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Executives

Brad Fedora – President and Chief Executive Officer

Barry O’Brien – Vice President-Finance and Chief Financial Officer

Analysts

Jason Sawatzky – AltaCorp Capital, Inc.

Scott Treadwell – TD Securities Inc.

Jon Morrison – CIBC World Markets, Inc.

Canyon Services Group Inc (OTC:CYSVF) Q3 2013 Earnings Conference Call November 6, 2013 1:00 PM ET

Operator

Good day, ladies and gentlemen. Welcome to the 2013 Third Quarter Financial Results Conference Call. I would like to introduce Brad Fedora. Please go ahead.

Brad Fedora

Thanks everyone for joining the third quarter Canyon Services Group conference call. I will refer you to our website, www.canyontech.ca, and on the website you will find our corporate presentation. And on the second page of that corporate presentation you will find our disclaimer. Please read that disclaimer in conjunction with this conference call, as I will be making present, past and future statements.

With me today, we have Barry O’Brien, our CFO; Joe Peskunowicz, our Executive VP Corporate; Todd Thue, our COO; and Jeremy Matthies, our General Counsel. And so our entire team is here that will be able to answer any of the questions that you may have post our comments.

Barry will start it off with a financial review of the quarter.

Barry O’Brien

Thanks Brad. Canyon’s operating results were impacted by a weak pricing, E&P well completion interruptions due to pipeline delays and wet weather. The third quarter experienced wet weather in the active areas of the Western Canadian Sedimentary Basin, such as Northern Alberta and Northeast B.C. For customer pricing is concerned, spot pricing declined further by 5% to 8% from the previous quarter, as large Canadian and U.S. competitors continue to drive down prices.

Pricing has now declined by over 30% since the peak levels of late 2011 and early 2012. In this environment, where price levels continue to be under pressure, Canyon remains focused on only deploying its equipment to projects that contribute positive returns on invested capital.

In the third quarter of 2013, the above factors most notably the persistent pricing pressure resulted in consolidated revenue decreasing by 14% to $81.2 million in Q3, from $94.4 million in Q3 2013. Due to the job mix, job completed increased by 6% to 553 jobs in Q3 from 524 jobs in the comparable quarter last year. Over 90% of Q3 2013 consolidated revenues were provided by hydraulic fracturing services with average fracturing revenue per job decreasing by 16% to $209,000 from $248,000 per job in Q3 2012.

Cost of services in Q3 2013, totaled $69.4 million, an 8% increase compared to $64.2 million in the Q3 2012. The Q3 2013 job count increased by 6% to 553 jobs from 524 jobs in the comparable quarter last year, resulting in higher materials, products, transportation costs, mostly due to the completion of larger jobs such as Duvernay shale gas wells.

Q3 2013 administrative expenses totaled $6.2 million compared to $7.0 million in Q3 2012 with the decrease mainly attributable to lower sales commissions due to lower revenues partially offset by costs associated with systems upgrades. As a result EBITDA before share-based payments was $14.4 million in Q3 2013 compared to $32.5 million in the comparable 2012 quarter while profit and comprehensive income decreased to $3.9 million or $0.06 per share fully diluted from $17 million or $0.27 per share fully diluted over the same quarters.

As previously discussed continuing pricing pressure, E&P well completion interruptions and weather related delays resulted in the decreased EBITDA and profit. For the nine months ended September 30, 2013, consolidated revenues decreased by 27% to $195.6 million from $268.3 million mostly due to price compression. Even though customer pricing across the industry has declined by approximately 30% from 2012 levels, average consolidated revenue per job actually increased by 6% to $167,000 per job from a $157,000 per job in 2012.

Due to not only the completion of larger job such as Duvernay shale gas wells, but also due to a change in customer invoicing methodology related to the increase in 24-hour operations. Many customers now been billed for services provided per 24-hour shift resulting in fewer invoices, but at larger amounts per invoice. This change has resulted in reporting higher consolidated average revenue per job even though industry prices have significantly declined.

Although the job count shows a decline to $1174 jobs in the current period from $1709 in 2012 due to this change in invoice methodology overall timing has completed almost the same amount of work for our customers year-to-date compared to 2012 albeit at lower prices. Over 90% of consolidated revenues in the nine months ended September 30, 2013 provided by hydraulic fracturing services, with average fracturing revenue per job increasing 3% to $236, 000 per job from $230, 000 per job in the 2012 comparable period even though customer pricing has declined by about 30% year-over-year. Again this is due to the completion of larger jobs such as Duvernay shale gas wells in 2013 as well as to the impact of 24-hour ops as discussed above.

Cost of services for the nine months ended September 30, 2013 remained relatively flat at a $183,000 per job compared to $187,000 per job in the 2012 comparable period, reflecting a similar amount of work provided to our customers in 2013 compared to 2012 and including a higher fixed costs component related to the staff additions and increased training cost partially offset by the lower variable paid into lower variables.

Administrative expenses for the nine months ended September 30, 2013 totaled $17.3 million compared to $16.8 million in the 2012 comparable period. The increase is mostly due to cost associated with systems’ upgrades, partially offset by lower sales commissions due to lower revenues.

In 2013, Canyon continue to invest in staff and physical infrastructure in anticipation of a more active industry in 2014. To-date in 2013, Canyon has added approximately 100 people, an increase of almost 13% from the beginning of the year level. In addition, to hiring new staff, we have significantly increased our training and staff development and upgraded business systems throughout the organization resulting from higher fixed operating and general and admin costs.

EBITDA before share-based payments was $21.7 million in the nine months ended September 30, 2013 compared to $89 million in the comparable 2012 period by loss and comprehensive loss was $4.8 million or $0.08 per share fully diluted in the current period compared to a profit and comprehensive income of $47.3 million or $0.76 per share fully diluted in the prior year period.

As previously discussed, continuing pricing pressure, E&P well completion interruptions on weather related delays combined with an increase in fixed cost and anticipation of a busier 2014 resulted in the decreased EBITDA and the loss for the period. In the nine month ended September 30, 2013 Canyon incurred capital expenditures of $7.4 million and expects to incur an additional $7.0 million in the fourth quarter of 2013 for total capital expenditures of approximately $14.4 million in the current year.

In addition Canyon expects to incur $9.2 million in 2014 to complete 2013 and prior year’s programs, including the completion of equipment which was delayed due to the insolvency of the manufacturer. In October Canyon took possession of all of this partially complete or constructed equipment which is now been relocated to new manufacturers to complete fabrication.

The Board of Directors of the Company had approved preliminary 2014 capital budget of $32.5 million. This amount comprises $23.3 million for the construction of new equipment and the $9.2 million to carryover among previously referred to. The 2014 capital program of $23.3 million will consist of blending, sand management, transportation, nitrogen, cement and acid and other miscellaneous support equipment.

These capital expenditures will be funded out of funds from operations. Canyon exited the quarter with 225,500 HorsePower, the major portion of which is relatively new at approximately three years old or less and has heavy-duty capability.

Canyon remains in a very strong financial position with undrawn credit facilities of $100 million including a $40 million accordion feature, plus working capital of $41 million including cash of $15 million as of September 30, 2013. On September 26, 2013 Canyon declared a quarterly dividend of $0.15 per common share, or $9.4 million, which was paid to shareholders on October 25, 2013.

I will now return the presentation to Brad.

Brad Fedora

Okay thanks Barry. I’m just going to make some few comments on the overall market including pricing activity some CapEx comments and as usual our use of the next 6 to 9 months. So I think what we’ve been saying all year long. We expect the remainder of 2013 to remain very competitive. It’s a tough market out there. Now there is activity but everybody is chasing it and some of our competitors are prepared to go the prices that just don’t make a whole lot of sense to us. And so we are trying to stay focused on projects that will provide a positive returns net of depreciation on the equipment.

The price environment in general we have experienced over a 30% declines since the peaks which were in Q4, 2011 and Q1, 2012. But you have seen our average revenue per job both on a hydraulic division basis and an overall consolidated basis has grown. And lot of that is a just a matter of job next or the addition or deletion of certain low price jobs. But I would say that generally our jobs are getting bigger.

I would say that we do believe that pricing have stopped going down. And I know those comments have been made in the past, but there simply just isn’t any room let to cut pricing both on a spot basis and on a project basis are cut to the bone and so I think from here pricing only remains steady and then slowly starts to increase next year.

We are very happy with our approach to pricing. It hurts on the top line at times, but our view is that if there is no field profitability, but this doesn’t make any sense putting the wear and tear on the equipment. And as a result we’ve focused on customers what we believe will be long-term relationships. Customers that are willing to work with you through the cycles and then when pricing or activity does return. You are not apologizing for price increases et cetera. And all of that margin will be added directly to the bottom line.

Our visibility for the winter has become more clear than it was certainly over the summer. We are still going to take the study and cautious approach to the winter and to the end of break up. But I would say that indications from our clients have all been quite positive and particularly with respect to activity that we are expecting in the Montney and the Duvernay, which everybody knows that the two most pressure pumping in terms of place in the basin. I guess is Horn River included.

Overall the market also feels better to us. Equity is available down for the first time in a quite a while E&P companies, the equity window has opened dramatically here. And it seems to be remaining open for the most part. I’d also say that budgets from what we know and budgets are generally done by our customers with commodity prices that are below the strip. And so there is some upside there to cash flow if strip pricing is realized. Budgets for majors, super major and large caps are definitely going up.

We predict it’s about 10% to 11% increase. And the places where they’re spending, they’re very pumping intensive areas of the basin. So the pumping market is still very, very elastic to small changes in activity. We’re still seeing the lateral lengths wells increase. And so overall meters per well is growing, which invariably means that the number of stages per well is growing.

We’re pumping record amount of profit. So I would say generally from the number of stages per well perspective and the continued change over the slickwater we’re still seeing the amount of HorsePower and profit per well demand continuing to increase. It’s a slower rate than it was a few years ago, but you’re still seeing organic growth demand on a per well basis just due to pumping them and pumping methodology and designs. Unfortunately we’re pumping more Ottawa White Sand now than we ever have been before. And what that means is the customers are demanding what they perceive to be a higher quality sand, which comes out of the U.S. and because it is more expensive we’re not able to get as much of a profit margin on it as we can with domestic sand.

But certainly there is lots of Ottawa White Sand available and the customer ultimately decides, goes into the well and so that’s the trend that unfortunately has worked against us with the amount of profit being pumped. Two-thirds of the wells drilled in this basin are still oil and liquids focused and they have been now for a while. And so I think we’re starting to feel that there might be some upside to 2014 and 2015 if we do get any kind of gas price recovery, which some analysts are calling for.

We’re still focused in the same areas. Those are the Duvernay, the Montney, both oil and gas, Dunvegan, Viking, which is both operative, Saskatchewan, the Bakken and Southeast Saskatchewan is going well very for Canyon. We’ve been building up our rest than – operating presence over the last year or so and that expansion and our acceptance by customers in that part of the world is going very well. And we’re very happy with our addition of that about operating area and of course the Cardium, which unfortunately has backed off a bit and those wells have gone into the Viking, but we are still approaching the basin as a whole with the exception of the Horn River and we are making good inroads into all of those operating areas.

And from an operational perspective, it still has a trend to 24-hour operations. I think about half of our revenues, which comes from our 24-hour operations and it will be the efficiency there for the customer. Unfortunately they are not there for the pumper at this time just because we are not able to double our revenue, but our cost generally do doubled. And unfortunately the labor of course does not want to work night. And so it makes sort of difficult labor relations at time.

But the upside job [ph] 24-hour work is – you’re able to generate more revenue on a per HorsePower basis and so when activities increase you are able to increase revenue with your existing equipment fleets more so than you could in the past. Along those lines as we’ve been telling the market now for a year at least we’ve taken the opportunity in 2013 with a downtown in the industry to really build up our infrastructure and get ready for a much busier 2014 and 2015.

The timing of when things get a lot busier is the most difficult to predict as usual, but we with this labor market, we’ve utilized this downturn to put the people and infrastructure in place to handle much larger levels of revenue.

We staffed up over the quarter and we’ve added sort of 100 people as Barry had mentioned and we are ready for the winter now. We are generally staffed up. We have the people and infrastructure in place to absorb much higher level of activities.

Particularly with respect to the HR training and safety and all sort of the people services side of the business, we’ve done a very good job of developing that out and we’re very happy with where we are today. When you work for more, the super majors, they are very process orientated and so that’s been a critical part of the business that we’ve developed over the last sort of 18 months in particular.

From a customer perspective, we’ve made comments over the last few quarters that we’ve been focusing on a larger customer to add to our customer base and in particular the super majors that have acquired assets in Canada and becoming a more important customer for activity in Western Canada and that has gone very well.

I think as most of everybody knows, we’ve added Petronas, Exelon, [indiscernible], Daylight has been with us for a while now. We just continue to work for [indiscernible] Devon and we have recently added Apache.

We’ve made fantastic inroads into the large cap and super major customer base and we continue to have sort of a long-term relationship with our core customer base as well. And we have very little turnover and we have generally just added some of the companies that we have been targeting up until now.

Now I am going to talk about supply chain and the costs. There are just very quickly in general, as we said before, costs are generally down. Sand is available. Unfortunately, most of the price of sand is the transportation. And so when you are sourcing sand whether domestically or from the northeastern U.S., most of that cost just comes of the transportation. For transportation there have been and third-party trucking cost have gone up not down.

So those price declines have been offset by higher third party charges, but with respect to chemicals absence loss et cetera, we have seen significant price decreases and we don’t expect those prices to really increase all that much. The level of manufacturing capacity with those inputs has increased so much in the last two years that we think the overall system will absorb much higher levels of activity without any significant price increases.

CO2 and nitrogen; CO2 is readily available, nitrogen actually just based on some of the activity that’s going on up there can be difficult to obtain at times, just because there are some customers that are popping large quantities of nitrogen over a very short period of time, but we feel very comfortable about we have the access of that input on an ongoing basis.

Fuel and labor; fuel is volatile with oil prices, so it’s not much to say there. Labor as everybody has expected. We did see labor inflation in late Q3, early Q4 and we expect that will be an ongoing issue over the next five years. The other only thing that really stresses me out from an input cost perspective is that the cost of third party transportation costs in particular.

It’s such high levels of nitrogen and et cetera put onto these pads and especially with the addition of 24 hour operations you’re pumping very, very high level of sand and nitrogen over a very short period of time which requires up to use third-party suppliers to be able to get that much product onto location. And as everybody has seen with the trucking companies, they have done very well and they are able to pass through price increases at a time when our prices are actually going down. And so that’s really the only input cost that sort of gives us any heartburn, but it’s well below 5% of revenue.

Just on the capital summary, we did as Barry has described in our preliminary 2014 capital. And it’s important to note that our capital budget is really designed to make our existing fleet more efficient and to reduce third-party charges. And these are generally long lead time items. And so when the industry does we do get sort of more concrete visibility of the near-term activity increases. We will be able to add pumping equipment to our infrastructure very easily and efficiently for very profitable additions. And what I would say is a relatively short period of time.

The days of waiting 18 months for pumping equipment are certainly over. You can buy pumping equipment on the spot market in the U.S. right now. I mean that’s not generally our modus operandi because we like to keep everything the same. But certainly we would not expect pumping equipment lead times to exceed much more than six months. The only exception to that would be ancillary coil equipment which is still maybe a year to a year and a half.

Overall our business strategy has not changed. We are still very focused on Canada. We believe this is the best pumping market in the world. And we think the opportunities here over the next few year are going to be significant and we will be able to grow into those opportunities. And we will be able to obtain incremental market share as we grow. So from an invested capital perspective when you look at all the pumping basins in the world, our view is, Canada is still the most attractive place to invest capital. And we will provide the best after-tax rates of returns over the short and long-term. So we will stay focused here, we will continue to build the business as we’ve been building it.

There are no near term changes for what we are doing. Yes, we are always looking at acquisitions. We always have that in mind and if we ever find the right acquisition and all the parameters are attractive, we will make the acquisition. But those acquisitions will be generally Canada focused of course. Whether there will be a similar service line or step out into other service lines, it’s yet to be determined. But our main focus is continuing to build the pumping business that we built to date and to grow that in Canada in a very profitable way.

Given the difficulty in the business from a pricing and activity perspective, there are no changes for our dividends over the next few quarters, I wouldn’t anticipate. The dividend is sound and we were absolutely committed to that dividend and we don’t expect anything to change until we are in a position to actually increase the dividend, which I don’t expect will be over the next 6 months to 9 months, but that day will come.

Operator, I will stop there and we will take questions. Thank you very much.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We do have two questions already in the queue; one is from Jason Sawatzky from AltaCorp Capital. Please go ahead.

Jason Sawatzky – AltaCorp Capital, Inc.

Hey, good morning guys.

Barry O’Brien

Hi.

Brad Fedora

Hi, Jason.

Jason Sawatzky – AltaCorp Capital, Inc.

Brad, with respect to average frac revenue per job obviously down quite a bit, sequentially here just wondering if this could improve on its own or do we need to see significant LNG related increases to tighten up the whole market, to see that improve?

Brad Fedora

Do you mean down from Q2.

Jason Sawatzky – AltaCorp Capital, Inc.

Yes, like we look at, I think the 320 in Q2 down to 208 this quarter, yes I just wondering where – what needs to happen kind of see that improve?

Brad Fedora

I think what I wouldn’t do if I were you is would be looking at Q2, just because Q2 is pretty quirky quarter, if you have one good projects you can really swing the numbers around more what I would look at is – is the general trend of the last few quarters and I think our average number in Q1 was almost 250 and in this quarter we are almost 210. But that kind of change is insignificant to us that’s a pricing issue. And you could have quarter-by-quarter changes in job mix.

So really the only thing that, I would point to that’s beyond is pricing. When pricing goes up out of what but that number can always swing around just based on customer mix and job mix from quarter-to-quarter basis is that sort of – if you are sort of trying to develop a trend here from the past two quarters, I’ve we are not at all worried about it.

Jason Sawatzky – AltaCorp Capital, Inc.

Okay, and then you sort of had said pricing, cuts to the bare bones so should we expect maybe pricing to increase here over the winter by a little bit or again does that have to wait to see big increases in the LNG type activity?

Barry O’Brien

Tough question, I don’t expect to see a whole lot of price change between now and Christmas. If we start to see prices creep up in Q1, I wouldn’t be at all surprised?

Jason Sawatzky – AltaCorp Capital, Inc.

Okay, and then just on the margin side, you said that you generally staffed up – so does that mean we probably don’t see any higher staffing in training cost in Q4, with those potentially come down then?

Barry O’Brien

Probably it’s going to level out.

Jason Sawatzky – AltaCorp Capital, Inc.

Level out?

Barry O’Brien

Yes.

Jason Sawatzky – AltaCorp Capital, Inc.

Okay, then just finally with respect to the Petronas Progress work, just what you are seeing in terms of the amounts of work with those guys, is there –what potential for maybe add another spread or two to that project or is one spread kind of what you are thinking for in the near term anyway.

Barry O’Brien

Yes, that’s a little too detailed we don’t like to talk about that much detail on a per customer basis, but that we’ve been busy there, we’ve been going very well. We don’t expect there will be any changes, those are – I think we’d be speaking on behalf of them to give you any more detail than that which we are not prepared to do.

Jason Sawatzky – AltaCorp Capital, Inc.

Yes, no problem and then just finally that 40,000 HorsePower that was part, is that all back to working?

Brad Fedora

35,000 still correct.

Jason Sawatzky – AltaCorp Capital, Inc.

35,000 still correct, and is that still a labor issue thing?

Brad Fedora

No. I would say, it’s more a market issue.

Jason Sawatzky – AltaCorp Capital Inc

Okay.

Barry O’Brien

We really haven’t had the need to put that to work yet. There will be times over this quarter we’ll – yes we probably have to put that to work. and we have the people in place to do it, but I am not sure it’s coming off – it depends on a permanent basis yes.

Jason Sawatzky – AltaCorp Capital, Inc.

Great, thanks. Okay, that’s great, thanks guys.

Operator

Our next question is from Scott Treadwell from TD Securities. Please go ahead.

Scott Treadwell – TD Securities Inc.

Thanks. Good morning guys. Maybe just attack the fixed cost in a different way, obviously you have ramped on the headcount, when you look at 2014, how do you anticipate your fixed cost going, just on a percentage basis, looking at the headcount and the infrastructure adds that you have done over the last two quarters?

Brad Fedora

We don’t anticipate any thing of any significance in the first six months of 2014 like our fixed cost, labor force were able to handle a much higher levels of revenue. So we don’t expect anything to change from today on until possibly next summer. I think us as well as most thing the 2014 has more back-end weighted of course, because the breakup is first half of the year. So the labor levels that we are at now were pretty much going to maintain until the end of Q2 of next year. There will be slight changes here and there, but nothing of significance.

Scott Treadwell – TD Securities Inc.

Okay. So reading between the lines, and you are staffed up, so that that remaining HorsePower could come off the fence and it wouldn’t really affect your ability to service customers?

Brad Fedora

Yes and no. It depends on – because utilization in this business of course is not smooth. You have days where you got demand for 200% of your stock, then followed by days where you have demand for 20% of your stock. So part of our issue is, when you start combining sort of peak levels of activity from a day-to-day basis with 24 hour demands, yes, we may – with regard to the point where that equipment was going to come off the fence on a permanent basis and our customers are going to continue to demand 24 hour operations, which makes up 50% of our revenue going forward.

Now we would need to make some additional adds, but from a cost perspective, not even rounding here.

Scott Treadwell – TD Securities Inc.

Great. And then I get the final part of that triangle is as that supply demand comes to tighten us, is still your view that, there is going to be some customers that are getting 24 hours service today that maybe aren’t paying full value for that you either you are going to have pay for it or loose it, maybe not in Q1, but as you said sort of second half or next year?

Brad Fedora

Yes, absolutely.

Scott Treadwell – TD Securities Inc.

And did you think that’s, I mean it’s probably the easiest, but that’s the most likely avenue for kind of revenue per crude just start moving up? Or is it just kind of going out and raising your book price and that sort of doing and across the board to move up…

Brad Fedora

Yes, I think it’s all going to – it will generally all happen at once. I mean you are not going to have 24 hour price increases without an overall tightness in the market, one can’t happen without the other, so with the overall tightness in the market, you will start to see prices creep up across all types of operations.

Scott Treadwell – TD Securities Inc.

Okay, no, that’s good. I appreciate the color guys. Thanks I will turn it back.

Barry O’Brien

Thanks.

Operator

Our last question is from Jon Morrison from CIBC. Please go ahead.

Jon Morrison – CIBC World Markets, Inc.

Hi guys.

Brad Fedora

Hi.

Barry O’Brien

Hi, Jon.

Jon Morrison – CIBC World Markets, Inc.

How much of your 2014 revenue or activity, do you expect it’s going to be comprised of large collect NOC, IOC multinational work at this stage?

Brad Fedora

Half.

Barry O’Brien

We do some digging to give you anything more particular than that but generally half.

Jon Morrison – CIBC World Markets, Inc.

So it’s fair to say that related to where you guys where six months ago you are fairly happy with you revenue mix and concentration of those customers compared to where you were in early 2012?

Barry O’Brien

Early 2012were practically zero.

Jon Morrison – CIBC World Markets, Inc.

I know that’s I’m asking.

Barry O’Brien

So we are really happy with the progress we made over, which in investor world it’s been a long time. In the real world it’s been very short period of time. The goal from having no market presence are no market share with the large NOCs to what we feel it’s very good healthy market share with the NOC, I mean it’s really only taken us, just over a year and half and we are continuing to work on it, customers come and go.

As they always do, but its competitive world out there, so when we make statements about it feels like it’s going to be about half, subject to a million things of course. But if you ask us are we happy with the progress we made, we are way ahead of what we would have predicted we’d be at this time and year-ago.

Jon Morrison – CIBC World Markets, Inc.

How much of the current 2014 capital program is based of a kind of soft customer messaging about ancillary assets that they believe that you will need versus kind of more speculative spend at this point?

Barry O’Brien

Almost all of it is based on what we’ve experienced recently with respect to sort of logistics and what we expect is going to continue to come from a job mix perspective based on our customer conversations.

Jon Morrison – CIBC World Markets, Inc.

From a high level perspective, what’s your concerns or how concerned are you about predatory pricing kind of killing the positive 2014 pumping pieces at this point. Because it’s been three quarters where we should have seen greater stabilization in the spot market that we have and everyone claims to not be competing on the basis of price, but it happens recently?

Brad Fedora

Yes, a bit of a long answer but the activity levels today, in Q3 and Q4 they are actually not too bad. They don’t want the price were that’s happening and it’s a bold statement but I’m going to make it anyway, is a market has been split with respect to the Canadian pumpers market share versus the U.S. pumpers market share, and I think generally the Canadian pumpers have been on the winning side of that fight. Which has exacerbated pricing war.

Because you’ve got companies that don’t – that don’t where report Canadian results and generally have the [indiscernible] type win when things get tough, tried to price your competition out of business. And it’s pretty effective way to do things in the U.S. you brought a whole much of struggling pumping companies down there. When in Canada it just doesn’t going to work and so until they finally figure that out.

You might sort of get that sort of ongoing and unnecessary sort of price war that doesn’t correlate with the activity levels, like what we were saying we are doing as much work as we were at this time last year with, I would say, a more stable customer mix, but pricing is down significantly and that is only because there is a fairly big price in Canada coming over the next five years and of course those companies want more than their fair share of it and they’re doing everything they can to establish market share now so that they’re already in place when a lot of these LNG’s based activity starts to actually be a significant part of the well count in Canada.

So this price war has gone on sort of longer than anybody would have predicted and what – though I think that’s going to change anytime soon.

Jon Morrison – CIBC World Markets, Inc.

Yes.

Barry O’Brien

In the end these wells are expensive. The frac is expensive and so field performance is absolutely paramount when customers have to make a choice over who their service providers are. And so price will only get you in the door so many times. You have to perform and you have to perform more than once until eventually this – all the jostling will settle out and customers will make choices with respect to the long-term services and who they want having to provide those services and you’ll start to see some of the nonsense in pricing go away as customers realize that lowest price is not always the best choice and it’s not always the cheapest.

You have bunch of job problems and all of a sudden what you thought was going to be the lowest price end up being your highest price. So thanks for opening the door to my [indiscernible].

Jon Morrison – CIBC World Markets, Inc.

If we were entering a period where all of the U.S. guys worried about losing staff heading into winter, can you give a sense maybe these competitors on pricing as they have been over the last call, two or three months.

Barry O’Brien

No. I think they would be more disciplined. It’s not all of the U.S. players. It’s a couple of them, neighbors of West Canada officially now. Schlumberger is generally fairly price disciplined.

Jon Morrison – CIBC World Markets, Inc.

Perfect. I appreciate the color. I’ll turn it back.

Operator

We have no more questions at this moment.

Barry O’Brien

Okay. Thanks everyone. The staff at Canyon here will be available for phone calls for the rest of day. You know where to find us. Thank you very much.

Operator

Ladies and gentlemen, this concludes the 2013 third quarter financial results conference call. Thank you for your participation and have a nice day.

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Source: Canyon Services Group's CEO Discusses Q3 2013 Results - Earnings Call Transcript

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