(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 fourth quarter and year end
highlights:
- Revenue of $372 million was a
decrease of 13% compared with the fourth quarter of 2018.
- Net loss of $1 million or $0.00 per
diluted share compared to a net loss of $198 million or $0.68 per
diluted share in the fourth quarter of 2018. Our 2019 earnings per
diluted share were $0.02, compared with a net loss of $1.00 per
diluted share in 2018. In the quarter we decommissioned certain
drilling and ancillary equipment that no longer met our
High-Performance technology standards for a loss on asset
decommissioning of $20 million that, after-tax, increased our net
loss by $15 million and net loss per diluted share by $0.05. During
the fourth quarter of 2018, we incurred goodwill impairment charges
that, after-tax, reduced net earnings by $199 million or net
earnings per diluted share by $0.68.
- Earnings before income taxes, gain
on repurchase and redemption of unsecured senior notes, finance
charges, foreign exchange, impairment of goodwill, reversal of
impairment of property, plant and equipment, loss on asset
decommissioning, gain on asset disposals and depreciation and
amortization (Adjusted EBITDA, see “NON-GAAP MEASURES”) of $105
million was 22% lower than the fourth quarter of 2018.
- Funds provided by operations (see
“NON-GAAP MEASURES”) was $76 million versus $93 million in the
prior year quarter. Cash provided by operations was $75 million
versus $93 million in the prior year quarter. The decrease in funds
and cash provided by operations was primarily the result of lower
activity and the non-recurring transaction termination fee that was
received in the fourth quarter of 2018.
- During the quarter we reduced our
debt by $59 million bringing our 2019 debt reduction total to $205
million with an additional US$25 million of our 6.5% unsecured
seniors notes due 2021 redeemed subsequent to year end. Our 2019
debt repayments are expected to reduce our 2020 interest expense by
US$10 million.
- Capital expenditures were $22
million in the fourth quarter, $8 million lower than the prior year
quarter and consisted of opportunistic deployment of capital on
long-lead items, pull-forward spend on certain maintenance capital
and $2 million of capitalized recertification costs.
- Pursuant to our Normal Course
Issuer Bid, we purchased and cancelled 16 million common shares for
$26 million in 2019. Subsequent to December 31, 2019, we purchased
and cancelled an additional 2 million common shares for $3 million,
leaving us with 275 million common shares outstanding at February
12, 2020.
- Our 2019 Adjusted EBITDA from our
Contract Drilling Services and Completion and Production Services
segments were $429 million and $24 million, respectively,
representing a 4% and 62% increase from 2018.
- We commercialized our
AlphaAutomation technology offering with our 32 field-deployed
systems earning commercial rates, drilling approximately 613 wells
in 2019, an increase of 69% over the prior year.
Precision’s President and CEO Kevin Neveu
stated: “During the fourth quarter, Precision’s strong financial
results were led by rising Canadian activity in our Contract
Drilling Services and Completion and Production Services segments,
firm international activity, and flattening customer demand in the
U.S. As a result of Precision’s High Performance, High Value
strategy, market positioning in key basins, commercialization of
AlphaAutomation, intense cost control and cash management efforts,
we generated Adjusted EBITDA of $105 million and cash provided by
operations of $75 million. Results delivered this quarter
demonstrate Precision’s ability to consistently generate cash,
reduce debt and repurchase shares.”
“In Canada, Precision maintained its record
level market share, supported by leading market positions in the
Montney, Duvernay and heavy oil regions. Our 26 AC Super Triples
and over 60 Super Singles provide Precision an unmatched scale
efficiency and competitive advantage throughout all key regions in
the Western Canadian market. This momentum has continued into the
first quarter of 2020, as seasonal customer demand has remained
strong well into February. The Company reached a peak of 83 active
rigs in January, compared with a peak of 62, up 34% from the first
quarter of 2019 and has 80 rigs running today compared to 55 this
time last year. Although longer-term Canadian demand will be driven
by customer capital discipline and commodity prices, we expect our
market positioning and scale in our Canadian Drilling segment to
continue to generate strong cash flows throughout the course of the
year.”
“In the U.S., Precision’s fourth quarter average
rig count was in-line with our expectations and generated
sequentially improved margins supported by firm day rates and
aggressive cost management. Our rig count ended the year softer
than anticipated, due to a large customer reducing operations and
idling three contracted AC ST-1500’s. Precision remains confident
in its ability to redeploy these rigs as the oil and gas operators
continue to high grade drilling operations in 2020. We anticipate
capital discipline, operating efficiency and industrial scale will
remain central themes in the U.S. market and customer spending
behavior will be largely defined by remaining within cash flow and
maximizing drilling efficiencies. These market trends align well
with Precision’s High Performance, High Value strategy, our Alpha
technologies offering and our ability to deliver industrial
efficiencies to our customers.”
“Internationally, the business remains a stable
source of cash generation. Looking to 2020, Precision will continue
to leverage its expanded scale in Kuwait and will prioritize
reactivating idle assets in the Middle East region.”
“Precision’s Completion and Production Services
segment finished the year on firm footing, generating strong free
cash flow, improved margins and good progress on both pricing and
market share despite a highly fractured market. Our team has
focused and delivered on effectively managing all elements within
their control including reducing fixed and variable costs, strong
operational performance, training and crewing rigs and ensuring the
integrity of the assets, all while continuing to effectively manage
customer relationships. We expect customer spending in 2020 will
largely be tied to the commodity macro and our scale and
operational efficiency will continue to support free cash flow
generation in the current environment.”
“Precision delivered on its 2019 strategic
priorities established at the beginning of the year. First, the
Company generated substantial free cash flow, allowing us to exceed
our annual debt repayment targets for the second consecutive year
by paying down $205 million of debt. Since the beginning of 2018,
Precision has reduced its debt levels by $412 million, already
eclipsing the low end of our four-year targeted debt reduction
range of $400 million to $600 million by end of year 2021. For
2020, we plan to reduce debt by $100 million to $150 million and
are now providing guidance for an additional year with a goal to
reduce debt by $700 million between 2018 and 2022. Second,
Precision continued to leverage its scale and High-Performance
Super Series fleet to drive both strong operating margins and
market share gains in the U.S. and Canada. Finally, the Company
delivered on its technology initiatives for the year, achieving
full commercialization of our AlphaAutomation system.”
“Achieving our AlphaAutomation commercialization
milestone was a result of three years of field-hardening the
technology with over 1,100 wells drilled to date, extensive
training of over 100 crews and close collaboration with our
customers to demonstrate the efficiency and value this technology
delivers. Looking to 2020, we plan to deploy an additional 24
AlphaAutomation systems, driven by continued customer demand to
maximize drilling efficiencies. Additionally, Precision remains
focused on commercializing 15 or more AlphaApps, which will further
expand our portfolio of technology offerings,” 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 December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
372,301 |
|
|
|
427,010 |
|
|
|
(12.8 |
) |
|
|
1,541,320 |
|
|
|
1,541,189 |
|
|
|
0.0 |
|
Adjusted EBITDA (1) |
|
105,006 |
|
|
|
134,492 |
|
|
|
(21.9 |
) |
|
|
391,905 |
|
|
|
375,131 |
|
|
|
4.5 |
|
Operating earnings
(loss)(1) |
|
7,699 |
|
|
|
(172,093 |
) |
|
|
(104.5 |
) |
|
|
94,577 |
|
|
|
(198,073 |
) |
|
|
(147.7 |
) |
Net earnings (loss) |
|
(1,061 |
) |
|
|
(198,328 |
) |
|
|
(99.5 |
) |
|
|
6,618 |
|
|
|
(294,270 |
) |
|
|
(102.2 |
) |
Cash provided by
operations |
|
74,981 |
|
|
|
93,489 |
|
|
|
(19.8 |
) |
|
|
288,159 |
|
|
|
293,334 |
|
|
|
(1.8 |
) |
Funds provided by
operations(1) |
|
75,779 |
|
|
|
92,595 |
|
|
|
(18.2 |
) |
|
|
292,652 |
|
|
|
311,214 |
|
|
|
(6.0 |
) |
Capital spending: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion |
|
7,916 |
|
|
|
9,064 |
|
|
|
(12.7 |
) |
|
|
108,064 |
|
|
|
35,444 |
|
|
|
204.9 |
|
Upgrade |
|
199 |
|
|
|
2,402 |
|
|
|
(91.7 |
) |
|
|
12,846 |
|
|
|
30,757 |
|
|
|
(58.2 |
) |
Maintenance and infrastructure |
|
13,426 |
|
|
|
18,128 |
|
|
|
(25.9 |
) |
|
|
38,976 |
|
|
|
48,375 |
|
|
|
(19.4 |
) |
Intangibles |
|
332 |
|
|
|
687 |
|
|
|
(51.7 |
) |
|
|
808 |
|
|
|
11,567 |
|
|
|
(93.0 |
) |
Proceeds on sale |
|
(4,931 |
) |
|
|
(12,020 |
) |
|
|
(51.1 |
) |
|
|
(90,768 |
) |
|
|
(24,457 |
) |
|
|
275.0 |
|
Net capital spending |
|
16,942 |
|
|
|
18,261 |
|
|
|
(12.4 |
) |
|
|
69,926 |
|
|
|
101,686 |
|
|
|
(32.2 |
) |
Net earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
(0.00 |
) |
|
|
(0.68 |
) |
|
|
(99.4 |
) |
|
|
0.02 |
|
|
|
(1.00 |
) |
|
|
(102.3 |
) |
Diluted |
|
(0.00 |
) |
|
|
(0.68 |
) |
|
|
(99.4 |
) |
|
|
0.02 |
|
|
|
(1.00 |
) |
|
|
(102.2 |
) |
(1) See “NON-GAAP
MEASURES”.
Operating Highlights
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Contract drilling rig fleet |
|
226 |
|
|
|
236 |
|
|
|
(4.2 |
) |
|
|
226 |
|
|
|
236 |
|
|
|
(4.2 |
) |
Drilling rig utilization
days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
5,814 |
|
|
|
7,318 |
|
|
|
(20.6 |
) |
|
|
26,544 |
|
|
|
26,714 |
|
|
|
(0.6 |
) |
Canada |
|
3,919 |
|
|
|
4,517 |
|
|
|
(13.2 |
) |
|
|
14,498 |
|
|
|
18,617 |
|
|
|
(22.1 |
) |
International |
|
818 |
|
|
|
736 |
|
|
|
11.1 |
|
|
|
3,093 |
|
|
|
2,920 |
|
|
|
5.9 |
|
Revenue per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.(1) (US$) |
|
23,949 |
|
|
|
23,369 |
|
|
|
2.5 |
|
|
|
23,397 |
|
|
|
21,864 |
|
|
|
7.0 |
|
Canada (Cdn$) |
|
22,182 |
|
|
|
22,802 |
|
|
|
(2.7 |
) |
|
|
21,569 |
|
|
|
21,644 |
|
|
|
(0.3 |
) |
International (US$) |
|
52,283 |
|
|
|
51,982 |
|
|
|
0.6 |
|
|
|
51,360 |
|
|
|
50,469 |
|
|
|
1.8 |
|
Operating cost per utilization
day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. (US$) |
|
14,073 |
|
|
|
15,042 |
|
|
|
(6.4 |
) |
|
|
14,447 |
|
|
|
14,337 |
|
|
|
0.8 |
|
Canada (Cdn$) |
|
14,791 |
|
|
|
15,115 |
|
|
|
(2.1 |
) |
|
|
15,240 |
|
|
|
14,493 |
|
|
|
5.2 |
|
Service rig fleet(2) |
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
|
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
Service rig operating
hours |
|
39,865 |
|
|
|
35,773 |
|
|
|
11.4 |
|
|
|
147,154 |
|
|
|
157,467 |
|
|
|
(6.5 |
) |
Revenue
per operating hour (Cdn$) |
|
746 |
|
|
|
753 |
|
|
|
(0.9 |
) |
|
|
739 |
|
|
|
709 |
|
|
|
4.2 |
|
(1) 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) |
December 31, 2019 |
|
|
December 31, 2018 |
|
Working capital(1) |
|
201,696 |
|
|
|
240,539 |
|
Cash |
|
74,701 |
|
|
|
96,626 |
|
Long-term debt |
|
1,427,181 |
|
|
|
1,706,253 |
|
Total
long-term financial liabilities |
|
1,500,950 |
|
|
|
1,723,350 |
|
Total
assets |
|
3,269,840 |
|
|
|
3,636,043 |
|
Long-term debt to long-term debt plus equity ratio |
|
0.48 |
|
|
|
0.52 |
|
(1) See “NON-GAAP
MEASURES”.
Summary for the three months ended December 31,
2019:
- Revenue was $372 million, 13% lower
than the fourth quarter of 2018. Revenue decreased due to lower
activity in the U.S. and Canada, partially offset by higher average
day rates in the U.S. and higher international activity. Compared
with the fourth quarter of 2018, our drilling activity decreased
21% in the U.S., 13% in Canada and grew 11% internationally. Our
2019 fourth quarter revenue from our Contract Drilling Services and
Completion and Production Services segments decreased 14% and 5%,
respectively, from the comparable 2018 quarter.
- General and administrative expenses
were $26 million, $4 million higher than the fourth quarter of
2018. Excluding the effect of share-based incentive compensation
expense for the quarter, our general and administrative expenses
decreased by $8 million from 2018. The lower expenses in the
current quarter were primarily the result of continued fixed cost
control initiatives and the impact of lease-related charges due to
the adoption of IFRS 16. See discussion on share-based incentive
compensation under “Other Items” later in this release for
additional details.
- Adjusted EBITDA (see “NON-GAAP
MEASURES”) was $105 million, a decrease of $29 million from the
fourth quarter of 2018. Our Adjusted EBITDA as a percentage of
revenue was 28% this quarter, compared with 31% in the comparative
quarter of 2018. Operating earnings (see “NON-GAAP MEASURES”) were
$8 million compared with negative $172 million in the fourth
quarter of 2018. Lower Adjusted EBITDA and operating earnings in
2019 were primarily due to reduced U.S. and Canadian activity,
higher share-based incentive compensation expense and the
non-recurring receipt of the transaction termination fee in the
fourth quarter of 2018. In the 2019 quarter, we decommissioned 29
drilling rigs resulting in a loss on asset decommissioning of $20
million. 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 $7 million compared with a recovery of $12 million in the
fourth quarter of 2018. See discussion on rig decommissioning and
share-based incentive compensation under “Other Items” for
additional details.
- Net finance charges were $28
million, a decrease of $4 million compared with the fourth quarter
of 2018, primarily due to a reduction in interest expense related
to retired debt, partially offset by $1 million of lease accretion
charges resulting from the adoption of IFRS 16.
- Revenue per utilization day in the
U.S. increased in the fourth quarter of 2019 to US$23,949 from
US$23,369 in the prior year quarter. The increase was the result of
higher day rates, idle but contracted rig revenue and rig
technology revenue, partially offset by lower turnkey activity.
During the quarter, we had US$3 million of revenue from each of
idle but contracted rigs and turnkey projects as compared with
fourth quarter 2018 idle but contracted rig and turnkey revenue of
US$0.3 million and US$11 million, respectively. On a sequential
basis, revenue per utilization day, excluding revenue from turnkey
and idle but contracted rigs, was consistent with the third quarter
of 2019. Operating costs on a per day basis decreased to US$14,073
in the fourth quarter of 2019 compared with US$15,042 in 2018. The
decrease was mainly due to lower turnkey activity, the impact from
the reversal of prior period provisions and the componentization of
rig recertification costs. Excluding the impact of the provision
reversals and componentization of recertification costs, our
operating costs on a per day basis for the quarter were US$14,974.
See discussion on change of rig components under “Other Items” for
additional details
- In Canada, average revenue per
utilization day for contract drilling rigs was $22,182 compared
with $22,802 in the fourth quarter of 2018. The lower average
revenue per utilization day in the fourth quarter of 2019 was
primarily due to lower rates from a higher proportion of Super
Singles in our rig mix and lower shortfall payments, partially
offset by higher technology revenue. We did not receive shortfall
payments in the fourth quarter of 2019 as compared to $1 million in
the 2018 quarter. Average operating costs per utilization day for
drilling rigs in Canada decreased to $14,791 compared with the
prior year quarter of $15,115. The decrease was mainly caused by
the impact of lower repair and maintenance costs due to the
componentization of rig recertification costs. Excluding the impact
of componentization of recertifications, our operating costs on a
per day basis for the quarter were $15,044.
- We realized revenue from
international contract drilling of US$43 million in the fourth
quarter of 2019, an increase of US$4 million over the prior year
period. Average revenue per utilization day in our international
contract drilling business was US$52,283 compared with US$51,982 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.
- Funds provided by operations (see
“NON-GAAP MEASURES”) in the fourth quarter of 2019 were $76
million, a decrease of $17 million from the prior year comparative
quarter. Cash provided by operations was $75 million versus $93
million in the prior year quarter. The decrease in funds and cash
provided by operations was primarily the result of lower activity
and the non-recurring transaction termination fee that was received
in the fourth quarter of 2018.
- Capital expenditures were $22
million in the fourth quarter, $8 million lower than the same
period in 2018. Capital spending for the quarter included $8
million for upgrade and expansion capital and $14 million for the
maintenance of existing assets, infrastructure spending and
intangibles.
Summary for the year ended December 31,
2019:
- Revenue for the year ended December
31, 2019 totaled $1,541 million, consistent with 2018.
- Operating earnings (see “NON-GAAP
MEASURES”) were $95 million, an increase of $293 million from 2018.
As a percentage of revenue, operating earnings improved to 6%
compared to negative 13% in 2018. In 2019, operating earnings were
positively impacted by increased international drilling activity,
higher U.S. and international average day rates, gains on asset
disposals, partially offset by lower Canadian drilling activity,
the non-recurring transaction termination fee and loss on asset
decommissioning and higher share-based compensation expense. In
addition, during the fourth quarter of 2018, we incurred goodwill
impairment charges of $208 million.
- General and administrative costs
were $104 million, a decrease of $8 million from 2018. The decrease
in costs was primarily the result of continued fixed cost control
initiatives and the impact of lease-related charges due to the
adoption of IFRS 16, partially offset by higher share-based
incentive compensation and the weakening of the Canadian dollar on
our U.S. dollar denominated costs (see “Other Items” later in this
release).
- Net finance charges were $118
million, a decrease of $9 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 2019 were $293 million, a decrease of $19
million from $311 million in the prior year. Cash provided by
operations was $288 million in 2019 as compared to $293 million in
2018. The decrease in funds and cash provided by operations was
primarily the result of the non-recurring transaction termination
fee that was received in the fourth quarter of 2018.
- Capital expenditures were $161
million in 2019, an increase of $35 million over 2018. Capital
spending for 2019 included $121 million for upgrade and expansion
capital and $40 million on the maintenance of existing assets,
infrastructure and intangibles. Our 2019 upgrade and expansion
capital were mainly comprised of one U.S. new-build, one U.S. SCR
to AC Triple upgrade, the Kuwait new-build rig and long-lead
capital items. Our new-build and upgraded rigs were backed by
long-term drilling contracts.
STRATEGY
Precision’s strategic priorities for 2019 were as follows:
- Generate strong free cash
flow and utilize $200 million to reduce debt in 2019 – In
the fourth quarter of 2019, we generated $75 million in cash
provided by operations and further reduced our debt balance by $59
million through open market repurchases and redemptions of our
unsecured senior notes. For the full year 2019, Precision exceeded
our 2019 debt reduction target with total debt repayments of $205
million.
- Maximize financial results
by leveraging our High Performance, High Value Super Series rig
fleet and scale with disciplined cost management – In the
fourth quarter of 2019, Precision 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 19% 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 $6
million of Adjusted EBITDA. Precision also continued to leverage
its expanded footprint in Kuwait, with our sixth Kuwait rig
commencing drilling on July 1, 2019, increasing our economies of
scale and operating margins in the region.For the full year 2019,
Precision reported Adjusted EBITDA of $392 million, up 5% from 2018
despite a 22% reduction in Canadian drilling activity levels.
- Full scale
commercialization and implementation of our AlphaAutomation
platform, AlphaApps and AlphaAnalytics – In the fourth
quarter, we announced full commercialization of our AlphaAutomation
offering, with its 32 systems over 90% utilized and earning
commercial rates. We currently have our AlphaAutomation platform
deployed throughout various basins in the U.S. and Canada, drilling
613 wells in 2019, an increase of 69% over the prior year
comparative. With more than 15 revenue generating AlphaApps
commercialized or in development, our portfolio of technology
offerings continues to expand. We have demonstrated to our
customers our system’s ability to deliver consistent, high-quality
results, and as a result of continued demand to lower well costs
and maximize efficiencies, Precision intends to deploy an
additional 24 AlphaAutomation systems in North America during
2020.
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 and by $700 million between 2018
and 2022.
- Demonstrate operational excellence in all aspects of
our business including operational, financial and ESG
(environmental, social and governance) metrics.
- Leverage our Alpha technology platform as a competitive
differentiator and source of financial returns for
Precision.
OUTLOOK
For the fourth quarter of 2019, the average
price of West Texas Intermediate and Henry Hub were down 3% and
37%, respectively. The average price of Western Canadian Select and
AECO gas prices were 111% and 66% higher, respectively.
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Average oil and natural gas prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Texas Intermediate (per barrel) (US$) |
|
57.02 |
|
|
|
58.89 |
|
|
|
57.07 |
|
|
|
64.88 |
|
Western Canadian Select (per barrel) (US$) |
|
41.12 |
|
|
|
19.47 |
|
|
|
44.28 |
|
|
|
38.46 |
|
Natural
gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Hub (per MMBtu) (US$) |
|
2.40 |
|
|
|
3.81 |
|
|
|
2.56 |
|
|
|
3.12 |
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AECO (per MMBtu) (Cdn$) |
|
2.47 |
|
|
|
1.49 |
|
|
|
1.77 |
|
|
|
1.49 |
|
Contracts
During 2019 we entered into 56 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 February
12, 2020. For those quarters ended after December 31, 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 February 12,
2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
56 |
|
|
|
52 |
|
|
|
49 |
|
|
|
41 |
|
|
|
41 |
|
|
|
34 |
|
|
|
26 |
|
|
|
20 |
|
Canada |
|
|
8 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
|
|
3 |
|
|
|
3 |
|
International |
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
|
|
6 |
|
|
|
6 |
|
Total |
|
|
72 |
|
|
|
65 |
|
|
|
63 |
|
|
|
55 |
|
|
|
54 |
|
|
|
46 |
|
|
|
35 |
|
|
|
29 |
|
The following chart outlines the average number
of drilling rigs under contract for 2019 and the average number of
rigs we have under contract for 2020 and 2021 as of February 12,
2020.
|
|
Average for the year ended |
|
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
Average rigs under term contract as of February 12,
2020: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
49 |
|
|
|
30 |
|
|
|
5 |
|
Canada |
|
|
6 |
|
|
|
4 |
|
|
|
1 |
|
International |
|
|
9 |
|
|
|
7 |
|
|
|
6 |
|
Total |
|
|
64 |
|
|
|
41 |
|
|
|
12 |
|
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 our average number
of drilling rigs 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 |
|
|
Dec. 31 |
|
Average Precision active rig
count: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
64 |
|
|
|
72 |
|
|
|
76 |
|
|
|
80 |
|
|
79 |
|
|
|
77 |
|
|
|
72 |
|
|
|
63 |
|
Canada |
|
72 |
|
|
|
31 |
|
|
|
52 |
|
|
|
49 |
|
|
48 |
|
|
|
27 |
|
|
|
42 |
|
|
|
43 |
|
International |
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
Total |
|
144 |
|
|
|
111 |
|
|
|
136 |
|
|
|
137 |
|
|
135 |
|
|
|
112 |
|
|
|
123 |
|
|
|
115 |
|
To start 2020, drilling activity has decreased
relative to the prior year in the U.S. and Canada. According to
industry sources, as of February 12, 2020, the U.S. active land
drilling rig count was down 26% compared with the same point last
year and the Canadian active land drilling rig count was up
approximately 8%. Furthermore, approximately 85% of the U.S.
industry’s active rigs and 61% of the Canadian industry’s active
rigs were drilling for oil targets, compared with 81% for the U.S.
and 60% for Canada at the same time last year.
Industry Conditions
We expect Tier 1 rigs to remain the preferred
rigs of customers globally. The economic value created by the
significant drilling and mobility efficiencies delivered by the
most advanced XY pad walking rigs has been highlighted and widely
accepted by our customers. The trend to longer-reach horizontal
completions and importance of the rig delivering these complex
wells consistently and efficiently has been well established by the
industry. We expect demand for leading edge high efficiency Tier 1
rigs will continue to strengthen relative to less capable rigs, as
drilling rig capability has been a key economic facilitator of
horizontal/unconventional resource exploitation. Development and
field application of drilling equipment process automation coupled
with closed loop drilling controls and de-manning of rigs will
continue this technical evolution while creating further cost
efficiencies and performance value for customers.
Capital Spending
Capital spending in 2020 is expected to be $95
million and includes $58 million for sustaining, infrastructure and
intangibles and $37 million for upgrade and expansion. We expect
our spending to be split $86 million in the Contract Drilling
Services segment, $7 million in the Completion and Production
Services segment and $2 million to the Corporate segment.
SEGMENTED FINANCIAL RESULTS
Precision’s operations are reported in two
segments: Contract Drilling Services, which includes the drilling
rig, directional drilling, oilfield supply and manufacturing
divisions; and Completion and Production Services, which includes
the service rig, rental and camp and catering divisions.
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services |
|
338,886 |
|
|
|
391,843 |
|
|
|
(13.5 |
) |
|
|
1,399,068 |
|
|
|
1,396,492 |
|
|
|
0.2 |
|
Completion and Production Services |
|
34,985 |
|
|
|
36,715 |
|
|
|
(4.7 |
) |
|
|
147,829 |
|
|
|
150,760 |
|
|
|
(1.9 |
) |
Inter-segment eliminations |
|
(1,570 |
) |
|
|
(1,548 |
) |
|
|
1.4 |
|
|
|
(5,577 |
) |
|
|
(6,063 |
) |
|
|
(8.0 |
) |
|
|
372,301 |
|
|
|
427,010 |
|
|
|
(12.8 |
) |
|
|
1,541,320 |
|
|
|
1,541,189 |
|
|
|
0.0 |
|
Adjusted EBITDA:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services |
|
112,566 |
|
|
|
122,131 |
|
|
|
(7.8 |
) |
|
|
429,483 |
|
|
|
412,134 |
|
|
|
4.2 |
|
Completion and Production Services |
|
6,259 |
|
|
|
7,011 |
|
|
|
(10.7 |
) |
|
|
24,155 |
|
|
|
14,881 |
|
|
|
62.3 |
|
Corporate and Other |
|
(13,819 |
) |
|
|
5,350 |
|
|
|
(358.3 |
) |
|
|
(61,733 |
) |
|
|
(51,884 |
) |
|
|
19.0 |
|
|
|
105,006 |
|
|
|
134,492 |
|
|
|
(21.9 |
) |
|
|
391,905 |
|
|
|
375,131 |
|
|
|
4.5 |
|
(1) See “NON-GAAP
MEASURES”.
SEGMENT REVIEW OF CONTRACT DRILLING
SERVICES
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
338,886 |
|
|
|
391,843 |
|
|
|
(13.5 |
) |
|
|
1,399,068 |
|
|
|
1,396,492 |
|
|
|
0.2 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
216,305 |
|
|
|
258,255 |
|
|
|
(16.2 |
) |
|
|
927,612 |
|
|
|
945,203 |
|
|
|
(1.9 |
) |
General and administrative |
|
10,015 |
|
|
|
11,457 |
|
|
|
(12.6 |
) |
|
|
38,927 |
|
|
|
39,155 |
|
|
|
(0.6 |
) |
Restructuring |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
3,046 |
|
|
|
- |
|
|
n/m |
|
Adjusted EBITDA(1) |
|
112,566 |
|
|
|
122,131 |
|
|
|
(7.8 |
) |
|
|
429,483 |
|
|
|
412,134 |
|
|
|
4.2 |
|
Depreciation |
|
73,196 |
|
|
|
98,460 |
|
|
|
(25.7 |
) |
|
|
300,882 |
|
|
|
341,712 |
|
|
|
(11.9 |
) |
Gain on asset disposals |
|
(3,621 |
) |
|
|
(2,526 |
) |
|
|
43.3 |
|
|
|
(46,849 |
) |
|
|
(7,157 |
) |
|
|
554.6 |
|
Loss on asset
decommissioning |
|
20,263 |
|
|
|
- |
|
|
n/m |
|
|
|
20,263 |
|
|
|
- |
|
|
n/m |
|
Reversal of impairment of
property, plant and equipment |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
(5,810 |
) |
|
|
- |
|
|
n/m |
|
Impairment of goodwill |
|
- |
|
|
|
207,544 |
|
|
|
(100.0 |
) |
|
|
- |
|
|
|
207,544 |
|
|
|
(100.0 |
) |
Operating earnings (loss)(1) |
|
22,728 |
|
|
|
(181,347 |
) |
|
|
(112.5 |
) |
|
|
160,997 |
|
|
|
(129,965 |
) |
|
|
(223.9 |
) |
Operating earnings (loss)(1) as a percentage of revenue |
|
6.7 |
% |
|
|
(46.3 |
)% |
|
|
|
|
|
|
11.5 |
% |
|
|
(9.3 |
)% |
|
|
|
|
(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 |
|
December 31 |
|
63 |
|
|
|
798 |
|
|
|
80 |
|
|
|
1,050 |
|
Year to date average |
|
73 |
|
|
|
921 |
|
|
|
73 |
|
|
|
1,014 |
|
(1) United States lower 48
operations only.(2) Baker Hughes rig counts.
|
|
Three months ended December 31, |
|
Canadian onshore drilling statistics:(1) |
|
2019 |
|
|
2018 |
|
|
|
Precision |
|
|
Industry(2) |
|
|
Precision |
|
|
Industry(2) |
|
Number of drilling rigs (end of period) |
|
|
109 |
|
|
|
517 |
|
|
|
117 |
|
|
|
574 |
|
Drilling rig operating days (spud to release) |
|
|
3,496 |
|
|
|
11,392 |
|
|
|
4,020 |
|
|
|
15,235 |
|
Drilling rig operating day utilization |
|
|
33 |
% |
|
|
23 |
% |
|
|
33 |
% |
|
|
28 |
% |
Number of wells drilled |
|
|
350 |
|
|
|
1,160 |
|
|
|
401 |
|
|
|
1,602 |
|
Average days per well |
|
|
10.0 |
|
|
|
9.8 |
|
|
|
10.0 |
|
|
|
9.5 |
|
Number of metres drilled (000s) |
|
|
1,100 |
|
|
|
3,600 |
|
|
|
1,153 |
|
|
|
4,609 |
|
Average metres per well |
|
|
3,143 |
|
|
|
3,103 |
|
|
|
2,874 |
|
|
|
2,877 |
|
Average metres per day |
|
|
315 |
|
|
|
316 |
|
|
|
287 |
|
|
|
303 |
|
|
|
Year ended December 31, |
|
Canadian onshore drilling statistics:(1) |
|
2019 |
|
|
2018 |
|
|
|
Precision |
|
|
Industry(2) |
|
|
Precision |
|
|
Industry(2) |
|
Number of drilling rigs (end of period) |
|
|
109 |
|
|
|
517 |
|
|
|
117 |
|
|
|
574 |
|
Drilling rig operating days (spud to release) |
|
|
12,900 |
|
|
|
45,334 |
|
|
|
16,479 |
|
|
|
64,491 |
|
Drilling rig operating day utilization |
|
|
31 |
% |
|
|
22 |
% |
|
|
34 |
% |
|
|
29 |
% |
Number of wells drilled |
|
|
1,314 |
|
|
|
4,769 |
|
|
|
1,663 |
|
|
|
6,781 |
|
Average days per well |
|
|
9.8 |
|
|
|
9.5 |
|
|
|
9.9 |
|
|
|
9.5 |
|
Number of metres drilled (000s) |
|
|
3,968 |
|
|
|
14,241 |
|
|
|
4,694 |
|
|
|
19,313 |
|
Average metres per well |
|
|
3,020 |
|
|
|
2,986 |
|
|
|
2,823 |
|
|
|
2,848 |
|
Average metres per day |
|
|
308 |
|
|
|
314 |
|
|
|
285 |
|
|
|
299 |
|
(1) Canadian operations
only.(2) Canadian Association of Oilwell Drilling
Contractors (“CAODC”), and Precision – excludes non-CAODC rigs and
non-reporting CAODC members.
Revenue from Contract Drilling Services for the
fourth quarter of 2019 was $339 million, $53 million lower than the
fourth quarter of 2018, while Adjusted EBITDA (see “NON-GAAP
MEASURES”) decreased 8% to $113 million. The lower revenue in 2019
was primarily due to lower U.S. and Canada utilization days,
partially offset by higher international activity and U.S. pricing.
During the quarter, we had US$3 million of revenue from each of
idle but contracted rigs and turnkey projects as compared with
fourth quarter 2018 idle but contracted rig and turnkey revenue of
US$0.3 million and US$11 million, respectively.
Drilling rig utilization days (drilling days
plus move days) in both the U.S. and Canada were down in the fourth
quarter of 2019 as compared to 2018. In the U.S., we had 5,814
drilling rig utilization days, 21% lower than the same quarter of
2018. Canada had 3,919 days in the quarter, a decrease of 13%
compared to 2018. The reduced activity in both regions was
consistent with lower industry activity. Drilling rig utilization
days in our international business was 818, 11% higher than the
same quarter of 2018, as we deployed our sixth Kuwait rig in the
third quarter of 2019.
Revenue per utilization day in the U.S.
increased in the fourth quarter of 2019 to US$23,949 from US$23,369
in the prior year quarter. The increase was the result of higher
day rates, idle but contracted rig revenue and rig technology
revenue, partially offset by lower turnkey activity. On a
sequential basis, U.S. revenue per utilization day, excluding
revenue from turnkey and idle but contracted rigs, was consistent
with the third quarter of 2019. In Canada, average revenue per
utilization day for contract drilling rigs was $22,182 compared
with $22,802 in the fourth quarter of 2018. The lower average
revenue per utilization day in the fourth quarter of 2019 was
primarily due to lower rates from a higher proportion of Super
Singles in our rig mix and lower shortfall payments, partially
offset by higher technology revenue. We did not receive shortfall
payments in the fourth quarter of 2019 as compared to $1 million in
the 2018 quarter. Average revenue per utilization day in our
international contract drilling business was US$52,283 compared
with US$51,982 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 the sixth Kuwait rig, partially offset by lower amortization of
the initial upfront mobilization revenue. Directional drilling
services realized revenue of $9 million in the fourth quarter of
2019, consistent with 2018.
In the U.S., 66% of utilization days were
generated from rigs under term contract as compared with 70% in the
fourth quarter of 2018. In Canada, 9% of our utilization days in
the quarter were generated from rigs under term contract, compared
with 15% in the fourth quarter of 2018.
Operating costs were 64% of revenue for the
quarter, 2% lower than the prior year quarter. Our U.S. operating
costs on a per day basis decreased to US$14,073 in the fourth
quarter of 2019 compared with US$15,042 in 2018. The decrease was
mainly due to lower turnkey activity, the impact from the reversal
of prior period provisions and the componentization of rig
recertification costs. Excluding the impact of the provision
reversals and componentization of recertification costs, our
operating costs on a per day basis for the quarter were US$14,974.
In the U.S., on a sequential basis, operating costs per day
decreased by US$414 due to lower repair and maintenance costs,
third party charges partially offset by higher turnkey costs.
Average operating costs per utilization day for drilling rigs in
Canada decreased to $14,791 compared with the prior year quarter of
$15,115. The decrease was mainly caused by the impact of lower
repair and maintenance costs due to the componentization of rig
recertification costs. Excluding the impact of componentization of
recertifications, our operating costs on a per day basis for the
quarter were $15,044.
Depreciation expense in the quarter was 26%
lower than the fourth quarter of 2018. The lower 2019 expense was
primarily due to asset sales, assets becoming fully depreciated and
non-recurring accelerated depreciation of excess spare equipment
recorded in the fourth quarter of 2018. In 2019, we recognized a
loss on the decommissioning of drilling rigs and ancillary
equipment of $20 million. See discussion on rig decommissioning
under “Other Items” for additional details.
In the fourth quarter of 2019, through the
completion of normal course business operations, we sold used
assets resulting in a gain on asset disposals of $4 million as
compared to $3 million in the 2018 quarter.
SEGMENT REVIEW OF COMPLETION AND
PRODUCTION SERVICES
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars, except where noted) |
2019 |
|
|
2018 |
|
|
% Change |
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
Revenue |
|
34,985 |
|
|
|
36,715 |
|
|
|
(4.7 |
) |
|
|
147,829 |
|
|
|
150,760 |
|
|
|
(1.9 |
) |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
26,982 |
|
|
|
28,515 |
|
|
|
(5.4 |
) |
|
|
116,932 |
|
|
|
128,124 |
|
|
|
(8.7 |
) |
General and administrative |
|
1,744 |
|
|
|
1,189 |
|
|
|
46.7 |
|
|
|
6,285 |
|
|
|
6,591 |
|
|
|
(4.6 |
) |
Restructuring |
|
- |
|
|
|
- |
|
|
n/m |
|
|
|
457 |
|
|
|
1,164 |
|
|
|
(60.7 |
) |
Adjusted EBITDA(1) |
|
6,259 |
|
|
|
7,011 |
|
|
|
(10.7 |
) |
|
|
24,155 |
|
|
|
14,881 |
|
|
|
62.3 |
|
Depreciation |
|
4,309 |
|
|
|
5,416 |
|
|
|
(20.4 |
) |
|
|
17,881 |
|
|
|
22,801 |
|
|
|
(21.6 |
) |
Loss (gain) on asset disposals |
|
(201 |
) |
|
|
(65 |
) |
|
|
209.2 |
|
|
|
(3,767 |
) |
|
|
1,078 |
|
|
|
(449.4 |
) |
Operating earnings (loss)(1) |
|
2,151 |
|
|
|
1,660 |
|
|
|
29.6 |
|
|
|
10,041 |
|
|
|
(8,998 |
) |
|
|
(211.6 |
) |
Operating earnings (loss)(1) as a percentage of revenue |
|
6.1 |
% |
|
|
4.5 |
% |
|
|
|
|
|
|
6.8 |
% |
|
|
(6.0 |
)% |
|
|
|
|
Well servicing
statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of service rigs (end of period)(2) |
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
|
|
123 |
|
|
|
210 |
|
|
|
(41.4 |
) |
Service rig operating hours |
|
39,865 |
|
|
|
35,773 |
|
|
|
11.4 |
|
|
|
147,154 |
|
|
|
157,467 |
|
|
|
(6.5 |
) |
Service rig operating hour utilization |
|
35 |
% |
|
|
19 |
% |
|
|
|
|
|
|
32 |
% |
|
|
21 |
% |
|
|
|
|
Service rig revenue per operating hour |
|
746 |
|
|
|
753 |
|
|
|
(0.9 |
) |
|
|
739 |
|
|
|
709 |
|
|
|
4.2 |
|
(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.
Revenue from Completion and Production Services
decreased $2 million compared with the fourth quarter of 2018 due
to lower activity in our rental and camp and catering divisions and
the impact of the disposal of our snubbing units and waste water
assets partially offset by higher well service activity in Canada
and the U.S. Our service rig operating hours in the quarter were up
11% from the fourth quarter of 2018 while average service rig
revenue per operating hour decreased slightly to $746. Excluding
the impact of snubbing assets, which were disposed in the first
quarter, our fourth quarter 2019 service activity and rates
increased 20% and 5%, respectively, over the comparative 2018
period. Approximately 78% of our fourth quarter Canadian service
rig activity was oil related.
Adjusted EBITDA (see “NON-GAAP MEASURES”) of $6
million in the fourth quarter of 2019 was 11% lower than the 2018
quarter primarily due to lower activity in our non-well servicing
divisions and the impact of asset disposals, partially offset by
higher well service activity and lower costs resulting from our
cost control measures.
During the fourth quarter, the segment generated
81% of its revenue from Canadian operations and 19% from U.S.
operations compared with 90% from Canada and 10% in the U.S. in the
2018 quarter.
Operating costs as a percentage of revenue was
77% compared with the prior year comparative quarter of 78%. The
reduction of operating costs as a percentage of revenue was
primarily the result of a higher proportion of 24-hour well service
work and continued cost control.
Depreciation expense in the quarter was 20%
lower than the prior year comparative period. The decrease in
depreciation expense was primarily due to a lower capital asset
base resulting from the disposition of snubbing units and waste
water assets and assets becoming fully depreciated.
In the first quarter of 2019, as a cost control
measure, Precision did not renew the registration of 75
Canadian-based well service rigs with industry associations due to
low anticipated activity levels for the year.
SEGMENT REVIEW OF CORPORATE AND
OTHER
Our Corporate and Other segment provides support
functions to our operating segments. The Corporate and Other
segment had negative Adjusted EBITDA (see “NON-GAAP MEASURES”) of
$14 million compared with Adjusted EBITDA of $5 million in the
comparative 2018 quarter. The lower Adjusted EBITDA in 2019 was
primarily the result of higher share-based incentive compensation
in the current quarter and the non-recurring receipt of the
transaction termination fee in the fourth quarter of 2018.
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 December 31, |
|
|
Year ended December 31, |
|
(Stated in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Cash settled share-based incentive plans |
|
3,529 |
|
|
|
(14,208 |
) |
|
|
8,193 |
|
|
|
6,391 |
|
Equity settled share-based
incentive plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive PSU |
|
3,149 |
|
|
|
1,527 |
|
|
|
11,648 |
|
|
|
5,871 |
|
Stock option plan |
|
524 |
|
|
|
681 |
|
|
|
2,275 |
|
|
|
3,336 |
|
Total
share-based incentive compensation plan expense |
|
7,202 |
|
|
|
(12,000 |
) |
|
|
22,116 |
|
|
|
15,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
1,711 |
|
|
|
(5,437 |
) |
|
|
5,025 |
|
|
|
3,656 |
|
General and Administrative |
|
5,491 |
|
|
|
(6,563 |
) |
|
|
17,091 |
|
|
|
11,942 |
|
|
|
7,202 |
|
|
|
(12,000 |
) |
|
|
22,116 |
|
|
|
15,598 |
|
Cash settled shared-based compensation expense
for the fourth quarter of 2019 was an expense of $4 million
compared to a recovery of $14 million in the comparable 2018
quarter. The higher share-based compensation expense in 2019 was
the result of our share price increasing in the 2019 fourth quarter
versus a decline in the 2018 quarter.
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 $4 million compared with the fourth 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 adoption of
IFRS 16. Interest charges on our U.S. denominated long-term debt in
the fourth quarter of 2019 were US$20 million ($26 million)
compared with US$23 million ($30 million) in 2018.
Normal Course Issuer Bid
In 2019, the Toronto Stock Exchange approved our
application to implement a Normal Course Issuer Bid. As at December
31, 2019, we purchased and cancelled a total of 16 million common
shares for $26 million. Subsequent to December 31, 2019, we
purchased and cancelled an additional 2 million common shares for
$3 million.
Rig Decommissioning
In the fourth quarter of 2019, we decommissioned
certain drilling and ancillary equipment that no longer met our
High-Performance technology standards. Included in the
decommissioned assets were those drilling rigs previously held for
sale. We recognized a $20 million loss on the decommissioning of
these assets.
Change in Rig Components
In the fourth quarter of 2019, we performed our
annual review of estimated useful lives, residual values and
methods and components of depreciation of property, plant and
equipment. Due to changes in circumstance surrounding the timing,
nature and complexity of rig recertifications, we determined the
associated costs represent a separate component of property, plant
and equipment. This change has been recognized prospectively and is
expected to increase our 2020 depreciation expense by approximately
$3 million.
Income Tax
Income tax recovery for the quarter was $12
million compared with $2 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 increase in the income tax
recovery for the quarter was mainly due to a larger fourth quarter
loss prior to the non-taxable portion of the goodwill impairment in
2018; adjustments for prior period taxes; reversal of unrecognized
tax benefits; and U.S. tax reform legislation clarification enacted
in December 2019, offset by a reduction in the benefit from the
Alberta income tax rate reductions.
LIQUIDITY AND CAPITAL
RESOURCES
The oilfield services business is inherently
cyclical in nature. To manage this, we focus on maintaining a
strong balance sheet so we have the financial flexibility we need
to continue to manage our growth and cash flow, regardless of where
we are in the business cycle. We maintain a variable operating cost
structure so we can be responsive to changes in demand.
Our maintenance capital expenditures are tightly
governed by and highly responsive to activity levels with
additional cost savings leverage provided through our internal
manufacturing and supply capabilities. Term contracts on expansion
capital for new-build and upgrade rig programs provide more
certainty of future revenues and return on our capital
investments.
Liquidity
Amount |
|
Availability |
|
Used for |
|
Maturity |
Senior credit facility (secured) |
|
|
|
|
|
|
US$500 million (extendible, revolving term credit facility with
US$300 million accordion feature) |
|
Undrawn, except US$25 million in outstanding letters of
credit |
|
General corporate purposes |
|
November 21, 2023 |
Operating facilities (secured) |
|
|
|
|
|
|
$40 million |
|
Undrawn, except $26 million in outstanding letters of
credit |
|
Letters of credit and general corporate purposes |
|
|
US$15 million |
|
Undrawn |
|
Short term working capital requirements |
|
|
Demand letter of credit facility (secured) |
|
|
|
|
|
|
US$30 million |
|
Undrawn, except US$2 million in outstanding letters of
credit |
|
Letters of credit |
|
|
Unsecured senior notes (unsecured) |
|
|
|
|
|
|
US$91 million – 6.5% |
|
Fully drawn |
|
Capital expenditures and general corporate purposes |
|
December 15, 2021 |
US$345 million – 7.75% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
December 15, 2023 |
US$308 million – 5.25% |
|
Fully drawn |
|
Capital expenditures and general corporate purposes |
|
November 15, 2024 |
US$370 million – 7.125% |
|
Fully drawn |
|
Debt redemption and repurchases |
|
January 15, 2026 |
As of December 31, 2019, we had US$1,113 million
($1,445 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 6.8%.
During 2019, we repurchased and cancelled US$30
million of our 7.125% unsecured senior notes due 2026, US$5 million
of our 7.75% notes due 2023 and US$43 million of our 5.25% notes
due 2024. In addition, we redeemed US$75 million principal amount
of our 6.50% unsecured senior notes due 2021.
Subsequent to December 31, 2019, we redeemed an
additional US$25 million of our 6.5% unsecured senior notes due
2021.
Covenants
Following is a listing of our currently
applicable covenants and the calculations as of December 31,
2019:
|
Covenant |
|
At December 31, 2019 |
|
Senior Credit Facility |
|
|
|
|
|
Consolidated senior debt to consolidated covenant EBITDA(1) |
≤ 2.50 |
|
|
0.00 |
|
Consolidated covenant EBITDA to consolidated interest
expense(1) |
≥ 2.50 |
|
|
3.39 |
|
Unsecured 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 December 31, 2019, we were in compliance with
the covenants of our senior credit facility and unsecured senior
notes.
Senior Credit Facility
The senior credit facility requires that we
comply with certain restrictive and financial covenants including a
leverage ratio of consolidated senior debt to consolidated Covenant
EBITDA (see “NON-GAAP MEASURES”) of less than 2.5:1. For purposes
of calculating the leverage ratio consolidated senior debt only
includes secured indebtedness.
Under the senior credit facility, we are
required to maintain a ratio of consolidated Covenant EBITDA (see
“NON-GAAP MEASURES”) to consolidated interest expense, for the most
recent four consecutive quarters, of greater than 2.5:1.
Unsecured Senior Notes
Our unsecured senior notes require we comply
with restrictive and financial covenants including an incurrence
based consolidated interest coverage ratio test of consolidated
cash flow, as defined in the unsecured senior note agreements, to
consolidated interest expense of greater than 2.0:1 for the most
recent four consecutive fiscal quarters. In the event this ratio is
less than 2.0:1 for the most recent four consecutive fiscal
quarters, the unsecured senior notes restrict our ability to incur
additional indebtedness.
The unsecured senior notes contain a restricted
payment covenant that limits our ability to make payments in the
nature of dividends, distributions and for repurchases from
shareholders. This restricted payment basket grows from a starting
point of October 1, 2010 for the 2021 and 2024 unsecured senior
notes, from October 1, 2016 for the 2023 unsecured senior notes and
October 1, 2017 for the 2026 unsecured senior notes by, among other
things, 50% of consolidated cumulative net earnings and decreases
by 100% of consolidated cumulative net losses, as defined in the
note agreements, and payments made to shareholders. Beginning with
the December 31, 2015 calculation the governing net restricted
payments basket was negative which limits our ability to declare
and make dividend payments or share repurchases until such time as
the governing restricted payments basket becomes positive.
For further information, please see the
unsecured senior note indentures which are available on SEDAR and
EDGAR.
Impact of foreign exchange rates
On average, the Canada-U.S. foreign exchange
rate was consistent in the fourth quarter of 2019 as compared to
2018. For the year ended December 31, 2019, the Canadian dollar
weakened by 2% from 2018. The devaluation of the Canadian dollar
resulted in higher translated U.S. denominated revenue and costs.
The following table summarizes the average and closing Canada-U.S.
foreign exchanges rates:
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Canada-U.S. foreign exchange rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
1.32 |
|
|
|
1.32 |
|
|
|
1.33 |
|
|
|
1.30 |
|
Closing |
|
1.30 |
|
|
|
1.37 |
|
|
|
1.30 |
|
|
|
1.37 |
|
Hedge of investments in foreign operations
We utilize foreign currency long-term debt to
hedge our exposure to changes in the carrying values of our net
investment in certain foreign operations as a result of changes in
foreign exchange rates.
We have designated our U.S. dollar denominated
long-term debt as a net investment hedge in our U.S. operations and
other foreign operations that have a U.S. dollar functional
currency. To be accounted for as a hedge, the foreign currency
denominated long-term debt must be designated and documented as
such and must be effective at inception and on an ongoing basis. We
recognize the effective amount of this hedge (net of tax) in other
comprehensive income. We recognize ineffective amounts (if any) in
net earnings (loss).
Average shares outstanding
The following table reconciles the weighted
average shares outstanding used in computing basic and diluted net
earnings (loss) per share:
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated in thousands) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Weighted average shares outstanding – basic |
|
282,850 |
|
|
|
293,782 |
|
|
|
290,782 |
|
|
|
293,560 |
|
Effect of stock options and other equity compensation plans |
|
— |
|
|
|
— |
|
|
|
6,397 |
|
|
|
— |
|
Weighted average shares outstanding – diluted |
|
282,850 |
|
|
|
293,782 |
|
|
|
297,179 |
|
|
|
293,560 |
|
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share
amounts) |
|
2019 |
|
Quarters ended |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
Revenue |
|
|
434,043 |
|
|
|
359,424 |
|
|
|
375,552 |
|
|
|
372,301 |
|
Adjusted EBITDA(1) |
|
|
107,967 |
|
|
|
81,037 |
|
|
|
97,895 |
|
|
|
105,006 |
|
Net earnings (loss) |
|
|
25,014 |
|
|
|
(13,801 |
) |
|
|
(3,534 |
) |
|
|
(1,061 |
) |
Net earnings (loss) per basic
share |
|
|
0.09 |
|
|
|
(0.05 |
) |
|
|
(0.01 |
) |
|
|
(0.00 |
) |
Net earnings (loss) per diluted
share |
|
|
0.08 |
|
|
|
(0.05 |
) |
|
|
(0.01 |
) |
|
|
(0.00 |
) |
Funds provided by
operations(1) |
|
|
95,993 |
|
|
|
40,950 |
|
|
|
79,930 |
|
|
|
75,779 |
|
Cash provided by operations |
|
|
40,587 |
|
|
|
106,035 |
|
|
|
66,556 |
|
|
|
74,981 |
|
(Stated in thousands of Canadian dollars, except per share
amounts) |
|
2018 |
|
Quarters ended |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
Revenue |
|
|
401,006 |
|
|
|
330,716 |
|
|
|
382,457 |
|
|
|
427,010 |
|
Adjusted EBITDA(1) |
|
|
97,469 |
|
|
|
62,182 |
|
|
|
80,988 |
|
|
|
134,492 |
|
Net loss |
|
|
(18,077 |
) |
|
|
(47,217 |
) |
|
|
(30,648 |
) |
|
|
(198,328 |
) |
Net loss per basic |
|
|
(0.06 |
) |
|
|
(0.16 |
) |
|
|
(0.10 |
) |
|
|
(0.68 |
) |
Net loss per diluted share |
|
|
(0.06 |
) |
|
|
(0.16 |
) |
|
|
(0.10 |
) |
|
|
(0.68 |
) |
Funds provided by
operations(1) |
|
|
104,026 |
|
|
|
50,225 |
|
|
|
64,368 |
|
|
|
92,595 |
|
Cash provided by operations |
|
|
38,189 |
|
|
|
129,695 |
|
|
|
31,961 |
|
|
|
93,489 |
|
(1) See “NON-GAAP
MEASURES”.
CRITICAL ACCOUNTING JUDGEMENTS AND
ESTIMATES
Because of the nature of our business, we are
required to make judgments and estimates in preparing our Condensed
Interim Consolidated Financial Statements that could materially
affect the amounts recognized. Our judgments and estimates are
based on our past experiences and assumptions we believe are
reasonable in the circumstances. The critical judgments and
estimates used in preparing the Condensed Interim Consolidated
Financial Statements are described in our 2018 Annual Report and
there have been no material changes to our critical accounting
judgments and estimates during the three months and year ended
December 31, 2019 except for those impacted by the adoption of new
accounting standards.
CHANGES IN ACCOUNTING
POLICY
New standards adopted
The following standards became effective on
January 1, 2019:
- IFRS 16 Leases
- IFRIC 23 Uncertainty over Income Tax Treatments
Precision adopted these standards using the
modified retrospective method on January 1, 2019. Please see the
unaudited September 30, 2019 Condensed Interim Consolidated
Financial Statements and related notes for further details on the
adoption of these standards.
Impact of IFRS 16 Leases on Adjusted
EBITDA
With the adoption of IFRS 16, the accounting
treatment for operating leases when Precision is the lessee,
changed effective January 1, 2019. Precision adopted IFRS 16 using
the modified retrospective approach and our comparative information
was not restated. As a result, the comparability of our 2019
Adjusted EBITDA to periods prior to January 1, 2019 is
impacted.
Under IFRS 16, leases classified as operating
leases were recognized on our statement of financial position with
a right of use asset and corresponding lease obligation
representing the present value of Precision’s future lease
payments. Once recognized, right of use assets are depreciated over
the shorter of their useful life and the term of the lease. The
lease obligation is measured at amortized cost using the effective
interest method. Under this approach, an interest charge is applied
to accrete the lease obligation to the present value of future
lease payments. As lease payments are made, the lease obligation is
reduced.
Historically, operating lease obligations were
accounted for as ‘off-balance sheet’ and lease expenses were only
recognized at the time of payment in either operating or general
and administrative expense. However, under IFRS 16, lease costs are
reflected on the statement of earnings (loss) through depreciation
and interest expense, resulting in an increase to Adjusted
EBITDA.
Upon transition, we recognized right of use
assets and corresponding lease obligations of $73 million. For the
three months and year ended December 31, 2019, we recorded lease
interest charges of $1 million and $3 million and depreciated our
right of use assets by $2 million and $8 million, respectively. As
a result of the new lease standard, our Adjusted EBITDA was
positively impacted for the three months and year ended December
31, 2019 by $3 million and $11 million, respectively.
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, gain on repurchase and redemption of unsecured senior
notes, finance charges, foreign exchange, impairment of goodwill,
reversal of impairment of property, plant and equipment, loss on
asset decommissioning, gain on asset disposals and depreciation and
amortization), as reported in the Interim Consolidated Statement of
Earnings (Loss), is a useful measure, because it gives an
indication of the results from our principal business activities
prior to consideration of how our activities are financed and the
impact of foreign exchange, taxation and depreciation and
amortization charges.
Covenant EBITDA
Covenant EBITDA, as defined in our senior credit
facility agreement, is used in determining the Corporation’s
compliance with its covenants. Covenant EBITDA differs from
Adjusted EBITDA by the exclusion of bad debt expense, restructuring
costs, certain foreign exchange amounts and with the adoption of
the new lease standard IFRS 16 - Leases, the deduction of cash
lease payments incurred after December 31, 2018.
Operating Earnings (Loss)
We believe that operating earnings (loss) is a
useful measure because it provides an indication of the results of
our principal business activities before consideration of how those
activities are financed and the impact of foreign exchange and
taxation. Operating earnings (loss) is calculated as follows:
|
Three months ended December 31, |
|
|
Year ended December 31, |
|
(Stated
in thousands of Canadian dollars) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenue |
|
372,301 |
|
|
|
427,010 |
|
|
|
1,541,320 |
|
|
|
1,541,189 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
241,717 |
|
|
|
285,222 |
|
|
|
1,038,967 |
|
|
|
1,067,264 |
|
General and administrative |
|
25,578 |
|
|
|
21,496 |
|
|
|
104,010 |
|
|
|
111,830 |
|
Restructuring |
|
— |
|
|
|
— |
|
|
|
6,438 |
|
|
|
1,164 |
|
Other |
|
— |
|
|
|
(14,200 |
) |
|
|
— |
|
|
|
(14,200 |
) |
Depreciation and
amortization |
|
80,932 |
|
|
|
106,946 |
|
|
|
333,616 |
|
|
|
377,044 |
|
Gain on asset disposals |
|
(3,888 |
) |
|
|
(7,905 |
) |
|
|
(50,741 |
) |
|
|
(11,384 |
) |
Loss on asset
decommissioning |
|
20,263 |
|
|
|
— |
|
|
|
20,263 |
|
|
|
— |
|
Reversal of impairment of
property, plant and equipment |
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Impairment of goodwill |
|
— |
|
|
|
207,544 |
|
|
|
— |
|
|
|
207,544 |
|
Operating earnings
(loss) |
|
7,699 |
|
|
|
(172,093 |
) |
|
|
94,577 |
|
|
|
(198,073 |
) |
Foreign exchange |
|
(4,306 |
) |
|
|
3,198 |
|
|
|
(8,722 |
) |
|
|
4,017 |
|
Finance charges |
|
28,275 |
|
|
|
32,220 |
|
|
|
118,453 |
|
|
|
127,178 |
|
Gain on
repurchase and redemption of unsecured notes |
|
(3,178 |
) |
|
|
(6,848 |
) |
|
|
(6,815 |
) |
|
|
(5,672 |
) |
Loss before income taxes |
|
(13,092 |
) |
|
|
(200,663 |
) |
|
|
(8,339 |
) |
|
|
(323,596 |
) |
Funds Provided By (Used In)
Operations
We believe that funds provided by (used in)
operations, as reported in the Interim Consolidated Statements of
Cash Flow, is a useful measure because it provides an indication of
the funds our principal business activities generate prior to
consideration of working capital, which is primarily made up of
highly liquid balances.
Working Capital
We define working capital as current assets less
current liabilities as reported on the 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;
- anticipated demand for Tier 1
rigs;
- the average number of term
contracts in place for 2020 and 2021;
- our future debt reduction plans;
and
- our commercialization and expansion
of technology offerings.
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) |
|
December 31,
2019 |
|
|
December 31, 2018 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
74,701 |
|
|
$ |
96,626 |
|
Accounts receivable |
|
|
310,204 |
|
|
|
372,336 |
|
Income tax recoverable |
|
|
1,142 |
|
|
|
— |
|
Inventory |
|
|
31,718 |
|
|
|
34,081 |
|
Assets held for sale |
|
|
— |
|
|
|
19,658 |
|
Total current assets |
|
|
417,765 |
|
|
|
522,701 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
Income tax recoverable |
|
|
— |
|
|
|
2,449 |
|
Deferred tax assets |
|
|
4,724 |
|
|
|
36,880 |
|
Right of use assets |
|
|
66,142 |
|
|
|
— |
|
Property, plant and equipment |
|
|
2,749,463 |
|
|
|
3,038,612 |
|
Intangibles |
|
|
31,746 |
|
|
|
35,401 |
|
Total
non-current assets |
|
|
2,852,075 |
|
|
|
3,113,342 |
|
Total
assets |
|
$ |
3,269,840 |
|
|
$ |
3,636,043 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
199,478 |
|
|
$ |
274,489 |
|
Income taxes payable |
|
|
4,142 |
|
|
|
7,673 |
|
Lease obligation |
|
|
12,449 |
|
|
|
— |
|
Total current liabilities |
|
|
216,069 |
|
|
|
282,162 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
8,830 |
|
|
|
6,520 |
|
Provisions and other |
|
|
9,959 |
|
|
|
10,577 |
|
Lease obligation |
|
|
54,980 |
|
|
|
— |
|
Long-term debt |
|
|
1,427,181 |
|
|
|
1,706,253 |
|
Deferred tax liabilities |
|
|
25,389 |
|
|
|
72,779 |
|
Total non-current
liabilities |
|
|
1,526,339 |
|
|
|
1,796,129 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Shareholders’ capital |
|
|
2,296,378 |
|
|
|
2,322,280 |
|
Contributed surplus |
|
|
66,255 |
|
|
|
52,332 |
|
Deficit |
|
|
(969,456 |
) |
|
|
(978,874 |
) |
Accumulated other comprehensive income |
|
|
134,255 |
|
|
|
162,014 |
|
Total
shareholders’ equity |
|
|
1,527,432 |
|
|
|
1,557,752 |
|
Total
liabilities and shareholders’ equity |
|
$ |
3,269,840 |
|
|
$ |
3,636,043 |
|
|
|
|
|
|
|
|
|
|
CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
|
|
Three Months Ended December 31, |
|
|
Year Ended December 31, |
|
(Stated
in thousands of Canadian dollars, except per share amounts) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
372,301 |
|
|
$ |
427,010 |
|
|
$ |
1,541,320 |
|
|
$ |
1,541,189 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
241,717 |
|
|
|
285,222 |
|
|
|
1,038,967 |
|
|
|
1,067,264 |
|
General and administrative |
|
|
25,578 |
|
|
|
21,496 |
|
|
|
104,010 |
|
|
|
111,830 |
|
Restructuring |
|
|
— |
|
|
|
— |
|
|
|
6,438 |
|
|
|
1,164 |
|
Other recoveries |
|
|
— |
|
|
|
(14,200 |
) |
|
|
— |
|
|
|
(14,200 |
) |
Earnings before income taxes,
gain on repurchase and redemption of unsecured senior notes,
finance charges, foreign exchange, impairment of goodwill, reversal
of impairment of property, plant and equipment, loss on asset
decommissioning, gain on asset disposals and depreciation and
amortization |
|
|
105,006 |
|
|
|
134,492 |
|
|
|
391,905 |
|
|
|
375,131 |
|
Depreciation and
amortization |
|
|
80,932 |
|
|
|
106,946 |
|
|
|
333,616 |
|
|
|
377,044 |
|
Gain on asset disposals |
|
|
(3,888 |
) |
|
|
(7,905 |
) |
|
|
(50,741 |
) |
|
|
(11,384 |
) |
Loss on asset
decommissioning |
|
|
20,263 |
|
|
|
— |
|
|
|
20,263 |
|
|
|
— |
|
Reversal of impairment of
property, plant and equipment |
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Impairment of goodwill |
|
|
— |
|
|
|
207,544 |
|
|
|
— |
|
|
|
207,544 |
|
Foreign exchange |
|
|
(4,306 |
) |
|
|
3,198 |
|
|
|
(8,722 |
) |
|
|
4,017 |
|
Finance charges |
|
|
28,275 |
|
|
|
32,220 |
|
|
|
118,453 |
|
|
|
127,178 |
|
Gain on
repurchase and redemption of unsecured senior notes |
|
|
(3,178 |
) |
|
|
(6,848 |
) |
|
|
(6,815 |
) |
|
|
(5,672 |
) |
Loss before income taxes |
|
|
(13,092 |
) |
|
|
(200,663 |
) |
|
|
(8,339 |
) |
|
|
(323,596 |
) |
Income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(3,473 |
) |
|
|
2,177 |
|
|
|
1,080 |
|
|
|
8,573 |
|
Deferred |
|
|
(8,558 |
) |
|
|
(4,512 |
) |
|
|
(16,037 |
) |
|
|
(37,899 |
) |
|
|
|
(12,031 |
) |
|
|
(2,335 |
) |
|
|
(14,957 |
) |
|
|
(29,326 |
) |
Net
earnings (loss) |
|
$ |
(1,061 |
) |
|
$ |
(198,328 |
) |
|
$ |
6,618 |
|
|
$ |
(294,270 |
) |
Net earnings (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.00 |
) |
|
$ |
(0.68 |
) |
|
$ |
0.02 |
|
|
$ |
(1.00 |
) |
Diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.68 |
) |
|
$ |
0.02 |
|
|
$ |
(1.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS (UNAUDITED)
|
|
Three Months Ended December 31, |
|
|
Year Ended December 31, |
|
(Stated
in thousands of Canadian dollars) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Net earnings (loss) |
|
$ |
(1,061 |
) |
|
$ |
(198,328 |
) |
|
$ |
6,618 |
|
|
$ |
(294,270 |
) |
Unrealized gain (loss)
on translation of assets and liabilities
of operations denominated in foreign currency |
|
|
(41,849 |
) |
|
|
128,674 |
|
|
|
(106,781 |
) |
|
|
175,630 |
|
Foreign exchange gain
(loss) on net investment hedge
with U.S. denominated debt, net of tax |
|
|
28,941 |
|
|
|
(104,716 |
) |
|
|
79,022 |
|
|
|
(145,226 |
) |
Comprehensive loss |
|
$ |
(13,969 |
) |
|
$ |
(174,370 |
) |
|
$ |
(21,141 |
) |
|
$ |
(263,866 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOW (UNAUDITED)
|
|
Three Months Ended December 31, |
|
|
Year Ended December 31, |
|
(Stated
in thousands of Canadian dollars) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss) |
|
$ |
(1,061 |
) |
|
$ |
(198,328 |
) |
|
$ |
6,618 |
|
|
$ |
(294,270 |
) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term compensation plans |
|
|
6,072 |
|
|
|
(1,599 |
) |
|
|
19,457 |
|
|
|
17,401 |
|
Depreciation and amortization |
|
|
80,932 |
|
|
|
106,946 |
|
|
|
333,616 |
|
|
|
377,044 |
|
Gain on asset disposals |
|
|
(3,888 |
) |
|
|
(7,905 |
) |
|
|
(50,741 |
) |
|
|
(11,384 |
) |
Loss on asset decommissioning |
|
|
20,263 |
|
|
|
— |
|
|
|
20,263 |
|
|
|
— |
|
Reversal of impairment of property, plant
and equipment |
|
|
— |
|
|
|
— |
|
|
|
(5,810 |
) |
|
|
— |
|
Impairment of goodwill |
|
|
— |
|
|
|
207,544 |
|
|
|
— |
|
|
|
207,544 |
|
Foreign exchange |
|
|
(4,263 |
) |
|
|
2,556 |
|
|
|
(8,585 |
) |
|
|
2,341 |
|
Finance charges |
|
|
28,275 |
|
|
|
32,220 |
|
|
|
118,453 |
|
|
|
127,178 |
|
Income taxes |
|
|
(12,031 |
) |
|
|
(2,335 |
) |
|
|
(14,957 |
) |
|
|
(29,326 |
) |
Other |
|
|
(783 |
) |
|
|
(27 |
) |
|
|
(981 |
) |
|
|
(1,269 |
) |
Gain on repurchase and redemption of unsecured senior
notes |
|
|
(3,178 |
) |
|
|
(6,848 |
) |
|
|
(6,815 |
) |
|
|
(5,672 |
) |
Income taxes paid |
|
|
(316 |
) |
|
|
(477 |
) |
|
|
(5,060 |
) |
|
|
(4,446 |
) |
Income taxes recovered |
|
|
1,337 |
|
|
|
1,775 |
|
|
|
2,479 |
|
|
|
33,283 |
|
Interest paid |
|
|
(35,919 |
) |
|
|
(41,369 |
) |
|
|
(116,655 |
) |
|
|
(108,622 |
) |
Interest received |
|
|
339 |
|
|
|
442 |
|
|
|
1,370 |
|
|
|
1,412 |
|
Funds provided by
operations |
|
|
75,779 |
|
|
|
92,595 |
|
|
|
292,652 |
|
|
|
311,214 |
|
Changes
in non-cash working capital balances |
|
|
(798 |
) |
|
|
894 |
|
|
|
(4,493 |
) |
|
|
(17,880 |
) |
|
|
|
74,981 |
|
|
|
93,489 |
|
|
|
288,159 |
|
|
|
293,334 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(21,541 |
) |
|
|
(29,594 |
) |
|
|
(159,886 |
) |
|
|
(114,576 |
) |
Purchase of intangibles |
|
|
(332 |
) |
|
|
(687 |
) |
|
|
(808 |
) |
|
|
(11,567 |
) |
Proceeds on sale of property, plant and equipment |
|
|
4,931 |
|
|
|
12,020 |
|
|
|
90,768 |
|
|
|
24,457 |
|
Changes in non-cash working capital balances |
|
|
609 |
|
|
|
(1,190 |
) |
|
|
(4,574 |
) |
|
|
892 |
|
|
|
|
(16,333 |
) |
|
|
(19,451 |
) |
|
|
(74,500 |
) |
|
|
(100,794 |
) |
Financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption and repurchase of unsecured senior notes |
|
|
(55,812 |
) |
|
|
(92,065 |
) |
|
|
(198,387 |
) |
|
|
(168,722 |
) |
Share repurchase |
|
|
(17,719 |
) |
|
|
— |
|
|
|
(25,902 |
) |
|
|
— |
|
Lease payments |
|
|
(1,699 |
) |
|
|
— |
|
|
|
(6,823 |
) |
|
|
— |
|
Debt amendment fees |
|
|
(702 |
) |
|
|
(638 |
) |
|
|
(702 |
) |
|
|
(638 |
) |
Issuance of common shares on the exercise of options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
275 |
|
|
|
|
(75,932 |
) |
|
|
(92,703 |
) |
|
|
(231,814 |
) |
|
|
(169,085 |
) |
Effect
of exchange rate changes on cash |
|
|
(1,776 |
) |
|
|
5,529 |
|
|
|
(3,770 |
) |
|
|
8,090 |
|
Increase (decrease) in
cash |
|
|
(19,060 |
) |
|
|
(13,136 |
) |
|
|
(21,925 |
) |
|
|
31,545 |
|
Cash,
beginning of period |
|
|
93,761 |
|
|
|
109,762 |
|
|
|
96,626 |
|
|
|
65,081 |
|
Cash,
end of period |
|
$ |
74,701 |
|
|
$ |
96,626 |
|
|
$ |
74,701 |
|
|
$ |
96,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,618 |
|
|
|
6,618 |
|
Other comprehensive loss for
the period |
|
|
— |
|
|
|
— |
|
|
|
(27,759 |
) |
|
|
— |
|
|
|
(27,759 |
) |
Share repurchase |
|
|
(25,902 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,902 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
13,923 |
|
|
|
— |
|
|
|
— |
|
|
|
13,923 |
|
Balance at December 31, 2019 |
|
$ |
2,296,378 |
|
|
$ |
66,255 |
|
|
$ |
134,255 |
|
|
$ |
(969,456 |
) |
|
$ |
1,527,432 |
|
(Stated
in thousands of Canadian dollars) |
|
Shareholders’capital |
|
|
Contributedsurplus |
|
|
Accumulatedothercomprehensiveincome |
|
|
Deficit |
|
|
Totalequity |
|
Balance at January 1, 2018 |
|
$ |
2,319,293 |
|
|
$ |
44,037 |
|
|
$ |
131,610 |
|
|
$ |
(684,604 |
) |
|
$ |
1,810,336 |
|
Net loss for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(294,270 |
) |
|
|
(294,270 |
) |
Other comprehensive income for
the period |
|
|
— |
|
|
|
— |
|
|
|
30,404 |
|
|
|
— |
|
|
|
30,404 |
|
Shares issued on redemption
non-management directors' DSUs |
|
|
2,609 |
|
|
|
(809 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,800 |
|
Share options exercised |
|
|
378 |
|
|
|
(103 |
) |
|
|
— |
|
|
|
— |
|
|
|
275 |
|
Share-based compensation
expense |
|
|
— |
|
|
|
9,207 |
|
|
|
— |
|
|
|
— |
|
|
|
9,207 |
|
Balance at December 31, 2018 |
|
$ |
2,322,280 |
|
|
$ |
52,332 |
|
|
$ |
162,014 |
|
|
$ |
(978,874 |
) |
|
$ |
1,557,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOURTH QUARTER 2019 EARNINGS CONFERENCE
CALL AND WEBCAST
Precision Drilling Corporation (“Precision”)
intends to release its 2019 fourth quarter results before the
market opens on Thursday, February 13, 2020, and has scheduled a
conference call and webcast to begin promptly at 12:00 Noon MT
(2:00 p.m. ET) on the same day.
The conference call dial in numbers are
844-515-9176 or 614-999-9312.
A live webcast of the conference call will be
accessible on Precision’s website at www.precisiondrilling.com by
selecting “Investor Relations”, then “Webcasts &
Presentations”. Shortly after the live webcast, an archived version
will be available for approximately 60 days.
An archived recording of the conference call
will be available approximately one hour after the completion of
the call until February 19, 2020 by dialing 855-859-2056 or
404-537-3406, passcode 9196243.
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 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 Officer713.435.6100
Dustin Honing, Manager, Investor
Relations403.716.4500
800, 525 - 8th Avenue S.W.Calgary, Alberta,
Canada T2P 1G1Website: www.precisiondrilling.com
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