GASFRAC Energy Services Inc. (TSX VENTURE:GFS)
Dwight Loree, Chief Executive Officer commented "Revenue for the quarter
increased 91% to $30.5 million from $15.9 million in 2010. However, this revenue
was below our expectations due to capacity constraints resulting from a well
site incident on January 14, 2011 which resulted in us suspending operations for
a three week period. Subsequently we also added several data collection and
monitoring systems to our operating procedures to enhance safety. This
additional data monitoring capability exceeded the bandwidth of the data vans as
currently configured resulting in an additional short-term constraint on revenue
capacity which has now been alleviated. The net result of the shutdown and
bandwidth limitation was to reduce the Company's effective revenue generation
capacity during the quarter to 60% of that originally planned. With the added
equipment from our capital build now coming on line, I expect revenue capacity
to significantly increase in for the second half of the year."
Management's discussion and analysis ("MD&A") of the financial condition and the
results of operations should be read in conjunction with the March 31, 2011
unaudited interim consolidated financial statements and the December 31, 2010
audited consolidated financial statements of GASFRAC Energy Services Inc.
("GASFRAC" or the "Company"), together with the accompanying notes. The interim
consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") 1, "First-time Adoption of
International Financial Reporting Standards" and with International Accounting
Standard 34, "Interim Financial Reporting", as issued by the International
Accounting Standard Board. Previously, the Company prepared its interim and
Annual Consolidated Financial Statements in accordance with Canadian generally
accepted accounting principles ("GAAP").
Readers should also refer to the "Forward-Looking Statements" legal advisory at
the end of this MD&A. This MD&A has been prepared using information that is
current to May 9, 2011.
All references to dollar amounts are in Canadian dollars. Figures are in 000s
except share and per share data or as otherwise noted.
Unless the context otherwise requires, all references in this MD&A to "we", "us"
or "our" mean GASFRAC.
Business of GASFRAC
GASFRAC Energy Services Company Inc. ("GASFRAC" or the "Company") was
incorporated on February 13, 2006 in Canada under the Business Corporations Act
in the Province of Alberta. The Company is an oil and gas well fracturing
company that has developed new technology, the "LPG Fracturing Process", to
enable wells to be fractured safely with LPG, more specifically propane and
butane. The Company has four wholly-owned subsidiaries, GASFRAC Services GP
Inc., GASFRAC Energy Services Limited Partnership, GASFRAC Luxembourg Finance,
and GASFRAC Inc. (a U.S. incorporated entity).
Changes in Accounting Policies
On January 1, 2011, GASFRAC adopted International Financial Reporting Standards
("IFRS") for financial reporting purposes, using a transition date of January 1,
2010. The financial statements for the three months ended March 31, 2011,
including required comparative information, have been prepared in accordance
with IFRS 1, First-time Adoption of International Financial Reporting Standards,
and with International Accounting Standard ("IAS") 34, Interim Financial
Reporting, as issued by the International Accounting Standards Board ("IASB").
Previously, the Company prepared its Interim and Annual Consolidated Financial
Statements in accordance with Canadian generally accepted accounting principles
("Previous GAAP"). Unless otherwise noted, 2010 comparative information has been
prepared in accordance with IFRS. The adoption of IFRS has not had an impact on
the Company's operations, strategic decisions and cash flow. Further information
on the IFRS impacts is provided in the Accounting Policies and Estimates Section
of this MD&A, including reconciliations between previous GAAP and IFRS Net
Earnings, Operating Earnings and other financial metrics.
Comparative Quarterly Financial Information
Three months ended: March 31, 2011 March 31, 2010
----------------------------------------------------------------------------
Revenue 30,452 15,906
Operating expenses 25,567 11,907
Selling, general and administrative expenses 3,670 1,932
EBITDA(1) 66 3,943
Net (loss) income (2,515) 1,729
Net (loss) income per share - basic (0.04) 0.05
Weighted average number of shares - basic 60,662,082 32,674,444
Treatments 139 78
Revenue per treatment 219 204
----------------------------------------------------------------------------
(1) Defined under Non-IFRS Measures
First Quarter Highlights
Financial Overview
Revenues
Revenue for the quarter increased 91% to $30.5 million from $15.9 million in
2010. The increase reflects a combination of added equipment capacity as well as
additional demand for our services in Canada. However, revenue for the quarter
was below our expectations due to capacity constraints resulting from a well
site incident on January 14, 2011. As the Company has previously described in
press releases, the incident was caused by a premature mechanical failure. The
Company took the precaution of discontinuing all fracturing operations until it
determined the cause of the incident. As a result, operations for the quarter
were shut down for a three week period. Further, as a result of its review, the
Company added several data collection and monitoring systems to its operating
procedures. This additional data monitoring capability exceeded the bandwidth of
the data vans as currently configured thus requiring the use of two data vans
per fracturing job. This requirement for two data vans per job effectively
removed one fracturing set from operations until additional monitoring bandwidth
was added to each equipment set. This was completed early in the second quarter.
The net result of the shutdown and bandwidth limitation was to reduce the
Company's effective revenue generation capacity during the quarter to 60% of
that originally planned. In 2011, the demand for fracturing services in Canada
has improved significantly and the Company has participated in this improvement
due to increased acceptance of its LPG fracturing technology and added equipment
capacity. During the quarter, three customers represented 56% of revenue.
During the quarter the Company completed 139 treatments at an average price of
$219 compared to 78 treatments at an average job price of $204 during Q1 2010.
Operating Expenses
Operating expenses increased to $25.6 million (84% of revenue) during Q1 2011
from $11.9 million (75% of revenue) in Q1 2010. In addition to the increase
related to revenue volume, the increase is comprised of three components. First,
direct field costs increased by approximately 4 percentage points ($1.2 million)
resulting from standby charges incurred during the shutdown and equipment rental
costs. Second, repair costs incurred as a result of the January 14, 2011
incident were $0.5 million. Third, our US operation incurred fixed operating
costs of $0.8 million during the quarter.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased to $3.7 million (12% of revenue) during Q1 2011 from
$3.6 in Q4 2010 and $1.9 million (12% of revenue) in Q1 2010. The increase is
primarily due to the hiring of administrative and operations staff to support
the growth in both our Canadian and US operations.
Amortization
Amortization increased to $2.9 million during Q1 2011 from $1.5 million in Q1
2010. The increase is due to an increase in operating capital assets.
EBITDA
EBITDA decreased to $0.1 million during Q1 2011 from $4.0 million in Q1 2010.
The decrease is largely due to the revenue capacity limitation experienced
during the quarter without a reduction in the cost base built to support the
higher revenue.
Net Income
Net income decreased to a loss of $2.5 million during Q1 2011 from net income of
$1.7 million during Q1 2010.
Summary of Quarterly Results
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
2010 2010 2010 2010 2011
----------------------------------------------------------------------------
Revenue 15,906 13,323 26,590 41,087 30,452
Net income (loss) 1,729 (1,282) 2,318 1,995 (2,515)
Net income (loss) per share
(basic) 0.05 (0.04) 0.06 0.04 (0.04)
EBITDA (1) 3,943 440 4,874 5,814 66
Capital expenditures 6,247 7,430 35,871 33,897 38,941
Working capital (2) 17,640 13,330 41,781 118,346 79,069
Shareholders' equity 85,957 85,758 151,606 259,445 258,217
----------------------------------------------------------------------------
(1) Defined under Non-IFRS Measures
(2) Working capital is defined as current assets less current liabilities
Liquidity and Capital Resources
As at March 31, 2011 2010
----------------------------------------------------------------------------
Cash Provided by (used in)
Operating Activities $ 26,327 $ (5,124)
Financing Activities 1,050 341
Investing Activities (38,632) (6,247)
----------------------------------------------------------------------------
$ (11,255) $ (11,030)
----------------------------------------------------------------------------
As at March 31, 2011 the Company had $79.1 million of working capital compared
to $118.3 million at December 31, 2010. The decrease in working capital is
primarily due to investing in capital assets offset by an increase is cash
provided from operating activities.
The Company had approximately $101 million of capital commitments as part of the
2011 capital program. The Company anticipates being able to fund these capital
expenditures through cash on hand, operating cash flows and current debt
facilities.
Operating
The Company's funds provided by operations (as defined under Non-IFRS Measures)
was $1.4 million for Q1 2011 compared to $4.1 million in 2010. The decrease is
largely due to the loss for the quarter as compared to a profit in 2010.
Financing
Net cash provided by financing activities for Q1 2011 was $1.0 million compared
to $0.3 million during Q1 2010. Both result from the exercise of stock options
and warrants.
As at March 31, 2011 the Company had a $15 million demand revolving loan
facility and a $35 million committed revolving facility (see Note 11 of the
interim consolidated financial statements). No amounts were drawn on these
facilities as at March 31, 2011 or as at the date of this MD&A. The Company is
in compliance with all its debt covenants.
Investing
For Q1 2011 the Company's net cash used for investing activities was $41.3
million as compared to $6.2 million in Q1 2010. The Company invested $38.9
million in capital equipment to add revenue producing capacity. In 2010, The
Company invested $6.2 million in capital equipment.
Accounting Policies and Estimates
Adoption of IFRS
The Company has prepared its March 31, 2011 Interim Consolidated Financial
Statements in accordance with IFRS 1, First-time Adoption of International
Financial Reporting Standards, and with IAS 34, Interim Financial Reporting, as
issued by the IASB. Previously, the Company prepared its financial statements in
accordance with Canadian GAAP, or previous GAAP. The adoption of IFRS has not
had a material impact on the Company's operations, strategic decisions, cash
flow and capital expenditures.
The Company's IFRS accounting policies are provided in Note 3 to the Interim
Consolidated Financial Statements. In addition, Note 15 to the Interim
Consolidated Financial Statements presents reconciliations between the Company's
2010 previous GAAP results and the 2010 IFRS results. The reconciliations
include the Consolidated Balance Sheets as at January 1, 2010, March 31, 2010
and December 31, 2010, and Consolidated Statements of Earnings, Comprehensive
(Loss) Income and Changes in Shareholders' Equity for the three months ended
March 31, 2010 and for the twelve months ended December 31, 2010.
The following provides summary reconciliations of GASFRAC's 2010 GAAP and
IFRS result.
MAR. 31 JUN. 30 SEP. 30 DEC. 31 Annual
2010 2010 2010 2010 2010
----------------------------------------------------------------------------
Net income (loss) -
Previous GAAP 1,672 (1,266) 2,585 2,062 5,053
Operating Expense re:
leases 33 62 32 42 169
Share Based Payments (129) (247) (494) (342) (1,212)
Amortization 159 174 200 239 772
Interest income / Expense (6) (5) (5) (6) (22)
----------------------------------------------------------------------------
Net income (loss) - IFRS 1,729 (1,282) 2,318 1,995 4,760
----------------------------------------------------------------------------
Accounting Policy Changes
Leases
Previous GAAP will consider the leases to be of a capital nature based on
certain quantifiable criteria. Based on the criteria, GASFRAC concluded that the
leases on the light vehicles were operating leases in nature.
With the absence of the quantitative criteria provided by Previous GAAP, we
determined that qualitatively, the risks and rewards of the lease reside with
GASFRAC and as such, treated it as a financing lease.
Depreciation
With the conversion to IFRS, GASFRAC broke out the field equipment into each of
the separate components that made up field equipment. We then assessed the
useful life and residual value for each of these components. Based on this
assessment, certain depreciation rates were modified.
Stock based compensation
Under Previous GAAP, GASFRAC accounted for certain stock based compensation
plans whereby the obligation and compensation costs were accrued over the
vesting period using the intrinsic value method. The intrinsic value of a share
unit is the amount by which the Company's share price exceeds the exercise price
of the share unit.
For certain stock-based compensation plans, IFRS requires share-based
compensation be fair valued using an option pricing model, such as the
Black-Scholes model, at each reporting date. Each tranche in an award is
considered a separate award with its own vesting period. Further, GASFRAC
adjusted the volatility of the unvested options and warrants that were issued
when GASFRAC was not publically traded from 0% to 50%.
Accordingly, upon transition to IFRS, the Company recorded a fair value
adjustment of $891 as at January 1, 2010 to increase the share-based
compensation with a corresponding charge to retained earnings. GASFRAC elected
to use the IFRS 1 exemption whereby the share-based payments that had vested or
settled prior to January 1, 2010 were not required to be retrospectively
restated. Subsequent IFRS fair value adjustments are recorded through stock
based compensation.
As part of the 2010 Kierland transaction, the amount of consideration in excess
of the fair market value of assets received was offset against share issue costs
under Previous GAAP. Under IFRS, the amount of consideration in excess of the
fair market value of assets received was listed as an unidentifiable transaction
cost and expensed to sales, general and administrative expense. The amount of
the adjustment was $245.
Internal Controls Over Financial Reporting
During the first quarter, GASFRAC completed an evaluation of the Company's
internal controls under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, 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 the 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 March 31,
2011.
Off-Balance Sheet Arrangements
The Company is not party to any off balance sheet arrangements or transactions.
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:
EBITDA is defined as net income before interest income and expense, taxes,
depreciation, amortization and non-controlling interest. EBITDA is presented
because it is frequently used by securities analysts and others for evaluating
companies and their ability to service debt.
EBITDA was calculated as follows:
Three months ended March 31 2011 2010
----------------------------------------------------------------------------
Net (loss) income (2,515) 1,729
Add back (deduct):
Interest (income) expense (255) 6
Amortization 2,885 1,490
Deferred income tax (benefit) expense (49) 718
----------------------------------------------------------------------------
EBITDA 66 3,943
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds provided by operations is defined as cash and cash equivalents provided by
(used for) operating activities before the net change in non-cash operating
working capital. Funds provided by operations is a measure that provides
shareholders and potential investors with additional information regarding the
Company's liquidity and its ability to generate funds to finance its operations.
Management utilizes these measures to assess the Company's ability to finance
operating activities and capital expenditures.
Funds provided by operations were calculated as follows:
Three months ended March 31 2011 2010
----------------------------------------------------------------------------
Cash and cash equivalents provided by (used for)
operating activities 26,327 (5,124)
Add back (deduct):
Net changes in non-cash working
capital (25,670) 9,227
----------------------------------------------------------------------------
Funds provided by operations 657 4,103
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outlook
We expect the North American pressure pumping market will remain strong in 2011
due to the service intensity of the wells being drilled, energy demand and
service supply levels. Although there is projected to be a significant amount of
new horsepower being added to the market in 2011, it is still estimated that the
market will be undersupplied based on projected rig activity. As natural gas
prices continue to be soft we have observed customers targeting more of their
capital budgets in oil and liquids-rich reservoirs. Further, development
activity is focused on deep, unconventional and horizontal wells often requiring
multi-stage fracturing.
As noted above, we expect that overall demand for fracturing services will
continue to be strong for 2011 and this, combined with growing knowledge and
acceptance of the Company's LPG fracturing technology, should support continued
growth of our Canadian revenue base. While we experienced a constraint on
revenue producing capacity in the first quarter of 2011 due to our voluntary
three week operational shutdown, we do not expect to recapture that revenue
during the second quarter of 2011 as the Canadian Spring breakup is expected to
be longer than usual. As a result, second quarter revenues from Canada will
reflect reduced revenue days. However, we anticipate four crews operating in
Canada for the entire second half of 2011 which will allow a significant
increase in revenue activity in the second half.
As in Canada, more drilling activity in the USA is being focused on oil and
liquids rich gas. While industry dynamics are similar to Canada for GASFRAC, the
key element of our initial growth in the USA will be obtaining customer
acceptance of our LPG fracturing technology and on focusing on key basins where
we can quickly reach sufficient mass to ensure high utilization rates. One set
of equipment was deployed to Texas in April 2011 with a second set scheduled for
later in the second quarter. The Company has identified a number of customers
which plan to perform LPG fracturing operations to determine the efficacy of the
technology on their formations. Revenue levels in the US will be a factor of the
timing and results of these assessments and the resultant levels of customer
adoption of LPG fracturing technology. We are confident that customers will
experience positive results from LPG fracturing.
Forward-Looking Statements
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 GASFRAC's innovative technology will provide GASFRAC with
opportunities to expand GASFRAC's market share in Alberta and British Columbia;
- estimates of additional investment required to complete ongoing capital projects;
- expectations of securing financing for additional capital expenditures beyond
2010;
- expectations of the duration of Spring breakup in Canada in 2011;
- expectations that GASFRAC has or can obtain sufficient funding to meet its
capital plan;
- expectations that additional operating equipment will be delivered and provide
GASFRAC the ability to service demand for large multi-stage treatments;
- assumption that environmental protection requirements will not have a
significant impact on GASFRAC's operations or capital budget;
- expectations as to GASFRAC's future market position in the industry;
- expectations as to the supply of raw materials;
- expectations as to the pricing of GASFRAC's services;
- expectations as to the timing of additional capital equipment in Canada and
the USA;
expectations as to the potential for GASFRAC's services in the United Sates;
- expectations of fracturing industry pricing and the pricing of GASFRAC
services in North America in 2011;
- expectations of oil and natural gas commodity prices in 2011;
- expectations of the amount of net fracturing horsepower being added to the
North American market in 2011 and its impact on GASFRAC's service prices;
- expected timing for completion of the assessment and implementation phases of
GASFRAC's project plan for transition to IFRS;
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 capital equipment.
GASFRAC ENERGY SERVICES INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31, 2011
GASFRAC ENERGY SERVICES INC.
Consolidated Statement of Financial Position (unaudited) (000s)
As at: Mar 31, 2011 Dec 31, 2010 Jan 1, 2010
----------------------------------------------------------------------------
(Note 15) (Note 15)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 87,446 $ 98,701 $ 11,643
Accounts receivable 21,374 24,500 9,469
Inventory 16,176 7,018 5,499
Prepaid expenses 5,545 6,839 519
----------------------------------------------------------------------------
130,541 137,058 27,130
PROPERTY and EQUIPMENT (Note 4) 174,094 138,051 61,557
INTANGIBLE ASSETS (Note 5) 433 420 358
LONG-TERM DEPOSITS 5,528 3,176 1,790
DEFERRED INCOME TAX BENEFIT - - 775
----------------------------------------------------------------------------
TOTAL ASSETS $ 310,596 $ 278,705 $ 91,610
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Current portion of lease
obligations (Note 6) $ 293 $ 240 $ 121
Unearned revenue (Note 7) 20,871 3,485
Accounts payable and accrued
liabilities 30,308 14,987 7,617
----------------------------------------------------------------------------
Total current liabilities 51,472 18,712 7,738
----------------------------------------------------------------------------
LONG-TERM LEASE OBLIGATIONS
(Note 6) 477 180 179
DEFERRED INCOME TAX LIABILITY
(Note 8) 430 368 -
----------------------------------------------------------------------------
Total non-current liabilities 907 548 179
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 9) 252,843 251,573 81,293
CONTRIBUTED SURPLUS 3,539 3,522 2,811
RETAINED EARNINGS 1,835 4,350 (411)
----------------------------------------------------------------------------
Total equity 258,217 259,445 83,693
----------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 310,596 $ 278,705 $ 91,610
----------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
On behalf of the Board:
Dwight Loree, Director
Gerald Roe, Director
GASFRAC ENERGY SERVICES INC.
Consolidated Statement of Comprehensive (loss) Income (unaudited)
(000s)
Three Months Ended: Mar 31, 2011 Mar 31, 2010
----------------------------------------------------------------------------
(Note 15)
REVENUE $ 30,452 $ 15,906
OTHER INCOME
Interest income 255 -
Business interruption claim - 2,030
----------------------------------------------------------------------------
30,707 17,936
----------------------------------------------------------------------------
EXPENDITURES
Operating 25,567 11,913
Selling, general and administrative 3,670 1,932
Stock based compensation 1,047 166
Amortization 2,885 1,490
----------------------------------------------------------------------------
33,169 15,501
----------------------------------------------------------------------------
(LOSS) PROFIT BEFORE INCOME TAX (2,462) 2,435
Foreign exchange loss (gain) 102 (12)
Deferred income tax (benefit) expense (49) 718
----------------------------------------------------------------------------
NET (LOSS) INCOME / COMPREHENSIVE (LOSS)
INCOME (2,515) 1,729
(Loss) Earnings per share
Basic $ (0.04) $ 0.05
----------------------------------------------------------------------------
Diluted $ (0.04) $ 0.05
----------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
GASFRAC ENERGY SERVICES INC.
Consolidated Statement of Changes in Equity (unaudited)
(000s)
Share Contributed Retained
Capital Surplus Earnings Total Equity
----------------------------------------------------------------------------
Balance at January 1,
2010 $ 81,293 $ 2,811 $ (411) $ 83,693
----------------------------------------------------------------------------
Total comprehensive
income for the
period:
Net income and
comprehensive income - - 1,729 1,729
----------------------------------------------------------------------------
Total comprehensive
income Jan - Mar 2010 - - 1,729 1,729
----------------------------------------------------------------------------
Exercise of stock
options 406 (37) - 369
SBC expense - options
and warrants - 166 - 166
----------------------------------------------------------------------------
Balance at March 31,
2010 $ 81,699 $ 2,940 $ 1,318 $ 85,957
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total comprehensive
income for the
period:
Net income and
comprehensive income - - 3,032 3,032
----------------------------------------------------------------------------
Total comprehensive
income Apr - Dec 2010 - - 3,032 3,032
----------------------------------------------------------------------------
Transactions with
shareholders:
Issuance of common
stock 104,698 - - 104,698
Issuance of
restricted stock - 354 - 354
Issuance of
subscription receipts 61,551 - - 61,551
Issuance on share
exchange 699 - - 699
Issued for services 128 - - 128
SBC expense - options
and warrants - 730 - 730
Exercise of stock
options 991 (96) - 895
Exercise of warrants 2,030 (629) - 1,401
Released from
restricted shares 329 (329) - -
Reclassification as
restricted shares (552) 552 - -
----------------------------------------------------------------------------
Total 169,874 582 - 170,456
----------------------------------------------------------------------------
Balance at December
31, 2010 $ 251,573 $ 3,522 $ 4,350 $ 259,445
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total comprehensive
income for the
period:
Net loss and
comprehensive loss - - (2,515) (2,515)
----------------------------------------------------------------------------
Total comprehensive
income Jan - Mar 2011 - - (2,515) (2,515)
----------------------------------------------------------------------------
Transactions with
shareholders:
Stock based
compensation expense
- options - 185 - 185
Issuance of
restricted stock - 151 - 151
Exercise of stock
options 523 (46) - 477
Exercise of warrants 839 (176) - 663
Released from
restricted shares 97 (97) - -
Common Stock -
Deferred Tax Benefit (189) - - (189)
----------------------------------------------------------------------------
Total 1,270 17 - 1,287
----------------------------------------------------------------------------
Balance as March 31,
2011 $ 252,843 $ 3,539 $ 1,835 $ 258,217
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
GASFRAC ENERGY SERVICES INC.
Consolidated Statement of Cash Flows (unaudited)
(000s)
Three Months Ended: Mar 31, 2011 Mar 31, 2010
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS PROVIDED BY (USED
FOR):
OPERATING ACTIVITIES
Net (loss) Income / Comprehensive (loss)
Income $ (2,515) $ 1,729
Items not effecting cash:
Amortization 2,885 1,490
Deferred income taxes (benefit) expense (49) 718
Stock based compensation (Note 9) 336 166
----------------------------------------------------------------------------
657 4,103
Net change in non-cash working capital (Note
13) 25,670 (9,227)
----------------------------------------------------------------------------
26,327 (5,124)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common shares (net of share issue
costs) 700 368
Payment of finance lease liabilities 350 (27)
----------------------------------------------------------------------------
1,050 341
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (38,728) (6,243)
Proceeds on disposal of property and
equipment 147 -
Purchase of intangible assets (51) (4)
----------------------------------------------------------------------------
(38,632) (6,247)
----------------------------------------------------------------------------
Decrease in cash and cash equivalents for the
period (11,255) (11,030)
Cash and cash equivalents at beginning of
period 98,701 11,643
----------------------------------------------------------------------------
BALANCE, END OF THE PERIOD $ 87,446 $ 613
----------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
GASFRAC ENERGY SERVICES INC.
Notes to the Consolidated Financial Statements (unaudited)
March 31, 2011
(Figures in text and tables are in 000s except share data and certain other
exceptions as indicated)
1. CORPORATE INFORMATION
GASFRAC Energy Services Inc. ("Gasfrac" or "the Company") is an oil and gas well
fracturing company that has developed the "LPG Fracturing Process" to enable
wells to be fractured with LPG, more specifically propane and butane.
GASFRAC is a publically traded company, incorporated and domiciled in Canada.
The address and registered office is Suite 1900, 801 - 6th Avenue S.W., Calgary,
Alberta, Canada, T2P 3W2.
These interim Consolidated Financial Statements were approved and authorized for
issuance by the Board of Directors on May 9, 2011.
The Company's Canadian business is seasonal in nature. 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.
2. BASIS OF PREPARATION
In conjunction with the Company's annual audited Consolidated Financial
Statements to be issued under International Financial Reporting Standards
("IFRS") for the year ended December 31, 2011, these interim Consolidated
Financial Statements present GASFRAC's initial financial results of operations
and financial position under IFRS as at and for the three months ended March 31,
2011, including 2010 comparative periods. As a result, they have been prepared
in accordance with IFRS 1, "First-time Adoption of International Financial
Reporting Standards" and with International Accounting Standard ("IAS") 34,
"Interim Financial Reporting", as issued by the International Accounting
Standards Board ("IASB"). These interim Consolidated Financial Statements do not
include all the necessary annual disclosures in accordance with IFRS.
Previously, the Company prepared its interim and annual Consolidated Financial
Statements in accordance with Canadian generally accepted accounting principles
("previous GAAP").
The preparation of these interim Consolidated Financial Statements resulted in
selected changes to GASFRAC's accounting policies as compared to those disclosed
in the Company's annual audited Consolidated Financial Statements for the period
ended December 31, 2010 issued under previous GAAP. A summary of the significant
changes to GASFRAC's accounting policies is disclosed in Note 15 along with
reconciliations presenting the impact of the transition to IFRS for the
comparative periods as at January 1, 2010, as at and for the three months ended
March 31, 2010, and as at and for the twelve months ended December 31, 2010.
Operating expenses as presented on the Consolidated Statement of Comprehensive
(loss) Income are primarily composed of direct salaries, materials, and other
direct operating costs. Selling, general, and administrative expenses as
presented on the Consolidated Statement of Comprehensive (loss) Income are
primarily composed of indirect salaries, head office expenses, insurance,
professional fees and other indirect costs.
A summary of GASFRAC's significant accounting policies under IFRS is presented
in Note 3. These policies have been retrospectively and consistently applied
except where specific exemptions permitted an alternative treatment upon
transition to IFRS in accordance with IFRS 1 as disclosed in Note 15.
These consolidated financial statements are presented in Canadian dollars, which
is the Company's functional currency. All financial information presented in
dollars has been rounded to the nearest thousand except for share and per share
amounts.
These interim Consolidated Financial Statements have been prepared on a
historical cost basis except for financial instruments and share based payment
transactions that are measured at fair value.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements and in preparing
the opening IFRS statement of financial position at January 1, 2010 for the
purposes of the transition to IFRS, unless otherwise indicated.
The accounting policies have been applied consistently by Company's entities.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All inter-company balances and
transactions have been eliminated on consolidation.
Measurement Uncertainty
The preparation of consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses.
Actual results could differ from these estimates.
Foreign currency translation
Monetary assets and liabilities of the Company that are denominated in foreign
currencies are translated into its functional currency at the rates of exchange
in effect at the period end date. Non-monetary assets and liabilities of the
Company that are denominated in foreign currencies are translated into its
functional currency using the exchange rate at the date of the transaction.
Exchange rate differences are recorded in the Consolidated Statement of
Earnings.
For the accounts of the foreign operation, revenue and expenses are translated
using average rates for the period. Monetary assets and liabilities of the
foreign operation are translated into its functional currency at the exchange
rate in effect at the period end date. Non-monetary assets and liabilities of
the foreign operation are translated into its functional currency using the
exchange rate at the date of the transaction.
Cash and cash equivalents
Cash and cash equivalents are held for the purpose of meeting short-term cash
commitments and include bank balances and short-term investments with maturities
of less than 90 days.
Inventory
Inventory consists of liquefied petroleum gas, chemicals, and proppants used to
stimulate well production and is stated at the lower of cost and net realizable
value. Cost is determined using the weighted average method.
Property and equipment
Property and equipment are recorded at cost and are amortized over their
estimated economic useful lives using the straight-line method as follows:
Asset Depreciation Useful life
----------------------------------------------------------------------------
Equipment Straight line 3 - 20 Years
Furniture & Fixtures Straight line 5 years
Leasehold Improvements Straight line Lease term
----------------------------------------------------------------------------
When parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items (major components) of property,
plant and equipment. Assets under construction are not amortized until put into
service.
Management estimates the useful life and residual value of property and
equipment on expected utilization, effectiveness of maintenance programs and
expected impact of technological change. Although management believes the
estimated useful lives of the property and equipment are reasonable, it is
possible that changes in estimates could occur which may affect the expected
useful lives and residual values of the property and equipment.
Major betterments are capitalized. Repairs and maintenance expenditures which do
not extend the useful life of the property and equipment are expensed.
Intangible assets
Intangible assets including deferred development costs, patents and intellectual
property that meet certain criteria related to technology, market and financial
feasibility are deferred. Such costs are amortized upon commencement of
commercial sales over the estimated economic life of the related product as
follows:
Asset Depreciation Useful life
----------------------------------------------------------------------------
Patents & Intellectual Property Straight line 5 years
Deferred Development Costs Straight line 5 years
Other Intangible Assets Straight line 5 years
----------------------------------------------------------------------------
Costs that do not meet such criteria are charged to income in the period of
expenditure.
Impairment of Long-Term Assets
Long-term assets include property and equipment and intangible assets. The
carrying value are reviewed when events or changes in circumstances indicate
that the carrying value of an asset or cash generating unit may not be
recoverable. For the purpose of measuring recoverable amounts, assets are
grouped at the lowest levels for which there are separate identifiable cash
flows (cash generating units). If indicators of impairments exist, the
recoverable amount of the asset or cash generating unit is estimated as the
greater of the value in use or the fair value less cost to sell. If the carrying
value of the asset or cash generating unit exceeds the recoverable amount, the
asset or cash generating unit is written down with an impairment recognized in
net earnings. The impairment loss is the difference between the amortized cost
of the asset and the present value of the estimated future cash flows.
The Company evaluates impairment losses for potential reversals when events or
changes in circumstances warrant such consideration.
Revenue recognition
The Company's revenue is comprised of services and other revenue and is
generally sold on agreed upon priced purchase orders or contracts with the
customer. Contract terms do not include provisions for significant post-service
delivery obligations. Service and other revenue is recognized when the services
are provided and collectability is reasonably assured.
Deferred income tax
Deferred tax is recognized in respect to temporary differences arising in tax
bases of assets and liabilities and their carrying amounts in the consolidated
financial statements. Deferred tax is determined on a non-discounted basis using
tax rates and laws that have been enacted or substantially enacted at the
reporting date and are expected to apply when the deferred tax asset or
liability is settled. Deferred tax assets are recognized to the extent that it
is probable that the assets can be recovered.
Deferred tax assets and liabilities are recognized in the statement of income
except to the extent it relates to items recognized directly in equity, in which
case the income tax is also recognized directly in equity.
Leases
Leases or other arrangements entered into for the use of an asset are classified
as either finance or operating leases. Finance leases transfer to the Company
substantially all of the risks and benefits incidental to ownership of the
leased item. Finance leases are capitalized at the commencement of the lease
term at the lower of the fair value of the leased asset or the present value of
the minimum lease payment. Capitalized leased assets are amortized over the
shorter of the estimated useful life of the assets and the lease term. All other
leases are classified as operating leases and the payments are amortized on a
straight line basis over the lease term.
Stock based compensation
The Company has a restricted share plan, performance share unit plan, stock
options, and warrants granted to directors, officers, employees, and consultants
as described in Note 9. All forms of stock based compensation treat each tranche
as a separate award with its own vesting period with stock based compensation
expense recognized on the graded vesting basis. For the restricted share plan,
fair values are determined using prices at the grant date and are recognized as
stock based compensation costs with a corresponding credit to shareholders
equity. For the performance share unit plan, fair values are determined using
prices at the market date and are recognized as stock based compensation with a
corresponding credit to current liabilities. Stock options and warrants are
accounted for using the fair value method under which compensation expense is
recorded based on the estimated fair value of the options at the grant date
using the Black-Scholes option pricing model. Under this method, compensation
cost attributable to stock options granted is measured at fair value at the
grant date and expensed over the vesting period with a corresponding increase to
contributed surplus. Upon exercise of the stock options, consideration paid
together with the amount previously recognized in contributed surplus is
recorded as share capital.
(Loss) Earnings per share
Basic earnings per share is calculated by dividing the net (loss) earnings for
the period attributable to equity owners of GASFRAC by the weighted average
number of shares outstanding during the period.
Diluted earnings per share is calculated based on the weighted average number of
shares outstanding during the year adjusted by the weighted average number of
common shares outstanding for dilutive instruments.
Financial instruments
Financial assets and liabilities are recognized when GASFRAC becomes a party to
the contractual provisions of the instrument. Financial assets are derecognized
when the rights to receive cash flows from the assets have expired or have been
transferred and GASFRAC has transferred substantially all the risks and rewards
of ownership.
Financial assets and liabilities are offset and the net amount reported in the
balance sheet when there is a legally enforceable right to offset the recognized
amounts and there is an intention to settle on a net basis, or realize the asset
and settle the liability simultaneously.
At initial recognition, GASFRAC classifies its financial instruments in the
following categories depending on the purpose for which the instrument were
acquired.
Financial assets
(i) Fair value through profit or loss. A financial asset can be classified as
fair value through profit or loss only if it is designated at fair value through
profit or loss or held-for-trading. GASFRAC's financial assets at fair value
through profit or loss are held-for-trading financial assets. These assets are
comprised of derivatives or assets acquired or incurred principally for the
purpose of selling or repurchasing in the near term. GASFRAC's foreign exchange
contracts are derivatives and are recorded at fair value with changes in fair
value included in profit or loss. GASFRAC does not apply hedge accounting to its
derivative instruments.
(ii) Held-to-maturity. These assets are non-derivative financial assets with
fixed or determinable payments and fixed maturities that GASFRAC has the
positive intention and ability to hold until maturity. These assets are measured
at amortized cost using the effective interest method. If there is objective
evidence that the investment is impaired, impairment losses are included in
profit or loss.
(iii) Loans and receivables. These assets are non-derivative financial assets
with fixed or determinable payments that are not quoted in an active market.
These assets are measured at amortized cost using the effective interest method.
Any gains or losses on the realization of receivables are included in profit or
loss.
(iv) Impairment of financial assets. All financial assets except for those at
fair value through profit or loss are subject to review for impairment at each
reporting date. Financial assets are impaired when there is any objective
evidence that a financial asset or a group of financial assets are impaired.
Impairment losses on financial assets carried at amortized cost are reversed in
subsequent periods if the amount of the loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized.
Financial liabilities
(i) Fair value through profit or loss. These liabilities are comprised of
derivatives or liabilities acquired or incurred principally for the purpose of
selling or repurchasing in the near term. They are measured at fair value with
changes in fair value included in profit or loss.
(ii) Other financial liabilities. They are measured at amortized cost using the
effective interest method. Any gains or losses in the realization of other
financial liabilities are included in profit or loss.
Fair values
Fair values of financial assets and liabilities are based upon quoted market
prices available from active markets or are otherwise determined using a variety
of valuation techniques and models using quoted market prices. GASFRAC uses the
counterparty close out approach with regard to the entities own credit risk
adjustment in fair valuing financial liabilities.
4. PROPERTY AND EQUIPMENT
Furniture & Leasehold
Cost: Equipment Fixtures Improvements Total
----------------------------------------------------------------------------
January 1, 2010 68,704 59 51 68,814
Additions 83,412 97 4 83,513
----------------------------------------------------------------------------
December 31, 2010 152,116 156 55 152,327
----------------------------------------------------------------------------
Additions 38,103 409 216 38,728
Dispositions (147) - - (147)
----------------------------------------------------------------------------
March 31, 2011 190,366 565 271 191,202
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated Depreciation:
----------------------------------------------------------------------------
January 1, 2010 7,230 21 6 7,257
Amortization 6,997 17 5 7,019
----------------------------------------------------------------------------
December 31, 2010 14,227 38 11 14,276
----------------------------------------------------------------------------
Amortization 2,542 335 8 2,885
Disposition 53 - - 53
----------------------------------------------------------------------------
March 31, 2011 16,716 373 19 17,108
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net Book Value:
----------------------------------------------------------------------------
January 1, 2010 61,474 38 45 61,557
----------------------------------------------------------------------------
December 31, 2010 137,889 118 44 138,051
----------------------------------------------------------------------------
March 31, 2011 173,650 192 252 174,094
----------------------------------------------------------------------------
Assets under Construction included in cost:
----------------------------------------------------------------------------
January 1, 2010 9,194 - - 9,194
----------------------------------------------------------------------------
December 31, 2010 47,392 - - 47,392
----------------------------------------------------------------------------
March 31, 2011 57,883 - - 57,883
----------------------------------------------------------------------------
As at January 1, 2010, December 31, 2010 and March 31, 2011 assets
under construction are not subject to amortization as the assets are not
yet available for use.
5. INTANGIBLE ASSETS
Patents & Deferred Other
Intellectual Development Intangible
Cost: Property Costs Assets Total
----------------------------------------------------------------------------
January 1, 2010 312 198 31 541
Additions 164 32 - 196
----------------------------------------------------------------------------
December 31, 2010 476 230 31 737
----------------------------------------------------------------------------
Additions 51 - - 51
----------------------------------------------------------------------------
March 31, 2011 527 230 31 788
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated Depreciation:
----------------------------------------------------------------------------
January 1, 2010 82 84 17 183
Amortization 82 46 6 134
----------------------------------------------------------------------------
December 31, 2010 164 130 23 317
----------------------------------------------------------------------------
Amortization 24 12 2 38
----------------------------------------------------------------------------
March 31, 2011 188 142 25 355
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net Book Value:
----------------------------------------------------------------------------
January 1, 2010 230 114 14 358
----------------------------------------------------------------------------
December 31, 2010 312 100 8 420
----------------------------------------------------------------------------
March 31, 2011 339 88 6 433
----------------------------------------------------------------------------
6. LEASE OBLIGATIONS
The Company leased certain of its light vehicles under finance leases. The
average lease term is 3 years. The Company has options to purchase the vehicles
at the end of the lease terms. The Company's obligations under finance leases
are secured by the lessors' title to the leased assets.
Interest rated underlying all obligations under finance leases are fixed at
respective contract dates ranging from 6.9% to 8.8% per annum.
Present value of
Future minimum minimum lease
As at: lease payments Interest payments
----------------------------------------------------------------------------
January 1, 2010:
Less than one year 135 14 121
Between one and five years 183 4 179
More than five years - - -
----------------------------------------------------------------------------
318 18 300
----------------------------------------------------------------------------
March 31, 2010:
Less than one year 169 17 152
Between one and five years 211 7 204
More than five years - - -
----------------------------------------------------------------------------
380 24 356
----------------------------------------------------------------------------
December 31, 2010:
Less than one year 261 21 240
Between one and five years 186 6 180
More than five years - - -
----------------------------------------------------------------------------
447 27 420
----------------------------------------------------------------------------
March 31, 2011:
Less than one year 335 42 293
Between one and five years 520 43 477
More than five years - - -
----------------------------------------------------------------------------
855 85 770
----------------------------------------------------------------------------
The finance lease obligation is analyzed as:
Jan 1, Mar 31, Dec 31, Mar 31,
As at: 2010 2010 2010 2011
----------------------------------------------------------------------------
Current 121 152 240 293
Non-current 179 204 180 477
----------------------------------------------------------------------------
300 356 420 770
----------------------------------------------------------------------------
7. UNEARNED REVENUE
As at March 31, 2011, a customer of the Company has prepaid for materials
associated with fracturing treatments in the amount of $20,871. The Company
expects that this unearned revenue will be used in the next 12 months.
8. DEFERRED INCOME TAX
The net income tax provision differs from that expected by applying the combined
federal and provincial income tax rate of 26.55% (2010 - 28.65%) to taxable
income for the following reasons:
Period ended: March 31, 2011 March 31, 2010
----------------------------------------------------------------------------
Expected combined federal and provincial
income tax(benefit) $ (532) $ 733
Non-deductible expenses 53 11
Valuation allowance 529 61
Statutory and other rate differences (99) (87)
----------------------------------------------------------------------------
Effective $ (49) $ 718
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The components of the deferred income tax liability are as follows:
December 31,
As at: March 31, 2011 2010
----------------------------------------------------------------------------
Property and equipment and intangible assets $ (6,672) $ (4,809)
Non-capital loss carry forwards 3,507 1,476
Financing costs 2,341 2,571
Other 394 394
----------------------------------------------------------------------------
Total deferred income tax (liability) benefit $ (430) $ (368)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company has $ 14,030 (2010 - $ 5,897) of tax pools related to non-capital
losses available for carry forward to reduce taxable income in future years and
expire between 2027 and 2030.
9. SHARE CAPITAL
Authorized
Unlimited number of common shares.
Unlimited number of preferred shares issuable in series with the designation,
rights, privileges, restrictions and conditions of each series to be determined
by the board of directors.
Issued Common Shares
2011 2010
----------------------------------------------------------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------
(#) ($) (#) ($)
Opening Balance 60,226,366 251,573 32,650,000 81,293
Issued on exercise of warrants 619,000 839 - -
Issued on exercise of options 224,500 523 183,333 406
Common Stock - Deferred Tax - -
Benefit - (189)
Released from restricted shares 22,000 97 - -
----------------------------------------------------------------------------
Balance - March 31 61,190,577 252,843 32,833,333 81,699
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Restricted shares
Shares Amount
----------------------------------------------------------------------------
(#) ($)
Balance - December 31, 2010 361,917 1,607
Released to common shares (22,000) (97)
----------------------------------------------------------------------------
Balance - March 31, 2011 339,917 1,510
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company has granted restricted shares for certain employees with an annual
vesting period over five years from the date of the grant. During the period
ended March 31, 2011, $150 of compensation expense was recorded (three month
period ended March 31, 2010 - nil).
Performance share units
The Company grants performance stock units to officers and employees with the
amount of the grant earned being linked to corporate performance and grants
vesting over three years from date of grant. The performance stock units are
settled either in cash or Company shares at the Company's discretion. During the
three month period ended March 31, 2011, 160,000 performance share units were
granted (three month period ended March 31, 2010 - nil) and 44,374 vested (three
month period ended March 31, 2010 - nil). During the period ended March 31,
2011, $711 of compensation expense was recognized (three month period ended
March 31, 2010 - nil). As at March 31, 2011, the company has granted 410,000
performance share units of which 82,569 performance share units have vested. As
at March 31, 2011, the related liability is $1,062 (three month period ended
March 31, 2010 - nil).
Stock options
The Company calculates the fair value of its options using the Black-Scholes
option pricing model. The following weighted average assumptions were used to
determine the fair value of the options at the date of grant.
----------------------------------------------------------------------------
Risk-free interest rate 2.5%
Expected life 4 years
Maximum life 5 years
Volatility 52%
Expected dividend 0
----------------------------------------------------------------------------
A summary of the status of the Company's outstanding stock options is
presented below:
2011 2010
----------------------------------------------------------------------------
Average Average
Exercise Exercise
Options Price Options Price
----------------------------------------------------------------------------
(#) ($) (#) ($)
Opening Balance 2,746,208 3.48 2,966,000 2.89
Granted - - 15,000 2.00
Exercised for common shares (224,500) 2.13 (183,333) 2.00
Forfeited and expired (9,000) 2.00 (146,167) 3.15
----------------------------------------------------------------------------
Balance - March 31 2,512,708 3.61 2,651,500 2.93
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock options vest over three years and expire five years from the date of
grant. The 2,512,708 options outstanding at March 31, 2011 had exercise prices
ranging from $2.00 to $5.00 per share with expiry dates ranging from 2012 to
2015. When stock options are exercised the proceeds, together with the amount of
compensation expense previously recorded in contributed surplus are added to
share capital. During the period ended March 31, 2011, $185 of compensation
expense was recorded (three month period ended March 31, 2010 - $142).
Warrants
2011 2010
----------------------------------------------------------------------------
Average Average
Exercise Exercise
Warrants Price Warrants Price
----------------------------------------------------------------------------
(#) ($) (#) ($)
Balance - December 31 1,757,500 1.20 2,602,500 1.32
Exercised for common shares (619,000) 1.07 - -
----------------------------------------------------------------------------
Balance - March 31 1,138,500 1.28 2,602,500 1.32
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As part of an employment agreement with the founding officer of the Company,
1,500,000 share purchase warrants were issued effective May 10, 2006, entitling
the founding officer to purchase common shares of the Company at $1.00 per
share, vesting based on performance conditions and expiring on August 12, 2012.
As at August 12, 2010 all of the purchase warrants were vested. As at March 31,
2011 825,000 (2009 - 1,500,000) founder warrants were outstanding.
In 2006, as part of the terms of a financing agreement, the Company issued
262,500 brokers warrants, entitling the holders to purchase common shares of the
Company at $1.00 per share. In 2007, as part of the terms of a financing
agreement, the Company issued 840,000 brokers warrants, entitling the holders to
purchase common shares of the Company at $2.00 per share. As at March 31, 2011
313,500 (2009 - 1,102,500) broker warrants, expiring May 22, 2011, were
outstanding. During the period ended March 31, 2011, no compensation expense was
recorded (three month period ended March 31, 2010 - $24).
10. CONTRACTUAL OBLIGATIONS
The Company has operating lease commitments for office space as follows:
Year 2011 2012 2013 2014 2015
----------------------------------------------------------------------------
Amount $ 1,104 $ 1,364 $ 786 $ 549 $ 549
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at March 31, 2011, the Company has commitments totaling approximately $101
million relating to the construction of fixed assets in 2011 and $77 million for
the purchase of operating supplies over the 21 month period ending December 31,
2012.
11. CAPITAL MANAGEMENT
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 and undrawn long-term bank debt. The Company may
occasionally need to increase its level of long-term debt to total
capitalization to facilitate growth activities.
The Company has a credit facility with a Canadian chartered bank. The credit
facility includes a $15 million demand revolving loan ("Operating Loan") and a
$35 million committed revolving facility ("Revolving Facility"). The Operating
Loan bears interest at prime plus 1.25% and is margined by the Company's
accounts receivable. The Revolving Facility bears interest at prime plus 1.4% to
prime plus 1.9%, shall not exceed 50% of the net book value of the Company's
capital assets, may be extended annually, if not extended shall be repayable in
eight equal quarterly instalments. Both facilities are secured by a floating
charge over all of the assets of the Company and are subject to certain
financial covenants. As at March 31, the Company is in compliance with all the
covenants related to these facilities.
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 short-term debt facility.
12. ENTERPRISE WIDE DISCLOSURE
As at March 31, 2011, the Company has two geographic segments being the Canadian
segment and the United States segment. For the 3 month period ended March 31,
2011, 100% of the Revenue was incurred by the Canadian segment (Period ended
March 31, 2010, 100%). As at March 31, 2011, the net book value of the property
and equipment in the Canadian Segment was $149,910 and the net book value of the
property and equipment in the United States segment was $24,184.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Period Ended March 31, 2011 March 31, 2010
----------------------------------------------------------------------------
Changes in non-cash working capital from
Operations:
Accounts receivable $ 3,126 $ (7,448)
Inventory (9,158) 21
Prepaid expenses 1,294 33
- 2,730
Current portion of lease obligations 53 -
Unearned revenue 17,386 -
Accounts payable and accrued liabilities
and other 15,321 (4,645)
Long-term deposits (2,352) 82
----------------------------------------------------------------------------
Net change in non-cash working capital
from Operations $ 25,670 $ (9,227)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS
During the three month period ended March 31, 2011, the Company paid $48 (2010 -
$102) in consulting fees to two Directors.
15. EXPLANATION OF TRANSITION TO IFRS:
As stated in Note 2, these are the Company's first consolidated financial
statements prepared in accordance with IFRS.
The accounting policies set out in Note 3 have been applied in preparing the
financial statements for the three month period ended March 31, 2011, the
comparative information presented in these financial statements for the three
month period ending March 31, 2010 and in the preparation of an opening IFRS
statement of financial position at January 1, 2010 (the Company's date of
transition).
In preparing its opening IFRS statement of financial position, the Company has
adjusted amounts reported previously in financial statements prepared in
accordance with Previous GAAP. An explanation of how the transition from
Previous GAAP to IFRS has affected the Company's financial position, financial
performance and cash flows is set out in the following tables and the notes that
accompany the tables.
Reconciliation of equity as previously reported under Canadian GAAP to IFRS
1-Jan-10 31-Mar-10
---------------------------------------------------------
Canadian Canadian
GAAP Adj. IFRS GAAP Adj IFRS
ASSETS
CURRENT ASSETS
Cash and
equivalents $ 11,643 $ - $ 11,643 $ 613 $ - $ 613
Accounts receivable 9,469 - 9,469 16,917 - 16,917
Inventory 5,499 - 5,499 5,478 - 5,478
Prepaid expenses 519 - 519 486 - 486
----------------------------------------------------------------------------
27,130 - 27,130 23,494 - 23,494
PROPERTY and
EQUIPMENT 61,295 262 61,557 65,886 505 66,391
INTANGIBLE ASSETS 358 - 358 365 - 365
LONG-TERM DEPOSITS 1,790 - 1,790 1,708 - 1,708
DEFERRED INCOME TAX
BENEFIT 775 - 775 57 - 57
----------------------------------------------------------------------------
TOTAL ASSETS $ 91,348 $ 262 $ 91,610 $ 91,510 $ 505 $ 92,015
----------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
CURRENT
LIABILITIES
Bank operating
line $ - $ - $ - $ 2,730 $ - $ 2,730
Unearned revenue - - - - - -
Current lease
obligations - 121 121 - 152 152
Accounts payable and
accrued liabilities 7,617 - 7,617 2,972 - 2,972
----------------------------------------------------------------------------
Total current
liabilities 7,617 121 7,738 5,702 152 5,854
----------------------------------------------------------------------------
LONG-TERM LEASE
OBLIGATIONS - 179 179 - 204 204
FUTURE INCOME TAX - - - - - -
----------------------------------------------------------------------------
Total non-current
liabilities - 179 179 0 204 204
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 81,293 - 81,293 81,699 - 81,699
CONTRIBUTED SURPLUS 1,808 1,003 2,811 1,807 1,133 2,940
RETAINED EARNINGS
(DEFICIT) 630 (1,041) (411) 2,302 (984) 1,318
----------------------------------------------------------------------------
Total equity 83,731 (38) 83,693 85,808 149 85,957
----------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $ 91,348 $ 262 $ 91,610 $ 91,510 $ 505 $ 92,015
----------------------------------------------------------------------------
----------------------------------------------------------------------------
31-Dec-10
-------------------------------
Canadian
GAAP Adj IFRS
ASSETS
CURRENT ASSETS
Cash and equivalents $ 98,701 $ - $ 98,701
Accounts receivable 24,500 - 24,500
Inventory 7,018 - 7,018
Prepaid expenses 6,839 - 6,839
137,058 - 137,058
PROPERTY and EQUIPMENT 136,749 1,302 138,051
INTANGIBLE ASSETS 420 - 420
LONG-TERM DEPOSITS 3,176 - 3,176
DEFERRED INCOME TAX
BENEFIT - - -
----------------------------------------------------------------------------
TOTAL ASSETS $ 277,403 $ 1,302 $ 278,705
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank operating line $ - $ - $ -
Unearned revenue 3,486 - 3,486
Current lease obligations - 240 240
Accounts payable and
accrued liabilities 14,828 160 14,987
----------------------------------------------------------------------------
Total current liabilities 18,314 400 18,712
----------------------------------------------------------------------------
LONG-TERM LEASE
OBLIGATIONS - 180 180
FUTURE INCOME TAX 368 - 368
----------------------------------------------------------------------------
Total non-current liabilities 368 180 548
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 251,326 881 251,573
CONTRIBUTED SURPLUS 1,712 1,176 3,522
RETAINED EARNINGS
(DEFICIT) 5,683 (1,333) 4,350
----------------------------------------------------------------------------
Total equity 258,721 724 259,445
----------------------------------------------------------------------------
TOTAL LIABILITIES AND
EQUITY $ 277,403 $ 1,302 $ 278,705
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of comprehensive income as previously reported under Canadian
GAAP to IFRS
Three months ended Year Ended
March 31, 2010 December 31, 2010
-------------------------------------------------------
Canadian Canadian
GAAP Adj. IFRS GAAP Adj. IFRS
REVENUE 15,906 - 15,906 96,906 - 96,906
OTHER INCOME
Business
Interruption claim 2,030 - 2,030 2,756 - 2,756
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17,936 - 17,936 99,662 - 99,662
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EXPENDITURES
Operating 11,940 (33) 11,907 72,190 (167) 72,023
Selling, general and
administrative 1,932 - 1,932 10,579 244 10,823
Stock based
compensation 37 129 166 708 967 1,675
Amortization 1,649 (159) 1,490 7,929 (772) 7,157
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15,558 (63) 15,495 91,406 272 91,678
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RESULTS FROM
OPERATIONS 2,378 63 2,441 8,256 (272) 7,984
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Finance income - - - 107 - 107
Finance costs - (6) (6) - (21) (21)
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- (6) (6) 107 (21) 86
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PROFIT BEFORE INCOME
TAX 2,378 57 2,435 8,363 (293) 8,070
Foreign exchange
gain / (loss) 12 - 12 (73) - (73)
Future income tax
expense (718) - (718) (3,237) - (3,237)
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NET INCOME (LOSS) 1,672 57 1,729 5,053 (293) 4,760
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Explanation of the effects of the transition to IFRS
Leases
Previous GAAP will consider the leases to be of a capital nature based on
certain quantifiable criteria. Based on the criteria, GASFRAC concluded that the
leases on the light vehicles were operating leases in nature for previous GAAP
purposes.
With the absence of the quantitative criteria provided by previous GAAP, the
Company determined that qualitatively, the risks and rewards of the leases
reside with GASFRAC and as such, should be treated as a financing lease.
Depreciation
With the conversion to IFRS, GASFRAC broke out the field equipment into each of
the separate components that made up field equipment. We then assessed the
useful life and residual value for each of these components. Based on this
assessment, certain depreciation rates were modified.
Share based payments
Under Previous GAAP, GASFRAC accounted for certain stock based compensation
plans whereby the obligation and compensation costs were accrued over the
vesting period using the intrinsic value method. The intrinsic value of a share
unit is the amount by which the Company's share price exceeds the exercise price
of the share unit.
For certain stock-based compensation plans, IFRS requires share-based
compensation be fair valued using an option pricing model, such as the
Black-Scholes model, at each reporting date. Each tranche in an award is
considered a separate award with its own vesting period. Further, GASFRAC
adjusted the volatility of the unvested options and warrants that were issued
when GASFRAC was not publically traded from 0% to 50%.
Accordingly, upon transition to IFRS, the Company recorded a fair value
adjustment of $891 as at January 1, 2010 to increase the share-based
compensation with a corresponding charge to retained earnings. GASFRAC elected
to use the IFRS 1 exemption whereby the share-based payments that had vested or
settled prior to January 1, 2010 were not required to be retrospectively
restated. Subsequent IFRS fair value adjustments are recorded through stock
based compensation.
As part of the 2010 Kierland transaction, the amount of consideration in excess
of the fair market value of assets received was offset against share issue costs
under Previous GAAP. Under IFRS, the amount of consideration in excess of the
fair market value of assets received was listed as an unidentifiable transaction
cost and expensed to sales, general and administrative expense. The amount of
the adjustment was $245.
Adjustments to the statement of cash flows
The transition from Previous GAAP to IFRS had no significant impact on cash
flows generated by GASFRAC except for stock based compensation and amortization.
Any changes relating to net income would be offset by items not effecting cash
such as amortization and stock based compensation or would result in a change in
non-cash working capital.
The Company will host a conference call on Tuesday, May 10, 2011 at 10:00 a.m.
MT (12:00 p.m. ET) to discuss the Company's first quarter 2011 results.
To participate in the Q&A session, please call the conference call operator at
1-866-226-1792 fifteen minutes prior to the call's start time and ask for
"GASFRAC First Quarter Results Conference Call".
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.
Requests for shareholder information should be directed to James M Hill.
Gasfrac Energy Services (TSXV:GFS)
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부터 7월(7) 2024 으로 7월(7) 2024
Gasfrac Energy Services (TSXV:GFS)
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부터 7월(7) 2023 으로 7월(7) 2024
