Trican Reports Third Quarter Results for 2013

CALGARY, ALBERTA--(Marketwired - Nov 5, 2013) - Trican Well Service Ltd. (TCW.TO)

Three months ended Nine months ended
Sept 30, Sept 30, Sept 30, Sept 30,
($ millions, except per share amounts; unaudited) 2013 2012 2013 2012
Revenue $548.3 $593.2 $1,563.3 $1,727.5
Operating income* 72.7 71.4 144.1 204.9
Profit / (loss) 5.7 22.6 (25.5 ) 61.2
Earnings / (loss) per share (basic ) $0.04 $0.16 ($0.17 ) $0.42
(diluted ) $0.04 $0.16 ($0.17 ) $0.42
Adjusted profit / (loss)* 9.7 24.7 (13.3 ) 68.4
Adjusted profit / (loss) per share* (basic ) $0.07 $0.17 ($0.09 ) $0.47
(diluted ) $0.07 $0.17 ($0.09 ) $0.47
Funds provided by operations* 71.1 49.3 100.0 136.7
Notes:
* Trican makes reference to operating income, adjusted profit/(loss) and funds provided by operations. These are measures that are not recognized under International Financial Reporting Standards (IFRS). Management believes that, in addition to profit/(loss), operating income, adjusted profit/(loss) and funds provided by operations are useful supplemental measures. Operating income provides investors with an indication of profit/(loss) before depreciation and amortization, foreign exchange gains and losses, other income, finance costs and income tax expense. Adjusted profit/(loss) provides investors with information on profit/(loss) excluding certain one-time 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 profit/(loss), and funds provided by operations should not be construed as an alternative to net income/(loss) and cash provided operations determined in accordance with IFRS as an indicator of Trican's performance. Trican's method of calculating operating income, adjusted profit/(loss) and funds provided by operations may differ from that of other companies and accordingly may not be comparable to measures used by other companies.

THIRD QUARTER HIGHLIGHTS

Consolidated revenue for the third quarter of 2013 was $548.3 million, a decrease of 8% compared to the third quarter of 2012. The adjusted consolidated profit was $9.7 million compared to $24.7 million, and adjusted profit per share was $0.07 compared to $0.17 for the same period in 2012. Adjusted profit excludes a one-time tax adjusted loss of $2.1 million relating to deposits held with an insolvent vendor. Funds provided by operations were $71.1 million compared to $49.3 million in the third quarter of 2012.

Our Canadian operations generated quarterly revenue of $279.9 million and operating income of $72.1 million during the third quarter of 2013. Canadian revenue decreased by 13% and operating margins decreased by 530 basis points compared to the third quarter of 2012. These declines were caused largely by a 20% average decrease in overall Canadian pricing compared to the third quarter of 2012. Canadian activity levels in the third quarter of 2013 were also negatively impacted by wet weather during the first two weeks of the quarter. Despite the decrease in year-over-year financial results, Canadian fracturing and cementing demand were steady throughout most of the quarter, led by increased demand in the Duvernay and strong activity levels in key Canadian plays such as the Montney, Cardium and Deep Basin. Canadian fracturing results also benefitted from a large Horn River project that was completed during the quarter. Strong activity levels for our Canadian fracturing and cementing service lines were partially offset by weakness in coiled tubing demand. The Canadian market remained very competitive during the quarter but a modest price recovery of 4% was realized compared to the second quarter of 2013.

Our U.S. operations generated third quarter revenue of $183.1 million, a decrease of 8% compared to the third quarter of 2012 and 9% compared to the second quarter of 2013. In addition, U.S. operating margins decreased sequentially by 110 basis points. The U.S. pressure pumping market remained very competitive and over-supplied with equipment during the third quarter of 2013. Overall U.S. pricing stabilized somewhat and was down 2% compared to the second quarter of 2013. Activity levels were down sequentially and year-over-year for our operations in Oklahoma and we did not perform any fracturing jobs in the Haynesville during the third quarter of 2013. As a result, we have deactivated our Haynesville fracturing crew until activity in the region improves or another opportunity becomes available. Decreases in the Haynesville and Oklahoma were partially offset by steady demand and activity levels in the Marcellus, which led to sequential and year-over-year revenue and operating income growth for our four Marcellus fracturing crews.

Third quarter revenue for our International operations was $88.2 million, an increase of 22% compared to the third quarter of 2012. Our Russian operations comprise the majority of our International results, and revenue was up year-over-year in this region as an increase in horizontal drilling and completions activity led to increased customer demand in Russia. In addition, International revenue benefitted from growth in Australia as well as growth for our international completion tools division. We anticipate that 2013 annual Russian revenue will only be 10-15% higher compared to 2012 with operating margins that are consistent with 2012. This guidance is down from previous disclosure due to lower than expected 2013 activity levels from certain large Russian customers.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

Headquartered in Calgary, Alberta, Trican has operations in Canada, the U.S., Russia, Kazakhstan, Algeria, Australia, Norway, Saudi Arabia, and Colombia. Trican provides a comprehensive array of specialized products, equipment and services that are used during the exploration and development of oil and gas reserves.

COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
Three months ended September 30, 2013 % of
Revenue
2012 % of
Revenue
Quarter-
Over-
Quarter
Change
%
Change
Revenue 548,345 100.0 % 593,204 100.0 % (44,859 ) (7.6 %)
Expenses
Materials and operating 449,412 82.0 % 493,877 83.3 % (44,465 ) (9.0 %)
General and administrative 26,231 4.8 % 27,972 4.7 % (1,741 ) (6.2 %)
Operating income* 72,702 13.3 % 71,355 12.0 % 1,347 1.9 %
Finance costs 9,370 1.7 % 7,696 1.3 % 1,674 21.8 %
Depreciation and amortization 54,646 10.0 % 37,270 6.3 % 17,376 46.6 %
Foreign exchange loss 4,345 0.8 % 1,651 0.3 % 2,694 163.2 %
Other loss 1,481 0.3 % 806 0.1 % 675 83.7 %
Profit before income taxes 2,860 0.5 % 23,932 4.0 % (21,073 ) (88.1 %)
Income tax (recovery) / expense (2,848 ) (0.5 %) 1,284 0.2 % (4,132 ) (321.8 %)
Net Income 5,708 1.0 % 22,648 3.8 % (16,940 ) (74.8 %)
* see first page of this report
CANADIAN OPERATIONS
($ thousands, except revenue per job, unaudited)
Three months ended, Sept 30,
2013
% of
Revenue
Sept 30,
2012
% of
Revenue
June 30,
2013
% of
Revenue
Revenue 279,899 321,948 116,061
Expenses
Materials and operating 201,217 71.9 % 215,022 66.8 % 121,446 104.6 %
General and administrative 6,610 2.4 % 7,095 2.2 % 7,443 6.4 %
Total expenses 207,827 74.3 % 222,117 69.0 % 128,889 111.1 %
Operating income / (loss)* 72,072 25.7 % 99,831 31.0 % (12,828 ) (11.1 %)
Number of jobs 6,082 6,368 3,096
Revenue per job 45,393 50,140 37,046
* see first page of this report
Sales Mix
Three months ended, (unaudited) Sept 30, Sept 30, June 30,
2013 2012 2013
% of Total Revenue
Fracturing 70 % 68 % 62 %
Cementing 18 % 17 % 14 %
Nitrogen 4 % 6 % 5 %
Coiled Tubing 3 % 4 % 4 %
Acidizing 2 % 3 % 3 %
Industrial services 2 % 1 % 9 %
Other 1 % 1 % 3 %
Total 100 % 100 % 100 %

Operations Review

Third quarter average Canadian rig count increased by 10% and the number of wells drilled increased by 6% on a year-over-year basis. Although an extended spring break-up impacted activity levels at the start of the third quarter, increased industry activity led to steady demand for our fracturing and cementing service lines in Canada. The number of third quarter fracturing jobs performed increased by 11% and cementing jobs increased by 2% compared to the third quarter of 2012. The strength in fracturing and cementing was partially offset by weaker coiled tubing and acidizing demand due to increased competition for these service lines.

Canadian fracturing activity benefitted from a Horn River project that was completed during the third quarter of 2013. The six-week project exceeded our efficiency targets as we completed 6.8 fracs per day, which compared to 6.3 fracs per day performed during the 2012 project and 4.4 fracs during the 2011 project. We believe we are well positioned in the Horn River and will benefit when activity increases in this region.

Canadian third quarter fracturing results also benefitted from increased activity in the Duvernay. Fracturing work performed in the Duvernay represented 16% of total third quarter Canadian fracturing revenue compared to 6% in the third quarter of 2012. We have worked with several customers in this region to date, and believe we are well-positioned to capitalize on the growth of this play as it develops over the next several years.

Canadian pricing levels improved sequentially by 4% but were 20% lower than the third quarter of 2012 and 6% below the first quarter of 2013. The Canadian market remained competitive in the third quarter and opportunities to increase price were limited.

We were pleased with the progress made by our Canadian Completion Tools Division during the third quarter of 2013. We continue to integrate this division into our Canadian operations and are seeing good customer acceptance of the tools and technology thus far. We expect the Completion Tools Division to have a more meaningful impact on Canadian financial results during 2014.

Q3 2013 versus Q3 2012

Canadian revenue decreased by 13% on a year-over-year basis. Revenue per job decreased by 9% due to a 20% decrease in price, offset partially by an increase in fracturing revenue relative to total revenue and an increase in fracturing job size. The job count decreased by 5% as an increase in fracturing and cementing activity was more than offset by a decrease in coiled tubing activity. 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.

Materials and operating expenses increased to 71.9% of revenue compared to 66.8% of revenue in the same period of 2012. Lower pricing led to reduced operational leverage on our fixed cost structure; however, the impact of lower pricing was partially offset by product cost reductions for guar and sand, and cost cutting measures implemented during 2013.

General and administrative costs decreased by $0.5 million, as lower profit sharing and employee based expenses were partially offset by an increase to share-based expenses. The increase in share-based expenses was due to an increase in the size of plan combined with a year-over-year increase in the volume weighted average share price used to calculate the share-based liabilities.

Q3 2013 versus Q2 2013

Canadian revenue increased by 141% sequentially due to the expected rise in industry activity as spring break-up conditions subsided early in the third quarter. Higher activity led to a 96% sequential increase in the Canadian job count. Revenue per job increased by 23% due to an increase in fracturing revenue relative to total revenue, an increase in fracturing job sizes, and a 4% increase in price. Third quarter industrial services revenue remained relatively consistent on a sequential basis but declined as a percentage of total revenue due to the increases in the other service lines.

Materials and operating expenses decreased to 71.9% of revenue compared to 104.6% of revenue in the second quarter of 2013. The margin improvement was largely due to higher revenue, which led to increased leverage on our fixed cost structure. General and administrative costs decreased by $0.8 million due to lower share-based costs and bad debt expenditures. Share-based expenses decreased due to a sequential decline in the volume weighted average share price used to calculate the share-based liabilities.

UNITED STATES OPERATIONS

($ thousands, except revenue per job, unaudited)
Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
Revenue 183,080 198,881 201,538
Expenses*
Materials and operating 170,862 93.3 % 216,283 108.8 % 186,795 92.7 %
General and administrative 6,541 3.6 % 5,768 2.9 % 6,246 3.1 %
Total expenses 177,403 96.9 % 222,051 111.7 % 193,041 95.8 %
Operating income / (loss)** 5,677 3.1 % (23,170 ) (11.7 %) 8,497 4.2 %
Number of jobs 2,284 1,861 2,208
Revenue per job 80,437 106,962 92,096
* certain prior period expenses have been reclassified from materials and operating to general and administrative to conform to current period classification
** see first page of this report
Sales Mix
Three months ended, (unaudited) Sept 30, Sept 30, June 30,
2013 2012 2013
% of Total Revenue
Fracturing 88 % 91 % 90 %
Cementing 8 % 6 % 7 %
Coiled Tubing 4 % 3 % 3 %
Total 100 % 100 % 100 %

Operations Review

Third quarter U.S. industry activity levels were relatively flat compared to the second quarter of 2013 and the U.S. pumping market remained very competitive and substantially over-supplied. We continued to see pricing pressure across all of our U.S. operating regions as pricing decreased by 2% sequentially and by 10% compared to the third quarter of 2012.

Revenue and operating income increased sequentially for our Marcellus base during the third quarter. Four fracturing crews were active in the Marcellus and demand was strong throughout most of the quarter, although activity levels declined near the end of the quarter as some of our key customers reduced activity levels in the region. The increased Marcellus activity was more than offset by declines for our crews operating in the Haynesville and Oklahoma regions. Haynesville activity levels continued to be weak due to low natural gas prices and our fracturing crew in this region was inactive during the third quarter. Activity levels in Oklahoma were negatively impacted by low gas prices as well as reduced activity levels for several key customers operating in the region.

The Permian, Eagle Ford and Bakken continued to be the most active U.S. plays, although these areas remained very competitive and over-supplied with fracturing equipment throughout the quarter. Utilization for our two Eagle Ford fracturing crews remained stable and the utilization of our Permian and Bakken crews increased on a sequential basis. Despite the improvements, utilization for our Bakken and Permian fracturing crews remained below expectations. We continue to focus on expanding our customer base to increase utilization of our equipment in these areas with the expectation that this will meaningfully improve our U.S. operations' financial results.

We continued to make progress on cost cutting initiatives and realized sequential reductions in product logistics and handling expenses as well as other discretionary costs. The impact of the cost reductions was more than offset by reduced operating leverage on our cost structure due to lower sequential revenue, which led to the decrease in operating margins compared to the second quarter of 2013.

We continued to execute on our strategy to become a full service U.S. pressure pumping company during the third quarter with sequential growth for our U.S. cementing, coiled tubing and completion tools service lines. U.S. completion tools revenue grew by 20% sequentially and we continued to see good customer acceptance of our completion tools technology in the U.S. market.

Q3 2013 versus Q3 2012

Third quarter U.S. revenue was down 8% compared to the third quarter of 2012. Revenue per job decreased by 25% due to a 10% decline in price, a decrease in fracturing revenue relative to total revenue and a change in revenue mix by region. Jobs performed in the Haynesville region are generally larger relative to other areas such as the Marcellus, Permian and Bakken and the reduction in jobs performed in the Haynesville region significantly contributed to the decline in revenue per job. The job count increased by 23% due to increases in the Marcellus and Eagle Ford plays combined with increased cementing and coiled tubing activity. These increases were partially offset by decreases in the Haynesville and Oklahoma regions.

As a percentage of revenue, materials and operating expenses decreased to 93.3% compared to 108.8% in the third quarter of 2012. Cost decreases for guar, product handling and logistics, and other discretionary items led to the improvement in margins. These improvements were partially offset by reduced operating leverage on our fixed cost structure due largely to pricing declines.

General and administrative expenses increased by $0.8 million due primarily to an increase in share-based employee expenses and an increase in the U.S. bad debt provision. The increase in share-based expenses was due to an increase in the size of the restricted share unit employee plan combined with a year-over-year increase in the volume weighted average share price used to calculate the share-based liabilities.

Q3 2013 versus Q2 2013

Third quarter U.S. revenue decreased by 9% compared to the second quarter of 2013. Revenue per job decreased by 13% due largely to a change in revenue mix by region as less work was performed in the Haynesville region on a sequential basis. A decrease in fracturing revenue relative to total revenue and 2% sequential drop in price also contributed to the decrease in revenue per job. The job count increased by 3% due to an increase in work performed in the Marcellus region combined with increases in cementing and coiled tubing activity. These increases were partially offset by job decreases in the Haynesville and Oklahoma regions.

As a percentage of revenue, materials and operating expenses remained consistent on a sequential basis. Lower revenue resulted in decreased operational leverage on our fixed cost structure, which was offset by continued progress made on cost cutting initiatives. General and administrative expenses increased by $0.3 million due primarily to an increase in the bad debt provision and insurance costs, which was offset partially by a decrease in share-based expenses.

INTERNATIONAL OPERATIONS

($ thousands, except revenue per job, unaudited)
Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
Revenue 88,161 72,375 79,007
Expenses
Materials and operating 71,523 81.1 % 59,202 81.8 % 70,723 89.5 %
General and administrative 4,176 4.8 % 3,590 5.0 % 4,637 5.9 %
Total expenses 75,699 85.9 % 62,792 86.8 % 75,360 95.4 %
Operating income* 12,462 14.1 % 9,583 13.2 % 3,647 4.6 %
Number of jobs 1,232 1,057 962
Revenue per job 69,180 64,873 76,235
* see first page of this report
Sales Mix
Three months ended, (unaudited) Sept 30, Sept 30, June 30,
2013 2012 2012
% of Total Revenue
Fracturing 81 % 80 % 83 %
Coiled Tubing 10 % 10 % 8 %
Cementing 5 % 6 % 5 %
Nitrogen 2 % 2 % 2 %
Other 2 % 2 % 2 %
Total 100 % 100 % 100 %

Operations Review

Our International operations include the financial results for operations in Russia, Kazakhstan, Algeria, Australia, Norway, Saudi Arabia and Colombia.

Our Russian operations comprise the majority of our International results and Russian activity levels were strong during the third quarter. Summer months are more active with long daylight hours and favorable operating conditions, which allowed our Russian customers to execute on their work plans. In addition, horizontal and multi-stage fracturing activity has increased in Russia compared to 2012 and as a result, fracturing job size and activity levels have increased.

International completion tools revenue grew sequentially by 50%. Most of this revenue was generated in the offshore Norwegian market and we continue to see good customer acceptance of Trican's completion tools in this region. Demand for completion tools also increased in Russia on a sequential and year-over-year basis, in particular for our Burst Port System (BPS®) tool.

Third quarter financial results were strong for our two fracturing crews in Kazakhstan as revenue and operating margins increased on a sequential and year-over-year basis. Activity levels remained low in Algeria during the third quarter, which resulted in weak financial results for this region. In addition, we continue to see good growth in cementing revenue in Australia but it did not have a significant impact on our International results.

No work was performed in both Saudi Arabia and Colombia during the third quarter of 2013. We are currently deploying equipment into these regions and expect to begin active operations in early 2014. We have been awarded a contract in Saudi Arabia for one coiled tubing unit and associated pumping and nitrogen equipment. We continue to negotiate additional contracts in this area.

Q3 2013 versus Q3 2012

Third quarter 2013 revenue for our International operations increased by 22% compared to third quarter of 2012. The year-over-year job count increased by 17% due largely to increased activity for all service lines in Russia. Favorable weather conditions and an overall rise in unconventional activity contributed to the increase. Higher year-over-year activity levels in Australia also contributed to the job count growth. Revenue per job increased by 7% due to an increase in fracturing job size in Russia and a slight increase in Russian pricing.

As a percentage of revenue, materials and operating expenses decreased slightly to 81.1% from 81.8%. Increased operating leverage from higher revenue was offset by increased product costs in Russia and operating losses in Algeria. General and administrative expenses increased by $0.6 million due largely to costs associated with the international completion tools business, which did not exist in the third quarter of 2012.

Q3 2013 versus Q2 2013

International revenue increased sequentially by 12%. The job count increased by 28% due largely to increased activity for all service lines in Russia. The increase in job count was offset by a 9% decline in revenue per job caused by a decrease in fracturing revenue relative to total revenue. A 2% sequential weakening of the Russian ruble also had a slight negative impact on revenue per job.

As a percentage of revenue, materials and operating expenses decreased to 81.1% from 89.5%. Increased revenue from Russia, Kazakhstan, and completion tools led to increased leverage on our fixed cost structure. General and administrative expenses decreased by $0.5 million due largely to a decrease in share-based expenses. Share-based expenses decreased due to a sequential decline in the volume weighted average share price used to calculate the share-based liabilities.

CORPORATE

($ thousands, unaudited) Sept 30, % of Sept 30, % of June 30, % of
Three months ended, 2013 Revenue 2012 Revenue 2013 Revenue
Expenses
Materials and operating 5,835 1.1 % 5,907 1.0 % 5,413 1.4 %
General and administrative 8,904 1.6 % 8,981 1.5 % 9,026 2.3 %
Total expenses 14,739 2.7 % 14,888 2.5 % 14,439 3.6 %
Operating loss* (14,739 ) (14,888 ) (14,439 )
* see first page of this report

Q3 2013 versus Q3 2012

Corporate expenses decreased slightly by $0.1 million on a year-over-year basis. A decrease in administrative salaries was offset by an increase in share based expenses.

Q3 2013 versus Q2 2013

Sequentially, corporate expenses increased by $0.3 million. There were no significant variations of note in sequential corporate expenses.

OTHER EXPENSES AND INCOME

Finance costs for the third quarter of 2013 increased by $1.7 million compared to the third quarter of 2012. The increase was due to higher debt balances combined with a higher average interest rate on the outstanding debt.

Depreciation and amortization expenses increased by $17.4 million compared to the third quarter of 2012. An increase in the amount of depreciable property and equipment caused the higher depreciation and amortization expense.

Foreign exchange losses of $4.3 million have been recorded for the quarter ended September 30, 2013, compared to losses of $1.7 million for the same period in 2012. This change is due to the net impact of fluctuations in the U.S. dollar and the Russian ruble relative to the Canadian dollar.

Other loss, for the third quarter of 2013, was $1.5 million compared to a loss of $0.8 million in the same period of 2012. The current quarter includes a one-time $2.9 million loss relating to the write-down of unsecured deposits with an insolvent vendor. In addition, at September 30, 2013, Trican has $8.8 million in assets under construction with this vendor included in property and equipment in the statement of financial position. Trican believes that it currently has legal title to these assets and is confident in its ability to defend this position. The loss on the unsecured deposits was partially offset by interest income earned on cash balances and gains on asset sales. The loss recognized in the third quarter of 2012 was due primarily due to losses on asset sales.

INCOME TAXES

An income tax recovery of $2.8 million was recorded during the third quarter of 2013, as tax recoveries on taxable losses in the U.S. more than offset tax expenses recorded in Canada and internationally. In the third quarter of 2012, a tax expense of $1.3 million was incurred as tax expenses in Canada and internationally more than offset tax recoveries in the U.S.

COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS ($ thousands, unaudited)
Nine months ended Sept 30,


2013


% of
Revenue



2012


% of
Revenue
Quarter-
Over-
Quarter
Change


%
Change
Revenue 1,563,328 100 % 1,727,535 100.0 % (164,207 ) (9.5 %)
Expenses
Materials and operating 1,335,507 85.4 % 1,447,890 83.8 % (112,383 ) (7.8 %)
General and administrative 83,770 5.4 % 74,700 4.3 % 9,070 12.1 %
Operating income* 144,051 9.2 % 204,945 11.9 % (60,894 ) (29.7 %)
Finance costs 25,905 1.7 % 22,123 1.3 % 3,782 17.1 %
Depreciation and amortization 152,318 9.7 % 111,273 6.4 % 41,045 36.9 %
Goodwill impairment, net 4,123 0.3 % - 0.0 % 4,123 - %
Foreign exchange loss 1,109 0.1 % 3,876 0.2 % (2,767 ) (71.4 %)
Other income (2,043 ) (0.1 %) (1,277 ) (0.1 %) (766 ) 60.0 %
(Loss) / income before income taxes (37,361 ) (2.4 %) 68,950 4.0 % (106,311 ) (154.2 %)
Income tax (recovery) / expense (11,872 ) (0.8 %) 7,781 0.5 % (19,653 ) (252.6 %)
Net (loss) / income (25,489 ) (1.6 %) 61,169 3.6 % (86,658 ) (141.7 %)
* see first page of this report
CANADIAN OPERATIONS
($ thousands, except revenue per job, unaudited) Sept 30, % of Sept 30, % of Period-Over-Period
Nine months ended, 2013 Revenue 2012 Revenue Change
Revenue 734,673 895,237 (17.9 %)
Expenses
Materials and operating 564,136 76.8 % 617,114 68.9 % (8.6 %)
General and administrative 20,922 2.8 % 20,453 2.3 % 2.3 %
Total expenses 585,058 79.6 % 637,567 71.2 % (8.2 %)
Operating income* 149,615 20.4 % 257,670 28.8 % (41.9 %)
Number of jobs 16,133 16,855 (4.3 %)
Revenue per job 45,036 52,781 (14.7 %)
* see first page of this report

Canadian revenue for the nine months ended September 30, 2013 was down 18% compared to the same period in 2012. The number of wells drilled in Canada during 2013 was similar to 2012 for the nine months ended September 30. Our cementing activity was in-line with industry activity levels as cementing job count for 2013 was consistent with 2012. Fracturing job count decreased slightly and coiled tubing, nitrogen and acidizing job count decreased significantly on a year-over-year basis. The Canadian coiled tubing market remains very competitive, which has led to the activity declines for this service line. Overall, the Canadian job count was down 4% on a year-over-year basis.

Canadian revenue per job was down 15% due largely to the 22% decrease in price. The price drop was partially offset by an increase in fracturing revenue relative to total revenue and an increase in fracturing job size.

Materials and operating expenses increased to 76.8% of revenue compared to 68.9% of revenue for the same period in 2012. The decrease in operating margins was due largely to the drop in revenue, which led to lower operating leverage on our fixed cost structure. Reductions in product and people costs helped to offset the impact of lower margins. General and administrative costs are up slightly due to higher share-based costs, offset partially by lower profit sharing expenses. The increase in share-based expenses was due to an increase in the size of plan combined with a year-over-year increase in the volume weighted average share price used to calculate the share-based liabilities.

UNITED STATES OPERATIONS

($ thousands, except revenue per job, unaudited) Sept 30, % of Sept 30, % of Period-Over-Period
Nine months ended, 2013 Revenue 2012 Revenue Change
Revenue 595,303 624,194 (4.6 %)
Expenses*
Materials and operating 543,870 91.4 % 632,537 101.4 % (14.2 %)
General and administrative 19,270 3.2 % 15,255 2.4 % 26.3 %
Total expenses 563,140 94.6 % 647,792 103.8 % (13.1 %)
Operating income/(loss)** 32,163 5.4 % (23,598 ) (3.8 %) 236.3 %
Number of jobs 6,527 5,456 19.6 %
Revenue per job 91,633 114,712 (20.1 %)
* certain prior period expenses have been reclassified from materials and operating to general and administrative to conform to current period classification
** see first page of this report

U.S. revenue decreased by 5% for the nine months ended September 30, 2013, compared to the same period for 2012. Revenue per job decreased by 20% due to a 9% decrease in year-over-year pricing, a decrease in fracturing revenue relative to total revenue, and a change in revenue mix by region. In particular, we have performed less work in the Haynesville region during 2013, which generates larger revenue per job compared to other plays.

The job count increased by 20% due to an increase in cementing and coiled tubing activity combined with higher utilization in the Marcellus and Eagle Ford regions. These increases were partially offset by decreased activity in the Haynesville and Oklahoma regions.

As a percentage of revenue, materials and operating expenses decreased to 91.4% from 101.4%. Cost reductions for guar and product transportation and logistics contributed to the increase in operating margins. These cost reductions were partially offset by lower revenue, which led to reduced operating leverage on our cost structure.

General and administrative expenses increased by $4.0 million due to increased share-based employee costs, insurance costs and profit sharing expenses. The increase in share-based expenses was due to an increase in the size of the restricted share unit employee plan combined with a year-over-year increase in the volume weighted average share price used to calculate the share-based liabilities.

INTERNATIONAL OPERATIONS

($ thousands, except revenue per job, unaudited) Sept 30, % of Sept 30, % of Period-Over-Period
Nine months ended, 2013 Revenue 2012 Revenue Change
Revenue 237,279 208,104 14.0 %
Expenses
Materials and operating 210,630 88.8 % 181,027 87.0 % 16.4 %
General and administrative 12,661 5.3 % 10,270 4.9 % 23.3 %
Total expenses 223,291 94.1 % 191,297 91.9 % 16.7 %
Operating income* 13,988 5.9 % 16,807 8.1 % (16.8 %)
Number of jobs 3,108 3,056 1.7 %
Revenue per job 73,438 63,919 14.9 %
* see first page of this report

Year-to-date International revenue increased by 14% compared to the same period in 2012. The job count increased by 2% due to a slight increase in Russian activity combined with an increase in Australian activity. Revenue per job increased by 15% due to an increase in fracturing revenue relative to total revenue and an increase in fracturing job size in Russia.

As a percentage of revenue, materials and operating expenses increased to 88.8% from 87.0%. Increased leverage due to higher revenue was more than offset by operating losses in Algeria, increased product costs in Russia and start-up and integration costs related to the international completion tools business.

General and administrative costs increased by $2.4 million due largely to costs associated with the international completion tools business, which did not exist in 2012, growth in Australia, and an increase in share-based expenses.

CORPORATE

($ thousands, unaudited) Sept 30, % of Sept 30, % of Period-Over-Period
Nine months ended, 2013 Revenue 2012 Revenue Change
Expenses
Materials and operating 17,911 1.1 % 17,211 1.0 % 4.1 %
General and administrative 30,917 2.0 % 28,721 1.7 % 7.6 %
Total expenses 48,828 3.1 % 45,932 2.7 % 6.3 %
Operating loss* (48,828 ) (45,932 ) 6.3 %
* see first page of this report

Corporate expenses increased by $2.9 million for the nine months ended September 30, 2013, compared to the same period in 2012. The increase was due largely to a rise in share-based expenses.

OTHER EXPENSES AND INCOME

For the nine months ended September 30, 2013, finance costs increased by 17% due to higher average debt balances and an increase in average interest rates compared to 2012. Depreciation and amortization for the 2013 period-to-date has increased by 37% compared to same period for 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.

Due to slower than anticipated growth in the region, Trican identified impairment indicators for the goodwill balance related to the Australian operations. As a result of the analysis performed, Trican concluded that the recoverable value of the continuing Australian operations was less than its carrying amount, and a goodwill impairment charge of $6.4 million was recorded. Somewhat offsetting the goodwill impairment is a gain of $2.3 million recognized through the reversal of the performance-based contingency payment owed to the former owners of the Australian entity. The goodwill impairment write down was recognized during the second quarter of 2013 and is included in the nine month period ending September 30, 2013.

Other income, for the nine months ended September 30, 2013, was $2.0 million compared to $1.3 million in the same period of 2012. Other income for the current period includes a one-time loss of $2.9 million relating to a vendor insolvency issue. This loss was more than offset by interest income earned on cash balances and gains on asset sales.

Foreign exchange losses of $1.1 million have been recorded for the nine months ended September 30, 2013, compared to losses of $3.9 million for the same period in 2012. This change is due to the net impact of fluctuations in the U.S. dollar and the Russian ruble relative to the Canadian dollar.

INCOME TAXES

Trican recorded a total income tax recovery of $11.9 million for the nine months ended September 30, 2013, versus a total income tax expense of $7.8 million for the comparable period of 2012. The increase in tax recovery is primarily attributable to lower earnings.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Funds provided by operations was $68 million during the third quarter of 2013 compared to $44 million for the third quarter of 2012. The increase was due largely to less interest and taxes paid during the quarter, which was offset partially by lower earnings.

Investing Activities

Capital expenditures for the third quarter of 2013 were $26 million compared to $82 million for the third quarter of 2012. Capital expenditures for the nine months ended September 30, 2013, were $87 million compared to $386 million for the same period in 2012. A substantial decrease in our 2013 capital program compared to 2012 led to a significant decline in capital expenditures.

There were no significant changes made to our 2013 capital budget during the third quarter of 2013. Capital expenditures for the fourth quarter of 2013 are expected to be approximately $25 million to $35 million and approximately $75 million to $85 million of remaining capital expenditures are expected to be carried forward into 2014.

Financing Activities

As at November 5, 2013, Trican had 148,914,753 shares and 9,397,122 employee stock options outstanding.

During the nine months ended September 30, 2013, Trican repaid $71 million on its $500 million revolving credit facility. The balance of the facility at September 30, 2013 was $208 million leaving $292 million of available debt under the facility. Trican also had $444 million of outstanding notes payable at September 30, 2013. On October 17, 2013 Trican extended its revolving credit facility by an additional year to 2017.

During the first quarter of 2013, Trican received approval from the Toronto Stock Exchange to renew the normal course issuer bid to purchase its own common shares, for cancellation, for the one-year period of March 8, 2013, to March 7, 2014. During the nine months ended September 30, 2013, no common shares were purchased under the normal course issuer bid.

Trican currently pays a semi-annual dividend of $0.15 per share. During the first quarter of 2013, $22.0 million in dividend payments were made and during the third quarter of 2013, $22.3 million in dividends were made.

OUTLOOK

Canadian Operations

Based on discussions with our Canadian customers, we believe Canadian demand for pressure pumping services in the fourth quarter will increase over 2012 levels but decrease sequentially due to the normal December slowdown experienced in our industry. Activity levels are expected to be supported by growth in the Duvernay as well continued strong demand in the Montney, Cardium and Deep Basin plays.

Although the Canadian market remains very competitive, we expect fourth quarter Canadian pricing to remain stable compared to the third quarter of 2013. Furthermore, we do not expect Canadian pricing to increase until activity levels and equipment utilization remain strong over a sustained period of time. At the present time, the Canadian market remains slightly oversupplied to balanced with fracturing equipment. We will continue to monitor the Canadian competitive environment and will look to increase pricing should the opportunity arise.

Our customers are currently finalizing their budgets for 2014; however, early indications are that there will be a similar number of wells drilled in 2014 compared to 2013. We believe there will continue to be an increase in fracturing stages per well and an increase in fracturing horsepower intensity per well. As a result, we expect 2014 fracturing demand to increase compared to 2013. In addition, we believe there will be more investment in the Duvernay play and that Trican is well positioned to capitalize on growth in this area. We anticipate that there will also be some level of LNG gas related drilling next year but the majority of LNG related drilling will occur past 2014.


U.S. Operations

Due to weak demand in the region, we have deactivated the Haynesville crew and expect it to remain inactive until Haynesville activity levels improve or another opportunity becomes available. With this change, we are now operating fourteen U.S. fracturing crews. Our Haynesville base in Longview, Texas will remain open as we continue to offer cementing services from this location as well as support fracturing operations in the Eagle Ford and East Texas.

We expect the U.S market to remain over-supplied in the fourth quarter of 2013 and into 2014. Pricing appears to have stabilized in most of our U.S. operating areas and we expect it to remain stable in the fourth quarter. However, given the current competitive landscape in the U.S., we will continue to face the risk of downward pricing pressure and do not expect U.S. pricing to improve over the next several quarters.

We expect there will be a seasonal slow-down in U.S. activity in the fourth quarter during the Thanksgiving and Christmas holiday periods and also as U.S. producers complete 2013 capital programs. Furthermore, some of our key U.S. customers have indicated that their activity levels will be reduced in the fourth quarter, in particular for our customers in the Marcellus region. As a result, we expect fourth quarter revenue and operating income to be lower on a sequential basis for our U.S. operations; however, we have recently secured a significant amount of fracturing work in the Marcellus beginning in the first quarter of 2014 and initial indications from our customers suggest that first quarter 2014 activity levels will recover in many of our U.S. operating regions.

In order to improve our U.S. financial results, we must continue to focus on controlling and reducing costs, and more importantly, increasing equipment utilization. In certain regions, we believe that our technology will allow us to improve the utilization of our fracturing crews, and in other areas, broadening and strengthening our customer base will improve utilization. We have been pleased with the growth of our cementing service line and will continue to focus on diversifying our service offerings in the United States in the upcoming quarter and into 2014.

Our completion tool business in the United States has grown rapidly this past quarter and we are very pleased with customer acceptance of this technology. We will focus on improving logistics and reducing our manufacturing costs to increase margins in this service line going into 2014.

International Operations

We expect fourth quarter activity levels in Russia and Kazakhstan to be down sequentially due to cold weather near the end of the fourth quarter. Given this expectation, we anticipate that 2013 annual Russian revenue will be 10-15% higher compared to 2012 with operating margins that are consistent with 2012. This guidance is down from previous disclosure due to lower than expected 2013 activity levels from certain large Russian customers. Despite 2013 results that have been below expectations, the Russian market continues to trend towards more horizontal drilling and multi-stage fracturing, which bodes well for growth prospects as we move into the tendering season for 2014.

We are currently operating two coiled tubing crews in Algeria and have shut-down our primary cementing operations in the country. We expect continued weakness in the Algerian market during the fourth quarter of 2013. We will continue to focus on improving the utilization of our coiled tubing crews in order to increase profitability in 2014. Steady growth is expected for our Australian cementing business in the fourth quarter of 2013 and we are encouraged by Australia growth prospects heading into 2014.

Customer acceptance of our completion tools is growing internationally and we expect to see good revenue growth for our international tools business in 2014.

NON-IFRS DISCLOSURE

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

Adjusted net income/(loss) and funds provided by operations have been reconciled to profit 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.

(thousands; unaudited) Three months ended Nine months ended
Sept 30, 2013 Sept 30, 2012 June 30, 2013 Sept 30, 2013 Sept 30, 2012
Adjusted net income/(loss) $9,693 $24,716 ($50,407 ) ($13,334 ) $68,403
Deduct:
Goodwill impairment - - 4,123 4,123 -
Non-cash share-based compensation expense 1,840 2,068 1,859 5,887 7,234
Loss on deposit with vendor (net of $725 in tax recoveries) 2,145 - - 2,145
Profit/(loss) for the period (IFRS financial measure) $5,708 $22,648 ($56,389 ) ($25,489 ) $61,169
(thousands; unaudited) Three months ended Nine months ended
Sept 30, 2013 Sept 30, 2012 June 30, 2013 Sept 30, 2013 Sept 30, 2012
Funds provided by/(used in) operations* $71,087 $43,979 ($29,073 ) $99,970 $141,887
Charges to income not involving cash
Depreciation and amortization (54,646 ) (37,270 ) (50,613 ) (152,318 ) (111,273 )
Amortization of debt issuance costs (216 ) (202 ) (216 ) (648 ) (605 )
Stock-based compensation (1,840 ) (2,068 ) (1,859 ) (5,887 ) (7,234 )
Gain/(loss) on disposal of property and equipment (585 ) (1,736 ) (183 ) (308 ) (2,071 )
Net finance costs (9,111 ) (7,223 ) (7,984 ) (24,627 ) (20,461 )
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