Trican Reports Fourth Quarter Results for 2013

Marketwired

CALGARY, ALBERTA--(Marketwired - Feb 25, 2014) - Trican Well Service Ltd. ( TCW.TO ) -

Financial Review

Three months ended Twelve months ended
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
($ millions, except per share amounts; unaudited) 2013 2012 2013 2013 2012
Revenue $ 552.1 $ 485.9 $ 548.3 $ 2,115.5 $ 2,213.0
Operating income * 35.5 35.1 72.7 179.6 240.1
Profit / (loss) (20.8 ) (7.7 ) 5.7 (45.9 ) 53.3
Earnings / (loss) per share (basic) $ (0.14 ) $ (0.05 ) $ 0.04 $ (0.31 ) $ 0.37
(diluted) $ (0.14 ) $ (0.05 ) $ 0.04 $ (0.31 ) $ 0.37
Adjusted profit / (loss) * (9.9 ) (5.4 ) 9.7 (31.5 ) 63.0
Adjusted profit / (loss) per share* (basic) $ (0.07 ) $ (0.04 ) $ 0.07 $ (0.21 ) $ 0.43
(diluted) $ (0.07 ) $ (0.04 ) $ 0.07 $ (0.21 ) $ 0.43
Funds provided by / (used in) operations* 30.4 (14.5 ) 71.1 130.8 126.8

Notes:

* Trican makes reference to operating income, adjusted net income (loss) and funds provided by (used in) operations. These are measures that are not recognized under International Financial Reporting Standards (IFRS). Management believes that, in addition to net income (loss), operating income, adjusted net income (loss) and funds provided by (used in) operations are useful supplemental measures. Operating income provides investors with an indication of earnings before depreciation, foreign exchange, taxes and interest. Adjusted net income (loss) provides investors with information on net income (loss) excluding one-time non-cash charges and the non-cash effect of stock-based compensation expense. Funds provided by (used in) operations provide investors with an indication of cash available for capital commitments, debt repayments and other expenditures. Investors should be cautioned that operating income, adjusted net income (loss), and funds provided by (used in) operations should not be construed as an alternative to net income (loss) and cash flow from operations determined in accordance with IFRS as an indicator of Trican's performance. Trican's method of calculating operating income, adjusted net income (loss) and funds provided by (used in) operations may differ from that of other companies and accordingly may not be comparable to measures used by other companies.

FOURTH QUARTER HIGHLIGHTS

Consolidated revenue for the fourth quarter of 2013 was $552.1 million, an increase of 14% compared to the fourth quarter of 2012. The adjusted consolidated loss was $9.9 million compared to $5.4 million, and adjusted loss per share was $0.07 compared to $0.04 for the same period in 2012.

Due to a rise in fracturing intensity per well in Canada, including increased sand usage per well, we have seen increased wear on fluid ends over the past year. As a result, the useful life of a fluid end has decreased and led to a $14.3 million charge to depreciation expense in the fourth quarter of 2013 ($10.7 million net of tax) to write-off fluid ends no longer in use. Effective January 1, 2014, we will change our accounting estimate on the useful life of a fluid end to more accurately reflect current operating conditions. We assessed the useful life of fluid ends in our other operating regions and concluded that no further changes in estimates were required in those regions.

Our Canadian operations earned quarterly revenue of $286.9 million in the fourth quarter of 2013, an increase of 17% compared to the fourth quarter of 2012. Fourth-quarter operating income was $53.1 million, which was up 4% on a year-over-year basis. Canadian revenue increased sequentially by 3% due to the strong demand in October and November; however, operating margins decreased sequentially by 660 basis points. Fourth-quarter margins were negatively impacted by cost increases and pricing declines. Cost increases were driven primarily by higher third-party hauling, fuel, and repairs and maintenance expenses. Canadian fracturing prices decreased by approximately 3% and cementing prices decreased by approximately 1%, on a sequential basis, which also had a negative impact on fourth-quarter operating margins.

Revenue in the fourth quarter of 2013 for our U.S. operations was relatively consistent with the fourth quarter of 2012, but decreased by 4% on a sequential basis. Revenue for our U.S. pressure pumping business was down sequentially, largely due to reduced activity in the Marcellus play. As expected, our key customers in the Marcellus play decreased spending levels as 2013 capital budgets were completed. In addition, winter weather led to reduced industry activity in the Permian play during the fourth quarter of 2013. Lower revenue from our pressure pumping business was partially offset by a 50% increase in revenue for our U.S. completion tools business. Our U.S. operations incurred an operating loss of $8.3 million during the fourth quarter as operating margins were negatively impacted by reduced pressure pumping activity.

Revenue from International operations was $91.8 million compared to $68.0 million in the fourth quarter of 2012. The majority of international revenue is generated by our Russian operations and pressure pumping demand was strong in this region throughout the fourth quarter of 2013. Favorable weather conditions allowed our Russian customers to remain active throughout the quarter and catch-up on 2013 capital spending plans that were behind schedule for most of 2013. Although Russian operating margins improved on a year-over-year basis, continued cost inflation limited the margin increase. Weak results for our Algerian operations and start-up costs in both Saudi Arabia and Colombia also had a negative impact on International operating margins during the fourth quarter of 2013.

MANAGEMENT'S DISCUSSION AND ANALYSIS

...
COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
Quarter-
Over-
% of % of Quarter %
Three months ended December 31, 2013 Revenue 2012 Revenue Change Change
Revenue 552,144 100 % 485,865 100.0 % 66,279 13.6 %
Expenses
Materials and operating 490,713 88.9 % 422,999 87.1 % 67,714 16.0 %
General and administrative 25,931 4.7 % 27,743 5.7 % (1,812 ) (6.5 %)
Operating income* 35,500 6.4 % 35,123 7.2 % 377 1.1 %
Finance costs 8,592 1.6 % 8,373 1.7 % 219 2.6 %
Depreciation and amortization 70,085 12.7 % 41,564 8.6 % 28,521 68.6 %
Foreign exchange gain (5,968 ) (1.1 % ) (3,467 ) (0.7%) (2,501 ) 72.1 %
Other loss / (income) 432 0.1 % (560 ) (0.1 %) 992 (177.1 %)
Loss before income taxes and non-controlling interest (37,641 ) (6.8 %) (10,787 ) (2.2 %) (26,854 ) 249.0 %
Income tax recovery (16,431 ) (3.0 %) (2,957 ) (0.6 %) (13,474 ) 455.7 %
Non-controlling interest (380 ) (0.1 %) (88 ) (0.0 %) (292 ) (331.8 %)
Net loss (20,830 ) (3.8 %) (7,742 ) (1.6 %) (13,088 ) 169.1 %

* see first page of this report

CANADIAN OPERATIONS

($ thousands, except revenue per job, unaudited) Dec. 31, % of Dec. 31, % of Sept. 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013** Revenue
Revenue 286,869 244,237 279,783
Expenses
Materials and operating 228,533 79.7 % 187,313 76.7 % 203,005 72.6 %
General and administrative 5,244 1.8 % 5,897 2.4 % 6,610 2.4 %
Total expenses 233,777 81.5 % 193,212 79.1 % 209,615 74.9 %
Operating income* 53,092 18.5 % 51,025 20.9 % 70,168 25.1 %
Number of jobs 5,154 5,572 6,082
Revenue per job 55,435 43,545 45,393

* see first page of this report

** Certain prior period comparative numbers have been restated to be consistent with the presentation used in Q4 2013

Sales Mix

Three months ended, Dec. 31, Dec. 31, Sept. 30,
(unaudited) 2013 2012 2013
% of Total Revenue
Fracturing 67 % 61 % 70 %
Cementing 18 % 21 % 18 %
Nitrogen 6 % 6 % 4 %
Industrial Services 4 % 0 % 2 %
Coiled Tubing 3 % 5 % 3 %
Acidizing 1 % 3 % 2 %
Other 1 % 4 % 1 %
Total 100 % 100 % 100 %

Operations Review

Canadian fracturing and cementing demand was strong in October and November and the early part of December, but decreased substantially in the second half of December. The lower activity in late December was due to reduced customer spending as 2013 drilling and completions budgets came to a close, combined with reduced activity over the holiday season. This decrease was expected and consistent with the previous year.

Canadian revenue increased sequentially by 3% due to the strong demand in October and November; however, operating margins decreased sequentially by 660 basis points. Fourth quarter margins were negatively impacted by cost increases and pricing declines.

A substantial increase in third-party hauling expenses had a meaningful impact on fourth quarter Canadian operating margins. The fracturing job size and the amount of sand pumped per fracturing stage increased sequentially and led to increased hauling requirements for our fracturing service line. As a result, third-party hauling costs increased sequentially by over 70%. In addition, the cost of diesel increased by 12% and repairs and maintenance expenses increased by 12% compared to the third quarter of 2013. Due to the competitive nature of Canadian pressure pumping market, we were unable to recover these cost increases through higher pricing.

There was downward pressure on pricing despite the strong demand that Trican experienced throughout most of the fourth quarter, as the Canadian market remained highly competitive. On a sequential basis, fracturing prices decreased by approximately 3% and cementing prices decreased by approximately 1% negatively impacting fourth-quarter operating margins.

Our Canadian completion tools division continued to grow and achieve increased market penetration during the fourth quarter of 2013. Revenue increased by over 20% on a sequential basis as we continued to see good customer acceptance of our tool portfolio in Canada.

Q4 2013 versus Q4 2012

Canadian revenue in the fourth quarter of 2013 increased by 17% compared to the fourth quarter of 2012. Revenue per job increased by 27% as a 17% year-over-year decrease in price was more than offset by larger job sizes for our fracturing and nitrogen service lines. We are continuing to see an increase in fracturing stages per well and more product usage per job, including sand and nitrogen, which has led to the larger job sizes. An increase in fracturing revenue relative to total revenue also contributed to the increase in revenue per job, as fracturing jobs generally have significantly higher revenue per job than other service lines.

The job count decreased by 8% despite the increase in overall Canadian activity. Cementing and fracturing jobs remained relatively stable on a year-over-year basis; however, coiled tubing jobs decreased significantly and contributed to most of the decline in the overall job count. Lower coiled tubing demand also had a negative impact on our nitrogen and acidizing job count as these service lines are closely correlated with coiled tubing. We are continuing to see increased competition for our coiled tubing services in Canada, which is contributing to the decline in job count.

As a percentage of revenue, materials and operating expenses increased to 79.7% from 76.7% in the fourth quarter of 2012. The year-over-year decrease in price and higher third-party hauling and fuel expenses led to lower margins and was partially offset by lower employee costs, as a percentage of revenue, as well as lower guar and repairs and maintenance expenses. General and administrative costs were down $0.7 million largely due to lower share based expenses.

Q4 2013 versus Q3 2013

Canadian revenue increased by 3% on a sequential basis. Fourth-quarter industry activity levels in Canada were relatively consistent with the third quarter despite the large movements in the job count and revenue per job. The job count decreased by 15% due to a change in job type and customer mix. Fracturing job size was much larger sequentially, which led to fewer jobs performed in the fourth quarter of 2013 as the larger jobs are generally more time consuming. In addition, a decrease in coiled tubing jobs and associated nitrogen and acidizing work, contributed to the decline in job count. The shift to larger fracturing jobs in the fourth quarter led to the 22% increase in revenue per job.

Materials and operating expenses increased to 79.7% of revenue compared to 72.6% of revenue in the third quarter of 2013. The reduction in operating margins was due largely to a decrease in price combined with cost increases for third-party hauling, fuel, and repairs and maintenance expenses. General and administrative costs were down $1.4 million due largely to lower profit-sharing and share-based expenses.

UNITED STATES OPERATIONS

($ thousands, except revenue per job, unaudited) Dec. 31, % of Dec. 31, % of Sept. 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013** Revenue
Revenue 173,470 173,589 180,401
Expenses
Materials and operating 174,989 100.9 % 171,140 98.6 % 169,049 93.7 %
General and administrative 6,776 3.9 % 4,553 2.6 % 6,541 3.6 %
Total expenses 181,765 104.8 % 175,693 101.2 % 175,590 97.3 %
Operating (loss) / income** (8,295 ) (4.8 %) (2,104 ) (1.2 %) 4,811 2.7 %
Number of jobs 2,262 1,654 2,284
Revenue per job 68,533 105,077 76,238

* see first page of this report

** Certain prior period comparative numbers have been restated to be consistent with the presentation used in Q4 2013

Sales Mix

Three months ended, Dec. 31, Dec. 31, Sept. 30,
(unaudited) 2013 2012 2013
% of Total Revenue
Fracturing 88 % 90 % 88 %
Cementing 7 % 7 % 8 %
Coiled Tubing 5 % 3 % 4 %
Total 100 % 100 % 100 %

Operations Review

Activity levels declined on a sequential basis for our U.S. pressure pumping operations during the fourth quarter of 2013. As expected, revenue earned in the Marcellus play declined substantially as our key customers in the region reduced activity levels during the fourth quarter. Declines in the Marcellus play were partially offset by increased revenue earned in the Bakken in the fourth quarter relative to the third quarter of 2013. Revenue earned in the Eagle Ford and Permian plays were relatively flat on a sequential basis; however, fourth quarter activity levels in the Permian region were negatively impacted by winter weather.

Fourth-quarter pricing declined in the Eagle Ford region on a sequential basis as this area remains competitive and over-supplied with pressure pumping equipment. Pricing remained relatively stable in all other U.S. operating regions.

Our U.S. completion tools business continued to show excellent growth with revenue increasing by over 50% on a sequential basis. We continue to see customer acceptance of our completion tools in the U.S. and will look to grow this business and increase profitability throughout 2014.

Q4 2013 versus Q4 2012

Revenue for our U.S. operations decreased slightly as lower pricing for our U.S. pressure pumping business was offset by an increase in our U.S. completion tools revenue. The job count increased by 37% due to year-over-year increases in all service lines including substantial increases in acidizing, nitrogen and cementing as a result of Trican's strategic focus to expand our service offering in the US. Revenue per job decreased by 35% due to a decrease in price combined with a change in job mix. A substantial amount of fracturing work was performed in the Haynesville region in the fourth quarter of 2012, and fracturing jobs in this region are generally larger due to the high pumping pressure and rate required to fracture the wells. No work was performed in the Haynesville region during the fourth quarter of 2013.

As a percentage of revenue, materials and operating expenses increased to 100.9% of revenue compared to 98.6% in the same period of the prior year. Year-over-year operating margins were negatively impacted by lower pricing, which was partially offset by lower costs due to cost cutting measures implemented throughout 2013 and higher margins associated with the U.S. completions tools business. An increase in the cost of diesel also had a negative impact on fourth quarter operating margins. General and administrative expenses increased by $2.2 million due largely to increased overhead costs associated with the growth of the U.S. completion tools business and one-time administrative expenses.

Q4 2013 versus Q3 2013

Revenue decreased by 4% on a sequential basis for our U.S. operations. The job count decreased by 1%, sequentially, due to declines in fracturing and cementing activity, offset partially by increases in acidizing and nitrogen jobs. Revenue per job fell by 10% due largely to changes in customer mix and price decreases in the Eagle Ford region.

As a percentage of revenue, materials and operating expenses increased to 100.9% compared to 93.7% in the third quarter of 2013. Operating margins were negatively impacted by the reduced activity in the Marcellus play. The Marcellus play was our most profitable region in the third quarter of 2013; therefore, lower activity in this region had a meaningful impact on fourth quarter operating margins. Improved profitability for our U.S. completion tools business partially offset the impact of lower Marcellus activity. General and administrative expenses increased slightly by $0.2 million as increased overhead costs associated with the growth of the U.S. completion tools business were partially offset by lower share-based expenses.

INTERNATIONAL OPERATIONS

($ thousands, except revenue per job, unaudited) Dec. 31, % of Dec. 31, % of Sept. 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
Revenue 91,805 68,039 88,161
Expenses
Materials and operating 80,556 87.7 % 57,941 85.2 % 71,523 81.1 %
General and administrative 4,434 4.8 % 4,216 6.2 % 4,176 4.8 %
Total expenses 84,990 92.6 % 62,157 91.4 % 75,699 85.9 %
Operating income* 6,815 7.4 % 5,882 8.6 % 12,462 14.1 %
Number of jobs 1,074 951 1,232
Revenue per job 82,872 68,586 69,180

* see first page of this report

Sales Mix

Three months ended, Dec. 31, Dec. 31, Sept. 30,
(unaudited) 2013 2012 2013
% of Total Revenue
Fracturing 84 % 82 % 81 %
Coiled Tubing 6 % 9 % 10 %
Cementing 5 % 6 % 5 %
Nitrogen 2 % 1 % 2 %
Other 3 % 2 % 2 %
Total 100 % 100 % 100 %

Operations Review

The majority of international revenue is generated by our Russian operations and pressure pumping demand was strong in this region throughout the fourth quarter of 2013. Favorable weather conditions allowed our Russian customers to remain active throughout the quarter and catch up on 2013 capital spending plans that were behind schedule for most of 2013. Although Russian operating margins improved on a year-over-year basis, continued cost inflation limited the margin increase.

Weak results for our Algerian operations had a significant impact on international operating margins during the fourth quarter of 2013. Asset impairment write-downs on inventory and equipment were recorded during the fourth quarter relating to our Algerian cementing operations that were shut down earlier in the year. The asset write-downs, combined with weak results for our coiled tubing operations in Algeria, negatively impacted fourth-quarter international operating margins by 250 basis points.

We expect to begin coiled tubing operations in Saudi Arabia and cementing operations in Colombia during the first half of 2014. As a result, we incurred start-up costs in both regions during the fourth quarter compared to the third quarter of 2013 and the fourth quarter of 2012, which had a negative impact on fourth-quarter operating margins.

There was minimal revenue growth for our Australian operations in the fourth quarter of 2013 on both a sequential and year-over-year basis. We remain optimistic about the long-term growth opportunities in the region and are committed to growing our Australian cementing business during 2014.

We continue to see good demand for our completion tools in the North Sea and will look to grow this business in 2014.

Q4 2013 versus Q4 2012

International revenue increased by 35% due largely to an increase in Russian revenue. The job count rose by 13% due to increases in Russian cementing and fracturing activity that benefited from more favorable weather conditions compared to the fourth quarter of 2012. Revenue per job increased by 21% due to larger fracturing and cementing jobs for our Russian service line and increased fracturing revenue relative to total revenue. Completion tools activity also contributed to the year-over-year increase in international revenue as this service line was not offered internationally in 2012.

As a percentage of revenue, materials and operating expenses increased to 87.7% from 85.2%. Increased operating leverage from higher revenue was more than offset by increased product costs in Russia, operating losses in Algeria, and increased start-up costs in Colombia and Saudi Arabia. General and administrative expenses increased by $0.2 million due largely to increased overhead costs in Colombia and Saudi Arabia as we prepared to begin active operations in the first half of 2014.

Q4 2013 versus Q3 2013

International revenue in the fourth quarter of 2013 increased sequentially by 4%. Revenue per job increased by 20% due to an increase in fracturing revenue relative to total revenue and an increase in fracturing and cementing job size in Russia. The job count decreased by 13% due largely to a sequential decrease in Russian activity as the third quarter is typically the most active quarter in Russia.

Materials and operating expenses increased to 87.7% from 81.1% due partially to a change in customer and job mix in Russia that resulted in lower operating margins. Operating losses in Algeria and increased start-up costs in Colombia and Saudi Arabia also contributed to the decline in operating margins. General and administrative expenses increased by $0.3 million due largely to increased overhead costs in Colombia and Saudi Arabia as we prepared to begin active operations in the first half of 2014.

CORPORATE

($ thousands, except revenue per job, unaudited) Dec. 31, % of Dec. 31, % of Sept. 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
Expenses
Materials and operating 6,635 1.2 % 6,603 1.4 % 5,835 1.1 %
General and administrative 9,477 1.7 % 13,077 2.7 % 8,904 1.6 %
Total expenses 16,112 2.9 % 19,680 4.1 % 14,739 2.7 %
Operating loss* (16,112 ) (19,680 ) (14,739 )

* see first page of this report

Q4 2013 versus Q4 2012

Corporate expenses in the fourth quarter of 2013 were down $3.6 million compared to the fourth quarter of 2012. Reductions in profit sharing, share-based compensation expense and professional fees contributed to the majority of the decrease. The lower professional fees were due to i-TEC acquisition costs that were incurred during the fourth quarter of 2012.

Q4 2013 versus Q3 2013

Corporate expenses increased sequentially by $1.4 million due largely to an increase in donation expenses in the fourth quarter of 2013.

OTHER EXPENSES AND INCOME

Finance costs in the fourth quarter of 2013 increased by $0.2 million on a year-over-year basis due to slightly higher average interest rates on the notes payable and revolving credit facility. Other loss was $0.4 million in the quarter versus income of $0.6 million for the same period in the prior year. Other loss/income is largely comprised of gains and losses on disposal of property and equipment and interest income earned on cash balances.

Depreciation and amortization expense for the fourth quarter of 2013 includes a $14.3 million charge for accelerated depreciation on fluid ends in Canada. $9.5 million of this adjustment ($7.2 million net of tax) relates to the first three quarters of 2013, and has been excluded from adjusted net income for the fourth quarter of 2013.

Depreciation and amortization expense for the fourth quarter of 2013 also includes $3.1 million in amortization on the intangible assets relating to the purchase of i-TEC. The purchase date of this transaction was January 11, 2013 and the amortization period began on this date. The purchase price accounting was not finalized until the fourth quarter of 2013; therefore, a catch-up entry was required to ensure that adequate amortization had been recorded as of December 31, 2013. $2.1 million of this adjustment ($1.6 million net of tax) relates to periods prior to October 1, 2013 and has been excluded from adjusted net income for the fourth quarter of 2013.

Excluding these one-time charges, depreciation and amortization increased by $11.1 million, on a year-over-year basis, due to an increase in the average balance of capital assets subject to depreciation, primarily in North America.

The foreign exchange gain of $6.0 million in the quarter versus a gain of $3.5 million in the same quarter last year was due to the net impact of fluctuations in the U.S. dollar and Russian ruble relative to the Canadian dollar. In particular, the value of the U.S. dollar increased by 3.2% relative to the Canadian dollar, which led to foreign exchange gains on net U.S. dollar assets.

COMPARATIVE ANNUAL INCOME STATEMENTS
($ thousands; unaudited) Year-
Over-
% of % of Year %
Year ended December 31, 2013 Revenue 2012 Revenue Change Change
Revenue 2,115,472 100.0 % 2,213,400 100.0 % (97,928 ) (4 %)
Expenses
Materials and operating 1,826,221 86.3 % 1,870,889 84.5 % (44,668 ) (2 %)
General and administrative 109,701 5.2 % 102,443 4.6 % 7,258 7 %
Operating income* 179,550 8.5 % 240,068 10.8 % (60,518 ) (25 %)
Finance costs 34,497 1.6 % 30,497 1.4 % 4,000 13 %
Depreciation and amortization 222,403 10.5 % 152,837 6.9 % 69,566 46 %
Foreign exchange (gain)/loss (4,859 ) (0.2 %) 408 0.0 % (5,267 ) (1,291 %)
Goodwill impairment, net 4,123 0.2 % - - 4,123 -
Other income (1,612 ) (0.1 %) (1,837 ) (0.1 %) 225 (12 %)
Income before income taxes and non-controlling interest (75,002 ) (3.5 %) 58,163 2.6 % (133,165 ) (229 %)
Income tax (recovery) / expense (28,303 ) (1.3 %) 4,824 0.2 % (33,127 ) (687 %)
Non-controlling interest (845 ) (0.0 %) (335 ) (0.0 %) (510 ) (152 %)
Net (loss) / income (45,854 ) (2.2 %) 53,674 2.4 % (99,528 ) (185 %)

* See first page of this report

CANADIAN OPERATIONS

Year ended December 31, % of % of Year-Over-Year
($ thousands, except revenue per job, unaudited) 2013 Revenue 2012 Revenue Change
Revenue 1,021,426 1,139,474 (10 %)
Expenses
Materials and operating 794,459 77.8 % 804,429 70.6 % (1 %)
General and administrative 26,167 2.6 % 26,352 2.3 % (1 %)
Total expenses 820,626 80.3 % 830,781 72.9 % (1 %)
Operating income* 200,800 19.7 % 308,693 27.1 % (35 %)
Number of jobs 21,287 22,427 (5 %)
Revenue per job 47,553 50,486 (6 %)

* See first page of this report

Canadian revenue for 2013 decreased by 10% compared to 2012. Revenue per job decreased by 6% due to a 22% decline in average annual pricing, which was partially offset by larger fracturing job sizes and an increase in fracturing revenue relative to total revenue. Job count decreased by 5% due largely to a drop in coiled tubing activity, which also negatively impacted associated service lines, including nitrogen and acidizing.

As a percentage of revenue, materials and operating expenses increased to 77.8% from 70.6% in the prior year. The pricing decline had a significant negative impact on operating margins and was partially offset by cost decreases including reductions in operating salaries, profit sharing expenses, product costs, and travel expenses. General and administrative expenses were relatively consistent on a year-over-year basis as reductions in profit sharing expense were offset by increased share based expenses.

UNITED STATES OPERATIONS

Year ended December 31, % of % of Year-Over-Year
($ thousands, except revenue per job, unaudited) 2013 Revenue 2012 Revenue Change
Revenue 764,962 797,783 (4 %)
Expenses
Materials and operating 716,029 93.6 % 803,677 100.7 % (11 %)
General and administrative 26,046 3.4 % 19,808 2.5 % 32 %
Total expenses 742,075 97.0 % 823,485 103.2 % (10 %)
Operating income / (loss)* 22,887 3.0 % (25,702 ) (3.2 %) 189 %
Number of jobs 8,789 7,110 24 %
Revenue per job 83,220 112,471 (26 %)

* See first page of this report

U.S. revenue for 2013 decreased by 4% as a rise in cementing and completion tools revenue were more than offset by pricing declines for the fracturing service line. The job count for 2013 increased substantially for cementing as we continued to grow this service line in the US. The job count also increased for the fracturing service line, although revenue per fracturing job decreased as we performed smaller jobs in 2013 compared to 2012. Revenue per job was also negatively impacted by lower pricing realized in 2013 compared to 2012.

Materials and operating expenses decreased to 93.6% of revenue in 2013 compared to 100.7% in 2012. Cost-cutting initiatives and a substantial reduction in the price of guar led to higher operating margins on a year-over-year basis. These improvements were partially offset by lower pricing in 2013 compared to 2012. General and administrative expenses increased by $6.2 million in 2013 versus 2012. Overhead costs associated with the new completions tools business combined with an increase in share based employee costs led to a significant portion of the increase.

INTERNATIONAL OPERATIONS

Year ended December 31, % of % of Year-Over-Year
($ thousands, except revenue per job, unaudited) 2013 Revenue 2012 Revenue Change
Revenue 329,084 276,143 19 %
Expenses
Materials and operating 291,186 88.5 % 238,967 86.5 % 22 %
General and administrative 17,095 5.2 % 14,486 5.2 % 18 %
Total expenses 308,281 93.7 % 253,453 91.8 % 22 %
Operating income / (loss)* 20,803 6.3 % 22,690 8.2 % (8 %)
Number of jobs 4,182 4,007 4 %
Revenue per job 75,861 65,027 17 %

* See first page of this report

International revenue increased by 19% due to increases in both job count and revenue per job. The job count increased by 4% due to an increase in fracturing activity in Russia, and to a lesser extent, increased cementing activity in Australia. Revenue per job increased by 17% due to larger fracturing job sizes in Russia combined with an increase in fracturing revenue relative to total revenue.

As a percentage of revenue, materials and operating expenses increased by 200 basis points due primarily to increased product costs in Russia. General and administrative costs increased by $2.6 million due largely to costs associated with the international completion tools business, which did not exist in 2012, and increased overhead costs in Saudi Arabia and Colombia.

CORPORATE

Year ended December 31, % of % of Year-Over-Year
($ thousands, except revenue per job, unaudited) 2013 Revenue 2012 Revenue Change
Expenses
Materials and operating 24,547 1.2 % 23,814 1.1 % 3 %
General and administrative 40,393 1.9 % 41,799 1.9 % (3 %)
Total expenses 64,940 3.1 % 65,613 3.0 % (1 %)
Operating income / (loss)* (64,940 ) (65,613 ) (1 %)

* See first page of this report

Our 2013 Corporate expenses decreased slightly by $0.7 million compared to 2012. Lower professional fees and profit sharing expenses were partially offset by increased share-based expenses. Professional fees were lower due largely to acquisition fees relating to the purchase of i-TEC in 2012.

OTHER EXPENSES AND INCOME

Our 2013 finance costs increased by $4.0 million relative to 2012 due to increased average debt levels and an increase in average interest rates. Foreign exchange gains of $4.9 million have been recognized in 2013 compared to losses of $0.4 million in 2012. The 2013 gain is due to the net impact of fluctuations in the U.S. dollar and Russian ruble relative to the Canadian dollar. Other income was $1.6 million compared to $1.8 million in the same period in 2012. Other income is largely comprised of net gains on disposal of property and equipment and interest income earned on cash balances.

Excluding the one-time adjustments relating to fluid-ends in Canada and the amortization of intangible assets acquired in the i-TEC acquisition, depreciation and amortization expense for 2013 increased by $52.2 million compared to 2012. A large portion of the equipment built as part of our 2011 and 2012 capital budgets became active, and subject to deprecation, beginning in the middle of 2012. Therefore, our average depreciable asset base is significantly larger in 2013 compared to 2012.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Funds provided by operations was $30.4 million in the fourth quarter of 2013 compared to funds used in operations of $14.5 million in the fourth quarter of 2012 largely as a result of less taxes paid. Funds provided by operations for the year ended December 31, 2013 was $130.8 million compared to $126.8 million in 2012. A decrease in operating income and an increase in interest paid was offset by lower taxes paid, which resulted in only a small increase in funds provided by operations.

Investing Activities

Capital expenditures for the year ended December 31, 2013 were $107.8 million compared to $444.5 million in 2012. North American expansion initiatives in 2011 and 2012 led to large capital budgets for those years, which resulted in large capital expenditures in 2012. The North American pressure pumping market became over-supplied with equipment in 2012 and therefore, the capital budget for 2013 was substantially smaller than in previous years. The 2013 capital budget was directed primarily towards maintenance capital requirements.

There were no significant changes made to our 2013 capital budget during the fourth quarter of 2013. Capital expenditures for the fourth quarter were $21 million and approximately $80 million to $90 million of remaining capital expenditures are expected to be carried forward into 2014.

The initial 2014 capital budget is $32.7 million. Management is confident that this budget, combined with carryover capital expenditures from 2013, properly maintains Trican's global equipment fleet and infrastructure at a very high standard. Trican regularly reviews its capital equipment requirements and will continue to follow its policy of adjusting the capital budget on a quarterly basis to reflect changing operating conditions and capital equipment needs.

During the first quarter of 2013, Trican closed the previously announced acquisition of i-TEC in exchange for cash consideration of $29.7 million and 2.4 million Trican common shares valued at $30.3 million at January 11, 2013.

Financing Activities

Trican currently pays a semi-annual dividend of $0.15 per share. During 2013, $44.3 million in dividend payments were made and we expect approximately $44.0 million in dividend payments to be made in 2014.

During the year ended December 31, 2013, Trican repaid $42.3 million on its $500 million revolving credit facility. As at December 31, 2013, the Company had available unused committed bank credit facilities in the amount of $307.5 million plus cash and trade and other receivables of $63.9 million and $452.0 million respectively, for a total of $823.4 million available to fund the cash outflows relating to its financial obligations. The Company believes it has sufficient funding through the use of these sources to meet foreseeable financing requirements. On October 17, 2013, Trican extended its revolving credit facility by an additional year to 2017.

The Company received approval from the Toronto Stock Exchange to purchase its own common shares, for cancellation, in accordance with a Normal Course Issuer Bid ("NCIB") that expires on March 7, 2014. During the year ended December 31, 2013, there were no common shares purchased through the NCIB.

OUTLOOK

Canadian Operations

We currently expect the number of wells drilled in Canada in 2014 to be relatively consistent with wells drilled in 2013. We also believe that fracturing intensity per well will continue to increase in 2014 and lead to an increase in year-over-year fracturing demand in 2014. Fracturing intensity per well is expected to increase due to a rise in fracturing stages per well as we continue to see an increase in multi-stage horizontal wells drilled in Canada relative to vertical wells. In addition, we expect to see an increase in fracturing job size. Commodity prices are currently higher than originally forecast for the Canadian market. This, combined with a lower Canadian dollar relative to the US dollar, is expected to result in increased cash flow for our customers, which normally results in increased activity in the basin. We will continue to monitor changes to our customers' spending and budgets as the year progresses.

Drilling and completions activity is expected to increase in the Duvernay play during 2014 based on discussions with our customers. We also expect that there will be a marginal increase in LNG-related drilling next year, although we expect the majority of LNG-related drilling will occur beyond 2014. Duvernay and LNG-related activity both present significant growth prospects for the pressure pumping industry over the next several years; however, we expect a significant amount of pressure pumping demand to continue to be generated from activity in the Montney and Cardium plays during 2014.

Canadian pressure pumping activity levels began slowly in the first half of January 2014; however, demand has been strong since then and we expect our fracturing and cementing equipment to be fully utilized until spring break-up conditions occur. Assuming that we do not experience an early spring break-up, we expect first quarter operating margins to increase slightly relative to the fourth quarter of 2013 due to increased utilization; however, we expect first quarter margins to be down relative to the first quarter of 2013 due to lower pricing, increased costs and the low activity levels in early January.

First quarter pricing has been relatively consistent on a sequential basis and we expect it to remain stable throughout the quarter; however, the first quarter in Canada generally represents peak activity levels. Canadian pricing levels for the second half of 2014 will be dependant on the demand for pressure pumping equipment in the region as we head into the summer drilling season. We will continue to look for opportunities to increase pricing if activity levels remain high during the second half of the year.

U.S. Operations

The U.S. pressure pumping market remains very competitive and over-supplied with equipment in most operating regions; however, we are starting to see signs of improving fundamentals in the Permian and Marcellus plays. The horizontal rig count continues to increase in the Permian, which is leading to an increase in fracturing demand. In addition, improving natural gas prices have led to increased optimism for 2014 demand increases in the Marcellus play.

We expect our three fracturing crews in the Marcellus play to be well utilized in the first quarter of 2014, which is expected to contribute to sequential improvements in revenue and operating income for our U.S. operations. While cold weather in the region has affected Marcellus activity levels this winter, which will have a negative effect on first quarter results, we are encouraged by our customers' outlook on a full year basis. Given the improving fundamentals in this region, we currently expect the utilization of our existing Marcellus crews to remain strong throughout 2014. We will continue to monitor activity levels in this region and will consider deploying additional horsepower in the Marcellus region if market conditions continue to improve.

We are seeing an increase in activity in the Permian play and improved long-term demand as our customers move towards more horizontal drilling in this region. That being said, the level of competition in the Permian play remains high as there are many fracturing companies operating in the region. We will continue to focus on service quality and improved utilization for our three fracturing crews in this area, and we will look to increase pricing when utilization remains high for a period of time. We believe that increasing utilization in the Permian region will be a key factor in improving the financial results of our U.S. operations and will continue to be a strategic focus for Trican.

We expect fracturing demand to remain stable in the Eagle Ford, Bakken, and Oklahoma regions and we will continue to focus on improving utilization and decreasing costs, where possible, for our operations in these areas. Activity levels remain low in the dry gas plays, including the Haynesville and Barnett shale plays, and we do not to expect pressure pumping demand to increase in these regions during 2014. However, given the recent increase in natural gas prices, we will continue to monitor activity levels in these regions and react accordingly if industry conditions improve.

Increased sequential activity in the Marcellus and the Permian plays are expected to lead to increased revenue and operating income in the first quarter of 2014 compared to the fourth quarter of 2013. In addition, we expect our U.S. completion tools business to maintain a strong level of profitability and contribute to improvements in sequential U.S. operating results. However, we do not expect improvements in 2014 first quarter financial results compared to the first quarter of 2013 due largely to lower year-over-year pricing.

International

We expect to see a year-over-year increase in Russian and Kazakhstan oil and gas industry activity and a continued increase in horizontal multi-stage well completions during 2014. Management is currently estimating 2014 revenue to increase by 5% relative to 2013. The estimated revenue increase is based on consistent pressure pumping activity levels combined with a 7% increase in pressure pumping revenue per job, partially offset by a small decrease in completion tool revenue. The Russian and Kazakhstan markets remain competitive and we expect 2014 pricing improvements to only cover inflationary cost increases. As a result, we expect 2014 Russian and Kazakhstan operating margins to improve slightly in 2014 relative to 2013, due to the expected increase in activity. First quarter activity in Russia and Kazakhstan is expected to be down sequentially due to extreme cold weather that is typically experienced through the early part of the year.

We expect revenue growth and improved profitability in 2014 for the international completions tools business relative to 2013. We continue to see good customer acceptance of our tools in the North Sea market and will look to expand our international customer base during 2014.

We expect to see improved utilization and profitability for our Australian cement crews in 2014 relative to 2013; however, the improvements are expected to be modest as the Australian market continues to develop slowly. We will continue to focus on expanding market share through sales and marketing initiatives and by offering high service quality and technical solutions to the Australian customer base.

Algeria continues to be a challenging market and if we do not see improvements in utilization for our two coiled tubing crews operating in the region during 2014, we will consider redeploying those assets into a more profitable region.

We expect to begin active operations in both Colombia and Saudi Arabia in the first half of 2014. We are optimistic about the growth prospects in both these regions and will continue to focus on establishing our market presence in these regions throughout 2014.

NON-IFRS DISCLOSURE

Adjusted net income, operating income and funds provided by operations do not have any standardized meaning as prescribed by IFRS and, therefore, are considered non-IFRS measures.

Adjusted net income and funds provided by operations have been reconciled to net income and operating income has been reconciled to gross profit, being the most directly comparable measures calculated in accordance with IFRS. The reconciling items have been presented net of tax.

Three months ended Twelve months ended
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2013 2012 2013 2013 2012
Adjusted net (loss) / income ($9,873 ) ($5,375 ) $9,693 ($31,490 ) $63,028
Deduct:
Fluid end depreciation adjustment (net of $2.4 million tax recovery)* 7,153 - - - -
Intangible amortization adjustment (net of $0.5 million tax recovery)** 1,595 - - - -
Goodwill impairment - - - 4,123 -
Non-cash share-based compensation expense 2,209 2,455 1,840 8,096 9,689
Loss on deposit with vendor (net of $0.7 million tax recovery) - - 2,145 2,145 -
(Loss) / profit for the period (IFRS financial measure) ($20,830 ) ($7,830 ) $5,708 ($45,854 ) $53,339

* Depreciation and amortization expense for the fourth quarter of 2013 includes a $14.3 million charge for accelerated depreciation on fluid ends in Canada. $9.5 million of this adjustment ($7.2 million net of tax) relates to periods prior to October 1, 2013 and has been excluded from adjusted net income for the fourth quarter.

**Depreciation and amortization expense for the fourth quarter includes $3.1 million in amortization on the intangible assets relating to the purchase of i-TEC. The purchase price accounting was not finalized until the fourth quarter of 2013; therefore, a catch-up entry was required to ensure that adequate amortization had been recorded as of December 31, 2013. $2.1 million of this adjustment ($1.6 million net of tax) relates to periods prior to October 1, 2013 and has been excluded from adjusted net income for the fourth quarter.

Three months ended Twelve months ended
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2013 2012 2013 2013 2012
Funds provided by / (used in) operations $ 30,380 $ (14,525 ) $ 71,087 $ 130,815 $ 126,757
Adjustments
Depreciation and amortization (70,085 ) (41,564 ) (54,646 ) (222,403 ) (152,837 )
Amortization of debt issuance costs (216 ) (208 ) (216 ) (864 ) (813 )
Stock-based compensation (2,209 ) (2,455 ) (1,840 ) (8,096 ) (9,689 )
Loss / (gain) on disposal of property and equipment 15 (352 ) (585 ) (293 ) (2,423 )
Net finance costs (8,122 ) (7,824 ) (9,111 ) (32,749 ) (28,285 )
Unrealized foreign exchange (gain) / loss (1 ) 4,863 (2,984 ) 5,593 50
Asset impairments, net - (2,870 ) (6,993 ) -
Income tax recovery / (expense) 16,431 2,957 2,847 28,303 (4,824 )
Interest paid 12,956 8,373 6,182 34,794 24,278
Income tax paid / (recovered) 21 42,697 (2,156 ) 26,039 100,312
Profit / (loss) (IFRS financial measure) $ (20,830 ) $ (8,038 ) $ 5,708 $ (45,854 ) $ 53,339
Three months ended Twelve months ended
Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2013 2012 2013 2013 2012
Operating income $ 35,500 $ 35,123 $ 72,702 $ 179,550 $ 240,068
Add:
Administrative expenses 26,064 23,083 28,730 114,836 108,289
Deduct:
Depreciation expense (70,085 ) (41,564 ) (54,646 ) (222,403 ) (152,837 )
Gross profit / (loss) (IFRS financial measure) $ (8,521 ) $ 16,642 $ 46,786 $ 71,983 $ 195,520
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Stated in thousands)
As at December 31,
2013 2012
ASSETS
Current assets
Cash and cash equivalents $ 63,869 $ 113,506
Trade and other receivables 459,210 437,038
Current tax assets 5,186 647
Inventory 232,898 211,794
Prepaid expenses 34,407 33,002
795,570 795,987
Property and equipment 1,374,212 1,458,562
Intangible assets 44,285 10,081
Deferred tax assets 122,745 76,302
Other assets 17,360 11,898
Goodwill 59,475 43,689
2,413,647 $ 2,396,519
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans $ - $ 9,119
Trade and other payables 301,920 228,788
Contingent consideration - 2,860
Deferred consideration 650 -
Current tax liabilities 14 7,853
Current portion of loans and borrowings 79,770 -
382,354 248,620
Loans and borrowings 593,786 694,972
Deferred tax liabilities 87,005 77,012
Shareholders' equity
Share capital 559,723 527,860
Contributed surplus 63,074 55,352
Accumulated other comprehensive loss (1,020 ) (24,100 )
Retained earnings 725,172 815,700
Total equity attributable to equity holders of the Company 1,346,949 1,374,812
Non-controlling interest 3,553 1,103
$ 2,413,647 $ 2,396,519
...
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Stated in thousands, except per share amounts) Three Months Three Months Twelve Months Twelve Months
Ended Dec 31, Ended Dec 31, Ended Dec 31, Ended Dec 31,
For the year ended December 31, 2013 2012 2013 2012
Revenue 552,144 485,865 2,115,472 2,213,400
Cost of sales 560,665 463,378 2,043,489 2,017,880
Gross profit (8,521 ) 22,487 71,983 195,520
Administrative expenses 26,066 28,928 114,836 108,289
Other expense 900 (10 ) 136 375
Results from operating activities (35,487 ) (6,431 ) (42,989 ) 86,856
Finance income (470 ) (550 ) (1,748 ) (2,212 )
Finance costs 8,592 8,374 34,497 30,497
Foreign exchange (gain) / loss (5,968 ) (3,468 ) (4,859 )
Contact:
Trican Well Service Ltd.
Dale Dusterhoft
Chief Executive Officer
ddusterhoft@trican.ca
Trican Well Service Ltd.
Michael Baldwin
Senior Vice President, Finance & CFO
mbaldwin@trican.ca
Trican Well Service Ltd.
Gary Summach
Director of Reporting and Investor Relations
gsummach@trican.ca
Trican Well Service Ltd.
2900, 645 - 7th Avenue S.W.
Calgary, Alberta T2P 4G8
(403) 266-0202
(403) 237-7716
www.trican.ca

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