Trican Well Service Ltd. (“Trican” or the “Company”) is pleased to
announce its third quarter results for 2018. The following news
release should be read in conjunction with Management’s Discussion
and Analysis, the unaudited interim consolidated financial
statements and related notes of Trican for the three and nine
months ended September 30, 2018, as well as the Annual Information
Form for the year ended December 31, 2017. The documents described
above are available on SEDAR at www.sedar.com.
Highlights
- Subsequent to September 30, 2018 the Company announced a new
NCIB, commencing October 3, 2018, to purchase up to 30.9 million
common shares for cancellation before October 2, 2019. Since
commencement of the new NCIB, the Company has purchased 9.2 million
shares at a weighted average price per share of $1.96.
- The Company purchased and cancelled approximately 13.5 million
common shares in the quarter at a weighted average price per share
of $2.94 (Q3 2017 – nil) pursuant to its Normal Course Issuer Bid
(“NCIB”).
- Adjusted EBITDA1 for the quarter was $36.7 million, which is
net of $8.3 million in expenses for stainless steel fluid ends1,
compared to $98.0 million in Q3 2017, which had no expenses for
stainless steel fluid ends1.
- Consolidated revenue from continuing operations for Q3 2018 was
$253.7 million, a 30% decrease compared to Q3 2017.
- Net loss from continuing operations for the quarter was $12.1
million (Q3 2017 – net income of $46.9 million).
- Loss in the quarter on the Company’s Investments in Keane of
$9.0 million (Q3 2017 – gain of $6.4 million) primarily due to the
mark-to-market loss in Keane’s share price to US$12.37 per share as
at September 30, 2018 (June 30, 2018 – US$13.67 per share).
- In Q3 2018, 86% of Trican’s revenue came from customers focused
on oil or liquids rich1 gas plays (Q3 2017 - oil and liquids1 rich
gas plays: 83%).
CONTINUING OPERATIONS – FINANCIAL REVIEW
($
millions, except per share amounts; total proppant pumped
(thousands); internally sourced proppant pumped (thousands); total
job count; and HHP |
Three months ended |
Nine months ended |
(thousands);
(unaudited) |
September30, 2018 |
September30,
2017 |
June 30,2018 |
September30, 2018 |
September30,
2017 |
Revenue |
$253.7 |
$362.8 |
$172.0 |
$732.5 |
$649.4 |
Gross profit
/(loss) |
14.7 |
83.7 |
(18.0) |
35.6 |
101.2 |
Adjusted EBITDA1 |
36.7 |
98.0 |
(1.5) |
90.1 |
136.3 |
Net profit /
(loss) |
(12.1) |
46.9 |
(34.4) |
(74.9) |
6.1 |
Per share –
basic |
($0.04) |
$0.14 |
($0.10) |
($0.23) |
$0.02 |
Per share –
diluted |
($0.04) |
$0.13 |
($0.10) |
($0.23) |
$0.02 |
Total proppant pumped
(tonnes) |
486 |
563 |
383 |
1,353 |
1,091 |
Internally sourced
proppant pumped (tonnes) |
227 |
419 |
110 |
600 |
710 |
Total job count |
3,390 |
3,200 |
1,997 |
9,330 |
9,021 |
Hydraulic Pumping
Capacity: |
672 |
680 |
672 |
672 |
680 |
Active crewed
HHP |
464 |
425 |
445 |
464 |
425 |
Active,
maintenance/not crewed HHP |
201 |
140 |
185 |
201 |
140 |
Parked HHP |
8 |
115 |
42 |
8 |
115 |
($ millions) |
As at
September 30, 2018 |
As at
December 31, 2017 |
Cash and cash
equivalents |
$21.6 |
$12.7 |
Current assets –
other |
$293.7 |
$279.3 |
Current portion of
loans and borrowings |
$- |
$20.4 |
Current liabilities –
other |
$127.7 |
$130.5 |
Long-term loans and
borrowings |
$138.8 |
$83.4 |
Total
assets |
$1,373.0 |
$1,506.2 |
THIRD QUARTER 2018 VS. SECOND QUARTER
2018 SEQUENTIAL OVERVIEW
Revenue in the third quarter increased 48%
compared to the second quarter of 2018. Although activity levels
increased when compared to the previous quarter, Q3 2018 fracturing
activity levels were affected by less multi-well pad activity,
weather delays and some customer slowdowns in the second half of
September which resulted in relatively low utilization. Fracturing
activity was slower at the start of July due to weather and a few
customer delays, full from mid-July until the second week of
September, and then dropped significantly for the remainder of
September as customers slowed their capital expenditures due to an
increase in crude and condensate differentials, exhaustion of 2018
budgets, and unusual wet and snowy weather in September.
Overall, the industry experienced lower utilization and an
oversupply of fracturing equipment which resulted in competitive
spot market pricing through-out the third quarter of 2018.
Trican did not aggressively pursue low spot market work during the
third quarter to fill in activity gaps. Cementing utilization
increased compared to Q2 2018, as rig count increased following
spring breakup.
Increased activity levels lead to a higher gross
profit and adjusted EBITDA1 compared to the second quarter of 2018.
Adjusted EBITDA1 margins were positive across all of our service
lines during Q3 2018. During the second quarter of 2018 each
of cement, fracturing, pipeline and industrial and fluid management
service lines realized positive adjusted EBITDA1 margins, while
coiled tubing, nitrogen and the acidizing service lines realized
negative adjusted EBITDA1 margins. We continue to work on further
profitability improvements for all of these business lines,
including further restructuring efforts (see Outlook for further
details). Certain of these restructuring efforts and other
business optimization initiatives resulted in approximately $1.2
million of severance costs in Q3 2018 (Q2 2018 - $1.1 million),
included in net loss and adjusted EBITDA1.
Adjusted EBITDA1 in Q3 2018 was also affected by $8.3 million of
stainless steel fluid end1 expenditures, which represents 4.7% of
fracturing revenue (Q2 2018 – $3.5 million, 3% of fracturing
revenue). Comparable companies who provide fracturing services may
capitalize fluid end expenditures and therefore, the Company’s
adjusted EBITDA1 may not be comparable to other reporting issuers.
If the Company capitalized fluid end expenditures, the Company
would have realized an 18% adjusted EBITDA margin in the third
quarter of 2018 (Q2 2018 - 0%).
OUTLOOK
Customer Environment
Our fourth quarter 2018 outlook is now more
cautious relative to our outlook described in the Company’s second
quarter MD&A dated July 31, 2018. Although the strength in oil
and liquids prices has significantly improved our oil and liquids1
focused clients cash flows, increased WTI/Canadian Light Sweet
Crude (CLS) price differentials and continued low natural gas
prices, have caused our customers to exercise discipline
around capital spending. Ongoing regulatory hurdles facing
pipeline construction appear to also be affecting customer
sentiment towards near term WCSB capital spending.
Although there is higher oil and liquids1
weighted job activity, this has not offset dry gas1 activity
declines and, as a result, overall pressure pumping activity in the
WCSB is down compared to last year. We anticipate that our oil and
liquids1 clients will maintain spending within previously announced
budgets and most clients will slow programs when 2018 budgets are
spent and not increase activity towards the end of 2018. Our
clients have not yet announced their 2019 capital expenditure
programs although bookings for Q1 2019 have been strong. Overall,
our expectation for client activity in 2019 is for similar activity
levels in 2019 relative to 2018 with a strong level of spending in
Q1 2019.
Q4 2018 Activity
The fourth quarter thus far has seen moderate
fracturing activity which resulted in October fracturing services
utilization running at approximately 60% (October 2017 – 90%). We
believe moderate utilization levels were relatively consistent
within the WCSB fracturing industry. For the remainder of Q4 2018,
one half of our fracturing fleets have commitments1 with long-term
clients, although these fleets are not expected to experience full
utilization. We are still working to fill scheduling gaps in the
remaining fleets. Based on the expected work activity, we
anticipate fourth quarter activity and cash flow levels will
decline significantly both sequentially and relative to the fourth
quarter of 2017.
Fourth quarter 2018 activity for our cementing
services is expected to remain strong and similar to last year.
Robust demand for our coil services, combined with the modest
capital investments made into our coil equipment, should result in
the Company activating two previously idled coil units later in the
quarter.
Q1 2019 Activity
First quarter 2019 interest for our services
remains strong as 9 of 11 of our fracturing crews are allocated to
customer programs through the quarter and have bids outstanding and
customer interest in the remaining two fleets. We are
currently working with clients to allocate these remaining two
crews and expect this to occur shortly. We do expect more
single well and small pad completions therefore, we will be focused
on optimizing our move and rig up times to ensure we are able to
maximize our utilization.
Pricing for our Services
We have seen competitive pricing pressures in
the industry and have provided some short-term Q4 price concessions
for fracturing services. However, we remain disciplined in
pricing for our fracturing services and are not willing to price
2019 work below minimum project level return thresholds. Trican has
a broad customer list that values our quality of service and we
expect only moderate fracturing price concessions to maintain
and/or win client work. We are confident we will see minimal
pricing declines for our services in Q1 2019 excluding the effect
of passing on proppant discounts to our clients. Our pricing
discipline will result in customer turnover on three of our 11
crews; however, we believe overall industry activity will support
full activity levels through the first quarter of 2019.
Cement, coil and other service line pricing should remain
consistent with Q3 2018.
Business Efficiency Measures
The Company continues to look at ways to improve
its overall cost structure with the primary focus being on
optimizing lower profitability service lines and improving our
operating and repairs and maintenance efficiency. Certain of
the below noted optimization efforts required payment of
approximately $3.5 million in severance in the fourth quarter of
2018.
Optimizing Service Lines: The Company is working
through an integration of low profitability service lines. Although
all service lines were profitable through the quarter, the Company
has begun to integrate field operations of certain components of
its smaller revenue generating service lines within other more
profitable and active service lines. The result of this integration
process will be a reduced fixed cost structure and should allow
more effective utilization of our staff during periods of changing
utilization. The Company will continue to look at further
optimization opportunities.
In addition, the Company realized improved
financial results from its coil operations in part due to modest
investments into coil upgrades, improved sales focus, and
streamlining this service line. The next stage in optimization of
this service line is the activation of two incremental coil crews
during Q4 2018. Our objective is to add incremental crews
from our parked fleet over the next year if market conditions
strengthen. The Company has available parked units that can
be brought back into service with minimal capital expenditures to
support incremental crew additions.
Repairs and Maintenance Expense / Capital:
Increasing fracturing intensity has placed a higher demand on our
existing maintenance processes and staff. We have made initial
steps in reviewing our maintenance processes and staffing levels to
improve our efficiencies. This initial review has resulted in
tangible savings. We are currently analyzing opportunities for
incremental tangible savings and efficiencies.
Parked equipment: The Company remains focused on
improving our return on invested capital. We still have
approximately 200,000 HHP (four crews) of fracturing equipment that
is active but not staffed and underutilized coiled tubing and other
equipment. We will be focused on exploring opportunities to
generate acceptable returns from this equipment in 2019 and/or we
will continue to look at opportunities to dispose of non-core
assets that may no longer be competitive in the
WCSB.
The result of our ongoing business efficiency
measures, excluding the effect of anticipated improved coil
profitability, is a reduction to 2019 expenditures by approximately
$10 million when compared to expected full year 2018 levels.
Capital Allocation
We will continue to be prudent in our investment
decisions so that our balance sheet remains strong. The primary
uses of our operating cash flows include investment into our NCIB
program and investment in our previously announced 2018 capital
expenditures program. The Company fully utilized its 2017-2018 NCIB
program, which expired October 2, 2018. On October 1, 2018, the
Company announced a new NCIB, commencing October 3, 2018, to
purchase up to 30.9 million common shares for cancellation before
October 2, 2019. Since commencement of the new NCIB, the Company
has purchased 9.2 million shares at a weighted average price per
share of $1.96.
The Company continues to evaluate possible
additional share repurchases and the appropriate funding mechanisms
to achieve such. Given uncertainty in the current operating
environment, additional investment in the NCIB program will be
evaluated in the context of expected operating conditions and
further clarity on client capital spending plans for 2019.
Capital Expenditures
The Company has incurred approximately $55
million of capital expenditures towards its budgeted $70 million
full year capital expenditure program, the budget remains unchanged
from our Q1 MD&A dated May 9, 2018. The $55 million of capital
expenditures have been partially funded through $15 million of
proceeds on disposition of property and equipment that is no longer
suited to the activity in the WCSB. In addition to the planned $70
million of capital expenditures, the Company has incurred $4
million of an expected total of $9 million for expenditures to
replace fracturing equipment that was damaged in an insured fire
event during the first quarter of 2018 which will substantially be
funded through proceeds from the related insurance claim.
NON-GAAP DISCLOSURE
Certain terms in this news release, including
adjusted EBITDA and adjusted EBITDA percentage, do not have any
standardized meaning as prescribed by IFRS and therefore, are
considered non-GAAP measures and may not be comparable to similar
measures presented by other issuers.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP term and has been
reconciled to profit / (loss) for the applicable financial periods,
being the most directly comparable measure calculated in accordance
with IFRS. Management relies on adjusted EBITDA to better translate
historical variability in our principal business activities into
future forecasts. By isolating incremental items from net income,
including income / expense items related to how the Company chooses
to manage financing elements of the business, management can better
predict future financial results from our principal business
activities. The items included in this calculation have been
specifically identified as they are either non-cash in nature,
subject to significant volatility between periods, and / or not
relevant to our principal business activities. Items adjusted in
the non-GAAP calculation of adjusted EBITDA, are as follows:
- non-cash expenditures, including
depreciation, amortization, and impairment expenses; and
equity-settled stock-based compensation;
- consideration as to how we chose to
generate financial income and incur financial expenses, including
foreign exchange expenses and gains/losses on Investments in
Keane;
- taxation in various
jurisdictions;
- transaction costs, as this cost is
subject to significant volatility between periods and is dependent
on the Company making significant acquisitions and divestitures
which may be less reflective, and / or useful in segregating, for
purposes of evaluating the Company’s ongoing financial results;
and
- costs resulting in payment of the
legal claims made against the Company as they can give rise to
significant volatility between periods that are less likely to
correlate with changes in the Company’s activity levels.
($ thousands; unaudited) |
Three months ended |
Nine months ended |
|
September30, 2018 |
September30, 2017 |
June 30,2018 |
September30, 2018 |
September30, 2017 |
Profit/ (loss) from continuing operations (IFRS
financial measure) |
($12,050) |
$46,913 |
($34,395) |
($74,857) |
$6,115 |
Adjustments: |
|
|
|
|
|
|
Cost of sales -
depreciation and amortization |
|
33,845 |
|
32,700 |
|
29,468 |
|
93,042 |
|
66,436 |
|
Administrative expenses - depreciation |
|
1,382 |
|
457 |
|
1,268 |
|
3,464 |
|
3,858 |
|
Income tax expense/(recovery) |
|
976 |
|
12,827 |
|
(8,798) |
|
(9,376) |
|
24,664 |
|
Loss/(gain) on Investments in Keane |
|
8,958 |
|
(6,420) |
|
8,393 |
|
71,797 |
|
(755) |
|
Finance costs |
|
1,631 |
|
3,998 |
|
2,870 |
|
7,272 |
|
10,594 |
|
Foreign exchange (gain)/loss |
|
926 |
|
2,520 |
|
(3,222) |
|
(7,673) |
|
4,516 |
|
Other
expense/(income) |
|
(910) |
|
(847) |
|
732 |
|
179 |
|
(4,618) |
|
Administrative expenses – other: transaction costs |
|
- |
|
3,964 |
|
- |
|
- |
|
17,736 |
|
Administrative expenses – other: amortization of debt issuance
costs |
|
551 |
|
653 |
|
594 |
|
1,828 |
|
1,958 |
|
Administrative expenses – other: equity-settled share-based
compensation |
|
1,424 |
|
1,280 |
|
1,623 |
|
4,441 |
|
3,662 |
|
Keane
indemnity claim |
|
- |
|
- |
|
- |
|
- |
|
2,158 |
Adjusted EBITDA |
$36,733 |
$98,045 |
($1,467) |
$90,117 |
$136,324 |
Adjusted EBITDA %
Adjusted EBITDA % is determined by dividing
adjusted EBITDA by revenue from continuing operations. The
components of the calculation are presented below:
($ thousands; unaudited) |
Three months ended |
Nine months ended |
|
September30, 2018 |
September30,
2017 |
June 30, 2018 |
September30, 2018 |
September
30,2017 |
Adjusted
EBITDA |
$36,733 |
$98,045 |
($1,467) |
$90,117 |
$136,624 |
Revenue |
$253,744 |
$362,817 |
$171,989 |
$732,452 |
$649,417 |
Adjusted
EBITDA % |
14% |
27% |
(1%) |
12% |
21% |
Other Non-Standard Financial
Terms
In addition to the above non-GAAP financial
measures, this news release makes reference to the following
non-standard financial terms. These terms may differ and may
not be comparable from similar terms used by other companies.
Transaction costsTransaction costs and/or Trican
acquisition costs are costs incurred to complete a transaction in
subsequent integration, including costs to assist in evaluating and
completing the acquisition of Canyon, including legal, advisory,
accounting related fees, and severance costs that directly relate
to the transaction.
Stainless steel fluid endAs a result of the
change in estimated useful life, effective December 2017, stainless
steel fluid ends were no longer capitalized to property plant and
equipment or expensed as cost of sales - depreciation. Expenses
related to stainless steel fluid ends are now expensed as part of
cost of sales – other.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document
constitute forward-looking information and statements (collectively
"forward-looking statements"). These statements relate to future
events or our future performance. All statements other than
statements of historical fact may be forward-looking statements.
Forward-looking statements are often, but not always, identified by
the use of words such as "anticipate", "achieve", "estimate",
"expect", "intend", "plan", "planned", and other similar terms and
phrases. These 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 statements. We believe the expectations reflected
in these forward-looking statements are reasonable but no assurance
can be given that these expectations will prove to be correct and
such forward-looking statements included in this document should
not be unduly relied upon. These statements speak only as of the
date of this document.
In particular, this document contains
forward-looking statements pertaining to, but not limited to, the
following:
- anticipated industry activity
levels in jurisdictions where the Company operates, as well as
expectations regarding our customers’ work programs, capital
expenditure plans, business plans and equipment utilization
levels;
- expectations regarding proppant
usage and proppant loading levels;
- anticipated adjustments to our
active equipment fleet, and related adjustments to cost
structure;
- expectations regarding crew
activations;
- expectations regarding the
Company’s cost structure;
- expectations regarding future
maintenance costs;
- anticipated pricing and customer
allocation for fracturing services including the timing and extent
to which increased input costs will be passed on to customers;
- expectations regarding the
Company’s equipment utilization levels and demand for our services
for the remainder of 2018 and into 2019;
- expectations regarding capital
expenditure spending for 2018 and that capital expenditure spending
levels have been reflected in our current pricing levels;
- expectations regarding the
Company’s financial results, working capital levels, liquidity and
profits;
- expectations regarding the quantity
of proppant pumped per well;
- expectations regarding the
integration of various service lines;
- expectations regarding pricing of
the Company’s services;
- expectation of making incremental
investments in the Company’s NCIB;
- expectations that certain items
such as transaction costs will be useful in future predictions of
earnings;
- expectations that adjusted EBITDA
will help predict future earnings;
- expectations regarding the timing,
value and realized cash flow from the Investments in Keane;
- anticipated ability of the Company
to meet foreseeable funding requirements;
- expectations surrounding weather
and seasonal slowdowns; and
- expectations regarding the impact
of new accounting standards and interpretations not yet
adopted.
Our actual results could differ materially from
those anticipated in these forward-looking statements as a result
of the risk factors set forth below and in the “Risk Factors”
section of our Annual Information Form dated March 29, 2018:
- volatility in market prices for oil
and natural gas;
- liabilities inherent in oil and
natural gas operations;
- competition from other suppliers of
oil and gas services;
- competition for skilled
personnel;
- changes in income tax laws or
changes in other laws and incentive programs relating to the oil
and gas industry; and
- changes in political, business,
military and economic conditions in key regions of the world.
Readers are cautioned that the foregoing lists
of factors are not exhaustive. Forward-looking statements are based
on a number of factors and assumptions which have been used to
develop such statements and information, but which may prove to be
incorrect. Although management of Trican believes that the
expectations reflected in such forward-looking statements or
information are reasonable, undue reliance should not be placed on
forward-looking statements because Trican can give no assurance
that such expectations will prove to be correct. In addition to
other factors and assumptions which may be identified in this
document, assumptions have been made regarding, among other things:
crude oil and natural gas prices; the impact of increasing
competition; the general stability of the economic and political
environment; the timely receipt of any required regulatory
approvals; the Company'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;
industry activity levels; Trican's policies with respect to
acquisitions; the ability of Trican to obtain qualified staff,
equipment and services in a timely and cost efficient manner; the
ability to operate our business in a safe, efficient and effective
manner; the ability of Trican to obtain capital resources and
adequate sources of liquidity; the performance and characteristics
of various business segments; the regulatory framework; the timing
and effect of pipeline, storage and facility construction and
expansion; and future commodity, currency, exchange and interest
rates.
The forward-looking statements contained in this
document are expressly qualified by this cautionary statement. We
do not undertake any obligation to publicly update or revise any
forward-looking statements except as required by applicable
law.
Additional information regarding Trican
including Trican’s most recent Annual Information Form is available
under Trican’s profile on SEDAR (www.sedar.com).
CONFERENCE CALL AND WEBCAST
DETAILS
The Company will host a conference call on
Thursday, November 8, 2018 at 10:00 a.m. MT (12:00 p.m. ET) to
discuss the Company’s results for the 2018 Third Quarter.
To listen to the webcast of the conference call,
please enter https://edge.media-server.com/m6/p/pgfai7bq 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. Third
Quarter 2018 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.
Requests for further information should be
directed to:
Dale Dusterhoft President and
Chief Executive Officer E-mail: ddusterhoft@trican.ca |
|
|
|
Michael Baldwin Senior Vice
President, Corporate Development E-mail:
mbaldwin@trican.ca |
|
|
|
Robert SkilnickChief Financial
OfficerE-mail: robert.skilnick@trican.ca |
|
Phone: (403) 266-0202 Fax: (403) 237-7716 2900, 645 – 7th Avenue
S.W. Calgary, Alberta T2P 4G8
Please visit our website at
www.tricanwellservice.com
__________________________________
1 Certain financial measures in this news
release – namely adjusted EBITDA and adjusted EBITDA percentage are
not prescribed by IFRS and are considered non-GAAP measures. These
measures may not be comparable to similar measures presented by
other issuers and should not be viewed as a substitute for measures
reported under IFRS. These financial measures are reconciled
to IFRS measures in the Non-GAAP Disclosures section of this news
release. Other non-standard measures are described in the
Non-Standard Measures section of this news release.
PDF
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