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 2020 third quarter financial
results:
- Revenue of $165
million was a decrease of 56% compared with the third quarter of
2019.
- Net loss of $28
million or negative $0.10 per diluted share compared with a net
loss of $4 million or negative $0.01 per diluted share in
2019.
- Earnings before
income taxes, gain on repurchase of unsecured senior notes, finance
charges, foreign exchange, impairment reversal, gain on asset
disposals and depreciation and amortization (Adjusted EBITDA, see
“NON-GAAP MEASURES”) of $48 million as compared with $98 million in
the third quarter of 2019.
- Generated cash and
funds provided by operations (see “NON-GAAP MEASURES”) of $42
million and $27 million, respectively.
- Third quarter
ending cash balance was $178 million, an increase of $3 million
from June 30, 2020.
- Third quarter
capital expenditures were $3 million.
- Reduced our
unsecured senior notes balance by $159 million, recognizing a gain
on repurchase of $28 million, and drew $123 million under our
Senior Credit Facility. Our debt reduction included the full
retirement of our 6.50% unsecured senior notes due 2021.
- Subsequent to
September 30, 2020, we repurchased and cancelled US$14 million of
our 7.75% unsecured senior notes due 2023, recognizing a gain on
repurchase of $5 million.
- Recognized
restructuring charges of $2 million and the Canadian government’s
Canada Emergency Wage Subsidy (CEWS) program assistance of $8
million.
Precision’s President and CEO, Kevin Neveu
stated:
“Precision’s third quarter results reflect
better than expected financial performance as we generated $48
million in Adjusted EBITDA and $42 million in cash provided by
operations, with results driven by excellent field performance and
cost control throughout the organization. We accelerated debt
reduction during the quarter and executed further debt repurchases
in October, reducing debt by approximately $125 million year to
date, reaching the mid-point of our 2020 targeted debt reduction
range. Since 2018, Precision has reduced debt levels by over $500
million and remains on track to reach our long-term debt reduction
target of $700 million by the end of 2022. We have retired the
balance of our 2021 unsecured senior notes, utilizing our revolver
to lower interest costs and create flexibility for future debt
reduction, while preserving a strong liquidity position. These
actions position us with increased financial strength with no
maturities until late 2023, further enhancing our ability to
persevere through a prolonged market downturn and capture value in
a market recovery.”
“Our global scale, High Performance Super Triple
rig fleet and stringent cost management drove strong third quarter
market share and field margins in all of our core geographies. We
have executed on key structural changes within Precision, including
fixed cost and spending reductions and exiting underperforming
business lines, all of which will reduce total 2020 cash outflows
by up to $150 million. We expect to meet our targeted annualized
fixed cost reductions of 35%, which includes normalized general and
administrative expense savings of over $30 million and have
positioned the business to sustain these savings in an increasing
activity environment. A notable highlight is the success of our
recently implemented SAP cloud platform, which has automated
several administrative functions throughout the organization. This
system has enabled significant and permanent cost savings and
remains a major driver of the long-term structural cost
improvements we have implemented. We believe our core business
lines and lean cost structure position us well for the inevitable
recovery, further promoting our operational leverage and strong
cash flow generation capabilities.”
“Precision reinforced our digital leadership
position during the quarter by not only increasing utilization of
the Alpha suite of technologies on our Super Series rigs, but also
through leveraging repeatable and proven field results to enhance
our value proposition to existing Alpha customers and engaging in
Alpha discussions with over a dozen new customer accounts.
Precision currently has 39 Alpha-Rigs throughout North America,
which are fully digitally enabled, pad-walking AC Super Triples
equipped with AlphaAutomation and a platform to deploy AlphaApps
and AlphaAnalytics. To date, these rigs have drilled approximately
1,700 wells in both the U.S. and Canada and have been fully
commercialized in numerous basins for more than one year. We remain
excited about our growing AlphaApps and AlphaAnalytics portfolio,
which have further enhanced the value creation abilities of our
Alpha-Rigs. To date we have 18 AlphaApps, six of which are
commercial, generating over 1,650 App-days this year. We believe
Precision’s Alpha technology is the industry’s leading digital
platform which enables our customers to sustainably lower their
drilling costs, critically important in this depressed commodity
price environment. For Precision, Alpha is easily scalable across
our standardized AC Super Triple fleet as industry activity levels
improve.”
“In the U.S, we have seen rig counts improve
from third quarter lows back to 25 rigs running today and expect
additional rig deployments to occur into year-end. In Canada, the
seasonal activity recovery to date has been largely led by deeper,
gas and liquid-rich plays and is expected to continue into the
winter season with a modestly improved outlook with 26 rigs running
today. Internationally, Precision has six contracted rigs operating
in Kuwait and Saudi Arabia, which will continue to generate
excellent operational results for our customers and stable cash
flow for Precision. We remain optimistic about re-contracting
opportunities for additional rigs in Kuwait in the near term.”
“We remain on track to deliver on our 2020
strategic priorities, including our long-term deleveraging targets,
while ensuring we preserve strong liquidity. We believe our assets,
people, technology and cost focus will be primary vehicles for
continuing our strong cash generation into 2021 while we remain
ideally positioned for the inevitable industry rebound,” concluded
Mr. Neveu.
IMPACT OF COVID-19
In March 2020, the Novel Coronavirus
(“COVID-19”) outbreak was declared a pandemic by the World Health
Organization. Governments worldwide, including those countries in
which Precision operates, have enacted emergency measures to combat
the spread of the virus. These measures, which include the
implementation of travel bans, self-imposed quarantine periods and
social distancing, have caused a material disruption to businesses
globally resulting in an economic slowdown and decreased demand for
oil. Governments and central banks have reacted with significant
monetary and fiscal interventions designed to stabilize economic
conditions; however, the long-term success of these interventions
is not yet determinable.
As a result of the decrease in demand, worldwide
inventories of oil have increased significantly. However, voluntary
production restraint from national oil companies and governments of
oil-producing nations along with curtailments in the U.S. and
Canada have shifted global oil markets from a position of over
supply to inventory draws. The situation remains dynamic and the
ultimate duration and magnitude of the impact on the economy and
the financial effect on Precision remains unknown at this time.
SELECT FINANCIAL AND OPERATING
INFORMATION
Financial Highlights
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
Revenue |
|
164,822 |
|
|
|
375,552 |
|
|
|
(56.1 |
) |
|
|
734,065 |
|
|
|
1,169,019 |
|
|
|
(37.2 |
) |
Adjusted EBITDA(1) |
|
47,771 |
|
|
|
97,895 |
|
|
|
(51.2 |
) |
|
|
208,140 |
|
|
|
286,899 |
|
|
|
(27.5 |
) |
Operating earnings
(loss)(1) |
|
(26,785 |
) |
|
|
19,235 |
|
|
|
(239.3 |
) |
|
|
(23,375 |
) |
|
|
86,878 |
|
|
|
(126.9 |
) |
Net earnings (loss) |
|
(28,476 |
) |
|
|
(3,534 |
) |
|
|
705.8 |
|
|
|
(82,620 |
) |
|
|
7,679 |
|
|
|
(1,175.9 |
) |
Cash provided by
operations |
|
41,950 |
|
|
|
66,556 |
|
|
|
(37.0 |
) |
|
|
221,381 |
|
|
|
213,178 |
|
|
|
3.8 |
|
Funds provided by
operations(1) |
|
27,489 |
|
|
|
79,930 |
|
|
|
(65.6 |
) |
|
|
135,445 |
|
|
|
216,873 |
|
|
|
(37.5 |
) |
Capital spending: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion and upgrade |
|
- |
|
|
|
13,083 |
|
|
|
(100.0 |
) |
|
|
13,764 |
|
|
|
112,795 |
|
|
|
(87.8 |
) |
Maintenance and infrastructure |
|
3,211 |
|
|
|
10,831 |
|
|
|
(70.4 |
) |
|
|
24,859 |
|
|
|
25,550 |
|
|
|
(2.7 |
) |
Intangibles |
|
- |
|
|
|
12 |
|
|
|
(100.0 |
) |
|
|
57 |
|
|
|
476 |
|
|
|
(88.0 |
) |
Proceeds on sale |
|
(5,705 |
) |
|
|
(3,385 |
) |
|
|
68.5 |
|
|
|
(16,416 |
) |
|
|
(85,837 |
) |
|
|
(80.9 |
) |
Net capital spending |
|
(2,494 |
) |
|
|
20,541 |
|
|
|
(112.1 |
) |
|
|
22,264 |
|
|
|
52,984 |
|
|
|
(58.0 |
) |
Net earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
(0.10 |
) |
|
|
(0.01 |
) |
|
|
938.4 |
|
|
|
(0.30 |
) |
|
|
0.03 |
|
|
|
(1,100.0 |
) |
Diluted |
|
(0.10 |
) |
|
|
(0.01 |
) |
|
|
938.4 |
|
|
|
(0.30 |
) |
|
|
0.03 |
|
|
|
(1,100.0 |
) |
(1) See “NON-GAAP
MEASURES”.
Operating Highlights
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
Contract drilling rig fleet |
|
227 |
|
|
|
233 |
|
|
|
(2.6 |
) |
|
|
227 |
|
|
|
233 |
|
|
|
(2.6 |
) |
Drilling rig utilization
days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
1,957 |
|
|
|
6,613 |
|
|
|
(70.4 |
) |
|
|
9,684 |
|
|
|
20,730 |
|
|
|
(53.3 |
) |
Canada |
|
1,613 |
|
|
|
3,822 |
|
|
|
(57.8 |
) |
|
|
8,216 |
|
|
|
10,579 |
|
|
|
(22.3 |
) |
International |
|
559 |
|
|
|
827 |
|
|
|
(32.4 |
) |
|
|
1,974 |
|
|
|
2,275 |
|
|
|
(13.2 |
) |
Revenue per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.(1) (US$) |
|
28,334 |
|
|
|
23,092 |
|
|
|
22.7 |
|
|
|
26,335 |
|
|
|
23,242 |
|
|
|
13.3 |
|
Canada (Cdn$) |
|
21,430 |
|
|
|
19,311 |
|
|
|
11.0 |
|
|
|
21,593 |
|
|
|
21,342 |
|
|
|
1.2 |
|
International (US$) |
|
54,887 |
|
|
|
51,233 |
|
|
|
7.1 |
|
|
|
54,631 |
|
|
|
50,923 |
|
|
|
7.3 |
|
Operating cost per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (US$) |
|
16,037 |
|
|
|
14,487 |
|
|
|
10.7 |
|
|
|
14,727 |
|
|
|
14,552 |
|
|
|
1.2 |
|
Canada (Cdn$) |
|
12,924 |
|
|
|
14,639 |
|
|
|
(11.7 |
) |
|
|
13,940 |
|
|
|
15,406 |
|
|
|
(9.5 |
) |
Service rig fleet |
|
123 |
|
|
|
123 |
|
|
|
- |
|
|
|
123 |
|
|
|
123 |
|
|
|
- |
|
Service
rig operating hours |
|
15,599 |
|
|
|
34,851 |
|
|
|
(55.2 |
) |
|
|
54,666 |
|
|
|
107,289 |
|
|
|
(49.0 |
) |
(1) Includes revenue from
idle but contracted rig days and contract cancellation fees.
Financial Position
(Stated in thousands of Canadian dollars, except ratios) |
September 30,
2020 |
|
|
December 31, 2019 |
|
Working capital(1) |
|
220,173 |
|
|
|
201,696 |
|
Cash |
|
177,785 |
|
|
|
74,701 |
|
Long-term debt |
|
1,359,800 |
|
|
|
1,427,181 |
|
Total long-term financial
liabilities |
|
1,426,762 |
|
|
|
1,500,950 |
|
Total assets |
|
3,073,324 |
|
|
|
3,269,840 |
|
Long-term debt to long-term debt plus equity ratio |
|
0.48 |
|
|
|
0.48 |
|
(1) See “NON-GAAP
MEASURES”.
Summary for the three months ended
September 30,
2020:
- Revenue this
quarter was $165 million, 56% lower than the third quarter of 2019.
Our decreased revenue resulted from lower activity across all
operating segments as customers reduced drilling programs in
response to the global economic slowdown. Compared with the third
quarter of 2019, our activity, as measured by drilling rig
utilization days, decreased by 70% in the U.S., 58% in Canada and
32% internationally.
- Adjusted EBITDA
(see “NON-GAAP MEASURES”) of $48 million for the quarter decreased
$50 million from the previous year. As a percentage of revenue,
Adjusted EBITDA was 29% compared with 26% in the comparative
quarter. The improved percentage was primarily due to U.S. idle but
contracted rig payments and CEWS program assistance partially
offset by higher restructuring costs and share-based compensation
charges. See discussion on share-based incentive compensation under
“Other Items” later in this release for additional details.
- Operating loss (see
“NON-GAAP MEASURES”) this quarter was $27 million compared with
operating earnings of $19 million in the third quarter of 2019. Our
operating earnings in the prior year quarter were positively
impacted by higher activity levels.
- General and
administrative expenses this quarter were $12 million, $9 million
lower than in 2019. Our lower general and administrative costs in
2020 were primarily due to lower fixed costs as we continued to
align our cost structure to reflect reduced global activity, and
the impact of CEWS program assistance.
- Restructuring
charges were $2 million as compared to nil in 2019.
- Net finance charges
were $28 million, a decrease of $1 million compared with the third
quarter of 2019, primarily due to reduced interest expense related
to retired debt, offset by the accelerated amortization of debt
issue costs from the retirement of our 6.50% unsecured senior notes
due 2021.
- In the third
quarter of 2020, revenue per utilization day in the U.S. increased
to US$28,334 from US$23,092 in 2019, primarily resulting from
higher revenues from idle but contracted rigs and turnkey drilling.
We had third quarter revenue from idle but contracted rigs and
turnkey projects of US$10 million and US$2 million, respectively,
as compared with nil in 2019. Operating costs on a per day basis
increased to US$16,037 in the third quarter of 2020 compared with
US$14,487 in 2019. The increase was mainly due to higher turnkey
activity and fixed operating overheads being spread over fewer
utilization days. On a sequential basis, revenue per utilization
day, excluding revenue from contract cancellations, idle but
contracted rigs and turnkey activity decreased by US$488 as
compared to the second quarter of 2020. Operating costs per day
increased by US$1,865 due to higher repairs and maintenance,
turnkey activity and fixed operating overheads being spread over
fewer utilization days.
- In Canada, average
revenue per utilization day for contract drilling rigs was $21,430
compared with $19,311 in the third quarter of 2019 primarily due to
our rig mix and higher operating expense recoveries. During the
quarter, we did not recognize any contract shortfall revenue,
consistent with 2019. Average operating costs per utilization day
for drilling rigs in Canada decreased to $12,924 compared with the
prior year quarter of $14,639. The decrease was mainly due to lower
repairs and maintenance and the impact of CEWS program assistance.
During the third quarter of 2020, we recognized CEWS program
assistance of $4 million which lowered our operating costs per
utilization day by $2,297.
- We realized revenue
from international contract drilling of US$31 million in the third
quarter of 2020, as compared with US$42 million in the prior year
quarter. Average revenue per utilization day in our international
contract drilling business increased 7% to US$54,887 from the
comparable prior year quarter, primarily due to our rig mix.
- Cash and funds
provided by operations (see “NON-GAAP MEASURES”) in the third
quarter of 2020 were $42 million and $27 million, respectively,
compared to $67 million and $80 million in the prior year
comparative period.
- Capital
expenditures were $3 million in the third quarter, a decrease of
$21 million over the same period in 2019.
Summary for the nine
months ended September
30, 2020:
- Revenue for the
first nine months of 2020 was $734 million, a decrease of 37% from
the comparative 2019 period.
- Operating loss (see
“NON-GAAP MEASURES”) was $23 million compared with operating
earnings of $87 million in 2019. Our operating earnings in the
prior year period were positively impacted by higher activity
levels.
- General and
administrative costs were $50 million, a decrease of $28 million
from 2019. The decrease was due to lower overhead costs as a result
of our restructuring activities, lower share-based compensation and
the impact of CEWS program assistance of $4 million.
- Net finance charges
were $83 million, a decrease of $7 million from 2019 primarily due
to a reduction in interest expense related to retired debt
partially offset by the weakening of the Canadian dollar on our
U.S. dollar denominated interest expense.
- Cash provided by
operations was $221 million in 2020 as compared with $213 million
in 2019. Funds provided by operations (see “NON-GAAP MEASURES”)
were $135 million, a decrease of $81 million from the prior year
comparative period of $217 million.
- Capital
expenditures were $39 million, a decrease of $100 million compared
with 2019. Capital spending in 2020 included $14 million for
upgrade and expansion capital and $25 million for the maintenance
of existing assets, infrastructure spending and intangibles.
STRATEGY
Precision’s strategic priorities for 2020 are as follows:
- Generate
strong free cash flow and reduce debt by
$100 million to $150 million
in 2020 – In the third quarter of
2020, Precision generated $42 million of cash provided by
operations (see “NON-GAAP MEASURES”) and $6 million of cash
proceeds from the divestiture of non-core assets. We lowered debt
levels by $64 million, recognizing $28 million of captured
discounts on debt repurchases, leaving reported year to date debt
reduction at $106 million. Subsequent to September 30, 2020,
Precision repurchased an additional $19 million of unsecured senior
notes in October, bringing our year to date debt reduction to
approximately $125 million and reaching the mid-point of our 2020
targeted debt reduction range. Precision reported a cash balance of
$178 million at September 30, 2020, compared to $175 million at
June 30, 2020. We will place a high priority on maintaining a
strong liquidity position until visibility improves.
- Demonstrate
operational excellence in all aspects of our business – In
Canada, we continued at record level market share and reported
operating margins (revenue less operating costs) of $8,506 per
utilization day. In the U.S., we lowered field costs and leveraged
our contract book to generate reported operating margins of
US$12,297 per utilization day. Internationally, we maintained
stable activity, averaging six active drilling rigs, and recorded
average day rates of US$54,887.
- Leverage
our Alpha Technology platform as a competitive differentiator and
source of financial returns – As at September 30, 2020, we
have 39 pad-walking, AC Super Triple Alpha-Rigs equipped with our
AlphaAutomation platform which have drilled over 500 wells in 2020.
Since 2017, we have drilled approximately 1,700 wells with
AlphaAutomation and currently have 18 AlphaApps available, six of
which are commercial. In 2020, we have drilled approximately 150
wells with AlphaApps, generating over 1,650 AlphaApp days, further
allowing us to differentiate our High Performance, High Value
offering.
OUTLOOK
The energy industry continues to have a
challenging outlook as the COVID-19 pandemic has resulted in
significant global oil supply imbalances and near-term crude oil
price volatility. Our customers have responded by materially
reducing capital spending leading to a rapid reduction in global
oilfield service activity levels. In this reduced-activity
environment, our customers remain focused on operational
efficiencies. We anticipate this will accelerate the industry’s
transition towards service providers with the highest performing
assets and competitive digital technology offerings. Pursuit of
predictable and repeatable results will further drive field
application of drilling automation processes to create additional
cost efficiencies and performance value for customers.
Precision continues to closely monitor
announcements of available government financial support and
economic stimulus programs. We are encouraged by the Government of
Canada’s $1.7 billion well site abandonment and rehabilitation
program, which will support industry activity levels and provide
thousands of jobs throughout western Canada. The program is
expected to run through the end of 2022 with government funds
provided in stages. As the use of service rigs is an integral part
of the well abandonment process, we believe our well servicing
business is positioned to capture these opportunities as a result
of our scale, operational performance and strong safety record.
During the third quarter, we saw a rise in the number of approved
abandonment applications and the distribution of program funding to
oilfield service providers. Accordingly, we expect our abandonment
service activity to increase in the fourth quarter of 2020 and
support additional demand through the end of the well site
abandonment and rehabilitation program in 2022.
On April 1, 2020, the Government of Canada
announced the CEWS program, which would subsidize a portion of
employee wages for Canadian employers whose businesses have been
adversely affected by COVID-19. The program is intended to help
employers re-hire previously laid off workers, prevent further job
losses and better position Canadian businesses to resume normal
operations. Under this program in the third quarter of 2020, we
recognized $8 million of CEWS program assistance that was presented
as a reduction to operating and general and administrative expense
of $6 million and $2 million, respectively. The CEWS program has
benefitted Precision and our employees as it has allowed us to
retain a higher employment level for Canadian positions within our
organization. As a result, we are highly supportive of this
effective government program and are encouraged by the recent
commitment of the Government of Canada to extend the program to
June of 2021.
Contracts
Year to date in 2020 we have entered into 18 term
contracts. The following chart outlines the average number of
drilling rigs under contract by quarter as of October 21, 2020. For
those quarters ending after September 30, 2020, this chart
represents the minimum number of long-term contracts from which we
will earn revenue. We expect the actual number of contracted rigs
to vary in future periods as we sign additional contracts and
certain customers elect to pay contract cancellation fees.
|
|
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 21,
2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
56 |
|
|
|
52 |
|
|
|
49 |
|
|
|
41 |
|
|
|
41 |
|
|
|
32 |
|
|
|
26 |
|
|
|
24 |
|
Canada |
|
|
8 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
|
|
3 |
|
|
|
4 |
|
International |
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
|
|
6 |
|
|
|
6 |
|
Total |
|
|
72 |
|
|
|
65 |
|
|
|
63 |
|
|
|
55 |
|
|
|
54 |
|
|
|
44 |
|
|
|
35 |
|
|
|
34 |
|
The following chart outlines the average number of
drilling rigs that we had under contract for 2019 and the average
number of rigs we have under contract as of October 21, 2020.
|
|
Average for the year ended |
|
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
Average rigs under term contract as of October 21,
2020: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
49 |
|
|
|
31 |
|
|
|
7 |
|
Canada |
|
|
6 |
|
|
|
4 |
|
|
|
5 |
|
International |
|
|
9 |
|
|
|
7 |
|
|
|
6 |
|
Total |
|
|
64 |
|
|
|
42 |
|
|
|
18 |
|
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 2019 |
|
|
Average for the quarter ended 2020 |
|
|
Mar. 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
|
Dec. 31 |
|
|
Mar. 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
Average Precision active rig count: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
79 |
|
|
|
77 |
|
|
|
72 |
|
|
|
63 |
|
|
|
55 |
|
|
|
30 |
|
|
|
21 |
|
Canada |
|
48 |
|
|
|
27 |
|
|
|
42 |
|
|
|
43 |
|
|
|
63 |
|
|
|
9 |
|
|
|
18 |
|
International |
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
|
|
6 |
|
Total |
|
135 |
|
|
|
112 |
|
|
|
123 |
|
|
|
115 |
|
|
|
126 |
|
|
|
47 |
|
|
|
45 |
|
According to industry sources, as of October 21,
2020, the U.S. active land drilling rig count is down 74% from the
same point last year and the Canadian active land drilling rig
count is down 44%. To date in 2020, approximately 80% of the U.S.
industry’s active rigs and 54% of the Canadian industry’s active
rigs were drilling for oil targets, compared with 82% for the U.S.
and 62% for Canada at the same time last year.
Capital Spending
Capital spending in 2020 is expected to be $48
million and includes $30 million for sustaining, infrastructure and
intangibles and $18 million for upgrade and expansion. We expect
that the $48 million will be split $45 million in the Contract
Drilling Services segment, $2 million in the Completion and
Production Services segment and less than $1 million to the
Corporate segment. At September 30, 2020, Precision had capital
commitments of $109 million with payments expected through to
2022.
SEGMENTED FINANCIAL RESULTS
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars) |
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services |
|
150,773 |
|
|
|
346,443 |
|
|
|
(56.5 |
) |
|
|
682,060 |
|
|
|
1,060,182 |
|
|
|
(35.7 |
) |
Completion and Production Services |
|
14,443 |
|
|
|
30,880 |
|
|
|
(53.2 |
) |
|
|
53,631 |
|
|
|
112,844 |
|
|
|
(52.5 |
) |
Inter-segment eliminations |
|
(394 |
) |
|
|
(1,771 |
) |
|
|
(77.8 |
) |
|
|
(1,626 |
) |
|
|
(4,007 |
) |
|
|
(59.4 |
) |
|
|
164,822 |
|
|
|
375,552 |
|
|
|
(56.1 |
) |
|
|
734,065 |
|
|
|
1,169,019 |
|
|
|
(37.2 |
) |
Adjusted EBITDA:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services |
|
51,594 |
|
|
|
105,167 |
|
|
|
(50.9 |
) |
|
|
236,940 |
|
|
|
316,917 |
|
|
|
(25.2 |
) |
Completion and Production Services |
|
3,945 |
|
|
|
4,597 |
|
|
|
(14.2 |
) |
|
|
5,960 |
|
|
|
17,896 |
|
|
|
(66.7 |
) |
Corporate and Other |
|
(7,768 |
) |
|
|
(11,869 |
) |
|
|
(34.6 |
) |
|
|
(34,760 |
) |
|
|
(47,914 |
) |
|
|
(27.5 |
) |
|
|
47,771 |
|
|
|
97,895 |
|
|
|
(51.2 |
) |
|
|
208,140 |
|
|
|
286,899 |
|
|
|
(27.5 |
) |
(1) See “NON-GAAP
MEASURES”.
SEGMENT REVIEW OF CONTRACT DRILLING
SERVICES
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
Revenue |
|
150,773 |
|
|
|
346,443 |
|
|
|
(56.5 |
) |
|
|
682,060 |
|
|
|
1,060,182 |
|
|
|
(35.7 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
93,669 |
|
|
|
233,370 |
|
|
|
(59.9 |
) |
|
|
417,496 |
|
|
|
711,307 |
|
|
|
(41.3 |
) |
General and administrative |
|
5,151 |
|
|
|
7,906 |
|
|
|
(34.8 |
) |
|
|
20,004 |
|
|
|
28,912 |
|
|
|
(30.8 |
) |
Restructuring |
|
359 |
|
|
|
- |
|
|
n/m |
|
|
|
7,620 |
|
|
|
3,046 |
|
|
|
150.2 |
|
Adjusted EBITDA(1) |
|
51,594 |
|
|
|
105,167 |
|
|
|
(50.9 |
) |
|
|
236,940 |
|
|
|
316,917 |
|
|
|
(25.2 |
) |
Depreciation |
|
70,675 |
|
|
|
74,532 |
|
|
|
(5.2 |
) |
|
|
220,461 |
|
|
|
227,686 |
|
|
|
(3.2 |
) |
Gain on asset disposals |
|
(2,684 |
) |
|
|
(3,956 |
) |
|
|
(32.2 |
) |
|
|
(8,617 |
) |
|
|
(43,228 |
) |
|
|
(80.1 |
) |
Impairment reversal |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
- |
|
|
|
(5,810 |
) |
|
|
(100.0 |
) |
Operating earnings (loss)(1) |
|
(16,397 |
) |
|
|
34,591 |
|
|
|
(147.4 |
) |
|
|
25,096 |
|
|
|
138,269 |
|
|
|
(81.8 |
) |
Operating earnings (loss)(1) as a percentage of revenue |
|
(10.9 |
)% |
|
|
10.0 |
% |
|
|
|
|
|
|
3.7 |
% |
|
|
13.0 |
% |
|
|
|
|
(1) See “NON-GAAP
MEASURES”.n/m Not meaningful
United
States onshore drilling statistics:(1) |
2020 |
|
|
2019 |
|
|
Precision |
|
|
Industry(2) |
|
|
Precision |
|
|
Industry(2) |
|
Average number of active land rigs for quarters ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
55 |
|
|
|
764 |
|
|
|
79 |
|
|
|
1,023 |
|
June 30 |
|
30 |
|
|
|
378 |
|
|
|
77 |
|
|
|
967 |
|
September 30 |
|
22 |
|
|
|
241 |
|
|
|
72 |
|
|
|
896 |
|
Year to date average |
|
35 |
|
|
|
461 |
|
|
|
76 |
|
|
|
962 |
|
(1) United States lower
48 operations only.(2) Baker Hughes rig
counts.
Canadian onshore drilling statistics:(1) |
2020 |
|
|
2019 |
|
|
Precision |
|
|
Industry(2) |
|
|
Precision |
|
|
Industry(2) |
|
Average number of active land rigs for quarters ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
63 |
|
|
|
196 |
|
|
|
48 |
|
|
|
183 |
|
June 30 |
|
9 |
|
|
|
25 |
|
|
|
27 |
|
|
|
82 |
|
September 30 |
|
18 |
|
|
|
47 |
|
|
|
39 |
|
|
|
132 |
|
Year to date average |
|
30 |
|
|
|
89 |
|
|
|
39 |
|
|
|
132 |
|
(1) Canadian operations
only.(2) Baker Hughes rig counts.
SEGMENT REVIEW OF COMPLETION AND
PRODUCTION SERVICES
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
|
% Change |
|
Revenue |
|
14,443 |
|
|
|
30,880 |
|
|
|
(53.2 |
) |
|
|
53,631 |
|
|
|
112,844 |
|
|
|
(52.5 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
9,872 |
|
|
|
24,994 |
|
|
|
(60.5 |
) |
|
|
42,056 |
|
|
|
89,950 |
|
|
|
(53.2 |
) |
General and administrative |
|
626 |
|
|
|
1,289 |
|
|
|
(51.4 |
) |
|
|
3,020 |
|
|
|
4,541 |
|
|
|
(33.5 |
) |
Restructuring |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
2,595 |
|
|
|
457 |
|
|
|
467.8 |
|
Adjusted EBITDA(1) |
|
3,945 |
|
|
|
4,597 |
|
|
|
(14.2 |
) |
|
|
5,960 |
|
|
|
17,896 |
|
|
|
(66.7 |
) |
Depreciation |
|
4,014 |
|
|
|
4,282 |
|
|
|
(6.3 |
) |
|
|
12,416 |
|
|
|
13,572 |
|
|
|
(8.5 |
) |
Loss (gain) on asset disposals |
|
(236 |
) |
|
|
36 |
|
|
|
(755.6 |
) |
|
|
(1,237 |
) |
|
|
(3,566 |
) |
|
|
(65.3 |
) |
Operating earnings (loss)(1) |
|
167 |
|
|
|
279 |
|
|
|
(40.1 |
) |
|
|
(5,219 |
) |
|
|
7,890 |
|
|
|
(166.1 |
) |
Operating earnings (loss)(1) as a percentage of revenue |
|
1.2 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
(9.7 |
)% |
|
|
7.0 |
% |
|
|
|
|
Well servicing statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of service rigs (end of period) |
|
123 |
|
|
|
123 |
|
|
|
- |
|
|
|
123 |
|
|
|
123 |
|
|
|
- |
|
Service rig operating hours |
|
15,599 |
|
|
|
34,851 |
|
|
|
(55.2 |
) |
|
|
54,666 |
|
|
|
107,289 |
|
|
|
(49.0 |
) |
Service rig operating hour utilization |
|
14 |
% |
|
|
31 |
% |
|
|
|
|
|
|
16 |
% |
|
|
31 |
% |
|
|
|
|
(1) See “NON-GAAP
MEASURES”.n/m 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
$8 million, as compared with $12 million in the third quarter of
2019. The improved margin was primarily due to our improved cost
structure and CEWS program assistance partially offset by higher
share-based compensation expense and increased restructuring
charges. During the third quarter of 2020, we incurred $2 million
of restructuring charges and recognized $1 million of CEWS program
assistance.
OTHER ITEMS
Share-based Incentive Compensation
Plans
We have several cash and equity-settled share-based
incentive plans for non-management directors, officers and other
eligible employees. Our accounting policies for each share-based
incentive plan can be found in our 2019 Annual Report.
A summary of amounts expensed under these plans
during the reporting periods are as follows:
|
For the three months ended September 30, |
|
For the nine months ended September 30, |
|
(Stated in thousands of Canadian dollars) |
2020 |
|
|
2019 |
|
2020 |
|
|
2019 |
|
Cash settled share-based incentive plans |
|
971 |
|
|
|
(1,655 |
) |
|
(50 |
) |
|
|
4,664 |
|
Equity settled share-based
incentive plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive PSU |
|
2,434 |
|
|
|
3,103 |
|
|
8,128 |
|
|
|
8,499 |
|
Stock option plan |
|
160 |
|
|
|
514 |
|
|
714 |
|
|
|
1,751 |
|
Total share-based incentive compensation plan expense |
|
3,565 |
|
|
|
1,962 |
|
|
8,792 |
|
|
|
14,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
740 |
|
|
|
87 |
|
|
1,754 |
|
|
|
3,314 |
|
General and Administrative |
|
2,825 |
|
|
|
1,875 |
|
|
7,038 |
|
|
|
11,600 |
|
|
|
3,565 |
|
|
|
1,962 |
|
|
8,792 |
|
|
|
14,914 |
|
Cash settled shared-based compensation expense
increased by $3 million in the current quarter primarily due to our
increased share price. Our total equity settled share-based
compensation expense for the third quarter of 2020 was $3 million,
compared to $4 million in 2019. The lower expense in 2020 was
primarily due to vesting of Executive PSUs and stock options
granted in prior years.
Finance Charges
Net finance charges were $28 million, a decrease
of $1 million compared with the third quarter of 2019, primarily
due to reduced interest expense related to retired debt, offset by
accelerated amortization of debt issue costs from the retirement of
our 6.50% unsecured senior notes due 2021.
Interest charges on our U.S. denominated
long-term debt in the third quarter of 2020 were US$18 million ($24
million) as compared with US$20 million ($27 million) in 2019.
Income Tax
Income tax expense for the quarter was $1
million compared with a recovery of $5 million in the same quarter
in 2019. The higher income tax expense in the third quarter of 2020
was the result of not recognizing the benefit of Canadian deferred
tax assets.
Normal Course Issuer Bid
During the third quarter of 2020, the Toronto
Stock Exchange approved our application to renew our Normal Course
Issuer Bid (NCIB). Under the terms of the NCIB, we may purchase and
cancel up to a maximum of 23,997,668 common shares, representing
10% of the public float of common shares as of August 14, 2020. The
NCIB will terminate no later than August 26, 2021.
LIQUIDITY AND CAPITAL
RESOURCES
Liquidity
Amount |
|
Availability |
|
Used for |
|
Maturity |
Senior credit facility (secured) |
|
|
|
|
|
|
US$500 million (extendible, revolvingterm credit facility with
US$300 million accordionfeature) |
|
US$97 million drawn and US$32million in outstanding letters
ofcredit |
|
General corporate purposes |
|
November 21, 2023 |
Operating facilities (secured) |
|
|
|
|
|
|
$40 million |
|
Undrawn, except $8 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 |
|
|
Unsecured senior notes
(unsecured) |
|
|
|
|
|
|
US$306 million – 7.75% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
December 15, 2023 |
US$271 million – 5.25% |
|
Fully drawn |
|
Capital expenditures and generalcorporate purposes |
|
November 15, 2024 |
US$358 million – 7.125% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
January 15, 2026 |
As at September 30, 2020, we had US$1,032
million ($1,374 million) outstanding under our Senior Credit
Facility and unsecured senior notes as compared with US$1,113
million ($1,445 million) at December 31, 2019. During the first
nine months of 2020, we redeemed US$88 million principal amount and
repurchased and cancelled US$3 million of our 6.50% unsecured
senior notes due 2021, repurchased and cancelled US$37 million of
our 5.25% unsecured senior notes due 2024, US$12 million of our
7.125% unsecured senior notes due 2026 and US$39 million of our
7.75% unsecured senior notes due 2023 and drew US$97 million under
our Senior Credit Facility. We recognized a gain of $30 million on
the repurchase of unsecured senior notes.
The current blended cash interest cost of our
debt is approximately 6.5%.
Subsequent to September 30, 2020, we repurchased
and cancelled US$14 million of our 7.75% unsecured senior notes due
2023, recognizing a gain on repurchase of $5 million.
Covenants
Following is a listing of our applicable Senior
Credit Facility financial covenants and the calculations as at
September 30, 2020:
|
Covenant |
|
At September 30, 2020 |
|
Senior Credit Facility |
|
|
|
|
|
Consolidated senior debt to consolidated covenant EBITDA(1) |
< 2.5 |
|
|
0.07 |
|
Consolidated covenant EBITDA to consolidated interest
expense(1) |
> 2.0 |
|
|
2.97 |
|
(1) For purposes of calculating the
leverage ratio consolidated senior debt only includes secured
indebtedness.
At September 30, 2020, we were in compliance with
the covenants of our Senior Credit Facility.
Senior Credit Facility
The Senior Credit Facility requires we comply with
certain covenants including a leverage ratio of consolidated senior
debt to consolidated Covenant EBITDA (see “NON-GAAP MEASURES”) of
less than 2.5:1. For purposes of calculating the leverage ratio
consolidated senior debt only includes secured indebtedness.
On April 9, 2020 we agreed with the lenders of our
Senior Credit Facility to reduce the consolidated Covenant EBITDA
to consolidated interest expense coverage ratio for the most recent
four consecutive quarters of greater than or equal to 2.5:1 to
2.0:1 for the period ending September 30, 2020, 1.75:1 for the
period ending December 31, 2020, 1.25:1 for the periods ending
March 31, June 30 and September 30, 2021, 1.75:1, for the period
ending December 31, 2021, 2.0:1 for the period ending March 31,
2022 and 2.5:1 for periods ending thereafter.
During the covenant relief period, Precision’s
distributions in the form of dividends, distributions and share
repurchases are restricted to a maximum of US$15 million in 2020
and US$25 million in each of 2021 and 2022, subject to a pro forma
senior net leverage ratio (as defined in the credit agreement) of
less than or equal to 1.75:1.
In addition, during 2021, the North American and
acceptable secured foreign assets must directly account for at
least 65% of consolidated Covenant EBITDA calculated quarterly on a
rolling twelve-month basis, increasing to 70% thereafter. Precision
also has the option to voluntarily terminate the covenant relief
period prior to its March 31, 2022 end date.
The Senior Credit Facility limits the redemption
and repurchase of junior debt subject to a pro forma senior net
leverage covenant test of less than or equal to 1.75:1.
Average shares outstanding
The following table reconciles the weighted average
shares outstanding used in computing basic and diluted net earnings
(loss) per share:
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
(Stated in thousands) |
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Weighted average shares outstanding – basic |
|
274,500 |
|
|
|
292,811 |
|
|
|
274,718 |
|
|
|
293,455 |
|
Effect
of stock options and other equity compensation plans |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,213 |
|
Weighted average shares outstanding – diluted |
|
274,500 |
|
|
|
292,811 |
|
|
|
274,718 |
|
|
|
299,668 |
|
NON-GAAP MEASURES
In this release we reference non-GAAP (Generally
Accepted Accounting Principles) measures. These terms do not have
standardized meanings prescribed under International Financial
Reporting Standards (IFRS) and may not be comparable to similar
measures used by other companies.
Adjusted EBITDA
We believe that Adjusted EBITDA (earnings before
income taxes, gain on repurchase of unsecured senior notes, finance
charges, foreign exchange, impairment reversal, gain on assets
disposals and depreciation and amortization), as reported in the
Condensed Interim Consolidated Statement of Net 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 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:
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
(Stated
in thousands of Canadian dollars) |
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Revenue |
|
164,822 |
|
|
|
375,552 |
|
|
|
734,065 |
|
|
|
1,169,019 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
103,147 |
|
|
|
256,593 |
|
|
|
457,926 |
|
|
|
797,250 |
|
General and administrative |
|
11,954 |
|
|
|
21,064 |
|
|
|
49,938 |
|
|
|
78,432 |
|
Restructuring |
|
1,950 |
|
|
|
— |
|
|
|
18,061 |
|
|
|
6,438 |
|
Depreciation and
amortization |
|
77,588 |
|
|
|
82,604 |
|
|
|
241,626 |
|
|
|
252,684 |
|
Gain on asset disposals |
|
(3,032 |
) |
|
|
(3,944 |
) |
|
|
(10,111 |
) |
|
|
(46,853 |
) |
Impairment reversal |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
Operating earnings (loss) |
|
(26,785 |
) |
|
|
19,235 |
|
|
|
(23,375 |
) |
|
|
86,878 |
|
Foreign exchange |
|
1,161 |
|
|
|
1,470 |
|
|
|
2,924 |
|
|
|
(4,416 |
) |
Finance charges |
|
27,613 |
|
|
|
28,490 |
|
|
|
83,276 |
|
|
|
90,178 |
|
Gain on
repurchase of unsecured notes |
|
(27,971 |
) |
|
|
(2,239 |
) |
|
|
(29,942 |
) |
|
|
(3,637 |
) |
Earnings (loss) before income taxes |
|
(27,588 |
) |
|
|
(8,486 |
) |
|
|
(79,633 |
) |
|
|
4,753 |
|
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 Flows, 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 2020;
- our capital expenditure plans for 2020;
- anticipated activity levels in 2020 and our scheduled
infrastructure projects;
- anticipated demand for Tier 1 rigs;
- the average number of term contracts in place for 2020 and
2021;
- anticipated cash outflow savings and liquidity;
- potential commercial opportunities and rig contract renewals;
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 success of our response to the COVID-19 global
pandemic;
- 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 level of oil and natural gas exploration
and development activities;
- fluctuations in the demand for contract drilling, directional
drilling, well servicing and ancillary oilfield services;
- our customers’ inability to obtain adequate credit or financing
to support their drilling and production activity;
- the success of our response to the COVID-19 global
pandemic;
- changes in drilling and well servicing technology, which could
reduce demand for certain rigs or put us at a competitive
advantage;
- shortages, delays and interruptions in the delivery of
equipment supplies and other key inputs;
- liquidity of the capital markets to fund customer drilling
programs;
- availability of cash flow, debt and equity sources to fund our
capital and operating requirements, as needed;
- the impact of weather and seasonal conditions on operations and
facilities;
- competitive operating risks inherent in contract drilling,
directional drilling, well servicing and ancillary oilfield
services;
- ability to improve our rig technology to improve drilling
efficiency;
- general economic, market or business conditions;
- the availability of qualified personnel and management;
- a decline in our safety performance which could result in lower
demand for our services;
- changes in laws or regulations, including 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 natural 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,
2019, 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,
2020 |
|
|
December 31, 2019 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
177,785 |
|
|
$ |
74,701 |
|
Accounts receivable |
|
|
175,243 |
|
|
|
310,204 |
|
Inventory |
|
|
29,137 |
|
|
|
31,718 |
|
Income tax recoverable |
|
|
— |
|
|
|
1,142 |
|
Total current assets |
|
|
382,165 |
|
|
|
417,765 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
5,179 |
|
|
|
4,724 |
|
Right of use assets |
|
|
59,571 |
|
|
|
66,142 |
|
Property, plant and equipment |
|
|
2,597,577 |
|
|
|
2,749,463 |
|
Intangibles |
|
|
28,832 |
|
|
|
31,746 |
|
Total non-current assets |
|
|
2,691,159 |
|
|
|
2,852,075 |
|
Total assets |
|
$ |
3,073,324 |
|
|
$ |
3,269,840 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
145,726 |
|
|
$ |
199,478 |
|
Income taxes payable |
|
|
5,079 |
|
|
|
4,142 |
|
Current portion of lease obligation |
|
|
11,187 |
|
|
|
12,449 |
|
Total current liabilities |
|
|
161,992 |
|
|
|
216,069 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
5,261 |
|
|
|
8,830 |
|
Provisions and other |
|
|
9,434 |
|
|
|
9,959 |
|
Lease obligation |
|
|
52,267 |
|
|
|
54,980 |
|
Long-term debt |
|
|
1,359,800 |
|
|
|
1,427,181 |
|
Deferred tax liabilities |
|
|
23,017 |
|
|
|
25,389 |
|
Total non-current liabilities |
|
|
1,449,779 |
|
|
|
1,526,339 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Shareholders’ capital |
|
|
2,291,796 |
|
|
|
2,296,378 |
|
Contributed surplus |
|
|
73,097 |
|
|
|
66,255 |
|
Deficit |
|
|
(1,052,076 |
) |
|
|
(969,456 |
) |
Accumulated other comprehensive income |
|
|
148,736 |
|
|
|
134,255 |
|
Total shareholders’ equity |
|
|
1,461,553 |
|
|
|
1,527,432 |
|
Total liabilities and shareholders’ equity |
|
$ |
3,073,324 |
|
|
$ |
3,269,840 |
|
CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF NET EARNINGS (LOSS) (UNAUDITED)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
164,822 |
|
|
$ |
375,552 |
|
|
$ |
734,065 |
|
|
$ |
1,169,019 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
103,147 |
|
|
|
256,593 |
|
|
|
457,926 |
|
|
|
797,250 |
|
General and administrative |
|
|
11,954 |
|
|
|
21,064 |
|
|
|
49,938 |
|
|
|
78,432 |
|
Restructuring |
|
|
1,950 |
|
|
|
— |
|
|
|
18,061 |
|
|
|
6,438 |
|
Earnings before income taxes, gain on repurchase of
unsecured senior notes, finance charges, foreign
exchange, impairment reversal, gain on asset disposals
and depreciation and amortization |
|
|
47,771 |
|
|
|
97,895 |
|
|
|
208,140 |
|
|
|
286,899 |
|
Depreciation and
amortization |
|
|
77,588 |
|
|
|
82,604 |
|
|
|
241,626 |
|
|
|
252,684 |
|
Gain on asset disposals |
|
|
(3,032 |
) |
|
|
(3,944 |
) |
|
|
(10,111 |
) |
|
|
(46,853 |
) |
Impairment reversal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
Foreign exchange |
|
|
1,161 |
|
|
|
1,470 |
|
|
|
2,924 |
|
|
|
(4,416 |
) |
Finance charges |
|
|
27,613 |
|
|
|
28,490 |
|
|
|
83,276 |
|
|
|
90,178 |
|
Gain on
repurchase of unsecured senior notes |
|
|
(27,971 |
) |
|
|
(2,239 |
) |
|
|
(29,942 |
) |
|
|
(3,637 |
) |
Earnings (loss) before income taxes |
|
|
(27,588 |
) |
|
|
(8,486 |
) |
|
|
(79,633 |
) |
|
|
4,753 |
|
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
2,946 |
|
|
|
1,540 |
|
|
|
6,121 |
|
|
|
4,553 |
|
Deferred |
|
|
(2,058 |
) |
|
|
(6,492 |
) |
|
|
(3,134 |
) |
|
|
(7,479 |
) |
|
|
|
888 |
|
|
|
(4,952 |
) |
|
|
2,987 |
|
|
|
(2,926 |
) |
Net earnings (loss) |
|
$ |
(28,476 |
) |
|
$ |
(3,534 |
) |
|
$ |
(82,620 |
) |
|
$ |
7,679 |
|
Net earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.10 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.30 |
) |
|
$ |
0.03 |
|
Diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.30 |
) |
|
$ |
0.03 |
|
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) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net earnings (loss) |
|
$ |
(28,476 |
) |
|
$ |
(3,534 |
) |
|
$ |
(82,620 |
) |
|
$ |
7,679 |
|
Unrealized gain (loss) on translation of assets and
liabilities of operations denominated in foreign
currency |
|
|
(36,384 |
) |
|
|
26,432 |
|
|
|
49,313 |
|
|
|
(64,932 |
) |
Foreign exchange gain (loss) on net investment hedge
with U.S. denominated debt, net of tax |
|
|
29,404 |
|
|
|
(18,792 |
) |
|
|
(34,832 |
) |
|
|
50,081 |
|
Comprehensive income (loss) |
|
$ |
(35,456 |
) |
|
$ |
4,106 |
|
|
$ |
(68,139 |
) |
|
$ |
(7,172 |
) |
CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(Stated
in thousands of Canadian dollars) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(28,476 |
) |
|
$ |
(3,534 |
) |
|
$ |
(82,620 |
) |
|
$ |
7,679 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term compensation plans |
|
|
3,106 |
|
|
|
2,461 |
|
|
|
8,727 |
|
|
|
13,385 |
|
Depreciation and amortization |
|
|
77,588 |
|
|
|
82,604 |
|
|
|
241,626 |
|
|
|
252,684 |
|
Gain on asset disposals |
|
|
(3,032 |
) |
|
|
(3,944 |
) |
|
|
(10,111 |
) |
|
|
(46,853 |
) |
Impairment reversal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
Foreign exchange |
|
|
1,293 |
|
|
|
1,796 |
|
|
|
2,447 |
|
|
|
(4,322 |
) |
Finance charges |
|
|
27,613 |
|
|
|
28,490 |
|
|
|
83,276 |
|
|
|
90,178 |
|
Income taxes |
|
|
888 |
|
|
|
(4,952 |
) |
|
|
2,987 |
|
|
|
(2,926 |
) |
Other |
|
|
(142 |
) |
|
|
(39 |
) |
|
|
(905 |
) |
|
|
(198 |
) |
Gain on repurchase of unsecured senior notes |
|
|
(27,971 |
) |
|
|
(2,239 |
) |
|
|
(29,942 |
) |
|
|
(3,637 |
) |
Income taxes paid |
|
|
(2,137 |
) |
|
|
(857 |
) |
|
|
(6,085 |
) |
|
|
(4,744 |
) |
Income taxes recovered |
|
|
1,228 |
|
|
|
71 |
|
|
|
1,228 |
|
|
|
1,142 |
|
Interest paid |
|
|
(22,644 |
) |
|
|
(20,240 |
) |
|
|
(75,687 |
) |
|
|
(80,736 |
) |
Interest received |
|
|
175 |
|
|
|
313 |
|
|
|
504 |
|
|
|
1,031 |
|
Funds provided by operations |
|
|
27,489 |
|
|
|
79,930 |
|
|
|
135,445 |
|
|
|
216,873 |
|
Changes
in non-cash working capital balances |
|
|
14,461 |
|
|
|
(13,374 |
) |
|
|
85,936 |
|
|
|
(3,695 |
) |
|
|
|
41,950 |
|
|
|
66,556 |
|
|
|
221,381 |
|
|
|
213,178 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(3,211 |
) |
|
|
(23,914 |
) |
|
|
(38,623 |
) |
|
|
(138,345 |
) |
Purchase of intangibles |
|
|
— |
|
|
|
(12 |
) |
|
|
(57 |
) |
|
|
(476 |
) |
Proceeds on sale of property, plant and equipment |
|
|
5,705 |
|
|
|
3,385 |
|
|
|
16,416 |
|
|
|
85,837 |
|
Changes in non-cash working capital balances |
|
|
(1,367 |
) |
|
|
(4,456 |
) |
|
|
(6,773 |
) |
|
|
(5,183 |
) |
|
|
|
1,127 |
|
|
|
(24,997 |
) |
|
|
(29,037 |
) |
|
|
(58,167 |
) |
Financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Senior Credit Facility |
|
|
123,029 |
|
|
|
— |
|
|
|
128,059 |
|
|
|
— |
|
Repurchase of unsecured senior notes |
|
|
(158,921 |
) |
|
|
(18,742 |
) |
|
|
(204,386 |
) |
|
|
(142,575 |
) |
Share repurchase |
|
|
— |
|
|
|
(8,183 |
) |
|
|
(5,259 |
) |
|
|
(8,183 |
) |
Lease payments |
|
|
(1,987 |
) |
|
|
(1,767 |
) |
|
|
(5,612 |
) |
|
|
(5,124 |
) |
Debt amendment fees |
|
|
(22 |
) |
|
|
— |
|
|
|
(690 |
) |
|
|
— |
|
|
|
|
(37,901 |
) |
|
|
(28,692 |
) |
|
|
(87,888 |
) |
|
|
(155,882 |
) |
Effect of exchange rate changes on cash |
|
|
(2,516 |
) |
|
|
314 |
|
|
|
(1,372 |
) |
|
|
(1,994 |
) |
Increase (decrease) in cash |
|
|
2,660 |
|
|
|
13,181 |
|
|
|
103,084 |
|
|
|
(2,865 |
) |
Cash,
beginning of period |
|
|
175,125 |
|
|
|
80,580 |
|
|
|
74,701 |
|
|
|
96,626 |
|
Cash, end of period |
|
$ |
177,785 |
|
|
$ |
93,761 |
|
|
$ |
177,785 |
|
|
$ |
93,761 |
|
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, 2020 |
|
$ |
2,296,378 |
|
|
$ |
66,255 |
|
|
$ |
134,255 |
|
|
$ |
(969,456 |
) |
|
$ |
1,527,432 |
|
Net loss for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(82,620 |
) |
|
|
(82,620 |
) |
Other comprehensive income for
the period |
|
|
— |
|
|
|
— |
|
|
|
14,481 |
|
|
|
— |
|
|
|
14,481 |
|
Share repurchases |
|
|
(5,259 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,259 |
) |
Redemption of non-management
director DSUs |
|
|
677 |
|
|
|
(502 |
) |
|
|
— |
|
|
|
— |
|
|
|
175 |
|
Share-based compensation
reclassification |
|
|
— |
|
|
|
(1,498 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,498 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
8,842 |
|
|
|
— |
|
|
|
— |
|
|
|
8,842 |
|
Balance at
September 30,
2020 |
|
$ |
2,291,796 |
|
|
$ |
73,097 |
|
|
$ |
148,736 |
|
|
$ |
(1,052,076 |
) |
|
$ |
1,461,553 |
|
(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 repurchases |
|
|
(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 |
|
THIRD QUARTER
2020 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 22, 2020.
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 28, 2020 by dialing
855-859-2056 or 404-537-3406, passcode 4983760.
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 well service
rigs, camps and rental equipment and directional drilling services
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 Officer713.435.6100
Dustin Honing, Manager, Investor Relations and
Corporate Development403.716.4500
800, 525 - 8th Avenue S.W.Calgary, Alberta,
Canada T2P 1G1Website: www.precisiondrilling.com
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