Calgary, Alberta--(Newsfile Corp. - November 7, 2019) - Trican Well Service Ltd. (TSX: TCW) ("Trican" or the "Company") is pleased to announce its third quarter results for 2019. The following news release should be read in conjunction with Management's Discussion and Analysis, the unaudited interim consolidated financial statements and related notes of Trican for the three and nine months ended September 30, 2019, as well as the Annual Information Form for the year ended December 31, 2018. All of the above documents are available on SEDAR at www.sedar.com.
HIGHLIGHTS
CONTINUING OPERATIONS - FINANCIAL REVIEW
($ millions, except per share amounts; total proppant pumped1 (thousands); internally sourced proppant pumped (thousands); total job count1 ; and | Three months ended |
| Nine months ended | |||
| September 30, | September 30, | June 30, |
| September 30, | September 30, |
(thousands);(unaudited) | 2019 | 2018 | 2019 |
| 2019 | 2018 |
Revenue | $136.1 | $253.7 | $110.0 |
| $491.8 | $732.5 |
Gross (loss) / profit | (11.2) | 14.7 | (37.6) |
| (40.6) | 35.6 |
Adjusted EBITDA1 | 4.0 | 36.7 | (14.3) |
| 16.0 | 90.1 |
Net loss | (16.8) | (12.3) | (28.6) |
| (52.1) | (74.9) |
Net loss per share - basic | ($0.06) | ($0.04) | ($0.10) |
| ($0.18) | ($0.23) |
Net loss per share - diluted | ($0.06) | ($0.04) | ($0.10) |
| ($0.18) | ($0.23) |
Total proppant pumped (tonnes)1 | 166 | 486 | 138 |
| 636 | 1,353 |
Internally sourced proppant pumped (tonnes)1 | 166 | 227 | 138 |
| 636 | 600 |
Total job count1 | 1,775 | 3,390 | 1,215 |
| 5,829 | 9,330 |
Hydraulic Pumping Capacity1 | 583 | 672 | 593 |
| 583 | 672 |
Active crewed HHP1 | 297 | 464 | 347 |
| 297 | 464 |
Active, maintenance/not crewed HHP1 | 86 | 201 | 235 |
| 86 | 201 |
Parked HHP1 | 200 | 7 | 11 |
| 200 | 7 |
($ millions) |
| As at September 30, 2019 | As at December 31, 2018 | |||
Cash and cash equivalents |
|
| $— |
| $8.2 | |
Current assets - other |
|
| $154.9 |
| $193.3 | |
Current portion of lease liabilities |
|
| $5.1 |
| $— | |
Current liabilities - other |
|
| $60.9 |
| $85.8 | |
Lease liabilities - non-current portion |
|
| $16.8 |
| $— | |
Long-term loans and borrowings |
|
| $36.1 |
| $45.9 | |
Total assets |
|
| $924.8 |
| $1,037.8 |
Third Quarter 2019 vs Second Quarter 2019 Sequential Overview
Third quarter of 2019 revenue increased 24% compared to the second quarter of 2019. Although activity levels increased when compared to the previous quarter, Q3 2019 activity levels continue to be negatively affected by the ongoing egress constraints and weak commodity pricing, which continues to temper exploration and production ("E&P") companies' capital spending. In addition, the Company's activity levels were negatively affected by customer work programs being deferred from the third quarter into the fourth quarter of 2019. As a result, job count and the volume of proppant pumped only increased modestly from the second quarter by 46% and 20%, respectively. Overall, the industry experienced lower utilization and an oversupply of fracturing equipment however, pricing has remained relatively stable. Trican exited Q3 2019 with 8 Fracturing Crews and 297,000 HHP operating as compared to 9 Fracturing Crews and 347,000 HHP operating in Q2 2019 as we idled one active crew during the quarter.
Cementing services activity generally tracks closely with the WCSB Rig Count. As a result, the number of jobs completed and revenue both increased from Q2 2019 with revenue increasing by 23% relative to Q2 2019. The number of Coiled Tubing Operating Days1 for Q3 2019 increased by 63% from the second quarter of 2019 to 351 days contributing to a 90% sequential increase in revenue from Coiled Tubing operations in Q3 2019 relative to Q2 2019.
Gross profit and adjusted EBITDA1 for the third quarter of 2019 was negative $11.2 million and positive $4.0 million, respectively. Gross profit and adjusted EBITDA1 are reported net of $6.5 million in severance costs. Increased activity levels resulted in improved sequential gross profit and adjusted EBITDA1 levels. During the third quarter of 2019, adjusted EBITDA1 margins were positive across all of our service lines with the exception of Pipeline and Industrial Services.
We have continued to right-size all business lines for current and future anticipated activity levels and have implemented additional optimization efforts that should result in $15 million of incremental annualized cost savings, effective September 2019. These efforts resulted in a reduction in our overall workforce during Q3 2019, and $6.5 million of severance costs (Q2 2019 - $0.8 million). We expect these cost reductions to contribute toward improved financial performance on a sequential and year-over-year basis starting in the fourth quarter.
The Company continues to look at opportunities to sell equipment that is no longer competitive in the WCSB1. During the third quarter of 2019, the Company received proceeds of $5.2 million through selling equipment with a net book value of $3.7 million. This compares to second quarter of 2019 asset sales resulting in proceeds of $12.5 million on equipment with a net book value of $9.4 million. All asset sales of specialized oil and gas equipment have been to purchasers outside of Canada. For a further discussion on the Company's outlook for hydraulic fracturing asset requirements, please refer to the Outlook section of this News Release.
OUTLOOK
Customer Environment
Customers have maintained tight capital discipline in the face of challenging market dynamics, spending less than cash flow. The oil directed activity continues to be impacted by the lack of pipeline take-away capacity, which creates little incentive for producers to invest capital beyond what is needed to maintain current production. There has been a recent improvement in natural gas prices as a result of enhancements to certain of the natural gas transmission lines and supply agreements, combined with reduced natural gas storage levels. Natural gas storage levels are at their lowest level in five years and are a contributing factor to the steady improvement seen in the AECO gas price since the summer pricing lows.
Q4 2019 Activity
We have a constructive view on Q4 2019, driven by the cost reductions made in our business as well as sequential increases in customer activity. Producers shifted activity to the fourth quarter of 2019 due to low gas prices in the third quarter of 2019, and we expect Q4 2019 will be sequentially busier than Q3 2019. Hydraulic Fracturing is running at approximately 80% utilization in October, which is expected to continue into November before slowing down in late November and December as customers likely finalize 2019 capital budget spending. We saw very little work canceled in the second half of 2019 however, the shift of our clients' work to Q4 2019 has negatively affected our Q3 2019 results and will positively affect our Q4 2019 results.
Demand for Cementing services continues to remain steady in the technically challenging deep-well market where Trican has a strong market share. The Rig Count is approximately 30% lower than Q1 2019 levels and we reduced our active Cementing crew count during Q4 2019 to match this drop in drilled wells. In addition to the crew count reductions, we closed two Cement bases to reduce our cost structure ahead of Q4 2019 to match the expected industry Rig Count. Currently, we expect Rig Count to increase modestly to 135 average drilling rigs in Q4 2019 (Q4 2018 - 166) from 129 rigs in Q3 2019.
The investments we have made into our Coiled Tubing service line are leading to sustained demand for these services, and we will have all our units engaged throughout most of the fourth quarter of 2019.
Q1 2020 Activity
If current market fundamentals hold, we expect that this level of utilization will continue into the first quarter of 2020. We have firm commitments on 6 of our 8 Hydraulic Fracturing crews, with soft commitments on the remaining 2. We anticipate that the WCSB drilling rig count will increase to 175-180 in the first quarter (Q1 2019 - 187), with our Cementing service line tracking this metric. Demand for our Coil Tubing service line is expected to remain strong, with the service line expected to be at or near full utilization for much of the first quarter.
Pricing for Our Services
Pricing remains extremely competitive, but pricing for contracted services in Q4 2019 will be flat against Q3 2019, although there can be some spot market pressure that could result in lower average pricing, in particular, in December. We will continue to work with our customers to sustain pricing that will allow us to reinvest in our business, ensuring we can modernize our fleet and upgrade our technology in order to continue providing them with industry leading service solutions.
Hydraulic Fracturing Asset Requirements
As at September 30, 2019, all Trican's 2,250 HHP Hydraulic Fracturing pumps have been sold. These legacy pumps ranged in age from 12 to 19 years old and were not well suited towards the high intensity Hydraulic Fracturing work prevalent in today's market. The Company believes the pressure pumping industry will continue to skew towards high intensity hydraulic fracturing jobs and the sale of this legacy equipment will not significantly affect the Company's future earnings capacity even if WCSB1 completions activity improves from 2019 forecast levels. In addition, the Company believes being able to offer customers dual fuel (natural gas and diesel fuel consumption) will result in better overall activity levels. The Company currently has a fleet of 143,000 HHP of dual fuel fracturing pumps. The Company's fleet of Hydraulic Fracturing equipment at September 30, 2019 is presented in the table below:
|
| At September 30, 2019 | ||
Fracturing Fleet: | Type of Pump | Pumps (#) | HHP | % of Fleet |
Continuous Duty | 2,700 / 3,000 HHP | 126 | 345,000 | 59% |
Mid Tier | 2500 HHP | 95 | 237,500 | 41% |
Total Fracturing Fleet |
| 221 | 582,500 |
|
The Mid Tier and Continuous Duty fracturing pumps have lower operating costs and lower manpower requirements than legacy 2,250 HHP Hydraulic Fracturing pumps. It is our belief there will continue to be an increased demand in the high intensity formations such as the Montney, Duvernay, and others. Hydraulic fracturing companies that have or can add Continuous Duty and Mid Tier equipment will be able to generate scale and create more efficient operations.
Capital Expenditures
Our capital expenditures for the nine months ended September 30, 2019 totaled $30.1 million and have been focused primarily on maintenance and infrastructure projects, along with certain projects that brought immediate efficiencies and cost reductions. Significant components of our 2019 spend are as follows:
Our focus for the remainder of 2019 will be to complete the projects already underway and limit discretionary expenditures unless there is a quick payback on the investment. However, our strong financial position, potential incremental proceeds from asset sales, and modest operating cash flow, may allow us to make further investments that improve our business and / or provide a competitive advantage.
We have funded a majority of 2019 capital expenditures with approximately $22.2 million of proceeds from the sale of surplus or obsolete equipment and $4.0 million of proceeds from an insured fire event that occurred in Q1 2018. We have identified non-core real estate and obsolete or surplus equipment for disposal, and will be seeking out additional disposal opportunities provided we can earn a fair price on disposition.
COMPARATIVE QUARTERLY INCOME STATEMENTS
Continuing Operation
($ thousands, except total job count, and revenue per job1, unaudited) | |||||||
| September 30, | Percentage | September 30, | Percentage | June 30, | Percentage | |
Three months ended | 2019 | of revenue | 2018 | of revenue | 2019 | of revenue | |
|
|
|
|
|
|
| |
Revenue | $136,103 | 100% | $253,744 | 100% | $110,028 | 100% | |
Cost of sales |
|
|
|
|
|
| |
Cost of sales – Other | 117,321 | 86% | 205,198 | 81% | 115,248 | 105% | |
Cost of sales – Depreciation and amortization | 29,996 | 22% | 33,845 | 13% | 32,337 | 29% | |
Gross (loss) / profit | (11,214) | (8%) | 14,701 | 6% | (37,557) | (34%) | |
Administrative expenses – Other | 15,489 | 11% | 13,788 | 5% | 10,205 | 9% | |
Administrative expenses – Depreciation | 1,347 | 1% | 1,382 | 1% | 1,562 | 1% | |
Other (income) / expenses | (4,964) | (4%) | (910) | —% | (3,439) | (3%) | |
Results from operating activities | (23,086) | (17%) | 441 | —% | (45,885) | (42%) | |
Finance costs | 1,018 | 1% | 1,631 | 1% | 1,121 | 1% | |
Loss on Investments in Keane | — | —% | 8,958 | 4% | — | —% | |
Foreign exchange (gain) / loss | (285) | —% | 926 | —% | 250 | —% | |
(Loss) / profit before income tax | (23,819) | (18%) | (11,074) | (4%) | (47,256) | (43%) | |
Income tax recovery / expense | (7,221) | (5%) | 976 | —% | (18,662) | (17%) | |
(Loss) / profit from continuing operations | ($16,598) | (12%) | ($12,050) | (5%) | ($28,594) | (26%) | |
Adjusted EBITDA1 | $4,038 | 3% | $36,733 | 14% | ($14,348) | (13%) | |
Total job count1 | 1,775 |
| 3,390 |
| 1,215 |
| |
Revenue per job1 | 76,678 |
| 74,851 |
| 90,558 |
| |
Total proppant pumped (tonnes)1 | 166,000 |
| 486,000 |
| 138,000 |
|
Sales Mix
Three months ended (unaudited) | September 30, 2019 | September 30, 2018 | June 30, 2019 |
% of Total Revenue |
|
|
|
Fracturing | 64% | 69% | 64% |
Cementing | 18% | 14% | 18% |
Coiled Tubing | 10% | 5% | 6% |
Fluid Management | 4% | 4% | 5% |
Industrial Services | 2% | 2% | 3% |
Other | 2% | 6% | 3% |
Total | 100% | 100% | 100% |
COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS
Continuing Operations
(thousands, except total job count, and revenue per job1, unaudited)
Nine months ended | September 30, | Percentage | September 30, | Percentage | Year-over | Percentage | |
2019 | of revenue | 2018 | of revenue | year change | change | ||
Revenue | $491,808 | 100% | $732,452 | 100% | ($240,644) | (33%) | |
Cost of sales |
|
|
|
|
|
| |
Cost of sales – Other | 438,297 | 89% | 603,859 | 82% | (164,481) | (27%) | |
Cost of sales – Depreciation and amortization | 94,128 | 19% | 93,042 | 13% | 1,086 | 1% | |
Gross (loss) / profit | (40,617) | (8%) | 35,551 | 5% | (77,249) | (217%) | |
Administrative expenses – Other | 40,647 | 8% | 44,745 | 6% | (4,098) | (9%) | |
Administrative expenses – Depreciation | 4,314 | 1% | 3,464 | —% | 850 | 25% | |
Other (income) / expenses | (10,390) | (2%) | 179 | —% | (11,650) | (6,508%) | |
Results from operating activities | (75,188) | (15%) | (12,837) | (2%) | (62,351) | 486% | |
Finance costs | 3,494 | 1% | 7,272 | 1% | (3,778) | (52%) | |
Loss on Investments in Keane | — | —% | 71,797 | 10% | (71,797) | (100%) | |
Foreign exchange loss / (gain) | 40 | —% | (7,673) | (1%) | 7,713 | (101%) | |
(Loss) / profit before income tax | (78,722) | (16%) | (84,233) | (12%) | 5,511 | (7%) | |
Income tax (recovery) / expense | (27,377) | (6%) | (9,376) | (1%) | (18,001) | 192% | |
(Loss) / profit from continuing operations | ($51,345) | (10%) | ($74,857) | (10%) | $23,512 | (31%) | |
Adjusted EBITDA1 | $15,967 | 3% | $90,117 | 12% | ($74,150) | (82%) | |
Total job count1 | 5,829 |
| 9,330 |
|
|
| |
Revenue per job1 | 84,373 |
| 78,505 |
|
|
| |
Total proppant pumped (tonnes)1 | 636,000 |
| 1,353,000 |
|
|
|
Sales Mix
Nine months ended (unaudited) | September 30, 2019 | September 30, 2018 |
% of Total Revenue |
|
|
Fracturing | 70% | 69% |
Cementing | 16% | 16% |
Coiled Tubing | 7% | 4% |
Fluid Management | 4% | 4% |
Industrial Services | 1% | 2% |
Other | 2% | 5% |
Total | 100% | 100% |
1 Certain financial measures in this news release - namely adjusted EBITDA and adjusted EBITDA percentage are not prescribed by IFRS and are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers and should not be viewed as a substitute for measures reported under IFRS. These financial measures are reconciled to IFRS measures in the Non-GAAP Disclosures section of this news release. Other non-standard measures are described in the Non-Standard Measures section of this news release. Stainless Steel Fluid Ends were historically expensed as depreciation prior to December 2017. Not all hydraulic fracturing companies apply the accounting policy for Stainless Steel Fluid Ends consistently.
NON-GAAP MEASURES
Certain terms in this News Release, including adjusted EBITDA and adjusted EBITDA percentage, do not have any standardized meaning as prescribed by IFRS and therefore, are considered non-GAAP measures and may not be comparable to similar measures presented by other issuers.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP term and has been reconciled to profit / (loss) for the applicable financial periods, being the most directly comparable measure calculated in accordance with IFRS. Management relies on adjusted EBITDA to better translate historical variability in our principal business activities into future forecasts. By isolating incremental items from net income, including income / expense items related to how the Company chooses to manage financing elements of the business, management can better predict future financial results from our principal business activities. The items included in this calculation have been specifically identified as they are either non-cash in nature, subject to significant volatility between periods, and / or not relevant to our principal business activities. Items adjusted in the non-GAAP calculation of adjusted EBITDA, are as follows:
• non-cash expenditures, including depreciation, amortization, and impairment expenses; and equity-settled share-based compensation;
• consideration as to how we chose to generate financial income and incur financial expenses, including foreign exchange expenses and gains/losses on Investments in Keane;
• taxation in various jurisdictions;
• transaction costs, as this cost is subject to significant volatility between periods and is dependent on the Company making significant acquisitions and divestitures which may be less reflective, and / or useful in segregating, for purposes of evaluating the Company's ongoing financial results; and
• costs resulting in payment of the legal claims made against the Company as they can give rise to significant volatility between periods that are less likely to correlate with changes in the Company's activity levels.
FRS 16 - Leases was adopted January 1, 2019, using the modified retrospective approach therefore, comparative information for adjusted EBITDA has not been restated. For the three and nine months ended September 30, 2019, the adoption of IFRS 16 provided a net benefit of $1.3 and $2.9 million, respectively to adjusted EBITDA due to a $1.3 and $2.9 million decrease in rent expense.
($ thousands; unaudited) | Three months ended | Nine months ended | |||
| September 30, | September 30, | June 30, | September 30, | September 30, |
| 2019 | 2018 | 2019 | 2019 | 2018 |
Profit/ (loss) from continuing operations | ($16,598) | ($12,050) | ($28,594) | ($51,345) | ($74,857) |
(IFRS financial measure) | |||||
Adjustments: |
|
|
|
|
|
Cost of sales - Depreciation and amortization | 29,996 | 33,845 | 32,337 | 94,128 | 93,042 |
Administrative expenses - Depreciation | 1,347 | 1,382 | 1,562 | 4,314 | 3,464 |
Income tax expense / (recovery) | (7,221) | 976 | (18,662) | (27,377) | (9,376) |
Loss on Investments in Keane | — | 8,958 | — | — | 71,797 |
Finance costs and amortization of debt issuance costs | 1,018 | 2,182 | 1,121 | 3,494 | 9,100 |
Foreign exchange (gain) / loss | (285) | 926 | 250 | 40 | (7,673) |
Other expense / income | (4,964) | (910) | (3,439) | (10,390) | 179 |
Administrative expenses – Other: |
|
|
|
|
|
equity-settled share-based compensation | 745 | 1,424 | 1,077 | 3,103 | 4,441 |
Adjusted EBITDA | $4,038 | $36,733 | ($14,348) | $15,967 | $90,117 |
Adjusted EBITDA %
Adjusted EBITDA % is determined by dividing adjusted EBITDA by revenue from continuing operations. The components of the calculation are presented below:
($ thousands; unaudited) | Three months ended | Nine months ended | |||
| September 30, | September 30, | June 30, | September 30, | September 30, |
| 2019 | 2018 | 2019 | 2019 | 2018 |
Adjusted EBITDA | $4,038 | $36,733 | ($14,348) | $15,967 | $90,117 |
Revenue | $136,103 | $253,744 | $110,028 | $491,808 | $732,452 |
Adjusted EBITDA % | 3% | 14% | (13)% | 3 % | 12% |
OTHER NON-STANDARD FINANCIAL TERMS
In addition to the above non-GAAP financial measures, this News Release makes reference to the following non-standard financial terms. These terms may differ and may not be comparable from similar terms used by other companies.
Revenue Per Job
Calculation is determined based on total revenue from continuing operations divided by total job count. This calculation may fluctuate based on both pricing, sales mix and method with which the client requests its invoices be prepared.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document constitute forward-looking information and statements (collectively "forward-looking statements"). These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "estimate", "expect", "intend", "plan", "planned", and other similar terms and phrases. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. We believe the expectations reflected in these forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this document should not be unduly relied upon. These statements speak only as of the date of this document.
In particular, this document contains forward-looking statements pertaining to, but not limited to, the following:
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and in the "Risk Factors" section of our AIF dated March 28, 2019:
Readers are cautioned that the foregoing lists of factors are not exhaustive. Forward-looking statements are based on a number of factors and assumptions, which have been used to develop such statements and information, but which may prove to be incorrect. Although management of Trican believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Trican can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: crude oil and natural gas prices; the impact of increasing competition; the general stability of the economic and political environment; the timely receipt of any required regulatory approvals; the Company's ability to continue its operations for the foreseeable future and to realize its assets and discharge its liabilities and commitments in the normal course of business; industry activity levels; Trican's policies with respect to acquisitions; the ability of Trican to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability to operate our business in a safe, efficient and effective manner; the ability of Trican to obtain capital resources and adequate sources of liquidity; the performance and characteristics of various business segments; the regulatory framework; the timing and effect of pipeline, storage and facility construction and expansion; and future commodity, currency, exchange and interest rates.
The forward-looking statements contained in this document are expressly qualified by this cautionary statement. We do not undertake any obligation to publicly update or revise any forward-looking statements except as required by applicable law.
Additional information regarding Trican including Trican's most recent AIF, is available under Trican's profile on SEDAR (www.sedar.com).
CONFERENCE CALL AND WEBCAST DETAILS
The Company will host a conference call on Thursday, November 7, 2019 at 10:00 a.m. MT (12:00 p.m. ET) to discuss the Company's results for the Third Quarter of 2019.
To listen to the webcast of the conference call, please enter the following URL in your web browser: http://www.gowebcasting.com/10359. You can also visit the Investors section of our website at www.tricanwellservice.com/investors and click on "Reports".
To participate in the Q&A session, please call the conference call operator at 1-800-319-4610 (North America) or 1-403-351-0324 (outside North America) 10 minutes prior to the call's start time and ask for the "Trican Well Service Ltd. Third Quarter 2019 Earnings Results Conference Call".
The conference call will be archived on Trican's website at www.tricanwellservice.com/investors.
Headquartered in Calgary, Alberta, Trican provides a comprehensive array of specialized products, equipment and services that are used during the exploration and development of oil and gas reserves.
Requests for further information should be directed to:
Dale Dusterhoft
President and Chief Executive Officer
E-mail: [email protected]
Robert Skilnick
Chief Financial Officer
E-mail: [email protected]
Phone: (403) 266-0202
Fax: (403) 237-7716
2900, 645 - 7th Avenue S.W.
Calgary, Alberta T2P 4G8
Please visit our website at www.tricanwellservice.com
To view the source version of this press release, please visit https://www.newsfilecorp.com/release/49530