CALGARY, July 30, 2015 /CNW/ - Canyon Services Group Inc.
("Canyon" or the "Company") is pleased to announce its second
quarter 2015 results. The following results should be read in
conjunction with the Management's Discussion and Analysis, the
audited consolidated financial statements and notes of Canyon
Services Group Inc. for the year ended December 31, 2014 and the Annual Information Form
for the year ended December 31, 2014, which are available
on SEDAR at www.sedar.com.
The current quarter includes the results of Canyon's pressure
pumping business as well as the results of Fraction Energy Services
Ltd. ("Fraction"), a leading provider of fracturing fluid
management, including water sourcing, transfer, wellsite storage,
fluid heating, flowback transfer and produced water storage
services, which was acquired by Canyon effective July 1, 2014.
HIGHLIGHTS
The operating and financial highlights for the three and six
months ended June 30, 2015 are
summarized as follows:
- On July 21, 2015, Canyon entered into a new credit
facility, replacing its previous credit facility, by entering into
a new extendible revolving operating credit facility (the
"Facility") with a syndicate of financial institutions (the
"Lenders"). Under the Facility, the total committed
facilities have been increased from $90
million to $100 million and
the accordion feature has been increased from $10 million to $50
million. The accordion feature is available upon
request by Canyon, subject to review and approval by the
Lenders. The Facility has a term of three years, extendible
annually and includes the removal of the debt to EBITDA covenant
for a period of one year.
- Under the Facility, Canyon now has available bank credit
facilities of about $101 million, including the accordion
feature (total of $150 million less
$49 million drawn net of cash and
cash equivalents as at June 30, 2015), allowing the
Company to actively pursue growth opportunities. Canyon
maintains a strong balance sheet with a very low funded debt to
EBITDA before share-based payments expense ratio of 0.53:1.00 as at
June 30, 2015, significantly below
the maximum of 3.00:1.00 permitted under Canyon's previous credit
facility.
- For the six months ended June 30,
2015, consolidated revenue was $198.7
million, largely unchanged from the $198.4 million earned in the comparable 2014
period. The current period includes $24.0 million contributed by Fraction, acquired
by Canyon July 1, 2014.
Consolidated EBITDA before share-based expense decreased to
$8.6 million for the six months ended
June 30, 2015 from $18.2 million in the 2014 period due to
industry-wide reduced activity and decreased pricing.
- Q2 2015 consolidated revenues totaled $43.2 million, down from $60.3 million in Q2 2014 due to industry-wide
reduced activity resulting from the significant decline in
commodity prices since mid-2014, as well as an extended seasonal
spring break-up. To mitigate the impact of reduced activity
and decreased pricing, operating and input cost concessions have
been realized resulting in consolidated EBITDA before share-based
payments expense of negative $9.8
million in Q2 2015 compared to negative $9.2 million in Q2 2014.
- Canyon has been working diligently since late 2014 to reduce
all operating and input costs in both the pressure pumping and
fluid management divisions. In addition, Canyon is making
changes to permanently reorganize and transform certain business
processes with the goal of moving away from the fixed cost model
for certain groups within the Company to a variable pay model in
which expenses are more closely linked to revenue. In the
third quarter, Canyon will introduce an hourly rate of pay for the
transportation group, replacing the existing fixed salary structure
for this group.
- On June 24, 2015, Canyon declared
a quarterly dividend of $0.075 per
common share, or $5.2 million, which
was paid to shareholders on July 24,
2015. This reflects the 50% reduction in the dividend
announced on May 5, 2015. The
Board will continue to regularly review the dividend payout in the
context of the market for Canyon's services.
OVERVIEW OF SECOND QUARTER 2015
|
|
|
|
000's except per
share, job amounts and hydraulic pumping capacity
(Unaudited)
|
Three Months
Ended
June 30
|
|
Six Months Ended
June 30
|
|
2015
|
2014
|
2013
|
|
2015
|
2014
|
2013
|
Consolidated
revenues
|
$43,159
|
$60,253
|
$27,431
|
|
$198,744
|
$198,448
|
$114,318
|
Loss and
comprehensive loss
|
$(21,857)
|
$(15,263)
|
$(17,186)
|
|
$(22,939)
|
$(3,413)
|
$(8,659)
|
Per
share-basic
|
$(0.32)
|
$(0.24)
|
$(0.28)
|
|
$(0.33)
|
$(0.05)
|
$(0.14)
|
Per
share-diluted
|
$(0.32)
|
$(0.24)
|
$(0.28)
|
|
$(0.33)
|
$(0.05)
|
$(0.14)
|
EBITDA before
share-based payments(1)
|
$(9,754)
|
$(9,186)
|
$(13,134)
|
|
$8,581
|
$18,246
|
$7,230
|
Funds from (used in)
operations(1)
|
$(4,504)
|
$(4,071)
|
$(11,822)
|
|
$11,082
|
$19,795
|
$6,826
|
Adjusted loss
and comprehensive loss (1)
|
$(18,881)
|
$(14,244)
|
$(15,555)
|
|
$(17,087)
|
$(1,501)
|
$(6,488)
|
Adjusted per
share-basic (1)
|
$(0.27)
|
$(0.23)
|
$(0.25)
|
|
$(0.25)
|
$(0.02)
|
$(0.10)
|
Adjusted per
share-diluted (1)
|
$(0.27)
|
$(0.23)
|
$(0.25)
|
|
$(0.25)
|
$(0.02)
|
$(0.10)
|
Total pressure
pumping jobs completed (2)
|
283
|
347
|
151
|
|
903
|
1,237
|
621
|
Consolidated pressure
pumping revenue per job
|
$131,585
|
$178,028
|
$181,979
|
|
$195,149
|
$161,333
|
$184,389
|
Average fracturing
revenue per job
|
$232,569
|
$275,423
|
$320,769
|
|
$255,162
|
$214,580
|
$261,204
|
|
|
|
|
|
|
|
|
Hydraulic Pumping
Capacity:
|
|
|
|
|
|
|
|
|
Average
HHP
|
255,500
|
245,500
|
225,500
|
|
255,500
|
238,000
|
225,500
|
|
Exit HHP
|
255,500
|
245,500
|
225,500
|
|
255,500
|
245,500
|
225,500
|
Capital
expenditures
|
$6,053
|
$18,589
|
$2,310
|
|
$23,671
|
$31,871
|
$5,811
|
|
|
|
|
000's except per
share amounts
(Unaudited)
|
As at
June 30,
2015
|
As at
December 31,
2014
|
As at
December 31,
2013
|
Cash and cash
equivalents
|
$7,514
|
$20,613
|
$21,308
|
Working
capital
|
$3,560
|
$21,880
|
$41,730
|
Total long-term
financial liabilities
|
$46,231
|
$36,193
|
$3,096
|
Total
assets
|
$534,369
|
$638,770
|
$402,707
|
Cash dividends
declared per share
|
$0.225
|
$0.60
|
$0.60
|
|
|
|
|
Note (1):
|
See Non-GAAP
Measures
|
Note (2):
|
Includes all jobs
from each service line, specifically hydraulic fracturing; coiled
tubing; nitrogen fracturing; acidizing and remedial
cementing.
|
The current three and six months ending June 30, 2015 includes the results of Canyon's
pressure pumping business, as well as the results of Fraction
Energy Services Ltd., ("Fraction") which was acquired by Canyon
effective July 1, 2014.
Fraction is a leading provider of fracturing fluid management,
including water sourcing, transfer, wellsite storage, fluid
heating, flowback transfer and produced water storage services.
In Q2 2015, industry activity across the Western Canadian
Sedimentary Basin ("WCSB") was significantly lower due to
continuing low commodity prices. Current oil and natural gas
prices have declined dramatically by about 50% and 40% respectively
from year-ago levels, causing reduced capital expenditures by our
customers, resulting in lower completions activity. In
pressure pumping, the lower industry activity led to rapidly
deteriorating customer pricing levels commencing in January 2015 and resulted in current pricing
levels 25% to 30% lower than those reached in Q4 2014. In
fluid management, prices have declined for this range of services
by 15% to 30% compared to Q4 2014.
Once activity resumed in June following the extended spring
break-up, Canyon was able to remain relatively busy with its core
group of customers in both its pressure pumping and fluid
management divisions. In Q2 2015, consolidated revenues decreased
by 28% to $43.2 million from
$60.3 million in Q2 2014, with the
current quarter including a revenue contribution of $6.6 million from fluid management. For the
six months ended June 30, 2015,
consolidated revenues were $198.7
million, including revenue of $24.0
million from fluid management, virtually unchanged from
consolidated revenues of $198.4
million in the prior year.
In the current quarter, the impact of the reduced activity and
lower customer pricing was mostly offset by reductions and
efficiencies gained in operating and input costs and by a positive
contribution from the fluid management division. As a result,
Q2 2015 consolidated EBITDA before share-based payments (see
Non-GAAP Measures) decreased by 6% to negative $9.8 million from negative $9.2 million in the comparable 2014
quarter. For the six months ended June
30, 2015, consolidated EBITDA before share-based payments
(see Non-GAAP Measures) decreased to $8.6
million from $18.2 million in
the comparable 2014 period as severe pricing degradation set in
early in the year due to lower industry-wide activity while cost
efficiencies and savings did not take effect until the second
quarter.
Pressure Pumping Services
In the first six months of 2015, drilling and completions
activity levels are down approximately 50% (source: Nickles Energy
Group) due to the sharp reduction of oil and natural gas
prices. Canyon has been able to grow its market share in the
face of difficult industry activity and pricing levels and thereby
maintain fairly flat revenue year over year even though prices have
declined by 25% – 30% since late 2014.
In 2015, the lower overall WCSB activity and a late post
break-up start by Canyon's core customers resulted in an 18%
decrease in Q2 2015 pressure pumping jobs to 283 from 347 jobs
completed in Q2 2014. Revenues decreased by 39% to
$36.6 million from $60.3 million in Q2 2014. Average
fracturing revenue per job decreased 16% to $232,569 in Q2 2015 from $275,423 in Q2 2014 due primarily to lower
pricing.
For the six months ended June 30,
2015, Canyon completed 903 jobs, a 27% decrease from 1,237
jobs completed in the comparable 2014 period, while revenues
decreased 12% to $174.7 million for
the current six month period from $198.4
million in the same period last year. Although pricing
was lower, average fracturing revenue per job increased 19% to
$255,162 in the current period from
$214,580 in the six months ended
June 30, 2014 due to larger job
sizes.
Importantly, in the first half of 2015, the completion of larger
jobs partially offset the impact of reduced activity and lower
pricing. Specifically, changing well designs have resulted in
increased fracturing intensity on a per well basis in the form of
more fractures per wellbore and/or larger fracture designs.
One of the main predictors of service intensity for pressure
pumping is the average total length in metres per well. The
industry experienced an increase of about 15% in the total metres
per well drilled (source: Nickels Energy Group) in the six months
ended June 30, 2015 over the
comparable 2014 period. In addition, proppant usage per stage
increased dramatically throughout 2014 and has led to 2015 year to
date total proppant volumes pumped per fracturing job by Canyon
increasing by 60% compared to the comparable 2014 period.
Also contributing to Canyon's increasing fracturing revenue per job
was the increased use of "Ottawa White" sand which is typically
sold at higher prices than domestic sand. In the six months
ended June 30, 2015, average Ottawa
White sand volumes pumped per fracturing job by Canyon's customers
increased by 168% and represented approximately 70% of total sand
pumped.
Pressure pumping cash flow and profitability remains highly
levered to changes in activity and pricing due to the fixed cost
nature of the business. Since Q4 2014, Canyon has been
working with suppliers to reduce both variable and fixed input
costs, including proppants, chemicals, third-party hauling, fuel,
accommodation and labour. These cost reduction efforts have
succeeded in partially offsetting the impact of significantly lower
customer pricing and reduced activity. As a result, Q2 2015
EBITDA before share-based payments expense for the pressure pumping
segment was negative $10.4 million,
compared to negative $7.9 million in
Q2 2014 although revenues have declined by 39% to $36.6 million. For the six months ended
June 30, 2015, EBITDA before
share-based payments expense was $3.4
million compared to $21.1
million for the prior year six-month period. The
decrease in EBITDA before share-based payments expense in the
current six month period is due to sharply lower customer activity
and pricing levels taking effect as early as January, while cost
reductions, especially pertaining to labour, could not be
implemented until the second quarter.
Fluid Management Services
For the three and six months ended June
30, 2015 Fraction contributed $6.6
million and $24.0 million,
respectively, in revenue and $1.5
million and $7.0 million,
respectively, in EBITDA before share-based payments expense (see
Non-GAAP Measures).
Industry conditions including lower completion activity,
decreased pricing and the seasonal spring break-up impacted Q2 2015
revenues and profitability in this division. This year's
break-up was longer than expected with the prolonged road bans
preventing the Company from accessing customer sites in order to
provide services. As a result, a number of fluid management
projects were pushed into Q3 2015. In addition, depending on
the type of service, customer pricing was 15% - 30% lower than peak
levels experienced in 2014 which further reduced revenue and EBITDA
before share-based payments.
During the quarter, Fraction worked on 67 fluid transfer and
fluid containment projects, of which 62 were completed and five are
continuing into Q3 2015. The job mix was largely skewed
toward lease site fluid management and fluid containment projects
as road bans prevented the Company from mobilizing equipment to
site for large scale fluid transfer projects that the Company was
awarded. These fluid transfer projects were pushed into Q3
2015.
Tank rental revenues in Q2 2015 were also lower than Q1
2015. For the quarter, utilization averaged 38% compared to
58% for Q1 2015. The utilization rates for Q2 2015 are
consistent with historical trends and not unexpected as customers
return storage tanks just before the start of spring break-up and
begin to rent them again just before the end of break-up. As
a result, utilization rates tend to decrease in March and pick back
up towards the end of June.
Cost Reduction Measures
To mitigate the significant decreases in industry pricing,
Canyon has been working diligently to reduce all operating and
input costs in both the pressure pumping and fluid management
divisions including chemicals, proppants, fuel, third party
hauling, accommodations and labour. To date, chemical costs
have been reduced by about 15%, and third party hauling rates have
decreased by approximately 30%. The cost of both Canadian and
US sourced proppants has been reduced by approximately 10% net of
exchange rate fluctuations. Minor concessions have been
received from fuel suppliers due to lower oil prices and
accommodation costs have been reduced by about 15%. As
previously reported, Canyon reduced its permanent employee count in
the pressure pumping and fluid management divisions by 22% and 15%,
respectively, in late March to match the anticipated reduced
activity levels over the remainder of the year. In addition,
all remaining employees' salaries in both divisions were rolled
back between 5% and 10% with a 10% reduction of executive
management salaries and directors' fees.
Canyon does not view the reduction of input costs as a one-time
exercise and is continuing to work with suppliers and customers to
gain concessions and economies. More importantly, we are
making changes to permanently reorganize and transform certain
business processes with the goal of moving away from the fixed cost
model for certain groups within our Company to a variable pay model
in which expenses are more closely linked to revenue. The
pressure pumping industry has historically experienced significant
volatility of cash flows due to the fact that approximately 75% of
Canyon's fixed operating costs are salaried field positions.
This lack of flexibility in our cost structure causes cash flow
losses during low activity periods. Any changes we can make
to move towards a variable cost structure will aid in reducing cash
flow volatility during periods of low activity levels. For
example, in the third quarter, Canyon will introduce an hourly rate
for the transportation group to more closely match the compensation
structure of the trucking industry.
Dividend
The Board of Directors (the "Board") continuously reviews the
long-term capital structure of the Company and its corresponding
dividend policy each fiscal quarter. In May 2015, the Board determined that a 50%
reduction to Canyon's dividend was prudent in the context of the
continuing industry uncertainty. Therefore, effective for the
July 2015 payment, Canyon's quarterly
dividend was reduced to $0.075 per
common share providing estimated annualized cash savings of
$20.6 million. The reduction in
the quarterly dividend payout will enable Canyon to preserve its
strong balance sheet and provide the Company with additional
financial flexibility to pursue organic growth prospects and asset
acquisitions, should such attractive opportunities arise. The
Board will continue to regularly review the dividend payout in the
context of the market for Canyon's services.
NON-GAAP MEASURES
The Company's Condensed Consolidated Interim Financial
Statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS"). Certain measures in this
document do not have any standardized meaning as prescribed by IFRS
and are considered NON-GAAP measures.
EBITDA before share-based payments, funds from operations, and
adjusted profit (loss) and comprehensive income (loss) and adjusted
per share amounts are not recognized measures under IFRS.
Management believes that in addition to profit (loss) and
comprehensive income (loss), the following measures are useful to
help assess the results of the Company.
Adjusted EBITDA before share-based payments
Canyon calculates EBITDA before share-based payments as profit
(loss) and comprehensive income (loss) for the period adjusted for
depreciation and amortization, equity settled share-based payment
transactions, gain or loss on sale of property and equipment,
finance costs, foreign exchange (gain) loss and income tax expense
(recovery).
EBITDA before share-based payments is a useful supplemental
measure as it provides an indication of the cash results generated
by the Company's principal business activities prior to
consideration of how those activities are financed and how the
results are taxed.
Funds from operations
Funds from operations refers to cash flow from operations before
changes in non-cash working capital and taxes.
Funds from operations is a measure of liquidity based on cash
generated by the Company's activities without consideration of the
timing of the monetization of non-cash working capital items or
payment of taxes. Management believes that funds from
operations provides investors with an indication of cash available
for capital commitments, debt repayments, payment of taxes, and
other expenditures.
Adjusted profit (loss) and comprehensive income
(loss)
Adjusted profit (loss) and comprehensive income (loss) is
calculated as profit (loss) and comprehensive income (loss) plus
amortization expense on intangibles and share-based payment
transactions. This provides investors with results generated
by the Company's business activities in the normal course of
business, not taking into account share-based payments expense,
one-time items or amortization of intangibles which are not
reflective of operational activity. Amounts per share are
calculated using weighted average shares outstanding, consistent
with the calculation of earnings (loss) per share.
Readers should be cautioned, however, that the above metrics
should not be construed as an alternative to profit (loss) and
comprehensive income (loss) determined in accordance with IFRS as
an indicator of the Company's performance. Canyon's method of
calculating these metrics may differ from other companies and
accordingly, they may not be comparable to measures used by other
companies.
Reconciliations of these Non-GAAP Measures to the most directly
comparable IFRS measures are outlined below.
Adjusted EBITDA before share-based payments
|
|
|
000's
(Unaudited)
|
Three Months
Ended
June 30
|
Six Months Ended
June 30
|
|
2015
|
2014
|
2015
|
2014
|
Loss and
comprehensive loss
|
$(21,857)
|
$(15,263)
|
$(22,939)
|
$(3,413)
|
Add
(Deduct):
|
|
|
|
|
Depreciation and
amortization
|
14,339
|
9,892
|
30,175
|
19,706
|
Finance
costs
|
854
|
70
|
1,387
|
251
|
Foreign exchange
(gain) loss
|
(274)
|
(100)
|
1,290
|
268
|
Share-based payment
transactions
|
1,471
|
1,006
|
2,842
|
1,886
|
Gain on sale of
property and equipment
|
(199)
|
(26)
|
(150)
|
(16)
|
Income tax
recovery
|
(4,088)
|
(4,765)
|
(4,024)
|
(436)
|
EBITDA before
share-based payments
|
$(9,754)
|
$(9,186)
|
$8,581
|
$18,246
|
Funds from Operations
|
|
|
000's
(Unaudited)
|
Three Months
Ended
June 30
|
Six Months Ended
June 30
|
|
2015
|
2014
|
2015
|
2014
|
Net cash from
operating activities
|
$8,878
|
$8,934
|
$32
|
$10,989
|
Add
(Deduct):
|
|
|
|
|
Income tax paid
(received)
|
(17)
|
-
|
8,808
|
-
|
Change in non-cash
working capital related to operating activities
|
(19,160)
|
(18,090)
|
(2,976)
|
6,738
|
Current tax
recovery
|
5,795
|
5,085
|
5,218
|
2,068
|
Funds from
operations
|
$(4,504)
|
$(4,071)
|
$11,082
|
$19,795
|
Adjusted Loss and Comprehensive Loss
|
|
|
000's
(Unaudited)
|
Three Months
Ended
June 30
|
Six Months
Ended
June 30
|
|
2015
|
2014
|
2015
|
2014
|
Loss and
comprehensive loss
|
$(21,857)
|
$(15,263)
|
$(22,939)
|
$(3,413)
|
Amortization expense
on intangibles
|
1,505
|
13
|
3,010
|
26
|
Share-based payment
transactions
|
1,471
|
1,006
|
2,842
|
1,886
|
Adjusted loss
and comprehensive loss
|
$(18,881)
|
$(14,244)
|
$(17,087)
|
$(1,501)
|
Adjusted per
share-basic
|
$(0.27)
|
$(0.23)
|
$(0.25)
|
$(0.02)
|
Adjusted per
share-diluted
|
$(0.27)
|
$(0.23)
|
$(0.25)
|
$(0.02)
|
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
000's except per
share amounts
(Unaudited)
|
Three Months
Ended
June 30
|
|
2015
|
|
2014
|
Revenue
|
$43,159
|
|
$60,253
|
Cost of
services
|
(59,829)
|
|
(73,313)
|
Gross
loss
|
(16,670)
|
|
(13,060)
|
Administrative
expenses
|
(7,389)
|
|
(7,011)
|
Amortization
expense
|
(1,505)
|
|
(13)
|
Results from
operating activities
|
(25,564)
|
|
(20,084)
|
Finance
costs
|
(854)
|
|
(70)
|
Foreign exchange
gain
|
274
|
|
100
|
Gain on sale of
property and equipment
|
199
|
|
26
|
Loss before income
tax
|
(25,945)
|
|
(20,028)
|
Income tax
recovery
|
4,088
|
|
4,765
|
Loss and
comprehensive loss
|
$(21,857)
|
|
$(15,263)
|
EBITDA before
share-based payments(1)
|
$(9,754)
|
|
$(9,186)
|
Loss per
share:
|
|
|
|
|
Basic
|
$(0.32)
|
|
$(0.24)
|
|
Diluted
|
$(0.32)
|
|
$(0.24)
|
Note (1):
|
See Non-GAAP
Measures
|
Pressure Pumping Services:
|
|
000's except per
share amounts
(Unaudited)
|
Three Months
Ended
June 30
|
|
2015
|
|
2014
|
Revenue
|
$36,560
|
100%
|
|
$60,253
|
100%
|
Cost of
services
|
(54,178)
|
(148%)
|
|
(73,313)
|
(122%)
|
Gross loss
|
(17,618)
|
(48%)
|
|
(13,060)
|
(22%)
|
Administrative
expenses
|
(4,617)
|
(13%)
|
|
(5,348)
|
(9%)
|
Amortization
expense
|
(5)
|
(0%)
|
|
(13)
|
(0%)
|
Results from
operating activities
|
(22,240)
|
(60%)
|
|
(18,421)
|
(31%)
|
Add non-cash
items:
|
|
|
|
|
|
Depreciation and
amortization
|
10,974
|
30%
|
|
9,892
|
16%
|
Share-based payments
expense
|
851
|
2%
|
|
664
|
1%
|
EBITDA before
share-based payments(1)
|
$(10,415)
|
(28%)
|
|
$(7,865)
|
(13%)
|
Note (1):
|
See Non-GAAP
Measures.
|
Revenue
The lower WCSB activity together with a longer than expected
spring break-up resulted in an 18% decrease in Q2 2015 pressure
pumping jobs to 283 from 347 jobs completed in Q2 2014. In
addition, the reduced industry activity has led to sharply lower
customer pricing which we estimate at about 25% to 30% lower than
Q4 2014 levels. As a result, pressure pumping revenues
decreased by 39% to $36.6 million
from $60.3 million in Q2 2014.
With fracturing revenues accounting for over 90% of total pressure
pumping revenues, average fracturing revenue per job decreased 16%
to $232,569 in Q2 2015 from
$275,423 in Q2 2014 due to job mix
and lower pricing.
Cost of services
Cost of services for the three months ended June 30, 2015
totaled $54.2 million (2014:
$73.3 million) and included
materials, products, transportation and repair costs of
$29.0 million (2014: $45.4
million), employee benefits expense of $14.2
million (2014: $18.5 million),
and depreciation of property and equipment of $11.0 million (2014: $9.4
million).
- Materials, products, transportation and repair costs decreased
by 36% in Q2 2015 when compared to Q2 2014 mainly due to lower
activity and input cost reductions, as previously discussed.
- Employee benefits expense has decreased by 21% Q2 2015 due to a
reduction in the permanent employee count and a company-wide wage
rollback as a result of decreased activity.
- The increase in depreciation of property and equipment to
$11.0 million in Q2 2015 from
$9.4 million in Q2 2014 was mainly
due to the addition of equipment to Canyon's fleet throughout 2014
particularly in the second half of the year. In 2014, Canyon added
30,000 Hydraulic Horsepower of pumping capacity, coiled tubing
equipment, transportation and logistics equipment, nitrogen and
cement and acid equipment.
Administrative expenses
Administrative expenses for the three months ended June 30, 2015 totaled $4.6
million (2014: $5.3 million)
and included employee benefits expense of $1.8 million (2014: $2.6 million),
share-based payments expense of $0.9
million (2014: $0.7 million)
and other administrative expenses of $1.3
million (2014: $1.6
million).
The decrease in employee benefits expense was mainly
attributable to the wage and benefits rollbacks and reduced
headcount, as previously discussed. The decrease in other
administrative expenses is mainly the result of lower professional,
consulting and travel costs. Administrative expenses also
include depreciation of buildings and office equipment and
amortization of intangibles of $0.6
million (2014: $0.5
million).
EBITDA before share-based payments (See Non-GAAP
Measures)
In Q2 2015, EBITDA before share-based payments expense (see
Non-GAAP Measures) decreased by 32% to negative $10.4 million from negative $7.9 million in the comparable 2014
quarter. As previously discussed lower customer pricing due
to decreased industry-wide activity levels and a longer than
expected spring break-up led to the decrease.
Fluid Management Services:
|
|
000's except per
share amounts
(Unaudited)
|
Three Months
Ended
June 30
|
|
2015
|
|
2014
|
Revenue
|
$6,599
|
100%
|
|
$-
|
-%
|
Cost of
services
|
(5,651)
|
(86%)
|
|
-
|
-%
|
Gross
profit
|
948
|
14%
|
|
-
|
-%
|
Administrative
expenses
|
(1,373)
|
(21%)
|
|
-
|
-%
|
Amortization
expense
|
(1,500)
|
(23%)
|
|
-
|
-%
|
Results from
operating activities
|
(1,925)
|
(29%)
|
|
-
|
-%
|
Add non-cash
items:
|
|
|
|
|
|
Depreciation and
amortization
|
3,365
|
51%
|
|
-
|
-%
|
Share-based payments
expense
|
84
|
1%
|
|
-
|
-%
|
EBITDA before
share-based payments(1)
|
$1,524
|
23%
|
|
$-
|
-%
|
Note (1):
|
See Non-GAAP
Measures.
|
Revenue
The fluid management services business, acquired July 1, 2014, contributed $6.6 million of revenue to Canyon in Q2
2015. This is lower than the prior quarter revenues of
$17.4 million due to annual spring
break-up conditions and lower industry-wide activity.
Cost of services
Cost of services for the three months ended June 30, 2015 totaled $5.7
million and includes materials, products, transportation and
repair costs of $2.1 million,
employee benefits expense of $1.7
million, and depreciation of property and equipment of
$1.9 million.
Administrative expenses
Administrative expenses for the three months ended June 30, 2015 totaled $1.4
million and includes employee benefits expense, depreciation
of buildings and office equipment and amortization of intangibles
and other administrative expenses. The amortization expense
of $1.5 million relates to the
amortization of customer relationships and non-competition
agreements pursuant to the acquisition of Fraction.
EBITDA before share-based payments (See Non-GAAP
Measures)
Q2 2015 EBITDA before share-based payments (see Non-GAAP
Measures) totaled $1.5 million, or
23% of revenue.
Corporate:
|
|
000's except per
share amounts
(Unaudited)
|
Three Months
Ended
June 30
|
|
2015
|
|
2014
|
Revenue
|
$ -
|
|
$ -
|
Administrative
expenses
|
(1,399)
|
|
(1,663)
|
Results from
operating activities
|
(1,399)
|
|
(1,663)
|
Add non-cash
item:
|
|
|
|
|
Share-based payments
expense
|
536
|
|
342
|
EBITDA before
share-based payments(1)
|
$(863)
|
|
$(1,321)
|
Note (1):
|
See Non-GAAP
Measures.
|
This segment consists of costs incurred to operate a public
company, including corporate management, head office costs,
corporate share-based payment expenses and professional fees.
Administrative expenses
Administrative expenses for the three months ended June 30, 2015 totaled $1.4
million compared to $1.7
million in Q2 2014 and include employee benefits expense,
share-based payments, and other head office administrative
expenses. The decrease in administrative expenses is mainly
due to wage rollbacks implemented effective April 1, 2015, as previously discussed.
Other Items – Quarterly Consolidated Statement of
Operations:
Finance costs and foreign exchange gain
Finance costs include interest on loans, finance lease
obligations and automobile loans and totaled $0.9 million in Q2 2015 (2014: $0.1 million), with the increase mainly
attributable to the increase in loans and borrowings used to
partially fund the Company's capital program in the second half of
2014 and in 2015.
In Q2 2015 the Company recorded a foreign exchange gain of
$0.3 million compared to $0.1 million in Q2 2014. The increase is
due to fluctuations in the Canadian dollar versus the U.S. dollar
exchange rate in relation to the purchase of U.S. sourced
proppants.
Income tax recovery
At the expected combined income tax rate of 26%, the loss before
income tax for Q2 2015 of $25.9
million would have resulted in an income tax recovery of
$6.7 million, compared to the actual
income tax recovery of $4.1
million. The decrease in the actual income tax
recovery was due to the impact of non-deductible expenses as well
as an increase in the corporate income tax rate in Alberta.
EBITDA before share-based payments (See Non-GAAP
Measures)
In Q2 2015, Canyon recorded consolidated EBITDA before
share-based payments (see Non-GAAP Measures) of negative
$9.8 million, down 6% from
$9.2 million recorded in the
comparable 2014 quarter. As previously discussed, the
reductions and savings achieved in input and operating costs
combined with a contribution of $1.5
million in EBITDA before share-based payments expense from
the fluid management division largely offset the impact of lower
activity and pricing on revenues in the quarter.
Loss and comprehensive loss and loss per share
Loss and comprehensive loss increased to $21.9 million in Q2 2015 from a loss and
comprehensive loss of $15.3 million
in Q2 2014 mainly due to the aforementioned lower pricing, reduced
industry-wide activity, higher depreciation charges related to
capital additions in the second half of 2014 and amortization
expense related to intangible assets arising pursuant to the
acquisition of Fraction.
Basic and diluted loss per share was $0.32 for the three months ended June
30, 2015 compared to basic and diluted loss per share of
$0.24 for the comparable 2014
quarter.
SIX MONTHS ENDED JUNE 30, 2015
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
000's except per
share amounts
(Unaudited)
|
Six Months Ended
June 30
|
|
2015
|
|
2014
|
Revenue
|
$198,744
|
|
$198,448
|
Cost of
services
|
(203,864)
|
|
(187,892)
|
Gross (loss)
profit
|
(5,120)
|
|
10,556
|
Administrative
expenses
|
(16,306)
|
|
(13,876)
|
Amortization
expense
|
(3,010)
|
|
(26)
|
Results from
operating activities
|
(24,436)
|
|
(3,346)
|
Finance
costs
|
(1,387)
|
|
(251)
|
Foreign exchange
loss
|
(1,290)
|
|
(268)
|
Gain on sale of
property and equipment
|
150
|
|
16
|
Loss before income
tax
|
(26,963)
|
|
(3,849)
|
Income tax
recovery
|
4,024
|
|
436
|
Loss and
comprehensive loss
|
$(22,939)
|
|
$(3,413)
|
EBITDA before
share-based payments(1)
|
$8,581
|
|
$18,246
|
Loss per
share:
|
|
|
|
|
Basic
|
$(0.33)
|
|
$(0.05)
|
|
Diluted
|
$(0.33)
|
|
$(0.05)
|
Note (1):
|
See Non-GAAP
Measures
|
Pressure Pumping Services:
|
|
000's except per
share amounts
(Unaudited)
|
Six Months
Ended
June 30
|
|
2015
|
|
2014
|
Revenue
|
$174,742
|
100%
|
|
$198,448
|
100%
|
Cost of
services
|
(186,228)
|
(107%)
|
|
(187,892)
|
(95%)
|
Gross (loss)
profit
|
(11,486)
|
(7%)
|
|
10,556
|
5%
|
Administrative
expenses
|
(10,384)
|
(6%)
|
|
(10,247)
|
(5%)
|
Amortization
expense
|
(10)
|
(0%)
|
|
(26)
|
(0%)
|
Results from
operating activities
|
(21,880)
|
(13%)
|
|
283
|
0%
|
Add non-cash
items:
|
|
|
|
|
|
Depreciation and
amortization
|
23,589
|
14%
|
|
19,706
|
10%
|
Share-based payments
expense
|
1,689
|
1%
|
|
1,102
|
1%
|
EBITDA before
share-based payments(1)
|
$3,398
|
2%
|
|
$21,091
|
11%
|
Note (1):
|
See Non-GAAP
Measures.
|
Revenue
Pressure pumping revenues for the six months ended June 30, 2015 decreased by 12% to $174.7 million compared to $198.4 million earned in the six months ended
June 30, 2014. Jobs completed
decreased by 27% to 903 for the six months ended June 30, 2015 from 1,237 jobs completed in the
prior year comparable period. The percentage decrease in
revenues did not match the percentage decrease in the job count due
to Canyon completing larger jobs as previously discussed.
This is evident in the average fracturing revenue per job which
increased by 19% to $255,162 in the
six months ended June 30, 2015 from
$214,580 in the six months ended
June 30, 2014, as job sizes more than
offset the impact of lower pricing.
Cost of services
Cost of services for the three months ended June 30, 2015
totaled $186.2 million
(2014: $187.9 million) and included materials, products,
transportation and repair costs of $120.0
million (2014: $124.0 million), employee benefits
expense of $43.7 million (2014:
$45.1 million), and depreciation of
property and equipment of $22.5
million (2014: $18.8
million).
Materials, products, transportation and repair costs decreased
by 3% for the six months ended June 30,
2015 compared to the six months ended June 30, 2014. These costs did not decrease
in line with revenues mainly due to larger job sizes and the
increase in the usage of more expensive "Ottawa White" sands by
customers as previously discussed.
Employee benefits expense has decreased by 3% for the six months
ended June 30, 2015 in comparison to
the six months ended June 30,
2014. In 2014 staff levels increased over the second half of
the year to handle the increase in 24 hour operations and higher
activity. These higher staff levels were maintained through
to the end of Q1 2015 as Canyon was busy to mid-March. Q2
2015 employee benefits expense decreased by 21% compared to Q2 2014
as the aforementioned staff reductions were implemented at the end
of March.
The increase in depreciation of property and equipment for the
six months ended June 30, 2015 in
comparison to the six months ended June 30,
2014 is due to the addition of equipment to Canyon's fleet
particularly in the second half of 2014 and accelerated
depreciation relating to the replacement of a number of pump
components. This was partially offset by a change in the
expected useful life of coiled tubing, nitrogen and cementing
equipment which reduced the depreciation expense of these
assets.
Administrative expenses
Administrative expenses for the six months ended June
30, 2015 totaled $10.4 million
compared to $10.2 million for the six
months ended June 30, 2014 and
included employee benefits expense of $4.8
million (2014: $5.0 million) and share-based payments
expense of $1.7 million (2014:
$1.1 million). The decrease in
employee benefits expense was mainly attributable to wage and
benefits rollbacks implemented at the beginning of Q2
2015.
Administrative expenses also include depreciation of buildings
and office equipment and amortization of intangibles of
$1.1 million (2014: $0.9 million). In addition, other
administrative expenses totaled $2.8
million for the six months ended June
30, 2015 compared to $3.2
million for the six months ended June
30, 2014.
EBITDA before share-based payments (See Non-GAAP
Measures)
For the six months ended June 30,
2015, EBITDA before share-based payments (see Non-GAAP
Measures) decreased by 84% to $3.4
million from $21.1 million in
the comparable 2014 period. As previously discussed lower
customer pricing due to decreased industry-wide activity levels
more than offset input cost reductions in the period.
Fluid Management Services:
|
|
000's except per
share amounts
(Unaudited)
|
Six Months
Ended
June 30
|
|
2015
|
|
2014
|
Revenue
|
$24,002
|
100%
|
|
$-
|
-%
|
Cost of
services
|
(17,636)
|
(73%)
|
|
-
|
-%
|
Gross
profit
|
6,366
|
27%
|
|
-
|
-%
|
Administrative
expenses
|
(3,015)
|
(13%)
|
|
-
|
-%
|
Amortization
expense
|
(3,000)
|
(12%)
|
|
-
|
-%
|
Results from
operating activities
|
351
|
2%
|
|
-
|
-%
|
Add non-cash
items:
|
|
|
|
|
|
Depreciation and
amortization
|
6,586
|
27%
|
|
-
|
-%
|
Share-based payments
expense
|
101
|
0%
|
|
-
|
-%
|
EBITDA before
share-based payments(1)
|
$7,038
|
29%
|
|
$-
|
-%
|
Note (1):
|
See Non-GAAP
Measures.
|
Revenue
The fluid management services business contributed $24.0 million of revenues to Canyon for the six
months ended June 30, 2015.
Water access restrictions in the northern regions of the WCSB were
lifted in December 2014 which
resulted in increased activity levels for the segment in the first
half of 2015.
Cost of services
Cost of services for the six months ended June 30, 2015 totaled $17.6 million and includes materials, products,
transportation and repair costs of $7.8
million, employee benefits expense of $6.2 million, and depreciation of property and
equipment of $3.6 million.
Administrative expenses
Administrative expenses for the six months ended June 30, 2015 totaled $3.0
million and includes employee benefits expense, depreciation
of buildings and office equipment and other administrative
expenses. The amortization expense of $3.0 million relates to the amortization of
customer relationships and non-competition agreements pursuant to
the acquisition of Fraction.
EBITDA before share-based payments (See Non-GAAP
Measures)
For the six months ended June 30,
2015 EBITDA before share-based payments totaled $7.0 million in the fluid management services
segment, or 29% of revenue.
Corporate:
|
|
000's except per
share amounts
(Unaudited)
|
Six Months Ended
June 30
|
|
2015
|
|
2014
|
Revenue
|
$ -
|
|
$ -
|
Administrative
expenses
|
2,907
|
|
3,629
|
Results from
operating activities
|
(2,907)
|
|
(3,629)
|
Add non-cash
item:
|
|
|
|
|
Share-based payments
expense
|
1,052
|
|
784
|
EBITDA before
share-based payments(1)
|
$(1,855)
|
|
$(2,845)
|
Note (1):
|
See Non-GAAP
Measures.
|
This segment consists of costs incurred to operate a public
company, including corporate management, head office costs,
corporate share-based payment expenses and professional fees.
Administrative expenses
Administrative expenses for the six months ended June 30, 2015 totaled $2.9
million compared to $3.6
million in Q2 2014 and include employee benefits expense,
share-based payments, and other head office administrative
expenses. The decrease in administrative expenses is mainly
due to lower employee benefits expense as a result of wage
rollbacks and staff reductions in 2015.
Other Items – Six months ended June
30, 2015 Statement of Operations:
Finance costs and foreign exchange loss
Finance costs include interest on loans, finance lease
obligations and automobile loans and totaled $1.4 million for the six months ended
June 30, 2015 (2014: $0.3 million), with the increase mainly
attributable to the increase in loans and borrowings used to
partially fund the Company's capital program in the second half of
2014 and in 2015.
For the six months ended June 30,
2015 the Company recorded a foreign exchange loss of
$1.3 million compared to $0.3 million for the six months ended
June 30, 2014. The increase is
due to the declining Canadian dollar versus the U.S. dollar
exchange rate during the year to date mostly in relation to the
purchase of U.S. sourced proppants.
Income tax recovery
At the expected combined income tax rate of 26%, the loss before
income tax for the six months ended June 30,
2015 of $27.0 million would
have resulted in an income tax recovery of $7.0 million, compared to the actual income tax
recovery of $4.0 million. The
decrease in the actual income tax recovery was due to the impact of
non-deductible expenses as well as an increase in the corporate
income tax rate in Alberta.
EBITDA before share-based payments (See Non-GAAP
Measures)
For the six months ended June 30,
2015 Canyon recorded consolidated EBITDA before share-based
payments (see Non-GAAP Measures) of $8.6
million, down 53% from $18.2
million for the six months ended June
30, 2014. As previously discussed, the decreased
EBITDA before share-based payments expense is due to significantly
reduced industry-wide-activity and resulting pricing pressure
partially offset by the addition of Fraction which contributed
$7.0 million in EBITDA before
share-based payments for the six months ended June 30, 2015.
Loss and comprehensive loss and loss per share
The aforementioned reduced industry-wide activity and resulting
lower pricing resulted in a loss and comprehensive loss totaling
$22.9 million for the six months
ended June 30, 2015 compared to loss
and comprehensive loss of $3.4
million for the six months ended June
30, 2014.
Basic and diluted loss per share was $0.33 for the six months ended June 30, 2015
compared to basic and diluted loss per share of $0.05 for the comparable 2014 period.
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information and
statements within the meaning of applicable securities laws.
The use of any of the words "expect", "anticipate", "continue",
"estimate", "objective", "ongoing", "may", "will", "should",
"believe", "plans" and similar expressions are intended to identify
forward-looking information or statements. In particular, but
without limiting the foregoing, this document contains
forward-looking information and statements pertaining to the
following: future oil and natural gas prices; future results from
operations; future liquidity and financial capacity and financial
resources; future costs, expenses and royalty rates; future
interest costs; future capital expenditures; future capital
structure and expansion; the making and timing of future regulatory
filings; and the Company's ongoing relationship with major
customers.
The forward-looking information and statements contained in this
document reflect several material factors and expectations and
assumptions of the Company including, without limitation: that the
Company will continue to conduct its operations in a manner
consistent with past operations; the general continuance of current
or, where applicable, assumed industry conditions; the continuance
of existing (and in certain circumstances, the implementation of
proposed) tax, royalty and regulatory regimes; certain commodity
price and other cost assumptions; the continued availability of
adequate debt and/or equity financing and cash flow to funds its
capital and operating requirements as needed; and the extent of its
liabilities. The Company believes the material factors,
expectations and assumptions reflected in the forward-looking
information and statements are reasonable but no assurance can be
given that these factors, expectations and assumptions will prove
to be correct.
The forward-looking information and statements included in this
document are not guarantees of future performance and should not be
unduly relied upon. Such information and statements involve
known and unknown risks, uncertainties and other factors that may
cause actual results or events to differ materially from those
anticipated in such forward-looking information or statements
including, without limitation: changes in commodity prices; changes
in the demand for or supply of the Company's services;
unanticipated operating results; changes in tax or environmental
laws, royalty rates or other regulatory matters; changes in the
development plans of third parties; increased debt levels or debt
service requirements; limited, unfavourable or a lack of access to
capital markets; increased costs; a lack of adequate insurance
coverage; the impact of competitors; reliance on industry partners;
attracting and retaining skilled personnel and certain other risks
detailed from time to time in the Company's public disclosure
documents (including, without limitation, those risks identified in
this document and the Company's Annual Information Form).
The forward-looking information and statements contained in this
document speak only as of the date of the document, and none of the
Company or its subsidiaries assumes any obligation to publicly
update or revise them to reflect new events or circumstances,
except as may be required pursuant to applicable laws.
SOURCE Canyon Services Group Inc.