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Press release from CNW Group


Tuesday, May 10, 2011

CANYON REPORTS RECORD Q1 2011 RESULTS AND PROVIDES 2012 CAPITAL EXPENDITURE GUIDANCE19:18 EDT Tuesday, May 10, 2011CALGARY, May 10 /CNW/ - Canyon Services Group Inc. (TSX: FRC) ("Canyon") is pleased to announce its first quarter 2011 results. The following should be read in conjunction with the Management's Discussion and Analysis, the consolidated financial statements and notes of Canyon Services Group Inc. for the year ended December 31, 2010 which are available on SEDAR at POLICY CHANGESOn January 1, 2011, Canyon adopted International Financial Reporting Standards ("IFRS") for purposes of financial reporting, using a transition date of January 1, 2010. Accordingly, these Interim Consolidated Financial Statements for the three months ended March 31, 2011 and the comparative information for the three months ended March 31, 2010, have been prepared in accordance with International Financial Reporting Standard 1, "First-time Adoption of International Financial Reporting Standards", and with International Accounting Standard 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board ("IASB").Previously, the Company prepared its interim and annual consolidated financial statements in accordance with Canadian generally accepted accounting principles ("previous GAAP").The adoption of IFRS has not had an impact on the Company's operations, strategic decisions and funds from operations (see NON-GAAP MEASURES).OVERVIEW OF FIRST QUARTER 2011(000's except per share and job amounts)         Three months endedMarch 31    2011   2010Consolidated revenues   $99,037   $41,460Operating income   $46,605   $15,529Net earnings and comprehensive income   $30,118   $11,988 Per share-basic   $0.50   $0.25 Per share-diluted   $0.48   $0.25EBITDA before stock-based compensation(1)   $47,980   $16,256Funds from operations(1)   $37,805   $16,175Total jobs completed(2)   738   661Consolidated average revenue per job(2)   $134,980   $62,934Hydraulic Pumping Capacity         Average HHP   120,500   50,500 Exit HHP   125,500   63,000Capital expenditures   $23,143   $20,265                      As atMarch 31,2011   As atDecember 31,2010Cash balance, net of loans and borrowings(3)   $33,938   $38,742Working capital   $62,638   $49,283Note (1): See Non-GAAP MeasuresNote (2):  Includes all jobs from each service line, specifically hydraulic fracturing; coiled tubing; nitrogen fracturing; acidizing and remedial cementing.Note (3):  Includes current and long-term portionsIn the first quarter of 2011, activity levels in the pressure pumping industry across the Western Canadian Sedimentary Basin ("WCSB") were quite high compared to the first quarters of the last few years. In Q1 2011, Canyon achieved record revenues of $99.0 million, more than double the revenue of $41.5 million recorded in Q1 2010. EBITDA before stock-based compensation in the quarter was $48.0 million, three times the EBITDA before stock-based compensation of $16.3 million earned in Q1 2010. Average consolidated revenue per job also increased significantly to $134,980 in Q1 2011 from $62,934 in Q1 2010 mainly due to larger jobs and improved industry pricing.Underpinning the industry activity were technological improvements and strong oil and liquids prices leading to increased activity in emerging and established oil and liquids rich natural gas plays such as the Cardium, Viking, Bakken, Deep Basin and Montney. Technological improvements have led to a major shift towards drilling wells with lengthy horizontal sections, which has led to a dramatic increase in fracturing intensity as multi-staged fracture treatments are applied to the horizontal sections of the well bore. We estimate the WCSB now requires an average of more than five fracs per well compared to an historical average one frac per well leading to a dramatic growth in fracturing demand. In addition, the size and the pumping rates of the average fracture have also grown significantly which when combined with the increased fracture intensity results in a dramatic increase in demand for fracturing equipment and services. Exploration and Production ("E&P") companies now require significantly more hydraulic horsepower ("HHP") capacity for longer periods of time to complete their programs.The ongoing strength in oil prices has resulted in a dramatic expansion in oil and natural gas liquids ("NGL") focused drilling activity. Oil-directed drilling activity alone now accounts for approximately 70% of the wells being drilled in the WCSB, up from about 50% in 2010. This trend is expected to continue over the next few years. In addition, natural gas resource plays in Northeast British Columbia and Northwest Alberta such as the Montney were also very active. Well licenses issued in Q1 2011 were approximately 4,150 which was 32% higher when compared to 2010, with licensing activity particularly strong in the Cardium, Viking, Bakken and Montney formations. Drilling rig utilization in Q1 increased to average 67% compared to an average of 49% in the previous quarter and 53% in Q1 2010.Canyon's pressure pumping fleet has grown from 25,500 HHP in 2009 to 125,500 HHP in Q1 2011. All equipment built since 2009, about 80% of Canyon's current fleet, is heavy duty specification, suitable for deployment in the deep basin where pumping pressures, rates and durations have increased significantly. For 2011, Canyon has announced a $82 million capital program to add a further 50,000 HHP of capacity along with deep coil tubing assets and ancillary equipment and infrastructure, bringing the Company's fleet to 175,500 HHP by the end of 2011. This rapid growth in Canyon's pumping capacity has allowed the Company to focus on the deeper more complex areas of the WCSB and commit to larger jobs and longer-term projects.NON-GAAP MEASURESThe Company's interim consolidated financial statements have been prepared in accordance with IFRS. Certain measures in this document do not have any standardized meaning as prescribed by IFRS and are considered non-GAAP measures.EBITDA before stock-based compensation means earnings before interest, taxes, depreciation and amortization and stock-based compensation, and is equal to net earnings plus income tax expense, finance costs, depreciation and amortization, and equity-settled share-based payment transactions ("stock-based compensation").Funds from operations is defined as cash provided from Canyon's operating activities before the net change in non-cash operating assets and liabilities.EBITDA before stock-based compensation and funds from operations are not recognized measures under IFRS. Management believes that in addition to net earnings, EBITDA before stock-based compensation and funds from operations are useful supplemental measures as they provide an indication of the results generated by the Company's business activities prior to consideration of how those activities are financed, amortized or taxed, as well as the cash generated by the Company's business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that EBITDA before stock-based compensation and funds from operations should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of the Company's performance. Canyon's method of calculating EBITDA before stock-based compensation and funds from operations may differ from other companies and, accordingly, EBITDA before stock-based compensation and funds from operations 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.EBITDA before stock-based compensation        (000's)                     Three months endedMarch 31    2011   2010EBITDA before stock-based compensation   $47,980   $16,256Add (Deduct):        Depreciation and amortization   (4,846)   (2,862)Finance costs   (80)   (81)Stock-based compensation expense   (1,918)   (1,030)Income taxes   (11,018)   (295)Net earnings   $30,118   $11,988                  Funds from Operations        (000's)                     Three months endedMarch 31    2011   2010Funds from operations   $37,805   $16,175Add (Deduct) non-cash operating items:        Depreciation and amortization   (4,846)   (2,862)Deferred portion of income taxes   (923)   (295)Stock-based compensation expense   (1,918)   (1,030)Net earnings   $30,118   $11,988 Operating and Financial HighlightsThe operating and financial highlights for the three months ended March 31, 2011 may be summarized as follows:Canyon expanded its 2011 capital program by over $14 million to approximately $82 million, adding additional nitrogen, coil tubing, infrastructure and support equipment to the previously announced program which will add an additional 50,000 HHP and ancillary support equipment (associated blenders, sand handling, transportation and storage equipment, two deep coiled tubing units). Canyon anticipates funding the aggregate capital program from existing cash and funds from operations (see NON-GAAP MEASURES).Canyon exited Q1 2011 with a total of 125,500 HHP following completion of its 2010 capital program. Upon completion of its 2011 capital program, Canyon expects to exit this year with 175,500 HHP.In Q1 2011, Canyon's equipment fleet was fully utilized, resulting in record consolidated revenues of $99.0 million, over double the $41.5 million of revenues earned in Q1 2010.EBITDA before stock-based compensation (see NON-GAAP MEASURES) improved to a quarterly record of $48.0 million in Q1 2011 from $16.3 million in Q1 2010, due to a dramatic increase in Canyon's pressure pumping capacity, higher industry activity, a focus on completing larger jobs and improved pricing.Net earnings for the period increased to a record of $30.1 million in Q1 2011, compared to $12.0 million in Q1 2010.During the quarter Canyon's equipment fleet averaged 120,500 HHP and was fully utilized, resulting in 738 jobs completed compared to 661 in the prior year's quarter.Average consolidated revenue per job increased by 115% to $134,980 in Q1 2011, from $62,934 in Q1 2010. This growth is due to Canyon's continuing success in expanding its market share in the deeper segments of the basin resulting in larger jobs augmented by improved industry pricing.In Q1 2011, approximately 90% of the consolidated total revenue (and 64% of consolidated jobs) was generated from operations in the deeper, more complex areas of the WCSB including Northwest Alberta and Northeast BC.Canyon's operating base in Estevan, Saskatchewan, became fully operational and has commenced serving our customers operating in the Bakken oil play.In January 2011, Canyon paid its inaugural semi-annual dividend of $0.05 per common share, totaling $3.0 million.As at March 31, 2011, the Company's available cash is $36.6 million in addition to available credit facilities of $36.0 million.QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS(000's except per share amounts)           Quarter Ended    March 31, 2011    March 31, 2010     (Unaudited)    (Unaudited)Revenues    $99,037    $41,460Cost of services    (52,432)    (25,931)Operating income    46,605    15,529Administrative expenses    (5,389)    (3,165)Results from operating activities    41,216    12,364Finance costs    (80)    (81)Profit before income tax    41,136    12,283Income tax expense    (11,018)    (295)Net earnings and comprehensive income    $30,118    $11,988EBITDA before stock-based compensation(1)    $47,980    $16,256Earnings per share:           Basic    $0.50    $0.25 Diluted    $0.48    $0.25Note (1): See NON-GAAP MEASURES.RevenuesConsolidated revenues for Q1 2011 increased significantly to a record $99,037, more than double the $41,460 earned in Q1 2010, due to the dramatic growth of Canyon's pressure pumping equipment fleet, combined with the improved industry activity. During the quarter Canyon's equipment fleet averaged 120,500 HHP and was fully utilized, resulting in 738 jobs completed compared to 661 in the prior year's quarter. Average consolidated revenues per job increased to $134,980 in Q1 2011 from $62,934 in Q1 2010 due to Canyon's continuing success in expanding its market share in the deeper segments of the market resulting in large jobs, augmented by improved industry pricing.Cost of servicesCost of services for the three months ended March 31, 2011 totaled $52,432 (2010: $25,931) and includes employee benefits expense of $13,601 (2010: $6,502), depreciation of property and equipment of $4,591 (2010: $2,679). As a percentage of revenues cost of services declined to 53% in Q1 2011 compared to 63% in Q1 2010 mainly due to the fixed component of cost of services and due to improved pricing across the industry.The increase in depreciation of property and equipment is mostly due to additional depreciation pertaining to 2010 and 2011 equipment additions.Administrative expensesAdministrative expenses for the three months ended March 31, 2011 totaled $5,389 (2010: $3,165) and includes employee benefits expense of $1,741 (2010: $1,093), depreciation of buildings and office equipment of $233 (2010: $178), amortization of intangible assets of $22 (2010: $5), and stock-based compensation expense of $1,918 (2010: $1,030). The increase is also attributable to the increases in sales and marketing expenses, and the increased number of employees resulting from a higher volume of business.Stock-based compensation expense represents the value assigned to the granting of options and incentive-based units under the Company's Share Purchase Option Plan and Stock Based Compensation Plan respectively, using the Black-Scholes model. For Q1 2011, $0.5 million (Q1 2010 - $0.2 million) was charged to expenses and included in contributed surplus in respect of these two plans. In addition, obligations for payments under the Company's Deferred Share Unit Plan are accrued as stock-based compensation expense over the vesting period. The accrued liability increases or decreases with fluctuations in the price of the Company's common shares, with a corresponding increase or decrease in the stock-based compensation expense. This expense totaled $1.4 million for Q1 2011 (Q1 2010 - $0.8 million) and is included in accounts payable and accrued liabilities.EBITDA before stock-based compensation (See NON-GAAP MEASURES)In Q1 2011, the increased utilization, the focus on completing larger, higher-priced jobs, improved pricing and the operating leverage available in a high fixed cost structure has resulted in EBITDA before stock-based compensation of $48.0 million, a threefold increase over the $16.3 million recorded in Q1 2010.Finance costsFinance costs include interest on capital lease obligations and automobile loans and total $80 in Q1 2011 (2010: $81).Income Tax ExpenseAt the expected combined income tax rate of 26.5%, the profit before income tax for Q1 2011 of $41.1 million would have resulted in an expected income tax expense of $10.9 million, compared to the actual income tax expense of $11.0 million. The expected income tax expense was increased by $0.2 million as a result of the effect of non-deductible expenses, and reduced by $0.1 million for future tax rate differences.Net earnings and comprehensive income and earnings per shareNet earnings and comprehensive income totaled $30.1 million for Q1 2011, compared to $12.0 million in Q1 2010. The increase in net earnings for Q1 2011 is due to the significant increase in Canyon's fracturing services as discussed above.For the first quarter ended March 31, 2011, basic and diluted earnings per share was $0.50 and $0.48 respectively, compared to basic and diluted earnings per share of $0.25 recorded in Q1 2010.2012 CAPITAL EXPENDITURE GUIDANCECanyon has set its initial capital expenditure program for 2012 at $90 million. Pursuant to Canyon's strategy of expanding its operations across the Western Canadian Sedimentary Basin, the equipment will be deployed in its current operating areas. The initial capital program consists of 50,000 HHP, blenders, associated sand handling and storage equipment, three deep coil tubing units, nitrogen equipment and miscellaneous other support equipment and facilities. Following completion of this program in 2012, Canyon's pumping capacity will grow to in excess of 225,000 HHP.FORWARD-LOOKING STATEMENTSThis 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", "guidance", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "budget", "strategy" 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; availability of 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. For further information: Brad Fedora        Or          Barry O'Brien President and CEO                  Vice President, Finance and CFO                     Canyon Technical Services Ltd                    Canyon Technical Services Ltd 2900 Bow Valley Square III                   2900 Bow Valley Square III 255 - 5 Avenue SW                   255 - 5 Avenue SW Calgary, Alberta, T2P 3G6                   Calgary, Alberta, T2P 3G6 Phone:  403-290-2491                   Phone:  403-290-2478 Fax: 403-355-2211                      Fax: 403-355-2211