Trican Well Service Ltd. Reports Fourth Quarter and Year End Results for 2016
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E-mailCALGARY, ALBERTA -- (Marketwired) -- 02/23/17 -- Trican Well Service ("Trican" or the "Company") (TSX: TCW) announced its Fourth Quarter and Year End 2016 results earlier today. The following press release should be read in conjunction with the Management's Discussion and Analysis, the audited annual consolidated financial statements and subsequent notes of Trican for the year ended December 31, 2016, as well as the Annual Information Form for the year ended December 31, 2015. All of the above 2016 documents will be available before markets open on Thursday, February 23, 2017 on Trican's website at www.tricanwellservice.com and on SEDAR at www.sedar.com.
Continuing Operations - Financial Review
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Three months ended Twelve months ended
($ millions, except per Dec. 31, Dec. 31, Sept. 30, Dec. 31, Dec. 31,
share amounts; unaudited) 2016 2015 2016 2016 2015
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Revenue 114.8 157.8 78.0 325.2 649.7
Operating income /
(loss)(1) (7.4) 14.7 (6.8) (69.8) 16.0
Adjusted operating income
/ (loss)(1) 1.1 19.4 (3.2) (37.4) 34.9
Gross profit / (loss) (10.1) (7.2) (13.7) (83.5) (26.7)
Net income / (loss) 56.9 (16.5) (14.7) (40.7) (62.8)
Per share - basic and
diluted 0.29 (0.11) (0.08) (0.24) (0.42)
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Notes:
(1) Trican makes reference to operating income / (loss), adjusted operating income / (loss), adjusted general and administrative expenses. These measures are not recognized under International Financial Reporting Standards (IFRS) and are considered non-GAAP measures. Management believes that, in addition to gross profit / (loss) and profit / (loss), operating income / (loss), adjusted operating income / (loss); and adjusted general and administrative expenses, adjusted corporate expenses are useful supplemental measures.
-- Operating income / (loss) provides investors with an indication of
profit / (loss) before depreciation and amortization, foreign exchange
gains and losses, asset impairment, other (income) / loss, finance costs
and income tax expense / (recovery).
-- Adjusted operating income / (loss) provides investors with an indication
of operating income before equity-settled share-based compensation,
amortization of debt costs, severance costs and excludes items that are
significant but not recurring in the normal course of operations. It
provides investors with an indication of comparable operating income /
(loss) between periods and provides an indication of measures used for
debt covenant calculations.
-- Adjusted general and administrative expenses combined with adjusted
corporate expenses provides investors with an indication of total
overhead costs before equity-settled share-based compensation,
amortization of debt costs and severance costs.
Investors should be cautioned that operating income / (loss) and adjusted operating income / (loss) should not be construed as an alternative to gross profit / (loss) or profit / (loss) determined in accordance with IFRS as an indicator of Trican's performance. Trican's method of calculating operating income / (loss), adjusted operating income / (loss), adjusted general and administrative expenses and adjusted corporate expenses may differ from that of other companies and accordingly may not be comparable to measures used by other companies. See also "Non-GAAP Disclosure" section of this report.
FOURTH QUARTER HIGHLIGHTS
Trican experienced continued improvement in our business in the fourth quarter as we generated a positive adjusted operating income of $1.1 million in the quarter, which was $4.3 million higher than adjusted operating income in Q3 2016. Activity increased substantially during the quarter which resulted in an undersupply of manned equipment in the Canadian market and allowed us to increase pricing roughly 10% from end of Q3 2016 to Q1 2017.
Trican continued to pay down debt as we received approximately $73.5 million CAD in proceeds from the previous sale of our completion tool business and the sale of a part of our investment in the Keane Group in the United States.
Consolidated revenue increased by 47% over the third quarter of 2016, driven by a 10% increase in jobs performed and continued growth in frac stages and proppant pumped per well.
Utilization of our active equipment was below expectations at the start of the quarter due to wet weather and a delayed freeze up, however, it increased rapidly in mid November when freeze up occurred and remained high throughout the second half of the quarter. December activity remained high as more work was performed during the Christmas break and the break was shorter than anticipated. The Company continued to operate approximately 50% of its equipment during the quarter. Our headcount increased as we converted two fracturing crews from twelve hour crews to twenty-four hour crews which expanded our fracturing capacity coming into the 2017 first quarter. Three cementing crews were also added by reactivating parked equipment during the quarter. Hiring qualified personnel to activate parked equipment has become the most significant challenge to meeting current industry demand.
Average pricing for our customers marginally increased between Q3 2016 and Q4 2016. Pricing for most of our anchor customers slightly increased; however, pricing for spot work is estimated to have increased by approximately 10%. 2017 first quarter average pricing is expected to increase approximately 10% relative to Q3 2016 exit levels.
The Company has been focused on adjusting its cost structure to the level of activity and pricing environment experienced during the cyclical lows experienced during the past two years. There was some additional consolidation of facilities in the quarter which resulted in meaningful severance costs being incurred. Management believes that we have exited the 2016 fourth quarter with an efficient cost structure from a cost perspective and we believe this cost structure can handle the level of work being performed during the 2017 first quarter. Management's current expectations are that activity will continue to increase after spring break-up and our cost structure will likely increase at that time to handle the demands of increased activity; however, management believes maintaining a disciplined and efficient cost structure as activity increases will be critical to improving profitability during 2017.
The operating loss from continuing operations was $7.4 million and adjusted operating income was $1.1 million for the quarter. A $5.5 million write-down of obsolete spare parts inventory combined with severance costs of $1.6 million, amortization of debt issuance costs of $0.7 million and an additional $0.7 million in equity-settled share-based compensation expense accounts for the difference between the operating loss from continuing operations and adjusted operating income.
In January 2017, Trican sold its shares in National Oilwell Varco ("NOV") and monetized a portion of its Investments in Keane for net proceeds of approximately USD $20.7 million and USD $28.4 million, respectively. The proceeds were used to further pay down Trican's outstanding long-term debt.
The partial monetization of the Investments in Keane was a result of Keane's initial public offering on January 20, 2017. Keane's IPO valuation was significantly higher than its valuation as a private company and, as a result, Trican has increased the value of its Investments in Keane to $231.0 million.
OUTLOOK
Demand for our services steadily increased from the 2016 third quarter into the 2016 fourth quarter. This trend has intensified at the start of the 2017 first quarter with activity significantly picking up during the first week of January and continuing to the date of this report. All our active pressure pumping equipment is expected to be at or near full utilization until spring break-up in March. We activated one 12-hour 30,000 HP fracturing crew midway through the first quarter and will work to convert this to a twenty-four-hour crew as we hire additional people. We also activated six cementing crews in Q4 and early in Q1. Cementing demand remains very high at the start of 2017 and we anticipate it will remain high throughout the year based on current commodity prices. First quarter financial results are expected to reflect a meaningful increase in activity. The timing of break-up in March remains the only question regarding total activity levels expected during the quarter.
The high level of demand being experienced during the 2017 first quarter has resulted in some customers increasing their work programs during the second quarter. As a result, we expect second quarter activity levels to be considerably higher on a year-over-year basis. The second quarter work was priced at a discount relative to first quarter pricing; however, the incremental revenue from the increased workload is expected to cover a meaningful portion of our fixed cost structure which should allow us to improve our second quarter financial results and maintain our headcount in anticipation of activity picking up coming out of Spring break-up.
The increased activity levels and equipment utilization during the 2016 fourth quarter resulted in a pressure pumping market that became meaningfully undersupplied with manned equipment. These conditions allowed management to increase pricing by approximately 10% by the beginning of the 2017 first quarter. While the activity and pricing increases obtained to date have improved Trican's EBITDA from negative to positive territory, management believes additional pricing increases are necessary to allow the company to continue to increase its margins to acceptable levels that allow us to run a sustainable business.
The increased activity currently being experienced is a positive indicator that additional pricing increases may be obtained as we emerge from the second quarter activity slowdown due to spring break-up conditions. However, the increased activity levels are resulting in inflationary pressures relating to personnel, proppant, chemicals and third-party hauling costs. If demand continues to increase, we expect the undersupply conditions currently being experienced to persist into the second half of 2017. Difficulties activating parked equipment are expected due to challenges in hiring qualified personnel. We will continue to push for increased pricing from our customers assuming the undersupply conditions persist.
Trican has retired 18000 HP of fracturing capacity. This HP was older pre-2003 light duty equipment and was sold into the US market. This leaves the Company with approximately 250,000 HP active today and 172,000 HP parked. Parked HP remains in good shape and can be reactivated as activity increases. We continue to run approximately 50% of our cement, coil and other pressure pumping equipment.
Estimates regarding re-activating parked equipment are not possible at this time. Meaningful discussions with our customers regarding expected work programs during the 2017 second half have yet to occur. Management anticipates demand for our services to continue to increase during 2017 assuming oil and gas prices remain constructive. We anticipate making decisions during April regarding equipment re-activation for the second half of the year based on committed customer work programs and our ability to attract and hire qualified personnel to man the equipment.
Keane IPO
On January 20, 2017, FRAC completed its initial public offering ("IPO") and its shares became publicly traded on the New York Stock Exchange. Trican received net proceeds of approximately USD $28.4 million from the secondary offering of the IPO. At a USD $19.00 IPO share price, Keane received a strong valuation for its business and its shares have traded positively increasing approximately 4% since the IPO. As a result, the value of Trican's Investments in Keane has significantly increased. Trican's ownership interest is subject to a six month hold period after the IPO and the timing of further liquidity events are impossible to predict at this time.
NON-GAAP DISCLOSURE
Please see the discussion in the non-GAAP Disclosure section of the MD&A for the reconciliation of non-GAAP items to IFRS measures.
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information and financial outlook based on Trican's current expectations, estimates, projections and assumptions that were made by the Company in light of information available at the time the statement was made. Forward-looking information and financial outlook that address expectations or projections about the future, and other statements and information about the Company's strategy for growth, expected and future expenditures, costs, operating and financial results, future financing and capital activities are forward-looking statements. Some forward-looking information and financial outlook are identified by the use of terms and phrases such as "anticipate", "achieve", "estimate", "expect", "intend", "plan", "planned", and other similar terms and phrases. This forward-looking information and financial outlook speak only as of the date of this document and we do not undertake to publicly update this forward-looking information and financial outlook except in accordance with applicable securities laws. This forward-looking information and financial outlook include, among others:
-- Anticipated commodity price levels;
-- Anticipated 2017 industry activity levels in jurisdictions of the
Company's operations, as well as customer work programs and equipment
utilization levels;
-- Anticipated adjustments to our active equipment fleet, and related
adjustments to cost structure;
-- Expectations regarding workforce recruitment and retention;
-- Anticipated compliance with debt and other covenants under the Second
2016 Amended Credit Agreements;
-- Expectations regarding the Company's cost structure;
-- Expectations regarding capital spending for 2017;
-- Expectations regarding the Company's financial results, working capital
levels, liquidity and profits;
-- Expectations regarding stages per well and quantity of proppant pumped
per well;
-- Expectations regarding pricing of the Company's services;
-- Expectations regarding the timing, value and realized cash flow from the
Investments in Keane;
-- Expectations regarding the impact of discontinued operations in various
international regions on the Company going forward;
-- Anticipated ability of the Company to meet foreseeable funding
requirements;
-- Expectations regarding the potential outcome of contingent liabilities;
-- Expectations regarding the impact of new accounting standards and
interpretations not yet adopted;
-- Expectations surrounding weather and seasonal slowdowns.
Forward-looking information and financial outlook is based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect. Trican's actual results may differ materially from those expressed or implied and therefore such forward-looking information and financial outlook 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; Trican's ability to continue its operations for the foreseeable future and to realize its assets and discharge its liabilities and commitments in the normal course of business; Trican being compliant with debt and other covenants; industry activity levels, including its effect of reducing the Company's capital and maintenance expenditures; the completion of currently planned work activities by our customers; the general stability of the economic and political environment; effect of market conditions on demand for the Company's products and services and prices that can be obtained for those products and services; the ability to achieve planned cost reductions; the ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability to operate its business in a safe, efficient and effective manner; the performance and characteristics of various business segments; the effect of current plans; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters; changes in competition and pricing in the oilfield service business; and unanticipated costs and liabilities.
Forward-looking information and financial outlook is subject to a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks and uncertainties include: failure to meet the agreed upon covenants with the Company's lenders; fluctuating prices for crude oil and natural gas; changes in drilling activity; general global economic, political and business conditions; changes in interest rates; competitive and business conditions in the markets where the Company operates; weather conditions; regulatory changes; the successful exploitation and integration of technology; customer acceptance of technology; success in obtaining and defending issued patents; the potential development of competing technologies by market competitors; and availability of products, qualified personnel, manufacturing capacity and raw materials. The foregoing important factors are not exhaustive. In addition, actual results could differ materially from those anticipated in forward-looking information provided herein as a result of the risk factors set forth under the section entitled "Risks Factors" in our Annual Information Form dated March 29, 2016, and under the section entitled "Business Risks" in our management's discussion and analysis for the year ended December 31, 2015. Readers are also referred to the risk factors and assumptions described in other documents filed by the Company from time to time with securities regulatory authorities.
Trican undertakes no obligation to update forward-looking information if circumstances or management's estimates or opinions should change except as required by law. The reader is cautioned not to place undue reliance on forward looking information.
Additional information regarding Trican including Trican's most recent annual information form is available under Trican's profile on SEDAR (www.sedar.com).
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Months
Ended December 31,
(Stated in thousands $C, except per share amounts;
unaudited) 2016 2015
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Continuing operations
Revenue $ 114,769 $ 157,752
Cost of sales 124,833 164,953
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Gross loss (10,064) (7,201)
Administrative expenses 13,606 (2,648)
Other income (1,458) 1,951
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Results from operating activities (22,212) (6,504)
Finance income (65,066) (330)
Finance costs 4,655 15,725
Foreign exchange loss / (gain) (331) 7,221
Asset Impairments 3,136 4,996
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Profit / (loss) before income tax 35,394 (34,116)
Income tax recovery (21,539) (17,613)
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Profit / (loss) from continuing operations 56,933 (16,503)
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Discontinued operations
Net (loss) from discontinued operations, net of
taxes (4,168) (289,596)
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Profit / (loss) for the period 52,765 (306,099)
(Loss) / earnings per share - basic and diluted
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Continuing operations $ 0.30 $ (0.11)
Discontinued operations (0.02) (1.94)
Net Earnings (loss) 0.28 (2.05)
Weighted average shares outstanding - basic 192,968 148,918
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months
Ended December 31,
(Stated in thousands $C; unaudited) 2016 2015
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Cash flow from / (used in):
Operations
Net Income (loss) from continuing operations $ 56,933 $ (16,503)
Charges to income not involving cash:
Depreciation and amortization 16,281 19,215
Amortization of debt issuance costs 653 990
Share-based compensation expense 676 665
(Gain) / loss on disposal of property and
equipment (1,125) 965
Unrealized gain on marketable securities (574) -
Unrealized gain on Profits Interest in Keane (65,206) -
Net finance costs 4,393 15,396
Unrealized foreign exchange loss / (gain) (6,437) 2,504
Asset impairments 3,136 4,996
Income tax recovery (21,539) (17,613)
Change in inventories 4,764 3,893
Change in trade and other receivables (37,887) 4,827
Change in prepaid expenses 1,744 1,361
Change in trade and other payables 33,373 (7,202)
Interest paid (4,023) (23,152)
Income taxes paid (219) 1,070
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Continuing operations (15,057) (8,588)
Discontinued operations 8,818 7,772
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Cash flow (used in) / from operating activities (6,239) (816)
Investing
Proceeds from a loan to unrelated third-party 224 881
Purchase of property and equipment (846) (8,615)
Proceeds from the sale of property and equipment 2,950 6,073
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Continuing operations 2,328 (1,661)
Consideration on sale of discontinued operations - 3,350
Discontinued operations (1,737) 6,033
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Cash flow from / (used in) investing activities 591 7,722
Financing
Net proceeds from issuance of share capital 281 -
Draw from / (Repayment of) Revolving Credit Facility 5,121 (84,285)
Repayment of senior notes - (144,844)
Restricted cash - 194,779
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Continuing operations 5.402 (34,350)
Discontinued operations - -
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Cash flow (used in) / from financing activities 5,402 (34,350)
Effect of exchange rate changes on cash (3) 938
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(Decrease) / increase of cash and cash equivalents:
Continuing operations (7,327) (44,599)
Discontinued operations 7,078 18,093
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Cash and cash equivalents, beginning of period 20,503 75,623
Cash and cash equivalents, end of period $ 20,254 49,117
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CONFERENCE CALL AND WEBCAST DETAILS
The Company will host a conference call on Thursday, February 23, 2017 at 1:00 p.m. MT (3:00 p.m. ET) to discuss the Company's results for the 2016 Fourth Quarter and Year End.
To listen to the webcast of the conference call, please enter: http://edge.media-server.com/m/p/y62bdxcq in your web browser or visit the Investors section of our website at www.tricanwellservice.com/investors and click on "Reports".
To participate in the Q&A session, please call the conference call operator at 1-844-358-9180 (North America) or 478-219-0187 (outside North America) 15 minutes prior to the call's start time and ask for the "Trican Well Service Ltd. Fourth Quarter 2016 Earnings Results Conference Call".
The conference call will be archived on Trican's website at www.tricanwellservice.com/investors.
Headquartered in Calgary, Alberta, Trican provides a comprehensive array of specialized products, equipment and services that are used during the exploration and development of oil and gas reserves.
Contacts: Trican Well Service Ltd. Dale Dusterhoft Chief Executive Officer (403) 266-0202 (403) 237-7716 (FAX) [email protected] Trican Well Service Ltd. Michael Baldwin Senior Vice President, Finance & CFO (403) 266-0202 (403) 237-7716 (FAX) [email protected] www.tricanwellservice.com
Source: Trican Well Service Ltd.
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