GASFRAC Announces Second Quarter 2013 Results

Marketwired

CALGARY, ALBERTA--(Marketwired - Aug. 7, 2013) - GASFRAC Energy Services Inc. (GFS.TO) -

 
COMPARITIVE QUARTERLY FINANCIAL INFORMATION
                   
For the three months ended   June 30 2013     June 30 2012     June 30 2011  
    CAD$     CAD$     CAD$  
                   
Revenue   30,561     16,734     14,170  
Operating expenses   23,747     21,704     15,380  
Selling, general and administrative expenses   5,100     5,164     3,701  
EBITDA(1)   3,246     (10,430 )   (5,566 )
(Loss) Profit for the period   (4,811 )   (16,949 )   (7,768 )
(Loss) Earnings per share - basic   (0.08 )   (0.27 )   (0.13 )
(Loss) Earnings per share - diluted   (0.08 )   (0.27 )   (0.13 )
Weighted average number of shares - basic   63,520     62,536     61,297  
Total assets   249,033     307,669     283,948  
Total non-current liabilities   35,922     41,815     1,075  
Revenue days   59     40     39  
Revenue per revenue day   518     418     489  
(1)Defined under Non-IFRS Measures
 

OVERVIEW OF THE QUARTER ENDED JUNE 30, 2013

As discussed in previous quarters, the Company has focused recent efforts on; improving its cost structure, ensuring service delivery reliability and expanding value add service offerings. The results of the second quarter reflect the success of these actions in both revenue and EBITDA.

We were able to grow revenues to $30.6 million during the quarter as compared to $16.7 million in the second quarter of 2012. This was achieved through pad drilling projects in Canada and Hybrid LPG services in the USA. Further, the operational efficiencies of these services allowed us to increase our revenue per day to $518 thousand from $418 thousand in the same period of 2012.

The full impact of the cost reductions we commenced with our operational review in September 2012 have been realized and are reflected in an absolute reduction in fixed operating costs and reductions in both costs of sales and variable costs as a percentage of sales. As a result we achieved EBITDA (excluding gain on equipment sale) of $1.5 million as compared to an EBITDA loss of $10.4 million in the second quarter of 2012.

We successfully completed our first job in the BC Montney formation with an 18 stage fracturing job during the quarter.

From a balance sheet perspective, capital expenditures were $1.9 million for the six months this year and are expected to remain low for the year. Draw on the bank line, net of cash on hand, was $18.6 million at quarter end, funding our $22.3 million of accounts receivable.

We disposed of approximately $8.0 million of pressure pumping equipment late in the quarter which resulted in a $1.8 million gain.

       
FINANCIAL OVERVIEW - FOR THE THREE MONTHS ENDED
 
    June 30, 2013  
    Canada     U.S.          Corporate   Total  
    CAD$         CAD$         CAD$   CAD$      
                                   
Revenue   22,331         8,230             30,561      
                                   
Cost of sales   12,846   57.5 %   2,527   30.7 %       15,373   50.3 %
Variable operating costs   2,342   10.5 %   847   10.3 %       3,189   10.4 %
Fixed operating costs   3,601   16.1 %   1,584   19.2 %       5,185   17.0 %
Operating expenses   18,789   84.1 %   4,958   60.2 %   -   23,747   77.7 %
                                   
Selling, general and administration   2,888   12.9 %   1,634   19.9 %   578   5,100   16.7 %
                                   
Number of revenue days   43         16             59      
Revenue per day   519         514             518      
       
    June 30, 2012  
    Canada     U.S.     Corporate   Total  
    CAD$         CAD$         CAD$   CAD$      
                                   
Revenue   12,018         4,716             16,734      
                                   
Cost of sales   6,815   56.7 %   3,545   75.2 %       10,360   61.9 %
Variable operating costs   2,982   24.8 %   1,427   30.3 %       4,409   26.3 %
Fixed operating costs   4,266   35.5 %   2,669   56.6 %       6,935   41.4 %
Operating expenses   14,063   117.0 %   7,641   162.0 %   -   21,704   129.7 %
                                   
Selling, general and administration   2,629   21.9 %   1,054   22.3 %   1,481   5,164   30.9 %
                                   
Number of revenue days   28         12             40      
Revenue per day   429         393             418      
                                   
       
FINANCIAL OVERVIEW - FOR THE SIX MONTHS ENDED  
       
    June 30, 2013  
    Canada     U.S.     Corporate   Total  
    CAD$         CAD$         CAD$   CAD$      
                                   
Revenue   50,792         11,227         -   62,019      
                                   
Cost of sales   27,436   54.0 %   4,168   37.1 %   -   31,604   51.0 %
Variable operating costs   5,182   10.2 %   1,666   14.8 %       6,848   11.0 %
Fixed operating costs   7,492   14.8 %   3,847   34.3 %   -   11,339   18.3 %
Operating expenses   40,110   79.0 %   9,681   86.2 %   -   49,791   80.3 %
                                   
Selling, general and administration   5,548   10.9 %   2,821   25.1 %   1,374   9,743   15.7 %
                                   
Number of revenue days   108         24             132      
Revenue per day   471         468             470      
                                   
       
    June 30, 2012  
    Canada     U.S.     Corporate   Total  
    CAD$         CAD$         CAD$   CAD$      
                                   
Revenue   47,390         14,313         -   61,703      
                                   
Cost of sales   24,025   50.7 %   9,006   62.9 %   -   33,031   53.5 %
Variable operating costs   7,276   15.4 %   2,727   19.1 %       10,003   16.2 %
Fixed operating costs   9,148   19.3 %   4,765   33.3 %   -   13,913   22.5 %
Operating expenses   40,449   85.4 %   16,498   115.3 %   -   56,947   92.3 %
                                   
Selling, general and administration   6,162   13.0 %   2,072   14.5 %   2,927   11,161   18.1 %
                                   
Number of revenue days   91         33             124      
Revenue per day   521         434             498      
                                   

REVENUE

Revenue for the quarter increased 82.6% to $30.6 million from $16.7 million in the second quarter of 2012.

During the quarter, the Company earned revenues from six customers with the top three customers representing 97% of the Company's revenue (2012 - 63%).

Canadian operations:

The second quarter revenue from the Canadian operations increased 85.8% to $22.3 million from $12.0 million in the second quarter of 2012. Revenue for the quarter includes pad fracturing for two customers that the Company was able to execute during spring break up.

The Canadian operations executed 43 revenue days at an average daily revenue of $519 per day. By comparison, during the second quarter of 2012, the Canadian operations executed 28 revenue days at an average daily revenue of $429 per day. The increase in average daily revenue is mainly attributable to the nature of the pad work that was completed allowing the Company to complete more frac stages per day. 

Revenue was earned from two customers during the quarter.

U.S. operations:

Revenue for the quarter increased 74.5% to $8.2 million from $4.7 million in the second quarter of 2012. Revenue from the second quarter was primarily derived from the execution of Hybrid LPG fracturing treatments.

The U.S. operations executed 16 revenue days at an average daily revenue $514 per day. By comparison, during the second quarter of 2012, the Company executed 12 revenue days at an average daily revenue $393 per day. The increase in average daily revenue is attributable to the successful introduction of the Hybrid LPG fracturing that allows the Company the ability to place more proppant into our customers formation in a revenue day.

OPERATING EXPENSES

Operating expenses consist of cost of sales (variable costs directly attributable to a fracturing treatment), variable operating expenses (variable costs not directly attributable to a fracturing treatment), and fixed operating costs (costs that do not fluctuate with the Company's level of activity). During the quarter, the Company's operating expenses increased 9.4% to $23.7 million (77.7% of revenue) from $21.7 million (129.7% of revenue) in the second quarter of 2012.

As a percentage of revenue, cost of sales decreased to 50.3% of revenue ($15.4 million) from 61.9% ($10.4 million) of revenue in the second quarter of 2012.

As a percentage of revenue, variable operating expenses decreased to 10.4% of revenue ($3.2 million) from 26.3% of revenue ($4.4 million) of revenue in the second quarter of 2012.

Fixed operating costs decreased 25.2% to $5.2 million in the second quarter of 2013 as compared to $6.9 million in the second quarter of 2012.

Canadian operations:

Total operating expenses for the quarter were $18.8 million (cost of sales - $12.8 million, fixed operating costs - $3.6 million and variable operating costs - $2.3 million) as compared to $14.1 million (cost of sales - $6.8 million, fixed operating costs - $4.3 million and variable operating costs - $3.0 million) in the second quarter of 2012.

Cost of sales were 57.5% of revenue for the quarter as compared to 56.7% of revenue in the second quarter of 2012.

Variable operating expenses decreased to 10.5% of revenue ($2.3 million) from 24.8% of revenue ($3.0 million) in the second quarter of 2012. Fixed operating costs decreased to $3.6 million from $4.3 million in the second quarter of 2012. The decrease in the variable operating costs and fixed operating costs reflects the results of the initiative that the Company initiated in September 2012 to bring the Company's cost structure into alignment with the current revenue.

U.S. operations:

Total operating expenses for the quarter were $4.9 million (cost of sales - $2.5 million, fixed operating costs - $1.6 million and variable operating costs - $0.8 million) as compared to $7.6 million (cost of sales - $3.5 million, fixed costs - $2.7 million and variable costs - $1.4 million) in the second quarter of 2012.

Cost of sales for the quarter decreased to 30.7% of revenue from 75.2% of revenue in the second quarter of 2012. The decrease in the cost of sales reflects the direct purchase of fracturing fluid by the customer. This process has the impact of reducing the Company's revenue and cost of sales by like amounts and effectively decreasing cost of sales as expressed as a percentage of revenue.

Variable operating expenses decreased to 10.3% of revenue ($0.8 million) from 30.3% of revenue ($1.4 million) in the second quarter of 2012. Fixed operating costs decreased to $1.6 million from $2.7 million in the second quarter of 2012. As noted with the Canadian operations, the decrease in the variable operating costs and fixed operating costs reflects the results of the initiative that the Company initiated in September 2012 to bring the Company's cost structure into alignment with the current revenue.

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

SG&A expense of $5.1 million includes a provision for bad debts of $0.5 million and is comparable to the expense level in both the second quarter of 2012 of $5.2 million.

DEPRECIATION & AMORTIZATION

Depreciation and amortization decreased 2% to $6.4 million compared to $6.5 million in the second quarter of 2012.

EBITDA

EBITDA for the quarter was $3.2 million compared to an EBITDA loss of $10.4 million in the second quarter of 2012. The swing from the EBITDA loss to the EBITA reflects: 1) improved revenues, 2) a structural improvement to the Company's cost structure and 3) a gain from the sale of excess pressure pumping equipment.

NET LOSS

Net loss for the quarter was $4.8 million compared to a $16.9 million loss during the second quarter of 2012. The effective tax rate was 0% (2012 - 6.77%) compared to the statutory rate of 25.0% (2012 - 25.0%). The difference in effective tax rate as compared to the statutory tax rate results largely from certain tax losses not being recognized, at this time, for accounting purposes.

OTHER COMPREHENSIVE INCOME

Other comprehensive income of $2.1 million represents exchange differences arising from translation of the financial statements of the Company's foreign subsidiaries which have U.S. dollars as their functional currency.

 
SUMMARY OF QUARTERLY RESULTS
   
    Sep. 30
2011
  Dec. 31
2011
  Mar. 31
2012
    Jun. 30
2012
    Sep. 30
2012
    Dec. 31
2012
    Mar. 31
2013
    Jun. 30
2013
 
    CAD$   CAD$   CAD$     CAD$     CAD$     CAD$     CAD$     CAD$  
Revenue   57,437   59,304   44,969     16,734     40,851     46,888     31,458     30,561  
(Loss) Profit for the period   5,911   1,519   (4,926 )   (16,949 )   (7,144 )   (48,450 )   (7,884 )   (4,811 )
(Loss) Earnings per share - basic   0.10   0.03   (0.08 )   (0.27 )   (0.11 )   (0.77 )   (0.12 )   (0.08 )
(Loss) Earnings per share - diluted   0.09   0.03   (0.08 )   (0.27 )   (0.11 )   (0.77 )   (0.12 )   (0.08 )
EBITDA(1)   10,960   7,914   2,259     (10,430 )   1,060     7,684     468     3,246  
Capital expenditures   32,920   30,877   22,162     15,404     4,955     6,593     509     1,404  
Working capital(2)   33,998   28,491   27,894     8,994     (1,092 )   25,740     (4,384 )   2,627  
Shareholders' equity   262,436   264,713   263,695     247,519     237,201     190,444     184,266     181,951  
(1) Defined under Non-IFRS Measures  
(2) Working capital is defined as current assets less current liabilities  
   
   
LIQUIDITY AND CAPITAL RESOURCES  
               
      June 30 2013     June 30 2012  
      CAD$     CAD$  
Cash provided by (used in)              
  Operating activities     (1,708 )   254  
  Financing activities     (4,385 )   7,086  
  Investing activities     2,149     (22,315 )
      (3,944 )   (14,975 )
               

As at June 30, 2013 the Company had $2.6 million of working capital compared to a working capital deficit of $4.3 million as at March 31, 2013. The increase in working capital from March 31, 2013 is primarily due to the sale of some excess pressure pumping equipment to a third party for proceeds of approximately $8 million and the EBITDA generated from the Company's operating activities.

As at June 30, 2013, the Company had approximately $1.4 million of capital commitments as part of the 2013 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 used by operating activities was $1.7 million as compared to $0.3 million generated in the second quarter of 2012. The cash used is primarily due to a build up of accounts receivable.

FINANCING

Net cash used by financing activities for the quarter was $4.4 million compared to $7.1 million provided in the second quarter of 2012. The funds were used primarily to make a $4.5 million repayment for the credit facility.

The Company has a bank syndication for a $40 million revolving facility and a $10 million operating facility. The Company is in compliance with all its debt covenants.

INVESTING

Net cash provided by investing activities for the quarter was $2.1 compared to cash used by investing activities of $22.3 million in the second quarter of 2012. During the quarter, the Company sold some excess pressure pumping equipment. The Company has four sets of equipment currently parked and thus does not, at this time, anticipate significant capital expenditures will be required through 2013 and into 2014.

 
The timing of cash outflows relating to financial liabilities are outlined in the following table:
 
  Contractual cash flows at June 30 2012   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) 8,196   8,196   -   -   -
Performance share units 343   211   132   -   -
Provisions 1,136   1,136   -   -   -
Credit facility 20,492   20,492   -   -   -
Convertible debentures 51,521   2,818   48,703   -   -
Finance lease obligation 2,299   1,462   837   -   -
Operating lease payments 10,434   2,149   3,145   2,528   2,612
Commitment to purchase raw materials 72,825   13,879   54,063   2,566   2,317
Commitment to purchase plant and equipment 1,396   1,396   -   -   -
Total 168,490   51,587   106,880   5,094   4,929

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 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.

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 six months ended June 30, 2013.

RELATED PARTY TRANSACTIONS

During the period the Company has had no related party transactions (2012 - $nil).

                   
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   83,502     -     (75,000 )
  Forfeited   -     -     (260,000 )
Balance as at June 30, 2013   63,599,166     -     2,905,000  
                   

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 June 30, 2013.

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 June, 2013. 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 June 30, 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 quarter ended June 30, 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 party 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:  
   
    June 30 2013     June 30 2012  
             
Net loss   (4,811 )   (16,949 )
(Deduct) Add back:            
  Interest expense (income) - net   1,560     1,235  
  Depreciation and amortization   6,377     6,495  
  Impairment   120     20  
  Income tax (benefit) expense   -     (1,231 )
EBITDA   3,246     (10,430 )
             

OUTLOOK

The North American pressure pumping market has experienced a continued transition from natural gas based activity to activity driven by oil and liquids-rich basins. The decline in gas based drilling activity combined with added equipment capacity has resulted in reduced pricing and margins in the North American pressure pumping industry over the last two years. Through the first half of 2013 the overall market has moved towards equilibrium. Further, it is anticipated that activity levels will begin to increase marginally in the second half of 2013 and into 2014, first in Canada and then in the USA. As a result pricing should stabilize, although not increase significantly. 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. 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. In the US, the overall pressure pumping market has an oversupply of equipment which we do not expect to reverse until into 2014. However, on a region by region basis, particularly in oil rich areas such as South Texas, activity remains strong. The current scarcity of equity capital for Exploration and Production companies and their more conservative use of debt cause the level of future capital expenditures to be highly leveraged to commodity prices. As such, anticipated 2014 E&P capital expenditures are highly dependent on commodity price assumptions.

While the fundamentals of the overall pressure pumping market are an important factor in our operations, the most significant factor remains the pace of adoption of our technology by E&P companies. We believe that the production benefits offered by GASFRAC provide our customers an advantage and that the major challenge for the Company is increasing our market share through succinct demonstration of this benefit will impact us to a greater extent than the overall pressure pumping 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 expect that the service delivery initiatives we undertook over the last few quarters will reduce the net cost of our service to our customers and result in increased adoption as current customers realize the benefits and these benefits are demonstrated to potential customers. 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. We have observed an increased awareness and expressed interest in GASFRAC services in the basins we are targeting. While this increased interest has not resulted in added customers in the most recent quarter, the volume of specific requests for proposals has risen. 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.

At our Canadian operations we anticipate that our core customers will continue operations in the second half of 2013 at the same pace as in the first half of the year with some opportunity for increases. We also expect to have two or three new customers trial our services during that time with anticipation of adoption during 2014. We anticipate growth in activity from current customers as they develop their projects during 2014.

Our sales efforts in the US are focused on independent operators in South Texas. Our work with BlackBrush recommenced in early May and is planned to continue at a constant pace for the remainder of the year. While, we have experienced interruptions to fracturing activity on this project in the past for various reasons, we expect that, amongst other things, the introduction of the Hybrid LPG technology should help alleviate future operational delays. In addition to the BlackBrush work, we have a number of customers who have indicated an intention to trial our Hybrid LPG services during 2013. However, the level of repeat activity with these customers cannot be determined at this time.

FORWARD-LOOKING STATEMENTS

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;

  • expectations as to the impact of the Company's new service offerings (Hybrid LPG and customized fluids) on customer costs and rates of adoption;

  • expectations as to the number of new customers trialing the Company's technology;

  • estimates of additional investment required to complete ongoing capital projects;

  • expectations of limited requirements for additional capital expenditures for 2013;

  • expectations as to the level of funding available under the Company's credit facility;

  • expectations as to anticipated draw on 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 as to activity levels in North America and that oil and liquids rich gas drilling will partially offset declines in dry gas drilling;

  • expectations as to the rate of adoption of the Company's technology by E&P companies;

  • expectations as to the Company's future market position in the industry;

  • expectations as to the pricing of the Company's services in Canada and the USA;

  • 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 and 2014;

  • 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;

  • expectations as to the supply of raw materials;

  • expectations as to the revenue required to remain cash positive.

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; amount of and access to credit facilities; rate of adoption of the Company's technology; anticipated activity of the Company's key customers; 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 Consolidated Statement of Financial Position  
Unaudited  
             
As at:   June 30, 2013     Dec 31, 2012  
    CAD$ '000     CAD$ '000  
ASSETS            
CURRENT ASSETS            
  Cash and cash equivalents   802     7,927  
  Trade and other receivables   22,294     30,529  
  Inventory   8,407     6,521  
  Other assets   2,284     1,346  
  Assets held for sale   -     1,352  
TOTAL CURRENT ASSETS   33,787     47,675  
             
NON-CURRENT ASSETS            
  Plant and equipment   206,613     219,056  
  Intangible assets   908     1,021  
  Other assets   7,725     7,704  
TOTAL NON-CURRENT ASSETS   215,246     227,781  
TOTAL ASSETS   249,033     275,456  
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
CURRENT LIABILITIES            
  Trade payables and accrued liabilities   9,478     17,318  
  Provisions   978     768  
  Current portion of finance lease obligation   1,339     1,349  
  Current portion of credit facility   19,365     2,500  
TOTAL CURRENT LIABILITIES   31,160     21,935  
             
NON-CURRENT LIABILITIES            
  Finance lease obligation   804     1,035  
  Operating lease obligations   58     38  
  Credit facility   -     27,500  
  Convertible debentures   35,060     34,504  
  Commitments and contingencies            
TOTAL NON-CURRENT LIABILITIES   35,922     63,077  
TOTAL LIABILITIES   67,082     85,012  
             
CAPITAL & RESERVES            
  Share capital   259,787     259,551  
  Contributed surplus   6,143     5,810  
  Foreign currency translation reserve   4,688     1,055  
  Retained earnings (deficit)   (88,667 )   (75,972 )
TOTAL EQUITY   181,951     190,444  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   249,033     275,456  
             
   
Condensed Consolidated Statements of Comprehensive Loss  
Unaudited  
   
    For the three months ended     For the six months ended  
    June 30, 2013     June 30, 2012     June 30, 2013     June 30, 2012  
    CAD$ '000     CAD$ '000     CAD$ '000     CAD$ '000  
                         
REVENUE   30,561     16,734     62,019     61,703  
                         
EXPENDITURES                        
  Direct operating costs   23,747     21,704     49,791     56,947  
  Selling, general and administrative   5,100     5,164     9,743     11,161  
  Share based compensation   311     199     576     1,695  
  Depreciation and amortization   6,377     6,495     12,970     12,251  
  Impairments   120     20     120     1,511  
  Finance cost   1,564     1,252     3,334     1,994  
  Foreign exchange (gain) loss   (45 )   97     (7 )   71  
    37,174     34,931     76,527     85,630  
                         
OTHER INCOME                        
  Net gain on disposition of assets   1,798     -     1,798     -  
  Interest income   4     17     15     23  
    1,802     17     1,813     23  
                         
LOSS BEFORE INCOME TAXES   (4,811 )   (18,180 )   (12,695 )   (23,904 )
  Income tax benefit   -     1,231     -     2,029  
LOSS FOR THE PERIOD   (4,811 )   (16,949 )   (12,695 )   (21,875 )
                         
OTHER COMPREHENSIVE INCOME                        
  Exchange differences on translating foreign operations   2,131     1,999     3,633     748  
OTHER COMPREHENSIVE INCOME   2,131     1,999     3,633     748  
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD   (2,680 )   (14,950 )   (9,062 )   (21,127 )
                         
LOSS PER SHARE                        
  Basic (per share)   (0.08 )   (0.27 )   (0.20 )   (0.35 )
  Diluted (per share)   (0.08 )   (0.27 )   (0.20 )   (0.35 )
                         
   
Condensed Consolidated Statements of Cash Flows  
Unaudited  
             
    For the three months ended     For the six months ended  
    June 30, 2013     June 30, 2012     June 30, 2013     June 30, 2012  
    CAD$ '000     CAD$ '000     CAD$ '000     CAD$ '000  
CASH FLOW FROM OPERATING ACTIVITIES                        
Loss for the period   (4,811 )   (16,949 )   (12,695 )   (21,875 )
Adjusted for:                        
  Depreciation and amortization   6,377     6,495     12,970     12,251  
  Equity settled share based compensation   216     532     419     1,057  
  Impairments   120     20     120     1,511  
  Bad debt expense   528     151     528     461  
  Finance cost   1,564     1,252     3,334     1,994  
  Net gain on disposition of assets   (1,798 )   -     (1,798 )   -  
  Unrealized foreign exchange loss   68     9     137     5  
  Income tax benefit   -     (1,231 )   -     (2,029 )
    2,264     (9,721 )   3,015     (6,625 )
Net change in non-cash operating working capital   (3,373 )   10,148     1,478     29,065  
Cash generated from operations   (1,109 )   427     4,493     22,440  
  Interest paid   (599 )   (173 )   (2,425 )   (411 )
NET CASH GENERATED BY OPERATING / USED IN ACTIVITIES   (1,708 )   254     2,068     22,029  
CASH FLOW FROM INVESTING ACTIVITIES                        
  Purchases of plant and equipment   (1,363 )   (15,391 )   (1,831 )   (37,379 )
  Acquisition of intangible assets   (41 )   (13 )   (82 )   (187 )
  Proceeds from sale of plant and equipment and assets held for sale   3,988     1,765     3,988     2,119  
  Net change in non-cash investing working capital   (435 )   (8,676 )   (770 )   (11,739 )
NET CASH GENERATED BY / USED IN INVESTING ACTIVITIES   2,149     (22,315 )   1,305     (47,186 )
CASH FLOW FROM FINANCING ACTIVITIES                        
  Proceeds from of common shares issued (net of share issue cost)   150     30     150     487  
  Finance leases   (42 )   (211 )   (266 )   (311 )
  Credit facility   (4,493 )   7,267     (10,635 )   (14,920 )
  Convertible debentures issued   -     -     -     37,888  
NET CASH GENERATED BY / USED IN FINANCING ACTIVITIES   (4,385 )   7,086     (10,751 )   23,144  
Net decrease in cash and cash equivalents   (3,944 )   (14,975 )   (7,378 )   (2,013 )
Cash and cash equivalents at beginning of period   4,644     17,944     7,927     5,026  
Effects of exchange rate changes on the balance of cash held in foreign currencies   102     45     253     1  
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD   802     3,014     802     3,014  
                         

The Company will host a conference call on Thursday, August 8, 2013 at 9:00 a.m. MT (11:00 a.m. ET) to discuss the Company's results for the second quarter of 2013.

To listen to the webcast of the conference call, please enter: http://www.gowebcasting.com/4520 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 1-800-766-6630 or 1-416-695-6622 fifteen minutes prior to the call's start time and ask for "GASFRAC Second Quarter Results Conference Call".

A replay of the call will be available until August 15, 2013 by dialing 1-800-408-3053 (North America) or 1-905-694-9451 (outside North America). Playback passcode: 6700986. The Company will also archive the conference on its website at www.gasfrac.com.

GASFRAC is an oil and gas service company headquartered in Calgary, Alberta, Canada, whose primary business is to provide LPG fracturing services to oil and gas companies in Canada and the USA.

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.

Requests for shareholder information should be directed to James M. Hill.

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

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