GASFRAC Energy Services Inc. (TSX:GFS) -
COMPARATIVE ANNUAL FINANCIAL INFORMATION
December 31 December 31 December 31
2013 2012 2011
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CAD$ CAD$ CAD$
Revenue 121,823 149,442 161,363(2)
Operating expenses 96,555 127,673 127,821
Selling, general and administrative
expenses 18,489 22,487 17,405
Adjusted EBITDA(1) 7,943 566 13,346
(Loss) for the period (24,429) (77,469) (2,853)
(Loss) per share - basic (0.38) (1.23) (0.05)
(Loss) per share - diluted (0.38) (1.23) (0.05)
Weighted average number of shares -
basic 63,550 62,886 61,469
Total assets 242,797 275,456 322,508
Total non-current liabilities 35,026 63,077 23,305
Revenue days 235 321 282
Revenue per revenue day 518 466 499
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(1) Defined under Non-IFRS Measures
(2) 2011 revenue included a $20.9 million sale of materials to a customer
OVERVIEW OF THE YEAR ENDED DECEMBER 31, 2013
During the past year GASFRAC has achieved a number of notable milestones
designed to position the Company for successful achievement of field trials with
new customers in 2014, ultimately resulting in a broadened customer base.
-- Fixed costs reduced year over year by $10 million
-- Service delivery reliability improved to 98%
-- Hybrid LPG service delivery platform introduced
-- Enables pumping of more proppant per day, reducing time on location
and cost to customer
-- Initial engineered fluids system introduced
-- Enables recovery of frac fluid within production stream, providing
monetary recovery for customer
-- First horizontal fracture in "black oil" window of EagleFord formation
-- Enabled commercial production in an area where other techniques have
not shown success
-- Bank debt, net of cash, reduced to $16.6 million from $22.1 million
-- Superior safety record
-- Zero serious incidents, TRIF in top decile of industry
FINANCIAL OVERVIEW - FOR THE THREE MONTHS ENDED
December 31, 2013
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Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 22,837 100.0% 6,544 100.0% 29,381 100.0%
Cost of sales 13,446 58.9% 2,241 34.2% - 15,687 53.4%
Variable
operating costs 1,750 7.7% 964 14.7% - 2,714 9.2%
Fixed operating
costs 3,482 15.2% 1,932 29.5% - 5,414 18.4%
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Operating
expenses 18,678 81.8% 5,137 78.5% - 23,815 81.1%
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Selling, general
and
administration 3,484 15.3% 788 12.0% 493 4,765 16.2%
Number of revenue
days 34 10 44
Revenue per day 672 654 668
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December 31, 2012
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Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 33,660 100.0% 13,228 100.0% 46,888 100.0%
Cost of sales 17,263 51.3% 7,087 53.6% - 24,350 51.9%
Variable
operating costs 3,328 9.9% 1,223 9.2% - 4,551 9.7%
Fixed operating
costs 3,736 11.1% 2,708 20.4% - 6,444 13.7%
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Operating
expenses 24,327 72.3% 11,018 83.2% - 35,345 75.3%
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Selling, general
and
administration 2,721 8.1% 1,975 14.9% 844 5,540 11.8%
Number of revenue
days 79 27 106
Revenue per day 425 490 442
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Revenue
Revenue for the fourth quarter decreased 37.3% to $29.4 million from $46.9
million in the fourth quarter of 2012.
During the quarter, the company earned revenues from five customers with the top
three customers representing 96.7% of the total revenue. During the fourth
quarter of 2012, the top three customers represented 70.8% of the total revenue.
Canadian Operations
Fourth quarter revenue from the Canadian operations decreased 32.3% to $22.8
million from $33.7 million in the fourth quarter of 2012. The reduction reflects
fewer smaller oil companies utilizing the Company's services due to capital
constraints. The Canadian operations performed 34 revenue days in the fourth
quarter of 2013 with an average daily revenue of $672 compared to 79 revenue
days in the fourth quarter of 2012 with an average daily revenue of $425. The
increase in average daily revenue is due to the increase in the price and cost
of LPG.
During the quarter, revenue was generated from three customers. During the
fourth quarter of 2012, the top three customers represented 86.6% of the total
revenue.
U.S. Operations
Fourth quarter revenue from the U.S. operations decreased 50.8% to $6.5 million
from $13.2 million in the fourth quarter of 2012. U.S. operations produced 10
revenue days in the fourth quarter of 2013 with an average daily revenue of $654
compared to 27 revenue days in the fourth quarter of 2012 with an average daily
revenue of $490. The increase in average daily revenue is mainly due to an
increase in treatment size.
During the quarter, revenue was generated from two customers. During the fourth
quarter of 2012, the top three customers represented 96.4% of the total revenue.
Operating Expenses
Operating expenses consist of cost of sales (variable costs directly
attributable to a fracturing treatment), variable operating expenses (variable
costs not directly attributable to a fracturing treatment), and fixed operating
costs (costs that do not fluctuate with the Company's level of activity). During
the quarter, the Company's operating expenses decreased 32.6% to $23.8 million
(81.1% of revenue) from $35.3 million (75.3% of revenue) in the fourth quarter
of 2012.
As a percentage of revenue, cost of sales increased to 53.4% of revenue ($15.7
million) from 51.9% ($24.4 million) of revenue in the fourth quarter of 2012.
As a percentage of revenue, variable operating expenses decreased slightly to
9.2% of revenue ($2.7 million) from 9.7% of revenue ($4.6 million) of revenue in
the fourth quarter of 2012.
Fixed operating costs decreased 15.6% to $5.4 million in the fourth quarter of
2013 as compared to $6.4 million in the fourth quarter of 2012.
Canadian Operations
Total operating expenses for the quarter were $18.7 million (cost of sales -
$13.4 million, variable operating costs - $1.8 million and fixed operating costs
- $3.5 million) as compared to $24.3 million (cost of sales - $17.3 million,
variable operating costs - $3.3 million and fixed operating costs - $3.7
million) in the fourth quarter of 2012.
Cost of sales were 58.9% of revenue for the quarter as compared to 51.3% of
revenue in the fourth quarter of 2012. The increase in cost of sales as a
percentage of revenue was largely attributable to higher LPG margins during the
fourth quarter of 2012.
Variable operating expenses decreased to 7.7% of revenue ($1.8 million) from
9.9% of revenue ($3.3 million) in the fourth quarter of 2012. This was primarily
due to a decrease in repairs and maintenance expenses incurred in fourth quarter
2013. Fixed operating costs decreased to $3.5 million from $3.7 million in the
fourth quarter of 2012.
U.S. Operations
Total operating expenses for the quarter were $5.1 million (cost of sales - $2.2
million, variable operating costs - $1.0 million and fixed operating costs -
$1.9 million) as compared to $11.0 million (cost of sales - $7.1 million,
variable operating costs - $1.2 million and fixed operating costs - $2.7
million) in the fourth quarter of 2012.
Cost of sales for the quarter decreased to 34.2% of revenue from 53.6% of
revenue in the fourth quarter of 2012. The decrease in the cost of sales
reflects the direct purchase of fracturing fluid by the customer. This process
has the impact of reducing the Company's revenue and cost of sales by like
amounts and effectively decreasing cost of sales as expressed as a percentage of
revenue.
Variable operating expenses increased to 14.7% of revenue ($1.0 million) from
9.2% of revenue ($1.2 million) in the fourth quarter of 2012. Fixed operating
costs decreased to $1.9 million from $2.7 million in the fourth quarter of 2012.
Sales, General & Administrative ("SG&A") Expenses
For the fourth quarter, SG&A expenses decreased 12.7% to $4.8 million from $5.5
million in the fourth quarter of 2012. The decrease is primarily due to
decreased salaries and benefits associated with the reductions of the executive
and administrative staffing levels that occurred in 2012.
Impairment
The Company has determined that it has two Cash Generating Units (CGU). One CGU
is its Canadian operations and the second CGU is its US operations. During the
fourth quarter of 2013, the Company determined that the recoverable value of its
assets exceeded the carrying value of its assets and therefore no impairment was
required. During the fourth quarter of 2012, the Company determined that the
carrying values exceeded the recoverable values in both CGU's. A $20.0 million
impairment loss was recorded related to the Canadian CGU and $24.8 million
impairment loss was recorded related to the US CGU.
Net Gain (Loss) on the Disposition of Assets
During the fourth quarter of 2013, a $0.5 million gain was recorded on the sale
of property and equipment compared to a small loss in fourth quarter 2012. The
majority of the gain related to the sale of chemical and data vans.
Adjusted EBITDA
For the fourth quarter, Adjusted EBITDA decreased to $1.1 million from $7.7
million in the fourth quarter of 2012. The decrease in Adjusted EBITDA was the
result of revenue decreasing $17.5 million from $46.9 million in fourth quarter
2012 to $29.4 million in fourth quarter 2013.
Net Loss
For the fourth quarter of 2013, the net loss was $6.7 million compared to a net
loss of $48.5 million during the fourth quarter of 2012. The net loss in 2012 is
primarily due to the impairment of the assets in the Canadian and U.S. cash
generating units as well as an increase in depreciation due to the deployment of
additional frac equipment.
FINANCIAL OVERVIEW - FOR THE TWELVE MONTHS ENDED
December 31, 2013
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Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 92,879 100.0% 28,944 100.0% - 121,823 100.0%
Cost of sales 51,299 55.2% 10,267 35.5% - 61,566 50.5%
Variable
operating costs 8,502 9.2% 4,259 14.7% 12,761 10.5%
Fixed operating
costs 14,268 15.3% 7,960 27.5% - 22,228 18.2%
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Operating
expenses 74,069 79.6% 22,486 78.2% - 96,555 79.3%
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Selling, general
and
administration 11,579 12.5% 4,431 15.5% 2,479 18,489 15.2%
Number of revenue
days 177 58 235
Revenue per day 525 499 518
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December 31, 2012
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Canada U.S. Corporate Total
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CAD$ CAD$ CAD$ CAD$
Revenue 107,795 100.0% 41,647 100.0% - 149,442 100.0%
Cost of sales 54,272 50.3% 25,293 60.7% - 79,565 53.2%
Variable
operating costs 13,916 12.9% 6,147 14.8% 20,063 13.4%
Fixed operating
costs 17,441 16.2% 10,606 25.5% - 28,047 18.8%
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Operating
expenses 85,629 79.4% 42,046 101.0% - 127,673 85.4%
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Selling, general
and
administration 11,763 10.9% 5,644 13.6% 5,080 22,487 15.0%
Number of revenue
days 227 94 321
Revenue per day 475 443 466
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Revenue
Revenue decreased 18.5% to $121.8 million from $149.4 million in 2012. Revenue
per operating day increased to $518 from $466 in 2012.
The Company earned revenues from 14 customers with the top three customers
accounting for 87.3% of the Company's revenue. During 2012, the top three
customers accounted for 67.4% of the Company's revenue.
Canadian Operations
Canadian operations generated $92.9 million of revenue from 177 revenue days
with an average daily revenue of $525. In 2012, Canadian operations generated
$107.8 million of revenue from 227 revenue days at an average daily revenue of
$475. The increase in average daily revenue is due to more volume pumped per day
with operational efficiencies.
Revenue was earned from eight customers during the year with three of these
customers representing 93.2% of the total revenue. During 2012, the top three
customers from the Canadian operations accounted for 79.0% of the Company's
Canadian revenue.
U.S. Operations
U.S. operations generated $28.9 million of revenue from 58 revenue days at an
average revenue per operating day of $499. In 2012, the U.S. operations
generated $41.6 million of revenue from 94 revenue days at an average daily
revenue of $443.
Revenue was earned from six customers during the year with three of these
customers representing 97.2% of the total revenue earned from U.S. operations.
During 2012, the top three customers from the US operations accounted for 69.0%
of the Company's US revenue.
Operating Expenses
Operating expenses consist of cost of sales (variable costs directly
attributable to a fracturing treatment), variable operating expenses (variable
costs not directly attributable to a fracturing treatment), and fixed operating
costs (costs that do not fluctuate with the Company's level of activity). During
the year, the Company's operating expenses decreased 24.4% to $96.6 million
(79.3% of revenue) from $127.7 million (85.4% of revenue) in 2012.
As a percentage of revenue, cost of sales decreased to 50.5% of revenue ($61.6
million) from 53.2% ($79.6 million) of revenue in 2012.
As a percentage of revenue, variable operating expenses decreased to 10.5% of
revenue ($12.8 million) from 13.4% of revenue ($20.0 million) in 2012.
Fixed operating costs decreased 20.7% to $22.2 as compared to $28.0 million in 2012.
Canadian Operations
Total operating expenses for the year were $74.1 million (cost of sales - $51.3
million, variable operating costs - $8.5 million and fixed operating costs -
$14.3 million) as compared to $85.6 million (cost of sales - $54.3 million,
variable operating costs - $13.9 million and fixed operating costs - $17.4
million) in 2012.
Cost of sales were 55.2% of revenue for the year as compared to 50.3% of revenue
in 2012.
Variable operating expenses decreased to 9.2% of revenue ($8.5 million) from
12.9% of revenue ($13.9 million) in 2012. Fixed operating costs decreased to
$14.3 million from $17.4 million in 2012. The decrease in the variable operating
costs and fixed operating costs reflects the results of the initiative that the
Company undertook in September 2012 to bring the Company's cost structure into
alignment with the current revenue. This review resulted in a reduction of 25%
in US field and support staff and a 20% reduction in Canadian field and support
staff. Additional changes were made to reduce charges associated with
facilities, staff housing, insurance and other fixed costs.
U.S. Operations
Total operating expenses for the year were $22.5 million (cost of sales - $10.3
million, variable operating costs - $4.3 million and fixed operating costs -
$8.0 million) as compared to $41.6 million (cost of sales - $25.3 million,
variable operating costs - $6.1 million and fixed operating costs - $10.6
million) in 2012.
Cost of sales decreased to 35.5% of revenue from 60.7% of revenue in 2012. The
decrease in the cost of sales reflects the direct purchase of fracturing fluid
by the customer. This process has the impact of reducing the Company's revenue
and cost of sales by like amounts and effectively decreasing cost of sales as
expressed as a percentage of revenue.
Variable operating expenses remained constant at 14.7% of revenue ($4.3 million)
versus 14.8% of revenue ($6.1 million) in 2012. Fixed operating costs decreased
to $8.0 million from $10.6 million in 2012 as a result of headcount reductions.
Sales, General & Administrative ("SG&A") Expenses
SG&A expenses were $18.5 million compared to $22.5 million in 2012. The decrease
over 2012 is primarily due to decreased salaries and benefits associated with
the reductions of the executive and administrative staffing levels that occurred
in the third quarter of 2012 with subsequent severance costs of approximately
$0.9 million accrued upon termination of executive and overhead staff in
September 2012.
Impairment
The Company has determined that it has two Cash Generating Units (CGU). One CGU
is its Canadian operations and the second CGU is its US operations. During the
fourth quarter of 2013, the Company determined that the recoverable value of its
assets exceeded the carrying value of its assets and therefore no impairment was
required. During the fourth quarter of 2012, the Company determined that the
carrying values exceeded the recoverable values in both CGU's. A $20.0 million
impairment loss was recorded related to the Canadian CGU and $24.8 million
impairment loss was recorded related to the US CGU.
Net Gain (Loss) on the Disposition of Assets
During 2013, a $2.2 million gain was recorded on the sale of fixed assets
compared to a small loss in 2012. The gain related to the sale of excess
pressure pumping equipment and chemical and data vans.
Adjusted EBITDA
Adjusted EBITDA was $7.8 million compared to $0.6 million in 2012. The increase
is due to a decrease in SG&A and fixed operating costs.
Net Loss
The 2013 net loss was $24.4 million as compared to a $77.5 million net loss
during 2012. The $53.1 million decrease in the net loss is due to a number of
factors. Late in the third quarter of 2012 an operational review was undertaken
that resulted in a reduction of 25% in US field and support staff and a 20%
reduction in Canadian field and support staff. Additional changes were made to
reduce charges associated with facilities, staff housing, insurance and other
fixed costs. The result of these changes was improved profitability in fourth
quarter 2012 and throughout 2013. The 2012 net loss included an impairment loss
of $47.4 million. Depreciation and amortization in 2013 also decreased by $1.3
million primarily due to the reduction in the carrying value of the property and
equipment.
The Company's 2013 effective tax rate was nil (2012 - 2.23%) compared to the
statutory rate of 25.0% (2012 - 25.0%). The difference in effective tax rate as
compared to the statutory tax rate results from tax losses not being recognized
for accounting purposes at this time.
FINANCIAL OVERVIEW - SUMMARY OF QUARTERLY RESULTS
Mar 31, Jun 30, Sep 30, Dec 31,
2012 2012 2012 2012
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CAD$ CAD$ CAD$ CAD$
Revenue 44,969 16,734 40,851 46,888
(Loss) for the period (4,926) (16,949) (7,144) (48,450)
(Loss) per share - basic (0.08) (0.27) (0.11) (0.77)
(Loss) per share - diluted (0.08) (0.27) (0.11) (0.77)
Adjusted EBITDA (1) 2,259 (10,450) 1,081 7,676
Capital expenditures 22,162 15,404 4,955 6,593
Working capital
(deficiency) (2) 27,894 8,994 (1,092) 25,740
Shareholders' equity 263,695 247,519 237,201 190,444
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(1) Defined under Non-IFRS Measures
(2) Working capital is defined as current assets less current liabilities
Mar 31, Jun 30, Sep 30, Dec 31,
2013 2013 2013 2013
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CAD$ CAD$ CAD$ CAD$
Revenue 31,458 30,561 30,423 29,381
(Loss) for the period (7,884) (4,811) (5,061) (6,673)
(Loss) per share - basic (0.12) (0.08) (0.08) (0.10)
(Loss) per share - diluted (0.12) (0.08) (0.08) (0.10)
Adjusted EBITDA (1) 468 3,246 3,016 1,213
Capital expenditures 509 1,404 274 963
Working capital
(deficiency) (2) (4,384) 2,627 4,108 7,070
Shareholders' equity 184,266 181,951 175,884 171,209
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(1) Defined under Non-IFRS Measures
(2) Working capital is defined as current assets less current liabilities
The Company's North American business is seasonal. The lowest activity is
typically experienced during the second quarter
of the year when road weight restrictions are in place due to spring break-up
weather conditions and access to well sites in
Canada is reduced. Also, in certain areas of the US in which the company
operates, access to work locations is limited or entirely banned during hunting
season which typically occurs December through February. (refer to "Business
Risks - Seasonality" on page 18).
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
As at December 31, 2013, the Company had $7.1 million of working capital
compared to $4.1 million as at September 30, 2013 and $25.7 million as at
December 31, 2012. The sequential increase in working capital is due to cash
generated from operating activities and improved accounts receivable collections
offset somewhat by an increase in the inventory held at year end.
The significant decrease in working capital from December 31, 2012 is primarily
due to the reclassification of the Company's credit facility from non-current to
current.
Debt
During Q3 of 2012, the Company exceeded the debt ceiling in its credit agreement
and the banking syndicate agreed to a suspension of the EBITDA related covenants
effective November 6, 2012. This suspension was in place until June 30, 2013. In
the interim, the facility was capped at $60 million with an Interim covenant
that the Company would generate $6 million for each of the quarters ended
December 31, 2012 and March 31, 2013.
On May 17, 2013, the credit facility was amended and restated, with the major
amendments being that the credit facility was resized to $50 million and the
maturity date extended to April 30, 2014. The credit facility has since been
extended and now matures on June 30, 2014.
The credit facility consists of a $10 million revolving operating facility and a
$40 million revolving facility. The facilities bear interest at prime plus 0.75%
to prime plus 4.25%. Both facilities are secured by a floating charge over all
of the assets (excluding leased assets). The amended and restated credit
facility is subject to financial and non-financial covenants typical of this
type of facility.
The amended and restated credit facility is subject to financial covenants as
follows:
-- Funded debt (excludes convertible debentures) at balance sheet date to
12 month trailing earnings before interest, taxes, depreciation and
amortization, and stock compensation expense (Bank EBITDA) does not
exceed 3.00 to 1.00
-- 12 month trailing Bank EBITDA to 12 month trailing interest expense
exceeds 3.00 to 1.00
-- Funded debt to capitalization (the aggregate of funded debt plus equity)
does not exceed 0.50 to 1.00
As at December 31, 2013, the Company is in compliance with all covenants.
The facility, if not renewed, is due on maturity. Pursuant to IAS 1, the Company
has presented the entire credit facility as current in the Company's
consolidated financial statements as at the reporting date.
While the Company anticipates that the credit facility will be renewed, in the
event it is not, funding options would include a renegotiated bank credit line,
equipment based funding supported by the Company's asset base or term debt.
Consolidated Cash Flow Summary
Dec 31, 2013 Dec 31, 2012
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CAD$ CAD$
Cash provided by (used in)
Operating activities (1,079) 19,006
Financing activities (11,494) 46,315
Investing activities 6,243 (62,343)
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Net (decrease) increase in cash and cash
equivalents (6,330) 2,978
Effects of exchange rate changes on the
balance of cash held in foreign currencies 358 (77)
Cash and cash equivalents, beginning of year 7,927 5,026
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CASH AND CASH EQUIVALENTS, END OF YEAR 1,955 7,927
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Operating Activities
Net cash used in operating activities was $1.1 million as compared to cash
provided by operating activities of $19.0 million in 2012.
The net change in non-cash working capital from operating activities at December
31, 2013 was ($2.1) million versus $22.0 million at December 31, 2012. Of the
$22.0 million change at December 31, 2012, $18.7 million related to a reduction
in receivables and $2.2 million related to a reduction in inventory levels. The
($2.1) million change at December 31, 2013 was primarily the result of an
increase in inventory ($6.1) million and a reduction in accounts receivable $4.4
million.
The Company's ability to generate more earnings at reduced revenue levels from
reductions in costs year-over-year has resulted in higher cash flows from
operating activities before considering changes in working capital.
Financing Activities
Net cash used by financing activities was $11.5 million compared to $46.3
million of cash generated in 2012.
The financing activities during 2013 consisted of draws on the credit facility
that were used primarily to fund the changes in accounts receivable balances.
Other financing activities included finance lease payments and funds paid to
buyout expired finance leases. The financing leases are primarily for light duty
vehicles. A small amount of cash was received from the exercise of stock
options.
During 2012 GASFRAC closed its public offering of 7% convertible unsecured
subordinated debentures for net proceeds of $37,888. The proceeds from the
debentures were used to finance the revenue generating property and equipment
build undertaken in 2011 and 2012.
Investing Activities
Net cash generated from investing activities was $6.2 million compared to $62.3
million of cash used in 2012.
During the year, the cash generated was primarily due to the sale of excess
pressure pumping equipment for proceeds of $10.8 million. Property and Equipment
purchases of $3.0 were related to maintenance capital, leasehold improvements
and additional assets under finance lease.
The Company invested $49.1 million and additional working capital for 2012 in
property and equipment and intangible assets to add revenue generating capacity.
Contractual Obligations
The timing of cash outflows relating to financial liabilities are outlined in
the following table:
Less Greater
Contractual than 1 1 to 3 4 to 5 than 5
cash flows year years years years
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CAD$ CAD$ CAD$ CAD$ CAD$
Trade payables and accrued
liabilities 12,864 12,864 - - -
Provisions 742 742 - - -
Finance lease obligation
(including expected interest) 2,367 1,465 902 - -
Credit facility (including
expected interest) 19,241 19,241 - - -
Debentures (including. expected
interest) 50,112 2,818 5,635 41,659 -
Operating lease payments 9,848 2,010 3,075 2,431 2,332
Commitment to purchase raw
materials 65,381 10,314 38,671 15,574 822
Commitment to purchase plant
and equipment 1,714 1,714 - - -
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Total 162,269 51,168 48,283 59,664 3,154
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To meet these financial obligations, the Company has available the following
resources available within 1 year:
Dec 31, 2013 Dec 31, 2012
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CAD$ '000 CAD$ '000
Cash and cash equivalents 1,955 7,927
Trade receivables 25,868 28,376
Unused credit facility - subject to
applicable debt ceiling 31,427 30,000
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59,250 66,303
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OFF-BALANCE SHEET ARRANGEMENTS
The Company is not party to any off balance sheet arrangements or transactions.
RELATED PARTY TRANSACTIONS
Details of transactions between the Company and other related parties are
disclosed below.
Trading Transactions
During the year, the Company entered into the following trading transactions
with related parties that are not members of the Company:
Fracturing services
Dec 31, 2013 Dec 31, 2012
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CAD$ '000 CAD$ '000
Fracturing services rendered to companies
with shared directors - 297
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Sales of goods to related parties were made at the Company's usual list prices.
The amounts outstanding are unsecured and will be settled in cash. No guarantees
have been given or received. No expense has been recognized in the current or
prior years for bad or doubtful debts in respect of the amounts owed by related
parties.
Compensation of Key Management Personnel
Dec 31, 2013 Dec 31, 2012
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CAD$ '000 CAD$ '000
Salaries and other short term benefits 2,120 1,652
Post-employment benefits 78 73
Termination benefits - 809
Share based compensation 363 401
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2,561 2,935
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Key management personnel are those persons who have authority and responsibility
for planning, directing and controlling the activities of the Company, directly
or indirectly, including directors and executive officers of the Company.
ACCOUNTING POLICIES AND ESTIMATES
This MD&A is based on the Company's audited annual consolidated financial
statements that have been prepared in accordance with IFRS. Management is
required to make assumptions, judgments and estimates in the application of
IFRS. The Company's summary of significant accounting policies are described in
Note 2 of the December 31, 2013 audited annual consolidated financial
statements. The preparation of the consolidated financial statements requires
that certain estimates and judgments be made concerning the reported amount of
revenue and expenses and the carrying values of assets and liabilities. These
estimates are based on historical experience and management's judgment.
Anticipating future events involves uncertainty and, consequently, the estimates
used by management in the preparation of the audited annual consolidated
financial statements may change as future events unfold, additional experience
is acquired or the environment in which the Company operates changes.
Apart from the key source of estimation uncertainty disclosed below, all key
assumptions concerning the future, and other key sources of estimation
uncertainty made at the end of the last full reporting period were applied
consistently for the twelve months ended December 31, 2013.
Useful lives of Plant and Equipment and Finite Intangible Assets
The Company reviews the estimated useful lives of plant and equipment at the end
of each reporting period. These estimates may change as more experience is
obtained or as general market conditions change, thereby impacting the operation
of the Company's property and equipment. Amortization of the finite intangible
assets also incorporates estimates of useful lives and residual values. During
the current year, no changes were made to the economic useful life of plant and
equipment.
Recognition of Deferred Tax Assets
The Company only recognizes a deferred tax asset when it is probable that
taxable benefits would be received in the future. The probability of future
taxable benefits is based upon the earnings history of the Company, management's
best estimate of future earnings and expectations of future tax rates based on
legislation in place in the relevant jurisdiction.
Share Based Compensation Estimates
The Company calculates the fair value of its stock options using the
Black-Scholes option pricing model, which includes underlying assumptions,
related to the risk-free interest rate, average expected option life, estimated
forfeitures, and estimated volatility of the Company's shares. All share options
are granted at the market value of the shares on grant date.
Performance share unit grants are linked to corporate performance and grants
vest from one to three years from date of grant. The Company periodically
assesses expectations as to the performance achieved as an input variable to the
calculation of its liability pursuant to performance share units.
Deferred share unit grants vest evenly over the year from date of grant. The
Company's obligation changes from fluctuations in the market value of the
Company's shares.
Recoverability of Accounts Receivable
The Company performs ongoing credit evaluations of its customers and grants
credit based upon a credit review and review of historical collection
experience, current aging status, financial condition of the customer and
anticipated industry conditions. Customer payments are regularly monitored and
an allowance for doubtful accounts is established based upon specific situations
and overall industry conditions affecting individual customers. The Company's
management believes that the allowance for doubtful accounts is adequate.
Valuation of Debenture Holders' Conversion Option
In order to value the debenture holders' conversion option, management had to
determine what interest rate a similar debt instrument will carry if it had no
conversion privilege. Management reviewed similar issues within the Canadian
debt market of unrated entities and concluded that such a similar debt
instrument without conversion privilege will carry a 10% coupon interest rate.
Also, the Company's option to redeem the debentures before maturity is
considered closely related to the host debt instrument and thus not separately
valued.
Impairment of Non-Financial Assets and Intangible Assets
At the end of each reporting period, the Company assesses whether there are any
indicators of impairment. If indicators are present, the Company determines the
recoverable amount of the assets being the higher of fair value less costs of
disposal (FVLCD) and the value in use (VIU). An impairment loss would be
incurred to the extent that the recoverable amount exceeds the carrying amount.
Impairment is assessed at the cash-generating unit (CGU) level. A CGU is the
smallest identifiable group of assets that generates cash inflows largely
independent of the cash inflows from other assets or group of assets. The assets
of the corporate head office, which do not generate separate cash inflows, are
allocated on a reasonable and consistent basis to CGUs for impairment testing.
The carrying amounts of assets of the corporate head office that have not been
allocated to a CGU are compared to their recoverable amount to determine if
there is any impairment loss.
If, after the Company has previously recognized an impairment loss,
circumstances indicate that the fair value of the impaired assets are greater
than the carrying amount, the Company will reverse the impairment loss by the
amount the revised recoverable amount exceeds its carrying amount, to a maximum
of the previous impairment loss. In no case shall the revised carrying amount
exceed the original carrying amount, after depreciation or amortization, that
would have been determined if no impairment loss has been recognized. An
impairment loss or a reversal of impairment loss is recognized in the statement
of comprehensive loss.
CHANGE IN ACCOUNTING POLICIES
The Company has applied the following new and revised IFRSs and International
Financial Reporting Standards Interpretations ("IFRIC") that have been issued
and are effective for financial periods commencing January 1, 2013:
IAS 1 - Presentation of Financial Statements
The main change resulting from these amendments is a requirement for entities to
group items presented in other comprehensive income (OCI) on the basis of
whether they are potentially classifiable to profit or loss subsequently
(reclassification adjustments).
Management has assessed that the application of the new standard will not have a
significant impact on amounts reported in respect of the Company's OCI however
there are enhanced disclosures on the statement of comprehensive income.
IAS 19 - Employee Benefits
IAS 19 as issued in February 1998 was amended June 2011 to reflect (i)
significant changes to recognition and measurement of defined benefit pension
expense and termination benefits, and (ii) expanded disclosure requirements.
Management has adopted IAS 19 in the Company's consolidated financial statements
for the annual period beginning January 1, 2013 and assessed that the
application of the new standard does not have a significant impact on amounts
reported in respect of the Company's financial results as it does not have a
defined benefit plan.
IAS 36 - Impairment of Assets
The amendment to IAS 36 addresses the disclosure of information about the
recoverable amount of impaired assets if that amount is based on fair value less
costs of disposal. Early adoption is permitted.
Management has early adopted IAS 36 in the Company's consolidated financial
statements for the annual period beginning January 1, 2013 and assessed that the
application of the new standard does not have a significant impact on amounts
reported in respect of the Company's financial assets and financial liabilities.
IFRS 7 - Financial Instruments
IFRS 7 as issued in August 2005 is amended to require additional disclosures on
transition from IAS 39 to IFRS 9. These amendments are effective upon adoption
of IFRS 9. The effective date for IFRS 9 has been changed to undetermined by the
IASB. The amendment includes new disclosures to facilitate comparison between
those entities that prepare IFRS financial statements to those that prepare
financial statements in accordance with US GAAP.
Management has adopted IFRS 7 in the Company's consolidated financial statements
for the annual period beginning January 1, 2013 and assessed that the
application of the new standard does not have a significant impact on amounts
reported in respect of the Company's financial assets and financial liabilities.
IFRS 10 - Consolidated Financial Statements
IFRS 10 establishes principles for the presentation and preparation of
consolidated financial statements when an entity controls one or more other
entities. IFRS 10 supersedes IAS 27 Consolidated and Separate Financial
Statements and SIC 12 Consolidation - Special Purpose Entities.
IFRS 10 requires an entity to consolidate an investee when it has power over the
investee, is exposed or has rights to variable returns from its involvement with
the investee and has the ability to affect those returns through power over the
investee. Under the existing IFRS, consolidation is required when an entity has
the power to govern the financial and operating policies of an entity so as to
obtain benefits from its activities.
Management has adopted IFRS 10 in the Company's consolidated financial
statements and assessed that the application of the new standard does not have a
significant impact on amounts reported in respect of the Company's consolidated
financial statements.
IFRS 11 - Joint Arrangements
IFRS 11 establishes principles for financial reporting by parties to a joint
arrangement. The IFRS supersedes IAS 31 - Interests in Joint Ventures and SIC 13
- Jointly Controlled Entities-Non-Monetary Contributions by Venturers.
IFRS 11 requires a venture to classify its interest in a joint arrangement as a
joint venture or joint operation. Joint ventures will be accounted for using the
equity method of accounting whereas for a joint operation the venturer will
recognize its share of assets, liabilities, revenues and expenses of the joint
operation. Under existing IFRS, entities have the choice to proportionately
consolidate or equity account for interests in joint ventures.
Management has adopted IFRS 11 in the Company's consolidated financial
statements and assessed that the application of the new standard does not have a
significant impact on amounts reported in respect of the Company's consolidated
financial statements.
IFRS 12 - Disclosure of Interest in Other Entities
IFRS 12 establishes disclosure requirements for interests in other entities such
as subsidiaries, joint arrangements, associates, and unconsolidated structured
entities. The standard carries forward existing disclosures and introduces
significant additional disclosure that addresses the nature of, and risks
associated with, an entity's interest in other entities.
Management has adopted IFRS 12 in the Company's consolidated financial
statements. Management performed a detailed review of the impact of the
additional disclosure requirements on its current and possible future interest
in other entities and assessed that the application of the new standard does not
have a significant impact on amounts reported in respect of the Company's
consolidated financial statements.
IFRS 13 - Fair Value Measurement
IFRS 13 is a comprehensive standard for fair value measurement and disclosure
across all IFRS standards. The new standard clarifies that fair value is the
price that would be received to sell an asset, or paid to transfer a liability
in an orderly transaction between market participants, at the measurement date.
Under existing IFRS, guidance on measuring and disclosing fair value is
dispersed among the specific standards requiring fair value measurements and
does not always reflect a clear measurement basis or consistent disclosure.
Management has adopted IFRS 13 in the Company's consolidated financial and that
the application of the new standard does not have a significant impact on
amounts reported in respect of the Company's consolidated financial statements
as the previous method of determining fair value is in line with the
clarification set out in IFRS 13 but there are enhanced disclosure requirements.
Future Accounting Pronouncements
The Company has not applied the following new and revised IFRSs and
International Financial Reporting Standards Interpretations ("IFRIC") that have
been issued but are not yet effective:
IAS 32 - Financial Instruments: Presentation
IAS 32 as issued in June 1995 is amended to clarify requirements for offsetting
of financial assets and financial liabilities. This standard is effective for
annual periods beginning on or after January 1, 2014.
Management anticipates that IAS 32 will be adopted in the Company's consolidated
financial statements for the annual period beginning January 1, 2014 and that
the application of the new standard will not have a significant impact on
amounts reported in respect of the Company's financial results.
IFRS 9 - Financial Instruments
The IASB has undertaken a three-phase project to replace IAS 39 Financial
Instruments: Recognition and Measurement with IFRS 9 Financial Instruments. In
November 2009, the IASB issued the first phase of IFRS 9, which details the
classification and measurement requirements for financial assets. Requirements
for financial liabilities were added to the standard in October 2010. The new
standard replaces the current multiple classification and measurement models for
financial assets and liabilities with a single model that has only two
classification categories: amortized cost and fair value. In November 2013, the
IASB issued the third phase of IFRS 9 which details the new general hedge
accounting model. Hedge accounting remains optional and the new model is
intended to allow reporters to better reflect risk management activities in the
financial statements and provide more opportunities to apply hedge accounting.
In July 2013, the IASB deferred the mandatory effective date of IFRS 9 and has
left this date open pending the finalization of the impairment and
classification and measurement requirements. IFRS 9 is still available for early
adoption.
Management has not yet evaluated the impact on this new standard on the
Company's financial statements measurements and disclosures. The Company does
not anticipate early adopting this standard.
FINANCIAL INSTRUMENTS
The Company's strategy is to maintain a capital structure to sustain future
growth of the business and retain creditor, investor and market confidence.
Recognizing the cyclical nature of the oilfield services industry, the Company
strives to maintain a conservative balance between long-term debt and
shareholders' equity. The Company's capital structure is currently comprised of
shareholders' equity, convertible debentures and bank debt. The Company may
occasionally need to increase its level of debt to total capitalization to
facilitate growth activities.
The Company has a $10 million operating demand revolving loan facility and a $40
million committed revolving facility, both of which are subject to various
financial and non financial covenants. The covenants are monitored on a regular
basis and controls are in place to ensure the Company maintains compliance with
these covenants. As at December 31, 2013, the Company is in compliance with all
the covenants related with this facility.
The Company monitors its capital structure and makes adjustments in light of
changing market conditions and new opportunities, while remaining cognizant of
the cyclical nature of the oilfield services sector. To maintain or adjust its
capital structure, the Company may revise its capital spending, issue new
shares, issue new debt, or draw on its current operating line facility.
Financial risk management objectives
The Company monitors and manages the financial risks relating to the operations
of the Company through internal risk procedures which analyze exposures by
degree and magnitude of risks. These risks include market risk (including
currency risk, interest rate risk and other price risk), credit risk and
liquidity risk.
Currently, the Company does not use derivative financial instruments to manage
any financial risks. Exchange rate risk is managed through foreign currency
denominated invoicing by the Company's US subsidiary and reducing the timing
between procurement and payment of foreign currency denominated payables.
Market risk
Foreign currency exchange rate risk
As the Company operates primarily in Canada and the United States of America
("U.S."), fluctuations in the exchange rate between the U.S. dollar and Canadian
dollar can have a significant effect on the operating results and the fair value
or future cash flows of the Company's financial assets and liabilities. The
Canadian entities are exposed to currency risk on foreign currency denominated
financial assets and liabilities with adjustments recognized as foreign exchange
gains or losses in the consolidated statement of comprehensive income. The U.S.
entities with a U.S. dollar denominated functional currency expose the Company
to currency risk on the translation of these entities' financial assets and
liabilities to Canadian dollars on consolidation. In addition, U.S. entities are
exposed to currency risk on financial assets and liabilities denominated in
currencies other than their functional currency (U.S. dollars) with adjustments
recognized in the consolidated statements of comprehensive income. For the year
ended December 31, 2013, a 1% fluctuation in the value of the Canadian dollar
relative to the U.S. dollar would have impacted profit before tax by $35 (2012 -
$Nil).
Interest rate risk
The Company is exposed to interest rate risk because the Company borrows funds
at only variable interest rates. The sensitivity analyses have been determined
based on the exposure to interest rates applicable to outstanding borrowings at
the end of the reporting period. For floating rate liabilities, the analysis is
prepared assuming the amount of the liability outstanding at the end of the
reporting period was outstanding for the whole year. A 50 basis point increase
or decrease is used when reporting interest rate risk internally to key
management personnel and represents management's assessment of the reasonably
possible change in interest rates. If interest rates had been 50 basis points
higher/lower and all other variables were held constant, the Company's profit
before tax would be $121 lower/higher based on the borrowings outstanding at
year end. (2012 - $46). All finance leases are concluded at fixed interest rates
and a change in market interest rates relating to finance leases will not impact
the Company's profit.
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Company. The Company
assesses the creditworthiness of its customers on an ongoing basis. The
Company's exposure and the credit ratings of its counterparties are continuously
monitored as are amounts outstanding and age of receivables.
Trade receivables are predominately with customers who explore and develop
petroleum and natural gas resources mainly in Canada and the southern U.S. The
Company is subject to normal industry credit risk. This includes fluctuations in
oil and natural gas commodity prices and the ability of customers to obtain
attractive debt and/or equity financing. These balances represent the Companies
total credit exposure. During the year, the Company earned revenues from more
than 10 (2012: greater than 40) customers with the top three customers
representing 87% (2012 - 67%) of revenue.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company has adequate credit
facilities in place to meet its current commitments as they become due and
further manages its liquidity risk by continuously monitoring forecasts and
actual cash flows.
The Company has facilities with its bank for $50 million of debt financing. In
the past the Company has been required to negotiate amendments to this facility
due to actual or potential financial covenant breaches. The Company's customer
concentration can result in volatile quarterly financial results that may cause
future financial covenant breaches. The bank credit facility matures April 30,
2014. On March 7, 2014, the maturity of the facility was further extended to
June 30, 2014. Should the Company be unable to renew these facilities in the
amount it requires or on terms acceptable to it, liquidity issues could result.
Fair values of financial instruments
The fair value of the Company's financial instruments included on the
consolidated balance sheet approximate their carrying amounts due to their short
term maturity.
BUSINESS RISK
The business of the Company is subject to certain risks and uncertainties,
including those listed below. Prior to making any investment decision regarding
the Company, investors should carefully consider, among other things, the risk
factors set forth below.
Volatility of Industry Conditions
The demand, pricing and terms for the Company's fracturing and well stimulation
services largely depend upon the level of exploration and development activity
for North American oil and natural gas. Industry conditions are influenced by
numerous factors over which the Company has no control, including the level of
oil and natural gas prices, expectations about future oil and natural gas
prices, the cost of exploring for, producing and delivering oil and natural gas,
the decline rates for current production, the discovery rates of new oil and
natural gas reserves, available pipeline and other oil and natural gas
transportation capacity, weather conditions, political, military, regulatory and
economic conditions, and the ability of oil and natural gas companies to raise
equity capital or debt financing. A material decline in global oil and natural
gas prices or North American activity levels as a result of any of the above
factors could have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows. Because of the
current economic environment and related decrease in demand for energy, natural
gas exploration and development in North America has decreased from peak levels
in 2008. Warmer than normal winters in North America, among other factors, may
adversely impact demand for natural gas and, therefore, demand for oilfield
services. If the economic conditions deteriorate further or do not improve, the
decline in natural gas exploration and development could cause a decline in the
demand for the Company's services. Such decline could have a material adverse
effect on the Company's business, financial condition, results of operations and
cash flows.
Demand for Oil and Natural Gas
Fuel conservation measures, alternative fuel requirements, increasing consumer
demand for alternatives to oil and natural gas, and technological advances in
fuel economy and energy generation devices could reduce the demand for crude oil
and other hydrocarbons. The Company cannot predict the impact of changing demand
for oil and natural gas products, and any major changes could have a material
adverse effect on the Company's business, financial condition, results of
operations and cash flows.
Seasonality
The Company's financial results are directly affected by the seasonal nature of
the North American oil and natural gas industry. The first quarter incorporates
the winter drilling season when a disproportionate amount of the activity takes
place in western Canada. During the second quarter, soft ground conditions
typically curtail oilfield activity in all of the Company's Canadian operating
areas such that many rigs are unable to move about due to road bans. This
period, commonly referred to as "spring breakup", occurs earlier in the year in
southeastern Alberta than it does in northern Alberta and northeastern British
Columbia. Consequently, this is the Company's weakest three-month revenue
period. Additionally, if an unseasonably warm winter prevents sufficient
freezing, the Company may not be able to access well sites and the Company's
operating results and financial condition may therefore be adversely affected.
The demand for fracturing and well stimulation services may also be affected by
severe winter weather in North America. In addition, during excessively rainy
periods in any of the Company's operating areas, equipment moves may be delayed,
thereby adversely affecting revenues. Also, in certain areas of the USA in which
the company operates, access to work locations is limited or entirely banned
during hunting season which typically occurs December through February. The
volatility in the weather and temperature and access limitations during hunting
season can therefore create unpredictability in activity and utilization rates,
which can have a material adverse effect on GASFRAC's business, financial
condition, results of operations and cash flows.
Concentration of Customer Base
The Company's customer base in calendar year 2013 consists of fourteen oil and
natural gas exploration and production companies, ranging from large
multinational public companies to small private companies. The Company had three
significant customers that collectively accounted for approximately 87% of the
Company's revenue for the year ended December 31, 2013. One of these customers
accounted for 46% of revenue. The Company's strong relationships with
exploration and production companies may result in increased concentration of
revenues during periods of reduced activity levels such as the first three
months of the year. However, there can be no assurance that the Company 's
relationship with its primary customers will continue, and a significant
reduction or total loss of the business from these customers, if not offset by
sales to new or existing customers, would have a material adverse effect on the
Company 's business, financial condition, results of operations and cash flows.
Competition
Each of the markets in which the Company participates is highly competitive. To
be successful, a service provider must provide services that meet the specific
needs of oil and natural gas exploration and production companies at competitive
prices. The principal competitive factors in the markets in which the Company
operates are product and service quality and availability, technical knowledge
and experience, reputation for safety and price. The Company competes with large
national and multinational oilfield service companies that have greater
financial and other resources. These companies offer a wide range of well
stimulation services in all geographic regions in which the Company operates. In
addition, the Company competes with several regional competitors. As a result of
competition, it may suffer from a significant reduction in revenue or be unable
to pursue additional business opportunities.
Equipment Inventory Levels
Because of the long-life nature of oilfield service equipment and the lag
between when a decision to build additional equipment is made and when the
equipment is placed into service, the inventory of oilfield service equipment in
the industry does not always correlate with the level of demand for service
equipment. Periods of high demand often spur increased capital expenditures on
equipment, and those capital expenditures may add capacity that exceeds actual
demand. This capital overbuild could cause the Company's competitors to lower
their rates and could lead to a decrease in rates in the oilfield services
industry generally, which could have a material adverse effect on the Company 's
business, financial condition, results of operations and cash flows.
Sources, Pricing and Availability of Raw Materials and Component Parts
The Company sources its raw materials, such as proppant, chemicals, nitrogen,
carbon dioxide and diesel fuel, and component parts, from a variety of suppliers
in North America. Should the Company's suppliers be unable to provide the
necessary raw materials and component parts at an acceptable price or otherwise
fail to deliver products in the quantities required, any resulting delays in the
provision of services could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows.
Capital-Intensive Industry
The Company's business plan is subject to the availability of additional
financing for future costs of operations or expansion that might not be
available, or may not be available on favourable terms. The Company's activities
may also be financed partially or wholly with debt, which could increase the
Company's debt levels above industry standards. The level of the Company's
indebtedness from time to time could impair the Company's ability to obtain
additional financing in the future on a timely basis to take advantage of
business opportunities that may arise. If the Company 's cash flow from
operations is not sufficient to fund the Company 's capital expenditure
requirements, there can be no assurance that additional debt or equity financing
will be available to meet these requirements or, if available, on favourable
terms.
Patents and Proprietary Technology
The Company's success will depend, in part, on its ability to obtain patents,
maintain trade secret protection and operate without infringing on the rights of
third parties. The LPG Fracturing Process patents for the U.S., Canada and
International markets remain in examination. The international application has
been deemed as "Patentable" showing novelty, inventiveness and industrial
applicability. However, there can be no assurance that any issued patents will
provide the Company with any competitive advantages or will not be successfully
challenged by any third parties, or that the patents of others will not have an
adverse effect on the ability of the Company to do business. In addition, there
can be no assurance that others will not independently develop similar products,
duplicate some or all of the Company's products, or, if patents are issued to
the Company, design their products so as to circumvent the patent protection
that may be held by the Company. In addition, the Company could incur
substantial costs in lawsuits in which the Company attempts to enforce its own
patents against other parties.
Operational Risks
The Company's operations are subject to hazards inherent in the oil and natural
gas industry, such as equipment defects, malfunction and failures, and natural
disasters which result in fires, vehicle accidents, explosions and
uncontrollable flows of natural gas or well fluids that can cause personal
injury, loss of life, suspension of operations, damage to formations, damage to
facilities, business interruption and damage to or destruction of property,
equipment and the environment. These hazards could expose the Company to
substantial liability for personal injury, wrongful death, property damage, loss
of oil and natural gas production, pollution, contamination of drinking water
and other environmental damages. The Company continuously monitors its
activities for quality control and safety, and although it maintains insurance
coverage that it believes to be adequate and customary in the industry, such
insurance may not be adequate to cover the Company 's liabilities and may not be
available in the future at rates that the Company considers reasonable and
commercially justifiable. Further, monetary damage to equipment or liability
arising from an incident, such incident could negatively impact the adoption or
rate of adoption of the Company's service.
Availability of Debt Financing
The Company has facilities with its bank for $50 million of debt financing. In
the past the Company has been required to negotiate amendments to this facility
due to actual or potential financial covenant breaches. The Company's customer
concentration can result in volatile quarterly financial results that may cause
future financial covenant breaches. The bank credit facility matures April 30,
2014. On March 7, 2014, the maturity of the facility was further extended to
June 30, 2014. Should the Company be unable to renew these facilities in the
amount it requires or on terms acceptable to it, significant liquidity issues
could result.
Management Stewardship
The successful operation of the Company's business depends upon the abilities,
expertise, judgment, discretion, integrity and good faith of the Company's
executive officers, employees and consultants. In addition, the Company's
ability to expand its services depends upon its ability to attract qualified
personnel as needed. The demand for skilled oilfield employees is high, and the
supply is limited. If the Company loses the services of one or more of its
executive officers or key employees, it could have a material adverse effect on
the Company's business, financial condition, results of operations and cash
flows.
Regulations Affecting the Oil and Natural Gas Industry
The operations of the Company's customers are subject to or impacted by a wide
array of regulations in the jurisdictions in which they operate. As a result of
changes in regulations and laws relating to the oil and natural gas industry,
the Company's customers' operations could be disrupted or curtailed by
governmental authorities. The high cost of compliance with applicable
regulations could cause customers to discontinue or limit their operations and
may discourage companies from continuing development activities. As a result,
demand for the Company's services could be substantially affected by regulations
adversely impacting the oil and natural gas industry. Changes in environmental
requirements may negatively impact demand for the Company's services. For
example, oil and natural gas exploration and production may decline as a result
of environmental requirements (including land use policies responsive to
environmental concerns). A decline in exploration and production, in turn, could
materially and adversely affect the Company.
Government Regulations
The Company's operations are subject to a variety of federal, provincial, state
and local laws, regulations and guidelines in all the jurisdictions in which it
operates, including laws and regulations relating to health and safety, the
conduct of operations, taxation, the protection of the environment and the
manufacture, management, transportation and disposal of certain materials used
in the Company's operations. The Company has invested financial and managerial
resources to ensure such compliance and expects to continue to make such
investments in the future. Such laws or regulations are subject to change and
could result in material expenditures that could have a material adverse effect
on the Company's business, financial condition, results of operations and cash
flows. It is impossible for the Company to predict the cost or impact of such
laws and regulations on the Company's future operations. In particular, the
Company is subject to increasingly stringent laws and regulations relating to
importation and use of hazardous materials, radioactive materials and
explosives, environmental protection, including laws and regulations governing
air emissions, water discharges and waste management. The Company incurs, and
expects to continue to incur, capital and operating costs to comply with
environmental laws and regulations. The technical requirements of these laws and
regulations are becoming increasingly complex, stringent and expensive to
implement. These laws may provide for "strict liability" for damages to natural
resources or threats to public health and safety. Strict liability can render a
party liable for damages without regard to negligence or fault on the part of
the party. Some environmental laws provide for joint and several strict
liabilities for remediation of spills and releases of hazardous substances.
The Company uses and generates hazardous substances and wastes in its
operations. In addition, some of the Company's current properties are, or have
been, used for industrial purposes. Accordingly, the Company could become
subject to potentially material liabilities relating to the investigation and
cleanup of contaminated properties, and to claims alleging personal injury or
property damage as the result of exposures to, or releases of, hazardous
substances. In addition, stricter enforcement of existing laws and regulations,
new laws and regulations, the discovery of previously unknown contamination or
the imposition of new or increased requirements could require the Company to
incur costs or become the basis of new or increased liabilities that could
reduce the Company's earnings and cash available for operations. The Company
believes it is currently in substantial compliance with applicable environmental
laws and regulations.
The Company is a provider of hydraulic fracturing services; a process that
creates fractures extending from the well bore through the rock formation to
enable natural gas or oil to move more easily through the rock pores to a
production well. Bills pending in the United States House of Representatives and
Senate have asserted that chemicals used in the fracturing process could
adversely affect drinking water supplies. Legislation has been enacted in some
jurisdictions that require the energy industry to publicly disclose the
chemicals used in fracturing processes. These regulations could lead to
operational delays and increased costs. This legislation, if adopted, could
establish an additional level of regulation at the federal level that could lead
to operational delays and increased operating costs. The adoption of any future
federal or state laws or implementing regulations imposing reporting obligations
on, or otherwise limiting, the hydraulic fracturing process could make it more
difficult to complete natural gas and oil wells and could have a material
adverse effect on the Company's business, financial condition, results of
operations and cash flows.
Customers
Customers are generally invoiced for our services in arrears. As a result, we
are subject to our customers delaying or failing to pay invoices. Risk of
payment delays or failure to pay is increased during periods of weak economic
conditions due to potential reduction in cash flow and access to capital of our
customers.
The Market Price of the Common Shares May Be Volatile
The trading price of securities of oilfield service companies is subject to
substantial volatility. The volatility is often based on factors both related to
and not related to the financial performance or prospects of the companies
involved. The market price of the Company's Common Shares could be subject to
significant fluctuations in response to our operating results, financial
condition and other internal factors. Factors that could affect the market price
that are not directly related to the Company's performance include commodity
prices and market perceptions of the attractiveness of particular industries for
investment. The price at which the Common Shares will trade cannot be accurately
predicted.
Dilution from Further Equity Issuances
If the Company issues additional equity securities to raise additional funding
or as consideration for the acquisition of a company or assets, as the case may
be, such transactions may substantially dilute the interests of the Company's
Shareholders and reduce the value of their respective investment.
Dividends
The Company has not paid dividends prior to the date hereof and there can be no
assurance that GASFRAC will pay dividends in the future. Dividend payments are
at the discretion of the Company's board of directors. Dividends depend on the
financial condition of the applicable entity and other factors.
Additional Funding Requirements
The Company may need additional financing in connection with the implementation
of its business and strategic plans from time to time. However, there can be no
assurance that the Company will be able to obtain the necessary financing in a
timely manner or on acceptable terms, if at all. The implementation of the
Company's business and strategic plans from time to time will require a
substantial amount of capital and the amounts available to the Company without
seeking additional debt or equity financing may not be sufficient to fund such
business and strategic plans. The Company may accordingly have further capital
requirements to take advantage of further opportunities or acquisitions.
Merger and acquisition activity may reduce the demand for the Company's Services
Merger and acquisition activity may reduce the demand for the Company's
Services. Merger and acquisition activity in the oil and gas exploration and
production sector may constrain demand for the Company's services as customers
focus on reorganizing the business prior to committing funds to exploration and
development projects. Further, the acquiring company may have preferred supplier
relationships with oilfield service providers other than the Company.
Direct and Indirect Exposure to Volatile Credit Markets
The ability to make scheduled payments on or to refinance debt obligations
depends on the Company's financial condition and operating performance, which is
subject to prevailing economic and competitive conditions and to certain
finance, business and other factors beyond its control. Continuing volatility in
the credit markets may increase costs associated with debt instruments due to
increased spreads over relevant interest rate benchmarks, or affect the ability
of the Company, or third parties it seeks to do business with, to access those
markets.
In addition, access to further financing for the Company or its customers
remains uncertain. This condition could have an adverse effect on the industry
in which the Company operates and its business, including future operating
results. The Company's customers may curtail their drilling and completion
programs, which could result in a decrease in demand for the Company's services
and could increase downward pricing pressures. In addition, certain customers
could become unable to pay suppliers, including the Company, in the event they
are unable to access the capital markets to fund their business operations. Such
risks, if realized, could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows.
Market for Convertible Debentures
No assurance can be given that an active or liquid trading market for the
Debentures will develop or be sustained. If an active or liquid market for the
Debentures fails to develop or be sustained, the prices at which the Debentures
trade may be adversely affected. Whether or not the Debentures will trade at
lower prices depends on many factors, including the liquidity of the Debentures,
prevailing interest rates and the markets for similar securities, the market
price of the Common Shares, general economic conditions and the Company's
financial condition, historic financial performance and future prospects.
Further, the holders of the Common Shares may suffer dilution if the Company
decides to redeem outstanding Debentures for Common Shares or to repay
outstanding principal amounts thereunder at maturity of the Debentures by
issuing additional Common Shares.
Repayment of Convertible Debentures
The Debentures are subordinate to Senior Indebtedness of the Company. The
Company may not be able to refinance the principal amount of the Debentures in
order to repay the principal outstanding or may not have generated enough cash
from operations to meet this obligation. The Company may, at its option, on not
more than 60 days and not less than 40 days prior notice and subject to any
required regulatory approvals, unless an Event of Default has occurred and is
continuing, elect to satisfy its obligation to repay, in whole or in part, the
principal amount of the Debentures which are to be redeemed or which have
matured by issuing and delivering Common Shares to the holders of the
Debentures. There is no guarantee that the Company will be able to repay the
outstanding principal amount in cash upon maturity of the Debentures. The
likelihood that purchasers of the Debentures will receive payments owing to them
under the terms of the Debentures will depend on the Company's financial health
and creditworthiness at the time of such payments.
COMMON SHARES AND CONVERTIBLE DEBENTURES
At December 31, 2013 and March 12, 2014, 63,607,668 common shares of GASFRAC
were outstanding (December 31, 2012: 63,515,664). At December 31, 2013, the
Company had options outstanding to issue 3,295,000 shares (December 31, 2012:
2,810,000) at a weighted average exercise price of $2.31 per share (December 31,
2012: $3.07). At March 12, 2014 there were 3,604,167 options outstanding at a
weighted average price of $2.22 per share.
At December 31, 2013 and March 12, 2014, the Company had $40.25 million
convertible debentures outstanding that were convertible to 3,833,334 common
shares based on the applicable conversion price.
NON-IFRS MEASURES
Certain supplementary measures in this MD&A do not have any standardized meaning
as prescribed under IFRS and, therefore, are considered non-IFRS measures. These
measures have been described and presented in order to provide shareholders and
potential investors with additional information regarding the Company's
financial results, liquidity and ability to generate funds to finance its
operations. These measures may not be comparable to similar measures presented
by other entities, and are further explained as follows:
Adjusted EBITDA is defined as net income (loss) before interest income and
expense, income taxes, depreciation, amortization and impairments. Adjusted
EBITDA is presented because it is frequently used by securities analysts and
others for evaluating companies and their ability to service debt.
Adjusted EBITDA was calculated as follows:
December 31, December 31,
Year ended: 2013 2012
---------------------------------------------------------------------------
Net loss (24,429) (77,469)
(Deduct) Add back:
Interest expense - net 6,643 5,561
Depreciation and amortization 25,609 26,826
Impairments of property and equipment 120 47,412
Income tax recovery - (1,764)
---------------------------------------------------------------------------
Adjusted EBITDA 7,943 566
---------------------------------------------------------------------------
---------------------------------------------------------------------------
DISCLOSURE AND INTERNAL CONTROLS
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with participation of the
Company's Management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of the design and operation of
the Company's disclosure controls and procedures, as defined in National
Instrument 52-109. Based on that evaluation, the Company's management, including
the Chief Executive Officer and Chief Financial Officer, concluded that the
Company's disclosure controls and procedures were designed to provide a
reasonable level of assurance over the disclosure of material information, and
are effective as of December 31, 2013.
Management's Report on Internal Control Over Financial Reporting
The Company's Management, including the CEO and CFO, have assessed and evaluated
the design and effectiveness of the Company's internal control over financial
reporting as defined in National Instrument 52-109 as at December 31, 2013. In
making this assessment the Company used the criteria established by the
Committee of Sponsoring Organizations ("COSO") in the "Internal
Control-Integrated Framework". These criteria are in the areas of control
environment, risk assessment, control activities, information and communication
and monitoring. The Company's assessment included documentation, evaluation and
testing of its internal controls over financial reporting. Based on that
evaluation, the Company's Management, including the CEO and CFO, concluded that
the Company's internal controls over financial reporting are effective and
provide reasonable assurance regarding the reliability of the Company's
financial reporting and its preparation of financial statements for external
purposes in accordance with IFRS, as at December 31, 2013.
Internal control over financial reporting, no matter how well designed, has
inherent limitations. Therefore, internal control over financial reporting
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and may not prevent or detect all misstatements.
Changes in Internal Controls Over Financial Reporting During 2013
There have been no changes in the Company's internal controls over financial
reporting during the year ended December 31, 2013, which have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
OUTLOOK
The North American pressure pumping market has undergone a transition from
natural gas based activity to activity driven by oil and liquids-rich basins
over the last several years. With equipment capacity being added ahead of
demand, the result was reduced pricing and margins in the North American
pressure pumping industry over the last three years. Early indications are that
activity levels will increase marginally in 2014 in both Canada and the USA.
While this should result in improved equipment utilization and price stability,
we do not anticipate any material price improvements to follow until into 2015.
In Canada, assuming commodity prices remain firm, it is expected that additional
activity in the Duvernay and Montney will drive demand for additional horsepower
in Canada for 2014. In the US, the overall pressure pumping market has an
oversupply of equipment which we do not expect to reverse until later in 2014.
However, on a region by region basis, particularly in oil rich areas such as
South Texas, activity remains strong. The current scarcity of equity capital for
Exploration and Production companies and their more conservative use of debt
cause the level of future capital expenditures to be highly leveraged to
commodity prices. As such, anticipated 2014 E&P capital expenditures are highly
dependent on commodity price assumptions.
While the fundamentals of the overall pressure pumping market are an important
factor in our operations, the most significant factor remains the pace of
adoption of our technology by E&P companies. The industry as a whole has
experienced significant change over the last decade with the emergence of
multi-stage horizontal fracturing in resource formations. Although there have
been positive production results, in some ways, the technology of fracturing in
resource plays is just beginning. There are some indications that, as past
results & economics are examined, the industry is beginning to examine methods
to optimize fracturing operations and move away from simply using brute force
along the horizontal section. We believe that the GASFRAC technology and
resultant production benefits in targeted formations provide our customers an
advantage and that the major challenge for the Company is increasing our market
share through succinct demonstration of this benefit. The key barriers we have
encountered impacting the pace of adoption are; demonstration of the
cost/benefit, safety considerations, awareness and "inertia". Operators tend to
be cautious in their adoption of new technologies, particularly given the
significance of fracturing costs as a percentage of total drilling and
completions costs.
The current E&P market is very focused on cost efficiencies as they develop
large resource plays. Free cash flow generation remains under pressure for a
large segment of the sector with overall ROCE down during 2013. As such, the
higher up front cost of GASFRAC's service can be a key criteria in purchasing
decisions. Thus, the keys on the cost/benefit side are both a) the collection of
basin by basin production data to provide more case studies to potential
customers showing the positive impact on production and net present values and
b) continued reduction in the up-front costs of our service through enhancements
such as engineered fluids. We expect that the service delivery initiatives we
undertook over the last few quarters, particularly engineered fluids that allow
significant recovery of frac load fluids, will reduce the net cost of our
service to our customers. This change in our value proposition creates an
opportunity to attract customers to trial our technology and observe the
specific impact on their wells and production. Due to the significant investment
by operators in fracturing services, the sales and trial process is relatively
long. We would anticipate a time from of six to nine months from initial trial
to ultimate adoption of our services. While safety will always remain a key
focus for the Company, the equipment and procedures put in place during 2011
have largely removed this as a barrier for most customers - although education
and safety audits will remain part of the sales cycle. We have observed an
increased awareness and expressed interest in GASFRAC services in the basins we
are targeting. During the fourth quarter of 2013 we had two trials with
customers who are still evaluating the results. Early in Q1 2014 we had trials
with three new customers. While these have not resulted in converted customers
at this time, the success in achieving these trials is a positive sign.
During this period of adoption, our operations in both Canada and the United
States remain concentrated with a few key customers and our revenues are subject
to fluctuation dependent on the level of drilling operations by these customers
in the areas in which we are servicing them. Their levels of drilling activity
can be impacted by numerous factors including, but not limited to, operational
difficulties, project scheduling, infrastructure limitations, weather
conditions, hunting restrictions, and budgetary priorities. During the first
quarter of 2014 we have experienced such fluctuations with both Husky and
BlackBrush utilizing pad drilling and having such projects delayed from Q1 into
Q2. As a result we anticipate revenue for Q1 will be well below fourth quarter
results, while second quarter revenue should exceed fourth quarter results.
While these fluctuations add uncertainty to the timing of our cash flows, our
current cost structure allows us to remain cash positive at approximately $10
million of revenue per month. Further, our capital commitments and requirements
for 2014 are minimal. As such, our draw on our bank credit facility is expected
to remain at a level driven by the amount of our accounts receivable. However,
these fluctuations in revenue, such as being experienced in the first quarter of
2014, can result in financial covenant breaches which would require waiver or
forbearance. The Company does however have significant asset backing
(receivables and capital equipment) providing support for its credit facility.
At year end, working capital (excluding credit facility) of $25.6 million fully
supported the credit facility of $18.6 million. In addition, the Company had
$193.6 million of capital assets at year end. Based on this structure, the
Company may consider a debt facility more structured to asset support and longer
term in nature to its current facility.
FORWARD-LOOKING STATEMENT
This document contains certain statements that constitute forward-looking
statements under applicable securities legislation. All statements other than
statements of historical fact are forward-looking statements. In some cases,
forward-looking statements can be identified by terminology such as "may",
"will", "should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential", "continue", or the negative of these terms or other
comparable terminology. These statements are 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 other things:
-- expectations that the Company's innovative technology will provide the
Company with opportunities to expand the Company's market share in
Canada and the U.S.;
-- expectations of securing financing for 2014 and beyond;
-- expectations as to the level of funding available under the Company's
credit facility;
-- expectations as to the degree of activity by key customers;
-- expectations as to fluctuations in revenue due to customer
concentration;
-- expectations of the impact of weather on activity in Canada in 2014;
-- expectations as to activity levels in North America;
-- expectations as to capital development programs of major customers;
-- expectations as to the rate of trials and adoption of the Company's
technology by E&P companies;
-- expectations as to the Company's future market position in the industry;
-- expectations as to the supply of raw materials and timing of purchase
commitments;
-- expectations as to the pricing of the Company's services in Canada and
the USA;
-- expectations as to obtaining long term contracts with customers;
-- expectations of fracturing industry pricing and the pricing of the
Company services in North America in 2014 and beyond;
-- expectations of oil and natural gas commodity prices in 2014;
-- expectations of propane and other LPG prices in 2014 and forward.
These statements are only predictions and 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; effect of market conditions on the demand
for the Company's services; the ability to obtain qualified staff, equipment and
services in a timely manner; the effect of current plans; the timing of capital
expenditures and receipt of added equipment operating capacity; future oil and
natural gas prices and the ability of the Company to successfully market its
services.
By its nature, forward-looking information involves numerous assumptions, known
and unknown risks and uncertainties, both general and specific, that contribute
to the possibility that the predictions, forecasts, projections and other
forward-looking statements will not occur. These risks and uncertainties
include: changes in drilling activity; fluctuating oil and natural gas prices;
general economic conditions; weather conditions; regulatory changes; the
successful development and execution of technology; customer acceptance of new
technology; the potential of competing technologies by market competitors; the
availability of qualified staff, raw materials and property and equipment.
Consolidated Statement of Financial Position
As at: Dec 31, 2013 Dec 31, 2012
---------------------------------------------------------------------------
CAD$ '000 CAD$ '000
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,955 7,927
Trade and other receivables 26,037 30,529
Inventory 12,645 6,521
Prepaids and short term deposits 1,459 1,346
Assets held for sale - 1,352
---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 42,096 47,675
---------------------------------------------------------------------------
NON-CURRENT ASSETS
Plant and equipment 193,612 219,056
Intangible assets 780 1,021
Long term deposits 6,309 7,704
---------------------------------------------------------------------------
TOTAL NON-CURRENT ASSETS 200,701 227,781
---------------------------------------------------------------------------
TOTAL ASSETS 242,797 275,456
---------------------------------------------------------------------------
---------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables and accrued liabilities 14,352 17,318
Provisions 742 768
Current portion of finance lease obligation 1,359 1,349
Current portion of credit facility 18,573 2,500
---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 35,026 21,935
---------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Finance lease obligation 835 1,035
Operating lease obligation 79 38
Credit facility - 27,500
Convertible debenture 35,648 34,504
Commitments and contingencies
---------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES 36,562 63,077
---------------------------------------------------------------------------
TOTAL LIABILITIES 71,588 85,012
---------------------------------------------------------------------------
CAPITAL & RESERVES
Share capital 259,823 259,551
Contributed surplus 6,461 5,810
Foreign currency translation reserve 5,326 1,055
(Deficit) Retained earnings (100,401) (75,972)
---------------------------------------------------------------------------
TOTAL EQUITY 171,209 190,444
---------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 242,797 275,456
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Consolidated Statement of Comprehensive Loss
For the twelve months ended Dec 31, 2013 Dec 31, 2012
---------------------------------------------------------------------------
CAD$ '000 CAD$ '000
REVENUE 121,823 149,442
---------------------------------------------------------------------------
EXPENDITURES
Operating costs 96,555 127,673
Selling, general and administrative 18,489 22,487
Share based compensation 1,135 620
Depreciation and amortization 25,609 26,826
Impairments 120 47,412
Finance cost 6,661 5,623
Foreign exchange (gain) loss (24) 46
---------------------------------------------------------------------------
148,545 230,687
---------------------------------------------------------------------------
OTHER INCOME
Interest income 18 62
Insurance Income - 1,957
Net gain / (loss) on disposition of assets 2,275 (7)
---------------------------------------------------------------------------
2,293 2,012
---------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (24,429) (79,233)
Tax recovery - 1,764
---------------------------------------------------------------------------
LOSS FOR THE YEAR (24,429) (77,469)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
OTHER COMPREHENSIVE (LOSS) INCOME
ITEMS THAT WILL BE RECLASSIFIED TO PROFIT AND
LOSS
Exchange differences on translating foreign
operations 4,271 (1,741)
---------------------------------------------------------------------------
OTHER COMPREHENSIVE (LOSS) INCOME 4,271 (1,741)
---------------------------------------------------------------------------
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
ATTRIBUTABLE TO THE OWNERS OF THE COMPANY (20,158) (79,210)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
LOSS PER SHARE
Basic (cents per share) (0.38) (1.23)
---------------------------------------------------------------------------
Diluted (cents per share) (0.38) (1.23)
---------------------------------------------------------------------------
Consolidated Statement of Cash Flow
For the twelve months ended Dec 31, 2013 Dec 31, 2012
---------------------------------------------------------------------------
CAD$ '000 CAD$ '000
CASH FLOWS PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Loss for the year (24,429) (77,469)
Adjusted for:
Depreciation and amortization 25,609 26,826
Impairments 120 47,412
(Gains) / losses on disposal of assets (2,275) 7
Equity settles share based compensation 773 342
Finance cost per income statement 6,661 5,623
Unrealized foreign exchange loss (422) (3)
Doubtful debt expense 528 1,306
Insurance income - (1,957)
Taxation per income statement - (1,764)
---------------------------------------------------------------------------
6,565 323
Net change in non-cash operating working
capital items (2,121) 22,032
---------------------------------------------------------------------------
Cash provided by operating activities 4,444 22,355
Interest paid (5,523) (3,349)
---------------------------------------------------------------------------
Net cash provided (used) by operating
activities (1,079) 19,006
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of plant and equipment (2,995) (48,338)
Acquisition of intangible assets (155) (776)
Proceeds from sale of plant and equipment 10,780 2,124
Net change in non-cash investing working
capital (1,387) (15,353)
---------------------------------------------------------------------------
Net cash provided (used) in investing
activities 6,243 (62,343)
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from common shares issued (net of
share issue cost) 150 1,310
Issue of debentures (net of debenture issue
cost) - 37,888
Net change in credit facility (11,427) 7,813
Net change in finance leases (217) (696)
---------------------------------------------------------------------------
Net cash provided (used) in financing
activities (11,494) 46,315
---------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (6,330) 2,978
Cash and cash equivalents, beginning of year 7,927 5,026
Effects of exchange rate changes on the
balance of cash held in foreign currencies 358 (77)
---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 1,955 7,927
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The following results should be read in conjunction with the Management's
Discussion and Analysis, the consolidated financial statements and notes of
GASFRAC Energy Services Inc. for the three and twelve months ended December 31,
2013 which are available on SEDAR at www.sedar.com
The Company will host a conference call on Thursday, March 13, 2014 at 9:00 a.m.
MT (11:00 a.m. ET) to discuss the Company's results for the fourth quarter of
2013.
To listen to the webcast of the conference call, please enter:
http://www.gowebcasting.com/5294 in your web browser or visit the Investor
Information section of our website www.gasfrac.com.
To participate in the Q&A session, please call the conference call operator at
1-800-769-8320 or 1-416-340-8530 fifteen minutes prior to the call's start time
and ask for "GASFRAC Fourth Quarter Results Conference Call".
A replay of the call will be available until March 20, 2014 by dialing
1-800-408-3053 (North America) or 1-905-694-9451 (outside North America).
Playback passcode: 7183220. The Company will also archive the conference on its
website at www.gasfrac.com.
GASFRAC is an oil and gas service company headquartered in Calgary, Alberta,
Canada, whose primary business is to provide LPG fracturing services to oil and
gas companies in Canada and the USA.
FOR FURTHER INFORMATION PLEASE CONTACT:
GASFRAC Energy Services Inc.
James M Hill
Chief Executive Officer
403-515-3387
jhill@gasfrac.com
www.gasfrac.com
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