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Press release from CNW Group

Canyon Reports Strong Results for First Quarter 2012

Tuesday, May 08, 2012

Canyon Reports Strong Results for First Quarter 201220:53 EDT Tuesday, May 08, 2012CALGARY, May 8, 2012 /CNW/ - Canyon Services Group Inc. (TSX: FRC) ("Canyon") is pleased to announce its first quarter 2012 results.  The following should be read in conjunction with the Management's Discussion and Analysis, the Condensed Consolidated Interim Financial Statements and notes of Canyon Services Group Inc. for the three months ended March 31, 2012 and should also be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011, and which are available on SEDAR at www.sedar.comHIGHLIGHTS SUMMARYThe main operating and financial highlights for the first quarter 2012 are as follows (000's of dollars except for horsepower amounts):In Q1 2012, consolidated revenues increased 37% to $135,935 from $99,037 in Q1 2011.EBITDA before share-based payments expense (see NON-GAAP MEASURES) increased by 21% to $58,015 in Q1 2012 from $47,950 in Q1 2011.For the three months ended March 31, 2012, approximately 90% of consolidated revenues were provided by hydraulic fracturing services, with average fracturing revenue per job increasing by 19% to $232,279 in Q1 2012 from $195,282 in Q1 2011.On March 6, 2012, Canyon increased its annual dividend to $0.60 per common share, payable quarterly, and on April 26, 2012, the Company paid a quarterly dividend of $0.15 per common share, or $9.2 million.Canyon's equipment fleet began and exited Q1 2012 with 175,500 HHP but will grow to 225,500 HHP by summer 2012 following completion of the 2012 capital program announced in May 2011.OVERVIEW OF FIRST QUARTER 2012   000's except per share, job amounts and hydraulic pumping capacity (Unaudited)Three months endedMarch 31 20122011Consolidated revenues$135,935$99,037Profit and comprehensive income$37,167$30,118  Per share-basic$0.61$0.50  Per share-diluted$0.59$0.48EBITDA before share-based payments(1)$58,015$47,950Funds from operations(1)$46,584$37,775Total jobs completed (2)934736Consolidated average revenue per job (2)$147,212$135,330Average fracturing revenue per job$232,279$195,282Hydraulic Pumping Capacity    Average HHP175,500120,500  Exit HHP175,500125,500Capital expenditures$34,128$23,143   000's(Unaudited)As atMarch 31, 2012As atDecember 31, 2011Cash balance, net of loans and borrowings (3)$17,146$42,481Working capital$70,030$67,009Note (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 strong operating and financial results in Q1 2012, even though industry activity in the quarter was impacted by January's slow start followed by a week of extremely cold weather, as well as an early spring break-up in March.  In the current quarter, revenues and profit and comprehensive income increased by 37% and 23%, respectively over Q1 2011.  Jobs completed increased by 27% to 934 from 736 in Q1 2011.  Approximately 90% of Canyon's consolidated revenue is generated by its hydraulic fracturing division, with average fracturing revenue per job increasing by 19% to $232,279 in Q1 2012 from $195,282 in Q1 2011. This increase was due to larger job sizes as the horizontal sections of wells lengthened resulting in a higher number of fracture sections per well and larger, high-rate treatments in plays such as the Duvernay.  In 2012, the average consolidated revenue per job increased by 9% to $147,212 in Q1 2012 from $135,330 in Q1 2011.Q1 2012 industry activity saw many customers focusing on drilling activities in the first half of the quarter and then shift to completions in the second half, with Canyon estimating that the average well drilled since Christmas became available for fracturing about the third week of February.  This resulted in Canyon's expanded equipment fleet operating at slightly less than full utilization in the first half of the quarter but at full utilization to the end of the quarter once customers' wells were ready for completion.  With this back-end loading of completion activities in the quarter, the earlier than expected spring break-up resulted in numerous completions programs being deferred to the post spring break-up period, which is expected to augment demand for fracturing services when industry activity again resumes later in Q2 2012.The rapid growth in Canyon's pumping capacity, from 25,500 HHP in late 2009 to 175,500 HHP as at March 31, 2012, and to in excess of 225,000 HHP by the summer of 2012, allows the Company to work on the deeper more complex areas of the Western Canadian Sedimentary Basin ("WCSB") and commit to customers with 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.To date, industry activity continues to be supported by strong oil and NGL prices with a focus by E&P companies on emerging oil and liquids rich natural gas plays, including the Duvernay shale and Slave Point oil, where Canyon is currently active.  Oil and natural gas liquids directed drilling activity now accounts for over 80% of the wells being drilled in the WCSB. With spring break-up beginning earlier than last year, WCSB drilling rig utilization was about 68% in Q1 2012, largely unchanged from the 67% achieved in Q1 2011. On the other hand, well licenses issued in Q1 2012 decreased by approximately 16% over Q1 2011 and by 15% over Q4 2011.  This was mainly due to lower industry cash flows resulting from weaker natural gas prices, which have declined by about 40% to average $2.50 US at Nymex in the current quarter compared to Q1 2011.  The weaker well licensing activity of recent months will likely indicate lower industry activity in the post spring break-up period, however, Canyon believes that it is in the enviable position of having long-established customer relationships, excellent operating performance augmented by new, state-of-the-art equipment and a very strong balance sheet.  Therefore, we are still excited about our expected results and opportunities for 2012.NON-GAAP MEASURESThe Company's Condensed Consolidated Interim Financial Statements have been prepared in accordance with International Accounting Standards (IAS) 34. Certain measures in this document do not have any standardized meaning as prescribed by International Financial Reporting Standards 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 (Unaudited) Three months endedMarch 31  2012 2011Profit and comprehensive income $37,167 $30,118Add (Deduct):    Depreciation and amortization 7,086 4,846Finance costs 161 80Equity-settled share based payment transactions 942 1,918Loss (gain) on sale of property and equipment 41 (30)Income taxes 12,618 11,018EBITDA before share-based payments $58,015 $47,950Funds from Operations    000's (Unaudited)Three months endedMarch 31 2012 2011Net cash from operating activities$12,389 $21,212Add (Deduct):   Income Tax paid19,550 15,604Change in working capital25,915 11,054Current tax(11,270) (10,095)Funds from operations$46,584 $37,775    Operating and Financial HighlightsThe operating and financial highlights for the three months ended March 31, 2012 may be summarized as follows:In Q1 2012, consolidated revenues increased 37% to $135,935 from $99,037 in Q1 2011.For the three months ended March 31, 2012, approximately 90% of consolidated revenues were provided by hydraulic fracturing services, with average fracturing revenue per job increasing by 19% to $232,279 in Q1 2012 from $195,282 in Q1 2011.Jobs completed across all services increased 27% to 934 in Q1 2012 from 736 in Q1 2011.EBITDA before share-based payments expense (see NON-GAAP MEASURES) increased by 21% to $58,015 in Q1 2012 from $47,950 in Q1 2011.In Q1 2012, profit and comprehensive income increased by 23% to $37,167 ($0.59 per share, diluted) from $30,118 ($0.48 per share, diluted) in Q1 2011.On March 6, 2012, Canyon increased its annual dividend to $0.60 per common share, payable quarterly, and on April 26, 2012, the Company paid a quarterly dividend of $0.15 per common share, or $9.2 million.Canyon's equipment fleet began and exited Q1 2012 with 175,500 HHP but will grow to 225,500 HHP by summer 2012 following completion of the 2012 capital program announced in May 2011.Canyon remains in a very strong financial position with available cash of $17 million in addition to available undrawn credit facilities of $60.0 million and working capital of $70 million, including cash, as at March 31, 2012.QUARTERLY COMPARATIVE STATEMENTS OF OPERATIONS    000's except per share amounts(Unaudited)Three Months Ended March 31 2012 2011Revenues$135,935 $99,037Cost of services(80,453) (52,432)Gross profit55,482 46,605Administrative expenses(5,536) (5,389)Results from operating activities49,946 41,216Finance costs(161) (80)Profit before income tax49,785 41,136Income tax expense(12,618) (11,018)Profit and comprehensive income$37,167 $30,118EBITDA before share-based payments(1)$58,015 $47,950Earnings per share:    Basic$0.61 $0.50 Diluted$0.59 $0.48Note (1): See Non-GAAP Measures.RevenuesIn Q1 2012, revenues increased 37% to $135,935 from $99,037 in Q1 2011, while jobs completed increased 27% to 934 in Q1 2012 from 736 in Q1 2011.  Approximately 90% of Q1 2012 consolidated revenues were provided by hydraulic fracturing services with average fracturing revenue per job increasing 19% to $232,279 in Q1 2012 from $195,282 in Q1 2011 due to Canyon's continuing success in expanding its market share in the deeper segments of the market.  In Q1 2012, Canyon's average consolidated revenue per job increased 9% to $147,212 from $135,330 in Q1 2011.Cost of servicesCost of services for the three months ended March 31, 2012 totaled $80,453 (2011: $52,432) and includes materials, products, transportation and repair costs of $53,598 (2011: $34,240), employee benefits expense of $20,067 (2011: $13,601), and depreciation of property and equipment of $6,788 (2011: $4,591).The increase in materials, products, transportation and repair costs is due to the increase in Canyon's business activities.  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 due to additional depreciation pertaining to equipment additions.Administrative expensesAdministrative expenses for the three months ended March 31, 2012 increased to $5,536 from $5,389 in Q1 2011 with an increase in employee benefits expense to $2,984 in Q1 2012 from $1,741 in Q1 2011 being offset by a decrease in share-based payments expense to $942 in Q1 2012 from $1,918 in Q1 2011.  The increase in employee benefits expense is due to Canyon adding management and administrative staff to support its increased business activities, while the lower share-based payments expense is mainly due fluctuations in the price of the Company's common shares.  Administrative expenses also include depreciation of buildings and office equipment and amortization of intangibles of $298 (2011: $255).  In addition, other administrative expenses totaled $1,312 in Q1 2012 compared to $1,475 in Q1 2011.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 Q1 2012, $0.7 million (Q1 2011 - $0.5 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 Q1 2012, $0.2 million was charged to expenses for the Company's Deferred Share Unit Plan and included in accounts payable and accrued liabilities, compared to $1.4 million in Q1 2011.EBITDA before share-based payments (See Non-GAAP Measures)In Q1 2012, EBITDA before share-based payments (see NON-GAAP MEASURES) increased 21% to $58,015 from $47,950 in Q1 2011 due to increased business with Canyon's expanded equipment fleet supported by strong market conditions across the industry.Finance costsFinance costs include interest on finance lease obligations and automobile loans and totaled $161 in Q1 2012 (2011: $80).  The increase in finance costs is due to additional finance leases for automotive equipment to support Canyon's increased business activities.Income Tax ExpenseAt the expected combined income tax rate of 25%, the profit before income tax for Q1 2012 of $49,785 results in an expected income tax expense of $12,446 compared to the actual income tax expense of $12,618.Profit and comprehensive income and earnings per shareProfit and comprehensive income increased 23% to $37,167 for Q1 2012, from $30,118 in Q1 2011 as Canyon's expanded equipment fleet experienced high utilization for most of the quarter.Basic and diluted earnings per share were $0.61 and $0.59, respectively earned in Q1 2012 compared to basic and diluted earnings per share of $0.50 and $0.48, respectively earned in Q1 2011.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 Services Group Inc. 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 Services Group Inc. 2900 Bow Valley Square III 255 - 5 Avenue SW Calgary, Alberta, T2P 3G6 Phone:  403-290-2478 Fax: 403-355-2211