IFRS. Management believes that in addition to profit and comprehensive income, EBITDA before share-based payments and funds from operations are useful supplemental measures as they provide an indication of the results generated by the Company's business activities prior to consideration of how those activities are financed, amortized or taxed, as well as the cash generated by the Company's business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that EBITDA before share-based payments and funds from operations should not be construed as an alternative to profit and comprehensive income determined in accordance with IFRS as an indicator of the Company's performance. Canyon's method of calculating EBITDA before share-based payments and funds from operations may differ from other companies and accordingly, EBITDA before share-based payments and funds from operations may not be comparable to measures used by other companies. Canyon calculates EBITDA before share-based payments as profit and comprehensive income for the year adjusted for depreciation and amortization, equity settled share-based payment transactions, loss on sale of property and equipment, finance costs and income tax expense. Reconciliations of these non-GAAP measures to the most directly comparable IFRS measures are outlined below.
The Company describes revenue less cost of services as gross profit.
| EBITDA before share-based payments | ||||||
| 000's (Unaudited) |
Three Months Ended December 31 |
Year Ended December 31 |
||||
| 2012 | 2011 | 2012 | 2011 | |||
| Profit and comprehensive income | $7,146 | $40,932 | $54,409 | $95,270 | ||
| Add (Deduct): | ||||||
| Depreciation and amortization | 8,241 | 6,539 | 30,023 | 22,377 | ||
| Finance costs | 175 | 184 | 747 | 487 | ||
| Share-based payment transactions | 667 | 2,647 | 1,086 | 3,880 | ||
| Cash settlement of deferred share units | - | - | 2,298 | - | ||
| Loss on sale of property and equipment | (14) | 92 | 179 | 131 | ||
| Income tax expense | 2,599 | 15,027 | 19,032 | 34,653 | ||
| EBITDA before share-based payments | $18,814 | $65,421 | $107,774 | $156,798 | ||
| Funds from Operations | |||||
| 000's (Unaudited) |
Three Months Ended December 31 |
Year Ended December 31 |
|||
| 2012 | 2011 | 2012 | 2011 | ||
| Net cash from operating activities | $41,698 | $60,630 | $87,912 | $104,545 | |
| Add (Deduct): | |||||
| Income Tax paid | (17) | 3,498 | 31,454 | 26,662 | |
| Change in working capital | (23,042) | 1,109 | (14,637) | 25,104 | |
| Cash settlement of deferred share units | - | - | 2,298 | - | |
| Current tax | (138) | (13,734) | (11,492) | (28,440) | |
| Funds from operations | $18,501 | $51,503 | $95,535 | $127,871 | |
Operating and Financial Highlights
The operating and financial highlights for the three and twelve months ended December 31, 2012 are summarized as follows:
- Average fracturing revenue per job for the year ended December 31, 2012 increased by 15%, as Canyon completed larger jobs in emerging oil and natural gas liquids rich plays such as the Duvernay shale. The larger job size was more than offset by an uncertain commodity price and macro-economic environment that led to reduced producer activity and pricing pressure for most of the year. As a result, jobs completed decreased by 11% to 2,198 in 2012 compared to 2,482 in 2011 while consolidated revenues decreased by 5% to $353,119 from $372,096 in 2011.
- Q4 2012 average fracturing revenue per job increased by 20% over the comparable 2011 quarter, again due to larger job sizes. Industry conditions resulted in jobs completed and consolidated revenues decreasing by 43% and 41% respectively to 489 and $84,809 in Q4 2012 from 854 and $144,965 respectively in Q4 2011.
- Canyon added 50,000 HHP to its equipment fleet in 2012 and exited the year with 225,500 HHP, the major portion of which is relatively new, at three years old or less, and has heavy-duty capability. As at December 31, 2012 Canyon has $10 million in commitments to complete its 2012 capital programs, which when combined with the previously announced 2013 preliminary capital program of $15 million, will be funded out of funds from operations.
- In 2012, although the key indicators for industry activity, well completions, well licenses and drilling rig utilization, declined by 28%, 17% and 16% respectively, setting the stage for weaker producer activity and price pressure, Canyon's consolidated revenue decreased by only 5% in 2012 compared to 2011.
- Canyon remains in a very strong financial position with undrawn credit facilities of $60 million and working capital of $56 million, including cash of $23 million, as at December 31, 2012.
- On December 18, 2012, Canyon declared a quarterly dividend of $0.15 per common share, or $9.3 million, which was paid to shareholders on January 25, 2013.
| QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS | ||||
| 000's except per share amounts (Unaudited) |
Three Months Ended December 31 | |||
| 2012 | 2011 | |||
| Revenues | $84,809 | $144,965 | ||
| Cost of services | (68,627) | (80,017) | ||
| Gross profit | 16,182 | 64,948 | ||
| Administrative expenses | (6,262) | (8,804) | ||
| Results from operating activities | 9,920 | 56,144 | ||
| Finance costs | (175) | (184) | ||
| Profit before income tax | 9,745 | 55,960 | ||
| Income tax expense | (2,599) | (15,028) | ||
| Profit and comprehensive income | $7,146 | $40,932 | ||
| EBITDA before share-based payments(1) | $18,814 | $65,421 | ||
| Earnings per share: | ||||
| Basic | $0.12 | $0.67 | ||
| Diluted | $0.11 | $0.65 | ||
Note (1): See Non-GAAP Measures.
Revenues
Lower producer activity in Q4 2012 combined with increased equipment capacity across the industry resulted in price reductions averaging about 20% from Q1 2012 levels. As a result, jobs completed in Q4 2012 decreased 43% to 489 from 854 in Q4 2011 while revenues decreased 41% to $84,809 from $144,965 in Q4 2011. However, the lower job count and pricing pressure was partly mitigated by higher average revenues per job. Approximately 90% of Q4 2012 consolidated revenues were provided by hydraulic fracturing services with average fracturing revenue per job increasing by 20% to $280,671 from $234,765 in Q4 2011. The increase in average fracturing revenue per job is due to the completion of larger jobs such as Duvernay shale gas wells.
Cost of services
Cost of services for the three months ended December 31, 2012 totaled $68,627 (2011: $80,017) and includes materials, products, transportation and repair costs of $42,486 (2011: $54,050), employee benefits expense of $18,296 (2011: $19,782), and depreciation of property and equipment of $7,845 (2011: $6,185).
The decrease in materials, products, transportation and repair costs is mostly due to the lower job count in Q4 2012 compared to the prior year comparable quarter. The decrease in employee benefits expense is mainly due to lower variable field pay in the quarter due to the reduced industry-wide producer activity and resulting job count. The increase in depreciation of property and equipment is due to additional depreciation pertaining to equipment additions.
Administrative expenses
Administrative expenses for the three months ended December 31, 2012 totaled $6,262 compared to $8,804 in Q4 2011 and include employee benefits expense of $3,488 (2011: $3,802) and share-based payments expense of $667 (2011: $2,647). Administrative expenses also include depreciation of buildings and office equipment and amortization of intangibles of $398 (2011: $354). In addition, other administrative expenses totaled $1,709 in Q4 2012 compared to $2,001 in Q4 2011. The decrease in employee benefits expense is mostly due to lower sales commissions partly offset by staff additions to support the larger scale of Canyon's operations in 2012. The decrease in share-based payments expense is mostly due to fluctuations in the price of the Company's common shares.
Share-based payments expense represents the value assigned to the granting of options and incentive-based units under the Company's Share Purchase Option Plan and Stock Based Compensation Plan respectively, using the Black-Scholes model. For Q4 2012, $0.9 million (Q4 2011 - $0.8 million) was charged to expenses and included in contributed surplus in respect of these two plans. In addition, obligations for payments under the Company's Deferred Share Unit Plan are accrued as share-based payments expense over the vesting period. The accrued liability increases or decreases with fluctuations in the price of the Company's common shares, with a corresponding increase or decrease in the share-based payments expense. In Q4 2012, share-based payments expense was reduced by $0.2 million (Q4 2011 - $1.8 million) for the Company's Deferred Share Unit Plan to reflect changes in the price of the common shares of the Company.
EBITDA before share-based payments (See Non-GAAP Measures)
In Q4 2012, EBITDA before share-based payments (see NON-GAAP MEASURES) was $18,814 compared to $65,421 in the comparable 2011 quarter. As previously discussed, reduced producer activity, pricing pressure and an increased fixed cost structure to support the Company's expanded equipment fleet resulted in the decreased EBITDA.
Finance costs
Finance costs include interest on finance lease obligations and automobile loans and totaled $175 in Q4 2012 (Q4 2011: $184).
Income Tax Expense
At the expected combined income tax rate of 25%, the profit before income tax for Q4 2012 of $9,745 would have resulted in an expected expense of $2,436, compared to the actual income tax expense of $2,599. The actual income tax expense was increased by non-deductible expenses.
Profit and comprehensive income and earnings per share
Profit and comprehensive income totaled $7,146 in Q4 2012 compared to $40,932 in Q4 2011. As previously discussed, the decrease is due to reduced producer activity across the industry, pricing pressure and a higher fixed cost structure to support the Company's increased equipment fleet.
Basic and diluted earnings per share were $0.12 and $0.11, respectively, for the three months ended December 31, 2012 compared to basic and diluted earnings per share of $0.67 and $0.65, respectively, for the comparable 2011 quarter.
| YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS | ||||
| 000's except per share amounts (Unaudited) |
Year Ended December 31 | |||
| 2012 | 2011 | |||
| Revenues | $353,119 | $372,096 | ||
| Cost of services | (255,843) | (218,084) | ||
| Gross profit | 97,276 | 154,012 | ||
| Administrative expenses | (23,088) | (23,602) | ||
| Results from operating activities | 74,188 | 130,410 | ||
| Finance costs | (747) | (487) | ||
| Profit before income tax | 73,441 | 129,923 | ||
| Income tax expense | (19,032) | (34,653) | ||
| Profit and comprehensive income |
$54,409 | $95,270 | ||
| EBITDA before share-based payments(1) |
$107,774 | $156,798 | ||
| Earnings per share: | ||||
| Basic | $0.89 | $1.57 | ||
| Diluted | $0.87 | $1.53 | ||
Note (1): See Non-GAAP Measures.
Revenues
The reduced producer activity and accompanying price pressure over the last half of the year, as previously discussed, resulted in consolidated revenues decreasing by 5% to $353,119 in 2012 from $372,096 in 2011, while jobs completed in 2012 decreased 11% to 2,198 from 2,482 in 2011. Again, a lower job count and pricing pressure due to industry conditions was partly mitigated by higher average revenues per job. Approximately 90% of the current period's consolidated revenues were provided by hydraulic fracturing services with average fracturing revenue per job increasing 15% to $240,369 from $209,855 in 2011. Larger job sizes accounted for the increases in average revenue per job.
Cost of services
Cost of services for the year ended December 31, 2012 totaled $255,843 (2011: $218,084) and includes materials, products, transportation and repair costs of $158,071 (2011: $139,845), employee benefits expense of $69,079 (2011: $57,091), and depreciation of property and equipment of $28,693 (2011: $21,148).
The increase in materials, products, transportation and repair costs is mostly due to the larger jobs requiring more materials and products, and due to the increase in the scale of Canyon's business activities with added equipment and infrastructure. The increase in employee benefits expense is due to the additional staff to support increased twenty four hour operations and for Canyon's expanded equipment fleet. The increase in depreciation of property and equipment is due to additional depreciation pertaining to equipment additions.
Administrative expenses
Administrative expenses for the year ended December 31, 2012 totaled $23,088 (2011: $23,602) and includes employee benefits expense of $12,244 (2011: $11,453), and share-based payments expense of $3,384 (2011: $3,880). Administrative expenses also include depreciation of buildings and office equipment and amortization of intangibles of $1,331 (2011: $1,229). In addition, other administrative expenses totaled $6,129 (2011: $7,040). The increase in employee benefits expense is mainly due to Canyon adding management and administrative staff to support its increased business activities. Share-based payments expense includes a payment pursuant to the exercise of 200,000 deferred share units at an exercise price of $1.25 per unit, less a reduction in share-based payments expense due to fluctuations in the price of the Company's common shares.
Share-based payments expense represents the value assigned to the granting of options and incentive-based units under the Company's Share Purchase Option Plan and Stock Based Compensation Plan respectively, using the Black-Scholes model. For the year ended December 31, 2012, $3.4 million (2011 - $2.6 million) was charged to expenses and included in contributed surplus in respect of these two plans. In addition, obligations for payments under the Company's Deferred Share Unit Plan are accrued as share-based payments expense over the vesting period. The accrued liability increases or decreases with fluctuations in the price of the Company's common shares, with a corresponding increase or decrease in the share-based payments expense. In the year ended December 31, 2012, share-based payments expense was reduced by $43 thousand (2011 - increased by $1.3 million) for the Company's Deferred Share Unit Plan to reflect the payment pursuant to the exercise of 200,000 units and changes in the price of the common shares of the Company.
EBITDA before share-based payments (See Non-GAAP Measures)
For the year ended December 31, 2012, EBITDA before share-based payments (see NON-GAAP MEASURES) was $107,774 (2011: $156,798). The decrease was due to reduced producer activity, pricing pressure and a higher fixed cost structure to support the Company's increased equipment fleet.
Finance costs
Finance costs include interest on finance lease obligations and automobile loans and totaled $747 (2011: $487). The increase in finance costs is due to additional finance leases for automotive equipment to support Canyon's increased business activities.
Income Tax Expense
At the expected combined income tax rate of 25%, the profit before income tax for the year ended December 31, 2012 of $73,441 results in an expected income tax expense of $18,360 compared to the actual income tax expense of $19,032. The actual income tax expense was increased by non-deductible expenses.
Profit and comprehensive income and earnings per share
Profit and comprehensive income decreased to $54,409 for the year ended December 31, 2012, from $95,270 in 2011 mainly due to reduced producer activity, pricing pressure and a higher fixed cost structure to support the Company's increased equipment fleet.
Basic and diluted earnings per share were $0.89 and $0.87, respectively earned in the year ended December 31, 2012 compared to basic and diluted earnings per share of $1.57 and $1.53, respectively earned in 2011.
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", "ongoing", "may", "will", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this document contains forward-looking information and statements pertaining to the following: future oil and natural gas prices; future results from operations; future liquidity and financial capacity and financial resources; future costs, expenses and royalty rates; future interest costs; future capital expenditures; future capital structure and expansion; the making and timing of future regulatory filings; and the Company's ongoing relationship with major customers.
The forward-looking information and statements contained in this document reflect several material factors and expectations and assumptions of the Company including, without limitation: that the Company will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; certain commodity price and other cost assumptions; the continued availability of adequate debt and/or equity financing and cash flow to funds its capital and operating requirements as needed; and the extent of its liabilities. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of the Company's services; unanticipated operating results; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in the development plans of third parties; increased debt levels or debt service requirements; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; reliance on industry partners; attracting and retaining skilled personnel and certain other risks detailed from time to time in the Company's public disclosure documents (including, without limitation, those risks identified in this document and the Company's Annual Information Form).
The forward-looking information and statements contained in this document speak only as of the date of the document, and none of the Company or its subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.
SOURCE: Canyon Services Group Inc.
Brad Fedora
President and CEO
Canyon Services Group Inc
2900 Bow Valley Square III
255 - 5th Avenue SW
Calgary, Alberta, T2P 3G6
Phone: 403-290-2491
Fax: 403-355-2211
Or
Barry O'Brien
Vice President, Finance and CFO
Canyon Services Group Inc
2900 Bow Valley Square III
255 - 5th Avenue SW
Calgary, Alberta, T2P 3G6
Phone: 403-290-2478
Fax: 403-355-2211
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