press-release-details

Precision Drilling Corporation Announces 2020 First Quarter Unaudited Financial Results

04/30/2020

CALGARY, Alberta, April 30, 2020 (GLOBE NEWSWIRE) -- 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 first quarter financial results:

  • Revenue of $379 million was a decrease of 13% compared with the first quarter of 2019.
  • Net loss of $5 million or negative $0.02 per diluted share compared to net earnings of $25 million or $0.08 per diluted share in the comparable 2019 period.
  • 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 $102 million was 6% lower than the first quarter of 2019.
  • Generated cash and funds provided by operations (see “NON-GAAP MEASURES”) of $75 million and $81 million, respectively.
  • First quarter ending cash balance was $97 million, an increase of $22 million from December 31, 2019.
  • First quarter capital expenditures were $12 million.
  • Reduced our unsecured senior notes balance by $41 million and repurchased and cancelled 3 million common shares for $5 million.
  • Recognized restructuring charges of $10 million, comprised of $9 million of severance and $1 million of costs associated with the shutdown of our U.S. directional drilling operations.
  • To secure our liquidity position, on April 9, 2020, we amended our Senior Credit Facility to provide temporary covenant relief through March 31, 2022.

Precision’s President and CEO Kevin Neveu stated.

“The COVID-19 virus outbreak and associated mitigation efforts, including travel and economic restrictions, has led to a severe destruction in global oil demand. This has been compounded by an oil price war, led by major oil producing countries, resulting in collapsed commodity prices and the deepest downturn the oil and gas services industry has ever experienced. While Precision’s first quarter results were only nominally impacted by the commodity price collapse, we expect a significant and sustained reduction in customer demand for oil and gas services well into next year.”

“Precision first responded by implementing comprehensive safety protocols to protect the health and welfare of our people and stakeholders from the risks of COVID-19. As a result of acting quickly and aggressively, Precision has not suffered a shut down, interruption in services, or any capability reduction due to the pandemic. We previously announced a series of steps to substantially reduce our fixed costs and capital spending plans, while continuing to support our High Performance, High Value business model. We believe these expenditure reductions and other cash preservation measures will reduce our 2020 annualized cash outflow by more than $100 million, continue to generate substantial savings in 2021 and improve our existing liquidity position. Furthermore, we worked with our banking group to amend the covenants on our revolving credit facility to maintain revolver access during these uncertain times with relief through the first quarter of 2022. We will continue to prioritize Precision’s cash liquidity during this downturn and will actively pursue any additional cash generating opportunities within the organization.”

“Despite the weakening North American industry rig activity during the first quarter, Precision generated better than expected financial results with Adjusted EBITDA of $102 million and cash provided by operations of $75 million. We executed on our deleveraging strategic priority, retiring $41 million of debt, while increasing our cash balance by $22 million to $97 million. Combined with our undrawn Senior Credit Facility, we exited the quarter with over $800 million in available liquidity. We have positioned our business to operate through lower activity periods and believe our cash flow generation profile will allow us to maintain strong liquidity, manage our debt maturities and reduce financial leverage over time.”

“Our other strategic priorities of demonstrating operational excellence and leveraging our Alpha technology platform as a differentiator remain critical in today’s operating environment. We believe our strong North American market share achieved during the first quarter and sustained through the current downturn demonstrates Precision’s competitive positioning and operational excellence.”

“Once rig activity stabilizes, we expect our customers’ attention will shift back to capital efficiency and rig performance. We expect Precision’s modern Super Triple rig fleet and industry leading technology offering will continue to position us well to reliably meet these requirements. Precision’s AlphaAutomation continues to perform very well and is generating commercial returns. During the quarter, we installed six systems bringing our installed base up to 40 rigs, including our two training rigs. We recently partnered with a large U.S. customer to launch AlphaAnalytics on their full fleet of Precision rigs. During the first quarter an IOC standardized all U.S. Precision rigs to have AlphaAutomation and will be utilizing several apps on each rig. We believe our High Performance, High Value service offering will continue to appeal to customers requiring predictable and repeatable results.”

“We are encouraged by the Canadian federal government’s $1.7 billion well abandonment and site rehabilitation program, which we anticipate will be largely allocated to well service providers. We believe that we are very well positioned to capture these opportunities.”

“The voracity of this downturn is felt most by the many thousands of dedicated men and women working in this industry and especially those who through no fault of their own are now without jobs. It is my, and the Precision organization’s hope, that as our industry recovers, we can attract those people back. We have faced significant challenges to start 2020 and Precision’s people have responded exceptionally well by executing our enhanced safety protocols and cost reduction initiatives while ensuring we continue to support our customers’ needs. We are thankful for their continued strong performance despite the ongoing challenges of this pandemic event” concluded Mr. Neveu.

IMPACT OF COVID-19

In March 2020, the coronavirus (“COVID-19”) outbreak was declared a pandemic by the World Health Organization (WHO). 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 success of these interventions is not yet determinable. In response to the dramatic reduction in demand, governments of oil-producing nations and national oil companies are working together to limit supply, but to date in 2020 there has been a significant decline in the global price of oil. The situation remains dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on us is not known at this time.

SELECT FINANCIAL AND OPERATING INFORMATION

Financial Highlights

  Three months ended March 31,  
(Stated in thousands of Canadian dollars, except per share amounts) 2020     2019     % Change  
Revenue   379,484       434,043       (12.6 )
Adjusted EBITDA(1)   101,904       107,967       (5.6 )
Operating earnings(1)   22,599       62,074       (63.6 )
Net earnings (loss)   (5,277 )     25,014       (121.1 )
Cash provided by operations   74,953       40,587       84.7  
Funds provided by operations(1)   81,317       95,993       (15.3 )
Capital spending:                      
Expansion   145       62,443       (99.8 )
Upgrade   1,508       3,674       (59.0 )
Maintenance and infrastructure   9,832       4,845       102.9  
Intangibles   57       438       (87.0 )
Proceeds on sale   (5,690 )     (57,877 )     (90.2 )
Net capital spending   5,852       13,523       (56.7 )
Net earnings (loss) per share:                      
Basic   (0.02 )     0.09       (122.2 )
Diluted   (0.02 )     0.08       (125.0 )

 (1) See “NON-GAAP MEASURES”.

 

Operating Highlights

  Three months ended March 31,  
  2020     2019     % Change  
Contract drilling rig fleet   227       232       (2.2 )
Drilling rig utilization days:                      
U.S.   4,984       7,123       (30.0 )
Canada   5,769       4,344       32.8  
International   728       720       1.1  
Revenue per utilization day:                      
U.S.(1)(US$)   23,878       23,202       2.9  
Canada(2)(Cdn$)   21,444       22,977       (6.7 )
International (US$)   54,294       49,940       8.7  
Operating cost per utilization day:                      
U.S. (US$)   14,534       14,368       1.2  
Canada (Cdn$)   14,239       14,455       (1.5 )
Service rig fleet   123       135       (8.9 )
Service rig operating hours   34,365       42,898       (19.9 )

(1) Includes revenue from idle but contracted rig days.
(2) 2019 period includes lump sum revenue from contract shortfall payments.

 

Financial Position

(Stated in thousands of Canadian dollars, except ratios) March 31, 2020     December 31, 2019  
Working capital(1)   226,947       201,696  
Cash   97,002       74,701  
Long-term debt   1,504,969       1,427,181  
Total long-term financial liabilities   1,574,439       1,500,950  
Total assets   3,372,574       3,269,840  
Long-term debt to long-term debt plus equity ratio   0.49       0.48  

 (1) See “NON-GAAP MEASURES”.

Summary for the three months ended March 31, 2020:

  • Revenue this quarter was $379 million which is 13% lower than the first quarter of 2019. Our decreased revenue was primarily the result of lower activity in our U.S. drilling and Canadian completion and production services lines. Compared with the first quarter of 2019, our activity for the quarter, as measured by drilling rig utilization days, decreased by 30% in the U.S. while Canada increased by 33% and international activity remained consistent.
  • Adjusted EBITDA (see “NON-GAAP MEASURES”) for the quarter was $102 million, a decrease of $6 million from the previous year. Our Adjusted EBITDA as a percentage of revenue was 27% this quarter, compared with 25% in the comparative quarter. Adjusted EBITDA in the quarter was negatively impacted by higher restructuring charges partially offset by share-based compensation recoveries. See discussion on share-based incentive compensation under “Other Items” later in this release for additional details.
  • Operating earnings (see “NON-GAAP MEASURES”) this quarter were $23 million compared with $62 million in the first quarter of 2019. Our operating earnings in the prior year quarter were positively impacted by the US$24 million gain on asset disposal and US$4 million impairment reversal from the disposition of our Mexico drilling equipment.
  • General and administrative expenses this quarter were $20 million, $12 million lower than in 2019. Our lower general and administrative costs in 2020 were primarily due to share-based compensation recoveries and lower overhead costs as we continued to align our cost structure to reflect reduced global activity.
  • Restructuring charges were $10 million as compared to $6 million in 2019. Our restructuring charges were comprised of severance costs of $9 million and $1 million of other costs associated with the shutdown of our U.S. directional drilling operations.
  • Net finance charges were $28 million, a decrease of $4 million compared with the first quarter of 2019, primarily due to reduced interest expense related to retired debt, offset by the impact of the weakening of the Canadian dollar on our U.S. dollar denominated interest.
  • Revenue per utilization day in the U.S. increased in the first quarter of 2020 to US$23,878 from US$23,202 in the prior year quarter. The increase was the result of higher revenues from idle but contracted rigs, AlphaAutomation and turnkey drilling. Operating costs on a per day basis increased to US$14,534 in the first quarter of 2020 compared with US$14,368 in 2019. The increase was mainly due to fixed operating overheads spread over fewer drilling rig activity days. On a sequential basis, revenue per utilization day, excluding revenue from turnkey and idle but contracted rigs, decreased by US$355 due to lower fleet average day rates, while operating costs per day increased by US$108 due to fixed operating overheads spread over fewer drilling rig activity days.
  • In Canada, average revenue per utilization day for contract drilling rigs was $21,444 compared with $22,977 in the first quarter of 2019. The lower average revenue per utilization day in the first quarter of 2020 was primarily because of lower spot market day rates and fewer shortfall payments received. During the quarter, we did not receive any shortfall revenue payments compared with $3 million in the prior year comparative period. Average operating costs per utilization day for drilling rigs in Canada decreased to $14,239 compared with the prior year quarter of $14,455. The decrease was mainly caused by smaller crew formations from our rig mix and overhead costs spread over a higher number of drilling rig utilization days.
  • We realized revenue from international contract drilling of US$40 million in the first quarter of 2020, as compared to US$36 million in the prior year period. Average revenue per utilization day in our international contract drilling business increased 9% to US$54,294 from the comparable prior year quarter, primarily due to rate increases from the renewal and extension of drilling contracts.
  • Cash and funds provided by operations (see “NON-GAAP MEASURES”) in the first quarter of 2020 were $75 million and $81 million, respectively, compared to $41 million and $96 million in the prior year comparative.
  • Capital expenditures were $12 million in the first quarter, a decrease of $60 million over the same period in 2019. Capital spending for the quarter included $2 million for upgrade and expansion capital and $10 million for the maintenance of existing assets, infrastructure spending and intangibles.

STRATEGY

Precision’s strategic priorities for 2020 are as follows:

  1. Generate strong free cash flow and reduce debt by $100 million to $150 million in 2020 – In the first quarter of 2020, Precision generated $75 million of cash provided by operations (see “NON-GAAP MEASURES”) and $6 million of cash proceeds from the divestiture of non-core assets. Using cash on hand and free cash flow generated in 2020, we reduced our debt balance by $41 million through a combination of redemptions and open market repurchases of our unsecured senior notes. We exited the quarter with a cash balance of $97 million, compared to $75 million at December 31, 2019. We will place a high priority on maintaining a strong liquidity position and further reduce debt levels when visibility improves or cash on hand exceeds our expectations.
  2. 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 $7,205 per utilization day. In the U.S., we maintained strong activity with a market share of over 7% and reported operating margins of US$9,344 per utilization day. Internationally, we maintained stable activity, averaging eight active drilling rigs, and recorded average day rates of US$54,294.
  3. Leverage our Alpha Technology platform as a competitive differentiator and source of financial returns – In the first quarter of 2020, we had 38 field-deployed rigs equipped with our AlphaAutomation platform and drilled approximately 200 wells. We have partnered with a major U.S. customer to trial AlphaAnalytics on all their Precision rigs and have a large international oil company (IOC) customer in the U.S. standardizing AlphaAutomation and several AlphaApps on all their Precision rigs. Since 2017, we have drilled over 1,200 wells with AlphaAutomation and currently have 15 AlphaApps either deployed or in development, further allowing us to differentiate Precision’s High Performance, High Value offering.

OUTLOOK

The energy industry faces a challenging outlook as the abrupt demand destruction caused by the COVID-19 pandemic has resulted in significant global oil supply imbalances and a collapse in near-term crude oil prices. The oil market volatility has created uncertainty for our customers and they have responded by announcing material reductions to capital spending, which has begun a rapid reduction in global oilfield service activity levels. In a reduced-activity environment, we anticipate our customers will further stress operational efficiencies, accelerating the industry 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 Canadian federal government’s announced $1.7 billion well site abandonment and rehabilitation program funding, which will support industry activity levels and provide thousands of jobs throughout western Canada. Precision believes our well servicing business is well positioned to capture coming opportunities as a result of our scale, operational performance and strong safety record.

Contracts

Year to date in 2020 we have entered into nine term contracts. The following chart outlines the average number of drilling rigs under contract by quarter as of April 29, 2020. For those quarters ending after March 31, 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 April 29, 2020:                                                                
U.S.     56       52       49       41       41       33       25       21  
Canada     8       5       5       5       5       5       4       4  
International     8       8       9       9       8       8       6       6  
Total     72       65       63       55       54       46       35       31  

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 April 29, 2020.

    Average for the year ended  
    2019     2020     2021  
Average rigs under term contract as of April 29, 2020:                        
U.S.     49       30       6  
Canada     6       5       1  
International     9       7       6  
Total     64       42       13  

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     2020  
  Mar. 31     June 30     Sept. 30     Dec. 31     Mar. 31  
Average Precision active rig count:                                      
U.S.   79       77       72       63       55  
Canada   48       27       42       43       63  
International   8       8       9       9       8  
Total   135       112       123       115       126  

According to industry sources, as of April 29, 2020, the U.S. active land drilling rig count is down 54% from the same point last year and the Canadian active land drilling rig count is down 60%. To date in 2020, 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 59% for Canada at the same time last year.

Capital Spending

Capital spending in 2020 is expected to be $48 million and includes $36 million for sustaining, infrastructure and intangibles and $12 million for upgrade and expansion. We expect that the $48 million will be split $43 million in the Contract Drilling Services segment, $4 million in the Completion and Production Services segment and $1 million to the Corporate segment.

SEGMENTED FINANCIAL RESULTS

Precision’s operations are reported in two segments: Contract Drilling Services, which includes our drilling rig, directional drilling, oilfield supply and manufacturing divisions; and Completion and Production Services, which includes our service rig, rental and camp and catering divisions.

  Three months ended March 31,  
(Stated in thousands of Canadian dollars) 2020     2019     % Change  
Revenue:                      
Contract Drilling Services   346,549       379,264       (8.6 )
Completion and Production Services   33,663       55,819       (39.7 )
Inter-segment eliminations   (728 )     (1,040 )     (30.0 )
    379,484       434,043       (12.6 )
Adjusted EBITDA:(1)                      
Contract Drilling Services   110,733       118,455       (6.5 )
Completion and Production Services   3,235       10,518       (69.2 )
Corporate and Other   (12,064 )     (21,006 )     (42.6 )
    101,904       107,967       (5.6 )

(1) See “NON-GAAP MEASURES”.

 

SEGMENT REVIEW OF CONTRACT DRILLING SERVICES

  Three months ended March 31,  
(Stated in thousands of Canadian dollars, except where noted) 2020     2019     % Change  
Revenue   346,549       379,264       (8.6 )
Expenses:                      
Operating   222,329       246,515       (9.8 )
General and administrative   8,770       11,248       (22.0 )
Restructuring   4,717       3,046       54.9  
Adjusted EBITDA(1)   110,733       118,455       (6.5 )
Depreciation   75,724       77,999       (2.9 )
Gain on asset disposals   (2,842 )     (35,001 )     (91.9 )
Impairment reversal   -       (5,810 )     (100.0 )
Operating earnings(1)   37,851       81,267       (53.4 )
Operating earnings(1) as a percentage of revenue   10.9 %     21.4 %        

(1) See “NON-GAAP MEASURES”.

 

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  

(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  

(1) Canadian operations only.
(2) Baker Hughes rig counts.

 

SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES

  Three months ended March 31,  
(Stated in thousands of Canadian dollars, except where noted) 2020     2019     % Change  
Revenue   33,663       55,819       (39.7 )
Expenses:                      
Operating   26,626       43,133       (38.3 )
General and administrative   1,479       1,711       (13.6 )
Restructuring   2,323       457       408.3  
Adjusted EBITDA(1)   3,235       10,518       (69.2 )
Depreciation   4,283       4,949       (13.5 )
Gain on asset disposals   (739 )     (56 )     1,219.6  
Operating earnings (loss)(1)   (309 )     5,625       (105.5 )
Operating earnings (loss)(1) as a percentage of revenue   (0.9 )%     10.1 %        
Well servicing statistics:                      
Number of service rigs (end of period)   123       135       (8.9 )
Service rig operating hours   34,365       42,898       (19.9 )
Service rig operating hour utilization   31 %     35 %        

(1) See “NON-GAAP MEASURES”.

SEGMENT REVIEW OF CORPORATE AND OTHER

Our Corporate and Other segment provides support functions to our operating segments. The Corporate and Other segment had negative Adjusted EBITDA (see “NON-GAAP MEASURES”) of $12 million, a $9 million decrease compared with the first quarter of 2019 primarily due to share-based compensation recoveries. Consistent with 2019, we incurred $3 million of restructuring charges as we continued to align our cost structure.

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:

  Three months ended March 31,  
(Stated in thousands of Canadian dollars) 2020     2019  
Cash settled share-based incentive plans   (6,393 )     5,804  
Equity settled share-based incentive plans:              
Executive PSU   2,735       2,372  
Stock option plan   386       731  
Total share-based incentive compensation plan expense   (3,272 )     8,907  
               
Allocated:              
Operating   (973 )     2,429  
General and Administrative   (2,299 )     6,478  
    (3,272 )     8,907  

Cash settled shared-based compensation expense decreased by $12 million in the current quarter primarily due to our decreasing share price. Our total equity settled share-based compensation expense for the first quarter of 2020 was $3 million, consistent with the prior year period.

Finance Charges

Net finance charges were $28 million, a decrease of $4 million compared with the first quarter of 2019, primarily due to reduced interest expense related to retired debt, offset by the impact of the weakening of the Canadian dollar on our U.S. dollar denominated interest.

Interest charges on our U.S. denominated long-term debt in the first quarter of 2020 were US$19 million ($26 million) as compared with US$22 million ($29 million) in 2019.

Income Tax

Income tax recovery for the quarter was $2 million compared with an expense of $8 million in the same quarter in 2019. The higher tax expense in the first quarter of 2019 was the result of higher before income tax earnings primarily from the gain on disposition of our Mexico-based rigs.

LIQUIDITY AND CAPITAL RESOURCES

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$38 million in outstanding letters of credit   General corporate purposes   November 21, 2023
Operating facilities (secured)            
$40 million   Undrawn, except $10 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$66 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$303 million – 5.25%   Fully drawn   Capital expenditures and general corporate purposes   November 15, 2024
US$368 million – 7.125%   Fully drawn   Debt redemption and repurchases   January 15, 2026

As at March 31, 2020, we had US$1,081 million ($1,522 million) outstanding under our unsecured senior notes as compared with US$1,113 million ($1,445 million) at December 31, 2019. During the first quarter of 2020, Precision redeemed US$25 million principal amount of its 6.50% unsecured senior notes due 2021 and repurchased and cancelled US$2 million of the 7.125% unsecured senior notes due 2026 and US$5 million of the 5.25% unsecured senior notes due 2024. The weakening of the Canadian dollar resulted in $118 million of additional stated debt such that at March 31, 2020, we had $1,522 million of outstanding unsecured senior notes and $17 million in unamortized debt issue costs.

The current blended cash interest cost of our debt is approximately 6.8%.

Covenants

Following is a listing of our applicable Senior Credit Facility financial covenants and the calculations as at March 31, 2020:

  Covenant   At March 31, 2020  
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     3.43  

(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.

At March 31, 2020, we were in compliance with the covenants of our Senior Credit Facility.

Senior Credit Facility

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 from the 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.

Impact of foreign exchange rates

As summarized below, for the three months ended March 31, 2020, the Canadian dollar weakened by 1% from the comparable 2019 period and 8% from December 31, 2019. The weakening resulted in higher translated U.S. denominated revenue and costs during the quarter and net monetary assets at March 31, 2020.

  Three   months   ended   March 31,     As at December 31,  
  2020     2019     2019  
Canada-U.S. foreign exchange rates                      
Average   1.34       1.33        
Closing   1.41       1.33       1.30  

Average shares outstanding

The following table reconciles the weighted average shares outstanding used in computing basic and diluted net earnings (loss) per share:

  Three months ended March 31,  
(Stated in thousands) 2020     2019  
Weighted average shares outstanding – basic   275,427       293,783  
Effect of stock options and other equity compensation plans         6,419  
Weighted average shares outstanding – diluted   275,427       300,202  

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 of unsecured senior notes, finance charges, foreign exchange, impairment reversal, gain on assets disposals and depreciation and amortization), as reported in the Interim Consolidated Statement of 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 is calculated as follows:

  Three months ended March 31,  
(Stated in thousands of Canadian dollars) 2020     2019  
Revenue   379,484       434,043  
Expenses:              
Operating   248,227       288,608  
General and administrative   19,535       31,030  
Restructuring   9,818       6,438  
Depreciation and amortization   82,914       86,753  
Gain on asset disposals   (3,609 )     (35,050 )
Impairment reversal         (5,810 )
Operating earnings   22,599       62,074  
Foreign exchange   2,691       (2,123 )
Finance charges   27,580       31,303  
Gain on repurchase of unsecured senior notes   (850 )     (313 )
Earnings (loss) before income taxes   (6,822 )     33,207  

Funds Provided By (Used In) Operations

We believe that funds provided by (used in) operations, as reported in the Interim Consolidated Statements of Cash Flow, is a useful measure because it provides an indication of the funds our principal business activities generate prior to consideration of working capital, which is primarily made up of highly liquid balances.

Working Capital

We define working capital as current assets less current liabilities as reported on the Interim Consolidated Statement of Financial Position.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements contained in this release, including statements that contain words such as "could", "should", "can", "anticipate", "estimate", "intend", "plan", "expect", "believe", "will", "may", "continue", "project", "potential" and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward-looking information and statements").

In particular, forward looking information and statements include, but are not limited to, the following:

  • our strategic priorities for 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 outflows, savings and liquidity;  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 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)   March   31, 2020     December 31, 2019  
ASSETS                
Current assets:                
Cash   $ 97,002     $ 74,701  
Accounts receivable     314,363       310,204  
Inventory     31,754       31,718  
Income tax recoverable     1,238       1,142  
Total current assets     444,357       417,765  
Non-current assets:                
Deferred tax assets     4,260       4,724  
Right of use assets     68,266       66,142  
Property, plant and equipment     2,825,129       2,749,463  
Intangibles     30,562       31,746  
Total non-current assets     2,928,217       2,852,075  
Total assets   $ 3,372,574     $ 3,269,840  
                 
LIABILITIES AND EQUITY                
Current liabilities:                
Accounts payable and accrued liabilities   $ 199,137     $ 199,478  
Income taxes payable     5,081       4,142  
Current portion of lease obligation     13,192       12,449  
Total current liabilities     217,410       216,069  
                 
Non-current liabilities:                
Share-based compensation     1,769       8,830  
Provisions and other     10,862       9,959  
Lease obligation     56,839       54,980  
Long-term debt     1,504,969       1,427,181  
Deferred tax liabilities     23,339       25,389  
Total non-current liabilities     1,597,778       1,526,339  
Shareholders’ equity:                
Shareholders’ capital     2,291,134       2,296,378  
Contributed surplus     67,878       66,255  
Deficit     (974,733 )     (969,456 )
Accumulated other comprehensive income     173,107       134,255  
Total shareholders’ equity     1,557,386       1,527,432  
Total liabilities and shareholders’ equity   $ 3,372,574     $ 3,269,840  

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS) (UNAUDITED)

    Three Months Ended March 31,  
(Stated in thousands of Canadian dollars, except per share amounts)   2020     2019  
                 
                 
Revenue   $ 379,484     $ 434,043  
Expenses:                
Operating     248,227       288,608  
General and administrative     19,535       31,030  
Restructuring     9,818       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     101,904       107,967  
Depreciation and amortization     82,914       86,753  
Gain on asset disposals     (3,609 )     (35,050 )
Impairment reversal           (5,810 )
Foreign exchange     2,691       (2,123 )
Finance charges     27,580       31,303  
Gain on repurchase of unsecured senior notes     (850 )     (313 )
Earnings (loss) before income taxes     (6,822 )     33,207  
Income taxes:                
Current     1,059       1,610  
Deferred     (2,604 )     6,583  
      (1,545 )     8,193  
Net earnings (loss)   $ (5,277 )   $ 25,014  
Net earnings (loss) per share:                
Basic   $ (0.02 )   $ 0.09  
Diluted   $ (0.02 )   $ 0.08  

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

    Three Months Ended March 31,  
(Stated in thousands of Canadian dollars)   2020     2019  
Net earnings (loss)   $ (5,277 )   $ 25,014  
Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency     157,008       (48,518 )
Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt, net of tax     (118,156 )     39,014  
Comprehensive income   $ 33,575     $ 15,510  

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

    Three Months Ended March 31,  
(Stated in thousands of Canadian dollars)   2020     2019  
Cash provided by (used in):                
Operations:                
  Net earnings (loss)   $ (5,277 )   $ 25,014  
  Adjustments for:                
  Long-term compensation plans     (703 )     7,312  
  Depreciation and amortization     82,914       86,753  
  Gain on asset disposals     (3,609 )     (35,050 )
  Impairment reversal           (5,810 )
  Foreign exchange     2,872       (2,238 )
  Finance charges     27,580       31,303  
  Income taxes     (1,545 )     8,193  
  Other     60       122  
  Gain on repurchase of unsecured senior notes     (850 )     (313 )
  Income taxes paid     (820 )     (337 )
  Income taxes recovered           1,071  
  Interest paid     (19,495 )     (20,233 )
  Interest received     190       206  
Funds provided by operations     81,317       95,993  
Changes in non-cash working capital balances     (6,364 )     (55,406 )
      74,953       40,587  
Investments:                
Purchase of property, plant and equipment     (11,485 )     (70,962 )
Purchase of intangibles     (57 )     (438 )
Proceeds on sale of property, plant and equipment     5,690       57,877  
Changes in non-cash working capital balances     (3,526 )     (3,263 )
      (9,378 )     (16,786 )
Financing:                
Repurchase of unsecured senior notes     (40,554 )     (16,672 )
Share repurchase     (5,244 )      
Lease payments     (1,728 )     (1,672 )
Debt amendment fees     (21 )      
      (47,547 )     (18,344 )
Effect of exchange rate changes on cash and cash equivalents     4,273       (1,053 )
Increase in cash and cash equivalents     22,301       4,404  
Cash and cash equivalents, beginning of period     74,701       96,626  
Cash and cash equivalents, end of period   $ 97,002     $ 101,030  

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(Stated in thousands of Canadian dollars)   Shareholders’
capital
    Contributed
surplus
    Accumulated
other
comprehensive
income
    Deficit     Total
equity
 
Balance at January 1, 2020   $ 2,296,378     $ 66,255     $ 134,255     $ (969,456 )   $ 1,527,432  
Net loss for the period                       (5,277 )     (5,277 )
Other comprehensive income for the period                 38,852             38,852  
Share repurchases     (5,244 )                       (5,244 )
Share-based compensation reclassification           (1,498 )                 (1,498 )
Share-based compensation expense           3,121                   3,121  
Balance at March 31, 2020   $ 2,291,134     $ 67,878     $ 173,107     $ (974,733 )   $ 1,557,386  

 

(Stated in thousands of Canadian dollars)   Shareholders’
capital
    Contributed
surplus
    Accumulated
other
comprehensive
income
    Deficit     Total
equity
 
Balance at January 1, 2019   $ 2,322,280     $ 52,332     $ 162,014     $ (978,874 )   $ 1,557,752  
Lease transition adjustment                       2,800       2,800  
Net earnings for the period                       25,014       25,014  
Other comprehensive loss for the period                 (9,504 )           (9,504 )
Share-based compensation expense           3,103                   3,103  
Balance at March 31, 2019   $ 2,322,280     $ 55,435     $ 152,510     $ (951,060 )   $ 1,579,165  

FIRST 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, April 30, 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 May 6, 2020 by dialing 855-859-2056 or 404-537-3406, passcode 7087264.

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 well service rigs, camps, 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 Officer
713.435.6100

Dustin Honing, Manager, Investor Relations and Corporate Development
403.716.4500

800, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1
Website:  www.precisiondrilling.com

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Source: Precision Drilling Corporation

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Precision Drilling Corporation (“Precision”) maintains an investor relations section on this website as an informational service and it should not be used for the purpose of making investment decisions concerning Precision. This website is not intended to supplement or be a substitute for the legal disclosure for Precision or for the prospectus disclosure related to the public offering of any of its securities. Please read the below Legal Notice before you proceed. All content on this website is for informational purposes only and is provided on an “as is”, “as available” basis for your personal, non-commercial use. Precision expressly disclaims any warranties in relation to the information contained on this website. Your use of this website is in itself acceptance of the terms and conditions regarding use as stated in the Legal Notices below and elsewhere in this website and the Privacy Policy.

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