(Canadian dollars)
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.
Precision Drilling Trust ("Precision" or the "Trust") reported a
31% revenue increase and a 15% rise in earnings before interest,
taxes, depreciation and amortization and foreign exchange
("EBITDA") for the first quarter of 2009 over the first quarter of
2008. Revenue for the first quarter of 2009 totaled $448 million
compared to $343 million for the same period in 2008. EBITDA was
$169 million for the first three months of 2009, an increase of $22
million over the first quarter of 2008. The increase in revenue and
EBITDA is due to the acquisition in December 2008 of Grey Wolf, Inc
("Grey Wolf"), an onshore drilling contractor in the United States
with 123 rigs. Precision reported net earnings of $57 million or
$0.30 per diluted unit for the quarter ended March 31, 2009, a
decrease of $49 million or 46% compared to $106 million or $0.84
per diluted unit in the first quarter of 2008. Earnings in the
first quarter of 2009 were reduced by $70 million, for a $36
million increase in interest expense and an increase of $34 million
in foreign exchange losses. Net earnings per unit were also reduced
by a 56% increase in the weighted average diluted units
outstanding.
Precision's President and Chief Executive Officer stated: "We
have completed the first quarter of 2009 as the new Precision
Drilling and our results demonstrate that the consolidation of the
123 rigs of Grey Wolf and the 257 Precision rigs has been
successful despite unprecedented declines in activity and customer
demand in both the United States and Canada. I am especially
pleased with our term contract position for drillings rigs which,
combined with our recently announced financing activities,
positions Precision very well as the industry goes through a
dramatic reduction in service demand due to low commodity
prices.
"Our first quarter operating results demonstrated the strategic
value in last year's acquisition of Grey Wolf. The new Precision
had an average of 107 rigs under term contract during the quarter
and 73 rigs on well to well contracts across North America. This
acquisition helped Precision mitigate the worst winter drilling
season in Canada for the past 17 years with year over year revenue
and EBITDA growth. The results speak to Precision's people, who
continue to do an excellent job in integrating the two
companies.
"As we move through this second quarter, the sector is
experiencing record low activity levels in Canada and again, the
impact is mitigated by the less seasonal nature of our expanded
United States operations. The economic conditions and continuing
weak commodity prices continue to drive activity down in Canada and
the United States at an unprecedented rate. Despite these very
challenging market conditions the benefits of diversification are
clear and our customers continue to support us by honoring their
contracts and taking delivery of the new rigs contracted in
2008."
SELECT FINANCIAL AND OPERATING INFORMATION
(stated in thousands
of Canadian dollars, Three months ended March 31,
except per diluted
unit amounts) 2009 2008 % Change
-----------------------------------------------------------------------
Revenue $ 448,445 $ 342,689 30.9
EBITDA(1) 169,387 147,347 15.0
Net earnings 57,417 106,266 (46.0)
Cash provided by operations 201,596 57,307 251.8
Capital spending 74,922 23,468 219.3
Distributions declared 6,408 49,046 (86.9)
Net earnings per unit:
Basic 0.32 0.85 (62.4)
Diluted 0.30 0.84 (64.3)
Distributions declared per unit $ 0.04 $ 0.39 (89.7)
Contract drilling rig fleet 380 246 54.5
Drilling rig utilization days:
Canada 7,482 11,932 (37.3)
United States 7,409 1,159 539.3
International 180 86 109.3
Service rig fleet 229 223 2.7
Service rig operating hours 64,854 111,995 (42.1)
-----------------------------------------------------------------------
(1) EBITDA is a non-GAAP measure and is defined as net earnings
adding back income taxes, interest expense and interest income,
depreciation and amortization and foreign exchange.
See "NON-GAAP MEASURES."
FINANCIAL POSITION AND RATIOS
(Stated in thousands of March 31, December 31, March 31,
Canadian dollars, except ratios) 2009 2008 2008
---------------------------------------------------------------------------
Working capital $ 367,483 $ 345,329 $ 241,229
Working capital ratio 2.5 2.0 2.8
Long-term debt(1) $ 1,177,215 $ 1,368,349 $ 213,507
Total long-term financial
liabilities $ 1,202,665 $ 1,399,300 $ 219,950
Total assets $ 4,853,916 $ 4,833,702 $ 1,919,945
Long-term debt to long-term debt
plus equity ratio 0.31 0.37 0.13
---------------------------------------------------------------------------
(1) Excludes current portion of long-term debt
OVERVIEW
Precision remains focused to reduce debt levels and strengthen
its underlying capital structure and decisive steps have been taken
to conserve cash and improve Precision's financial position.
Precision reduced long-term debt by $221 million during the quarter
and increased working capital by $22 million to $367 million as at
March 31, 2009. Cash has been conserved through the indefinite
suspension of cash distributions to unitholders and cost reduction
measures that include personnel reductions and operating facility
consolidation. Capitalization was strengthened by net proceeds of
$207 million received on February 18, 2009 through the successful
issuance of 46 million Trust units. Planned upgrade capital
expenditures on existing equipment have been reduced however
Precision intends to complete the remaining 10 new Super Series
rigs from the 2008 rig build program.
As announced on April 20, 2009, Precision entered into a series
of financing transactions to raise up to approximately $380 million
which will be used to strengthen the Trust's balance sheet by
refinancing and restructuring the debt incurred in the acquisition
of Grey Wolf. A summary of the financing transactions is set forth
below:
- The Trust has entered into an agreement with Alberta
Investment Management Corporation ("AIMCo"), pursuant to which
AIMCo has agreed to purchase by way of private placement:
-- $175 million aggregate principal amount of senior unsecured
notes of Precision bearing interest at 10% per annum and having an
eight-year life;
-- 35,000,000 Trust units at a subscription price of $3.00 per
Trust unit for gross proceeds of $105 million; and
-- 15,000,000 purchase warrants of the Trust entitling AIMCo to
acquire up to an additional 15,000,000 Trust units at a price of
$3.22 per trust unit for a period of five years from the date of
issue.
- The Trust also intends to initiate a rights offering for up to
approximately $103 million that will allow unitholders, including
AIMCo, to purchase Trust units at a price of $3.00 per unit in
their proportionate ownership share on the same terms as AIMCo.
The financing transactions will enable the repayment of
Precision's unsecured bridge facility loans of $296 million (US$235
million) which bear interest at approximately 17% and allow
Precision's secured facilities to be fully syndicated and thereby
provide certainty to the cost of debt.
The financing transactions, coupled with the Trust's February
2009 unit offering, are expected to reduce Precision's blended
interest rate, based upon current market rates, to approximately
8.4% from 10.8%, reduce Precision's cash interest expense by
approximately $70 million on an annual basis, reduce the Trust's
overall leverage and advance the Trust's objective of returning to
an investment grade credit.
Revenue of $448 million in the first quarter was 31% higher than
the prior year period. The increase was due to 2008 expansion
initiatives through organic and acquisition growth in the United
States onshore contract drilling rig market. Precision marketed an
average United States fleet of 152 rigs during the first quarter of
2009 as compared to a fleet of 13 rigs in 2008. The mix of drilling
rigs working under term contracts and on high performance
well-to-well programs supported relatively strong average rig day
rate results in the quarter. Revenue in Precision's Canadian
Contract Drilling Services segment decreased by 30% while revenue
declined 40% in the Canadian based Completion and Production
Services segment.
The Trust reported total EBITDA for the first quarter of $169
million compared with $147 million for the first quarter of 2008.
EBITDA is not a recognized financial measure under Generally
Accepted Accounting Principles ("GAAP") see "Non-GAAP Measures and
Reconciliations" in this report. EBITDA margin, calculated as
EBITDA as a percentage of revenues, was 38% for the first quarter
of 2009 compared to 43% for the same period in 2008. The 5% decline
in margin percentage was attributable to the pass through nature of
field crew wage increases in the second half of 2008, significantly
lower market pricing for new work and lower overall utilization in
both operating segments. Precision's term contract position with
customers, a highly variable operating cost structure and economies
achieved through vertical integration of the supply chain served to
limit the declines.
In the Contract Drilling Services segment Precision currently
markets 380 contract drilling rigs, including 224 in Canada, 153 in
the United States and three rigs in international locations and 100
drilling rig camps. Precision's Completion and Production Services
segment includes 229 services rigs, 29 snubbing units, 76
wastewater treatment units and a broad mix of rental equipment.
During the quarter an average of 83 drilling rigs worked in
Canada and averaged 84 in the United States and Mexico totaling an
average of 167 rigs working. This compares with an average of 134
rigs working in the fourth quarter of 2008 and 145 rigs in the
first quarter a year ago which does not include Grey Wolf rigs for
the pre-acquisition period.
Customer demand in North America commenced the year with the
2008 carry over impact of a weak and declining global economy and
resulting low energy commodity prices. While oil pricing has
recovered somewhat during the quarter, there remains considerable
demand uncertainty for both oil and natural gas and this has
triggered very low underlying customer demand for Precision's
oilfield services. Accordingly, these factors have eroded oilfield
services for a second consecutive quarter as evidenced by minimal
spot market opportunities, pricing declines and low winter
equipment utilization.
At the end of the quarter these conditions persist as the
fundamentals for natural gas continue to show weakness through high
storage and growth in domestic United States natural gas supply.
The supply capacity was delivered through elevated drilling
activity in many regions within the United States, including
unconventional resource plays in Texas and Louisiana. A good
portion of the production gains are subject to higher depletion
rates and the recent steep decline in drilling is expected to
eventually restore supply and demand balance.
Precision is focused on further diversification of its high
performance, high value service offering as the market rebounds and
debt levels are reduced. Expansion of operations into the United
States land drilling market provided first quarter growth in the
earnings base and cash flow continuity that offsets the seasonal
nature of Precision's oilfield service business in Canada. Besides
new rig deployments, no existing rigs were moved for customers
between Canada and the United States. Outside Canada and the United
States, there was no change in activity as Precision continued to
operate two 3,000 horsepower drilling rigs in Mexico and have one
idle rig in Chile. Precision will be opportunistic in deploying
rigs to international markets with minimal new capital investment
requirements and contracts that reward high value high performance
services.
Financial summary for the three months ended March 31, 2009:
- Precision lowered its debt to capitalization ratio from 0.37
to 0.31 with debt repayment from proceeds through an equity raise
in February 2009. As at March 31, 2009 Precision had a cash balance
of $130 million and in combination with access to its revolving
credit facility, Precision continued to carry ample liquidity.
- Revenue was $448 million, an increase of $106 million or 31%
from the prior year quarter due to growth in Precision's United
States operations offset by lower activity levels in Precision's
Canadian operations and lower customer pricing for most of
Precision's services.
- General and administrative costs were $25 million, an increase
of $6 million from the prior year due primarily to the growth in
Precision's United States operations partially offset by lower
accrued incentive compensation expense, personnel reductions and
reduced discretionary expenses.
- Interest expense was $39 million, an increase of $36 million
from the prior year due to credit facilities entered into during
the fourth quarter 2008 as the result of the acquisition growth in
the United States contract drilling business.
- Operating earnings were $93 million, a decrease of $31 million
or 31% from the first quarter in 2008. Operating earnings were 21%
of revenue, compared to 36% in 2008. Operating earnings margins
were negatively impacted by declines in customer pricing for most
Canadian divisions and foreign exchange losses arising from the
translation of US dollar denominated debt.
- Bad debt expense was $7 million as the allowance for doubtful
accounts was increased to $13 million. Customer creditworthiness
remains a top priority as low energy commodity prices are creating
financial hardship for certain customers.
- Nonrecurring expenses associated with a 14% reduction in
Precision's office and shop workforce during the quarter was $3
million. Further measures have been taken to minimize operational
and administrative costs to align cost structure with low customer
demand levels.
- In connection with the acquisition of Grey Wolf, Precision
entered into credit facilities the majority of which are
denominated in US dollars. During the quarter the Canadian dollar
weakened by 3% as compared to the US dollar resulting in most of
the foreign exchange loss on long-term monetary items of $35
million.
Operational summary for the three months ended March 31,
2009:
- Capital expenditures for the purchase of property, plant and
equipment were $75 million in the first quarter, an increase of $51
million over the same period in 2008. Capital spending for the
first quarter of 2009 included $61 million on expansionary capital
initiatives and $14 million on the upgrade of existing assets.
- During the quarter six newly-built Super Series drilling rigs
were added to the fleet under long-term customer contracts, four in
Canada and two in the United States.
- Average revenue per utilization day for contract drilling rigs
increased in the first quarter of 2009 to US$25,154 per day from
the prior year first quarter of US$22,802 per day in the United
States and increased from $16,363 in 2008 to $18,537 for Canada in
2009. The increase in revenue rates for the first quarter in the
United States reflects the new rig mix with the acquisition,
including turnkey operations. These figures also include US$9
million in revenue generated from idle but contracted rigs
associated with term customer contracts and US$5 million in revenue
from an early contract termination for one rig. Turnkey revenue was
US$30 million generated from 419 utilization days. Within
Precision's Completion and Production Services segment, average
hourly rates for service rigs were $731 in the first quarter of
2009 compared to $736 in the fourth quarter of 2008.
Average operating costs per day for drilling rigs increased in
the first quarter of 2009 to US$14,456 per day from the prior year
first quarter of US$10,503 per day in the United States and $8,322
to $10,032 in Canada. Within Precision's Completion and Production
Services segment, average hourly operating costs for service rigs
were $527 in the first quarter of 2009 compared to $492 in the
first quarter of 2008. The cost escalations were primarily
attributable to deeper capacity drilling rig mix, labour increases
in the second half of 2008 and lower equipment activity to allocate
fixed costs. In the United States the increase was also impacted by
turnkey operations acquired in December 2008 whereby there is a
larger scope to drilling costs that the drilling contractor is
responsible to provide and revenue increases accordingly.
The Canadian 2009 winter drilling season was characterized by
unseasonably low utilization for Precision and the industry. At the
end of the quarter there were 863 drilling rigs registered with the
Canadian Association of Oilwell Drilling Contractors ("CAODC"). In
the United States the industry and Precision have been experiencing
declining utilization as customer spending has been dramatically
reduced because of lower oil and natural gas commodity prices.
Oil and natural gas prices during the first quarter of 2009 were
significantly lower than a year ago. For the first quarter of 2009
AECO natural gas spot prices averaged $4.95 per MMBtu, a decrease
of 37% over the first quarter 2008 average of $7.90 per MMBtu. In
the United States, Henry Hub natural gas spot prices averaged
US$4.55 per MMBtu in the first quarter of 2009 a decrease of 47%
over the first quarter 2008 average of US$8.61 per MMBtu. West
Texas Intermediate crude oil averaged US$43.21 per barrel during
the quarter compared to US$97.79 per barrel in the same period in
2008. The one-year forward price for North American natural gas was
also lower than the prior year comparable quarter, trading in a
range of about $4.50 to $7.00 on Canadian and U.S. exchanges in the
first quarter of 2009, compared to a range of about $7.00 to $10.50
in the same quarter of 2008.
OUTLOOK
The global economic recession, reduced liquidity in the capital
markets and low oil and natural gas commodity prices continue to
have a negative impact on the oilfield service industry. The
drilling sector in both Canada and the United States is
experiencing a period of significant decline in utilization.
According to industry sources, as at April 3, 2009, the United
States active land drilling rig count was down about 43% from the
same period in the prior year while the Canadian drilling rig count
was down about 40%. With decreasing utilization, the competitive
pressure on all of Precision's service offerings intensifies
resulting in lower rates for services. Precision expects this trend
to continue into the second quarter of 2009 and potentially longer
depending on commodity prices.
Precision has a strong portfolio of long-term customer contracts
that help mitigate the effects of the current downturn. Precision
expects to have an average of approximately 100 rigs committed
under day work term contract in North America in the second quarter
of 2009, an average of 90 rigs contracted for the third quarter of
2009 and 78 for the fourth quarter of 2009. These term contract
totals include 17 rigs in the United States that are currently not
working but receiving margin revenue from customers. In Canada,
term contracted rigs generate about 200 to 250 utilization days a
year due to the seasonal nature of well access whereas in the
United States we expect about 350 utilization days in most regions.
For all of 2009, Precision expects to have an average of
approximately 94 rigs under term contract, with 56 rigs contracted
in the United States, 36 in Canada and two in Mexico. For 2010,
Precision expects to have an average of 29 rigs in Canada under
term contract and 28 in the United States and Mexico, for a total
of 57 for the full year. None of Precision's long-term contracts
have been terminated without appropriate payment, though certain
contracted days have been moved between rigs or deferred to
accommodate customer requests. One long-term contract was prepaid
through the lump sum payment of US$5 million which was recognized
as revenue during the first quarter of 2009.
As part of an ongoing debt reduction plan, Precision expects to
keep capital expenditures at low levels during 2009. Capital
expenditures totaled $75 million in the first quarter of 2009 and
are expected to be approximately $210 million for the full year,
with approximately $40 million for upgrade capital and $170 million
for previously committed expansion capital. The expansion capital
is for 16 new rigs to be placed into service in 2009 with the
completion of the 2008 Super Series new build program. Six of those
rigs were completed in the first quarter with the remaining ten to
be deployed under term contracts, seven in the United States and
three in Canada.
With the recession negatively impacting energy demand, the
United States natural gas storage levels are currently near the
upper range of the five-year average and 35% higher than storage
volumes a year ago. Canada exports over half its natural gas
production to the United States and Precision's oilfield service
businesses are highly dependent on associated customer economics.
The view that North America has an oversupply of natural gas has
driven gas prices lower. The recent increase in United States
natural gas production, concerns over the declines in industrial
gas consumption and the prospect of higher liquefied natural gas
("LNG") imports has overshadowed lower Canadian imports and the
drop in active North American drilling rig count. Subject to demand
clarity and LNG imports, Precision anticipates the supply decline
from reduced drilling may begin to outpace demand reductions in
late 2009, providing the catalyst for improved fundamentals to
support a recovery in drilling activity.
Despite the near term challenges the future of the global oil
and gas industry remains promising. For Precision, 2009 represents
an opportunity to demonstrate our value to customers through
delivery of high performance, high value services that deliver low
customer well costs and strong relative margins to Precision.
SEGMENTED FINANCIAL RESULTS
Precision's operations are reported in two segments. The
Contract Drilling Services segment includes the drilling rig, camp
and catering, oilfield supply, and manufacturing divisions. The
Completion and Production Services segment includes the service
rig, snubbing, rental, and wastewater treatment divisions.
Three months ended March 31,
(stated in thousands of %
Canadian dollars) 2009 2008 Change
----------------------------------------------------------------------------
Revenue:
Contract Drilling Services $ 389,879 $ 242,365 60.9
Completion and Production
Services 62,975 104,720 (39.9)
Inter-segment eliminations (4,409) (4,396) (0.3)
----------------------------------------------------------------------------
$ 448,445 $ 342,689 30.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA:(1)
Contract Drilling Services $ 155,495 $ 115,215 35.0
Completion and Production
Services 18,548 42,139 (56.0)
Corporate and other (4,656) (10,007) 53.5
----------------------------------------------------------------------------
$ 169,387 $ 147,347 15.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
(stated in thousands of Three months ended March 31,
Canadian dollars, except %
where indicated) 2009 2008 Change
----------------------------------------------------------------------------
Revenue $ 389,879 $ 242,365 60.9
Expenses:
Operating 216,105 121,305 78.2
General and administrative 18,279 5,845 212.7
-----------------------------------------
EBITDA:(1) 155,495 115,215 35.0
Depreciation 37,963 15,168 150.3
Foreign exchange gain (424) (834) (49.2)
-----------------------------------------
Operating earnings(1) $ 117,956 $ 100,881 16.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a
percent of revenue 30.3% 41.6%
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in Canada $ 18,537 $ 16,363 13.3
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in the U.S.(2) US$ 25,154 US$ 22,802 10.3
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Includes revenue from idle but contracted rig days and a rig
contract lump sum payout.
Three months ended March 31,
----------------------------------------------
Drilling statistics:(1) 2009 2008
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Number of drilling rigs
(end of period) 224 869 231 893
Drilling rig operating days
(spud to release) 6,599 28,244 10,504 44,347
Drilling rig operating day
utilization 33% 36% 50% 56%
Number of wells drilled 793 3,025 1,450 5,126
Average days per well 8.3 9.3 7.2 8.7
Number of metres drilled
(000s) 1,092 4,086 1,946 6,790
Average metres per well 1,377 1,351 1,342 1,325
Average metres per day 166 145 185 153
----------------------------------------------------------------------------
(1) Canadian operations only.
(2) CAODC and Precision - excludes non-CAODC rigs and non-reporting CAODC
members.
In the Contract Drilling Services segment revenue for the first
quarter increased by 61% to $390 million while EBITDA increased by
35% to $155 million compared to the same period in 2008. The
increase in revenue and EBITDA was due to the acquisition of Grey
Wolf in December, 2008.
Activity in North America was impacted by lower customer demand
due to continued low natural gas and oil prices. Lower industry
activity levels were mitigated by the acquisition and organic
growth of Precision's United States business. As at the end of the
quarter there were 153 Precision drilling rigs in the United States
compared to 14 a year ago. Despite the decrease in utilization
rates, drilling rig revenue per utilization day in Canada was up
13% over the prior year due to an increase in crew wages passed on
to the customer and proportionately more activity from the Super
Triple and Super Single(TM) rigs which typically receive a day rate
premium. During the quarter 28% of the operating days by Precision
in Canada were generated from rigs under contract. In the United
States the average drilling utilization day rates for Precision
remained relatively strong due to term contracted rigs, the lump
sum payment associated with the early termination of a rig contract
and margin contributions from idle but contracted rigs. As at the
end of the quarter in the United States there were 56 drilling rigs
working under term contracts and another 17 rigs idle but
contracted where Precision was receiving the margin payment
only.
Drilling rig utilization days (spud to rig release plus move
days) in Canada during the first quarter of 2009 were 7,482, a
decrease of 37% compared to 11,932 in 2008. Drilling rig activity
for Precision in the United States was 539% higher than the same
quarter of 2008 due to the acquisition of Grey Wolf. In the prior
year quarter Precision had one rig working in Latin America and
realized a total of 86 utilization days as compared to 180
utilization days in the current quarter from operations in
Mexico.
Precision's camp and catering division experienced an activity
decrease of 34% over the prior year first quarter, consistent with
the decline in drilling activity.
Operating expenses were 55% of revenue for the quarter compared
to 50% for the prior year quarter. The increase was due to higher
field crew wages and the mix of rigs working while lower equipment
utilization increased daily operating costs associated with fixed
cost overhead. On a per day basis, operating costs for the drilling
rig division in Canada were 20% higher than the prior year quarter
due to crew wage increases and the differences in rig mix as 2009
had more days realized from top drives and triple rigs. Operating
costs in the United States were in line with expectations except
for the expensing of an additional provision for bad debts of about
US$5 million.
Despite the drop in activity and increased pressure on day
rates, EBITDA margin in contract drilling remained relatively
strong due to term contracted rigs and cost containment
efforts.
Depreciation in the Contract Drilling Services segment increased
from the prior year due to the increase in activity in the United
States with the acquisition of Grey Wolf and the increase in
carrying value of the Grey Wolf rigs to fair market value on
acquisition. Both the United States and Canada contract drilling
operations use the unit of production method of calculating
depreciation.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
(stated in thousands of Three months ended March 31,
Canadian dollars, except %
where indicated) 2009 2008 Change
----------------------------------------------------------------------------
Revenue $ 62,975 $104,720 (39.9)
Expenses:
Operating 42,065 59,281 (29.0)
General and administrative 2,362 3,300 (28.4)
-----------------------------------------
EBITDA (1) 18,548 42,139 (56.0)
Depreciation 4,993 8,276 (39.7)
Foreign exchange gain (6) (2) 200.0
-----------------------------------------
Operating earnings(1) $ 13,561 $ 33,865 (60.0)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a
percent of revenue 21.5% 32.3%
----------------------------------------------------------------------------
Three months ended March 31,
%
Well servicing statistics: 2009 2008 Change
----------------------------------------------------------------------------
Number of service rigs (end of
period) 229 223 2.7
Service rig operating hours 64,854 111,995 (42.1)
Service rig operating hour
utilization 31% 55%
Service rig revenue per
operating hour $ 731 $ 743 (1.6)
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
In the Completion and Production Services segment revenue for
the first quarter decreased by 40% from 2008 to $63 million while
EBITDA declined by 56% to $19 million. The decrease in revenue is
attributed to the decline in industry activity as customers reduced
spending in response to lower commodity prices.
Service rig activity declined 42% from the prior year period,
with the service rig fleet generating 64,854 operating hours in the
first quarter of 2009 compared with 111,995 hours in 2008 for
utilization of 31% and 55%, respectively. The reduction was a
result of lower service rig demand due to decreased drilling
activity and spending on production maintenance of existing wells.
New well completions accounted for 32% of service rig operating
hours in the first quarter compared to 36% in the same quarter in
2008. There were 4,439 well completions in Canada in the first
quarter, an 8% decline from 4,980 wells in the same quarter in
2008.
Average service revenue per operating hour decreased $12 per
hour over the prior year which represents EBITDA margin compression
given labour cost increases of about $30 per hour during the fourth
quarter of 2008.
Higher variable operating expenses, fixed costs spread over a
lower activity base and lower revenue rates led to an increase in
operating expenses as a percent of revenue from 57% in the first
quarter of 2008 to 67% for the same period in 2009. Operating costs
per operating hour have increased over the comparable period in
2008 due primarily to increased wages and maintenance costs.
Depreciation in the Completion and Production Services segment
in the first quarter of 2009 was 40% lower than the prior year
period due to lower equipment utilization.
SEGMENT REVIEW OF CORPORATE AND OTHER
Corporate and other expenses decreased by 53% to $5 million in
the first quarter of 2009 compared to $10 million in the same
period of 2008. The decrease was primarily due to the difference in
employee incentive compensation expense.
OTHER ITEMS
Net interest expense of $39 million for the first quarter of
2009 was up substantially on the prior year comparative. The
increase is attributable to interest associated with the new credit
facilities resulting from the acquisition of Grey Wolf.
The Trust had a non-cash foreign exchange loss of $32 million
during the first quarter of 2009 due to the decline in the Canadian
dollar versus the United States dollar, in which the majority of
the Trust's credit facilities are denominated.
The Trust's effective tax rate on earnings before income taxes
for the first three months of 2009 was a tax recovery of 7%
compared to a 13% expense for the same period in 2008. The income
tax recovery is primarily a result of tax deductions available in
excess of taxable earnings. Compared to a corporate tax rate, the
low effective tax rate is primarily the result of the income trust
structure shifting all or a portion of the income tax burden of the
Trust to its unitholders and due to a portion of the Trust's
taxable income being taxed at lower rates than the Canadian
corporate tax rate.
At March 31, 2009 Precision reported goodwill of $858 million of
which $573 million relates to the United States contract drilling
business unit. With specific reference to goodwill impairment,
Precision will continue to monitor the business climate for a
significant adverse change from December 31, 2008 and may test for
impairment during 2009, between customary annual tests.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the acquisition of Grey Wolf, Precision
entered into a new US$1.2 billion senior secured credit facility
(the "Secured Facility") with a syndicate of lenders that is
guaranteed by the Trust and is comprised of US$800 million of term
loans and a US$400 million revolving facility (the "Revolver").
Precision also entered into a US$400 million unsecured credit
facility with certain of the lenders (the "Unsecured Facility" and,
together with the secured facility, the "Credit Facilities") that
is also guaranteed by the Trust. The Credit Facilities funded the
cash portion of the acquisition and refinanced the pre-closing
Precision bank debt and certain pre-closing debt obligations of
Grey Wolf.
In order to complete a successful syndication of the Secured
Facility, the lenders are entitled, prior to May 22, 2009 and in
consultation with Precision, to change certain of the terms of the
Revolver and Term Loan A including, to implement, within certain
limits, additional increases in interest rates, original issue
discounts and/or upfront fees, reallocate up to US$250 million
between the Term Loan A Facility and the Term Loan B Facility,
reallocate up to US$150 million between the Secured Facility and
the Unsecured Facility and amend certain covenants, financial ratio
tests and other provisions for portions of the Secured Facility.
During the quarter US$69 million of long-term debt was reallocated
from the Term Loan A Facility to the Term Loan B Facility resulting
in an additional $13 million in original issue discount fees.
On February 18, 2009 the Trust issued 46 million Trust units at
US$3.75 per unit for gross proceeds of $217 million and proceeds
net of fees and expenses of $209 million. The proceeds were used to
repurchase the outstanding convertible notes assumed in conjunction
with the Grey Wolf acquisition. The Grey Wolf convertible notes had
a provision whereby upon the occurrence of a change in control the
acquirer was required to provide holders of the notes with an offer
to purchase all or a portion of their notes at the principal amount
plus accrued but unpaid interest to the date of purchase, payable
in cash. All of the note holders with the exception of US$10,000
exercised the repurchase option.
As at March 31, 2009 the Credit Facilities carry a blended
interest rate of approximately 11% per annum before original issue
discounts and upfront fees. Pursuant to the required quarterly
repayment terms of the term loan facilities, on March 31, 2009
Precision repaid $13 million of outstanding principal.
The loans under the Unsecured Facility initially mature on
December 23, 2009, and, to the extent unpaid on that date, will be
converted into exchange notes that will mature on December 23, 2016
provided that the loans will not be converted to exchange notes if
an event of default has occurred under the Unsecured Facility or
the Secured Facility or certain other conditions are not
satisfied.
The terms of the documents governing the Credit Facilities
contain provisions that in the event of default or in liquidation
scenario ensures that the lenders have priority as to payment over
the unitholders in respect to the assets and income of the Trust
and its subsidiaries. Amounts due and owing to the lenders under
the Credit Facilities must be paid before any distributions can be
made to unitholders. This relative priority of payments could
result in a temporary or permanent interruption of distributions to
unitholders.
As at March 31, 2009, approximately $1,104 million was
outstanding under the Secured Facility and approximately $296
million was outstanding under the Unsecured Facility.
Subsequent to quarter end, Precision announced a series of
financing transactions to raise up to approximately $380 million
which will be used to strengthen the Trust's balance sheet by
refinancing and restructuring the debt incurred in the acquisition
of Grey Wolf. The financing transactions will enable the repayment
of Precision's unsecured bridge facility loans of $296 million
(US$235 million) which bear interest at approximately 17% and allow
Precision's secured facilities to be fully syndicated and thereby
provide certainty to the cost of debt.
The financing transactions, coupled with the Trust's February
2009 unit offering, are expected to reduce Precision's blended
interest rate, based upon current market rates, to approximately
8.4% from 10.8%, reduce Precision's cash interest expense by
approximately $70 million on an annual basis, reduce the Trust's
overall leverage and support the Trust's objective of returning to
an investment grade credit.
In 2009 the Trust generated cash from continuing operations of
$202 million and issued trust units for net proceeds of $209
million. The cash generated was used to purchase property plant and
equipment net of disposal proceeds and related non-cash working
capital of $81 million, repay long-term debt of $221 million and
pay additional fees associated with the debt of $15 million, and
make cash distributions to unitholders of $27 million leaving an
increase in the cash balance as at March 31, 2009 of $68
million.
As at March 31, 2009 the Trust had a long-term debt to long-term
debt plus equity ratio of 0.31 compared to 0.13 as at the
comparable period in 2008 and 0.37 as at December 31, 2008. The
significant increase over the prior year is due to the additional
debt arising from the acquisition of Grey Wolf. Precision has made
debt reduction a priority and is employing initiatives to
deleverage from current levels.
In addition to the Secured Facility and Unsecured Facility,
Precision also has uncommitted operating facilities which total
approximately $25 million equivalent and are utilized for working
capital management and the issuance of letters of credit.
During the first quarter of 2009, working capital increased by
$22 million to $367 million as Precision realized higher activity
and corresponding revenue in the current quarter compared to the
fourth quarter of 2008.
DISTRIBUTIONS
Upon Precision's conversion to an income trust effective
November 7, 2005 the Trust adopted a policy of making monthly
distributions to holders of Trust units and holders of exchangeable
LP units (together "unitholders"). Precision has a legal entity
structure whereby the trust entity, Precision Drilling Trust,
effectively must flow its taxable income to unitholders pursuant to
its Declaration of Trust. Distributions, including special
distributions, may be declared in cash or "in-kind" or a
combination of both and reduced, increased or suspended entirely
depending on the operations of Precision, the performance of its
assets, or legislative changes in tax laws. The actual cash flow
available for distribution to unitholders is a function of numerous
factors, including the Trust's: financial performance; debt
covenants and obligations; working capital requirements; upgrade
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 in determining
future distributions. In the first quarter of 2009 cash
distributions declared were $6 million or $0.04 per diluted unit, a
decrease of $43 million or $0.35 per diluted unit from the previous
year.
On February 9, 2009 Precision announced the suspension of cash
distributions for an indefinite period for distributions to be paid
after February 17, 2009. The suspension of cash distributions was
taken in response to lower financial operating performance at the
start of 2009 and allowed Precision to increase debt repayment
capability and balance sheet strength.
Key factors for consideration in determining actual cash flow
available for distribution, in an historical context, are disclosed
within the Consolidated Statements of Cash Flow. In calculating
distributable cash Precision makes the following adjustments to
cash provided by continuing operations:
- Deducts the purchase of property, plant and equipment for
upgrade capital as the minimum reinvestment required to maintain
current operating capacity;
- Deducts the purchase of property, plant and equipment for
expansion initiatives to grow capacity;
- Adds the proceeds on the sale of property, plant and equipment
capital which are incidental transactions occurring within the
normal course of operations; and
- Deducts long-term incentive plan changes as an unfunded
liability resulting from the operating activities in the current
period.
A quarterly two-year reconciliation of distributable cash from continuing
operations follows:
(Stated in thousands of Canadian dollars,
except per diluted unit amounts) 2008 2009
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Cash provided by
continuing operations $ 200,458 $ 3,241 $ 82,904 $ 201,596
Deduct:
Purchase of property,
plant and equipment
for upgrade capital (8,864) (17,270) (30,506) (13,760)
Purchase of property
plant and equipment
for expansion
initiatives (22,480) (58,187) (68,804) (61,162)
Add:
Proceeds on the sale
of property, plant
and equipment 2,143 1,879 5,115 5,942
----------------------------------------------------------------------------
Standardized
distributable cash(1) 171,257 (70,337) (11,291) 132,616
Unfunded long-term
incentive plan
compensation (2,166) 93 (559) 2,524
----------------------------------------------------------------------------
Distributable cash
from continuing
operations(1) $ 169,091 $ (70,244) $ (11,850) $ 135,140
----------------------------------------------------------------------------
Cash distributions
declared $ 49,045 $ 49,046 $ 53,522 $ 6,408
----------------------------------------------------------------------------
Per diluted unit
information:
Cash distributions
declared $ 0.39 $ 0.39 $ 0.39 $ 0.04
Standardized
distributable
cash(1) $ 1.36 $ (0.56) $ (0.09) $ 0.67
Distributable cash
from continuing
operations(1) $ 1.34 $ (0.56) $ (0.09) $ 0.69
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2007 2008
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Cash provided by
continuing operations $ 229,073 $ 20,270 $ 78,474 $ 57,307
Deduct:
Purchase of property,
plant and equipment
for upgrade capital (8,602) (10,544) (9,241) (2,814)
Purchase of property
plant and equipment
for expansion
initiatives (44,238) (30,382) (28,264) (20,654)
Add:
Proceeds on the sale
of property, plant and
equipment 2,130 1,273 1,236 1,303
----------------------------------------------------------------------------
Standardized
distributable cash(1) 178,363 (19,383) 42,205 35,142
Unfunded long-term
incentive plan
compensation 4,167 3,685 (1,817) 469
----------------------------------------------------------------------------
Distributable cash
from continuing
operations(1) $ 182,530 $ (15,698) $ 40,388 $ 35,611
----------------------------------------------------------------------------
Cash distributions
declared $ 56,591 $ 49,046 $ 69,166 $ 49,046
----------------------------------------------------------------------------
Per diluted unit
information:
Cash distributions
declared $ 0.45 $ 0.39 $ 0.55 $ 0.39
Standardized
distributable
cash(1) $ 1.42 $ (0.15) $ 0.33 $ 0.28
Distributable cash
from continuing
operations(1) $ 1.45 $ (0.12) $ 0.32 $ 0.28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
Three months Three months Year
ended ended ended
(stated in thousands of March 31, March 31, December 31,
Canadian dollars) 2009 2008 2008
----------------------------------------------------------------------------
Cash provided by continuing
operations (A) $ 201,596 $ 57,307 $ 343,910
----------------------------------------------------------------------------
Net earnings (B) $ 57,417 $ 106,266 $ 302,730
----------------------------------------------------------------------------
Distributions declared � $ 6,408 $ 49,046 $ 224,688
----------------------------------------------------------------------------
Excess of cash provided by
continuing operations over
distributions declared (A-C) $ 195,188 $ 8,261 $ 119,222
----------------------------------------------------------------------------
Excess of net earnings from
operating activities over
distributions declared (B-C) $ 51,009 $ 57,220 $ 78,042
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Precision has initiated a number of cost reduction and cash
generation plans designed to strengthen its capability to reduce
long-term debt and improve its underlying credit quality and
capital structure. The near-term management strategy involves
retaining funds from available distributable cash to repay debt,
finance required upgrade capital expenditures as well as financing
working capital needs. Planned asset growth will generally be
financed through existing debt facilities or cash retained from
continuing operations.
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian
dollars, except per diluted unit amounts)
----------------------------------------------------------------------------
2008 2009
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Revenue $ 138,514 $ 285,639 $ 335,049 $ 448,445
EBITDA(1) 35,574 118,82 134,795 169,387
Earnings from
continuing operations: 21,739 82,349 92,376 57,417
Per basic unit 0.17 0.65 0.72 0.32
Per diluted unit 0.17 0.65 0.71 0.30
Net earnings: 21,739 82,349 92,376 57,417
Per basic unit 0.17 0.65 0.72 0.32
Per diluted unit 0.17 0.65 0.71 0.30
Cash provided by
continuing operations 200,458 3,241 82,904 201,596
Distributions declared $ 49,045 $ 49,046 $ 77,551 $ 6,408
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2007 2008
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Revenue $ 122,005 $ 227,928 $ 248,726 $ 342,689
EBITDA(1) 39,825 92,068 103,351 147,347
Earnings from
continuing operations: 25,722 69,702 89,329 106,266
Per basic unit 0.20 0.55 0.71 0.85
Per diluted unit 0.20 0.55 0.71 0.84
Net earnings: 25,722 72,658 89,329 106,266
Per basic unit 0.20 0.58 0.71 0.85
Per diluted unit 0.20 0.58 0.71 0.84
Cash provided by
continuing operations 229,073 20,270 78,474 57,307
Distributions declared $ 56,591 $ 49,046 $ 99,348 $ 49,046
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
NON-GAAP MEASURES
Precision uses certain measures that are not recognized under
Canadian generally accepted accounting principles to assess
performance and believes these non-GAAP measures provide useful
supplemental information to investors. Following are the non-GAAP
measures Precision uses in assessing performance.
EBITDA
Management believes that in addition to net earnings, EBITDA as
derived from information reported in the Consolidated Statements of
Earnings and Retained Earnings (Deficit) is a useful supplemental
measure as it provides an indication of the results generated by
Precision's principal business activities prior to consideration of
how those activities are financed, the impact of foreign exchange,
how the results are taxed, how funds are invested or how non-cash
depreciation and amortization charges affect results.
The following table provides a reconciliation of net earnings
under GAAP, as disclosed in the Consolidated Statement of Earnings
and Retained Earnings (Deficit), to EBITDA.
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2009 2008
----------------------------------------------------------------------------
EBITDA $ 169,387 $ 147,347
Add (deduct):
Depreciation and
amortization (43,949) (24,367)
Foreign exchange gain (loss) (32,491) 1,258
Interest:
Long-term debt (38,698) (2,235)
Other (63) (46)
Income 91 85
Income taxes 3,140 (15,776)
----------------------------------------------------------------------------
Net earnings $ 57,417 $ 106,266
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings
Management believes that in addition to net earnings, operating
earnings as reported in the Consolidated Statements of Earnings and
Retained Earnings (Deficit) is a useful supplemental measure as it
provides an indication of the results generated by Precision's
principal business activities prior to consideration of how those
activities are financed or how the results are taxed.
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2009 2008
----------------------------------------------------------------------------
Operating earnings $ 92,947 $ 124,238
Add (deduct):
Interest:
Long-term debt (38,698) (2,235)
Other (63) (46)
Income 91 85
Income taxes 3,140 (15,776)
----------------------------------------------------------------------------
Net earnings $ 57,417 $ 106,266
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Standardized distributable cash, distributable cash from
continuing operations, standardized distributable cash per diluted
unit and distributable cash from continuing operations per diluted
unit
Management believes that in addition to cash provided by
continuing operations, standardized distributable cash and
distributable cash from continuing operations are useful
supplemental measures. They provide an indication of the funds
available for distribution to unitholders after consideration of
the impacts of capital expenditures and long-term unfunded
contractual obligations.
Precision's method of calculating these measures may differ from
other entities and, accordingly, may not be comparable to measures
used by other entities. Investors should be cautioned that these
measures should not be construed as an alternative to measures
determined in accordance with GAAP as an indicator of Precision's
performance.
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", "propose", "plan", "expect", "believe",
"will", "may" 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 number of rigs under daywork
term contracts in Canada, the United States and Mexico; the global
economic crisis and its impact on operations; the decline rate on
newly drilled wells; the potential rebound in land drilling
activity; the integration of Precision and Grey Wolf; the potential
for goodwill impairment; commodity prices; the timing of completion
of rigs in the 2008 rig build program; and statements as to the
demand for Precision's services; the anticipated impact of AIMCo's
investment on Precision's existing credit facilities; the timing
and ultimate outcome of the proposed rights offering and the
general effect of the private placement and rights offering on the
Trust; and the impact of certain accounting changes on
Precision.
These forward-looking information and statements are based on
certain assumptions and analysis made by the Trust in light of its
experience and its perception of historical trends, current
conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However,
whether actual results, performance or achievements will conform to
the Trust's expectations and predictions is subject to a number of
known and unknown risks and uncertainties which could cause actual
results to differ materially from the Trust's expectations. Such
risks and uncertainties include, but are not limited to:
fluctuations in the price and demand for oil and natural gas; the
current global financial crisis and the dislocation in the credit
markets; fluctuations in the level of oil and natural gas
exploration and development activities; fluctuations in the demand
for well servicing, contract drilling and ancillary oilfield
services; the effects of seasonal and weather conditions on
operations and facilities; the existence of competitive operating
risks inherent in well servicing, contract drilling and ancillary
oilfield services; general economic, market or business conditions;
changes in laws or regulations, including taxation, environmental
and currency regulations; the lack of availability of qualified
personnel or management; failure to realize anticipated synergies
in the Grey Wolf acquisition; failure to complete the private
placement or proposed rights offering, the possibility of a reduced
take up under the rights offering and any failure to obtain any
required regulatory approvals; and other unforeseen conditions
which could impact the use of services supplied by Precision.
Consequently, all of the forward-looking information and
statements made in this news release are qualified by these
cautionary statements and there can be no assurance that the actual
results or developments anticipated by the Trust will be realized
or, even if substantially realized, that they will have the
expected consequences to, or effects on, the Trust or its business
or operations. Readers are therefore cautioned not to place undue
reliance on such forward-looking information and statements. Except
as may be required by law, the Trust assumes no obligation to
update publicly any such forward-looking information and
statements, whether as a result of new information, future events
or otherwise.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
(Stated in thousands of Canadian dollars) 2009 2008
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 129,833 $ 61,511
Accounts receivable 457,707 601,753
Income tax recoverable 10,657 13,313
Inventory 10,377 8,652
----------------------------------------------------------------------------
608,574 685,229
Income tax recoverable (note 4) 58,055 58,055
Property, plant and equipment,
net of accumulated depreciation 3,324,319 3,243,213
Intangibles 5,244 5,676
Goodwill 857,724 841,529
----------------------------------------------------------------------------
$ 4,853,916 $ 4,833,702
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 185,550 $ 270,122
Distributions payable - 20,825
Current portion of
long-term debt (note 5) 55,541 48,953
----------------------------------------------------------------------------
241,091 339,900
Long-term liabilities 25,450 30,951
Long-term debt (note 5) 1,177,215 1,368,349
Future income taxes 770,951 770,623
----------------------------------------------------------------------------
2,214,707 2,509,823
----------------------------------------------------------------------------
Contingencies (note 8)
Subsequent events (note 11)
Unitholders' equity:
Unitholders' capital (note 3) 2,566,533 2,355,590
Contributed surplus 1,543 998
Retained earnings (deficit) 2,941 (48,068)
Accumulated other comprehensive
income (note 6) 68,192 15,359
----------------------------------------------------------------------------
2,639,209 2,323,879
----------------------------------------------------------------------------
$ 4,853,916 $ 4,833,702
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(DEFICIT) (UNAUDITED)
(Stated in thousands of Canadian dollars, Three months ended March 31,
except per unit amounts) 2009 2008
----------------------------------------------------------------------------
Revenue $ 448,445 $ 342,689
Expenses:
Operating 253,761 176,190
General and administrative 25,297 19,152
Depreciation and amortization 43,949 24,367
Foreign exchange 32,491 (1,258)
Interest:
Long-term debt 38,698 2,235
Other 63 46
Income (91) (85)
----------------------------------------------------------------------------
Earnings before income taxes 54,277 122,042
Income taxes: (note 4)
Current 8,661 2,652
Future (reduction) (11,801) 13,124
----------------------------------------------------------------------------
(3,140) 15,776
----------------------------------------------------------------------------
Net earnings 57,417 106,266
Retained earnings (deficit),
beginning of period (48,068) (126,110)
Distributions declared (6,408) (49,046)
----------------------------------------------------------------------------
Retained earnings (deficit), end of period $ 2,941 $ (68,890)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per unit: (note 9)
Basic $ 0.32 $ 0.85
Diluted $ 0.30 $ 0.84
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2009 2008
----------------------------------------------------------------------------
Net earnings $ 57,417 $ 106,266
Unrealized gain recorded on translation
of assets and liabilities of
self-sustaining operations denominated
in foreign currency 52,833 -
----------------------------------------------------------------------------
Comprehensive income $ 110,250 $ 106,266
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2009 2008
----------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings $ 57,417 $ 106,266
Adjustments and other items
not involving cash:
Long-term compensation plans (2,524) (469)
Depreciation and amortization 43,949 24,367
Future income taxes (11,801) 13,124
Amortization of debt issue costs 6,281 -
Foreign exchange gain (loss) on
long-term monetary items 34,682 (22)
Changes in non-cash working capital balances 73,592 (85,959)
----------------------------------------------------------------------------
201,596 57,307
Investments:
Purchase of property, plant and equipment (74,922) (23,468)
Proceeds on sale of property, plant
and equipment 5,942 1,303
Increase in income tax recoverable (note 4) - (55,185)
Changes in non-cash working capital balances (12,375) (904)
----------------------------------------------------------------------------
(81,355) (78,254)
Financing:
Increase in long-term debt 141,621 93,681
Repayment of long-term debt (362,539) -
Financing costs on long-term debt (14,753) -
Distributions paid (27,233) (69,167)
Issuance of trust units, net of issue costs 206,890 -
Change in non-cash working capital balances 1,700 -
Change in bank indebtedness - (3,567)
----------------------------------------------------------------------------
(54,314) 20,947
----------------------------------------------------------------------------
Effect on exchange rate changes on cash
and cash equivalents 2,395 -
----------------------------------------------------------------------------
Increase in cash and cash equivalents 68,322 -
Cash and cash equivalents, beginning of period 61,511 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 129,833 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements (UNAUDITED)
(Tabular amounts are stated in thousands of Canadian dollars
except unit numbers)
1. Basis of Presentation
These interim financial statements for Precision Drilling Trust
(the "Trust") were prepared using accounting policies and methods
of their application consistent with those used in the preparation
of the Trust's consolidated audited financial statements for the
year ended December 31, 2008 except as noted below. These interim
financial statements conform in all material respects to the
requirements of generally accepted accounting principles in Canada
for annual financial statements with the exception of certain note
disclosures. As a result, these interim financial statements should
be read in conjunction with the Trust's consolidated audited
financial statements for the year ended December 31, 2008.
Effective January 1, 2009 the Trust adopted new Canadian
accounting standards relating to goodwill and intangible assets
(Section 3064). This new section establishes standards for the
recognition, measurement, presentation and disclosure of goodwill
and intangible assets. The new Section did not have an impact on
the consolidated financial statements.
2. Seasonality of Operations
The Trust has operations that are carried on in Canada which
represent approximately 35% (2008 - 92%) of consolidated total
assets as at March 31, 2009 and 47% (2008 - 92%) of consolidated
revenue for the three months ended March 31, 2009. The ability to
move heavy equipment in Canadian oil and natural gas fields is
dependent on weather conditions. As warm weather returns in the
spring, the winter's frost comes out of the ground rendering many
secondary roads incapable of supporting the weight of heavy
equipment until they have thoroughly dried out. The duration of
this "spring break-up" has a direct impact on the Trust's activity
levels. In addition, many exploration and production areas in
northern Canada are accessible only in winter months when the
ground is frozen hard enough to support equipment. The timing of
freeze up and spring break-up affects the ability to move equipment
in and out of these areas. As a result, late March through May is
traditionally the Trust's slowest time.
3. Unitholders' Capital
(a) Authorized - unlimited number of voting Trust units
- unlimited number of voting exchangeable LP units
(b) Units issued:
Trust units Number Amount
----------------------------------------------------------------------------
Balance, December 31, 2008 160,042,065 $ 2,353,843
Issued February 18, 2009,net of costs
and related tax effect 46,000,000 210,943
Issued on retraction of exchangeable
LP units 23,021 265
----------------------------------------------------------------------------
Balance March 31, 2009 206,065,086 $ 2,565,051
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exchangeable LP units Number Amount
----------------------------------------------------------------------------
Balance, December 31, 2008 151,583 $ 1,747
Redeemed on retraction of exchangeable
LP units (23,021) (265)
----------------------------------------------------------------------------
Balance March 31, 2009 128,562 $ 1,482
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Summary Number Amount
----------------------------------------------------------------------------
Trust units 206,065,086 $ 2,565,051
Exchangeable LP units 128,562 1,482
----------------------------------------------------------------------------
Unitholders'capital 206,193,648 $ 2,566,533
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4. Income Taxes
Currently, the Trust incurs taxes to the extent that there are
certain provincial capital taxes or state franchise taxes, as well
as taxes on any taxable income, of its underlying subsidiaries.
Future income taxes arise from the differences between the
accounting and tax basis of the Trust's and its subsidiaries'
assets and liabilities.
The provision for income taxes differs from that which would be
expected by applying statutory Canadian income tax rates. A
reconciliation of the difference at March 31 is as follows:
Three months ended March 31,
2009 2008
----------------------------------------------------------------------------
Earnings before income taxes $ 46,977 $ 122,042
Federal and provincial statutory rates 29% 30%
----------------------------------------------------------------------------
Tax at statutory rates $ 13,623 $ 36,613
Adjusted for the effect of:
Non-deductible expenses 3,686 (226)
Income taxed at lower rates (22,819) -
Income to be distributed to unitholders,
not subject to tax in the Trust (1,444) (22,884)
Other 3,814 2,273
----------------------------------------------------------------------------
Income tax expense (reduction) $ (3,140) $ 15,776
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Effective income tax rate (7)% 13%
----------------------------------------------------------------------------
The Trust received Notices of Reassessment in 2008 from a
provincial taxing authority related to certain subsidiaries'
taxation years ending in 2001 through 2004. As a result of the
notices, the Trust was required to pay $37.7 million in taxes and
$20.4 million in assessed interest. The reassessments relate to the
treatment of interest in certain provincial tax filings. The Trust
is in the process of challenging these reassessments. The Trust
anticipates that the dispute will not be resolved within one year
and has recorded the amount paid as a long-term receivable. No
amounts related to the $58.1 million in reassessments have been
expensed.
5. Long-Term Debt
March 31, December 31,
2009 2008
----------------------------------------------------------------------------
Secured facility:
Term Loan A $ 410,631 $ 489,215
Term Loan B 583,646 489,840
Revolving credit facility 110,103 107,981
Unsecured facility 296,147 168,352
Unsecured convertible notes:
3.75% notes - 168,413
Floating rate notes - 152,801
----------------------------------------------------------------------------
1,400,527 1,576,602
Less net unamortized debt issue costs (167,771) (159,300)
----------------------------------------------------------------------------
1,232,756 1,417,302
Less current portion (55,541) (48,953)
----------------------------------------------------------------------------
$ 1,177,215 $ 1,368,349
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Secured Facility has not yet been fully syndicated by the
underwriting banks. As a result these banks retain certain
provisions that are available prior to May 22, 2009 to facilitate
syndication which may result in further increases in any or a
combination of interest rates, original issue discounts or fees,
all subject to certain market based indexing including the
re-allocation of debt between the Term Loan A and Term Loan B and
between the Term Loan A and B loans and the unsecured facility.
During the quarter these provisions resulted in US$69.0 million
($87.0 million) being reallocated from the Term Loan A to the Term
Loan B. The re-tranche of debt between Term Loan A and Term Loan B
facilities led to additional debt issue costs through original
issue discount of US$10.6 million ($12.9 million).
During the quarter, holders of 3.75% Notes and Floating Rate
Notes representing US$137.5 million and US$124.8 million,
respectively accepted the purchase offer made pursuant to change in
control provisions in the indenture agreements governing the notes.
Precision was required to purchase these notes on March 24, 2009 at
the principal balance plus accrued interest.
At March 31, 2009 principal repayments are as follows:
For the twelve month periods ended March 31,
----------------------------------------------------------------------------
2010 $ 55,541
2011 71,135
2012 76,332
2013 91,926
2014 373,559
Thereafter 732,034
----------------------------------------------------------------------------
6. Accumulated Other Comprehensive Income
----------------------------------------------------------------------------
Balance, December 31, 2008 $ 15,359
Unrealized foreign currency translation gains 52,833
----------------------------------------------------------------------------
Balance, March 31, 2009 $ 68,192
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. Unit Based Compensation Plans
(a) Officers and Employees
Eligible participants of Precision's Performance Savings Plan
may elect to receive a portion of their annual performance bonus in
the form of deferred trust units ("DTUs"). These notional units are
redeemable in cash and are adjusted for each distribution to
unitholders by issuing additional DTUs based on the weighted
average trading price on the Toronto Stock Exchange for the five
days immediately following the ex-distribution date. All DTUs must
be redeemed within 60 days of ceasing to be an employee of
Precision or by the end of the second full calendar year after the
receipt of the DTUs. A summary of the DTUs outstanding under this
unit based incentive plan is presented below:
Deferred Trust Units Outstanding
----------------------------------------------------------------------------
Balance, December 31, 2008 83,435
Issued, including as a result of distributions 211,156
Redeemed on employee resignations and withdrawals (874)
----------------------------------------------------------------------------
Balance, March 31, 2009 293,717
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at March 31, 2009 $ 1.1 million is included in accounts
payable and accrued liabilities for outstanding DTUs. Included in
net earnings for the three months ended March 31, 2009 is an
expense recovery of $ 0.4 million (2008 - $0.6 million
expense).
The Trust has a Unit Appreciation Rights ("UAR") plan. Under the
plan eligible participants were granted UAR's that entitle the
rights holder to receive cash payments calculated as the excess of
the market price over the exercise price per unit on the exercise
date. The exercise price of the UAR is reduced by the aggregate
unit distributions paid or payable on Trust units from the grant
date to the exercise date. The UAR's vest over a period of 5 years
and expire 10 years from the date of grant. No amounts relating to
the UAR plan have been recorded as compensation expense or accrued
liability as at March 31, 2009 as the intrinsic value of the awards
was nil.
(b) Executive
In 2007 the Trust instituted a Deferred Signing Bonus Unit Plan
for its Chief Executive Officer. Under the plan 178,336 notional
DTUs were granted on September 1, 2007. The units are redeemable
one-third annually beginning September 1, 2008 and are settled for
cash based on the Trust unit trading price on redemption. The
number of notional DTUs is adjusted for each distribution to
unitholders by issuing additional notional DTUs based on the
weighted average trading price on the Toronto Stock Exchange for
the five days immediately following the ex-distribution date. As at
March 31, 2009 $0.2 million is included in accounts payable and
accrued liabilities and $0.2 million in long-term incentive plan
payable for the 136,500 outstanding DTUs. Included in net earnings
for the three months ended March 31, 2009 is an expense recovery of
$0.9 million (2008 - $1.7 million expense).
(c) Non-management directors
In 2007 a deferred trust unit plan was established for
non-management directors. Under the plan fully vested deferred
trust units are granted quarterly based upon an election by the
non-management director to receive all or a portion of their
compensation in deferred trust units. Distributions to unitholders
declared by the Trust prior to redemption are reinvested into
additional deferred trust units on the date of distribution. These
deferred trust units are redeemable into an equal number of Trust
units any time after the director's retirement. A summary of
deferred trust units outstanding under this unit based incentive
plan is presented below:
Number
Outstanding
----------------------------------------------------------------------------
Balance, December 31, 2008 54,543
Granted 114,717
Issued as a result of distributions 2,051
----------------------------------------------------------------------------
Balance, March 31, 2009 171,311
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended March 31, 2009 the Trust expensed
$545,000 as unit based compensation, with a corresponding increase
in contributed surplus.
8. Contingencies
The business and operations of the Trust are complex and the
Trust has executed a number of significant financings, business
combinations, acquisitions and dispositions over the course of its
history. The computation of income taxes payable as a result of
these transactions involves many complex factors as well as the
Trust's interpretation of relevant tax legislation and regulations.
The Trust's management believes that the provision for income tax
is adequate and in accordance with generally accepted accounting
principles and applicable legislation and regulations. However,
there are a number of tax filing positions that can still be the
subject of review by taxation authorities who may successfully
challenge the Trust's interpretation of the applicable tax
legislation and regulations, with the result that additional taxes
could be payable by the Trust and the amount owed, with estimated
interest but without penalties, could be up to $387 million,
including $58 million recorded as a long-term receivable.
9. Per Unit Amounts
The following tables reconcile the net earnings and weighted
average units outstanding used in computing basic and diluted
earnings per unit:
Three months ended March 31, 2009 2008
----------------------------------------------------------------------------
Net earnings - basic $ 57,417 $ 106,266
Impact of assumed conversion of convertible debt,
net of tax 1,723 -
----------------------------------------------------------------------------
Net earnings - diluted $ 59,140 $ 106,266
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended March 31,(stated in thousands) 2009 2008
----------------------------------------------------------------------------
Weighted average units outstanding - basic 181,149 125,758
Effect of stock options and other equity
compensation plans 76 19
Effect of convertible debt 15,586 -
----------------------------------------------------------------------------
Weighted average units outstanding - diluted 196,811 125,777
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. Segmented Information
The Trust operates primarily in Canada and the United States, in
two segments; Contract Drilling Services and Completion and
Production Services. Contract Drilling Services includes drilling
rigs, procurement and distribution of oilfield supplies, camp and
catering services and manufacture, sale, and repair of drilling
equipment. Completion and Production Services includes service
rigs, snubbing units, wastewater treatment units, and oilfield
equipment rental.
Completion
Contract and
Three months ended Drilling Production Corporate Inter-segment
March 31, 2009 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 389,879 $ 62,975 $ - $ (4,409) $448,445
Segment profit
(loss) 117,956 13,561 (38,570) - 92,947
Depreciation
and amortization 37,963 4,993 993 - 43,949
Total assets 4,304,672 427,493 121,751 - 4,853,916
Goodwill 745,585 112,139 - - 857,724
Capital
expenditures 71,378 424 3,120 - 74,922
----------------------------------------------------------------------------
Completion
Contract and
Three months ended Drilling Production Corporate Inter-segment
March 31, 2008 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 242,365 $ 104,720 $ - $ (4,396) $342,689
Segment
profit (loss) 100,881 33,865 (10,508) - 124,238
Depreciation
and amortization 15,168 8,276 923 - 24,367
Total assets 1,370,904 471,542 77,499 - 1,919,945
Goodwill 172,440 108,309 - - 280,749
Capital
expenditures 19,603 3,772 93 - 23,468
----------------------------------------------------------------------------
A reconciliation of segment profit to earnings from before income taxes is
as follows:
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2009 2008
----------------------------------------------------------------------------
Total segment profit $ 92,947 $ 124,238
Add (deduct):
Interest:
Long-term debt (38,698) (2,235)
Other (63) (46)
Income 91 85
----------------------------------------------------------------------------
Earnings before income taxes $ 54,277 $ 122,042
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Trust's operations are carried on in the following geographic locations:
Three months
ended
March 31, Inter-segment
2009 Canada United States International Eliminations Total
----------------------------------------------------------------------------
Revenue $ 210,413 $ 232,308 $ 7,142 $ (1,418) $ 448,445
Total
assets 1,716,078 3,072,433 65,405 -- 4,853,916
----------------------------------------------------------------------------
Three months
ended
March 31, Inter-segment
2008 Canada United States International Eliminations Total
----------------------------------------------------------------------------
Revenue $ 314,402 $ 26,544 $ 2,081 $ (338) $ 342,689
Total
assets 1,766,333 150,025 3,587 -- 1,919,945
----------------------------------------------------------------------------
11. Subsequent Event
On April 20, 2009 Precision announced a series of financing
transactions with a third party to raise approximately $280 million
through a combination of issuing senior unsecured notes, the sale
of 35 million Trust units and issuance of 15 million purchase
warrants. In addition the Trust intends to initiate a Rights
Offering for approximately $103 million that will allow
unitholders, to purchase Trust units at a price of $3 per unit in
their proportionate ownership. The funds are to be used to
refinance and restructure certain of the debt incurred in the
acquisition of Grey Wolf, Inc.
FIRST QUARTER 2009 EARNINGS CONFERENCE CALL AND WEBCAST
Precision Drilling Trust has scheduled a conference call and
webcast to begin promptly at 12:00 noon MT (2:00 p.m. ET) on
Wednesday, April 22, 2009.
The conference call dial in numbers are 1-866-225-0198 or
416-340-8061
A live webcast of the conference call will be accessible on
Precision's website at www.precisiondrilling.com by selecting
"Investor Centre", then "Webcasts". Shortly after the live webcast,
an archived version will be available for approximately 30
days.
An archived recording of the conference call will be available
approximately one hour after the completion of the call until April
29, 2009 by dialing 1-800-408-3053 or 416-695-5800, passcode
7303080#.
About Precision
Precision is a leading provider of safe, high performance energy
services to the North American oil and gas industry. Precision
provides customers with access to an extensive fleet of contract
drilling rigs, service rigs, camps, snubbing units, wastewater
treatment units and rental equipment backed by a comprehensive mix
of technical support services and skilled, experienced
personnel.
Precision is headquartered in Calgary, Alberta, Canada.
Precision Drilling Trust is listed on the Toronto Stock Exchange
under the trading symbol "PD.UN" and on the New York Stock Exchange
under the trading symbol "PDS".
Contacts: David Wehlmann, Executive Vice President, Investor
Relations Precision Drilling Corporation, Administrator of
Precision Drilling Trust 403-716-4575 403-716-4755 (FAX) Precision
Drilling Trust 4200, 150 - 6th Avenue S.W. Calgary, Alberta T2P 3Y7
Website: www.precisiondrilling.com
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