Calfrac Announces Second Quarter Results and Update on 2017 Capital Program

CALGARY, July 26, 2017 /CNW/ - Calfrac Well Services Ltd. ("Calfrac" or "the Company") (TSX-CFW) announces its financial and operating results for the three and six months ended June 30, 2017.

HIGHLIGHTS

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2017

2016

Change

2017

2016

Change

(C$000s, except per share and unit data)

($)

($)

(%)

($)

($)

(%)

(unaudited)

           

Revenue

325,344

150,605

116

594,159

366,743

62

Operating income (loss)(1)

36,740

(15,898)

NM

57,135

(27,521)

NM

 

Per share – basic

0.27

(0.14)

NM

0.42

(0.24)

NM

 

Per share – diluted

0.27

(0.14)

NM

0.41

(0.24)

NM

Adjusted EBITDA(1)

39,913

(14,095)

NM

61,497

(19,978)

NM

 

Per share – basic

0.29

(0.12)

NM

0.45

(0.17)

NM

 

Per share – diluted

0.29

(0.12)

NM

0.45

(0.17)

NM

Net loss attributable to the shareholders of Calfrac

           

before foreign exchange gains or losses(2)

(9,731)

(40,926)

(76)

(31,390)

(81,437)

(61)

 

Per share – basic

(0.07)

(0.35)

(80)

(0.23)

(0.71)

(68)

 

Per share – diluted

(0.07)

(0.35)

(80)

(0.23)

(0.71)

(68)

Net loss attributable to the shareholders of Calfrac

(20,349)

(41,671)

(51)

(39,896)

(95,742)

(58)

 

Per share – basic

(0.15)

(0.36)

(58)

(0.29)

(0.83)

(65)

 

Per share – diluted

(0.15)

(0.36)

(58)

(0.29)

(0.83)

(65)

Working capital (end of period)

     

293,411

306,346

(4)

Total equity (end of period)

     

463,180

543,530

(15)

Weighted average common shares outstanding (000s)

           
 

Basic

136,600

115,410

18

136,579

115,410

18

 

Diluted                                                        

137,929

115,621

19

138,181

115,580

20

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) Net income (loss) attributable to the shareholders of Calfrac before foreign exchange (FX) gains or losses is on an after-tax basis. Management believes that this is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac without the impact of FX fluctuations, which are not fully controllable by the Company. This measure does not have any standardized meaning prescribed under IFRS and, accordingly, may not be comparable to similar measures used by other companies.

 

CEO MESSAGE
Fernando Aguilar, Calfrac's President and Chief Executive Officer commented "I am very pleased with Calfrac's second-quarter results, and proud of the hard work of our dedicated employees. The Company's strategy of prudently managing our reactivations by aligning with top-tier producers and delivering excellent operational results while carefully managing costs has delivered strong profitability and set the stage for the second half of 2017."

During the quarter, Calfrac:

  • added 97,000 HHP to the Company's operating fleet including two incremental fleets in its U.S. operations and, at the time of this release, two further fleets in the Lower 48;
     
  • successfully recruited over 200 field personnel across North America; and
     
  • was awarded "Outstanding Completions Vendor of the Year" by a major client in Pennsylvania.

 

SECOND QUARTER 2017 OVERVIEW

CONSOLIDATED HIGHLIGHTS

Three Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

325,344

150,605

116

Expenses

       
 

Operating

 

275,932

144,716

91

 

Selling, general and administrative (SG&A)

 

12,672

21,787

(42)

   

288,604

166,503

73

Operating income (loss)(1)

 

36,740

(15,898)

NM

Operating income (loss) (%)

 

11.3

(10.6)

NM

Adjusted EBITDA(1)

 

39,913

(14,095)

NM

Adjusted EBITDA (%)

 

12.3

(9.4)

NM

Fracturing revenue per job ($)

 

35,858

34,088

5

Number of fracturing jobs

 

8,132

3,610

125

Active pumping horsepower, end of period (000s)

 

874

582

50

Idle pumping horsepower, end of period (000s)(2)

 

443

640

(31)

Total pumping horsepower, end of period (000s)(2)

 

1,317

1,222

8

Coiled tubing revenue per job ($)

 

28,805

33,873

(15)

Number of coiled tubing jobs

 

704

454

55

Active coiled tubing units, end of period (#)

 

21

19

11

Idle coiled tubing units, end of period (#)

 

11

13

(15)

Total coiled tubing units, end of period (#)

 

32

32

Cementing revenue per job ($)

 

43,158

40,782

6

Number of cementing jobs

 

114

204

(44)

Active cementing units, end of period (#)

 

12

14

(14)

Idle cementing units, end of period (#)

 

13

11

18

Total cementing units, end of period (#)

 

25

25

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) Excludes 72,500 pumping horsepower that has not been commissioned at June 30, 2017 (June 30, 2016 - 80,000).

 

Revenue in the second quarter of 2017 was $325.3 million, an increase of 116 percent from the same period in 2016. The Company's fracturing job count increased by 125 percent mainly due to higher activity in Canada and the United States. The Company pumped approximately 90 percent and 170 percent more proppant in Canada and the United States, respectively, compared to the second quarter in 2016 as a result of greater activity and service intensity. Consolidated revenue per fracturing job increased by 5 percent primarily due to the completion of larger jobs in the United States offset partially by job mix in Canada and Argentina.

Pricing in Canada and the United States increased while pricing in Argentina and Russia was consistent with the second quarter of 2016.

Adjusted EBITDA of $39.9 million for the second quarter of 2017 increased from negative $14.1 million in the comparable period in 2016 primarily due to significantly higher utilization in the United States and Canada. The improvement in Adjusted EBITDA was partially offset by weaker results in Argentina due to lower utilization and higher labour costs.

The net loss attributable to shareholders of Calfrac was $20.3 million or $0.15 per share diluted compared to a net loss of $41.7 million or $0.36 per share diluted in the same period last year.

As a result of increased activity and demand for its equipment, the Company is announcing a further increase in its 2017 capital budget from $45.0 million to $65.0 million. The incremental capital expenditures will be largely focused on maintenance capital for a larger fleet of equipment operating in North America due to a higher number of fleet activations than were initially planned. At June 30, 2017, the Company had 72,500 horsepower that had not yet been commissioned.

Three Months Ended

 

June 30,

March 31,

Change

   

2017

2017

 

(C$000s, except operational information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

325,344

268,815

21

Expenses

       
 

Operating                                            

 

275,932

237,675

16

 

SG&A

 

12,672

10,745

18

   

288,604

248,420

16

Operating income (loss)(1)

 

36,740

20,395

80

Operating income (loss) (%)

 

11.3

7.6

49

Adjusted EBITDA(1)

 

39,913

21,584

85

Adjusted EBITDA (%)

 

12.3

8.0

54

Fracturing revenue per job ($)

 

35,858

25,499

41

Number of fracturing jobs

 

8,132

9,264

(12)

Active pumping horsepower, end of period (000s)

 

874

726

20

Idle pumping horsepower, end of period (000s)(2)

 

443

493

(10)

Total pumping horsepower, end of period (000s)(2)

 

1,317

1,220

8

Coiled tubing revenue per job ($)

 

28,805

28,081

3

Number of coiled tubing jobs

 

704

725

(3)

Active coiled tubing units, end of period (#)

 

21

20

5

Idle coiled tubing units, end of period (#)

 

11

12

(8)

Total coiled tubing units, end of period (#)

 

32

32

Cementing revenue per job ($)

 

43,158

46,234

(7)

Number of cementing jobs

 

114

185

(38)

Active cementing units, end of period (#)

 

12

12

Idle cementing units, end of period (#)

 

13

13

Total cementing units, end of period (#)

 

25

25

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) Excludes 72,500 pumping horsepower that has not been commissioned at June 30, 2017 (March 31, 2017 - 97,500)

 

Revenue in the second quarter of 2017 was $325.3 million, an increase of 21 percent from the first quarter of 2017, primarily due to higher pricing and activity across North America. Revenue per fracturing job increased by 41 percent due to larger design job sizes in the United States and improved pricing in North America. Pricing in Canada and the United States improved sequentially while pricing in Argentina and Russia was consistent with the first quarter of 2017.

In Canada, second-quarter revenue was flat sequentially at $111.3 million despite it normally being a seasonally slow quarter due to spring break-up. The completion of larger average job sizes and a higher proportion of pad work as well as improved pricing all contributed to a strong second quarter. Operating income as a percentage of revenue was 12 percent versus 11 percent in the first quarter primarily due to strong utilization throughout the quarter combined with better pricing.

In the United States, revenue in the second quarter of 2017 increased by 57 percent from the first quarter to $153.9 million, mainly as a result of the two fleets reactivated during the quarter in Colorado as well as strong productivity and pricing improvements. The United States division improved its operating income margin from the first quarter, moving from 10 percent of revenue to operating income of 16 percent in the second quarter of 2017. The improvement in sequential results was primarily driven by operational efficiencies with key customers as well as improved pricing and better fixed cost absorption.

In Russia, revenue of $31.5 million in the second quarter of 2017 was 14 percent higher sequentially primarily due to increased utilization as is typical of this quarter. Operating income as a percentage of revenue improved significantly to 15 percent from near break-even levels in the first quarter mainly due to the improved fracturing crew utilization and lower input costs as the winter season ends.

In Latin America, revenue decreased sequentially by 11 percent to $28.6 million primarily due to lower cementing activity in Argentina. Operating income as a percentage of revenue was negative 8 percent in the second quarter of 2017, impacted by the same operational factors that impacted revenue in the quarter combined with $1.4 million of non-recurring expenses.

OUTLOOK
The second quarter of 2017 marked the continuation of the transition towards a more sustainable business environment for the pressure pumping industry. Throughout the second quarter, the Company's North American operations reactivated equipment and achieved further pricing gains which both contributed to the sequential improvement in operating income. Calfrac continues to monitor market conditions with a view to evaluating future opportunities for further equipment reactivations in all of its North American operating areas.

CANADA
The outlook for the Company's pressure pumping operations in Canada remains strong as higher activity combined with material increases in service intensity contributed to a significant improvement in our business fundamentals. The sequential increase in second-quarter revenue from the first quarter is a result of robust demand for the Company's services combined with the impact of operating efficiencies from Calfrac and its client base. The Company expects that pricing and activity will continue to improve in the third quarter, although any change in client capital programs is likely to impact the rate of change going forward.

Although commodity prices were volatile during the second quarter, the Company's activity in western Canada was at historically high levels and no reductions in client work programs were noted. However, Calfrac did experience some delays in work programs during the second quarter due to typical spring break-up conditions in northern Alberta and northeastern British Columbia. Given the current backlog of uncompleted wells and committed drilling programs, Calfrac expects that completion activity will remain strong throughout 2017 unless there is a significant decline in commodity prices during the second half of the year. Presently, Calfrac has limited visibility on planned work programs for 2018 and does not expect to gain any further insight until later in the year when the capital budgets of its customer base are finalized. However, consistent with prior years, activity in the first quarter is expected to be very strong.

The Company plans to deploy an incremental fracturing fleet in Canada during the early part of the third quarter and, although labour remains a key constraint to further reactivations, Calfrac will also evaluate reactivating an additional large fracturing fleet in the latter part of the year provided that the financial returns support that decision.

Calfrac continues to anticipate that reactivation expenses will range from approximately $2.0 to $3.0 million per fleet in the short-term. However, with a faster pace of reactivations, older equipment may be deployed earlier than previously expected which may result in higher fleet activation costs and incremental capital spending as this equipment returns to service in a more intensive operational environment.

Cost inflation remains a key variable in profitability with some inputs increasing by more than 10 percent during the second quarter. Calfrac views its internally managed supply chain as a source of competitive advantage that is anticipated to grow in importance in the future and allow the Company to proactively manage its operating costs.

UNITED STATES
The United States experienced strong momentum in recent months as a result of high levels of equipment utilization, improved pricing and proactive cost management. At the end of the second quarter and early in the third quarter, Calfrac reactivated two incremental fracturing fleets. The Company believes that its commitment to safe and efficient operations complimented by deep technical expertise positions Calfrac well in the U.S. market.

In response to multiple client requests, Calfrac has begun the process of reopening its San Antonio district with multiple fleet activation opportunities. The Company expects to begin realizing revenue from one fleet in South Texas during the third quarter, with a further goal of managing at least two active fleets in the district in the quarters ahead. In addition, the Company expects to deploy one incremental fleet to Pennsylvania later in the third quarter. Multiple opportunities exist for the Company to reactivate further equipment in the latter part of 2017 in current areas of operation as well as other basins in the U.S. market.

Similar to Canada, price increases negotiated in the first quarter were realized in the reported financial results of the second quarter, and with more active fleets, the Company expects continued improvement in the second half of the year although a portion of the incremental gains could be offset in the short-term by additional reactivation and hiring costs. Input costs rose in the Company's United States operations in the second quarter, primarily driven by higher third-party and product expenses. Both of these cost drivers will continue to be proactively managed to minimize the impact on financial performance throughout the remainder of 2017.

RUSSIA
As in past years, the second quarter represented a meaningful improvement in revenue and operating profitability from the first quarter driven primarily by improved utilization and lower costs due to more amenable weather and ground conditions. The Company anticipates that its third-quarter financial performance in Russia will be consistent with the second quarter except for any impacts from changes in the value of the Russian rouble.

LATIN AMERICA
The Company expects that equipment utilization and, consequently, financial results in Argentina should improve in the third quarter. Although slower than North America, unconventional resource development growth prospects in Argentina continue to improve as a number of oil and gas companies are expected to add activity during the second half of the year and into 2018.

In Mexico, the business environment remains challenging with very limited onshore pressure pumping activity. Calfrac will continue to evaluate this market while maintaining a small scale operating presence with a minimal cost structure.

CORPORATE
Although operating results continue to improve, Calfrac remains focused on increasing the profitability of its operations by delivering high quality and cost effective service to its clients while maintaining an excellent asset base and experienced workforce. The Company expects corporate costs to move higher in the second half of the year as the previously disclosed adjustments to stock-based compensation expense have been recognized. Management remains acutely focused in the short term on the prudent allocation of capital assets and people in its operations. In the longer term, management continues to evaluate options for the Company's balance sheet that can provide optimal liquidity as well as mitigate longer-term risks.

As a result of increased activity and demand for its equipment, the Company is announcing a further increase in its 2017 capital budget from $45.0 million to $65.0 million. The incremental capital expenditures will be largely focused on maintenance capital for a larger fleet of equipment operating in North America due to a higher number of fleet activations than were initially planned.

FINANCIAL OVERVIEW – THREE MONTHS ENDED JUNE 30, 2017 VERSUS 2016

CANADA

Three Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

111,313

45,388

145

Expenses

       
 

Operating

 

95,947

48,334

99

 

SG&A

 

2,176

1,737

25

   

98,123

50,071

96

Operating income (loss)(1)

 

13,190

(4,683)

NM

Operating income (loss) (%)

 

11.8

(10.3)

NM

Fracturing revenue per job ($)

 

25,475

31,402

(19)

Number of fracturing jobs

 

3,957

1,285

208

Active pumping horsepower, end of period (000s)

 

250

194

29

Idle pumping horsepower, end of period (000s)

 

157

216

(27)

Total pumping horsepower, end of period (000s)

 

407

410

(1)

Coiled tubing revenue per job ($)

 

22,181

23,315

(5)

Number of coiled tubing jobs

 

457

216

112

Active coiled tubing units, end of period (#)

 

9

6

50

Idle coiled tubing units, end of period (#)

 

4

7

(43)

Total coiled tubing units, end of period (#)

 

13

13

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

 

REVENUE
Revenue from Calfrac's Canadian operations during the second quarter of 2017 was $111.3 million versus $45.4 million in the same period of 2016. The 145 percent increase in revenue was due to an increase in fracturing activity combined with better pricing offset partially by a lower revenue per fracturing job resulting from a shift in job mix and completion design. The number of fracturing jobs increased due to multi-well pad work which allowed for activity to continue through spring break-up and a more active and efficient customer base than the same period in 2016. The number of coiled tubing jobs increased by 112 percent from the second quarter in 2016 as three additional coiled tubing units were operational during the quarter.

OPERATING INCOME (LOSS)
Operating income in Canada during the second quarter of 2017 was $13.2 million compared to a loss of $4.7 million in the same period of 2016. The reversal from a loss position was due to improved utilization and pricing compared to the second quarter of 2016. Operating results during the quarter were negatively impacted by certain legacy pricing agreements that ended in the second quarter and by spring break-up conditions which delayed a number of major projects. Additionally, the Company experienced increases in its subcontractor and proppant costs and also incurred reactivation costs of approximately $1.0 million during the second quarter of 2017 for equipment returning to activity in the third quarter.

UNITED STATES

Three Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational and exchange rate information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

153,946

48,053

220

Expenses

       
 

Operating                                                         

 

125,407

45,281

177

 

SG&A

 

3,362

3,594

(6)

   

128,769

48,875

163

Operating income (loss)(1)

 

25,177

(822)

NM

Operating income (loss) (%)

 

16.4

(1.7)

NM

Fracturing revenue per job ($)

 

41,292

25,669

61

Number of fracturing jobs

 

3,606

1,872

93

Active pumping horsepower, end of period (000s)

 

432

187

131

Idle pumping horsepower, end of period (000s)

 

286

424

(33)

Total pumping horsepower, end of period (000s)(2)

 

718

611

18

Active coiled tubing units, end of period (#)

 

Idle coiled tubing units, end of period (#)

 

5

5

Total coiled tubing units, end of period (#)

 

5

5

Active cementing units, end of period (#)

 

Idle cementing units, end of period (#)

 

11

11

Total cementing units, end of period (#)

 

11

11

US$/C$ average exchange rate(3)

 

1.3449

1.2886

4

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) The Company reactivated equipment that was previously identified as impaired based on the impairment provision at December 31, 2015.

(3) Source: Bank of Canada.

 

REVENUE
Revenue from Calfrac's United States operations increased to $153.9 million during the second quarter of 2017 from $48.1 million in the comparable quarter of 2016 primarily due to improved pricing and higher fracturing activity in North Dakota, Colorado and Pennsylvania as 93 percent more fracturing jobs were completed period-over-period. Revenue per job increased 61 percent year-over-year due to improved pricing and the completion of larger jobs in the Marcellus shale gas play in Pennsylvania and the Bakken shale oil play in North Dakota. The four percent appreciation in the U.S. dollar versus the Canadian dollar also contributed to the revenue improvement.

OPERATING INCOME (LOSS)
The Company's United States operations generated operating income of $25.2 million during the second quarter of 2017 compared to an operating loss of $0.8 million in the same period in 2016. The turnaround to positive operating income was primarily the result of improved utilization and pricing in Colorado, North Dakota and Pennsylvania which was offset partially by $4.7 million in reactivation costs incurred during the quarter. SG&A expenses decreased by 6 percent in the second quarter of 2017 as the comparable quarter contained $0.3 million in bad debt charges.

RUSSIA

Three Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational and exchange rate information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

31,492

22,433

40

Expenses

       
 

Operating                                                          

 

25,710

18,674

38

 

SG&A

 

943

749

26

   

26,653

19,423

37

Operating income(1)

 

4,839

3,010

61

Operating income (%)

 

15.4

13.4

15

Fracturing revenue per job ($)

 

72,041

66,594

8

Number of fracturing jobs

 

366

271

35

Pumping horsepower, end of period (000s)

 

70

70

Coiled tubing revenue per job ($)

 

44,181

36,251

22

Number of coiled tubing jobs

 

116

121

(4)

Active coiled tubing units, end of period (#)

 

6

6

Idle coiled tubing units, end of period (#)

 

1

1

Total coiled tubing units, end of period (#)

 

7

7

Rouble/C$ average exchange rate(2)

 

0.0235

0.0196

20

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) Source: Bank of Canada.

 

REVENUE
Revenue from Calfrac's Russian operations increased by 40 percent during the second quarter of 2017 to $31.5 million from $22.4 million in the corresponding three-month period of 2016. The increase in revenue was largely attributable to a 35 percent increase in fracturing activity combined with the 20 percent appreciation of the Russian rouble during the quarter. Revenue per fracturing job increased by 8 percent primarily due to the appreciation of the Russian rouble offset partially by the completion of smaller call out jobs in Usinsk.

OPERATING INCOME
The Company's Russian operations generated operating income of $4.8 million during the second quarter of 2017 compared to $3.0 million in the corresponding period of 2016. This increase was primarily due to improved fracturing crew utilization combined with the appreciation of the Russian rouble. SG&A expenses were 26 percent higher than the comparable quarter in 2016 primarily due to the 20 percent appreciation of the Russian rouble.

LATIN AMERICA

Three Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational and exchange rate information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

28,593

34,731

(18)

Expenses

       
 

Operating                                                      

 

28,122

31,384

(10)

 

SG&A

 

2,712

7,756

(65)

   

30,834

39,140

(21)

Operating loss(1)

 

(2,241)

(4,409)

(49)

Operating loss (%)

 

(7.8)

(12.7)

(39)

Pumping horsepower, end of period (000s)

 

122

131

(7)

Active cementing units, end of period (#)

 

12

14

(14)

Idle cementing units, end of period (#)

 

2

NM

Total cementing units, end of period (#)

 

14

14

Active coiled tubing units, end of period (#)

 

6

7

(14)

Idle coiled tubing units, end of period (#)

 

1

NM

Total coiled tubing units, end of period (#)

 

7

7

Mexican peso/C$ average exchange rate(2)

 

0.0725

0.0712

2

Argentinean peso/C$ average exchange rate(2)

 

0.0854

0.0907

(6)

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) Source: Bank of Canada and Bloomberg.

 

REVENUE
Calfrac's Latin American operations generated total revenue of $28.6 million during the second quarter of 2017 versus $34.7 million in the comparable three-month period in 2016. Revenue in Latin America was 18 percent lower than the comparable quarter primarily due to a 50 percent reduction in cementing activity in Argentina resulting from lower overall levels of drilling activity. Fracturing and coiled tubing activity in Argentina increased year-over-year but the impact was offset by the completion of smaller jobs.

OPERATING LOSS
The Company's operations in Latin America incurred an operating loss of $2.2 million during the second quarter of 2017 compared to a loss of $4.4 million in the second quarter of 2016. The loss was due to lower utilization combined with higher labour costs. In addition, the Company incurred $1.0 million of expenses to retrofit a fracturing fleet that will be dedicated to high pressure operations in the Vaca Muerta unconventional gas play during the third quarter of 2017. Restructuring costs of $0.4 million were also recognized in the second quarter of 2017. SG&A expenses decreased by 65 percent in the second quarter of 2017 as the comparable quarter contained a bad debt provision of $4.6 million relating to work performed in Mexico.

CORPORATE

Three Months Ended June 30,

   

2017

2016

Change

(C$000s)

   

($)

($)

(%)

(unaudited)

         

Expenses

         
 

Operating

   

745

1,043

(29)

 

SG&A                       

   

3,480

7,951

(56)

     

4,225

8,994

(53)

Operating loss(1)

   

(4,225)

(8,994)

(53)

% of Revenue

   

1.3

6.0

(78)

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

 

OPERATING LOSS
Corporate expenses for the second quarter of 2017 decreased by 53 percent compared to the second quarter of 2016. Operating expenses were 29 percent lower as a result of lower district personnel costs. SG&A expenses were $4.5 million lower primarily due to a decrease in stock-based compensation expense. The Company reversed the remaining liability relating to its Restricted Share Units and Performance Share Units during the quarter which resulted in a recovery of $3.1 million compared to an expense of $2.1 million in the second quarter in 2016. The expense relating to stock options was $0.6 million higher due to additional options granted during the period.

DEPRECIATION
For the three months ended June 30, 2017, depreciation expense increased by 2 percent to $31.7 million from $31.0 million in the corresponding quarter of 2016. The increase in depreciation was primarily due to a stronger U.S. dollar.

FOREIGN EXCHANGE GAINS AND LOSSES
The Company recorded a foreign exchange loss of $16.3 million during the second quarter of 2017 versus a loss of $1.5 million in the comparative three-month period of 2016. Foreign exchange gains and losses arise primarily from the translation of net monetary assets or liabilities that were held in U.S. dollars in Canada and Latin America and liabilities held in Canadian dollars in Russia. The Company's second-quarter 2017 foreign exchange loss was largely attributable to the translation of U.S. dollar-denominated liabilities held in Argentina as the value of the Argentinean peso depreciated against the U.S. dollar during the second quarter. In addition, the translation of U.S. dollar-denominated assets held in Canada contributed to the foreign exchange loss as the U.S. dollar depreciated against the Canadian dollar during the second quarter.

INTEREST
The Company's net interest expense of $22.1 million for the second quarter of 2017 was $4.0 million higher than in the comparable period of 2016. This increase was primarily due to the $200.0 million secured second lien term loan that was issued in June 2016 at an interest rate of nine percent. This loan replaced credit facility borrowings which carried a lower interest rate.  In addition, the impact of a weaker Canadian dollar relative to the U.S. dollar resulted in higher reported interest on the Company's U.S. dollar-denominated unsecured notes. Offsetting this increase was the repayment of its higher interest rate bank loan in Argentina.

INCOME TAXES
The Company recorded an income tax recovery of $12.4 million during the second quarter of 2017 compared to a recovery of $24.1 million in the comparable period of 2016. The recovery position was the result of pre-tax losses incurred during the quarter in Canada, the United States and Argentina. The effective tax recovery rate of 36 percent during the second quarter of 2017 was consistent with the comparable quarter in 2016.

SUMMARY OF QUARTERLY RESULTS

Three Months Ended

Sep. 30,

Dec. 31,

Mar. 31,

Jun. 30,

Sep. 30,

Dec. 31,

Mar. 31,

Jun. 30,

 

2015

2015

2016

2016

2016

2016

2017

2017

(C$000s, except per share and operating data)

($)

($)

($)

($)

($)

($)

($)

($)

(unaudited)

               

Financial

               

Revenue

289,075

286,194

216,138

150,605

174,925

192,846

268,815

325,344

Operating income (loss)(1)

2,775

5,787

(11,623)

(15,898)

(12,392)

(18,291)

20,395

36,740

 

Per share – basic

0.03

0.06

(0.10)

(0.14)

(0.11)

(0.15)

0.15

0.27

 

Per share – diluted

0.03

0.06

(0.10)

(0.14)

(0.11)

(0.15)

0.15

0.27

Adjusted EBITDA(1)

7,211

22,933

(5,883)

(14,095)

(11,055)

(13,717)

21,584

39,913

 

Per share – basic

0.08

0.24

(0.05)

(0.12)

(0.10)

(0.11)

0.16

0.29

 

Per share – diluted

0.08

0.24

(0.05)

(0.12)

(0.10)

(0.11)

0.16

0.29

Net income (loss) attributable to the

               

shareholders of Calfrac

(24,191)

(141,498)

(54,071)

(41,671)

(40,862)

(61,493)

(19,547)

(20,349)

 

Per share – basic

(0.25)

(1.45)

(0.47)

(0.36)

(0.35)

(0.51)

(0.14)

(0.15)

 

Per share – diluted

(0.25)

(1.45)

(0.47)

(0.36)

(0.35)

(0.51)

(0.14)

(0.15)

Capital expenditures

24,945

29,964

7,723

8,370

6,907

15,708

12,965

22,358

Working capital (end of period)

296,816

305,952

261,072

306,346

269,081

271,581

278,818

293,411

Total equity (end of period)

742,972

623,719

576,465

543,530

501,926

497,458

485,452

463,180

                 

Operating (end of period)

               

Active pumping horsepower (000s)

754

776

640

582

644

659

727

874

Idle pumping horsepower (000s)(2)

533

524

586

640

578

563

493

443

Total pumping horsepower (000s)(2)

1,287

1,300

1,226

1,222

1,222

1,222

1,220

1,317

Active coiled tubing units (#)

20

20

18

19

20

19

20

21

Idle coiled tubing units (#)

17

17

14

13

12

13

12

11

Total coiled tubing units (#)

37

37

32

32

32

32

32

32

Active cementing units (#)

28

23

14

14

14

14

12

12

Idle cementing units (#)

3

8

11

11

11

11

13

13

Total cementing units (#)

31

31

25

25

25

25

25

25

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) Excludes 72,500 pumping horsepower that had not been commissioned at June 30, 2017.

 

SEASONALITY OF OPERATIONS
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 and North Dakota is reduced (refer to "Business Risks – Seasonality" in the 2016 Annual Report).

FOREIGN EXCHANGE FLUCTUATIONS
The Company's consolidated financial statements are reported in Canadian dollars. Accordingly, the quarterly results are directly affected by fluctuations in the exchange rates for United States, Russian, Mexican and Argentinean currency (refer to "Business Risks – Fluctuations in Foreign Exchange Rates" in the 2016 Annual Report).

FINANCIAL OVERVIEW – SIX MONTHS ENDED JUNE 30, 2017 VERSUS 2016

CANADA

Six Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

222,331

118,109

88

Expenses

       
 

Operating                                                      

 

192,400

118,634

62

 

SG&A

 

4,298

3,905

10

   

196,698

122,539

61

Operating income (loss)(1)

 

25,633

(4,430)

NM

Operating income (loss) (%)

 

11.5

(3.8)

NM

Fracturing revenue per job ($)

 

19,983

24,845

(20)

Number of fracturing jobs

 

10,023

4,307

133

Active pumping horsepower, end of period (000s)

 

250

194

29

Idle pumping horsepower, end of period (000s)

 

157

216

(27)

Total pumping horsepower, end of period (000s)

 

407

410

(1)

Coiled tubing revenue per job ($)

 

21,585

22,985

(6)

Number of coiled tubing jobs

 

1,004

483

108

Active coiled tubing units, end of period (#)

 

9

6

50

Idle coiled tubing units, end of period (#)

 

4

7

(43)

Total coiled tubing units, end of period (#)(2)

 

13

13

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

 

REVENUE
Revenue from Calfrac's Canadian operations during the first six months of 2017 was $222.3 million versus $118.1 million in the same period in 2016. The 88 percent increase was primarily due to significantly higher fracturing and coiled tubing activity as well as improved pricing. Revenue per fracturing job decreased by 20 percent from the same period in the prior year due to job mix and completion design.

OPERATING INCOME (LOSS)
The Company's Canadian division generated operating income of $25.6 million during the first half of 2017 compared to an operating loss of $4.4 million in the first six months in 2016. The return to positive income was the result of significantly better utilization and higher pricing. However, the Company's financial results were impacted by certain legacy pricing agreements that ended during the second quarter and spring break-up conditions which delayed a number of major projects. The Company also incurred reactivation costs of $1.0 million during the first half of the year associated with the deployment of two incremental fracturing and coiled tubing crews. The Canadian division's SG&A expenses increased by 10 percent year-over-year primarily due to additional recruiting costs related to its crew reactivations.

UNITED STATES

Six Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational and exchange rate information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

251,990

124,037

103

Expenses

       
 

Operating                                                             

 

211,148

128,236

65

 

SG&A

 

5,665

8,862

(36)

   

216,813

137,098

58

Operating income (loss)(1)

 

35,177

(13,061)

NM

Operating income (loss) (%)

 

14.0

(10.5)

NM

Fracturing revenue per job ($)

 

39,055

31,141

25

Number of fracturing jobs

 

6,323

3,930

61

Active pumping horsepower, end of period (000s)

 

432

187

131

Idle pumping horsepower, end of period (000s)

 

286

424

(33)

Total pumping horsepower, end of period (000s)(2)

 

718

611

18

Active coiled tubing units, end of period (#)

 

Idle coiled tubing units, end of period (#)

 

5

5

Total coiled tubing units, end of period (#)

 

5

5

Active cementing units, end of period (#)

 

Idle cementing units, end of period (#)

 

11

11

Total cementing units, end of period (#)

 

11

11

US$/C$ average exchange rate(3)

 

1.3340

1.3317

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) The Company reactivated equipment that was previously identified as impaired based on the impairment provision at December 31, 2015.

(3) Source: Bank of Canada.

 

REVENUE
Revenue from Calfrac's United States operations increased to $252.0 million during the first half of 2017 from $124.0 million in the same period in 2016 due to significantly higher fracturing activity and improved pricing. The number of fracturing jobs completed during the year increased by 61 percent from 2016 primarily due to higher activity in Colorado and North Dakota. Revenue per job increased by 25 percent year-over-year due to the completion of larger jobs in Pennsylvania and North Dakota as 24 percent more sand was pumped per job during the first half of 2017 while higher pricing in all operating regions also had a positive impact on revenue per job during the period.

OPERATING INCOME (LOSS)
The Company's United States division generated operating income of $35.2 million during the first six months of 2017 after operating at a loss of $13.1 million during the same period of 2016. Strong utilization combined with a larger number of active fleets resulted in the significant year-over-year improvement in operating income. Since the end of the second quarter of 2016, the Company has reactivated six fracturing fleets or 245,000 horsepower across its operating districts in Colorado, North Dakota and Pennsylvania. The operating results in 2017 also included reactivation costs of $6.4 million while the operating loss in 2016 included restructuring costs and bad debt expenses of $3.1 million and $0.3 million, respectively.

RUSSIA

Six Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational and exchange rate information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

59,218

45,157

31

Expenses

       
 

Operating                                                               

 

52,877

40,027

32

 

SG&A

 

1,628

1,312

24

   

54,505

41,339

32

Operating income(1)

 

4,713

3,818

23

Operating income (%)

 

8.0

8.5

(6)

Fracturing revenue per job ($)

 

75,647

68,687

10

Number of fracturing jobs

 

663

524

27

Pumping horsepower, end of period (000s)

 

70

70

Coiled tubing revenue per job ($)

 

45,779

38,344

19

Number of coiled tubing jobs

 

198

239

(17)

Active coiled tubing units, end of period (#)

 

6

6

Idle coiled tubing units, end of period (#)

 

1

1

Total coiled tubing units, end of period (#)

 

7

7

Rouble/C$ average exchange rate(2)

 

0.0230

0.0190

21

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) Source: Bank of Canada.

 

REVENUE
Revenue from Calfrac's Russian operations during the first six months of 2017 increased by 31 percent to $59.2 million from $45.2 million in the comparable period in 2016. The increase in revenue, which is generated in roubles, was partially related to higher fracturing activity combined with the 21 percent appreciation of the Russian rouble in 2017 versus 2016. The improvement in revenue was partially offset by lower coiled tubing activity. Revenue per fracturing job increased by 10 percent due to the currency appreciation offset partially by the impact of job mix.

OPERATING INCOME
Operating income in Russia improved to $4.7 million during the first six months of 2017 from $3.8 million in the comparable period in 2016 primarily due to the 21 percent appreciation of the rouble combined with higher fracturing crew utilization. Operating income as a percentage of revenue was 50 basis points lower than 2016 mainly due to higher fuel costs. SG&A expenses increased by 24 percent during the period compared to the first half of 2016 due to the appreciation of the rouble.

LATIN AMERICA

Six Months Ended June 30,

 

2017

2016

Change

(C$000s, except operational and exchange rate information)

 

($)

($)

(%)

(unaudited)

       

Revenue

 

60,620

79,440

(24)

Expenses

       
 

Operating                                                        

 

55,447

66,377

(16)

 

SG&A

 

5,191

10,603

(51)

   

60,638

76,980

(21)

Operating (loss) income(1)

 

(18)

2,460

NM

Operating (loss) income (%)

 

0.0

3.1

NM

Pumping horsepower, end of period (000s)

 

122

131

(7)

Active cementing units, end of period (#) 

 

12

14

(14)

Idle cementing units, end of period (#)

 

2

NM

Total cementing units, end of period (#)

 

14

14

Active coiled tubing units, end of period (#)

 

6

7

(14)

Idle coiled tubing units, end of period (#)

 

1

NM

Total coiled tubing units, end of period (#)

 

7

7

Mexican peso/C$ average exchange rate(2)

 

0.0688

0.0737

(7)

Argentinean peso/C$ average exchange rate(2)

 

0.0850

0.0931

(9)

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

(2) Source: Bank of Canada and Bloomberg.

 

REVENUE
Calfrac's Latin American operations generated total revenue of $60.6 million during the first half of 2017 versus $79.4 million in the same period in 2016. In Argentina, revenue was lower than in 2016 due to lower pricing, a reduction in cementing activity and the completion of smaller fracturing jobs due to a shift in customer and basin mix combined with the depreciation in the Argentinean peso. In Mexico, revenue decreased by $3.8 million primarily due to lower fracturing activity with Calfrac's major customer.

OPERATING (LOSS) INCOME
Latin America operated at break-even levels during the first six months of 2017 compared to generating operating income of $2.5 million in the comparable period in 2016. The decrease in operating income in 2017 was primarily due to lower equipment utilization and pricing combined with higher labour costs. In addition, the Company incurred $1.0 million of expenses to retrofit a fracturing fleet that will be dedicated to high pressure operations in the Vaca Muerta unconventional gas play during the third quarter of 2017. Restructuring costs of $0.4 million were also recognized during the first six months in 2017. SG&A expenses during the comparable six-month period in 2016 contained a bad debt provision of $4.6 million relating to work performed in Mexico.

CORPORATE

Six Months Ended June 30,

     

2017

2016

Change

(C$000s)

     

($)

($)

(%)

(unaudited)

           

Expenses

           
 

Operating                   

     

1,735

2,537

(32)

 

SG&A

     

6,635

13,771

(52)

       

8,370

16,308

(49)

Operating loss(1)

     

(8,370)

(16,308)

(49)

% of Revenue

     

1.4

4.4

(68)

 

(1) Refer to "Non-GAAP Measures" on pages 21 and 22 for further information.

 

OPERATING LOSS
The Company achieved a 49 percent decline in corporate expenses for the first six months of 2017 compared to the same period in 2016. Operating expenses were 32 percent lower as a result of lower district personnel costs. SG&A expenses were $7.1 million lower primarily due to a decrease in stock-based compensation expense. The Company reversed the liability related to its Restricted Share Units and Performance Share Units during the first half of 2017 which resulted in a recovery of $6.6 million compared to an expense of $2.0 million in the first half of 2016. This decrease was partially offset by higher non-cash expenses related to stock options which were $1.3 million higher due to additional options granted during the period.

DEPRECIATION
Depreciation expense for the six months ended June 30, 2017 decreased by 4 percent to $63.7 million from $66.6 million in the same period in 2016. The decrease was primarily due to a larger portion of the Company's asset base being fully depreciated.

FOREIGN EXCHANGE LOSSES
The Company recorded a foreign exchange loss of $12.6 million during the first six months of 2017 versus a loss of $19.7 million in the same period in 2016. Foreign exchange gains and losses arise primarily from the translation of net monetary assets or liabilities that were held in U.S. dollars in Canada and Latin America and liabilities held in Canadian dollars in Russia. The Company's foreign exchange loss during the period was largely attributable to the translation of U.S. dollar-denominated assets held in Canada as the U.S. dollar depreciated against the Canadian dollar during the period. In addition, the translation of U.S. dollar-denominated liabilities held in Argentina contributed to the foreign exchange loss as the value of the Argentinean peso depreciated against the U.S. dollar during the six month period ending June 30, 2017.

INTEREST
The Company's net interest expense was $43.4 million in the first half of 2017 versus $37.2 million in the same period in 2016 due to higher average credit facility borrowings during the first half of 2017 and higher rate of interest on the $200.0 million secured second lien term loan that was initiated during the second quarter of 2016.

INCOME TAXES
The Company recorded an income tax recovery of $23.2 million during the first six months of 2017 compared to $53.0 million in the comparable period in 2016. The recovery was the result of pre-tax losses incurred in Canada, the United States and Argentina. The effective tax recovery rate was 36 percent during the first six months in 2017 compared to 35 percent in the comparable period in 2016.

LIQUIDITY AND CAPITAL RESOURCES

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2017

2016

2017

2016

(C$000s)

($)

($)

($)

($)

(unaudited)

       

Cash provided by (used in):

       
 

Operating activities

(35,076)

(16,186)

(68,165)

(13,618)

 

Financing activities

28,009

76,023

42,544

75,936

 

Investing activities

(19,388)

(10,574)

(28,398)

(27,980)

 

Effect of exchange rate changes on cash

       
 

and cash equivalents

(9,962)

64

(6,525)

(12,095)

(Decrease) increase in cash and cash equivalents

(36,417)

49,327

(60,544)

22,243

 

OPERATING ACTIVITIES
The Company's cash used by operating activities for the three months ended June 30, 2017 was $35.1 million versus $16.2 million in the comparable period in 2016. The increase in cash used by operations was primarily due to working capital requiring $36.6 million of cash in the second quarter of 2017 compared to a contribution of $30.4 million in the comparable period in 2016. The increase in cash used by operations was partially offset by significantly improved operating results in Canada and the United States. At June 30, 2017, Calfrac's working capital was approximately $293.4 million compared to $271.6 million at December 31, 2016.

FINANCING ACTIVITIES
Net cash provided by financing activities for the three months ended June 30, 2017 was $28.0 million compared to $76.0 million in the comparable period in 2016. During the three months ended June 30, 2017, the Company received net funds from borrowings under its credit facilities of $28.7 million, made principal and interest payments under its term loan of $0.6 million and had mortgage and lease payments of $0.1 million.

On December 6, 2016, Calfrac closed a bought deal private placement of 21,055,000 common shares for net proceeds of $56.6 million. Of the net proceeds from the offering, $25.0 million is held in a segregated account. On April 3, 2017 the Company elected to use the first of its two fully-funded $25.0 million equity cures effective as of the quarter ended on June 30, 2017. The funds that have been removed from the segregated account as an equity cure were used for general working capital and corporate purposes. The Company has one $25.0 million fully-funded equity cure remaining and may at its discretion elect to use such cure in respect of the quarter ending December 31, 2017 by providing notice of any such election to the lending syndicate at any time prior to the filing of its quarterly financial statements for such quarter on SEDAR.

On June 10, 2016, the Company closed a $200.0 million second lien senior secured term loan financing with Alberta Investment Management Corporation (AIMCo). The term loan matures on September 30, 2020 and bears interest at the rate of 9 percent annually and is payable quarterly. In addition, amortization payments equal to 1 percent of the original principal amount are payable annually in equal quarterly installments, with the balance due on the maturity date. In conjunction with the funding of the term loan, a total of 6,934,776 warrants to purchase common shares of the Company were issued to AIMCo, entitling it to acquire 6,934,776 common shares at a price of $4.14 per common share at any time prior to June 10, 2019. No amendments were made to the available commitment, term, covenants or interest rates payable under Calfrac's existing credit facilities as part of the required approvals for the term loan.

The Company's credit facilities mature on September 27, 2018 and can be extended by one or more years at the Company's request and lenders' acceptance. The Company also may prepay principal without penalty.

On December 11, 2015, Calfrac amended its credit facilities to provide increased financial flexibility. The amendment included a voluntary reduction in the total facility from $400.0 million to $300.0 million. The facilities consist of an operating facility of $30.0 million and a syndicated facility of $270.0 million. The interest rates are based on the parameters of certain bank covenants. For prime-based loans and U.S. base-rate loans, the rate ranges from prime or U.S. base rate plus 0.50 percent to prime plus 3.50 percent. For LIBOR-based loans and bankers' acceptance-based loans, the margin thereon ranges from 1.50 percent to 4.50 percent above the respective base rates. The facility was amended to increase the $100.0 million accordion feature to $200.0 million. The accordion feature is not available to the Company during the covenant relief period described below and ending on December 31, 2017 and during this period the Company will incur interest at the high end of the ranges outlined above. Additionally, for the quarters ended December 31, 2016 through December 31, 2017, advances under the credit facilities are limited by a borrowing base. The borrowing base is calculated based on the following:

i.   

Eligible North American accounts receivable, which is based on 75 percent of accounts receivable owing by companies rated BB+ or lower by Standard & Poor's (or a similar rating agency) and 85 percent of accounts receivable from companies rated BBB- or higher;

   

ii.   

100 percent of unencumbered cash of the parent company and its U.S. operating subsidiary, excluding any cash held in a segregated account for the purposes of a potential equity cure; and

   

iii.  

25 percent of the net book value of property, plant and equipment (PP&E) of the parent company and its U.S. operating subsidiary. The value of PP&E excludes assets under construction and is limited to $150.0 million.

 

As at June 30, 2017, the Company had used $2.8 million of its credit facilities for letters of credit and had $45.0 million of borrowings under its credit facilities, leaving $252.2 million in available liquidity under its credit facilities. As described above, the Company's credit facilities are subject to a monthly borrowing base calculation which could result in a lower liquidity amount.

The Company's credit facilities contain certain financial covenants. Calfrac negotiated amendments including waivers and increases to certain of its financial covenant thresholds prior to the end of the fourth quarter in 2015, as shown below.

Years ended December 31, except as indicated in notes below

     

2017

 

2016

Working capital ratio not to fall below

     

1.15x

 

1.15x

Funded Debt to Adjusted EBITDA not to exceed(1)(2)(3)

     

  4.50x/4.00x

 

5.00x

Funded Debt to Capitalization not to exceed(2)(4)

     

0.30x

 

0.30x

 

(1) Funded Debt to Adjusted EBITDA covenant is 4.50x for the quarter ended June 30, 2017 and declines to 4.00x for the quarters ended September 30, 2017 and December 31, 2017 and is set at 3.00x for each quarter after December 31, 2017.

(2) Funded Debt is defined as Total Debt excluding all outstanding senior unsecured notes and the second lien senior secured term loan facility. Total Debt includes bank loans and long-term debt (before unamortized debt issuance costs and debt discount) plus outstanding letters of credit less cash on hand with lenders (excluding any cash held in a segregated account for the purposes of a potential equity cure).

(3) Adjusted EBITDA is defined as net income or loss for the period less interest, taxes, depreciation and amortization, non-cash stock-based compensation, non-controlling interest relating to Colombia, and gains and losses that are extraordinary or non-recurring.

(4) Capitalization is Total Debt plus Equity attributable to the shareholders of Calfrac.

 

Proceeds from equity offerings may be applied, as an equity cure, in the calculation of Adjusted EBITDA towards the Funded Debt to Adjusted EBITDA covenant for any of the quarters ending prior to and including December 31, 2017 subject to certain conditions including:

i.   

the Company is only permitted to use the proceeds of a common share issuance to increase Adjusted EBITDA a maximum of two times;

   

ii.   

the Company cannot use the proceeds of a common share issuance to increase Adjusted EBITDA in consecutive quarter ends;

   

iii.   

the maximum proceeds of each common share issuance permitted to be attributed to Adjusted EBITDA cannot exceed the greater of 50 percent of Adjusted EBITDA on a trailing four-quarter basis and $25.0 million; and

   

iv.   

if proceeds are not used immediately as an equity cure they must be held in a segregated bank account pending an election to use them for such purpose, and if they are removed from such account but not used as an equity cure they will no longer be eligible for such use.

 

As discussed above, on December 6, 2016, Calfrac closed a bought deal private placement of 21,055,000 common shares for net proceeds of approximately $56.6 million. On December 22, 2015, Calfrac closed a bought deal private placement of 20,370,370 common shares for net proceeds of approximately $25.2 million. $50.0 million of the net proceeds from these offerings were held in a segregated account in accordance with the amended credit facilities pending an election to use them as an equity cure. On April 3, 2017 the Company elected to use the first of its two fully-funded $25.0 million equity cures effective as of the quarter ending on June 30, 2017. Throughout the period ending on December 31, 2017, amounts used as an equity cure will increase Adjusted EBITDA over the relevant twelve-month rolling period and will also serve to reduce Funded Debt. The funds that have been removed from the segregated account as an equity cure, as described above, were used for general working capital and corporate purposes. When the remaining funds are removed from the segregated account, as an equity cure or otherwise, they are expected to be used to fund capital expenditures, to reduce outstanding indebtedness, and/or to be used for general working capital and corporate purposes.

As shown in the table below, at June 30, 2017, the Company was in compliance with the financial covenants associated with its credit facilities.

       

Covenant

 

Actual

As at June 30,

     

2017

 

2017

Working capital ratio not to fall below

     

1.15x

 

2.99x

Funded Debt to Adjusted EBITDA not to exceed

     

4.50x

 

0.46x

Funded Debt to Capitalization not to exceed

     

0.30x

 

0.02x

 

The indenture governing the senior unsecured notes, which is available on SEDAR, contains restrictions on the Company's ability to pay dividends, purchase and redeem shares of the Company and make certain restricted investments, that are not defined as Permitted Investments under the indenture, in circumstances where:

i.   

the Company is in default under the indenture or the making of such payment would result in a default;

   

ii.   

the Company is not meeting the Fixed Charge Coverage Ratio(1) under the indenture of at least 2:1 for the most recent four fiscal quarters, with the restricted payments regime commencing once internal financial statements are available which show that the ratio is not met on a pro forma basis for the most recently ended four fiscal quarter period; or

   

iii.  

there is insufficient room for such payment within a builder basket included in the indenture.

 

(1) The Fixed Charge Coverage Ratio is defined as cash flow to interest expense. Cash flow is a non-GAAP measure and does not have a standardized meaning under IFRS and is defined under the indenture as net income (loss) attributable to the shareholders of Calfrac before depreciation, extraordinary gains or losses, unrealized foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, impairment of assets, restructuring charges, provision for settlement of litigation, stock-based compensation, interest, and income taxes.

 

These limitations on restricted payments are tempered by the existence of a number of exceptions to the general prohibition, including a basket allowing for restricted payments in an aggregate amount of up to US$20.0 million. As at June 30, 2017 this basket was not utilized. The indenture also restricts the ability to incur additional indebtedness if the Fixed Charge Coverage Ratio determined on a pro forma basis for the most recently ended four fiscal quarter period for which internal financial statements are available is not at least 2:1. As is the case with restricted payments, there are a number of exceptions to this prohibition on the incurrence of additional indebtedness, including the incurrence of additional debt under credit facilities up to the greater of $175.0 million or 30 percent of the Company's consolidated tangible assets. At June 30, 2017, the Company was able to incur additional indebtedness in excess of $340 million pursuant to the aforementioned exception.

As at June 30, 2017, the Company's Fixed Charge Coverage Ratio of 0.46:1 was less than the required 2:1 ratio. Failing to meet the Fixed Charge Coverage Ratio is not an event of default under the indenture, and the baskets highlighted in the preceding paragraph provide sufficient flexibility for the Company to incur additional indebtedness and make anticipated restricted payments which may be required to conduct its operations during periods of weakened market conditions.

INVESTING ACTIVITIES
Calfrac's net cash used for investing activities was $19.4 million for the three months ended June 30, 2017 versus $10.6 million in the comparable period in 2016. Cash outflows relating to capital expenditures were $21.4 million during the second quarter in 2017 compared to $12.8 million in 2016. Capital expenditures were primarily to support the Company's North American fracturing operations.

As a result of increased activity and demand for its equipment, the Company is announcing a further increase in its 2017 capital budget from $45.0 million to $65.0 million. The incremental capital expenditures will be largely focused on maintenance capital for a larger fleet of equipment operating in North America due to a higher number of fleet activations than were initially planned.

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
The effect of changes in foreign exchange rates on the Company's cash and cash equivalents during the three months ended June 30, 2017 was a loss of $10.0 million versus a gain of $0.1 million during the comparable period in 2016. These gains and losses relate to cash and cash equivalents held by the Company in a foreign currency.

With its working capital position, available credit facilities and anticipated funds provided by operations, the Company expects to have adequate resources to fund its financial obligations and planned capital expenditures for 2017 and beyond.

At June 30, 2017, the Company had cash and cash equivalents of $49.4 million of which $25.0 million was held in a segregated account at the Company's discretion, so that it may be utilized if required in the calculation of Adjusted EBITDA for purposes of the Company's bank covenants. On April 3, 2017, the Company elected to use the first of its two fully-funded $25.0 million equity cures effective as of the quarter ended on June 30, 2017 and used the funds for general working capital and corporate purposes.

OUTSTANDING SHARE DATA
The Company is authorized to issue an unlimited number of common shares. Employees have been granted options to purchase common shares under the Company's shareholder-approved stock option plan. The number of shares reserved for issuance under the stock option plan and performance share unit plan is equal to 10 percent of the Company's issued and outstanding common shares. As at July 21, 2017, there were 136,772,715 common shares issued and outstanding, 10,534,548 options to purchase common shares and 6,934,776 warrants to purchase common shares. In Calfrac's 2017 first quarter press release, the number of stock options outstanding at April 21, 2017 were inadvertently overstated by 2,304,322 as the number disclosed included Restricted Share Units.

ADVISORIES

FORWARD-LOOKING STATEMENTS
In order to provide Calfrac shareholders and potential investors with information regarding the Company and its subsidiaries, including management's assessment of Calfrac's plans and future operations, certain statements contained in this press release, including statements that contain words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "forecast" or similar words suggesting future outcomes, are forward-looking statements.

In particular, forward-looking statements in this press release include, but are not limited to, statements with respect to expected operating strategies and targets, capital expenditure programs, future financial resources, use of funds held in the Company's segregated bank account (as an equity cure or otherwise), anticipated equipment utilization levels, future oil and natural gas well activity in each of the Company's operating jurisdictions, results of acquisitions, the impact of environmental regulations and economic reforms and sanctions on the Company's business, future costs or potential liabilities, projections of market prices and costs, supply and demand for oilfield services, expectations regarding the Company's ability to maintain its competitive position, anticipated benefits of the Company's competitive position, expectations regarding the Company's financing activities and restrictions including with regard to its credit agreement and the indenture pursuant to which its senior notes were issued and its ability to raise capital, treatment under government regulatory regimes, commodity prices, anticipated outcomes of specific events (including exposure under existing legal proceedings), expectations regarding trends in, and the growth prospects of, the global oil and natural gas industry, the Company's growth strategy and prospects, and the impact of changes in accounting policies and standards on the Company and its financial statements. These statements are derived from certain assumptions and analyses made by the Company based on its experience and perception of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances, including, but not limited to, the economic and political environment in which the Company operates, the Company's expectations for its current and prospective customers' capital budgets and geographical areas of focus, the Company's existing contracts and the status of current negotiations with key customers and suppliers, the focus of the Company's customers on increasing the use of 24-hour operations in North America, the effectiveness of cost reduction measures instituted by the Company, the effect unconventional gas projects have had on supply and demand fundamentals for natural gas and the likelihood that the current tax and regulatory regime will remain substantially unchanged.

Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Company's expectations. Such risk factors include: excess oilfield equipment levels; regional competition; the availability of capital on satisfactory terms; restrictions resulting from compliance with debt covenants and risk of acceleration of indebtedness; direct and indirect exposure to volatile credit markets, including credit rating risk; currency exchange rate risk; risks associated with foreign operations; operating restrictions and compliance costs associated with legislative and regulatory initiatives relating to hydraulic fracturing and the protection of workers and the environment; changes in legislation and the regulatory environment; dependence on, and concentration of, major customers; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; uncertainties in weather and temperature affecting the duration of the service periods and the activities that can be completed; liabilities and risks associated with prior operations; failure to maintain the Company's safety standards and record; failure to realize anticipated benefits of acquisitions and dispositions; the ability to integrate technological advances and match advances from competitors; intellectual property risks; sourcing, pricing and availability of raw materials, component parts, equipment, suppliers, facilities and skilled personnel; and the effect of accounting pronouncements issued periodically. Further information about these and other risks and uncertainties may be found under "Business Risks" below.

Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized, or that they will have the expected consequences or effects on the Company or its business or operations. These statements speak only as of the respective date of this press release or the document incorporated by reference herein. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities laws.

BUSINESS RISKS
The business of Calfrac is subject to certain risks and uncertainties. Prior to making any investment decision regarding Calfrac, investors should carefully consider, among other things, the risk factors set forth in the Company's most recently filed Annual Information Form, which are specifically incorporated by reference herein. The Annual Information Form is available through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR), which can be accessed at www.sedar.com. Copies of the Annual Information Form may also be obtained on request without charge from Calfrac at 411 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1E3, or at www.calfrac.com, or by facsimile at 403-266-7381.

NON-GAAP MEASURES
Certain supplementary measures presented in this press release do not have any standardized meaning under IFRS and, because IFRS have been incorporated as Canadian generally accepted accounting principles (GAAP), these supplementary measures are also non-GAAP 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 explained below.

Operating income (loss) is defined as net income (loss) before depreciation, foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, interest, and income taxes. Management believes that operating income is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac's business segments prior to consideration of how these segments are financed or taxed. Operating income (loss) for the period was calculated as follows:

   

Three Months Ended June 30,

Six Months Ended June 30,

   

2017

2016

2017

2016

(C$000s)

 

($)

($)

($)

($)

(unaudited)

         

Net loss

 

(22,370)

(42,636)

(41,963)

(98,032)

Add back (deduct):

         
 

Depreciation

 

31,748

31,004

63,703

66,598

 

Foreign exchange losses

 

16,304

1,520

12,618

19,702

 

Loss (gain) on disposal of property,

         
 

plant and equipment

 

1,391

164

2,668

(63)

 

Interest

 

22,101

18,109

43,354

37,224

 

Income taxes

 

(12,434)

(24,059)

(23,245)

(52,950)

Operating income (loss)

 

36,740

(15,898)

57,135

(27,521)

 

Adjusted EBITDA is defined in the Company's credit facilities for covenant purposes as net income or loss for the period adjusted for interest, income taxes, depreciation and amortization, non-cash stock-based compensation, non-controlling interest, and gains and losses that are extraordinary or non-recurring. Adjusted EBITDA is presented because it is used in the calculation of the Company's bank covenants. Adjusted EBITDA for the period was calculated as follows:

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2017

2016

2017

2016

(C$000s)

   

($)

($)

(unaudited)

       

Net loss

(22,370)

(42,636)

(41,963)

(98,032)

Add back (deduct):

       
 

Depreciation

31,748

31,004

63,703

66,598

 

Unrealized foreign exchange losses

16,003

2,524

12,394

22,307

 

Loss (gain) on disposal of property,

       
 

plant and equipment

1,391

164

2,668

(63)

 

Provision for settlement of litigation

(139)

 

Restructuring charges

174

170

355

3,903

 

Stock-based compensation

1,279

640

2,303

1,023

 

Losses attributable to non-controlling interest(1)

2,021

(11)

2,067

12

 

Interest

22,101

18,109

43,354

37,224

 

Income taxes

(12,434)

(24,059)

(23,245)

(52,950)

Adjusted EBITDA(2)

39,913

(14,095)

61,497

(19,978)

 

(1) The definition of Adjusted EBITDA included non-controlling interest related to Argentina during 2016.

(2) Adjusted EBITDA for the purposes of the funded debt to Adjusted EBITDA covenant is $64.9 million as it includes an additional $25.0 million for the three months ended June 30, 2017 as the Company elected to use the first of its two fully funded equity cures effective the quarter ended June 30, 2017.

 

ADDITIONAL INFORMATION
Further information regarding Calfrac Well Services Ltd., including the most recently filed Annual Information Form, can be accessed on the Company's website at www.calfrac.com or under the Company's public filings found at www.sedar.com.

SECOND QUARTER CONFERENCE CALL
Calfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2017 second quarter results at 10:00 a.m. (Mountain Time) on Wednesday, July 26, 2017. The conference call dial-in number is 1-888-231-8191 or 647-427-7450. The seven-day replay numbers are 1-855-859-2056 or 416-849-0833 (once connected, enter 50708561). A webcast of the conference call may be accessed via the Company's website at www.calfrac.com.

CONSOLIDATED BALANCE SHEETS

   

June 30,

December 31,

As at

 

2017

2016

(C$000s) (unaudited)

 

($)

($)

ASSETS

     

Current assets

     
 

Cash and cash equivalents (note 1)

 

49,373

109,917

 

Accounts receivable

 

257,400

158,709

 

Income taxes recoverable

 

3,782

3,715

 

Inventories

 

114,984

99,601

 

Prepaid expenses and deposits

 

19,257

16,992

   

444,796

388,934

Non-current assets

     
 

Property, plant and equipment

 

1,093,708

1,153,882

 

Deferred income tax assets

 

83,604

70,188

Total assets

 

1,622,108

1,613,004

LIABILITIES AND EQUITY

     

Current liabilities

     
 

Accounts payable and accrued liabilities

 

148,866

114,529

 

Current portion of long-term debt (note 2)

 

2,426

2,520

 

Current portion of finance lease obligations

 

93

304

   

151,385

117,353

Non-current liabilities

     
 

Long-term debt (note 2)

 

1,002,994

984,062

 

Deferred income tax liabilities

 

4,549

14,131

Total liabilities

 

1,158,928

1,115,546

Equity attributable to the shareholders of Calfrac

     

Capital stock (note 3)

 

466,795

466,445

Contributed surplus

 

38,268

36,040

Loan receivable for purchase of common shares

 

(2,500)

(2,500)

(Deficit) retained earnings

 

(24,567)

15,329

Accumulated other comprehensive loss

 

(3,643)

(8,736)

   

474,353

506,578

Non-controlling interest

 

(11,173)

(9,120)

Total equity

 

463,180

497,458

Total liabilities and equity

 

1,622,108

1,613,004

 

Commitments (note 5); Contingencies (note 7)

See accompanying notes to the consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF OPERATIONS 

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2017

2016

2017

2016

(C$000s, except per share data) (unaudited)

($)

($)

($)

($)

Revenue

325,344

150,605

594,159

366,743

Cost of sales

307,680

175,720

577,310

422,410

Gross profit (loss)

17,664

(25,115)

16,849

(55,667)

Expenses

       
 

Selling, general and administrative

12,672

21,787

23,417

38,452

 

Foreign exchange losses

16,304

1,520

12,618

19,702

 

Loss (gain) on disposal of property,

       
 

plant and equipment

1,391

164

2,668

(63)

 

Interest

22,101

18,109

43,354

37,224

 

52,468

41,580

82,057

95,315

Loss before income tax

(34,804)

(66,695)

(65,208)

(150,982)

Income tax expense (recovery)

       
 

Current

708

643

1,544

1,452

 

Deferred

(13,142)

(24,702)

(24,789)

(54,402)

 

(12,434)

(24,059)

(23,245)

(52,950)

Net loss

(22,370)

(42,636)

(41,963)

(98,032)

         

Net loss attributable to:

       
 

Shareholders of Calfrac

(20,349)

(41,671)

(39,896)

(95,742)

 

Non-controlling interest

(2,021)

(965)

(2,067)

(2,290)

 

(22,370)

(42,636)

(41,963)

(98,032)

         

Loss per share (note 3)

       
 

Basic

(0.15)

(0.36)

(0.29)

(0.83)

 

Diluted

(0.15)

(0.36)

(0.29)

(0.83)

 

See accompanying notes to the consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2017

2016

2017

2016

(C$000s) (unaudited)

($)

($)

($)

($)

Net loss

(22,370)

(42,636)

(41,963)

(98,032)

Other comprehensive income (loss)

       

Items that may be subsequently reclassified to profit or loss:

       
 

Change in foreign currency translation adjustment

(1,195)

3,231

5,107

10,990

Comprehensive loss

(23,565)

(39,405)

(36,856)

(87,042)

Comprehensive loss attributable to:

       
 

Shareholders of Calfrac

(21,566)

(38,534)

(34,803)

(85,052)

 

Non-controlling interest

(1,999)

(871)

(2,053)

(1,990)

 

(23,565)

(39,405)

(36,856)

(87,042)

 

See accompanying notes to the consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

Equity Attributable to the Shareholders of Calfrac

   
 

Share
Capital

Contributed
Surplus

Loan
Receivable
for Purchase
of Common
Shares

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings
(Deficit)

Total

Non-
Controlling
Interest

Total Equity

(C$000s) (unaudited)

($)

($)

($)

($)

($)

($)

($)

($)

Balance – Jan. 1, 2017

466,445

36,040

(2,500)

(8,736)

15,329

506,578

(9,120)

497,458

Net loss

(39,896)

(39,896)

(2,067)

(41,963)

Other comprehensive income:

               
 

Cumulative translation adjustment

5,093

5,093

14

5,107

Comprehensive income (loss)

5,093

(39,896)

(34,803)

(2,053)

(36,856)

Stock options:

               
 

Stock-based compensation recognized (note 4)

2,303

2,303

2,303

 

Proceeds from issuance of shares

350

(75)

275

275

Balance – Jun. 30, 2017

466,795

38,268

(2,500)

(3,643)

(24,567)

474,353

(11,173)

463,180

Balance – Jan. 1, 2016

409,809

27,849

(2,500)

(21,054)

213,426

627,530

(3,811)

623,719

Net loss

(95,742)

(95,742)

(2,290)

(98,032)

Other comprehensive income:

               
 

Cumulative translation adjustment

10,690

10,690

300

10,990

Comprehensive income (loss)

10,690

(95,742)

(85,052)

(1,990)

(87,042)

Warrants:

               
 

Fair value of warrants issued (note 4)

5,830

5,830

5,830

Stock options:

               
 

Stock-based compensation recognized (note 4)

1,023

1,023

1,023

Balance – Jun. 30, 2016

409,809

34,702

(2,500)

(10,364)

117,684

549,331

(5,801)

543,530

 

See accompanying notes to the consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2017

2016

2017

2016

(C$000s) (unaudited)

($)

($)

($)

($)

CASH FLOWS PROVIDED BY (USED IN)

       

OPERATING ACTIVITIES

       
 

Net loss

(22,370)

(42,636)

(41,963)

(98,032)

 

Adjusted for the following:

       
   

Depreciation

31,748

31,004

63,703

66,598

   

Stock-based compensation

1,279

640

2,303

1,023

   

Unrealized foreign exchange losses

16,003

2,524

12,394

22,307

   

Loss (gain) on disposal of property, plant and equipment

1,391

164

2,668

(63)

   

Interest

22,101

18,109

43,354

37,224

   

Deferred income taxes

(13,142)

(24,702)

(24,789)

(54,402)

   

Interest paid

(35,510)

(31,655)

(40,430)

(34,568)

   

Changes in items of working capital

(36,576)

30,366

(85,405)

46,295

Cash flows (used in) provided by operating activities

(35,076)

(16,186)

(68,165)

(13,618)

FINANCING ACTIVITIES

       
 

Bank loan proceeds

4,977

 

Issuance of long-term debt, net of debt issuance costs

28,729

214,900

43,729

214,900

 

Bank loan repayments

(8,664)

(11,658)

 

Long-term debt repayments

(629)

(130,122)

(1,256)

(130,295)

 

Finance lease obligation repayments

(105)

(91)

(204)

(182)

 

Net proceeds on issuance of common shares (note 3)

14

275

 

Dividends paid (note 3)

(1,806)

Cash flows provided by (used in) financing activities

28,009

76,023

42,544

75,936

INVESTING ACTIVITIES

       
 

Purchase of property, plant and equipment

(21,385)

(12,839)

(31,768)

(30,609)

 

Proceeds on disposal of property, plant and equipment

1,997

2,265

3,370

2,629

Cash flows used in investing activities

(19,388)

(10,574)

(28,398)

(27,980)

Effect of exchange rate changes on cash and cash equivalents

(9,962)

64

(6,525)

(12,095)

(Decrease) increase in cash and cash equivalents

(36,417)

49,327

(60,544)

22,243

Cash and cash equivalents, beginning of period

85,790

96,921

109,917

124,005

Cash and cash equivalents, end of period (note 1)

49,373

146,248

49,373

146,248

 

See accompanying notes to the consolidated financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three and six months ended June 30, 2017 and 2016
(Amounts in text and tables are in thousands of Canadian dollars, except share data and certain other exceptions as indicated)

1.  CASH AND CASH EQUIVALENTS
On December 6, 2016, the Company received net proceeds of $56,636 from a private placement offering of common shares. Another $25,194 of net proceeds was received from a private placement offering of common shares on December 22, 2015. Both of these transactions are described in further detail in note 3.

Prior to April 3, 2017, $50,000 of the net proceeds from these private placements were held in a segregated account. These funds are available for use at the Company's discretion and this amount can be transferred to its operating bank account at any time. The Company can also elect to use the proceeds as an equity cure. When the proceeds are utilized as an equity cure, the funds are transferred to the Company's operating bank account and are available for use at the Company's discretion. In addition, the proceeds are applied as a reduction of Funded Debt and are included in the calculation of EBITDA for purposes of the Company's Funded Debt to EBITDA bank covenant.

On April 3, 2017, the Company elected to use the first of its two fully-funded $25,000 equity cures effective as of the quarter ending on June 30, 2017. As at June 30, 2017, $25,000 remains in a segregated account.

2.  LONG-TERM DEBT

     

June 30,

December 31,

As at

   

2017

2016

(C$000s)

   

($)

($)

US$600,000 senior unsecured notes due December 1, 2020,

       
 

bearing interest at 7.50% payable semi-annually

   

778,620

805,620

$200,000 second lien senior secured term loan facility due

       
 

September 30, 2020, bearing interest at 9% payable quarterly,

       
 

secured by the Canadian and U.S. assets of the Company

       
 

on a second priority basis

   

198,000

199,000

$270,000 extendible revolving term loan facility, secured by

       
 

Canadian and U.S. assets of the Company

   

45,000

Less: unamortized debt issuance costs

   

(16,626)

(18,736)

     

1,004,994

985,884

US$328 mortgage maturing May 2018 bearing interest at U.S.

       
 

prime less 1%, repayable at US$33 per month principal and

       
 

interest, secured by certain real property

   

426

698

     

1,005,420

986,582

Less: current portion of long-term debt

   

(2,426)

(2,520)

     

1,002,994

984,062

 

The fair value of the senior unsecured notes, as measured based on the closing quoted market price at June 30, 2017, was $668,414 (December 31, 2016 – $702,903). The carrying values of the mortgage obligation, revolving term loan facilities and the second lien term loan approximate their fair values as the interest rates are not significantly different from current interest rates for similar loans.

On June 10, 2016, the Company entered into a $200,000 second lien senior secured term loan facility. The term loan matures on September 30, 2020, and bears interest at 9 percent per annum, payable quarterly. Amortization payments equal to 1 percent of the original principal amount are payable annually, in equal quarterly installments, with the balance due on the final maturity date. The proceeds from the term loan were made available in a single draw, and amounts borrowed under the term loan that are repaid or prepaid are not available for re-borrowing. The term loan is secured by the Canadian and U.S. assets of the Company on a second priority basis, subordinate only to the revolving term loan facility.

The interest rate on the $270,000 revolving term loan facility is based on the parameters of certain bank covenants. For prime-based loans, the rate ranges from prime plus 0.50 percent to prime plus 3.50 percent. For LIBOR-based loans and bankers' acceptance-based loans the margin thereon ranges from 1.50 percent to 4.50 percent above the respective base rates for such loans. The facility is repayable on or before its maturity of September 27, 2018, assuming it is not extended. The maturity may be extended by one or more years at the Company's request and lenders' acceptance. The Company may also prepay principal without penalty. Debt issuance costs related to this facility are amortized over its term.

Interest on long-term debt (including the amortization of debt issuance costs and debt discount) for the six months ended June 30, 2017 was $43,446 (six months ended June 30, 2016$34,868).

The Company also has an extendible operating loan facility, which includes overdraft protection in the amount of $30,000. The interest rate is based on the parameters of certain bank covenants in the same fashion as the revolving term facility. Drawdowns under this facility are repayable on September 27, 2018, assuming the facility is not extended. The term and commencement of principal repayments may be extended by one year on each anniversary at the Company's request and lenders' acceptance. The revolving term loan and operating facilities are secured by the Company's Canadian and U.S. assets.

At June 30, 2017, the Company had utilized $2,756 of its loan facility for letters of credit and had $45,000 outstanding under its revolving term loan facility, leaving $252,244 in available credit, subject to a monthly borrowing base calculation, which could result in a lower amount of available credit.

See note 6 for further details on the covenants in respect of the Company's long-term debt.

3.  CAPITAL STOCK

Authorized capital stock consists of an unlimited number of common shares.

   

Six Months Ended

Year Ended

   

June 30, 2017

December 31, 2016

Continuity of Common Shares

 

Shares

Amount

Shares

Amount

   

(#)

($000s)

(#)

($000s)

Balance, beginning of period

 

136,634,590

466,445

115,579,598

409,809

Issued upon exercise of stock options

 

138,125

350

Shares from private placements

 

21,055,000

56,636

Shares cancelled

 

(8)

Balance, end of period

 

136,772,715

466,795

136,634,590

466,445

 

The weighted average number of common shares outstanding for the three months ended June 30, 2017 was 136,600,189 basic and 137,928,808 diluted (three months ended June 30, 2016 – 115,410,398 basic and 115,621,404 diluted). The weighted average number of common shares outstanding for the six months ended June 30, 2017 was 136,579,187 basic and 138,180,906 diluted (six months ended June 30, 2016 – 115,410,398 basic and 115,579,598 diluted). The difference between basic and diluted shares is attributable to the dilutive effect of stock options and warrants issued by the Company as disclosed in note 4.

On December 6, 2016, the Company closed a bought deal private placement of 21,055,000 common shares for total gross proceeds of $60,007. Share issuance costs for the transaction were $3,371, resulting in net proceeds of $56,636. On December 22, 2015, the Company closed a bought deal private placement of 20,370,370 common shares for total gross proceeds of $27,500. Share issuance costs for the transaction were $2,306, resulting in net proceeds of $25,194.

A dividend of $0.015625 per common share, totalling $1,806, was declared on December 4, 2015 and paid on January 15, 2016.

During 2016, eight common shares were returned to the Company for cancellation. For accounting purposes, the cancellation of these shares was recorded as a reduction of capital stock in the amount of twenty-eight dollars, along with a corresponding increase to contributed surplus.

4.  SHARE-BASED PAYMENTS
(a) Stock Options

Six Months Ended June 30,

 

2017

 

2016

Continuity of Stock Options

Options

Average
Exercise Price

Options

Average
Exercise Price

 

(#)

($)

(#)

($)

Balance, January 1

7,246,386

6.62

8,229,947

7.81

 

Granted during the period

4,114,200

4.76

260,500

1.39

 

Exercised for common shares

(138,125)

1.99

 

Forfeited

(682,214)

8.57

(697,220)

11.03

 

Expired

(61,500)

13.39

(42,000)

16.89

Balance, June 30

10,478,747

5.79

7,751,227

7.25

 

Stock options vest equally over four years and expire five years from the date of grant. The exercise price of outstanding options range from $1.34 to $20.81 with a weighted average remaining life of 3.40 years. When stock options are exercised, the proceeds together with the compensation expense previously recorded in contributed surplus, are added to capital stock.

(b) Share Units

Six Months Ended June 30,

2017

2016

Continuity of Stock Units

Deferred
Share Units

Performance
Share Units

Restricted
Share Units

Deferred
Share Units

Performance
Share Units

Restricted
Share Units

 

(#)

(#)

(#)

(#)

(#)

(#)

Balance, January 1

145,000

639,330

2,757,850

72,500

238,995

812,828

 

Granted during the period

145,000

124,000

2,461,500

145,000

500,000

2,314,050

 

Exercised

(145,000)

(72,500)

 

Forfeited

(79,665)

(619,140)

(99,665)

(347,948)

Balance, June 30

145,000

683,665

4,600,210

145,000

639,330

2,778,930

 

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2017

2016

2017

2016

 

($)

($)

($)

($)

Expense (recovery) from:

       
 

Stock options

1,279

640

2,303

1,023

 

Deferred share units

44

232

204

281

 

Performance share units

(565)

582

(1,560)

385

 

Restricted share units

(2,527)

1,564

(4,995)

1,629

Total stock-based compensation expense

(1,769)

3,018

(4,048)

3,318

 

Stock-based compensation expense is included in selling, general and administrative expenses.

The Company grants deferred share units to its outside directors. These units vest in November of the year of grant and are settled either in cash (equal to the market value of the underlying shares at the time of exercise) or in Company shares purchased on the open market. The fair value of the deferred share units is recognized equally over the vesting period, based on the current market price of the Company's shares. At June 30, 2017, the liability pertaining to deferred share units was $173 (December 31, 2016 – $690).

The Company grants performance share units to a senior officer. The amount of the grants earned is linked to corporate performance and the grants vest on the approval of the Board of Directors at the meeting held to approve the consolidated financial statements for the year in respect of which performance is being evaluated. As with the deferred share units, performance share units are settled either in cash or Company shares purchased on the open market. At June 30, 2017, the liability pertaining to performance share units was $nil (December 31, 2016 – $1,560). The recovery of expense of $1,560 related to performance share units for the six months ended June 30, 2017 reflects the fact that given the challenging market conditions, the Board of Directors has determined that these units will not vest.

The Company grants restricted share units to its employees. These units vest over three years and are settled either in cash (equal to the market value of the underlying shares at the time of exercise) or in Company shares purchased on the open market. The fair value of the restricted share units is recognized over the vesting period, based on the current market price of the Company's shares. At June 30, 2017, the liability pertaining to restricted share units was $nil (December 31, 2016 – $4,995). The recovery of expense of $4,995 related to restricted share units for the six months ended June 30, 2017 reflects the fact that the financial thresholds for vesting such units are not expected to be met.

Changes in the Company's obligations under the deferred, performance and restricted share unit plans, which arise from fluctuations in the market value of the Company's shares underlying these compensation programs, are recorded as the share value changes.

(c) Warrants

In conjunction with the second lien senior secured term loan facility as disclosed in note 2, 6,934,776 warrants to purchase common shares of the Company were issued during 2016, entitling the holder to acquire up to 6,934,776 common shares at a price of $4.14 per common share. The warrants expire on June 10, 2019 and can be exercised at any time prior to such date. The fair value of the warrants issued was estimated using a Black-Scholes pricing model, in the amount of $5,830 and accounted for as a deferred finance cost during 2016. To date, no warrants have been exercised.

5.  COMMITMENTS

The Company has a contractual obligation with one of its major product suppliers, which includes annual minimum purchase commitments. During 2016, the Company did not meet its annual purchase commitment but initiated negotiations with the supplier to amend the contractual obligations and extend the fulfilment of the 2016 annual expenditure commitment to future years. The Company concluded these negotiations during the second quarter of 2017 which resulted in an extension of the 2016 annual purchase commitment to future years.

6.  CAPITAL STRUCTURE

The Company's capital structure is comprised of shareholders' equity and debt. The Company's objectives in managing capital are (i) to maintain flexibility so as to preserve its access to capital markets and its ability to meet its financial obligations, and (ii) to finance growth, including potential acquisitions.

The Company manages 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, adjust dividends, if any, paid to shareholders, issue new shares or new debt or repay existing debt.

The Company monitors its capital structure and financing requirements using, amongst other parameters, the ratio of net debt to operating income. Operating income for this purpose is calculated on a 12-month trailing basis and is defined as follows:

   

June 30,

December 31,

For the Twelve Months Ended

 

2017

2016

(C$000s)

 

($)

($)

Net loss

 

(147,488)

(203,557)

Adjusted for the following:

     
 

Depreciation

 

149,927

152,822

 

Foreign exchange losses

 

12,235

19,319

 

Loss (gain) on disposal of property, plant and equipment

 

2,240

(491)

 

Impairment of inventory

 

3,225

3,225

 

Interest

 

86,240

80,110

 

Income taxes

 

(79,927)

(109,632)

Operating income (loss)

 

26,452

(58,204)

 

Net debt for this purpose is calculated as follows:

   

June 30,

December 31,

As at

 

2017

2016

(C$000s)

 

($)

($)

Long-term debt, net of debt issuance costs and debt discount (note 2)

 

1,005,420

986,582

Finance lease obligation

 

93

304

Less: cash and cash equivalents

 

(49,373)

(109,917)

Net debt

 

956,140

876,969

 

The ratio of net debt to operating income does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

At June 30, 2017, the net debt to operating income ratio was 36.15:1 (December 31, 2016 – (15.07):1) calculated on a 12-month trailing basis as follows:

       

June 30,

December 31,

For the Twelve Months Ended

     

2017

2016

(C$000s, except ratio)

     

($)

($)

Net debt

     

956,140

876,969

Operating income (loss)

     

26,452

(58,204)

Net debt to operating income ratio

     

36.15:1

(15.07):1

 

The Company is subject to certain financial covenants relating to working capital, leverage and the generation of cash flow in respect of its operating and revolving credit facilities. These covenants are monitored on a monthly basis. Prior to the end of the fourth quarter of 2015, the Company negotiated amendments including waivers and increases to certain of its financial covenant thresholds pertaining to its credit facilities, as shown below. At June 30, 2017 and December 31, 2016, the Company was in compliance with its covenants with respect to its credit facilities.

Years Ended December 31, except as indicated in notes below

   

2017

 

2016

Working capital ratio not to fall below

   

1.15x

 

1.15x

Funded Debt to Adjusted EBITDA not to exceed(1)(2)(3)

   

   4.50x/4.00x

 

5.00x

Funded Debt to Capitalization not to exceed(2)(4)

   

0.30x

 

0.30x

 

(1) Funded Debt to Adjusted EBITDA covenant is 4.50x for the quarter ended June 30, 2017 and declines to 4.00x for the quarters ended September 30, 2017 and December 31, 2017 and is set at 3.00x for each quarter after December 31, 2017.

(2) Funded Debt is defined as Total Debt excluding all outstanding senior unsecured notes and the second lien senior secured term loan facility. Total Debt includes bank loans and long-term debt (before unamortized debt issuance costs and debt discount) plus outstanding letters of credit less cash on hand with lenders (excluding any cash held in a segregated account for the purposes of a potential equity cure).

(3) Adjusted EBITDA is defined as net income or loss for the period less interest, taxes, depreciation and amortization, non-cash stock-based compensation, non-controlling interest relating to Colombia, and gains and losses that are extraordinary or non-recurring.

(4) Capitalization is Total Debt plus Equity attributable to the shareholders of Calfrac.

 

For the quarter ended December 31, 2015 through the quarter ended December 31, 2017, advances under the credit facilities will be limited by a borrowing base. The borrowing base is calculated based on the following:

i.   

Eligible North American accounts receivable, which is based on 75 percent of accounts receivable owing by companies rated BB+ or lower by Standard & Poor's (or a similar rating agency) and 85 percent of accounts receivable from companies rated BBB- or higher;

   

ii.   

100 percent of unencumbered cash of the parent company and its U.S. operating subsidiary, excluding any cash held in a segregated account for the purposes of a potential equity cure; and

   

iii.  

25 percent of the net book value of property, plant and equipment (PP&E) of the parent company and its U.S. operating subsidiary. The value of PP&E excludes assets under construction and is limited to $150,000.

 

For the quarter ended December 31, 2015 through the quarter ended December 31, 2017, distributions are restricted other than those relating to the Company's share unit plans and dividend distributions, provided that the rate of dividends must not exceed $0.015625 per share quarterly.

The indenture governing the senior unsecured notes contains restrictions on the Company's ability to pay dividends, purchase and redeem shares of the Company, and make certain restricted investments in circumstances where

i.    

the Company is in default under the indenture or the making of such payment would result in a default;

ii.    

the Company is not meeting the Fixed Charge Coverage Ratio(1) under the indenture of at least 2:1 for the most recent four fiscal quarters; or

iii.    

there is insufficient room for such payment within a builder basket included in the indenture. 

 

(1)  The Fixed Charge Coverage Ratio is defined as cash flow to interest expense. Cash flow is a non-GAAP measure and does not have a standardized meaning under IFRS and is defined under the indenture as net income (loss) attributable to the shareholders of Calfrac before depreciation, extraordinary gains or losses, unrealized foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, impairment of assets, restructuring charges, provision for settlement of litigation, stock-based compensation, interest, and income taxes.

 

These limitations on restricted payments are tempered by the existence of a number of exceptions to the general prohibition, including a basket allowing for restricted payments in an aggregate amount of up to US$20,000. As at June 30, 2017, this basket was not utilized.

The indenture also restricts the incurrence of additional indebtedness if the Fixed Charge Coverage Ratio determined on a pro forma basis for the most recently ended four fiscal quarter period for which internal financial statements are available is not at least 2:1. As is the case with restricted payments, there are a number of exceptions to this prohibition on the incurrence of additional indebtedness, including the incurrence of additional debt under credit facilities up to the greater of $175,000 or 30 percent of the Company's consolidated tangible assets. At June 30, 2017, the Company was able to incur additional indebtedness in excess of $340,000 pursuant to the aforementioned exception.

As at June 30, 2017, the Company's Fixed Charge Coverage Ratio of 0.46:1 was less than the required 2:1 ratio. Failing to meet the Fixed Charge Coverage Ratio is not an event of default under the indenture, and the baskets highlighted in the preceding paragraphs provide sufficient flexibility for the Company to make anticipated restricted payments, such as dividends, and incur additional indebtedness as required to conduct its operations and satisfy its obligations during periods of weakened market conditions.

The Company has measures in place to ensure that it has sufficient liquidity to navigate the cyclical nature of the oilfield services sector and safeguard the Company's ability to continue as a going concern. As discussed above, the Company negotiated amendments to its credit facilities to provide increased financial flexibility. These amendments include an "Equity Cure" feature pursuant to which proceeds from equity offerings may be applied as both an adjustment in the calculation of Adjusted EBITDA and as a reduction of Funded Debt towards the Funded Debt to Adjusted EBITDA ratio covenant for any of the quarters ending prior to and including December 31, 2017, subject to certain conditions including:

i.    

the Company is only permitted to use the proceeds of a common share issuance to increase Adjusted EBITDA a maximum of two times;

ii.   

the Company cannot use the proceeds of a common share issuance to increase Adjusted EBITDA in consecutive quarter ends;

iii.   

the maximum proceeds of each common share issuance permitted to be attributed to Adjusted EBITDA cannot exceed the greater of 50 percent of Adjusted EBITDA on a rolling four-quarter basis and $25,000; and

iv.   

if proceeds are not used immediately as an equity cure they must be held in a segregated bank account pending an election to use them for such purpose, and if they are removed from such account but not used as an equity cure they will no longer be eligible for such use.

 

In addition, to the extent that proceeds from an equity offering are used as part of the Equity Cure, such proceeds are included in the calculation of the Company's borrowing base.

On April 3, 2017, the Company elected to use the first of its two fully-funded $25,000 equity cures effective as of the quarter ending on June 30, 2017. As at June 30, 2017, $25,000 remains in a segregated account.

7.  CONTINGENCIES

GREEK LITIGATION
As a result of the acquisition and amalgamation with Denison in 2004, the Company assumed certain legal obligations relating to Denison's Greek operations.

In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a Greek subsidiary of a consortium in which Denison participated (and which is now a majority-owned subsidiary of the Company), terminated employees in Greece as a result of the cessation of its oil and natural gas operations in that country. Several groups of former employees filed claims against NAPC and the consortium alleging that their termination was invalid and that their severance pay was improperly determined.

In 1999, the largest group of plaintiffs received a ruling from the Athens Court of First Instance that their termination was invalid and that salaries in arrears amounting to approximately $10,141 (6,846 euros) plus interest were due to the former employees. This decision was appealed to the Athens Court of Appeal, which allowed the appeal in 2001 and annulled the above-mentioned decision of the Athens Court of First Instance. The said group of former employees filed an appeal with the Supreme Court of Greece, which was heard on May 29, 2007. The Supreme Court of Greece allowed the appeal and sent the matter back to the Athens Court of Appeal for the consideration of the quantum of awardable salaries in arrears. On June 3, 2008, the Athens Court of Appeal rejected NAPC's appeal and reinstated the award of the Athens Court of First Instance, which decision was further appealed to the Supreme Court of Greece. The matter was heard on April 20, 2010 and a decision rejecting such appeal was rendered in June 2010. As a result of Denison's participation in the consortium that was named in the lawsuit, the Company has been served with three separate payment orders, one on March 24, 2015 and two others on December 29, 2015. The Company was also served with an enforcement order on November 23, 2015.  Oppositions have been filed on behalf of the Company in respect of each of these orders which oppose the orders on the basis that they were improperly issued and are barred from a statute of limitations perspective. The salaries in arrears sought to be recovered through these orders are part of the $10,141 (6,846 euros) cited above and the interest being sought in respect of these orders is part of the $25,713 (17,358 euros) cited below. Provisional orders granting a temporary suspension of any enforcement proceedings have been granted in respect of all of the orders that have been served. The order served on March 24, 2015 was heard on November 24, 2015 and a decision was issued on November 25, 2016 accepting the Company's opposition on the basis that no lawful service of Judgment No 4528/2008 had taken place until the filing of the opponents' petition and/or the issuance of the payment order. The plaintiffs have filed an appeal against the above decision which has been scheduled to be heard on October 16, 2018. A hearing in respect of the order served on November 23, 2015 was adjourned until October 31, 2018. A hearing in respect of the orders served in December of 2015 scheduled for September 20, 2016 was adjourned until November 21, 2016 and two decisions were issued on January 9, 2017 accepting the Company's oppositions on a statute of limitations basis. The plaintiffs have filed appeals against the above decisions, which are scheduled to be heard on October 16, 2018.

NAPC is also the subject of a claim for approximately $4,239 (2,862 euros) plus associated penalties and interest from the Greek social security agency for social security obligations associated with the salaries in arrears that are the subject of the above-mentioned decision.

The maximum aggregate interest and penalties payable under the claims noted above, as well as three other immaterial claims against NAPC totaling $856 (578 euros), amounted to $25,713 (17,358 euros) as at June 30, 2017.

Management is of the view that it is improbable there will be a material financial impact to the Company as a result of these claims. Consequently, no provision has been recorded in these consolidated financial statements.

8.  SEGMENTED INFORMATION

The Company's activities are conducted in four geographical segments: Canada, the United States, Russia and Latin America (comprised of Argentina and Mexico). All activities are related to hydraulic fracturing, coiled tubing, cementing and other well completion services for the oil and natural gas industry.

The business segments presented reflect the Company's management structure and the way its management reviews business performance. The Company evaluates the performance of its operating segments primarily based on operating income, as defined below.

 

Canada

United States

Russia

Latin America

Corporate

Consolidated

(C$000s)

($)

($)

($)

($)

($)

($)

Three Months Ended June 30, 2017

           

Revenue(2)

111,313

153,946

31,492

28,593

325,344

Operating income (loss)(1)

13,190

25,177

4,839

(2,241)

(4,225)

36,740

Segmented assets(4)

625,264

741,006

107,640

148,198

1,622,108

Capital expenditures

10,754

10,336

791

477

22,358

             

Three Months Ended June 30, 2016

           

Revenue(2)

45,388

48,053

22,433

34,731

150,605

Operating income (loss)(1)

(4,683)

(822)

3,010

(4,409)

(8,994)

(15,898)

Segmented assets(4)

679,080

720,572

96,155

145,113

1,640,920

Capital expenditures

1,174

3,466

605

3,125

8,370

             
             
 

Canada

United States

Russia

Latin America

Corporate

Consolidated

(C$000s)

($)

($)

($)

($)

($)

($)

Six Months Ended June 30, 2017

           

Revenue(3)

222,331

251,990

59,218

60,620

594,159

Operating income (loss)(1)

25,633

35,177

4,713

(18)

(8,370)

57,135

Segmented assets(4)

625,264

741,006

107,640

148,198

1,622,108

Capital expenditures

14,893

18,023

940

1,467

35,323

             

Six Months Ended June 30, 2016

           

Revenue(3)

118,109

124,037

45,157

79,440

366,743

Operating income (loss)(1)

(4,430)

(13,061)

3,818

2,460

(16,308)

(27,521)

Segmented assets(4)

679,080

720,572

96,155

145,113

1,640,920

Capital expenditures

(4,578)

14,312

1,242

5,117

16,093

 

(1) Operating income (loss) is defined as net income (loss) before depreciation, foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, interest, and income taxes.

(2) Argentina's revenue for the three months ended June 30, 2017 and 2016 was $28,025 or 9% of consolidated revenue and $33,450 or 22% of consolidated revenue, respectively.

(3) Argentina's revenue for the six months ended June 30, 2017 and 2016 was $58,575 or 10% of consolidated revenue and $73,573 or 20% of consolidated revenue, respectively.

(4) Argentina's assets as at June 30, 2017 and 2016 were $140,036 or 9% of consolidated assets and $134,708 or 8% of consolidated assets, respectively.

 

   

Three Months Ended June 30,

Six Months Ended June 30,

   

2017

2016

2017

2016

(C$000s)

 

($)

($)

($)

($)

Net loss

 

(22,370)

(42,636)

(41,963)

(98,032)

Add back (deduct):

         
 

Depreciation

 

31,748

31,004

63,703

66,598

 

Foreign exchange losses

 

16,304

1,520

12,618

19,702

 

Loss (gain) on disposal of property,

         
 

plant and equipment

 

1,391

164

2,668

(63)

 

Interest

 

22,101

18,109

43,354

37,224

 

Income taxes

 

(12,434)

(24,059)

(23,245)

(52,950)

Operating income (loss)

 

36,740

(15,898)

57,135

(27,521)

 

Operating income (loss) does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

The following table sets forth consolidated revenue by service line:

       

Three Months Ended June 30,

Six Months Ended June 30,

       

2017

2016

2017

2016

(C$000s)

     

($)

($)

($)

($)

Fracturing

     

291,599

123,059

527,826

305,063

Coiled tubing

     

20,279

15,379

40,637

34,248

Cementing

     

4,920

8,319

13,473

18,388

Product Sales

     

5,418

5,418

Other

     

3,128

3,848

6,805

9,044

       

325,344

150,605

594,159

366,743

 

 

 

SOURCE Calfrac Well Services Ltd.

For further information: Fernando Aguilar, President & Chief Executive Officer; Mike Olinek, Chief Financial Officer; Scott Treadwell, VP Capital Markets & Strategy; Telephone: 403-266-6000, Fax: 403-266-7381, www.calfrac.com