4 March, 2010
Trican 2009 Fourth Quarter and Year End Results
CALGARY, ALBERTA--(Marketwire - March 4, 2010) - Trican Well Service Ltd. (TSX: TCW):
Financial Review
($ millions, except per share amounts, unaudited)
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Three months ended December 31, Years ended December 31,
2009 2008 2007 2009 2008 2007
(restated)(2)
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Revenue $ 219.9 $ 322.8 $ 195.8 $ 811.5 $ 1,016.1 $836.4
Operating
income(1) 24.9 73.2 34.2 70.2 181.8 195.1
Net (loss)/income 14.7 (96.3) 18.2 (8.5) (71.4) 111.8
Net (loss)/
income per
share (basic) 0.12 (0.77) 0.15 (0.07) (0.57) 0.93
(diluted) 0.12 (0.77) 0.15 (0.07) (0.57) 0.91
Adjusted net
income/(loss)(1) 7.4 38.7 21.4 (8.1) 72.3 124.5
Adjusted net
income per
share(1) (basic) 0.06 0.32 0.18 (0.07) 0.58 1.03
(diluted) 0.06 0.31 0.17 (0.07) 0.58 1.01
Funds provided by
operations(1) 27.5 78.9 41.8 38.8 166.2 131.8
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(1) Trican makes reference to operating income, adjusted net income/(loss)
and funds provided by operations. These are measures that are not
recognized under Canadian Generally Accepted Accounting Principles
(GAAP). Management believes that, in addition to net income/(loss),
operating income, adjusted net income/(loss) and funds provided by
operations are useful supplemental measures. Operating income provides
investors with an indication of earnings before depreciation, taxes and
interest. Adjusted net income/(loss) provides investors with information
on net income excluding one-time non-cash charges and the non-cash
effect of stock-based compensation expense. Funds provided by operations
provide investors with an indication of cash available for capital
commitments, debt repayments and other expenditures. Investors should
be cautioned that operating income, adjusted net income/(loss), and
funds provided by operations should not be construed as an alternative
to net income/(loss) determined in accordance with GAAP as an indicator
of Trican's performance. Trican's method of calculating operating
income, adjusted net income/(loss) and funds provided by operations may
differ from that of other companies and accordingly may not be
comparable to measures used by other companies.
(2) See note 2 of the financial statements for details of the prior period
restatement.
FOURTH QUARTER HIGHLIGHTS
Current Quarter versus Q4 2008
Consolidated revenue for the fourth quarter of 2009 decreased by 32% compared to the same period in 2008 and net income increased to $14.7 million from a loss of $96.3 million. Before the impact of one-time non-cash charges and stock-based compensation, fourth quarter net income decreased to $7.4 million from $38.7 compared to the fourth quarter of 2008. Before the impact of one-time non-cash charges and stock-based compensation, diluted net income per share was $0.06 compared to $0.31 in the fourth quarter of 2008.
Revenue in Canada decreased by 27% compared to the fourth quarter of 2008 as a 29% decline in rig count had a negative impact on overall activity levels and pricing.
Russian operations were negatively impacted by unusually cold weather conditions during the fourth quarter as revenue decreased by 30% relative to the fourth quarter of 2008. Operating margins were also impacted by increased fuel usage due to the cold weather and an increase in repairs and maintenance expenses.
Excess equipment capacity and low natural gas prices hindered U.S. operations as revenue and job count for the fourth quarter of 2009 decreased by 46% and 23%, respectively, compared to the fourth quarter of 2008.
Current Quarter versus Q3 2009
Operating results for the fourth quarter compared to the third quarter of 2009 reflect improved operating conditions in Canada and the U.S. and difficulties encountered in Russia due to unfavorable weather conditions.
Canadian fourth quarter revenue improved by 39% as rig count increased by 46% and pricing discounts decreased by 60 basis points on a sequential basis. Cost cutting was an area of focus throughout much of 2009 in Canada. However, improved operating conditions seen in the fourth quarter have provided an opportunity to increase staffing levels and reverse wage roll-backs implemented earlier in the year.
Although demand for services remains strong in Russia, fourth quarter results were significantly hindered by the extreme cold weather experienced during the quarter as revenue decreased by 12% compared to the third quarter of 2009.
Several positive developments occurred in the U.S. during the fourth quarter including a recovery in natural gas prices and an 11% increase in rig count compared to the third quarter of 2009. These positive developments contributed to an 11% increase in revenue on a sequential basis.
U.S. Asset Acquisition
On March 2, 2010, Trican announced that it reached an agreement to purchase the assets of a privately held U.S. based company (the "U.S. Company"). Headquartered in Shawnee, Oklahoma, the U.S. Company is a provider of pressure pumping services in the Oklahoma region. Under the terms of the agreement Trican, through a wholly owned U.S. subsidiary, will acquire all of the U.S. Company's equipment, land and base infrastructure for cash consideration of U.S.$46.0 million plus associated expenses. Trican expects to assume lease agreements with obligations of approximately U.S.$3.4 million as part of the acquisition. The total cash consideration will be funded from existing bank facilities.
The assets acquired consist of 56,250 fracturing horse power ("HP") and the necessary ancillary equipment to operate two fracturing crews. Subsequent to closing this transaction, Trican will have 515,850 HP, of this total; 267,750HP will operate in the U.S. market. Based on the allocation of the cash consideration and assumed debt to the fracturing assets acquired, Trican paid US$773 per HP. In addition, Trican acquired two acidizing pumpers, including ancillary equipment, and an established base of operations in Shawnee, Oklahoma including some rail assets.
Trican currently intends to integrate the acquired equipment into its existing U.S. operating fleet. The near term strategy is to have this equipment operating out of the acquired base in Shawnee, Oklahoma.
Capital Budget Update
We have increased our 2010 capital budget by $29 million to $110 million. The increase consists of an additional $23 million for our Canadian operations, $5 million for our Russian operations and $1 million for our US operations. This 2010 capital budget excludes the US asset acquisition that was announced on March 2, 2010.
COMPARATIVE QUARTERLY INCOME STATEMENTS
($ thousands, unaudited)
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Quarter-
Over-
Three months ended % of % of Quarter %
December 31, 2009 Revenue 2008 Revenue Change Change
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Revenue 219,862 100.0% 322,822 100.0% (102,960) -31.9%
Expenses
Materials and
operating 182,697 83.1% 232,417 72.0% (49,720) -21.4%
General and
administrative 12,252 5.6% 17,186 5.3% (4,934) -28.7%
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Operating
income(1) 24,913 11.3% 73,219 22.7% (48,306) -66.0%
Goodwill
impairment - 0.0% 179,771 55.7% (179,771) -100.0%
Other asset
impairment (10,766) -4.9% 18,454 5.7% (29,220) -158.3%
Interest
expense 2,436 1.1% 2,323 0.7% 113 4.9%
Depreciation
and
amortization 24,772 11.3% 28,168 8.7% (3,396) -12.1%
Foreign
exchange
loss/(gain) 311 0.1% (6,352) -2.0% 6,663 -104.9%
Other
(income)/
expense (3,054) -1.4% 2,049 0.3% (5,103) -249.0%
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Income/(loss)
before income
taxes and non
controlling
interest 11,214 5.0% (151,194) -46.5% 162,408 107.4%
Provision for
income taxes (3,446) -1.6% (54,894) -17.0% 51,448 -93.7%
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Income/(loss)
before
non-controlling
interest 14,660 6.7% (96,300) -29.5% 110,960 115.2%
Non-controlling
interest (41) -0.0% (38) -0.0% (3) 7.9%
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Net
income/(loss) 14,701 6.7% (96,262) -29.5% 110,963 115.3%
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(1) see first page of this report
CANADIAN OPERATIONS
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Three months ended,
($ thousands, Dec. 31, % of Dec. 31, % of Sept. 30, % of
unaudited) 2009 Revenue 2008 Revenue 2009 Revenue
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Revenue 127,256 175,194 91,651
Expenses
Materials and
operating 95,730 75.2% 120,867 69.0% 70,299 76.7%
General and
administrative 4,057 3.2% 7,498 4.3% 3,859 4.2%
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Total expenses 99,787 78.4% 128,365 73.3% 74,158 80.9%
Operating
income(1) 27,469 21.6% 46,829 26.7% 17,493 19.1%
Number of jobs 4,730 6,028 3,717
Revenue per job 26,421 29,193 24,254
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(1) see first page of this report
Sales Mix
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Three months ended, Dec. 31, Dec. 31, Sept. 30,
($ thousands, unaudited) 2009 2008 2009
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% of Total Revenue
Fracturing 57% 58% 57%
Cementing 22% 20% 23%
Coiled Tubing 6% 6% 7%
Nitrogen 5% 6% 5%
Acidizing 4% 4% 3%
Other 6% 6% 5%
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Total 100% 100% 100%
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Operations Review
Activity levels in the fourth quarter of 2009 decreased compared to the same period in 2008, reflecting a 29% decrease in the number of active drilling rigs in Canada. We experienced a significant increase in fourth quarter activity levels relative to the third quarter as natural gas prices continued to improve and more oil directed activity occurred during the quarter. The active number of drilling rigs in Canada increased by 46% in the fourth quarter compared to the third quarter of 2009.
Cost cutting was an area of focus for much of 2009. Reduced staffing levels, wage roll-backs, improved pricing from suppliers and a focus on discretionary spending enabled us to weather the most significant reduction in activity since 1992. An increase in activity levels experienced during the fourth quarter of 2009 allowed us to reverse the wage roll-backs implemented earlier in the year and resulted in a hiring program that enabled us to capitalize on an improved operating environment.
We continue to focus on strengthening our market position across all service lines, but particularly within fracturing as it relates to the unconventional oil and gas plays. Fracturing services has been our strongest source of revenue throughout the year due to the growing interest in horizontal drilling primarily driven by activity in the unconventional oil and gas plays. We believe that our investment in developing a strong market position in the unconventional plays will continue to provide us with opportunities for growth as the activity levels for these plays increase.
Current Quarter versus Q4 2008
Revenue for the quarter decreased 27% to $127.3 million, as lower natural gas prices had a negative impact on overall activity levels and pricing.
Revenue per job decreased to $26,421 from $29,193, reflecting a year-over-year increase in discounts of 890 basis points that have been driven by a more competitive pricing environment. This increase was partially offset by an increase in job sizes due to a higher proportion of unconventional work performed. Materials and operating expenses increased as a percentage of revenue to 75.2% compared to 69.0% for the same period in 2008. Decreased operational leverage on our fixed cost structure and higher pricing discounts contributed to the increase in materials and operating expenses as a percentage of revenue. These factors were partially offset by a decrease in expenses from cost control initiatives implemented during 2009.
General and administrative expenses decreased due to a reduction in bad debt expense and lower stock based compensation costs.
Current Quarter versus Q3 2009
Revenue increased sequentially by 39% due to higher activity levels as rig count increased by 46%. Revenue per job increased by 9% compared to the third quarter of 2009 due to an increase in job sizes resulting from jobs performed on unconventional plays and improved pricing as discounts decreased by 60 basis points.
Materials and operating expenses decreased as a percentage of revenue to 75.2% compared to 76.7% for the third quarter of 2008. The decrease reflects improved operational leverage on our fixed cost structure and an increase in pricing. In dollar terms, general and administrative expenses remained virtually the same as all major expense categories remained relatively consistent with the third quarter of 2009.
RUSSIAN OPERATIONS
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Three months ended,
($ thousands, Dec. 31, % of Dec. 31, % of Sept. 30, % of
unaudited) 2009 Revenue 2008 Revenue 2009 Revenue
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Revenue 55,905 79,997 63,733
Expenses
Materials and
operating 48,550 86.8% 60,924 76.2% 47,156 74.0%
General and
administrative 2,009 3.6% 3,356 4.2% 3,289 5.2%
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Total expenses 50,559 90.4% 64,280 80.4% 50,445 79.2%
Operating
income(1) 5,346 9.6% 15,717 19.6% 13,288 20.8%
Number of jobs(2) 1,001 1,073 1,052
Revenue per
job(2) 54,140 74,063 58,065
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(1) see first page of this report
(2) Prior period figures have been adjusted to reflect our revised
methodology for determining job count and revenue per job data for
coiled tubing and nitrogen.
Sales Mix
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Three months ended, Dec. 31, Dec. 31, Sept. 30,
($ thousands, unaudited) 2009 2008 2009
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% of Total Revenue
Fracturing 80% 80% 81%
Coiled Tubing 13% 7% 12%
Cementing 4% 8% 5%
Nitrogen 3% 5% 2%
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Total 100% 100% 100%
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Operations Review
Russian operations, which for reporting purposes include operations in Kazakhstan and Algeria, were negatively impacted by unusually cold weather conditions during the quarter. December was particularly challenging with our Far North bases experiencing temperatures between minus 35 and 50 degrees Celsius for a significant portion of the month and our other bases also losing a significant number of operating days to cold weather. Cold weather starts to impair operations below minus 30 degrees Celsius with slowdown in rig activity, and below minus 35 degrees Celsius we would not start up new work. Cold weather also increases fuel usage and equipment wear, which had a negative impact on operating margins.
Fracturing activity decreased during the quarter compared to the third quarter of 2009 due to the expected seasonal slowdown that occurs during the fourth quarter, which was accentuated by cold weather. Cementing activity also declined with the successful completion of a major three year contract early in the fourth quarter, which was not renewed. Coiled tubing and nitrogen service lines continued to grow with sequential increase in activity and improved utilization, however these service line were also negatively impacted by the cold weather.
The ruble strengthened by on average 4% against the Canadian dollar compared to average rates seen during the third quarter. However, the 22% year over year devaluation of the ruble significantly impacted operations relative to the fourth quarter of 2008.
Relatively strong oil prices and improving natural gas prices has led to an expectation of increased pressure pumping activity in Russia during 2010 relative to 2009. Our success in the 2010 contract award process and strong market presence in this region will provide us with continued stability and opportunities for growth during 2010. The company is also actively pursuing new technologies and solutions, specifically for Russian operations, to enhance oil and gas production.
Current Quarter versus Q4 2008
Revenue for the quarter decreased by $24.1 million or 30% relative to the fourth quarter of 2008, as unfavorable weather conditions and a 22% decrease in the value of the ruble had a negative impact on earnings. The devaluation of the ruble and smaller fracturing jobs performed during the fourth quarter compared to the same period last year contributed to the 27% decrease in the revenue per job.
Materials and operating expenses increased from 76.2% to 86.8% of revenue due to the fixed nature of many costs and the relatively lower revenues caused by cold weather. High fuel consumption and higher than average repair costs, following record Q3 activity and utilizations, further contributed to the margin contraction.
General and administrative expenses decreased by $1.3 million due to lower employee costs and bad debt expenses.
Current Quarter versus Q3 2009
Revenue declined by 12% compared to the third quarter due to decreased activity caused by seasonal slowdown of activity and unusually cold weather conditions. Revenue per job decreased by 7% due to a higher proportion of coiled tubing work performed during the quarter. The revenue and revenue per job declines were partially offset by a 4% strengthening of the fourth quarter average Russian ruble exchange rate compared to the third quarter.
The cold weather experienced during the fourth quarter had a negative impact on margins and led to an increase in fixed and variable operating expenses. Higher repairs and maintenance costs, following record Q3 activity and utilizations, also has a negative impact on margins. General and administrative expenses decreased by $1.3 million due to lower employee costs and bad debt expenses.
UNITED STATES OPERATIONS
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Three months ended,
($ thousands, Dec. 31, % of Dec. 31, % of Sept. 30, % of
unaudited) 2009 Revenue 2008 Revenue 2009 Revenue
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Revenue 36,701 67,631 33,053
Expenses
Materials and
operating 35,782 97.5% 48,291 71.4% 35,863 108.5%
General and
administrative 1,860 5.1% 3,274 4.8% 1,724 5.2%
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Total expenses 37,642 102.6% 51,565 76.2% 37,587 113.7%
Operating
income(1) (941) -2.6% 16,066 23.8% (4,534) -13.7%
Number of jobs 467 605 474
Revenue per job 78,965 111,878 69,796
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(1) see first page of this report
Operations Review
Low natural gas prices caused U.S. industry activity to be slow resulting in excess industry equipment capacity experienced throughout 2009. This was reflected in the fourth quarter results as a $0.9 million operating loss was recognized during the quarter. However, several positive developments occurred during the fourth quarter including a modest recovery in natural gas prices and an 11% rig count increase in the areas in which we operate compared to the third quarter of 2009. These factors have led to a shift in pricing as discounts decreased slightly near the end of the fourth quarter and are expected to improve further in 2010.
Cost control remained a focus throughout 2009. Our cost control initiatives have allowed us to weather the challenging economic conditions experienced during 2009. With industry conditions showing signs of improvement late in the year, our strategy in the U.S. to preserve market share while maintaining a lean cost structure should serve us well.
Current Quarter versus Q4 2008
Revenue decreased by 46% in the fourth quarter versus the fourth quarter of 2008 due to a decrease in job count and revenue per job. The 23% decrease in job count reflects the reduced industry activity as rig count in the areas that we operate decreased by 39% in the fourth quarter compared to the same period in 2008. Revenue per job decreased by 29% compared to the fourth quarter of 2008 reflecting an increase in discounts of 790 basis points and a 13% year-over-year decline in the fourth quarter U.S. dollar average exchange rate.
Materials and operating expenses increased from 71.4% to 97.5% of revenue as the increase in discounts led to significant margin contraction. The impact of increased margins was partially offset by cost cutting measures implemented throughout the year. General and administrative costs decreased by $1.4 million as cost cutting initiatives led to lower employee and discretionary costs.
Current Quarter versus Q3 2009
Revenue increased by 11% on a sequential basis largely due to a 13% increase in revenue per job. Revenue per job increased due to larger job sizes and a 50 basis point decrease in pricing discounts partially offset by a 4% weakening of the U.S. dollar.
Materials and operating expenses as a percentage of revenue decreased to 97.5% from 108.5% in the previous quarter due to a decrease in pricing discounts and increased operational leverage on our fixed cost structure. Fourth quarter general and administrative expenses remained relatively consistent with the third quarter.
CORPORATE DIVISION
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Three months ended,
($ thousands, Dec. 31, % of Dec. 31, % of Sept. 30, % of
unaudited) 2009 Revenue 2008 Revenue 2009 Revenue
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Expenses
Materials and
operating 2,635 1.2% 2,335 0.7% 2,186 1.2%
General and
administrative 4,326 2.0% 3,058 0.9% 4,167 2.2%
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Total expenses 6,961 3.2% 5,393 1.7% 6,353 3.4%
Operating
loss(1) (6,961) (5,393) (6,353)
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(1) see first page of this report
Corporate Division expenses consist of salaries, stock-based compensation and office costs related to corporate employees, as well as public company costs.
Current Quarter versus Q4 2008
Corporate Division expenses were up $1.6 million from the same quarter last year largely because of an increase in deferred share unit expenses and professional fees. Director share unit expenses are revalued based on the Company's share price, which rose by 77% on a year-over-year basis.
Current Quarter versus Q3 2009
Corporate Division expenses were up $0.6 million on a sequential basis, reflecting increased professional fees incurred during the quarter.
OTHER EXPENSES AND INCOME
Interest expense remained relatively stable compared to the fourth quarter of 2008 as interest rates were unchanged. Depreciation and amortization decreased by $3.4m or 12% for the quarter compared to the same period in 2008 as a result of a decrease in the average U.S. dollar and Russian ruble exchange rates.
Foreign exchange losses were $0.3 million in the quarter compared to a gain of $6.4 million for the comparable prior period as a result of U.S. dollar and Russian ruble currency fluctuations relative to the Canadian dollar.
Other income was $3.1 million in the fourth quarter of 2009 and consisted mainly of $2.5 million in loan receipts from an unrelated party and $0.6 million in gains on disposal of assets in the U.S.
The other asset impairment reversal of $10.8 million relates to the reversal of the impairment provision on a loan to an unrelated third party.
INCOME TAXES
The income tax recovery decreased to $3.4 million in the quarter from $54.9 million for the comparable period of 2008 because of the future tax recovery recorded on the impairment write-down for goodwill in 2008. The tax recovery recorded during the quarter was a result of losses incurred in the U.S., which are taxed at a higher rate than income in other jurisdictions.
2009 HIGHLIGHTS
The financial crisis and global economic recession reduced demand for our services and contributed to a reduction in revenue and operating income within our Canadian and U.S. regions during 2009. Demand for our services in Russia remained strong throughout 2009 due to success during the 2009 contract award process. Overall, Russian industry activity did not decline as much as North American activity, as a recovery in oil prices and devaluation of the ruble supported more active work programs for our customers in the Russian region.
2009 consolidated revenue decreased by 20% to $811.5 million compared to 2008, and net income decreased from $72.3 million to a loss of $8.1 million before the impact of one-time non-cash charges and stock based compensation expense. Adjusted diluted net income per share fell to a loss of $0.07 from income of $0.58 and funds from operations decreased to $38.8 million from $166.2 million compared to 2008.
The after-tax impact on net income from one-time charges included a $4.4 million charge relating to the settlement of a patent infringement lawsuit, and $9.5 million of income relating to the reversal of an impairment provision booked on a loan to an unrelated third party.
Canadian operating results in 2009, when compared to 2008, were negatively impacted by lower natural gas prices and reduced industry demand. However, cost cutting initiatives and our ability to meet the technical requirements of the unconventional oil and gas plays allowed us to weather the economic challenges faced in 2009.
Excluding the impact of a 19% reduction in the value of the Russian ruble versus the Canadian dollar, revenue for our Russian operations remained relatively consistent with 2008 as demand for services remained strong throughout the year. Results were negatively impacted by challenging weather conditions experienced near the end of the year.
U.S. operations were slowed by excess equipment capacity and low natural gas prices throughout most of 2009. To maximize fleet utilization and maintain market share, pricing discounts were increased significantly compared to 2008. The margin contraction that resulted from the pricing decrease was partially offset by cost cutting measures implemented throughout the year.
COMPARATIVE ANNUAL INCOME STATEMENTS
($ thousands, unaudited)
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Year-
(restated) Over-
Years ended % of (2) % of Year %
December 31, 2009 Revenue 2008 Revenue Change Change
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Revenue 811,488 100% 1,016,083 100.0% 204,595 20.1%
Expenses
Materials and
operating 689,520 85.0% 780,006 76.8% -90,486 -11.6%
General and
administrative 51,758 6.4% 54,285 5.3% -2,527 -4.7%
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Operating
income(1) 70,210 8.7% 181,792 17.9% -111,582 61.4%
Goodwill
impairment - 0.0% 179,771 17.7% -179,771 -100.0%
Other asset
(impairment
reversal)/
impairment (10,766) -1.3% 18,454 1.8% -29,220 -158.3%
Interest
expense 10,389 1.3% 13,782 1.4% -3,393 -24.6%
Depreciation and
amortization 96,805 11.9% 93,394 9.2% 3,411 3.7%
Foreign
exchange
losses/(gains) 5,882 0.7% (5,971) -0.6% 11,853 198.5%
Other income (2,244) -0.3% (2,033) -0.2% (211) 10.4%
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(Loss)/Income
before income
taxes and
non-controlling
interest (29,856) -3.7% (115,605) -11.4% 85,749 74.2%
Provision for
income taxes (21,147) -2.6% (44,267) -4.4% 23,120 -52.2%
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(Loss)/income
before
non-controlling
interest (8,709) -1.1% (71,388) -7.0% 62,679 87.8%
Non-controlling
interest (196) -0.0% 24 0.0% -220 -916.7%
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Net (loss) /
Income (8,513) -1.1% (71,362) -7.0% 62,849 88.1%
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(1) see first page of this report
(2) see note 2 of the financial statements for details of the prior period
restatement
CANADIAN OPERATIONS
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Year-Over-
Year ended December 31, % of % of Year
($ thousands, unaudited) 2009 Revenue 2008 Revenue Change
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Revenue 415,630 554,554 -25%
Expenses
Materials and operating 336,008 80.8% 404,868 73.0% -17%
General and
administrative 18,057 4.3% 22,452 4.0% -20%
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Total expenses 354,065 85.2% 427,320 77.1% -17%
Operating income(1) 61,565 14.8% 127,234 22.9% -52%
Number of jobs 16,262 23,621 -31%
Revenue per job 25,153 23,625 6%
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(1) see first page of this report
Revenue from Canadian operations decreased 25% from the previous year to $415.6 million and job count decreased by 31% to 16,262. These decreases relate to lower industry activity as the average number of active drilling rigs decreased by 41% during the year. Average revenue per job increased by 6% because of larger jobs performed in unconventional oil and gas plays. The increase was partially offset by lower average pricing experienced during the year due to lower industry activity.
Materials and operating expenses increased as a percentage of revenue to 80.9% from 73.0%. The increase is a result of higher discounts and reduced operational leverage on our fixed cost structure. The increase was partially offset by cost control measures implemented during the year and lower fuel costs.
General and administrative costs decreased $4.5 million from the prior year as a result of lower stock compensation costs and a decrease in bad debt expense.
RUSSIAN OPERATIONS
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Year-Over-
Year ended December 31, % of % of Year
($ thousands, unaudited) 2009 Revenue 2008 Revenue Change
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Revenue 238,492 295,703 -19.3%
Expenses
Materials and operating 191,533 80.3% 240,988 81.5% -20.5%
General and
administrative 9,264 3.9% 8,677 2.9% -6.8%
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Total expenses 200,797 84.2% 249,665 84.4% -19.6%
Operating income(1) 37,695 15.8% 46,038 15.6% -18.1%
Number of jobs 3,781 3,648 3.6%
Revenue per job 61,090 80,675 -24.3%
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(1) see first page of this report
The year-over-year revenue decrease of 19.3% was a result of a 19% decline in the average ruble exchange rate compared to the prior year. Activity was up slightly with a 3.6% increase in number of jobs, due largely from more coiled tubing and nitrogen work performed during the year. Revenue per job decreased because of the decline in the ruble and the increase in coiled tubing and nitrogen work, which generates less revenue per job than fracturing work.
Materials and operating expenses remained relatively consistent as a percentage of sales. Margin improvement during the first three quarters from cost control programs and lower fuel costs were offset by poor fourth quarter margins caused by unfavorable weather conditions. General and administrative expenses remained relatively consistent with the previous year.
UNITED STATES OPERATIONS
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Year-Over-
Year ended December 31, % of % of Year
($ thousands, unaudited) 2009 Revenue 2008 Revenue Change
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Revenue 157,366 165,826 -5%
Expenses
Materials and operating 153,323 97.4% 126,438 76.2% 21%
General and
administrative 9,117 5.8% 11,009 6.6% -17%
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Total expenses 162,440 103% 137,447 82.9% 18%
Operating income(1) (5,074) -3.2% 28,379 17.1% -118%
Number of jobs 1,825 1,648 11%
Revenue per job 86,416 100,792 -14%
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(1) see first page of this report
U.S. revenue decreased by 5% compared to 2008. An increase in job count was more than offset by a reduction in revenue per job. Revenue per job decreased 14% due mainly to an increase in discounts offered to customers offset partially by a 7% increase in the value of the U.S. dollar relative to the Canadian dollar. Job count was up 11% despite a rig count decrease of 34% in the areas in which we operate as the prior year was impacted by sand supply issues. Also, our focus on preserving market share in 2009 offset the reduction in rig count.
Materials and operating costs as a percentage of revenue increased from 76.2% to 97.4% largely because of higher discounts offered to customers. The margin contraction resulting from increased discounts was partially offset by cost savings generated by our cost control initiatives. These initiatives also led to reductions in salary and other discretionary costs, which contributed to the $1.9 million decrease in general and administrative expenses.
CORPORATE DIVISION
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Year-Over-
Year ended December 31, % of % of Year
($ thousands, unaudited) 2009 Revenue 2008 Revenue Change
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Expenses
Materials and operating 8,656 1.1% 7,712 0.8% 12.2%
General and
administrative 15,320 1.9% 12,147 1.2% 26.1%
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Total expenses 23,976 3.0% 19,859 2.0% 20.7%
Operating loss(1) (23,976) (19,859)
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(1) see first page of this report
Corporate Division expenses increased $4.1 million compared to last year due to an increase in deferred share unit expenses and professional fees, offset partially by a decrease in profit sharing expenses.
OTHER EXPENSES AND INCOME
Interest expense decreased by $3.4 million relative to 2008 as a result of lower average debt balances and lower interest rates on our debt facilities.
Depreciation and amortization increased to $96.8 million for the year compared to $93.4 million for the same period in 2008. Depreciation in the U.S. increased as capital expansion projects undertaken during 2008 increased equipment balances in 2009 relative to 2008. Also, the average annual U.S. dollar exchange rate increased by 7% compared to 2008. The increase in the U.S. was partially offset by a decrease in Russia due to devaluation of the Russian ruble and a decrease in Canada from the parked equipment on which no depreciation was taken for part of the year.
Foreign exchange losses were $5.9 million for 2009. The weakening of the U.S. dollar and Russian ruble relative to the Canadian dollar during 2009 resulted in a foreign exchange loss on our U.S. dollar and Russian ruble net monetary assets.
Other income in 2009 was $2.2 million and consisted largely of $8.5 million in payments received on a loan from unrelated third party, partially offset by a $6.2 million payment made on settlement of a patent infringement lawsuit. Other income in 2008 consisted primarily of interest on a loan issued to an unrelated third party and a reduction in the value of the share component of the deferred consideration owing to former owners of CBM Solutions.
The other asset impairment reversal of $10.8 million relates to the reversal of the impairment provision on a loan to an unrelated third party.
INCOME TAXES
Trican recorded an income tax recovery of $21.1 million in the year compared to $44.3 million for the comparable period of 2008. The Company's effective tax rate for 2009 was a recovery of 70.8% versus 38.6% for 2008. The change in the Company's effective tax rate is primarily attributable to increased non-capital losses in the U.S., which have higher corporate tax rates than other jurisdictions.
OTHER COMPREHENSIVE INCOME
The consolidated statement of other comprehensive income for the year ended December 31, 2009 includes $60.7 million in unrealized losses on translating the financial statements of our self-sustaining foreign operations. The losses arise primarily on translation of the net assets of certain U.S. and Russian subsidiaries using the current rate method, given that the subsidiaries are considered self-sustaining for Canadian GAAP purposes. During 2009, the Canadian dollar strengthened by 15% and 21% respectively against the U.S. dollar and the Russian ruble, decreasing the value of our net asset position in these subsidiaries in Canadian dollar terms.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Funds provided by operations in 2009 decreased by $127.4 million to $38.8 million compared to the previous year. The decrease was largely income related as net income decreased by $80.8 million excluding the impact of the asset write downs in 2008.
At December 31, 2009 the Company had working capital of $166.1 million, down $75.8 million from the previous year. There were significant decreases in all current asset balances due to the decrease in activity experienced during 2009.
The Company has commitments for operating lease agreements, primarily for vehicles and office space, in the aggregate amount of $17.7 million (2008 - $20.8 million). The Company also has commitments for capital lease agreements for equipment in the aggregate amount of $2.8 million (2008 - $nil). Payments over the next five years are as follows:
(Stated in thousands) Payments due by period
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2010 2011 2012 2013 2014
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Operating leases 4,855 4,074 3,099 3,010 2,664
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Capital leases 804 804 804 402 -
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Investing Activities
During the first quarter ended March 31, 2009 and pursuant to an agreement amended in March 2007, the Company increased its ownership interest in R-Can Services Limited by 0.6% to 99.4%. The Company paid $1.4 million for this acquisition, increasing goodwill by $1.1 million and reducing non-controlling interest by $0.3 million.
During the first quarter ended March 31, 2009 and pursuant to an agreement dated March 2007, the Company paid $0.3 million of contingent consideration in connection with its acquisition of CBM Solutions Ltd. All of the contingent consideration was recorded as goodwill.
Capital expenditures for the year totaled $45.9 million compared with $124.4 million for the same period in 2008. This investment was directed to equipment and operating facilities across all regions.
At the end of 2009, the Company had a number of ongoing capital projects and estimates that $4.4 million of additional investment will be required to complete them.
Our consolidated capital budget for 2010 is approximately $110 million. Cash flows provided by operations will be used to fund the 2010 capital budget.
Financing Activities
During 2009, our debt balances have decreased by $101 million due primarily to $78 million in payments made on our long-term debt and bank loan facilities. The remaining decrease of $23 million was a result of the devaluation of the U.S. dollar.
At December 31, 2009 we have $143.8 million of available debt under our existing facilities.
We are in the final stages of securing a new facility agreement to replace our Equipment and Acquisition loan that expires on March 6, 2011. The new facility is expected to be a $250 million extendible revolving three year term credit facility provided by a syndicate of lenders. The facility is unsecured and is expected to bear interest at bank's prime, U.S. base rate, U.S. prime, Bankers Acceptance, LIBOR or EURIBOR plus 150 to 400 basis points, dependant on certain financial ratios of the Company.
As at March 4, 2010, Trican had 125,642,419 common shares and 6,086,334 employee stock options outstanding.
OUTLOOK
The outlook for 2010 is improved relative to 2009. We have seen an increase in North American drilling activity levels, which has resulted in very high utilization in both our Canadian and United States operations. We will be focused on increasing our pricing in both of these regions to continue to improve our operating margins.
Much of the activity in Canada has been driven by the growth of horizontal fracturing on oil reservoirs. We believe that oil prices will remain at a level that will sustain this activity and are committed to developing technology that will positively impact customer operations and our competitive position. Activity levels in the tight gas regions continue to grow, as is evidenced by the activity in the Montney. Finding and development costs in the Montney are some of the lowest in North America, and this play saw a meaningful level of activity in 2009. We expect this activity to continue and likely increase in 2010.Other plays within Canada are more dependent on higher natural gas prices. We will keep a watchful eye on the price of natural gas as we proceed throughout the year, as this will have an impact on our activity in these regions. Trican will continue to perform work in the Horn River area, with the majority occurring in the second and third quarters of 2010. It remains our opinion that higher gas prices will be required to significantly increase activity in the Horn River.
Our United States operations have benefited from an increase in horizontal well drilling and a decrease in pressure pumping capacity. The horizontal well rig count in our area of operations is now at pre-slowdown levels. This combination has resulted in high utilization levels throughout our operations, which will allow us to improve pricing. The focus of our U.S. operations for the upcoming quarters will be to return to normal operating margins.
Our Russian operations were very successful in their 2010 tenders. We were awarded contracts from a greater number of customers relative to 2009 and expect to increase revenue by 10 to 15 percent. However, we expect operating margins will remain at a similar percentage of revenue as those seen in 2009. We are anticipating a continuation of the 8 to 10 percent rate of inflation in Russia which should increase many of our costs and offset the margin improvements typically expected from higher revenues.
We continue to grow our coiled tubing operations in Russia and will add additional fracturing equipment to meet our work requirements. In 2010, we will continue to grow our customer base in Kazakhstan and will also explore additional opportunities in neighbouring CIS(1) countries. The fracture treatments we have completed to date on gas wells in Russia have been very successful, and we see this as a long-term growth opportunity for Trican in this region.
In Algeria, we will establish our cementing operations this year and will start working on growing into the fracturing market. Trican is also focused on adding another international region in 2010. As our customers move to lower quality reservoirs throughout the world, there will be opportunities to expand our operations in other regions of the world in the upcoming year and beyond.
Selected Annual Information ($000s, except per share amounts and operational
information)
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(restated)(1)
2009 2008 2007
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Revenue 811,488 1,016,083 836,373
Net (loss)/income (8,513) (71,362) 111,817
(Loss)/earnings per share:
- Basic (0.07) $ (0.57) $ 0.93
- Diluted (0.07) $ (0.57) $ 0.91
Funds provided by operations 38,819 166,210 131,755
Capital expenditures 45,867 124,383 160,178
Total assets 1,029,839 1,231,976 1,049,064
Total long-term financial
liabilities 174,660 244,032 193,102
Shareholders' equity 647,193 718,577 683,669
Average shares outstanding - Basic 125,616 124,726 120,724
Average shares outstanding -
Diluted 125,616 124,726 123,493
Shares outstanding at year end 125,639 125,563 122,450
Dividend per share $ 0.10 $ 0.10 $ 0.10
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(1) See note 2 of the financial statements for details of the prior period
restatement
Operational Information
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2009 2008 2007
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Canadian operations
Number of jobs completed 16,262 23,621 22,768
Revenue per job 25,153 23,625 21,074
Russian operations
Number of jobs completed(1) 3,781 3,648 2,046
Revenue per job(1) 61,090 80,675 117,384
United States Operations
Number of jobs completed 1,825 1,648 794
Revenue per job 86,416 100,792 133,040
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(1) Prior period figures have been adjusted to reflect our revised
methodology for determining job count and revenue per job data for
coiled tubing and nitrogen.
NON-GAAP DISCLOSURE
Adjusted net income does not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. The following is a reconciliation of adjusted net income, as used in this MD&A, to net income, being the most directly comparable measure calculated in accordance with GAAP. The reconciling items have been presented net of tax.
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Three months ended Year ended
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Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2009 2008 2009 2008
(restated)(1) (restated)(1)
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Adjusted net income/(loss) 7,362 38,675 (8,104) 72,314
Deduct/(Add):
Goodwill impairment - 114,658 - 114,658
Other asset (impairment
reversal)/impairment (9,465) 16,063 (9,465) 16,063
Stock-based compensation
expense 2,126 3,530 9,874 12,269
Intangible asset
impairment - 686 - 686
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Net income/(loss) (GAAP
financial measure) 14,701 (96,262) (8,513) (71,362)
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(1) See note 2 of the financial statements for details of the prior period
restatement
Other non-GAAP measures include operating income and funds provided by operations. A calculation of operating income is shown in the consolidated statements of operations and funds provided by operations is shown in the consolidated cash flow statements.
FORWARD-LOOKING STATEMENTS
This document contains statements that constitute forward-looking statements within the meaning of applicable securities legislation. These forward-looking statements are identified by the use of terms and phrases such as "anticipate," "achieve", "achievable," "believe," "estimate," "expect," "intend", "plan", "planned", and other similar terms and phrases. These statements speak only as of the date of this document and we do not undertake to publicly update these forward-looking statements except in accordance with applicable securities laws. These forward-looking statements include, among others:
- expectations that our strong market position in the unconventional plays in Canada will provide us with opportunities for growth;
- expectations of increased pressure pumping activity in Russia during 2010 relative to 2009;
- anticipated stability and opportunities in Russia in 2010 due our strong market presence;
- expectations that pricing discounts will improve in the U.S. in 2010;
- expectations that our strategy in the U.S. to preserve market share while maintaining a lean cost structure will serve us well in 2010;
- estimates of additional investment required to complete ongoing capital projects;
- expectations of securing a new facility agreement in 2010
- expectations that the Company has sufficient funding to meet future borrowing requirements
- environmental protection requirements are not anticipated to have a significant impact on the Company operations or capital budget
- expected timing for completion of the assessment and design phase of our project plan for transition to IFRS;
- expectations with respect to changes to be made during the implementation phase of our project plan for transition to IFRS;
- expectations with respect to continued monitoring of changes in accounting standards relating to our IFRS changeover plan and participation with our peers in any related industry initiatives;
- expectations as to pricing for our services;
- expectations as to our future market position in the industry;
- expectations that the price of oil will remain at a level to sustain activity levels in Canada;
- expectations that activity in the Montney region will increase in 2010;
- expectations as to revenue increases and operating margins in Russia;
- expectations that we will grow our customer base in Kazakhstan in 2010;
- expectations that fracturing treatments and gas wells will be a source of growth and opportunity;
- expectations that there will be opportunities to expand our operations in other regions.
Forward-looking statements are based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: industry activity; the general stability of the economic and political environment; effect of market conditions on demand for the Company's products and services; the ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability to operate its business in a safe, efficient and effective manner; the performance and characteristics of various business segments; the effect of current plans; the timing and costs of capital expenditures; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its products and services.
Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks and uncertainties include: fluctuating prices for crude oil and natural gas; changes in drilling activity; general global economic, political and business conditions; weather conditions; regulatory changes; the successful exploitation and integration of technology; customer acceptance of technology; success in obtaining issued patents; the potential development of competing technologies by market competitors; and availability of products, qualified personnel, manufacturing capacity and raw materials. In addition, actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth under the section entitled "Business Risks" in this document.
CONSOLIDATED BALANCE SHEETS
(restated
- note 2)
December 31, December 31,
(Stated in thousands of dollars; unaudited) 2009 2008
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ASSETS
Current assets
Cash and short-term deposits $ 26,089 $ 56,281
Accounts receivable 181,483 231,636
Income taxes recoverable - 12,599
Inventory (note 4) 91,249 107,831
Prepaid expenses 8,568 20,062
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307,389 428,409
Property and equipment (note 5) 534,696 632,041
Intangible assets (note 6) 28,082 38,543
Future income tax assets (note 15) 104,838 86,206
Other assets (note 7) 17,918 11,221
Goodwill (note 8) 36,916 35,556
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$ 1,029,839 $ 1,231,976
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans (note 9) $ 27,997 $ 61,230
Accounts payable and accrued liabilities 97,847 117,450
Deferred consideration (note 10) 1,882 1,572
Dividend payable 6,282 6,278
Current income taxes payable 6,505 -
Current portion of capital lease obligations 804 -
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141,317 186,530
Long-term debt (note 11) 174,660 242,460
Capital lease obligations 1,619 -
Future income tax liabilities (note 15) 64,754 82,036
Deferred consideration (note 10) - 1,572
Non-controlling interest (note 3) 296 801
Shareholders' equity
Share capital (note 12) 246,854 246,357
Contributed surplus 28,458 18,584
Retained earnings 441,234 462,312
Accumulated other comprehensive income (69,353) (8,676)
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647,193 718,577
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$ 1,029,839 $ 1,231,976
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See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(restated
- note 2) (restated
Three Three - note 2)
Months Months Year Year
Ended Ended Ended Ended
(Stated in thousands, except per Dec. 31, Dec. 31, Dec. 31, Dec. 31,
share amounts; unaudited) 2009 2008 2009 2008
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Revenue $219,862 $322,822 $811,488 $1,016,083
Expenses
Materials and operating 182,697 232,417 689,520 780,006
General an
Trican 2009 Fourth Quarter and Year End Results Added: (04.03.2010)
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