PDS Precision Drilling Corporation New

CALGARY, Feb. 15 /PRNewswire-FirstCall/ -- Precision Drilling Trust ("Precision" or the "Trust") today reports results for the year and quarter ended December 31, 2005. Diluted earnings per unit from continuing operations were $0.96 in the fourth quarter of 2005 compared to $0.49 in 2004. Diluted earnings per unit from continuing operations benefited from a lower effective tax rate and were reduced by $0.53 in the fourth quarter of 2005 as a result of a number of one time items. The first item is an incremental $6.4 million in expenses regarding the repayment of outstanding debentures, the second is the $50.7 million market value adjustment to the shares of Weatherford International Ltd. ("Weatherford") received on the sale of the Energy Services and International Contract Drilling divisions and the third is the $17.5 million in reorganization costs to effect the conversion to an income trust pursuant to a plan of arrangement. For the full year ended December 31, 2005, diluted earnings per unit from continuing operations were $1.76 compared to $1.61 in 2004. Diluted earnings per unit from continuing operations was reduced by $1.04 for the full year in 2005 as a result of expenses related to the premium on repayment of the debentures, the loss on disposition of Weatherford shares and the reorganization costs. Excluding one time items related to the recent business divestitures and reorganization activities, diluted earnings per unit from continuing operations in the fourth quarter of 2005 was $1.49 compared to $0.49 in 2004. This $1.00 per unit increase represents a 204% improvement due to the increase in demand and underlying profit margins for all of Precision's Canadian oilfield service offerings, lower interest expense with repayment of outstanding debentures and lower income tax expense with the conversion to an income trust during the fourth quarter. For the full year ended December 31, 2005 diluted earnings per unit from continuing operations, excluding one time items, was $2.80 compared to $1.61 in 2004. This $1.19 per unit increase represents a 74% improvement due to factors previously discussed, most of which was realized in the second half of 2005. These full year results were generated from an underlying asset base for continuing operations that was only marginally larger in size on a year over year basis. Precision is pleased to acknowledge the successful conversion of the continuing assets and businesses of Precision Drilling Corporation ("PDC") to an income trust on November 7, 2005 pursuant to a plan of arrangement. The purpose of the arrangement was to convert continuing operations from a corporate structure to an income trust structure and to facilitate the receipt of Weatherford shares and a special cash payment by shareholders. Noteworthy developments resulting from the arrangement include the following: 1) Holders of common shares of PDC, excluding dissenting shareholders, received in exchange for each common share of PDC held (i) one unit of the Trust, (ii) 0.2089 common shares of Weatherford International Ltd., and (iii) $6.83 of cash. As a result, the Trust issued 122,512,799 trust units, distributed Weatherford shares valued at $2.007 billion in the aggregate and made a special cash payment totaling $0.844 billion. The Trust cancelled 817,005 common shares of PDC owned by dissenting shareholders through repurchase consideration paid in the amount of $43.3 million. 2) The Trust, as the successor in interest to PDC, has been accounted for as a continuity of interest. Commencing with the fourth quarter the consolidated financial statements of the Trust for the year ended December 31, 2005 and comparables for the three and twelve month periods ended December 31, 2004 reflect the financial position, results of operations and cash flows as if the Trust had always carried on the business formerly carried on by PDC. 3) Shareholders were also given the opportunity to receive limited partnership units ("Exchangeable LP Units") of Precision Drilling Limited Partnership exchangeable without further consideration into trust units on a one-for-one basis. An aggregate of 1,108,382 Exchangeable LP Units were issued in lieu of trust units. The Exchangeable LP Units have been accounted for as equity and included with outstanding unitholders' capital of the Trust in reporting fully diluted earnings. Results of Continuing Canadian Operations Revenue of $427.9 million and operating earnings of $175.9 million increased by 36% and 54% respectively in the fourth quarter of 2005 compared to the same period of 2004. For the full year of 2005, revenue of $1,269.2 million and operating earnings of $465.4 million increased by 23% and 40% respectively over 2004. All business units performed exceptionally well and contributed higher operating earnings leading to a record quarter for Precision. The increase in operating earnings is attributable to higher equipment utilization and strong, year over year, customer pricing. Consistent with the third quarter results, the pace of operating cost escalation was well contained. Gene Stahl, President and Chief Operating Officer, noted that "To start the first quarter of 2006, Precision will continue to benefit from the pricing leverage and demand established in the fourth quarter of 2005. While demand for our services is remaining very strong, the additional supply of industry equipment and recent softening of natural gas commodity pricing in North America may serve to weaken the favorable equipment demand versus supply imbalance that currently exists. Nonetheless, our people, our passion, our performance is showing through as we work to improve and deliver value to our customers." Precision's continuing operations are reported in two segments. The Contract Drilling Services segment contains our contract drilling rig, camp and catering, oilfield supply, and manufacturing divisions. The Completion and Production Services segment contains our service rig, snubbing and rental divisions. Three Months Ended December 31 2005 2004 % Change ------------------------------------------------------------------------- Contract Drilling Services: Number of drilling rigs (end of period) 230 229 0.4 Drilling operating days 14,350 12,099 18.6 Drilling revenue per operating day $ 19,700 $ 17,624 11.8 Completion and Production Services: Number of service rigs (end of period) 237 239 (0.8) Service rig operating hours 142,122 127,693 11.3 Service revenue per operating hour $ 679 $ 553 22.8 ------------------------------------------------------------------------- Year Ended December 31 2005 2004 % Change ------------------------------------------------------------------------- Contract Drilling Services: Number of drilling rigs (end of period) 230 229 0.4 Drilling operating days 46,937 41,625 12.8 Drilling revenue per operating day $ 18,034 $ 16,494 9.3 Completion and Production Services: Number of service rigs (end of period) 237 239 (0.8) Service rig operating hours 477,232 472,008 1.1 Service revenue per operating hour $ 600 $ 513 17.0 ------------------------------------------------------------------------- Contract drilling rig demand during the fourth quarter of 2005 reached unprecedented levels with 229 out of 230 drilling rigs active. The 14,350 operating days for the quarter establishes a new high for a fourth quarter surpassing the previous high in 1997 when 13,983 days were achieved. At that time, Precision had 206 drilling rigs out of an industry total of 487, whereas today Precision has 230 out of approximately 767. Generally, weather conditions were favourable despite temperatures that were warmer than normal. The unseasonably warm weather temperatures and dry conditions were ideal after coming out of an extremely wet spring and early summer. Certain customers were able to extend their summer drilling programs and mitigate land expiry issues. It also served certain customers who did not have rigs reserved for the winter and required windows to complete projects as some rigs were delayed moving farther north in the Western Canada Sedimentary Basin (WCSB). Precision's service rig fleet achieved 142,122 operating hours for 65% utilization in the fourth quarter, an 11% increase compared to the fourth quarter of 2004. The improvement is a result of strong demand as customers attempt to keep their production maintenance on schedule. In addition, completion work was strong due to record drilling activity in combination with pent up demand from weather delays in the first half of the year. The southern and eastern areas of the WCSB experienced Precision's largest increase in operating hours over the prior year. Both operating segments reported significant fourth quarter revenue increases year over year. Completion and Production's 35% increase was essentially a match with Contract Drilling's 36% increase. Higher pricing for Completion and Production Services made up for the smaller increase in equipment utilization, relative to Contract Drilling Services. Operating costs were lower as a percentage of revenue despite crew wage rate increases of approximately 7% effective October 1, 2005. Operating expenses declined from 51% of revenue in the fourth quarter of 2004 to 45% in 2005. Consistent with third quarter 2005 results, equipment repair and maintenance expenses were lower on a per day basis as scheduled costs were spread over a higher activity level relative to last year. In addition, operating expenses have not increased to the same magnitude as customer pricing. General and administrative costs for the fourth quarter were slightly higher than the same period in 2004. As a percentage of revenue, general and administrative costs fell to 4.7% from 6.1%. Depreciation expense in the fourth quarter of 2005 remained relatively consistent as the impact of increased activity was offset by the change in the estimated useful life of drilling rigs from 4,150 to 5,000 utilization days effective January 1, 2005. Depreciation expense was offset by higher gains on the disposal of certain assets in the amount of $1.3 million relative to 2004. On a full year over year basis, both 2005 and 2004 recorded a gain of $3.6 million on the disposal of property, plant and equipment assets. Discontinued operations, net of tax, amounted to a loss of $37.3 million in the fourth quarter of 2005 and a gain of $1.410 billion for the year. The current quarter loss related to purchase consideration and income tax adjustments. Distribution Policy of the Trust With PDC's conversion to an income trust effective November 7, 2005, the Trust has adopted a policy of making regular monthly cash distributions to unitholders. As previously disclosed in the Information Circular, distributions may be reduced, increased or suspended entirely depending on the operations of Precision and the performance of its assets. The actual cash flow available for distribution to trust unitholders and holders of Exchangeable LP Units is a function of numerous factors, including the Trust's: - financial performance; - debt covenants and obligations; - working capital requirements; - maintenance and expansion capital expenditure requirements for the purchase of property, plant and equipment; and - number of units outstanding. The Trust considers these factors on a monthly basis and made its first payment in the month of December in the amount of $33.9 million at the rate of $0.27 for each of the units outstanding, including Exchangeable LP Units. At December 31, 2005 there were 125,461,303 Trust and Exchangeable LP Units outstanding. Key factors for consideration in determining actual cash flow available for distribution, in a historical context, are disclosed within the financial statements and on the Consolidated Statement of Cash Flow. The increase or decrease in cash is shown for each of the operating, investing and financing activities undertaken by the Trust. - Within operating activities, fourth quarter 2005 cash provided by continuing operations amounted to a use of $48.7 million. In terms of financial performance based upon cash provided by continuing operations before changes in non-cash working capital balances, a use of $163.4 million, and the premium on redemption of debentures, a use of $65.5 million, cash in the amount of $180.2 million was provided by operations. - Within investing activities, the purchase of property, plant and equipment (PPE) during the fourth quarter of 2005 for continuing operations amounted to $44.8 million. Included in this amount is $17.2 million for the construction of new drilling rigs. For the full year of 2005, PPE purchases amounted to $155.2 million and included $63.0 million for expansion capital expenditures to grow and expand Precision's underlying asset base and $92.2 for maintenance capital expenditures to sustain and upgrade existing PPE. The energy services industry in Canada can be extremely cyclical as commodity price fluctuations can be compounded by seasonal trends. Accordingly, there could be a wide fluctuation in financial performance from quarter to quarter, year over year. Certain statements contained in this press release, including statements that contain words such as "anticipate", "could", "should", "may", "expect", "believe", "will" and similar terms are not historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performance or achievements of Precision to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services; competition; political and economic conditions in countries in which Precision does business; the demand for services provided by Precision; changes in laws and regulations, including environmental regulations, to which Precision is subject and other factors, which are described in further detail in Precision's filings with Canadian securities regulators and the US Securities and Exchange Commission. CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (DEFICIT) Three Months Ended Years Ended CDN $000's, except December 31 December 31 per unit amounts 2005 2004 2005 2004 ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue $ 427,861 $ 313,978 $ 1,269,179 $ 1,028,488 Expenses: Operating 192,111 160,055 641,805 566,297 General and administrative 19,902 19,198 76,397 64,149 Depreciation and amortization 19,465 21,620 71,561 74,829 Foreign exchange 2,974 (774) (3,474) (8,100) Reorganization costs 17,512 - 17,512 - ------------------------------------------------------------------------- 251,964 200,099 803,801 697,175 ------------------------------------------------------------------------- Operating earnings 175,897 113,879 465,378 331,313 Interest (297) 15,127 29,270 46,280 Premium on redemption of bonds 6,402 - 71,885 - Loss on disposal of short-term investments 50,730 - 70,992 - Gain on disposal of investments - (2,325) - (4,899) ------------------------------------------------------------------------- Earnings from continuing operations before income taxes 119,062 101,077 293,231 289,932 Income taxes: Current 25,103 8,706 241,402 53,698 Future (26,918) 31,789 (169,019) 48,103 ------------------------------------------------------------------------- (1,815) 40,495 72,383 101,801 ------------------------------------------------------------------------- Earnings from continuing operations 120,877 60,582 220,848 188,131 Discontinued operations, net of tax (37,331) 27,601 1,409,715 59,273 ------------------------------------------------------------------------- Net earnings 83,546 88,183 1,630,563 247,404 Retained earnings, beginning of period 2,569,959 953,500 1,041,683 794,279 Adjustment on cash purchase of employee stock options, net of tax (23,346) - (42,087) - Reclassification from contributed surplus on purchase of employee stock options 23,215 - 23,215 - Distribution of disposal consideration (2,851,784) - (2,851,784) - Repurchase of common shares of dissenting shareholders (34,364) - (34,364) - Distributions (70,510) - (70,510) - ------------------------------------------------------------------------- Retained earnings (deficit), end of period $ (303,284) $ 1,041,683 $ (303,284) $ 1,041,683 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per unit from continuing operations: Basic $ 0.97 $ 0.50 $ 1.79 $ 1.63 Diluted $ 0.96 $ 0.49 $ 1.76 $ 1.61 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per unit: Basic $ 0.67 $ 0.73 $ 13.22 $ 2.14 Diluted $ 0.66 $ 0.71 $ 13.00 $ 2.11 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Trust units outstanding (000's) 125,461 121,580 125,461 121,580 Weighted average units outstanding (000's) 124,862 121,516 123,304 115,654 Diluted units outstanding (000's) 126,047 123,352 125,412 117,210 CONSOLIDATED BALANCE SHEETS December 31 December 31 CDN $ 000's 2005 2004 ------------------------------------------------------------------------- (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ - $ 122,012 Accounts receivable 500,655 309,292 Inventory 7,035 7,734 Assets of discontinued operations - 497,036 ----------------------------------------------------------------------- 507,690 936,074 Property, plant and equipment, net of accumulated depreciation 943,900 897,584 Intangibles, net of accumulated amortization 465 498 Goodwill 266,827 266,827 Other assets - 9,116 Assets of discontinued operations - 1,741,950 ------------------------------------------------------------------------- $ 1,718,882 $ 3,852,049 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Unitholders' Equity Current liabilities: Bank indebtedness $ 20,468 $ - Accounts payable and accrued liabilities 134,303 120,432 Income taxes payable 163,530 13,624 Distributions payable 36,635 - Liabilities of discontinued operations - 244,707 ------------------------------------------------------------------------- 354,936 378,763 Long-term debt 96,838 718,850 Future income tax liability 192,517 354,268 Liabilities of discontinued operations - 78,427 Unitholders' equity: Unitholders' capital 1,377,875 1,274,967 Contributed surplus - 26,024 Cumulative translation adjustment - (20,933) Retained earnings (deficit) (303,284) 1,041,683 ----------------------------------------------------------------------- 1,074,591 2,321,741 ------------------------------------------------------------------------- $ 1,718,882 $ 3,852,049 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Trust units outstanding (000's) 125,461 121,580 Common share purchase options outstanding (000's) - 6,695 CONSOLIDATED STATEMENTS OF CASH FLOW Three Months Ended Years Ended December 31 December 31 CDN $000's 2005 2004 2005 2004 ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Cash provided by (used in): Continuing operations: Earnings from continuing operations $ 120,877 $ 60,582 $ 220,848 $ 188,131 Items not affecting cash: Depreciation and amortization 19,465 21,620 71,561 74,829 Stock-based compensation 3,953 2,628 11,229 8,190 Gain on disposal of investments - (2,325) - (4,899) Future income taxes (26,918) 31,789 (169,019) 48,103 Premium on redemption of bonds (65,483) - - - Loss on disposal of short-term investments 50,730 - 70,992 - Write off of deferred financing costs 7,664 - 7,664 - Amortization of deferred financing costs 79 434 1,453 1,579 Unrealized foreign exchange gain(loss) on long-term monetary items 4,320 (100) (4,740) (4,284) Changes in non-cash working capital balances (163,429) (83,709) (6,887) (23,828) ------------------------------------------------------------------------- (48,742) 30,919 203,101 287,821 Discontinued operations: Funds provided by (used in) discontinued operations $ (12,547) $ 63,701 $ 183,330 $ 187,018 Changes in non-cash working capital balances of discontinued operations (16,760) 44,405 (86,310) (26,797) ------------------------------------------------------------------------- (29,307) 108,106 97,020 160,221 Investments: Business acquisitions - (19,812) (30,421) (679,814) Purchase of property, plant and equipment (44,840) (40,462) (155,231) (122,692) Purchase of intangibles - - (20) - Proceeds on sale of property, plant and equipment 6,897 1,593 15,174 8,795 Purchase of property, plant and equipment of discontinued operations - (49,152) (128,214) (159,532) Purchase of intangibles of discontinued operations - (6) - (320) Proceeds on sale of property, plant and equipment of discontinued operations - 3,730 17,785 21,145 Proceeds on disposal of short-term investments 14,569 2,788 14,569 8,665 Proceeds on disposal of discontinued operations 519 - 1,306,799 49,299 Investments - (90) - (90) ------------------------------------------------------------------------- (22,855) (101,411) 1,040,441 (874,544) Financing: Increase in long-term debt 96,826 - 96,826 522,136 Repayment of long- term debt (703,958) (3) (703,970) (173,260) Deferred financing costs on long-term debt - - - (5,612) Distribution of disposal proceeds (844,334) - (844,334) - Distributions (33,875) - (33,875) - Repurchase of common shares of dissenting shareholders (43,299) - (43,299) - Cash buy-out of employee stock options (35,583) - (64,147) - Issuance of trust units on exercise of options 8,263 - 8,263 - Issuance of trust units on purchase of options 5,504 - 5,504 - Issuance of common shares on exercise of options 33,408 5,006 73,930 55,361 Issuance of common shares, net of cash - (27) - 276,428 Changes in non-cash working capital balances 12,237 - 22,060 - Change in bank indebtedness 20,468 - 20,468 (147,909) ------------------------------------------------------------------------- (1,484,343) 4,976 (1,462,574) 527,144 Increase (decrease) in cash and cash equivalents (1,585,247) 42,590 (122,012) 100,642 Cash and cash equivalents, beginning of period 1,585,247 79,422 122,012 21,370 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ - $ 122,012 $ - $ 122,012 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SEGMENT INFORMATION Three months ended December 31, 2005 CDN $000's Contract Completion Corporate Inter-segment (unaudited) Drilling & Production and Other Eliminations Total ------------------------------------------------------------------------- Revenue $ 307,941 $ 123,896 $ - $ (3,976) $ 427,861 Operating earnings 155,477 50,833 (30,413) - 175,897 Depreciation and amortization 11,386 7,275 804 - 19,465 Total assets 1,159,687 486,701 72,494 - 1,718,882 Goodwill 172,440 94,387 - - 266,827 Capital expenditures(x) 35,668 7,047 2,125 - 44,840 ------------------------------------------------------------------------- Three months ended December 31, 2004 CDN $000's Contract Completion Corporate Inter-segment (unaudited) Drilling & Production and Other Eliminations Total ------------------------------------------------------------------------- Revenue $ 225,865 $ 91,680 $ - $ (3,567) $ 313,978 Operating earnings 98,935 27,145 (12,201) - 113,879 Depreciation and amortization 12,696 7,528 1,396 - 21,620 Total assets(1) 971,863 461,191 180,009 - 1,613,063 Goodwill 172,440 94,387 - - 266,827 Capital expenditures(x) 24,638 12,377 3,447 - 40,462 ------------------------------------------------------------------------- Year ended December 31, 2005 CDN $000's Contract Completion Corporate Inter-segment (unaudited) Drilling & Production and Other Eliminations Total ------------------------------------------------------------------------- Revenue $ 916,221 $ 369,667 $ - $ (16,709) $1,269,179 Operating earnings 404,385 121,643 (60,650) - 465,378 Depreciation and amortization 39,233 27,402 4,926 - 71,561 Total assets 1,159,687 486,701 72,494 - 1,718,882 Goodwill 172,440 94,387 - - 266,827 Capital expenditures(x) 106,986 34,576 13,689 - 155,251 ------------------------------------------------------------------------- Year ended December 31, 2004 CDN $000's Contract Completion Corporate Inter-segment (unaudited) Drilling & Production and Other Eliminations Total ------------------------------------------------------------------------- Revenue $ 727,710 $ 313,386 $ - $ (12,608) $1,028,488 Operating earnings 282,315 77,074 (28,076) - 331,313 Depreciation and amortization 42,245 27,508 5,076 - 74,829 Total assets(1) 971,863 461,191 180,009 - 1,613,063 Goodwill 172,440 94,387 - - 266,827 Capital expenditures(x) 74,975 31,759 15,958 - 122,692 ------------------------------------------------------------------------- (1) excludes assets of discontinued operations (x) excludes business acquisitions and capital expenditures of discontinued operations CANADIAN DRILLING OPERATING STATISTICS For the Years Ended December 31, 2005 2004 -------------------------------------------------- Industry Market Industry Market Precision (x) Share % Precision (x) Share % -------------------------------------------------- Number of drilling rigs 230 752 30.6 229 700 32.7 Number of operating days (spud to release) 46,937 158,286 29.7 41,625 132,374 31.4 Wells drilled 7,766 24,351 31.9 7,525 21,793 34.5 Average days per well 6.0 6.5 5.5 6.1 Metres drilled (000's) 8,901 28,143 31.6 8,021 23,526 34.1 Average metres per day 190 178 193 178 Average metres per well 1,146 1,158 1,066 1,080 Rig utilization rate (%) 56.1 59.6 50.3 52.9 (x) Excludes non-CAODC rigs. A conference call to review the year-end results has been scheduled for 12:00 noon MST on Wednesday, February 15, 2006. The conference call dial-in number is 1-800-814-4861 or 416-644-3414. A live webcast will be accessible at http://www.precisiondrilling.com/ by selecting Investor Relations, then Webcast. An archived recording of the conference call will be available approximately one hour after the completion of the call until February 22, 2006 by dialing 1-877-289-8525 or 416-640-1917, passcode 21172565 followed by the number sign. Precision Drilling Trust is Canada's largest energy services trust. Headquartered in Calgary, Alberta, it is the leading provider of energy services to the Canadian oil and gas industry. Precision provides customers with access to an extensive fleet of contract drilling rigs, service rigs, camps, snubbing units and rental equipment backed by a comprehensive mix of technical support services and skilled, experienced personnel. Precision is listed on the Toronto Stock Exchange under the trading symbol "PD.UN" and in U.S. dollars "PD.U" and on the New York Stock Exchange under the trading symbol "PDS". DATASOURCE: Precision Drilling Trust CONTACT: Doug Strong, Chief Financial Officer of Precision Drilling Corporation, Administrator of the Trust, 4200, 150 - 6th Avenue S.W., Calgary, Alberta, T2P 3Y7, Telephone (403) 716-4500, Fax (403) 264-0251; website: http://www.precisiondrilling.com/; Archived images on this organization are searchable through CNW Photo Archive website at http://photos.newswire.ca/. Images are free to accredited members of the media. To request a free copy of this organization's annual report, please go to http://www.newswire.ca/ and click on Tools for Investors.

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