Trican Well Service Ltd.
TSX : TCW

Trican Well Service Ltd.

February 25, 2015 18:25 ET

Trican Reports Fourth Quarter and Year-End Results for 2014

CALGARY, ALBERTA--(Marketwired - Feb. 25, 2015) - Trican Well Service Ltd. (TSX:TCW) -

Three months ended Twelve months ended
($ millions, except per share amounts; unaudited) Dec. 31,
2014
Dec. 31,
2013
Sept. 30,
2014
Dec. 31,
2014
Dec. 31,
2013
Revenue $ 755.4 $ 552.1 $ 770.6 $ 2,703.9 $ 2,115.5
Operating income * 104.6 35.5 112.4 260.7 179.6
Profit / (loss) 4.9 (20.8 ) 41.6 (5.0 ) (45.9 )
Earnings / (loss) per share (basic ) $ 0.03 $ (0.14 ) $ 0.28 $ (0.03 ) $ (0.31 )
(diluted ) $ 0.03 $ (0.14 ) $ 0.28 $ (0.03 ) $ (0.31 )
Adjusted profit / (loss) * 33.0 (15.8 ) 41.8 30.0 (36.3 )
Adjusted profit / (loss) per share* (basic ) $ 0.22 $ (0.11 ) $ 0.28 $ 0.20 $ (0.24 )
(diluted ) $ 0.22 $ (0.11 ) $ 0.28 $ 0.20 $ (0.24 )
Funds provided by operations* 90.1 30.0 114.0 229.6 130.0

Notes:

* Trican makes reference to operating income, adjusted profit/(loss) and funds provided by operations. These measures are not recognized under International Financial Reporting Standards (IFRS). Management believes that, in addition to profit/(loss), operating income, adjusted profit/(loss) and funds provided by operations are useful supplemental measures. Operating income provides investors with an indication of profit/(loss) before depreciation and amortization, foreign exchange gains and losses, other income, finance costs and income tax expense. Adjusted profit/(loss) provides investors with information on profit/(loss) excluding one-time non-cash charges, the impact of foreign currency gains/losses 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 profit/(loss), and funds provided by operations should not be construed as an alternative to profit/(loss) determined in accordance with IFRS as an indicator of Trican's performance. Trican's method of calculating operating income, adjusted profit/(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.

FOURTH QUARTER HIGHLIGHTS

Consolidated revenue for the fourth quarter of 2014 was $755.4 million, an increase of 37% compared to the fourth quarter of 2013. The adjusted consolidated profit was $33.0 million and adjusted diluted profit per share was $0.22 compared to an adjusted loss of $15.8 million and adjusted diluted loss per share of $0.11 in the same period of 2013. Funds provided by operations were $90.1 million compared to $30.0 million in the fourth quarter of 2013.

Our Canadian operations generated quarterly revenue of $342.9 million and operating income of $74.8 million during the fourth quarter of 2014 compared to revenue of $286.9 million and operating income of $53.1 million in the fourth quarter of 2013. Canadian revenue and operating income benefitted from strong activity levels throughout the Western Canadian Sedimentary Basin combined with a continued increase in fracturing intensity and demand per well. Despite the strong quarterly results, activity declined substantially near the end of the fourth quarter with rig count falling approximately 50% over the last two weeks of December. Although a decline was expected, the extent of the slow-down exceeded expectations as we began to see the impact of lower oil prices on pressure pumping activity.

Our U.S. operations generated fourth quarter revenue of $340.7 million, an increase of 96% compared to the fourth quarter of 2013. Operational improvements in the U.S. combined with an increase in fracturing demand provided opportunities to deploy additional fracturing crews and led to strong equipment utilization during the fourth quarter of 2014. Strong equipment utilization combined with improved sand logistics and cost management led to a 1500 basis point increase in year-over-year U.S. operating margins. We reached our goal of exceeding 15% operating margins in November and then saw a seasonal slowdown in the second half of December.

Our International operations generated quarterly revenue of $71.8 million and operating income of $6.7 million during the fourth quarter of 2014 compared to revenue of $91.8 million and operating income of $6.8 million in the fourth quarter of 2013. Fourth quarter operating conditions in Russia are usually impacted by extreme cold temperatures; however, similar to 2013, our Russian customers remained active in order to complete 2014 work programs despite the cold weather. The devaluation of the Russian ruble relative to the Canadian dollar had a significant impact on the fourth quarter financial results for our Russian operations. The ruble weakened by 36% relative to the Canadian dollar on a year-over-year basis, which directly impacted the Canadian dollar revenue and operating income of this region.

Our fourth quarter results include asset impairment write-downs of $12.4 million. The write-downs include $5.4 million relating to microseismic software, $5.0 million of goodwill and equipment associated with our coiled tubing operations in Canada, and $2.0 million relating to cementing assets in Australia.

We regret to report on the recent and sudden passing of Robert Hoskins, President of our U.S. operations. Robert had become a valuable member of Trican's senior management team and will be sincerely missed inside and outside the organization. Our thoughts and condolences are with Robert's family and friends at this time.

Effectively immediately, Sam Daniel will be assuming the role of President of our U.S. operations. Sam was previously the Vice President of our U.S. operations.

COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
Three months ended December 31, 2014 % of
Revenue
2013 % of
Revenue
Quarter-
Over-
Quarter
Change
%
Change
Revenue 755,417 100% 552,144 100.0% 203,273 37%
Expenses
Materials and operating 631,889 83.6% 490,713 88.9% 141,176 29%
General and administrative 18,954 2.5% 25,931 4.7% (6,977 ) -27%
Operating income* 104,574 13.8% 35,500 6.4% 69,074 195%
Finance costs 10,252 1.4% 8,592 1.6% 1,660 19%
Depreciation and amortization 53,843 7.1% 70,085 12.7% (16,242 ) -23%
Foreign exchange (gain)/loss 14,453 1.9% (5,968 ) -1.1% 20,421 -342%
Asset Impairments 12,359 1.6% - 0.0% 12,359 100%
Other loss 390 0.1% 432 0.1% (42 ) 10%
Profit before income taxes and non-controlling interest 13,277 1.8% (37,641 ) -6.8% 50,918 135%
Income tax expense/(recovery) 10,293 1.4% (16,431 ) -3.0% 26,724 -163%
Non-controlling interest (1,916 ) -0.3% (380 ) -0.1% (1,536 ) -404%
Net income/(Loss) 4,900 0.6% (20,830 ) -3.8% 25,730 124%
* see first page of this report
CANADIAN OPERATIONS
($ thousands, except revenue per job, unaudited)

Three months ended,
Dec. 31,
2014
% of
Revenue
Dec. 31,
2013
% of
Revenue
Sept. 30,
2014
% of
Revenue
Revenue 342,872 286,869 360,896
Expenses
Materials and operating 264,463 77.1% 228,533 79.7% 257,851 71.4%
General and administrative 3,613 1.1% 5,244 1.8% 5,738 1.6%
Total expenses 268,076 78.2% 233,777 81.5% 263,589 73.0%
Operating income/(loss)* 74,796 21.8% 53,092 18.5% 97,307 27.0%
Number of jobs 5,397 5,154 6,331
Revenue per job 62,245 55,435 56,810
* see first page of this report
Sales Mix
Three months ended, (unaudited)
Dec. 31,
2014
Dec. 31,
2013
Sept. 30,
2014
% of Total Revenue
Fracturing 67% 67% 67%
Cementing 19% 18% 19%
Nitrogen 4% 6% 6%
Industrial services 3% 4% 2%
Coil Tubing 3% 3% 3%
Acidizing 2% 1% 2%
Other 2% 1% 1%
Total 100% 100% 100%

Operations Review

Canadian pressure pumping activity was strong during most of the fourth quarter of 2014 as Canadian rig count was up 8% compared to the fourth quarter of 2013 and led to strong demand for pressure pumping services. However, activity declined substantially near the end of the quarter with the rig count falling approximately 50% over the last two weeks of December. Although a decline was expected, the extent of the slow-down exceeded expectations as we began to see the impact of lower oil prices on demand for our services.

We continued to see an increase in fracturing intensity during the fourth quarter of 2014, which contributed to strong demand for fracturing services. Sand volumes and fracturing stages per well continued to increase during the quarter and contributed to higher revenue per job for our fracturing service line. Due to strong fracturing demand throughout the second half of 2014, an additional 25,000 horsepower fracturing crew was deployed in Canada early in the fourth quarter using existing idle capacity.

Canadian pricing levels in the fourth quarter of 2014 increased by 9% compared to the fourth quarter of 2013 and were relatively flat on a sequential basis.

We continued to see market share gains for our Canadian completions tools business during the fourth quarter of 2014. Revenue increased by 8% sequentially as we experienced growing customer acceptance of our completion tools product offering in the Canadian market.

Q4 2014 versus Q4 2013

Canadian revenue for the fourth quarter of 2014 increased by 20% compared to the fourth quarter of 2013. Increased fracturing intensity and pricing improvements contributed to the revenue growth and led to a 12% rise in revenue per job. The job count increased by 5% due to higher year-over-year activity levels in Canada. Strong customer cash flows throughout the first three quarters of 2014 contributed to the year-over-year increase in fourth quarter activity levels.

Materials and operating expenses decreased to 77.1% of revenue compared to 79.7% for the same period in 2013. The margin improvement was largely due to increased operating leverage on our fixed cost structure that resulted from higher equipment utilization and pricing. The impact of improved utilization and pricing was partially offset by higher costs. The most significant cost increases related to sand logistics, which were up over the previous year but improved sequentially. General and administrative expenses decreased by $1.6 million due largely to lower share-based liabilities that are adjusted monthly based on Trican's share price.

Q4 2014 versus Q3 2014

Canadian revenue in the fourth quarter decreased by 5% compared to the third quarter of 2014. The number of jobs decreased by 15% due largely to a substantial drop in activity over the last two weeks of December. The lower job count was partially offset by a 10% increase in revenue per job due to an increase in fracturing job sizes. Fracturing job sizes continue to grow due to increases in sand volume and fracturing stages per well.

As a percentage of revenue, materials and operating expenses increased to 77.1% compared to 71.4% in the third quarter of 2014. Decreased activity levels led to lower operating leverage on our cost structure and a decline in operating margins. Increased product and fuel costs also contributed to the increase in materials and operating costs. Diesel comprises most of our fuel consumption and, despite the drop in oil prices, diesel prices did not decrease significantly during the fourth quarter of 2014. General and administrative costs decreased by $2.1 million due mainly to lower share-based employee expenses.

UNITED STATES OPERATIONS
($ thousands, except revenue per job, unaudited)

Three months ended,
Dec. 31,
2014
% of
Revenue
Dec. 31,
2013
% of
Revenue
Sept. 30,
2014
% of
Revenue
Revenue 340,717 173,470 314,574
Expenses
Materials and operating 298,951 87.7% 174,989 100.9% 286,454 91.1%
General and administrative 6,877 2.0% 6,776 3.9% 8,554 2.7%
Total expenses 305,828 89.8% 181,765 104.8% 295,008 93.8%
Operating income* 34,889 10.2% (8,295 ) -4.8% 19,566 6.2%
Number of jobs 3,534 2,262 2,996
Revenue per job 97,670 68,533 101,476
* see first page of this report
Sales Mix
Three months ended, (unaudited)
Dec. 31,
2014
Dec. 31,
2013
Sept. 30,
2014
% of Total Revenue
Fracturing 92% 88% 93%
Cementing 4% 7% 5%
Coil Tubing 4% 5% 2%
Total 100% 100% 100%

Operations Review

The utilization of our U.S. equipment was strong for most of the fourth quarter of 2014. Revenue for our U.S. operations increased sequentially by 8% and benefitted from a full quarter of activity for additional crews deployed in the Bakken and Permian regions late in the third quarter of 2014. U.S. pricing remained stable during the quarter.

Financial results for our U.S. operations improved due to cost control initiatives that favorably impacted operating margins in the fourth quarter of 2014. Notable decreases in sand hauling and product logistics costs were realized in the quarter and contributed to a 400 basis point sequential improvement in operating margins.

Our U.S. operations reached our goal of exceeding 15% operating margins in November and then saw a seasonal slowdown in the second half of December.

Revenue and operating income increased sequentially for our U.S. completions tools division. We continued to make progress on expanding our customer base for this service line.

Q4 2014 versus Q4 2013

U.S. revenue in the fourth quarter of 2014 was up 96% compared to the fourth quarter of 2013. Revenue per job increased by 43% due to pricing increases, a stronger U.S. dollar relative to the Canadian dollar, and an increase in fracturing intensity that led to larger fracturing job sizes. The job count increased by 56% due to an increase in active fracturing horsepower in the Marcellus, Permian, and Bakken regions as well as increased utilization in all other U.S. regions.

As a percentage of revenue, materials and operating expenses decreased to 87.7% from 100.9%. Increased operational leverage due to higher utilization, additional deployed equipment, and higher pricing led to the margin improvement. General and administrative costs increased by $0.1 million as lower share-based expenses, were more than offset by higher insurance and employee costs.

Q4 2014 versus Q3 2014

On a sequential basis, U.S. revenue increased by 8%. The job count increased by 18% due to the increase in active equipment combined with higher activity and utilization levels for our fracturing crews. Coiled tubing utilization also increased sequentially and contributed to the rise in the job count. Revenue per job decreased by 4% due to regional job size variations. This was partially offset by a stronger U.S. dollar relative to the Canadian dollar.

Materials and operating expenses decreased to 87.7% from 91.1% due to increased operational leverage on our fixed cost structure from higher revenue and progress made on cost control initiatives. General and administrative costs decreased by $1.7 million due largely to lower share-based employee expenses.

INTERNATIONAL OPERATIONS
($ thousands, except revenue per job, unaudited)

Three months ended,
Dec. 31,
2014
% of
Revenue
Dec. 31,
2013
% of
Revenue
Sept. 30,
2014
% of
Revenue
Revenue 71,828 91,805 95,155
Expenses
Materials and operating 62,136 86.5% 80,556 87.7% 77,380 81.3%
General and administrative 3,001 4.2% 4,434 4.8% 4,230 4.4%
Total expenses 65,137 90.7% 84,990 92.6% 81,610 85.8%
Operating income* 6,691 9.3% 6,815 7.4% 13,545 14.2%
Number of jobs 1,149 1,074 1,257
Revenue per job 57,901 82,872 74,484
* see first page of this report
Sales Mix
Three months ended, (unaudited)
Dec. 31,
2014
Dec. 31,
2013
Sept. 30,
2014
% of Total Revenue
Fracturing 83% 84% 86%
Coil Tubing 8% 6% 6%
Cementing 5% 5% 5%
Nitrogen 2% 2% 2%
Other 2% su3% 1%
Total 100% 100% 100%

Operations Review

Our International operations include the financial results for operations in Russia, Kazakhstan, Algeria, Australia, Saudi Arabia, Colombia and Norway.

Our Russian operations comprise the majority of our International results and activity levels in Russia were strong during the fourth quarter of 2014. Fourth quarter operating conditions in Russia are usually impacted by extreme cold temperatures; however, similar to 2013, our Russian customers remained active in order to complete 2014 work programs, despite the cold weather.

Low oil prices combined with economic sanctions against Russia have caused the Russian ruble to weaken substantially. During the fourth quarter of 2014, the ruble weakened relative the Canadian dollar by approximately 27% sequentially and by 36% year-over-year. This decline had a significant impact on Canadian dollar revenue and operating income as all revenue generated by our Russian operations is denominated in rubles. The decline had a minimal impact on Russian operating income as a percentage of revenue as most of the fourth quarter expenses in Russia were also denominated in rubles.

Due to the low price of oil and a reduction in our customers drilling and completions programs, activity levels were weak in Colombia during the fourth quarter of 2014. We do not expect activity levels to recover in the near future and, as a result, we temporarily suspended operations in Colombia in early 2015. We will continue to evaluate opportunities in the region but do not expect to resume operations until economic conditions improve.

Financial results continued to be strong in Kazakhstan during the fourth quarter. Although activity levels were down sequentially due to seasonal factors, Kazakhstan operating margins remained strong.

We completed all remaining contract commitments in Algeria during the fourth quarter and have shut-down operations in that region.

Coiled tubing activity increased for our Saudi Arabia operations during the fourth quarter of 2014; however, activity levels in the region continued to be intermittent. Our goal in 2015 will be to add additional contracts that will ensure a steady flow of activity in Saudi Arabia, which will allow us to effectively expand our operations in this region.

Our operations in Australia grew sequentially but still did not have a meaningful impact on fourth quarter International operating income.

Operating and financial results for the Norwegian completion tools division continued to be strong during the fourth quarter of 2014. We currently expect activity and demand to be steady for this division in 2015 based on current customer commitments; however, we will closely monitor activity in this region as it is expected to be impacted by low oil prices in 2015.

Q4 2014 versus Q4 2013

International revenue in the fourth quarter of 2014 decreased by 22% compared to the fourth quarter of 2013. The decline of the Russian ruble relative to the Canadian dollar had the largest impact on fourth quarter revenue. The ruble declined by 36% compared to the fourth quarter of 2013, which contributed to the 30% drop in revenue per job. Larger job sizes in Russia partially offset the impact of the lower ruble. The job count increased by 7% due to higher year-over-year activity in Russia and Saudi Arabia, offset partially by lower activity in Algeria. An increase in International completion tools activity also contributed to the increase in revenue.

As a percentage of revenue, materials and operating expenses decreased to 86.5% from 87.7% compared to the fourth quarter of 2013. International operating margins benefitted from increased activity in Russia and Saudi Arabia, which was partially offset by operating losses in Colombia. Successful 2014 cost control initiatives in Russia also contributed to the margin improvement. General and administrative costs decreased by $1.4 million due to lower share unit expenses combined with lower general and administrative costs in Russia due to the devaluation of the ruble.

Q4 2014 versus Q3 2014

International revenue decreased by 25% sequentially due largely to lower revenue in Russia caused by a weaker ruble and an expected seasonal slow-down, which was partially offset by increased revenue in Saudi Arabia. Materials and operating expenses increased to 86.5% compared to 81.3% in the third quarter of 2014, due largely to seasonal slow-downs in Russia that reduced operating leverage on fixed costs. Higher operating losses in Colombia and Algeria also negatively impacted sequential operating margins. General and administrative costs decreased by $1.2 million due to lower share unit expenses combined with lower general and administrative costs in Russia caused by the weaker ruble.

CORPORATE
($ thousands, unaudited)
Three months ended,
Dec. 31,
2014
% of
Revenue
Dec. 31,
2013
% of
Revenue
Sept. 30,
2014
% of
Revenue
Expenses
Materials and operating 6,339 0.8% 6,635 1.2% 7,631 1.0%
General and administrative 5,463 0.7% 9,477 1.7% 10,370 1.3%
Total expenses 11,802 1.6% 16,112 2.9% 18,001 2.3%
Operating loss* (11,802 ) (16,112 ) (18,001 )
* see first page of this report

Q4 2014 versus Q4 2013

Corporate expenses for the fourth quarter of 2014 decreased by $4.3 million compared to the fourth quarter of 2013 due largely to lower share unit expenses.

Q4 2014 versus Q3 2014

Sequentially, corporate expenses decreased by $6.2 million due to a decline in share unit expenses combined with lower employee costs. Employee costs are down due to a 5% sequential reduction in corporate personnel.

OTHER EXPENSES AND INCOME

Finance costs for the fourth quarter of 2014 increased by 19% compared to the same period in 2013 due largely to a stronger U.S. dollar as a portion of our interest expense is incurred in U.S. dollars. An increase in average debt balances also contributed to the increase. Depreciation and amortization expense decreased by 23% compared to the same period last year due primarily to $11.6 million of prior period depreciation and amortization adjustments recorded in the fourth quarter of 2013 (see section on non-IFRS disclosure at the end of this document for more details). Excluding these one-time charges, depreciation and amortization decreased by 8% due to a lower depreciable asset base combined with a reduction in Canadian dollar depreciation on Russian ruble denominated assets. These factors were partially offset by an increase in Canadian dollar depreciation on U.S. dollar denominated assets.

Foreign exchange losses of $14.5 million have been recorded in the fourth quarter of 2014, compared to gains of $6.0 million for the same period in 2013. The fourth quarter loss is largely due to the devaluation of the Russian ruble relative to the Canadian dollar, which decreased the value of ruble denominated net assets. This was offset partially by gains on net U.S. denominated assets due to the strengthening of the U.S. dollar relative to the Canadian dollar. Other loss of $0.4 million for the fourth quarter of 2014 relates to net losses on asset sales offset partially by interest income earned on cash balances.

Asset impairment write-downs

Based on the completion of a strategic review, Trican will exit the microseismic business during the first quarter of 2015. Losses of approximately $5.4 million were recorded during the fourth quarter of 2014 relating to the write-off of microseismic software. This loss was recorded in "Other expenses" in the consolidated statement of comprehensive loss.

Based on the results of impairment testing performed at December 31, 2014, asset impairment write-downs of $5.0 million relating to goodwill and equipment assigned to our coiled tubing operations in Canada, and $2.0 million relating to cementing assets in Australia were recorded during the fourth quarter of 2014. These losses were recorded in "Asset impairments" in the consolidated statement of comprehensive loss.

COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS ($ thousands, unaudited)

Year ended December 31,

2014
% of
Revenue

2013
% of
Revenue
Period
Change
%
Change
Revenue 2,703,858 100.0% 2,115,472 100.0% 588,386 28%
Expenses
Materials and operating 2,327,534 86.1% 1,826,221 86.3% 501,313 27%
General and administrative 115,646 4.3% 109,701 5.2% 5,945 5%
Operating income* 260,678 9.6% 179,550 8.5% 81,128 45%
Finance costs 39,698 1.5% 34,497 1.6% 5,201 15%
Depreciation and amortization 209,056 7.7% 222,403 10.5% (13,347 ) -6%
Asset impairment 12,359 0.5% 4,123 0.2% 8,236 200%
Foreign exchange (gain)/loss 15,038 0.6% (4,859 ) -0.2% 19,897 -409%
Other income (3,921 ) 0.1% (1,612 ) -0.1% (2,309 ) 143%
Loss before income taxes (11,552 ) -0.4% (75,002 ) -3.5% 63,450 85%
Income tax recovery (2,692 ) -0.1% (28,303 ) -1.3% 25,611 -90%
Non-controlling interest (3,815 ) -0.1% (845 ) 0.0% (2,970 ) -351%
Net loss (5,045 ) -0.2% (45,854 ) -2.2% 40,809 89%
* see first page of this report
CANADIAN OPERATIONS
($ thousands, except revenue per job, unaudited)
Year ended December 31,

2014
% of
Revenue

2013
% of
Revenue
Period-Over-Period
Change
Revenue 1,229,046 1,021,426 20%
Expenses
Materials and operating 977,357 79.5% 794,459 77.8% 23%
General and administrative 25,107 2.0% 26,167 2.6% -4%
Total expenses 1,002,464 81.6% 820,626 80.3% 22%
Operating income* 226,582 18.4% 200,800 19.7% 13%
Number of jobs 21,752 21,287 2%
Revenue per job 56,144 47,553 18%
* see first page of this report

Canadian revenue in 2014 was up 20% compared to 2013. The 18% increase in revenue per job was largely due to increased fracturing intensity per well. Fracturing stages and sand volumes have increased substantially in 2014 and have led to larger fracturing job sizes and increased fracturing demand. Average year-over-year pricing was up slightly in 2014 but did not contribute significantly to the increase in revenue per job. Canadian oilfield activity increased in 2014 with the rig count up 8% compared to 2013. The increased activity contributed to the 2% rise in the Canadian job count. Due to the increase in fracturing intensity and larger job sizes, crew sizes have grown and crews are on location for longer periods of time; therefore, the job count is not increasing to the same extent as demand and utilization.

As a percentage of revenue, materials and operating expenses increased to 79.5% from 77.8% compared to the same period in 2013. Increased costs were partially offset by improved operating leverage on our cost structure due to the increase in activity. Higher sand logistics, product and diesel costs all contributed to the higher cost structure. General and administrative expenses decreased by $1.1 million due largely to lower share-based costs.

UNITED STATES OPERATIONS
($ thousands, except revenue per job, unaudited)
Year ended December 31,

2014
% of
Revenue

2013
% of
Revenue
Period-Over-Period
Change
Revenue 1,133,895 764,962 48%
Expenses
Materials and operating 1,037,152 91.5% 716,029 93.6% 45%
General and administrative 31,370 2.8% 26,046 3.4% 20%
Total expenses 1,068,522 94.2% 742,075 97.0% 44%
Operating income* 65,373 5.8% 22,887 3.0% 186%
Number of jobs 12,750 8,789 45%
Revenue per job 90,533 83,220 9%
* see first page of this report

U.S. revenue for 2014, increased by 48% compared to 2013. The job count increased by 45% due to substantially higher fracturing activity in the Marcellus, Permian and Bakken regions. The addition of a fourth fracturing crew during the second quarter, combined with strong utilization, contributed to the increase in the Marcellus region. A substantial increase in utilization for our fracturing crews operating in the Permian and Bakken regions, as well as increased equipment during the second half of 2014, led to job count growth in these regions. Revenue in 2014 also benefitted from a stronger U.S. dollar and larger fracturing job sizes that both contributed to the 9% increase in revenue per job.

As a percentage of revenue, materials and operating expenses decreased to 91.5% from 93.6%. Increased operating leverage on our fixed cost structure caused by higher revenue and pricing contributed to the margin improvement. An increase in year-over-year sand logistics costs partially offset the improved operational leverage. General and administrative costs increased by $5.3 million due largely to increased people, office and insurance expenses, offset partially by lower share unit expenses.

INTERNATIONAL OPERATIONS
($ thousands, except revenue per job, unaudited)
Year ended December 31,

2014
% of
Revenue

2013
% of
Revenue
Period-Over-Period
Change
Revenue 340,917 329,084 4%
Expenses
Materials and operating 286,881 84.2% 291,186 88.5% -1%
General and administrative 17,956 5.3% 17,095 5.2% 5%
Total expenses 304,837 89.4% 308,281 93.7% -1%
Operating income* 36,080 10.6% 20,803 6.3% 73%
Number of jobs 4,597 4,182 10%
Revenue per job 67,924 75,861 -10%
* see first page of this report

International revenue increased by 4% for the year ending December 31, 2014, compared to 2013. Higher activity in Russia and Norway contributed to the majority of the increase, and was offset partially by a decline in the value of the Russian ruble relative to the Canadian dollar. Russian activity benefitted from a rise in horizontal drilling and completions activity on conventional sandstones, which led to an increase in pressure pumping demand in the region. Increased year-over-year activity in Colombia, Saudi Arabia and Australia also contributed to the rise in international revenue.

Materials and operating expenses decreased to 84.2% of revenue compared to 88.5% of revenue in 2013. An increase in Russian revenue and successful cost control initiatives in Russian during 2014 led to a majority of the International margin increase. Strong financial results for the completion tools business in Norway also contributed to the margin improvement. Operating losses in Algeria and Colombia offset a portion of the Russian and Norwegian gains. General and administrative costs increased by $0.9 million as a decrease in share unit costs was more than offset by increased administrative costs in growing regions such as Norway, Saudi Arabia and Australia.

CORPORATE
($ thousands, except revenue per job, unaudited)
Year ended December 31,

2014
% of
Revenue

2013
% of
Revenue
Period-Over-Period
Change
Expenses
Materials and operating 26,144 1.0% 24,547 1.2% 7%
General and administrative 41,213 1.5% 40,393 1.9% 2%
Total expenses 67,357 2.5% 64,940 3.1% 4%
Operating loss* (67,357 ) (64,940 ) 4%
* see first page of this report

Corporate costs increased by $2.4 million in 2014 relative to 2013. A rise in employee costs led to a majority of the increase and was partially offset by lower share unit expenses.

OTHER EXPENSES AND INCOME

For the year ended December 31, 2014, finance costs increased by 15% compared to the same period in 2013 due to increased debt balances and a stronger U.S. dollar, which increased finance costs on U.S. dollar denominated debt. Depreciation and amortization expense decreased by 6% compared to the same period last year due to lower asset balances.

Foreign exchange losses of $15.0 million have been recorded for the year ended December 31, 2014, compared to gains of $4.9 million for the same period in 2013. Foreign exchange gains and losses incurred by Trican are largely due to the net impact of fluctuations in the U.S. dollar and the Russian ruble relative to the Canadian dollar. Most of the loss relates to the devaluation of the Russian ruble relative to the Canadian dollar, which decreased the value of ruble denominated net assets. Other income for the year was $3.9 million compared to $1.6 million for the same period of 2013. Other income is largely comprised of gains on asset sales and interest income on cash balances.

Capital expenditures

Capital expenditures for the fourth quarter of 2014 totaled $21.1 million, compared with $20.9 million for the same period in 2013. Capital expenditures for the year ended December 31, 2014, were $90.0 million compared to $107.8 million in 2013. Capital expenditures have largely consisted of maintenance capital programs for the past several quarters.

Given the reduced North American activity expectations for 2015, capital spending will be kept to a minimum throughout the year. The primary focus will be on maintaining equipment quality and performance of our existing asset base. Based on existing capital budget commitments, we expect capital spending to be between $50 and $60 million during 2015. Trican regularly reviews its capital equipment requirements and will continue to follow its policy of adjusting the capital budget on a quarterly basis to reflect changing operating conditions and capital equipment needs.

OUTLOOK

North America

Sharp oil price declines and weak natural gas prices are expected to result in a significant decrease in North American drilling and completions activity in 2015 relative to 2014. We have already seen significant declines in pressure pumping demand in our Canadian, Permian, Bakken and Eagle Ford regions and have started to adjust our operations accordingly.

In Canada, we expect the slow-down over spring break-up to begin early and end late given the lack of urgency by our customers to drill and complete wells in the current commodity price environment. We also expect to park 20% to 25% of our Canadian pressure pumping equipment by the end of the first quarter of 2015 and reduce the fixed and variable costs associated with this equipment.

In the U.S., we have parked one fracturing crew in each of our Eagle Ford, Bakken, Permian and Longview regions during the first quarter of 2015. We have also closed our operating base in Longview, Texas, where one fracturing crew and two cement crews had previously operated. Although these crews were working in the Haynesville region, which is primarily dry gas, the low price of oil has impacted activity in surrounding areas throughout East Texas and led to an over-supply of fracturing equipment and reduced pricing in the region. Despite this significant decline in our active U.S. fleet, we remained committed to the U.S. pressure pumping market long-term. We are pleased with the recent operational and financial improvements made to our U.S. operations and expect to emerge from the current downturn with a stronger U.S. business.

Collectively, these measures are expected to significantly impact fixed costs through reductions in people and infrastructure. Although these reductions are unfortunate, we believe they are a necessary response to the current and expected drop in Canadian and U.S. activity. We will continue to monitor the activity levels of our customers and make additional changes as required.

Substantial cost cutting measures in Canada and the U.S. were initiated late in the fourth quarter of 2014 and we expect to see the early results of these measures in February of 2015. The most significant cost cutting initiatives relate to product, product transportation, and personnel costs. We are currently in negotiations with all Canadian and U.S. suppliers to reduce product and product transportation costs to the greatest extent possible. We are pleased with the progress made to date, but will continue to focus on this initiative as it will have the most significant impact on our cost structure. Effective February 1, 2015, a 10% average compensation reduction was implemented across North America for our Canadian, U.S. and Corporate employees, which included a 15% to 18% reduction for senior executives and a 15% reduction in Board compensation. The compensation reduction is expected to result in annual cost savings of approximately $15 million for our Canadian operations, $10 million for our U.S. operations, and $3 million for the Corporate division. We have also reduced our North American workforce by approximately 600 people to date. Cost-cutting measures targeting all other operational and administrative costs have also been initiated. Our ability to execute cost cutting measures effectively and efficiently will be critical in maintaining an acceptable level of profitability throughout this downturn and we will continue to right size our North American business for the level of activity that occurs.

Average Canadian pricing levels are expected to decline by approximately 10% during the first quarter of 2015 compared to recent peak pricing levels from the second half of 2014. For the U.S. pressure pumping market overall, we expect pricing to decline by approximately 15% to 20% during 2015. However, U.S. pricing declines are expected to vary based on the region, customer and existing contract. The most significant declines in the U.S. are anticipated in the oil plays with only moderate decreases in the dry gas plays.

We expect our pricing in Canada and the U.S. to be under pressure throughout 2015. The extent of the pricing declines will depend on activity levels within each region and, more importantly, our ability to reduce costs. North American pricing levels from the end of 2014 were still approximately 20% below the previous peak. As a result, our ability to significantly reduce pricing will be limited without substantial cost reductions.

International

2015 contracts and work scope have been finalized for our Russian operations. We expect activity to be up slightly compared to 2014 due to the commitment of our Russian customers to maintain production levels, despite the drop in oil prices. However, the value of the Russian ruble relative to the Canadian dollar will have a significant impact on Russian financial results in 2015. Revenue and operating income for our Russian operations is expected to be 40% to 50% lower in 2015 relative to 2014 given the current ruble to Canadian dollar spot rate. Although most of our operating costs are incurred in rubles, many of our Russian suppliers incur costs in other currencies; as a result, we expect some cost inflation as the year progresses. A continued focus on cost control measures in Russia is expected to partially offset the impact of inflation during 2015.

We will continue to focus on growing our presence in Saudi Arabia and Australia during 2015 and expect to see continued revenue growth in these regions. Activity levels in Australia will be slow in the first half of 2015 but are expected to increase later in the year with the development of LNG export facilities. We will pursue opportunities to increase revenue and utilization in Saudi Arabia through additional contracts in 2015. We also expect 2015 activity levels to be stable for our completions tools division in Norway. However, activity levels in both Norway and Saudi Arabia could be negatively impacted by low oil prices during 2015.

Consolidated

Given the expected declines in North American activity, managing the balance sheet and cash flow will be a key focus for Trican in 2015. Cash flow in 2015 will be significantly influenced by changes to working capital throughout the year. Slowing market conditions are expected to result in substantial working capital reductions during 2015, which should provide Trican with meaningful cash inflows. Capital expenditures will also have a significant impact on cash flow during 2015. Almost all current capital initiatives relate to maintenance projects and given expected activity levels, we anticipate capital spending to be approximately $50 to $60 million in 2015. A conservative capital spending program combined with reductions in working capital is expected to provide opportunities to pay down a significant amount of debt in 2015, despite the weak financial outlook.

2015 is expected to be a challenging year for Trican. However, our management team has experienced several business cycles and understands what is needed to effectively manage the business through a downturn. With our experienced management team and the commitment of our people, we remain confident in our ability to manage through this most recent downturn and emerge as a stronger organization.

NON-IFRS DISCLOSURE

Adjusted net income/(loss), operating income and funds provided by operations do not have any standardized meaning as prescribed by IFRS and, therefore, are considered non-IFRS measures.

Adjusted net income/(loss) and funds provided by operations have been reconciled to profit and operating income has been reconciled to gross profit, being the most directly comparable measures calculated in accordance with IFRS. The reconciling items have been presented net of tax, where applicable.

($ thousands) Three months ended Twelve months ended
Dec. 31,
2014
Dec. 31,
2013
Sept. 30,
2014
Dec. 31,
2014
Dec. 31,
2013
Adjusted net (loss) / income $ 32,961 $ (15,841 ) $ 41,829 $ 29,985 $ (36,349 )
Deduct:
Asset Impairments (2014 - net of $0.4 million tax recovery) 11,966 - - 11,966 4,123
Non-cash share-based compensation expense 1,642 2,209 2,304 8,026 8,096
Fluid end depreciation adjustment (net of $2.4 million tax recovery)* - 7,153 - - -
Foreign exchange loss/(gain) 14,453 (5,968 ) (2,115 ) 15,038 (4,859 )
Intangible amortization adjustment (net of $0.5 million tax recovery)** - 1,595 - - -
Loss on deposit with vendor (net of $0.7 million tax recovery) - - - - 2,145
Profit/(loss) for the period (IFRS financial measure) $ 4,900 $ (20,830 ) $ 41,640 $ (5,045 ) $ (45,854 )

* Depreciation and amortization expense for the fourth quarter of 2013 includes a $14.3 million charge for accelerated depreciation on fluid ends in Canada. $9.5 million of this adjustment ($7.2 million net of tax) relates to periods prior to October 1, 2013 and has been excluded from adjusted net income for the fourth quarter of 2013.

** Depreciation and amortization expense for the fourth quarter of 2013 includes $3.1 million in amortization on the intangible assets relating to the purchase of i-TEC. The purchase price accounting was not finalized until the fourth quarter of 2013; therefore, a catch-up entry was required to ensure that adequate amortization had been recorded as of December 31, 2013. $2.1 million of this adjustment ($1.6 million net of tax) relates to periods prior to October 1, 2013 and has been excluded from adjusted net income for the fourth quarter.

($ thousands) Three months ended Twelve months ended
Dec. 31,
2014
Dec. 31,
2013
Sept. 30,
2014
Dec. 31,
2014
Dec. 31,
2013
Funds provided by operations $ 90,146 $ 30,000 $ 114,035 $ 229,569 $ 129,970
Charges to income not involving cash
Depreciation and amortization (53,843 ) (70,085 ) (53,326 ) (209,056 ) (222,403 )
Amortization of debt issuance costs (218 ) (216 ) (216 ) (866 ) (864 )
Stock-based compensation (1,642 ) (2,209 ) (2,304 ) (8,026 ) (8,096 )
Gain/(loss) on disposal of property and equipment (92 ) 15 (78 ) 400 (293 )
Net finance costs (9,593 ) (8,122 ) (8,873 ) (37,112 ) (32,749 )
Unrealized foreign exchange gain / (loss) (13,577 ) (1 ) 3,691 (13,722 ) 5,593
Asset impairments (12,361 ) - - (12,361 ) (6,993 )
Income tax recovery/(expense) (10,293 ) 16,431 (11,053 ) 2,692 28,303
Non-controlling interest 1,916 380 822 3,815 845
Adjust for interest and tax outflows/(inflows)
Interest paid 15,037 12,956 4,488 39,287 34,794
Income tax (refund) / paid (580 ) 21 (5,546 ) 335 26,039
Profit/(loss) for the period (IFRS financial measure) $ 4,900 $ (20,830 ) $ 41,640 $ (5,045 ) $ (45,854 )
($ thousands) Three months ended Twelve months ended
Dec. 31,
2014
Dec. 31,
2013
Sept. 30,
2014
Dec. 31,
2014
Dec. 31,
2013
Operating income $ 104,574 $ 35,500 $ 112,417 $ 260,678 $ 179,550
Add:
Administrative expenses 20,468 26,064 30,422 122,476 114,836
Deduct:
Depreciation expense (53,843 ) (70,085 ) (53,326 ) (209,056 ) (222,403 )
Gross profit/(loss) (IFRS financial measure) $ 71,199 $ (8,521 ) $ 89,513 $ 174,098 $ 71,983
CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Stated in thousands)
December 31,
2014
December 31,
2013
ASSETS
Current assets
Cash and cash equivalents $ 82,423 $ 63,869
Trade and other receivables 627,749 459,210
Current tax assets 837 5,186
Inventory 245,358 232,898
Prepaid expenses 32,647 34,407
989,014 795,570
Property and equipment 1,286,754 1,374,212
Intangible assets 36,251 44,285
Deferred tax assets 162,411 122,745
Other assets 6,399 17,360
Goodwill 56,035 59,475
2,536,864 2,413,647
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade and other payables 367,619 301,920
Deferred consideration - 650
Current tax liabilities 898 14
Current portion of long-term debt 19,335 79,770
387,852 382,354
Loans and borrowings 758,545 593,786
Deferred tax liabilities 104,240 87,005
Shareholders' equity
Share capital 571,050 559,723
Contributed surplus 67,846 63,074
Accumulated other comprehensive income (26,462 ) (1,020 )
Retained earnings 672,846 725,172
Total equity attributable to equity holders of the Company 1,285,280 1,346,949
Non-controlling interest 947 3,553
2,536,864 2,413,647
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


(Stated in thousands, except per share amounts)
Three
Months

Ended
Dec 31,

2014
Three
Months
Ended
Dec 31,
2013
Twelve
Months

Ended
Dec 31,

2014
Twelve
Months
Ended
Dec 31,
2013
Revenue $ 755,417 $ 552,144 $ 2,703,858 $ 2,115,472
Cost of sales 684,218 560,665 2,529,760 2,043,489
Gross profit/(loss) 71,199 (8,521 ) 174,098 71,983
Administrative expenses 20,468 26,066 122,476 114,836
Other income 6,391 900 4,007 136
Results from operating activities 44,340 (35,487 ) 47,615 (42,989 )
Finance income (659 ) (470 ) (2,586 ) (1,748 )
Finance costs 10,252 8,592 39,698 34,497
Foreign exchange (gain)/loss 14,453 (5,968 ) 15,038 (4,859 )
Asset Impairments 7,017 - 7,017 4,123
Profit/(loss) before income tax 13,277 (37,641 ) (11,552 ) (75,002 )
Income tax (recovery)/expense 10,293 (16,431 ) (2,692 ) (28,303 )
Profit/(loss) from continuing operations 2,984 (21,210 ) (8,860 ) (46,699 )
Profit / (loss) attributable to:
Owners of the Company 4,900 (20,830 ) (5,045 ) (45,854 )
Non-controlling interest (1,916 ) (380 ) (3,815 ) (845 )
Profit/(loss) for the period $ 2,984 $ (21,210 ) $ (8,860 ) $ (46,699 )
Other comprehensive income/(loss)
Unrealized gain on hedging instruments (240 ) (616 ) (2,377 ) (717 )
Foreign currency translation differences (20,107 ) 14,411 (23,077 ) 23,797
Total comprehensive income/(loss) for the period $ (17,364 ) $ (7,415 ) $ (34,304 ) $ (23,619 )
Total comprehensive income/(loss) attributable to:
Owners of the Company (15,448 ) (6,570 ) (30,489 ) (22,774 )
Non- Controlling interest (1,916 ) (845 ) (3,815 ) (845 )
Total comprehensive income/(loss) for the period $ (17,364 ) $ (7,415 ) $ (34,304 ) $ (23,619 )
Earnings/(loss) per share
Basic $ 0.03 $ (0.14 ) $ (0.03 ) $ (0.31 )
Diluted $ 0.03 $ (0.14 ) $ (0.03 ) $ (0.31 )
Weighted average shares outstanding - basic 149,448 148,916 149,286 148,815
Weighted average shares outstanding - diluted 149,448 148,916 149,286 148,815
CONSOLIDATED STATEMENT OF CASH FLOWS


(Stated in thousands; unaudited)
Three
Months

Ended
Dec 31,

2014
Three
Months
Ended
Dec 31,
2013
Twelve
Months

Ended
Dec 31,

2014
Twelve
Months
Ended
Dec 31,
2013
Cash Provided By/ (Used In):
Operations
Profit/(loss) for the period $ 2,984 $ (21,210 ) $ (8,860 ) $ (46,699 )
Charges to income not involving cash:
Depreciation and amortization 53,843 70,085 209,056 222,403
Amortization of debt issuance costs 218 216 866 864
Stock-based compensation 1,642 2,209 8,026 8,096
(Gain)Loss on disposal of property and equipment 92 (15 ) (400 ) 293
Net Finance Costs 9,593 8,122 37,112 32,749
Unrealized foreign exchange (gain)/loss 13,577 1 13,722 (5,593 )
Asset impairments, net 7,017 - 7,017 6,993
Income tax expense/(recovery) 10,293 (16,431 ) (2,692 ) (28,303 )
99,259 42,977 263,847 190,803
Change in inventories (5,941 ) 4,365 (32,776 ) (15,874 )
Change in trade and other receivables (34,075 ) (37,137 ) (210,899 ) (13,251 )
Change in prepayments (1,146 ) 2,894 1,707 138
Change in trade and other payables (40,153 ) 7,037 61,683 70,950
Cash generated from operating activities 17,944 20,136 83,562 232,766
Interest paid (15,037 ) (12,956 ) (39,287 ) (34,794 )
Income tax refund/(paid) 580 (21 ) (335 ) (26,039 )
3,487 7,159 43,940 171,933
Investing
Interest received 2,121 387 5,813 1,155
Purchase of property and equipment (21,088 ) (20,871 ) (90,012 ) (107,761 )
Proceeds from the sale of property and equipment 781 1,790 1,911 6,520
Purchase of other assets - (2,400 ) - (7,000 )
Payment of deferred consideration - - (650 ) -
Business acquisitions - - - (29,663 )
(18,186 ) (21,094 ) (82,938 ) (136,749 )
Financing
Net proceeds from issuance of share capital 326 44 10,263 1,174
Repurchase and cancellation of shares under NCIB (4,668 ) - (4,668 ) -
Issuance/(repayment) of Loans and borrowings 10,126 2,582 99,965 42,317
Dividend paid - - (44,775 ) (44,304 )
5,784 2,626 60,785 (85,447 )
Effect of exchange rate changes on cash (2,476 ) 819 (3,233 ) 626
Increase / (decrease) in cash and cash equivalents (11,391 ) (10,490 ) 18,554 (49,637 )
Cash and cash equivalents, beginning of period 93,814 74,359 63,869 113,506
Cash and cash equivalents, end of period $ 82,423 $ 63,869 $ 82,423 $ 63,869

Selected Notes to Consolidated Financial Statements

TRADE AND OTHER RECEIVABLES

(Stated in thousands)
December 31,
2014
December 31,
2013
Trade receivables $ 623,589 $ 453,729
Allowance for doubtful accounts (7,563 ) (5,265 )
Loans and other receivables 17,533 20,109
Total $ 633,559 $ 468,573
Non-current (see OTHER ASSETS) 5,810 $ 9,363
Current $ 627,749 $ 459,210
PROPERTY AND EQUIPMENT

(stated in thousands)
Land and
buildings
Equipment Fixtures
and fittings
Total
Cost
Balance at January 1, 2013 $ 113,397 $ 1,916,684 $ 41,299 $ 2,071,380
Acquisitions through business combinations - 908 - 908
Additions 22,377 68,301 5,926 96,604
Disposals (2,492 ) (46,136 ) (1,959 ) (50,587 )
Effect of movements in exchange rates 3,441 50,086 1,169 54,696
Balance at December 31, 2013 $ 136,723 $ 1,989,843 $ 46,435 $ 2,173,001
Additions 38,906 44,670 5,550 89,126
Disposals (3,588 ) (45,689 ) (158 ) (49,435 )
Effect of movements in exchange rates (115 ) 1,261 1,437 2,583
Balance at December 31, 2014 $ 171,926 $ 1,990,085 $ 53,264 $ 2,215,275
Accumulated Depreciation
Balance at January 1, 2013 $ 22,918 $ 561,065 $ 28,835 $ 612,818
Depreciation 8,142 199,823 6,252 214,217
Disposals (828 ) (41,162 ) (914 ) (42,904 )
Effect of movements in exchange rates 565 13,454 639 14,658
Balance at December 31, 2013 $ 30,797 $ 733,180 $ 34,812 $ 798,789
Depreciation 8,811 186,427 5,368 200,606
Disposals (1,533 ) (42,950 ) (10 ) (44,493 )
Impairment - 3,577 - 3,577
Effect of movements in exchange rates (1,032 ) (27,998 ) (928 ) (29,958 )
Balance at December 31, 2014 $ 37,043 $ 852,236 $ 39,242 $ 928,521
Carrying amounts
At December 31, 2013 $ 105,926 $ 1,256,663 $ 11,623 $ 1,374,212
At December 31, 2014 $ 134,883 $ 1,137,849 $ 14,022 $ 1,286,754
INTANGIBLE ASSETS AND GOODWILL

(stated in thousands)
Patents and
know-how
Non-compete
agreements
CBM
process
Total
intangible
assets
Cost
Balance at January 1, 2013 $ - $ 22,993 $ 8,500 $ 31,493
Acquisition through business combinations 41,894 - - 41,894
Effect of movements in exchange rates - 1,436 - 1,436
Balance at December 31, 2013 $ 41,894 $ 24,429 $ 8,500 $ 74,823
Balance at January 1, 2014 $ 41,894 $ 24,429 $ 8,500 $ 74,823
Effect of movements in exchange rates - 2,017 - 2,017
Balance at December 31, 2014 $ 41,894 $ 26,446 $ 8,500 $ 76,840
Amortization and impairment losses
Balance at January 1, 2013 $ - $
16,525
$ 4,887 $ 21,412
Amortization 4,189 3,146 850 8,185
Effect of movements in exchange rates - 941 - 941
Balance at December 31, 2013 $ 4,189 $ 20,612 $ 5,737 $ 30,538
Balance at January 1, 2014 $ 4,189 $ 20,612 $ 5,737 $ 30,538
Amortization 4,191 3,408 850 8,449
Effect of movements in exchange rates - 1,602 - 1,602
Balance at December 31, 2014 $ 8,380 $ 25,622 $ 6,587 $ 40,589
Carrying amounts
At December 31, 2013 $ 37,705 $ 3,817 $ 2,763 $ 44,285
At December 31, 2014 $ 33,514 $ 824 $ 1,913 $ 36,251
Goodwill
(stated in thousands) Amount
Carrying value, January 1, 2013 $ 43,689
Acquisition through business combinations 22,558
Impairment (6,312 )
Effect of movements in exchange rates (460 )
Carrying value, December 31, 2013 $ 59,475
Impairment (3,440 )
Carrying value, December 31, 2014 $ 56,035

For the purposes of impairment testing, goodwill and intangible assets are allocated to the Company's cash generating units.

The aggregate carrying amount of goodwill allocated to each unit is as follows:


(Stated in thousands)
December 31,
2014
December 31,
2013
Canada - fracturing and other $ 14,776 $ 18,216
International - fracturing and other 14,226 14,226
Trican completion solutions 22,558 22,558
Other units without significant goodwill 4,475 4,475
Total goodwill $ 56,035 $ 59,475

The Company performed an impairment test on its cash generating units at December 31, 2014. The Company recorded an asset impairment of $7.0 million during the annual impairment testing process in the year ended December 31, 2014 (2013 - $6.3 million).

The recoverable amount was determined by discounting the future cash flows to be generated from the continuing operations of each cash generating unit, to which goodwill has been allocated, using a 5-year model, a discount rate of 10.1% and a terminal value growth of 1.5%. Revenue and cash flow assumptions were based on a combination of past results and expectations of future growth. The recoverable amount of each cash generating unit was in excess of the carrying amount with the exception of the following:

  • The Company identified that the recoverable amount of the Coiled Tubing cash generating unit within the Canadian operations was less than its carrying amount. As a result, a goodwill impairment charge of $3.4 million and an asset impairment charge of $1.6 million were recorded. The Company used the fair value less cost of disposal method to calculate the recoverable amount.
  • The Company identified that the recoverable amount of the Australian cash generating unit within the International operations was below its carrying amount. An impairment charge of $2.0 million was recorded against property and equipment in the Australian cash generating unit. The Company used the fair value less cost of disposal method to calculate the recoverable amount.

An increase in the discount rate used by 1% would require additional impairment charge being recognized on the cash generating units above and the Coiled Tubing cash generating unit within the U.S. operation.

OTHER ASSETS

At December 31, 2014, the Company had a U.S.$9.3 million secured, interest bearing first mortgage real estate loan (the "loan") to an unrelated third-party located in the U.S. (2013 - U.S.$14.0 million).

The non-current portion of the loan of U.S. $5.0 million (2013 - U.S. $9.4 million) has been included in other assets on the consolidated statement of financial position. The current portion of the loan of U.S. $4.3 million (2013 - U.S. $4.6 million) has been included in trade and other receivables on the consolidated statement of financial position.

TRADE AND OTHER PAYABLES

December 31,
(Stated in thousands)
December 31,
2014
December 31,
2013
Trade payables $ 183,969 $ 160,098
Accrued liabilities 103,956 53,888
Liabilities for cash-settled share-based payments 10,776 19,443
Dividend payable 22,366 22,338
Finance lease obligations 10,222 11,938
Other payables 36,330 34,215
Total trade and other payables $ 367,619 $ 301,920

LOANS AND BORROWINGS

Loans and borrowings
(Stated in thousands)
December 31,
2014
December 31,
2013
Notes payable $ 426,897 $ 456,935
Finance lease obligations 21,423 25,904
Revolving credit facilities 357,260 212,625
Hedge receivable (17,478 ) (9,970 )
Total $ 788,102 $ 685,494
Current portion of finance lease obligations (1) 10,222 11,938
Current portion of loans and borrowings 19,335 79,770
Non-current $ 758,545 $ 593,786
(1) Current portion of finance lease obligations is included in trade and other payables.

Trican has a $575 million four-year extendible revolving credit facility ("Revolving Credit Facility") with a syndicate of banks. The Revolving Credit Facility is unsecured and bears interest at the applicable Canadian prime rate, U.S. prime rate, Banker's Acceptance rate, or at LIBOR, plus 50 to 325 basis points, dependent on certain financial ratios of the Company. On July 17, 2014, Trican added two additional banks to its banking syndicate and increased its Revolving Credit Facility from $500.0 million to $575.0 million. On October 31, 2014, the Revolving Credit facility was extended by an additional year to 2018. The undrawn amount of the revolving Credit Facility is $217.7 million (2013 - $286.2 million).

The Revolving Credit Facility also has an Accordion feature which allows the total commitment to be increased by up to an additional $175 million, subject to credit approval.

The Revolving Credit Facility requires Trican to comply with certain financial and non-financial covenants that are typical for this type of arrangement. Trican was in compliance with these covenants at December 31, 2014 (2013 - in compliance).

Trican has a $20 million Letter of Credit facility with a major international bank. As at December 31, 2014, Trican had $2.9 million in letters of credit outstanding (2013 - $4.3 million).

Notes payable

As at December 31, 2014, Trican had the following Senior Unsecured Notes outstanding:

Senior
Unsecured
Notes
Amount Date Issued Maturity Rate
Series C CAD $45 million April 28, 2011 April 28, 2016 5.22%
Series D CAD $15 million April 28, 2011 April 28, 2021 6.11%
Series E USD $65 million April 28, 2011 April 28, 2016 4.61%
Series F USD $80 million April 28, 2011 April 28, 2018 5.29%
Series G USD $105 million April 28, 2011 April 28, 2021 5.90%
Series A USD $16.67 million November 19, 2012 November 19, 2015 4.05%
Series A USD $16.67 million November 19, 2012 November 19, 2017 4.05%
Series A USD $16.67 million November 19, 2012 November 19, 2019 4.05%
Series H CAD $ 20 million September 3, 2014 September 03, 2024 5.75%

On June 22, 2014, Trican repaid U.S. $75 million, retiring its 2007 Series B Senior Notes, bearing interest at a fixed rate of 6.10% payable semi-annually on June 22 and December 22.

All Senior Unsecured Notes require the Company to comply with certain financial and non-financial covenants that are typical for this type of arrangement. Trican was in compliance with these covenants at December 31, 2014 (2013 - in compliance).

SHARE CAPITAL

Authorized:

The Company is authorized to issue an unlimited number of common shares, issuable in series. The shares have no par value. All issued shares are fully paid.

Issued and Outstanding - Common Shares:
(stated in thousands, except share amounts) Number of Shares Amount
Balance, January 1, 2013 146,450,177 $ 527,860
Exercise of stock options 86,488 1,174
Reclassification from contributed surplus on exercise of options - 374
Shares issued for acquisition 2,381,381 30,315
Balance, December 31, 2013 148,918,046 $ 559,723
Exercise of stock options 736,899 9,937
Reclassification from contributed surplus on exercise of options - 3,580
Shares repurchased and cancelled under NCIB (549,225 ) (2,190 )
Balance, December 31, 2014 149,105,720 $ 571,050
EARNINGS PER SHARE
(Stated in thousands, except share and per share amounts)
December 31,
Basic Income Per Share
2014 2013
Net loss available to common shareholders $ (5,045 ) $ (45,854 )
Weighted average number of common shares 149,286,035 148,815,362
Basic income / (loss) per share $ (0.03 ) $ (0.31 )
Diluted Income Per Share 2014 2013
Net income / (loss) available to common shareholders $ (5,045 ) $ (45,854 )
Weighted average number of common shares 149,286,035 148,815,362
Diluted effect of stock options - -
Diluted weighted average number of common shares 149,286,035 148,815,362
Diluted income / (loss) per share $ (0.03 ) $ (0.31 )

All of the outstanding options have been excluded from the diluted weighted-average number of common shares as the Company ended at a net loss in 2014 and 2013.

INCOME TAXES

(Stated in thousands)

December 31
For the 3 months ended For the year ended
2014 2013 2014 2013
Current tax expense/(recovery)
Current year $ 8,849 $ 9,454 $ 10,766 $ 16,836
Adjustment for prior years (1,600 ) - (1,234 ) (1,401 )
Recognition of previously unrecognized tax losses (2,573 ) (1,675 ) (2,573 ) (1,675 )
$ 4,676 $ 7,779 $ 6,959 $ 13,760
Deferred tax expense/(recovery)
Deferred tax expense/(recovery) recognized in the current year $ 5,580 $ (23,965 ) $ (7,493 ) $ (42,282 )
Adjustment for prior years 1,748 (245 ) 719 219
Recognition of previously unrecognized tax losses (1,711 ) - (2,877 ) -
$ 5,617 $ (24,210 ) $ (9,651 ) $ (42,063 )
Total tax recovery $ 10,293 $ (16,431 ) $ (2,692 ) $ (28,303 )

The components of the deferred tax asset and liability are as follows:

(Stated in thousands)
For the year ended December 31, 2014 2013
Deferred tax assets:
Goodwill $ 35,652 $ 35,507
Non-capital loss carry forwards 219,378 156,470
Property, equipment and other assets (99,080 ) (73,077 )
Other 6,461 3,845
$ 162,411 $ 122,745
Deferred tax liabilities:
Property, equipment and other assets $ (41,042 ) $ (38,902 )
Partnership deferral (56,036 ) (41,031 )
Other (7,162 ) (7,072 )
$ (104,240 ) $ (87,005 )
$ 58,171 $ 35,740

Included in the above tax pools are $596.9 million (2013 - $428.4 million) of gross non-capital losses that can be carried forward to reduce taxable income in future years. These losses are predominantly in the United States and expire between 2029 and 2034. Deferred tax assets are recognized only to the extent it is considered probable that those assets will be recoverable. This involves an assessment of when those deferred tax assets are likely to reverse, and a judgment as to whether or not there will be sufficient taxable profits available to offset the tax assets when they do reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain.

OPERATING SEGMENTS

The Company operates in Canada and the U.S. along with a number of international regions, which include Russia, Kazakhstan, Australia, Saudi Arabia, Colombia and Norway. Each geographic region has a General Manager who is responsible for the operation and strategy of his region's business. Personnel working within the particular geographic region report to the General Manager; the General Manager reports to the Corporate Executive.

The Company provides a comprehensive array of specialized products, equipment, services and technology to customers through three operating divisions:

  • Canadian operations provides cementing, fracturing, coiled tubing, nitrogen, geological, acidizing, reservoir management, industrial cleaning and pipeline, and completion systems and downhole tool services, which are performed on new and existing oil and gas wells.
  • U.S. operations provides cementing, fracturing, coiled tubing, nitrogen, acidizing and completion systems and downhole tool services, which are performed on new and existing oil and gas wells.
  • International operations provides cementing, fracturing, coiled tubing, acidizing, nitrogen, and completion systems and downhole tool services, which are performed on new and existing oil and gas wells.

Information regarding the results of each geographic region is included below. Performance is measured based on revenue and gross profit as included in the internal management reports, which are reviewed by the Company's executive management team. Each region's gross profit is used to measure performance as management believes that such information is most relevant in evaluating regional results relative to other entities that operate within the industry. Transactions between the segments are recorded at cost and have been eliminated upon consolidation.

Canadian
Operations
United
States
Operations
International
Operations
Corporate Total
Year ended December 31, 2014
Revenue $ 1,229,046 $ 1,133,895 $ 340,917 $ - $ 2,703,858
Gross profit/(loss) 186,481 (10,677 ) 27,463 (29,169 ) 174,098
Finance income - - - (2,586 ) (2,586 )
Finance costs - - - 39,698 39,698
Impairment 5,004 - 2,013 - 7,017
Tax expense/(recovery) 23,251 (26,911 ) 968 - (2,692 )
Depreciation and amortization 70,919 109,051 26,061 3,025 209,056
Assets 924,265 1,301,089 251,536 59,974 2,536,864
Goodwill 41,809 - 14,226 - 56,035
Property and equipment 479,670 716,124 73,955 17,005 1,286,754
Capital expenditures 23,848 27,332 36,228 2,604 90,012
Year ended December 31, 2013
Revenue $ 1,021,426 $ 764,962 $ 329,084 $ - $ 2,115,472
Gross profit/(loss) 137,768 (50,537 ) 11,605 (26,853 ) 71,983
Finance income - - - (1,748 ) (1,748 )
Finance costs - - - 34,497 34,497
Impairment 2,870 - 4,123 - 6,993
Tax expense/(recovery) 11,961 (39,054 ) (1,210 ) - (28,303 )
Depreciation and amortization 89,716 103,096 27,284 2,307 222,403
Assets 963,234 1,070,487 332,041 47,885 2,413,647
Goodwill 45,248 - 14,227 - 59,475
Property and equipment 523,594 728,609 104,943 17,066 1,374,212
Capital expenditures 32,020 53,532 21,528 681 107,761

FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking information and financial outlook based on Trican's current expectations, estimates, projections and assumptions that were made by the Company in light of information available at the time the statement was made. Forward-looking information and financial outlook that address expectations or projections about the future, and other statements and information about the Company's strategy for growth, expected and future expenditures, costs, operating and financial results, future financing and capital activities are forward-looking statements. Some forward-looking information and financial outlook 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. This forward-looking information and financial outlook speak only as of the date of this document and we do not undertake to publicly update this forward-looking information and financial outlook except in accordance with applicable securities laws. This forward-looking information and financial outlook include, among others:

  • The expectation that activity levels in Colombia will not recover in the near future and that we will not resume operations in Colombia until economic conditions improve;
  • The belief that obtaining additional contracts in Saudi Arabia will ensure a steady flow of activity, which will allow us to effectively expand our operations in this region;
  • The expectation that activity and demand will be steady for our Norwegian completion tools division in 2015 based on current customer commitments; however, we will closely monitor activity in this region as it is expected to be impacted by low oil prices in 2015;
  • The plan to keep capital spending to a minimum throughout 2015;
  • The expectation that, based on existing capital budget commitments, capital spending for Trican will be between $50 and $60 million during 2015;
  • The expectation that sharp oil price declines and weak natural gas prices will result in a significant decrease in North American drilling and completions activity in 2015 relative to 2014;
  • The expectation that the slow-down in Canadian activity over spring break-up will begin early and end late given the lack of urgency by our customers to drill and complete wells in the current commodity price environment;
  • The intention to park 15% to 20% of our Canadian pressure pumping equipment by the end of the first quarter of 2015 and reduce fixed and variable costs associated with this equipment;
  • The intention to remain committed to the U.S. pressure pumping market long-term and the expectation that we emerge from the current downturn with a stronger U.S. business;
  • The expectation that reductions in active equipment in North America will significantly reduce fixed costs and the belief that these reductions are a necessary response to the current and expected drop in Canadian and U.S. activity;
  • The expectation that we will monitor the activity levels of our customers and make additional changes as required;
  • The expectation that we will see the early results of cost cutting measures in Canada and the U.S. in March of 2015;
  • The belief that the most significant cost cutting initiatives relate to product, product transportation, and personnel costs;
  • The expectation that the salary reduction implemented on February 1, 2015, will result in annual cost savings of approximately $15 million for our Canadian operations, $10 million for our U.S. operations, and $3 million for the Corporate division;
  • The belief that our ability to execute cost cutting measures effectively and efficiently will be critical in maintaining an acceptable level of profitability throughout this downturn;
  • The expectation that average Canadian pricing levels will decline by approximately 10% during the first quarter of 2015 compared to recent peak pricing levels from the second half of 2014;
  • The expectation that U.S. pricing declines will vary based on the region, customer and existing contract;
  • The expectation that the most significant pricing declines in the U.S. will occur in the oil plays;
  • The expectation that pricing and activity levels will hold steady for our crews in the Barnett and Marcellus regions during the first quarter of 2015;
  • The expectation that our pricing in Canada and the U.S. will be under pressure throughout the remainder of 2015;
  • The belief that the extent of pricing declines in North America will depend on activity levels and, more importantly, our ability to reduce costs;
  • The expectation that Russian activity will be up slightly compared to 2014 due to the commitment of our Russian customers to maintain production levels, despite the drop in oil prices;
  • The expectation that the value of the Russian ruble relative to the Canadian dollar will have a significant impact on Russian financial results in 2015;
  • The expectation that revenue and operating income for our Russian operations will be 40% to 50% lower in 2015 relative to 2014 given the current ruble to Canadian dollar spot rate;
  • The expectation that we will see cost inflation in Russia during 2015;
  • The expectation that cost control measures in Russia will partially offset the impact of inflation during 2015;
  • The plan to grow our presence in Saudi Arabia and Australia during 2015 and the expectation that revenue will increase in both regions;
  • The expectation that activity levels in Australia will be slow in the first half of 2015 but are expected to increase later in the year with the development of LNG export facilities;
  • The belief that activity levels in all of our operating regions could be negatively impacted by low oil prices during 2015;
  • The belief that cash flow in 2015 will be significantly influenced by changes to working capital and capital expenditures;
  • The expectation that slowing market conditions will result in substantial working capital reductions during 2015, which is expected to provide Trican with meaningful cash inflows;
  • The belief that a conservative capital spending program combined with reductions in working capital will provide Trican with opportunities to pay down a significant amount of debt in 2015, despite the weak financial outlook;
  • The belief that Trican will manage through this most recent downturn and emerge as a stronger organization.

Forward-looking information and financial outlook is based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect. Trican's actual results may differ materially from those expressed or implied and therefore such forward-looking information and financial outlook 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 information and financial outlook is 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. The foregoing important factors are not exhaustive. In addition, actual results could differ materially from those anticipated in forward-looking information and financial outlook provided herein as a result of the risk factors set forth under the section entitled "Risks Factors" in our Annual Information Form dated March 21, 2014. Readers are also referred to the risk factors and assumptions described in other documents filed by the Company from time to time with securities regulatory authorities.

Additional information regarding Trican including Trican's most recent annual information form is available under Trican's profile on SEDAR (www.sedar.com).

Contact Information

  • Trican Well Service Ltd.
    Dale Dusterhoft
    Chief Executive Officer
    (403) 266 - 0202
    (403) 237 - 7716 (FAX)
    ddusterhoft@trican.ca

    Trican Well Service Ltd.
    Michael Baldwin
    Sr. Vice President, Finance & CFO
    (403) 266 - 0202
    (403) 237 - 7716 (FAX)
    mbaldwin@trican.ca

    Trican Well Service Ltd.
    Gary Summach
    Senior Finance Director
    (403) 266 - 0202
    (403) 237 - 7716 (FAX)
    gsummach@trican.ca

    Trican Well Service Ltd.
    2900, 645 - 7th Avenue S.W.
    Calgary, Alberta T2P 4G8
    www.trican.ca