(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 2019 first quarter financial
results:
- Revenue of $434 million was an
increase of 8% compared with the first quarter of 2018.
- Net earnings of $25 million or
$0.08 per diluted share compares to a net loss of $18 million or
negative $0.06 per diluted share in the first quarter of 2018.
Excluding the $24 million after-tax impact of the Mexico asset
disposal and restructuring charges, net earnings for the first
quarter of 2019 were $1 million or $0.00 per diluted share.
- Earnings before income taxes, gain
on repurchase of unsecured senior notes, finance charges, foreign
exchange, impairment reversal, gain on assets disposals and
depreciation and amortization (Adjusted EBITDA see “NON-GAAP
MEASURES”) of $108 million was 11% higher than the first quarter of
2018.
- Funds provided by operations (see
“NON-GAAP MEASURES”) was $96 million versus $104 million in the
prior year quarter.
- First quarter ending cash balance
was $101 million, up $4 million from December 31, 2018.
- First quarter capital expenditures
were $71 million.
- Repurchased and cancelled US$10
million of our 7.125% notes due 2026 and US$3 million of our 5.25%
notes due 2024 and initiated the redemption of US$30 million
principal amount of our 6.50% senior notes due 2021 with the
redemption payment occurring on April 16, 2019. Subsequent to the
first quarter, we initiated the redemption of US$20 million
principal amount of our 6.50% senior notes due 2021. The redemption
payment will be made on May 20, 2019 and will bring our year to
date 2019 debt retirement to approximately $84 million.
- Sold Mexico-based drilling assets
for proceeds of US$48 million resulting in a gain on sale of US$24
million and US$4 million impairment reversal.
- Sold our water treatment
business.
- Subsequent to the first quarter,
entered into a purchase and sale agreement to dispose of certain
snubbing equipment for proceeds of $8 million. The transaction
closed on April 16, 2019.
Precision’s President and CEO Kevin Neveu
stated: “During the quarter, Precision delivered significant
progress on our 2019 strategic priorities with announced debt
repayments, strong financial results and technology
commercialization progress. Revenue and Adjusted EBITDA increased
year-over-year by 8% and 11%, respectively and we ended the quarter
with an undrawn revolver and over $100 million of cash. We continue
to deliver significant free cash flow across all geographies and
reporting segments.”
“We recently divested several non-core assets
and business lines as we continue to narrow strategic focus towards
our High Performance, High Value land drilling segment. Announced
asset sales proceeds totaled $77 million and will be used to fund
our capex plan, allowing us to utilize cash on hand and funds from
operations to accelerate our debt repayment initiatives with
negligible EBITDA impact. By the end of May, Precision will have
reduced debt levels by approximately $84 million including US$50
million of announced 2021 notes redemptions and completed open
market repurchases of US$13 million of later maturity debt. We are
confident in our ability to meet or exceed the high end of our
targeted annual debt reduction range of $100 million to $150
million and our longer-term range of $400 million to $600 million
by the end of 2021.”
“In the U.S., our activity for the quarter
increased 23% from the prior year, compared with 8% for the
industry with our outperformance continuing into the second
quarter. Our current active rig count of 80 rigs has remained
steady from the end of 2018, despite slightly declining industry
activity levels, and reflects the success of our Super Series fleet
investments and High Performance, High Value competitive strategy.
Demand for our Super Series rigs continues to be strong as we are
operating at record market share levels and have signed 16 term
contracts during the first quarter, with 18 signed year to date. We
will be completing a full SCR to AC ST-1500 upgrade to be delivered
early in the third quarter, representing our sixth AC ST-1500
walking rig added to our U.S. fleet over the last twelve months,
following three new-builds and two relocations from Canada.”
“In the Canadian market, takeaway capacity
constraints and wide differentials experienced by our customers in
the fourth quarter resulted in Precision’s activity declining 33%
year-over-year, a trend that will likely carry through into the
second quarter. In the first quarter of 2019, despite persistent
market headwinds, our Canadian contract drilling, well service,
equipment rentals and camps and catering businesses all generated
strong free cash flow. Contract drilling generated higher
year-over-year normalized margins and our Completion and Production
Services segment reported a 126% increase in EBITDA. Although crude
prices have improved, customers remain vague regarding drilling
plans in the second half of 2019. Precision will remain focused on
factors we can control by leveraging our scale, unmatched rig fleet
quality and performance, and relentless focus on costs to generate
continued strong free cash flow in Canada.”
“In the Middle East, we are pleased with our
expanding presence and strengthened contract book. We recently
announced three-year contract renewals for two of our rigs in the
Kingdom of Saudi Arabia, with our third active rig contracted into
2022. In Kuwait, Precision signed one-year extensions on two rigs
that were set to expire mid-year and remains on track to deliver
our sixth new-build rig in July, which provides incremental cash
flow and leverages our scale in country. Once delivered, we will
have nine rigs operating on long-term contracts in the Middle East
and are starting to see reactivation opportunities for idle rigs in
the region.”
“Precision’s technology strategy displayed
significant progress throughout the first quarter, led by increased
utilization of our 31 Process Automated Control (PAC) systems
currently active in the field. In the first quarter, we drilled
approximately 200 wells utilizing PAC, an increase of 46% from the
prior year. We continue to demonstrate to our customers our
system’s ability to deliver consistent and repeatable, high-quality
results while improving safety, performance and operational
efficiency. Additionally, we are in the final stages to
commercialize several apps, which include stick-slip mitigation,
bit preservation and drilling harmonics. As an industry leader
integrating automation technologies with drilling equipment, we
continue to promote our digital culture and PD Analytics with our
people, processes and systems to deliver value to our customers and
realize our 2019 full-scale commercialization targets,” concluded
Mr. Neveu.
IMPACT OF IFRS 16 - LEASES ON FINANCIAL
INFORMATION
On January 1, 2019, Precision applied IFRS 16
using the modified retrospective approach under which comparative
information has not been restated and continues to be reported
under IAS 17 and related interpretations. Please refer to “CHANGES
IN ACCOUNTING POLICY” for additional information on the impact to
our financial information.
SELECT FINANCIAL AND OPERATING
INFORMATION
Financial Highlights
|
Three months ended March 31, |
|
(Stated in
thousands of Canadian dollars, except per share amounts) |
2019 |
|
2018 |
|
% Change |
|
Revenue |
434,043 |
|
401,006 |
|
8.2 |
|
Adjusted EBITDA(1) |
107,967 |
|
97,469 |
|
10.8 |
|
Operating
earnings(1) |
62,074 |
|
10,161 |
|
510.9 |
|
Net earnings
(loss) |
25,014 |
|
(18,077 |
) |
(238.4 |
) |
Cash provided by
operations |
40,587 |
|
38,189 |
|
6.3 |
|
Funds provided by
operations(1) |
95,993 |
|
104,026 |
|
(7.7 |
) |
Capital spending: |
|
|
|
|
|
|
Expansion |
62,443 |
|
685 |
|
9,015.8 |
|
Upgrade |
3,674 |
|
11,363 |
|
(67.7 |
) |
Maintenance and infrastructure |
4,845 |
|
10,243 |
|
(52.7 |
) |
Intangibles |
438 |
|
7,791 |
|
(94.4 |
) |
Proceeds on sale |
(57,877 |
) |
(6,050 |
) |
856.6 |
|
Net capital
spending |
13,523 |
|
24,032 |
|
(43.7 |
) |
Net earnings (loss) per
share: |
|
|
|
|
|
|
Basic |
0.09 |
|
(0.06 |
) |
(250.0 |
) |
Diluted |
0.08 |
|
(0.06 |
) |
(233.3 |
) |
(1) See “NON-GAAP MEASURES”. |
Operating Highlights
|
Three months ended March 31, |
|
|
2019 |
|
2018 |
|
% Change |
|
Contract drilling rig
fleet |
232 |
|
256 |
|
(9.4 |
) |
Drilling rig
utilization days: |
|
|
|
|
|
|
U.S. |
7,123 |
|
5,795 |
|
22.9 |
|
Canada |
4,344 |
|
6,468 |
|
(32.8 |
) |
International |
720 |
|
720 |
|
- |
|
Revenue per utilization
day: |
|
|
|
|
|
|
U.S.(1)
(US$) |
23,202 |
|
20,603 |
|
12.6 |
|
Canada(2)
(Cdn$) |
22,977 |
|
22,209 |
|
3.5 |
|
International (US$) |
49,940 |
|
50,038 |
|
(0.2 |
) |
Operating cost per
utilization day: |
|
|
|
|
|
|
U.S.
(US$) |
14,368 |
|
14,026 |
|
2.4 |
|
Canada
(Cdn$) |
14,455 |
|
13,331 |
|
8.4 |
|
Service rig
fleet(3) |
135 |
|
210 |
|
(35.7 |
) |
Service rig operating
hours |
42,898 |
|
52,701 |
|
(18.6 |
) |
Revenue
per operating hour (Cdn$) |
758 |
|
700 |
|
8.3 |
|
(1) 2019 period includes
revenue from idle but contracted rig days. |
(2) Includes lump sum
revenue from contract shortfall payments. |
(3) In the first quarter,
75 rigs were not registered with the industry association and
therefore not included in the marketed service rig fleet count. On
April 15, 2019, we completed the sale of 12 snubbing units, the
fleet count has not been adjusted for this sale. |
Financial Position
(Stated in
thousands of Canadian dollars, except ratios) |
March 31,
2019 |
|
December 31, 2018 |
|
Working capital(1) |
290,260 |
|
240,539 |
|
Cash |
101,030 |
|
96,626 |
|
Long-term debt |
1,651,352 |
|
1,706,253 |
|
Total long-term
financial liabilities |
1,727,053 |
|
1,723,350 |
|
Total assets |
3,631,728 |
|
3,636,043 |
|
Long-term
debt to long-term debt plus equity ratio |
0.51 |
|
0.52 |
|
(1) See “NON-GAAP
MEASURES”. |
Summary for the three months ended March 31,
2019:
- Revenue this quarter was $434
million which is 8% higher than the first quarter of 2018. The
increase in revenue is primarily the result of higher activity and
average day rates in our U.S. contract drilling business, offset by
lower Canadian drilling activity. Compared with the first quarter
of 2018, our activity for the quarter, as measured by drilling rig
utilization days increased by 23% in the U.S. while Canada
decreased by 33% and international activity remained consistent.
Revenue from our Contract Drilling Services and Completion and
Production Services segments increased 8% and 12%,
respectively.
- Adjusted EBITDA (see “NON-GAAP
MEASURES”) for the quarter was $108 million, an increase of $10
million from the previous year. Our Adjusted EBITDA as a percentage
of revenue was 25% this quarter, compared with 24% in the
comparative quarter of 2018. Adjusted EBITDA this quarter was
positively impacted by higher activity and day rates in the U.S.,
changes to the recognition of lease-related expenses under IFRS 16
and lower share-based incentive compensation expense offset by
lower Canadian drilling activity and restructuring costs of $6
million relating to severance costs as we continued to align our
cost structure to reflect reduced Canadian activity levels. With
the adoption of IFRS 16, lease-related charges of $3 million in the
first quarter of 2019 were recognized through finance charges and
depreciation and amortization expense. Historically, these charges
were reflected in operating and general and administrative expense.
Total share-based incentive compensation expense for the quarter
was $9 million compared with $10 million in the first quarter of
2018. See discussion on share-based incentive compensation under
“Other Items” later in this release for additional details.
- Operating earnings (see “NON-GAAP
MEASURES”) this quarter were $62 million compared with $10 million
in the first quarter of 2018. Operating earnings this quarter were
positively impacted by the gain on asset disposals and impairment
reversal from the disposition of our Mexico drilling equipment and
changes to the recognition of lease-related expenses under IFRS 16
partially offset by restructuring costs. See discussion on asset
disposals under “Other Items” later in this release for additional
details.
- General and administrative expenses
this quarter were $31 million, $2 million higher than in 2018. The
higher general and administrative costs in 2019 were due to the
weakening of the Canadian dollar on our U.S. dollar denominated
costs.
- Net finance charges were $31
million, a decrease of $1 million compared with the first quarter
of 2018, primarily due to a reduction in interest expense related
to the debt retired in 2018 and 2019, offset by the impact of the
weakening of the Canadian dollar on our U.S. dollar denominated
interest and $1 million of lease accretion charges resulting from
the adoption of IFRS 16 on January 1, 2019.
- Revenue per utilization day in the
U.S. increased in the first quarter of 2019 to US$23,202 from
US$20,603 in the prior year quarter. The increase in the U.S.
revenue rate was the result of higher day rates and third-party
cost recoveries, partially offset by lower turnkey revenue. During
the quarter, we had turnkey revenue of US$0.2 million compared with
US$7 million in the 2018 comparative period and revenue from idle
but contracted rigs of US$0.6 million compared with nil in the
prior year comparative period. On a sequential basis, revenue per
utilization day excluding revenue from turnkey and idle but
contracted rigs increased by US$1,266 due to higher fleet average
day rates and higher third-party cost recoveries. In Canada,
average revenue per utilization day for contract drilling rigs was
$22,977 in the first quarter compared with $22,209 in the first
quarter of 2018. Average revenue per utilization day increased in
2019 primarily because of higher day rates and rig mix, as we had
proportionately more Super Triples working, partially offset by
fewer shortfall payments received. During the quarter, we
recognized $3 million of shortfall payments in revenue compared
with $10 million in the prior year comparative period. Excluding
the impact of shortfall payment revenue, average day rates in
Canada were up $1,589.
- In the U.S., operating costs on a
per day basis increased to US$14,368 in the first quarter of 2019
compared with US$14,026 in 2018. The increase was primarily due to
higher third-party charges and repair and maintenance costs offset
by lower costs from turnkey activity. On a sequential basis,
operating costs per day decreased by $756 compared with the fourth
quarter of 2018 due to lower turnkey activity in the current
period. Average operating costs per utilization day for drilling
rigs in Canada increased to $14,455 compared with the prior year
quarter of $13,331. The increase in average costs was due to higher
labour expenses due to larger crew formations, rig mix, as we had
proportionately more Super Triples working and overhead costs
spread over a lower number of drilling rig utilization days,
partially offset by lower maintenance cost due to timing of
certifications. On a sequential basis, operating costs per day
decreased by $660 due to lower use of large crew configurations
compared with the fourth quarter of 2018.
- We realized revenue from
international contract drilling of US$36 million in the first
quarter of 2019, in-line with the prior year period. Average
revenue per utilization day in our international contract drilling
business was US$49,940 consistent with the comparable prior year
quarter. During the quarter, we signed three-year contract renewals
for two rigs in Saudi Arabia, one-year extensions for two Kuwait
rigs and sold our Mexico-based drilling assets for proceeds of
US$48 million resulting in a gain on sale of US$24 million and a
US$4 million impairment reversal.
- Directional drilling services
realized revenue of $10 million in the first quarter of 2019
compared with $9 million in the prior year period.
- Funds provided by operations (see
“NON-GAAP MEASURES”) in the first quarter of 2019 were $96 million,
a decrease of $8 million from the prior year comparative quarter of
$104 million. The decrease was primarily the result of the timing
of $20 million of cash interest payments as we did not have a first
quarter interest payment on our senior notes due 2026 in 2018,
partially offset by improved operating results.
- Capital expenditures were $71
million in the first quarter, an increase of $41 million over the
same period in 2018. Capital spending for the quarter included
$66 million for upgrade and expansion capital, primarily related to
our sixth new-build rig for Kuwait and a U.S. new-build rig under
long-term contract, and $5 million for the maintenance of existing
assets, infrastructure spending and intangibles.
STRATEGY
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 – In the first quarter of 2019, we generated $96
million of funds provided by operations (see “NON-GAAP MEASURES”)
and $58 million of cash proceeds from the divestiture of non-core
assets, with a further $19 million of cash proceeds expected to be
received in the second quarter. Utilizing our cash on hand and free
cash flow generated in 2019, we reduced our debt balance by US$13
million through open market repurchases of a portion of our 2024
and 2026 unsecured senior notes and on April 16, 2019 redeemed
US$30 million principal amount of our 2021 senior notes. As of
April 24, our total 2019 debt reduction totaled US$43 million.
Subsequent to the first quarter, we initiated the redemption of
US$20 million principal amount of our 6.50% senior notes due 2021.
The redemption payment will be made on May 20, 2019.
- Maximize financial results
by leveraging our High Performance, High Value Super Series rig
fleet and scale with disciplined cost management – In
2019, Precision continued to generate strong financial results,
largely lead by our U.S. contract drilling business. We are
currently operating at record market share levels in this region,
as first quarter utilization days were up 23% and operating margins
(revenue less operating costs) were up $2,257 per day compared with
the prior year. In Canada, our unmatched fleet quality and flexible
business model led to an increase in operating margins (excluding
shortfall payments) of $465 per day compared with the prior year.
Our continued business improvement initiatives contributed to $6
million in Adjusted EBITDA growth for our Completion and Production
segment from the prior year. In the first quarter of 2019, we
continued to invest in our High-Performance, High-Value Super
Series rig fleet with the building of our sixth Kuwait rig, which
is expected to commence drilling in the third quarter of 2019 and
generate operational economies of scale and strengthen our
operating margins in the region. Additionally, we will begin
converting one of our U.S. SCR triple rigs to a full AC ST-1500 in
2019.
- Full scale
commercialization and implementation of our Process Automation
Control platform, PD-Apps and PD-Analytics – we currently
have 31 rigs equipped with our Process Automation Control platform
(PAC). Using PAC technology, we drilled approximately 200 wells in
the first quarter of 2019, an increase of 46% over the first
quarter of 2018. We currently have over 15 PD-Apps in various
stages of development as Precision’s portfolio of technological
offerings continues to expand, supporting our full-scale
commercialization goals by the end of 2019.
OUTLOOK
For the first quarter of 2019, the average West
Texas Intermediate price of oil was 13% lower than the prior year
comparative period, while Western Canadian Select was 10% higher.
The average Henry Hub gas price was in-line and the average AECO
price was 26% higher.
|
Three months ended March 31, |
|
Year ended December 31, |
|
|
2019 |
|
2018 |
|
2018 |
|
Average oil and
natural gas prices |
|
|
|
|
|
|
Oil |
|
|
|
|
|
|
West
Texas Intermediate (per barrel) (US$) |
54.85 |
|
62.95 |
|
64.88 |
|
Western
Canadian Select (per barrel) (US$) |
42.62 |
|
38.59 |
|
38.46 |
|
Natural
gas |
|
|
|
|
|
|
United
States |
|
|
|
|
|
|
Henry Hub
(per MMBtu) (US$) |
2.92 |
|
2.86 |
|
3.12 |
|
Canada |
|
|
|
|
|
|
AECO (per MMBtu) (CDN$) |
2.59 |
|
2.05 |
|
1.49 |
|
Contracts
Year to date in 2019 we have entered into 18
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 April 24, 2019. For those quarters ended after March 31,
2019, this chart represents the minimum number of long-term
contracts where we will be earning revenue. We expect the actual
number of contracted rigs to be higher in future periods as we
continue to sign contracts.
|
|
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 April 24, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
36 |
|
|
|
48 |
|
|
|
50 |
|
|
|
51 |
|
|
|
56 |
|
|
|
50 |
|
|
|
38 |
|
|
|
26 |
|
Canada |
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
11 |
|
|
|
8 |
|
|
|
6 |
|
|
|
6 |
|
|
|
5 |
|
International |
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
Total |
|
|
52 |
|
|
|
65 |
|
|
|
67 |
|
|
|
70 |
|
|
|
72 |
|
|
|
64 |
|
|
|
53 |
|
|
|
40 |
|
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 as of April 24,
2019.
|
|
Average for the year ended |
|
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
Average rigs under term
contract as of April 24, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
46 |
|
|
|
42 |
|
|
|
11 |
|
Canada |
|
|
9 |
|
|
|
6 |
|
|
|
2 |
|
International |
|
|
8 |
|
|
|
9 |
|
|
|
7 |
|
Total |
|
|
63 |
|
|
|
57 |
|
|
|
20 |
|
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 2018 |
|
2019 |
|
|
Mar. 31 |
|
June 30 |
|
Sept. 30 |
|
Dec. 31 |
|
Mar. 31 |
|
Average Precision
active rig count: |
|
|
|
|
|
|
|
|
|
|
U.S. |
64 |
|
72 |
|
76 |
|
80 |
|
79 |
|
Canada |
72 |
|
31 |
|
52 |
|
49 |
|
48 |
|
International |
8 |
|
8 |
|
8 |
|
8 |
|
8 |
|
Total |
144 |
|
111 |
|
136 |
|
137 |
|
135 |
|
For the first three months of 2019, drilling
activity has increased relative to this time last year in the U.S.
and has decreased in Canada. According to industry sources, as of
April 19, 2019, the U.S. active land drilling rig count was
consistent with the same point last year and the Canadian active
land drilling rig count was down approximately 29%. To date in
2019, approximately 81% of the U.S. industry’s active rigs and 59%
of the Canadian industry’s active rigs were drilling for oil
targets, compared with 81% for the U.S. and 64% for Canada 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 $54 million for sustaining, infrastructure and
intangibles and $115 million for upgrade and expansion. 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 March 31, |
|
(Stated in
thousands of Canadian dollars) |
2019 |
|
2018 |
|
% Change |
|
Revenue: |
|
|
|
|
|
|
Contract
Drilling Services |
379,264 |
|
352,802 |
|
7.5 |
|
Completion and Production Services |
55,819 |
|
50,042 |
|
11.5 |
|
Inter-segment eliminations |
(1,040 |
) |
(1,838 |
) |
(43.4 |
) |
|
434,043 |
|
401,006 |
|
8.2 |
|
Adjusted
EBITDA:(1) |
|
|
|
|
|
|
Contract
Drilling Services |
118,455 |
|
110,966 |
|
6.7 |
|
Completion and Production Services |
10,518 |
|
4,644 |
|
126.5 |
|
Corporate and Other |
(21,006 |
) |
(18,141 |
) |
15.8 |
|
|
107,967 |
|
97,469 |
|
10.8 |
|
(1)
See “NON-GAAP MEASURES”. |
SEGMENT REVIEW OF CONTRACT DRILLING
SERVICES
|
Three months ended March 31, |
|
(Stated in
thousands of Canadian dollars, except where noted) |
2019 |
|
2018 |
|
% Change |
|
Revenue |
379,264 |
|
352,802 |
|
7.5 |
|
Expenses: |
|
|
|
|
|
|
Operating |
246,515 |
|
233,148 |
|
5.7 |
|
General and
administrative |
11,248 |
|
8,688 |
|
29.5 |
|
Restructuring |
3,046 |
|
- |
|
n/m |
|
Adjusted EBITDA(1) |
118,455 |
|
110,966 |
|
6.7 |
|
Depreciation |
77,999 |
|
79,738 |
|
(2.2 |
) |
Gain on asset
disposals |
(35,001 |
) |
(2,038 |
) |
1,617.4 |
|
Impairment reversal |
(5,810 |
) |
- |
|
n/m |
|
Operating
earnings(1) |
81,267 |
|
33,266 |
|
144.3 |
|
Operating
earnings(1) as a percentage of revenue |
21.4 |
% |
9.4 |
% |
|
|
(1)
See “NON-GAAP MEASURES”. |
n/m
Calculation not meaningful. |
United
States onshore drilling statistics:(1) |
2019 |
|
2018 |
|
|
Precision |
|
Industry(2) |
|
Precision |
|
Industry(2) |
|
Average number of
active land rigs for quarters ended: |
|
|
|
|
|
|
|
|
March 31 |
79 |
|
1,023 |
|
64 |
|
951 |
|
(1)
United States lower 48 operations only. |
(2)
Baker Hughes rig counts. |
|
Three months ended March 31, |
|
Canadian
onshore drilling statistics:(1) |
2019 |
|
2018 |
|
|
Precision |
|
Industry(2) |
|
Precision |
|
Industry(2) |
|
Number of
drilling rigs (end of period) |
116 |
|
549 |
|
136 |
|
620 |
|
Drilling
rig operating days (spud to release) |
3,780 |
|
15,314 |
|
5,654 |
|
22,845 |
|
Drilling
rig operating day utilization |
36 |
% |
29 |
% |
47 |
% |
41 |
% |
Number of
wells drilled |
364 |
|
1,476 |
|
515 |
|
2,203 |
|
Average
days per well |
10.4 |
|
10.4 |
|
11.0 |
|
10.4 |
|
Number of
metres drilled (000s) |
1,051 |
|
4,391 |
|
1,498 |
|
6,365 |
|
Average
metres per well |
2,887 |
|
2,975 |
|
2,908 |
|
2,889 |
|
Average metres per day |
278 |
|
287 |
|
265 |
|
279 |
|
(1)
Canadian operations only. |
(2)
Canadian Association of Oilwell Drilling Contractors
(“CAODC”), and Precision – excludes non-CAODC rigs and
non-reporting CAODC members. |
Revenue from Contract Drilling Services was $379
million this quarter, or 8% higher than the first quarter of 2018,
while Adjusted EBITDA (see “NON-GAAP MEASURES”) increased by 7% to
$118 million. The increase in revenue was primarily due to higher
utilization days as well as higher U.S. day rates, partially offset
by lower Canadian activity. In the U.S., during the first quarter
of 2019, we recognized US$0.2 million of turnkey and US$0.6 million
of idle but contracted revenue as compared with US$7 million and
nil, respectively, in the first quarter of 2018. During the
quarter, we recognized $3 million of shortfall payment revenue in
Canada compared with $10 million in the prior year comparative
period.
Drilling rig utilization days (drilling days
plus move days) in the U.S. were 7,123, or 23% higher than the same
quarter of 2018 as our U.S. activity was up with higher industry
activity. Drilling rig utilization days in Canada were 4,344 during
the first quarter of 2019, a decrease of 33% compared with 2018
primarily due to lower industry activity. Drilling rig utilization
days in our international business were 720, in-line with the same
quarter of 2018.
Drilling rig revenue per utilization day for the
quarter in the U.S. was up 13% compared with the prior year as we
realized higher day rates and third-party cost recoveries,
partially offset by lower turnkey revenue. Compared with the same
quarter in 2018, drilling rig revenue per utilization day in Canada
increased 3% primarily due to higher spot market day rates
partially offset by fewer shortfall payments received.
International revenue per utilization day was in-line with the
prior year comparative period.
In the U.S., 69% of utilization days were
generated from rigs under term contract as compared with 58% in the
first quarter of 2018. In Canada, 13% of our utilization days in
the quarter were generated from rigs under term contract, compared
with 8% in the first quarter of 2018.
Operating costs were 65% of revenue for the
quarter, one percentage point lower than the prior year period. In
the U.S., operating costs for the quarter on a per day basis were
higher than the prior year period primarily due to higher
third-party charges and repair and maintenance costs offset by
lower costs from turnkey activity. On a per utilization day basis,
operating costs for the drilling rig division in Canada were
greater than the 2018 period as we had higher labour expenses due
to larger crew formations, rig mix and overhead costs spread over a
lower number of drilling rig utilization days, partially offset by
lower maintenance cost due to timing of certifications.
Depreciation expense in the quarter was 2% lower
than the first quarter of 2018 because of asset sales and assets
becoming fully depreciated.
In the first quarter of 2019, Precision sold its
Mexico-based drilling rigs and related equipment for proceeds of
US$48 million resulting in a gain on asset disposal of US$24
million and US$4 million impairment reversal.
SEGMENT REVIEW OF COMPLETION AND
PRODUCTION SERVICES
|
Three months ended March 31, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2019 |
|
2018 |
|
% Change |
|
Revenue |
|
55,819 |
|
50,042 |
|
11.5 |
|
Expenses: |
|
|
|
|
|
|
|
Operating |
|
43,133 |
|
43,264 |
|
(0.3 |
) |
General
and administrative |
|
1,711 |
|
2,134 |
|
(19.8 |
) |
Restructuring |
|
457 |
|
- |
|
n/m |
|
Adjusted EBITDA(1) |
|
10,518 |
|
4,644 |
|
126.5 |
|
Depreciation |
|
4,949 |
|
5,964 |
|
(17.0 |
) |
Gain on
asset disposals |
|
(56 |
) |
911 |
|
(106.1 |
) |
Operating earnings (loss)(1) |
|
5,625 |
|
(2,231 |
) |
(352.1 |
) |
Operating
earnings (loss)(1) as a percentage of revenue |
|
10.1 |
% |
(4.5 |
)% |
|
|
Well servicing
statistics: |
|
|
|
|
|
|
|
Number of
service rigs (end of period)(2) |
|
135 |
|
210 |
|
(35.7 |
) |
Service
rig operating hours |
|
42,898 |
|
52,701 |
|
(18.6 |
) |
Service
rig operating hour utilization |
|
35 |
% |
28 |
% |
|
|
Service rig revenue per operating hour |
|
758 |
|
700 |
|
8.3 |
|
(1)
See “NON-GAAP MEASURES”. |
(2)
In the first quarter, 75 rigs were not registered with
the industry association and therefore not included in the marketed
service rig fleet count. On April 15, 2019, we completed the sale
of 12 snubbing units, the fleet count has not been adjusted for
this sale. |
n/m
Calculation not meaningful. |
Revenue from Completion and Production Services
increased $6 million or 12% compared with the first quarter of 2018
due to higher camp activity and higher pricing in our well
servicing business offset by lower activity in our Canadian well
servicing and rental businesses. Our service rig operating hours in
the quarter were down 19% from the first quarter of 2018 while
rates increased an average of 8%. Approximately 70% of our first
quarter Canadian service rig activity was oil related.
During the quarter, Completion and Production
Services generated 92% of its revenue from Canadian operations and
8% from U.S. operations compared with the first quarter of 2018
where 94% of revenue was generated in Canada and 6% in the U.S.
Average service rig revenue per operating hour
in the quarter was $758 or $58 higher than the first quarter of
2018. The increase was primarily the result of increased costs
passed through to the customer.
During the first quarter of 2019, as a cost
control measure, Precision did not renew the registration of 75
Canada based well service rigs with industry associations due to
low anticipated activity levels for the year. Once activity levels
improve, these rigs are expected to return to work with minimal
start-up costs.
Adjusted EBITDA (see “NON-GAAP MEASURES”) was
higher than the first quarter of 2019 primarily because of higher
camp activity, higher average rates and improved cost structure,
slightly offset by lower well servicing and rental activity.
Operating costs as a percentage of revenue was
77% compared with the prior year comparative quarter of 86%. The
reduction of operating costs as a percentage of revenue was
primarily the result of increased service rig rates, a higher
proportion of 24-hour well service work and continued cost
control.
Depreciation expense in the quarter was 17%
lower than the prior year comparative period. The decrease in
depreciation expense was primarily due to a lower capital asset
base as assets become fully depreciated.
In the first quarter of 2019, we exited the
wastewater treatment business with the disposal of our Terra Water
assets.
SEGMENT REVIEW OF CORPORATE AND OTHER
Our Corporate and Other segment provides support
functions to our operating segments. The Corporate and Other
segment had negative Adjusted EBITDA (see “NON-GAAP MEASURES”) of
$21 million, a $3 million increase compared with the first quarter
of 2018 primarily due to incurred restructuring costs relating to
severance.
OTHER ITEMS
Asset Disposals
During the first quarter of 2019, Precision sold
its five Mexico-based drilling rigs and ancillary equipment for
proceeds of US$48 million. At March 31, 2019, Precision had
received US$40 million for the sale of four drilling rigs and
ancillary equipment for a gain of US$24 million. In April 2019,
Precision expects to receive the remaining US$8 million which will
be due upon delivery of the final rig. As a result, Precision
reversed US$4 million of impairment pertaining to the final rig.
The impairment reversal brought the carrying value of the final rig
equal to its fair value of US$8 million and was reclassified as
held for sale. In addition, we exited the wastewater treatment
business with the disposal of our Terra Water assets.
Subsequent to March 31, 2019, Precision entered
into a purchase and sale agreement to dispose of certain snubbing
units and related equipment for proceeds of $8 million. This
transaction closed on April 15, 2019.
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 (Executive
PSU) plan, the fair value of PSUs granted is calculated at the date
of grant using a Monte Carlo simulation and Black-Scholes option
pricing model, and that value is recorded as compensation expense
over the grant's vesting period with an offset to contributed
surplus. Upon redemption of the Executive PSUs into common shares,
the associated amount is reclassified from contributed surplus to
shareholders' capital. The share option plan is treated similarly,
whereby, 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 under these
plans during the reporting periods are as follows:
|
Three months ended March 31, |
|
(Stated in thousands of Canadian
dollars) |
2019 |
|
|
2018 |
|
Cash settled share-based incentive plans |
|
5,804 |
|
|
|
7,790 |
|
Equity settled share-based incentive plans: |
|
|
|
|
|
|
|
Executive PSU |
|
2,372 |
|
|
|
1,053 |
|
Stock option plan |
|
731 |
|
|
|
817 |
|
Total share-based incentive compensation plan
expense |
|
8,907 |
|
|
|
9,660 |
|
|
|
|
|
|
|
|
|
Allocated: |
|
|
|
|
|
|
|
Operating |
|
2,429 |
|
|
|
3,496 |
|
General and Administrative |
|
6,478 |
|
|
|
6,164 |
|
|
|
8,907 |
|
|
|
9,660 |
|
Cash settled shared-based compensation expense
decreased $2 million in the current quarter to $6 million compared
with $8 million in the same quarter in 2018. The decrease is
primarily due to a change in the PSU total shareholder return
multiplier applied on the 2018 payout.
Executive PSU share-based incentive compensation
expense for the quarter was $2 million compared with $1 million in
the same quarter in 2018. The increased compensation expense was
the result of additional Executive PSUs granted in 2019 offset
partially by lower fair values for the 2019 grants.
Finance Charges
Net finance charges were $31 million, a decrease
of $1 million compared with the first quarter of 2018, primarily
due to a reduction in interest expense related to the debt retired
in 2018 and 2019, partially offset by the impact of the weakening
of the Canadian dollar on our U.S. dollar denominated interest and
$1 million of lease accretion charges resulting from the adoption
of IFRS 16 on January 1, 2019.
Interest charges on our U.S. denominated
long-term debt in the first quarter of 2019 were US$22 million ($29
million) as compared with US$24 million ($30 million) in 2018.
Income Tax
Income tax expense for the quarter was $8
million compared with a recovery of $5 million in the same quarter
in 2018. The higher expense in 2019 was the result of positive
pretax earnings.
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 with US$250 million(1) accordion feature) |
|
Undrawn, except US$28 million inoutstanding
letters of credit |
|
General corporate purposes |
|
November 21, 2022 |
Operating facilities
(secured) |
|
|
|
|
|
|
$40 million |
|
Undrawn, except $27 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 – 6.50% |
|
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$348 million – 5.25% |
|
Fully drawn |
|
Capital expenditures and generalcorporate
purposes |
|
November 15, 2024 |
US$390 million – 7.125% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
January 15, 2026 |
(1)
Increases to US$300 million on April 1, 2019. |
As at March 31, 2019, we had US$1,254 million ($1,673 million)
outstanding under our unsecured senior notes as compared with
US$1,267 million ($1,729 million) at December 31, 2018. The current
blended cash interest cost of our debt is approximately 6.7%.
During the first quarter of 2019 Precision
repurchased and cancelled US$10 million of the 7.125% notes due
2026 and US$3 million of the 5.25% notes due 2024 for an aggregate
purchase price of US$13 million. In addition, we initiated the
redemption of US$30 million principal amount of our 6.50% senior
notes due 2021. The redemption payment was made on April 16, 2019.
Subsequent to the first quarter, we initiated the redemption of
US$20 million principal amount of our 6.50% senior notes due 2021.
The redemption payment will be made on May 20, 2019 and will bring
our year to date 2019 debt retirement to $84 million.
Covenants
Following is a listing of our currently
applicable financial covenants and the calculations as at March 31,
2019:
|
Covenant |
|
As at March 31, 2019 |
|
Senior Facility |
|
|
|
|
|
Consolidated senior debt to consolidated covenant
EBITDA(1) |
< 2.50 |
|
|
(0.07 |
) |
Consolidated covenant EBITDA to consolidated
interest expense(1) |
> 2.00 |
|
|
2.93 |
|
Senior Notes |
|
|
|
|
|
Consolidated interest coverage ratio |
> 2.00 |
|
|
2.93 |
|
(1) For purposes of
calculating the leverage ratio consolidated senior debt only
includes secured indebtedness. |
At March 31, 2019, we were in compliance with the covenants of
our senior credit facility and unsecured senior notes.
Senior Facility
The senior credit facility requires that we
comply with certain covenants including a leverage ratio of
consolidated senior debt to consolidated Covenant EBITDA (see
“NON-GAAP MEASURES”) of less than 2.5:1. For purposes of
calculating the leverage ratio consolidated senior debt only
includes secured indebtedness.
Under the senior credit facility, we are
required to maintain a ratio of consolidated Covenant EBITDA (see
“NON-GAAP MEASURES”) to consolidated interest expense for the most
recent four consecutive quarters, of greater than 2.0:1 for the
period ended March 31, 2019. For periods ending after March 31,
2019 the ratio reverts to 2.5:1.
The senior credit facility prevents us from
making distributions prior to April 1, 2019, after which,
distributions are subject to a pro forma consolidated senior net
leverage covenant of less than or equal to 1.75:1. The senior
credit facility also limits the redemption and repurchase of junior
debt subject to a pro forma consolidated senior net leverage
covenant ratio of less than or equal to 1.75:1.
In addition, the senior credit facility contains
certain covenants that place restrictions on our ability to incur
or assume additional indebtedness; dispose of assets; pay
dividends, undertake share redemptions or other distributions;
change our primary business; incur liens on assets; engage in
transactions with affiliates; enter into mergers, consolidations or
amalgamations; and enter into speculative swap agreements.
Unsecured Senior Notes
The senior notes require that we comply with
financial covenants including an incurrence based consolidated
interest coverage ratio test of consolidated cash flow, as defined
in the senior note agreements, to consolidated interest expense of
greater than 2.0:1 for the most recent four consecutive fiscal
quarters. In the event our consolidated interest coverage ratio is
less than 2.0:1 for the most recent four consecutive fiscal
quarters, the senior notes restrict our ability to incur additional
indebtedness.
The senior notes contain a restricted payment
covenant that limits our ability to make payments in the nature of
dividends, distributions and for repurchases from shareholders.
This restricted payment basket grows from a starting point of
October 1, 2010 for the 2021 and 2024 senior notes, from October 1,
2016 for the 2023 senior notes and October 1, 2017 for the 2026
senior notes by, among other things, 50% of consolidated cumulative
net earnings and decreases by 100% of consolidated cumulative net
losses, as defined in the note agreements, and payments made to
shareholders. Beginning with the December 31, 2015 calculation the
governing net restricted payments basket was negative and as of
that date we were no longer able to declare and make dividend
payments until such time as the restricted payments baskets once
again become positive.
In addition, the senior notes contain certain
covenants that limit our ability, and the ability of certain
subsidiaries, to incur additional indebtedness and issue preferred
shares; create liens; create or permit to exist restrictions on our
ability or certain subsidiaries to make certain payments and
distributions; engage in amalgamations, mergers or consolidations;
make certain dispositions and engage in transactions with
affiliates.
For further information, please see the senior
note indentures which are available on SEDAR and EDGAR.
Impact of foreign exchange rates
The devaluation of the Canadian dollar during
the first quarter of 2019 resulted in higher translated U.S.
denominated revenue and costs. On average for the three months
ended March 31, 2019, the Canadian dollar weakened by 6% from the
comparable 2018 period. The following table summarizes the average
and closing Canada-U.S. foreign exchanges rates:
|
Three months ended March
31, |
|
As at December 31, |
|
|
2019 |
|
2018 |
|
2018 |
|
Canada-U.S.
foreign exchange rates |
|
|
|
|
|
|
Average |
1.33 |
|
1.26 |
|
— |
|
Closing |
1.33 |
|
1.29 |
|
1.37 |
|
Hedge of investments in foreign operations
We utilize foreign currency long-term debt to
hedge our exposure to changes in the carrying values of our net
investment in certain foreign operations as a result of changes in
foreign exchange rates.
We have designated our U.S. dollar denominated
long-term debt as a net investment hedge in our U.S. operations and
other foreign operations that have a U.S. dollar functional
currency. To be accounted for as a hedge, the foreign currency
denominated long-term debt must be designated and documented as
such and must be effective at inception and on an ongoing basis. We
recognize the effective amount of this hedge (net of tax) in other
comprehensive income. We recognize ineffective amounts (if any) in
net earnings (loss).
Average shares outstanding
The following table reconciles the weighted
average shares outstanding used in computing basic and diluted net
earnings (loss) per share:
|
Three months ended March 31, |
|
(Stated in thousands) |
2019 |
|
|
2018 |
|
Weighted average shares outstanding – basic |
|
293,783 |
|
|
|
293,239 |
|
Effect of stock options and other equity
compensation plans |
|
6,419 |
|
|
|
— |
|
Weighted average shares outstanding –
diluted |
|
300,202 |
|
|
|
293,239 |
|
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars,
except per share amounts) |
|
2018 |
|
|
2019 |
|
Quarters ended |
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
March 31 |
|
Revenue |
|
|
330,716 |
|
|
|
382,457 |
|
|
|
427,010 |
|
|
|
434,043 |
|
Adjusted EBITDA(1) |
|
|
62,182 |
|
|
|
80,988 |
|
|
|
134,492 |
|
|
|
107,967 |
|
Net
earnings (loss) |
|
|
(47,217 |
) |
|
|
(30,648 |
) |
|
|
(198,328 |
) |
|
|
25,014 |
|
Net
earnings (loss) per basic share |
|
|
(0.16 |
) |
|
|
(0.10 |
) |
|
|
(0.68 |
) |
|
|
0.09 |
|
Net
earnings (loss) per diluted share |
|
|
(0.16 |
) |
|
|
(0.10 |
) |
|
|
(0.68 |
) |
|
|
0.08 |
|
Funds
provided by operations(1) |
|
|
50,225 |
|
|
|
64,368 |
|
|
|
92,595 |
|
|
|
95,993 |
|
Cash provided by operations |
|
|
129,695 |
|
|
|
31,961 |
|
|
|
93,489 |
|
|
|
40,587 |
|
(Stated in thousands of Canadian
dollars, except per share amounts) |
|
2017 |
|
|
2018 |
|
Quarters ended |
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
March 31 |
|
Revenue |
|
|
290,860 |
|
|
|
314,504 |
|
|
|
347,187 |
|
|
|
401,006 |
|
Adjusted EBITDA(1) |
|
|
56,520 |
|
|
|
73,239 |
|
|
|
90,914 |
|
|
|
97,469 |
|
Net
loss |
|
|
(36,130 |
) |
|
|
(26,287 |
) |
|
|
(47,005 |
) |
|
|
(18,077 |
) |
Net
loss per basic |
|
|
(0.12 |
) |
|
|
(0.09 |
) |
|
|
(0.16 |
) |
|
|
(0.06 |
) |
Net
loss per diluted share |
|
|
(0.12 |
) |
|
|
(0.09 |
) |
|
|
(0.16 |
) |
|
|
(0.06 |
) |
Funds
provided by (used in) operations(1) |
|
|
(15,187 |
) |
|
|
85,140 |
|
|
|
28,323 |
|
|
|
104,026 |
|
Cash provided by operations |
|
|
2,739 |
|
|
|
56,757 |
|
|
|
23,289 |
|
|
|
38,189 |
|
(1)
See “NON-GAAP MEASURES”. |
CRITICAL ACCOUNTING JUDGEMENTS AND
ESTIMATES
Because of the nature of our business, we are
required to make judgments and estimates in preparing our
Consolidated Interim Financial Statements that could materially
affect the amounts recognized. Our judgments and estimates are
based on our past experiences and assumptions we believe are
reasonable in the circumstances. The critical judgments and
estimates used in preparing the Interim Financial Statements are
described in our 2018 Annual Report and there have been no material
changes to our critical accounting judgments and estimates during
the three months ended March 31, 2019 except for those impacted by
the adoption of new accounting standards.
CHANGES IN ACCOUNTING
POLICY
New standards adopted
The following standards became effective on
January 1, 2019:
- IFRS 16 Leases
- IFRIC 23 Uncertainty over Income Tax Treatments
Precision adopted these standards using the
modified retrospective method on January 1, 2019. Please see the
unaudited March 31, 2019 Interim Consolidated Financial Statements
and related notes for further details on the adoption of these
standards.
Impact of IFRS 16 Leases on Adjusted
EBITDA
With the adoption of IFRS 16, the accounting
treatment for operating leases when Precision is the lessee,
changed effective January 1, 2019. Precision adopted IFRS 16 using
the modified retrospective approach and our comparative information
was not restated. As a result, the comparability of our 2019
Adjusted EBITDA to periods prior to January 1, 2019 is
impacted.
Under IFRS 16, leases classified as operating
leases were recognized on our statement of financial position with
a right of use asset and corresponding lease obligation
representing the present value of Precision’s future lease
payments. Once recognized, right of use assets are depreciated over
the shorter of their useful life and the term of the lease. The
lease obligation is measured at amortized cost using the effective
interest method. Under this approach, an interest charge is applied
to accrete the lease obligation to the present value of future
lease payments. As lease payments are made, the lease obligation is
reduced.
Historically, operating leases were accounted
for as ‘off-balance sheet’ and lease expenses were only recognized
at the time of payment in either operating or general and
administrative expense. However, under IFRS 16, lease costs are
reflected on the statement of income (loss) through depreciation
and interest expense, resulting in an increase to Adjusted
EBITDA.
Upon transition, we recognized right of use
assets and corresponding lease obligations of $73 million. During
the first quarter of 2019, Precision made payments of $3 million
relating to its lease obligations and recorded right of use asset
depreciation and lease interest charges of $2 million and $1
million, respectively. As a result of the new lease standard, our
Adjusted EBITDA was positively impacted by $3 million.
NON-GAAP MEASURES
In this news 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, gain on repurchase of unsecured senior notes, finance
charges, foreign exchange, impairment reversal, gain on assets
disposals and depreciation and amortization), as reported in the
Interim Consolidated Statement of Earnings (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, certain foreign exchange amounts and with the adoption of
the new lease standard IFRS 16 - Leases, the deduction of cash
lease payments incurred after December 31, 2018.
Operating Earnings (Loss)
We believe that operating earnings (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. Operating earnings is calculated as follows:
|
Three months ended March 31, |
|
(Stated in thousands of Canadian
dollars) |
2019 |
|
|
2018 |
|
Revenue |
|
434,043 |
|
|
|
401,006 |
|
Expenses: |
|
|
|
|
|
|
|
Operating |
|
288,608 |
|
|
|
274,574 |
|
General and administrative |
|
31,030 |
|
|
|
28,963 |
|
Restructuring |
|
6,438 |
|
|
|
— |
|
Depreciation and amortization |
|
86,753 |
|
|
|
88,435 |
|
Gain on asset disposals |
|
(35,050 |
) |
|
|
(1,127 |
) |
Impairment reversal |
|
(5,810 |
) |
|
|
— |
|
Operating earnings |
|
62,074 |
|
|
|
10,161 |
|
Foreign exchange |
|
(2,123 |
) |
|
|
1,215 |
|
Finance charges |
|
31,303 |
|
|
|
31,679 |
|
Gain on repurchase of unsecured notes |
|
(313 |
) |
|
|
— |
|
Earnings (loss) before income
taxes |
|
33,207 |
|
|
|
(22,733 |
) |
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
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 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.
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) |
|
March 31,
2019 |
|
|
December 31, 2018 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
101,030 |
|
|
$ |
96,626 |
|
Accounts receivable |
|
|
384,479 |
|
|
|
372,336 |
|
Inventory |
|
|
31,173 |
|
|
|
34,081 |
|
Assets held for sale |
|
|
35,340 |
|
|
|
19,658 |
|
Total current assets |
|
|
552,022 |
|
|
|
522,701 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
Income tax recoverable |
|
|
2,394 |
|
|
|
2,449 |
|
Deferred tax assets |
|
|
20,451 |
|
|
|
36,880 |
|
Right of use assets |
|
|
70,570 |
|
|
|
— |
|
Property, plant and equipment |
|
|
2,951,783 |
|
|
|
3,038,612 |
|
Intangibles |
|
|
34,508 |
|
|
|
35,401 |
|
Total non-current assets |
|
|
3,079,706 |
|
|
|
3,113,342 |
|
Total assets |
|
$ |
3,631,728 |
|
|
$ |
3,636,043 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
238,455 |
|
|
$ |
274,489 |
|
Income taxes payable |
|
|
9,710 |
|
|
|
7,673 |
|
Lease obligation |
|
|
13,597 |
|
|
|
— |
|
Total current liabilities |
|
|
261,762 |
|
|
|
282,162 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
7,882 |
|
|
|
6,520 |
|
Provisions and other |
|
|
10,338 |
|
|
|
10,577 |
|
Lease obligation |
|
|
57,481 |
|
|
|
- |
|
Long-term debt |
|
|
1,651,352 |
|
|
|
1,706,253 |
|
Deferred tax liabilities |
|
|
63,748 |
|
|
|
72,779 |
|
Total non-current liabilities |
|
|
1,790,801 |
|
|
|
1,796,129 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Shareholders’ capital |
|
|
2,322,280 |
|
|
|
2,322,280 |
|
Contributed surplus |
|
|
55,435 |
|
|
|
52,332 |
|
Deficit |
|
|
(951,060 |
) |
|
|
(978,874 |
) |
Accumulated other comprehensive income |
|
|
152,510 |
|
|
|
162,014 |
|
Total shareholders’ equity |
|
|
1,579,165 |
|
|
|
1,557,752 |
|
Total liabilities and shareholders’
equity |
|
$ |
3,631,728 |
|
|
$ |
3,636,043 |
|
INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(UNAUDITED)
|
|
Three Months Ended
March 31, |
|
(Stated in thousands of Canadian dollars,
except per share amounts) |
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
434,043 |
|
|
$ |
401,006 |
|
Expenses: |
|
|
|
|
|
|
|
|
Operating |
|
|
288,608 |
|
|
|
274,574 |
|
General and administrative |
|
|
31,030 |
|
|
|
28,963 |
|
Restructuring |
|
|
6,438 |
|
|
|
— |
|
Earnings before income taxes, gain on repurchase of unsecured
senior notes, finance charges, foreign exchange, impairment
reversal, gain on asset disposals and depreciation and
amortization |
|
|
107,967 |
|
|
|
97,469 |
|
Depreciation and amortization |
|
|
86,753 |
|
|
|
88,435 |
|
Gain on asset disposals |
|
|
(35,050 |
) |
|
|
(1,127 |
) |
Impairment reversal |
|
|
(5,810 |
) |
|
|
— |
|
Foreign exchange |
|
|
(2,123 |
) |
|
|
1,215 |
|
Finance charges |
|
|
31,303 |
|
|
|
31,679 |
|
Gain on repurchase of unsecured senior
notes |
|
|
(313 |
) |
|
|
— |
|
Earnings (loss) before income taxes |
|
|
33,207 |
|
|
|
(22,733 |
) |
Income taxes: |
|
|
|
|
|
|
|
|
Current |
|
|
1,610 |
|
|
|
1,566 |
|
Deferred |
|
|
6,583 |
|
|
|
(6,222 |
) |
|
|
|
8,193 |
|
|
|
(4,656 |
) |
Net earnings (loss) |
|
$ |
25,014 |
|
|
$ |
(18,077 |
) |
Net earnings (loss) per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.09 |
|
|
$ |
(0.06 |
) |
Diluted |
|
$ |
0.08 |
|
|
$ |
(0.06 |
) |
INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
|
|
Three Months Ended
March 31, |
|
(Stated in thousands of Canadian
dollars) |
|
2019 |
|
|
2018 |
|
Net earnings (loss) |
|
$ |
25,014 |
|
|
$ |
(18,077 |
) |
Unrealized gain (loss) on translation of assets and
liabilities of operations denominated in foreign
currency |
|
|
(48,518 |
) |
|
|
53,734 |
|
Foreign exchange gain (loss) on net investment hedge
with U.S. denominated debt, net of tax |
|
|
39,014 |
|
|
|
(45,455 |
) |
Comprehensive income (loss) |
|
$ |
15,510 |
|
|
$ |
(9,798 |
) |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
|
|
Three Months Ended
March 31, |
|
(Stated in thousands of Canadian
dollars) |
|
2019 |
|
|
2018 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
25,014 |
|
|
$ |
(18,077 |
) |
Adjustments for: |
|
|
|
|
|
|
|
|
Long-term compensation plans |
|
|
7,312 |
|
|
|
7,899 |
|
Depreciation and amortization |
|
|
86,753 |
|
|
|
88,435 |
|
Gain on asset disposals |
|
|
(35,050 |
) |
|
|
(1,127 |
) |
Impairment reversal |
|
|
(5,810 |
) |
|
|
— |
|
Foreign exchange |
|
|
(2,238 |
) |
|
|
1,448 |
|
Finance charges |
|
|
31,303 |
|
|
|
31,679 |
|
Income taxes |
|
|
8,193 |
|
|
|
(4,656 |
) |
Other |
|
|
122 |
|
|
|
(916 |
) |
Gain on repurchase of unsecured senior
notes |
|
|
(313 |
) |
|
|
— |
|
Income taxes paid |
|
|
(337 |
) |
|
|
(324 |
) |
Income taxes recovered |
|
|
1,071 |
|
|
|
36 |
|
Interest paid |
|
|
(20,233 |
) |
|
|
(500 |
) |
Interest received |
|
|
206 |
|
|
|
129 |
|
Funds provided by operations |
|
|
95,993 |
|
|
|
104,026 |
|
Changes in non-cash working capital
balances |
|
|
(55,406 |
) |
|
|
(65,837 |
) |
|
|
|
40,587 |
|
|
|
38,189 |
|
Investments: |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(70,962 |
) |
|
|
(22,291 |
) |
Purchase of intangibles |
|
|
(438 |
) |
|
|
(7,791 |
) |
Proceeds on sale of property, plant and
equipment |
|
|
57,877 |
|
|
|
6,050 |
|
Changes in non-cash working capital
balances |
|
|
(3,263 |
) |
|
|
172 |
|
|
|
|
(16,786 |
) |
|
|
(23,860 |
) |
Financing: |
|
|
|
|
|
|
|
|
Lease payments |
|
|
(1,672 |
) |
|
|
— |
|
Repurchase of unsecured senior notes |
|
|
(16,672 |
) |
|
|
— |
|
|
|
|
(18,344 |
) |
|
|
— |
|
Effect of exchange rate changes on cash and
cash equivalents |
|
|
(1,053 |
) |
|
|
2,463 |
|
Increase in cash and cash equivalents |
|
|
4,404 |
|
|
|
16,792 |
|
Cash and cash equivalents, beginning of
period |
|
|
96,626 |
|
|
|
65,081 |
|
Cash and cash equivalents, end of period |
|
$ |
101,030 |
|
|
$ |
81,873 |
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
(Stated in thousands of Canadian
dollars) |
|
Shareholders’capital |
|
|
Contributedsurplus |
|
|
Accumulatedothercomprehensiveincome |
|
|
Deficit |
|
|
Totalequity |
|
Balance at January 1, 2019 |
|
$ |
2,322,280 |
|
|
$ |
52,332 |
|
|
$ |
162,014 |
|
|
$ |
(978,874 |
) |
|
$ |
1,557,752 |
|
Lease transition adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,800 |
|
|
|
2,800 |
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25,014 |
|
|
|
25,014 |
|
Other comprehensive income for the period |
|
|
— |
|
|
|
— |
|
|
|
(9,504 |
) |
|
|
— |
|
|
|
(9,504 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
3,103 |
|
|
|
— |
|
|
|
— |
|
|
|
3,103 |
|
Balance at March 31,
2019 |
|
$ |
2,322,280 |
|
|
$ |
55,435 |
|
|
$ |
152,510 |
|
|
$ |
(951,060 |
) |
|
$ |
1,579,165 |
|
(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 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18,077 |
) |
|
|
(18,077 |
) |
Other comprehensive loss for the period |
|
|
— |
|
|
|
— |
|
|
|
8,279 |
|
|
|
— |
|
|
|
8,279 |
|
Share-based compensation expense |
|
|
— |
|
|
|
1,870 |
|
|
|
— |
|
|
|
— |
|
|
|
1,870 |
|
Balance at March 31, 2018 |
|
$ |
2,319,293 |
|
|
$ |
45,907 |
|
|
$ |
139,889 |
|
|
$ |
(702,681 |
) |
|
$ |
1,802,408 |
|
FIRST QUARTER 2019 EARNINGS CONFERENCE CALL AND
WEBCAST
Precision Drilling Corporation has scheduled a conference call
and webcast to begin promptly at 12:00 noon MT (2:00 p.m. ET) on
Thursday, April 25, 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 version of the webcast 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 April 30, 2019 by dialing 855-859-2056
or 404-537-3406, passcode 6545779.
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
Super Series drilling rigs supported by an industry leading
technology platform that offers the most innovative drilling
solutions to deliver efficient, predictable and repeatable results
through service differentiation. Precision also offers directional
drilling services, well service rigs, camps and rental equipment
all 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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