(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 third quarter
highlights:
- Revenue of $376 million was a
decrease of 2% compared with the third quarter of 2018.
- Net loss of $4 million or negative
$0.01 per share compares to a net loss of $31 million or negative
$0.10 per share in the third 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 $98 million was 21% higher than the third quarter of
2018. During the quarter, we recognized $6 million of non-recurring
items that positively impacted Adjusted EBITDA but did not relate
to current period operations.
- Funds provided by operations (see
“NON-GAAP MEASURES”) was $80 million versus $64 million in the
prior year quarter. Cash provided by operations was $67 million
versus $32 million in the prior year quarter. The increase in funds
and cash provided by operations in the current quarter was
primarily the result of improved operations and management’s focus
on free cash flow.
- Strict cost control focus resulted
in year-to-date general and administrative costs decreasing 13%
from the same period in 2018.
- For the first nine months of 2019,
debt reduction of $146 million and share repurchases of $8 million
while our cash balance of $94 million remained largely unchanged
from the start of the year.
- In the quarter the Toronto Stock
Exchange approved our application to implement a Normal Course
Issuer Bid. We purchased and cancelled 5 million common shares for
$8 million in the third quarter and, as of October 23, 2019,
purchased and cancelled an additional 3 million common shares for
$4 million.
- Year-to-date market share gains in
both the U.S. and Canada evident by Precision’s year-to-date
average U.S. rig count increasing 7% despite a 4% industry decrease
from the same period in 2018 and Precision’s Canadian average rig
count decreasing 25% compared to a 32% decrease for the
industry.
- Substantial increases in Process
Automation Control (PAC) utilization and commercial agreements.
With 584 wells drilled in 2019, Precision is on track to achieve
our 2019 commercialization target.
- Our year-to-date Completion and
Production Services Adjusted EBITDA of $18 million was more than
double our total for the comparable 2018 period.
Precision’s President and CEO Kevin Neveu
stated: “The strength of Precision’s business is demonstrated by
our robust third quarter financial results, excellent operating
performance and substantial progress on our stated 2019 strategic
priorities, all delivered despite lower industry drilling activity
and persistent macroeconomic concerns influencing energy industry
sentiment.”
“Our Adjusted EBITDA and cash provided by
operations increased 21% and 108%, respectively, from the third
quarter in 2018 and are a result of Precision’s market positioning,
success of our technology initiatives and the intense cost control
and cash management efforts across the organization. Cash flow
generation is a core focus for Precision and the $213 million in
cash from operations year-to-date has largely been used to
strengthen our balance sheet.”
“During the quarter, Precision reduced debt by
$21 million. We have reduced debt by $146 million year-to-date and
fully expect to meet or exceed our 2019 debt reduction target of
$200 million. I reiterate our previously disclosed 2020 debt
reduction target of $100 to $150 million, which we expect will
include the balance of our 2021 senior notes. Debt reduction will
remain a strategic priority for Precision in 2020 as we believe it
is the best avenue to increase shareholder value in the current
market. Our strong cash management also provided flexibility to
execute our previously announced share buyback plan. To date, we
have repurchased 3% of our outstanding shares and used
approximately $12 million in cash. We have effected these balance
sheet enhancements while sustaining an essentially flat cash
balance over the course of the year.”
“In the field, the success of our High
Performance, High Value strategy and our Super Series fleet drove
market share gains in North America during the quarter with
Precision once again reaching record market shares in the U.S. and
Canada. Additionally, we expanded our Middle East presence with our
sixth newbuild rig successfully deployed to Kuwait. We see strong
alignment with our competitive strategy and our customers’ drive
for efficiency and consistency in the capital-intensive multi-year
development programs in our core markets.”
“Our automation technology initiatives continued
operational and commercial momentum as we delivered a step-change
in utilization and commercial adoption rates during the quarter.
Before the end of this month, Precision will have drilled 1,000
wells using our PAC system with 32 units currently deployed in the
field. Our customers are widely acknowledging the drilling
efficiency, cost savings and consistency gains our system delivers.
We find the current market conditions ideal to commercialize our
PAC technology, which reduces our customer’s well cost and risk,
while enhancing Precision’s competitive advantage. As a result of
these customer benefits, during the third quarter we doubled the
number of revenue generating systems from the second quarter. I am
excited not only by the future growth potential of our rapidly
scalable technology offering, but also by the value we are
delivering to our customers today.”
“For the remainder of the year we expect
customers to continue managing budgets within cash flow. Precision
will actively help our customers achieve the highest efficiency
levels through our service delivery and operational excellence and
remain focused on cost management to help generate strong margins
and cash flow in all parts of the commodity cycle,” 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 September 30, |
|
|
Nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
375,552 |
|
|
|
382,457 |
|
|
|
(1.8 |
) |
|
|
1,169,019 |
|
|
|
1,114,179 |
|
|
|
4.9 |
|
Adjusted EBITDA(1) |
|
97,895 |
|
|
|
80,988 |
|
|
|
20.9 |
|
|
|
286,899 |
|
|
|
240,639 |
|
|
|
19.2 |
|
Operating earnings
(loss)(1) |
|
19,235 |
|
|
|
(9,702 |
) |
|
|
(298.3 |
) |
|
|
86,878 |
|
|
|
(25,980 |
) |
|
|
(434.4 |
) |
Net earnings (loss) |
|
(3,534 |
) |
|
|
(30,648 |
) |
|
|
(88.5 |
) |
|
|
7,679 |
|
|
|
(95,942 |
) |
|
|
(108.0 |
) |
Cash provided by
operations |
|
66,556 |
|
|
|
31,961 |
|
|
|
108.2 |
|
|
|
213,178 |
|
|
|
199,845 |
|
|
|
6.7 |
|
Funds provided by
operations(1) |
|
79,930 |
|
|
|
64,368 |
|
|
|
24.2 |
|
|
|
216,873 |
|
|
|
218,619 |
|
|
|
(0.8 |
) |
Capital spending: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion |
|
8,162 |
|
|
|
9,909 |
|
|
|
(17.6 |
) |
|
|
100,148 |
|
|
|
26,380 |
|
|
|
279.6 |
|
Upgrade |
|
4,921 |
|
|
|
11,545 |
|
|
|
(57.4 |
) |
|
|
12,647 |
|
|
|
28,355 |
|
|
|
(55.4 |
) |
Maintenance and infrastructure |
|
10,831 |
|
|
|
6,913 |
|
|
|
56.7 |
|
|
|
25,550 |
|
|
|
30,247 |
|
|
|
(15.5 |
) |
Intangibles |
|
12 |
|
|
|
660 |
|
|
|
(98.2 |
) |
|
|
476 |
|
|
|
10,880 |
|
|
|
(95.6 |
) |
Proceeds on sale |
|
(3,385 |
) |
|
|
(3,757 |
) |
|
|
(9.9 |
) |
|
|
(85,837 |
) |
|
|
(12,437 |
) |
|
|
590.2 |
|
Net capital spending |
|
20,541 |
|
|
|
25,270 |
|
|
|
(18.7 |
) |
|
|
52,984 |
|
|
|
83,425 |
|
|
|
(36.5 |
) |
Net earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
(0.01 |
) |
|
|
(0.10 |
) |
|
|
(90.0 |
) |
|
|
0.03 |
|
|
|
(0.33 |
) |
|
|
(109.1 |
) |
Diluted |
|
(0.01 |
) |
|
|
(0.10 |
) |
|
|
(90.0 |
) |
|
|
0.03 |
|
|
|
(0.33 |
) |
|
|
(109.1 |
) |
(1) See “NON-GAAP MEASURES”.
Operating Highlights
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Contract drilling rig fleet |
|
233 |
|
|
|
257 |
|
|
|
(9.3 |
) |
|
|
233 |
|
|
|
257 |
|
|
|
(9.3 |
) |
Drilling rig utilization
days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
6,613 |
|
|
|
7,013 |
|
|
|
(5.7 |
) |
|
|
20,730 |
|
|
|
19,396 |
|
|
|
6.9 |
|
Canada |
|
3,822 |
|
|
|
4,798 |
|
|
|
(20.3 |
) |
|
|
10,579 |
|
|
|
14,100 |
|
|
|
(25.0 |
) |
International |
|
827 |
|
|
|
736 |
|
|
|
12.4 |
|
|
|
2,275 |
|
|
|
2,184 |
|
|
|
4.2 |
|
Revenue per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.(1) (US$) |
|
23,092 |
|
|
|
21,399 |
|
|
|
7.9 |
|
|
|
23,242 |
|
|
|
21,296 |
|
|
|
9.1 |
|
Canada (Cdn$) |
|
19,311 |
|
|
|
19,538 |
|
|
|
(1.2 |
) |
|
|
21,342 |
|
|
|
21,273 |
|
|
|
0.3 |
|
International (US$) |
|
51,233 |
|
|
|
50,007 |
|
|
|
2.5 |
|
|
|
50,923 |
|
|
|
49,959 |
|
|
|
1.9 |
|
Operating cost per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (US$) |
|
14,487 |
|
|
|
14,151 |
|
|
|
2.4 |
|
|
|
14,552 |
|
|
|
14,071 |
|
|
|
3.4 |
|
Canada (Cdn$) |
|
14,639 |
|
|
|
14,164 |
|
|
|
3.4 |
|
|
|
15,406 |
|
|
|
14,294 |
|
|
|
7.8 |
|
Service rig fleet(2) |
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
|
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
Service rig operating
hours |
|
34,851 |
|
|
|
37,169 |
|
|
|
(6.2 |
) |
|
|
107,289 |
|
|
|
121,694 |
|
|
|
(11.8 |
) |
Revenue
per operating hour (Cdn$) |
|
712 |
|
|
|
708 |
|
|
|
0.6 |
|
|
|
736 |
|
|
|
696 |
|
|
|
5.7 |
|
(1) 2018 period includes revenue from idle but
contracted rig days.(2) 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) |
September 30, 2019 |
|
|
December 31, 2018 |
|
Working capital(1) |
|
227,282 |
|
|
|
240,539 |
|
Cash |
|
93,761 |
|
|
|
96,626 |
|
Long-term debt |
|
1,513,827 |
|
|
|
1,706,253 |
|
Total long-term financial
liabilities |
|
1,588,883 |
|
|
|
1,723,350 |
|
Total assets |
|
3,445,734 |
|
|
|
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
September 30, 2019:
- Revenue was $376 million, 2% lower
than the third quarter of 2018. The revenue decrease primarily
resulted from lower activity in the U.S. and Canada, partially
offset by higher average day rates in our U.S. and international
operations and higher international activity. Compared with the
third quarter of 2018, our drilling activity for the quarter
decreased 6% in the U.S., decreased 20% in Canada and grew 12%
internationally. Our 2019 third quarter revenue from our Contract
Drilling Services segment was consistent with the 2018 quarter
while Completion and Production Services segment revenue decreased
15%.
- General and administrative expenses
were $21 million, $9 million lower than the third quarter of 2018.
The decreased expenses were due to lower share-based incentive
compensation expense, fixed cost control initiatives, non-recurring
items of $2 million and the impact of lease-related charges due to
the adoption of IFRS 16 partially offset by the weakening of the
Canadian dollar on our U.S. dollar denominated costs.
- Adjusted EBITDA (see “NON-GAAP
MEASURES”) was $98 million, an increase of $17 million from the
third quarter of 2018. Our Adjusted EBITDA as a percentage of
revenue was 26% this quarter, compared with 21% in the comparative
quarter of 2018. Operating earnings (see “NON-GAAP MEASURES”) were
$19 million compared with an operating loss of $10 million in the
third quarter of 2018. Both Adjusted EBITDA and operating earnings
this quarter were positively impacted by higher international
activity, increased average U.S. and international day rates, lower
general and administrative costs and the recognition of $4 million
of non-recurring items in operating expenses partially offset by
lower U.S. and Canadian drilling activity. With the adoption of
IFRS 16, lease-related charges of $3 million in the quarter 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 $2 million
compared with $8 million in the third quarter of 2018. See
discussion on share-based incentive compensation under “Other
Items” later in this release for additional details.
- Net finance charges were $28
million, a decrease of $3 million compared with the third 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 third quarter of 2019 to US$23,092 from
US$21,399 in the prior year quarter. The increase was the result of
higher day rates, third-party cost recoveries and rig technology
revenue, partially offset by lower turnkey activity, rig
mobilizations and idle but contracted rig revenue. During the
quarter, we had revenue from idle but contracted rigs and turnkey
projects of nil, as compared to third quarter 2018 idle but
contracted rig and turnkey revenue of US$0.3 million and US$0.4
million, respectively. Operating costs on a per day basis increased
to US$14,487 in the third quarter of 2019 compared with US$14,151
in 2018. The increase was mainly due to higher third-party charges
incurred but recovered from the customer, partially offset by lower
repair and maintenance costs due to the timing of equipment
certifications and scheduled maintenance and lower turnkey costs
from decreased activity. On a sequential basis, revenue per
utilization day, excluding revenue from turnkey and idle but
contracted rigs, decreased by US$218 due to lower fleet average day
rates partially offset by higher technology revenue, while
operating costs per day decreased by US$313 due to certain
non-recurring items.
- In Canada, average revenue per
utilization day for contract drilling rigs was $19,311 compared
with $19,538 in the third quarter of 2018. The lower average
revenue per utilization day in the third quarter of 2019 was
primarily because of lower day rates and boiler revenue. We did not
receive shortfall payments in the third quarter of 2019, consistent
with the 2018 quarter. Average operating costs per utilization day
for drilling rigs in Canada increased to $14,639 compared with the
prior year quarter of $14,164. 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$42 million in the third
quarter of 2019, an increase of US$5 million over the prior year
period. Average revenue per utilization day in our international
contract drilling business was US$51,233 compared with US$50,007 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 and the deployment of our sixth
Kuwait rig.
- Revenue from Completion and
Production Services decreased $5 million compared with the third
quarter of 2018 due to lower activity in each of our Canadian
business lines partially offset by higher U.S. well service
activity. Our average service rig revenue per operating hour was up
slightly from the third quarter of 2018 to $712 while our service
rig operating hours in the quarter were down 6%. Adjusted EBITDA
(see “NON-GAAP MEASURES”) of $5 million in the third quarter of
2019 was consistent with the 2018 quarter as lower Canadian
activity was offset by higher U.S. service rig activity and lower
costs due to the impact of cost control measures from prior
periods.
- Directional drilling services
realized revenue of $13 million in the third quarter of 2019
compared with $7 million in the prior year period.
- Funds provided by operations (see
“NON-GAAP MEASURES”) in the third quarter of 2019 were $80 million,
an increase of $16 million from the prior year comparative quarter.
Cash provided by operations was $67 million versus $32 million in
the prior year quarter. The increase in funds and cash provided by
operations was primarily the result of improved operating results
in 2019 and management’s focus on free cash flow.
- Capital expenditures were $24
million in the third quarter, $5 million lower than the same period
in 2018. Capital spending for the quarter included $13 million for
upgrade and expansion capital and $11 million for the maintenance
of existing assets, infrastructure spending and intangibles.
Summary for the nine months ended
September 30, 2019:
- Revenue for the first nine months
of 2019 was $1,169 million, an increase of 5% from the 2018
period.
- Operating earnings (see “NON-GAAP
MEASURES”) were $87 million, an increase of $113 million over the
$26 million operating loss for the same period in 2018. As a
percentage of revenue, operating earnings were 7% compared to
negative 2% in 2018. Operating results this year were positively
impacted by increased U.S. and international drilling activity,
higher average revenue rates in each operating region and gains on
asset disposals, partially offset by lower Canadian drilling
activity.
- General and administrative costs
were $78 million, a decrease of $12 million from 2018. The decrease
was due to lower share-based incentive compensation that is tied to
the price of our common shares and continued fixed cost control
initiatives, partially offset by the weakening of the Canadian
dollar on our U.S. dollar denominated costs (see “Other Items”
later in this release).
- Net finance charges were $90
million, a decrease of $5 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 nine months of 2019 were $217
million, a decrease of $2 million from the prior year comparative
period of $219 million. Cash provided by operations was $213
million in 2019 as compared to $200 million in 2018.
- Capital expenditures were $139
million for the first nine months of 2019, an increase of $43
million over the same period in 2018. Capital spending for 2019 to
date includes $113 million for upgrade and expansion capital and
$26 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 – In
the third quarter of 2019, we generated $67 million in cash
provided by operations and further reduced our debt balance by $21
million through open market repurchases of our unsecured senior
notes. With a total year-to-date 2019 debt reduction of $146
million, continued strong operating cash flow and a cash balance of
$94 million, we are on pace to meet or exceed our recently
increased 2019 debt reduction target of $200 million. Additionally,
we have set debt reduction targets at $100 million to $150 million
for 2020, including retiring our 2021 unsecured senior notes.
- Maximize financial results
by leveraging our High Performance, High Value Super Series rig
fleet and scale with disciplined cost management – In the
third quarter of 2019, Precision generated Adjusted EBITDA as a
percentage of revenue of 26%, our highest third quarter percentage
in the past four years. We continued operating at record market
share levels in the U.S. and Canada and have leveraged our size and
scale to maximize cash flow. In the U.S., operating margins
(revenue less operating costs) were up 20% compared to the prior
year quarter. Despite decreased Canadian industry activity levels,
our Canadian drilling operations generated strong cash flow and our
Completion and Production Services business contributed $5 million
of Adjusted EBITDA. Our focus on fixed costs has resulted in
year-to-date general and administrative cost reductions of 13% from
the same period in 2018. In the third quarter of 2019, we continued
to invest in our High-Performance, High-Value Super Series rig
fleet with the deployment of our sixth Kuwait rig which commenced
drilling on July 1, 2019, increasing our economies of scale and
operating margins in the region.
- Full scale
commercialization and implementation of our Process Automation
Control platform, PD-Apps and PD-Analytics – We currently
have 34 rigs equipped with our Process Automation Control platform.
Using PAC technology, we drilled approximately 584 wells
year-to-date in 2019, an increase of 69% over the prior year
comparative. With more than 15 revenue generating PD-Apps
commercialized or in development, Precision’s portfolio of
technology offerings continues to expand. We are demonstrating to
our customers our system’s ability to deliver consistent,
high-quality results, as we progress towards our 2019
commercialization targets. In the third quarter, we doubled the
number of customers paying commercial rates for our PAC
system.
OUTLOOK
Contracts
Year-to-date in 2019 we have entered into 43
term contracts. The following chart outlines the average number of
drilling rigs by quarter that we had under contract for 2019 and
2020 as of October 23, 2019. For those quarters ended after
September 30, 2019, this chart represents the minimum number of
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 2019 |
|
|
Average for the quarter ended 2020 |
|
|
|
Mar. 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
|
Dec. 31 |
|
|
Mar. 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
|
Dec. 31 |
|
Average rigs under term contract as of October 23, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
56 |
|
|
|
52 |
|
|
|
49 |
|
|
|
41 |
|
|
|
30 |
|
|
|
21 |
|
|
|
15 |
|
|
|
11 |
|
Canada |
|
|
8 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
International |
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
|
|
6 |
|
|
|
6 |
|
Total |
|
|
72 |
|
|
|
65 |
|
|
|
63 |
|
|
|
55 |
|
|
|
42 |
|
|
|
32 |
|
|
|
23 |
|
|
|
19 |
|
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 October 23,
2019.
|
|
Average for the year ended |
|
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
Average rigs under term contract as of October 23, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
46 |
|
|
|
50 |
|
|
|
19 |
|
Canada |
|
|
9 |
|
|
|
5 |
|
|
|
3 |
|
International |
|
|
8 |
|
|
|
9 |
|
|
|
7 |
|
Total |
|
|
63 |
|
|
|
64 |
|
|
|
29 |
|
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 |
|
Average for the quarter ended 2019 |
|
|
Mar. 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
|
Dec. 31 |
|
Mar. 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
Average Precision active rig count: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
64 |
|
|
|
72 |
|
|
|
76 |
|
|
|
80 |
|
|
|
79 |
|
|
|
77 |
|
|
|
72 |
|
Canada |
|
72 |
|
|
|
31 |
|
|
|
52 |
|
|
|
49 |
|
|
|
48 |
|
|
|
27 |
|
|
|
42 |
|
International |
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
Total |
|
144 |
|
|
|
111 |
|
|
|
136 |
|
|
|
137 |
|
|
|
135 |
|
|
|
112 |
|
|
|
123 |
|
For the nine months ended September 30, 2019,
drilling activity has decreased relative to this time last year in
the U.S. and Canada. According to industry sources, as of October
23, 2019, the U.S. active land drilling rig count was down 21%
compared with the same point last year and the Canadian active land
drilling rig count was down approximately 32%. To date in 2019,
approximately 82% of the U.S. industry’s active rigs and 62% 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.
Capital Spending
Capital spending in 2019 is expected to be $144
million and includes $31 million for sustaining, infrastructure and
intangibles and $113 million for upgrade and expansion. We expect
that the $144 million will be split $139 million in the Contract
Drilling Services segment, $4 million in the Completion and
Production Services segment and $1 million to the Corporate
segment.
For 2020, we expect capital spending to be $60
million to $80 million, comprised primarily of maintenance and
upgrade capital.
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 September 30, |
|
|
Nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services |
|
346,443 |
|
|
|
347,494 |
|
|
|
(0.3 |
) |
|
|
1,060,182 |
|
|
|
1,004,649 |
|
|
|
5.5 |
|
Completion and Production Services |
|
30,880 |
|
|
|
36,297 |
|
|
|
(14.9 |
) |
|
|
112,844 |
|
|
|
114,045 |
|
|
|
(1.1 |
) |
Inter-segment eliminations |
|
(1,771 |
) |
|
|
(1,334 |
) |
|
|
32.8 |
|
|
|
(4,007 |
) |
|
|
(4,515 |
) |
|
|
(11.3 |
) |
|
|
375,552 |
|
|
|
382,457 |
|
|
|
(1.8 |
) |
|
|
1,169,019 |
|
|
|
1,114,179 |
|
|
|
4.9 |
|
Adjusted EBITDA:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services |
|
105,167 |
|
|
|
95,596 |
|
|
|
10.0 |
|
|
|
316,917 |
|
|
|
290,003 |
|
|
|
9.3 |
|
Completion and Production Services |
|
4,597 |
|
|
|
4,628 |
|
|
|
(0.7 |
) |
|
|
17,896 |
|
|
|
7,870 |
|
|
|
127.4 |
|
Corporate and Other |
|
(11,869 |
) |
|
|
(19,236 |
) |
|
|
(38.3 |
) |
|
|
(47,914 |
) |
|
|
(57,234 |
) |
|
|
(16.3 |
) |
|
|
97,895 |
|
|
|
80,988 |
|
|
|
20.9 |
|
|
|
286,899 |
|
|
|
240,639 |
|
|
|
19.2 |
|
(1) See “NON-GAAP MEASURES”.
SEGMENT REVIEW OF CONTRACT DRILLING
SERVICES
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
346,443 |
|
|
|
347,494 |
|
|
|
(0.3 |
) |
|
|
1,060,182 |
|
|
|
1,004,649 |
|
|
|
5.5 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
233,370 |
|
|
|
242,792 |
|
|
|
(3.9 |
) |
|
|
711,307 |
|
|
|
686,948 |
|
|
|
3.5 |
|
General and administrative |
|
7,906 |
|
|
|
9,106 |
|
|
|
(13.2 |
) |
|
|
28,912 |
|
|
|
27,698 |
|
|
|
4.4 |
|
Restructuring |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
3,046 |
|
|
|
- |
|
|
n/m |
|
Adjusted EBITDA(1) |
|
105,167 |
|
|
|
95,596 |
|
|
|
10.0 |
|
|
|
316,917 |
|
|
|
290,003 |
|
|
|
9.3 |
|
Depreciation |
|
74,532 |
|
|
|
82,414 |
|
|
|
(9.6 |
) |
|
|
227,686 |
|
|
|
243,252 |
|
|
|
(6.4 |
) |
Gain on asset disposals |
|
(3,956 |
) |
|
|
(1,672 |
) |
|
|
136.6 |
|
|
|
(43,228 |
) |
|
|
(4,631 |
) |
|
|
833.4 |
|
Impairment reversal |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
(5,810 |
) |
|
|
- |
|
|
n/m |
|
Operating earnings(1) |
|
34,591 |
|
|
|
14,854 |
|
|
|
132.9 |
|
|
|
138,269 |
|
|
|
51,382 |
|
|
|
169.1 |
|
Operating earnings(1) as a percentage of revenue |
|
10.0 |
% |
|
|
4.3 |
% |
|
|
|
|
|
|
13.0 |
% |
|
|
5.1 |
% |
|
|
|
|
(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 |
|
September 30 |
|
72 |
|
|
|
896 |
|
|
|
76 |
|
|
|
1,032 |
|
Year to date average |
|
76 |
|
|
|
962 |
|
|
|
71 |
|
|
|
1,001 |
|
(1) United States lower 48 operations only.(2)
Baker Hughes rig counts.
|
|
Three months ended September 30, |
|
Canadian onshore drilling statistics:(1) |
|
2019 |
|
|
2018 |
|
|
|
Precision |
|
|
Industry(2) |
|
|
Precision |
|
|
Industry(2) |
|
Number of drilling rigs (end of period) |
|
|
116 |
|
|
|
548 |
|
|
|
135 |
|
|
|
604 |
|
Drilling rig operating days (spud to release) |
|
|
3,432 |
|
|
|
11,362 |
|
|
|
4,279 |
|
|
|
16,875 |
|
Drilling rig operating day utilization |
|
|
32 |
% |
|
|
23 |
% |
|
|
35 |
% |
|
|
30 |
% |
Number of wells drilled |
|
|
370 |
|
|
|
1,381 |
|
|
|
520 |
|
|
|
2,046 |
|
Average days per well |
|
|
9.3 |
|
|
|
8.2 |
|
|
|
8.2 |
|
|
|
8.2 |
|
Number of metres drilled (000s) |
|
|
1,095 |
|
|
|
3,949 |
|
|
|
1,313 |
|
|
|
5,502 |
|
Average metres per well |
|
|
2,961 |
|
|
|
2,860 |
|
|
|
2,526 |
|
|
|
2,689 |
|
Average metres per day |
|
|
319 |
|
|
|
348 |
|
|
|
307 |
|
|
|
326 |
|
|
|
Nine months ended September 30, |
|
Canadian onshore drilling statistics:(1) |
|
2019 |
|
|
2018 |
|
|
|
Precision |
|
|
Industry(2) |
|
|
Precision |
|
|
Industry(2) |
|
Number of drilling rigs (end of period) |
|
|
116 |
|
|
|
548 |
|
|
|
135 |
|
|
|
604 |
|
Drilling rig operating days (spud to release) |
|
|
9,404 |
|
|
|
33,942 |
|
|
|
12,459 |
|
|
|
49,256 |
|
Drilling rig operating day utilization |
|
|
30 |
% |
|
|
22 |
% |
|
|
34 |
% |
|
|
29 |
% |
Number of wells drilled |
|
|
964 |
|
|
|
3,609 |
|
|
|
1,262 |
|
|
|
5,179 |
|
Average days per well |
|
|
9.8 |
|
|
|
9.4 |
|
|
|
9.9 |
|
|
|
9.5 |
|
Number of metres drilled (000s) |
|
|
2,475 |
|
|
|
10,641 |
|
|
|
3,542 |
|
|
|
14,704 |
|
Average metres per well |
|
|
2,567 |
|
|
|
2,948 |
|
|
|
2,806 |
|
|
|
2,839 |
|
Average metres per day |
|
|
263 |
|
|
|
313 |
|
|
|
284 |
|
|
|
299 |
|
(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 September 30, |
|
|
Nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
30,880 |
|
|
|
36,297 |
|
|
|
(14.9 |
) |
|
|
112,844 |
|
|
|
114,045 |
|
|
|
(1.1 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
24,994 |
|
|
|
30,138 |
|
|
|
(17.1 |
) |
|
|
89,950 |
|
|
|
99,609 |
|
|
|
(9.7 |
) |
General and administrative |
|
1,289 |
|
|
|
1,531 |
|
|
|
(15.8 |
) |
|
|
4,541 |
|
|
|
5,402 |
|
|
|
(15.9 |
) |
Restructuring |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
457 |
|
|
|
1,164 |
|
|
|
(60.7 |
) |
Adjusted EBITDA(1) |
|
4,597 |
|
|
|
4,628 |
|
|
|
(0.7 |
) |
|
|
17,896 |
|
|
|
7,870 |
|
|
|
127.4 |
|
Depreciation |
|
4,282 |
|
|
|
5,636 |
|
|
|
(24.0 |
) |
|
|
13,572 |
|
|
|
17,385 |
|
|
|
(21.9 |
) |
Loss (gain) on asset disposals |
|
36 |
|
|
|
1,005 |
|
|
|
(96.4 |
) |
|
|
(3,566 |
) |
|
|
1,143 |
|
|
|
(412.0 |
) |
Operating earnings (loss)(1) |
|
279 |
|
|
|
(2,013 |
) |
|
|
(113.9 |
) |
|
|
7,890 |
|
|
|
(10,658 |
) |
|
|
(174.0 |
) |
Operating earnings (loss)(1) as a percentage of revenue |
|
0.9 |
% |
|
|
(5.5 |
)% |
|
|
|
|
|
|
7.0 |
% |
|
|
(9.3 |
)% |
|
|
|
|
Well servicing
statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of service rigs (end of period)(2) |
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
|
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
Service rig operating hours |
|
34,851 |
|
|
|
37,169 |
|
|
|
(6.2 |
) |
|
|
107,289 |
|
|
|
121,694 |
|
|
|
(11.8 |
) |
Service rig operating hour utilization |
|
31 |
% |
|
|
19 |
% |
|
|
|
|
|
|
31 |
% |
|
|
21 |
% |
|
|
|
|
Service rig revenue per operating hour |
|
712 |
|
|
|
708 |
|
|
|
0.6 |
|
|
|
736 |
|
|
|
696 |
|
|
|
5.7 |
|
(1) See “NON-GAAP MEASURES”.(2) In 2019, 75 rigs
were not registered with the industry association and 12 snubbing
units were sold.n/m = Calculation not meaningful.
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
$12 million, a $7 million decrease compared with the third quarter
of 2018 primarily due to lower share-based incentive
compensation.
OTHER ITEMS
Share-based Incentive Compensation
Plans
We have several cash-settled share-based
incentive plans and two equity-settled share-based incentive plans.
Details of vesting conditions, fair value determination and
accounting policy for each plan can be found in the notes to our
consolidated annual financial statements for the year ended
December 31, 2018.
A summary of the amounts expensed under these
plans during the reporting periods are as follows:
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Cash settled share-based incentive plans |
|
(1,655 |
) |
|
|
5,128 |
|
|
|
4,664 |
|
|
|
20,599 |
|
Equity settled share-based
incentive plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive PSU |
|
3,103 |
|
|
|
1,595 |
|
|
|
8,499 |
|
|
|
4,344 |
|
Stock option plan |
|
514 |
|
|
|
937 |
|
|
|
1,751 |
|
|
|
2,655 |
|
Total
share-based incentive compensation plan expense |
|
1,962 |
|
|
|
7,660 |
|
|
|
14,914 |
|
|
|
27,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
87 |
|
|
|
2,292 |
|
|
|
3,314 |
|
|
|
9,093 |
|
General and Administrative |
|
1,875 |
|
|
|
5,368 |
|
|
|
11,600 |
|
|
|
18,505 |
|
|
|
1,962 |
|
|
|
7,660 |
|
|
|
14,914 |
|
|
|
27,598 |
|
Cash settled shared-based compensation expense
decreased $7 million in the current quarter to a recovery of $2
million compared with an expense of $5 million in the same quarter
in 2018. The recovery was primarily due to the decreasing share
price in the third 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 $28 million, a decrease
of $3 million compared with the third 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 third quarter of 2019 were US$20 million ($27
million) as compared with US$23 million ($30 million) in 2018.
Income Tax
Income tax recovery for the quarter was $5
million compared with $9 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 year-to-date deferred tax recovery of $3
million.
LIQUIDITY AND CAPITAL
RESOURCES
Liquidity
Amount |
|
Availability |
|
Used for |
|
Maturity |
Senior facility (secured) |
|
|
|
|
|
|
US$500 million (extendible, revolvingterm credit facility with
US$300 million accordionfeature) |
|
Undrawn, except US$25 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$116 million – 6.5% |
|
Fully drawn |
|
Capital expenditures and generalcorporate purposes |
|
December 15, 2021 |
US$350 million – 7.75% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
December 15, 2023 |
US$318 million – 5.25% |
|
Fully drawn |
|
Capital expenditures and generalcorporate purposes |
|
November 15, 2024 |
US$374 million – 7.125% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
January 15, 2026 |
As of September 30, 2019, we had US$1,158
million ($1,533 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 nine months of 2019, Precision
repurchased and cancelled US$26 million of the 7.125% unsecured
senior notes due 2026 and US$33 million of the 5.25% notes due 2024
and redeemed US$50 million principal amount of its 6.50% senior
notes due 2021.
Covenants
Following is a listing of our currently
applicable covenants and the calculations as of September 30,
2019:
|
Covenant |
|
As at September 30, 2019 |
|
Senior Facility |
|
|
|
|
|
Consolidated senior debt to consolidated covenant EBITDA(1) |
≤ 2.50 |
|
|
0.00 |
|
Consolidated covenant EBITDA to consolidated interest
expense(1) |
≥ 2.50 |
|
|
3.35 |
|
Senior
Notes |
|
|
|
|
|
Consolidated interest coverage ratio |
≥ 2.00 |
|
|
3.30 |
|
(1) For purposes of calculating the leverage ratio consolidated
senior debt only includes secured indebtedness.
At September 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
2019 resulted in higher translated U.S. denominated revenue and
costs. On average for the three and nine months ended September 30,
2019, the Canadian dollar weakened by 1% and 3% from the respective
2018 periods. The following table summarizes the average and
closing Canada-U.S. foreign exchanges rates:
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
December 31, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
2018 |
|
Canada-U.S. foreign exchange rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
1.32 |
|
|
|
1.31 |
|
|
|
1.33 |
|
|
|
1.29 |
|
|
|
1.30 |
|
Closing |
|
1.32 |
|
|
|
1.29 |
|
|
|
1.32 |
|
|
|
1.29 |
|
|
|
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 September 30, |
|
|
Nine months ended September 30, |
|
(Stated
in thousands) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Weighted average shares outstanding – basic |
|
292,811 |
|
|
|
293,740 |
|
|
|
293,455 |
|
|
|
293,485 |
|
Effect
of stock options and other equity compensation plans |
|
— |
|
|
|
— |
|
|
|
6,213 |
|
|
|
— |
|
Weighted average shares outstanding – diluted |
|
292,811 |
|
|
|
293,740 |
|
|
|
299,668 |
|
|
|
293,485 |
|
NON-GAAP MEASURES
In this release we reference non-GAAP (Generally
Accepted Accounting Principles) measures. Adjusted EBITDA, Covenant
EBITDA, Operating Earnings (Loss), Funds Provided by (Used in)
Operations and Working Capital are terms used by us to assess
performance as we believe they provide useful supplemental
information to investors. These terms do not have standardized
meanings prescribed under International Financial Reporting
Standards (IFRS) and may not be comparable to
similar measures used by other companies.
Adjusted EBITDA
We believe that Adjusted EBITDA (earnings before
income taxes, loss (gain) on repurchase of unsecured senior notes,
finance charges, foreign exchange, impairment reversal, loss (gain)
on asset disposals and depreciation and amortization), as reported
in the Condensed 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 (loss) is calculated as follows:
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenue |
|
375,552 |
|
|
|
382,457 |
|
|
|
1,169,019 |
|
|
|
1,114,179 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
256,593 |
|
|
|
271,596 |
|
|
|
797,250 |
|
|
|
782,042 |
|
General and administrative |
|
21,064 |
|
|
|
29,873 |
|
|
|
78,432 |
|
|
|
90,334 |
|
Restructuring |
|
— |
|
|
|
— |
|
|
|
6,438 |
|
|
|
1,164 |
|
Depreciation and
amortization |
|
82,604 |
|
|
|
91,348 |
|
|
|
252,684 |
|
|
|
270,098 |
|
Gain on asset disposals |
|
(3,944 |
) |
|
|
(658 |
) |
|
|
(46,853 |
) |
|
|
(3,479 |
) |
Impairment reversal |
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Operating earnings
(loss) |
|
19,235 |
|
|
|
(9,702 |
) |
|
|
86,878 |
|
|
|
(25,980 |
) |
Foreign exchange |
|
1,470 |
|
|
|
(952 |
) |
|
|
(4,416 |
) |
|
|
819 |
|
Finance charges |
|
28,490 |
|
|
|
31,176 |
|
|
|
90,178 |
|
|
|
94,958 |
|
Loss
(gain) on repurchase of unsecured notes |
|
(2,239 |
) |
|
|
— |
|
|
|
(3,637 |
) |
|
|
1,176 |
|
Earnings (loss) before income taxes |
|
(8,486 |
) |
|
|
(39,926 |
) |
|
|
4,753 |
|
|
|
(122,933 |
) |
Funds Provided By (Used In)
Operations
We believe that funds provided by (used in)
operations, as reported in the Condensed 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 Condensed 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
and 2020;
- our capital expenditure plans for
2019 and 2020;
- 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
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.
CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(Stated in thousands of Canadian dollars) |
|
September 30,
2019 |
|
|
December 31, 2018 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
93,761 |
|
|
$ |
96,626 |
|
Accounts receivable |
|
|
348,695 |
|
|
|
372,336 |
|
Income tax recoverable |
|
|
1,211 |
|
|
|
— |
|
Inventory |
|
|
32,249 |
|
|
|
34,081 |
|
Assets held for sale |
|
|
19,453 |
|
|
|
19,658 |
|
Total current assets |
|
|
495,369 |
|
|
|
522,701 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
Income tax recoverable |
|
|
1,165 |
|
|
|
2,449 |
|
Deferred tax assets |
|
|
3,817 |
|
|
|
36,880 |
|
Right of use assets |
|
|
69,999 |
|
|
|
— |
|
Property, plant and equipment |
|
|
2,843,384 |
|
|
|
3,038,612 |
|
Intangibles |
|
|
32,000 |
|
|
|
35,401 |
|
Total
non-current assets |
|
|
2,950,365 |
|
|
|
3,113,342 |
|
Total
assets |
|
$ |
3,445,734 |
|
|
$ |
3,636,043 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
246,796 |
|
|
$ |
274,489 |
|
Income taxes payable |
|
|
8,033 |
|
|
|
7,673 |
|
Lease obligation |
|
|
13,258 |
|
|
|
— |
|
Total current liabilities |
|
|
268,087 |
|
|
|
282,162 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
6,705 |
|
|
|
6,520 |
|
Provisions and other |
|
|
10,346 |
|
|
|
10,577 |
|
Lease obligation |
|
|
58,005 |
|
|
|
— |
|
Long-term debt |
|
|
1,513,827 |
|
|
|
1,706,253 |
|
Deferred tax liabilities |
|
|
33,317 |
|
|
|
72,779 |
|
Total non-current
liabilities |
|
|
1,622,200 |
|
|
|
1,796,129 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Shareholders’ capital |
|
|
2,314,097 |
|
|
|
2,322,280 |
|
Contributed surplus |
|
|
62,582 |
|
|
|
52,332 |
|
Deficit |
|
|
(968,395 |
) |
|
|
(978,874 |
) |
Accumulated other comprehensive income |
|
|
147,163 |
|
|
|
162,014 |
|
Total
shareholders’ equity |
|
|
1,555,447 |
|
|
|
1,557,752 |
|
Total
liabilities and shareholders’ equity |
|
$ |
3,445,734 |
|
|
$ |
3,636,043 |
|
CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
375,552 |
|
|
$ |
382,457 |
|
|
$ |
1,169,019 |
|
|
$ |
1,114,179 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
256,593 |
|
|
|
271,596 |
|
|
|
797,250 |
|
|
|
782,042 |
|
General and administrative |
|
|
21,064 |
|
|
|
29,873 |
|
|
|
78,432 |
|
|
|
90,334 |
|
Restructuring |
|
|
— |
|
|
|
— |
|
|
|
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 |
|
|
97,895 |
|
|
|
80,988 |
|
|
|
286,899 |
|
|
|
240,639 |
|
Depreciation and
amortization |
|
|
82,604 |
|
|
|
91,348 |
|
|
|
252,684 |
|
|
|
270,098 |
|
Gain on asset disposals |
|
|
(3,944 |
) |
|
|
(658 |
) |
|
|
(46,853 |
) |
|
|
(3,479 |
) |
Impairment reversal |
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Foreign exchange |
|
|
1,470 |
|
|
|
(952 |
) |
|
|
(4,416 |
) |
|
|
819 |
|
Finance charges |
|
|
28,490 |
|
|
|
31,176 |
|
|
|
90,178 |
|
|
|
94,958 |
|
Loss
(gain) on repurchase of unsecured senior notes |
|
|
(2,239 |
) |
|
|
— |
|
|
|
(3,637 |
) |
|
|
1,176 |
|
Earnings (loss) before income
taxes |
|
|
(8,486 |
) |
|
|
(39,926 |
) |
|
|
4,753 |
|
|
|
(122,933 |
) |
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
1,540 |
|
|
|
1,231 |
|
|
|
4,553 |
|
|
|
6,396 |
|
Deferred |
|
|
(6,492 |
) |
|
|
(10,509 |
) |
|
|
(7,479 |
) |
|
|
(33,387 |
) |
|
|
|
(4,952 |
) |
|
|
(9,278 |
) |
|
|
(2,926 |
) |
|
|
(26,991 |
) |
Net
earnings (loss) |
|
$ |
(3,534 |
) |
|
$ |
(30,648 |
) |
|
$ |
7,679 |
|
|
$ |
(95,942 |
) |
Net earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.01 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.03 |
|
|
$ |
(0.33 |
) |
Diluted |
|
$ |
(0.01 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.03 |
|
|
$ |
(0.33 |
) |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(Stated
in thousands of Canadian dollars) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Net earnings (loss) |
|
$ |
(3,534 |
) |
|
$ |
(30,648 |
) |
|
$ |
7,679 |
|
|
$ |
(95,942 |
) |
Unrealized gain (loss)
on translation of assets and
liabilities of operations denominated in foreign
currency |
|
|
26,432 |
|
|
|
(46,370 |
) |
|
|
(64,932 |
) |
|
|
46,956 |
|
Foreign exchange gain
(loss) on net investment hedge
with U.S. denominated debt, net of tax |
|
|
(18,792 |
) |
|
|
38,060 |
|
|
|
50,081 |
|
|
|
(40,510 |
) |
Comprehensive income (loss) |
|
$ |
4,106 |
|
|
$ |
(38,958 |
) |
|
$ |
(7,172 |
) |
|
$ |
(89,496 |
) |
CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOW (UNAUDITED)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(Stated
in thousands of Canadian dollars) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(3,534 |
) |
|
$ |
(30,648 |
) |
|
$ |
7,679 |
|
|
$ |
(95,942 |
) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term compensation plans |
|
|
2,461 |
|
|
|
5,074 |
|
|
|
13,385 |
|
|
|
19,000 |
|
Depreciation and amortization |
|
|
82,604 |
|
|
|
91,348 |
|
|
|
252,684 |
|
|
|
270,098 |
|
Gain on asset disposals |
|
|
(3,944 |
) |
|
|
(658 |
) |
|
|
(46,853 |
) |
|
|
(3,479 |
) |
Impairment reversal |
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Foreign exchange |
|
|
1,796 |
|
|
|
(1,648 |
) |
|
|
(4,322 |
) |
|
|
(215 |
) |
Finance charges |
|
|
28,490 |
|
|
|
31,176 |
|
|
|
90,178 |
|
|
|
94,958 |
|
Income taxes |
|
|
(4,952 |
) |
|
|
(9,278 |
) |
|
|
(2,926 |
) |
|
|
(26,991 |
) |
Other |
|
|
(39 |
) |
|
|
(109 |
) |
|
|
(198 |
) |
|
|
(1,242 |
) |
Loss (gain) on repurchase of unsecured senior notes |
|
|
(2,239 |
) |
|
|
— |
|
|
|
(3,637 |
) |
|
|
1,176 |
|
Income taxes paid |
|
|
(857 |
) |
|
|
(363 |
) |
|
|
(4,744 |
) |
|
|
(3,969 |
) |
Income taxes recovered |
|
|
71 |
|
|
|
3,921 |
|
|
|
1,142 |
|
|
|
31,508 |
|
Interest paid |
|
|
(20,240 |
) |
|
|
(24,732 |
) |
|
|
(80,736 |
) |
|
|
(67,253 |
) |
Interest received |
|
|
313 |
|
|
|
285 |
|
|
|
1,031 |
|
|
|
970 |
|
Funds provided by
operations |
|
|
79,930 |
|
|
|
64,368 |
|
|
|
216,873 |
|
|
|
218,619 |
|
Changes
in non-cash working capital balances |
|
|
(13,374 |
) |
|
|
(32,407 |
) |
|
|
(3,695 |
) |
|
|
(18,774 |
) |
|
|
|
66,556 |
|
|
|
31,961 |
|
|
|
213,178 |
|
|
|
199,845 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(23,914 |
) |
|
|
(28,367 |
) |
|
|
(138,345 |
) |
|
|
(84,982 |
) |
Purchase of intangibles |
|
|
(12 |
) |
|
|
(660 |
) |
|
|
(476 |
) |
|
|
(10,880 |
) |
Proceeds on sale of property, plant and equipment |
|
|
3,385 |
|
|
|
3,757 |
|
|
|
85,837 |
|
|
|
12,437 |
|
Changes in non-cash working capital balances |
|
|
(4,456 |
) |
|
|
10,114 |
|
|
|
(5,183 |
) |
|
|
2,082 |
|
|
|
|
(24,997 |
) |
|
|
(15,156 |
) |
|
|
(58,167 |
) |
|
|
(81,343 |
) |
Financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of unsecured senior notes |
|
|
(18,742 |
) |
|
|
— |
|
|
|
(142,575 |
) |
|
|
(76,657 |
) |
Share repurchase |
|
|
(8,183 |
) |
|
|
— |
|
|
|
(8,183 |
) |
|
|
— |
|
Lease payments |
|
|
(1,767 |
) |
|
|
— |
|
|
|
(5,124 |
) |
|
|
— |
|
Issuance of common shares on the exercise of options |
|
|
— |
|
|
|
275 |
|
|
|
— |
|
|
|
275 |
|
|
|
|
(28,692 |
) |
|
|
275 |
|
|
|
(155,882 |
) |
|
|
(76,382 |
) |
Effect
of exchange rate changes on cash |
|
|
314 |
|
|
|
(1,987 |
) |
|
|
(1,994 |
) |
|
|
2,561 |
|
Increase (decrease) in
cash |
|
|
13,181 |
|
|
|
15,093 |
|
|
|
(2,865 |
) |
|
|
44,681 |
|
Cash,
beginning of period |
|
|
80,580 |
|
|
|
94,669 |
|
|
|
96,626 |
|
|
|
65,081 |
|
Cash,
end of period |
|
$ |
93,761 |
|
|
$ |
109,762 |
|
|
$ |
93,761 |
|
|
$ |
109,762 |
|
CONDENSED 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 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,679 |
|
|
|
7,679 |
|
Other comprehensive loss for
the period |
|
|
— |
|
|
|
— |
|
|
|
(14,851 |
) |
|
|
— |
|
|
|
(14,851 |
) |
Share repurchase |
|
|
(8,183 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,183 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
10,250 |
|
|
|
— |
|
|
|
— |
|
|
|
10,250 |
|
Balance at September 30, 2019 |
|
$ |
2,314,097 |
|
|
$ |
62,582 |
|
|
$ |
147,163 |
|
|
$ |
(968,395 |
) |
|
$ |
1,555,447 |
|
(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 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(95,942 |
) |
|
|
(95,942 |
) |
Other comprehensive income for
the period |
|
|
— |
|
|
|
— |
|
|
|
6,446 |
|
|
|
— |
|
|
|
6,446 |
|
Shares issued on redemption
non-management directors' DSUs |
|
|
2,609 |
|
|
|
(809 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,800 |
|
Share options exercised |
|
|
378 |
|
|
|
(103 |
) |
|
|
— |
|
|
|
— |
|
|
|
275 |
|
Share-based compensation
expense |
|
|
— |
|
|
|
6,999 |
|
|
|
— |
|
|
|
— |
|
|
|
6,999 |
|
Balance at September 30, 2018 |
|
$ |
2,322,280 |
|
|
$ |
50,124 |
|
|
$ |
138,056 |
|
|
$ |
(780,546 |
) |
|
$ |
1,729,914 |
|
THIRD 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, October 24, 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 October 30, 2019 by dialing
855-859-2056 or 404-537-3406, passcode 1786756.
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 Officer713.435.6143
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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