CALGARY, Alberta, Oct. 27, 2022 (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 certain Financial Measures and Ratios, including Adjusted EBITDA (earnings before income taxes, gain (loss) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization), Funds Provided by (Used in) Operations, Net Capital Spending 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 “Financial Measures and Ratios” later in this news release.
Precision Drilling announces 2022 third quarter financial results and highlights:
Precision’s President and CEO, Kevin Neveu, stated:
“I am very pleased to see Precision’s financial performance return to profitability as the recovery in customer demand continues to gain momentum and now spans all geographies and services we provide. During the quarter, we delivered net earnings of $2.26 per share, which were positive for the first time since 2019. Revenue and Adjusted EBITDA increased an impressive 32% and 87%, respectively, from the second quarter and 69% and 163% compared to the third quarter of last year. Our improved financial performance demonstrates our operational leverage and is a function of improved utilization, record drilling day rates, Alpha™ and EverGreen™ growth, and a continued intense focus on cost control. With strong demand for our services, tight rig supply and pricing momentum on leading-edge day rates, we expect fleet average day rates and operating margins to continue trending upward well into 2023.
“Precision’s drilling activity continues to increase in North America as our customers remain committed to their drilling plans, despite volatility in oil and natural gas prices. In the U.S., we averaged 57 active drilling rigs during the third quarter and are currently operating 61 rigs, a 20% increase from the beginning of the year. Demand for our Super Triple rigs continues to grow as customers recognize our fleet’s performance and efficiency and want to ensure their preferred rigs are available for 2023 capital budget deployments.
“In Canada, we averaged 59 active rigs during the third quarter, which represents a 16% increase over the same period last year. We currently have 73 active rigs, our highest activity level for 2022. During the quarter, we mobilized an additional Super Triple rig from Colorado to Alberta that will be working under a long-term contract for a customer with multiple Precision rigs drilling LNG Canada-related projects. We are currently sold out of our Super Triple rigs and expect our pad Super Single rig fleet to be fully utilized as recently upgraded rigs return to the field.
“Internationally, the drilling activity outlook is improving as well. We currently have six rigs active and expect this to increase to at least eight by the middle of 2023 following a recent successful tender process in Kuwait where Precision was awarded four five-year contracts, increasing our active rig count from three rigs to five. Combined with the three recent contract extensions in Saudi Arabia, Precision will have eight Middle East rigs under long-term contracts, representing approximately $820 million (US$600 million) of contracted revenue going forward that will stretch into 2028.
“We completed our well servicing acquisition in late July and integration efforts have exceeded expectations, as we aligned key operational processes and generated significant synergies. In the third quarter, our well servicing hours increased 62% from the prior year quarter, with only a two-month contribution from the acquired assets. The combined operations helped drive the highest quarterly Adjusted EBITDA for our Completion and Production Services segment since the fourth quarter of 2018. During the third quarter, we realized annual run-rate cost synergies of over $3 million and expect to substantially achieve our $5 million target by early next year. In addition, we fully expect to realize significant revenue synergies from the combined operations of the business.
"We remain focused on debt reduction and shareholder returns and are on track to meet our 2022 debt reduction goal of $75 million, while allocating 10% to 20% of free cash flow toward share repurchases. With no senior note maturities until 2026 and over $540 million of available liquidity, our balance sheet remains in excellent shape to support our business activities and allow for further deleveraging through cash flow over the coming quarters.
“We are proving our ability to differentiate Precision's Super Series rigs from our competitors with our Alpha™ digital technologies and EverGreen™ suite of environmental solutions. Over 90% of our 60 Alpha™ rigs are earning incremental revenue, which helped drive day rate and margin performance in the quarter. We expect these contributions to increase as customer demand is high for consistent, predictable, and optimized drilling and we continue to equip more of our Super Triple rig fleet with Alpha™. We plan to have a total of 70 Alpha™ Super Triple rigs by year end with the remaining rigs in our Super Triple fleet to be converted early in 2024, nearly one year ahead of our long-term plan.
“Our EverGreen™ suite of environmental solutions offers customers products and applications to measure and reduce their greenhouse gas (GHG) emissions during drilling operations. To date, we have successfully deployed five hybrid battery storage, natural gas and low emission power generating systems, which reduce emissions and fuel costs, helping our customers achieve their GHG reduction targets while improving well economics.
“Since mid 2020, Precision’s financial results have been gaining momentum and while we are mindful of a possible economic recession, we expect this momentum to continue as industry fundamentals provide a promising backdrop for our business. Low oil and natural gas inventories, elevated commodity prices and a tight rig market all support day rates and margins moving higher. I would like to thank our shareholders for their continued support and the team at Precision for their hard work and dedication,” concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
Financial Highlights
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||||
(Stated in thousands of Canadian dollars, except per share amounts) | 2022 | 2021 | % Change | 2022 | 2021 | % Change | |||||||||||||||||
Revenue | 429,335 | 253,813 | 69.2 | 1,106,690 | 691,645 | 60.0 | |||||||||||||||||
Adjusted EBITDA(1) | 119,561 | 45,408 | 163.3 | 220,515 | 128,891 | 71.1 | |||||||||||||||||
Net earnings (loss) | 30,679 | (38,032 | ) | (180.7 | ) | (37,776 | ) | (150,050 | ) | (74.8 | ) | ||||||||||||
Cash provided by (used in) operations | 8,142 | 21,871 | (62.8 | ) | 78,022 | 79,512 | (1.9 | ) | |||||||||||||||
Funds provided by operations(1) | 81,327 | 33,525 | 142.6 | 171,655 | 89,562 | 91.7 | |||||||||||||||||
Cash used in investing activities | 31,711 | 17,524 | 81.0 | 98,836 | 37,588 | 162.9 | |||||||||||||||||
Capital spending by spend category(1) | |||||||||||||||||||||||
Expansion and upgrade | 25,461 | 5,998 | 324.5 | 50,606 | 15,881 | 218.7 | |||||||||||||||||
Maintenance and infrastructure | 25,642 | 13,502 | 89.9 | 76,335 | 32,310 | 136.3 | |||||||||||||||||
Proceeds on sale | (22,337 | ) | (4,476 | ) | 399.0 | (32,033 | ) | (10,390 | ) | 208.3 | |||||||||||||
Net capital spending(1) | 28,766 | 15,024 | 91.5 | 94,908 | 37,801 | 151.1 | |||||||||||||||||
Net earnings (loss) per share: | |||||||||||||||||||||||
Basic | 2.26 | (2.86 | ) | (179.0 | ) | (2.79 | ) | (11.27 | ) | (75.2 | ) | ||||||||||||
Diluted | 2.03 | (2.86 | ) | (171.0 | ) | (2.79 | ) | (11.27 | ) | (75.2 | ) |
(1) See “FINANCIAL MEASURES AND RATIOS.”
Operating Highlights
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||||
2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||||||||||||||||
Contract drilling rig fleet | 225 | 227 | (0.9 | ) | 225 | 227 | (0.9 | ) | |||||||||||||||
Drilling rig utilization days: | |||||||||||||||||||||||
U.S. | 5,287 | 3,785 | 39.7 | 14,914 | 10,315 | 44.6 | |||||||||||||||||
Canada | 5,432 | 4,648 | 16.9 | 14,461 | 10,963 | 31.9 | |||||||||||||||||
International | 552 | 552 | - | 1,638 | 1,638 | - | |||||||||||||||||
Revenue per utilization day: | |||||||||||||||||||||||
U.S. (US$) | 27,847 | 20,331 | 37.0 | 25,864 | 20,904 | 23.7 | |||||||||||||||||
Canada (Cdn$) | 26,927 | 19,427 | 38.6 | 25,843 | 20,295 | 27.3 | |||||||||||||||||
International (US$) | 50,216 | 52,277 | (3.9 | ) | 51,687 | 53,095 | (2.7 | ) | |||||||||||||||
Operating cost per utilization day: | |||||||||||||||||||||||
U.S. (US$) | 18,220 | 15,120 | 20.5 | 18,484 | 14,639 | 26.3 | |||||||||||||||||
Canada (Cdn$) | 16,893 | 13,189 | 28.1 | 16,803 | 13,204 | 27.3 | |||||||||||||||||
Service rig fleet | 135 | 123 | 9.8 | 135 | 123 | 9.8 | |||||||||||||||||
Service rig operating hours | 52,340 | 32,244 | 62.3 | 120,994 | 93,777 | 29.0 |
Financial Position
(Stated in thousands of Canadian dollars, except ratios) | September 30, 2022 | December 31, 2021 | |||||
Working capital(1) | 152,289 | 81,637 | |||||
Cash | 40,048 | 40,588 | |||||
Long-term debt | 1,241,099 | 1,106,794 | |||||
Total long-term financial liabilities | 1,335,754 | 1,185,858 | |||||
Total assets | 2,927,384 | 2,661,752 | |||||
Long-term debt to long-term debt plus equity ratio (1) | 0.50 | 0.47 |
(1) See “FINANCIAL MEASURES AND RATIOS.”
Summary for the three months ended September 30, 2022:
Summary for the nine months ended September 30, 2022:
STRATEGY
Precision’s strategic priorities for 2022 are as follows:
OUTLOOK
The rebound of global energy demand and the impact of a multi-year period of underinvestment in upstream oil and natural gas has resulted in reduced inventories of oil and natural gas and higher commodity prices, providing a supportive outlook for the oilfield services industry. The war in Ukraine and sanctions on Russian hydrocarbons have exacerbated the challenged supply situation and many importing countries are looking toward North America and the Middle East to fill the supply gap from exports of crude oil and natural gas through the global Liquified Natural Gas (LNG) market. Constrained natural gas production levels and low natural gas storage volumes have resulted in North American natural gas prices strengthening in the last year. With U.S. LNG exports growing as countries look to displace Russian natural gas and various Canadian LNG projects to come online in 2025, we anticipate a sustained period of elevated natural gas drilling activity.
At current commodity price levels, we anticipate higher demand for our services and improved fleet utilization as customers seek to maintain production levels and replenish inventories, as drilled but uncompleted wells have been depleted over the past several years. However, broad economic concerns exist with respect to recession risk, rising interest rates and geopolitical instability. These concerns may negatively impact customer spending plans.
With North American industry activity expected to further increase into 2023, we anticipate near full utilization in the high specification rig market with customers seeking term contracts to secure rigs and ensure fulfilment of their development programs. Accordingly, the tightening of available high specification rigs is expected to drive higher day rates and necessitate customer funded rig upgrades.
Interest in our EverGreen™ suite of environmental solutions continues to gain momentum as customers seek meaningful solutions to achieve their emission reduction targets and improve their well economics. We expect our growing suite of Alpha™ technologies paired with our EverGreen™ suite of environmental solutions to be key competitive differentiators as our predictable and repeatable drilling results deliver exceptional value to our customers by reducing risks, well construction costs and carbon footprint.
The outlook for our Precision Well Servicing business remains positive with strong commodity prices supporting maintenance and completion activity. We successfully acquired and integrated the High Arctic well servicing assets and associated rental business early in the third quarter. By leveraging our existing platform and continuing our strict focus on cost control, we have realized annual run-rate cost synergies of over $3 million and expect to achieve the vast majority of our $5 million target by early next year. Additionally, support from both federal and provincial governments has increased well abandonment and rehabilitation projects.
In October, we announced the addition of Lori A. Lancaster to our Board of Directors. With over 25 years of experience as a strategic and financial advisor to the global natural resources sector and having served as a board member of publicly traded companies within the energy sector, we believe Ms. Lancaster's extensive knowledge and experience will enhance our existing Board of Directors.
Contracts
Year-to-date in 2022, we have entered into 61 term contracts and 23 new contracts since the end of the second quarter of 2022. The following chart outlines the average number of drilling rigs under contract by quarter as of October 26, 2022. For those quarters ending after September 30, 2022, 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.
Average for the quarter ended 2021 | Average for the quarter ended 2022 | |||||||||||||||||||||||||||||||
Mar. 31 | June 30 | Sept. 30 | Dec. 31 | Mar. 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||||||||||||||
Average rigs under term contract as of October 26, 2022: | ||||||||||||||||||||||||||||||||
U.S. | 21 | 24 | 22 | 24 | 27 | 29 | 31 | 36 | ||||||||||||||||||||||||
Canada | 6 | 6 | 7 | 7 | 6 | 8 | 10 | 15 | ||||||||||||||||||||||||
International | 6 | 6 | 6 | 6 | 6 | 6 | 6 | 4 | ||||||||||||||||||||||||
Total | 33 | 36 | 35 | 37 | 39 | 43 | 47 | 55 |
The following chart outlines the average number of drilling rigs that we had under contract for 2021 and the average number of rigs we have under contract as of October 26, 2022.
Average for the year ended | ||||||||||||
2021 | 2022 | 2023 | ||||||||||
Average rigs under term contract as of October 26, 2022: | ||||||||||||
U.S. | 23 | 31 | 18 | |||||||||
Canada | 7 | 10 | 14 | |||||||||
International1 | 6 | 5 | 3 | |||||||||
Total | 36 | 46 | 35 |
(1) Does not include Kuwait contracts awarded subsequent to September 30, 2022.
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 2021 | Average for the quarter ended 2022 | ||||||||||||||||||||||||||
Mar. 31 | June 30 | Sept. 30 | Dec. 31 | Mar. 31 | June 30 | Sept. 30 | |||||||||||||||||||||
Average Precision active rig count: | |||||||||||||||||||||||||||
U.S. | 33 | 39 | 41 | 45 | 51 | 55 | 57 | ||||||||||||||||||||
Canada | 42 | 27 | 51 | 52 | 63 | 37 | 59 | ||||||||||||||||||||
International | 6 | 6 | 6 | 6 | 6 | 6 | 6 | ||||||||||||||||||||
Total | 81 | 72 | 98 | 103 | 120 | 98 | 122 |
According to industry sources, as at October 26, 2022, the U.S. active land drilling rig count has increased 43% from the same point last year while the Canadian active land drilling rig count has increased by 28%. To date in 2022, approximately 79% of the U.S. industry’s active rigs and 63% of the Canadian industry’s active rigs were drilling for oil targets, compared with 80% for the U.S. and 54% for Canada at the same time last year.
Capital Spending and Free Cash Flow Allocation
We increased our capital spending plan to reflect higher maintenance capital from our increasing activity, strategic purchase of drill pipe and customer funded rig upgrades. Capital spending in 2022 is expected to be $165 million and by spend category includes $96 million for sustaining, infrastructure and intangibles and $69 million for expansion and upgrades. We expect the $165 million will be split $157 million in the Contract Drilling Services segment, $5 million in the Completion and Production Services segment and $3 million to the Corporate segment. At September 30, 2022, Precision had capital commitments of $163 million with payments expected through 2024.
Our debt reduction plans continue with the goal of repaying $75 million in 2022 and over $400 million of debt over the next four years and reaching a sustained Net Debt to Adjusted EBITDA ratio of below 1.5 times. At the end of 2025, we expect to have reduced debt by well over $1 billion since 2018. In addition to our debt reduction target through 2025, we plan to allocate 10% to 20% of free cash flow before debt principal repayments toward the return of capital to shareholders.
SEGMENTED FINANCIAL RESULTS
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | % Change | 2022 | 2021 | % Change | |||||||||||||||||
Revenue: | |||||||||||||||||||||||
Contract Drilling Services | 374,465 | 226,957 | 65.0 | 982,909 | 613,032 | 60.3 | |||||||||||||||||
Completion and Production Services | 56,642 | 28,143 | 101.3 | 127,921 | 81,354 | 57.2 | |||||||||||||||||
Inter-segment eliminations | (1,772 | ) | (1,287 | ) | 37.7 | (4,140 | ) | (2,741 | ) | 51.0 | |||||||||||||
429,335 | 253,813 | 69.2 | 1,106,690 | 691,645 | 60.0 | ||||||||||||||||||
Adjusted EBITDA:(1) | |||||||||||||||||||||||
Contract Drilling Services | 118,599 | 55,384 | 114.1 | 260,202 | 163,118 | 59.5 | |||||||||||||||||
Completion and Production Services | 14,788 | 5,479 | 169.9 | 26,166 | 17,533 | 49.2 | |||||||||||||||||
Corporate and Other | (13,826 | ) | (15,455 | ) | (10.5 | ) | (65,853 | ) | (51,760 | ) | 27.2 | ||||||||||||
119,561 | 45,408 | 163.3 | 220,515 | 128,891 | 71.1 |
(1) See “FINANCIAL MEASURES AND RATIOS.”
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||||
(Stated in thousands of Canadian dollars, except where noted) | 2022 | 2021 | % Change | 2022 | 2021 | % Change | |||||||||||||||||
Revenue | 374,465 | 226,957 | 65.0 | 982,909 | 613,032 | 60.3 | |||||||||||||||||
Expenses: | |||||||||||||||||||||||
Operating | 246,442 | 164,521 | 49.8 | 692,169 | 429,036 | 61.3 | |||||||||||||||||
General and administrative | 9,424 | 7,052 | 33.6 | 30,538 | 20,878 | 46.3 | |||||||||||||||||
Adjusted EBITDA(1) | 118,599 | 55,384 | 114.1 | 260,202 | 163,118 | 59.5 | |||||||||||||||||
Adjusted EBITDA as a percentage of revenue(1) | 31.7 | % | 24.4 | % | 26.5 | % | 26.6 | % |
(1) See “FINANCIAL MEASURES AND RATIOS.”
United States onshore drilling statistics:(1) | 2022 | 2021 | |||||||||||||
Precision | Industry(2) | Precision | Industry(2) | ||||||||||||
Average number of active land rigs for quarters ended: | |||||||||||||||
March 31 | 51 | 603 | 33 | 378 | |||||||||||
June 30 | 55 | 687 | 39 | 437 | |||||||||||
September 30 | 57 | 746 | 41 | 485 | |||||||||||
Year to date average | 54 | 679 | 38 | 433 |
(1) United States lower 48 operations only.
(2) Baker Hughes rig counts.
Canadian onshore drilling statistics:(1) | 2022 | 2021 | |||||||||||||
Precision | Industry(2) | Precision | Industry(2) | ||||||||||||
Average number of active land rigs for quarters ended: | |||||||||||||||
March 31 | 63 | 205 | 42 | 145 | |||||||||||
June 30 | 37 | 113 | 27 | 72 | |||||||||||
September 30 | 59 | 199 | 51 | 151 | |||||||||||
Year to date average | 53 | 172 | 40 | 123 |
(1) Canadian operations only.
(2) Baker Hughes rig counts.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||||
(Stated in thousands of Canadian dollars, except where noted) | 2022 | 2021 | % Change | 2022 | 2021 | ||||||||||||||||||
Revenue | 56,642 | 28,143 | 101.3 | 127,921 | 81,354 | 57.2 | |||||||||||||||||
Expenses: | |||||||||||||||||||||||
Operating | 40,198 | 21,188 | 89.7 | 96,365 | 59,703 | 61.4 | |||||||||||||||||
General and administrative | 1,656 | 1,476 | 12.2 | 5,390 | 4,118 | 30.9 | |||||||||||||||||
Adjusted EBITDA(1) | 14,788 | 5,479 | 169.9 | 26,166 | 17,533 | 49.2 | |||||||||||||||||
Adjusted EBITDA as a percentage of revenue(1) | 26.1 | % | 19.5 | % | 20.5 | % | 21.6 | % | |||||||||||||||
Well servicing statistics: | |||||||||||||||||||||||
Number of service rigs (end of period) | 135 | 123 | 9.8 | 135 | 123 | 9.8 | |||||||||||||||||
Service rig operating hours | 52,340 | 32,244 | 62.3 | 120,994 | 93,777 | 29.0 | |||||||||||||||||
Service rig operating hour utilization | 47 | % | 28 | % | 43 | % | 28 | % |
(1) See “FINANCIAL MEASURES AND RATIOS.”
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 of $14 million as compared with $15 million in the third quarter of 2021. Our Adjusted EBITDA was positively impacted by decreased share-based compensation costs, partially offset by lower CEWS program assistance.
OTHER ITEMS
Share-based Incentive Compensation Plans
We have several cash and equity-settled share-based incentive plans for non-management directors, officers, and other eligible employees. Our accounting policies for each share-based incentive plan can be found in our 2021 Annual Report.
A summary of amounts expensed under these plans during the reporting periods are as follows:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||
Cash settled share-based incentive plans | 5,543 | 11,839 | 57,802 | 46,537 | |||||||||||
Equity settled share-based incentive plans: | |||||||||||||||
Executive PSU | — | 1,468 | 407 | 3,639 | |||||||||||
Share option plan | — | 34 | 20 | 199 | |||||||||||
Total share-based incentive compensation plan expense | 5,543 | 13,341 | 58,229 | 50,375 | |||||||||||
Allocated: | |||||||||||||||
Operating | 1,922 | 3,272 | 14,694 | 11,437 | |||||||||||
General and Administrative | 3,621 | 10,069 | 43,535 | 38,938 | |||||||||||
5,543 | 13,341 | 58,229 | 50,375 |
Cash settled share-based compensation expense for the quarter was $6 million as compared with $12 million in 2021. The decreased expense in 2022 was primarily due to our lower sequential quarter share price. Our equity settled share-based compensation expense for the third quarter of 2022 was nil as our Executive PSUs and share options fully vested in the first quarter of 2022.
As at September 30, 2022, the majority of our share-based compensation plans were classified as cash-settled and will be impacted by changes in our share price. Although accounted for as cash-settled, Precision retains the ability to settle certain vested units in common shares at its discretion.
Finance Charges
Third quarter net finance charges were $23 million as compared with $21 million in 2021. The increased finance charges were primarily due to higher variable interest rates on our Senior and Real Estate Credit Facilities and the impact of higher foreign exchange rates on our U.S. denominated long-term debt. Interest charges on our U.S. denominated long-term debt in the third quarter were US$16 million ($20 million) as compared with US$15 million ($19 million) in 2021.
Income Tax
Income tax expense for the quarter was $6 million as compared with a $4 million recovery in 2021. The higher income tax expense for the quarter was the result of our positive earnings. During the third quarter, we did not recognize deferred tax assets on certain Canadian and international operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Amount | Availability | Used for | Maturity | |||
Senior credit facility (secured) | ||||||
US$500 million(1) (extendible, revolving term credit facility with US$300 million accordion feature) | US$141 million drawn and US$32 million in outstanding letters of credit | General corporate purposes | June 18, 2025(1) | |||
Real estate credit facilities (secured) | ||||||
US$9 million | Fully drawn | General corporate purposes | November 19, 2025 | |||
$18 million | Fully drawn | General corporate purposes | March 16, 2026 | |||
Operating facilities (secured) | ||||||
$40 million | Undrawn, except $8 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$18 million in outstanding letters of credit | Letters of credit | ||||
Unsecured senior notes (unsecured) | ||||||
US$348 million – 7.125% | Fully drawn | Debt redemption and repurchases | January 15, 2026 | |||
US$400 million – 6.875% | Fully drawn | Debt redemption and repurchases | January 15, 2029 |
(1) US$53 million expires on November 21, 2023.
At September 30, 2022, we had $1,259 million outstanding under our Senior Credit Facility, Real Estate Credit Facilities and unsecured senior notes as compared with $1,126 million at December 31, 2021. The weakening of the Canadian dollar resulted in $106 million of additional stated debt at September 30, 2022.
The current blended cash interest cost of our debt is approximately 6.9%.
Covenants
At September 30, 2022, we were in compliance with the covenants of our Senior Credit Facility and Real Estate Credit Facilities.
Covenant | At September 30, 2022 | ||||
Senior Credit Facility | |||||
Consolidated senior debt to consolidated covenant EBITDA(1) | < 2.50 | 0.72 | |||
Consolidated covenant EBITDA to consolidated interest expense | > 2.25 | 3.76 | |||
Real Estate Credit Facilities | |||||
Consolidated covenant EBITDA to consolidated interest expense | > 2.25 | 3.76 |
(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.
Average shares outstanding
The following tables reconcile the net earnings (loss) and weighted average shares outstanding used in computing basic and diluted net earnings (loss) per share:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
(Stated in thousands of Canadian dollars, except where noted) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Net earnings (loss) – basic | 30,679 | (38,032 | ) | (37,776 | ) | (150,050 | ) | |||||||||
Expense adjustment to equity compensation plans, net of tax | (94 | ) | — | — | — | |||||||||||
Net earnings (loss) – diluted | 30,585 | (38,032 | ) | (37,776 | ) | (150,050 | ) |
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
(Stated in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Weighted average shares outstanding – basic | 13,580 | 13,304 | 13,549 | 13,319 | ||||||||||||
Effect of stock options and other equity compensation plans | 1,464 | — | — | — | ||||||||||||
Weighted average shares outstanding – diluted | 15,044 | 13,304 | 13,549 | 13,319 |
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share amounts) | 2021 | 2022 | ||||||||||||||
Quarters ended | December 31 | March 31 | June 30 | September 30 | ||||||||||||
Revenue | 295,202 | 351,339 | 326,016 | 429,335 | ||||||||||||
Adjusted EBITDA(1) | 63,881 | 36,855 | 64,099 | 119,561 | ||||||||||||
Net earnings (loss) | (27,336 | ) | (43,844 | ) | (24,611 | ) | 30,679 | |||||||||
Net earnings (loss) per basic share | (2.05 | ) | (3.25 | ) | (1.81 | ) | 2.26 | |||||||||
Net earnings (loss) per diluted share | (2.05 | ) | (3.25 | ) | (1.81 | ) | 2.03 | |||||||||
Funds provided by operations(1) | 62,681 | 29,955 | 60,373 | 81,327 | ||||||||||||
Cash provided by (used in) operations | 59,713 | (65,294 | ) | 135,174 | 8,142 |
(Stated in thousands of Canadian dollars, except per share amounts) | 2020 | 2021 | ||||||||||||||
Quarters ended | December 31 | March 31 | June 30 | September 30 | ||||||||||||
Revenue | 201,688 | 236,473 | 201,359 | 253,813 | ||||||||||||
Adjusted EBITDA(1) | 55,263 | 54,539 | 28,944 | 45,408 | ||||||||||||
Net loss | (37,518 | ) | (36,106 | ) | (75,912 | ) | (38,032 | ) | ||||||||
Net loss per basic and diluted share | (2.74 | ) | (2.70 | ) | (5.71 | ) | (2.86 | ) | ||||||||
Funds provided by operations(1) | 35,282 | 43,430 | 12,607 | 33,525 | ||||||||||||
Cash provided by operations | 4,737 | 15,422 | 42,219 | 21,871 |
(1) See “FINANCIAL MEASURES AND RATIOS.”
FINANCIAL MEASURES AND RATIOS
Non-GAAP Financial Measures | ||
We reference certain additional Non-Generally Accepted Accounting Principles (Non-GAAP) measures that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors. | ||
Adjusted EBITDA | We believe Adjusted EBITDA (earnings before income taxes, gain (loss) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization), as reported in our Condensed Interim Consolidated Statements of Net Earnings (Loss) and our reportable operating segment disclosures, 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. The most directly comparable financial measure is net earnings (loss). | |
Funds Provided by (Used in) Operations | We believe funds provided by (used in) operations, as reported in our Condensed Interim Consolidated Statements of Cash Flows, is a useful measure because it provides an indication of the funds our principal business activities generate prior to consideration of working capital changes, which is primarily made up of highly liquid balances. The most directly comparable financial measure is cash provided by (used in) operations. | |
Net Capital Spending | We believe net capital spending is a useful measure as it provides an indication of our primary investment activities. The most directly comparable financial measure is cash provided by (used in) investing activities. Net capital spending is calculated as follows: |
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Capital spending by spend category | ||||||||||||||||
Expansion and upgrade | 25,461 | 5,998 | 50,606 | 15,881 | ||||||||||||
Maintenance and infrastructure | 25,642 | 13,502 | 76,335 | 32,310 | ||||||||||||
51,103 | 19,500 | 126,941 | 48,191 | |||||||||||||
Proceeds on sale of property, plant and equipment | (22,337 | ) | (4,476 | ) | (32,033 | ) | (10,390 | ) | ||||||||
Net capital spending | 28,766 | 15,024 | 94,908 | 37,801 | ||||||||||||
Business acquisitions | 10,200 | — | 10,200 | — | ||||||||||||
Purchase of investments and other assets | 73 | 3,000 | 609 | 3,000 | ||||||||||||
Changes in non-cash working capital balances | (7,328 | ) | (500 | ) | (6,881 | ) | (3,213 | ) | ||||||||
Cash used in investing activities | 31,711 | 17,524 | 98,836 | 37,588 |
Working Capital | We define working capital as current assets less current liabilities, as reported in our Condensed Interim Consolidated Statements of Financial Position. Working capital is calculated as follows: |
At September 30, | At December 31, | ||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | |||||
Current assets | 489,584 | 319,757 | |||||
Current liabilities | 337,295 | 238,120 | |||||
Working capital | 152,289 | 81,637 |
Non-GAAP Ratios | ||
We reference certain additional Non-GAAP ratios that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors. | ||
Adjusted EBITDA % of Revenue | We believe Adjusted EBITDA as a percentage of consolidated revenue, as reported in our Condensed Interim Consolidated Statements of Net Earnings (Loss), provides an indication of our profitability 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. | |
Long-term debt to long-term debt plus equity | We believe that long-term debt (as reported in our Condensed Interim Consolidated Statements of Financial Position) to long-term debt plus equity (total shareholders’ equity as reported in our Condensed Interim Consolidated Statements of Financial Position) provides an indication to our debt leverage. | |
Net Debt to Adjusted EBITDA | We believe that the Net Debt (long-term debt less cash, as reported in our Condensed Interim Consolidated Statements of Financial Position) to Adjusted EBITDA ratio provides an indication to the number of years it would take for us to repay our debt obligations. | |
Supplementary Financial Measures | ||
We reference certain supplementary financial measures that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors. | ||
Capital Spending by Spend Category | We provide additional disclosure to better depict the nature of our capital spending. Our capital spending is categorized as expansion and upgrade, maintenance and infrastructure, or intangibles. |
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:
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:
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:
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, 2021, which may be accessed on Precision’s SEDAR profile at www.sedar.com or under Precision’s EDGAR profile at www.sec.gov. The forward-looking information and statements contained in this release are made as of the date hereof and Precision undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by law.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(Stated in thousands of Canadian dollars) | September 30, 2022 | December 31, 2021 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 40,048 | $ | 40,588 | ||||
Accounts receivable | 419,217 | 255,740 | ||||||
Inventory | 30,319 | 23,429 | ||||||
Total current assets | 489,584 | 319,757 | ||||||
Non-current assets: | ||||||||
Income tax recoverable | 1,633 | — | ||||||
Deferred tax assets | 786 | 867 | ||||||
Right-of-use assets | 59,517 | 51,440 | ||||||
Property, plant and equipment | 2,343,526 | 2,258,391 | ||||||
Intangibles | 20,609 | 23,915 | ||||||
Investments and other assets | 11,729 | 7,382 | ||||||
Total non-current assets | 2,437,800 | 2,341,995 | ||||||
Total assets | $ | 2,927,384 | $ | 2,661,752 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 320,349 | $ | 224,123 | ||||
Income taxes payable | 1,407 | 839 | ||||||
Current portion of lease obligations | 13,233 | 10,935 | ||||||
Current portion of long-term debt | 2,306 | 2,223 | ||||||
Total current liabilities | 337,295 | 238,120 | ||||||
Non-current liabilities: | ||||||||
Share-based compensation | 34,886 | 26,728 | ||||||
Provisions and other | 7,410 | 6,513 | ||||||
Lease obligations | 52,359 | 45,823 | ||||||
Long-term debt | 1,241,099 | 1,106,794 | ||||||
Deferred tax liabilities | 21,539 | 12,219 | ||||||
Total non-current liabilities | 1,357,293 | 1,198,077 | ||||||
Shareholders’ equity: | ||||||||
Shareholders’ capital | 2,294,360 | 2,281,444 | ||||||
Contributed surplus | 74,057 | 76,311 | ||||||
Deficit | (1,304,756 | ) | (1,266,980 | ) | ||||
Accumulated other comprehensive income | 169,135 | 134,780 | ||||||
Total shareholders’ equity | 1,232,796 | 1,225,555 | ||||||
Total liabilities and shareholders’ equity | $ | 2,927,384 | $ | 2,661,752 |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF NET LOSS (UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(Stated in thousands of Canadian dollars, except per share amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenue | $ | 429,335 | $ | 253,813 | $ | 1,106,690 | $ | 691,645 | ||||||||
Expenses: | ||||||||||||||||
Operating | 284,868 | 184,422 | 784,394 | 485,998 | ||||||||||||
General and administrative | 24,906 | 23,983 | 101,781 | 76,756 | ||||||||||||
Earnings before income taxes, gain on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization | 119,561 | 45,408 | 220,515 | 128,891 | ||||||||||||
Depreciation and amortization | 69,448 | 69,431 | 207,662 | 211,148 | ||||||||||||
Gain on asset disposals | (8,238 | ) | (3,261 | ) | (22,152 | ) | (6,224 | ) | ||||||||
Foreign exchange | 1,344 | 464 | 1,362 | 104 | ||||||||||||
Finance charges | 22,521 | 20,639 | 64,294 | 70,783 | ||||||||||||
Loss on repurchase of unsecured senior notes | — | — | — | 9,520 | ||||||||||||
Gain on investments and other assets | (2,515 | ) | (327 | ) | (3,738 | ) | (327 | ) | ||||||||
Earnings (loss) before income taxes | 37,001 | (41,538 | ) | (26,913 | ) | (156,113 | ) | |||||||||
Income taxes: | ||||||||||||||||
Current | 958 | 890 | 2,563 | 2,462 | ||||||||||||
Deferred | 5,364 | (4,396 | ) | 8,300 | (8,525 | ) | ||||||||||
6,322 | (3,506 | ) | 10,863 | (6,063 | ) | |||||||||||
Net earnings (loss) | $ | 30,679 | $ | (38,032 | ) | $ | (37,776 | ) | $ | (150,050 | ) | |||||
Net earnings (loss) per share: | ||||||||||||||||
Basic | $ | 2.26 | $ | (2.86 | ) | $ | (2.79 | ) | $ | (11.27 | ) | |||||
Diluted | $ | 2.03 | $ | (2.86 | ) | $ | (2.79 | ) | $ | (11.27 | ) |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Net earnings (loss) | $ | 30,679 | $ | (38,032 | ) | $ | (37,776 | ) | $ | (150,050 | ) | |||||
Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency | 111,811 | 33,364 | 139,478 | (9,182 | ) | |||||||||||
Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt | (84,060 | ) | (24,544 | ) | (105,123 | ) | 6,995 | |||||||||
Comprehensive income (loss) | $ | 58,430 | $ | (29,212 | ) | $ | (3,421 | ) | $ | (152,237 | ) |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Cash provided by (used in): | ||||||||||||||||
Operations: | ||||||||||||||||
Net earnings (loss) | $ | 30,679 | $ | (38,032 | ) | $ | (37,776 | ) | $ | (150,050 | ) | |||||
Adjustments for: | ||||||||||||||||
Long-term compensation plans | 411 | 7,887 | 34,847 | 28,688 | ||||||||||||
Depreciation and amortization | 69,448 | 69,431 | 207,662 | 211,148 | ||||||||||||
Gain on asset disposals | (8,238 | ) | (3,261 | ) | (22,152 | ) | (6,224 | ) | ||||||||
Foreign exchange | 773 | 415 | 924 | 1,437 | ||||||||||||
Finance charges | 22,521 | 20,639 | 64,294 | 70,783 | ||||||||||||
Income taxes | 6,322 | (3,506 | ) | 10,863 | (6,063 | ) | ||||||||||
Other | (2 | ) | 2 | 273 | (562 | ) | ||||||||||
Gain on investments and other assets | (2,515 | ) | (327 | ) | (3,738 | ) | (327 | ) | ||||||||
Loss on repurchase of unsecured senior notes | — | — | — | 9,520 | ||||||||||||
Income taxes paid | (220 | ) | (1,134 | ) | (3,023 | ) | (5,200 | ) | ||||||||
Income taxes recovered | 10 | 44 | 10 | 47 | ||||||||||||
Interest paid | (38,005 | ) | (18,804 | ) | (80,706 | ) | (63,982 | ) | ||||||||
Interest received | 143 | 171 | 177 | 347 | ||||||||||||
Funds provided by operations | 81,327 | 33,525 | 171,655 | 89,562 | ||||||||||||
Changes in non-cash working capital balances | (73,185 | ) | (11,654 | ) | (93,633 | ) | (10,050 | ) | ||||||||
8,142 | 21,871 | 78,022 | 79,512 | |||||||||||||
Investments: | ||||||||||||||||
Purchase of property, plant and equipment | (51,103 | ) | (19,500 | ) | (126,941 | ) | (48,191 | ) | ||||||||
Proceeds on sale of property, plant and equipment | 22,337 | 4,476 | 32,033 | 10,390 | ||||||||||||
Business acquisitions | (10,200 | ) | — | (10,200 | ) | — | ||||||||||
Purchase of investments and other assets | (73 | ) | (3,000 | ) | (609 | ) | (3,000 | ) | ||||||||
Changes in non-cash working capital balances | 7,328 | 500 | 6,881 | 3,213 | ||||||||||||
(31,711 | ) | (17,524 | ) | (98,836 | ) | (37,588 | ) | |||||||||
Financing: | ||||||||||||||||
Issuance of long-term debt | 50,360 | — | 144,889 | 696,341 | ||||||||||||
Repayments of long-term debt | (34,475 | ) | (8,209 | ) | (118,586 | ) | (769,668 | ) | ||||||||
Repurchase of share capital | (5,010 | ) | — | (10,010 | ) | (4,294 | ) | |||||||||
Issuance of common shares on the exercise of options | — | — | 6,162 | — | ||||||||||||
Debt issuance costs | — | 344 | — | (9,450 | ) | |||||||||||
Debt amendment fees | — | (3 | ) | — | (913 | ) | ||||||||||
Lease payments | (1,777 | ) | (1,633 | ) | (5,186 | ) | (4,963 | ) | ||||||||
Changes in non-cash working capital balances | — | (1,829 | ) | — | — | |||||||||||
9,098 | (11,330 | ) | 17,269 | (92,947 | ) | |||||||||||
Effect of exchange rate changes on cash | 2,878 | 642 | 3,005 | (653 | ) | |||||||||||
Decrease in cash | (11,593 | ) | (6,341 | ) | (540 | ) | (51,676 | ) | ||||||||
Cash, beginning of period | 51,641 | 63,437 | 40,588 | 108,772 | ||||||||||||
Cash, end of period | $ | 40,048 | $ | 57,096 | $ | 40,048 | $ | 57,096 |
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, 2022 | $ | 2,281,444 | $ | 76,311 | $ | 134,780 | $ | (1,266,980 | ) | $ | 1,225,555 | |||||||||
Net loss for the period | — | — | — | (37,776 | ) | (37,776 | ) | |||||||||||||
Other comprehensive income for the period | — | — | 34,355 | — | 34,355 | |||||||||||||||
Share options exercised | 8,843 | (2,681 | ) | — | — | 6,162 | ||||||||||||||
Share repurchases | (10,010 | ) | — | — | — | (10,010 | ) | |||||||||||||
Share-based compensation reclassification | 14,083 | (219 | ) | — | — | 13,864 | ||||||||||||||
Share-based compensation expense | — | 646 | — | — | 646 | |||||||||||||||
Balance at September 30, 2022 | $ | 2,294,360 | $ | 74,057 | $ | 169,135 | $ | (1,304,756 | ) | $ | 1,232,796 |
(Stated in thousands of Canadian dollars) | Shareholders’ Capital | Contributed Surplus | Accumulated Other Comprehensive Income | Deficit | Total Equity | |||||||||||||||
Balance at January 1, 2021 | $ | 2,285,738 | $ | 72,915 | $ | 137,581 | $ | (1,089,594 | ) | $ | 1,406,640 | |||||||||
Net loss for the period | — | — | — | (150,050 | ) | (150,050 | ) | |||||||||||||
Other comprehensive loss for the period | — | — | (2,187 | ) | — | (2,187 | ) | |||||||||||||
Share repurchases | (4,294 | ) | — | — | — | (4,294 | ) | |||||||||||||
Share-based compensation reclassification | — | (2,349 | ) | — | — | (2,349 | ) | |||||||||||||
Share-based compensation expense | — | 6,187 | — | — | 6,187 | |||||||||||||||
Balance at September 30, 2021 | $ | 2,281,444 | $ | 76,753 | $ | 135,394 | $ | (1,239,644 | ) | $ | 1,253,947 |
THIRD QUARTER RESULTS CONFERENCE CALL AND WEBCAST
Precision Drilling Corporation has scheduled a conference call and webcast to begin promptly at 12:00 noon MT (2:00 p.m. ET) on Thursday, October 27, 2022. To participate in the live call please register at the URL link below:
https://register.vevent.com/register/BI5a6a8b62910a4946a1aa06b35a57db87
This link replaces the dial-in details that were included in past releases. Once registered, you will receive a dial-in number and a unique PIN, which will allow you to ask questions.
An archived version of the webcast will be available through the webcast on-demand for 12 months.
About Precision
Precision is a leading provider of safe and environmentally responsible High Performance, High Value services to the energy industry, offering customers access to an extensive fleet of Super Series drilling rigs. Precision has commercialized an industry-leading digital technology portfolio known as “Alpha™” that utilizes advanced automation software and analytics to generate efficient, predictable, and repeatable results for energy customers. Additionally, Precision offers 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 and 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:
Lavonne Zdunich, CPA, CA
Director, Investor Relations
403.716.4500
800, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1
Website: www.precisiondrilling.com