GASFRAC Announces First Quarter 2013 Results

Marketwired

CALGARY, ALBERTA--(Marketwired - May 8, 2013) -

MANAGEMENT'S DISCUSSION AND ANALYSIS

MARCH 31, 2013

Management's discussion and analysis ("MD&A") of the financial condition and the results of operations should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three months ended March 31, 2013 and the consolidated financial statements for the year ended December 31, 2012 of GASFRAC Energy Services Inc. ("GASFRAC" or the "Company") (GFS.TO), together with the accompanying notes. The interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") including International Accounting Standard ("IAS") 34, "Interim Financial Reporting" as issued by the International Accounting Standards Board ("IASB").

Readers should also refer to the "Forward-Looking Statements" legal advisory at the end of this MD&A. This MD&A has been prepared using information that is current to May 8, 2013.

All references to dollar amounts are in Canadian dollars. Figures are in '000s except share and per share data or as otherwise noted.

Unless the context otherwise requires, all references in this MD&A to "we", "us" or "our" mean the Company.

BUSINESS OF GASFRAC

GASFRAC Energy Services Inc. was incorporated on February 13, 2006 in Canada under the Business Corporations Act in the Province of Alberta. The Company is an oil and gas well fracturing company that has developed new technology, the "LPG Fracturing Process", to enable wells to be fractured safely with LPG, more specifically propane and butane. The Company operates in Canada and the United States through six wholly-owned subsidiaries, the GASFRAC Energy Services GP Inc., GASFRAC Energy Services Limited Partnership, GASFRAC Luxembourg Finance (a Luxembourg incorporated entity), GASFRAC Energy Services (US) Inc. (a U.S. incorporated entity), GASFRAC US Holdings Inc. (a U.S. incorporated entity), and GASFRAC Inc. (a U.S. incorporated entity).

COMPARATIVE QUARTERLY FINANCIAL INFORMATION

    March 31, 2013     March 31, 2012     March 31, 2011  
    CAD$     CAD$     CAD$  
                   
Revenue   31,458     44,969     30,452  
Operating expenses   26,044     35,243     25,567  
Selling, general and administrative expenses   4,643     5,997     3,670  
EBITDA(1)   468     2,259     66  
(Loss) for the period   (7,884 )   (4,926 )   (2,515 )
(Loss) Earnings per share - basic   (0.12 )   (0.08 )   (0.04 )
(Loss) Earnings per share - diluted   (0.12 )   (0.08 )   (0.04 )
Weighted average number of shares - basic   63,472     62,496     60,662  
Total assets   257,002     331,130     310,596  
Total non-current liabilities   35,625     35,828     907  
Revenue days   73     84     68  
Revenue per revenue day   431     535     448  
(1) Defined under Non-IFRS Measures

OVERVIEW OF THE QUARTER ENDED MARCH 31, 2013

Subsequent to its operations review in September 2012, the Company set three broad objectives: 1) bring the Company's cost structure into alignment with current revenue 2) enhance our service delivery capabilities and 3) broaden our customer base. To meet these objectives we focused our operations towards the Western Canadian Sedimentary Basin (WCSB), particularly the deep basin, and South Texas and Colorado in the USA.

As demonstrated in these financial results we have been successful in achieving a more prudent cost structure with significant reductions in fixed operating costs and SG&A. We will continue to seek efficiencies in both our fixed and variable costs as part of our continuous improvement efforts. However, the most significant results in this area have been achieved and revenue growth is our priority.

The Company has been successful in introducing two enhancements to its service delivery capabilities. Our Hybrid LPG system has eliminated our former 100 tonne daily proppant pumping limitation, allowing us to meet the demands of larger fracturing jobs efficiently and effectively. We have also introduced the ability to customize our fracturing fluid to specific formation characteristics enabling our customers to recover the fracturing fluid thus reducing the overall cost of the fracturing service. This capability is applicable to both our conventional and Hybrid LPG systems.

The ultimate objective from our operating review is the broadening of our customer base. The combination of our efficient cost structure and added service delivery capabilities position us well for success here. The service breadth of our conventional delivery, Hybrid LPG and fluid customization provide customers and potential customers with options to meet their specific needs. Based on interest already expressed by customers in both Canada and the USA, we believe this combination of production enhancement, cost efficiency (e.g. fluid recovery), and ease of integration will result in additional customers.

Revenue for the first quarter was disappointing but was largely caused due to delayed work, some of which we expect to realize during the second quarter. In the USA BlackBrush was idle for most of the quarter as it prepared wells for the remainder of the year. We performed one Hybrid LPG fracturing treatment for BlackBrush in February with positive results. As at May 1 they have restarted fracturing operations and have indicated a plan to fracture two wells per month for the remainder of the year until hunting bans. In Canada, we saw some of the work expected in the first quarter get pushed into the second and as such, expect a stronger second quarter. Second quarter work in Canada will include pad fracturing for two customers allowing work to continue during spring breakup.

From a balance sheet perspective, we have renegotiated our credit facility to better reflect our current operations and needs. Subsequent to quarter end we reached agreement with HSBC and ATB to structure the facility as a $50 million facility with an April 30, 2014 maturity. As at March 31, 2013 we had drawn $23.9 million on the facility ($19.2 million net of cash) and were largely using the facility to fund receivables and inventory. With only minimal capital expenditure requirements for 2013, the credit facility will effectively remain a working capital facility with additional draws required as revenues (receivables) increase. Thus the renegotiated facility provides more efficient financing for the Company.

FINANCIAL OVERVIEW - FOR THE THREE MONTHS ENDED

    March 31, 2013  
    Canada   U.S.   Corporate   Total  
    CAD$       CAD$       CAD$   CAD$      
                               
Revenue   28,462   100.0 % 2,996   100.0 %     31,458   100.0 %
                               
Cost of sales   14,590   51.3 % 1,641   54.7 %     16,231   51.6 %
Variable operating costs   2,840   10.0 % 819   27.3 %     3,659   11.6 %
Fixed operating costs   3,891   13.7 % 2,263   75.5 %     6,154   19.6 %
Direct operating costs   21,321   74.9 % 4,723   157.6 % -   26,044   82.8 %
                               
Selling, general and administration   2,661   9.3 % 1,187   39.6 % 795   4,643   14.8 %
                               
Number of revenue days   65       8           73      
Revenue per day   438       375           431      
    March 31, 2012  
    Canada   U.S.   Corporate   Total  
    CAD$       CAD$       CAD$   CAD$      
                               
Revenue   35,372   100.0 % 9,597   100.0 %     44,969   100.0 %
                               
Cost of sales   17,212   48.7 % 5,461   56.9 % -   22,673   50.4 %
Variable operating costs   4,293   12.1 % 1,300   13.5 %     5,593   12.4 %
Fixed operating costs   4,881   13.8 % 2,096   21.8 % -   6,977   15.5 %
Direct operating costs   26,386   74.6 % 8,857   92.3 % -   35,243   78.4 %
                               
Selling, general and administration   3,677   10.4 % 1,257   13.1 % 1,063   5,997   13.3 %
                               
Number of revenue days   63       21           84      
Revenue per day   561       457           535      

REVENUE

Revenue for the first quarter decreased 30.0% to $31.5 million from $45.0 million in the first quarter of 2012.

During the quarter, the company earned revenues from 8 customers with the top three customers representing 83.1% of the total revenue. During the first quarter of 2012, the top three customers represented 82.0% of the total revenue.

Canadian operations:

First quarter revenue from the Canadian operations decreased 19.5% to $28.5 million from $35.4 million in the first quarter of 2012. The reduction in revenue is due to the decrease in the price and cost of LPG. The Canadian operations executed 65 revenue days in the first quarter of 2013 with an average daily revenue of $438 compared to 63 revenue days in the first quarter of 2012 with an average daily revenue of $561. The reduced revenue per day largely reflects the reduction in propane costs year over year.

During the quarter, revenue was generated from 5 customers with the top 3 customers representing 91.9% of the total revenue. During the first quarter of 2012, the top 3 customers represented 93.9% of the total Canadian revenue.

U.S. operations:

First quarter revenue from the U.S. operations decreased 68.8% to $3.0 million from $9.6 million in the first quarter of 2012. The reduction in revenue is due to reduced activity from our core US customer. U.S. operations executed 8 revenue days in the first quarter of 2013 with an average daily revenue of $375 compared to 21 revenue days in the first quarter of 2012 with an average daily revenue of $457. The decrease in average daily revenue is due to our customers purchasing and supplying their own frac fluid.

During the quarter, revenue was generated from 3 customers with the top customer generating 52.6% of the total revenue. During the first quarter of 2012, the top three customers represented 87.7% of the total US revenue.

OPERATING EXPENSES

Operating expenses (comprised of cost of sales, variable operating costs, and fixed operating costs) decreased 26.1% to $26.0 million from $35.2 million in the first quarter of 2012. Cost of sales was 51.6% of revenue ($16.2 million) as compared to 50.4% of revenue ($22.7 million) in the first quarter of 2012. Variable operating costs were 11.6% of revenue ($3.7 million) as compared to 12.4% of revenue in the first quarter of 2012. Fixed operating costs decreased 19.6% to $6.2 million from $7.0 million in the first quarter of 2012.

Canadian operations:

Operating expenses in the first quarter of 2013 decreased 19.3% to $21.3 million from $26.4 million in the first quarter of 2012. Cost of sales was 51.3% of revenue ($14.6 million) as compared to 48.7% of revenue ($17.2 million) in the first quarter of 2012. The increase in cost of sales as a percentage of revenue was largely attributable to proppant margins. Variable operating costs was 10.0% of revenue ($2.8 million) compared to 12.1% of revenue ($4.3 million) in the first quarter of 2012. Fixed operating costs decreased 20.4% to $3.9 million from $4.9 million in the first quarter of 2012. The decrease in fixed costs was largely attributable to reduced payroll costs resulting from staff reductions initiated in the fourth quarter of 2012.

U.S. operations:

Operating expenses in the first quarter of 2013 were $4.7 million compared to $8.9 million in the first quarter of 2012. Cost of sales was 54.7% of revenue ($1.6 million) compared to 56.9% ($5.5 million) in the first quarter of 2012. Variable operating costs was 27.3% of revenue ($0.8 million) as compared to 13.5% of revenue ($1.3 million) in the first quarter of 2012. The increase in variable costs as a percentage of revenue reflects repair costs undertaken during the quarter. Fixed operating costs increased to $2.3 million as compared to $2.1 million in the first quarter of 2012. During the fourth quarter of 2012 the Company initiated staff reductions in the USA from peak levels reached in the second quarter of 2012 which were approximately $0.7 million higher than first quarter 2012 levels.

SALES, GENERAL & ADMINISTRATIVE ("SG&A") EXPENSES

For the first quarter, SG&A expenses decreased 23.3% to $4.6 million from $6.0 million in the first quarter of 2012. The decrease is primarily due to decreased salaries and benefits associated with the reductions of the executive and administrative staffing levels that occurred in the third quarter of 2012.

DEPRECIATION AND AMORTIZATION

For the first quarter, depreciation and amortization increased to $6.6 million as compared to $5.8 million in the first quarter of 2012. The increase is due to assets under construction being commissioned into service in Q2 2012.

EBITDA

For the first quarter, EBITDA decreased to $0.5 million as compared to $2.3 million in the first quarter of 2012. The decrease is mainly due to the decrease in activity from the US operations.

NET LOSS

For the first quarter, the net loss was $7.9 million compared to a net loss of $4.9 million during the first quarter of 2012. The increase in the net loss is primarily due to the decreased activity in the US operations.

FINANCIAL OVERVIEW - SUMMARY OF QUARTERLY RESULTS

  Jun. 30
2011
  Sep. 30
2011
Dec. 31
2011
Mar. 31
2012
  Jun. 30
2012
  Sep. 30
2012
  Dec. 31
2012
  Mar. 31
2013
 
  CAD$   CAD$ CAD$ CAD$   CAD$   CAD$   CAD$   CAD$  
Revenue 14,170   57,437 59,304 44,969   16,734   40,851   46,888   31,458  
(Loss) Profit for the period (7,768 ) 5,911 1,519 (4,926 ) (16,949 ) (7,144 ) (48,450 ) (7,884 )
(Loss) Earnings per share - basic (0.13 ) 0.10 0.03 (0.08 ) (0.27 ) (0.11 ) (0.77 ) (0.12 )
(Loss) Earnings per share - diluted (0.13 ) 0.09 0.03 (0.08 ) (0.27 ) (0.11 ) (0.77 ) (0.12 )
EBITDA (1) (5,566 ) 10,960 7,914 2,259   (10,430 ) 1,060   7,684   468  
Capital expenditures 22,995   32,920 30,877 22,162   15,404   4,955   6,593   509  
Working capital (2) 49,946   33,998 28,491 27,894   8,994   (1,092 ) 25,740   (4,384 )
Shareholders' equity 251,374   262,436 264,713 263,695   247,519   237,201   190,444   184,266  
(1) Defined under Non-IFRS Measures
(2) Working capital is defined as current assets less current liabilities

LIQUIDITY AND CAPITAL RESOURCES

  March 31 2013   March 31 2012  
  CAD$   CAD$  
Cash provided by (used in)        
  Operating activities 3,776   21,775  
  Financing activities (6,366 ) 16,058  
  Investing activities (844 ) (24,871 )
  (3,434 ) 12,962  

As at March 31, 2013, the Company had approximately $0.8 million of capital commitments as part of the 2012 capital program. The Company anticipates being able to fund these capital expenditures through cash on hand, operating cash flows and debt facilities.

OPERATING

Net cash generated from operating activities was $3.8 million as compared to a $21.8 million in 2012. During the quarter trade and other receivables of $12.2 million were collected that contributed substantially to the cash flow from operating activities.

FINANCING

The Company repaid a portion of its credit facility in the amount of $6.1 million. This compares to net cash provided by financing activities in 2012 of $16.0 million in 2012. The funds in 2012 were as a result of the issue of convertible debentures of 37.9 million and the repayment of the credit facility of $22.1 million.

In 2012, the bank syndicate approved amendments to the credit facility suspending the financial covenants relating to trailing twelve month EBITDA through to the end of Q1 2013 and limiting draws on the credit facility during this period to $60 million. As at March 31, 2013, the Company was not in compliance with the modified EBITDA covenant. The Company renegotiated its credit facility subsequent to quarter end. The renegotiated facility includes a waiver of first quarter 2013 covenants, an extension of the maturity date to April 30, 2014, and a resizing of the facility to $50 million to reflect reduced anticipated funding requirements during the period. Pursuant to IAS 1, the Company has presented the entire credit facility as current as at the balance sheet date.

INVESTING

The Company invested $0.8 million in property and equipment and intangible assets to support its current capabilities compared to $24.9 million in the first quarter of 2012.

The timing of cash outflows relating to the financial liabilities are outlined in the following table:

    Contractual cash flows   Less than 1 year 1 to 3 years   4 to 5 years Greater than 5 years
    CAD$   CAD$ CAD$   CAD$ CAD$
Trade payables and accrued liabilities (excluding performance share units and accrued interest on debentures)   10,268   10,268 -   - -
Performance share units   248   134 114   - -
Provisions   1,130   1,130 -   - -
Finance lease obligation (incl. expected interest)   2,334   1,503 831   - -
Credit facility (incl. expected interest)   23,858   23,858 -   - -
Debentures (incl. expected interest)   51,521   2,818 48,703   - -
Operating lease payments   10,069   1,346 3,091   2,609 3,023
Commitment to purchase raw materials   73,610   16,670 53,462   2,706 772
Commitment to purchase plant and equipment   1,330   1,330 -   - -
Total   174,368   59,057 106,201   5,315 3,795

To meet these financial obligations, the Company had available the following resources available within 1 year:

  Mar 31, 2013 Mar 31, 2012
  CAD$ '000 CAD$ '000
     
Cash and cash equivalents 4,644 17,944
Trade receivables 18,410 29,711
Unused credit facility - subject to applicable debt ceiling 26,142 100,000
  49,196 147,655

ACCOUNTING POLICIES AND ESTIMATES

This MD&A is based on the Company's annual consolidated financial statements that have been prepared in accordance with IFRS. Management is required to make assumptions, judgments and estimates in the application of IFRS. The Company's summary of significant accounting policies are described in Note 2 of the December 31, 2012 audited consolidated financial statements. The preparation of the consolidated financial statements requires that certain estimates and judgments be made concerning the reported amount of revenue and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and management's judgment. Anticipating future events involves uncertainty and, consequently, the estimates used by management in the preparation of the consolidated financial statements may change as future events unfold, additional experience is acquired or the environment in which the Company operates changes.

Apart from the key source of estimation uncertainty disclosed below, all key assumptions concerning the future, and other key sources of estimation uncertainty made at the end of the last full reporting period were applied consistently for the twelve months ended December 31, 2012.

RELATED PARTY TRANSACTIONS

There were no related party transactions for the quarters ended March 31, 2013 and March 31, 2012.

DISCLOSURE CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in National Instrument 52-109. Based on the evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were designed to provide a reasonable level of assurance over the disclosure of material information, and are effective as of March 31, 2013.

OUTSTANDING SHARE DATA

    Common Shares   Warrants   Share Options  
    #   #   #  
Balance as at January 1, 2012   62,399,074   825,000   2,430,000  
  Issues / Granted   55,000   -   1,645,000  
  Issued / Exercised   1,067,420   (825,000 ) (130,000 )
  Forfeited   (5,830 ) -   (1,135,000 )
Balance as at December 31, 2012   63,515,664   -   2,810,000  
  Issues / Granted   -   -   430,000  
  Issued / Exercised   4,251   -   -  
  Forfeited   -   -   (15,000 )
Balance as at March 31, 2013   63,519,915   -   3,225,000  

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have assessed and evaluated the design and effectiveness of the Company's internal controls over financial reporting as defined in National Instrument 52-109 as at March 31, 2013. During the quarter, the CFO also acted in the capacity of the CEO. In making this assessment the Company used the criteria established by the Committee of Sponsoring Organizations ("COSO") in the "Internal Control-Integrated Framework". These criteria are in the areas of control environment, risk assessment, control activities, information and communication and monitoring. The Company's assessment included documentation, evaluation and testing of its internal controls over financial reporting. Based on the evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's internal controls over financial reporting are effective to provide reasonable assurance regarding the reliability of the Company's financial reporting and its preparation of financial statements are effective as of March 31, 2013.

Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements.

There have been no changes in the Company's internal controls over financial reporting during the period ending March 31, 2013, which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

OFF-BALANCE SHEET ARRANGEMENTS

The Company is not part to any off balance sheet arrangements or transactions.

NON-IFRS MEASURES

Certain supplementary measures in this MD&A do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures have been described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and ability to generate funds to finance its operations. These measures may not be comparable to similar measures presented by other entities, and are further explained as follows:

EBITDA is defined as net income before interest income and expense, taxes, depreciation, amortization and non-controlling interest. EBITDA is presented because it is frequently used by securities analysts and others for evaluating companies and their ability to service debt.

EBITDA was calculated as follows:

  March 31 2013   March 31 2012  
         
Net loss (7,884 ) (4,926 )
(Deduct) Add back:        
  Interest expense - net 1,759   736  
  Depreciation and amortization 6,593   7,247  
  Income tax recovery -   (798 )
EBITDA 468   2,259  

OUTLOOK

While the fundamentals of the overall pressure pumping market are a key factor in our operations, the most significant challenge/focus remains that of accelerating the adoption of our technology and increasing the utilization of our equipment sets. We believe that the production benefits offered by GASFRAC provide our customers an advantage in this environment and that the major challenge for the Company is increasing our market share through succinct demonstration of this benefit than it is the overall market conditions. The key barriers we have encountered impacting the pace of adoption are; demonstration of the cost/benefit, safety considerations, awareness and "inertia". The key on the cost/benefit side is the collection of basin by basin production data to provide more case studies to potential customers showing the positive impact on production and net present values. In addition, we have undertaken a number of initiatives which will reduce the cost of our service to our customers. These initiatives include equipment configuration and fracturing program design. While safety will always remain a key focus for the Company, the equipment and procedures put in place during 2011 have largely removed this as a barrier for most customers - although education and safety audits will remain part of the sales cycle. Awareness of GASFRAC has increased over the past quarters in the basins we are targeting. Marketing at technical and industry forums as well as one-on-one meetings with key executives represent the key actions being taken by GASFRAC to continue to increase awareness of the Company and our technology. By "inertia" we refer to the tendency for operating companies to continue with their current processes in field developments where they are achieving acceptable returns. This tendency towards inertia drives GASFRAC to focus more on new field developments or identify opportunities which cause the return in current manufacturing processes to be interrupted - for instance reduction in commodity prices or increases in regulation or costs associated with water fracturing.

While we have experienced a positive trend in the adoption of our services in Canada, the "inertia" described above has been more prevalent in the United States market, particularly with larger operators. We believe the key to improving the adoption in the United States is to focus sales efforts on the independent operators who are able to more quickly assess new technologies and adapt to operational changes. In addition, the introduction of our Hybrid LPG and customized fluids should be attractive to targeted USA customers, particularly those with exposure to oil reserves.

During this period of adoption, our operations in both Canada and the United States remain concentrated with a few key customers and our revenues are subject to fluctuation dependent on the level of drilling operations by these customers in the areas in which we are servicing them. Their levels of drilling activity can be impacted by numerous factors including, but not limited to, operational difficulties, infrastructure limitations, weather conditions, hunting restrictions, and budgetary priorities. While these fluctuations add a degree of uncertainty to the timing of our cash flows, our current cost structure allows us to remain cash positive at approximately $10 million of revenue per month. Further, our capital commitments and requirements for 2013 are minimal. As such, our draw on our bank credit facility is expected to remain at a level driven by the amount of our accounts receivable.

Overall demand for pressure pumping services in Canada is expected to be stable in 2013 as compared to 2012 with oil and liquids-rich gas activity remaining the predominate area of the market. The increase in pressure pumping equipment made available to the Canadian market during 2012 resulted in price declines for hydraulic fracturing during 2012. It is expected that pricing pressures will remain during 2013 but significant additional price declines are not expected at this time as the equipment supply/demand balance appears to be near equilibrium for 2013. In addition, assuming commodity prices remain firm, it is expected that additional activity in the Duvernay and Montney will drive demand for additional horsepower in Canada for 2014.

We also expect that adoption by new customers will be achieved during 2013 as more data becomes available and less robust commodity prices encourage the use of more effective technologies.

In the US, the overall pressure pumping market remains with an estimated 10%-15% oversupply of equipment which we do not expect to reverse during 2013. However, on a region by region basis, particularly in oil rich areas such as South Texas, activity remains strong. Our sales efforts in the US are focused on independent operators in South Texas and Colorado. Our work with BlackBrush recommenced in early May and is planned to continue at a constant pace for the remainder of the year. However, we have experienced interruptions to fracturing activity on this project for various reasons and such interruptions may recur in the future. In addition to the Blackbrush work, we have a number of customers planning to use our services during 2013 however, the level of repeat activity with these customers cannot be determined at this time. In addition, we anticipate that our sales focus in these areas on independent operators will result in additional customer activity over the coming quarters.

We expect the second quarter of 2013 to improve on prior year's second quarter both in terms of revenue and earnings. In Canada, we were able to plan pad fracturing for two customers during April and part of May, allowing activity during the period normally unavailable due to road bans. In the USA, work with BlackBrush recommenced in early May and is planned to continue at a steady pace throughout the quarter. We have a number of customers planning work for June, dependent on the amount of rain that may impact access.

FORWARD-LOOKING STATEMENT

This document contains certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These statements are only as of the date of this document and we do not undertake to publicly update these forward looking statements except in accordance with applicable securities laws. These forward looking statements include, among other things:

  • expectations that the Company's innovative technology will provide the Company with opportunities to expand the Company's market share in Canada and the USA;
  • estimates of additional investment required to complete ongoing capital projects;
  • expectations of securing financing for additional capital expenditures for 2013 and beyond;
  • expectations as to the level of funding available under the Company's credit facility;
  • expectations as to the degree of activity by key customers;
  • expectations as to fluctuations in revenue due to customer concentration;
  • expectations of the impact of weather on activity in Canada in 2013;
  • expectations as to activity levels in North America and that oil and liquids rich gas drilling will offset declines in dry gas drilling;
  • expectations as to capital development programs of major customers;
  • expectations as to the rate of adoption of the Company's technology by E&P companies;
  • expectations as to the number of manned fracturing spreads in Canada and the USA;
  • assumption that environmental protection requirements will not have a significant impact on the Company's operations or capital budget;
  • expectations as to the Company's future market position in the industry;
  • expectations as to the supply of raw materials;
  • expectations as to the pricing of the Company's services in Canada and the USA;
  • expectations as to obtaining long term contracts with customers;
  • expectations of fracturing industry pricing and the pricing of the Company services in North America in 2013 and 2014;
  • expectations of oil and natural gas commodity prices in 2013;
  • expectations of the amount of net fracturing horsepower being added to the North American market in 2013 and its impact on the Company's service prices;

These statements are only predictions and are based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things, industry activity; effect of market conditions on the demand for the Company's services; the ability to obtain qualified staff, equipment and services in a timely manner; the effect of current plans; the timing of capital expenditures and receipt of added equipment operating capacity; future oil and natural gas prices and the ability of the Company to successfully market its services.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. These risks and uncertainties include: changes in drilling activity; fluctuating oil and natural gas prices; general economic conditions; weather conditions; regulatory changes; the successful development and execution of technology; customer acceptance of new technology; the potential of competing technologies by market competitors; the availability of qualified staff, raw materials and property and equipment.

Condensed Interim Consolidated Statement of Financial Position

Unaudited

As at: Mar 31, 2013   Dec 31, 2012  
  CAD$ '000   CAD$ '000  
ASSETS        
CURRENT ASSETS        
  Cash and cash equivalents 4,644   7,927  
  Trade and other receivables 18,410   30,529  
  Inventory 8,455   6,521  
  Prepaid expenses 1,218   1,346  
  Assets held for sale -   1,352  
TOTAL CURRENT ASSETS 32,727   47,675  
         
NON-CURRENT ASSETS        
  Plant and equipment 215,694   219,056  
  Intangible assets 966   1,021  
  Other assets 7,615   7,704  
TOTAL NON-CURRENT ASSETS 224,275   227,781  
TOTAL ASSETS 257,002   275,456  
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
CURRENT LIABILITIES        
  Trade payables and accrued liabilities 10,751   17,318  
  Provisions 1,130   768  
  Current portion of finance lease obligation 1,372   1,349  
  Current portion of credit facility 23,858   2,500  
TOTAL CURRENT LIABILITIES 37,111   21,935  
         
NON-CURRENT LIABILITIES        
  Finance lease obligation 798   1,035  
  Operating lease obligations 49   38  
  Credit facility -   27,500  
  Convertible debentures 34,778   34,504  
  Commitments and contingencies        
TOTAL NON-CURRENT LIABILITIES 35,625   63,077  
TOTAL LIABILITIES 72,736   85,012  
         
CAPITAL & RESERVES        
  Share capital 259,569   259,551  
  Contributed surplus 5,996   5,810  
  Foreign currency translation reserve 2,557   1,055  
  (Deficit) / Retained earnings (83,856 ) (75,972 )
TOTAL EQUITY 184,266   190,444  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 257,002   275,456  

Condensed Interim Consolidated Statements of Comprehensive Loss

Unaudited

  For the three months ended  
  March 31, 2013   March 31, 2012  
  CAD$ '000   CAD$ '000  
         
REVENUE 31,458   44,969  
         
EXPENDITURES        
  Direct operating costs 26,044   35,243  
  Selling, general and administrative 4,643   5,997  
  Share based compensation 265   1,496  
  Depreciation and amortization 6,593   5,756  
  Impairments -   1,491  
  Finance cost 1,770   742  
  Foreign exchange (gain) loss 38   (26 )
  39,353   50,699  
         
OTHER INCOME        
  Interest income 11   6  
  11   6  
         
(LOSS) BEFORE INCOME TAXES (7,884 ) (5,724 )
  Income tax benefit -   798  
(LOSS) FOR THE PERIOD (7,884 ) (4,926 )
         
OTHER COMPREHENSIVE (LOSS) INCOME        
  Exchange differences on translating foreign operations 1,502   (1,251 )
OTHER COMPREHENSIVE (LOSS) INCOME 1,502   (1,251 )
         
         
TOTAL COMPREHENSIVE (LOSS) FOR THE PERIOD (6,382 ) (6,177 )
         
(LOSS) PER SHARE        
  Basic (per share) (0.12 ) (0.08 )
  Diluted (per share) (0.12 ) (0.08 )

Condensed Interim Consolidated Statements of Cash Flows

Unaudited

    For the three months ended  
    March 31,2013   March 31,2012  
    CAD$ '000   CAD$ '000  
           
CASH FLOW FROM OPERATING ACTIVITIES          
  Net Income (Loss) for the period   (7,884 ) (4,926 )
  Adjusted for:          
    Depreciation and amortization   6,593   5,756  
    Impairments   -   1,491  
    Equity settled share based compensation   204   525  
    Finance cost per income statement   1,770   742  
    Unrealized foreign exchange loss   68   (4 )
    Taxation per income statement   -   (798 )
    751   2,786  
  Net change in non-cash operating working capital   4,851   19,227  
Cash generated from operations   5,602   22,013  
  Interest paid   (1,826 ) (238 )
NET CASH GENERATED BY OPERATING ACTIVITIES   3,776   21,775  
           
CASH FLOW FROM INVESTING ACTIVITIES          
  Purchases of plant and equipment   (468 ) (21,988 )
  Acquisition of intangible assets   (41 ) (174 )
  Proceeds from sale of plant and equipment and assets held for sale   -   354  
  Net change in non-cash investing working capital   (335 ) (3,063 )
NET CASH USED IN INVESTING ACTIVITIES   (844 ) (24,871 )
           
CASH FLOW FROM FINANCING ACTIVITIES          
  Proceeds from common shares issued (net of share issue cost)   -   457  
  Finance leases / (repayments)   (224 ) (100 )
  Credit facility repayment   (6,142 ) (22,187 )
  Convertible debentures issued   -   37,888  
NET CASH (USED IN) GENERATED BY FINANCING ACTIVITIES   (6,366 ) 16,058  
           
Net increase (decrease) in cash and cash equivalents   (3,434 ) 12,962  
Cash and cash equivalents at beginning of period   7,927   5,026  
Effects of exchange rate changes on the balance of cash held in foreign currencies   151   (44 )
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD   4,644   17,944  

The Company will host a conference call on Thursday, March 14, 2013 at 9:00 a.m. MT (11:00 a.m. ET) to discuss the Company's results for the year and fourth quarter of 2012.

To listen to the webcast of the conference call, please enter: http://www.gowebcasting.com/4306 in your web browser or visit the Investor Information section of our website www.gasfrac.com.

To participate in the Q&A session, please call the conference call operator at 1-866-226-1792 or 1-416-340-2216 fifteen minutes prior to the call's start time and ask for "GASFRAC Fourth Quarter Results Conference Call".

A replay of the call will be available until May 16, 2013 by dialing 1-800-408-3053 (North America) or 1-905-694-9451 (outside North America). Playback passcode: 4217644. The Company will also archive the conference on its website at www.gasfrac.com.

GASFRAC is an oil and gas technology and service company headquartered in Calgary, Alberta, Canada, and the sole provider of waterless gelled LPG fracturing technology in North America.

This press release contains certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These statements are only as of the date of this document and we do not undertake to publicly update these forward looking statements except in accordance with applicable securities laws. Forward-looking statements are based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: industry activity; the general stability of the economic and political environment; effect of market conditions on demand for the Company's products and services; the ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability to operate its business in a safe, efficient and effective manner; the performance and characteristics of various business segments; the effect of current plans; the timing and costs of capital expenditures; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its products and services. Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks and uncertainties include: fluctuating prices for crude oil and natural gas; changes in drilling activity; general global economic, political and business conditions; weather conditions; regulatory changes; the successful exploitation and integration of technology; customer acceptance of technology; success in obtaining issued patents; the potential development of competing technologies by market competitors; and availability of products, qualified personnel, manufacturing capacity and raw materials. In addition, actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth under the section entitled "Business Risks" in the Company's MD&A.

Contact:
GASFRAC Energy Services Inc.
James M Hill
Chief Financial Officer
403-515-3387
jhill@gasfrac.com

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