GASFRAC Announces Second Quarter 2012 Results
CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) - GASFRAC Energy Services Inc. (GFS.TO)
Zeke Zeringue, CEO and President commented "Revenue increased 18% to $16.7mm versus $14.2mm in 2011 and while this is significantly below our expectations for the quarter, we feel there were some positive inroads made that will help GASFRAC grow moving forward in Q3 and Q4. Similar to Q2 2011 we had an extended breakup in Canada that was compounded by wet and rainy conditions preventing us from fulfilling our revenue targets for the latter part of the quarter. We weren't able to recommence operations in parts of our Canadian operations until late July. In the US, our major customer, BlackBrush, spent most of Q2 upgrading their field infrastructure and pipeline capacity in order to handle increased production that was created by implementing GASFRAC technology on their San Pedro ranch acreage. Other substantial revenue projects were pushed back to Q3 due to various factors that were out of GASFRAC's control.
We are happy to announce that one of those substantial projects was completed in July in the Niobrara Wattenberg field and by all signs so far we are seeing very positive results. Also on a positive note, several of our Canadian customers are seeing far superior results using GASFRAC and have committed additional stimulation programs in 2012. Of the 20 different customers we have completed stimulation treatments for in 2012, 13 have committed additional jobs in 2012 giving us a 65% customer retention rate in North America.
Management's goal is to increase utilization on our fleet of fracturing sets through the adoption of GASFRAC's technology. We recognize that, with ongoing uncertainty around oil and natural gas prices, operators are assessing capital budgets and operating procedures. In this context, we have undertaken several initiatives to achieve this goal including hiring additional technical sales and engineering staff for the US, introducing new marketing materials that facilitate enhanced exposure, redefining many operational roles and duties and hiring seasoned hydraulic fracturing veterans to lead and train our crews in order to increase efficiency and quality of jobs performed. We have made a significant commitment to our supply chain and logistics division in order to combat increased pricing pressure we are starting to see in the US. Lastly we are still working diligently on building and growing internal data for all jobs performed in order to significantly shorten the sales cycles with potential customers, particularly in the US.
In addition, we plan to deploy our first "Hybrid" spread of equipment with new "Hybrid NGL's" during the fourth quarter. This will help our customers manage their third party costs while increasing our utilization."
MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 2012
Management's discussion and analysis ("MD&A") of the financial condition and the results of operations should be read in conjunction with the unaudited interim condensed consolidated financial statements for the six months ended June 30, 2012 and the audited consolidated financial statements for the year ended December 31, 2011 of GASFRAC Energy Services Inc. ("the Company" or the "Company"), together with the accompanying notes. The interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") including International Accounting Standard ("IAS") 34, "Interim Financial Reporting" as issued by the International Accounting Standards Board ("IASB").
Readers should also refer to the "Forward-Looking Statements" legal advisory at the end of this MD&A. This MD&A has been prepared using information that is current to August 8, 2012.
All references to dollar amounts are in Canadian dollars. Figures are in '000s except share and per share data or as otherwise noted.
Unless the context otherwise requires, all references in this MD&A to "we", "us" or "our" mean the Company.
BUSINESS OF GASFRAC
GASFRAC Energy Services Inc. was incorporated on February 13, 2006 in Canada under the Business Corporations Act in the Province of Alberta. The Company is an oil and gas well fracturing company that has developed new technology, the "LPG Fracturing Process", to enable wells to be fractured safely with LPG, more specifically propane and butane. The Company has six wholly-owned subsidiaries, the GASFRAC Energy Services GP Inc., GASFRAC Energy Services Limited Partnership, GASFRAC Luxembourg Finance (a Luxembourg incorporated entity), GASFRAC Energy Services (US) Inc. (a U.S. incorporated entity), GASFRAC US Holdings Inc., and GASFRAC Inc. (a U.S. incorporated entity).
COMPARITIVE QUARTERLY FINANCIAL INFORMATION
For the three months ended June 30 2012 June 30 2011 June 30 2010
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CAD$ CAD$ CAD$
Revenue 16,734 14,170 13,323
Operating expenses 21,704 15,380 10,433
Selling, general and administrative
expenses 5,164 3,701 2,099
EBITDA(1) (10,430) (5,566) 439
(Loss) Profit for the period (16,949) (7,768) (1,282)
(Loss) Earnings per share - basic (0.27) (0.13) (0.04)
(Loss) Earnings per share - diluted (0.27) (0.13) (0.04)
Weighted average number of shares -
basic 62,536 61,297 33,163
Total assets 307,669 283,948 278,705
Total non-current liabilities 41,815 1,075 548
Treatments 65 70 63
Revenue per treatment 257 202 211
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(1) Defined under Non-IFRS Measures
FINANCIAL OVERVIEW - FOR THE THREE MONTHS ENDED
June 30, 2012
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Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 12,018 4,716 16,734
Cost of sales 6,815 56.7% 3,545 75.2% 10,360 61.9%
Direct Operating costs 7,248 60.3% 4,096 86.9% 11,344 67.8%
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Operating expenses 14,063 117.0% 7,641 162.0% - 21,704 129.7%
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Selling, general and
administration 2,629 21.9% 1,054 22.3% 1,480 5,164 30.9%
Number of revenue days 28 12 40
Revenue per day 429 393 418
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June 30, 2011
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Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 12,322 1,848 14,170
Cost of sales 7,529 61.1% 584 31.6% 8,113 57.3%
Direct Operating
costs 5,466 44.4% 1,801 97.5% 7,267 51.3%
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Operating expenses 12,995 105.5% 2,385 129.1% - 15,380 108.5%
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Selling, general and
administration 2,288 18.6% 402 21.8% 1,011 3,701 26.1%
Number of revenue
days 24 8 32
Revenue per day 513 231 443
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FINANCIAL OVERVIEW - FOR THE SIX MONTHS ENDED
June 30, 2012
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Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 47,390 14,313 - 61,703
Cost of sales 24,025 50.7% 9,006 62.9% - 33,031 53.5%
Direct Operating costs 16,424 34.7% 7,492 52.3% - 23,916 38.8%
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Operating expenses 40,449 85.4% 16,498 115.3% - 56,947 92.3%
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Selling, general and
administration 6,162 13.0% 2,072 14.5% 2,927 11,161 18.1%
Number of revenue days 91 33 124
Revenue per day 521 434 498
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June 30, 2011
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Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 42,774 1,848 - 44,622
Cost of sales 25,476 59.6% 592 32.0% - 26,068 58.4%
Direct Operating costs 12,318 28.8% 2,561 138.6% - 14,879 33.3%
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Operating expenses 37,794 88.4% 3,153 170.6% - 40,947 91.8%
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Selling, general and
administration 4,782 11.2% 666 36.0% 1,923 7,371 16.5%
Number of revenue days 90 8 98
Revenue per day 475 231 455
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REVENUE
Revenue for the quarter increased 18% to $16.7 million from $14.2 million in 2011. Revenue per operating day declined to $418 from $443 in spite of an increased average treatment size of $257 from $202. While revenues improved year over year, results were below our expectations largely due to delays in recommencement of work under the Husky and Blackbrush contracts into July as discussed below. During the quarter, the Company earned revenues from 12 customers with the top three customers accounting for approximately 63% of the Company's revenue (2011 - 65%).
Canadian operations:
Revenue from the Canadian operations for the quarter was $12.0 million generated from 28 operating days at an average of $429 per operating day as compared to 24 operating days at an average of $513 per day in the second quarter of 2011. Wet conditions throughout the quarter prevented operations in many areas. The most significant impact for our Canadian operations was the delay of recommencement of operations for Husky, due to these wet conditions, from an original early June start date into mid July. Revenue was earned from 4 customers during the quarter with one of these customers representing 32% of the total revenue earned from Canadian operations.
U.S. operations:
Revenue from the U.S. operations for the quarter were $4.7 million generated from 12 operating days at an average revenue per operating day of $393 as compared to $1.8 million in the second quarter of 2011 from 8 operating days at an average revenue per operating day of $231 . In the US operations under the Blackbrush contract were delayed from a planned early June to July as the customer completed necessary infrastructure. Further, a significant project in the Eagleford was pushed back as the customer reassessed its capital budget upon the decline of commodity prices.
OPERATING EXPENSE
Operating expense for the quarter increased to $21.7 million (130% of revenue) compared to $15.4 million (108% of revenue) in 2011. Cost of sales was $10.4 million (61.9% of revenue) as compared to $8.1 million (57.3%) of revenue in the second quarter of 2011. The increase in the cost of sales as a percentage of revenue reflects one time product costs incurred in the USA for propane. Direct operating costs increased to $11.3 million in the second quarter of 2012 as compared to $7.3 million in the second quarter of 2011. This increase is comprised of staffing costs of $2.4 million for additional crews, added facility and related costs of $0.8 million for infrastructure for the Husky and Eagle Ford work, and $0.8 million of equipment costs. As at June 30, 2012 the Company had sufficient staffing to man seven sets of equipment as compared to staffing levels for four sets of equipment at June 30, 2011. With approximately 75% of the Company's annual direct operating costs being fixed total operating costs as a percentage of revenue vary significantly with revenue levels.
Canadian operations:
Operating expenses from the Canadian operations for the quarter were $14.1 million (118% of revenue), compared to the $13.0 million (105% of revenue) incurred in 2011. Cost of sales was $6.8 million (56.7% of revenue) as compared to $7.5 million (61.1%) of revenue in the second quarter of 2011. Direct operating costs increased to $7.2 million in the second quarter of 2012 as compared to $5.5 million in the second quarter of 2011. This increase is comprised of staffing costs of $1.2 million for additional crews, added facility and related costs of $0.3 million for infrastructure for the Husky work at Ansell, and $0.2 million of equipment costs. As at June 30, 2012 Canadian operations had sufficient staffing to man four sets of equipment as compared to staffing levels for three sets of equipment at June 30, 2011.
U.S. operations:
Operating expenses from the U.S. operations was $7.6 million (162% of revenue), compared to the $2.4 million (133% of revenue) incurred in 2011. Cost of sales was $3.5 million (75.2% of revenue) as compared to $0.6 million (31.6%) of revenue in the second quarter of 2011. Direct operating costs increased to $4.1 million in the second quarter of 2012 as compared to $1.8 million in the second quarter of 2011. This increase is comprised of staffing costs of $1.2 million for additional crews, and $0.5 million related to added facility and related costs, and $0.6 million of equipment costs. As at June 30, 2012 USA operations had sufficient staffing to man three sets of equipment as compared to staffing levels for one set of equipment at June 30, 2011.
SALES, GENERAL & ADMINISTRATIVE ("SG&A") EXPENSE
SG&A expense were $5.2 million in Q2 of 2012 compared to $6.0 million in Q1 of 2012 and $3.7 million in Q2 2011. The increase over 2011 is primarily due to the hiring of administrative and operations staff to support the growth in both our Canadian and U.S. operations.
DEPRECIATION & AMORTIZATION
Depreciation and amortization increased to $6.4 million during Q2 of 2012 from $3.5 million in Q2 of 2011. The increase is due to an increase in operating property and equipment put in place to increase the Company's revenue generation capacity.
EBITDA
EBITDA for the quarter was a loss of $10.4 million during 2012 compared to a loss of $5.6 million in 2011. The increase in the loss reflects added fixed operating costs of approximately $4.0 million and increased SG&A of $1.4 million offset by the net contribution from increased revenues.
LOSS FOR THE QUARTER
Net loss was $16.9 million loss for Q2 of 2012 as compared to a $7.8 million loss during 2011. The Company's effective tax rate was 6.77% (2011 - 13.79%) compared to the statutory rate of 25% (2011 - 26.55%). The difference in effective tax rate as compared to the statutory tax rate results largely from certain tax losses not being recognized, at this time, for accounting purposes.
OTHER COMPREHENSIVE INCOME
Other comprehensive income of $2.0 million represents exchange differences arising from translation of the financial statements of the Company's foreign subsidiaries which have U.S. dollars as their functional currency. During the second quarter of 2012 the Canadian dollar remained steady against the US dollar, however it depreciated 5.7% from 2011, and the net effect was an increase to our net asset position in these subsidiaries in Canadian dollar terms.
SUMMARY OF QUARTERLY RESULTS
Sep. 30 Dec. 31 Mar. 31 Jun 30
2010 2010 2011 2011
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CAD$ CAD$ CAD$ CAD$
Revenue 26,590 41,087 30,452 14,170
(Loss) Profit for the period 2,318 1,995 (2,515) (7,768)
(Loss) Earnings per share - basic 0.06 0.04 (0.04) (0.13)
(Loss) Earnings per share - diluted 0.04 0.03 (0.04) (0.13)
EBITDA (1) 4,874 5,814 66 (5,566)
Capital expenditures 35,871 34,165 38,941 22,995
Working capital (2) 41,781 118,346 79,069 49,946
Shareholders' equity 151,606 259,445 258,217 251,374
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Sep. 30 Dec. 31 Mar. 31 Jun. 30
2011 2011 2012 2012
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CAD$ CAD$ CAD$ CAD$
Revenue 57,437 59,304 44,969 16,734
(Loss) Profit for the period 5,911 1,519 (4,926) (16,949)
(Loss) Earnings per share - basic 0.10 0.03 (0.08) (0.27)
(Loss) Earnings per share - diluted 0.09 0.03 (0.08) (0.27)
EBITDA (1) 10,960 7,914 2,259 (10,430)
Capital expenditures 32,920 30,877 22,162 23,315
Working capital (2) 33,998 28,491 27,894 8,994
Shareholders' equity 262,436 264,713 263,695 247,519
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(1) Defined under Non-IFRS Measures
(2) Working capital is defined as current assets less current liabilities
LIQUIDITY AND CAPITAL RESOURCES
June 30 2012 June 30 2011
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CAD$ CAD$
Cash provided by (used in)
Operating 254 6,329
Financing activities 7,086 651
Investing activities (22,315) (43,236)
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(14,975) (36,256)
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As at June 30, 2012 the Company had $9.0 million of working capital compared to $49.9 million at June 30, 2011. The decrease in working capital is primarily due to the investing in capital assets of $108.3 million during the twelve months since June 30, 2011.
As at June 30, 2012, the Company had approximately $8.3 million of capital commitments as part of the 2011 capital program. The Company anticipates being able to fund these capital expenditures through cash on hand, operating cash flows and debt facilities.
OPERATING
Net cash generated from operating activities was $0.3 million as compared to $6.3 million in 2011. During 2012 trade and other receivables of $16.6 million were collected, contributing substantially to the cash generated from operating activities.
FINANCING
Net cash provided by financing activities for the quarter was $7.1 million compared to $0.7 million provided in 2011. The funds resulted from the utilization of the credit facility of $7.3 million. During 2011 the cash from financing activities was from the exercise of stock options and warrants.
The Company has a bank syndication for a $10 million operating facility and a $90 million revolving facility. As at June 30, 2012, based on the financial covenants of the credit facility, the Company may draw up to $41.1 million of the credit facility. The Company is in compliance with all its debt covenants.
INVESTING
The Company invested $22.3 million in property and equipment and intangible assets for the quarter to add revenue producing capacity as compared to $43.2 million in 2011. The expenditures during 2012 represents expenditure on the 2011 capital build of four additional sets and added fluid management capacity.
The timing of cash outflows relating to financial liabilities are outlined in the following table:
Carrying Less Greater
value at than 1 1 to 3 4 to 5 than 5
June 30 2012 year years years years
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CAD$ CAD$ CAD$ CAD$ CAD$
Trade payables and accrued
liabilities (excluding
performance share units and
accrued interest on debentures) 12,527 12,527 - - -
Performance share units 1,000 690 304 6 -
Provisions 985 985 - - -
Credit facility 7,267 1,817 5,450 - -
Convertible debentures 35,573 1,093 - 34,480 -
Finance lease obligation 2,785 913 1,872 - -
Operating lease payments 11,955 1,099 3,437 2,894 4,525
Commitment to purchase raw
materials 68,935 68,935 - - -
Commitment to purchase plant and
equipment 8,268 8,268 - - -
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Total 149,295 96,327 11,063 37,380 4,525
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ACCOUNTING POLICIES AND ESTIMATES
This MD&A is based on the Company's annual consolidated financial statements that have been prepared in accordance with IFRS. Management is required to make assumptions, judgments and estimates in the application of IFRS. The Company's significant accounting policies are described in note 2 of the December 31, 2011 audited consolidated financial statements. The preparation of the consolidated financial statements requires that certain estimates and judgments be made concerning the reported amount of revenue and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and management's judgment. Anticipating future events involves uncertainty and, consequently, the estimates used by management in the preparation of the consolidated financial statements may change as future events unfold, additional experience is acquired or the environment in which the Company operates changes.
Apart from the key source of estimation uncertainty disclosed below, all key assumptions concerning the future, and other key sources of estimation uncertainty made at the end of the last full reporting period were applied consistently for the six months ended June 30, 2012.
Valuation of debenture holders' conversion option
In order to value the debenture holders' conversion option, management had to determine what interest rate a similar debt instrument will carry if it had no conversion privilege. Management reviewed similar issues within the Canadian debt market of unrated entities and concluded that such a similar debt instrument without conversion privilege will carry a 10% coupon interest rate.
Also, the Company's option to redeem the debentures before maturity is considered closely related to the host debt instrument and thus not separately valued.
RELATED PARTY TRANSACTIONS
During the period the Company also paid $nil (2011 - $7) in consulting fees to two directors. These transactions were in the normal course of operations and have been measured at exchange amounts.
OUTSTANDING SHARE DATA
Share
Common Shares Warrants Options
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# # #
Balance as at January 1, 2011 60,226,366 1,757,500 2,746,208
Issues / Granted - - 800,000
Issued / Exercised 2,172,708 (932,500) (1,073,875)
Forfeited - - (42,333)
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Balance as at December 31, 2011 62,399,074 825,000 2,430,000
Issues / Granted - - 125,000
Issued / Exercised 156,004 - (130,000)
Forfeited - - (50,000)
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Balance as at June 30, 2012 62,555,078 825,000 2,375,000
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DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in National Instrument 52-109. Based on the evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were designed to provide a reasonable level of assurance over the disclosure of material information, and are effective as of June 30, 2012.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have assessed and evaluated the design and effectiveness of the Company's internal controls over financial reporting as defined in National Instrument 52-109 as at June, 2012. In making this assessment the Company used the criteria established by the Committee of Sponsoring Organizations ("COSO") in the "Internal Control-Integrated Framework". These criteria are in the areas of control environment, risk assessment, control activities, information and communication and monitoring. The Company's assessment included documentation, evaluation and testing of its internal controls over financial reporting. Based on the evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's internal controls over financial reporting are effective to provide reasonable assurance regarding the reliability of the Company's financial reporting and its preparation of financial statements are effective as of June 30, 2012.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements.
There have been no changes in the Company's internal controls over financial reporting during the quarter ended June 30, 2012, which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
OFF-BALANCE SHEET ARRANGEMENTS
The Company is not part to any off balance sheet arrangements or transactions.
NON-IFRS MEASURES
Certain supplementary measures in this MD&A do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures have been described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and ability to generate funds to finance its operations. These measures may not be comparable to similar measures presented by other entities, and are further explained as follows:
EBITDA is defined as net income before interest income and expense, taxes, depreciation, amortization and non-controlling interest. EBITDA is presented because it is frequently used by securities analysts and others for evaluating companies and their ability to service debt.
EBITDA was calculated as follows:
June 30 2012 June 30 2011
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Net loss (16,949) (7,768)
(Deduct) Add back:
Interest expense (income) - net 1,235 (144)
Depreciation and amortization 6,515 3,589
Income tax (benefit) expense (1,231) (1,243)
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EBITDA (10,430) (5,566)
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OUTLOOK
The North American pressure pumping market has experienced a continued transition from natural gas based activity to activity driven by oil and liquids-rich basins. This change has resulted in decreased margins for natural gas related pressure pumping, particularly in the U.S. During the quarter, the US pressure pumping market continued to experience pricing pressures with real and anticipated excess capacity of pumping equipment and downward pressure on oil prices. While possible over supply of equipment remains a concern, recent adjustments to the capital spending budgets of oilfield service companies indicates that such potential oversupply may be mitigated over a shorter period than normal.
GASFRAC's focus remains that of accelerating the adoption of our technology and increasing the utilization of our equipment sets. We believe that the production benefits offered by GASFRAC provide an advantage in this environment and that the major challenge for the Company is more so increasing our market share through succinct demonstration of this benefit than it is the overall market conditions. The key barriers we have encountered impacting the pace of adoption are; demonstration of the cost/benefit, safety considerations, awareness and "inertia". We are addressing each of these areas and expect to see continued progress in the second half of 2012. The key on the cost/benefit side is the collection of production data basin by basin to provide more case studies to potential customers showing the positive impact on production and net present values. In addition, we have undertaken a number of initiatives which will reduce the cost of our service to our customers. These initiatives include equipment configuration and fracturing program design. While safety will always remain a key focus for the Company, the equipment and procedures put in place during 2011 have largely removed this as a barrier for most customers - although education and safety audits will remain part of the sales cycle. Awareness of GASFRAC has increased significantly over the past quarters in the basins we are targeting. Marketing at technical and industry forums as well as one-on-one meetings with key executives at potential customers represent the key actions being taken by GASFRAC to continue to increase awareness of the Company and our technology. By "initeria" we refer to the tendency for operating companies to continue with their current processes in field developments where they have their "manufacturing process" for drilling and completion designed and operating and they are achieving their desired returns. This tendency towards inertia drives GASFRAC to focus more on new field developments or identify opportunities which cause the return in current manufacturing processes to be interrupted - for instance reduction in commodity prices or increases in regulation or costs associated with water fracturing.
In our Canadian operations we have seen an increase in customer activity in the third quarter from customers that have previously worked with us. We expect growth in Canadian revenues in the third and fourth quarters of 2012 as weather conditions improve and projects recommence. We will continue to monitor the capital budgets and cash flows of the exploration & production companies in light of recent weaknesses in oil prices. We expect that many companies will construct capital budgets for 2013 within their cash flows rather than adding significantly to their debt positions. As such, both their outlook on commodity prices and realized prices will impact the extent of their capital expenditures in 2013. We expect that any reduction in capital spending by customers will result in pricing pressure as well as reduced activity levels. We also expect that adoption by new customers will be achieved during 2013 as more data becomes available and less robust commodity prices encourage use of more effective technologies.
In the U.S. we expect sequential growth in the third and fourth quarters of 2012 as work recommences with Blackbrush in the Eagle Ford and activity commences in the Niobrara. Our focus is on the Eagle Ford, Permian and Niobrara where we have demonstrated positive results with our technology. We recognize that the sales process for our service is technically intensive and have expanded our sales team in the USA adding two sales engineers and a senior fracturing engineer to address this technical focus.
The visibility of capital expenditures by Exploration and Production companies into Q4 and 2013 is difficult given the current volatile commodity price conditions and the lack of finalization of capital budget plans by most companies at this time. The extent to which these budgets will impact the willingness of companies to trial and adopt new technologies such as ours is another factor that will impact our growth into 2013. In the near term, we expect that our business development efforts and the pace of adoption will result in revenues for the second half of the year representing two thirds to three quarters of annual revenues.
FORWARD-LOOKING STATEMENT
This document contains certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These statements are only as of the date of this document and we do not undertake to publicly update these forward looking statements except in accordance with applicable securities laws. These forward looking statements include, among other things:
-- expectations that the Company's innovative technology will provide the
Company with opportunities to expand the Company's market share in
Canada and the U.S.;
-- estimates of additional investment required to complete ongoing capital
projects;
-- expectations of securing financing for additional capital expenditures
for 2012 and beyond;
-- expectations as to the level of funding available under the Company's
credit facility;
-- expectations of the duration of spring break up in Canada in 2012;
-- expectations as to activity levels in North America and that oil and
liquids rich gas drilling will offset declines in dry gas drilling;
-- expectations as to volume of work pursuant to long-term contract with
Husky;
-- expectations as to capital development programs of major customers;
-- expectations as to the rate of adoption of the Company's technology by
E&P companies;
-- expectations as to the number of manned fracturing spreads in Canada and
the USA;
-- expectations as to the ability to recruit and train sufficient personnel
to meet staffing requirements;
-- assumption that environmental protection requirements will not have a
significant impact on the Company's operations or capital budget;
-- expectations as to the Company's future market position in the industry;
-- expectations as to the supply of raw materials;
-- expectations as to the pricing of the Company's services;
-- expectations as to the timing of additional property and equipment in
Canada and the USA;
-- expectations as to obtaining long term contracts with customers;
-- expectations of fracturing industry pricing and the pricing of the
Company services in North America in 2012 and 2013;
-- expectations of oil and natural gas commodity prices in 2012;
-- expectations of the amount of net fracturing horsepower being added to
the North American market in 2012 and its impact on the Company's
service prices;
These statements are only predictions and are based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things, industry activity; effect of market conditions on the demand for the Company's services; the ability to obtain qualified staff, equipment and services in a timely manner; the effect of current plans; the timing of capital expenditures and receipt of added equipment operating capacity; future oil and natural gas prices and the ability of the Company to successfully market its services.
By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. These risks and uncertainties include: changes in drilling activity; fluctuating oil and natural gas prices; general economic conditions; weather conditions; regulatory changes; the successful development and execution of technology; customer acceptance of new technology; the potential of competing technologies by market competitors; the availability of qualified staff, raw materials and property and equipment.
Condensed Consolidated Statement of Financial Position
Unaudited
As at: June 30, 2012 Dec 31, 2011
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CAD$ '000 CAD$ '000
ASSETS
CURRENT ASSETS
Cash and cash equivalents 3,014 5,026
Trade and other receivables 13,092 49,206
Inventory 9,404 8,891
Prepaid expenses 1,819 1,178
Assets held for sale 1,352 -
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TOTAL CURRENT ASSETS 28,681 64,301
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NON-CURRENT ASSETS
Plant and equipment 270,666 249,577
Intangible assets 559 500
Other assets 7,763 8,130
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TOTAL NON-CURRENT ASSETS 278,988 258,207
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TOTAL ASSETS 307,669 322,508
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables and accrued liabilities 14,620 30,843
Provisions 985 966
Current portion of finance lease obligation 913 832
Current portion of credit facility 1,817 1,849
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TOTAL CURRENT LIABILITIES 18,335 34,490
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NON-CURRENT LIABILITIES
Finance lease obligation 1,872 2,264
Operating lease obligations 13 -
Credit facility 5,450 20,338
Convertible debentures 34,480 -
Deferred tax liability - 703
----------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES 41,815 23,305
----------------------------------------------------------------------------
TOTAL LIABILITIES 60,150 57,795
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CAPITAL & RESERVES
Share capital 257,805 257,235
Contributed surplus 6,548 3,185
Foreign currency translation reserve 3,544 2,796
Retained earnings (deficit) (20,378) 1,497
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TOTAL EQUITY 247,519 264,713
----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 307,669 322,508
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Condensed Consolidated Statements of Comprehensive Loss
Unaudited
For the three For the six
months ended months ended
--------------------------------------------
June 30, June 30, June 30, June 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
CAD$ '000 CAD$ '000 CAD$ '000 CAD$ '000
REVENUE 16,734 14,170 61,703 44,622
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EXPENDITURES
Direct operating costs 21,704 15,380 56,947 40,947
Selling, general and
administrative 5,164 3,701 11,161 7,371
Share based compensation 199 575 1,695 1,622
Depreciation, amortization and
impairments 6,515 3,589 13,762 6,474
Finance cost 1,252 - 1,994 -
Foreign exchange (gain) loss 97 80 71 182
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34,931 23,325 85,630 56,596
----------------------------------------------------------------------------
OTHER INCOME
Interest income 17 144 23 399
----------------------------------------------------------------------------
17 144 23 399
----------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (18,180) (9,011) (23,904) (11,575)
Income tax benefit 1,231 1,243 2,029 1,292
----------------------------------------------------------------------------
LOSS FOR THE PERIOD (16,949) (7,768) (21,875) (10,283)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME
(LOSS)
Exchange differences on
translating foreign
operations 1,999 (147) 748 (147)
----------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME
(LOSS) 1,999 (147) 748 (147)
----------------------------------------------------------------------------
TOTAL COMPREHENSIVE LOSS FOR THE
PERIOD (14,950) (7,915) (21,127) (10,430)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LOSS PER SHARE
Basic (per share) (0.27) (0.13) (0.35) (0.17)
----------------------------------------------------------------------------
Diluted (per share) (0.27) (0.13) (0.35) (0.17)
----------------------------------------------------------------------------
Condensed Consolidated Statements of Cash Flows
Unaudited
For the three For the six
months ended months ended
--------------------------------------------
June 30, June 30, June 30, June 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
CAD$ '000 CAD$ '000 CAD$ '000 CAD$ '000
CASH FLOW FROM OPERATING
ACTIVITIES
Loss for the period (16,949) (7,768) (21,875) (10,283)
Adjusted for:
Depreciation and
amortization 6,495 3,589 12,251 6,474
Equity settled share based
compensation 532 367 1,057 703
Impairments 20 - 1,511 -
Bad debt expense 151 - 461 -
Finance cost per income
statement 1,252 13 1,994 34
Unrealized foreign exchange
loss 9 - 5 -
Taxation per income
statement (1,231) (1,243) (2,029) (1,292)
----------------------------------------------------------------------------
(9,721) (5,042) (6,625) (4,364)
Net change in non-cash
operating working capital 10,148 11,384 29,065 19,863
----------------------------------------------------------------------------
Cash generated from operations 427 6,342 22,440 15,499
Interest paid (173) (13) (411) (34)
----------------------------------------------------------------------------
NET CASH GENERATED BY OPERATING
ACTIVITIES 254 6,329 22,029 15,465
----------------------------------------------------------------------------
CASH FLOW FROM INVESTING
ACTIVITIES
Purchases of plant and
equipment (15,391) (22,355) (37,379) (61,091)
Acquisition of intangible
assets (13) (42) (187) (93)
Proceeds from sale of plant
and equipment and assets held
for sale 1,765 - 2,119 147
Net change in non-cash
investing working capital (8,676) (20,839) (11,739) (3,854)
----------------------------------------------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES (22,315) (43,236) (47,186) (64,891)
----------------------------------------------------------------------------
CASH FLOW FROM FINANCING
ACTIVITIES
Proceeds from of common shares
issued (net of share issue
cost) 30 651 487 1,915
Finance leases (211) - (311) -
Credit facility 7,267 - (14,920) -
Convertible debentures issued - - 37,888 -
----------------------------------------------------------------------------
NET CASH GENERATED BY FINANCING
ACTIVITIES 7,086 651 23,144 1,915
----------------------------------------------------------------------------
Net decrease in cash and cash
equivalents (14,975) (36,256) (2,013) (47,511)
Cash and cash equivalents at
beginning of period 17,944 87,446 5,026 98,701
Effects of exchange rate changes
on the balance of cash held in
foreign currencies 45 (147) 1 (147)
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE
END OF THE PERIOD 3,014 51,043 3,014 51,043
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company will host a conference call on Thursday August 9, 2012 at 9:00 a.m. MT (11:00 a.m. ET) to discuss the Company's results for the second quarter of 2012.
To listen to the webcast of the conference call, please enter: http://www.gowebcasting.com/3577 in your web browser or visit the Investor Information section of our website www.gasfrac.com.
To participate in the Q&A session, please call the conference call operator at 1-800-769-8320 or 1-416-695-6622 fifteen minutes prior to the call's start time and ask for "GASFRAC Second Quarter Results Conference Call".
A replay of the call will be available until August 17, 2012 by dialing 1-800-408-3053 (North America) or 1-905-694-9451 (outside North America). Playback passcode: 9970594. The Company will also archive the conference on its website at www.gasfrac.com.
GASFRAC is an oil and gas service company headquartered in Calgary, Alberta, Canada, whose primary business is to provide LPG fracturing services to oil and gas companies in Canada and the USA.
