Canyon Services Group Inc. reports third quarter 2014 and provides 2015 capital expenditure guidance
CALGARY, Nov. 6, 2014 /CNW/ - Canyon Services Group Inc. ("Canyon" or the "Company") is pleased to announce its third quarter 2014 results. The following results should be read in conjunction with the Management's Discussion and Analysis, the interim consolidated financial statements and notes of Canyon Services Group Inc. for the nine months ended September 30, 2014 and should also be read in conjunction with the audited consolidated financial statements and Annual Information Form for the year ended December 31, 2013, which are available on SEDAR at www.sedar.com.
The current quarter includes the results of Canyon's pressure pumping business as well as the results of Fraction Energy Services Ltd., ("Fraction") a leading provider of fracturing fluid management, including water sourcing, transfer, wellsite storage, fluid heating, flowback transfer and produced water storage services, which was acquired by Canyon effective July 1, 2014.
HIGHLIGHTS
The operating and financial highlights for the three and nine months ended September 30, 2014 are summarized as follows:
- Q3 2014 represents a record quarter with revenues reaching $204.5 million compared to $81.1 million in Q3 2013, an increase of 152%. For the nine months ended September 30, 2014, consolidated revenues were $402.9 million, a 106% increase over $195.4 million recorded in the comparable period of 2013.
- The increased revenues combined with Canyon's considerable operating leverage in its pressure pumping business and the inclusion of Fraction resulted in consolidated EBITDA before share based payments improving to $57.7 million in the current quarter from $14.2 million in Q3 2013 and consolidated income and comprehensive income increasing to $31.7 million in Q3 2014 from $3.9 million in Q3 2013. For the nine months ended September 30, 2014 consolidated EBITDA before share based payments increased to $75.9 million from $21.5 million, while consolidated income and comprehensive income increased to $28.3 million from a loss and comprehensive loss of $4.8 million for the comparable 2013 period.
- Effective July 1, 2014, Canyon acquired Fraction, a leading provider of water and fracturing fluid logistics, containment, transfer and storage for the oil and gas industry in NW Alberta and NE British Columbia. In Q3 2014, Fraction contributed $16.3 million to consolidated revenue, $6.2 million to consolidated EBITDA before stock-based compensation expense and $3.6 million to consolidated income and comprehensive income.
- Effective July 14, 2014, Canyon acquired four deep coiled tubing packages which included twin fluid pumpers, BOPs, injectors and three cranes (the "Assets") from a Canadian oilfield services company for approximately $19.7 million. This acquisition has increased Canyon's deep coiled tubing fleet to 11 packages.
- Including the purchase of the Assets but excluding the purchase of Fraction, Canyon's 2014 capital budget is estimated at $107 million. This amount includes fracturing equipment consisting of 30,000 Hydraulic Horsepower ("HHP") in pumping capacity as well as miscellaneous support equipment such as sand logistics equipment, a high rate blender and transportation equipment, coiled tubing equipment including the Assets described above, nitrogen and cement and acid equipment, expansion of Canyon's Grande Prairie operating base and storage tanks and water transfer equipment for the Fraction business.
- On September 25, 2014, Canyon declared a quarterly dividend of $0.15 per common share, or $10.3 million, which was paid to shareholders on October 24, 2014.
- Canyon remains in a very strong financial position. As at September 30, 2014, Canyon had available credit facilities combined with positive working capital totaling $100 million.
- The Board of Directors of the Company has approved a 2015 capital budget of $63 million. This amount includes $43 million for the construction of 25,000 HHP of new fracturing equipment along with additional blending, sand management, logistics and miscellaneous support equipment. In addition, this capital budget includes $12 million for ongoing annual maintenance capital plus $8 million of fluid management services equipment.
OVERVIEW OF THIRD QUARTER 2014
| 000's except per share, job amounts and |
Three Months Ended |
Nine Months Ended |
|||||
| 2014 |
2013 |
2012 |
2014 |
2013 |
2012 |
||
| Consolidated revenues |
$204,481 |
$81,081 |
$94,401 |
$402,945 |
$195,398 |
$268,310 |
|
| Income (loss) and comprehensive income (loss) |
$31,726 |
$3,908 |
$17,036 |
$28,314 |
$(4,752) |
$47,263 |
|
| Per share-basic |
$0.46 |
$0.06 |
$0.28 |
$0.44 |
$(0.08) |
$0.77 |
|
| Per share-diluted |
$0.45 |
$0.06 |
$0.27 |
$0.43 |
$(0.08) |
$0.76 |
|
| EBITDA before share-based payments(1) |
$57,657 |
$14,241 |
$32,496 |
$75,904 |
$21,470 |
$88,960 |
|
| Funds from (used in) operations(1) |
$45,939 |
$14,316 |
$27,727 |
$65,735 |
$21,141 |
$77,035 |
|
| Total jobs completed (2) |
887 |
553 |
524 |
2,124 |
1,174 |
1,709 |
|
| Consolidated average revenue per job (2) |
$213,320 |
$147,794 |
$180,540 |
$182,798 |
$167,144 |
$157,521 |
|
| Average fracturing revenue per job |
$310,403 |
$208,524 |
$247,746 |
$252,184 |
$236,358 |
$230,516 |
|
| Hydraulic Pumping Capacity |
|||||||
| Average HHP |
245,500 |
225,500 |
220,000 |
240,000 |
225,500 |
200,500 |
|
| Exit HHP |
245,500 |
225,500 |
225,500 |
245,500 |
225,500 |
225,500 |
|
| Capital expenditures |
$43,976 |
$1,586 |
$9,740 |
$75,847 |
$7,398 |
$64,521 |
|
| 000's except per share amounts (Unaudited)
|
As at 2014 |
As at |
As at |
| Cash and cash equivalents |
$5,599 |
$21,308 |
$22,584 |
| Working capital |
$50,417 |
$41,730 |
$56,245 |
| Total long-term financial liabilities |
$54,249 |
$3,096 |
$3,475 |
| Total assets |
$594,576 |
$402,707 |
$406,113 |
| Cash dividends declared per share |
$0.45 |
$0.60 |
$0.60 |
| Note (1): |
See Non-GAAP Measures |
| Note (2): |
Includes all jobs from each service line in the pressure pumping business, specifically hydraulic fracturing; coiled tubing; nitrogen fracturing; acidizing and remedial cementing |
In summary, Q3 2014 was extremely busy for Canyon with consolidated revenues reaching a record $204.5 million compared to $81.1 million in Q3 2013, an increase of 152%. For the nine months ended September 30, 2014, consolidated revenues were $402.9 million, a 106% increase over $195.4 million recorded in the comparable period of 2013. The increased activity and revenues combined with Canyon's considerable operating leverage in its pressure pumping business and the inclusion of Fraction resulted in a significant improvement in profitability with consolidated income and comprehensive income increasing to $31.7 million in Q3 2014 compared to $3.9 million in Q3 2013. For the nine months ended September 30, 2014 consolidated income and comprehensive income increased to $28.3 million from a loss and comprehensive loss of $4.8 million for the comparable 2013 period.
Pressure Pumping Services
Canyon's equipment fleet was essentially fully utilized for most of Q3 2014 resulting in jobs completed and revenues earned increasing by 60% and 132% respectively compared to Q3 2013. Pressure pumping revenues in the current quarter totaled a record $188.2 million from 887 jobs completed compared to $81.1 million from 553 jobs in the comparable quarter of 2013. For the nine months ended September 30, 2014, pressure pumping revenues increased by 98% to $386.7 million compared to $195.4 million in the comparable 2013 period, while jobs completed increased by 81% to 2,124 from 1,174 over the same periods.
We estimate that overall industry activity in the Western Canadian Sedimentary Basin ("WCSB") as measured by total meters drilled increased by approximately 10% percent in Q3 2014 year over year. This increasing trend in industry activity has been evident since late 2013 and is driven by several factors including changing well designs resulting in customers' growing preference for drilling wells with longer horizontal sections and increased fracturing intensity on a per well basis. In addition, more favourable Canadian/US exchange rates, E&P companies' improved access to capital markets to fund capital programs over the first half of 2014 and, until recently, strong commodity prices led to the increased activity. As a result, the key industry indicators such as well licensing, drilling rig utilization and well completions have been strong year to date and continue to point to a positive outlook for the upcoming winter season. Well licensing for service-intensive deep wells drilled in NW Alberta and NE British Columbia increased by approximately 14% in Q3 2014 compared to Q3 2013, and by about 11% for the nine months ended September 30, 2014. Drilling rig utilization increased to about 52% in Q3 2014 compared to 46% for Q3 2013, and to 48% from 44% on a year to date basis. Although well completions were relatively flat in Q3 2014 and for the year to date compared to the prior year comparable periods, total meters completed increased by approximately 10% compared to Q3 2013 and by 11% for the year to date. Also, natural gas well completions have increased by about 30% for the year to date partially due to LNG related delineation drilling. The trend over the past 18 months of significantly increased fracturing intensity has resulted in Canyon completing much larger jobs in 2014 compared to 2013. Our customers have continued to apply greater fracturing intensity to their wells via an increase to the number of stages on a per well basis and/or larger fractures per stage. Third quarter proppant volumes pumped by Canyon increased by 137% compared to Q3 2013, and by 127% for the nine months ended September 30, 2014 compared to 2013. In addition, the growing trend by customers to use more expensive "Ottawa" sand rather than domestic sand has also contributed to increased revenue per job. In Q3 2014, average fracturing revenue per job increased by 49% to $310,403 in Q3 2014 from $208,524 in Q3 2013 due predominantly to increased job size. Overall, pricing and cost recovery had a modest impact on revenue per job and revenues in Q3 2014 and was approximately 5% higher than Q1 2014 levels and 10% higher than Q3 2013.
Pressure pumping cash flow and profitability remains highly levered to changes in revenue due to the fixed cost nature of the business. The increased activity and revenues led to significantly improved margins in Q3 2014 compared to the comparable quarter of 2013 and compared to Q1 2014. (The second quarter is not comparable as it experiences our annual spring break up and is therefore characterized by much lower industry-wide activity). In Q3 2014, EBITDA before stock-based compensation expense from pressure pumping was $53.9 million, or 29% of revenues, compared to $15.9 million or 20% of revenues in the comparable 2013 quarter. The increased scale of operations has also significantly increased EBITDA before stock-based compensation expense from pressure pumping to $75.0 million, or 19% of revenues, for the nine months ended September 30, 2014 from $25.6 million or 13% of revenues for the comparable 2013 period.
Fluid Management Services
Fraction was acquired by Canyon effective July 1, 2014 and continues as a wholly owned and independent operating subsidiary. Fraction is a leading provider of water and fracturing fluid logistics, containment, transfer and storage for the oil and gas industry in NW Alberta and NE British Columbia. The acquisition of Fraction complements Canyon's current offering of services to our customers.
For the three months ended September 30, 2014, storage tank rental revenues were strong while water transfer and fluid logistics revenues were negatively impacted later in the quarter by water access restrictions due to the dry summer in the northern regions of the WCSB where Fraction is most active. In the quarter, Fraction contributed $16.3 million to consolidated revenue, $6.2 million to consolidated EBITDA before stock-based compensation expense and $3.6 million to consolidated income and comprehensive income.
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 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, gain or loss on sale of property and equipment, finance costs, foreign exchange (gain) loss 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 |
Three Months Ended September 30 |
Nine Months Ended |
||
| 2014 |
2013 |
2014 |
2013 |
|
| Income (loss) and comprehensive income (loss) |
$31,726 |
$3,908 |
$28,314 |
$(4,752) |
| Add: |
||||
| Depreciation and amortization |
12,890 |
7,971 |
32,596 |
23,467 |
| Finance costs |
727 |
149 |
978 |
467 |
| Foreign exchange loss (gain) |
633 |
(143) |
901 |
(193) |
| Share-based payment transactions |
1,073 |
799 |
2,959 |
2,950 |
| (Gain) on sale of property and equipment |
(172) |
32 |
(188) |
(12) |
| Income tax expense (recovery) |
10,780 |
1,525 |
10,344 |
(457) |
| EBITDA before share-based payments |
$57,657 |
$14,241 |
$75,904 |
$21,470 |
Funds from Operations
| 000's |
Three Months Ended September 30 |
Nine Months Ended |
||
| 2014 |
2013 |
2014 |
2013 |
|
| Net cash from operating activities |
$14,713 |
$(801) |
$25,700 |
$28,673 |
| Add: |
||||
| Income tax (recovered) paid |
(4,461) |
1,468 |
(4,461) |
5,135 |
| Change in working capital |
46,016 |
13,568 |
52,757 |
(12,612) |
| Current tax (expense) recovery |
(10,329) |
81 |
(8,261) |
(55) |
| Funds from operations |
$45,939 |
$14,316 |
$65,735 |
$21,141 |
QUARTERLY CONSOLIDATED COMPARATIVE STATEMENTS OF OPERATIONS
| 000's except per share amounts (Unaudited) |
Three Months Ended |
||||||||||
| 2014 |
2013 |
||||||||||
| Revenues |
$204,481 |
$81,081 |
|||||||||
| Cost of services |
(150,753) |
(69,422) |
|||||||||
| Gross profit |
53,728 |
11,659 |
|||||||||
| Administrative expenses |
(9,862) |
(6,220) |
|||||||||
| Results from operating activities |
43,866 |
5,439 |
|||||||||
| Finance costs |
(727) |
(149) |
|||||||||
| Foreign exchange (loss) gain |
(633) |
143 |
|||||||||
| Income before income tax |
42,506 |
5,433 |
|||||||||
| Income tax expense |
(10,780) |
(1,525) |
|||||||||
| Income and comprehensive income |
$31,726 |
$3,908 |
|||||||||
| EBITDA before share-based payments(1) |
$57,657 |
$14,241 |
|||||||||
| Earnings per share: |
|||||||||||
| Basic |
$0.46 |
$0.06 |
|||||||||
| Diluted |
$0.45 |
$0.06 |
|||||||||
| Note (1): |
See Non-GAAP Measures |
Pressure Pumping Services
| 000's except per share amounts (Unaudited) |
Three Months Ended |
||||
| 2014 |
2013 |
||||
| Revenues |
$188,225 |
$81,081 |
|||
| Cost of services |
(141,118) |
75.0% |
(69,422) |
85.6% |
|
| Gross profit |
47,107 |
25.0% |
11,659 |
14.4% |
|
| Administrative expenses |
(5,255) |
2.8% |
(4,235) |
5.2% |
|
| Results from operating activities |
$41,852 |
22.2% |
$7,424 |
9.2% |
|
| EBITDA before share-based payments(1) |
$53,940 |
28.7% |
$15,861 |
19.6% |
|
Revenues
The rebound in industry activity in 2014 led to Canyon having the busiest quarter in its history and resulted in Q3 2014 jobs completed by the pressure pumping segment increasing by 60% to 887 from 553 in Q3 2013, while revenues increased by 132% to $188.2 million from $81.1 million in the prior year quarter. Over 90% of Q3 2014 pressure pumping revenues were provided by hydraulic fracturing services with average fracturing revenue per job increasing by 49% to $310,403 from $208,524 in Q3 2013. The increase in average fracturing revenue per job is more a function of larger job sizes than pricing increases due to a huge increase in product consumption, particularly sands. Proppants pumped by Canyon in Q3 2104 increased by 137% over the tonnages pumped in Q3 2013. On the other hand, Q3 2014 pricing averaged about 5% higher than Q1 2014 levels and as a result only had a modest impact on revenue per job and revenues in the quarter.
Cost of services
Cost of services for the three months ended September 30, 2014 totaled $141,118 (2013: $69,422) and includes materials, products, transportation and repair costs of $98,388 (2013: $43,538), employee benefits expense of $31,643 (2013: $18,384), and depreciation of property and equipment of $11,087 (2013: $7,500).
Materials, products, transportation and repair costs increased by 126% to $98,388 in the current quarter from $43,538 in Q2 2013, due to the increased job count in the quarter and due to the increase in materials consumed per well, especially sand. The increase in employee benefits expense is mainly due to field staff additions to support the higher activity levels, increased variable pay as a result of the higher activity and inflation in labour rates. The increase in depreciation of property and equipment is due to additional depreciation pertaining to equipment introduced into service in late 2013 and in 2014, and accelerated depreciation relating to the replacement of a number of pump components.
Administrative expenses
Administrative expenses for the three months ended September 30, 2014 totaled $5,255 compared to $4,234 in Q3 2013 and include employee benefits expense, share-based payments expense, depreciation of buildings and office equipment and other administrative expenses. 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 Q3 2014, $685 (Q3 2013 - $433) was charged to expenses and included in contributed surplus in respect of these two plans.
EBITDA Before Share-Based Payments (See NON-GAAP MEASURES)
Pressure pumping profitability remains highly levered to changes in revenue due to the fixed cost nature of the business and as a result the aforementioned 60% increase in the job count and the 132% increase in revenues led to significantly improved margins in Q3 2014 compared to the comparable quarter of 2013. As a result, Q3 2014, EBITDA before share-based payments totaled $53,940 in the pressure pumping segment, or 29% of revenues compared to $15,861, or 20% of revenues in Q3 2013.
Fluid Management Services
| 000's except per share amounts (Unaudited) |
Three Months Ended |
||||
| 2014 |
2013 |
||||
| Revenues |
$16,256 |
$- |
|||
| Cost of services |
(9,635) |
59.3% |
- |
-% |
|
| Gross profit |
6,621 |
40.7% |
- |
-% |
|
| Administrative expenses |
(1,769) |
10.9% |
- |
-% |
|
| Results from operating activities |
$4,852 |
29.8% |
$- |
-% |
|
| EBITDA before share-based payments(1) |
$6,225 |
38.3% |
$- |
-% |
|
Revenues
The water management services business, acquired effective July 1, 2014, contributed $16,256 of revenues to Canyon in Q3 2014. In the current quarter, storage tank rental revenues were strong while water transfer and fluid logistics revenues were negatively impacted in the quarter by water access restrictions due to the dry summer in the northern regions of the WCSB where Fraction is most active. This resulted in customers having to adjust project timelines.
Cost of services
Cost of services for the three months ended September 30, 2014 totaled $9,635 and includes materials, products, transportation and repair costs of $5,259, employee benefits expense of $3,062, and depreciation of property and equipment of $1,314.
Administrative expenses
Administrative expenses for the three months ended September 30, 2014 totaled $1,769 and include employee benefits expense, depreciation of buildings and office equipment and amortization of intangibles and other administrative expenses.
EBITDA Before Share-Based Payments (See NON-GAAP MEASURES)
Q3 2014, EBITDA before share-based payments totaled $6,225 in the fluid management services division, or 38% of revenues.
Corporate
| 000's except per share amounts (Unaudited) |
Three Months Ended |
||
| 2014 |
2013 |
||
| Revenues |
$- |
$- |
|
| Administrative expenses |
(2,838) |
(1,985) |
|
| Results from operating activities |
$(2,838) |
$(1,985) |
|
| EBITDA before share-based payments(1) |
$(2,508) |
$(1,620) |
|
This segment consists of costs incurred to operate a public company, including corporate management, head office costs, corporate share-based payment expenses and professional fees.
Administrative expenses
Administrative expenses for the three months ended September 30, 2014 totaled $2,838 compared to $1,985 in Q3 2013 and include employee benefits expense, share-based payments, and other head office administrative expenses. The increase in administrative expenses is due to the larger scale of operations in 2014.
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 Q3 2014, $388 (Q3 2013 - $428) 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 Q3 2014, share-based payments expense was nil (2013: a reduction of $62) for the Company's Deferred Share Unit Plan to reflect changes in the price of the common shares of the Company.
Other Items – Quarterly Consolidated Comparative Statement of Operations
Finance costs
Finance costs include interest on finance lease obligations and automobile loans and totaled $727 in Q3 2014 (2013: $149). The increase in finance costs is due to the increase in loans and borrowings used to partially fund the Company's 2014 capital program.
Income Tax Expense
At the expected combined income tax rate of 25%, the income before income tax for the three months ended September 30, 2014 of $42,506 would have resulted in an income tax expense of $10,626, compared to the actual income tax expense of $10,780. The actual income tax expense was increased by non-deductible expenses.
EBITDA before share-based payments (See Non-GAAP Measures)
In Q3 2014, Canyon's increased activity resulted in consolidated EBITDA before share-based payments (see NON-GAAP MEASURES) of $57,657. The four-fold increase over the $14,241 recorded in the comparable 2013 quarter is due to the increase in activity as discussed above.
Income and comprehensive income and earnings per share
Income and comprehensive income increased significantly to $31,726 in Q3 2014 from $3,908 in Q3 2013, due to the improved job count as previously discussed. The eight-fold increase in income and comprehensive income was due to the increase in activity as previously discussed.
Basic and diluted earnings per share were $0.46 and $0.45 respectively for the three months ended September 30, 2014 compared to basic and diluted earnings per share of $0.06 and $0.06 respectively for the comparable 2013 quarter.
NINE MONTHS ENDED SEPTEMBER 30, 2014 COMPARATIVE STATEMENTS OF OPERATIONS
| 000's except per share amounts (Unaudited) |
Nine Months Ended |
|||||||||||
| 2014 |
2013 |
|||||||||||
| Revenues |
$402,945 |
$195,398 |
||||||||||
| Cost of services |
(338,644) |
(183,039) |
||||||||||
| Gross profit |
64,301 |
12,359 |
||||||||||
| Administrative expenses |
(23,764) |
(17,294) |
||||||||||
| Results from operating activities |
40,537 |
(4,935) |
||||||||||
| Finance costs |
(978) |
(467) |
||||||||||
| Foreign exchange (loss) gain |
(901) |
193 |
||||||||||
| Income (loss) before income tax |
38,658 |
(5,209) |
||||||||||
| Income tax (expense) recovery |
(10,344) |
457 |
||||||||||
| Income (loss) and comprehensive income (loss) |
$28,314 |
$(4,752) |
||||||||||
| EBITDA before share-based payments(1) |
$75,904 |
$21,470 |
||||||||||
| Earnings (loss) per share: |
||||||||||||
| Basic |
$0.44 |
$(0.08) |
||||||||||
| Diluted |
$0.43 |
$(0.08) |
||||||||||
| Note (1): |
See Non-GAAP Measures |
Pressure Pumping Services
| 000's except per share amounts (Unaudited) |
Nine Months Ended |
||||
| 2014 |
2013 |
||||
| Revenues |
$386,689 |
$195,398 |
|||
| Cost of services |
(329,009) |
85.1% |
(183,039) |
93.7% |
|
| Gross profit |
57,680 |
14.9% |
12,359 |
6.3% |
|
| Administrative expenses |
(15,528) |
4.0% |
(12,155) |
6.2% |
|
| Results from operating activities |
$42,152 |
10.9% |
$204 |
0.1% |
|
| EBITDA before share-based payments(1) |
$75,032 |
19.4% |
$25,587 |
13.1% |
|
Revenues
The increase in industry activity that has been evident since late 2013 is driven by several factors including customers' preference for drilling deeper wells with longer horizontal sections, more favourable Canadian/US exchange rates, E&P companies' improved access to capital markets to fund capital programs over the first half of 2014 and, until recently, strong commodity prices. As a result of the improved activity, jobs completed increased by 81% to 2,124 from 1,174 for the nine months ended September 30, 2014, while revenues increased by 98% to $386,689 from $195,398 over the same periods. Over 90% of consolidated revenues in the nine months ended September 30, 2014 were provided by hydraulic fracturing services with average fracturing revenue per job increasing by 7% to $252,184 from $236,358 in the 2013 comparable period.
Cost of services
Cost of services for the nine months ended September 30, 2014 totaled $329,009 (2013: $183,039) and includes materials, products, transportation and repair costs of $221,524 (2013: $109,972), employee benefits expense of $77,597 (2013: $50,796), and depreciation of property and equipment of $29,888 (2013: $22,271).
Materials, products, transportation and repair costs increased by 101% to $221,524 in the current period from $109,972 as the job count increased by 81% in the current period compared to the comparable nine month period in 2013 and due to higher quantities of materials consumed per well, especially sand. The increase in materials, products, transportation and repair costs was greater than the percentage increase in the job count mainly due to the larger job sizes in 2014 as previously discussed. The increase in employee benefits expense is mainly due to field staff additions to support the higher activity levels, increased variable pay as a result of the higher activity and inflation in labour rates. Canyon had approximately 1,150 employees in its pressure pumping business as at September 30, 2014 compared to about 850 at the same time last year. The increase in depreciation of property and equipment is due to additional depreciation pertaining to equipment introduced into service in late 2013 and in 2014 and accelerated depreciation relating to the replacement of a number of pump components.
Administrative expenses
Administrative expenses for the nine months ended September 30, 2014 totaled $15,528 (2013: $12,155) and include employee benefits expense, share-based payments expense, depreciation of buildings and office equipment and amortization of intangibles and other administrative expenses. Employee benefits expense increased mainly due to staff additions and the implementation of a cost of living increase effective Q4 2013.
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 nine months ended September 30, 2014, $1,786 (2013 - $1,928) was charged to expenses and included in contributed surplus in respect of these two plans.
EBITDA before share-based payments (See Non-GAAP Measures)
For the nine months ended September 30, 2014, Canyon's increased activity resulted in EBITDA before share-based payments (see NON-GAAP MEASURES) for pressure pumping services of $75,032, or 19% of revenues, compared to $25,587, or 13% of revenues for the comparable 2013 period.
Fluid Management Services
| 000's except per share amounts (Unaudited) |
Nine Months Ended |
||||
| 2014 |
2013 |
||||
| Revenues |
$16,256 |
$- |
|||
| Cost of services |
(9,635) |
59.3% |
- |
-% |
|
| Gross profit |
6,621 |
40.7% |
- |
-% |
|
| Administrative expenses |
(1,769) |
10.9% |
- |
-% |
|
| Results from operating activities |
$4,852 |
29.8% |
$- |
-% |
|
| EBITDA before share-based payments(1) |
$6,225 |
38.3% |
$- |
-% |
|
For a discussion of revenues, cost of services and administrative expenses please see Water Management Services under QUARTERLY COMPARATIVE CONSOLIDATED STATEMENT OF OPERATIONS above. The nine months ended September 30, 2014 includes three months of operations for this segment as it was acquired by Canyon effective July 1, 2014.
Corporate
| 000's except per share amounts (Unaudited) |
Nine Months Ended |
||
| 2014 |
2013 |
||
| Revenues |
$- |
$- |
|
| Administrative expenses |
(6,467) |
(5,139) |
|
| Results from operating activities |
$(6,467) |
$(5,139) |
|
| EBITDA before share-based payments(1) |
$(5,353) |
$(4,117) |
|
This segment consists of costs incurred to operate a public company, including corporate management, head office costs, corporate share-based payment expenses and professional fees.
Administrative expenses
Administrative expenses for the nine months ended September 30, 2014 totaled $6,467 (2013: $5,139) and include employee benefits expense, share-based payments, and other head office administrative expenses.
For the nine months ended September 30, 2014, employee benefits expense increased due to the larger scale of Canyon's operations and due to transaction costs pertaining to the acquisition of Fraction. 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 nine months ended September 30, 2014 $1,173 (2013 - $855) 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 nine months ended September 30, 2014, share-based payments expense was nil (2013: $167) for the Company's Deferred Share Unit Plan to reflect changes in the price of the common shares of the Company.
Other Items – Nine Months Ended September 30, 2014 Comparative Statements of Operations
Finance costs
Finance costs include interest on finance lease obligations and automobile loans and totaled $978 for the nine months ended September 30, 2014 (2013: $467). The increase in finance costs is due to the increase in loans and borrowings used to partially fund the Company's 2014 capital program.
Income Tax Expense
At the expected combined income tax rate of 25%, the income before income tax for the nine months ended September 30, 2014 of $38,658 would have resulted in an income tax expense of $9,664, compared to the actual income tax expense of $10,344. The actual income tax expense was increased by non-deductible expenses.
EBITDA before share-based payments (See Non-GAAP Measures)
For the nine months ended September 30, 2014, improved industry-wide conditions as previously discussed, resulted in an increase in consolidated EBITDA before share-based payments (see NON-GAAP MEASURES) to $75,904 from $21,470 recorded in the comparable 2013 period.
Income (Loss) and comprehensive income (loss) and earnings (loss) per share
Income and comprehensive income totaled $28,314 for the nine months ended September 30, 2014 compared to loss and comprehensive loss of $4,752 in the 2013 comparable period. The significant improvement in income and comprehensive income was due to the increase in activity as previously discussed.
Basic and diluted earnings per share were $0.44 and $0.43 respectively for the nine months ended September 30, 2014 compared to basic and diluted loss per share of $0.08 for the comparable 2013 period.
2015 CAPITAL EXPENDITURE GUIDANCE
The Board of Directors of the Company has approved a 2015 capital budget of $63 million. This amount includes $43 million for the construction of 25,000 HHP of new fracturing equipment along with additional blending, sand management, logistics and miscellaneous support equipment. In addition, this capital budget includes $12 million for ongoing annual maintenance capital plus $8 million of fluid management services equipment.
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", "objective", "ongoing", "may", "will", "should", "believe", "plans" 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 - 5 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 - 5 Avenue SW, Calgary, Alberta, T2P 3G6, Phone: 403-290-2478, Fax: 403-355-2211
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