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Press release from Marketwire

GASFRAC Announces Fourth Quarter 2011 Results

Friday, March 16, 2012

GASFRAC Announces Fourth Quarter 2011 Results17:28 EDT Friday, March 16, 2012CALGARY, ALBERTA--(Marketwire - March 16, 2012) - GASFRAC Energy Services, Inc (TSX:GFS)Zeke Zeringue, Chief Executive Officer commented "I am pleased to announce that revenue in the fourth quarter increased 44% to $59.3 million as compared to $41.1 million in the fourth quarter of 2010. Further, EBITDA increased to $7.9 million from $5.8 million. A main focus remains that of increasing the utilization on our entire fleet of fracturing sets through the adoption of our game changing technology. This objective will not be without its challenges. We continue to collect more and more data demonstrating the impressive impact of the GASFRAC technology on production results for our customers. Saying that, we realize that any new technology has a natural adoption curve and it is our job to clearly demonstrate to potential customers the benefits of our technology. That is has been, and continues to be, one of my primary focuses. In the four months I have been with GASFRAC I have visited with senior executives at numerous customers and potential customers at in both Canada and the U.S.A. The response I have received has been very positive - customers are pleased with results and potential customers are intrigued with the potential for them. This was clearly demonstrated with the long term contract we signed with Blackbrush in February. It is our goal to close several more similar contracts through the remainder of the year. Another key element to our strategy is "operational excellence". Our goal is to deliver an effective, efficient and seamless service to our customers. Each and every job we look for ways to get even better. Through this culture of continuous improvement we will better serve our customers and achieve superior results. One way we have seen results from this focus is an increase in our average pumping day revenue in 2011 to $500,000 from $324,000 in 2010. I expect 2012 to be another year of progress for GASFRAC, albeit not without its challenges. It is never easy introducing a new technology but I firmly believe GASFRAC has the right elements in place and with focus, hard work, time and determination we will achieve on the great potential of our technology."Management's Discussion and Analysis Year Ended December 31, 2011 Management's discussion and analysis ("MD&A") of the financial condition and the results of operations should be read in conjunction with the consolidated financial statements for the twelve months ended December 31, 2011 of GASFRAC Energy Services Inc. ("the Company" or the "Company"), together with the accompanying notes. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standard Board. Previously, the Company prepared its annual consolidated financial statements in accordance with Canadian generally accepted accounting principles ("GAAP"). Readers should also refer to the "Forward-Looking Statements" legal advisory at the end of this MD&A. This MD&A has been prepared using information that is current to March 16, 2012. All references to dollar amounts are in Canadian dollars. Figures are in '000s except share and per share data or as otherwise noted. Unless the context otherwise requires, all references in this MD&A to "we", "us" or "our" mean The Company.Business of GASFRAC GASFRAC Energy Services Inc. was incorporated on February 13, 2006 in Canada under the Business Corporations Act in the Province of Alberta. The Company is an oil and gas well fracturing company that has developed new technology, the "LPG Fracturing Process", to enable wells to be fractured safely with LPG, more specifically propane and butane. The Company has four wholly-owned subsidiaries, the GASFRAC Energy Services GP Inc., GASFRAC Energy Services Limited Partnership, GASFRAC Luxembourg Finance (a Luxembourg incorporated entity), and GASFRAC Inc. (a U.S. incorporated entity).Changes in Accounting Policies On January 1, 2011, the Company adopted International Financial Reporting Standards ("IFRS") for financial reporting purposes, using a transition date of January 1, 2010. The consolidated financial statements for the twelve months ended December 31, 2011, including required comparative information, have been prepared in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards, and with International Accounting Standard ("IAS") 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 2010 comparative information has been prepared in accordance with IFRS. The adoption of IFRS has not had an impact on the Company's operations, strategic decisions or cash flow as described in note 30 of the consolidated financial statements. Further information on the IFRS impacts is provided in the Accounting Policies and Estimates sections of this MD&A, including reconciliations between Previous GAAP and IFRS Net Income, and other financial metrics. Change of functional currency As the operations of the Company's wholly owned United States of America ("U.S.") subsidiary continue to gain significance relative to the operations of the Company as a whole the Board of Directors has concluded that the most appropriate functional currency of the U.S. subsidiary is the U.S. Dollar, the change was effective for the Company April 1, 2011. This reflects the fact that as of the effective date of this change the majority of the subsidiary's pricing for fracturing services is influenced by the U.S. dollar, the competitive and regulatory environment of the subsidiary are mainly influenced by the U.S. and the U.S. dollar now largely influences labour, material and other costs of providing fracturing services. The previous functional currency of the subsidiary was the Canadian dollar. This change in accounting policy was applied prospectively.Comparative Annual Financial InformationDec 31, 2011Dec 31, 2010Dec 31, 2009Revenue161,36396,90630,428 (2)Operating expenses127,82172,02321,016 (2)Selling, general and administrative expenses17,40510,8236,227 (2)EBITDA(1)13,37415,0682,973 (2)(Loss) Profit for the year(2,853)4,760(2,210) (2)(Loss) Earnings per share - basic(0.05)0.12(0.07) (2)(Loss) Earnings per share - diluted(0.05)0.12(0.07) (2)Weighted average number of shares - basic61,46938,87932,380 (2)Total assets322,508278,70591,610Total non-current liabilities23,305548179Treatments553419142 (2)Revenue per treatment255231214 (2)(1) Defined under Non-IFRS Measures(2)As reported under Previous GAAP Overview of 2011 Revenues grew to $161.4 million from $96.9 million in 2010 and $30.4 million in 2009. Performed 553 fracturing treatments as compared to 419 in 2010 and 142 in 2009. Equipment additions of horsepower and fluid management capacity to enhance revenue generation and utilization capability. Established US presence in Texas and operations in Texas and Colorado. Signed first long term service agreement. Began trading on TSX. Maintained a strong balance sheet. Financial Overview Revenue Revenue for the year increased 66.5% to $161.4 million from $96.9 million in 2010. The increase in revenue is comprised of increased activity in Canada, two full quarters of activity in the U.S. and completion of services and materials to Husky upon the signing of a long-term service and supply agreement in late September. Revenue per treatment also improved from 2010. Revenues from the Canadian operations were $123.9 million as compared to $91.3 million for 2010. Revenues in Canada for the first half of 2011 were negatively impacted by a three week shut down during the first quarter and by a protracted Spring Break-up in the second quarter. Late in September, the Company signed a long-term agreement with Husky. Work under this contract commenced in the fourth quarter. During the quarter operations pursuant to the contract were partially limited due to third party contractor capacity which was resolved by year end. Revenue from U.S. operations for the year was $37.5 million as compared to $5.6 million in 2010. During the second quarter of 2011, the Company moved equipment to Texas, U.S. and commenced operations there. Initially customers scheduled work to use the Company's technology on selected wells to determine the impact on production in those particular formations and conditions resulting in $1.9 million of revenue in the second quarter, $12.6 million in the third quarter and $23.0 million in the fourth quarter. For the year, the Company earned revenues from 15 customers and fracturing activity was performed in several different formations including the Canyon Sands, Wolfcamp, Navarro, Morrow, Eagle Ford, Niobarra and Williams Fork. A total of 85 fracturing treatments were performed. During the year, the Company earned revenues from over forty customers with the top five customers accounting for approximately 52.9% of the Company's revenue and the top 3 customers contributing 62.7% of revenue in 2010. Operating Expense Operating expense increased to $127.8 million (79.2% of revenue) for 2011 from $72.0 million (74.3% of revenue) in 2010. The increase in total operating costs reflects the increase in costs varying directly with increased revenues as well as added fixed costs associated with the increase in fracturing sets and related revenue producing capability. Operating costs have increased as a percentage of sales due to reduced field margins (1.6%) associated with costs arising in the first quarter for standby charges and equipment rental costs incurred during the shutdown. These costs have not recurred through the last three quarters. In addition, payroll costs represent an increase of approximately 3.2%, with the additional sets of equipment, additional personnel were hired and generally these costs were incurred ahead of associated revenues. Selling, General and Administrative ("SG&A") Expense SG&A expense increased to $17.4 million (10.8% of revenue) for 2011 from $10.8 million (11.2% of revenue) in 2010. The increase is primarily due to the hiring of administrative and operations staff to support the growth in both our Canadian and U.S. operations. Depreciation and amortization Amortization increased to $16.5 million during 2011 from $7.2 million in 2010. The increase is due to an increase in operating property and equipment put in place to increase the Company's revenue generation capacity. EBITDA EBITDA decreased to $13.4 million during 2011 from $15.1 million in 2010. The reduction reflects the reduced margins realized due to the negative impact on utilization in the first half of the year. (Loss) Profit for the year Net loss decreased to $2.9 million during 2011 from a profit of $4.8 million during 2010. The Company's tax rate was 6.24% (2010 - 40.48%) reflecting the benefits of previously unrecognized tax loss carry forwards from U.S. operations. Other Comprehensive Income Other comprehensive income of $2.8 million represents exchange differences arising from transalation of the financial statements of the Company's foreign subsidiaries which have U.S. dollars as their functional currency. During 2011 the Canadian dollar depreciated 2.3% against the US dollar, the net effect was to increase our net asset position in these subsidiaries in Canadian dollar terms.Summary of Quarterly ResultsMar. 31 2010Jun. 30 2010Sep. 30 2010Dec. 31 2010Mar. 31 2011Jun 30 2011Sep. 30 2011Dec. 31 2011Revenue15,90613,32326,59041,08730,45214,17057,43759,304Profit (Loss) for the period1,729(1,282)2,3181,995(2,515)(7,768)5,9111,519Earnings (loss) per share - basic0.05(0.04)0.060.04(0.04)(0.13)0.100.03Earnings (loss) per share - diluted0.05(0.04)0.040.03(0.04)(0.13)0.090.03EBITDA (1)3,9414394,8745,81466(5,566)10,9607,914Capital expenditures6,2477,43035,87133,89738,94122,99532,92030,877Working capital (2)17,64013,33041,781118,34679,06949,94633,99829,811Shareholders' equity85,95785,758151,606259,445258,217251,374262,436264,713(1) Defined under Non-IFRS Measures(2) Working capital is defined as current assets less current liabilities Revenues Revenue for the fourth quarter of 2011 was $59.3 million, a 44.3% increase over the $41.1 million generated the fourth quarter of 2010. There were 153 treatments performed in the fourth quarter of 2011 at an average revenue of $388 per treatment as compared to 148 treatments in the same quarter of 2010 at an average revenue per treatment of $278. The improved average revenue per treatment in the quarter results from larger average job size in 2011 as compared to 2010. During the quarter five customers accounted for 77.1% of the Company's revenue. In the fourth quarter of 2010 three customers accounted for 72.2% of revenue. Revenues from the Canadian operations were $36.3 million during the fourth quarter of 2011 as compared to $41.1 million for the fourth quarter 2010. Work pursuant to the Husky contract commenced in the fourth quarter but did not reach planned levels due to third party contractor capacity constraints which were resolved by year end. A total of 110 fracturing treatments were performed at an average price of $330 per treatment as compared to 148 treatments at an average price of $278 per treatment in the fourth quarter of 2010. Revenue from U.S. operations for the quarter was $23.0 million as compared to $nil in 2010. During the quarter the Company performed work in Texas and completed two large projects in Colorado. A total of 43 fracturing treatments were performed at an average price of $535 per treatment. Operating Expenses With the increase in revenue, operating expenses increased to $44.7 million (75.4% of revenue) during the fourth quarter of 2011 from $31.7 million (77.1% of revenue) in the fourth quarter of 2010. Operating cost as a percentage of revenue improved due to improved field margins. Operating costs consist primarily of product costs (propane, proppant, and chemicals), cost of field staff, equipment costs and the cost for two operational bases. Components of the current operational infrastructure have been developed to maintain and support a larger scale of operations than the Company has experienced to date. Selling, General and Administrative ("SG&A") Expenses SG&A expenses increased to $5.3 million (8.9% of revenue) during the fourth quarter of 2011 from $3.3 million (8.0% of revenue) in the fourth quarter of 2010. The increase is primarily due to the hiring of administrative and operations staff to support the growth in both our Canadian and U.S. operations. In addition, the Company incurred severance costs of $0.6 million in the quarter. Depreciation and amortization Depreciation and amortization increased to $5.4 million in the fourth quarter of 2011 from $2.5 million in fourth quarter of 2010 reflecting an increase in operating capital assets during the year. EBITDA EBITDA increased to $7.9 million during the fourth quarter of 2011 from $5.8 million in the fourth quarter of 2010 as a result of increased revenues and margins. Profit for the period Although the Company has increased its activity and revenue levels, increased spending on capital assets have increased insurance, maintenance and depreciation and amortization expenses compared to the same quarter in 2010. As a result, the Company had a profit for the fourth quarter of 2011 of $1.5 million compared to a profit in the fourth quarter of 2010 of $2.0 million.Liquidity and Capital ResourcesDec 31, 2011Dec 31, 2010Cash provided by (used in)Operating activites(9,664)1,650Financing activities29,014167,693Investing activities(113,085)(82,285)(93,735)87,058As at December 31, 2011 the Company had $28.5 million of working capital compared to $118.3 million at December 31, 2010. The decrease in working capital is primarily due to investing in capital assets of $125.7 million during the year. As at December 31, 2011, the Company had approximately $37.8 million of capital commitments as part of the 2011 capital program. The Company anticipates being able to fund these capital expenditures through cash on hand, operating cash flows and financing which may include current or future debt facilities or equity or a combination thereof. Operating Net cash generated from operating activities was ($9.7) million as compared to $1.7 million in 2010. During 2011 $26.0 million of cash was used to fund increased working capital requirements of growth, the largest component of which was an increase in trade and other receivables of $24.4 million. Financing Net cash provided by financing activities for 2011 was $29.0 million compared to $167.7 million provided in 2010. The funds in 2011 resulted from the exercise of stock options. During 2010 the Company closed a private placement of 13,000,000 subscription receipts by the Company at a price of $5.00 per receipt resulting in net cash proceeds of $61.6 million. The Company also closed a bought deal of 12,929,450 common shares in 2010 at a price of $8.45 for net cash proceeds of $105.1. During 2011, the Company completed a new bank syndication for a $10 million operating facility and a $90 million revolving facility (see Note 14 of the consolidated financial statements). A total of $20.3 million was drawn from both facilities as at December 31, 2011. The Company is in compliance with all its debt covenants. Investing For 2011 the Company invested $125.7 million in property and equipment and intangible assets to add revenue producing capacity as compared to $83.7 million in 2010. The expenditures during 2011 included final costs on the 2010 capital build of four sets of equipment and costs of the 2011 capital build of four additional sets and added fluid management capacity. A portion of the 2011 capital build will be spent in 2012.The timing of cash outflows relating to financial liabilities are outlined in the following table:Carrying value at Dec 31, 2011Less than 1 year1 to 3 years4 to 5 yearsGreater than 5 yearsCAD$ '000CAD$ '000CAD$ '000CAD$ '000CAD$ '000Trade payables and accrued liabilities30,84330,843---Provisions966966---Credit facility22,1871,84920,338--Finance lease obligation3,0968322,264--Operating lease payments5,3091,4951,7291,369716Commitment to purchase raw materials68,93568,935---Commitment to purchase plant and equipment37,84437,844---Total169,180142,76424,3311,369716Accounting Policies and Estimates This MD&A is based on the Company's annual consolidated financial statements that have been prepared in accordance with IFRS (see IFRS adoption below). Management is required to make assumptions, judgments and estimates in the application of IFRS. The Company's significant accounting policies are described in note 2 of the December 31, 2011 audited consolidated financial statements. The preparation of the consolidated financial statements requires that certain estimates and judgments be made concerning the reported amount of revenue and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and management's judgment. Anticipating future events involves uncertainty and, consequently, the estimates used by management in the preparation of the consolidated financial statements may change as future events unfold, additional experience is acquired or the environment in which the Company operates changes. The following accounting policies and practices involve the use of estimates that have a significant impact on the Company's financial results. Revenue Recognition The Company's revenue is comprised of services, sale of goods and other revenue and is generally sold on agreed upon priced purchase orders or contracts with the customer. Contract terms do not include provisions for significant post-service delivery obligations. Revenue is measured at the fair value of the consideration received or receivable. Service, sale of goods and other revenue is recognized when the services are provided and collectability is reasonably assured. Allowance for Doubtful Accounts Receivable The Company performs ongoing credit evaluations of its customers and grants credit based upon a credit review and review of historical collection experience, current aging status, financial condition of the customer and anticipated industry conditions. Customer payments are regularly monitored and an allowance for doubtful accounts is established based upon specific situations and overall industry conditions. In situations where the creditworthiness of a customer is uncertain, services are provided on receipt of cash in advance or services are declined. The Company's management believes that the allowance for doubtful accounts is adequate. Depreciation and Amortization Depreciation of the Company's property and equipment incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change, thereby impacting the operation of the Company's property and equipment. Amortization of the finite life intangible assets also incorporates estimates of useful lives and residual values. Income Taxes Income tax expense represents the sum of the tax currently payable and deferred tax. Any tax currently payable is based on taxable profit for the year, which may differ from comprehensive income due to differences between IFRS and tax rules in the relevant tax jurisdictions. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. The Company's business is complex and the calculation of income taxes involves many complex factors as well as the Company's interpretation of relevant tax legislation and regulations. The Company's management believes that the deferred tax provision is adequate. Share-based Compensation The Company has a share-based compensation plan, which is described in Note 18 of the consolidated financial statements. The Company applies the Black-Scholes option pricing model to value its stock options. Under this method, compensation cost attributable to stock options granted is measured at fair value at the grant date and expensed over the vesting period with a corresponding increase to contributed surplus. Upon exercise of the stock options, consideration paid together with the amount previously recognized in contributed surplus is recorded as share capital. The Company has a performance share unit and a restricted share plan as described in note 18. Adoption of IFRS The Company has prepared its annual consolidated financial statements in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards as issued by the IASB. Previously, the Company prepared its financial statements in accordance with Previous GAAP. The adoption of IFRS has not had a material impact on the Company's operations, strategic decisions, cash flow and capital expenditures. The Company's IFRS accounting policies are provided in Note 2 to the consolidated financial statements. In addition, Note 30 to the consolidated financial statements presents reconciliations between the Company's 2010 Previous GAAP results and the 2010 IFRS results. The reconciliations include the consolidated statement of financial position as at January 1, 2010, and December 31, 2010, and consolidated statements of comprehensive earnings for the twelve months ended December 31, 2010.The following provides summary reconciliations of the Company's 2010 Previous GAAP and IFRS results.MAR. 31 2010JUN. 30 2010SEP. 30 2010DEC. 31 2010Annual 2010Net income (loss) - Previous GAAP1,672(1,266)2,5852,0625,053Operating expense re: leases33623240167Stock based compensation(129)(247)(494)(341)(1,211)Amortization159174200239772Interest income / expense(6)(5)(5)(5)(21)Net income (loss) - IFRS1,729(1,282)2,3181,9954,760Accounting Policy Changes Leases Previous GAAP considered the leases to be of a capital nature based on certain quantifiable criteria. Based on the criteria, the Company concluded that the leases on the light vehicles were operating leases in nature. Under IFRS, with the absence of the quantitative criteria provided by Previous GAAP, we determined that qualitatively, the risks and rewards of the lease reside with the Company and as such, treated it as a financing lease. Amortization With the conversion to IFRS, the Company componentized the field equipment into each of the separate components that made up the equipment. We then assessed the useful life and residual value for each of these components. Based on this assessment, certain amortization rates were modified. Stock based compensation Under Previous GAAP, the Company accounted for certain stock based compensation plans whereby the obligation and compensation costs were accrued over the vesting period using the intrinsic value method. The intrinsic value of a share unit is the amount by which the Company's share price exceeds the exercise price of the share unit. For certain stock-based compensation plans, IFRS requires share-based compensation be fair valued using an option pricing model, such as the Black-Scholes model, at each reporting date. Also, under IFRS, each tranche in an award is considered a separate award with its own vesting period. Further, the Company adjusted the volatility of the unvested options and warrants that were issued when the Company was not publically traded from 0% to 50% as IFRS does not permit the use of 0% volatility. Accordingly, upon transition to IFRS, the Company recorded a fair value adjustment of $1,003 as at January 1, 2010 to increase the stock based compensation with a corresponding charge to retained earnings. The Company elected to use the IFRS 1 exemption whereby the stock based compensation that had vested or settled prior to January 1, 2010 was not required to be retrospectively restated. Subsequent fair value adjustments are recorded through stock based compensation. As part of the 2010 qualifying transaction, the amount of consideration in excess of the fair market value of assets received was offset against share issue costs under Previous GAAP. Under IFRS, the amount of consideration in excess of the fair market value of assets received was listed as an unidentifiable service cost and expensed to sales, general and administrative expense. The amount of the adjustment was $245.Recent Accounting Pronouncements Unless otherwise noted the following revised standards are effective for annual periods beginning on or after January 1, 2013 with earlier application permitted. The Company has not yet assessed the impact nor determined whether it will adopt them early.IFRS 9 Financial Instruments was issued in November 2009 and addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments. Such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. Where equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent they do not clearly represent a return on investment; however, other gains and losses associated with such instruments remain in accumulated comprehensive income indefinitely. This standard is effective for annual periods beginning on or after January 1, 2015.IFRS 10 Consolidated Financial Statements requires an entity to consolidate an investee when it has power over the investee, is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through power over the investee. Under the existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces Standard Interpretations Committee (SIC) 12 and parts of IAS 27.IFRS 11 Joint Arrangements requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of assets, liabilities, revenues and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Enterprises - Non-monetary Contributions by Venturers. IFRS 12 Disclosure of Interests in Other Entities establishes disclosure requirements for interests in other entities such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard carries forward existing disclosures and introduces significant additional disclosure that addresses the nature of, and risks associated with, an entity's interest in other entities.IFRS 13 Fair Value Measurementis a comprehensive standard for fair value measurement and disclosure across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosure.Related Party Transactions During the year, the Company performed fracturing services for companies with shared directors earning total revenue of $2.0 million (2010 - nil). During the year the Company also paid $62 (2010 - $287) in consulting fees to two directors. These transactions were in the normal course of operations and have been measured at exchange amounts.Outstanding Share DataCommon SharesWarrantsShare OptionsBalance as at January 1, 201032,650,0002,602,5002,966,000Issues / Granted26,115,700-670,000Issued / Exercised1,460,666(845,000)(669,666)Forfeited--(220,126)Balance as at December 31, 201060,226,3661,757,5002,746,208Issues / Granted--800,000Issued / Exercised2,172,708(932,500)(1,073,875)Forfeited--(42,333)Balance as at December 31, 201162,399,074825,0002,430,000Financial Instruments The Company's strategy is to maintain a capital structure to sustain future growth of the business and retain creditor, investor and market confidence. Recognizing the cyclical nature of the oilfield services industry, the Company strives to maintain a conservative balance between long-term debt and shareholders' equity. The Company's capital structure is currently comprised of shareholders' equity and undrawn long-term bank debt. The Company may occasionally need to increase its level of long-term debt to total capitalization to facilitate growth activities.The company has a $10 million operating demand revolving loan facility and a $90 million committed revolving facility, both of which are subject to various financial and non financial covenants. The covenants are monitored on a regular basis and controls are in place to ensure the Company maintains compliance with these covenants. As at December 31, 2011, the Company is in compliance with all the covenants related with this facility. The Company monitors its capital structure and makes adjustments in light of changing market conditions and new opportunities, while remaining cognizant of the cyclical nature of the oilfield services sector. To maintain or adjust its capital structure, the Company may revise its capital spending, issue new shares, issue new debt, or draw on its current operating line facility. Financial risk management objectives The Company monitors and manages the financial risks relating to the operations of the Company through internal risk procedures which analyze exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.Currently, the Company does not use derivative financial instruments to manage any financial risks. Exchange rate risk managed through foreign currency denominated invoicing by the Company's US subsidiary and reducing the timing of between procurement and payment of foreign currency denominated payables. Market risk Foreign currency exchange rate risk As the Company operates primarily in Canada and the United States of America ("U.S."), fluctuations in the exchange rate between the U.S. dollar and Canadian dollar can have a significant effect on the operating results and the fair value or future cash flows of The Company's financial assets and liabilities. The Canadian entities are exposed to currency risk on foreign currency denominated financial assets and liabilities with adjustments recognized as foreign exchange gains or losses in the consolidated statement of comprehensive income. The U.S. entities with a U.S. dollar denominated functional currency expose the Company to currency risk on the translation of these entities' financial assets and liabilities to Canadian dollars on consolidation. In addition, U.S. entities are exposed to currency risk on financial assets and liabilities denominated in currencies other than their functional currency (U.S. dollars) with adjustments recognized in the consolidated statements of comprehensive income. For the year ended December 31, 2011, a 1% fluctuation in the value of the Canadian dollar relative to the U.S. dollar would have impacted profit before tax by $19 thousand (2010 - $7 thousand) and comprehensive income before tax effects by $672 thousand (2010 - no foreign operations with a functional currency other than the Company's existed).Interest rate risk The Company is exposed to interest rate risk because the Company borrows funds at only variable interest rates. The sensitivity analyses have been determined based on the exposure to interest rates for applicable to outstanding borrowings at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible change in interest rates. If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company's profit before tax would be $111 thousand lower/higher based on the borrowings outstanding at year end. (2010: no borrowings outstanding). All finance leases are concluded at fixed interest rates and a change in market interest rates relating to finance leases will not impact the Company's profit. The Company's sensitivity to interest rates has increased during the current year mainly due to the continued capital construction program leading to a draw on the Company's credit facility. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company assesses the creditworthiness of its customers on an ongoing basis. The Company's exposure and the credit ratings of its counterparties are continuously monitored as are amounts outstanding and age of receivables.Trade receivables are predominately with customers who explore and develop petroleum and natural gas resources mainly in Canada and the southern U.S. The Company is subject to normal industry credit risk. This includes fluctuations in oil and natural gas commodity prices and the ability of customers to obtain attractive debt and/or equity financing. These balances represent the Companies total credit exposure. During the year, the Company earned revenues from more than fifty (2010: >40) customers with the top three customers representing 42% (2010: 63%) of revenue. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has adequate credit facilities in place to meet its current commitments as they become due and further manages its liquidity risk by continuously monitoring forecasts and actual cash flows. Fair values of financial instruments The fair value of the Company's financial instruments included on the consolidated balance sheet approximate their carrying amounts due to their short term maturity.Business Risks The business of the Company is subject to certain risks and uncertainties, including those listed below. Prior to making any investment decision regarding the Company, investors should carefully consider, among other things, the risk factors set forth below. Volatility of Industry Conditions The demand, pricing and terms for the Company's fracturing and well stimulation services largely depend upon the level of exploration and development activity for North American natural gas and, to a lesser extent, oil. Industry conditions are influenced by numerous factors over which the Company has no control, including the level of oil and natural gas prices, expectations about future oil and natural gas prices, the cost of exploring for, producing and delivering oil and natural gas, the decline rates for current production, the discovery rates of new oil and natural gas reserves, available pipeline and other oil and natural gas transportation capacity, weather conditions, political, military, regulatory and economic conditions, and the ability of oil and natural gas companies to raise equity capital or debt financing. A material decline in global oil and natural gas prices or North American activity levels as a result of any of the above factors could have a material adverse effect on The Company's business, financial condition, results of operations and cash flows. Because of the current economic environment and related decrease in demand for energy, natural gas exploration and development in North America has decreased from peak levels in 2008. Warmer than normal winters in North America, among other factors, may adversely impact demand for natural gas and, therefore, demand for oilfield services. If the economic conditions deteriorate further or do not improve, the decline in natural gas exploration and development could cause a decline in the demand for The Company's services. Such decline could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Demand for Oil and Natural Gas Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, and technological advances in fuel economy and energy generation devices could reduce the demand for crude oil and other hydrocarbons. The Company cannot predict the impact of changing demand for oil and natural gas products, and any major changes could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Seasonality The Company's financial results are directly affected by the seasonal nature of the North American oil and natural gas industry. The first quarter incorporates the winter drilling season when a disproportionate amount of the activity takes place in western Canada. During the second quarter, soft ground conditions typically curtail oilfield activity in all of the Company's Canadian operating areas such that many rigs are unable to move about due to road bans. This period, commonly referred to as "spring breakup", occurs earlier in the year in southeastern Alberta than it does in northern Alberta and northeastern British Columbia. Consequently, this is the Company's weakest three-month revenue period. Additionally, if an unseasonably warm winter prevents sufficient freezing, the Company may not be able to access well sites and the Company's operating results and financial condition may therefore be adversely affected. The demand for fracturing and well stimulation services may also be affected by severe winter weather in North America. In addition, during excessively rainy periods in any of the Company's operating areas, equipment moves may be delayed, thereby adversely affecting revenues. The volatility in the weather and temperature can therefore create unpredictability in activity and utilization rates, which can have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Concentration of Customer Base The Company's customer base consists of over forty oil and natural gas exploration and production companies, ranging from large multinational public companies to small private companies. Notwithstanding the Company's broad customer base, the Company had four significant customers that collectively accounted for approximately 48% of the Company's revenue for the year ended December 31, 2011. One of these customers accounted for 26.5% of revenue. The Company's strong relationships with exploration and production companies may result in increased concentration of revenues during periods of reduced activity levels such as the first three months of the year. However, there can be no assurance that the Company's relationship with its primary customers will continue, and a significant reduction or total loss of the business from these customers, if not offset by sales to new or existing customers, would have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Competition Each of the markets in which the Company participates is highly competitive. To be successful, a service provider must provide services that meet the specific needs of oil and natural gas exploration and production companies at competitive prices. The principal competitive factors in the markets in which the Company operates are product and service quality and availability, technical knowledge and experience, reputation for safety and price. The Company competes with large national and multinational oilfield service companies that have greater financial and other resources. These companies offer a wide range of well stimulation services in all geographic regions in which the Company operates. In addition, the Company competes with several regional competitors. As a result of competition, it may suffer from a significant reduction in revenue or be unable to pursue additional business opportunities. Equipment Inventory Levels Because of the long-life nature of oilfield service equipment and the lag between when a decision to build additional equipment is made and when the equipment is placed into service, the inventory of oilfield service equipment in the industry does not always correlate with the level of demand for service equipment. Periods of high demand often spur increased capital expenditures on equipment, and those capital expenditures may add capacity that exceeds actual demand. This capital overbuild could cause the Company's competitors to lower their rates and could lead to a decrease in rates in the oilfield services industry generally, which could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Sources, Pricing and Availability of Raw Materials and Component Parts The Company sources its raw materials, such as proppant, chemicals, nitrogen, carbon dioxide and diesel fuel, and component parts, from a variety of suppliers in North America. Should the Company's suppliers be unable to provide the necessary raw materials and component parts at an acceptable price or otherwise fail to deliver products in the quantities required, any resulting delays in the provision of services could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Capital-Intensive Industry The Company's business plan is subject to the availability of additional financing for future costs of operations or expansion that might not be available, or may not be available on favourable terms. The Company's activities may also be financed partially or wholly with debt, which could increase the Company's debt levels above industry standards. The level of the Company's indebtedness from time to time could impair the Company's ability to obtain additional financing in the future on a timely basis to take advantage of business opportunities that may arise. If the Company's cash flow from operations is not sufficient to fund the Company's capital expenditure requirements, there can be no assurance that additional debt or equity financing will be available to meet these requirements or, if available, on favourable terms. Patents and Proprietary Technology The Company's success will depend, in part, on its ability to obtain patents, maintain trade secret protection and operate without infringing on the rights of third parties. The LPG Fracturing Process patents for the U.S., Canada and International markets remain in examination. However, there can be no assurance that any issued patents will provide the Company with any competitive advantages or will not be successfully challenged by any third parties, or that the patents of others will not have an adverse effect on the ability of the Company to do business. In addition, there can be no assurance that others will not independently develop similar products, duplicate some or all of the Company's products, or, if patents are issued to the Company, design their products so as to circumvent the patent protection that may be held by the Company. In addition, the Company could incur substantial costs in lawsuits in which the Company attempts to enforce its own patents against other parties. Operational Risks The Company's operations are subject to hazards inherent in the oil and natural gas industry, such as equipment defects, malfunction and failures, and natural disasters which result in fires, vehicle accidents, explosions and uncontrollable flows of natural gas or well fluids that can cause personal injury, loss of life, suspension of operations, damage to formations, damage to facilities, business interruption and damage to or destruction of property, equipment and the environment. These hazards could expose the Company to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution, contamination of drinking water and other environmental damages. The Company continuously monitors its activities for quality control and safety, and although it maintains insurance coverage that it believes to be adequate and customary in the industry, such insurance may not be adequate to cover the Company 's liabilities and may not be available in the future at rates that the Company considers reasonable and commercially justifiable. Availability of Qualified Staff Attracting and retaining qualified workers is necessary for the Company to provide reliable services to its customers. With high industry activity there is also high demand for qualified workers and, as such, it is a challenge for the Company to add a significant number of workers to support its planned growth. The Company attempts to overcome this challenge by offering an attractive compensation package, providing an in-depth training program, and offering career growth opportunities. Availability of Debt Financing The Company has facilities with its bank for $100 million of debt financing as discussed in Note 14 of the 2011 Consolidated Audited Financial Statements. Should the Company be unable to renew these facilities in the amount it requires or on terms acceptable to it, significant liquidity issues could result. Financing of future growth The Company's future growth strategy is subject to the availability of financing to support the acquisition of additional capital equipment. This growth may be fully or partially financed with debt which may or may not be available at the time required. Should such debt financing not be available as required it could result in a delay in the Company's ability to grow its operations. Should the Company obtain debt financing there are no assurances that debt levels may increase above industry standards due to the impact of seasonal or cyclical trends or other factors. Management Stewardship The successful operation of the Company's business depends upon the abilities, expertise, judgment, discretion, integrity and good faith of the Company's executive officers, employees and consultants. In addition, the Company's ability to expand its services depends upon its ability to attract qualified personnel as needed. The demand for skilled oilfield employees is high, and the supply is limited. If the Company loses the services of one or more of its executive officers or key employees, it could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Regulations Affecting the Oil and Natural Gas Industry The operations of the Company's customers are subject to or impacted by a wide array of regulations in the jurisdictions in which they operate. As a result of changes in regulations and laws relating to the oil and natural gas industry, the Company's customers' operations could be disrupted or curtailed by governmental authorities. The high cost of compliance with applicable regulations could cause customers to discontinue or limit their operations and may discourage companies from continuing development activities. As a result, demand for the Company's services could be substantially affected by regulations adversely impacting the oil and natural gas industry. Changes in environmental requirements may negatively impact demand for the Company's services. For example, oil and natural gas exploration and production may decline as a result of environmental requirements (including land use policies responsive to environmental concerns). A decline in exploration and production, in turn, could materially and adversely affect the Company. Government Regulations The Company's operations are subject to a variety of federal, provincial, state and local laws, regulations and guidelines in all the jurisdictions in which it operates, including laws and regulations relating to health and safety, the conduct of operations, taxation, the protection of the environment and the manufacture, management, transportation and disposal of certain materials used in the Company's operations. The Company has invested financial and managerial resources to ensure such compliance and expects to continue to make such investments in the future. Such laws or regulations are subject to change and could result in material expenditures that could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. It is impossible for the Company to predict the cost or impact of such laws and regulations on the Company's future operations. In particular, the Company is subject to increasingly stringent laws and regulations relating to importation and use of hazardous materials, radioactive materials and explosives, environmental protection, including laws and regulations governing air emissions, water discharges and waste management. The Company incurs, and expects to continue to incur, capital and operating costs to comply with environmental laws and regulations. The technical requirements of these laws and regulations are becoming increasingly complex, stringent and expensive to implement. These laws may provide for "strict liability" for damages to natural resources or threats to public health and safety. Strict liability can render a party liable for damages without regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict liabilities for remediation of spills and releases of hazardous substances. The Company uses and generates hazardous substances and wastes in its operations. In addition, some of the Company's current properties are, or have been, used for industrial purposes. Accordingly, the Company could become subject to potentially material liabilities relating to the investigation and cleanup of contaminated properties, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. In addition, stricter enforcement of existing laws and regulations, new laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could require the Company to incur costs or become the basis of new or increased liabilities that could reduce the Company's earnings and cash available for operations. The Company believes it is currently in substantial compliance with applicable environmental laws and regulations. The Company is a provider of hydraulic fracturing services; a process that creates fractures extending from the well bore through the rock formation to enable natural gas or oil to move more easily through the rock pores to a production well. Bills pending in the United States House of Representatives and Senate have asserted that chemicals used in the fracturing process could adversely affect drinking water supplies. The proposed legislation would require the reporting and public disclosure of chemicals used in the fracturing process. This legislation, if adopted, could establish an additional level of regulation at the federal level that could lead to operational delays and increased operating costs. The adoption of any future federal or state laws or implementing regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process could make it more difficult to complete natural gas and oil wells and could have a material adverse effect on the Company 's business, financial condition, results of operations and cash flows. Climate Change Initiatives Canada is a signatory to the United Nations Framework Convention on Climate Change and has adopted the Kyoto Protocol established there under to set legally binding targets to reduce nation-wide emissions of carbon dioxide, methane, nitrous oxide and other so-called "greenhouse gases". Details regarding Canada's implementation of the Kyoto Protocol remain unclear. On April 26, 2007, the Government of Canada released its Regulatory Framework for Air Emissions which outlines proposed new requirements governing the emission of greenhouse gases and industrial air pollutants in accordance with the Government's Notice of Intent to Develop and Implement Regulations and Other Measures to Reduce Air Emissions, which was released on October 19, 2006. A further plan setting out the federal government's proposed framework for regulating greenhouse gas emissions was released on March 10, 2008. The framework and associated public documents provide some, but not full, detail on new greenhouse gas and industrial air pollutant limits and compliance mechanisms that the government intends to apply to various industrial sectors, including oil and natural gas producers. Details on potential legislation to enact the proposed regulatory framework for greenhouse gases remain unavailable. Since November 2008, the Government of Canada has expressed an interest in pursuing a potential harmonization of future Canadian greenhouse gas regulation with future regulation in the United States, pursuant to a bilateral treaty, raising uncertain implications for greenhouse gas emission requirements to be applied to Canadian industry, including the oil and natural gas sector. Future federal legislation, including potential international or bilateral requirements enacted under Canadian law, together with provincial emission reduction requirements, such as those in effect under Alberta's Climate Change and Emissions Management Act, and potential further provincial requirements, may require the reduction of emissions or emissions intensity from the Company's operations and facilities. Mandatory emissions reductions may result in increased operating costs and capital expenditures for oil and natural gas producers, thereby decreasing the demand for the Company's services. The mandatory emissions reductions may also impair the Company's ability to provide the Company's services economically. The Company is unable to predict the impact of current and pending emission reduction legislation on the Company and it is possible that such impact may have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Customers Customers are generally invoiced for our services in arrears. As a result, we are subject to our customers delaying or failing to pay invoices. Risk of payment delays or failure to pay is increased during periods of weak economic conditions due to potential reduction in cash flow and access to capital of our customers. The Market Price of the Common Shares May Be Volatile The trading price of securities of oilfield service companies is subject to substantial volatility. The volatility is often based on factors both related to and not related to the financial performance or prospectus of the companies involved. The market price of the Company's Common Shares could be subject to significant fluctuations in response to our operating results, financial condition and other internal factors. Factors that could affect the market price that are not directly related to the Company's performance include commodity prices and market perceptions of the attractiveness of particular industries for investment. The price at which the Common Shares will trade cannot be accurately predicted. Additional Funding Requirements The Company may need additional financing in connection with the implementation of its business and strategic plans from time to time. However, there can be no assurance that the Company will be able to obtain the necessary financing in a timely manner or on acceptable terms, if at all. The implementation of the Company's business and strategic plans from time to time will require a substantial amount of capital and the amounts available to the Company without seeking additional debt or equity financing may not be sufficient to fund such business and strategic plans. The Company may accordingly have further capital requirements to take advantage of further opportunities or acquisitions. Direct and Indirect Exposure to Volatile Credit Markets The ability to make scheduled payments on or to refinance debt obligations depends on the Company's financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain finance, business and other factors beyond its control. Continuing volatility in the credit markets may increase costs associated with debt instruments due to increased spreads over relevant interest rate benchmarks, or affect the ability of the Company, or third parties it seeks to do business with, to access those markets.In addition, access to further financing for the Company or its customers remains uncertain. This condition could have an adverse effect on the industry in which the Company operates and its business, including future operating results. The Company's customers may curtail their drilling and completion programs, which could result in a decrease in demand for the Company's services and could increase downward pricing pressures. In addition, certain customers could become unable to pay suppliers, including the Company, in the event they are unable to access the capital markets to fund their business operations. Such risks, if realized, could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. Adoption of International Financial Reporting Standards Effective January 1, 2011, the Company was required to adopt the International Financial Reporting Standards which may result in materially different reported financial results. Merger and acquisition activity may reduce the demand for the Company's Services. Merger and acquisition activity in the oil and gas exploration and production sector may constrain demand for the Company's services as customers focus on reorganizing the business prior to committing funds to exploration and development projects. Further, the acquiring company may have preferred supplier relationships with oilfield service providers other than the Company. Global Economic Downturn In the event of a continued general economic downturn or a recession, there can be no assurance that the business, financial condition and results of operations of the Company would not be materially adversely affected. Current global financial conditions have been subject to increased volatility and numerous commercial and financial enterprises have either gone into bankruptcy or creditor protection or have had to be rescued by governmental authorities. Access to public financing has been negatively impacted by sub-prime mortgage defaults in the United States, the liquidity crisis affecting the asset-backed commercial paper and collateralized debt obligation markets, massive investment losses by banks with resultant recapitalization efforts and a deterioration in the global economy. Although economic conditions showed improvement towards the latter portion of 2010 and in early 2011, the recovery from the recession since then has been slow in various jurisdictions including in Europe and the United States and has been impacted by various ongoing factors including sovereign debt levels and high levels of unemployment which continue to impact commodity prices and which have resulted in high volatility in currencies and global debt and stock markets.These factors may impact the Company's ability to obtain equity, debt or bank financing on terms commercially reasonable to the Company, or at all. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. If these increased levels of volatility and market turmoil continue, the Company's operations could be adversely impacted and the trading price of the Company's securities could continue to be adversely affected. Convertible Debentures Market for Convertible Debentures: There is currently no market through which the Debentures may be sold and purchasers may not be able to resell the Debentures purchased under the short form prospectus, which may affect the pricing of the Debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the Debentures, and the extent of issuer regulation. No assurance can be given that an active or liquid trading market for the Debentures will develop or be sustained. If an active or liquid market for the Debentures fails to develop or be sustained, the prices at which the Debentures trade may be adversely affected. Whether or not the Debentures will trade at lower prices depends on many factors, including the liquidity of the Debentures, prevailing interest rates and the markets for similar securities, the market price of the Common Shares, general economic conditions and the Company's financial condition, historic financial performance and future prospects. Further, the holders of the Common Shares may suffer dilution if the Company decides to redeem outstanding Debentures for Common Shares or to repay outstanding principal amounts thereunder at maturity of the Debentures by issuing additional Common Shares.Existing and Prior Ranking Indebtedness: The Debentures will be subordinate to Senior Indebtedness of the Company and to any indebtedness of trade creditors of GASFRAC. The Debentures will also be effectively subordinated to claims of creditors of the Company's subsidiaries, except to the extent that the Company is a creditor of such subsidiaries ranking at least pari passu with such creditors. In the event of the Company's insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up, its assets would be made available to satisfy the obligations of the creditors of such Senior Indebtedness before being available to pay the Company's obligations to the holders of the Debentures. Accordingly, all or a substantial portion of the Company's assets could be unavailable to satisfy the claims of the holders of the Debentures.Repayment of the Debentures: The Company may not be able to refinance the principal amount of the Debentures in order to repay the principal outstanding or may not have generated enough cash from operations to meet this obligation. The Company may, at its option, on not more than 60 days and not less than 40 days prior notice and subject to any required regulatory approvals, unless an Event of Default has occurred and is continuing, elect to satisfy its obligation to repay, in whole or in part, the principal amount of the Debentures which are to be redeemed or which have matured by issuing and delivering Common Shares to the holders of the Debentures. There is no guarantee that the Company will be able to repay the outstanding principal amount in cash upon maturity of the Debentures.Redemption on a Change of Control: The Company may be required by Debenture holders to offer to purchase for cash all outstanding Debentures upon the occurrence of a Change of Control. However, it is possible that following a Change of Control, the Company will not have sufficient funds at that time to make the required purchase of outstanding Debentures or that restrictions contained in other indebtedness will restrict those purchases. In addition, the Company's ability to purchase the Debentures in such an event may be limited by law by the terms of other present or future agreements relating to indebtedness and agreements that the Company may enter into in the future which may replace, supplement or amend the Company's future debt. The Company's future credit agreements or other agreements may contain provisions that could prohibit the purchase of the Debentures by the Company. The Company's failure to purchase the Debentures would constitute an Event of Default under the Indenture, which might constitute a default under the terms of the Company's other indebtedness at that time.Absence of Covenant Protection: The Indenture will not restrict the Company or any of its subsidiaries from incurring additional indebtedness or from mortgaging, pledging or charging its assets to secure any indebtedness. The Indenture will not contain any provisions specifically intended to protect holders of the Debentures in the event of a future leveraged transaction involving the Company or any of its subsidiaries.Redemption Prior to Maturity: The Debentures may be redeemed, at the option of the Company, on or after February 28, 2015 and prior to the Maturity Date at any time and from time to time, at the redemption prices set forth in this short form prospectus, together with any accrued and unpaid interest. Holders of Debentures should assume that this redemption option will be exercised if the Company is able to refinance at a lower interest rate or it is otherwise in the interest of the Company to redeem the Debentures. GASFRAC may determine to redeem outstanding Debentures for Common Shares or repay outstanding principal amounts of the Debentures at maturity by issuing additional Common Shares. Accordingly, holders of Common Shares may suffer dilution.Credit Risk: The likelihood that purchasers of the Debentures will receive payments owing to them under the terms of the Debentures will depend on the Company's financial health and creditworthiness at the time of such payments.Disclosure Controls and Procedures An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in National Instrument 52-109. Based on the evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were designed to provide a reasonable level of assurance over the disclosure of material information, and are effective as of December 31, 2011. Internal Controls over Financial Reporting The Company's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have assessed and evaluated the design and effectiveness of the Company's internal controls over financial reporting as defined in National Instrument 52-109 as at December 31, 2011. In making this assessment the Company used the criteria established by the Committee of Sponsoring Organizations (COSO) in the "Internal Control-Integrated Framework". These criteria are in the areas of control environment, risk assessment, control activities, information and communication and monitoring. The Company's assessment included documentation, evaluation and testing of its internal controls over financial reporting. Based on the evaluation, he Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's internal controls over financial reporting are effective to provide reasonable assurance regarding the reliability of the Company's financial reporting and its preparation of financial statements are effective as of December 31, 2011. Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. There have been no changes in the Company's internal controls over financial reporting during the quarter ended December 31, 2011, which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.Off-Balance Sheet Arrangements The Company is not party to any off balance sheet arrangements or transactions.Non-IFRS Measures Certain supplementary measures in this MD&A do not have any standardized meaning as prescribed under IFRS and, therefore, are considered non-IFRS measures. These measures have been described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and ability to generate funds to finance its operations. These measures may not be comparable to similar measures presented by other entities, and are further explained as follows:EBITDA is defined as net income before interest income and expense, taxes, depreciation, amortization and non-controlling interest. EBITDA is presented because it is frequently used by securities analysts and others for evaluating companies and their ability to service debt. EBITDA was calculated as follows:Dec 31, 2011Dec 31, 2010Net (loss) income(2,853)4,760(Deduct) Add back:Interest income - net(109)(86)Depreciation and amortization16,5267,157Income tax (benefit) expense(190)3,237EBITDA13,37415,068Outlook We expect the North American pressure pumping market will remain strong in 2012. While there is some concern as to the level of capital budgets for exploration and development companies in 2012 we expect that expenditures will be flat to marginally down year over year. Further, capital budgets are expected to continue to move to oil and liquids-rich reservoirs and away from natural gas. This trend is positive for the Company as the vast majority of our activity is in oil and liquids-rich reservoirs. Further, development in these reservoirs tends to be service intensive, often requiring multi-stage fracturing. We currently have eight sets of equipment operating (five in Canada and three in the U.S.) with two additional sets being delivered. The expanded fleet size will allow us to have a greater geographic spread of equipment and revenue in 2012 helping to alleviate the extent of the impact of spring break up. Further, the work under the recently signed contract with Husky is for pad fracturing which will allow us to continue a portion of this work through breakup. The ten sets of equipment provide the Company significant revenue capacity beyond that planned for 2012. We will monitor adoption of the GASFRAC technology through the year and make a determination of any additional capital equipment requirements based on specific customer demand such as long term contracts (see discussion below regarding US operations). In Canada, we anticipate dedicating two sets of equipment to the Husky contract which is focused on their development at Ansell. This work should achieve high utilization levels due to the scope of work and the fact that it involves pad fracturing (reducing movement time for the equipment). We further anticipate that demand in the deep basin will remain strong. As in Canada, more drilling activity in the U.S. is being focused on oil and liquids rich gas. From initial mobilization of equipment to the U.S. in the second quarter we experienced revenue growth in each quarter as customers utilized our fracturing technology and began assessments as to its viability in their areas of operation. We are confident that the majority of these assessments will be positive but recognize that the adoption of new technology will take some time as customers assess production results over a period of months. We signed our first long term contract with a U.S. customer in February 2012. A focus for us in 2012 is to add further long term contracts in the US.Forward-Looking Statements This document contains certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These statements are only as of the date of this document and we do not undertake to publicly update these forward looking statements except in accordance with applicable securities laws. These forward looking statements include, among other things:expectations that the Company's innovative technology will provide the Company with opportunities to expand the Company's market share in Alberta and British Columbia; estimates of additional investment required to complete ongoing capital projects; expectations of securing financing for additional capital expenditures for 2012 and beyond; expectations of the duration of spring break up in Canada in 2012; expectations that activity levels in Canada will remain strong and that oil and liquids rich gas drilling will offset declines in dry gas drilling; expectations as to volume of work pursuant to long-term contract with Husky; expectations as to capital development programs of major customers; expectations that the Company has or can obtain sufficient funding to meet its capital plan; expectations that additional operating equipment will be delivered and provide the Company the ability to service demand for large multi-stage treatments; expectations that full benefit of equipment additions will be seen in 2012; expectations as to the ability to recruit and train sufficient personnel to meet staffing requirements; assumption that environmental protection requirements will not have a significant impact on the Company's operations or capital budget; expectations as to the Company's future market position in the industry; expectations as to the supply of raw materials; expectations as to the pricing of the Company's services; expectations as to the timing of additional property and equipment in Canada and the USA; expectations as to the potential for the Company's services in the United Sates; expectations as to obtaining long term contracts with customers; expectations of fracturing industry pricing and the pricing of the Company services in North America in 2012; expectations of oil and natural gas commodity prices in 2012; expectations of the amount of net fracturing horsepower being added to the North American market in 2012 and its impact on the Company's service prices; These statements are only predictions and are based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things, industry activity; effect of market conditions on the demand for the Company's services; the ability to obtain qualified staff, equipment and services in a timely manner; the effect of current plans; the timing of capital expenditures and receipt of added equipment operating capacity; future oil and natural gas prices and the ability of the Company to successfully market its services. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. These risks and uncertainties include: changes in drilling activity; fluctuating oil and natural gas prices; general economic conditions; weather conditions; regulatory changes; the successful development and execution of technology; customer acceptance of new technology; the potential of competing technologies by market competitors; the availability of qualified staff, raw materials and property and equipment.The Company will host a conference call on Monday, March 19, 2012 at 9:00 a.m. MT (11:00 a.m. ET) to discuss the Company's results for the fourth quarter of 2011.To listen to the webcast of the conference call, please enter: http://www.gowebcasting.com/3076 in your web browser or visit the Investor Information section of our website www.gasfrac.com.To participate in the Q&A session, please call the conference call operator at 1-800-952-6845 or 1-416-695-6616 fifteen minutes prior to the call's start time and ask for "GASFRAC Fourth Quarter Results Conference Call".A replay of the call will be available until March 26, 2012 by dialing 1-800-408-3053 (North America) or 1-905-694-9451 (outside North America). Playback passcode: 6133358. The full financial statements and MD&A of the Company will be posted on our website www.gasfrac.com and filed on www.sedar.com under GASFRAC's profile.GASFRAC is an oil and gas technology and service company headquartered in Calgary, Alberta, Canada, and the sole provider of waterless gelled LPG fracturing technology in North America. Requests for shareholder information should be directed to James M Hill.FOR FURTHER INFORMATION PLEASE CONTACT: James M HillGASFRAC Energy Services, Inc.Chief Financial Officer403-515-3387jhill@gasfrac.comwww.gasfrac.com