(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 second quarter
financial results:
- Revenue of $359 million was an increase of 9% compared with the
second quarter of 2018.
- Net loss of $14 million or negative $0.05 per diluted share
compares to a net loss of $47 million or negative $0.16 per diluted
share in the second quarter of 2018.
- Earnings before income taxes, loss (gain) on repurchase of
unsecured senior notes, finance charges, foreign exchange,
impairment reversal, gain on asset disposals and depreciation and
amortization (Adjusted EBITDA see “NON-GAAP MEASURES”) of $81
million was 30% higher than the second quarter of 2018.
- Funds provided by operations (see “NON-GAAP MEASURES”) was $41
million versus $50 million in the prior year quarter. Cash provided
by operations was $106 million versus $130 million in the prior
year quarter. The decrease in funds and cash provided by operations
in the current quarter was primarily the result of a $28 million
tax refund received in the prior year comparative quarter partially
offset by improved operating results in 2019.
- Second quarter ending cash balance was $81 million.
- Second quarter capital expenditures were $43 million and as at
June 30, 2019, we have spent $115 million or 68% of our 2019
capital budget.
- Second quarter proceeds from asset sales was $25 million.
- Second quarter debt reduction totaled $107 million, increasing
our year to date reductions to $124 million. For the year we have
repurchased and cancelled US$26 million of the 7.125% unsecured
senior notes due 2026 and US$17 million of the 5.25% notes due 2024
and redeemed US$50 million principal amount of our 6.50% senior
notes due 2021.
- Completed construction of our sixth rig in Kuwait. The rig
commenced drilling on July 1, 2019.
Precision’s President and CEO Kevin Neveu
stated:
“Precision delivered strong second quarter
operating performance supported by the competitive strength and
resulting market share of our Super Triple rigs in our three core
markets, the U.S., Canada and Middle East. Precision’s average
global activity of 112 rigs for the quarter was in line with last
year (111), despite industry headwinds and lower industry activity
levels in North America. Second quarter adjusted EBITDA of $81
million increased 30% from prior year due to improved pricing and
cost control efforts, yielding stronger than expected cash flow and
enabling Precision to reduce debt at a faster rate than planned.
With $124 million of debt repayments completed year-to-date, we are
increasing our 2019 debt reduction target to $200 million, compared
to our previous targeted range of $100 million to $150 million.
Reducing debt levels remains a strategic priority and we expect to
continue our accelerated pace with strong free cash
flow.”
“In the U.S., our High Performance, High Value
strategy and Super Triple fleet quality and field performance
continue to drive strong financial results. Our 68 AC Super Triples
remain over 90% utilized with firm pricing. During the quarter, we
signed 15 new term contracts from six months to two years duration,
increasing our average 2019 U.S. contract coverage to 48 rigs. We
completed our previously announced full SCR to AC Super Triple
upgrade, entering service in June and representing the sixth AC
ST-1500 walking rig added to our U.S. fleet since early 2018. We
expect Super Triple demand and pricing to remain firm in the second
half of the year as our customers continue to throttle spending
within cash flow while focusing on the most efficient and best
performing rigs.”
“In the Middle East, our new-build rig in Kuwait
spudded its first well on July 1, ahead of schedule and under
budget. Scale is critical to Precision’s strategy and with our
ninth active rig in the region, we are delivering excellent results
for our customers and adding strong stable contracted cash flow for
our business.”
“In Canada, while cash generation remains our
key priority, the market relevance of our Super Series fleet is
clearly represented with over 30% Canadian market share achieved
during the second quarter, our highest market share in recent
history. Despite challenges in the Canadian region with industry
activity off 30% year-to-date, Precision’s Super Series rigs
substantially outperformed industry utilization. We expect this
trend of firm utilization and pricing, supported by our 26 AC Super
Triple rigs, to continue into the back half of the year.”
“While also weathering Canadian industry
challenges and lower activity levels, our Completion and Production
segment posted another strong quarter, demonstrating the results of
business improvement initiatives and strong execution by our team
with a continued focus on cost control across all product lines.
The segment delivered a $4 million improvement in EBITDA from the
second quarter of 2018.”
“I remain excited about Precision’s progress on
technology initiatives, led by continued traction of our 33 Process
Automated Control systems installed. During the quarter, 31 of
these systems were active in the field and drilled approximately
195 wells, an increase of 65% from the prior year. We continue to
demonstrate to customers, our system’s ability to deliver
consistent, high-quality results as we progress towards our 2019
commercialization targets. Precision is an industry leader in
technological offerings, as demonstrated through our scalable,
field-hardened product rapidly commercializing in multiple basins
throughout North America.”
“We are confident our firm market position in
the U.S., expanding scale internationally, leadership position in
Canada and technology initiatives will deliver a runway of free
cash flow to facilitate further deleveraging and future growth
opportunities.” 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 June 30, |
|
|
Six months ended June 30, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
359,424 |
|
|
|
330,716 |
|
|
|
8.7 |
|
|
|
793,467 |
|
|
|
731,722 |
|
|
|
8.4 |
|
Adjusted EBITDA(1) |
|
81,037 |
|
|
|
62,182 |
|
|
|
30.3 |
|
|
|
189,004 |
|
|
|
159,651 |
|
|
|
18.4 |
|
Operating earnings
(loss)(1) |
|
5,569 |
|
|
|
(26,439 |
) |
|
|
(121.1 |
) |
|
|
67,643 |
|
|
|
(16,278 |
) |
|
|
(515.5 |
) |
Net earnings (loss) |
|
(13,801 |
) |
|
|
(47,217 |
) |
|
|
(70.8 |
) |
|
|
11,213 |
|
|
|
(65,294 |
) |
|
|
(117.2 |
) |
Cash provided by
operations |
|
106,035 |
|
|
|
129,695 |
|
|
|
(18.2 |
) |
|
|
146,622 |
|
|
|
167,884 |
|
|
|
(12.7 |
) |
Funds provided by
operations(1) |
|
40,950 |
|
|
|
50,225 |
|
|
|
(18.5 |
) |
|
|
136,943 |
|
|
|
154,251 |
|
|
|
(11.2 |
) |
Capital spending: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion |
|
29,543 |
|
|
|
15,786 |
|
|
|
87.1 |
|
|
|
91,986 |
|
|
|
16,471 |
|
|
|
458.5 |
|
Upgrade |
|
4,052 |
|
|
|
5,447 |
|
|
|
(25.6 |
) |
|
|
7,726 |
|
|
|
16,810 |
|
|
|
(54.0 |
) |
Maintenance and infrastructure |
|
9,874 |
|
|
|
13,091 |
|
|
|
(24.6 |
) |
|
|
14,719 |
|
|
|
23,334 |
|
|
|
(36.9 |
) |
Intangibles |
|
26 |
|
|
|
2,429 |
|
|
|
(98.9 |
) |
|
|
464 |
|
|
|
10,220 |
|
|
|
(95.5 |
) |
Proceeds on sale |
|
(24,575 |
) |
|
|
(2,630 |
) |
|
|
834.4 |
|
|
|
(82,452 |
) |
|
|
(8,680 |
) |
|
|
849.9 |
|
Net capital spending |
|
18,920 |
|
|
|
34,123 |
|
|
|
(44.6 |
) |
|
|
32,443 |
|
|
|
58,155 |
|
|
|
(44.2 |
) |
Net earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
(0.05 |
) |
|
|
(0.16 |
) |
|
|
(68.8 |
) |
|
|
0.04 |
|
|
|
(0.22 |
) |
|
|
(118.2 |
) |
Diluted |
|
(0.05 |
) |
|
|
(0.16 |
) |
|
|
(68.8 |
) |
|
|
0.04 |
|
|
|
(0.22 |
) |
|
|
(118.2 |
) |
(1) See “NON-GAAP MEASURES”.
Operating Highlights
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Contract drilling rig fleet |
|
232 |
|
|
|
257 |
|
|
|
(9.7 |
) |
|
|
232 |
|
|
|
257 |
|
|
|
(9.7 |
) |
Drilling rig utilization
days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
6,994 |
|
|
|
6,588 |
|
|
|
6.2 |
|
|
|
14,117 |
|
|
|
12,383 |
|
|
|
14.0 |
|
Canada |
|
2,413 |
|
|
|
2,834 |
|
|
|
(14.9 |
) |
|
|
6,757 |
|
|
|
9,302 |
|
|
|
(27.4 |
) |
International |
|
728 |
|
|
|
728 |
|
|
|
- |
|
|
|
1,448 |
|
|
|
1,448 |
|
|
|
- |
|
Revenue per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.(1) (US$) |
|
23,425 |
|
|
|
21,795 |
|
|
|
7.5 |
|
|
|
23,312 |
|
|
|
21,237 |
|
|
|
9.8 |
|
Canada(2) (Cdn$) |
|
21,613 |
|
|
|
22,072 |
|
|
|
(2.1 |
) |
|
|
22,490 |
|
|
|
22,167 |
|
|
|
1.5 |
|
International (US$) |
|
51,542 |
|
|
|
49,832 |
|
|
|
3.4 |
|
|
|
50,746 |
|
|
|
49,935 |
|
|
|
1.6 |
|
Operating cost per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (US$) |
|
14,803 |
|
|
|
14,026 |
|
|
|
5.5 |
|
|
|
14,584 |
|
|
|
14,026 |
|
|
|
4.0 |
|
Canada (Cdn$) |
|
17,414 |
|
|
|
16,712 |
|
|
|
4.2 |
|
|
|
15,840 |
|
|
|
14,361 |
|
|
|
10.3 |
|
Service rig fleet(3) |
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
|
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
Service rig operating
hours |
|
29,540 |
|
|
|
31,824 |
|
|
|
(7.2 |
) |
|
|
72,438 |
|
|
|
84,525 |
|
|
|
(14.3 |
) |
Revenue
per operating hour (Cdn$) |
|
733 |
|
|
|
676 |
|
|
|
8.4 |
|
|
|
748 |
|
|
|
691 |
|
|
|
8.2 |
|
(1) 2019 period includes
revenue from idle but contracted rig days.(2)
Includes lump sum revenue from contract shortfall
payments.(3) In 2019, 75 rigs were not
registered with the industry association and 12 snubbing units were
sold.
Financial Position
(Stated in thousands of Canadian dollars, except ratios) |
June 30, 2019 |
|
|
December 31, 2018 |
|
Working capital(1) |
|
200,964 |
|
|
|
240,539 |
|
Cash |
|
80,580 |
|
|
|
96,626 |
|
Long-term debt |
|
1,514,964 |
|
|
|
1,706,253 |
|
Total long-term financial
liabilities |
|
1,592,822 |
|
|
|
1,723,350 |
|
Total assets |
|
3,440,348 |
|
|
|
3,636,043 |
|
Long-term debt to long-term debt plus equity ratio |
|
0.49 |
|
|
|
0.52 |
|
(1) See “NON-GAAP MEASURES”.
Summary for the three months ended June
30, 2019:
- Revenue this quarter was $359 million, 9% higher than the
second 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 and day rates. Compared with the second quarter of 2018,
our activity for the quarter, as measured by drilling rig
utilization days increased 6% in the U.S., decreased 15% in Canada
and remained consistent internationally. Revenue from our Contract
Drilling Services increased by 10% and Completion and Production
Services revenue decreased 6%.
- Adjusted EBITDA (see “NON-GAAP MEASURES”) was $81 million, an
increase of $19 million from the second quarter of 2018. Our
Adjusted EBITDA as a percentage of revenue was 23% this quarter,
compared with 19% 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. With the
adoption of IFRS 16, lease-related charges of $3 million in the
quarter of 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 $4 million compared with $10 million in the second quarter of
2018. See discussion on share-based incentive compensation under
“Other Items” later in this report for additional details.
- Operating earnings (see “NON-GAAP MEASURES”) were $6 million
compared with an operating loss of $26 million in the second
quarter of 2018. Operating earnings this quarter were positively
impacted by the gain on asset disposals primarily relating to the
sale of our snubbing equipment, lower depreciation expense from
assets becoming fully depreciated and disposed and lower
share-based incentive compensation. See discussion on asset
disposals under “Other Items” later in this report for additional
details.
- General and administrative expenses were $26 million, $5
million lower than the second quarter in 2018. The lower general
and administrative costs in 2019 were due to lower share-based
incentive compensation expense partially offset by the weakening of
the Canadian dollar on our U.S. dollar denominated costs.
- Net finance charges were $30 million, a decrease of $2 million
compared with the second quarter of 2018, primarily due to a
reduction in interest expense related to debt retired in 2018 and
2019, offset by the impact of a 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 second
quarter of 2019 to US$23,425 from US$21,795 in the prior year
quarter. The increase was the result of higher day rates,
third-party cost recoveries and idle but contracted rig revenue,
partially offset by lower turnkey revenue. During the quarter, we
had revenue from idle but contracted rigs and turnkey projects of
$1 million and nil, respectively, as compared to second quarter
2018 idle but contracted rig and turnkey revenue of nil and $10
million, respectively. Operating costs on a per day basis increased
to US$14,803 in the second quarter of 2019 compared with US$14,026
in 2018. The increase was mainly due to higher third-party charges
incurred but recovered from the customer, higher repair and
maintenance costs due to the timing of equipment certifications and
scheduled maintenance and higher crew labour and burden costs
offset by lower turnkey costs from decreased activity. On a
sequential basis, revenue per utilization day, excluding revenue
from turnkey and idle but contracted rigs, increased by US$218 due
to higher fleet average day rates and higher third-party cost
recoveries, while operating costs per day increased by $435 due to
higher third-party charges incurred but recovered from the customer
and higher repair and maintenance costs.
- In Canada, average revenue per utilization day for contract
drilling rigs was $21,613 compared with $22,072 in the second
quarter of 2018. The lower average revenue per utilization day in
the second quarter of 2019 was primarily because of lower day
rates, boiler revenue and rig mix, as we had proportionately more
shallow rigs working, partially offset by higher shortfall
payments. During the quarter, we recognized $1 million of shortfall
payments in revenue compared with nil in the prior year comparative
period. Excluding the impact of shortfall payment revenue, average
day rates in Canada were down $895. Average operating costs per
utilization day for drilling rigs in Canada increased to $17,414
compared with the prior year quarter of $16,712. The increase was
mainly caused by the impact of lower activity on fixed costs and
higher repairs and maintenance costs due to the timing of
certification costs.
- We realized revenue from international contract drilling of
US$38 million in the second quarter of 2019, an increase of US$1
million over the prior year period. Average revenue per utilization
day in our international contract drilling business was US$51,542
compared with US$49,832 in the respective prior year quarter. The
higher average rate in 2019 was primarily due to day rate increases
from the renewal and extension of drilling contracts in the first
quarter of 2019.
- Revenue from Completion and Production Services decreased $2
million compared with the second quarter of 2018 due to lower
activity in our Canadian well servicing and camp businesses,
partially offset by improved service rig revenue rates and higher
rental activity. Our service rig operating hours in the quarter
were down 7% from the second quarter of 2018 while rates increased
an average of 8%. Average service rig revenue per operating hour in
the quarter was $733 or $57 higher than the second quarter of 2018.
The increase was primarily the result of rig mix in Canada and
increased activity in the U.S. Adjusted EBITDA (see “NON-GAAP
MEASURES”) was $3 million, $4 million higher than the second
quarter of 2018, and was primarily the result of higher service rig
rates, higher rental activity, reduced restructuring charges and
improved cost structure, partially offset by lower Canadian well
servicing and camp activity. During the second quarter of 2019, we
disposed of certain snubbing units and related equipment for
proceeds of $8 million resulting in a gain on asset disposal of $3
million.
- Directional drilling services realized revenue of $11 million
in the second quarter of 2019 compared with $7 million in the prior
year period.
- Funds provided by operations (see “NON-GAAP MEASURES”) in the
second quarter of 2019 were $41 million, a decrease of $9 million
from the prior year comparative quarter. Cash provided by
operations was $106 million versus $130 million in the prior year
quarter. The decrease in funds and cash provided by operations in
2019 was primarily the result of a $28 million tax refund received
in the prior year comparative quarter partially offset by improved
current year operating results.
- Capital expenditures were $43 million in the second quarter, an
increase of $7 million over the same period in 2018. Capital
spending for the quarter included $34 million for upgrade and
expansion capital, primarily related to our sixth new-build rig for
Kuwait, an SCR to AC Triple upgrade for the U.S. market under
long-term contract and $10 million for the maintenance of existing
assets, infrastructure spending and intangibles.
Summary for the six months ended June
30, 2019:
- Revenue for the first half of 2019
was $793 million, an increase of 8% from the 2018 period.
- Operating earnings (see “NON-GAAP
MEASURES”) were $68 million, an increase of $84 million over the
$16 million operating loss for the same period in 2018. As a
percentage of revenue, operating earnings were 9% compared negative
2% in 2018. Operating results this year were positively impacted by
increased drilling activity in the U.S., gains on asset disposals
and higher average revenue rates in each operating region,
partially offset by lower Canadian drilling activity.
- General and administrative costs
were $57 million, a decrease of $3 million from 2018. The decrease
was due to lower share-based incentive compensation that is tied to
the price of our common shares, partially offset by the weakening
of the Canadian dollar on our U.S. dollar denominated costs (see
“Other Items” later in this report).
- Net finance charges were $62
million, a decrease of $2 million from 2018 primarily due to a
reduction in interest expense related to debt retired in 2018 and
2019, partially offset by the weakening of the Canadian dollar on
our U.S. dollar denominated interest expense.
- Funds provided by operations (see
“NON-GAAP MEASURES”) in the first half of 2019 were $137 million, a
decrease of $18 million from the prior year comparative period of
$154 million. Cash provided by operations was $147 million in 2019
as compared to $168 million in 2018. The reduction in funds and
cash provided by operations in 2019 was primarily caused by the
receipt of a tax refund in the prior year comparative period and
the timing of 2019 interest payments partially offset by improved
current year operating results.
- Capital expenditures were $115
million for the first half of 2019, an increase of $48 million over
the same period in 2018. Capital spending for 2019 to date includes
$100 million for upgrade and expansion capital, primarily related
to our sixth new-build rig for Kuwait, completion of a new build
ST-1500 and SCR to AC Super Triple upgrade for the U.S.
market and $15 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 $200 million to reduce debt in 2019 (previously
targeted $100 million to $150 million) – In the second
quarter of 2019, we generated $106 million in cash provided by
operations and further reduced our debt balance by $107 million
through a combination of open market repurchases and redemptions of
our unsecured senior notes. As of June 30, 2019, our total
year-to-date 2019 debt reduction was $124 million, reaching the
mid-point of our original 2019 targeted debt reduction range and we
have announced further debt reductions planned for 2019.
- Maximize financial results
by leveraging our High Performance, High Value Super Series rig
fleet and scale with disciplined cost management – In the
second quarter of 2019, Precision continued to generate strong
financial results, largely led by our U.S. contract drilling
business. We continued operating at record market share levels in
this region, with utilization days up 6% and operating margins
(revenue less operating costs) up 14% compared to the prior year
quarter. Despite a challenged market, our Canadian drilling
operations generated strong cash flow and our Completion and
Production Services business contributed an additional $4 million
of Adjusted EBITDA as a result of our continued business
improvement initiatives. In the second quarter of 2019, we
continued to invest in our High-Performance, High-Value Super
Series rig fleet with the completion of our sixth Kuwait rig which
commenced drilling on July 1, 2019, increasing our economies of
scale and operating margins in the region. Additionally, we
completed our announced U.S. SCR triple to a full AC Super Triple
upgrade.
- Full scale
commercialization and implementation of our Process Automation
Control platform, PD-Apps and PD-Analytics – we currently
have 33 rigs equipped with our Process Automation Control platform
(PAC). Using PAC technology, we drilled approximately 195 wells in
the second quarter of 2019, an increase of 65% over the 2018 second
quarter. With more than 15 revenue generating PD-Apps
commercialized or in development, Precision’s portfolio of
technological offerings continues to expand. We continue to
demonstrate to our customers our system’s ability to deliver
consistent, high-quality results, as we progress towards our 2019
commercialization targets.
OUTLOOK
Contracts
Year to date in 2019 we have entered into 35
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 July 24, 2019. For those quarters ended after June 30,
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 July 24, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
36 |
|
|
|
48 |
|
|
|
50 |
|
|
|
51 |
|
|
|
56 |
|
|
|
52 |
|
|
|
47 |
|
|
|
36 |
|
Canada |
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
11 |
|
|
|
8 |
|
|
|
7 |
|
|
|
7 |
|
|
|
6 |
|
International |
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
Total |
|
|
52 |
|
|
|
65 |
|
|
|
67 |
|
|
|
70 |
|
|
|
72 |
|
|
|
67 |
|
|
|
63 |
|
|
|
51 |
|
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 July 24,
2019.
|
|
Average for the year ended |
|
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
Average rigs under term contract as of July 24, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
46 |
|
|
|
48 |
|
|
|
13 |
|
Canada |
|
|
9 |
|
|
|
7 |
|
|
|
3 |
|
International |
|
|
8 |
|
|
|
9 |
|
|
|
8 |
|
Total |
|
|
63 |
|
|
|
64 |
|
|
|
24 |
|
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 |
|
|
June 30 |
|
Average Precision active rig count: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
64 |
|
|
|
72 |
|
|
|
76 |
|
|
|
80 |
|
|
|
79 |
|
|
|
77 |
|
Canada |
|
72 |
|
|
|
31 |
|
|
|
52 |
|
|
|
49 |
|
|
|
48 |
|
|
|
27 |
|
International |
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
Total |
|
144 |
|
|
|
111 |
|
|
|
136 |
|
|
|
137 |
|
|
|
135 |
|
|
|
112 |
|
For the first half of 2019, drilling activity
has decreased relative to this time last year in the U.S. and
Canada. According to industry sources, as of July 19, 2019, the
U.S. active land drilling rig count was down 10% compared with the
same point last year and the Canadian active land drilling rig
count was down approximately 31%. To date in 2019, approximately
81% of the U.S. industry’s active rigs and 58% of the Canadian
industry’s active rigs were drilling for oil targets, compared with
81% for the U.S. and 63% for Canada at the same time last year.
Capital Spending
Capital spending in 2019 is expected to be $169
million and includes $52 million for sustaining, infrastructure and
intangibles and $117 million for upgrade and expansion. We expect
that the $169 million will be split $162 million in the Contract
Drilling Services segment, $5 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, rental and camp and catering divisions.
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(Stated
in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services |
|
334,475 |
|
|
|
304,353 |
|
|
|
9.9 |
|
|
|
713,739 |
|
|
|
657,155 |
|
|
|
8.6 |
|
Completion and Production Services |
|
26,145 |
|
|
|
27,706 |
|
|
|
(5.6 |
) |
|
|
81,964 |
|
|
|
77,748 |
|
|
|
5.4 |
|
Inter-segment eliminations |
|
(1,196 |
) |
|
|
(1,343 |
) |
|
|
(10.9 |
) |
|
|
(2,236 |
) |
|
|
(3,181 |
) |
|
|
(29.7 |
) |
|
|
359,424 |
|
|
|
330,716 |
|
|
|
8.7 |
|
|
|
793,467 |
|
|
|
731,722 |
|
|
|
8.4 |
|
Adjusted EBITDA:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services |
|
93,295 |
|
|
|
83,441 |
|
|
|
11.8 |
|
|
|
211,750 |
|
|
|
194,407 |
|
|
|
8.9 |
|
Completion and Production Services |
|
2,781 |
|
|
|
(1,402 |
) |
|
|
(298.4 |
) |
|
|
13,299 |
|
|
|
3,242 |
|
|
|
310.2 |
|
Corporate and Other |
|
(15,039 |
) |
|
|
(19,857 |
) |
|
|
(24.3 |
) |
|
|
(36,045 |
) |
|
|
(37,998 |
) |
|
|
(5.1 |
) |
|
|
81,037 |
|
|
|
62,182 |
|
|
|
30.3 |
|
|
|
189,004 |
|
|
|
159,651 |
|
|
|
18.4 |
|
(1) See “NON-GAAP
MEASURES”.
SEGMENT REVIEW OF CONTRACT DRILLING
SERVICES
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
334,475 |
|
|
|
304,353 |
|
|
|
9.9 |
|
|
|
713,739 |
|
|
|
657,155 |
|
|
|
8.6 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
231,422 |
|
|
|
211,008 |
|
|
|
9.7 |
|
|
|
477,937 |
|
|
|
444,156 |
|
|
|
7.6 |
|
General and administrative |
|
9,758 |
|
|
|
9,904 |
|
|
|
(1.5 |
) |
|
|
21,006 |
|
|
|
18,592 |
|
|
|
13.0 |
|
Restructuring |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
3,046 |
|
|
|
- |
|
|
n/m |
|
Adjusted EBITDA(1) |
|
93,295 |
|
|
|
83,441 |
|
|
|
11.8 |
|
|
|
211,750 |
|
|
|
194,407 |
|
|
|
8.9 |
|
Depreciation |
|
75,155 |
|
|
|
81,100 |
|
|
|
(7.3 |
) |
|
|
153,154 |
|
|
|
160,838 |
|
|
|
(4.8 |
) |
Gain on asset disposals |
|
(4,271 |
) |
|
|
(921 |
) |
|
|
363.7 |
|
|
|
(39,272 |
) |
|
|
(2,959 |
) |
|
|
1,227.2 |
|
Impairment reversal |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
(5,810 |
) |
|
|
- |
|
|
n/m |
|
Operating earnings(1) |
|
22,411 |
|
|
|
3,262 |
|
|
|
587.0 |
|
|
|
103,678 |
|
|
|
36,528 |
|
|
|
183.8 |
|
Operating earnings(1) as a percentage of revenue |
|
6.7 |
% |
|
|
1.1 |
% |
|
|
|
|
|
|
14.5 |
% |
|
|
5.6 |
% |
|
|
|
|
(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 |
|
June 30 |
|
77 |
|
|
|
967 |
|
|
|
72 |
|
|
|
1,021 |
|
Year to date average |
|
78 |
|
|
|
995 |
|
|
|
68 |
|
|
|
986 |
|
(1) United States lower 48
operations only.(2) Baker Hughes rig
counts.
|
|
Three months ended June 30, |
|
Canadian onshore drilling statistics:(1) |
|
2019 |
|
|
2018 |
|
|
|
Precision |
|
|
Industry(2) |
|
|
Precision |
|
|
Industry(2) |
|
Number of drilling rigs (end of period) |
|
|
116 |
|
|
|
548 |
|
|
|
135 |
|
|
|
618 |
|
Drilling rig operating days (spud to release) |
|
|
2,192 |
|
|
|
7,266 |
|
|
|
2,526 |
|
|
|
9,536 |
|
Drilling rig operating day utilization |
|
|
21 |
% |
|
|
15 |
% |
|
|
21 |
% |
|
|
17 |
% |
Number of wells drilled |
|
|
230 |
|
|
|
752 |
|
|
|
227 |
|
|
|
903 |
|
Average days per well |
|
|
9.5 |
|
|
|
9.7 |
|
|
|
11.1 |
|
|
|
10.6 |
|
Number of metres drilled (000s) |
|
|
721 |
|
|
|
2,301 |
|
|
|
731 |
|
|
|
2,756 |
|
Average metres per well |
|
|
3,135 |
|
|
|
3,059 |
|
|
|
3,218 |
|
|
|
3,052 |
|
Average metres per day |
|
|
329 |
|
|
|
317 |
|
|
|
289 |
|
|
|
289 |
|
|
|
Six months ended June 30, |
|
Canadian onshore drilling statistics:(1) |
|
2019 |
|
|
2018 |
|
|
|
Precision |
|
|
Industry(2) |
|
|
Precision |
|
|
Industry(2) |
|
Number of drilling rigs (end of period) |
|
|
116 |
|
|
|
548 |
|
|
|
135 |
|
|
|
618 |
|
Drilling rig operating days (spud to release) |
|
|
5,972 |
|
|
|
22,580 |
|
|
|
8,180 |
|
|
|
32,381 |
|
Drilling rig operating day utilization |
|
|
29 |
% |
|
|
22 |
% |
|
|
34 |
% |
|
|
29 |
% |
Number of wells drilled |
|
|
594 |
|
|
|
2,228 |
|
|
|
742 |
|
|
|
3,133 |
|
Average days per well |
|
|
10.1 |
|
|
|
10.1 |
|
|
|
11.0 |
|
|
|
10.3 |
|
Number of metres drilled (000s) |
|
|
1,772 |
|
|
|
6,692 |
|
|
|
2,228 |
|
|
|
9,201 |
|
Average metres per well |
|
|
2,983 |
|
|
|
3,004 |
|
|
|
3,003 |
|
|
|
2,937 |
|
Average metres per day |
|
|
297 |
|
|
|
296 |
|
|
|
272 |
|
|
|
284 |
|
(1) Canadian operations
only.(2) Canadian Association of Oilwell Drilling
Contractors (“CAODC”), and Precision – excludes non-CAODC rigs and
non-reporting CAODC members.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION
SERVICES
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
26,145 |
|
|
|
27,706 |
|
|
|
(5.6 |
) |
|
|
81,964 |
|
|
|
77,748 |
|
|
|
5.4 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
21,823 |
|
|
|
26,207 |
|
|
|
(16.7 |
) |
|
|
64,956 |
|
|
|
69,471 |
|
|
|
(6.5 |
) |
General and administrative |
|
1,541 |
|
|
|
1,737 |
|
|
|
(11.3 |
) |
|
|
3,252 |
|
|
|
3,871 |
|
|
|
(16.0 |
) |
Restructuring |
|
- |
|
|
|
1,164 |
|
|
|
(100.0 |
) |
|
|
457 |
|
|
|
1,164 |
|
|
|
(60.7 |
) |
Adjusted EBITDA(1) |
|
2,781 |
|
|
|
(1,402 |
) |
|
|
(298.4 |
) |
|
|
13,299 |
|
|
|
3,242 |
|
|
|
310.2 |
|
Depreciation |
|
4,341 |
|
|
|
5,785 |
|
|
|
(25.0 |
) |
|
|
9,290 |
|
|
|
11,749 |
|
|
|
(20.9 |
) |
Loss (gain) on asset disposals |
|
(3,546 |
) |
|
|
(773 |
) |
|
|
358.7 |
|
|
|
(3,602 |
) |
|
|
138 |
|
|
|
(2,710.1 |
) |
Operating earnings (loss)(1) |
|
1,986 |
|
|
|
(6,414 |
) |
|
|
(131.0 |
) |
|
|
7,611 |
|
|
|
(8,645 |
) |
|
|
(188.0 |
) |
Operating earnings (loss)(1) as a percentage of revenue |
|
7.6 |
% |
|
|
(23.2 |
)% |
|
|
|
|
|
|
9.3 |
% |
|
|
(11.1 |
)% |
|
|
|
|
Well servicing
statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of service rigs (end of period)(2) |
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
|
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
Service rig operating hours |
|
29,540 |
|
|
|
31,824 |
|
|
|
(7.2 |
) |
|
|
72,438 |
|
|
|
84,525 |
|
|
|
(14.3 |
) |
Service rig operating hour utilization |
|
26 |
% |
|
|
17 |
% |
|
|
|
|
|
|
31 |
% |
|
|
22 |
% |
|
|
|
|
Service rig revenue per operating hour |
|
733 |
|
|
|
676 |
|
|
|
8.4 |
|
|
|
748 |
|
|
|
691 |
|
|
|
8.2 |
|
(1) See “NON-GAAP
MEASURES”.(2) In 2019, 75 rigs were not
registered with the industry association and 12 snubbing units were
sold.
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
$15 million, a $5 million decrease compared with the second quarter
of 2018 primarily due to lower share-based incentive
compensation.
OTHER ITEMS
Asset Disposals
In the second quarter of 2019, Precision
concluded the sale of its five Mexico-based drilling rigs and
ancillary equipment for total proceeds of US$48 million. In the
first quarter, Precision received US$40 million for the sale of
four drilling rigs and ancillary equipment and recognized a gain on
asset disposal of US$24 million. Precision reversed US$4 million of
previous impairment charges pertaining to the fifth rig. The
impairment reversal brought the drilling rig’s carrying value up to
its fair value of US$8 million and was reclassified as held for
sale at March 31, 2019. In the second quarter of 2019, Precision
delivered the fifth rig to its buyer and received final proceeds of
US$8 million. As the rig was carried at fair value, no gain or loss
was recognized on disposal.
During the second quarter of 2019, Precision
disposed of certain snubbing units and related equipment for
proceeds of $8 million resulting in a gain on asset disposal of $3
million.
In addition to the above disposals, through the
completion of normal course business operations, we sell used
assets incurring gains or losses on disposal.
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 June 30, |
|
|
Six months ended June 30, |
|
(Stated
in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Cash settled share-based incentive plans |
|
515 |
|
|
|
7,681 |
|
|
|
6,319 |
|
|
|
15,471 |
|
Equity settled share-based
incentive plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive PSU |
|
3,024 |
|
|
|
1,696 |
|
|
|
5,396 |
|
|
|
2,749 |
|
Stock option plan |
|
506 |
|
|
|
901 |
|
|
|
1,237 |
|
|
|
1,718 |
|
Total
share-based incentive compensation plan expense |
|
4,045 |
|
|
|
10,278 |
|
|
|
12,952 |
|
|
|
19,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
798 |
|
|
|
3,305 |
|
|
|
3,227 |
|
|
|
6,801 |
|
General and Administrative |
|
3,247 |
|
|
|
6,973 |
|
|
|
9,725 |
|
|
|
13,137 |
|
|
|
4,045 |
|
|
|
10,278 |
|
|
|
12,952 |
|
|
|
19,938 |
|
Cash settled shared-based compensation expense
decreased $7 million in the current quarter to $1 million compared
with $8 million in the same quarter in 2018. The decrease is
primarily due to the decreasing share price in the second quarter
of 2019.
Executive PSU share-based incentive compensation
expense for the quarter was $3 million compared with $2 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 $30 million, a decrease
of $2 million compared with the second 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 second quarter of 2019 were US$21 million
($28 million) as compared with US$24 million ($31 million) in
2018.
Income Tax
Income tax recovery for the quarter was $6
million compared with $13 million in the same quarter in 2018. In
2019, the Province of Alberta announced various reductions to
corporate income tax rates, that when fully implemented over the
next three years will decrease the provincial corporate income tax
rate from 12% to 8% by 2022. The reduction in the Alberta
provincial corporate income tax rate is considered substantially
enacted and resulted in a deferred tax recovery of $4 million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Amount |
|
Availability |
|
Used for |
|
Maturity |
Senior facility (secured) |
|
|
|
|
|
|
US$500 million (extendible, revolving term credit facility with
US$300 million accordion feature) |
|
Undrawn, except US$25 million in outstanding letters of
credit |
|
General corporate purposes |
|
November 21, 2022 |
Operating facilities (secured) |
|
|
|
|
|
|
$40 million |
|
Undrawn, except $27 million in outstanding 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 in outstanding letters of
credit |
|
Letters of credit |
|
|
Senior notes (unsecured) |
|
|
|
|
|
|
US$116 million – 6.5% |
|
Fully drawn |
|
Capital expenditures and general corporate purposes |
|
December 15, 2021 |
US$350 million – 7.75% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
December 15, 2023 |
US$334 million – 5.25% |
|
Fully drawn |
|
Capital expenditures and general corporate purposes |
|
November 15, 2024 |
US$374 million – 7.125% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
January 15, 2026 |
As of June 30, 2019, we had US$1,174 million
($1,535 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 half of 2019, Precision
repurchased and cancelled US$26 million of the 7.125% unsecured
senior notes due 2026 and US$17 million of the 5.25% notes due 2024
and redeemed US$50 million principal amount of our 6.50% senior
notes due 2021.
Covenants
Following is a listing of our currently
applicable covenants and the calculations as of June 30, 2019:
|
Covenant |
|
As at June 30, 2019 |
|
Senior Facility |
|
|
|
|
|
Consolidated senior debt to consolidated covenant EBITDA(1) |
≤ 2.50 |
|
|
(0.60 |
) |
Consolidated covenant EBITDA to consolidated interest
expense(1) |
≥ 2.50 |
|
|
3.10 |
|
Senior
Notes |
|
|
|
|
|
Consolidated interest coverage ratio |
≥ 2.00 |
|
|
3.10 |
|
(1) For purposes of calculating the leverage
ratio consolidated senior debt only includes secured
indebtedness.
At June 30, 2019, we were in compliance with the
covenants of our senior credit facility and unsecured senior
notes.
Impact of foreign exchange rates
The devaluation of the Canadian dollar during
the first half of 2019 resulted in higher translated U.S.
denominated revenue and costs. On average for the three and six
months ended June 30, 2019, the Canadian dollar weakened by 4% from
the comparable 2018 periods. The following table summarizes the
average and closing Canada-U.S. foreign exchanges rates:
|
Three months ended June
30, |
|
|
Six
months ended June
30, |
|
|
December 31, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
2018 |
|
Canada-U.S. foreign exchange rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
1.34 |
|
|
|
1.29 |
|
|
|
1.33 |
|
|
|
1.28 |
|
|
|
1.30 |
|
Closing |
|
1.31 |
|
|
|
1.31 |
|
|
|
1.31 |
|
|
|
1.31 |
|
|
|
1.37 |
|
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 June 30, |
|
|
Six months ended June 30, |
|
(Stated
in thousands) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Weighted average shares outstanding – basic |
|
293,782 |
|
|
|
293,471 |
|
|
|
293,782 |
|
|
|
293,355 |
|
Effect
of stock options and other equity compensation plans |
|
— |
|
|
|
— |
|
|
|
5,959 |
|
|
|
— |
|
Weighted average shares outstanding – diluted |
|
293,782 |
|
|
|
293,471 |
|
|
|
299,741 |
|
|
|
293,355 |
|
NON-GAAP MEASURES
In this report 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 (gain) on repurchase of unsecured senior notes,
finance charges, foreign exchange, impairment reversal, loss (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 June 30, |
|
|
Six months ended June 30, |
|
(Stated
in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenue |
|
359,424 |
|
|
|
330,716 |
|
|
|
793,467 |
|
|
|
731,722 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
252,049 |
|
|
|
235,872 |
|
|
|
540,657 |
|
|
|
510,446 |
|
General and administrative |
|
26,338 |
|
|
|
31,498 |
|
|
|
57,368 |
|
|
|
60,461 |
|
Restructuring |
|
— |
|
|
|
1,164 |
|
|
|
6,438 |
|
|
|
1,164 |
|
Depreciation and
amortization |
|
83,327 |
|
|
|
90,315 |
|
|
|
170,080 |
|
|
|
178,750 |
|
Gain on asset disposals |
|
(7,859 |
) |
|
|
(1,694 |
) |
|
|
(42,909 |
) |
|
|
(2,821 |
) |
Impairment reversal |
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Operating earnings
(loss) |
|
5,569 |
|
|
|
(26,439 |
) |
|
|
67,643 |
|
|
|
(16,278 |
) |
Foreign exchange |
|
(3,763 |
) |
|
|
556 |
|
|
|
(5,886 |
) |
|
|
1,771 |
|
Finance charges |
|
30,385 |
|
|
|
32,103 |
|
|
|
61,688 |
|
|
|
63,782 |
|
Loss
(gain) on repurchase of unsecured notes |
|
(1,085 |
) |
|
|
1,176 |
|
|
|
(1,398 |
) |
|
|
1,176 |
|
Earnings (loss) before income taxes |
|
(19,968 |
) |
|
|
(60,274 |
) |
|
|
13,239 |
|
|
|
(83,007 |
) |
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 report,
including statements that contain words such as "could", "should",
"can", "anticipate", "estimate", "intend", "plan", "expect",
"believe", "will", "may", "continue", "project", "potential" and
similar expressions and statements relating to matters that are not
historical facts constitute "forward-looking information" within
the meaning of applicable Canadian securities legislation and
"forward-looking statements" within the meaning of the "safe
harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995 (collectively, "forward-looking
information and statements").
In particular, forward looking information and
statements include, but are not limited to, the following:
- our 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
report 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) |
|
June 30,
2019 |
|
|
December 31, 2018 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
80,580 |
|
|
$ |
96,626 |
|
Accounts receivable |
|
|
313,446 |
|
|
|
372,336 |
|
Inventory |
|
|
30,559 |
|
|
|
34,081 |
|
Assets
held for sale |
|
|
19,373 |
|
|
|
19,658 |
|
Total current assets |
|
|
443,958 |
|
|
|
522,701 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
Income tax recoverable |
|
|
2,347 |
|
|
|
2,449 |
|
Deferred tax assets |
|
|
12,209 |
|
|
|
36,880 |
|
Right of use assets |
|
|
71,454 |
|
|
|
— |
|
Property, plant and
equipment |
|
|
2,877,153 |
|
|
|
3,038,612 |
|
Intangibles |
|
|
33,227 |
|
|
|
35,401 |
|
Total non-current assets |
|
|
2,996,390 |
|
|
|
3,113,342 |
|
Total
assets |
|
$ |
3,440,348 |
|
|
$ |
3,636,043 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
|
|
223,115 |
|
|
$ |
274,489 |
|
Income taxes payable |
|
|
7,268 |
|
|
|
7,673 |
|
Lease
obligation |
|
|
12,611 |
|
|
|
— |
|
Total current liabilities |
|
|
242,994 |
|
|
|
282,162 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
7,965 |
|
|
|
6,520 |
|
Provisions and other |
|
|
10,150 |
|
|
|
10,577 |
|
Lease obligation |
|
|
59,743 |
|
|
|
— |
|
Long-term debt |
|
|
1,514,964 |
|
|
|
1,706,253 |
|
Deferred tax liabilities |
|
|
48,625 |
|
|
|
72,779 |
|
Total non-current
liabilities |
|
|
1,641,447 |
|
|
|
1,796,129 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Shareholders’ capital |
|
|
2,322,280 |
|
|
|
2,322,280 |
|
Contributed surplus |
|
|
58,965 |
|
|
|
52,332 |
|
Deficit |
|
|
(964,861 |
) |
|
|
(978,874 |
) |
Accumulated other comprehensive income |
|
|
139,523 |
|
|
|
162,014 |
|
Total
shareholders’ equity |
|
|
1,555,907 |
|
|
|
1,557,752 |
|
Total
liabilities and shareholders’ equity |
|
$ |
3,440,348 |
|
|
$ |
3,636,043 |
|
INTERIM CONSOLIDATED STATEMENTS OF
EARNINGS (LOSS) (UNAUDITED)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
359,424 |
|
|
$ |
330,716 |
|
|
$ |
793,467 |
|
|
$ |
731,722 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
252,049 |
|
|
|
235,872 |
|
|
|
540,657 |
|
|
|
510,446 |
|
General and
administrative |
|
|
26,338 |
|
|
|
31,498 |
|
|
|
57,368 |
|
|
|
60,461 |
|
Restructuring |
|
|
— |
|
|
|
1,164 |
|
|
|
6,438 |
|
|
|
1,164 |
|
Earnings before income taxes,
loss (gain) on repurchase of unsecured senior notes, finance
charges, foreign exchange, impairment reversal, gain on asset
disposals and depreciation and amortization |
|
|
81,037 |
|
|
|
62,182 |
|
|
|
189,004 |
|
|
|
159,651 |
|
Depreciation and
amortization |
|
|
83,327 |
|
|
|
90,315 |
|
|
|
170,080 |
|
|
|
178,750 |
|
Gain on asset disposals |
|
|
(7,859 |
) |
|
|
(1,694 |
) |
|
|
(42,909 |
) |
|
|
(2,821 |
) |
Impairment reversal |
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Foreign exchange |
|
|
(3,763 |
) |
|
|
556 |
|
|
|
(5,886 |
) |
|
|
1,771 |
|
Finance charges |
|
|
30,385 |
|
|
|
32,103 |
|
|
|
61,688 |
|
|
|
63,782 |
|
Loss
(gain) on repurchase of unsecured senior notes |
|
|
(1,085 |
) |
|
|
1,176 |
|
|
|
(1,398 |
) |
|
|
1,176 |
|
Earnings (loss) before income
taxes |
|
|
(19,968 |
) |
|
|
(60,274 |
) |
|
|
13,239 |
|
|
|
(83,007 |
) |
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
1,403 |
|
|
|
3,599 |
|
|
|
3,013 |
|
|
|
5,165 |
|
Deferred |
|
|
(7,570 |
) |
|
|
(16,656 |
) |
|
|
(987 |
) |
|
|
(22,878 |
) |
|
|
|
(6,167 |
) |
|
|
(13,057 |
) |
|
|
2,026 |
|
|
|
(17,713 |
) |
Net
earnings (loss) |
|
$ |
(13,801 |
) |
|
$ |
(47,217 |
) |
|
$ |
11,213 |
|
|
$ |
(65,294 |
) |
Net earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.05 |
) |
|
$ |
(0.16 |
) |
|
$ |
0.04 |
|
|
$ |
(0.22 |
) |
Diluted |
|
$ |
(0.05 |
) |
|
$ |
(0.16 |
) |
|
$ |
0.04 |
|
|
$ |
(0.22 |
) |
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(Stated
in thousands of Canadian dollars) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Net earnings (loss) |
|
$ |
(13,801 |
) |
|
$ |
(47,217 |
) |
|
$ |
11,213 |
|
|
$ |
(65,294 |
) |
Unrealized gain (loss)
on translation of assets and liabilities of
operations denominated in foreign currency |
|
|
(42,846 |
) |
|
|
39,592 |
|
|
|
(91,364 |
) |
|
|
93,326 |
|
Foreign exchange gain
(loss) on net investment hedge with U.S.
denominated debt, net of tax |
|
|
29,859 |
|
|
|
(33,115 |
) |
|
|
68,873 |
|
|
|
(78,570 |
) |
Comprehensive loss |
|
$ |
(26,788 |
) |
|
$ |
(40,740 |
) |
|
$ |
(11,278 |
) |
|
$ |
(50,538 |
) |
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOW (UNAUDITED)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(Stated
in thousands of Canadian dollars) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss) |
|
$ |
(13,801 |
) |
|
$ |
(47,217 |
) |
|
$ |
11,213 |
|
|
$ |
(65,294 |
) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term compensation
plans |
|
|
3,612 |
|
|
|
6,027 |
|
|
|
10,924 |
|
|
|
13,926 |
|
Depreciation and
amortization |
|
|
83,327 |
|
|
|
90,315 |
|
|
|
170,080 |
|
|
|
178,750 |
|
Gain on asset
disposals |
|
|
(7,859 |
) |
|
|
(1,694 |
) |
|
|
(42,909 |
) |
|
|
(2,821 |
) |
Impairment
reversal |
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Foreign exchange |
|
|
(3,880 |
) |
|
|
(15 |
) |
|
|
(6,118 |
) |
|
|
1,433 |
|
Finance charges |
|
|
30,385 |
|
|
|
32,103 |
|
|
|
61,688 |
|
|
|
63,782 |
|
Income taxes |
|
|
(6,167 |
) |
|
|
(13,057 |
) |
|
|
2,026 |
|
|
|
(17,713 |
) |
Other |
|
|
(281 |
) |
|
|
(217 |
) |
|
|
(159 |
) |
|
|
(1,133 |
) |
Loss (gain) on
repurchase of unsecured senior notes |
|
|
(1,085 |
) |
|
|
1,176 |
|
|
|
(1,398 |
) |
|
|
1,176 |
|
Income taxes paid |
|
|
(3,550 |
) |
|
|
(3,282 |
) |
|
|
(3,887 |
) |
|
|
(3,606 |
) |
Income taxes
recovered |
|
|
— |
|
|
|
27,551 |
|
|
|
1,071 |
|
|
|
27,587 |
|
Interest paid |
|
|
(40,263 |
) |
|
|
(42,021 |
) |
|
|
(60,496 |
) |
|
|
(42,521 |
) |
Interest received |
|
|
512 |
|
|
|
556 |
|
|
|
718 |
|
|
|
685 |
|
Funds provided by
operations |
|
|
40,950 |
|
|
|
50,225 |
|
|
|
136,943 |
|
|
|
154,251 |
|
Changes
in non-cash working capital balances |
|
|
65,085 |
|
|
|
79,470 |
|
|
|
9,679 |
|
|
|
13,633 |
|
|
|
|
106,035 |
|
|
|
129,695 |
|
|
|
146,622 |
|
|
|
167,884 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant
and equipment |
|
|
(43,469 |
) |
|
|
(34,324 |
) |
|
|
(114,431 |
) |
|
|
(56,615 |
) |
Purchase of intangibles |
|
|
(26 |
) |
|
|
(2,429 |
) |
|
|
(464 |
) |
|
|
(10,220 |
) |
Proceeds on sale of property,
plant and equipment |
|
|
24,575 |
|
|
|
2,630 |
|
|
|
82,452 |
|
|
|
8,680 |
|
Changes
in non-cash working capital balances |
|
|
2,536 |
|
|
|
(8,204 |
) |
|
|
(727 |
) |
|
|
(8,032 |
) |
|
|
|
(16,384 |
) |
|
|
(42,327 |
) |
|
|
(33,170 |
) |
|
|
(66,187 |
) |
Financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease payments |
|
|
(1,685 |
) |
|
|
— |
|
|
|
(3,357 |
) |
|
|
— |
|
Repurchase of unsecured senior notes |
|
|
(107,161 |
) |
|
|
(76,657 |
) |
|
|
(123,833 |
) |
|
|
(76,657 |
) |
|
|
|
(108,846 |
) |
|
|
(76,657 |
) |
|
|
(127,190 |
) |
|
|
(76,657 |
) |
Effect
of exchange rate changes on cash and cash equivalents |
|
|
(1,255 |
) |
|
|
2,085 |
|
|
|
(2,308 |
) |
|
|
4,548 |
|
Increase (decrease) in cash
and cash equivalents |
|
|
(20,450 |
) |
|
|
12,796 |
|
|
|
(16,046 |
) |
|
|
29,588 |
|
Cash
and cash equivalents, beginning of period |
|
|
101,030 |
|
|
|
81,873 |
|
|
|
96,626 |
|
|
|
65,081 |
|
Cash
and cash equivalents, end of period |
|
$ |
80,580 |
|
|
$ |
94,669 |
|
|
$ |
80,580 |
|
|
$ |
94,669 |
|
.
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 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,213 |
|
|
|
11,213 |
|
Other comprehensive loss for
the period |
|
|
- |
|
|
|
- |
|
|
|
(22,491 |
) |
|
|
- |
|
|
|
(22,491 |
) |
Share-based compensation expense |
|
|
- |
|
|
|
6,633 |
|
|
|
- |
|
|
|
- |
|
|
|
6,633 |
|
Balance at June 30, 2019 |
|
$ |
2,322,280 |
|
|
$ |
58,965 |
|
|
$ |
139,523 |
|
|
$ |
(964,861 |
) |
|
$ |
1,555,907 |
|
(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 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(65,294 |
) |
|
|
(65,294 |
) |
Other comprehensive income for
the period |
|
|
- |
|
|
|
- |
|
|
|
14,756 |
|
|
|
- |
|
|
|
14,756 |
|
Shares issued on redemption
non-management directors' DSUs |
|
|
2,609 |
|
|
|
(809 |
) |
|
|
- |
|
|
|
- |
|
|
|
1,800 |
|
Share-based compensation
expense |
|
|
- |
|
|
|
4,467 |
|
|
|
- |
|
|
|
- |
|
|
|
4,467 |
|
Balance at June 30, 2018 |
|
$ |
2,321,902 |
|
|
$ |
47,695 |
|
|
$ |
146,366 |
|
|
$ |
(749,898 |
) |
|
$ |
1,766,065 |
|
SECOND 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, July 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 July 31, 2019 by dialing 855-859-2056
or 404-537-3406, passcode 9282557.
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 Officer713.435.6136
Dustin Honing, Manager, Investor
Relations403.716.4515
800, 525 - 8th Avenue S.W.Calgary, Alberta,
Canada T2P 1G1Website: www.precisiondrilling.com
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