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Press release from CNW Group

Calfrac Announces First Quarter Results

Wednesday, May 08, 2013

Calfrac Announces First Quarter Results

06:00 EDT Wednesday, May 08, 2013

CALGARY, May 8, 2013 /CNW/ - Calfrac Well Services Ltd. ("Calfrac" or "the Company") (TSX-CFW) announces its financial and operating results for the three months ended March 31, 2013.

HIGHLIGHTS
        Three Months Ended March 31,
  2013 2012 Change
(C$000s, except per share and unit data) ($) ($) (%)
(unaudited)      
Financial      
Revenue 423,397 474,107 (11)
Operating income(1) 62,670 113,381 (45)
EBITDA(2) 65,169 127,995 (49)
      Per share - basic 1.44 2.92 (51)
       Per share - diluted 1.43 2.87 (50)
Net income attributable to the shareholders of Calfrac      
  before foreign exchange gains(3) 22,677 59,264 (62)
       Per share - basic 0.50 1.35 (63)
       Per share - diluted 0.50 1.33 (62)
Net income attributable to the shareholders of Calfrac 24,645 70,841 (65)
       Per share - basic 0.55 1.62 (66)
       Per share - diluted 0.54 1.59 (66)
Working capital (end of period) 332,241 431,053 (23)
Total equity (end of period) 802,581 779,426 3
Weighted average common shares outstanding (000s)      
       Basic 45,165 43,811 3
       Diluted 45,534 44,550 2
       
Operating (end of period)      
Pumping horsepower (000s) 1,013 782 30
Coiled tubing units (#) 29 29 -
Cementing units (#) 28 23 22

(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 MESSAGE
I am pleased to present Calfrac's operating and financial highlights for the three months ended March 31, 2013 and to discuss the Company's prospects for the remainder of 2013 and beyond. During the first quarter, the Company:

  • had a very active quarter in western Canada despite a slow start in January;
  • deployed a fourth fracturing crew to Calfrac's Smithfield, Pennsylvania district which services both the Marcellus and Utica shale plays;
  • experienced further increases in the number of horizontal multi-stage fracturing treatments performed in Mexico and Western Siberia; and
  • completed the deployment of fracturing equipment into Argentina in anticipation of fracturing operations which commenced in early May 2013.

Financial Highlights


For the three months ended March 31, 2013, the Company recorded:

  • revenue of $423.4 million, a decrease of 11 percent from the first quarter of 2012 driven primarily by lower pricing in the United States and Canada. This decline was partially offset by strong growth in Calfrac's Russia operations;
  • operating income of $62.7 million versus $113.4 million in 2012, a decrease of 45 percent, mainly as a result of competitive pricing pressures in Canada and the United States combined with higher product and transportation costs in Canada; and
  • net income attributable to the shareholders of Calfrac of $24.6 million or $0.54 per share diluted, which included a non-cash foreign exchange gain of $2.4 million, compared to $70.8 million or $1.59 per share diluted in the comparative period in 2012, which included a primarily non-cash foreign exchange gain of $13.9 million.

Operational Highlights


Canada

The Company experienced a relatively slow start to the first quarter of 2013 as the pace of drilling activity in western Canada did not increase until late 2012. The lag between the commencement of drilling operations and completion activity resulted in lower activity for most of January. As the drilling of these wells was completed, activity increased significantly in late January and early February and this momentum continued throughout the remainder of the quarter. Calfrac's strong activity in the first quarter was due, in part, to colder weather persisting throughout most of western Canada until late March. As a result, revenue from the Company's Canadian operations was 15 percent higher on a sequential basis despite strong activity in the fourth quarter. Operating margins for the quarter on a percentage basis were consistent with the prior quarter with the increase in revenue being offset by higher costs related to supply chain logistics given the large increase in product requirements and longer travel distances to remote locations. In addition, competitive pricing pressures experienced during the latter part of the fourth quarter of 2012 impacted pricing for the first quarter. Pricing in the Canadian fracturing market then stabilized as this market became more balanced when overall oilfield activity increased during the first quarter.

The Company's activity in the first quarter targeted the development of many unconventional oil and natural gas resource plays throughout the Western Canada Sedimentary Basin, including the Montney, Duvernay, Cardium, Viking and various Deep Basin plays. Completions activity was mainly focused on the Montney, Duvernay and Cardium plays that require the use of significant horsepower, manpower and materials. Calfrac anticipates that the development of these reservoirs will represent a significant portion of future activity in western Canada.

United States

Calfrac's first-quarter results in the United States were positively impacted by rightsizing efforts implemented in the fourth quarter of last year and the early part of 2013. This rationalization process combined with higher equipment utilization and enhancements in the Company's supply chain and logistical capabilities contributed significantly to its improved financial performance. Calfrac's U.S. operating cost structure has been realigned with its current activity base and will be closely monitored for any future changes in market conditions. Many of Calfrac's customers increased their activity from very low levels in the fourth quarter, particularly after late November. Some of this increase was related to wells that had been drilled in 2012 but were not completed until 2013. The recovery in activity was largely focused in the Marcellus and Fayetteville shale plays with steady work also experienced in North Dakota and the Rockies region. The recent improvement in the price of natural gas had little impact on gas-focused activity in the first quarter. However, the Company anticipates higher activity in the last six months of 2013 and into 2014.

While the Company is pleased with the improvements in the financial performance of its U.S. division, short-term visibility remains poor. There remains a significant oversupply of capacity servicing this market which is anticipated to limit any significant pricing improvement over the short-term. Although pricing conditions in the United States remain very competitive, Calfrac believes that prices are beginning to stabilize. The inventory of drilled but uncompleted wells and the higher than expected number of horizontal wells drilled in the U.S. has provided a buffer despite an otherwise stagnant rig count. The Company believes that a rig count increase in the United States is required to structurally change the pressure pumping supply/demand balance in this market. As a result, Calfrac will continue to monitor opportunities to redeploy assets into more active and profitable regions until the United States market significantly improves.

Russia

Revenue and operating margins improved during the first quarter for Calfrac's Russian operations as fracturing activity and equipment utilization improved significantly from the fourth quarter of 2012. This improvement in equipment utilization was driven by a greater focus by Calfrac's customers to multi-stage completions within horizontal wellbores. However, the increase in operating margins from the previous quarter was negatively impacted by costs related to cold weather operations. The Company anticipates that operating margins in Russia will improve in the second and third quarters of 2013 as weather becomes less of a factor.

Latin America

Calfrac's financial results in Mexico remain relatively consistent with the fourth quarter with a slight reduction in fracturing activity as the Company was unable to complete a significant horizontal project before the end of the quarter due to operational delays by the operator. Multi-stage fracturing operations within horizontal wellbores in Mexico continued to gain momentum in the first quarter of 2013 as the Company leveraged its proven technologies from Canada and the United States. While in the early stages of development, these technologies are now being deployed to improve Mexican production rates, and Calfrac is very pleased with this emerging trend and the initial successes that have been realized. The Company is optimistic that these technologies will provide a solid basis for growth in the Mexican market over the longer term.

Cementing and coiled tubing activity in Argentina during the first quarter was consistent with Calfrac's expectations. During the first quarter, the Company completed the deployment of fracturing equipment into Argentina. This represents a major milestone for the Company as it builds its presence in this emerging pressure pumping market. With this equipment Calfrac expects to service both conventional and unconventional wells. Start-up costs associated with the commencement of these fracturing operations resulted in lower operating margins for Latin America during the first quarter. The Company currently has 27,000 hydraulic horsepower, seven cementing units and one coiled tubing crew deployed in the Argentina market. The commencement of fracturing operations in Argentina is expected to become more significant in the last half of 2013 and in 2014 and is anticipated to provide meaningful long-term growth for the Company's Latin American division.

Despite an overall reduction in oilfield activity in Colombia due to regulatory and infrastructure issues, Calfrac remains committed to this country. A portion of the Company's cementing fleet is currently contracted under a long-term cementing services agreement with one of the largest oil and gas producers in Colombia. This provides a minimum level of activity to sustain the Company's operations through this period of historically low activity. Calfrac expects that these issues in Colombia will be resolved and that it is well-positioned to take advantage of a future recovery.

Outlook and Business Prospects


Colder temperatures experienced throughout a significant portion of North America during March and April resulted in significant declines in natural gas storage levels and an increase in natural gas prices. This increase in natural gas prices combined with a relatively stable oil-focused rig count in North America leads Calfrac to be cautiously optimistic that the business environment in North America will improve in the last half of 2013. Assuming the increase in natural gas prices is sustainable, natural gas drilling is anticipated to gain momentum throughout the third and fourth quarters of this year providing the basis for a stronger outlook in 2014. Given the capital intensity of unconventional natural gas completions, Calfrac expects that this incremental activity will improve the supply and demand balance for the fracturing industry. Increasing horizontal activity and service intensity through longer horizontal legs and a greater number of fracturing stages will also provide the potential for higher levels of activity for Calfrac.

Canada continues to be the Company's largest operating segment. Calfrac has a strong and active customer base as well as long-term relationships with a number of large customers. Calfrac expects that well completion activity will continue to grow as many of the larger plays in the Western Canada Sedimentary Basin, such as the Montney and Duvernay, transition from delineation to development. This is particularly relevant as many of the natural gas resource plays of northwest Alberta and northeast British Columbia are some of the most economic gas-producing areas in North America. This activity is expected to increase with the influx of capital from foreign entities and large multi-national companies. This interest in western Canadian natural gas is largely related to a long-term liquefied natural gas (LNG) export strategy. Because sufficient natural gas production and reserves must be available to support the construction of LNG export facilities and subsequent LNG exports, the associated increase in capital investment should provide a platform for significant growth for Calfrac's Canadian operations, as a number of longstanding customers are involved in these plans. The Company's leadership position in the development of the Montney, Duvernay and Horn River resource plays is expected to position it to participate significantly in the development of the resources needed to support LNG exports. In particular, Calfrac remains optimistic about the future development of the Duvernay play. The Company is one of the most active service providers in this play and anticipates that its positioning will form the basis of further growth opportunities in Canada during 2013 and beyond. Overall industry activity is expected to grow materially over the next several years. Over the longer term, further operational efficiencies are expected to be achieved through the expanded use of 24-hour operations and multi-well pad development.

While the Company remains optimistic about future natural gas development in western Canada, completions activity in oil plays remains very strong. The use of higher rate treatments in plays such as the Cardium are leading to greater demand for larger fracturing crews and larger stage sizes. Technology and play economics continue to improve which should provide the basis for further increases in future activity.

Calfrac is pleased with the operational improvements that have been implemented in the United States over the last two quarters which resulted in improved financial performance during the first quarter of 2013. The Company rationalized its United States cost structure and implemented additional supply chain and logistical improvements to ensure improved profitability in a lower-revenue environment. While Calfrac is satisfied with the progress made in its U.S. division, a great deal of uncertainty remains with respect to the short-term dynamics of this market. Pricing pressure combined with volatility in equipment utilization has negatively impacted the short term visibility regarding operating margin expectations. Although the Company does not expect the market conditions to change significantly in the United States pumping industry during the second quarter, it is cautiously optimistic that well drilling and completions activity will improve in the latter part of the year. This is partially dependant upon a recovery in natural gas-focused activity combined with working through the inventory of wells drilled that are awaiting completion.

Calfrac continues to believe that it is well-positioned in the U.S. pressure pumping business. In addition to its contract position, Calfrac services two of the most active unconventional resource plays in the United States, including the Bakken oil shale play in North Dakota and the Marcellus shale gas play in Pennsylvania and West Virginia. The Company believes that the Marcellus shale play will be one of the primary beneficiaries of the recent increase in the price of natural gas. In response to this market opportunity, Calfrac recently redeployed an additional fracturing spread into this region which brings the Company's total number of spreads servicing this play to four and, based on a recent tender award, expects that a fifth crew will be operational in the third quarter.

Based on the completion of the 2013 contract tender process in Russia, the Company anticipates that equipment utilization will improve over 2012. With limited opportunities to improve pricing in this market, Calfrac remains focused on streamlining its cost structure in an effort to improve future financial performance. Growth and improved profitability in this segment will be predicated on the introduction of new technologies in Western Siberia, including horizontal drilling and multi-stage completions. There is significant future potential in Russia given its stature as a leading producer of oil and natural gas. The Company has been very pleased with its involvement in the deployment of multi-stage completion technology in horizontal wellbores over the last several quarters. Consequently, Calfrac expects that this trend will continue to drive demand for its services over the short and longer term as Russia's producing sector gains confidence with this completion strategy.

The Mexican oilfield service environment continues to evolve and, similar to Russia, is in the very early stages of using multi-stage fracturing technology within horizontal wellbores. With a focus on onshore development combined with the use of this new technology, Calfrac expects that there will be opportunities to grow this market in the future. With the success of our initial multi-stage horizontal fracturing projects in Mexico, the Company believes that there will be more work of this nature in 2013 and beyond. In addition, several tenders are expected to be published during the remainder of the year which provides the opportunity for incremental work and, contingent on Calfrac's success in securing such work, the allocation of additional equipment to Mexico. However, recent budgetary constraints may curtail some activity in the Chicontepec basin over the short term, which may result in lower equipment utilization throughout the remainder of the year. In response to these new market conditions, the Company has rationalized its Mexican operating cost structure.

With the successful completion of Calfrac's first fracturing treatment in Argentina on May 4th, the Company believes that it is well-positioned to take advantage of opportunities related to the development of unconventional resource plays, which is expected to drive higher oilfield activity over the longer term. Horizontal drilling combined with multi-stage fracturing will be key inputs to unlocking these resources. Currently, there is very limited capacity in-country to service these emerging plays. Calfrac believes that its long standing reputation for service quality, technical expertise and strong customer base will provide the foundation for long-term growth in Argentina.

The Company entered the Colombian oilfield service market in late 2011 and is currently focused on building its customer base in the midst of a challenging environment. Industry activity in Colombia has been much slower than expected recently due to permitting and infrastructure issues. The Company's presence is currently limited to four cementing units, of which two are currently under contract with the largest producer in the country. This should provide a base level of activity to navigate through this period of low activity as the region transitions towards greater activity, and will position the Company favourably to realize on significant long-term growth opportunities.

Updating the press release of August 31, 2012, Laura Cillis has agreed to extend her tenure as Senior Vice President, Finance and Chief Financial Officer until June 30, 2013. Tom Medvedic, Calfrac's Senior Vice President, Corporate Development and formerly Calfrac's Chief Financial Officer from 2004 to 2008, has agreed to serve as interim Chief Financial Officer effective July 1, 2013.

On behalf of the Board of Directors,

Douglas R. Ramsay
Chief Executive Officer
May 6, 2013

First Quarter 2012 Overview


In the first quarter of 2013, the Company:

  • recorded revenue of $423.4 million, a decrease of 11 percent from the first quarter of 2012 driven primarily by lower pricing and job sizes in the United States. The revenue decline in the United States was partially offset by strong growth in Calfrac's Russia operations;
  • reported operating income of $62.7 million versus $113.4 million in 2012, a decrease of 45 percent, mainly as a result of competitive pricing pressures in Canada and the United States combined with higher logistical costs associated with the completion of larger fracturing jobs in Canada;
  • reported net income attributable to the shareholders of Calfrac of $24.6 million or $0.54 per share diluted, which included a non-cash foreign exchange gain of $2.4 million, compared to results in 2012 of $70.8 million or $1.59 per share diluted, which included a primarily non-cash foreign exchange gain of $13.9 million;
  • incurred capital expenditures of $44.0 million, principally related to the Company's fracturing operations in Canada and the United States;
  • reported a period-end working capital increase of 3 percent from December 31, 2012 to $332.2 million at March 31, 2013;
  • declared its first dividend of $0.25 per share now payable on a quarterly basis; and
  • announced a reduced capital budget for 2013 of $74.0 million in February 2013 that will focus on maintenance and support capital and further investment in logistics equipment. Approximately $25.0 million of capital is allocated to supporting Calfrac's growing Latin American operations, including an investment in coiled tubing and fracturing equipment.

Financial Overview - Three Months Ended March 31, 2013 Versus 2012


Canada
Three Months Ended March 31, 2013 2012 Change
(C$000s, except operational information) ($) ($) (%)
(unaudited)      
Revenue 231,576 225,824 3
Expenses      
       Operating 171,795 144,273 19
       Selling, General and Administrative (SG&A) 3,870 4,219 (8)
      175,665     148,492 18
Operating income(1) 55,911 77,332 (28)
Operating income (%) 24.1% 34.2% (30)
Fracturing revenue per job ($) 223,124 199,928 12
Number of fracturing jobs 982 1,037 (5)
Pumping horsepower, end of period (000s) 404 289 40
Coiled tubing revenue per job ($) 23,932 30,375 (21)
Number of coiled tubing jobs 521 609 (14)
Coiled tubing units, end of period (#) 21 21 -
(1)   Refer to "Non-GAAP Measures" on page 12 for further information.



Revenue

Revenue from Calfrac's Canadian operations during the first quarter of 2013 was $231.6 million versus $225.8 million in the comparable three-month period of 2012. The 3 percent increase in revenue was due to larger job sizes in the Duvernay and Montney plays as well as several carbonate plays in western Canada combined with favourable weather conditions, which allowed continued high utilization through the end of the quarter. The increase was partially offset by increased pricing pressure in western Canada.

Operating Income

Operating income in Canada decreased by 28 percent to $55.9 million during the first quarter of 2013 from $77.3 million in the same period of 2012. The decrease in Canadian operating income was primarily due to a more competitive pricing environment in combination with higher operating costs resulting from an increase in logistical costs associated with the completion of larger fracturing jobs and longer average travel distances to wellsites in the unconventional oil and natural gas resource plays of western Canada.

United States
Three Months Ended March 31, 2013 2012 Change
(C$000s, except operational and exchange rate information) ($) ($) (%)
(unaudited)      
Revenue 127,010 194,899 (35)
Expenses      
   Operating      103,848      145,795 (29)
   SG&A 5,123 5,000 2
  108,971 150,795 (28)
Operating income(1) 18,039 44,104 (59)
Operating income (%) 14.2% 22.6% (37)
Fracturing revenue per job ($) 55,084 82,189 (33)
Number of fracturing jobs 2,184 2,281 (4)
Pumping horsepower, end of period (000s) 492 421 17
Cementing revenue per job ($) 32,397 30,362 7
Number of cementing jobs 207 171 21
Cementing units, end of period (#) 15 9 67
US$/C$ average exchange rate(2) 1.0089 1.0013 1

(1)   Refer to "Non-GAAP Measures" on page 12 for further information.
(2)   Source: Bank of Canada.

Revenue

Revenue from Calfrac's United States operations decreased during the first quarter of 2013 to $127.0 million from $194.9 million in the comparable quarter of 2012. The decrease was due primarily to increased pricing pressure and the completion of smaller jobs. Natural gas drilling and completion activity continued to remain relatively low in the United States, and resulted in increased competition in all of the Company's operating regions. Completions activity in natural gas producing areas such as the Marcellus and Fayetteville shale plays as well as the Piceance Basin was impacted negatively as the number of active drilling rigs in these areas decreased by 28 percent in the first quarter of 2013 compared to the same period in 2012.

Operating Income

Operating income in the United States was $18.0 million for the first quarter of 2013, a decrease of $26.1 million from the comparative period in 2012. The significant decrease in operating income was primarily due to competitive pricing pressure and lower fracturing equipment utilization in the unconventional natural gas plays of the United States. The decrease in operating income was mitigated by reductions in labour and maintenance expenses resulting from cost-saving initiatives implemented by the Company in late 2012, combined with supply chain and logistical improvements and declines in the cost of certain key materials such as guar.

Russia
Three Months Ended March 31, 2013 2012 Change
(C$000s, except operational and exchange rate information) ($) ($) (%)
(unaudited)      
Revenue 37,161 28,096 32
Expenses      
   Operating 33,578 25,139 34
   SG&A 1,594 1,403 14
  35,172 26,542 33
Operating income(1) 1,989 1,554 28
Operating income (%) 5.4% 5.5% (2)
Fracturing revenue per job ($)      106,185      98,904 7
Number of fracturing jobs 275 184 49
Pumping horsepower, end of period (000s) 45 45 -
Coiled tubing revenue per job ($) 61,229 58,224 5
Number of coiled tubing jobs 130 170 (24)
Coiled tubing units, end of period (#) 7 6 17
Rouble/C$ average exchange rate(2) 0.0332 0.0332 -
(1)   Refer to "Non-GAAP Measures" on page 12 for further information.
(2)  Source: Bank of Canada.

Revenue

During the first quarter of 2013, the Company's revenue from Russian operations increased by 32 percent to $37.2 million from $28.1 million in the corresponding three-month period of 2012. The increase in revenue was mainly due to higher fracturing activity resulting from increased demand following a successful 2013 tender process and the commencement of horizontal multi-stage fracturing operations in the latter part of 2012 that has continued into 2013. In addition, the Company resumed providing proppant as part of its fracturing operations to a significant customer in Western Siberia in 2013 which also contributed to this increase. The increase in revenue from fracturing operations was partially offset by lower coiled tubing activity.

Operating Income

Operating income in Russia in the first quarter of 2013 was $2.0 million compared to $1.6 million in the corresponding period of 2012. The increase in operating income was primarily due to the higher revenue base combined with greater operating efficiencies associated with multi-stage fracturing, offset partially by higher maintenance and product costs due to the provision of proppant to a significant customer during the quarter.

Latin America
Three Months Ended March 31, 2013 2012 Change
(C$000s, except operational and exchange rate information) ($) ($) (%)
(unaudited)      
Revenue 27,650 25,288 9
Expenses      
   Operating 25,166 21,354 18
   SG&A 1,332 1,416 (6)
       26,498      22,770 16
Operating income(1) 1,152 2,518 (54)
Operating income (%) 4.2% 10.0% (58)
Pumping horsepower, end of period (000s) 72 27 167
Cementing units, end of period (#) 13 11 18
Coiled tubing units, end of period (#) 1 1 -
Mexican peso/C$ average exchange rate(2) 0.0798 0.0772 3
Argentine peso/C$ average exchange rate(2) 0.2012 0.2307 (13)

(1)   Refer to "Non-GAAP Measures" on page 12 for further information.
(2)   Source: Bank of Canada.

Revenue

Calfrac's Latin America operations generated total revenue of $27.7 million during the first quarter of 2013 versus $25.3 million in the comparable three-month period in 2012. The increase in revenue was primarily due to higher coiled tubing activity combined with the completion of larger cementing and coiled tubing jobs in Argentina. This increase in revenue was offset slightly by lower fracturing activity in the Burgos field of northern Mexico as a large project could not be completed in March 2013 due to operational issues by the customer.

Operating Income

Operating income in Latin America for the three months ended March 31, 2013 was $1.2 million compared to $2.5 million in the comparative quarter in 2012. The decrease was mainly related to lower fracturing activity in Mexico combined with costs relating to the start-up of fracturing operations in Argentina.

Corporate
Three Months Ended March 31, 2013 2012 Change
(C$000s) ($) ($) (%)
(unaudited)      
Expenses      
       Operating 2,209 2,180 1
       SG&A 12,212 9,947 23
  14,421 12,127 19
Operating loss(1)      (14,421)      (12,127) 19
    2.6%  
% of Revenue 3.4% 2.6% 31
(1)   Refer to "Non-GAAP Measures" on page 12 for further information.

Operating Loss

The 19 percent increase in corporate expenses in 2013 over 2012 was mainly due to an increase in the Company's global operations and procurement personnel required to support the Company's larger scale of operations. These necessary additions are designed to support Calfrac's continued focus on service quality, operating efficiency and cost management. Higher stock-based compensation expenses of $1.0 million, primarily resulting from additional restricted share units granted in 2013, contributed to the increase in corporate expenses. The increase was offset partially by lower professional fees.

Depreciation

For the three months ended March 31, 2013, depreciation expense increased by 12 percent to $24.8 million from $22.1 million in the corresponding quarter of 2012. The increase in depreciation expense is mainly a result of a larger fleet of equipment operating in North America.

Foreign Exchange Losses or Gains

The Company realized a foreign exchange gain of $2.4 million during the first quarter of 2013 versus a $13.9 million gain in the comparable period in 2012. Foreign exchange gains and losses arise primarily from the translation of net monetary assets or liabilities that were held in United States dollars in Canada, Russia and Latin America. The Company's foreign exchange gain recorded in the quarter was largely attributable to the translation of United States dollar-denominated assets in Canada and United States dollar-denominated liabilities in Mexico. The value of the United States dollar appreciated against the Canadian dollar and depreciated against the Mexican peso during the first quarter, which resulted in a foreign exchange gain related to these net monetary positions.

Interest

The Company's interest expense during the first quarter of 2013 was $9.2 million compared to $8.9 million for the comparable period in 2012. The increase was related to additional short-term borrowings in Latin America.

Income Tax Expenses

The Company recorded income tax expense of $7.0 million during the first quarter of 2013 versus $26.3 million in the comparable period of 2012. The decrease in total income tax expense was primarily due to lower profitability in the United States and Canada. The effective income tax rate for 2013 was 22 percent compared to 27 percent in 2012. The lower effective tax rate for the first quarter of 2013 was primarily due to a lower percentage of taxable income in the United States, which has a higher average statutory tax rate.

Summary of Quarterly Results
 
Three Months Ended       June 30,       Sept. 30,       Dec. 31,       Mar. 31,       June 30,       Sept. 30,       Dec. 31,       Mar. 31,
  2011 2011 2011 2012 2012 2012 2012 2013
(unaudited) ($) ($) ($) ($) ($) ($) ($) ($)
                 
Financial
(C$000s, except per share and operating data)
               
Revenue 269,456 440,491 490,037 474,107 335,780 417,842 367,487 423,397
Operating income(1) 47,937 126,527 150,364 113,381 29,810 70,604 43,218 62,670
EBITDA(1) 50,597 102,042 149,146 127,995 18,736 70,874 46,866 65,169
       Per share - basic 1.16 2.33 3.40 2.92 0.42 1.59 1.05 1.44
       Per share - diluted 1.14 2.30 3.38 2.87 0.42 1.58 1.04 1.43
Net income (loss) attributable                
       to shareholders of Calfrac 12,071 47,381 78,921 70,841 (11,855) 26,917 11,243 24,645
       Per share - basic 0.28 1.08 1.80 1.62 (0.27) 0.60 0.25 0.55
       Per share - diluted 0.27 1.07 1.79 1.59 (0.27) 0.60 0.25 0.54
Capital expenditures 72,047 85,130 101,008 84,075 75,286 63,962 55,694 43,989
Working capital (end of period) 324,832 375,823 398,526 431,053 357,128 353,182 322,857 332,241
Total equity (end of period) 568,607 632,889 700,569 779,426 747,591 783,091 780,759 802,581
                 
Operating (end of period)                
Pumping horsepower (000s) 584 656 719 782 830 845 977 1,013
Coiled tubing units (#) 29 29 29 29 29 29 29 29
Cementing units (#) 22 23 23 23 23 25 26 28
(1)  Refer to "Non-GAAP Measures" on page 12 for further information

Liquidity and Capital Resources
Three Months Ended March 31, 2013 2012
(C$000s) ($) ($)
(unaudited)    
Cash provided by (used in):    
       Operating activities 41,502 84,076
       Financing activities 16,885 7,058
       Investing activities (59,654) (74,743)
       Effect of exchange rate changes on cash and cash equivalents 5,997 1,865
Increase in cash and cash equivalents 4,730 18,256

Operating Activities

The Company's cash provided by operating activities for the three months ended March 31, 2013 was $41.5 million versus $84.1 million in 2012. The decrease was primarily due to a decline in operating margins in Canada and the United States. At March 31, 2013, Calfrac's working capital was approximately $332.2 million, an increase of 3 percent from December 31, 2012. The Company had an accounts receivable of approximately US$36.0 million at March 31, 2013 with a customer operating in Mexico that has been outstanding for greater than 120 days, for which no provision has been made. This delay in payment is consistent with many other oilfield service companies within this market. The collection of this amount is expected in its entirety; however, the timing of such collection is uncertain.

Financing Activities

Net cash provided by financing activities for the first quarter of 2013 was $16.9 million compared to $7.1 million in 2012. During the first quarter of 2013, the Company issued $8.0 million of common shares, received bank loan proceeds of $9.1 million and repaid $0.3 million of finance lease obligations and long-term debt.

On October 10, 2012, the Company increased its credit facilities with a syndicate of Canadian chartered banks from $250.0 million to $300.0 million and extended the term to September 27, 2016. The maturity may be extended by one or more years at the Company's request and lenders' acceptance. The Company also may prepay principal without penalty. The facilities consist of an operating facility of $20.0 million and a syndicated facility of $280.0 million. The interest rates 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 thereon ranges from 1.50 percent to 2.25 percent above the respective base rates for such loans. As at March 31, 2013, the Company had used $14.4 million of its credit facilities for letters of credit, leaving $285.6 million in available credit.

Calfrac pays quarterly dividends to shareholders at the discretion of the Board of Directors, which qualify as "eligible dividends" as defined by the Canada Revenue Agency. In February 2012, the Company increased its semi-annual cash dividend from $0.10 to $0.50 per share, beginning with the dividend paid on July 16, 2012, thereby increasing the annualized dividend to $1.00 per share beginning in 2012. In December 2012, the Company announced that it would pay dividends quarterly instead of semi-annually commencing with a $0.25 dividend that was declared in the first quarter of 2013.

Investing Activities

Calfrac's net cash used for investing activities was $59.7 million for the first quarter of 2013 versus $74.7 million for 2012. Cash outflows relating to capital expenditures were $60.2 million during the first quarter of 2013 compared to $75.5 million in 2012. Capital expenditures were primarily to support the Company's North American fracturing operations.

Calfrac's 2013 capital budget is projected to be $74.0 million, of which $25.0 million will be directed towards growing its Latin America operations, including an investment in coiled tubing and fracturing equipment. The remaining capital program will focus on maintenance and support capital and further investment in logistics equipment. In addition to the 2013 capital program outlined above, Calfrac expects that the carry-over of approximately $107.0 million related to its 2012 capital program will be completed in 2013.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

The effect of changes in foreign exchange rates on the Company's cash and cash equivalents during the first quarter of 2013 was a gain of $6.0 million versus a gain of $1.9 million during 2012. These gains relate to cash and cash equivalents held by the Company in a foreign currency.

With its strong working capital position, available credit facilities and anticipated funds provided by operations, the Company expects to have adequate resources to fund its financial obligations and planned capital expenditures for 2013 and beyond.

At March 31, 2013, the Company had cash and cash equivalents of $47.2 million.

Outstanding Share Data

The 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 a maximum of 10 percent of the Company's issued and outstanding common shares. As at May 3, 2013, there were 45,672,927 common shares issued and outstanding, and 3,004,300 options to purchase common shares.

The Company has 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 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 Bid

The Company filed a Notice of Intention (the "Renewal Notice") to renew the Normal Course Issuer Bid (the "Renewed NCIB") with the TSX on November 1, 2012. Under the Renewed NCIB, the Company may acquire up to 3,318,738 common shares, which was 10 percent of the public float outstanding as at October 31, 2012, during the period November 12, 2012 through November 11, 2013. The maximum number of common shares that may be acquired by the Company during a trading day is 44,254, 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, alternative trading systems or such other exchanges or marketplaces through which the common shares trade from time to time at the market price of the shares at the time of acquisition. Any shares acquired under the Renewed NCIB will be cancelled. A copy of the Renewal Notice may be obtained by any shareholder, without charge, by contacting the Company's Corporate Secretary at 411 - 8th Avenue S.W., Calgary, Alberta, T2P 1E3, or by telephone at 403-266-6000.

Advisories


Forward-Looking Statements

In 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 expected operating strategies, future capital expenditures, future financial resources, anticipated equipment utilization levels, future oil and natural gas well activity in each of the Company's operating jurisdictions, future costs or potential liabilities, anticipated benefits of the Company's competitive position, anticipated outcomes of specific events, trends in the oil and natural gas industry, the Company's growth prospects including, without limitation, its international growth strategy and prospects and the impact of changes in accounting policies and standards on the Company and its financial statements. 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, but not limited to, the general stability of the economic and political environment in which the Company operates, the Company's expectations for its current and prospective customers' capital budgets and geographical areas of focus, the Company's existing contracts and the status of current negotiations with key customers and suppliers, the focus of the Company's customers on oil and liquids-rich plays in the current natural gas pricing environment in North America, the effect unconventional gas projects have had on supply and demand fundamentals for natural gas and the likelihood that the current tax and regulatory regime will remain substantially unchanged. 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 and other risks and uncertainties may be found in the Company's most recently filed Annual Information Form.

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 Risks

The 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 Measures

Certain 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 Information

Further 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 Call

Calfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2013 first quarter results at 10:00 a.m. (Mountain Time) on Wednesday, May 8, 2013. 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 50465152). 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 at 2013 2012
(C$000s) (unaudited) ($) ($)
ASSETS    
Current assets    
       Cash and cash equivalents 47,211 42,481
       Accounts receivable 402,192 320,143
      Income taxes recoverable - 292
       Inventories 118,218 118,713
       Prepaid expenses and deposits 8,633 10,697
  576,254 492,326
Non-current assets    
       Property, plant and equipment 1,033,203 1,005,101
       Goodwill 10,523 10,523
       Deferred income tax assets 18,564 16,871
Total assets 1,638,544 1,524,821
     
LIABILITIES AND EQUITY    
Current liabilities    
       Accounts payable and accrued liabilities 233,678 168,250
       Income taxes payable 273 -
       Bank loans (note 3) 9,003 -
       Current portion of long-term debt (note 4) 457 479
       Current portion of finance lease obligations (note 5) 602 740
  244,013 169,469
Non-current liabilities    
       Long-term debt (note 4) 450,630 441,018
       Other long-term liabilities 384 435
       Deferred income tax liabilities 140,936 133,140
Total liabilities 835,963 744,062
Equity attributable to the shareholders of Calfrac    
Capital stock (note 6) 311,219 300,451
Contributed surplus (note 8) 26,251 27,546
Loan receivable for purchase of common shares (note 13) (2,500) (2,500)
Retained earnings 471,813 458,543
Accumulated other comprehensive loss (2,864) (2,403)
  803,919 781,637
Non-controlling interest (1,338) (878)
Total equity 802,581 780,759
Total liabilities and equity 1,638,544 1,524,821
See accompanying notes to the consolidated financial statements.




CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2013 2012
(C$000s, except per share data) (unaudited) ($) ($)
Revenue 423,397 474,107
Cost of sales (note 14) 361,409 360,810
Gross profit 61,988 113,297
Expenses    
       Selling, general and administrative 24,132 21,985
       Foreign exchange gains (2,379) (13,870)
       Gain on disposal of property, plant and equipment (120) (744)
       Interest 9,203 8,935
  30,836 16,306
Income before income tax 31,152 96,991
Income tax expense    
       Current 2,482 1,134
       Deferred 4,482 25,163
  6,964 26,297
Net income for the period 24,188 70,694
     
Net income (loss) attributable to:    
       Shareholders of Calfrac 24,645 70,841
       Non-controlling interest (457) (147)
  24,188 70,694
     
Earnings per share (note 6)    
       Basic 0.55 1.62
       Diluted 0.54 1.59
See accompanying notes to the consolidated financial statements.





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2013   2012
(C$000s) (unaudited) ($)   ($)
Net income for the period 24,188   70,694
Other comprehensive income (loss)      
Items that may be reclassified subsequently to profit or loss:      
       Change in foreign currency translation adjustment (464)   (3,937)
Comprehensive income for the period 23,724   66,757
Comprehensive income (loss) attributable to:      
       Shareholders of Calfrac 24,184   66,908
       Non-controlling interest (460)   (151)
  23,724   66,757
See accompanying notes to the consolidated financial statements.





CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
Equity Attributable to the Shareholders of Calfrac
   
  Share
Capital
Contributed
Surplus
Loan
Receivable for
Purchase of
Common
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total Non-
Controlling
Interest
Total
Equity
(C$000s) (unaudited) ($) ($) ($) ($) ($) ($) ($) ($)
Balance - January 1, 2013 300,451 27,546 (2,500) (2,403) 458,543      781,637 (878)      780,759
Net income for the period - - - - 24,645 24,645 (457) 24,188
Other comprehensive income:                
       Cumulative translation adjustment - - - (461) - (461) (3) (464)
Comprehensive income for the period - - - (461) 24,645 24,184 (460) 23,724
Stock options:                
       Stock-based compensation recognized - 1,479 - - - 1,479 - 1,479
       Proceeds from issuance of shares 10,768 (2,774) - - - 7,994 - 7,994
Dividends - - - - (11,375) (11,375) - (11,375)
Balance - March 31, 2013 311,219 26,251 (2,500) (2,864) 471,813 803,919 (1,338) 802,581
                 
Balance - January 1, 2012 271,817 24,170 (2,500) 1,334 405,954 700,775 (206) 700,569
Net income for the period - - - - 70,841 70,841 (147) 70,694
Other comprehensive income:                
       Cumulative translation adjustment - - - (3,933) - (3,933) (4) (3,937)
Comprehensive income for the period - - - (3,933) 70,841 66,908 (151) 66,757
Stock options:                
       Stock-based compensation recognized - 1,570 - - - 1,570 - 1,570
      Proceeds from issuance of shares 11,547 (2,788) - - - 8,759 - 8,759
Dividend Reinvestment Plan shares                
       issued (note 19) 1,771 - - - - 1,771 - 1,771
Balance - March 31, 2012 285,135 22,952 (2,500) (2,599) 476,795 779,783 (357) 779,426
See accompanying notes to the consolidated financial statements.





CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2013 2012
(C$000s) (unaudited) ($) ($)
CASH FLOWS PROVIDED BY (USED IN)    
OPERATING ACTIVITIES    
       Net income for the period 24,188 70,694
       Adjusted for the following:    
               Depreciation 24,814 22,069
               Stock-based compensation 1,479 1,570
               Unrealized foreign exchange gains (4,971)      (15,389)
               Gain on disposal of property, plant and equipment (120) (744)
               Interest 9,203 8,935
               Deferred income taxes 4,482 25,163
       Interest paid (253) (261)
       Changes in items of working capital (note 11) (17,320) (27,961)
Cash flows provided by operating activities 41,502 84,076
FINANCING ACTIVITIES    
       Bank loan proceeds 9,146 1,348
       Long-term debt repayments (118) (114)
       Finance lease obligation repayments (137) (330)
       Dividends paid - (2,605)
       Net proceeds on issuance of common shares 7,994 8,759
Cash flows provided by financing activities 16,885 7,058
INVESTING ACTIVITIES    
       Purchase of property, plant and equipment (note 11) (60,233) (75,488)
       Proceeds on disposal of property, plant and equipment 569 745
Cash flows used in investing activities (59,654) (74,743)
Effect of exchange rate changes on cash and cash equivalents 5,997 1,865
Increase in cash and cash equivalents 4,730 18,256
Cash and cash equivalents, beginning of period 42,481 133,055
Cash and cash equivalents, end of period 47,211 151,311
See accompanying notes to the consolidated financial statements.
Certain of the comparatives have been reclassified to conform with current year presentation.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


As at and for the three months ended March 31, 2013 and 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 AND BASIS OF PRESENTATION

Calfrac 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.

These condensed consolidated interim financial statements were prepared in accordance with International Accounting Standards (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and interpretations by the International Financial Reporting Interpretations Committee (IFRIC). They should be read in conjunction with the annual financial statements for the year ended December 31, 2012. The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect.

These financial statements were approved by the Audit Committee of the Board of Directors for issuance on May 6, 2013.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These 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.

As disclosed in the annual financial statements for the year ended December 31, 2012, the Company adopted the following revised accounting standards and amendments, effective January 1, 2013. The adoption of these standards did not have a significant effect on the interim consolidated financial statements:

(i)  Effective January 1, 2013, the Company adopted, as required, IFRS 10 Consolidated Financial Statements which 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 its power over the investee. The Company reviewed its consolidation methodology and determined that the adoption of IFRS 10 did not result in a change in the consolidation status of its subsidiaries and investees.
(ii) Effective January 1, 2013, the Company adopted, as required, IFRS 12 Disclosure of Interests in Other Entities which establishes disclosure requirements for interests in other entities such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard carries forward existing disclosure and also introduces significant additional disclosure that addresses the nature of, and risks associated with, an entity's interests in other entities. The Company reviewed its existing disclosures and determined that no changes were required.
(iii)  Effective January 1, 2013, the Company adopted, as required, IFRS 13 Fair Value Measurement and applied the standard prospectively as required by the transitional provisions. The new standard clarifies the definition of fair value and introduces consistent requirements for disclosures related to fair value measurement. The adoption of this standard did not result in a change to the Company's methodology for determining the fair value of its financial assets and liabilities.
(iv) Effective January 1, 2013, the Company applied the amendment to IAS 1 Presentation of Financial Statements which requires items within other comprehensive income (OCI) to be grouped into two categories: (1) items that will not be subsequently reclassified to profit or loss or (2) items that may be subsequently reclassified to profit or loss when specific conditions are met. The amendment has been applied retrospectively and, as such, the presentation of items in OCI has been modified. The application of the amendment to IAS 1 did not result in any adjustments to other comprehensive income or comprehensive income.

3. BANK LOANS

The Company's Argentinean subsidiary has two operating lines of credit of which a total of ARS45,385 (C$9,003) was drawn at March 31, 2013. The interest rate ranges from 17.7 percent to 22 percent and both lines of credit are secured by letters of credit issued by the Company.

4. LONG-TERM DEBT

  March 31, December 31,
As at 2013 2012
(C$000s) ($) ($)
US$450,000 senior unsecured notes due December 1,    
       2020, bearing interest at 7.5% payable semi-annually 457,200 447,705
Less: unamortized debt issuance costs (6,821) (6,895)
  450,379 440,810
$280,000 extendible revolving term loan facility, secured    
       by Canadian and U.S. assets of the Company - -
Less: unamortized debt issuance costs (1,345) (1,444)
  (1,345) (1,444)
US$1,926 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 property 1,957 2,003
ARS485 Argentina term loan maturing December 31, 2013    
  bearing interest at 18.25%, repayable at ARS61 per month    
  principal and interest, secured by a Company guarantee 96 128
  451,087 441,497
Less: current portion of long-term debt (457) (479)
  450,630 441,018

The fair value of the senior unsecured notes, as measured based on the closing quoted market price at March 31, 2013 was $458,915 (December 31, 2012 - $443,228). 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 $280,000 revolving term loan facility is based on the parameters of certain bank covenants. For prime-based loans, the rate ranges from prime plus 0.50 percent to prime plus 1.25 percent. For LIBOR-based loans and Bankers' Acceptance-based loans the margin thereon ranges from 1.50 percent to 2.25 percent above the respective base rates for such loans. The facility is repayable on or before its maturity of September 27, 2016, assuming the facility is not extended. The maturity may be extended by one or more years at the Company's request and lenders' acceptance. The Company may also 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, 2013 was $9,082 (three months ended March 31, 2012 - $9,116).

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, 2016, 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 lenders' acceptance. The operating facility is secured by the Company's Canadian and U.S. assets.

At March 31, 2013, the Company had utilized $14,376 of its loan facility for letters of credit, leaving $285,624 in available credit.

5. FINANCE LEASE OBLIGATIONS

  March 31, December 31,
As at 2013 2012
(C$000s) ($) ($)
Finance lease contracts bearing interest at 5.68%, repayable at    
       $49 per month, secured by certain equipment 605 753
Less: interest portion of contractual payments (3) (13)
  602 740
Less: current portion of finance lease obligations (602) (740)
  - -

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 STOCK

Authorized capital stock consists of an unlimited number of common shares.

  Three Months Ended   Year Ended
  March 31, 2013   December 31, 2012
Continuity of Common Shares Shares Amount   Shares Amount
  (#) (C$000s)   (#) (C$000s)
Balance, beginning of period 45,020,641 300,451   43,709,073 271,817
Issued upon exercise of stock options 479,537 10,768   686,488 14,836
Dividend Reinvestment Plan shares issued          
       (note 19) - -   625,080 13,798
Balance, end of period 45,500,178 311,219   45,020,641 300,451

The weighted average number of common shares outstanding for the three months ended March 31, 2013 was 45,164,743 basic and 45,533,812 diluted (three months ended March 31, 2012 - 43,810,704 basic and 44,550,296 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 BID

The 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 and for the one-year period November 12, 2012 through November 11, 2013. There were no shares purchased under the Normal Course Issuer Bid for the three months ended March 31, 2013 or for the year ended December 31, 2012.

8. CONTRIBUTED SURPLUS

    Three Months   Year Ended
    Ended   December 31,
Continuity of Contributed Surplus   March 31, 2013   2012
(C$000s)   ($)   ($)
Balance, beginning of period   27,546   24,170
       Stock options expensed   1,479   6,990
       Stock options exercised   (2,774)   (3,614)
Balance, end of period   26,251   27,546

9. STOCK-BASED COMPENSATION

(a) Stock Options

Three Months Ended March 31,   2013   2012
      Average     Average
      Exercise     Exercise
Continuity of Stock Options   Options Price   Options Price
    (#) (C$)   (#) (C$)
Balance, beginning of period   2,920,412 25.67   3,198,475 23.31
       Granted during the period   678,750 24.46   592,300 28.26
       Exercised for common shares   (479,537) 16.67   (541,463) 16.18
       Forfeited   (43,700) 27.46   (131,525) 25.37
Balance, end of period   3,075,925 26.78   3,117,787 25.40

Stock options vest equally over four years and expire five years from the date of grant. The exercise price of outstanding options ranges from $8.39 to $37.18 with a weighted average remaining life of 3.13 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. During the three months ended March 31, 2013, $1,479 of compensation expense was recognized for stock options (three months ended March 31, 2012 - $1,570). This amount is included in selling, general and administrative expenses.

(b) Stock Units

Three Months Ended March 31, 2013 2012
Continuity of Stock Units Deferred Performance Restricted Deferred Performance Restricted
  Stock Stock Stock Stock Stock Stock
  Units Units Units Units Units Units
  (#) (#) (#) (#) (#) (#)
Balance, beginning of period 35,000 45,000 247,230 35,000 40,000 -
       Granted during the period 35,000 45,000 380,650 35,000 45,000 236,635
       Exercised (35,000) (45,000) (82,410) (35,000) (40,000) -
       Forfeited - - (8,250) - - (6,675)
Balance, end of period 35,000 45,000 537,220 35,000 45,000 229,960

The Company grants deferred stock units to its outside directors. These units vest in November of the year of grant 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 deferred stock units is recognized equally over the vesting period, based on the current market price of the Company's shares. During the three months ended March 31, 2013, $217 of compensation expense was recognized for deferred stock units (three months ended March 31, 2012 - $252). This amount is included in selling, general and administrative expenses.

The Company grants performance stock units to its senior officers who do not participate in the stock option plan. The amount of the grants earned is linked to corporate performance and the grants vest on the approval of the Board of Directors at the meeting held to approve the consolidated financial statements for the year in respect of which performance is being evaluated. As with the deferred stock units, performance stock units are settled either in cash or Company shares purchased on the open market. During the three months ended March 31, 2013, $379 of compensation expense was recognized for performance stock units (three months ended March 31, 2012 - $482). This amount is included in selling, general and administrative expenses.

The Company grants 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. During the three months ended March 31, 2013, $2,183 of compensation expense was recognized for restricted share units (three months ended March 31, 2012 - $980). This amount is included in selling, general and administrative expense.

Changes in the Company's obligations under the deferred and performance stock unit plans, which arise from fluctuations in the market value of the Company's shares underlying these compensation programs, are recorded as the share value changes.

10. FINANCIAL INSTRUMENTS

The 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 due to the short-term maturity of those instruments. The fair value of the senior unsecured notes based on the closing market price at March 31, 2013 was $458,915 before deduction of unamortized debt issuance costs (December 31, 2012 - $443,228). The carrying value of the senior unsecured notes at March 31, 2013 was $457,200 before deduction of unamortized debt issuance costs (December 31, 2012 - $447,705). 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 INFORMATION

Changes in non-cash operating assets and liabilities are as follows:

Three Months Ended March 31,   2013   2012
(C$000s)   ($)   ($)
Accounts receivable   (82,048)   (14,958)
Income taxes recoverable   566   299
Inventory   495   (10,110)
Prepaid expenses and deposits   2,063   (710)
Accounts payable and accrued liabilities   61,655   (2,474)
Other long-term liabilities   (51)   (8)
    (17,320)   (27,961)

Purchase of property, plant and equipment is comprised of:

Three Months Ended March 31,   2013   2012
(C$000s)   ($)   ($)
Property, plant and equipment additions   (43,989)   (84,075)
Change in liabilities related to purchase of        
       property, plant and equipment   (16,234)   8,587
    (60,223)   (75,488)

12. CAPITAL STRUCTURE

The 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 as follows:

  March 31,   December 31,
For the Twelve Months Ended 2013   2012
(C$000s) ($)   ($)
Net income 49,855   96,361
Adjusted for the following:      
  Depreciation 93,126   90,381
  Amortization of debt issuance costs and debt discount 1,243   1,234
  Stock-based compensation 6,899   6,990
  Unrealized foreign exchange gains (477)   (10,895)
  Loss on disposal of property, plant and equipment 1,426   802
  Deferred income taxes 15,961   36,642
Cash flow 168,033   221,515

The ratio of long-term debt to cash flow does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

At March 31, 2013, the long-term debt to cash flow ratio was 2.68:1 (December 31, 2012 - 1.99:1) calculated on a 12-month trailing basis as follows:

  March 31,   December 31,
As at 2013   2012
(C$000s, except ratio) ($)   ($)
Long-term debt (net of unamortized debt issuance costs and
     
  debt discount) (note 4) 451,087   441,497
Cash flow 168,033   221,515
Long-term debt to cash flow ratio 2.68:1   1.99:1

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 remained unchanged over the periods presented.

13. RELATED-PARTY TRANSACTIONS

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 3.375 percent per annum, payable annually. The market value of the shares that secure the loan was approximately $2,309 as at March 31, 2013 (December 31, 2012 - $2,119). 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, 2013 was $89 (three months ended March 31, 2012 - $93), as measured at the exchange amount.

Prior to 2013, an entity controlled by a director of the Company provided ongoing real estate advisory services to the Company at market rates. This engagement was terminated in the fourth quarter of 2012 as these services were no longer required. The aggregate fees charged for such services for the three months ended March 31, 2012 were $8.

14. PRESENTATION OF EXPENSES

The Company presents its expenses in 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 than other methods available under IFRS. The Company's functions under IFRS are as follows:

  • operations; and
  • selling, 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,   2013   2012
(C$000s)   ($)   ($)
Product costs   129,322   140,107
Depreciation   24,814   22,069
Amortization of debt issuance costs and debt discount   318   309
Employee benefits expense (note 15)   98,549   90,284

15. EMPLOYEE BENEFITS EXPENSE

Employee benefits include all forms of consideration given by the Company in exchange for services rendered by employees.

Three Months Ended March 31,   2013   2012
(C$000s)   ($)   ($)
Salaries and short-term employee benefits   92,745   85,157
Post-employment benefits (group retirement savings plan)   1,001   823
Share-based payments   4,259   3,286
Termination benefits   544   1,018
    98,549   90,284

16. CONTINGENCIES

Greek Litigation

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 $8,916 (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.

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 $46 (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 $14 (11 euros), plus interest.

Another one of the lawsuits seeking salaries in arrears of $167 (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 $572 (439 euros) plus interest, was scheduled to be heard before the Athens Court of First Instance on October 1, 2009, but has been postponed a total of four times, including the most recent postponement on February 22, 2013. No new date has been set yet for the postponed hearing.

The maximum aggregate interest payable under the claims noted above amounted to $15,402 (11,826 euros) as at March 31, 2013.

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.

U.S. Litigation

A collective and class action claim was filed against the Company on September 27, 2012 in the United States District Court for the Western District of Pennsylvania. The direction and financial consequences of the complaint cannot be determined at this time and, consequently, no provision was recorded in the Company's financial statements.

17. SEGMENTED INFORMATION

The Company's activities are conducted in four geographical 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        
  Canada   States   Russia   America   Corporate   Consolidated
(C$000s) ($)   ($)   ($)   ($)   ($)   ($)
Three Months Ended March 31, 2013                      
Revenue 231,576   127,010   37,161   27,650   -   423,397
Operating income (loss)(1) 55,911   18,039   1,989   1,152   (14,421)   62,670
Segmented assets 767,589   597,552   136,174   137,229   -   1,638,544
Capital expenditures 17,291   20,809   2,431   3,458   -   43,989
Goodwill 7,236   2,308   979   -   -   10,523
Three Months Ended March 31, 2012                      
Revenue 225,824   194,899   28,096   25,288   -   474,107
Operating income (loss)(1) 77,332   44,104   1,554   2,518   (12,127)   113,381
Segmented assets 764,524   552,653   125,909   64,708   -   1,507,794
Capital expenditures 37,193   45,540   859   483   -   84,075
Goodwill 7,236   2,308   979   -   -   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, 2013   2012
(C$000s) ($)   ($)
Net income 24,188   70,694
Add back (deduct):      
       Depreciation 24,814   22,069
       Interest 9,203   8,935
       Foreign exchange gains (2,379)   (13,870)
       Gain on disposal of property, plant and equipment (120)   (744)
       Income taxes 6,964   26,297
Operating income 62,670   113,381

Operating income does not have a 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,   2013   2012
(C$000s)   ($)   ($)
Fracturing   384,144   429,379
Coiled tubing   21,603   30,785
Cementing   11,863   7,875
Other   5,787   6,068
    423,397   474,107

18. SEASONALITY OF OPERATIONS

The Company's Canadian and United States businesses are seasonal in nature. The lowest activity levels in these areas are typically experienced during the second quarter of the year when road weight restrictions are in place and access to wellsites in Canada and North Dakota is reduced.

19. DIVIDEND REINVESTMENT PLAN

The Company's Dividend Reinvestment Plan (DRIP) 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 $0.25 per common share was declared on February 26, 2013 and paid on April 15, 2013. Of the total dividend of $11,375, $3,108 was reinvested under the DRIP into 125,024 common shares of the Company.

 

 

SOURCE: Calfrac Well Services Ltd.

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

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