Calfrac Announces Second Quarter Results

CALGARY, Aug. 6, 2008 (Canada NewsWire via COMTEX) -- CFWFF | Quote | Chart | News | PowerRating -- Calfrac Well Services Ltd. ("Calfrac" or "the Company") (TSX-CFW) is pleased to announce its financial and operating results for the three and six months ended June 30, 2008.

<< HIGHLIGHTS ------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, 2008 2007 Change 2008 2007 Change ------------------------------------------------------------------------- (000s, except per ($) ($) (%) ($) ($) (%) share and unit data) (unaudited) Financial Revenue 92,785 87,778 6 235,255 216,285 9 Gross margin(1) 8,423 22,095 (62) 46,163 60,317 (23) Net income (loss) before stock-based compensation expenses (13,790) 515 (2,778) 1,099 20,120 (95) Per share - basic (0.37) 0.01 (3,800) 0.03 0.55 (95) - diluted (0.37) 0.01 (3,800) 0.03 0.55 (95) Net income (loss) (15,469) (303) (5,005) (1,200) 18,474 (107) Per share - basic (0.41) (0.01) (4,000) (0.03) 0.51 (106) - diluted (0.41) (0.01) (4,000) (0.03) 0.51 (106) Cash flow from operations(2) (9) 10,835 (100) 28,780 39,662 (27) Per share - basic - 0.30 (100) 0.77 1.09 (29) - diluted - 0.30 (100) 0.77 1.09 (29) EBITDA(3) (813) 14,569 (106) 30,234 44,892 (33) Per share - basic (0.02) 0.40 (105) 0.81 1.24 (35) - diluted (0.02) 0.40 (105) 0.80 1.23 (35) Working capital 94,056 86,971 8 94,056 86,971 8 Shareholders' equity 364,068 321,218 13 364,068 321,218 13 Weighted average common shares outstanding (No.) Basic 37,728 36,399 4 37,558 36,348 3 Diluted 37,952 36,433 4 37,598 36,412 3 ------------------------------------------------------------------------- (No.) (No.) (%) Operating Fracturing spreads at period end Conventional fracturing 25 23 9 Coalbed methane 4 4 - ------------------------------------------------------------------------- Total 29 27 7 Coiled tubing units 18 15 20 Cementing units 17 15 13 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 1. Gross margin is defined as revenue less operating expenses excluding depreciation. Gross margin is a measure that does not have any standardized meaning prescribed under generally accepted accounting principles (GAAP) and, accordingly, may not be comparable to similar measures used by other companies. 2. Cash flow is defined as funds provided by operations as reflected in the consolidated statement of cash flows. Cash flow and cash flow per share are measures that provide shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes these measures to assess the Company's ability to finance operating activities and capital expenditures. Cash flow and cash flow per share are not measures that have any standardized meaning prescribed under GAAP and, accordingly, may not be comparable to similar measures used by other companies. 3. EBITDA is defined as income before interest, taxes, depreciation and amortization. EBITDA is presented because it is frequently used by securities analysts and others for evaluating companies and their ability to service debt. EBITDA is a measure that does not have any standardized meaning prescribed under GAAP and, accordingly, may not be comparable to similar measures used by other companies. PRESIDENT'S MESSAGE I am pleased to present the highlights for the three and six months ended June 30, 2008 and discuss our prospects for the remainder of the year. During the second quarter, our Company: - experienced strong levels of activity in western Colorado and Arkansas; - was awarded a major tender for fracturing services within some of western Canada's newest unconventional resource plays; - prepared for increased activity in Canada throughout the remainder of 2008 and into 2009 by adding field personnel, maintaining existing equipment and enhancing pumping capacity; - deployed an additional fracturing spread into Mexico to improve the overall equipment utilization in this market; and - commenced cementing operations in Argentina. Financial Highlights For the three months ended June 30, 2008, the Company: - realized revenue of $92.8 million, an increase of six percent from the comparable period in 2007; - incurred a net loss of $15.5 million or $0.41 per share (basic), however, assuming a Canadian statutory income tax rate of approximately 30 percent, the net loss would have decreased to $10.3 million or $0.27 per share (basic); and; - exited the quarter in strong financial condition with working capital of $94.1 million and undrawn credit facilities of $90.0 million. For the six months ended June 30, 2008, Calfrac: - increased revenue by nine percent from the first six months of 2007 to $235.3 million; - recorded a net loss of $1.2 million or $0.03 per share (basic); - generated cash flow from operations before changes in non-cash working capital of $28.8 million or $0.77 per share (basic); and - achieved EBITDA of $30.2 million or $0.81 per share (basic). >>

Operational Highlights

Evaluation of the Quarter's Results

Calfrac expected to incur a net loss in the traditionally slower second quarter, in which the effects of spring break-up in western Canada reduce field activity levels. The Company took advantage of the opportunity offered by reduced activities to perform extensive equipment maintenance and to add and train new personnel in anticipation of high activity throughout the remainder of the year and the first quarter of 2009. As a result, Canadian repairs and maintenance expenses and personnel costs were higher than the same quarter of the prior year by approximately $3.8 million and $2.3 million, respectively.

During the quarter, field activities in western Canada were slowed further by particularly wet weather in central and southern Alberta during May and June. In addition, operational delays encountered by a couple of our larger customers in western Canada added to Calfrac's operating costs and reduced margins. Furthermore, although the jobs completed in the second quarter of 2008 were relatively large, they were subject to spring break-up pricing. Calfrac also incurred start-up costs related to the deployment of a second fracturing crew into Mexico as well as the commencement of cementing operations in Argentina which negatively impacted the net income for the second quarter. Consequently, the Company's overall costs and net loss during the quarter were both substantially higher than initially expected. As noted above, our tax position in Canada further contributed to the impact on net earnings. As a result of the amalgamation with Denison Energy Inc. in 2004, the Company has been subject to a lower effective tax rate on earnings in Canada. Unfortunately, in periods where the Company sustains losses, only a minimal tax recovery is recorded.

While we are disappointed with the quarter's financial results, the contributing factors referred to above are not expected to be recurring items. We remain optimistic about the strength of the pressure pumping markets throughout Calfrac's operating areas worldwide, and we are confident in Calfrac's prospects for operational and financial growth in the second half of 2008 and 2009.

Calfrac's growth plan is supported by an array of strengths and advantages that bode well for our future success, including:

<< - a modern, well maintained equipment fleet; - a focus on research, development and technology; - a strong presence in growing North American resource plays that require complex fracturing; - geographical diversification; - a strong financial position; - a customer list which includes the most active operators in each of our geographic segments; - favourable industry reputation; and - excellent personnel in the field as well as in our district, regional and corporate offices. >>

Canada

During the second quarter of 2008, the Company's activity levels in Canada were lower than expected, which was due mainly to extremely wet weather in central and southern Alberta during May and June. Activity was concentrated in the deeper basins of northern Alberta and northeast British Columbia but was subject to spring break-up pricing as a result of lower overall industry utilization during this quarter. Consequently, the Company sustained a second quarter loss which was compounded by only a nominal income tax recovery due to the tax attributes from the amalgamation with Denison Energy Inc. While these tax attributes serve to significantly lower income tax expenses in periods of profitability, they also materially reduce income tax recoveries in quarters when losses are incurred.

In anticipation of higher levels of natural gas drilling activity throughout the remainder of 2008 and into 2009, Calfrac's Canadian operations during the quarter were focused on hiring and training new field personnel, repairing existing equipment and adding new pumping capacity to its fracturing equipment fleet.

In June, the Company was awarded a one-year tender to provide fracturing and deep coiled tubing services for a major customer that is actively developing the Montney unconventional resource play in northeast British Columbia and the foothills of Alberta.

United States

Calfrac's U.S. fracturing and cementing operations were very active during the second quarter of 2008. The commissioning of the Rocky Mountain Express Pipeline earlier in the year helped to alleviate the natural gas take-away limitations in western Colorado and resulted in a record quarter of activity for the Company's operations based in Grand Junction. Fracturing equipment and personnel were temporarily redeployed from the DJ Basin to the Piceance Basin in order to assist with meeting the strong demand for our pressure pumping services in that region.

The Company's fracturing operations in Arkansas reached record activity levels in the three months ended June 30, 2008, as the trend continued in the Fayetteville basin towards completing large, high-rate, multi-stage fracturing jobs. Activity from Calfrac's cementing operations in Arkansas also increased to record levels during the second quarter due to a new contract with a major oil and natural gas company operating in this region and to additional customer demand.

Overall industry pricing pressures in the United States continued during the second quarter. The pricing decline is believed to have reached its trough, however, and we anticipate that this region will remain a key driver of the Company's future financial performance.

Russia

Calfrac's current Russian equipment fleet of three fracturing spreads and five coiled tubing units continued to be highly utilized throughout the Company's two operating regions within Western Siberia during the first half of the year. The Company remains focused on improving the future financial results of this geographical market by realizing operating efficiencies and prudently pursuing new growth opportunities.

Mexico

The Company deployed a second fracturing spread into the Burgos field of northern Mexico in late April and commenced operating this equipment early in the third quarter. We believe that this broader scale of operations will provide the foundation for improved financial performance.

Argentina

Calfrac established a district base in Catriel, Argentina during the first quarter and recently began cementing operations under the terms of a negotiated arrangement with a local oil and natural gas company. The Company intends to grow this operation and services provided as the market in Argentina develops over time.

Outlook

North American natural gas prices are expected to remain strong in the short and long term, providing the foundation for higher drilling activity levels, which will be primarily focused on the development of new unconventional natural gas resource plays.

In Canada, higher natural gas prices have resulted in strong demand for pressure pumping services in the deeper, more technically complex unconventional reservoirs of the Western Canada Sedimentary Basin. These new resource plays require significant hydraulic pumping capacity in order to perform multiple fractures per well at high pumping rates and pressures. This industry trend is expected to continue as these resource plays develop over time. Additionally, drilling activity in the shallow gas regions of southern Alberta is also anticipated to remain relatively active during 2008 with increased activity anticipated for 2009 and 2010, offset slightly by lower levels of activity in the coalbed methane (CBM) fracturing market.

The Company anticipates that activity levels in the Piceance Basin of the Rocky Mountain region and the Fayetteville Shale play of Arkansas will remain very strong during the remainder of 2008. Calfrac believes that competitive pricing pressures have stabilized and will be offset somewhat by higher levels of equipment utilization as the industry trend toward developing tight sand and shale gas reservoirs continues in existing and new basins. Calfrac expects that its United States operations will be a key driver of the Company's consolidated financial results for the remainder of 2008 and beyond.

In Russia, the Company's annual contracts with one of Russia's largest oil and natural gas companies are expected to ensure high levels of equipment utilization in Western Siberia throughout the remainder of the year. Calfrac will continue to review its fracturing and coiled tubing operations with a view to improving financial returns.

A second fracturing spread and related support equipment were deployed into Mexico in late April. It is anticipated that the addition of this equipment and the resulting larger operating scale will help transition operations from the current start-up phase and result in higher levels of activity, better equipment utilization and improved financial performance from this geographical segment.

The Company commenced cementing operations in Argentina during the second quarter of 2008 under the terms of a negotiated arrangement with a local oil and natural gas company. In conjunction with a strong local management team, the Company will continue to evaluate future opportunities and prudently expand the scale of operations as the pressure pumping market in Argentina continues to develop.

Calfrac is also pleased to announce that its Board of Directors has approved a $27 million increase to the 2008 capital program, for a revised total of $99 million. The additional capital will be focused mainly on constructing a new high-rate conventional fracturing spread and a deep coiled tubing unit for the Canadian market in time for the 2009 winter drilling season. The addition to the 2008 capital program is expected to be funded from the Company's cash on hand and cash flow from operations.

The Company is also pleased to announce that Fernando Aguilar was elected to Calfrac's Board of Directors at the most recent Annual General Meeting in May. Mr. Aguilar's extensive international experience within the oilfield services sector will be a significant benefit to Calfrac and its Board of Directors.

On behalf of the Board of Directors,

Douglas R. Ramsay

President & Chief Executive Officer

August 5, 2008

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis (MD&A) for Calfrac Well Services Ltd. ("Calfrac" or the "Company") has been prepared by management as of August 5, 2008 and is a review of the financial condition and results of operations of the Company based on accounting principles generally accepted in Canada. Its focus is primarily a comparison of the financial performance for the three and six months ended June 30, 2008 and 2007 and should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes for those periods as well as the audited consolidated financial statements and MD&A for the year ended December 31, 2007. Readers should also refer to the "Forward-Looking Statements" legal advisory at the end of this MD&A.

All financial amounts and measures presented in this MD&A are expressed in Canadian dollars unless otherwise indicated. The definitions of certain non-GAAP measures used within this MD&A have been included at the end of this MD&A.

<< Consolidated Highlights ----------------------- Calfrac is an independent provider of specialized oilfield services in Canada, the United States, Russia, Mexico and Argentina, including fracturing, coiled tubing, cementing and other well stimulation services. The Company has established a leadership position through an expanding geographic network, larger operating fleet and growing customer base. For the three months ended June 30, 2008, the Company: - generated revenue of $92.8 million compared to $87.8 million in the same period of 2007; - incurred a net loss of $15.5 million or $0.41 per share (basic) versus a net loss of $0.3 million or $0.01 per share (basic) in the same period of 2007; - experienced a decrease of $10.8 million or $0.30 per share (basic) in cash flow from operations before changes in non-cash working capital during the second quarter of 2008 as compared to the corresponding quarter in 2007; and - exited the quarter in strong financial condition with working capital of $94.1 million and undrawn credit facilities of $90.0 million. For the six months ended June 30, 2008, the Company: - increased revenue by nine percent to $235.3 million from $216.3 million in the first half of 2007; - recorded a net loss of $1.2 million or $0.03 per share (basic) versus net income of $18.5 million or $0.51 per share (basic) in the same period of 2007; and - realized cash flow from operations before changes in non-cash working capital of $28.8 million or $0.77 per share (basic) compared to $39.7 million or $1.09 per share (basic) in the same period of 2007. Financial Overview - Three Months Ended June 30, 2008 Versus Three Months ------------------------------------------------------------------------- Ended June 30, 2007 ------------------- Canada ------------------------------------------------------------------------- Three Months Ended June 30, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 32,231 29,352 10 Expenses Operating 38,744 28,918 34 Selling, General and Administrative (SG&A) 2,299 2,205 4 --------------------------------- 41,043 31,123 32 --------------------------------- Operating Loss (8,812) (1,771) (397) Operating Loss (%) -27.3% -6.0% Fracturing Revenue Per Job - Canada ($) 60,792 49,441 23 Number of Fracturing Jobs - Canada 444 543 (18) >>

Revenue

Revenue from Calfrac's Canadian operations during the second quarter of 2008 increased by ten percent to $32.2 million from $29.4 million recorded in the same three-month period of 2007. Canadian fracturing revenue for the quarter totalled $27.0 million, consistent with the $26.8 million earned in the corresponding quarter of 2007. For the three months ended June 30, 2008, the Company completed 444 Canadian fracturing jobs for average revenue of $60,792 per job compared to 543 jobs for average revenue of $49,441 per job in the same period of 2007. The higher average revenue per job was primarily due to an increase in the number of larger jobs completed in northern Alberta and northeast British Columbia, combined with fewer lower revenue fracturing jobs being completed in central and southern Alberta due to extremely wet weather during May and June 2008.

Revenue from the Company's coiled tubing operations in western Canada increased by $2.3 million from the comparable period in 2007 to $3.4 million in the second quarter of 2008. During this period Calfrac completed 275 jobs for average revenue of $12,374 per job compared to 735 jobs for average revenue of $1,526 per job in the same quarter of 2007. The increase in the average revenue per job was due primarily to a reduction in coiled tubing activity in the shallow gas-producing regions of southern Alberta, which normally generate a high number of low-revenue jobs, as a result of extremely wet weather in May and June 2008, as well as to an increase in activity in the deeper reservoirs of the Western Canada Sedimentary Basin, which generate fewer but higher-revenue jobs.

Calfrac's Canadian cementing operations during the second quarter of 2008 achieved revenue of $1.8 million, a 33 percent increase from the $1.4 million recorded in the corresponding quarter of 2007. For the three months ended June 30, 2008, the Company completed 166 jobs for average revenue of $11,062 per job, compared to 115 jobs for average revenue of $12,034 per job in the comparative period of 2007. The decrease in the average revenue per job was due primarily to the impact of competitive pricing pressures in western Canada.

Operating Expenses

Operating expenses in Canada increased by 34 percent to $38.7 million during the second quarter of 2008 from $28.9 million in the same period of 2007. The increase in Canadian operating expenses was mainly due to an increase in equipment repair expenses and personnel costs in anticipation of higher activity levels throughout the remainder of 2008 combined with higher fuel expenses. The Company also incurred significant costs in transporting product to remote operating locations during the quarter.

Selling, General and Administrative (SG&A) Expenses

SG&A expenses for Calfrac's Canadian operations were $2.3 million during the second quarter of 2008 compared to $2.2 million in the corresponding period of 2007.

<< United States and Latin America ------------------------------------------------------------------------- Three Months Ended June 30, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 45,497 41,056 11 Expenses Operating 34,053 24,120 41 SG&A 1,925 1,205 60 --------------------------------- 35,978 25,325 42 --------------------------------- Operating Income 9,519 15,731 (39) Operating Income (%) 20.9% 38.3% Fracturing Revenue Per Job - United States ($) 56,820 83,448 (32) Number of Fracturing Jobs - United States 693 492 41 >>

Revenue

Revenue from Calfrac's United States operations increased by two percent during the second quarter of 2008 to $41.8 million from $41.1 million in the same quarter of 2007. For the three months ended June 30, 2008, Calfrac's Mexican and Argentinean operations generated revenue of $3.3 million and $0.4 million, respectively. The Company commenced fracturing operations in Mexico during the fourth quarter of 2007 and commenced cementing operations in Argentina during the second quarter of 2008. Accordingly, there was no revenue recorded in the comparable period of the prior year for these operations. The increase in U.S. revenue was due primarily to higher fracturing activity levels in Arkansas and the Piceance Basin of the Rocky Mountain region resulting from the completion of more fracturing stages per well, combined with an increase in cementing activity in Arkansas. These positive U.S. results were almost entirely offset by competitive pricing pressures, lower activity levels in the Denver Julesberg (DJ) Basin and a weaker U.S. dollar. On a year-over-year basis, the appreciation of the Canadian dollar reduced reported revenues in the United States by approximately $3.5 million.

In the second quarter of 2008, the Company completed 693 fracturing jobs in the United States for average revenue of $56,820 per job compared to 492 jobs for average revenue of $83,448 per job in the same quarter of 2007. Revenue per job decreased mainly as a result of an increase in the average number of stages completed in each day, competitive pricing pressures in all operating districts and the impact of a stronger Canadian dollar.

Operating Expenses

Operating expenses in the United States and Latin America were $34.1 million for the three months ended June 30, 2008, an increase of 41 percent from the comparative period in 2007. The increase was due mainly to start-up expenses related to Mexico and Argentina, increased fuel costs and higher operating costs related to the commencement of cementing operations in Arkansas during the third quarter of 2007, partially offset by the impact of a stronger Canadian dollar which reduced Calfrac's reported operating costs.

SG&A Expenses

In the second quarter of 2008, SG&A expenses in the United States and Latin America increased by $0.7 million from the comparable period in 2007 to $1.9 million primarily due to a larger number of divisional staff used to support Calfrac's broader U.S. operations and to the commencement of operations in Mexico and Argentina.

<< Russia ------------------------------------------------------------------------- Three Months Ended June 30, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 15,057 17,370 (13) Expenses Operating 11,009 12,459 (12) SG&A 1,019 835 22 --------------------------------- 12,028 13,294 (10) --------------------------------- Operating Income 3,029 4,076 (26) Operating Income (%) 20.1% 23.5% >>

Revenue

The Company's revenue from Russian operations during the second quarter of 2008 decreased by 13 percent to $15.1 million from $17.4 million in the corresponding three-month period of 2007. The decrease was primarily due to lower fracturing activity levels as a result of the closure of the Company's Purpe district in January 2008 and the impact of a stronger Canadian dollar. If the U.S./Canadian dollar exchange rate for the three months ended June 30, 2008 had remained consistent with the same quarter in 2007, reported revenue for Calfrac's Russian operations would have increased by approximately $1.3 million.

Operating Expenses

Operating expenses for the Company's Russian operations in the second quarter of 2008 were $11.0 million compared to $12.5 million in the same period of 2007. The decrease in operating expenses was primarily due to lower levels of fracturing activity and the impact of a lower U.S. dollar, offset partially by higher fuel expenses and costs associated with increased coiled tubing activity.

SG&A Expenses

SG&A expenses in Russia were $1.0 million for the three-month period ended June 30, 2008 versus $0.8 million in the corresponding period of 2007, primarily as a result of higher personnel costs offset partially by the impact of an appreciating Canadian dollar.

<< Corporate ------------------------------------------------------------------------- Three Months Ended June 30, 2008 2007 Change ------------------------------------------------------------------------- (000s) ($) ($) (%) (unaudited) Expenses Operating 557 185 201 SG&A 4,187 2,237 87 --------------------------------- 4,744 2,422 96 --------------------------------- Operating Loss (4,744) (2,422) (96) >>

Operating Expenses

Operating expenses primarily relate to personnel located in the Corporate headquarters that directly support the Company's global field operations. The increase in operating expenses from the second quarter of 2007 is mainly due to the start-up of in-house laboratory services resulting from the acquisition of ChemErgy Ltd. in January 2008.

SG&A Expenses

For the three months ended June 30, 2008, Corporate SG&A expenses were $4.2 million compared to $2.2 million in the second quarter of 2007. The increase was due mainly to a larger corporate organization supporting the Company's broader operations and an increase of $0.9 million related to stock-based compensation expenses.

Interest, Depreciation and Other Expenses

The Company recorded net interest expense of $2.7 million for the second quarter of 2008 compared to $2.5 million for the same period of 2007. Interest expense for the three months ended June 30, 2008 relates mainly to Calfrac's senior unsecured notes, and increased from the second quarter of 2007 primarily due to lower interest income earned on the Company's surplus cash offset by the impact of a higher Canadian dollar.

For the three months ended June 30, 2008, depreciation expense increased by 41 percent to $12.3 million from $8.7 million in the corresponding quarter of 2007, mainly as a result of the Company's larger fleet of equipment operating in North America and Russia.

Income Tax Expenses

The Company recorded an income tax recovery of $0.3 million during the second quarter of 2008 compared to an income tax expense of $3.6 million in the same period of 2007. For the three months ended June 30, 2008, Calfrac recorded a current tax recovery of $2.3 million compared to an expense of $1.7 million in the corresponding period in 2007. Calfrac recorded a future income tax expense of $2.0 million for the quarter ended June 30, 2008 compared to $1.9 million for the same period of 2007. The effective income tax recovery rate for the three months ended June 30, 2008 was two percent compared to an effective tax rate of 109 percent in the same quarter of 2007. The decrease in total income tax expense and overall rate was a result of a majority of the second-quarter net loss being incurred in Canada which is only recovered at a nominal rate due to the income tax attributes resulting from the amalgamation with Denison Energy Inc., combined with lower profitability in both the U.S. and Russia, where Calfrac's operations are subject to income tax at full statutory rates.

Cash Flow

Cash flow from operations before changes in non-cash working capital for the three months ended June 30, 2008 decreased by $10.8 million or $0.30 per share (basic) from the same period in 2007. The decrease in cash flow from operations resulted mainly from:

<< - operating expenses in 2008 increasing by $18.7 million to $84.4 million; and - an increase in SG&A expenses to $9.4 million in 2008 from $6.5 million in 2007; offset partially by: - revenue increasing by six percent over 2007 to $92.8 million in 2008; - cash taxes decreasing by $4.0 million during 2008 from 2007; and - foreign exchange gains of $0.1 million in 2008 compared to foreign exchange losses of $1.4 million in 2007. Financial Overview - Three Months Ended June 30, 2008 Versus Three Months ------------------------------------------------------------------------- Ended March 31, 2008 -------------------- Canada ------------------------------------------------------------------------- Three Months Ended June 30 and March 31, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 32,231 83,085 (61) Expenses Operating 38,744 60,172 (36) SG&A 2,299 2,310 - --------------------------------- 41,043 62,482 (34) --------------------------------- Operating Income (Loss) (8,812) 20,603 (143) Operating Income (Loss) (%) -27.3% 24.8% Fracturing Revenue Per Job - Canada ($) 60,792 52,995 15 Number of Fracturing Jobs - Canada 444 1,273 (65) >>

Revenue

Calfrac's revenue from Canadian operations during the second quarter of 2008 decreased by 61 percent to $32.2 million from $83.1 million recorded in the first quarter of 2008. Canadian fracturing revenue for the three months ended June 30, 2008 was $27.0 million compared to $67.5 million in the first three months of 2008 due primarily to lower activity levels resulting from spring break-up and the impact of extremely wet weather in central and southern Alberta during May and June. During the second quarter, the Company completed 444 Canadian fracturing jobs for average revenue of $60,792 per job compared to 1,273 jobs for average revenue of $52,995 per job in the first quarter. The increase in fracturing revenue per job was primarily due to a higher proportion of jobs completed in the technically challenging reservoirs in northern Alberta and northeast British Columbia, combined with the completion of fewer shallow gas and coalbed methane (CBM) jobs, which tend to have lower average revenue per job.

Revenue from Canadian coiled tubing operations for the three months ended June 30, 2008 decreased by 58 percent to $3.4 million from $8.1 million recorded in the first quarter of 2008 primarily due to decreased activity levels resulting from the impact of spring break-up and extremely wet weather during May and June in central and southern Alberta. During the second quarter the Company completed 275 jobs for average revenue of $12,374 per job compared to 1,036 jobs for average revenue of $7,813 per job in the first quarter. The increase in the average revenue per job was due primarily to a higher proportion of activity within the deeper, more technically challenging basins of western Canada.

The Company's cementing operations in Canada recorded revenue of $1.8 million in the second quarter versus $7.5 million during the first quarter. Cementing revenue decreased on a sequential basis primarily as a result of the impact of spring break-up on Canadian cementing operations and extremely wet weather experienced in central and southern Alberta during May and June. The Company completed 166 jobs for average revenue of $11,062 per job in the second quarter compared to 986 jobs for average revenue of $7,635 per job in the first quarter. Revenue per job during the second quarter increased from the first quarter primarily due to the completion of a higher proportion of cementing jobs in the deeper basins of western Canada.

Operating Expenses

Operating expenses in Canada decreased by 36 percent to $38.7 million during the second quarter from $60.2 million in the first quarter. The decrease in operating expenses in Canada was primarily due to lower activity levels resulting from spring break-up and extremely wet weather in May and June in central and southern Alberta, offset partially by higher equipment repair and personnel expenses in preparation for higher activity levels throughout the remainder of 2008.

SG&A Expenses

SG&A expenses for Calfrac's Canadian operations during the second quarter were $2.3 million, consistent with the first quarter.

<< United States and Latin America ------------------------------------------------------------------------- Three Months Ended June 30 and March 31, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 45,497 44,508 2 Expenses Operating 34,053 31,560 8 SG&A 1,925 2,191 (12) --------------------------------- 35,978 33,751 7 --------------------------------- Operating Income 9,519 10,757 (12) Operating Income (%) 20.9% 24.2% Fracturing Revenue Per Job - United States ($) 56,820 67,966 (16) Number of Fracturing Jobs - United States 693 587 18 >>

Revenue

The Company's revenue from United States operations during the second quarter of 2008 increased by two percent to $41.8 million from $40.9 million recorded in the first quarter of 2008. The increase in U.S. revenue was due primarily to higher activity levels in western Colorado and Arkansas offset slightly by lower activity in the DJ Basin. Calfrac completed 693 U.S. fracturing jobs for average revenue of $56,820 per job in the second quarter compared to 587 jobs for average revenue of $67,966 per job in the first quarter. The lower revenue per job was mainly due to competitive pricing pressures in the Fayetteville shale play in Arkansas.

Calfrac's revenue from fracturing operations in Mexico decreased to $3.3 million during the second quarter from $3.6 million in the first quarter primarily due to lower fracturing activity levels.

Operating Expenses

During the second quarter, operating expenses in the United States and Latin America were $34.1 million compared to $31.6 million in the first quarter primarily due to higher proppant and fuel costs.

SG&A Expenses

SG&A expenses decreased by 12 percent to $1.9 million in the second quarter from $2.2 million in the first quarter primarily due to lower bonus expenses offset partially by higher costs to support the new operations in Mexico and Argentina.

<< Russia ------------------------------------------------------------------------- Three Months Ended June 30 and March 31, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 15,057 14,877 1 Expenses Operating 11,009 12,467 (12) SG&A 1,019 700 46 --------------------------------- 12,028 13,167 (9) --------------------------------- Operating Income 3,029 1,710 77 Operating Income (%) 20.1% 11.5% >>

Revenue

On a sequential quarterly basis, Calfrac's revenue from Russian operations increased by one percent to $15.1 million in the second quarter of 2008 from $14.9 million in the first quarter of 2008 due primarily to higher coiled tubing activity levels.

Operating Expenses

Operating expenses were $11.0 million in the second quarter compared to $12.5 million in the first quarter. The decrease in operating expenses was primarily due to lower maintenance costs, decreased fuel consumption due to warmer weather and a reduction in product costs resulting from the Company's customer supplying its own fracturing proppant.

SG&A Expenses

SG&A expenses were $1.0 million in the second quarter compared to $0.7 million in the first quarter primarily due to higher personnel costs.

<< Corporate ------------------------------------------------------------------------- Three Months Ended June 30 and March 31, 2008 2007 Change ------------------------------------------------------------------------- (000s) ($) ($) (%) (unaudited) Expenses Operating 557 530 5 SG&A 4,187 3,063 37 --------------------------------- 4,744 3,593 32 --------------------------------- Operating Loss (4,744) (3,593) (32) >>

SG&A Expenses

On a sequential quarterly basis, Corporate SG&A expenses were $4.2 million in the second quarter of 2008, an increase of 37 percent from the first quarter of 2008, primarily due to a $1.1 million increase in stock-based compensation expenses.

Interest, Depreciation and Other Expenses

Net interest expense for the quarters ended June 30 and March 31, 2008 was consistent at $2.7 million.

In the second quarter of 2008, depreciation expense increased to $12.3 million from $11.8 million in the first quarter of 2008 primarily due to Calfrac's larger equipment fleet in North America.

Income Tax Expenses

For the three months ended June 30, 2008, the Company recorded an income tax recovery of $0.3 million compared to an income tax expense of $2.3 million in the three-month period ended March 31, 2008. The Company recorded a current tax recovery during the second quarter of 2008 of $2.3 million compared to a recovery of $0.1 million in the first three months of 2008. Calfrac recorded a future income tax expense of $2.0 million during the quarter ended June 30, 2008, a decrease of $0.4 million from the first quarter of 2008. The effective income tax recovery rate for the second quarter of 2008 was two percent compared to an effective tax rate of 14 percent for the three months ended March 31, 2008. The low effective income tax rate was a result of the Company's second quarter loss and first quarter earnings being mainly generated from Canada, which recovers or incurs income taxes at a rate significantly lower than the statutory rate due to tax attributes resulting from the amalgamation with Denison Energy Inc.

Cash Flow

Cash flow from operations before changes in non-cash working capital for the second quarter of 2008 was $28.8 million or $0.77 per share (basic) lower than for the first three months of 2008 primarily due to:

<< - a $49.7 million decline in revenue to $92.8 million; - SG&A expenses increasing to $9.4 million from $8.3 million in the previous quarter; and - foreign exchange gains decreasing by $1.3 million to $0.1 million; offset partially by: - operating expenses decreasing by $20.4 million to $84.4 million; and - current taxes decreasing by $2.2 million. Summary of Quarterly Results ------------------------------------------------------------------------- Three Months Ended Sept. 30, Dec. 31, Mar. 31, June 30, 2006 2006 2007 2007 ------------------------------------------------------------------------- (000s, except per share and unit data) ($) ($) ($) ($) (unaudited) Financial Revenue 115,112 118,322 128,507 87,778 Gross margin(1) 36,500 34,488 38,222 22,095 Net income (loss) 19,418 16,907 18,777 (303) Per share - basic 0.54 0.47 0.52 (0.01) - diluted 0.53 0.46 0.52 (0.01) Cash flow from operations(2) 27,560 25,507 28,827 10,835 Per share - basic 0.76 0.70 0.79 0.30 - diluted 0.76 0.70 0.79 0.30 EBITDA(3) 29,614 28,421 30,324 14,569 Per share - basic 0.82 0.78 0.84 0.40 - diluted 0.81 0.78 0.83 0.40 Capital expenditures 23,931 44,415 48,521 19,972 Working capital 31,158 31,225 105,549 86,971 Shareholders' equity 287,616 303,510 326,184 321,218 ------------------------------------------------------------------------- (No.) (No.) (No.) (No.) Operating Fracturing spreads Conventional 19 21 23 23 Coalbed methane 4 4 4 4 ------------------------------------------------------------------------- Total 23 25 27 27 Coiled tubing units 14 14 14 15 Cementing units 11 13 15 15 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended Sept. 30, Dec. 31, Mar. 31, June 30, 2007 2007 2008 2008 ------------------------------------------------------------------------- (000s, except per share and unit data) ($) ($) ($) ($) (unaudited) Financial Revenue 129,585 114,450 142,470 92,785 Gross margin(1) 42,851 28,612 37,740 8,423 Net income (loss) 16,441 3,653 14,269 (15,469) Per share - basic 0.45 0.10 0.38 (0.41) - diluted 0.45 0.10 0.38 (0.41) Cash flow from operations(2) 28,398 19,582 28,790 (9) Per share - basic 0.78 0.53 0.77 - - diluted 0.78 0.53 0.77 - EBITDA(3) 34,107 18,790 31,047 (813) Per share - basic 0.94 0.51 0.83 (0.02) - diluted 0.93 0.51 0.83 (0.02) Capital expenditures 11,345 12,101 14,820 19,341 Working capital 99,696 92,156 111,989 94,056 Shareholders' equity 336,858 350,915 377,056 364,068 ------------------------------------------------------------------------- (No.) (No.) (No.) Operating Fracturing spreads Conventional 24 24 24 25 Coalbed methane 4 4 4 4 ------------------------------------------------------------------------- Total 28 28 28 29 Coiled tubing units 17 18 18 18 Cementing units 16 16 17 17 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 1. Gross margin is defined as revenue less operating expenses excluding depreciation. Gross margin is a measure that does not have any standardized meaning prescribed under GAAP and, accordingly, may not be comparable to similar measures used by other companies. 2. Cash flow is defined as funds provided by operations as reflected in the consolidated statement of cash flows. Cash flow and cash flow per share are measures that provide shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes these measures to assess the Company's ability to finance operating activities and capital expenditures. Cash flow and cash flow per share are not measures that have any standardized meaning prescribed under GAAP and, accordingly, may not be comparable to similar measures used by other companies. 3. EBITDA is defined as income before interest, taxes, depreciation and amortization. EBITDA is presented because it is frequently used by securities analysts and others for evaluating companies and their ability to service debt. EBITDA is a measure that does not have any standardized meaning prescribed under GAAP and, accordingly, may not be comparable to similar measures used by other companies. Financial Overview - Six Months Ended June 30, 2008 Versus Six Months --------------------------------------------------------------------- Ended June 30, 2007 ------------------- Canada ------------------------------------------------------------------------- Six Months Ended June 30, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 115,316 115,938 (1) Expenses Operating 98,916 87,477 13 SG&A 4,609 5,056 (9) --------------------------------- 103,525 92,533 12 --------------------------------- Operating Income 11,791 23,405 (50) Operating Income (%) 10.2% 20.2% Fracturing Revenue Per Job - Canada ($) 55,011 52,434 5 Number of Fracturing Jobs - Canada 1,717 1,941 (12) >>

Revenue

During the first six months of 2008, revenue from the Company's Canadian operations was $115.3 million compared to $115.9 million in the comparable period of 2007. Fracturing revenue in Canada totalled $94.5 million, a decrease of seven percent from the $101.8 million generated in the comparative period of 2007. The decrease was primarily due to lower fracturing activity levels in western Canada, mainly as a result of extremely wet weather conditions in central and southern Alberta during May and June. For the six months ended June 30, 2008, the Company completed 1,717 Canadian fracturing jobs for average revenue of $55,011 per job compared to 1,941 jobs for average revenue of $52,434 per job in the corresponding period of 2007. Revenue per job increased during the first six months of 2008 over the same period in 2007 primarily due to a greater number of jobs being completed in the deeper, more technically challenging basins of western Canada and less shallow gas fracturing activity in southern Alberta due to the aforementioned wet weather.

Revenue from Canadian coiled tubing operations during the first six months of 2008 increased by $5.5 million to $11.5 million primarily due to a larger equipment fleet operating in the deeper reservoirs of western Canada. For the first six months of 2008, the Company completed 1,311 jobs for average revenue of $8,769 per job compared to 1,916 jobs for average revenue of $3,117 per job in 2007. The increase in the average revenue per job was due primarily to a higher proportion of activity in the deeper, more technically challenging plays of the Western Canada Sedimentary Basin.

Revenue from Calfrac's cementing operations during the six months ended June 30, 2008 was $9.4 million, a 14 percent increase from the $8.2 million recorded in the corresponding period in 2007. For the six months ended June 30, 2008, the Company completed 1,152 jobs for average revenue of $8,129 per job compared to 612 jobs for average revenue of $13,384 per job in the comparative period of 2007. The decrease in the average revenue per job was due primarily to a higher percentage of shallow cementing jobs completed than in the corresponding period of the prior year, as well as the impact of competitive pricing pressures in western Canada.

Operating Expenses

During the first six months of 2008, operating expenses from Calfrac's operations in Canada increased by 13 percent to $98.9 million from $87.5 million in the corresponding period of 2007. This increase in operating costs was due primarily to a larger proportion of work being completed in the deeper, more technically challenging regions of western Canada, more equipment repairs and additional personnel costs in anticipation of higher activity throughout the remainder of 2008 as well as higher fuel expenses.

SG&A Expenses

Calfrac's SG&A expenses during the first six months of 2008 in Canada decreased to $4.6 million from $5.1 million in the comparative period of 2007 primarily as a result of lower annual bonus expenses due to lower Company profitability.

<< United States and Latin America ------------------------------------------------------------------------- Six Months Ended June 30, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 90,005 70,922 27 Expenses Operating 65,613 46,114 42 SG&A 4,116 2,367 74 --------------------------------- 69,729 48,481 44 --------------------------------- Operating Income 20,276 22,441 (10) Operating Income (%) 22.5% 31.6% Fracturing Revenue Per Job - United States ($) 61,932 83,634 (26) Number of Fracturing Jobs - United States 1,280 848 51 >>

Revenue

For the six months ended June 30, 2008, revenue from Calfrac's United States operations was $82.6 million, an increase of 17 percent or $11.7 million from the comparable period in 2007. Calfrac's operations in Mexico and Argentina generated revenue of $7.0 million and $0.4 million, respectively, during the first six months of 2008. There was no revenue recorded in the comparable period of the prior year because the Company's operations in Mexico began during the fourth quarter of 2007 and cementing operations commenced in Argentina during the second quarter of 2008. The increase in U.S. revenue was due primarily to higher activity levels in Arkansas and the Piceance Basin of the Rocky Mountain region as a result of the completion of a higher average number of fracturing stages per well and a full six months of activity in Arkansas during 2008 versus only four months in the comparable period of 2007. This was offset by competitive pricing pressures, lower activity levels in the DJ Basin and a weaker U.S. dollar. On a year-over-year basis, the appreciation of the Canadian dollar reduced reported revenues in the United States by approximately $10.2 million. For the six-month period ended June 30, 2008, the Company completed 1,280 fracturing jobs in the United States for average revenue of $61,932 per job compared to 848 jobs for average revenue of $83,634 per job in the comparable period of 2007. Revenue per job decreased mainly as a result of competitive pricing pressures in all operating districts, as well as the impact of a stronger Canadian dollar.

Operating Expenses

In the United States and Latin America, operating expenses during the first six months of 2008 increased by 42 percent to $65.6 million from $46.1 million in the comparable period of 2007 mainly due to higher fracturing activity levels in the United States, start-up expenses related to Calfrac's Mexico and Argentina operations and increased fuel expenses, offset partially by the appreciation of the Canadian dollar.

SG&A Expenses

SG&A expenses in the United States and Latin America for the six months ended June 30, 2008 were $4.1 million compared to $2.4 million in the corresponding period in 2007, primarily due to a larger divisional organization to support the U.S operations, higher annual bonus expenses and the commencement of operations in Mexico and Argentina, offset partially by the depreciation of the U.S. dollar.

<< Russia ------------------------------------------------------------------------- Six Months Ended June 30, 2008 2007 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 29,934 29,425 2 Expenses Operating 23,476 22,006 7 SG&A 1,719 1,739 (1) --------------------------------- 25,195 23,745 6 --------------------------------- Operating Income 4,739 5,680 (17) Operating Income (%) 15.8% 19.3% >>

Revenue

In the first six months of 2008, the Company's revenue from Russian operations increased by two percent to $29.9 million from $29.4 million

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