Canyon Services Group Inc. (TSX:FRC) reports third quarter 2009 results and
announces Chief Executive Officer's retirement and appointment

CALGARY, Nov. 12 /CNW/ - Canyon Services Group Inc. ("Canyon") today announced its third quarter 2009 results along with a senior management change. 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.

CHIEF EXECUTIVE OFFICER

Mr. Dennis J. Weinberger will retire from his position as Chief Executive Officer on November 13, 2009. Mr. Weinberger was the key founder and main driving force behind the growth of Canyon Services Group Inc. to date and will remain as a director of the Corporation. Mr. Fedora, who has held the position of President since joining Canyon in September 2007, states "Canyon greatly appreciates Mr. Weinberger's contribution and leadership in building Canyon to become a significant provider of oil and gas stimulation services in the Western Canadian Sedimentary Basin". Concurrent with Mr. Weinberger's retirement, Mr. Fedora has been appointed President and Chief Executive Officer of the Corporation.

OVERVIEW OF THIRD QUARTER 2009

Following the seasonal spring break-up of the previous quarter, activity levels across the well stimulation industry did not rebound to the levels normally expected in the third quarter. In response to continuing low natural gas prices, exploration and production ("E&P") companies across the Western Canadian Sedimentary Basin ("WCSB") continued to rein in capital expenditure budgets during the quarter. As a result, in Q3 2009, the key indicators for utilization of stimulation equipment, well licensing activity and drilling rig utilization, significantly trailed the prior year's levels. Well licenses issued in Q3 2009 and for the first nine months of 2009 were 63% and 53% lower respectively than the 2008 comparable periods. Drilling rig utilization in Canada in the three and nine months ended September 30, 2009 was only 21% and 23% respectively versus the 48% and 42% activity levels achieved in the 2008 comparable periods, representing the weakest activity levels since the early 1990's.

Although consolidated activity and corresponding revenues were very low, Canyon continued to expand into the deeper segments of the WCSB adding to the Company's portfolio of large, horizontal, multi-stage fracs in the Montney. This has resulted in increases of 28% and 22% respectively in the average revenue per job for the three and nine months ended September 30, 2009, over the comparable 2008 periods.

To capitalize on the Company's success penetrating the deeper segments of the market, Canyon completed an equity financing in October 2009 resulting in net proceeds of approximately $47 million, and commenced a $45 million capital program in the fourth quarter to increase the hydraulic horse power pumping capacity of its equipment fleet. This program will increase the pumping capacity of Canyon's fracturing equipment fleet by about 50,000 hydraulic horsepower to in excess of 70,000 hydraulic horsepower. The staff and management would like to welcome ARC Financial Corp. and all of the new institutional and individual shareholders to Canyon.

However, where Q3 2009 is concerned, the increase in the average revenue per job was significantly more than offset by the lower number of jobs completed by Canyon, the direct result of reduced industry-wide activity, leading to a 76% decline in revenues over the 2008 comparable quarter.

The operating and financial highlights for the three and nine months ended September 30, 2009 may be summarized as follows:

Operating and Financial Highlights

    
    -   On October 28, 2009, Canyon issued 10,000,000 common shares at $2.00
        per common share pursuant to a bought deal prospectus offering, and
        15,000,000 common shares at $2.00 per common share pursuant to a
        concurrent private placement, resulting in the total issuance of
        25,000,000 common shares for gross proceeds of $50 million and net
        proceeds after fees and expenses of approximately $47 million. Canyon
        intends to use the proceeds to purchase additional hydraulic
        horsepower capacity and ancillary equipment, temporarily reduce bank
        indebtedness and for general corporate purposes.

    -   In connection with the concurrent private placement with limited
        partnerships comprising ARC Energy Fund 6, Mr. Douglas Freel, Vice
        President of ARC Financial Corp. was appointed to the Canyon board of
        directors effective as of October 28, 2009.

    -   Canyon's continued penetration into the deeper segments of the market
        resulted in the consolidated average revenue per job increasing in
        Q3 2009 by 28% to $55,268 from $43,231 in Q3 2008, while for the
        first nine months of 2009, consolidated average revenue per job
        increased by 22% to $47,956 from $39,188 in the 2008 comparable
        period.

    -   The significant reduction in industry-wide activity in 2009 to date
        resulted in Canyon's revenues decreasing by 76% to $4.9 million in
        Q3 2009 from $20.7 million in Q3 2008. In the nine months ended
        September 30, 2009, total revenues decreased by 24% to $33.0 million
        from $43.4 million in the 2008 comparable period.

    -   In Q3 2009, Canyon completed 90 jobs compared to 481 jobs completed
        in Q3 2008, while for the first nine months of 2009 total jobs
        completed decreased to 689 from 1,113 in the 2008 comparable period.

    -   As a result of significant, company-wide cost reductions implemented
        in late March 2009, fixed costs and SG&A before stock based
        compensation expense were reduced by 17% in Q3 2009 compared to
        Q3 2008.

    -   Continued weak demand across the industry for well stimulation
        services in the quarter resulted in EBITDA before stock option
        expense of negative $2.1 million in Q3 2009 compared to $4.1 million
        earned in Q3 2008. This has resulted in a loss before income taxes of
        $4.7 million in Q3 2009 compared to income before income taxes of
        $1.2 million in Q3 2008.

    -   As at September 30, 2009, the Company's available credit facilities
        total $15.9 million.

    -   Effective November 13, 2009 Mr. Dennis Weinberger retired as Chief
        Executive Officer and was succeeded by Mr. Bradley Fedora.
        Mr. Weinberger will continue as a director of the Corporation.


    QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS

                                                  September 30, September 30,
    Quarter Ended                                         2009          2008
    -------------------------------------------------------------------------
                                                    (unaudited)   (unaudited)

    Revenues                                        $4,872,938   $20,719,250

    Expenses
      Operating                                      5,647,894    15,015,838
      Selling, general and administrative            1,359,471     1,568,823
      Stock based compensation                         127,657       194,223
      Interest on long-term debt                       151,062       368,989
      Other interest                                    26,200        44,313
      Depreciation and amortization                  2,299,031     2,284,163
                                                   --------------------------
    Income (loss) before income taxes               (4,738,377)    1,242,901
                                                   --------------------------

      Income taxes-future (reduction)                        -             -
                                                   --------------------------
                                                             -             -
                                                   --------------------------
    Net income (loss) and comprehensive income
     (loss)                                        $(4,738,377)   $1,242,901
                                                   --------------------------
                                                   --------------------------

    EBITDA before stock based compensation(1)      $(2,134,427)   $4,134,589
                                                   --------------------------
                                                   --------------------------

    Income (loss) per share:

      Basic                                             $(0.21)        $0.06
      Diluted                                           $(0.21)        $0.06
                                                   --------------------------
                                                   --------------------------

    Note (1): See Non-GAAP Measures.
    

Revenues

In Q3 2009, consolidated average revenue per job increased by 28% to $55,268 from $43,231 in Q3 2008, as Canyon continued its expansion into the deeper segment of the market by completing larger, multi-stage fracs in northeast British Columbia. However, in response to the unprecedented decrease in industry-wide demand by E&P companies for well stimulation services in the quarter, the number of jobs completed in Q3 2009 declined dramatically to 90 from 481 in Q3 2008, resulting in total revenues recorded in Q3 2009 decreasing by 76% to $4.9 million from $20.7 million in Q3 2008.

Operating Expenses

As a result of the reduced job count, operating expenses decreased by 62% to $5.6 million in Q3 2009 from $15.0 million in Q3 2008. The fixed component of operating costs decreased by 19% in Q3 2009 compared to Q3 2008 due to cost cutting measures introduced in late March 2009, including staff reductions, wage rollbacks and suspension of certain benefits.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased to $1.4 million in Q3 2009 from $1.6 million in Q3 2008 mainly due to cost cutting measures introduced in late March 2009.

Stock-Based Compensation Expense

In Q3 2009, the Company recorded stock-based compensation expense of $0.1 million compared to $0.2 million in the 2008 comparable quarter. The decrease is mainly due to a reduction of $47 thousand in the non-cash stock-based compensation expense relating to deferred share units, which will vest commencing February 11, 2010. An expense is recorded by reference to the market price of the Company's common shares at the end of each reporting period, with an offsetting liability included in accounts payable and accrued liabilities.

EBITDA (See Non-GAAP Measures)

In Q3 2009, the significant reduction in industry activity has resulted in EBITDA before stock based compensation expense of negative $(2.1) million, compared to the $4.1 million recorded in the 2008 comparable quarter. The Q3 2009 EBITDA before stock based compensation expense of negative $(2.1) million consists of loss before income taxes of $(4.7) million, plus depreciation and amortization of $2.3 million, plus interest on long-term debt and other interest of $0.2 million, plus stock-based compensation expense of $0.1 million. The comparable Q3 2008 EBITDA before stock based compensation expense 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 and other interest of $0.4 million, plus stock-based compensation expense of $0.2 million.

Interest Expense

Interest on long-term debt and other interest totals $0.2 million in Q3 2009 compared to $0.4 million in Q3 2008. The lower interest expense is mostly due to lower debt levels in the current quarter under review.

Depreciation Expense

Depreciation expense was recorded at $2.3 million in Q3 2009, unchanged from the $2.3 million recorded in Q3 2008.

Income Tax Expense

At the expected combined income tax rate of 29.0%, loss before income taxes for Q3 2009 of $(4.7) million would have resulted in an expected income tax recovery of approximately $(1.4) million compared to the actual recovery of nil. The expected future income tax recovery was reduced by $0.1 million as a result of the effect of stock based compensation and other non-deductible expenses, and reduced by $1.3 million as a result of the effect of a future income tax valuation allowance.

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

Net income (loss) and comprehensive income (loss) totaled $(4.7) million for Q3 2009, compared to $1.2 million in Q3 2008. The decrease is due to the significant decrease in demand by E&P companies for well stimulation services in response to downward natural gas pricing pressures.

For the quarter ended September 30, 2009, basic and diluted income (loss) per share was $(0.21), compared to basic and diluted income per share of $0.06 recorded in Q3 2008.

2009 YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS

    
                                                  September 30, September 30,
    Nine Months Ended                                     2009          2008
    -------------------------------------------------------------------------
                                                    (Unaudited)   (Unaudited)

    Revenues                                       $32,959,966   $43,364,536

    Expenses
      Operating                                     29,326,472    36,010,228
      Selling, general and administrative            4,753,899     5,193,800
      Stock-based compensation                         721,793       597,689
      Interest on long-term debt                       464,217     1,105,495
      Other interest                                    57,138       136,962
      Depreciation and amortization                  6,888,935     7,020,856
                                                   --------------------------
    Loss before income taxes                        (9,252,488)   (6,700,494)
                                                   --------------------------
      Income taxes-future (reduction)                  (69,550)     (395,727)
                                                   --------------------------
                                                       (69,550)     (395,727)
                                                   --------------------------
    Net loss and comprehensive loss                $(9,182,938)  $(6,304,767)
                                                   --------------------------
                                                   --------------------------

    EBITDA before stock based compensation(1)      $(1,120,405)   $2,160,508
                                                   --------------------------
                                                   --------------------------

    Loss per share:
      Basic                                             $(0.41)       $(0.28)
      Diluted                                           $(0.41)       $(0.28)
                                                   --------------------------
                                                   --------------------------

    Note (1): See Non-GAAP Measures.
    

Revenues

For the nine months ended September 30, 2009, consolidated average revenue per job increased by 22% to $47,956 from $39,188 in Q3 2008 due to Canyon's increasing penetration into the deeper segment of the market by completing larger, multi-stage fracs in northeast British Columbia. However, the significant drop in the industry-wide demand for well stimulation services resulted in a lower job count and revenues in the current period compared to the 2008 period. For the nine months ended September 30, 2009, the job count declined to 689 jobs completed compared to 1,113 in the comparable 2008 period, while revenues decreased by 24% to $33.0 million from $43.4 million over the same periods.

Operating Expenses

Operating expenses for the nine months ended September 30, 2009 decreased by 19% to $29.3 million from $36.0 million in the 2008 comparable period due to the lower job count. In late March 2009, Canyon introduced cost-cutting measures resulting in a 36% and 42% reduction in the fixed component of operating costs in Q3 2009 and Q2 2009 respectively over Q1 2009. 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 ("SG&A")

Selling, general and administrative expenses before stock-based compensation expense were $4.8 million in the nine months ended September 30, 2009 compared to $5.2 million in the comparable 2008 period. The decrease is due to cost cutting measures introduced in late March 2009. 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.

Stock-Based Compensation Expense

In the nine months ended September 30, 2009, the Company recorded stock-based compensation expense of $0.7 million compared to $0.6 million in the 2008 comparable period. Included in the current period's expense is $0.2 million accrued non-cash stock-based compensation expense relating to deferred share units which will vest commencing February 11, 2010, with an offsetting liability included in accounts payable and accrued liabilities.

EBITDA (See NON-GAAP MEASURES)

In the nine months ended September 30, 2009, EBITDA before stock-based compensation expense was negative $(1.1) million, down from the $2.2 million of EBITDA before stock based compensation expense recorded in the 2008 comparable period. The decrease is due to the lower job count and revenues in the nine months ended September 30, 2009. The 2009 EBITDA before stock based compensation expense of negative $(1.1) million consists of loss before income taxes of $(9.3) million, plus depreciation and amortization of $6.9 million, plus interest on long-term debt and other interest of $0.6 million, plus stock-based compensation expense $0.7 million. The comparable 2008 EBITDA before stock based compensation expense 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 and other interest of $1.2 million and stock based compensation expense of $0.6 million.

Interest Expense

Interest on long-term debt and other interest totals $0.6 million in the nine months ended September 30, 2009 compared to $1.2 million in the comparable 2008 period. The lower interest expense is mostly due to lower debt levels in the current period as the Company significantly reduced debt levels in the second half of 2008.

Depreciation Expense

Depreciation expense totaled $6.9 million in the nine months ended September 30 2009, largely unchanged from the $7.0 million recorded in the comparable 2008 period.

Income Tax Expense

At the expected combined income tax rate of 29.0%, loss before income taxes for the nine months ended September 30 2009 of $(9.3) million would have resulted in an expected income tax recovery of approximately $(2.7) million compared to the actual recovery of $(0.1) million. The expected future income tax recovery was reduced by $0.3 million as a result of the effect of stock based compensation and other non-deductible expenses and $2.3 million as a result of the effect of a future income tax valuation allowance.

Net Loss and Loss per Share

Net loss and comprehensive loss totaled $(9.2) million for the nine months ended September 30 2009, compared to the net loss of $(6.3) million for the comparable 2008 period. The increase in net loss and comprehensive loss is due to the significant reduction in demand by E&P companies for well stimulation services in response to downward natural gas pricing pressures.

Basic and diluted loss per share for the nine months ended September 30, 2009 was $(0.41), compared to the basic and diluted loss per share of $(0.28) recorded in the comparable 2008 period.

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 before stock compensation expense is also used in this document. 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.

The following table provides a reconciliation of net loss and comprehensive loss under GAAP as disclosed in the consolidated statements of operations to EBITDA before stock-based compensation expense.

    
    -------------------------------------------------------------------------
                           Three months ended          Nine Months ended
                              September 30                September 30
    -------------------------------------------------------------------------
                           2009          2008          2009          2008
    -------------------------------------------------------------------------
    EBITDA before
     stock-based
     compensation
     expense           $(2,134,427)   $4,134,589   $(1,120,405)   $2,160,508
    -------------------------------------------------------------------------
    Add (Deduct):
      Depreciation and
       amortization     (2,299,031)   (2,284,163)   (6,888,935)   (7,020,856)
      Other interest       (26,200)      (44,313)      (57,138)     (136,962)
      Interest on
       long-term
       debt               (151,062)     (368,989)     (464,217)   (1,105,495)
      Stock-based
       compensation       (127,657)     (194,223)     (721,793)     (597,689)
      Income taxes               -             -        69,550       395,727
    -------------------------------------------------------------------------
    Net loss and
     comprehensive
     loss              $(4,738,377)   $1,242,901   $(9,182,938)  $(6,304,767)
    -------------------------------------------------------------------------
    

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.

SOURCE Canyon Services Group Inc.

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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Canyon Services Group Inc.

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