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Trican Cutting Cost To The Bones; Seeks Relief From Debt Holders

Share Print Bookmark    |    Wednesday,May 13,2015

Trican Well services first quarter announcement.

Trican reported consolidated revenue in the first three months of 2015 of $476 million, down 26 per cent compared to the same period of 2014, resulting in an adjusted loss of $60 million or 40 cents per share (analysts had predicted 31 cents per share), versus an adjusted loss of $8.7 million or six cents in the first quarter of 2014.

Our main focus near-term will be to continue to reduce costs, finalize the sale of our Russian and Kazakhstan businesses and obtain amendments to our lending agreements that will provide financial flexibility throughout the current economic environment. We remain confident in our ability to execute on our strategy needed to manage through the current downturn and expect to emerge as a stronger organization.

From Q1 Earnings Call

Brian Purdy - PI Financial Corp.

I wanted to ask about, you've obviously been having a lot of discussions with your lenders and other debt holders about getting the covenant waivers. I'm just wondering if you could give us some characterization of the tone of those discussions and whether you started looking at alternative financing if you think that might be necessary.

Michael Baldwin - Vice President Finance and Chief Financial Officer

"I think the tone is generally positive as far as those conversations can go. My sense of both on the revolving credit facility lenders and the note holders is they’ve been constructive and helpful in walking through the whole process. At this stage, we haven’t been looking at restructuring anything. I think everything is on the table, but at this point in time we’ve been more focused on just getting the covenant relief and then going to the next stage after that."

Cost Cutting Measures (Michael Baldwin - Vice President Finance and Chief Financial Officer)

"Effective February 1, 2015, a 10% salary reduction was implemented across North America, which led to $4.2 million reduction in North American salary costs for the first quarter of 2015. In addition, a second salary reduction of 10% [indiscernible] and reduced benefits for all Canadian and corporate employees has been implemented effective April 15, 2015, and will remain in place until breakup is over or until activity levels increase.

Our North American employee base was reduced by approximately 2,000 people or 44% during the first quarter, due to the low demand and an expectation of continued low demand throughout 2015. The majority of these reductions occurred in our US operations. A significant amount of the employee reductions occurred in March and therefore minimal cost savings relating to this initiative were realized during the quarter"

Based on existing capital budget commitments, we expect capital spending to be between $40 million and $50 million during 2015. However, spending on capital projects is currently limited to completion of existing AFEs and spending is critical to maintaining or increasing the company’s near term cash flow.

Management has prepared forecasts for the remainder of 2015 and 2016 and forecasts a breach of its interest coverage ratio debt covenant during the second half of 2015 and first quarter of 2016 due to current North American pressure pumping activity and pricing being at cyclical lows. If this covenant is not met, the revolving credit facility and senior notes may become due on demand. Trican is currently in the process of negotiating covenant relief with the revolving credit facilities syndicate and the senior note holders.

Revenue Break-down by Region

Source : Trican January 2015 via ShaleExperts Presentation Manager

Services

You can see why the company is so hard hit, with more than 60% less wells being completed in the Canada this year vs last and others in US delaying completions, the company's decision to focus on cost cutting.

In response to reduced demand, we downsized our US pressure pumping operations substantially during the first quarter. We closed our operating base in Longview, Texas in late January, which resulted in costs of approximately $4 million recognized during the first quarter of 2015. We also parked one fracturing crew in each of our Marcellus, Oklahoma, and Eagle Ford regions, two fracturing crews in the Permian region, and both fracturing crews in the Bakken. Our operating base in the Bakken has been temporarily shut down until operating conditions in the region improve. At the end of the first quarter, eight US fracturing fleets were active compared to 16 at the end of 2014.

North America

US Operations

• Revenue : $201 million, down 41% vs Q1 of 2014.
• Job count decresed 35% Y/Y
• 50% reduction on frac Fleet vs Q4 2014.
• expect to operate 8 frac fleets

Canada Operations

• Grenerated $222.7 million in revenue vs $353 in Q1/2014
• Reduced active equipment by 35% for remiander of the year
• Stable January and February but market fell to bottom in March and following months.

International Operations

• Genreated revenue of $52 million vs $78 million in Q1 / 2014
• Comprise most of the company's international business.

Company has suspended dividends