Trican Well Service Ltd.
TSX : TCW

Trican Well Service Ltd.

November 08, 2011 18:51 ET

Trican Reports Record 3rd Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2011) - Trican Well Service Ltd. (TSX:TCW)

Three months ended Nine months ended
($ millions, except per share amounts; unaudited) Sept. 30, 2011 Sept. 30, 2010 June 30, 2011 Sept. 30, 2011 Sept. 30, 2010
Revenue $659.1 $407.8 $421.7 $1,615.4 $1,044.1
Operating income * 193.6 107.4 78.3 417.2 222.6
Net income 111.3 53.3 30.1 223.8 94.8
Net income per share (basic ) $0.76 $0.38 $0.21 $1.54 $0.70
(diluted ) $0.75 $0.38 $0.21 $1.52 $0.69
Adjusted net income * 114.4 57.0 33.3 233.1 103.9
Adjusted net income per share* (basic ) $0.78 $0.40 $0.23 $1.60 $0.77
(diluted ) $0.77 $0.40 $0.23 $1.58 $0.76
Funds provided by operations* 174.3 107.1 60.9 376.9 212.0

Notes:

* Trican makes reference to operating income, adjusted net income and funds provided by operations. These are measures that are not recognized under International Financial Reporting Standards (IFRS). Management believes that, in addition to net income, operating income, adjusted net income and funds provided by operations are useful supplemental measures. Operating income provides investors with an indication of earnings before depreciation, taxes and interest. Adjusted net income provides investors with information on net income excluding one-time non-cash charges and the non-cash effect of stock-based compensation expense. Funds provided by operations provide investors with an indication of cash available for capital commitments, debt repayments and other expenditures. Investors should be cautioned that operating income, adjusted net income, and funds provided by operations should not be construed as an alternative to net income and cash flow from operations determined in accordance with IFRS as an indicator of Trican's performance. Trican's method of calculating operating income, adjusted net income and funds provided by operations may differ from that of other companies and accordingly may not be comparable to measures used by other companies.

THIRD QUARTER HIGHLIGHTS

Consolidated revenue for the third quarter of 2011 was $659.1 million, an increase of 62% compared to the third quarter of 2010. Consolidated net income increased by 109% to $111.3 million and diluted earnings per share increased to $0.75 compared to $0.38 for the same period in 2010. Funds provided by operations was $174.3 million compared to $107.1 million in the third quarter of 2010.

Our Canadian operations achieved record quarterly revenue of $371.5 million and operating income of $146.9 million during the third quarter of 2011. Revenue increased by 56% and operating income increased by 70% compared to the third quarter of 2010. Canadian operations benefitted from the continued strength of horizontal drilling and favourable weather conditions throughout most of the third quarter, which contributed to the 27% year-over-year increase in the number of active drilling rigs in Canada. Oil directed activity supplied most of the rig count increase and represented 69% of the active drilling rigs in Canada during the third quarter of 2011. Activity levels were also strong in plays that contain natural gas liquids, such as the Montney and Deep Basin. Despite the recent volatility in the equity markets and global economic uncertainty, we remain confident that activity levels will remain strong in Canada for the remainder of 2011 and into 2012.

Third quarter revenue of $207.3 million for our U.S. operations was 20% higher than the second quarter of 2011 and represents a new quarterly record for this region. Operating income was $54.5 million, an increase of 10% sequentially and 154% compared to the third quarter of 2010. U.S industry activity continues to be led by the oil and liquids-rich gas plays. Third quarter results for our operations in the oil and liquids-rich gas plays, including our Eagle Ford and Oklahoma bases, were strong and contributed to the sequential and year-over-year growth. Utilization levels in dry gas producing regions were also strong as our contractual positions mitigated the decrease in activity in the Barnett and Haynesville shales. Third quarter results were particularly strong for our Marcellus base, which services dry gas producing plays. Activity levels have been strong in this region because it is a large, low cost reservoir situated close to the eastern U.S. natural gas consuming market.

At the end of the third quarter, we commenced coiled tubing and cementing operations in the Eagle Ford and also saw a significant sequential increase in coiled tubing revenue in Oklahoma. We will continue to focus on expanding our non-fracturing service lines in the U.S. as part of our goal to become a full service provider in the U.S.

Russian revenue was $80.3 million during the third quarter of 2011, which was a 13% year-over-year increase and a 1% sequential decrease. Activity levels met expectations for all service lines as customers executed on their 2011 work plans. Third quarter operating income for our Russian operations decreased to $8.1 million compared to $11.4 million in the third quarter of 2010 and $11.2 million in the second quarter 2011.

Financing Update

On October 18, 2011, Trican entered into a new $450 million four year extendible revolving credit facility (the "New Facility") with a syndicate of banks. The New Facility, which replaced the previous $250 million three year extendible 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 Trican. The New Facility requires Trican to comply with certain financial and non-financial covenants that are typical for this type of arrangement.

MANAGEMENT'S DISCUSSION AND ANALYSIS

COMPARATIVE QUARTERLY INCOME STATEMENTS ($ thousands, unaudited)
Three months ended Sept. 30, 2011 % of Revenue 2010 % of Revenue Quarter-
Over-Quarter Change
% Change
Revenue 659,104 100.0 % 407,765 100.0 % 251,339 61.6 %
Expenses
Materials and operating 441,054 66.9 % 281,777 69.1 % 159,277 56.5 %
General and administrative 24,430 3.7 % 18,585 4.6 % 5,845 31.5 %
Operating income* 193,620 29.4 % 107,403 26.3 % 86,217 80.3 %
Finance costs 6,057 0.9 % 1,998 0.5 % 4,059 203.2 %
Depreciation and amortization 31,474 4.8 % 30,249 7.4 % 1,225 4.0 %
Foreign exchange (gain)/loss (72 ) 0.0 % 1,085 0.3 % (1,157 ) -106.6 %
Other income (1,537 ) -0.2 % (918 ) -0.2 % (619 ) 67.4 %
Income before income taxes 157,698 23.9 % 74,989 18.4 % 82,709 110.3 %
Income tax expense 46,434 7.0 % 21,683 5.3 % 24,751 114.1 %
Net Income 111,264 16.9 % 53,306 13.1 % 57,978 108.8 %

* see first page of this report

CANADIAN OPERATIONS

Three months ended,
($ thousands, except revenue per job, unaudited) Sept. 30, 2011 % of Revenue Sept. 30, 2010 % of Revenue June 30,
2011
% of
Revenue
Revenue 371,481 237,605 167,805
Expenses
Materials and operating 216,746 58.3 % 144,370 60.8 % 130,008 77.5 %
General and administrative 7,813 2.1 % 6,897 2.9 % 6,510 3.9 %
Total expenses 224,559 60.4 % 151,267 63.7 % 136,518 81.4 %
Operating income* 146,922 39.6 % 86,338 36.3 % 31,287 18.6 %
Number of jobs 6,960 5,521 3,725
Revenue per job 52,766 42,575 44,369

* see first page of this report

Sales Mix

Three months ended, Sept. 30, Sept. 30, June 30,
(unaudited) 2011 2010 2011
% of Total Revenue
Fracturing 67 % 71 % 67 %
Cementing 17 % 15 % 16 %
Nitrogen 8 % 4 % 6 %
Coiled Tubing 4 % 5 % 3 %
Acidizing 2 % 3 % 3 %
Industrial Services 1 % 1 % 3 %
Other 1 % 1 % 2 %
Total 100 % 100 % 100 %

Operations Review

Third quarter activity levels were strong in Canada and benefitted from favourable weather conditions throughout most of the quarter. The number of active drilling rigs in Canada increased by 27% compared to the third quarter of 2010. Almost all of this increase can be attributed to oil directed activity, which represented 69% of the active drilling rigs in Canada during the third quarter of 2011. In addition, activity levels have been strong in natural gas plays such as the Montney and Deep Basin. These plays remain economical due to the presence of natural gas liquids, which result in additional cash flow for the producers. Despite the recent volatility in the equity markets and global economic uncertainty, we remain confident that activity levels will remain strong in Canada for the remainder of 2011 and into 2012.

Horizontal drilling activity remains strong in Canada as 59% of wells drilled during the third quarter of 2011 were horizontal and the number of horizontal wells drilled increased by 55% compared to the third quarter of 2010. Our fracturing service line continues to benefit from the strength of horizontal drilling as 92% of fracturing and fracturing related revenue was from horizontal wells.

We continue to add equipment to our Canadian fleet as part of the 2011 capital budget. At the end of the third quarter, our Canadian operations had an additional 17% in fracturing horsepower and two additional fracturing crews compared to the end of the second quarter of 2011, and added an additional 54% of fracturing horsepower compared to the third quarter of 2010. Robust demand for pressure pumping services in Canada has led to strong utilization for all new and existing Canadian fracturing equipment placed into service.

Current Quarter versus Q3 2010

Revenue for the quarter increased by 56% or $133.9 million compared to the third quarter of 2010. Job count increased by 26% due largely to increased activity in the Western Canadian Sedimentary Basin (WCSB) as rig count increased by 27% compared to the same period in 2010. An 18% year-over-year rise in pricing contributed to the 24% increase in revenue per job. The 54% year-over-year increase in fracturing horsepower also factored into the revenue per job increase as the additional horsepower has allowed us to respond to the demand for larger jobs caused by the increase in horizontal drilling.

As a percentage of revenue, materials and operating expenses decreased to 58.3% from 60.8% due to pricing increases and increased leverage on our fixed cost structure. These factors were partially offset by increases to key input costs such as acid, sand and guar as well as higher employee costs. General and administrative costs increased by $0.9 million due largely to increased employee costs including profit sharing and salaries.

Current Quarter versus Q2 2011

As expected, revenue increased sequentially by 121% due to spring break-up conditions experienced in the second quarter. Job count increased by 87% compared to a 150% increase in overall Canadian rig count. This discrepancy is largely a result of our strong second quarter activity levels that kept our job count high relative to overall industry activity levels. We experienced strong utilization levels in all service lines during the third quarter despite the discrepancy between the increases in the rig count and job count. Revenue per job increased by 19% on a sequential basis due to larger job sizes and an 11% increase in pricing. Job sizes continue to increase from the growth and strength of horizontal drilling activity.

Materials and operating expenses decreased as a percentage of revenue to 58.3% compared to 77.5% in the second quarter of 2011 due largely to increased operating leverage and an increase in pricing. General and administrative expenses increased $1.3 million due mainly to an increase in profit sharing expenses.

UNITED STATES OPERATIONS

Three months ended,
($ thousands, except revenue per job, unaudited) Sept. 30, 2011 % of Revenue Sept. 30,
2010
% of Revenue June 30,
2011
% of
Revenue
Revenue 207,288 99,217 172,404
Expenses
Materials and operating 150,279 72.5 % 75,543 76.1 % 118,635 68.8 %
General and administrative 2,474 1.2 % 2,168 2.2 % 4,013 2.3 %
Total expenses 152,753 73.7 % 77,711 78.3 % 122,648 71.1 %
Operating income* 54,535 26.3 % 21,506 21.7 % 49,756 28.9 %
Number of jobs 1,445 807 1,178
Revenue per job 144,361 123,373 146,229

* see first page of this report

Operations Review

U.S. industry activity was strong during the third quarter and led to continued growth for our U.S. operations. Horizontal drilling activity remained robust as horizontal rig count increased by 7% on a sequential basis and 26% compared to the third quarter of 2010. In addition, overall U.S. rig count increased in areas with oil and liquids-rich gas reserves, such as the Eagle Ford, Permian, and Bakken, which contributed to most of the U.S. industry growth. As expected, dry gas areas such as the Haynesville, Barnett and Fayetteville saw a reduction in industry activity with the number of active drilling rigs decreasing by 8% on a sequential basis in these regions. Despite this reduction in activity, our contracted positions led to a total sequential job count increase of 3% for our fracturing crews in the Haynesville, Barnett and Fayetteville regions.

The U.S. revenue increase was largely due to substantial growth for our operations in the Marcellus, Eagle Ford, and Oklahoma regions. Our second crew in the Marcellus began operations mid-way through the third quarter and revenue more than doubled in this region compared to the second quarter of 2011. One crew operated out of the Eagle Ford during the third quarter and saw sequential fracturing revenue growth of 44%. A second crew in the Eagle Ford was expected to commence operations during the third quarter, but its start up was delayed to early in the fourth quarter as a result of a delay in the delivery of some of the fracturing equipment required to operate the second crew. This delay resulted in lost revenue and reduced third quarter operating income as a result of the increase in our fixed cost structure, most notably higher personnel costs. We expect activity in the Eagle Ford to remain strong for the balance of 2011 and into 2012. Activity levels in Oklahoma remain strong due to the presence of oil and liquids-rich gas plays in the region.

We commenced operations in the Permian region during the third quarter of 2011 and we expect to add additional horsepower to the region in the fourth quarter. We believe that activity and demand for this oil play will be strong given the increase in oil directed drilling activity in the U.S.

Strong activity levels throughout the U.S. have led to strong demand for some of our key input costs, including acid, guar and fracturing sand. In addition, the increase in oil directed activity has put more pressure on the supply of certain sizes of fracturing sand. We are anticipating increased supply in these certain sizes of fracturing sand in the future, and we will continue to actively manage our product supply to prevent any major operational delays caused by product shortages.

We continue to execute on our strategy to become a full service provider in the U.S. as coiled tubing and cementing operations commenced in the Eagle Ford at the end of the third quarter of 2011. We also saw a significant sequential increase in coiled tubing revenue in Oklahoma and we expect this trend to continue for the remainder of 2011. We will continue to focus on expanding our non-fracturing service lines in the U.S. during the fourth quarter of 2011 and into 2012.

We expect to see growth for our U.S. operations during the fourth quarter with the addition of three new fracturing crews and expansion of our cementing, coiled tubing, nitrogen and acidizing operations. In anticipation of this growth, we increased our fixed cost structure throughout the third quarter, largely through increased staffing levels, which had a negative impact on third quarter operating margins. In addition, a one-time third party operational issue led to a temporary shortage of specialized fracturing iron. This caused operational delays for our crews in the Marcellus and Eagle Ford reducing revenue generated during the quarter and reducing operating income.

Current Quarter versus Q3 2010

Revenue increased by 109% in the third quarter of 2011 compared to the third quarter of 2010. Job count increased by 79% and benefitted from geographic expansion into the Eagle Ford and Marcellus regions. A 20% increase in year-over-year rig count in our areas of operation and service line expansion also contributed to the job count increase. Revenue per job increased by 17% as a 23% increase in pricing was partially offset by a 6% decrease in the U.S. dollar relative to the Canadian dollar.

As a percentage of revenue, materials and operating expenses decreased to 72.5% from 76.1% because of increased pricing and operational leverage on our fixed cost structure. These factors were partially offset by operational delays caused by the equipment delivery delays, a temporary shortage of fracturing iron, and increased employee and start-up costs as we prepare for the deployment of additional fracturing, cementing and coiled tubing crews in the fourth quarter of 2011. In addition, the cost for key inputs such as acid, sand and guar have increased as demand for these products remains strong in the U.S. market.

General and administrative costs increased by $0.3 million due largely to higher employee costs offset partially by lower share based compensation costs.

Current Quarter versus Q2 2011

Revenue for the third quarter increased by 20% relative to the second quarter of 2011. Strong sequential growth for our operations in the Marcellus and Oklahoma regions and improved utilization in the Eagle Ford region contributed substantially to the 23% increase in job count. Revenue per job decreased by 1% on a sequential basis as a 2% increase in pricing was offset by a slightly lower proportion of work performed in the Haynesville, which generally has higher revenue per job than other regions. The third quarter average U.S. dollar exchange rate remained relatively consistent with the Canadian dollar compared to the second quarter of 2011.

Materials and operating expenses increased to 72.5% from 68.8% as a percentage of sales. Pricing increases of 2% were more than offset by the one-time impact on margins caused by equipment delivery delays and the operational delays relating to a temporary iron shortage. In total, Management estimates that the equipment delivery delays and the temporary shortage of specialized fracturing iron reduced third quarter revenue by approximately $17 million and reduced operating income by two percentage points. Margins were also impacted by a rise in employee costs as we increased staffing levels throughout the third quarter in anticipation of adding new fracturing, cementing and coiled tubing crews during the fourth quarter of 2011. Lastly, the cost of certain key inputs such as acid, sand, guar and hauling continue to increase with tight supply and strong activity levels in the U.S. market.

General and administrative expenses decreased by $1.5 million largely due to decreased share based compensation and employee recruitment and relocation costs.

RUSSIAN OPERATIONS

Three months ended,
($ thousands, except revenue per job, unaudited) Sept. 30,
2011
% of Revenue Sept. 30,
2010
% of
Revenue
June 30,
2011
% of
Revenue
Revenue 80,335 70,943 81,492
Expenses
Materials and operating 68,481 85.2 % 57,929 81.7 % 66,450 81.5 %
General and administrative 3,770 4.7 % 1,595 2.2 % 3,885 4.8 %
Total expenses 72,251 89.9 % 59,524 83.9 % 70,335 86.3 %
Operating income* 8,084 10.1 % 11,419 16.1 % 11,157 13.7 %
Number of jobs 1,388 1,247 1,254
Revenue per job 54,686 56,001 62,442

* see first page of this report

Sales Mix

Three months ended, Sept. 30, Sept. 30, June 30,
(unaudited) 2011 2010 2011
% of Total Revenue
Fracturing 76 % 78 % 79 %
Coiled Tubing 11 % 12 % 10 %
Cementing 8 % 5 % 7 %
Nitrogen 5 % 5 % 4 %
Total 100 % 100 % 100 %

Operations Review

Third quarter activity levels met expectations for our Russian operations, which include the results of our Kazakhstan, Algeria, and Australia operations. Activity levels were steady across all major service lines as our customers executed their 2011 work plans.

Relative to the Canadian dollar, the ruble weakened by 3% compared to the second quarter of 2011 and by 1% compared to the third quarter of 2010. The devaluation of the ruble had a negative impact on third quarter operating margins as approximately 25% of our costs in Russia are denominated in Canadian dollars and other foreign currencies.

We began cementing operations in Australia during the third quarter of 2011. Our operations in this region are small and our focus during the quarter was on introducing Trican's technology and standards to the cementing business in Australia. We will look to further establish Trican's operating presence during the fourth quarter of 2011 and early 2012 and ultimately grow our Australian operations to a meaningful size.

Current Quarter versus Q3 2010

Revenue increased 13% compared to the third quarter of 2010. Job count increased by 11% due largely to the expected increase in activity based on our 2011 contracts. Job count also benefitted from strong utilization levels across all service lines as weather conditions remained favourable throughout the quarter. Revenue per job decreased by 2% as pricing increases were more than offset by a lower proportion of fracturing revenue relative to total revenue during the quarter. Smaller average fracturing job sizes due to customer mix also contributed to the decrease in revenue per job.

Materials and operating expenses for the quarter increased as a percentage of revenue to 85.2% compared to 81.7% for the same period in 2010. Operating margins declined due to cost increases for items such as sand and third party hauling as well as devaluation of the ruble. Bad debt recoveries in the third quarter of 2010 led to lower general and administrative costs for that period, which largely explains the $1.5 million year-over-year increase.

Current Quarter versus Q2 2011

Revenue decreased 1% from the second quarter of 2011 as a result of a decrease in revenue per job offset partially by an increase in job count. The 11% increase in job count was due to strong utilization and activity levels across all service lines, which benefitted from favourable weather conditions throughout the quarter. Revenue per job decreased sequentially by 13% due to a lower proportion of fracturing revenue relative to total revenue, smaller average fracturing job sizes, and a 3% decrease in the ruble relative to the Canadian dollar.

Materials and operating expenses as a percentage of revenue increased to 85.2% from 81.5% on a sequential basis. Devaluation of the ruble compared to the Canadian dollar and other major currencies and an increase in product and hauling costs contributed to the decrease in operating margins. Third quarter general and administrative expenses were relatively consistent with the second quarter of 2011.

CORPORATE DIVISION

Three months ended,
($ thousands, except revenue per job, unaudited) Sept. 30,
2011
% of
Revenue
Sept. 30,
2010
% of
Revenue
June. 30,
2011
% of
Revenue
Expenses
Materials and operating 5,548 0.8 % 3,935 1.0 % 3,968 0.9 %
General and administrative 10,373 1.5 % 7,925 1.9 % 9,955 2.4 %
Total expenses 15,921 2.4 % 11,860 2.9 % 13,923 3.3 %
Operating loss* (15,921 ) (11,860 ) (13,923 )

* see first page of this report

Current Quarter versus Q3 2010

Corporate division expenses increased $3.6 million from the same quarter last year due primarily to increases in employee salaries and profit sharing expense. The increase was partially offset by a decline in share based employee expense.

Current Quarter versus Q2 2011

Corporate division expenses were up $1.6 million on a sequential basis due largely to an increase in profit sharing expense, offset partially by a decrease in share based employee expense.

OTHER EXPENSES AND INCOME

Finance costs increased by $4.1 million on a sequential basis as a result of interest on the Private Placement debt. Depreciation and amortization increased by $1.2 million compared to the same period last year, largely due to capital additions relating to our capital expansion program.

The foreign exchange gain of $0.1 million in the quarter, versus a loss of $1.1 million in the same quarter last year was due to the net impact of fluctuations in the U.S. dollar and Russian ruble relative to the Canadian dollar. Other income was $1.5 million in the quarter versus $0.9 million for the same period in the prior year. Other income is largely comprised of interest income on a loan to an unrelated third party and interest income earned on cash balances.

INCOME TAXES

Trican recorded income tax expense of $46.4 million in the quarter versus $21.7 million for the comparable period of 2010. The increase in tax expense is primarily attributable to significantly higher earnings before taxes.

COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS
($ thousands; unaudited)
Nine months ended Sept. 30, 2011 % of
Revenue
2010 % of
Revenue
Year-
Over-Year
Change
%
Change
Revenue 1,615,433 100 % 1,044,074 100.0 % 571,359 54.7 %
Expenses
Materials and operating 1,124,777 69.6 % 773,826 74.1 % 350,951 45.4 %
General and administrative 73,427 4.5 % 47,615 4.6 % 25,812 54.2 %
Operating income* 417,229 25.8 % 222,633 21.3 % 194,596 87.4 %
Finance costs 13,484 0.8 % 6,905 0.7 % 6,579 95.3 %
Depreciation and amortization 90,133 5.6 % 81,736 7.8 % 8,397 10.3 %
Foreign exchange (gain)/loss (300 ) 0.0 % 3,706 0.4 % (4,006 ) -108.1 %
Other income (4,580 ) -0.3 % (2,601 ) -0.2 % (1,979 ) 76.1 %
Income before income taxes 318,492 19.7 % 132,887 12.7 % 185,605 139.7 %
Provision for income taxes 94,726 5.9 % 38,126 3.7 % 56,600 148.5 %
Net income 223,766 13.9 % 94,761 9.1 % 129,005 136.1 %

* See first page of this report

CANADIAN OPERATIONS

Nine months ended Sept. 30,
($ thousands, except revenue per job, unaudited) 2011 % of
Revenue
2010 % of
Revenue
Year-
Over-Year
Change
Revenue 865,663 590,370 47 %
Expenses
Materials and operating 544,144 62.9 % 391,759 66.4 % 39 %
General and administrative 21,588 2.5 % 17,766 3.0 % 22 %
Total expenses 565,732 65.4 % 409,525 69.4 % 38 %
Operating income* 299,931 34.6 % 180,845 30.6 % 66 %
Number of jobs 18,151 15,257 19 %
Revenue per job 46,772 38,294 22 %

* See first page of this report

Revenue for the nine months ended September 30, 2011 is up 47% compared to the same period in 2010. Job count increased by 19% and compares to the 23% year-over-year increase in the average number of active drilling rigs. Revenue per job increased by 22% due largely to a 15% pricing increase combined with larger job sizes resulting from increased horizontal drilling activity.

As a percentage of revenue, materials and operating expenses decreased to 62.9% from 66.4% for the comparable period in 2010. The decrease was due to improvements in pricing and increased operating leverage on our fixed cost structure and was partially offset by cost increases for key inputs such as acid, sand and guar. General and administrative costs increased by $3.8 million due largely to increases in employee costs.

UNITED STATES OPERATIONS

Nine months ended Sept. 30,
($ thousands, except revenue per job, unaudited) 2011 % of
Revenue
2010 % of
Revenue
Year-
Over-Year
Change
Revenue 523,244 253,467 106 %
Expenses
Materials and operating 370,918 70.9 % 200,686 79.2 % 85 %
General and administrative 8,720 1.7 % 4,766 1.9 % 83 %
Total expenses 379,638 72.6 % 205,452 81.1 % 85 %
Operating income* 143,606 27.4 % 48,015 18.9 % 199 %
Number of jobs 3,570 2,308 55 %
Revenue per job 147,005 110,113 34 %

* See first page of this report

Revenue for the nine months ended September 30, 2011 is up 106% compared to the same period in 2010. Job count increased by 55% and benefitted from geographic and service line expansion initiatives as well as a 22% increase in rig count in our areas of operations. Revenue per job increased by 34% due largely to a 40% pricing increase offset by a 6% weakening of the U.S. dollar versus the Canadian dollar.

Materials and operating expenses as a percentage of revenue decreased to 70.9% from 79.2% compared to the same period in 2010. The decrease was due to increased pricing and operating leverage on our fixed cost structure and was partially offset by an increase in product and employee costs. General and administrative costs increased by $4.0 million due largely to increases in employee expenses.

RUSSIAN OPERATIONS

Nine months ended Sept. 30,
($ thousands, except revenue per job, unaudited) 2011 % of
Revenue
2010 % of
Revenue
Year-
Over-Year
Change
Revenue 226,526 200,237 13 %
Expenses
Materials and operating 194,134 85.7 % 171,050 85.4 % 13 %
General and administrative 10,972 4.8 % 6,424 3.2 % 71 %
Total expenses 205,106 90.5 % 177,474 88.6 % 16 %
Operating income* 21,420 9.5 % 22,763 11.4 % -6 %
Number of jobs 3,721 3,458 8 %
Revenue per job 58,292 56,966 3 %

* See first page of this report

Year to date revenue for our Russian operations is up 13% compared to the same period in 2010. Job count has increased by 8% and is consistent with our expectation of an increase in activity based on the 2011 tendering process. Revenue per job increased by 3% largely due to price increases obtained during the 2011 tendering process.

Materials and operating expenses as a percentage of revenue increased slightly to 85.7% from 85.4% compared to the same period in 2010. Improved pricing and operating leverage on our fixed cost structure were offset by cost inflation. General and administrative expenses are up $4.5 million largely due to an increase employee costs combined with bad debt recoveries in 2010 that reduced general and administrative costs in the previous period.

CORPORATE DIVISION

Nine months ended Sept. 30,
($ thousands, except revenue per job, unaudited) 2011 % of
Revenue
2010 % of
Revenue
Year-
Over-Year
Change
Expenses
Materials and operating 15,581 1.0 % 10,331 1.0 % 51 %
General and administrative 32,147 2.0 % 18,659 1.8 % 72 %
Total expenses 47,728 3.0 % 28,990 2.8 % 65 %
Operating loss* (47,728 ) (28,990 ) 65 %

* See first page of this report

Corporate division expenses increased $18.7 million compared to last year due largely to an increase in employee salaries, profit sharing expense, and corporate information technology costs.

OTHER EXPENSES AND INCOME

Year-to-date finance costs increased $6.6 million relative to the comparable period in 2010 due to interest on the Private Placement debt. Depreciation and amortization increased by $8.4 million as a result of the North American focused capital asset additions.

Foreign exchange gains of $0.3 million have been recognized in 2011 compared to losses of $3.7 million in 2010. The 2011 gain is due to the net impact of fluctuations in the U.S. dollar and Russian ruble relative to the Canadian dollar. Other income increased by $2.0 million from the same period in 2010 due largely to proceeds from an insurance claim.

INCOME TAXES

The income tax provision for the nine months ended September 30, 2011 was $94.7 million compared to the income tax provision of $38.1 million for the same period in 2010. The increase in the tax provision is largely attributable to the significantly higher earnings.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Funds provided by operations increased to $174.3 million in the third quarter of 2011 from $107.1 million in the third quarter of 2010 largely as a result of the increased net income.

Trican's working capital increased by $291.9 million over the 2010 year-end value of $358.6 million to $650.6 million. The increase is predominantly due to the increased activity levels over year end, causing increased trade receivables and inventory levels, partially offset by increased accounts payable. In addition, the Company has a cash balance of $139.0 million at the end of the quarter which is largely a result of the cash generated during 2011 and the proceeds from the debt private placement earlier in 2011.

Investing Activities

Capital expenditures for the quarter totalled $150.1 million compared with $80.4 million for the same period in 2010. The majority of these expenditures relate to our 2011 capital budget and approximately $234 million of capital commitments remain to be spent relating to this budget.

Trican's 2012 capital budget is projected to be $678 million and includes $216 million in commitments that are necessary to ensure timely construction of the equipment required to execute on Trican's 2012 growth plans. $576 million of the projected capital budget will be directed towards our North American operations and $102 million towards International operations.

The 2012 projected capital budget consists of $537 million in expansion capital, $104 million in infrastructure needed to support new and existing operations, and $37 million in maintenance capital. The expansion capital includes an additional 92,500 of fracturing horsepower, 5 cement pumpers, 7 nitrogen pumpers, and 4 acid pumpers for our Canadian operations. Capacity for our U.S. operations will increase by 192,500 of fracturing horsepower, 16 cement pumpers, 7 coiled tubing units, 9 nitrogen pumpers, and 10 acid pumpers.

The international capital expenditures are expected to be directed towards growth opportunities in new international markets, including Saudi Arabia and Australia. The capital budget for our Russian operations largely consists of maintenance capital.

At September 30, 2011, Trican had a number of ongoing capital projects relating to the 2011 and 2012 capital budgets and estimates that $464 million of additional investment will be required to complete them.

Financing Activities

On October 18, 2011, Trican entered into a new $450 million four year extendible revolving credit facility (the "New Facility") with a syndicate of banks. The New facility, which replaced the previous $250 million three year extendible 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. The New Facility requires Trican to comply with certain financial and non-financial covenants that are typical for this type of arrangement.

On April 28, 2011, Trican closed the issuance of U.S.$250 million and CAD$60 million senior unsecured notes on a private placement basis (the "Private Placement"). The notes issued under the Private Placement are subject to various terms with an average term of 7.5 years and an average rate of approximately 5.4%. The notes are unsecured and rank equally with Trican's bank facilities and other outstanding senior notes. Trican intends to use the net proceeds to fund a portion of its 2011 capital expenditure program and for general corporate purposes.

As at November 8, 2011, Trican had 146,734,826 common shares and 5,819,689 employee stock options outstanding.

Financial Instruments

During the second quarter, Trican entered into two distinct hedges, each with the purpose of hedging the gains and losses incurred on U.S. dollar debt balances. The first hedge consists of cross-currency swap agreements, which hedges U.S.$95 million of the U.S.$250 million of senior unsecured notes (the "Notes") which were issued under the Private Placement. This hedge has been assessed as a highly effective cash-flow hedge. The foreign exchange loss on the hedged portion of the Notes has been recorded in other comprehensive income. The fair value of the cross-currency swap agreements at September 30, 2011 is $7.5 million and has been recorded net of long-term debt on the balance sheet and as a gain in other comprehensive income.

The second hedge is a net investment hedge of our U.S. operations. The foreign exchange loss on the non-hedged portion of the senior unsecured notes of U.S.$155.0 million has been offset against the gains and losses incurred on the translation of the net assets of our U.S. operations. For the quarter ended September 30, 2011, there was no ineffective portion, therefore the change in fair value has been included in other comprehensive income.

OUTLOOK

2012 Capital Budget

Our previously announced 2012 capital budget included significant capital expansion initiatives for our North American operations. We believe that demand for pressure pumping will remain strong for the balance of 2011 and the first half of 2012 as the North American market remains undersupplied. We are however monitoring, and will continue to monitor the global economic outlook, North American rig count, commodity prices, and the capital spending budgets of our North American customers in light of the recent volatility in the global marketplace. At this point in time, we plan on executing on our announced 2012 capital budget of $678 million. However, if market conditions worsen, we have proven in previous downturns that we can quickly reduce our capital and operating expenditures.

Canadian Operations

Demand for pressure pumping services in Canada has been strong during the first three quarters of 2011. Given the recent global economic uncertainty and volatility in commodity prices, we have been monitoring the budgets of our customers to determine whether a decline in activity will take place in 2012. Recent industry forecasts reflect a 10% increase in Canadian drilling activity in 2012 and the latest capital budgets of some large Canadian producers have supported this view. In addition, we believe that the Canadian pressure pumping market is currently undersupplied and will continue to be after capacity additions from 2011 capital budgets have entered the Canadian market. Therefore, we expect Canadian activity levels and pressure pumping demand to increase slightly in 2012.

Two new fracturing crews were added during the third quarter and we expect to add two additional fracturing crews to our Canadian fleet during the fourth quarter. This will add 30,000 horsepower and bring our total Canadian fracturing horsepower to 321,200 as we exit 2011. We also expect to add capacity to our cementing, nitrogen and acidizing service lines by the end of 2011.

We anticipate that Canadian pricing will increase moderately in the fourth quarter and be offset by increases to key input costs such as acid, sand and guar. As a result, we expect fourth quarter Canadian operating margins to be consistent with the third quarter. Canadian demand is expected to be robust for the balance of 2011 and into 2012 and we continue to expect pricing and operating margins to remain strong after capacity additions from 2011 capital budgets have entered the Canadian market.

US Operations

Despite the recent global economic uncertainty and declines in oil prices, we believe the economics of key oil and liquids-rich gas plays in the U.S. remain strong and we expect overall U.S. industry demand to be led by these plays if oil prices remain at or near current levels. However, if oil prices substantially fall, cash flows for many of our customers will likely be reduced and a decrease in oil and liquids-rich gas play activity is likely to occur. In addition, we expect a continuation of the decline in activity and pricing pressure in dry gas regions such as the Haynesville and Barnett. However, we expect our long-term contracts to keep utilization levels steady in all of our areas of operation through the end of 2012 even if a reduction in activity occurs.

We expect to add three new fracturing crews to our U.S. operations during the fourth quarter of 2011. One new crew began operating in the Eagle Ford play in October and we expect to add new crews in the Oklahoma and Permian regions by the end of 2011. We will also continue to expand our cementing, coiled tubing, nitrogen and acidizing service lines in the U.S. in the fourth quarter of 2011 and into 2012. Our strategy is to expand into all major oil and gas plays in the U.S. and increase our market share across all of our service lines. We will continue to monitor commodity prices, U.S rig count, and the capital budgets of our customers in light of the recent global economic uncertainty. However, we currently expect to execute on these growth initiatives in order to position ourselves for long-term growth in the U.S. market.

We expect U.S pricing to remain stable throughout the remainder of 2011 with any declines in dry gas regions offset by increases in oil and liquids-rich gas plays.

Russian Operations

Financial results for our Russian operations in 2011 have been consistent with expectations. Increases in activity levels and pricing have been offset by cost increases, which has resulted in operating income and margins that are comparable to 2010. In the fourth quarter of 2011, we expect the typical seasonal slowdown in activity due to colder temperatures combined with the completion of our customers work programs for 2011. We expect this to result in lower revenue and operating margins compared to the third quarter of 2011.

Contracts for 2012 work are currently being tendered and we expect to have greater visibility on our 2012 outlook in Russia by the end of the fourth quarter.

SUMMARY OF QUARTERLY RESULTS

($ millions, except per share amounts; unaudited)
2011 2010 2009*
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Revenue 659.1 421.7 534.6 434.3 407.8 306.3 330.0 219.9 188.4
Net income/(loss) 111.3 30.1 82.4 55.6 53.3 8.9 32.5 14.7 (7.4 )
Earnings/(loss) per share
Basic 0.76 0.21 0.57 0.39 0.38 0.07 0.26 0.12 (0.06 )
Diluted 0.75 0.21 0.56 0.38 0.38 0.06 0.26 0.12 (0.06 )

*2009 results have been presented in accordance with Canadian GAAP

NON-IFRS DISCLOSURE

Adjusted net income, 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 and funds provided by operations have been reconciled to net income 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.

Three months ended Nine months ended
Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30,
2011 2010 2011 2011 2010
Adjusted net income 114,352 57,043 33,328 233,141 103,901
Deduct:
Non-cash stock-based compensation expense 3,088 3,737 3,252 9,375 9,140
Net income (IFRS financial measure) 111,264 53,306 30,076 223,766 94,761
Three months ended Nine months ended
Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30,
2011 2010 2011 2011 2010
Funds provided by operations 174,284 107,067 60,912 376,895 211,982
Charges to income not involving cash
Depreciation and amortization 31,474 30,249 28,554 90,133 81,736
Stock-based compensation 3,088 3,737 3,252 9,375 9,140
Loss/ (gain) on disposal of property and equipment (1,075 ) (18 ) 3 (1,047 ) (38 )
Gain on revaluation of deferred consideration - - - - (22 )
Unrealized foreign exchange (gain)/loss 98 (1,688 ) (992 ) (884 ) (879 )
Income tax expense 46,434 21,684 15,437 94,726 38,126
Income tax paid (16,999 ) (203 ) (15,418 ) (39,174 ) (10,842 )
Net income (IFRS financial measure) 111,264 53,306 30,076 223,766 94,761
Three months ended Nine months ended
Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30,
2011 2010 2011 2011 2010
Operating income 193,620 107,403 78,277 417,229 222,633
Add:
Administrative expenses 25,814 19,491 25,552 77,116 50,208
Deduct:
Depreciation expense (31,474 ) (30,249 ) (28,554 ) (90,133 ) (81,736 )
Gross profit (IFRS financial measure) 187,960 96,645 75,275 404,212 191,105

FORWARD-LOOKING STATEMENTS

This document contains statements that constitute forward-looking statements within the meaning of applicable securities legislation. These forward-looking statements are identified by the use of terms and phrases such as "anticipate," "achieve", "achievable," "believe," "estimate," "expect," "intend", "plan", "planned", and other similar terms and phrases. These statements speak only as of the date of this document and we do not undertake to publicly update these forward-looking statements except in accordance with applicable securities laws. These forward-looking statements include, among others:

  • expectation that activity levels in the Canadian geographic region will remain strong;
  • expectation that the strong demand levels in the Eagle Ford will remain strong for the balance of 2011 and into 2012;
  • expectation of seeing growth for our U.S. operations during the fourth quarter with the addition of three new fracturing crews and expansion of our cementing, coiled tubing, nitrogen and acidizing operations;
  • expectation that approximately $265 million of capital commitments remain to be spent relating to the 2011 budget;.
  • expectation that Trican's 2012 capital budget will be $678 million and includes $216 million in commitments that are necessary to ensure timely construction of the equipment required to execute on Trican's 2012 growth plans;
  • expectation that the international capital expenditures will be directed towards growth opportunities in new international markets, including Saudi Arabia and Australia;
  • expectation that North American demand for pressure pumping will remain strong for the balance of 2011 and the first half of 2012;
  • expectation that we can quickly reduce our capital and operating expenditures if necessary;
  • expectation that the Canadian pressure pumping market is currently undersupplied and will continue to be after capacity additions from 2011 capital budgets have entered the Canadian market;
  • expectation that Canadian activity levels and pressure pumping demand will increase slightly in 2012;
  • expectation of adding two additional fracturing crews to our Canadian fleet during the fourth quarter;
  • expectation of adding capacity to our cementing, nitrogen and acidizing service lines in the U.S. by the end of 2011;
  • expectation that Canadian pricing will increase moderately in the fourth quarter and be offset by increases to key input costs such as acid, sand and guar;
  • expectation that fourth quarter Canadian operating margins will be consistent with the third quarter;
  • expectation that Canadian demand will be robust for the balance of 2011 and into 2012;
  • expectation that pricing and operating margins will remain strong after capacity additions from 2011 capital budgets have entered the Canadian market;
  • expectation that the economics of key oil and liquids-rich gas plays in the U.S. will remain strong and we expect overall U.S. industry demand to be led by these plays if oil prices remain at or near current levels;
  • expectation that if oil prices substantially fall, cash flows for many our customers will likely be reduced and a decrease in oil and liquids-rich gas play activity is likely to occur;
  • expectation of a continuation in activity declines and pricing pressure in dry gas regions such as the Haynesville and Barnett;
  • expectation that our long-term contracts will keep utilization levels steady in all of our areas of operation through the end of 2012 even if a reduction in activity occurs;
  • expectation to add three new fracturing crews to our U.S. operations during the fourth quarter of 2011;
  • expectation to add new crews in the Oklahoma and Permian regions by the end of 2011;
  • expectation to execute on U.S. growth initiatives in order to position ourselves for long-term growth in the U.S. market;
  • expectation that U.S pricing will remain stable throughout the remainder of 2011 with any declines in dry gas regions offset by increases in oil and liquids-rich gas plays;
  • expectation off the typical seasonal slowdown in fourth quarter Russian activity due to colder temperatures combined with the completion of our customers work programs for 2011;
  • expectation of lower revenue and operating margins in the fourth quarter for our Russian operations compared to the third quarter of 2011;
  • expectation that we will have greater visibility on our 2012 outlook in Russia by the end of the fourth quarter.

Forward-looking statements are based on current expectations, estimates, projections and assumptions, which we believe are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: industry activity; the general stability of the economic and political environment; effect of market conditions on demand for the Company's products and services; the ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability to operate its business in a safe, efficient and effective manner; the performance and characteristics of various business segments; the effect of current plans; the timing and costs of capital expenditures; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its products and services.

Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks and uncertainties include: fluctuating prices for crude oil and natural gas; changes in drilling activity; general global economic, political and business conditions; weather conditions; regulatory changes; the successful exploitation and integration of technology; customer acceptance of technology; success in obtaining issued patents; the potential development of competing technologies by market competitors; and availability of products, qualified personnel, manufacturing capacity and raw materials. In addition, actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth under the section entitled "Business Risks" in this document.

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
September 30, December 31,
(Stated in thousands; unaudited) 2011 2010
ASSETS
Current assets
Cash and cash equivalents$138,963 $81,058
Trade and other receivables 601,937 364,986
Current tax assets 5,316 6,046
Inventory 160,459 106,607
Prepaid expenses 30,672 9,257
937,347 567,954
Property and equipment (note 4) 1,054,049 700,230
Intangible assets 16,493 20,816
Deferred tax assets 42,041 74,330
Other assets 9,227 13,115
Goodwill 43,481 36,916
$2,102,638 $1,413,361
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade and other payables$284,417 $209,305
Contingent consideration 2,369 -
Current tax liabilities - 22
286,786 209,327
Loans and borrowings (note 5) 431,361 106,627
Deferred tax liabilities 119,245 98,006
Shareholders' equity
Share capital (note 6) 527,967 486,594
Contributed surplus 43,044 42,919
Accumulated other comprehensive income (11,659) (19,273)
Retained earnings 705,664 489,161
Total equity attributable to equity holders of the Company 1,265,016 999,401
Non-controlling interest 230 -
$2,102,638 $1,413,361

See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Months Three Months Nine Months Nine Months
Ended Sept 30, Ended Sept 30, Ended Sept 30, Ended Sept 30,
(Stated in thousands, except per share amounts; unaudited) 2011 2010 2011 2010
Revenue$659,104 $407,765 $1,615,433 $1,044,074
Cost of sales 471,144 311,120 1,211,221 852,969
Gross profit 187,960 96,645 404,212 191,105
Administrative expenses 25,814 19,491 77,116 50,208
Other income (536) (325) (2,256) (397)
Results from operating activities 162,682 77,479 329,352 141,294
Finance income (1,001) (593) (2,324) (2,204)
Finance costs 6,057 1,998 13,484 6,905
Foreign exchange (gain)/loss (72) 1,085 (300) 3,706
Profit before income tax 157,698 74,989 318,492 132,887
Income tax expense (note 9) 46,434 21,683 94,726 38,126
Profit for the period$111,264 $53,306 $223,766 $94,761
Other comprehensive income
Unrealized gain on hedging instruments (522) - (1,069) -
Foreign currency translation differences 13,000 (3,888) 8,667 (6,201)
Total comprehensive income for the year$123,742 $49,418 $231,364 $88,560
Profit / (loss) attributable to:
Owners of the Company 111,284 53,306 223,786 94,761
Non-controlling interest (20) - (20) -
Profit for the period$111,264 $53,306 $223,766 $94,761
Total comprehensive income attributable to:
Owners of the Company 123,778 49,418 231,400 88,580
Non- Controlling interest (36) - (36) (20)
Total comprehensive income for the period$123,742 $49,418 $231,364 $88,560
Earnings per share (note 7)
Basic$0.76 $0.38 $1.54 $0.70
Diluted$0.75 $0.38 $1.52 $0.69
Weighted average shares outstanding - basic 146,299 143,460 145,482 135,247
Weighted average shares outstanding - diluted 147,866 144,116 147,261 136,361

See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Stated in thousands; unaudited) Share capital Contributed surplus Accumulated other comprehensive income Retained earnings Total Non Controlling Interest Total Equity
Balance at January 1, 2010$246,854$32,811 $- $358,723 $638,388 $296 $638,684
Profit or loss for the period - - - 94,761 94,761 - 94,761
Foreign currency translation differences - - (6,541) - (6,541) - (6,541)
Dividends to equity holders ($0.05 per share) - - - (7,171) (7,171) - (7,171)
Share-based payment transactions - 9,140 - - 9,140 - 9,140
Share options exercised 261 (29) - - 232 - 232
Issuance out of treasury for deferred consideration 693 - - - 693 - 693
Issuance of shares 222,780 - - - 222,780 - 222,780
Acquisition of non-controlling interest - - - (5,522) (5,522) (296) (5,818)
Balance at September 30, 2010$470,588$41,922 $(6,541)$440,791 $946,760 $- $946,760
Balance at December 31, 2010$486,594$42,919 $(19,273)$489,161 $999,401 $- $999,401
Profit or loss for the period - - - 223,786 223,786 (20) 223,766
Foreign currency translation differences - - 8,683 - 8,683 (16) 8,667
Dividends to equity holders ($0.05 per share) - - - (7,283) (7,283) - (7,283)
Share-based payment transactions - 9,375 - - 9,375 - 9,375
Share options exercised 41,373 (9,250) - - 32,123 - 32,123
Unrealized gain on cash flow hedge - - (1,069) - (1,069) - (1,069)
Investment in subsidiary - - - - - 266 266
Balance at September 30, 2011$527,967$43,044 $(11,659)$705,664 $1,265,016 $230 $1,265,246
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Three Months Nine Months Nine Months
(Stated in thousands; unaudited) Ended Sept 30, 2011 Ended Sept 30, 2010 Ended Sept 30, 2011 Ended Sept 30, 2010
Cash Provided By/ (Used In):
Operations
Profit for the period$111,264 $53,306 $223,766 $94,761
Charges to income not involving cash:
Depreciation and amortization 31,474 30,249 90,133 81,736
Amortization of debt issue costs 173 - 173 -
Stock-based compensation 3,088 3,737 9,375 9,140
Gain on disposal of property and equipment (1,075) (18) (1,047) (38)
Net finance costs 5,056 - 11,160 -
Gain on revaluation of deferred consideration - - - (22)
Unrealized foreign exchange loss 98 (1,688) (884) (879)
Income tax expense 46,434 21,684 94,726 38,126
196,512 107,269 427,402 222,824
Change in inventories (14,050) (3,147) (50,830) (7,316)
Change in trade and other receivables (223,218) (87,275) (226,349) (183,487)
Change in prepayments (14,592) 713 (20,096) (1,245)
Change in trade and other payables 66,625 25,801 73,466 89,022
Cash generated from operating activities 11,277 43,362 203,593 119,797
Interest paid (2,575) (1,949) (4,659) (6,805)
Income tax paid (16,999) (203) (39,174) (10,842)
(8,297) 41,210 159,761 102,150
Investing
Interest received 311 676 1,462 1,993
Purchase of property and equipment (150,120) (80,362) (411,336) (198,152)
Proceeds from the sale of property and equipment 1,941 108 2,428 271
Payments received on loan to an unrelated third party 1,714 (663) 4,425 1,978
Business acquisitions (9,372) - (9,372) (5,818)
Net change in non-cash working capital from investing activities (7,844) 11,417 (4,309) (2,844)
(163,370) (68,824) (416,702) (202,572)
Financing
Net proceeds from issuance of share capital 16,882 (147) 32,123 220,440
Issuance (repayment) of bank loans - (932) - (28,093)
Issuance (repayment) of long-term debt, net of financing fees - 1,198 295,824 (41,597)
Dividend paid (7,284) (7,171) (14,516) (13,453)
9,598 (7,052) 313,431 137,297
Effect of exchange rate changes on cash 2,392 (338) 1,415 (517)
Increase / (decrease) in cash and cash equivalents (159,677) (35,004) 57,905 36,358
Cash and cash equivalents, beginning of period 298,640 97,451 81,058 26,089
Cash and cash equivalents, end of period$138,963 $62,447 $138,963 $62,447

See accompanying notes to the consolidated financial statements.

Selected Notes for the periods ended September 30, 2011 and 2010

NOTE 3 – ACQUISITION

Effective July 8, 2011 Trican acquired all of the outstanding shares and units of Viking Energy Pty Ltd., Viking Energy PNG, Viking Energy Unit Trust, and Thor Laboratories Pty Ltd. (collectively "Viking") for a purchase price of $11.7 million, which includes a $2.4 million performance contingency payment. All Viking's earnings have been included in Trican's consolidated statement of comprehensive income since July 8, 2011. Costs related to the acquisition have been expensed into the consolidated statement of comprehensive income as incurred.

The acquisition has been accounted for as follows:

(Stated in thousands) September 30, 2011
Acquired net assets:
Property and equipment$5,495
Goodwill 6,565
Working capital deficiency (319)
11,741
Financed as follows:
Cash$9,372
Contingent consideration 2,369
11,741

NOTE 4 – PROPERTY AND EQUIPMENT

Included within property and equipment are assets held under finance lease with a gross value of $29.5 million (December 31, 2010 - $18.5 million) and accumulated depreciation of $8.4 million (December 31, 2010 - $5.4 million).

NOTE 5 – LOANS AND BORROWINGS

Bank loans

The Company's Russian subsidiary has a U.S.$20 million (Canadian equivalent of $20.8 million) demand revolving facility with a large international bank. This facility is unsecured, bears interest at LIBOR plus a premium, as determined by the bank, plus 2.75% and has been guaranteed by the Company. As at September 30, 2011 there was nothing drawn on this facility (December 31, 2010, nil).

Long term debt

(Stated in thousands) September 30, 2011 December 31, 2010
Notes payable$421,706 $99,460
Finance lease obligations 17,144 7,167
Revolving credit facility - -
Hedge receivable (note 8) (7,489) -
$431,361 $106,627

On October 18, 2011, Trican entered into a new $450 million four year extendible revolving credit facility (the "New Facility") with a syndicate of banks. The New facility, which replaced the previous $250 million three year extendible 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. The New Facility requires Trican to comply with certain financial and non-financial covenants that are typical for this type of arrangement.

During the first quarter of 2011, the Company replaced its existing Revolving Credit Facility with a new syndicated CAD $250 million three year extendible Revolving Credit Facility. This facility was unsecured and bore interest at Canadian prime rate, U.S. prime rate, Banker's Acceptance rate or at LIBOR plus 125 to 375 basis points, dependent on certain financial ratios of the Company. This facility was replaced by the New Facility, as discussed above.

Notes payable

On April 28, 2011 the Company closed a private placement of Senior Unsecured Notes (the "Notes") that will rank equally with the Company's bank facilities and other outstanding senior notes. The following outlines the terms of the new Notes:

  • Canadian $45 million Series C Senior Notes maturing April 28, 2016, bearing interest at a fixed rate of 5.22% payable semi-annually on April 28 and October 28;
  • Canadian $15 million Series D Senior Notes maturing April 28, 2021, bearing interest at a fixed rate of 6.11% payable semi-annually on April 28 and October 28;
  • U.S. $65 million Series E Senior Notes maturing April 28, 2016, bearing interest at a fixed rate of 4.61% payable semi-annually on April 28 and October 28;
  • U.S. $80 million Series F Senior Notes maturing April 28, 2018, bearing interest at a fixed rate of 5.29% payable semi-annually on April 28 and October 28; and
  • U.S. $105 million Series G Senior Notes maturing April 28, 2021, bearing interest at a fixed rate of 5.90% payable semi-annually on April 28 and October 28.

On June 21, 2007, the Company entered into an agreement with institutional investors in the U.S. providing for the issuance, by way of private placement of U.S. $100 million of Senior Unsecured Notes (the "Notes") in two tranches:

  • U.S. $25 million Series A Senior Notes maturing June 22, 2012, bearing interest at a fixed rate of 6.02% payable semi-annually on June 22 and December 22; and
  • U.S. $75 million Series B Senior Notes maturing June 22, 2014, bearing interest at a fixed rate of 6.10% payable semi-annually on June 22 and December 22.

The Notes require the Company to comply with certain financial and non-financial covenants that are typical for this type of arrangement. At September 30, 2011, the Company was in compliance with these covenants.

NOTE 6 - SHARE CAPITAL

Authorized:

The Company is authorized to issue an unlimited number of common shares and preferred shares, issuable in series.

The shares have no par value and all issued shares are fully paid.


Issued and Outstanding - Common Shares:
(stated in thousands, except share amounts)Number of Shares Amount
Balance, December 31, 2010144,636,583$486,594
Exercise of share options2,072,978 32,337
Reclassification from contributed surplus on exercise of options- 9,036
Balance, September 30, 2011146,709,561$527,967

Securities convertible into common shares of the Company are as follows:

September 30, 2011December 31, 2010
Securities convertible into common shares:
Employee share options5,855,4116,700,864

NOTE 7 – EARNINGS PER SHARE
(Stated in thousands, except share and per share amounts)

Basic Earnings Per Share 2011 2010
Net income available to common shareholders$223,766$94,761
Weighted average number of common shares 145,482 135,247
Basic earnings per share$1.54$0.70
Diluted Earnings Per Share 2011 2010
Net income available to common shareholders$223,766$94,761
Weighted average number of common shares 145,482 135,247
Diluted effect of share options 1,779 1,114
Diluted weighted average number of common shares 147,261 136,361
Diluted earnings per share$1.52$0.69

NOTE 8 – FINANCIAL INSTRUMENTS

Market Risk

Foreign exchange rate risk
The Company is exposed to foreign currency exchange rate risk in Canada primarily related to its U.S. dollar denominated long term debt. During the year the Company entered into two cross currency swap contracts to manage the known currency exposure related to the long term debt. The cross currency swap contracts require the periodic exchange of payment with the exchange at maturity of notional principal amounts on which the payments are based. At September 30, 2011 the Company had the following cross currency swap contracts outstanding:

(Stated in thousands)

Maturity DateAmount (US$)Exchange rateInterest Rate (US$)Interest Rate (CAN$)
April 28, 201645,000 0.95154.61%5.69%
April 28, 201850,000 0.95125.29%6.14%

At September 30, 2011, the estimated fair value of the above risk management contracts was an asset of $7.5 million.

All cross currency swap derivative financial instruments were designated as cash flow hedges at September 30, 2011. For the nine month period ended September 30, 2011, there was no ineffective portion of the hedging relationship included in profit and loss.
Credit Risk

Counterparties

Counterparties to financial instruments expose the Company to credit losses in the event of non-performance. Counterparties to cash transactions are limited to high credit quality financial institutions. The Company does not anticipate non-performance that would materially impact the Company's financial statements.

NOTE 9 - INCOME TAXES

(Stated in thousands)
Nine months ended
September 30, 2011 September 30, 2010
Current income tax expense$39,903$4,337
Deferred income tax expense 54,823 33,789
$94,726$38,126

The net income tax provision differs from that expected by applying the combined federal and provincial income tax rate of 26.64% (2010 – 28.21%) to income before income taxes for the following reasons:

Nine months ended September 30, 2011 September 30, 2010
Expected combined federal and provincial income tax$84,847 $37,493
Statutory and other rate differences 6,905 (2,964)
Non-deductible expenses 6,018 4,464
Translation of foreign subsidiaries 15 589
Changes to deferred income tax rates (3,925) (2,138)
Capital and other foreign tax 608 138
Other 258 544
$94,726 $38,126

NOTE 11 – OPERATING SEGMENTS

The Company operates in three main geographic regions: Canada, Russia (which includes Australia, Kazakhstan and Algeria), and the U.S. Each geographic region has a General Manager ("GM") that is responsible for the operation and strategy of their region's business. Personnel working within the particular geographic region report to the GM; the GM reports to the corporate executive.

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

  • Canadian Operations provides cementing, fracturing, coiled tubing, nitrogen, geological, and acidizing services, which are performed on new and existing oil and gas wells, and industrial services.
  • U.S. Operations provides fracturing, cementing, nitrogen and acidizing services which are performed on new and existing oil and gas wells.
  • Russian Operations provides cementing, fracturing, deep coiled tubing, nitrogen and acidizing services which are performed on new and existing oil and gas wells.
(Stated in thousands) Canadian Operations United States Operations Russian Operations(1) Corporate Total
Three months ended September 30, 2011
Revenue$371,481$207,288$80,335 $- $659,104
Gross profit/(loss) 145,635 42,181 6,009 (5,865) 187,960
Finance Costs - - - (6,057) (6,057)
Depreciation and amortization 10,472 14,937 5,882 183 31,474
Assets 834,635 791,171 246,901 229,931 2,102,638
Goodwill 22,690 - 20,791 - 43,481
Property and equipment 439,123 514,796 90,410 9,720 1,054,049
Capital expenditures 53,076 93,354 3,110 580 150,120
Goodwill expenditures - - 6,565 - 6,565
Three months ended September 30, 2010
Revenue$237,605$99,217$70,943 $- $407,765
Gross profit/(loss) 81,303 12,808 6,469 (3,935) 96,645
Finance Costs - - - (1,998) (1,998)
Depreciation and amortization 12,668 5,367 12,134 80 30,249
Assets 619,120 401,064 230,855 87,689 1,338,728
Goodwill 22,690 - 14,226 - 36,916
Property and equipment 356,716 198,365 97,413 2,548 655,042
Capital expenditures 31,238 45,861 2,435 828 80,362
(Stated in thousands) Canadian Operations United States Operations Russian Operations(1) Corporate Total
Nine months ended September 30, 2011
Revenue$865,663$523,244$226,526 $- $1,615,433
Gross profit/(loss) 292,074 113,148 15,059 (16,069) 404,212
Finance Costs - - - (13,484) (13,484)
Depreciation and amortization 32,716 39,378 17,551 488 90,133
Capital expenditures 123,806 273,704 12,303 1,523 411,336
Goodwill expenditures - - 6,565 - 6,565
Nine months ended September 30, 2010
Revenue$590,370$253,467$200,237 $- $1,044,074
Gross profit/(loss) 167,028 24,052 10,356 (10,331) 191,105
Finance Costs - - - (6,905) (6,905)
Depreciation and amortization 33,696 23,329 24,597 114 81,736
Capital expenditures 73,806 107,677 15,141 1,528 198,152
  1. Russian operations includes Trican's Australian operations as of July 8, 2011.

The Corporate division does not represent an operating segment and is included for informational purposes only. Corporate division expenses consist of salary expenses, share-based compensation and office costs related to corporate employees, as well as public company costs.

The Company will host a conference call on Wednesday, November 9, 2011 at 9:00 a.m. MT (11:00 a.m. ET) to discuss the Company's results for the Third Quarter 2011.

To listen to the webcast of the conference call, please enter: http://www.gowebcasting.com/2889 in your web browser or visit the Investor Information section of our website at www.trican.ca.

To participate in the Q&A session, please call the conference call operator at 1-866-223-7781 (North America) or 416-340-8018 (outside North America) 15 minutes prior to the call's start time and ask for the "Trican Well Service Ltd. – Third Quarter 2011 Conference Call".

A replay of the conference call will be available until November 16, 2011 by dialing 1-800-408-3053 (North America) or 905-694-9451 (outside North America). Playback passcode: 5257364.

The conference call will be archived on Trican's website at www.trican.ca.

Headquartered in Calgary, Alberta, Trican has operations in Canada, the United States, Russia, Kazakhstan, Australia and North Africa. 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 shareholder information should be directed to Dale Dusterhoft and Michael Baldwin.

Contact Information

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

    Trican Well Service Ltd.
    Michael Baldwin
    Vice President, Finance and Chief Financial Officer
    (403) 266-0202
    mbaldwin@trican.ca

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