Precision Drilling Announces 2019 Capital Expenditure Plan, Debt Repayment Update, 2019 Strategic Priorities and Expected Goo...
January 29 2019 - 4:32PM
This news release contains "forward-looking
information and statements" within the meaning of applicable
securities laws. For important information with respect to such
forward-looking information and statements and the further
assumptions and risks to which they are subject, see the
"Cautionary Statement Regarding Forward-Looking Information and
Statements" later in this news release.
Precision Drilling Corporation (“Precision” or the “Company”)
(TSX:PD; NYSE:PDS) made a series of announcements including: i)
2019 capital expenditure plan and its 2018 capital expenditures;
ii) debt repayment update, newly stated 2019 debt repayment targets
and increased longer-term debt reduction targets; iii) 2019
strategic priorities; and iv) expected goodwill impairment at
year-end 2018.
Capital Expenditures
Precision announced a 2019 capital expenditure
plan of $169 million, comprised of $53 million for maintenance and
infrastructure and $116 million in upgrade and expansion capital.
Maintenance capital is variable and based on activity levels with
the year-over-year increase representative of a higher proportion
of spending allocated to U.S. and international markets. Upgrade
and expansion capital is expected to be almost entirely allocated
to U.S. and international drilling operations and includes the
completion of the Company’s sixth new build rig in Kuwait for
approximately $68 million and further expansion of Precision’s
Process Automation Control platform. We expect that the $169
million will be split $163 million in the Contract Drilling
Services segment and $6 million in the Completion and Production
Services segment.
Precision’s 2018 capital expenditures totaled
approximately $126 million, $9 million less than planned 2018
capital expenditures and is comprised of $48 million for
maintenance and infrastructure, $66 million in upgrade and
expansion capital and $12 million for intangibles. Throughout the
year Precision generated proceeds on sale of property, plant and
equipment of approximately $24 million resulting in net capital
expenditures of approximately $102 million.
Debt Repayment Update
Following additional open market purchases in
December of its 5.25% senior notes due in 2024, Precision’s 2018
debt repayments totaled $174 million face value, $49 million higher
than the top end of Precision’s target 2018 debt repayment range.
Debt repayments in 2018 were funded from free cash flow and provide
annualized interest savings of approximately $10 million. The
Company expects its year-end cash balance to be $97 million, an
increase of $32 million from year-end 2017. Precision’s cash
balance and undrawn credit facilities will provide Precision with
approximately $810 million of liquidity going into 2019. The
Company’s outstanding senior note balances at year-end 2018 are as
follows: US$166 million 6.5% Notes due in 2021; US$350 million
7.75% Notes due in 2023; US$351 million 5.25% Notes due in 2024;
and US$400 million 7.125% Notes due in 2026.
Precision has set its 2019 debt repayment target
at $100 million to $150 million which is expected to be funded from
free cash flow. The Company remains committed to its deleveraging
plan and has increased its longer-term debt reduction target range
by $100 million with a new target range of $400 million to $600
million by the end of 2021, inclusive of debt repayments in 2018.
As demonstrated in 2018, Precision will allocate excess cash
towards accelerating and increasing debt repayment as deleveraging
remains a top priority for the Company.
2019 Strategic Priorities
- Generate strong free cash flow and
utilize $100 million to $150 million to reduce debt in 2019;
increased long-term debt reduction targets to $400 million to $600
million by year-end 2021 (inclusive of 2018 debt repayments).
- Maximize financial results by
leveraging our High Performance, High Value Super Series Rig fleet
and scale with disciplined cost management.
- Full scale commercialization and
implementation of our Process Automation Control platform, PD-Apps
and PD-Analytics.
Expected Goodwill
Impairment
As at September 30, 2018 Precision had $206
million of goodwill on its balance sheet primarily related to its
Canadian Drilling cash generating unit. In accordance with our
accounting policies, Precision must perform its annual assessment
of the carrying value of cash generating units containing goodwill.
Precision’s preliminary analysis indicates the goodwill carrying
value is not recoverable and an impairment charge is expected at
year-end 2018.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements contained in this report,
including statements that contain words such as "could", "should",
"can", "anticipate", "estimate", "intend", "plan", "expect",
"believe", "will", "may", "continue", "project", "potential" and
similar expressions and statements relating to matters that are not
historical facts constitute "forward-looking information" within
the meaning of applicable Canadian securities legislation and
"forward-looking statements" within the meaning of the "safe
harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995 (collectively, "forward-looking
information and statements").
In particular, forward looking information and
statements include, but are not limited to, the following:
- our planned capital expenditures
for 2019, including the expected allocations of capital under our
2019 plan;
- our scheduled infrastructure
projects;
- anticipated cash balance and
liquidity at December 31, 2018;
- anticipated cash flow and future
debt reduction; and
- anticipated annualized interest
savings.
These forward-looking information and statements
are based on certain assumptions and analysis made by Precision in
light of our experience and our perception of historical trends,
current conditions, expected future developments and other factors
we believe are appropriate under the circumstances. These include,
among other things:
- the fluctuation in oil prices may
pressure customers into reducing or limiting their drilling
budgets;
- the status of current negotiations
with our customers and vendors;
- customer focus on safety
performance;
- existing term contracts are neither
renewed nor terminated prematurely;
- our ability to deliver rigs to
customers on a timely basis; and
- the general stability of the
economic and political environments in the jurisdictions where we
operate.
Undue reliance should not be placed on
forward-looking information and statements. Whether actual results,
performance or achievements will conform to our expectations and
predictions is subject to a number of known and unknown risks and
uncertainties which could cause actual results to differ materially
from our expectations. Such risks and uncertainties include, but
are not limited to:
- volatility in the price and demand
for oil and natural gas;
- fluctuations in the demand for
contract drilling, well servicing and ancillary oilfield
services;
- our customers’ inability to obtain
adequate credit or financing to support their drilling and
production activity;
- changes in drilling and well
servicing technology which could reduce demand for certain rigs or
put us at a competitive disadvantage;
- shortages, delays and interruptions
in the delivery of equipment supplies and other key inputs;
- the effects of seasonal and weather
conditions on operations and facilities;
- the availability of qualified
personnel and management;
- a decline in our safety performance
which could result in lower demand for our services;
- changes in environmental laws and
regulations such as increased regulation of hydraulic fracturing or
restrictions on the burning of fossil fuels and greenhouse gas
emissions, which could have an adverse impact on the demand for oil
and gas;
- terrorism, social, civil and
political unrest in the foreign jurisdictions where we
operate;
- fluctuations in foreign exchange,
interest rates and tax rates; and
- other unforeseen conditions which
could impact the use of services supplied by Precision and
Precision’s ability to respond to such conditions.
Readers are cautioned that the forgoing list of
risk factors is not exhaustive. Additional information on these and
other factors that could affect our business, operations or
financial results are included in reports on file with applicable
securities regulatory authorities, including but not limited to
Precision’s Annual Information Form for the year ended December 31,
2017, which may be accessed on Precision’s SEDAR profile at
www.sedar.com or under Precision’s EDGAR profile at www.sec.gov.
The forward-looking information and statements contained in this
news release are made as of the date hereof and Precision
undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of
new information, future events or otherwise, except as required by
law.
About Precision
Precision is a leading provider of safe and High
Performance, High Value services to the oil and gas industry.
Precision provides customers with access to an extensive fleet of
contract drilling rigs, directional drilling services, well service
and snubbing rigs, camps, rental equipment, and wastewater
treatment units backed by a comprehensive mix of technical support
services and skilled, experienced personnel.
Precision is headquartered in Calgary, Alberta,
Canada. Precision is listed on the Toronto Stock Exchange under the
trading symbol “PD” and on the New York Stock Exchange under the
trading symbol “PDS”.
For further information, please contact:
Carey Ford, CFASenior Vice President and Chief
Financial Officer713.435.6111
Ashley Connolly, CFAManager, Investor
Relations403.716.4725
Precision Drilling Corporation800, 525 - 8th
Avenue S.W.Calgary, Alberta, Canada T2P 1G1Website:
www.precisiondrilling.com
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