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Press release from CNW Group

Canyon reports record results for fourth quarter and year end 2011 and significant dividend increase

Tuesday, March 06, 2012

Canyon reports record results for fourth quarter and year end 2011 and significant dividend increase21:07 EST Tuesday, March 06, 2012CALGARY, March 6, 2012 /CNW/ - Canyon Services Group Inc. TSX: FRC ("Canyon") is pleased to announce its fourth quarter and year end 2011 results and a significant increase to its quarterly dividend. 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 three and twelve months and year ended December 31, 2011 and should also be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010, and which are available on SEDAR at www.sedar.com.INCREASE TO SHAREHOLDER DIVIDENDCanyon is pleased to announce that its Board of Directors has approved a 140% increase to Canyon's quarterly dividend.  Effective April 2012, the quarterly dividend will be increased from $0.0625 to $0.15 per common share resulting in an annualized dividend of $0.60 per common share.  Canyon's strong financial position, combined with its positive forecast of operating conditions in Western Canada, support the view that the increased dividend is sustainable without impeding the Company's financial flexibility to pursue continued growth and capital investment opportunities.HIGHLIGHTS SUMMARYThe main operating and financial highlights for 2011 are as follows (000's of dollars except for job and horsepower amounts):For the year ended December 31, 2011, revenues increased 72% to $372,096 from $215,891 in 2010.  In Q4 2011, Canyon's revenues increased 70% to a record $144,965 from $85,153 in Q4 2010.EBITDA before share-based payments expense (see NON-GAAP MEASURES) increased by 73% to $156,798 in 2011 from $90,435 in 2010.  In Q4 2011, EBITDA before share-based payments expense increased 61% to $65,421 from $40,530 in the Q4 2010.Average consolidated revenue per job increased by 54% to $152,050 in the 2011 year from $98,785 in 2010, while average revenue per job increased by 31% to $172,749 in Q4 2011 from $131,576 in Q4 2010.Canyon's equipment fleet almost doubled to average 137,000 HHP in 2011 from 74,000 HHP in 2010.  Canyon exited 2011 with 175,500 HHP.OVERVIEW OF FOURTH QUARTER AND YEAR ENDED 2011      000's except per share and job amountsThree months endedDecember 31 Year endedDecember 31 20112010 20112010Consolidated revenues$144,965$85,153 $372,096$215,891Profit and comprehensive income$40,932$24,606 $95,270$53,632   Per share-basic$0.67$0.41 $1.57$0.95   Per share-diluted$0.65$0.40 $1.53$0.92EBITDA before share-based payments(1)$65,421$40,530 $156,798$90,435Funds from operations(1)$51,503$32,076 $127,871$75,961Total jobs completed (2)854651 2,4822,194Consolidated average revenue per job (2)$172,749$131,576 $152,050$98,785Average fracturing revenue per job$238,735$166,578 $212,781$133,930Hydraulic Pumping Capacity        Average HHP160,50096,000 137,00074,000   Exit HHP175,500110,500 175,500110,500Capital expenditures$20,019$26,095 $101,293$80,848    000's of dollarsAs atDecember 31, 2011 As atDecember 31, 2010Cash balance, net of loans and borrowings (3)$37,396 $38,742Working capital$67,009 $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 cementingNote (3): Includes current and long-term portionsCanyon achieved record revenues and earnings per share in Q4 2011 and in the year ended December 31, 2011.  Revenues increased 72% year over year and 70% quarter over quarter.  Profit and comprehensive income increased 78% year over year and 66% quarter over quarter.Overall, for the year ended December 31, 2011, Canyon's revenues increased by 72% to $372,096 from $215,891 in 2010, as the Company continued its expansion into the deeper segments of the Western Canadian Sedimentary Basin ("WCSB").  Job sizes increased during the year as the horizontal sections of wells lengthened resulting in completion programs requiring larger, high-rate treatments and a higher number of fracture stages per well.  In 2011, Canyon's average revenue per job increased by 54% to $152,050 on 2,482 jobs completed, from $98,785 per job in 2010 on 2,194 jobs completed.  The increased job size and resulting average revenue per job was the main driver for the 72% revenue increase year over year.In Q4 2011, Canyon's revenues increased by 70% to $144,965 from $85,153 in Q4 2010, with jobs completed increasing by 31% to 854 from 651 quarter over quarter.  Average consolidated revenue per job increased by 31% to $172,749 in Q4 2011 from $131,576 in Q4 2010, due to the Company completing larger, high-rate jobs for its growing customer base.As at December 31, 2011, Canyon's hydraulic fracturing fleet has grown seven-fold to 175,500 HHP from 25,500 HHP in late 2009.  For 2011, Canyon's equipment fleet averaged 137,000 HHP, an 85% increase over the 2010 average of 74,000 HHP.  In May 2011, Canyon announced an initial capital expenditure program for 2012 at $90 million, which will grow its equipment fleet by a further 50,000 HHP to in excess of 225,000 HHP by the summer of 2012.  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, equipment intensive projects.  All equipment added by Canyon since 2009 is heavy duty specification, suitable for deployment in the deep basin and in resource plays where pumping pressures, rates and durations have increased significantly.Canyon's expanded equipment fleet had a very high utilization in Q4 2011 due to robust industry activity and a demand back log for fracturing services caused by the weather related drilling delays of the second quarter.  Technological improvements and high oil and natural gas liquids ("NGLs") prices have led to increased activity in emerging and established oil and liquids rich natural gas plays such as the Cardium, Viking, Bakken, Deep Basin, Montney and Duvernay.  Technological improvements have led to a major shift towards drilling wells with lengthy horizontal sections, which has provided the opportunity to increase fracturing intensity as multi-staged fracture programs are applied to the horizontal sections of the well bore.  As horizontal sections continue to lengthen and frac-stages per well continue to rise, it is expected that frac-stages will increase to an average of over 10 stages per well in 2012.  In addition, the size and the pumping rates of the average fracture have also grown significantly which, when combined with the increased fracture intensity, has resulted in a dramatic increase in demand for fracturing equipment and services.To date, oil and NGL prices continue to support the dramatic expansion in oil and liquids rich natural gas focused drilling activity, including emerging plays targeting the Duvernay shale and Slave Point oil.  Oil and natural gas liquids directed drilling activity now accounts for about 80% of the wells being drilled in the WCSB, up from approximately 50% in 2010. WCSB Well licenses issued in 2011 increased by approximately 16% over 2010, with licensing activity particularly strong in the Cardium, Viking, Bakken, Slave Point and Montney formations.  Drilling rig utilization in Q4 2011 averaged 62%, up from the 50% average achieved in Q3 2010, while for the year ended December 31, 2011 drilling rig utilization averaged 52% across the WCSB compared to 41% in 2010.NON-GAAP MEASURESThe Company's 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 share-based payments and funds from operations are not recognized measures under IFRS.  Management believes that in addition to profit and comprehensive income, EBITDA before share-based payments 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 share-based payments and funds from operations should not be construed as an alternative to profit and comprehensive income determined in accordance with IFRS as an indicator of the Company's performance.  Canyon's method of calculating EBITDA before share-based payments and funds from operations may differ from other companies and accordingly, EBITDA before share-based payments and funds from operations may not be comparable to measures used by other companies.  Canyon calculates EBITDA before share-based payments as profit and comprehensive income for the year adjusted for depreciation and amortization, equity settled share-based payment transactions, loss on sale of property and equipment, finance costs and income tax expense.  Reconciliations of these nON-GAAP measures to the most directly comparable IFRS measures are outlined below.In Q1 2011, Canyon described revenue less cost of services as Operating income.  In Q2 2011 and going forward, the Company describes revenue less cost of services as Gross profit.EBITDA before share-based payments       000's of dollarsThree months endedDecember 31 Year endedDecember 31 20112010 2011 2010Profit and comprehensive income$40,932$24,606 $95,270 $53,632Add (Deduct):      Depreciation and amortization6,5393,713 22,377 14,569Finance costs18481 487 289Equity-settled share based payment transactions2,6472,551 3,880 5,734Loss on sale of property and equipment9263 131 63Income taxes15,0279,516 34,653 16,148EBITDA before share-based payments$65,421$40,530 $156,798 $90,435Funds from Operations         000's of dollarsThree months endedDecember 31 Year endedDecember 31 20112010 2011 2010Net cash from operating activities$54,090$40,737 $108,754 $64,198Add (Deduct):      Income Tax paid3,498- 26,662 -Change in working capital7,649(287) 20,895 25,948Current tax(13,734)(8,374) (28,440) (14,185)Funds from operations$51,503$32,076 $127,871 $75,961Operating and Financial HighlightsThe operating and financial highlights for the three and twelve months ended December 31, 2011 may be summarized as follows:For the year ended December 31, 2011, revenues increased 72% to $372,096 from $215,891 in 2010.  In Q4 2011, Canyon's revenues increased 70% to a record $144,965 from $85,153 in Q4 2010.For the three and twelve months ended December 31, 2011, approximately 90% of consolidated revenues were provided by hydraulic fracturing services.Jobs completed across all services increased 31% to 854 from 651 quarter over quarter, while for the 2011 year, jobs increased by 13% to 2,482 from 2,194 in 2010.Job sizes in 2011 increased as customers required larger, high-rate treatments in the deeper segments of the WCSB.  As a result, average consolidated revenue per job increased by 54% to $152,050 in the 2011 year from $98,785 in 2010, while average revenue per job increased by 31% to $172,749 in Q4 2011 from $131,576 in Q4 2010.Average revenue per fracturing job increased by 59% to $212,781 in the 2011 year from $133,930 in 2010, while in Q4 2011, average fracturing revenue per job grew by 43% to $238,735 from $166,578 in Q4 2010.EBITDA before share-based payments expense (see NON-GAAP MEASURES) increased by 73% to $156,798 in 2011 from $90,435 in 2010.  In Q4 2011, EBITDA before share-based payments expense increased 61% to $65,421 from $40,530 in the Q4 2010.For the year ended 2011, profit and comprehensive income increased by 78% to a record $95,270 ($1.53 per share, diluted) from $53,632 ($0.92 per share, diluted) in 2010.  For Q4 2011, profit and comprehensive income increased 66% to $40,932 ($0.65 per share, diluted) from $24,606 ($0.40 per share, fully diluted) in the comparable 2010 period.Canyon's equipment fleet almost doubled to average 137,000 HHP in 2011 from 74,000 HHP in 2010.  Canyon exited 2011 with 175,500 HHP.In 2011, Canyon paid dividends totaling $6,065 consisting of $0.05 per common share in each of January and July.  In November 2011, Canyon increased its dividend from $0.10 per share per annum to $0.25 per share per annum to be paid quarterly commencing January 2012.Canyon remains in a very strong financial position with available cash of $42.5 million in addition to available undrawn credit facilities of $60.0 million and working capital of $67 million, including cash, as at December 31, 2011.QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS      000's of dollars except per share amounts(Unaudited)  Three Months Ended December 31   2011 2010Revenues  $144,965 $85,153Cost of services  (80,017) (44,632)Gross profit  64,948 40,521Administrative expenses  (8,804) (6,318)Results from operating activities  56,144 34,203Finance costs  (184) (81)Profit before income tax  55,960 34,122Income tax expense  (15,028) (9,516)Profit and comprehensive income  $40,932 $24,606EBITDA before share-based payments(1)  $65,421 $40,530Earnings per share:           Basic  $0.67 $0.41      Diluted  $0.65 $0.40Note (1): See Non-GAAP Measures.RevenuesIn Q4 2011, revenues increased 70% to $144,965 from $85,153 in Q4 2010, while jobs completed increased 31% to 854 from 651 quarter over quarter.  Average consolidated revenues per job increased 31% to $172,749 in Q4 2011 from $131,576 in Q3 2010 due to Canyon's continuing success in expanding its market share in the deeper segments of the market resulting in large jobs.  The higher average revenue per job was mainly due to larger job sizes as horizontal sections in the well bore lengthened and the number of stages per well increased, and due to improved year-over-year pricing.  Approximately 90% of Q4 2011 consolidated revenues were provided by hydraulic fracturing services.Cost of servicesCost of services for the three months ended December 31, 2011 totaled $80,017 (2010: $44,632) and includes employee benefits expenses of $19,782 (2010: $11,075), depreciation of property and equipment of $6,185 (2010: $3,340), and other operating expenses such as materials, products, transportation and repair costs of $54,050 (2010: $30,216).The increase in employee benefits expense is due to the additional staff for Canyon's expanded equipment fleet.  The increase in depreciation of property and equipment is mostly due to additional depreciation pertaining to equipment additions.  The increase in other operating expenses is due to the increase in Canyon's business activities.Administrative expensesAdministrative expenses for the three months ended December 31, 2011 increased to $8,804 from $6,318 in Q4 2010 mainly due to an increase in employee benefits expense as Canyon added management and administrative staff to support its increased business activities.  Administrative expenses include employee benefits expense of $3,802 (2010: $1,969), depreciation of buildings and office equipment and amortization of intangibles of $354 (2010: $373), and share-based payments expense of $2,647 (2010: $2,553).  In addition, other administrative expenses increased to $2,001 in Q4 2011 from $1,423 in Q4 2010 due to the Company's increased business activities, sales commissions and additional compensation accrued for management and employees in accordance with the Company's annual incentive compensation arrangements.Share-based payments 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 Q4 2011, $0.8 million (Q4 2010 - $0.4 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 share-based payments 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 share-based payments expense.  In Q4 2011, $1.8 million was charged to expenses for the Company's Deferred Share Unit Plan and included in accounts payable and accrued liabilities, compared to $2.2 million in Q4 2010.EBITDA before share-based payments (See Non-GAAP Measures)In Q4 2011, EBITDA before share-based payments (see NON-GAAP MEASURES) increased 61% to $65,421 from $40,530 in Q4 2010 due to strong market conditions resulting in full utilization of Canyon's expanded equipment fleet.Finance costsFinance costs include interest on finance lease obligations and automobile loans and total $184 in Q4 2011 (Q4 2010: $81).Income Tax ExpenseAt the expected combined income tax rate of 26.5%, the profit before income tax for Q4 2011 of $55,960 results in an expected income tax expense of $14,829 compared to the actual income tax expense of $15,028.Profit and comprehensive income and earnings per shareProfit and comprehensive income increased 66% to $40,932 for Q4 2011, from $24,606 in Q4 2010 as Canyon's increased equipment capacity was fully utilized for most of the quarter.Basic and diluted earnings per share were $0.67 and $0.65, respectively earned in Q4 2011 compared to basic and diluted earnings per share of $0.41 and $0.40, respectively earned in Q4 2010.YEAR-TO-DATE COMPARATIVE STATEMENTS OF OPERATIONS      000's of dollars except per share amounts(Unaudited)Twelve Months Ended December 31 2011 2010Revenues$372,096 $215,891Cost of services(218,084) (127,769)Operating income154,012 88,122Administrative expenses(23,602) (18,053)Results from operating activities130,410 70,069Finance costs(487) (289)Profit before income tax129,923 69,780Income tax expense(34,653) (16,148)Profit and comprehensive income$95,270 $53,632EBITDA before share-based payments(1)$156,798 $90,435Earnings per share:         Basic$1.57 $0.95      Diluted$1.53 $0.92Note (1): See Non-GAAP Measures.RevenuesFor the year ended December 31, 2011, revenues increased 72% to $372,096 from $215,891 in 2010, while jobs completed increased to 2,194 from 2,482 over the same periods.  Average consolidated revenues per job increased 54% to $152,050 for the year ended December 31, 2011 from $98,785 in 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 year-over-year industry pricing.  Approximately 90% of consolidated revenues for the year ended December 31, 2011 were provided by hydraulic fracturing services.Cost of servicesCost of services for the year ended December 31, 2011 totaled $218,084 (2010: $127,769) and includes employee benefits expense of $57,091 (2010: $31,447), depreciation of property and equipment of $21,148 (2010: $13,622) and other operating expenses such as materials, products, transportation and repair costs of $139,845 (2010: $82,700).The increase in employee benefits expense is due to the additional staff to support Canyon's expanded equipment fleet.  The increase in depreciation of property and equipment is mostly due to additional depreciation pertaining to equipment additions. The increase in other operating expenses is due to the increase in Canyon's business activities.Administrative expensesAdministrative expenses for the year ended December 31, 2011 totaled $23,602 (2010: $18,503) and includes employee benefits expense of $11,453 (2010: $7,055), depreciation of buildings and office equipment and amortization of intangibles of $1,229 (2010: $947), and share-based payments expense of $3,880 (2010: $5,734).  In addition, other administrative expenses increased to $7,040 for the year ended December 31, 2011 from $4,317 in 2010 due to the Company's increased business activities.  The increase in employee benefits expense is mainly attributable to the increased number of employees resulting from a higher volume of business, sales commissions and additional compensation accrued for management and employees in accordance with the Company's annual incentive compensation arrangements.Share-based payments 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 the year ended December 31, 2011, $2.6 million (2010 - $1.3 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 share-based payments 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 share-based payments expense.  For the year ended December 31 2011, the accrued liability was increased by $1.3 million (2010: an increase of $4.5 million), with an offsetting increase in share-based payments expense.EBITDA before share-based payments (See Non-GAAP Measures)For the year ended December 31, 2011, the increased utilization, the focus on completing larger and resulting higher-priced jobs, improved pricing and the operating leverage available in a high fixed cost structure has resulted in EBITDA before share-based payments increasing by 73% to $156,798 from $90,435 in 2010.Finance costsFinance costs include interest on finance lease obligations and automobile loans and total $487 in the year ended December 31, 2011(2010: $289).Income Tax ExpenseAt the expected combined income tax rate of 26.5%, the profit before income tax for the year ended December 31, 2011 of $129,923 results in an expected income tax expense of $34,430, compared to the actual income tax expense of $34,653.Profit and comprehensive income and earnings per shareProfit and comprehensive income increased 78% to $95,270 for the year ended December 31, 2011 from $53,632 in 2010.  The increase in net earnings is due to the significant increase in Canyon's fracturing services as discussed above.For the year ended December 31, 2011, basic and diluted earnings per share was $1.57 and $1.53 respectively, compared to basic and diluted earnings per share of $0.95 and $0.92 earned in 2010.ACCOUNTING 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, the Consolidated Financial Statements for the years ended December 31, 2011 and 2010 have been prepared in accordance with International Financial Reporting Standard 1, "First-time Adoption of International Financial Reporting Standards".The adoption of IFRS has not had an impact on the Company's operations, strategic decisions and funds from operations (see NON-GAAP MEASURES).  Further information on the effect of adopting IFRS is outlined in the Accounting Policies and Estimates paragraph of this MD&A.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; 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. For further information: Brad Fedora President and CEO Canyon Technical Services Ltd 2900 Bow Valley Square III 255 - 5 Avenue SW Calgary, Alberta, T2P 3G6 Phone:  403-290-2491 Fax: 403-355-2211 Or Barry O'Brien Vice President, Finance and CFO Canyon Technical Services Ltd 2900 Bow Valley Square III 255 - 5 Avenue SW Calgary, Alberta, T2P 3G6 Phone:  403-290-2478 Fax: 403-355-2211