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Trican Reports Second Quarter Results for 2019

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Calgary, Alberta--(Newsfile Corp. - August 1, 2019) - Trican Well Service Ltd. (TSX: TCW) ("Trican" or the "Company") is pleased to announce its second 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 six months ended June 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

  • Consolidated revenue from continuing operations for Q2 2019 was $110.0 million, a 36% decrease compared to Q2 2018.

  • Adjusted EBITDA1 for Q2 2019 was negative $14.3 million, which is net of $2.6 million in expenses for stainless steel fluid ends1 compared to negative $1.5 million for Q2 2018, which was net of $3.5 million in expenses for stainless steel fluid ends1.

  • Proceeds from asset sales of $12.5 million resulted in a gain of $3.1 million.

  • Net loss for Q2 2019 was $28.6 million (Q2 2018 - net loss of $34.6 million).

  • Aggressive cost reduction measures taken in the second half of 2018 and first half of 2019 have resulted in more than $25 million of annualized cost savings and helped mitigate the effects of reduced industry activity and a more competitive pricing environment.

  • For the three months ended June 30, 2019, the Company purchased and canceled 5,262,000 common shares at a weighted average price per share of $1.37 pursuant to its Normal Course Issuer Bid ("NCIB").

  • The adoption of IFRS 16 - Leases for the three months ended June 30, 2019 resulted in a $0.8 million decrease to rent expense (increase to adjusted EBITDA1), a $0.9 million increase to depreciation expense, and a $0.3 million increase to interest expense in Q2 2019.

CONTINUING OPERATIONS - FINANCIAL REVIEW

($ millions, except per share amounts; total proppant pumped1(thousands); internally sourced proppant pumped1 (thousands); total job count1; and HHP1) Three months ended Six months ended
(thousands);(unaudited) June 30,
2019
June 30,
2018
March 31,
2019
June 30,
2019
June 30,
2018
Revenue $110.0 $172.0 $245.7 $355.7 $478.7
Gross profit / (loss) (37.6) (18.0) 8.2 (29.4) 20.9
Adjusted EBITDA1 (14.3) (1.5) 26.3 11.9 53.4
Net loss (28.6) (34.6) (6.6) (35.2) (61.8)
Net loss per share - basic ($0.10) ($0.10) ($0.02) ($0.12) ($0.19)
Net loss per share - diluted ($0.10) ($0.10) ($0.02) ($0.12) ($0.19)
Total proppant pumped (tonnes)1 138 383 332 470 867
Internally sourced proppant pumped (tonnes)1 138 110 332 470 373
Total job count1 1,215 1,997 2,839 4,054 5,940
Hydraulic Pumping Capacity1 593 672 672 593 672
Active crewed HHP1 347 445 370 347 445
Active, maintenance/not crewed HHP1 235 185 212 235 185
Parked HHP1 11 42 90 11 42

 

($ millions) As at June 30, 2019 As at December 31, 2018
Cash and cash equivalents $24.5 $8.2
Current assets - other $140.4 $193.3
Current portion of lease liabilities $5.4 $-
Current liabilities - other $87.1 $85.8
Lease liabilities - non-current portion $18.1 $-
Long-term loans and borrowings $12.0 $45.9
Total assets $959.1 $1,037.8

 

Second Quarter 2019 vs First Quarter 2019 Sequential Overview

Second quarter of 2019 revenue decreased 55% compared to the first quarter of 2019. Q2 2019 activity levels were negatively affected by typical industry slowdowns experienced for spring break-up magnified by lower overall WCSB1 oil and gas industry activity. The oil and gas industry drilling rig count saw a typical sequential decline in activity of 58% in Q2 2019 relative to Q1 2109 (Source: Baker Hughes GE Rig Count). As a result, job count and the volume of proppant pumped decreased by 57% and 58%, respectively. Hydraulic Fracturing Utilization1 levels, declined from 83% in Q1 2019 to 27% in Q2 2019. Trican had 9 Fracturing Crews during Q2 2019 and 347,000 HHP as compared to 10 Fracturing Crews and 370,000 HHP during Q1 2019.

Cementing services activity generally tracks closely with the oil and gas industry drilling rig count. As a result, the number of jobs completed and revenue both decreased from Q1 2019 by 42% and 31%, respectively. The number of Coil Tubing Operating Days1 for Q2 2019 declined by 50% from the first quarter of 2019 to 215 days.

Decreased activity resulted in a net loss and negative adjusted EBITDA1 when compared to the first quarter of 2019. Gross profit and adjusted EBITDA1for the second quarter of 2019 was negative $37.6 million and negative $14.3 million, respectively.

We continue to work on right-sizing all business lines for current and future anticipated activity levels and are implementing additional optimization efforts. These optimization efforts resulted in a reduction in our overall workforce during Q2 2019 and $0.8 million of severance costs (Q1 2019 - $1.7 million).

The Company continues to look at opportunities to sell equipment that is no longer competitive in the WCSB1. During the second quarter of 2019, the Company received proceeds of $12.5 million through selling equipment with a net book value of $9.4 million. This compares to first quarter of 2019 asset sales resulting in proceeds of $4.5 million on equipment with a net book value of $3.5 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

The typically weak spring break-up1 conditions were magnified by the cautious approach taken by some of our fracturing customers that deferred their Q2 2019 programs to Q3 2019 and Q4 2019, which lead to significantly reduced activity levels. Average year-over-year cash flow for our customers' is up more than 20% however, our customers continue to exercise discipline with the timing of their capital spending and will not increase investment above planned levels until they have better visibility on Canadian takeaway capacity and commodity prices.

Trican is anticipating typical sequential activity increases for our services as the industry enters into the more active third and fourth quarters. We expect industry rig count to improve by 80% to 100% relative to the average Q2 2019 industry rig count of 79 (Source: Baker Hughes GE Rig Count). Canadian differentials, new pipeline construction, and the Alberta production curtailment program are sources of continued uncertainty and are expected to contribute to reduced Q3 2019 activity levels relative to both Q3 2018 and Q1 2019. We anticipate the Q3 2019 rig count to be 30% below the comparable 2018 rig count levels and approximately 20% below the Q1 2019 rig count levels. Therefore, Trican's activity levels are expected to be proportionately lower. Visibility has improved for our Q4 2019 program as certain clients have pushed some work into the quarter, and we currently have soft commitments1 for approximately two-thirds of our active fleet. If commodity prices and differentials remain at current levels, we anticipate Q4 2019 activity to be stronger than Q4 2018, as very few of our clients this year appear to be exhausting their capital budgets early.

Pricing For Our Services

Pricing for contracted services during Q2 2019 was relatively stable when compared to Q1 2019 pricing levels. We continue to maintain a disciplined approach to pricing and will refuse work priced at unsustainable levels. Pricing for Q3 2019 and crews with soft commitments1 for Q4 2019 are at similar pricing levels to Q1 2019. We continue to respond to pricing weakness and equipment over-supply by reducing our active equipment complement, selling legacy equipment, and reducing our internal cost structure through increased efficiencies. By reducing equipment, we expect market supply and demand conditions to improve in the future which should help stabilize pricing and ensure we are able to meet long-term customer requirements and generate acceptable rates of return on our active equipment.

2019 Outlook

Our focus through the balance of 2019 will be to optimize utilization levels for our active equipment and crews without conceding on price. As a result, we idled one hydraulic fracturing crew1 during Q2 2019 (9 hydraulic fracturing crews1) compared to 10 hydraulic fracturing crews1 deployed in Q1 2019. Additionally, we have reduced the number of cement crews to adjust for the lower anticipatedrig count. As planned, we have added the two previously announced coil tubing crews1 and expect the start-up investment in these crews, along with the investments made into coil tubing during the past 12-15 months, will strengthen our value proposition and improve profitability of this service line.

We have continued to adjust our business through this volatile operating environment by streamlining our service lines, idling or disposing of excess equipment, and reducing our costs. We will continue to focus on improving efficiencies and driving costs out of our business in order to supply customers with the most cost-efficient services.

Hydraulic Fracturing Asset Requirements

As at June 30, 2019, most of Trican's 2,250 HHP hydraulic fracturing pumps have been sold. The legacy pumps ranged in age from 12 to 19 years old. The Company believes the pressure pumping industry will continue to skew towards high intensity 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. The Company's fleet of hydraulic fracturing equipment at June 30, 2019 is presented in the table below:




At June 30, 2019
Fracturing Fleet: Type of Pump
Pumps (#) HHP % of Fleet
Continuous Duty 2,700 / 3,000 HHP 126 344,700 58%
Mid Tier 2500 HHP 95 237,500 40%
Legacy 2250 HHP 5 11,250 2%
Total Fracturing Fleet

226 593,450

 

The legacy equipment (2,250 HHP1 pumps and lower HHP1 pumps) generally operate efficiently in shallower WCSB1 regions but their efficiency is significantly diminished in high intensity hydraulic fracturing formations, such as the Montney and Duvernay, where comparatively higher HHP1 pumps have lower operating costs and lower manpower requirements. It is our belief that there will continue to be an increased demand in these and similar formations, therefore, hydraulic fracturing companies that have or can add Continuous Duty and Mid Tier equipment will be able to generate scale and create more operationally efficient businesses.

Capital Expenditures

Our capital expenditures for the six months ended June 30, 2019 totaled $18.9 million and have been focused primarily on maintenance and infrastructure projects, along with certain projects that brought immediate efficiencies and cost reductions. The remainder of our 2019 capital budget will be reviewed quarterly and adjusted as activity and market conditions dictate.

We funded a majority of the first half 2019 capital expenditures with approximately $17.0 million of proceeds from the sale of surplus or obsolete equipment and recognized a gain on the sale of these assets. We will continue to evaluate all aspects of our business for additional disposal opportunities provided we can earn a fair price on disposition.

COMPARATIVE QUARTERLY INCOME STATEMENTS

Continuing Operations

($ thousands, except total job count, and revenue per job1, unaudited)





Three months ended June 30,
2019
Percentage
of revenue
June 30,
2018
Percentage
of revenue
March 31,
2019
Percentage
of revenue
Revenue $110,028 100% $171,989 100% $245,677 100%
Cost of sales





   Cost of sales - Other 115,248 105% 160,550 93% 205,728 84%
   Cost of sales - Depreciation and amortization 32,337 29% 29,468 17% 31,795 13%
   Gross profit / (loss) (37,557) (34%) (18,029) (10%) 8,154 3%
   Administrative expenses - Other 10,205 9% 15,123 9%