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Press release from CNW Group

Calfrac Announces First Quarter Results

Wednesday, May 09, 2012

Calfrac Announces First Quarter Results06:00 EDT Wednesday, May 09, 2012CALGARY, May 9, 2012 /CNW/ - Calfrac Well Services Ltd. ("Calfrac" or "the Company") (TSX: CFW) announces its financial and operating results for the three months ended March 31, 2012. HIGHLIGHTS        Three Months Ended March 31, 20122011Change(C$000s, except per share and unit data)($)($)(%)(unaudited)   Financial   Revenue474,107337,40841Operating income(1)113,38188,00029EBITDA(2)127,99596,89732      Per share - basic2.922.2331      Per share - diluted2.872.1832Net income attributable to the shareholdersof Calfrac before foreign exchange gains(3)59,26441,23344      Per share - basic1.350.9542      Per share - diluted1.330.9343Net income attributable to the shareholdersof Calfrac70,84149,07844      Per share - basic1.621.1343     Per share - diluted1.591.1143Working capital (end of period)431,053356,37021Total equity (end of period)779,426556,27740Weighted average common sharesoutstanding (000s)         Basic43,81143,5291      Diluted44,55044,394-    Operating (end of period)   Pumping horsepower (000s)78253048Coiled tubing units (#)2929-Cementing units (#)232110(1)  Operating income is defined as net income (loss) before depreciation, interest, foreign exchange gains or losses, gains or losses on disposal of capital assets and income taxes. Management believes that operating income is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac's business segments prior to consideration of how these segments are financed or how they are taxed. Operating income is a measure that does not have any standardized meaning under International Financial Reporting Standards (IFRS) and, accordingly, may not be comparable to similar measures used by other companies.(2)  EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization. EBITDA is presented because it is frequently used by securities analysts and others for evaluating companies and their ability to service debt. EBITDA is a measure that does not have any standardized meaning prescribed under IFRS and, accordingly, may not be comparable to similar measures used by other companies.(3)  Net income attributable to the shareholders of Calfrac before foreign exchange gains or losses is defined as net income (loss) attributable to the shareholders of Calfrac before foreign exchange gains or losses on an after-tax basis. Management believes that net income attributable to the shareholders of Calfrac before foreign exchange gains or losses is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac without the impact of foreign exchange fluctuations, which are not fully controllable by the Company. Net income attributable to the shareholders of Calfrac before foreign exchange gains or losses is a measure that does not have any standardized meaning prescribed under IFRS and, accordingly, may not be comparable to similar measures used by other companies. CEO's MESSAGEI am pleased to present Calfrac's operating and financial highlights for the first quarter of 2012 and to discuss our prospects for the remainder of the year. During the first quarter, the Company:achieved record first quarter revenue, EBITDA and net income resulting from high levels of pressure pumping activity in the unconventional oil and natural gas plays in western Canada and the United States;increased its semi-annual dividend by 400 percent from $0.10 per share to $0.50 per share; andcontinued to remain active in the early-stage development of many emerging unconventional resource plays in North America.Financial HighlightsFor the three months ended March 31, 2012, the Company recorded:record first-quarter revenue of $474.1 million versus $337.4 million in the comparable quarter of 2011, led by year-over-year growth in Canada, the United States, Russia and Latin America;operating income of $113.4 million versus $88.0 million in the comparable period in 2011, resulting primarily from strong activity and improved pricing in Canada and the United States, combined with a continued focus on cost control; andnet income of $70.8 million or $1.59 per share diluted compared to net income of $49.1 million or $1.11 per share diluted in the first quarter of 2011. After adjusting for foreign exchange gains, net income in the first quarter of 2012 would have been $59.3 million or $1.33 per share diluted compared to $41.2 million or $0.93 per share diluted in the first quarter of 2011.Operational HighlightsCanadaDuring the first quarter of 2012, fracturing and coiled tubing activity in western Canada was very strong as Calfrac's customers focused on the development of oil and liquids-rich natural gas formations. Activity in these plays represented approximately85 percent of the Company's first-quarter revenue. Although an early spring break-up in March limited Calfrac's ability to execute all of its planned projects, these work programs are expected to be completed in the second and third quarters.Calfrac remains encouraged by the Canadian market fundamentals and expects that its leadership position in fluid technology will provide the basis for further growth, particularly in oil and liquids-rich plays. The Company has been very active in the early stage development of many emerging western Canadian oil plays and is optimistic about their future potential.United StatesCalfrac's United States operations continued to transition to a greater focus on oil-producing reservoirs during the first quarter of 2012. The Company experienced an expanded presence in the North Dakota Bakken as well as the Niobrara oil shale play in Colorado and Wyoming. During the first quarter, the Company deployed a fourth fracturing fleet into North Dakota further expanding its operating scale in that region. Calfrac anticipates that demand for its services in this region will remain high and lead the growth profile for its United States operations in 2012.Calfrac's operations in the Marcellus shale play began the year slower than expected as customers refined their capital programs due to the continued decline in natural gas prices. Activity increased in February and March and, with the Company's strong contract position, Calfrac expects that activity will be relatively strong for the remainder of 2012.The Company continues to proactively manage its commodity and logistical requirements for completions performed in unconventional resource plays. The significant industry shift to unconventional oil basins has resulted in high demand and costs for certain grades of proppant, guar and other chemicals and resulted in lower than expected operating income during the quarter. Calfrac expects to begin recovering some of these cost increases through its contractual cost escalation provisions through the next two quarters.RussiaActivity for Calfrac's Russian operations was slightly lower than expected as one of the Company's customers deferred some projects into the second quarter. First quarter operating margins are traditionally lower than the remainder of the year due to higher costs related to cold operating conditions as well as higher chemical costs due to strong global demand for these products. As the Russian market is concentrated on the development of crude oil reservoirs, increased demand for the Company's services in Western Siberia is anticipated throughout the remainder of the year. Calfrac continues to manage its operating cost structure and remains focused on improving future financial performance.Latin AmericaCompletions activity in the oil-producing regions of Mexico continued to increase from the fourth quarter of 2011 as onshore development expanded due to the strong commodity price environment. The Company continues to deploy new technologies into this market to improve the economic returns of its customers and expects that this could represent a significant growth market in the future.Cementing and coiled tubing activity in Argentina during the first quarter were relatively consistent with the previous quarter. The Company continues to broaden its market presence in anticipation of the future development of several emerging shale natural gas and tight oil plays. As a result, Calfrac plans to commence fracturing operations in Argentina in the second half of 2012.Calfrac commenced cementing operations in Colombia in late 2011 and experienced an increase in activity and revenue base during the first quarter. It is expected that this emerging international market will grow substantially through the deployment of additional capital and expansion of its customer base.Outlook and Business ProspectsCalfrac expects that North American drilling and completion activity in 2012 will continue to focus on the development of oil and liquids-rich natural gas resource plays. Given the strong price of crude oil, continued levels of high activity are expected in existing and emerging North American oil plays during 2012 and beyond. With the ongoing technological evolution within tight oil producing reservoirs, it is expected that the economics of these plays will continue to improve and result in further growth in the Company's oil-focused revenue base.In Canada, completion activity in unconventional light oil plays, such as the Cardium, Viking and Bakken as well as emerging plays such as Beaverhill Lake, Alberta Bakken, Dunvegan and Slave Point, is expected to expand as these plays provide very attractive returns at current prices. As a result, fracturing and coiled tubing activity is expected to increase throughout the year and provide further resource-play diversification for Calfrac in western Canada.The Company anticipates that activity in the liquids-rich natural gas plays of northwest Alberta and northeast British Columbia will remain strong. In addition to some of the traditional producing areas, emerging areas such as the Duvernay shale could drive significant demand for Calfrac's services in 2012 and beyond. Calfrac will be involved in several Duvernay projects throughout the remainder of 2012 and together with its customers, will continue to refine its completion strategies in this play to improve well economics.An early spring break-up in Canada combined with below-average snow levels over the winter could minimize the traditional impact of road bans on activity during the remainder of the second quarter. To date, the Company has experienced a relatively active second quarter and expects this to continue. In mid-April, the Company commenced a sizable Horn River project which is expected to be completed by early July. In addition, the Company also deployed a fracturing and coiled tubing crew that would otherwise be idle in Canada due to spring break-up, into North Dakota to complete several projects.In the United States, Calfrac's rapidly expanding presence in the Bakken oil shale play has created a platform for significant growth. With its current fleet of four fracturing spreads and one coiled tubing unit combined with the planned addition of a fifth fracturing fleet in the third quarter of 2012, the Company's activity in this market is expected to grow significantly. Service intensity through longer horizontal legs and a greater number of fractures per wellbore, combined with the increased adoption of 24-hour operations, provide the basis for strong growth that is anticipated for North Dakota.The Rocky Mountain region of the United States continues to shift from a predominantly natural gas focused region into a liquids-producing region. While still in the early stages of development, recent exploration successes in the emerging Niobrara oil shale play of northern Colorado and Wyoming provide optimism for future growth. Calfrac's long-standing presence in this region leaves it well-positioned to take advantage of future opportunities.Despite the current price of natural gas, Calfrac believes in the long-term potential of the Marcellus shale play. This play has evolved into one of the most economic natural gas producing regions in the United States. The Company is completing a new district facility in Smithfield, Pennsylvania to service this play, which will also provide the capacity to service a large part of the emerging liquids-rich Utica shale play. Calfrac's strong customer and contract position in the region is expected to provide stability to the Company's operations in the short term as the industry adapts to a lower natural gas price environment.In Russia, Calfrac recently concluded its 2012 tender process and expects that equipment utilization will remain high. The Company continues to focus on streamlining operating costs and anticipates that profitability will improve throughout the remainder of the year as expenses related to cold weather operations become less prominent. Calfrac expects that fracturing of Russian natural gas wells may become more prevalent in the future given the country's status as one of the world's largest natural gas producers. In addition, the Company believes that the Russian market may begin to increase the application of horizontal drilling and multi-stage completion technology, which could also increase demand for Calfrac's services.In Mexico, the Company has been encouraged by the improvement in the Mexican oilfield service environment and believes that this will continue given the strong price of crude oil increasing onshore development in Mexico. The Company recognizes this country's long-term potential and will remain focused on providing new technology and improving its operating efficiencies.Despite some of the current political challenges in Argentina, the Company remains encouraged by the development of a number of emerging domestic unconventional oil and natural gas plays which are expected to drive further oilfield activity over the longer term. Horizontal drilling combined with multi-stage fracturing will be important to developing these reservoirs. In response to these market opportunities, Calfrac deployed additional cementing and coiled tubing equipment in 2011 and expects to commence fracturing operations in Argentina during the last half of 2012.The Company's recent entry into Colombia is consistent with Calfrac's international expansion strategy of using cementing or coiled tubing operations, which require a smaller initial capital investment, to provide an opportunity to build a market presence prior to the potential deployment of fracturing equipment. The Company expects that the emerging Colombia market will provide significant opportunities for growth. This represents yet another oil focused international growth opportunity as the Company continues to carry out its long-term growth strategy.On behalf of the Board of Directors,Douglas R. RamsayChief Executive OfficerMay 7, 2012First Quarter 2012 OverviewIn the first quarter of 2012, the Company:achieved record first quarter revenue of $474.1 million, an increase of 41 percent from the first quarter of 2011 driven primarily by strong growth in Calfrac's Canadian and United States operations;reported operating income of $113.4 million versus $88.0 million in the same quarter of 2011, mainly due to high levels of fracturing and coiled tubing activity in the unconventional oil and liquids-rich plays of western Canada combined with strong fracturing activity in North Dakota and the Marcellus shale play in Pennsylvania and West Virginia;increased its semi-annual dividend by 400 percent from $0.10 per share to $0.50 per share;net income of $70.8 million or $1.59 per share diluted compared to net income of $49.1 million or $1.11 per share diluted in the first quarter of 2011. After adjusting for foreign exchange gains, net income in the first quarter of 2012 would have been $59.3 million or $1.33 per share diluted compared to $41.2 million or $0.93 per share diluted in the first quarter of 2011.incurred capital expenditures of $84.1 million versus $65.8 million in the first quarter of 2011, primarily to bolster the Company's fracturing operations.Financial Overview - Three Months Ended March 31, 2012 Versus 2011    Canada   Three Months Ended March 31,20122011Change(C$000s, except operational information)($)($)(%)(unaudited)   Revenue225,824201,45412Expenses         Operating144,273128,80112      Selling, General and Administrative (SG&A)4,2194,220- 148,492133,02112Operating income(1)77,33268,43313Operating income (%)34.2%34.0%1Fracturing revenue per job ($)199,928159,59025Number of fracturing jobs1,0371,147(10)Pumping horsepower, end of period (000s)28921137Coiled tubing revenue per job ($)30,37524,44124Number of coiled tubing jobs609753(19)Coiled tubing units, end of period (#)2122(5)(1) Refer to "Non-GAAP Measures" on page 11 for further information.  RevenueRevenue from Calfrac's Canadian operations during the first quarter of 2012 was $225.8 million versus $201.5 million in the comparable three-month period of 2011. The 12 percent increase in revenue was primarily due to improved pricing, larger jobs and a larger fleet of fracturing equipment operating in the oil and liquids-rich gas producing regions of the Western Canadian Sedimentary Basin. These factors were partially offset by a reduction in coiled tubing jobs due to the redeployment of a coiled tubing unit to the United States in the fourth quarter of 2011.Operating IncomeOperating income in Canada increased by 13 percent to $77.3 million during the first quarter of 2012 from $68.4 million in the same period of 2011. The increase in Canadian operating income was mainly due to improved pricing and the completion of larger jobs in the unconventional oil resource plays of western Canada combined with a focus on controlling operating and SG&A expenses.United States   Three Months Ended March 31,20122011Change(C$000s, except operational and exchange rate information)($)($)(%)(unaudited)   Revenue194,89998,47498Expenses         Operating145,79566,563119      SG&A5,0003,21655 150,79569,779116Operating income(1)44,10428,69554Operating income (%)22.6%29.1%(22)Fracturing revenue per job ($)82,18971,58115Number of fracturing jobs2,2811,33771Pumping horsepower, end of period (000s)42125267Coiled tubing units, end of period (#)1--Cementing revenue per job ($)30,36220,67547Number of cementing jobs17113428Cementing units, end of period (#)9729US$/C$ average exchange rate(2)1.00130.98592(1) Refer to "Non-GAAP Measures" on page 11 for further information.(2) Source: Bank of Canada.  RevenueRevenue from Calfrac's United States operations increased during the first quarter of 2012 to $194.9 million from $98.5 million in the comparable quarter of 2011. The increase was due primarily to a larger number of fracturing fleets operating in the Bakken play of North Dakota combined with higher fracturing activity in the Marcellus shale play in Pennsylvania and West Virginia. Activity also increased in the Rocky Mountain region as a result of adding another fleet in the Denver-Julesburg Basin to service the Niobrara resource play. The revenue increase was also a result of larger fracturing jobs and an increase in customer demand for ceramic proppant combined with the start-up of coiled tubing operations in North Dakota in the fourth quarter of 2011. The commencement of cementing operations in the Marcellus shale formation in the second quarter of 2011 and the corresponding increase in cementing activity and job sizes also contributed to the increase in revenue.Operating IncomeOperating income in the United States was $44.1 million for the first quarter of 2012, an increase of $15.4 million from the comparative period in 2011. The significant increase in operating income was primarily due to a larger fleet combined with higher equipment utilization in the Bakken oil shale play in North Dakota and in the Marcellus natural gas shale play of Pennsylvania and West Virginia. In addition, the completion of larger fracturing and cementing jobs augmented operating income in the United States during the first quarter of 2012. These factors were partially offset by the use of higher cost proppants in the Bakken play in North Dakota and chemical price increases.Russia   Three Months Ended March 31,20122011Change(C$000s, except operational and exchange rate information)($)($)(%)(unaudited)   Revenue28,09626,3297Expenses         Operating25,13922,26213      SG&A1,4032,135(34) 26,54224,3979Operating income(1)1,5541,932(20)Operating income (%)5.5%7.3%(25)Fracturing revenue per job ($)98,904101,852(3)Number of fracturing jobs1841793Pumping horsepower, end of period (000s)4545-Coiled tubing revenue per job ($)58,22452,23811Number of coiled tubing jobs17015510Coiled tubing units, end of period (#)66-Rouble/C$ average exchange rate(2)0.03320.0337(1)(1) Refer to "Non-GAAP Measures" on page 11 for further information.(2) Source: Bank of Canada.  RevenueDuring the first quarter of 2012, the Company's revenue from Russian operations increased by 7 percent to $28.1 million from $26.3 million in the corresponding three-month period of 2011. The increase in revenue was mainly due to the completion of larger coiled tubing jobs combined with higher coiled tubing and fracturing activity. This increase was offset partially by the Company no longer providing proppant to a customer in Western Siberia.Operating IncomeOperating income in Russia in the first quarter of 2012 was $1.6 million compared to $1.9 million in the corresponding period of 2011. The decrease in operating income was primarily due to higher chemical prices, increased fuel consumption and higher equipment repair expenses.Latin America   Three Months Ended March 31,20122011Change(C$000s, except operational and exchange rate information)($)($)(%)(unaudited)   Revenue25,28811,151127Expenses         Operating21,35411,34988      SG&A1,416530167 22,77011,87992Operating income (loss)(1)2,518(728)-Operating income (loss) (%)10.0%-6.5%-Pumping horsepower, end of period (000s)272223Cementing units, end of period (#)9813Coiled tubing units, end of period (#)11-Mexican peso/C$ average exchange rate(2)0.07720.0818(6)Argentine peso/C$ average exchange rate(2)0.23070.2380(3)(1) Refer to "Non-GAAP Measures" on page 11 for further information.(2) Source: Bank of Canada.  RevenueCalfrac's operations in Latin America generated total revenue of $25.3 million during the first quarter of 2012 versus $11.2 million in the comparable three-month period in 2011. For the three months ended March 31, 2012 and 2011, revenue generated through non-core well servicing activity was $6.1 million and $2.8 million, respectively. The increase in revenue was primarily due to higher fracturing activity, job sizes and pricing in Mexico as well as higher cementing activity and job sizes in Argentina combined with the Company commencing cementing operations in Colombia during the third quarter of 2011.Operating IncomeCalfrac's Latin America division generated an operating income of $2.5 million during the first quarter of 2012 compared to an operating loss of $0.7 million in the comparative quarter in 2011. The turnaround in operating income was primarily due to higher fracturing activity in Mexico combined with the impact of cost reduction measures the Company implemented in Mexico. Higher cementing activity in Argentina and the recent commencement of cementing activity in Colombia also contributed to the improved operating income. This increase was offset partially by the impact of the depreciation of the Argentine and Mexican peso.Corporate   Three Months Ended March 31,20122011Change(C$000s)($)($)(%)(unaudited)   Expenses         Operating2,1801,59537      SG&A9,9478,73714 12,12710,33217Operating loss(1)(12,127)(10,332)(17)% of Revenue2.6%3.1%(16)(1)Refer to "Non-GAAP Measures" on page 11 for further information.  Operating LossThe 17 percent increase in Corporate operating and SG&A expenses from the first quarter of 2011 is mainly due to an increase in the number of personnel supporting the Company's expanded operations and revenue base as well as higher professional fees.DepreciationFor the three months ended March 31, 2012, depreciation expense increased by 3 percent to $22.1 million from $21.5 million in the corresponding quarter of 2011. The increase in depreciation expense is mainly a result of a larger fleet of equipment operating in North America offset partially by the impact of certain fully depreciated componentized assets in Canada and the United States.Foreign Exchange Losses or GainsThe Company recorded a foreign exchange gain of $13.9 million during the first quarter of 2012 versus $8.7 million in the comparative three-month period of 2011. Foreign exchange gains and losses arise primarily from the translation of net monetary assets or liabilities that were held in U.S. dollars in Canada, Russia and Latin America. A majority of the Company's foreign exchange gain recorded in the first quarter of 2012 was attributable to its Russian operations, which have substantial U.S. dollar denominated liabilities. During the quarter, the U.S. dollar weakened against the Russian rouble by 9 percent resulting in significant foreign exchange gains related to this indebtedness.InterestThe Company's interest expense during the first quarter of 2012 was $8.9 million compared to $9.1 million for the comparable period in 2011. This decrease was primarily due to the repayment of the remaining US$4.3 million of its 2015 senior unsecured notes in February 2011 as well as $3.2 million of mortgages related to certain properties acquired in the Century acquisition.Income Tax ExpensesThe Company recorded an income tax expense of $26.3 million during the first quarter of 2012 compared to $17.2 million in the comparable period of 2011. The effective income tax rates for the three months ended March 31, 2012 and 2011 were 27 percent and 26 percent, respectively. The increase in total income tax expense was primarily due to higher profitability in the United States and Canada.Summary of Quarterly Results Three Months Ended      June 30,      Sept. 30,      Dec. 31,      Mar. 31,      June 30,      Sept. 30,      Dec. 31,      Mar. 31, 20102010201020112011201120112012(unaudited)($)($)($)($)($)($)($)($)Financial (C$000s, except per share and operating data)        Revenue164,849275,245268,710337,408269,456440,491490,037474,107Operating income(1)14,87869,34362,18488,00047,937126,527150,364113,381EBITDA(1)11,63770,76462,46496,89750,597102,042149,146127,995      Per share - basic0.271.641.442.231.162.333.402.92      Per share - diluted0.271.631.422.181.142.303.382.87Net income (loss) attributable              to shareholders of Calfrac(10,280)31,95516,12649,07812,07147,38178,92170,841      Per share - basic(0.24)0.740.371.130.281.081.801.62      Per share - diluted(0.24)0.740.371.110.271.071.791.59Capital expenditures26,81330,09747,01565,77772,04785,130101,00884,075Working capital (end of period)138,500177,561341,677356,370324,832375,823398,526431,053Total equity (end of period)453,290485,280502,032556,277568,607632,889700,569779,426         Operating (end of period)        Pumping horsepower (000s)472481481530584656719782Coiled tubing units (#)2828292929292929Cementing units (#)2121212122232323(1)Refer to "Non-GAAP Measures" on page 11 for further information  Liquidity and Capital Resources     Three Months Ended March 31,20122011(C$000s)($)($)(unaudited)  Cash flows provided by (used in):        Operating activities92,66322,838      Financing activities7,058(5,164)      Investing activities(83,330)(65,181)      Effect of exchange rate changes on cash and cash equivalents1,865(1,542)Increase (decrease) in cash and cash equivalents18,256(49,049)   Operating ActivitiesThe Company's cash flow provided by operating activities for the three months ended March 31, 2012 was $92.7 million versus $22.8 million in 2011. This increase was primarily due to higher operating income in Canada and the United States. At March 31, 2012, Calfrac's working capital was approximately $431.1 million, an increase of 8 percent from December 31, 2011.Financing ActivitiesCash flow provided by financing activities during the first quarter of 2012 was $7.1 million compared to cash flow used in financing activities of $5.2 million in the comparable 2011 period. During the first quarter of 2012, the Company issued $8.8 million of Calfrac common shares, received bank loan proceeds of $1.3 million and paid dividends totalling $2.6 million.On November 18, 2010, Calfrac completed a private placement of senior unsecured notes for an aggregate principal of US$450.0 million due on December 1, 2020, which bear semi-annual interest of 7.50 percent per annum.On September 27, 2011, the Company increased its credit facilities with a syndicate of Canadian chartered banks from $175.0 million to $250.0 million and extended the term to four years. The facilities consist of an operating facility of $20.0 million and a syndicated facility of $230.0 million. The interest rates for these facilities are based on the parameters of certain bank covenants. For prime-based loans, the rate ranges from prime plus 0.50 percent to prime plus 1.25 percent. For LIBOR-based loans and bankers' acceptance-based loans, the margin ranges from 1.75 percent to 2.50 percent above the respective base rates. As at March 31, 2012, the Company had utilized $2.5 million of its syndicated facility for letters of credit, leaving $247.5 million in available credit.Investing ActivitiesFor the three months ended March 31, 2012, Calfrac's cash flow used in investing activities was $83.3 million versus $65.2 million for 2011. Capital expenditures were $84.1 million in the first quarter of 2012 compared to $65.8 million in the same period of 2011. Capital expenditures were primarily related to supporting the Company's fracturing operations throughout North America.Calfrac's 2012 capital budget is projected to be $271.0 million of which $240.0 million will be directed towards its Canadian and U.S. operations and $31.0 million towards operations in Russia and Latin America. In addition to the 2012 capital program outlined above, Calfrac expects that the carryover amount of approximately $150.0 million associated with its 2011 capital program will be completed during the first half of 2012. The capital program will focus on the Company's fracturing operations in Canada and the United States as well as facilities and infrastructure capital required to support Calfrac's rapidly expanding fracturing, coiled tubing and cementing operations in many of the most active North American unconventional oil and natural gas markets. A portion of this capital is also dedicated to expanding Calfrac's presence in the well servicing markets in Argentina and Colombia.The effect of changes in foreign exchange rates on the Company's cash and cash equivalents during the first quarter of 2012 was an increase of $1.9 million versus a decrease of $1.5 million during the same period of 2011. These changes relate to cash and cash equivalents held by the Company in a foreign currency.At March 31, 2012, the Company had cash and cash equivalents of $151.3 million.With its strong working capital position, credit facilities and anticipated funds provided by operations, the Company expects to have adequate resources to fund its financial obligations, dividends and planned capital expenditures for the remainder of 2012 and beyond.Outstanding Share DataThe Company is authorized to issue an unlimited number of common shares. Employees have been granted options to purchase common shares under the Company's shareholder-approved stock option plan. The number of shares reserved for issuance under the stock option plan is equal to 10 percent of the Company's issued and outstanding common shares. As at May 7, 2012, there were 44,363,025 common shares issued and outstanding and 3,053,862 options to purchase common shares.The Company has a Dividend Reinvestment Plan that allows shareholders to direct that cash dividends paid on all or a portion of their common shares be reinvested in additional common shares that will be issued at 95 percent of the volume-weighted average price of the common shares traded on the Toronto Stock Exchange during the last five trading days preceding the relevant dividend payment date.Normal Course Issuer BidOn November 2, 2011, the Company filed a Notice of Intention to make a Normal Course Issuer Bid ("NCIB") with the Toronto Stock Exchange ("TSX"). Under the NCIB, the Company may acquire up to 3,246,216 common shares, which was 10 percent of the public float outstanding as at October 31, 2011, during the period November 7, 2011 through November 6, 2012. The maximum number of common shares that may be acquired by the Company during a trading day is 42,392, with the exception that the Company is allowed to make one block purchase of common shares per calendar week that exceeds such limit. All purchases of common shares will be made through the TSX at the market price of the shares at the time of acquisition. Any shares acquired under the bid will be cancelled. During the fourth quarter of 2011, the Company purchased 196,800 common shares under the NCIB for a total cost of approximately $4.9 million, all financed out of working capital. The Company did not purchase any shares under NCIB during the first quarter of 2012.AdvisoriesForward-Looking StatementsIn order to provide Calfrac shareholders and potential investors with information regarding the Company and its subsidiaries, including management's assessment of Calfrac's plans and future operations, certain statements contained in this press release, including statements that contain words such as "anticipates", "can", "may", "could", "expect", "believe", "intend", "forecast", "will", or similar words suggesting future outcomes, are forward-looking statements. Forward-looking statements in this document include, but are not limited to, statements with respect to future capital expenditures, future financial resources, future oil and natural gas well activity, future costs or potential liabilities, outcome of specific events, trends in the oil and natural gas industry and the Company's growth prospects including, without limitation, its international growth strategy and prospects. These statements are derived from certain assumptions and analyses made by the Company based on its experience and interpretation of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances, including assumptions related to commodity pricing and North American drilling activity. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Company's expectations. The most significant risk factors to Calfrac relate to prevailing economic conditions; commodity prices; the demand for fracturing and other stimulation services during drilling and completion of oil and natural gas wells; changes in legislation and the regulatory environment; liabilities and risks, including environmental liabilities and risks inherent in oil and natural gas operations; sourcing, pricing and availability of raw materials, components, parts, equipment, suppliers, facilities and skilled personnel; dependence on major customers; uncertainties in weather and temperature affecting the duration of the service periods and the activities that can be completed; and regional competition. Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Further information about these risks and uncertainties may be found under "Business Risks" below.Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized, or that they will have the expected consequences or effects on the Company or its business or operations. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities laws.Business RisksThe business of Calfrac is subject to certain risks and uncertainties. Prior to making any investment decision regarding Calfrac, investors should carefully consider, among other things, the risk factors set forth in the Company's most recently filed Annual Information Form, which are specifically incorporated by reference herein.The Annual Information Form is available through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR), which can be accessed at www.sedar.com. Copies of the Annual Information Form may also be obtained on request without charge from Calfrac at 411 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1E3, or at www.calfrac.com, or by facsimile at 403-266-7381.Non-GAAP MeasuresCertain supplementary measures in this press release do not have any standardized meaning as prescribed under IFRS and are therefore considered non-GAAP measures. These measures include operating income, EBITDA and net income attributable to the shareholders of Calfrac before foreign exchange gains and losses. These measures may not be comparable to similar measures presented by other entities. These measures have been described and presented in this press release in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. Management's use of these measures has been disclosed further in this press release as these measures are discussed and presented.Additional InformationFurther information regarding Calfrac Well Services Ltd., including the most recently filed Annual Information Form, can be accessed on the Company's website at www.calfrac.com or under the Company's public filings found at www.sedar.com.First Quarter Conference CallCalfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2012 first quarter results at 10:00 a.m. (Mountain Time) on Wednesday, May 9, 2012. The conference call dial-in number is 1-888-231-8191 or 647-427-7450. The seven-day replay numbers are 1-855-859-2056 or 416-849-0833 (once connected, enter 75210986). A webcast of the conference call may be accessed via the Company's website at www.calfrac.com.CONSOLIDATED BALANCE SHEETS   March 31,December 31,As at20122011(C$000s) (unaudited)($)($)ASSETS  Current assets        Cash and cash equivalents151,311133,055      Accounts receivable328,856313,898      Income taxes recoverable1,0411,340      Inventories104,45494,344      Prepaid expenses and deposits10,85910,148 596,521552,785Non-current assets        Property, plant and equipment885,845825,504      Goodwill10,52310,523      Deferred income tax assets14,90516,309Total assets1,507,7941,405,121LIABILITIES AND EQUITY  Current liabilities        Accounts payable and accrued liabilities159,842149,740      Bank loan (note 3)3,6112,309      Current portion of long-term debt (note 4)472476      Current portion of finance lease obligations (note 5)1,5431,734 165,468154,259Non-current liabilities        Long-term debt (note 4)442,066450,545      Finance lease obligations (note 5)602740      Other long-term liabilities766774      Deferred income tax liabilities119,46698,234Total liabilities728,368704,552Equity attributable to the shareholders of Calfrac  Capital stock (note 6)285,135271,817Contributed surplus (note 8)22,95224,170Loan receivable for purchase of common shares (note 13)(2,500)(2,500)Retained earnings476,795405,954Accumulated other comprehensive income (loss)(2,599)1,334 779,783700,775Non-controlling interest(357)(206)Total equity779,426700,569Total liabilities and equity1,507,7941,405,121See accompanying notes to the consolidated financial statements.   CONSOLIDATED STATEMENTS OF OPERATIONS   Three Months Ended March 31,20122011(C$000s, except per share data) (unaudited)($)($)Revenue474,107337,408Cost of sales (note 14)360,810252,094Gross profit113,29785,314Expenses        Selling, general and administrative21,98518,838      Foreign exchange gains(13,870)(8,663)      Gain on disposal of property, plant and equipment(744)(234)      Interest8,9359,085 16,30619,026Income before income tax96,99166,288Income tax expense (recovery)        Current1,1341,023      Deferred25,16316,202 26,29717,225Net income for the period 70,69449,063   Net income (loss) attributable to:        Shareholders of Calfrac70,84149,078      Non-controlling interest(147)(15) 70,69449,063   Earnings per share (note 6)        Basic1.621.13      Diluted1.591.11See accompanying notes to the consolidated financial statements.   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  Three Months Ended March 31,20122011(C$000s) (unaudited)($)($)Net income for the period70,69449,063Other comprehensive income (loss)         Change in foreign currency translation adjustment(3,937)(2,802)Comprehensive income for the period66,75746,261Comprehensive income (loss) attributable to:        Shareholders of Calfrac66,90846,282      Non-controlling interest(151)(21) 66,75746,261See accompanying notes to the consolidated financial statements.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY     Equity Attributable to the Shareholders of Calfrac   ShareCapitalContributedSurplusLoanReceivable forPurchase ofCommonSharesAccumulatedOtherComprehensiveIncome (Loss)RetainedEarningsTotalNon-ControllingInterestTotalEquity(C$000s) (unaudited)($)($)($)($)($)($)($)($)Balance - January 1, 2012271,81724,170(2,500)1,334405,954700,775(206)700,569Net income (loss) for the period----70,84170,841(147)70,694Other comprehensive income:              Cumulative translation adjustment---(3,933)-(3,933)(4)(3,937)Comprehensive income (loss) for the period---(3,933)70,84166,908(151)66,757Stock options:              Stock-based compensation recognized-1,570---1,570-1,570      Proceeds from issuance of shares11,547(2,788)---8,759-8,759Dividend Reinvestment Plan shares              issued (note 19)1,771----1,771-1,771Balance - March 31, 2012285,13522,952(2,500)(2,599)476,795779,783(357)779,426         Balance - January 1, 2011263,49015,468(2,500)(4,252)229,865502,071(39)502,032Net income (loss) for the period----49,07849,078(15)49,063Other comprehensive income:              Cumulative translation adjustment---(2,796)-(2,796)(6)(2,802)Comprehensive income (loss) for the period---(2,796)49,07846,282(21)46,261Stock options:              Stock-based compensation recognized-2,409---2,409-2,409      Proceeds from issuance of shares4,311(942)---3,369-3,369Shares cancelled (note 8)(105)105------Denison Plan of Arrangement (note 8)-2,206---2,206-2,206Balance - March 31, 2011267,69619,246(2,500)(7,048)278,943556,337(60)556,277See accompanying notes to the consolidated financial statements.   CONSOLIDATED STATEMENTS OF CASH FLOWS  Three Months Ended March 31,20122011(C$000s) (unaudited)($)($)CASH FLOWS PROVIDED BY (USED IN)  OPERATING ACTIVITIES        Net income for the period70,69449,063      Adjusted for the following:              Depreciation22,06921,524            Stock-based compensation1,5702,409            Unrealized foreign exchange gains(15,389)(10,282)            Gain on disposal of property, plant and equipment(744)(234)            Interest8,9359,085            Deferred income taxes25,16316,202      Interest paid(261)(1,010)      Changes in items of working capital (note 11)(19,374)(63,919)Cash flows provided by operating activities92,66322,838FINANCING ACTIVITIES        Bank loan proceeds1,348-      Issuance of long-term debt, net of debt issuance costs-389      Long-term debt repayments(114)(7,551)      Finance lease obligation repayments(330)(316)      Dividends paid (note 19)(2,605)(3,261)      Denison Plan of Arrangement (note 8)-2,206      Net proceeds on issuance of common shares8,7593,369Cash flows provided by (used in) financing activities7,058(5,164)INVESTING ACTIVITIES        Purchase of property, plant and equipment(84,075)(65,777)      Proceeds on disposal of property, plant and equipment745596Cash flows used in investing activities(83,330)(65,181)Effect of exchange rate changes on cash and cash equivalents1,865(1,542)Increase (decrease) in cash and cash equivalents18,256(49,049)Cash and cash equivalents, beginning of period133,055216,604Cash and cash equivalents, end of period151,311167,555See accompanying notes to the consolidated financial statements.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the three months ended March 31, 2012(Amounts in text and tables are in thousands of Canadian dollars, except share data and certain other exceptions as indicated) (unaudited)1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ADOPTION OF IFRSCalfrac Well Services Ltd. (the "Company") was formed through the amalgamation of Calfrac Well Services Ltd. (predecessor company originally incorporated on June 28, 1999) and Denison Energy Inc. ("Denison") on March 24, 2004 under the Business Corporations Act (Alberta). The registered office is at 411 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1E3. The Company provides specialized oilfield services, including hydraulic fracturing, coiled tubing, cementing and other well completion services to the oil and natural gas industries in Canada, the United States, Russia, Mexico, Argentina and Colombia.The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles as set out in the Canadian Institute of Chartered Accountants' (CICA) Handbook.These condensed consolidated interim financial statements were prepared in accordance with IAS 34 Interim Financial Reporting using accounting policies consistent with IFRS as issued by the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC). They should be read in conjunction with the annual financial statements for the year ended December 31, 2011, which were prepared in accordance with IFRS.These financial statements were approved by the Board of Directors for issuance on May 8, 2012.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThese interim consolidated financial statements follow the same accounting policies and methods of application as the most recent annual financial statements.For purposes of calculating income taxes during interim periods, the Company utilizes estimated annualized income tax rates.  Current income tax expense is only recognized when taxable income is such that current income taxes become payable.3. BANK LOANThe Company's Colombian subsidiary has an operating line of credit of which US$3,620 was drawn at March 31, 2012 (December 31, 2011 - $2,270). It bears interest at the LIBOR rate plus 4.0 percent to 4.5 percent and is secured by a Company guarantee.4. LONG-TERM DEBT March 31,December 31,As at20122011(C$000s)($)($)US$450,000 senior unsecured notes due December 1, 2020,        bearing interest at 7.5% payable semi-annually448,875457,650Less: unamortized debt issuance costs(7,572)(7,943) 441,303449,707$230,000 extendible revolving term loan facility, secured by        Canadian and U.S. assets of the Company--Less: unamortized debt issuance costs(1,269)(1,359) (1,269)(1,359)US$2,273 mortgage maturing May 2018 bearing interest at U.S.    prime less 1%, repayable at US$33 per month principal and    interest, secured by certain real property2,2682,399ARS1,036 Argentina term loan maturing December 31, 2013    bearing interest at 18.25%, repayable at ARS61 per month    principal and interest, secured by a Company guarantee236274 442,538451,021Less: current portion of long-term debt(472)(476) 442,066450,545   The fair value of the senior unsecured notes, as measured based on the closing quoted market price at March 31, 2012, was $451,119 (December 31, 2011 - $446,209). The carrying values of the mortgage obligations, term loans and revolving term loan facilities approximate their fair values as the interest rates are not significantly different from current interest rates for similar loans.The interest rate on the $230,000 revolving term loan facility is based on the parameters of certain bank covenants. For prime-based loans, the rate ranges from prime plus 0.5 percent to prime plus 1.25 percent. For LIBOR-based loans and bankers' acceptance-based loans, the margin thereon ranges from 1.75 percent to 2.5 percent above the respective base rates for such loans. The facility is repayable on or before its maturity date of September 27, 2015, assuming the facility is not extended. The maturity date may be extended by one or more years at the Company's request and lenders' acceptance. The Company also has the ability to prepay principal without penalty. Debt issuance costs related to this facility are amortized over its term.Interest on long-term debt (including the amortization of debt issuance costs) for the three months ended March 31, 2012 was $9,116 (year ended December 31, 2011 - $36,312).The Company also has an extendible operating loan facility, which includes overdraft protection in the amount of $20,000. The interest rate is based on the parameters of certain bank covenants in the same fashion as the revolving term facility. Drawdowns under this facility are repayable on September 27, 2015, assuming the facility is not extended. The term and commencement of principal repayments may be extended by one year on each anniversary at the Company's request and lender's acceptance. The operating facility is secured by the Canadian and U.S. assets of the Company.At March 31, 2012, the Company had utilized $2,494 of its loan facility for letters of credit, leaving $247,506 in available credit.5. FINANCE LEASE OBLIGATIONS March 31,December 31,As at20122011(C$000s)($)($)Finance lease contracts bearing interest at rates ranging from 5.68% to        6.58%, repayable at $124 per month, secured by certain equipment2,2142,579Less: interest portion of contractual payments(69)(105) 2,1452,474Less: current portion of finance lease obligations(1,543)(1,734) 602740   The carrying values of the finance lease obligations approximate their fair values as the interest rates are not significantly different from current rates for similar leases.6. CAPITAL STOCKAuthorized capital stock consists of an unlimited number of common shares. Three Months EndedYear Ended March 31, 2012December 31, 2011Continuity of Common SharesSharesAmountSharesAmount (#)(C$000s)(#)(C$000s)Balance, beginning of period43,709,073271,81743,488,099263,490Issued upon exercise of stock options541,46311,547434,2509,656Dividend Reinvestment Plan shares          issued (note 19)71,1891,771--Shares cancelled (note 8)--(16,476)(105)Purchased under Normal Course Issuer Bid--(196,800)(1,224)Balance, end of period44,321,725285,13543,709,073271,817     The weighted average number of common shares outstanding for the three months ended March 31, 2012 was 43,810,704 basic and 44,550,296 diluted (three months ended March 31, 2011 - 43,529,097 basic and 44,393,945 diluted). The difference between basic and diluted shares is attributable to the dilutive effect of stock options issued by the Company as disclosed in note 9.7. NORMAL COURSE ISSUER BIDThe Company received regulatory approval to purchase its own common shares in accordance with a Normal Course Issuer Bid for the one-year period November 7, 2011 through November 6, 2012. No shares were purchased during the period January 1, 2012 through March 31, 2012. During the year ended December 31, 2011, 196,800 common shares were purchased at a cost of $4,926 and, of the amount paid, $1,224 was charged to capital stock and $3,702 to retained earnings. The common shares were cancelled prior to December 31, 2011.8. CONTRIBUTED SURPLUS Three MonthsYear Ended EndedDecember 31,Continuity of Contributed SurplusMarch 31, 20122011(C$000s)($)($)Balance, beginning of period24,17015,468      Stock options expensed1,5708,500      Stock options exercised(2,788)(2,109)      Shares cancelled-105      Denison Plan of Arrangement-2,206Balance, end of period22,95224,170   The Plan of Arrangement that governed the amalgamation with Denison in 2004 included a six-year "sunset clause" which provided that untendered share positions would be surrendered to the Company after six years. On January 19, 2011, 16,476 common shares of the Company previously held in trust for untendered shareholders were cancelled. In addition, the Company became entitled to approximately 517,000 shares of Denison Mines Corporation. These shares were sold on the Toronto Stock Exchange for net proceeds of approximately $2,189.For accounting purposes, the cancellation of the 16,476 common shares was recorded as a reduction of capital stock and an increase in contributed surplus in the amount of $105, which represents the book value of the cancelled shares as of the date of amalgamation with Denison on March 24, 2004. The receipt and sale of the shares of Denison Mines Corporation is considered an equity contribution by the Company's owners. Consequently, the net proceeds from their sale, along with approximately $17 of cash received in respect of fractional share entitlements, have been added to contributed surplus in an amount totalling $2,206.9. STOCK-BASED COMPENSATION(a) Stock OptionsThree months ended March 31,20122011  Average Average  Exercise ExerciseContinuity of Stock OptionsOptionsPriceOptionsPrice (#)(C$)(#)(C$)Balance, beginning of period3,198,47523.312,583,82517.50      Granted during the period592,30028.261,050,80034.35      Exercised for common shares(541,463)16.18(208,275)16.18      Forfeited(131,525)25.37(31,375)23.02Balance, end of period3,117,78725.403,394,97522.75     Stock options vest equally over four years and expire five years from the date of grant. The exercise price of outstanding options ranges from $8.35 to $37.18 with a weighted average remaining life of 3.18 years. When stock options are exercised the proceeds, together with the amount of compensation expense previously recorded in contributed surplus, are added to capital stock.(b) Restricted Share UnitsDuring the first quarter of 2012, the Company commenced granting of restricted share units to its employees. These units vest equally over three years and are settled either in cash (equal to the market value of the underlying shares at the time of exercise) or in Company shares purchased on the open market. The fair value of the restricted share units is recognized over the vesting period, based on the current market price of the Company's shares. For the three months ended March 31, 2012, $980 of compensation expense was recognized for restricted share units (three months ended March 31, 2011 - $nil). This amount is included in selling, general and administrative expense. There were 229,960 restricted share units outstanding as at March 31, 2012.10. FINANCIAL INSTRUMENTSThe Company's financial instruments included in the consolidated balance sheets are comprised of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, bank loan, long-term debt and finance lease obligations.The fair values of financial instruments included in the consolidated balance sheets, except long-term debt, approximate their carrying amounts. The fair value of the senior unsecured notes based on the closing market price at March 31, 2012 was $451,119 before deduction of unamortized debt issuance costs (December 31, 2011 - $446,209). The carrying value of the senior unsecured notes at March 31, 2012 was $448,875 before deduction of unamortized debt issuance costs (December 31, 2011 - $457,650). The fair values of the remaining long-term debt and finance lease obligations approximate their carrying values, as described in notes 4 and 5.11. SUPPLEMENTAL CASH FLOW INFORMATIONChanges in non-cash operating assets and liabilities are as follows:Three Months Ended March 31,20122011(C$000s)($)($)Accounts receivable(14,958)(70,944)Income taxes recoverable299109Inventory(10,110)(14,383)Prepaid expenses and deposits(710)(1,119)Accounts payable and accrued liabilities6,11322,475Other long-term liabilities(8)(57) (19,374)(63,919)   12. CAPITAL STRUCTUREThe Company's capital structure is comprised of shareholders' equity and long-term debt. The Company's objectives in managing capital are (i) to maintain flexibility so as to preserve the Company's access to capital markets and its ability to meet its financial obligations, and (ii) to finance growth, including potential acquisitions.The Company manages 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, adjust dividends paid to shareholders, issue new shares or new debt or repay existing debt.The Company monitors its capital structure and financing requirements using, amongst other parameters, the ratio of long-term debt to cash flow. Cash flow for this purpose is calculated on a 12-month trailing basis and is defined below. March 31,December 31,For the twelve months ended20122011(C$000s)($)($)Net income208,788187,157Adjusted for the following:   Depreciation88,00287,457 Amortization of debt issuance costs and debt discount1,2161,207 Stock-based compensation7,6618,500 Unrealized foreign exchange gains6,83811,945 Gain on disposal of property, plant and equipment(598)(88) Deferred income taxes95,99887,037Cash flow407,905383,215   The ratio of long-term debt to cash flow does not have any standardized meaning under IFRS and may not be comparable to similar measures used by other companies.At March 31, 2012, the long-term debt to cash flow ratio was 1.08:1 (December 31, 2011 - 1.18:1) calculated on a 12-month trailing basis as follows: March 31,December 31,As at20122011(C$000s, except ratio)($)($)Long-term debt (net of unamortized debt issuance costs) (note 4)442,538451,021Cash flow407,905383,215Long-term debt to cash flow ratio1.08:11.18:1   The Company is subject to certain financial covenants relating to working capital, leverage and the generation of cash flow in respect of its operating and revolving credit facilities. These covenants are monitored on a monthly basis. The Company is in compliance with all such covenants.The Company's capital management objectives, evaluation measures and targets have remained unchanged over the periods presented.13. RELATED-PARTY TRANSACTIONSAn entity controlled by a director of the Company provides ongoing real estate advisory services to the Company. The fees charged for such services for the three months ended March 31, 2012 were $8 (year ended December 31, 2011 - $90), as measured at the exchange amount.In November 2010, the Company lent a senior officer $2,500 to purchase common shares of the Company on the Toronto Stock Exchange. The loan is on a non-recourse basis and is secured by the common shares acquired with the loan proceeds. It is for a term of five years and bears interest at the rate of 3.375 percent per annum, payable annually. The market value of the shares that secure the loan was approximately $2,360 as at March 31, 2012 (December 31, 2011 - $2,411). In accordance with applicable accounting standards regarding share purchase loans receivable, this loan is classified as a reduction of shareholders' equity due to its non-recourse nature. In addition, the shares purchased with the loan proceeds are considered to be, in substance, stock options.The Company leases certain premises from an entity controlled by a director of the Company.  The rent charged for these premises for the three months ended March 31, 2012 was $93 (year ended December 31, 2011 - $312), as measured at the exchange amount.14. PRESENTATION OF EXPENSESThe Company presents its expenses on the consolidated statements of operations using the function of expense method whereby expenses are classified according to their function within the Company. This method was selected as it is more closely aligned with the Company's business structure. The Company's functions under IFRS are as follows:operations; andselling, general and administrative.Cost of sales includes direct operating costs (including product costs, direct labour and overhead costs) and depreciation on assets relating to operations.Additional information on the nature of expenses is as follows:Three Months Ended March 31,2012  2011(C$000s)($)  ($)Product costs140,107  78,785Depreciation22,069  21,524Amortization of debt issuance costs and debt discount309  300Employee benefits expense (note 15)90,284  81,868     15. EMPLOYEE BENEFITS EXPENSEEmployee benefits include all forms of consideration given by the Company in exchange for services rendered by employees.Three Months Ended March 31,2012  2011(C$000s)($)  ($)Salaries and short-term employee benefits85,157  78,151Post-employment benefits (group retirement savings plan)823  593Share-based payments3,286  3,008Termination benefits1,018  116 90,284  81,868     16. CONTINGENCIESGreek Operations As a result of the acquisition and amalgamation with Denison in 2004, the Company assumed certain legal obligations relating to Denison's Greek operations.In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a Greek subsidiary of a consortium in which Denison participated (and which is now a majority-owned subsidiary of the Company), terminated employees in Greece as a result of the cessation of its oil and natural gas operations in that country. Several groups of former employees filed claims against NAPC and the consortium alleging that their termination was invalid and that their severance pay was improperly determined.In 1999, the largest group of plaintiffs received a ruling from the Athens Court of First Instance that their termination was invalid and that salaries in arrears amounting to approximately $9,108 (6,846 euros) plus interest were due to the former employees. This decision was appealed to the Athens Court of Appeal, which allowed the appeal in 2001 and annulled the above-mentioned decision of the Athens Court of First Instance. The said group of former employees filed an appeal with the Supreme Court of Greece, which was heard on May 29, 2007. The Supreme Court of Greece allowed the appeal and sent the matter back to the Athens Court of Appeal for the consideration of the quantum of awardable salaries in arrears. On June 3, 2008, the Athens Court of Appeal rejected NAPC's appeal and reinstated the award of the Athens Court of First Instance, which decision was further appealed to the Supreme Court of Greece. The matter was heard on April 20, 2010 and a decision rejecting such appeal was rendered in June 2010. NAPC and the Company are assessing available rights of appeal to any other levels of court in any jurisdiction where such an appeal is warranted. Counsel to NAPC has obtained a judicial order entitling NAPC to obtain certain employment information in respect of the plaintiffs which is required in order to assess the extent to which the plaintiffs have mitigated any damages which might otherwise be payable.Several other smaller groups of former employees have filed similar cases in various courts in Greece. One of these cases was heard by the Athens Court of First Instance on January 18, 2007. By judgment rendered November 23, 2007, the plaintiff's allegations were partially accepted, and the plaintiff was awarded compensation for additional work of approximately $47 (35 euros), plus interest. The appeal of this decision was heard on June 2, 2009, at which time an additional claim by the plaintiff was also heard. A decision in respect of the hearing has been rendered which accepted NAPC's appeal of the initial claim and partially accepted the additional claim of the plaintiff, resulting in an award of approximately $15 (11 euros), plus interest.Another one of the lawsuits seeking salaries in arrears of $170 (128 euros) plus interest, was heard by the Supreme Court of Greece on November 6, 2007, at which date the appeal of the plaintiffs was denied for technical reasons due to improper service. A rehearing of this appeal was heard on September 21, 2010 and the decision rendered declared once again the appeal inadmissible due to technical reasons. The remaining action, which is seeking salaries in arrears of approximately $584 (439 euros) plus interest, was scheduled to be heard before the Athens Court of First Instance on October 1, 2009, but was adjourned until November 18, 2011 as a result of the Greek elections.  On November 18, 2011 the hearing of this claim was again postponed until May 24, 2012.The maximum aggregate interest payable under the claims noted above amounted to $14,889 (11,191 euros) as at March 31, 2012.The Company has signed an agreement with a Greek exploration and production company pursuant to which it has agreed to assign approximately 90 percent of its entitlement under an offshore licence agreement for consideration including a full indemnity in respect of the Greek legal claims described above. The completion of the transactions contemplated by such agreement is subject to certain conditions precedent, the fulfillment of which is not in the Company's control.Management is of the view that it is improbable there will be an outflow of economic resources from the Company to settle these claims. Consequently, no provision has been recorded in these consolidated financial statements.17. SEGMENTED INFORMATIONThe Company's activities are conducted in four geographic segments: Canada, the United States, Russia and Latin America. All activities are related to hydraulic fracturing, coiled tubing, cementing and other well completion services for the oil and natural gas industry.The business segments presented reflect the Company's management structure and the way its management reviews business performance. The Company evaluates the performance of its operating segments primarily based on operating income, as defined below.  United Latin   CanadaStatesRussiaAmericaCorporateConsolidated(C$000s)($)($)($)($)($)($)Three Months Ended March 31, 2012    Revenue225,824194,89928,09625,288-474,107Operating income (loss)(1)77,33244,1041,5542,518(12,127)113,381Segmented assets764,524552,653125,90964,708-1,507,794Capital expenditures37,19345,540859483-84,075Goodwill7,2362,308979--10,523Three Months Ended March 31, 2011     Revenue201,45498,47426,32911,151-337,408Operating income (loss)(1)68,43328,6951,932(728)(10,332)88,000Segmented assets654,625359,787117,20732,522-1,164,141Capital expenditures25,80937,3622,330276-65,777Goodwill7,2362,308979--10,523(1)  Operating income (loss) is defined as net income (loss) before depreciation, interest, foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, and income taxes.Three Months Ended March 31,20122011(C$000s)($)($)Net income70,69449,063Add back (deduct):        Depreciation22,06921,524      Interest8,9359,085     Foreign exchange gains(13,870)(8,663)     Gain on disposal of capital assets(744)(234)     Income taxes26,29717,225Operating income113,38188,000   Operating income does not have any standardized meaning under IFRS and may not be comparable to similar measures used by other companies.The following table sets forth consolidated revenue by service line:Three Months Ended March 31,20122011(C$000s)($)($)Fracturing429,379303,627Coiled tubing30,78526,559Cementing7,8754,462Other6,0682,760 474,107337,408   18. SEASONALITY OF OPERATIONSThe Company's Canadian business is seasonal in nature. The lowest activity levels are typically experienced during the second quarter of the year when road weight restrictions are in place and access to wellsites in Canada is reduced.19. DIVIDEND REINVESTMENT PLANThe Company has introduced a Dividend Reinvestment Plan (DRIP) that allows shareholders to direct cash dividends paid on all or a portion of their common shares to be reinvested in additional common shares that are issued at 95 percent of the volume-weighted average price of the common shares traded on the Toronto Stock Exchange during the last five trading days preceding the relevant dividend payment date.A dividend of $0.10 per common share was declared on December 8, 2011 and paid on January 31, 2012. Of the total dividend in the amount of $4,376, $1,771 was reinvested under the DRIP into 71,189 common shares of the Company. For further information: Douglas R. Ramsay Chief Executive Officer Telephone:  403-266-6000 Fax:  403-266-7381 Laura A. Cillis Senior Vice President, Finance  and Chief Financial Officer Telephone:  403-266-6000 Fax:  403-266-7381 Tom J. Medvedic Senior Vice President, Corporate Development Telephone:  403-266-6000 Fax:  403-266-7381