Trican Reports Second Quarter Results for 2020

Source Company Press Release
Company Trican Well Service Ltd.
Tags Corporate: Corporate Results, Guidance, Overview/Strategy, Country: Canada, Financial - Costs & Metrics: Capital Expenditures
Date July 31, 2020

Trican Well Service Ltd. (TSX: TCW) ("Trican" or the "Company") is pleased to announce its second quarter results for 2020. The following news release should be read in conjunction with Management's Discussion and Analysis ("MD&A"), the unaudited interim consolidated financial statements and related notes of Trican for the three and six months ended June 30, 2020, as well as the Annual Information Form for the year ended December 31, 2019. All of these documents are available on SEDAR at  sedar.com.

HIGHLIGHTS

The negative impact of the COVID-19 health pandemic and the commodity price collapse (collectively "Market Events"), outlined in our April 6, 2020 news release and in our Q1 2020 MD&A continue to significantly affect the industry and the Company. Trican has adapted quickly to the changing market conditions, and we are confident that our resilient culture will carry the Company through these unprecedented times.

  • Financial position and liquidity:

    • Cash and cash equivalents of $26.4 million (December 31, 2019 - $7.2 million); 

    • Positive non-cash working capital of $47.8 million which includes $14.5 million of assets held for sale (December 31, 2019 - $132.6 million which includes $38.1 million of assets held for sale); 

    • Long-term loans and borrowings were fully repaid in Q2 2020 as a result of significant accounts receivable collections during Q2 (Long-term loans and borrowings at December 31, 2019 - $46.2 million);

  • Key cost and discretionary spending plan adjustments implemented in late March 2020 helped mitigate cash burn in the seasonally slow second quarter;

  • $5.0 million was recognized in relation to the Canada Emergency Wage Subsidy ("CEWS") as part of the federal government of Canada's response to the COVID-19 health pandemic.  If the CEWS was not available, the Corporation would have made more significant personnel reductions to mitigate second quarter negative financial results;

  • Planned capital expenditures have been and will continue to be limited to only necessary sustaining expenditures, estimated at less than 4% of revenue;

  • At June 30, 2020 the outstanding share balance was 264,726,435 which includes the repurchase and cancellation of 6,763,600 shares in 2020 at a weighted average price per share of $0.98 for the six months ended June 30, 2020, pursuant to its Normal Course Issuer Bid ("NCIB").

  • Consolidated revenue from continuing operations for Q2 2020 was $28.4 million, a $76.9 million decrease compared to Q2 2019.

  • Despite a 73% decline in the Company's revenue, the Company's net loss and negative adjusted EBITDA saw improvements, primarily due to cost reduction strategies implemented in late Q1 2020, efficiency improvements made through the last several quarters as part of our business optimization program, and government assistance programs relating to the COVID 19 pandemic. 

  • Net loss for Q2 2020 was $28.4 million (Q2 2019 - net loss of $28.6 million).

  • Adjusted EBITDA1 for Q2 2020 was negative $6.8 million, which includes recognition of $5.0 million from the CEWS program, and a $0.9 million recovery from previously impaired trade receivables that were collected during the quarter. The Company did not incur any expenses for severance nor stainless steel fluid end expenditures in Q2 2020.  Q2 2019 adjusted EBITDA was negative $15.1 million, which included $0.8 million of severance costs and $3.2 million in expenses for stainless steel fluid ends1.

  • The sale of surplus assets in Q2 2020 generated $2.1 million (Q2 2019 - $11.8 million) in proceeds which provided additional liquidity and allowed for continued investment in our core business and NCIB program.

CONTINUING OPERATIONS - FINANCIAL REVIEW

($ millions, except per share amounts; total proppant pumped (thousands); internally sourced proppant pumped (thousands); total job count; and HHP(thousands))  Three months ended    Six months ended 
($ millions, unaudited)  June 30, 2020  June 30, 2019  March 31, 2020    June 30, 2020  June 30, 2019 
Revenue  $28.4  $105.2  $191.8    $220.2  $342.8 
Gross (loss) / profit  (29.4)  (36.3)  3.8    (25.6)  (26.7) 
Adjusted EBITDA1  (6.8)  (15.1)  9.5    2.7  11.3 
Net loss  (28.4)  (28.6)  (155.0)    (183.5)  (35.2) 
   Net loss per share - basic  ($0.11)  ($0.10)  ($0.58)    ($0.69)  ($0.12) 
   Net loss per share - diluted  ($0.11)  ($0.10)  ($0.58)    ($0.69)  ($0.12) 
Total proppant pumped (tonnes)  50  138  285    335  470 
Internally sourced proppant pumped (tonnes)  33  138  285    318  470 
Total job count 2  293  1,150  2,665    2,958  3,834 
Hydraulic Pumping Capacity  569  593  572    569  593 
Active crewed HHP  166  347  321    166  347 
Active, maintenance/not crewed HHP  172  235  69    172  235 
Parked HHP  231  11  182    231  11 

2 Effective Q1 2020, the Company has adopted a new methodology for calculating job count. Comparative periods have been updated to reflect the change in methodology.

($ millions)  As at June 30, 2020    As at December 31, 2019   
Cash and cash equivalents  $26.4    $7.2   
Current assets - other  $81.8    $225.5   
Current portion of lease liabilities  $4.6    $4.5   
Current liabilities - other  $28.9    $88.4   
Lease liabilities - non-current portion  $13.8    $15.0   
Long-term loans and borrowings  $-    $46.2   
Total assets  $614.9    $926.5   

Second Quarter 2020 vs First Quarter 2020 Sequential Overview

Revenue in the second quarter of 2020 decreased 85.2% compared to the first quarter of 2020. Activity levels decreased significantly due to the normal spring break-up slowdown, combined with the significant drop in commodity prices, as the COVID-19 pandemic severely impacted demand for oil and gas products. Oil prices were hit particularly hard, with average pricing for WTI and WCS down 39% and 30% respectively, in the second quarter, relative to the first quarter. Gas prices were more resilient, with the WCSB benchmark AECO gas price staying flat against the first quarter. Market Events sharply curtailed customer activity, with total second quarter job count dropping to 253 from 2,665 in the first quarter. Trican responded to this extraordinary downturn by taking quick action to park much of our equipment that was active during Q1 2020, and also significantly reducing our costs.

The Company reduced the number of active Fracturing crews from eight in the first quarter to two in the second quarter. Typical seasonal second quarter spring break-up conditions exacerbated the activity decline, driving average utilization on the remaining crews to 25% for the quarter, compared to 84% in the prior quarter. Proppant volumes declined from 285,000 tonnes in Q1 to 50,000 tonnes in Q2, and the Fracturing job count decreased similarly.

The WCSB rig count averaged only 22 rigs through the second quarter, down from an average of 207 rigs in the first quarter of 2020. Cementing activity is highly correlated with the rig count, resulting in a significant decline in activity in the second quarter of 2020. The Company reduced the active crew count from 20 in Q1 to 6 in Q2. The number of Coiled Tubing operating days dropped from 467 in Q1 to 96 in Q2, and the crew count was reduced from nine crews to three. Utilization of the remaining active Cementing and Coiled Tubing crews saw similar decline as our Fracturing crews.

Gross loss and negative adjusted EBITDA1 for the second quarter of 2020 were $29.4 million and $6.8 million respectively, compared to the Q1 2020 gross profit of $3.8 million, and adjusted EBITDA of $9.5 million, respectively. To partially mitigate significant revenue declines, the Company took action late in the first quarter to contain costs, slashing all non-essential spending and reducing personnel costs by approximately 50% through a combination of headcount reductions and compensation rollbacks. The Company's Q2 results include the recognition of $5.0 million in CEWS recoveries. The CEWS has mitigated further job losses and helped the Company retain critical personnel to support an eventual recovery in our business.

OUTLOOK

Customer Environment

Our Outlook is slightly improved from our First Quarter 2020 MD&A as Canadian commodity prices, and in particular prices for oil and natural gas liquids, have recovered from the lows experienced early in the second quarter. The Canadian Benchmark AECO natural gas prices remained resilient in the face of COVID-19 health pandemic, a result of enhancements to certain natural gas transmission lines and supply agreements, combined with expected declines in natural gas production that was a byproduct of shut-in oil production. The improved pricing for liquids and the lower differential on light oil has boosted our customer cash flows, but further recovery in demand is required before the global oversupply of oil can be brought back into balance and bring oil prices back to pre-COVID-19 levels.

Our customers have significantly reduced capital expenditure plans and we anticipate they will only increase spending if oil prices remain stable and global economic activity improves. Although the relative stability in natural gas prices and improved economics of liquids rich gas wells is cushioning some of the oil related activity drop, we continue to anticipate that industry activity will drop by approximately 60% in the second half of the year. Our Hydraulic Fracturing crew count will be three crews, as compared to eight in the first quarter, and our Cement and Coiled Tubing active equipment has also been reduced by similar levels. We will continue to monitor our clients' plans going forward and will adjust our active and staffed fleet to accommodate future changes.

Q3 2020 Activity

Wet weather at the start of the quarter along with continued uncertainty surrounding the COVID-19 health pandemic modestly delayed the recommencement of drilling and completions activity, and as a result the WCSB rig count is up only modestly from the record lows touched in the second quarter. The rig count increased in the second half of July, and we anticipate that it will remain at these levels until September. This increase is driving a sequential increase in operating activity but still down significantly on a year-over-year perspective. We are managing our fleet utilization carefully, and will not sacrifice pricing to gain market share. The pressure pumping industry has brought world class efficiency to the WCSB and we must generate an adequate return on these investments to ensure the long-term sustainability of the sector. We will keep our costs in line with market conditions and manage our capital spending prudently, preserving our best-in-class balance sheet strength.

The Company is pleased that the Government of Canada has indicated that the CEWS will be extended to December 2020 which will help maintain employment levels to support the Company's business. The Company has also submitted applications to the respective provincial government agencies managing the distribution of funds for the remediation of orphan and inactive wells, and is cautiously optimistic that it will receive a base level of this remedial work to complement the primary cementing activity in its Cementing service line.

Capital Expenditures

Our capital expenditures for the six months ended June 30, 2020, of $7.5 million ($1.6 million during Q2 2020) have been focused primarily on maintenance and infrastructure projects, along with certain projects that brought immediate efficiencies and cost reductions. We fully funded these capital expenditures with $4.2 million of proceeds from the sale of surplus or obsolete assets as well as the sale of our Fluid Management business.

Our focus for 2020 will be to complete the projects already underway and limit additional expenditures to sustaining capital items. We have identified non-core real estate and obsolete or surplus equipment for disposal, and will be seeking out additional disposal opportunities provided we can earn a fair price on disposition.

COMPARATIVE QUARTERLY INCOME STATEMENTS

Continuing Operations

($ thousands, except total job count, and revenue per job1, unaudited)             
Three months ended  June 30, 2020  Percentage
of revenue 
June 30, 2019  Percentage
of revenue 
March 31, 2020  Percentage
of revenue 
             
Revenue  $28,370  100 %  $105,226  100 %  $191,794  100 % 
Cost of sales             
  Cost of sales - Other  29,901  105 %  111,385  106 %  159,814  83 % 
  Cost of sales - Depreciation and amortization  27,866  98 %  30,140  29 %  28,230  15 % 
  Gross (loss) / profit  (29,397)  (104) %  (36,299)  (34) %  3,750  2 % 
  Administrative expenses - Other  6,686  24 %  9,969  9 %  12,504  7 % 
  Administrative expenses - Depreciation  1,303  5 %  1,562  1 %  1,335  1 % 
  Impairment - Non-financial assets  - %  - %  141,065  74 % 
  Impairment / (recovery) - Trade receivables  (891)  (3) %  35  - %  10,573  6 % 
  Other income  (821)  (3) %  (2,712)  (3) %  (218)  - % 
Results from operating activities  (35,674)  (126) %  (45,153)  (43) %  (161,509)  (84) % 
  Finance costs  775  3 %  1,151  1 %  1,127  1 % 
  Foreign exchange loss / (gain)  98  - %  250  - %  (184)  - % 
Loss before income tax  (36,547)  (129) %  (46,554)  (44) %  (162,452)  (85) % 
Income tax recovery  (7,959)  (28) %  (18,597)  (18) %  (7,972)  (4) % 
Loss from continuing operations  ($28,588)  (101) %  ($27,957)  (27) %  ($154,480)  (81) % 
Adjusted EBITDA1  ($6,834)  (24) %  ($15,085)  (14) %  $9,533  5 % 
Total job count2  293    1,150    2,665   
Revenue per job1  96,823    84,818    70,620   
Total proppant pumped (tonnes)  50,000    138,000    285,000   

2 Effective Q1 2020, the Company has adopted a new methodology for calculating job count. Comparative periods have been updated to reflect the change in methodology.

Sales Mix

Three months ended (unaudited)  June 30, 2020  June 30, 2019  March 31, 2020 
% of Total Revenue       
Fracturing  62 %  64 %  73 % 
Cementing  19 %  18 %  17 % 
Coiled Tubing  14 %  6 %  8 % 
Fluid Management  - %  5 %  - % 
Industrial Services  3 %  4 %  2 % 
Other  2 %  3 %  - % 
Total  100 %  100 %  100 % 

COMPARATIVE YEAR-TO-DATE INCOME STATEMENTS

Continuing Operations

($ thousands, except total job count, and revenue per job1, unaudited)             
Six months ended  June 30, 2020  Percentage
of revenue 
June 30, 2019  Percentage
of revenue 
Year-over year change  Percentage
change 
             
Revenue  $220,164  100 %  $342,820  100 %  ($122,656)  (36) % 
Cost of sales             
  Cost of sales - Other  189,715  86 %  310,107  90 %  (120,392)  (39) % 
  Cost of sales - Depreciation and amortization  56,096  25 %  59,451  17 %  (3,355)  (6) % 
  Gross (loss) / profit  (25,647)  (12) %  (26,738)  (8) %  1,091  (4) % 
  Administrative expenses - Other  19,190  9 %  23,419  7 %  (4,229)  (18) % 
  Administrative expenses - Depreciation  2,638  1 %  2,967  1 %  (329)  (11) % 
  Impairment - Non-financial assets  141,065  64 %  - %  141,065  100 % 
  Impairment - Trade receivables  9,682  4 %  312  - %  9,370  3,003 % 
  Other income  (1,039)  - %  (4,644)  (1) %  3,605  (78) % 
Results from operating activities  (197,183)  (90) %  (48,792)  (14) %  (148,391)  304 % 
  Finance costs  1,902  1 %  2,475  1 %  (573)  (23) % 
  Foreign exchange (gain) / loss  (86)  - %  325  - %  (411)  (126) % 
Loss before income tax  (198,999)  (90) %  (51,592)  (15) %  (147,407)  286 % 
Income tax recovery  (15,931)  (7) %  (19,540)  (6) %  3,609  (18) % 
Loss from continuing operations  ($183,068)  (83) %  ($32,052)  (9) %  ($151,016)  471 % 
Adjusted EBITDA1  $2,699  1 %  $11,340  3 %  ($8,641)  (76) % 
Total job count  2,958    3,834       
Revenue per job1  73,215    86,429       
Total proppant pumped (tonnes)  335,000    470,000       

2 Effective Q1 2020, the Company has adopted a new methodology for calculating job count. Comparative periods have been updated to reflect the change in methodology.

Sales Mix

Six months ended (unaudited)  June 30, 2020  June 30, 2019 
% of Total Revenue     
Fracturing  72 %  72 % 
Cementing  17 %  15 % 
Coiled Tubing  9 %  6 % 
Fluid Management  - %  4 % 
Industrial Services  1 %  1 % 
Other  1 %  2 % 
Total  100 %  100 %

 

CONFERENCE CALL AND WEBCAST DETAILS

The Company will host a conference call on Thursday, July 31, 2020 at 9:00 a.m. MT (11:00 p.m. ET) to discuss the Company's results for the 2020 Second Quarter.

To listen to the webcast of the conference call, please enter the following URL in your web browser: gowebcasting.com.

You can also visit the Investors section of our website at tricanwellservice.com and click on "Reports".

To participate in the Q&A session, please call the conference call operator at 1-800-319-4610 (North America) or 1-403-351-0324 (outside North America) 10 minutes prior to the call's start time and ask for the "Trican Well Service Ltd. Second Quarter 2020 Earnings Results Conference Call".

The conference call will be archived on Trican's website at tricanwellservice.com.

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