(Canadian dollars except as indicated)
This news release contains “forward-looking
information and statements” within the meaning of applicable
securities laws. For a full disclosure of the forward-looking
information and statements and the risks to which they are subject,
see the “Cautionary Statement Regarding Forward-Looking Information
and Statements” later in this news release. This news release
contains references to Adjusted EBITDA, Covenant EBITDA, Operating
Earnings (Loss), Funds Provided by (Used in) Operations and Working
Capital. These terms do not have standardized meanings prescribed
under International Financial Reporting Standards (IFRS) and may
not be comparable to similar measures used by other companies, see
“Non-GAAP Measures” later in this news release.
Precision Drilling announces 2018 fourth quarter financial
results:
- Revenue of $427 million was an increase of 23% over the prior
year comparative quarter.
- Net loss of $198 million ($0.68 per share) compares to a net
loss of $47 million ($0.16 per share) in the fourth quarter of
2017. During the quarter we incurred goodwill impairment charges
totaling $208 million that, after-tax, reduced net earnings by $199
million and net earnings per diluted share by $0.68. Excluding the
impact of the goodwill impairment net earnings would have been $1
million ($0.00 per share).
- Earnings before income taxes, loss or gain on redemption and
repurchase of unsecured senior notes, finance charges, foreign
exchange, impairment of goodwill, impairment of property, plant and
equipment and depreciation and amortization (adjusted EBITDA see
“NON-GAAP MEASURES”) of $134 million was 48% higher than the fourth
quarter of 2017. During the quarter we realized a transaction
recovery, net of costs, of $14 million.
- Funds provided by operations (see “NON-GAAP MEASURES”) of $93
million versus $28 million in the prior year comparative
quarter.
- During the fourth quarter we reduced the principal amount of
our outstanding debt by US$74 million through redemptions and
repurchases for a gain of $7 million. Fourth quarter ending cash
balance was $97 million, up $32 million from the December 31, 2017
balance of $65 million.
- Fourth quarter capital expenditures were $30 million.
- As at December 31, 2018 we have classified 22 North American
drilling rigs (18 in Canada and four in the U.S.) as assets held
for sale and reported these assets at their carrying value of $20
million.
Precision’s President and CEO Kevin Neveu
stated: “Precision executed on its 2018 business plan and delivered
operating and financial results far exceeding our expectations.
This execution was clear in all key financial and operating
metrics; delivering strong rig and crew operating and safety
performance, diligent variable and fixed cost control, growth in
U.S. market share and forging the path to commercializing our
technology initiatives, all while strictly controlling our capital
spending. Precision’s execution in 2018 resulted in better than
expected cash flow, allowing us to accelerate our debt repayment
plan well beyond our stated target range for the year, retiring
$174 million of debt in 2018.”
“In the fourth quarter, strong demand for our
Super Series rigs and firm pricing in the U.S. combined with
aggressive cost management in our Canadian businesses drove better
than expected financial results. We enter 2019 with liquidity of
over $800 million and remain firmly committed to our deleveraging
plan, recently increasing our longer-term debt reduction target
range by $100 million to $400 million to $600 million by the end of
2021.”
“While customer sentiment has recently improved
with firming WTI pricing, the extreme volatility and widened
Canadian differentials experienced during the fourth quarter
weighed heavily on our customers’ planning as we entered 2019. We
see the effects sharply in Canada as winter drilling activity is
trending down 30% from last winter. In Canada, currently we have 58
rigs operating and do not expect activity to strengthen until the
second half of the year as oil inventories decline and takeaway
capacity improves. Canadian differentials have narrowed
substantially following the Government of Alberta’s mandatory
production curtailment program driving improved cash flows for many
of our customers and potentially strengthening the outlook for
later in the year. Despite near-term softness, our Canadian
business is well positioned to generate strong cash flow through
leveraging our scale with unmatched rig fleet quality and
Precision’s High Performance operations.”
“In the U.S. we have 81 rigs operating, 16 more
than this time last year representing 25% year-over-year growth.
While our U.S. activity is steady, our customers are still
cautiously assessing 2019 spending plans. Precision has signed
eight term contracts year-to-date, in addition to 11 in the fourth
quarter of 2018, indicative of continued strength in high spec rig
demand. Over the last year we have increased our AC Super Triple
1500 rig fleet in the U.S. by five, including two rigs redeployed
from Canada and three new builds largely assembled from spare
components and vendor credits. Additionally, we completed 31 rig
upgrades including pad-walking systems, third mud pump additions
and Process Automation Control upgrades. All cash deployed to
mobilize, build new and upgrade rigs was backed with take or pay
customer contracts at leading edge rates and we managed these U.S.
fleet enhancements with relatively modest capital spending.”
“Currently we have eight rigs operating in the
Middle East all performing exceedingly well. In Saudi Arabia we
expect to sign long-term contracts on the two rigs currently up for
renewal by the end of the quarter, and in Kuwait we are on time and
on budget to deploy a sixth new build rig in June. By mid-year we
expect to have nine rigs operating in the Middle East, all under
long-term contracts providing stable cash flow visibility.”
“Precision’s technology strategy displayed
significant progress throughout 2018, with 33 Process Automation
Control systems installed, 31 of which are active in the field.
During the year, we were able to demonstrate to our customers our
system’s ability to deliver consistent and repeatable, high-quality
results while improving safety, performance and operational
efficiency. Going into 2019, our priorities revolve around further
commercialization of the Process Automation Control platform,
PD-Apps and PD-Analytics as Precision remains a leader in advanced
rig technology offerings.”
“Precision remains focused on the things in
which it can control, namely, allocating free cash flow toward debt
repayment, capital discipline, cost management and operational
excellence. Commodity price volatility is likely to persist
throughout 2019; however, we believe we are well-positioned across
each of our geographies to manage our business and create value for
our customers and investors,” concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING
INFORMATION
Adjusted EBITDA and funds provided by operations
are Non-GAAP measures. See “NON-GAAP MEASURES”.
Financial Highlights
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
2018 |
|
|
2017 |
|
|
% Change |
|
|
2018 |
|
|
2017 |
|
|
% Change |
|
Revenue |
|
427,010 |
|
|
|
347,187 |
|
|
|
23.0 |
|
|
|
1,541,189 |
|
|
|
1,321,224 |
|
|
|
16.6 |
|
Adjusted EBITDA(1) |
|
134,492 |
|
|
|
90,914 |
|
|
|
47.9 |
|
|
|
375,131 |
|
|
|
304,981 |
|
|
|
23.0 |
|
Net loss |
|
(198,328 |
) |
|
|
(47,005 |
) |
|
|
321.9 |
|
|
|
(294,270 |
) |
|
|
(132,036 |
) |
|
|
122.9 |
|
Cash provided by
operations |
|
93,489 |
|
|
|
23,289 |
|
|
|
301.4 |
|
|
|
293,334 |
|
|
|
116,555 |
|
|
|
151.7 |
|
Funds provided by
operations(1) |
|
92,595 |
|
|
|
28,323 |
|
|
|
226.9 |
|
|
|
311,214 |
|
|
|
183,935 |
|
|
|
69.2 |
|
Capital spending: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion |
|
9,064 |
|
|
|
966 |
|
|
|
838.3 |
|
|
|
35,444 |
|
|
|
11,946 |
|
|
|
196.7 |
|
Upgrade |
|
2,402 |
|
|
|
2,984 |
|
|
|
(19.5 |
) |
|
|
30,757 |
|
|
|
37,086 |
|
|
|
(17.1 |
) |
Maintenance and infrastructure |
|
18,128 |
|
|
|
13,553 |
|
|
|
33.8 |
|
|
|
48,375 |
|
|
|
25,791 |
|
|
|
87.6 |
|
Intangibles |
|
687 |
|
|
|
7,452 |
|
|
|
(90.8 |
) |
|
|
11,567 |
|
|
|
23,179 |
|
|
|
(50.1 |
) |
Proceeds on sale |
|
(12,020 |
) |
|
|
(4,787 |
) |
|
|
151.1 |
|
|
|
(24,457 |
) |
|
|
(14,841 |
) |
|
|
64.8 |
|
Net capital
spending |
|
18,261 |
|
|
|
20,168 |
|
|
|
(9.5 |
) |
|
|
101,686 |
|
|
|
83,161 |
|
|
|
22.3 |
|
Net loss per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
(0.68 |
) |
|
|
(0.16 |
) |
|
|
325.0 |
|
|
|
(1.00 |
) |
|
|
(0.45 |
) |
|
|
122.2 |
|
(1)
See “NON-GAAP MEASURES”. |
|
Operating Highlights |
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
|
2018 |
|
|
2017 |
|
|
% Change |
|
|
2018 |
|
|
2017 |
|
|
% Change |
|
Contract drilling rig
fleet |
|
236 |
|
|
|
256 |
|
|
|
(7.8 |
) |
|
|
236 |
|
|
|
256 |
|
|
|
(7.8 |
) |
Drilling rig
utilization days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
4,517 |
|
|
|
4,983 |
|
|
|
(9.4 |
) |
|
|
18,617 |
|
|
|
18,883 |
|
|
|
(1.4 |
) |
U.S. |
|
7,318 |
|
|
|
5,365 |
|
|
|
36.4 |
|
|
|
26,714 |
|
|
|
20,479 |
|
|
|
30.4 |
|
International |
|
736 |
|
|
|
736 |
|
|
|
- |
|
|
|
2,920 |
|
|
|
2,920 |
|
|
|
- |
|
Revenue per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada(1)
(Cdn$) |
|
22,802 |
|
|
|
23,457 |
|
|
|
(2.8 |
) |
|
|
21,644 |
|
|
|
21,143 |
|
|
|
2.4 |
|
U.S.(2)
(US$) |
|
23,369 |
|
|
|
20,226 |
|
|
|
15.5 |
|
|
|
21,864 |
|
|
|
19,861 |
|
|
|
10.1 |
|
International (US$) |
|
51,982 |
|
|
|
50,319 |
|
|
|
3.3 |
|
|
|
50,469 |
|
|
|
50,240 |
|
|
|
0.5 |
|
Operating cost per
utilization day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
(Cdn$) |
|
15,115 |
|
|
|
13,544 |
|
|
|
11.6 |
|
|
|
14,493 |
|
|
|
13,140 |
|
|
|
10.3 |
|
U.S.
(US$) |
|
15,042 |
|
|
|
13,647 |
|
|
|
10.2 |
|
|
|
14,337 |
|
|
|
13,846 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service rig fleet |
|
210 |
|
|
|
210 |
|
|
|
- |
|
|
|
210 |
|
|
|
210 |
|
|
|
- |
|
Service rig operating
hours |
|
35,773 |
|
|
|
44,325 |
|
|
|
(19.3 |
) |
|
|
157,467 |
|
|
|
172,848 |
|
|
|
(8.9 |
) |
Revenue
per operating hour (Cdn$) |
|
753 |
|
|
|
644 |
|
|
|
16.9 |
|
|
|
709 |
|
|
|
637 |
|
|
|
11.3 |
|
(1)
Includes lump sum revenue from contract shortfall. |
(2)
Includes revenue from idle but contracted rig days. |
|
Financial Position |
(Stated in
thousands of Canadian dollars, except ratios) |
December 31,
2018 |
|
December 31, 2017 |
|
Working capital(1) |
240,539 |
|
232,121 |
|
Cash |
96,626 |
|
65,081 |
|
Long-term debt(2) |
1,706,253 |
|
1,730,437 |
|
Total long-term
financial liabilities |
1,723,350 |
|
1,754,059 |
|
Total assets |
3,636,043 |
|
3,892,931 |
|
Long-term
debt to long-term debt plus equity ratio |
0.52 |
|
0.49 |
|
(1)
See “NON-GAAP MEASURES”. |
(2)
Net of unamortized debt issue costs. |
|
|
Summary for the three months ended December 31,
2018:
- Revenue this quarter was $427 million which is 23% higher than
the fourth quarter of 2017. The increase in revenue is primarily
the result of higher activity and higher average day rates in our
U.S. contract drilling business. Compared with the fourth quarter
of 2017 our activity for the quarter, as measured by drilling rig
utilization days increased 36% in the U.S., decreased 9% in Canada
and remained constant internationally. Revenue from our Contract
Drilling Services segment increased over the comparative prior year
period by 27% while revenue in our Completion and Production
Services segment was down 10%.
- Adjusted EBITDA (see “NON-GAAP MEASURES”) of $134 million this
quarter is an increase of $44 million from the fourth quarter of
2017. Our adjusted EBITDA as a percentage of revenue was 31%,
compared with 26% in the comparative quarter of 2017. Adjusted
EBITDA was positively impacted by higher activity and day rates in
the U.S., the receipt of a transaction fee and lower share-based
incentive compensation partially offset by lower activity in our
Canadian contract drilling operations versus the comparative prior
year period. Total share-based incentive compensation recorded in
the quarter was a recovery of $12 million compared to a recovery of
$0.4 million in the fourth quarter of 2017. See discussion on
share-based incentive compensation under “Other Items” later in
this release for additional details.
- Operating earnings (see “NON-GAAP MEASURES”) were $35 million
compared with an operating loss of $19 million in the fourth
quarter of 2017. In addition to the operating items impacting
Adjusted EBITDA (see “NON-GAAP MEASURES”) we realized increased
depreciation in our Contract Drilling segment from a review and
subsequent accelerated depreciation of a portion of our spare
equipment in 2018.
- General and administrative expenses this quarter were $21
million, $1 million lower than the fourth quarter of 2017. The
decrease is due to lower share-based incentive compensation expense
tied to the price of our common shares (see “Other Items” later in
this release) partially offset by a weakening of the Canadian
dollar on our U.S. dollar denominated costs.
- During the quarter we terminated an arrangement agreement to
acquire an oil and gas drilling contractor. Subsequent to the
termination a transaction fee was paid to us which, net of
transaction costs, amounted to $14 million.
- Under International Financial Reporting Standards, we are
required to assess the carrying value of our assets in cash
generating units containing goodwill annually. Due to the decrease
in oil and natural gas well drilling in Canada and the outlook for
activity in Canada and in our directional drilling division in the
U.S., we recognized a $208 million goodwill impairment charge in
the quarter. The charge represents the full amount of goodwill
attributable to our Canadian contract drilling operations and our
U.S. directional drilling operations.
- Net finance charges were $32 million, a decrease of $6 million
compared with the fourth quarter of 2017, primarily due to a
reduction in interest expense related to debt retired in 2017 and
2018 partially offset by the weakening of the Canadian dollar on
our U.S. dollar denominated interest.
- During the quarter we redeemed US$30 million of our 6.5%
unsecured senior notes due 2021 and repurchased and cancelled US$44
million principal amount of our 5.25% unsecured senior notes due
2024 resulting in a net gain of $7 million.
- In Canada, average revenue per utilization day for contract
drilling rigs was $22,802 compared to $23,457 in the fourth quarter
of 2017. Overall, shortfall payments received in the prior year
comparative quarter were partially offset by higher spot market day
rates and higher expenses recovered through the day rate in the
current quarter. During the quarter, we recognized shortfall
payments in revenue of $1 million compared with $13 million in the
prior year comparative period. Excluding the impact of shortfall
payments, average day rates were up 8%, or $1,601. Revenue per
utilization day in the U.S. increased in the fourth quarter of 2018
to US$23,369 from US$20,226 in the prior year fourth quarter. The
increase in the U.S. revenue rate was the result of higher day
rates and turnkey revenue compared with the prior year quarter and
higher expenses recovered through the day rate. During the quarter,
we had turnkey revenue of US$11 million compared with US$3 million
in the 2017 comparative period and revenue from idle but contracted
rigs of US$0.3 million compared with US$1 million in the prior year
comparative period. Excluding the impact of turnkey and idle but
contracted rig revenue, average day rates were up 13%, or US$2,428.
On a sequential basis, revenue per utilization day excluding
revenue from turnkey and idle but contracted rigs increased by
US$521 compared with the third quarter of 2018 due to higher
average day rates.
- Average operating costs per utilization day for drilling rigs
in Canada increased to $15,115 compared with the prior year fourth
quarter of $13,544. The increase in average costs was due to timing
of equipment certification and maintenance costs and higher
expenses recovered through the day rate. On a sequential basis,
operating costs per day increased by $951 compared to the third
quarter of 2018 due to the timing of certification costs. In the
U.S., operating costs for the quarter on a per day basis increased
to US$15,042 compared with US$13,647 in 2017 due to higher expenses
recovered through the day rate and higher turnkey activity. On a
sequential basis, operating costs per day increased by US$891
compared to the third quarter of 2018 due to higher turnkey
activity in the current quarter partially offset by fewer rig
activations.
- We realized revenue from international contract drilling of
US$38 million in the fourth quarter of 2018, US$1 million higher
than the prior year period. Average revenue per utilization day in
our international contract drilling business was US$51,982, up 3%
when compared with the prior year quarter.
- Directional drilling services realized revenue of $9 million in
the fourth quarter of 2018 compared with $4 million in the prior
year period.
- Funds provided by operations (see “NON-GAAP MEASURES”) in the
fourth quarter of 2018 were $93 million, an increase of $65 million
from the prior year comparative quarter. The increase was primarily
the result of improved operating results and the timing of interest
payments and tax refunds.
- Capital expenditures were $30 million in the fourth quarter, a
decrease of $5 million over the same period in 2017. Capital
spending for the quarter included $11 million for upgrade and
expansion capital, $18 million for the maintenance of existing
assets and infrastructure spending and $1 million for
intangibles.
Summary for the year ended December 31,
2018:
- Revenue for 2018 was $1,541 million, an increase of 17% from
2017.
- Operating earnings (see “NON-GAAP MEASURES”) were $9 million
compared with an operating loss of $88 million in 2017. Operating
earnings were 1% of revenue in 2018 compared with an operating loss
of 7% of revenue in 2017. Operating results this year were
positively impacted by higher activity and day rates in the U.S.,
the receipt of a transaction fee paid to us and lower share-based
incentive compensation partially offset by lower shortfall payments
received in our Canadian contract drilling operations. Total
share-based incentive compensation recorded in the year was an
expense of $16 million compared to an expense of $2 million in
2017. See discussion on share-based incentive compensation under
“Other Items” later in this release for additional details.
- General and administrative costs were $112 million, an increase
of $22 million from 2017. The increase was due to higher
share-based incentive compensation that is tied to the price of our
common shares (see “Other Items” later in this release).
- Net finance charges were $127 million, a decrease of $11
million from 2017 primarily due to a reduction in interest expense
related to debt retired in 2017 and mid-2018 and the effect of a
stronger Canadian dollar on our U.S. dollar denominated interest
expense partially offset by higher interest income earned in the
comparative period.
- During the year we redeemed US$80 million and repurchased and
cancelled US$3 million of our 6.5% unsecured senior notes due 2021
and repurchased and cancelled US$49 million principal amount of our
5.25% unsecured senior notes due 2024 resulting in a net gain of $6
million.
- Funds provided by operations (see “NON-GAAP MEASURES”) in 2018
were $311 million, an increase of $127 million from the prior year
comparative period. The increase was primarily the result of
improved operating earnings and the timing of tax refunds.
- Capital expenditures for the purchase of property, plant and
equipment were $126 million for 2018, an increase of $28 million
over the same period in 2017. Capital spending for 2018 included
$66 million for upgrade and expansion capital, $48 million for the
maintenance of existing assets and infrastructure and $12 million
for intangibles related to a new ERP system.
STRATEGY
Precision’s strategic priorities for 2018 were as follows:
- Reduce debt by generating free cash
flow while continuing to fund only the most attractive investment
opportunities – we generated $311 million in funds
provided by operations (see “NON-GAAP MEASURES”) in 2018,
representing a $127 million increase over the prior year. Utilizing
cash generated in 2018, we reduced debt by $174 million through a
partial redemption of our 2021 unsecured senior notes and open
market debt repurchases of our 2021 and 2024 notes, exceeding our
targeted debt reduction goal of $75 million to $125 million. In
addition, we ended the fourth quarter with $97 million of cash on
the balance sheet. In 2018 we continued to invest in our fleet
adding two new build drilling rigs in the U.S., completing 31 rig
upgrades, and commenced the build of our sixth Kuwait rig, all of
which were backed by long-term contracts and within a constrained
expansion and upgrade capital spend of approximately $66
million.
- Reinforce Precision’s High Performance competitive
advantage by deploying Process Automation Controls (PAC),
Directional Guidance Systems (DGS) and Drilling Performance Apps
(Apps) on a wide scale basis – in 2018 we drilled 119
wells using our DGS compared to 58 wells in 2017. We have 31 rigs
currently running in the field with PAC and have drilled
approximately 365 wells with this technology in 2018 compared to
154 in 2017. Earlier this year we also equipped our training
rigs in Nisku and Houston with PAC technology. We are deploying
revenue generating Apps on several rigs and currently have over 15
Apps in varying stages of commercial development showcasing the
open platform of our PAC system. Several Apps are customer-built
and supported by Precision’s PAC platform with specific hosting
agreements in place.
- Enhance financial performance through higher
utilization and improved operating margins – in 2018
overall utilization days are 14% higher than in 2017 while average
operating margins (revenue less operating costs) are up 25% and 4%
in our U.S. and Canadian contract drilling businesses,
respectively.
Precision’s strategic priorities for 2019 are as follows:
- Generate strong free cash flow and utilize $100 million
to $150 million to reduce debt in 2019. We have increased
our long-term debt reduction targets to $400 million to $600
million by year-end 2021 (inclusive of 2018 debt repayments).
- Maximize financial results by leveraging our High
Performance, High Value Super Series rig fleet and scale with
disciplined cost management.
- Full scale commercialization and implementation of our
Process Automation Control platform, PD-Apps and
PD-Analytics.
OUTLOOK
For the fourth quarter of 2018, the average West
Texas Intermediate (WTI) price of oil was 6% higher than the prior
year comparative period while the average Henry Hub gas price was
33% higher and the average AECO price was 11% lower.
|
Three months ended December 31, |
|
Year ended December 31, |
|
|
2018 |
2017 |
|
2018 |
2017 |
|
Average oil and
natural gas prices |
|
|
|
|
|
|
Oil |
|
|
|
|
|
|
West
Texas Intermediate (per barrel) (US$) |
58.89 |
55.45 |
|
64.88 |
50.95 |
|
Natural
gas |
|
|
|
|
|
|
Canada |
|
|
|
|
|
|
AECO (per
MMBtu) (CDN$) |
1.49 |
1.67 |
|
1.49 |
2.16 |
|
United
States |
|
|
|
|
|
|
Henry Hub (per MMBtu) (US$) |
3.81 |
2.86 |
|
3.12 |
2.98 |
|
|
Contracts
During 2018 we entered into 54 term contracts.
The following chart outlines the average number of drilling rigs by
quarter that we had under contract for 2018 and 2019 as of February
13, 2019.
|
Average for the quarter ended 2018 |
|
Average for the quarter ended 2019 |
|
|
Mar. 31 |
June 30 |
Sept. 30 |
Dec. 31 |
|
Mar. 31 |
June 30 |
Sept. 30 |
Dec. 31 |
|
Average rigs under term
contract as of February 13, 2019: |
|
|
|
|
|
|
|
|
|
|
Canada |
8 |
9 |
9 |
11 |
|
8 |
6 |
6 |
5 |
|
U.S. |
36 |
48 |
50 |
51 |
|
55 |
44 |
31 |
21 |
|
International |
8 |
8 |
8 |
8 |
|
8 |
5 |
5 |
5 |
|
Total |
52 |
65 |
67 |
70 |
|
71 |
54 |
42 |
31 |
|
(1)
As of February 13, 2019. |
|
The following chart outlines the average number
of drilling rigs that we had under contract for 2018 and the
average number of rigs we have under contract for 2019 and 2020 as
of February 13, 2019.
|
Average for the year ended |
|
2018 |
2019 |
2020 |
Average rigs under term
contract as of February 13, 2019: |
|
|
|
Canada |
9 |
6 |
2 |
U.S. |
46 |
38 |
8 |
International |
8 |
6 |
4 |
Total |
63 |
50 |
14 |
(1)
As of February 13, 2019. |
|
In Canada, term contracted rigs normally
generate 250 utilization days per year because of the seasonal
nature of well site access. In most regions in the U.S. and
internationally, term contracts normally generate 365 utilization
days per year.
Drilling Activity
The following chart outlines the average number
of drilling rigs that we had working or moving by quarter for the
periods noted.
|
Average for the quarter ended 2017 |
|
Average for the quarter ended 2018 |
|
|
Mar. 31 |
June 30 |
Sept. 30 |
Dec. 31 |
|
Mar. 31 |
June 30 |
Sept. 30 |
Dec. 31 |
|
Average Precision
active rig count: |
|
|
|
|
|
|
|
|
|
|
Canada |
76 |
29 |
49 |
54 |
|
72 |
31 |
52 |
49 |
|
U.S. |
47 |
59 |
61 |
58 |
|
64 |
72 |
76 |
80 |
|
International |
8 |
8 |
8 |
8 |
|
8 |
8 |
8 |
8 |
|
Total |
131 |
96 |
118 |
120 |
|
144 |
111 |
136 |
137 |
|
|
To start 2019, drilling activity has increased
relative to this time last year in U.S. and decreased in Canada.
According to industry sources, as of February 8, 2019, the U.S.
active land drilling rig count was up approximately 7% from the
same point last year while the Canadian active land drilling rig
count was down approximately 26%. To date in 2019, approximately
60% of the Canadian industry’s active rigs and 81% of the U.S.
industry’s active rigs are drilling for oil targets, compared with
66% for Canada and 80% for the U.S. at the same time last year.
Industry Conditions
We expect Tier 1 rigs to remain the preferred
rigs of customers globally. The economic value created by the
significant drilling and mobility efficiencies delivered by the
most advanced XY pad-walking rigs has been highlighted and widely
accepted by our customers. The trend to longer-reach horizontal
completions and importance of the rig delivering these complex
wells consistently and efficiently has been well established by the
industry. We expect demand for leading edge high efficiency Tier 1
rigs will continue to strengthen, as drilling rig capability has
been a key economic facilitator of horizontal/unconventional
resource exploitation. Development and field application of
drilling equipment process automation coupled with closed loop
drilling controls and de-manning of rigs will continue this
technical evolution while creating further cost efficiencies and
performance value for customers.
Capital Spending
Capital spending in 2019 is expected to be $169
million and includes $53 million for sustaining and infrastructure
and $116 million for upgrade and expansion, approximately $68
million of which relates to the completion of our sixth new build
rig in Kuwait. We expect that the $169 million will be split $161
million in the Contract Drilling Services segment, $6 million in
the Completion and Production Services segment and $2 million to
the Corporate segment.
SEGMENTED FINANCIAL RESULTS
Precision’s operations are reported in two
segments: Contract Drilling Services, which includes the drilling
rig, directional drilling, oilfield supply and manufacturing
divisions; and Completion and Production Services, which includes
the service rig, snubbing, rental, camp and catering and wastewater
treatment divisions.
|
Three months ended December 31, |
|
Year ended December 31, |
|
(Stated in
thousands of Canadian dollars) |
2018 |
|
2017 |
|
% Change |
|
2018 |
|
2017 |
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Drilling Services |
391,843 |
|
308,973 |
|
26.8 |
|
1,396,492 |
|
1,173,930 |
|
19.0 |
|
Completion and Production Services |
36,715 |
|
40,600 |
|
(9.6 |
) |
150,760 |
|
154,146 |
|
(2.2 |
) |
Inter-segment eliminations |
(1,548 |
) |
(2,386 |
) |
(35.1 |
) |
(6,063 |
) |
(6,852 |
) |
(11.5 |
) |
|
427,010 |
|
347,187 |
|
23.0 |
|
1,541,189 |
|
1,321,224 |
|
16.6 |
|
Adjusted
EBITDA:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Drilling Services |
122,131 |
|
100,280 |
|
21.8 |
|
412,134 |
|
342,970 |
|
20.2 |
|
Completion and Production Services |
7,011 |
|
2,714 |
|
158.3 |
|
14,881 |
|
11,888 |
|
25.2 |
|
Corporate and Other |
5,350 |
|
(12,080 |
) |
(144.3 |
) |
(51,884 |
) |
(49,877 |
) |
4.0 |
|
|
134,492 |
|
90,914 |
|
47.9 |
|
375,131 |
|
304,981 |
|
23.0 |
|
(1)
See “NON-GAAP MEASURES”. |
|
SEGMENT REVIEW OF CONTRACT DRILLING
SERVICES
|
Three months ended December 31, |
|
Year ended December 31, |
|
(Stated in
thousands of Canadian dollars, except where noted) |
2018 |
|
2017 |
|
% Change |
|
2018 |
|
2017 |
|
% Change |
|
Revenue |
391,843 |
|
308,973 |
|
26.8 |
|
1,396,492 |
|
1,173,930 |
|
19.0 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
258,255 |
|
200,615 |
|
28.7 |
|
945,203 |
|
798,655 |
|
18.3 |
|
General and administrative |
11,457 |
|
8,078 |
|
41.8 |
|
39,155 |
|
32,305 |
|
21.2 |
|
Adjusted EBITDA(1) |
122,131 |
|
100,280 |
|
21.8 |
|
412,134 |
|
342,970 |
|
20.2 |
|
Depreciation |
95,934 |
|
82,680 |
|
16.0 |
|
334,555 |
|
334,587 |
|
(0.0 |
) |
Impairment of property, plant and equipment |
- |
|
15,313 |
|
(100.0 |
) |
- |
|
15,313 |
|
(100.0 |
) |
Operating
earnings (loss)(1) |
26,197 |
|
2,287 |
|
1,045.5 |
|
77,579 |
|
(6,930 |
) |
(1,219.5 |
) |
Operating
earnings (loss)(1) as a percentage of revenue |
6.7 |
% |
0.7 |
% |
|
|
5.6 |
% |
(0.6 |
)% |
|
|
(1)
See “NON-GAAP MEASURES”. |
|
Three months ended December 31, |
|
Canadian
onshore drilling statistics:(1) |
2018 |
|
2017 |
|
|
Precision |
|
Industry(2) |
|
Precision |
|
Industry(2) |
|
Number of
drilling rigs (end of period) |
117 |
|
574 |
|
136 |
|
627 |
|
Drilling
rig operating days (spud to release) |
4,020 |
|
15,235 |
|
4,298 |
|
16,249 |
|
Drilling
rig operating day utilization |
33 |
% |
28 |
% |
35 |
% |
29 |
% |
Number of
wells drilled |
401 |
|
1,602 |
|
447 |
|
1,674 |
|
Average
days per well |
10.0 |
|
9.5 |
|
9.6 |
|
9.7 |
|
Number of
metres drilled (000s) |
1,153 |
|
4,609 |
|
1,245 |
|
4,780 |
|
Average
metres per well |
2,874 |
|
2,877 |
|
2,786 |
|
2,855 |
|
Average metres per day |
287 |
|
303 |
|
290 |
|
294 |
|
|
Year ended December 31, |
|
Canadian
onshore drilling statistics:(1) |
2018 |
|
2017 |
|
|
Precision |
|
Industry(2) |
|
Precision |
|
Industry(2) |
|
Number of
drilling rigs (end of period) |
117 |
|
574 |
|
136 |
|
627 |
|
Drilling
rig operating days (spud to release) |
16,479 |
|
64,491 |
|
16,696 |
|
66,138 |
|
Drilling
rig operating day utilization |
34 |
% |
29 |
% |
34 |
% |
29 |
% |
Number of
wells drilled |
1,663 |
|
6,781 |
|
1,729 |
|
6,929 |
|
Average
days per well |
9.9 |
|
9.5 |
|
9.7 |
|
9.5 |
|
Number of
metres drilled (000s) |
4,694 |
|
19,313 |
|
4,597 |
|
19,047 |
|
Average
metres per well |
2,823 |
|
2,848 |
|
2,659 |
|
2,737 |
|
Average metres per day |
285 |
|
299 |
|
275 |
|
288 |
|
(1)
Canadian operations only. |
(2)
Canadian Association of Oilwell Drilling Contractors
(“CAODC”), and Precision – excludes non-CAODC rigs and
non-reporting CAODC members. |
United
States onshore drilling statistics:(1) |
2018 |
2017 |
|
|
Precision |
Industry(2) |
Precision |
Industry(2) |
|
Average number of
active land rigs for quarters ended: |
|
|
|
|
|
March
31 |
64 |
951 |
47 |
722 |
|
June
30 |
72 |
1,021 |
59 |
874 |
|
September
30 |
76 |
1,032 |
61 |
927 |
|
December 31 |
80 |
1,050 |
58 |
902 |
|
Year to date average |
73 |
1,014 |
56 |
856 |
|
(1)
United States lower 48 operations only. |
(2)
Baker Hughes rig counts. |
Revenue from Contract Drilling Services was $392
million this quarter, or 27% higher than the fourth quarter of
2017, while adjusted EBITDA (see “NON-GAAP MEASURES”) increased by
22% to $122 million. The increase in revenue was primarily due to
higher utilization days as well as higher spot market rates in the
U.S. During the quarter we recognized $1 million in shortfall
payments in our Canadian contract drilling business compared with
$13 million in the prior year comparative period. In the U.S. we
recognized turnkey revenue of US$11 million compared with US$3
million in the comparative period and we recognized US$0.3 million
in idle but contracted rig revenue compared with US$1 million in
the comparative quarter of 2017.
Drilling rig utilization days in Canada
(drilling days plus move days) were 4,517 during the fourth quarter
of 2018, a decrease of 9% compared to 2017 primarily due to
decreased industry activity brought on by lower commodity prices
and takeaway capacity challenges in Canada. Drilling rig
utilization days in the U.S. were 7,318, or 36% higher than the
same quarter of 2017 as our U.S. activity was up with higher
industry activity. Drilling rig utilization days in our
international business were 736, in-line with the same quarter of
2017.
Compared with the same quarter in 2017, drilling
rig revenue per utilization day in Canada decreased 3% as lower
shortfall revenue in the current quarter was partially offset by
increases in spot market rates and higher expenses recovered
through the day rate compared with the prior period. Drilling rig
revenue per utilization day for the quarter in the U.S. was up 16%
compared to the prior year as we realized higher average day rates
and turnkey revenue. International revenue per utilization day for
the quarter was up by 3% compared with the prior year comparative
period due to fewer rig moves.
In Canada, 15% of our utilization days in the
quarter were generated from rigs under term contract, compared with
13% in the fourth quarter of 2017. In the U.S., 62% of utilization
days were generated from rigs under term contract as compared with
55% in the fourth quarter of 2017.
Operating costs were 66% of revenue for the
quarter, one percentage point higher than the prior year period. On
a per utilization day basis, operating costs for the drilling rig
division in Canada were higher than the prior year period due to
timing of equipment certification and equipment maintenance costs
and higher expenses recovered through the day rate. In the U.S.,
operating costs for the quarter on a per day basis were higher than
the prior year period primarily due to expenses recovered through
the day rate and higher turnkey activity.
Depreciation expense in the quarter was $13
million higher than the prior year comparative period due to the
recognition of accelerated depreciation on excess spare
equipment.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION
SERVICES
|
Three months ended December 31, |
|
Year ended December 31, |
|
(Stated in
thousands of Canadian dollars, except where noted) |
2018 |
|
2017 |
|
% Change |
|
2018 |
|
2017 |
|
% Change |
|
Revenue |
36,715 |
|
40,600 |
|
(9.6 |
) |
150,760 |
|
154,146 |
|
(2.2 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
28,515 |
|
35,595 |
|
(19.9 |
) |
128,731 |
|
134,368 |
|
(4.2 |
) |
General and administrative |
1,189 |
|
2,291 |
|
(48.1 |
) |
7,148 |
|
7,890 |
|
(9.4 |
) |
Adjusted EBITDA(1) |
7,011 |
|
2,714 |
|
158.3 |
|
14,881 |
|
11,888 |
|
25.2 |
|
Depreciation |
5,351 |
|
8,410 |
|
(36.4 |
) |
23,879 |
|
29,638 |
|
(19.4 |
) |
Operating
earnings (loss)(1) |
1,660 |
|
(5,696 |
) |
(129.1 |
) |
(8,998 |
) |
(17,750 |
) |
(49.3 |
) |
Operating
earnings (loss)(1) as a percentage of revenue |
4.5 |
% |
(14.0 |
)% |
|
|
(6.0 |
)% |
(11.5 |
)% |
|
|
Well servicing
statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
Number of
service rigs (end of period) |
210 |
|
210 |
|
- |
|
210 |
|
210 |
|
- |
|
Service
rig operating hours |
35,773 |
|
44,325 |
|
(19.3 |
) |
157,467 |
|
172,848 |
|
(8.9 |
) |
Service
rig operating hour utilization |
19 |
% |
23 |
% |
|
|
21 |
% |
23 |
% |
|
|
Service rig revenue per operating hour |
753 |
|
644 |
|
16.9 |
|
709 |
|
637 |
|
11.3 |
|
(1)
See “NON-GAAP MEASURES”. |
Revenue from Completion and Production Services was down $4
million or 10% compared with the fourth quarter of 2017 due to
lower activity in our Canadian businesses. Our service rig
operating hours in the quarter were down 19% from the fourth
quarter of 2017 while rates increased an average of 17%.
Approximately 81% of our fourth quarter Canadian service rig
activity was oil related.
During the quarter, Completion and Production
Services generated 90% of its revenue from Canadian operations and
10% from U.S. operations compared with the fourth quarter of 2017
where 92% of revenue was generated in Canada and 8% in the U.S.
Average service rig revenue per operating hour
in the quarter was $753 or $109 higher than the fourth quarter of
2017. The increase was primarily the result of increased costs
passed through to the customer and rig mix.
Adjusted EBITDA (see “NON-GAAP MEASURES”) was
higher than the fourth quarter of 2017 primarily because of higher
average rates and improved cost structure, partially offset by
lower activity.
Operating costs as a percentage of revenue was
78% compared with the prior year comparative quarter of 88%.
Depreciation expense in the quarter was $3
million lower than the prior year comparative period due to the
recognition of gains on disposal of capital assets in the current
year compared with losses on disposal in the prior year.
SEGMENT REVIEW OF CORPORATE AND
OTHER
Our Corporate and Other segment provides support
functions to our operating segments. The Corporate and Other
segment had an adjusted EBITDA (see “NON-GAAP MEASURES”) of $5
million, a $17 million increase compared with the fourth quarter of
2017 primarily due to lower share-based incentive compensation and
the receipt of the transaction termination fee partially offset by
costs associated with our unsuccessful arrangement agreement.
OTHER ITEMS
Share-based Incentive Compensation
Plans
We have several cash-settled share-based
incentive plans for non-management directors, officers, and other
eligible employees. The fair values of the amounts payable under
these plans are recognized as an expense with a corresponding
increase in liabilities over the period that the participant
becomes entitled to payment. The recorded liability is
re-established at the end of each reporting period until settlement
with the resultant change to fair value of the liability recognized
in net earnings (loss) for the period.
We also have two equity-settled share-based
incentive plans. Under the Executive Performance Share (PSU) plan,
which commenced in May 2017, the fair value of the PSUs granted is
calculated at the date of grant using a Monte Carlo simulation, and
that value is recorded as compensation expense over the grant's
vesting period with an offset to contributed surplus. Upon
redemption of the PSUs into common shares, the associated amount is
reclassified from contributed surplus to shareholders' capital. The
share option plan is treated similarly, except that the fair value
of the share purchased options granted are valued using the
Black-Scholes option pricing model and consideration paid by
employees upon exercise of the equity purchase options are
recognized in share capital.
A summary of the amounts expensed (recovered)
under these plans during the reporting periods are as follows:
|
Three months ended December 31, |
|
Year ended December 31, |
|
(Stated in
thousands of Canadian dollars) |
2018 |
|
2017 |
|
2018 |
2017 |
|
Cash settled
share-based incentive plans |
(14,208 |
) |
(1,622 |
) |
6,391 |
(3,166 |
) |
Equity settled
share-based incentive plans: |
|
|
|
|
|
|
|
Executive
PSU |
1,527 |
|
551 |
|
5,871 |
1,912 |
|
Stock option plan |
681 |
|
645 |
|
3,336 |
3,188 |
|
Total
share-based incentive compensation plan expense (recovery) |
(12,000 |
) |
(426 |
) |
15,598 |
1,934 |
|
|
|
|
|
|
|
|
|
Allocated: |
|
|
|
|
|
|
|
Operating |
(5,437 |
) |
(711 |
) |
3,656 |
414 |
|
General and Administrative |
(6,563 |
) |
285 |
|
11,942 |
1,520 |
|
|
(12,000 |
) |
(426 |
) |
15,598 |
1,934 |
|
Cash settled shared-based compensation recovery
was $14 million in the current quarter compared to $2 million in
the same quarter in 2017. The increase is primarily due to the
declining share price experienced in the current quarter compared
to an increasing share price in the comparative 2017 period.
Executive PSU share-based incentive compensation
expense for the quarter was $2 million compared to $1 million in
the same quarter in 2017. This increase is a result of the plan
being implemented part way through the second quarter in 2017 and
from additional grants in 2018.
Financing Charges
Net financial charges for the quarter were $32
million, a decrease of $6 million compared with the fourth quarter
of 2017 primarily because of debt retired in 2017 and mid-2018
partially offset by a weaker Canadian dollar on our U.S. dollar
denominated interest expense.
Gain on Repurchase and Redemption of
Unsecured Senior Notes
During the quarter we redeemed US$30 million of
our 6.5% unsecured senior notes due 2021 and repurchased and
cancelled US$44 million principal amount of our 5.25% unsecured
senior notes due 2024 resulting in a net gain of $7 million.
Income Tax
Income tax expense for the quarter was a
recovery of $2 million compared with a recovery of $17 million in
the same quarter in 2017. The tax recovery in the quarter decreased
over the prior year period due to improved results prior to the
non-taxable portion of the goodwill impairment.
LIQUIDITY AND CAPITAL RESOURCES
The oilfield services business is inherently
cyclical in nature. To manage this, we focus on maintaining a
strong balance sheet so we have the financial flexibility we need
to continue to manage our growth and cash flow, regardless of where
we are in the business cycle. We maintain a variable operating cost
structure so we can be responsive to changes in demand.
Our maintenance capital expenditures are tightly
governed by and highly responsive to activity levels with
additional cost savings leverage provided through our internal
manufacturing and supply divisions. Term contracts on expansion
capital for new-build and upgrade rig programs provide more
certainty of future revenues and return on our capital
investments.
Liquidity
Amount |
Availability |
Used
for |
Maturity |
Senior facility (secured) |
|
|
|
US$500
million (extendible, revolvingterm credit facility) |
Undrawn,
except US$28 million inoutstanding letters of credit |
General corporate purposes |
November 21, 2022 |
Operating facilities (secured) |
|
|
|
$40 million |
Undrawn,
except $28 million inoutstanding letters of credit |
Letters
of credit and generalcorporate purposes |
|
US$15 million |
Undrawn |
Short
term working capitalrequirements |
|
Demand letter of credit facility (secured) |
|
|
|
US$30 million |
Undrawn,
except US$2 million inoutstanding letters of credit |
Letters of credit |
|
Senior notes (unsecured) |
|
|
|
US$166 million – 6.5% |
Fully drawn |
Capital
expenditures and generalcorporate purposes |
December 15, 2021 |
US$350
million – 7.75% |
Fully
drawn |
Debt
redemption and repurchases |
December
15, 2023 |
US$351 million – 5.25% |
Fully drawn |
Capital
expenditures and generalcorporate purposes |
November 15, 2024 |
US$400
million – 7.125% |
Fully
drawn |
Debt
redemption and repurchases |
January
15, 2026 |
As at December 31, 2018, we had $1,729 million
outstanding under our unsecured senior notes. The current blended
cash interest cost of our debt is approximately 6.7%.
During the year we redeemed US$80 million and
repurchased and cancelled US$3 million of our 6.5% unsecured senior
notes due 2021 and repurchased and cancelled US$49 million
principal amount of our 5.25% unsecured senior notes due 2024.
Covenants
Following is a listing of our applicable
financial covenants as at December 31, 2018.
|
|
|
|
|
|
Covenant |
|
As at December 31, |
|
Senior Facility
(secured) |
|
|
|
|
|
Consolidated senior debt to consolidated covenant EBITDA(1) |
<
2.50 |
|
|
(0.16 |
) |
Consolidated covenant EBITDA to consolidated interest
expense(1) |
>
2.00 |
|
|
3.31 |
|
Senior Notes
(unsecured) |
|
|
|
|
|
Consolidated interest coverage ratio |
> 2.00 |
|
|
2.80 |
|
(1) For purposes of calculating the leverage ratio
consolidated senior debt only includes secured indebtedness. |
At December 31, 2018, we were in compliance with the covenants
of our senior credit facility and unsecured senior notes.
Average shares outstanding
The following table reconciles the weighted
average shares outstanding used in computing basic and diluted net
loss per share:
|
Three months ended December 31, |
Year ended December 31, |
|
(Stated in
thousands) |
2018 |
2017 |
2018 |
2017 |
|
Weighted average shares
outstanding – basic |
293,782 |
293,239 |
293,560 |
293,239 |
|
Effect of
stock options and other equity compensation plans |
— |
— |
— |
— |
|
Weighted
average shares outstanding – diluted |
293,782 |
293,239 |
293,560 |
293,239 |
|
|
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share
amounts) |
2018 |
|
Quarters
ended |
March 31 |
|
June 30 |
|
September 30 |
|
December
31 |
|
Revenue |
401,006 |
|
330,716 |
|
382,457 |
|
427,010 |
|
Adjusted EBITDA(2) |
97,469 |
|
62,182 |
|
80,988 |
|
134,492 |
|
Net loss |
(18,077 |
) |
(47,217 |
) |
(30,648 |
) |
(198,328 |
) |
Net loss per basic and
diluted share |
(0.06 |
) |
(0.16 |
) |
(0.10 |
) |
(0.68 |
) |
Funds provided by
operations(2) |
104,026 |
|
50,225 |
|
64,368 |
|
92,595 |
|
Cash
provided by operations |
38,189 |
|
129,695 |
|
31,961 |
|
93,489 |
|
(Stated in thousands of Canadian dollars, except per share
amounts) |
2017 |
|
Quarters
ended |
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
Revenue(1) |
368,673 |
|
290,860 |
|
314,504 |
|
347,187 |
|
Adjusted EBITDA(2) |
84,308 |
|
56,520 |
|
73,239 |
|
90,914 |
|
Net loss |
(22,614 |
) |
(36,130 |
) |
(26,287 |
) |
(47,005 |
) |
Net loss per basic and
diluted share |
(0.08 |
) |
(0.12 |
) |
(0.09 |
) |
(0.16 |
) |
Funds provided by (used
in) operations(2) |
85,659 |
|
(15,187 |
) |
85,140 |
|
28,323 |
|
Cash
provided by operations |
33,770 |
|
2,739 |
|
56,757 |
|
23,289 |
|
(1)
Comparatives for revenue have changed for the periods ending
March 2017 and June 2017 to reflect a recast of certain amounts
previously netted against operating expense. See our 2017 Annual
Report. |
(2)
See “NON-GAAP MEASURES”. |
|
NON-GAAP MEASURES
In this press release we reference non-GAAP
(Generally Accepted Accounting Principles) measures. Adjusted
EBITDA, Covenant EBITDA, Operating Earnings (Loss), Funds Provided
by (Used in) Operations and Working Capital are terms used by us to
assess performance as we believe they provide useful supplemental
information to investors. These terms do not have standardized
meanings prescribed under International Financial Reporting
Standards (IFRS) and may not be comparable to
similar measures used by other companies.
Adjusted EBITDA
We believe that adjusted EBITDA (earnings before
income taxes, loss or gain on redemption and repurchase of
unsecured senior notes, finance charges, foreign exchange,
impairment of goodwill, impairment of property, plant and equipment
and depreciation and amortization), as reported in the Interim
Consolidated Statement of Loss, is a useful measure, because it
gives an indication of the results from our principal business
activities prior to consideration of how our activities are
financed and the impact of foreign exchange, taxation and
depreciation and amortization charges.
Covenant EBITDA
Covenant EBITDA, as defined in our senior credit
facility agreement, is used in determining the Corporation’s
compliance with its covenants. Covenant EBITDA differs from
Adjusted EBITDA by the exclusion of bad debt expense, restructuring
costs and certain foreign exchange amounts.
Operating Earnings (Loss)
We believe that operating earnings (loss), as
reported in the Interim Consolidated Statements of Loss, is a
useful measure because it provides an indication of the results of
our principal business activities before consideration of how those
activities are financed and the impact of foreign exchange and
taxation.
Funds Provided By (Used In)
Operations
We believe that funds provided by (used in)
operations, as reported in the Interim Consolidated Statements of
Cash Flow, is a useful measure because it provides an indication of
the funds our principal business activities generate prior to
consideration of working capital, which is primarily made up of
highly liquid balances.
Working Capital
We define working capital as current assets less
current liabilities as reported on the Interim Consolidated
Statement of Financial Position.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION AND STATEMENTS
Certain statements contained in this release,
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
historic 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 strategic priorities for 2019;
- our capital expenditure plans for 2019;
- anticipated activity levels in 2019 and our scheduled
infrastructure projects;
- anticipated demand for Tier 1 rigs;
- the average number of term contracts in place for 2019 and
2020; and
- our future debt reduction plans beyond 2018.
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,
2018, 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.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
(Stated in thousands of Canadian dollars) |
December 31,2018 |
|
|
December 31,2017 |
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
$ |
96,626 |
|
|
$ |
65,081 |
|
Accounts
receivable |
|
372,336 |
|
|
|
322,585 |
|
Income
tax recoverable |
|
— |
|
|
|
29,449 |
|
Inventory |
|
34,081 |
|
|
|
24,631 |
|
|
|
503,043 |
|
|
|
441,746 |
|
Assets held for sale |
|
19,658 |
|
|
|
— |
|
Total current
assets |
|
522,701 |
|
|
|
441,746 |
|
Non-current
assets: |
|
|
|
|
|
|
|
Income
taxes recoverable |
|
2,449 |
|
|
|
2,256 |
|
Deferred
tax assets |
|
36,880 |
|
|
|
41,822 |
|
Property,
plant and equipment |
|
3,038,612 |
|
|
|
3,173,824 |
|
Intangibles |
|
35,401 |
|
|
|
28,116 |
|
Goodwill |
|
— |
|
|
|
205,167 |
|
Total
non-current assets |
|
3,113,342 |
|
|
|
3,451,185 |
|
Total
assets |
$ |
3,636,043 |
|
|
$ |
3,892,931 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities |
$ |
274,489 |
|
|
$ |
209,625 |
|
Income tax payable |
|
7,673 |
|
|
|
— |
|
Total current
liabilities |
|
282,162 |
|
|
|
209,625 |
|
|
|
|
|
|
|
|
|
Non-current
liabilities: |
|
|
|
|
|
|
|
Share
based compensation |
|
6,520 |
|
|
|
13,536 |
|
Provisions and other |
|
10,577 |
|
|
|
10,086 |
|
Long-term
debt |
|
1,706,253 |
|
|
|
1,730,437 |
|
Deferred tax liabilities |
|
72,779 |
|
|
|
118,911 |
|
Total non-current
liabilities |
|
1,796,129 |
|
|
|
1,872,970 |
|
Shareholders’
equity: |
|
|
|
|
|
|
|
Shareholders’ capital |
|
2,322,280 |
|
|
|
2,319,293 |
|
Contributed surplus |
|
52,332 |
|
|
|
44,037 |
|
Deficit |
|
(978,874 |
) |
|
|
(684,604 |
) |
Accumulated other comprehensive income |
|
162,014 |
|
|
|
131,610 |
|
Total
shareholders’ equity |
|
1,557,752 |
|
|
|
1,810,336 |
|
Total
liabilities and shareholders’ equity |
$ |
3,636,043 |
|
|
$ |
3,892,931 |
|
|
|
INTERIM CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
427,010 |
|
|
$ |
347,187 |
|
|
$ |
1,541,189 |
|
|
$ |
1,321,224 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
285,222 |
|
|
|
233,824 |
|
|
|
1,067,871 |
|
|
|
926,171 |
|
General
and administrative |
|
21,496 |
|
|
|
22,449 |
|
|
|
112,387 |
|
|
|
90,072 |
|
Other recoveries |
|
(14,200 |
) |
|
|
- |
|
|
|
(14,200 |
) |
|
|
- |
|
Earnings before income
taxes, loss (gain) on redemption and repurchase of unsecured
senior notes, finance charges, foreign exchange, impairment
of goodwill, impairment of property, plant and equipment
and depreciation and amortization |
|
134,492 |
|
|
|
90,914 |
|
|
|
375,131 |
|
|
|
304,981 |
|
Depreciation and
amortization |
|
99,041 |
|
|
|
94,229 |
|
|
|
365,660 |
|
|
|
377,746 |
|
Impairment of property, plant and equipment |
|
- |
|
|
|
15,313 |
|
|
|
- |
|
|
|
15,313 |
|
Operating earnings
(loss) |
|
35,451 |
|
|
|
(18,628 |
) |
|
|
9,471 |
|
|
|
(88,078 |
) |
Impairment of
goodwill |
|
207,544 |
|
|
|
- |
|
|
|
207,544 |
|
|
|
- |
|
Foreign exchange |
|
3,198 |
|
|
|
(1,534 |
) |
|
|
4,017 |
|
|
|
(2,970 |
) |
Finance charges |
|
32,220 |
|
|
|
38,196 |
|
|
|
127,178 |
|
|
|
137,928 |
|
Loss
(gain) on redemption and repurchase of unsecured senior
notes |
|
(6,848 |
) |
|
|
9,021 |
|
|
|
(5,672 |
) |
|
|
9,021 |
|
Loss before tax |
|
(200,663 |
) |
|
|
(64,311 |
) |
|
|
(323,596 |
) |
|
|
(232,057 |
) |
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
2,177 |
|
|
|
(1,670 |
) |
|
|
8,573 |
|
|
|
(1,331 |
) |
Deferred |
|
(4,512 |
) |
|
|
(15,636 |
) |
|
|
(37,899 |
) |
|
|
(98,690 |
) |
|
|
(2,335 |
) |
|
|
(17,306 |
) |
|
|
(29,326 |
) |
|
|
(100,021 |
) |
Net
loss |
$ |
(198,328 |
) |
|
$ |
(47,005 |
) |
|
$ |
(294,270 |
) |
|
|
(132,036 |
) |
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
$ |
(0.68 |
) |
|
$ |
(0.16 |
) |
|
$ |
(1.00 |
) |
|
$ |
(0.45 |
) |
|
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars) |
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
Net loss |
$ |
(198,328 |
) |
|
$ |
(47,005 |
) |
|
$ |
(294,270 |
) |
|
$ |
(132,036 |
) |
Unrealized gain (loss) on translation of assets and
liabilities of operations denominated in foreign
currency |
|
128,674 |
|
|
|
9,146 |
|
|
|
175,630 |
|
|
|
(146,545 |
) |
Foreign exchange gain (loss) on net investment hedge
with U.S. denominated debt, net of tax |
|
(104,716 |
) |
|
|
(10,383 |
) |
|
|
(145,226 |
) |
|
|
121,699 |
|
Comprehensive loss |
$ |
(174,370 |
) |
|
$ |
(48,242 |
) |
|
$ |
(263,866 |
) |
|
$ |
(156,882 |
) |
|
|
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars) |
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
Cash provided by (used
in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
$ |
(198,328 |
) |
|
$ |
(47,005 |
) |
|
$ |
(294,270 |
) |
|
$ |
(132,036 |
) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
compensation plans |
|
(1,599 |
) |
|
|
2,519 |
|
|
|
17,401 |
|
|
|
6,795 |
|
Depreciation and amortization |
|
99,041 |
|
|
|
94,229 |
|
|
|
365,660 |
|
|
|
377,746 |
|
Impairment of property, plant and equipment |
|
— |
|
|
|
15,313 |
|
|
|
— |
|
|
|
15,313 |
|
Impairment of goodwill |
|
207,544 |
|
|
|
— |
|
|
|
207,544 |
|
|
|
— |
|
Foreign
exchange |
|
2,556 |
|
|
|
(1,280 |
) |
|
|
2,341 |
|
|
|
(2,873 |
) |
Finance
charges |
|
32,220 |
|
|
|
38,196 |
|
|
|
127,178 |
|
|
|
137,928 |
|
Loss
(gain) on redemption and repurchase of unsecured
senior notes |
|
(6,848 |
) |
|
|
9,021 |
|
|
|
(5,672 |
) |
|
|
9,021 |
|
Income
taxes |
|
(2,335 |
) |
|
|
(17,306 |
) |
|
|
(29,326 |
) |
|
|
(100,021 |
) |
Other |
|
(27 |
) |
|
|
(1,320 |
) |
|
|
(1,269 |
) |
|
|
(2,025 |
) |
Income
taxes paid |
|
(477 |
) |
|
|
(345 |
) |
|
|
(4,446 |
) |
|
|
(3,645 |
) |
Income
taxes recovered |
|
1,775 |
|
|
|
— |
|
|
|
33,283 |
|
|
|
11,932 |
|
Interest
paid |
|
(41,369 |
) |
|
|
(63,929 |
) |
|
|
(108,622 |
) |
|
|
(136,065 |
) |
Interest received |
|
442 |
|
|
|
230 |
|
|
|
1,412 |
|
|
|
1,865 |
|
Funds provided by
operations |
|
92,595 |
|
|
|
28,323 |
|
|
|
311,214 |
|
|
|
183,935 |
|
Changes
in non-cash working capital balances |
|
894 |
|
|
|
(5,034 |
) |
|
|
(17,880 |
) |
|
|
(67,380 |
) |
Cash provided by
operations |
|
93,489 |
|
|
|
23,289 |
|
|
|
293,334 |
|
|
|
116,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment |
|
(29,594 |
) |
|
|
(17,503 |
) |
|
|
(114,576 |
) |
|
|
(74,823 |
) |
Purchase
of intangibles |
|
(687 |
) |
|
|
(7,452 |
) |
|
|
(11,567 |
) |
|
|
(23,179 |
) |
Proceeds
on sale of property, plant and equipment |
|
12,020 |
|
|
|
4,787 |
|
|
|
24,457 |
|
|
|
14,841 |
|
Changes
in non-cash working capital balances |
|
(1,190 |
) |
|
|
2,727 |
|
|
|
892 |
|
|
|
(7,989 |
) |
Cash used in investing
activities |
|
(19,451 |
) |
|
|
(17,441 |
) |
|
|
(100,794 |
) |
|
|
(91,150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption and repurchase of unsecured senior notes |
|
(92,065 |
) |
|
|
(571,975 |
) |
|
|
(168,722 |
) |
|
|
(571,975 |
) |
Debt
issuance costs |
|
— |
|
|
|
(9,196 |
) |
|
|
— |
|
|
|
(9,196 |
) |
Debt
amendment fees |
|
(638 |
) |
|
|
(1,452 |
) |
|
|
(638 |
) |
|
|
(1,793 |
) |
Proceeds
from issuance of long-term debt |
|
— |
|
|
|
509,180 |
|
|
|
— |
|
|
|
509,180 |
|
Issuance of common shares on the exercise of options |
|
— |
|
|
|
— |
|
|
|
275 |
|
|
|
— |
|
Cash used
in financing activities |
|
(92,703 |
) |
|
|
(73,443 |
) |
|
|
(169,085 |
) |
|
|
(73,784 |
) |
Effect of
exchange rate changes on cash and cash equivalents |
|
5,529 |
|
|
|
934 |
|
|
|
8,090 |
|
|
|
(2,245 |
) |
Increase (decrease) in
cash and cash equivalents |
|
(13,136 |
) |
|
|
(66,661 |
) |
|
|
31,545 |
|
|
|
(50,624 |
) |
Cash and
cash equivalents, beginning of period |
|
109,762 |
|
|
|
131,742 |
|
|
|
65,081 |
|
|
|
115,705 |
|
Cash and
cash equivalents, end of period |
$ |
96,626 |
|
|
$ |
65,081 |
|
|
$ |
96,626 |
|
|
$ |
65,081 |
|
|
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
(Stated
in thousands of Canadian dollars) |
Shareholders’capital |
|
|
Contributedsurplus |
|
|
Accumulatedothercomprehensiveincome |
|
|
Deficit |
|
|
Totalequity |
|
Balance at January 1,
2018 |
$ |
2,319,293 |
|
|
$ |
44,037 |
|
|
$ |
131,610 |
|
|
$ |
(684,604 |
) |
|
$ |
1,810,336 |
|
Net loss for the
period |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(294,270 |
) |
|
|
(294,270 |
) |
Other comprehensive
income for the period |
|
— |
|
|
|
— |
|
|
|
30,404 |
|
|
|
— |
|
|
|
30,404 |
|
Redemption of
non-management directors DSUs |
|
2,609 |
|
|
|
(809 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,800 |
|
Share options
exercised |
|
378 |
|
|
|
(103 |
) |
|
|
— |
|
|
|
— |
|
|
|
275 |
|
Share
based compensation expense |
|
— |
|
|
|
9,207 |
|
|
|
— |
|
|
|
— |
|
|
|
9,207 |
|
Balance at December 31, 2018 |
$ |
2,322,280 |
|
|
$ |
52,332 |
|
|
$ |
162,014 |
|
|
$ |
(978,874 |
) |
|
$ |
1,557,752 |
|
|
(Stated
in thousands of Canadian dollars) |
Shareholders’capital |
|
|
Contributedsurplus |
|
|
Accumulatedothercomprehensiveincome |
|
|
Deficit |
|
|
Totalequity |
|
Balance at January 1,
2017 |
$ |
2,319,293 |
|
|
$ |
38,937 |
|
|
$ |
156,456 |
|
|
$ |
(552,568 |
) |
|
$ |
1,962,118 |
|
Net loss for the
period |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(132,036 |
) |
|
|
(132,036 |
) |
Other comprehensive
loss for the period |
|
— |
|
|
|
— |
|
|
|
(24,846 |
) |
|
|
— |
|
|
|
(24,846 |
) |
Share
based compensation expense |
|
— |
|
|
|
5,100 |
|
|
|
— |
|
|
|
— |
|
|
|
5,100 |
|
Balance
at December 31, 2017 |
$ |
2,319,293 |
|
|
$ |
44,037 |
|
|
$ |
131,610 |
|
|
$ |
(684,604 |
) |
|
$ |
1,810,336 |
|
|
|
FOURTH QUARTER 2018 EARNINGS CONFERENCE CALL AND
WEBCAST
Precision Drilling Corporation has scheduled a conference call
and webcast to begin promptly at 1:00 p.m. MT (3:00 p.m. ET) on
Thursday, February 14, 2019.
The conference call dial in numbers are
1-844-515-9176 or 614-999-9312.
A live webcast of the conference call will be
accessible on Precision’s website at www.precisiondrilling.com by
selecting “Investor Relations”, then “Webcasts &
Presentations”. Shortly after the live webcast, an archived version
will be available for approximately 60 days.
An archived recording of the conference call
will be available approximately one hour after the completion of
the call until February 20, 2019 by dialing 1-855-859-2056 or
404-537-3406, pass code 4578429.
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, Senior Vice President and Chief
Financial Officer713.435.6111
Ashley Connolly, Manager, Investor
Relations403.716.4725
800, 525 - 8th Avenue S.W.Calgary, Alberta,
Canada T2P 1G1Website: www.precisiondrilling.com
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