(Canadian dollars except as indicated)
This news release contains "forward-looking information and
statements" within the meaning of applicable securities laws. For a
full disclosure of the forward-looking information and statements
and the risks to which they are subject, see the "Cautionary
Statement Regarding Forward-Looking Information and Statements"
later in this news release.
Precision Drilling Trust ("Precision" or the "Trust") (TSX:
PD.UN) (NYSE: PDS) reported a 30% revenue increase and a 28% rise
in earnings before interest, taxes, loss on asset decommissioning,
depreciation and amortization and foreign exchange ("EBITDA") for
the first quarter of 2010 over the fourth quarter of 2009. These
increases are due to increased activity levels during the first
quarter of this year compared with the fourth quarter of 2009.
Revenue for the first quarter of 2010 totaled $373 million
compared to $448 million for the first quarter of 2009. EBITDA was
$118 million for the first three months of 2010, a decrease of $51
million from the same period of 2009. Precision reported net
earnings of $62 million or $0.22 per diluted unit for the quarter
ended March 31, 2010, an increase of $5 million or 8% compared to
$57 million or $0.28 per diluted unit in the first quarter of 2009.
Pre-tax earnings in the first quarter of 2010 were increased by $20
million for foreign exchange gains or $0.05 per diluted unit after
tax. Results are lower in the first quarter of 2010 compared with
the first quarter of 2009 because of lower average drilling revenue
per day in both Canada and the United States partially offset by
higher Canadian utilization.
Kevin Neveu, Precision's President and Chief Executive Officer
stated: "First quarter 2010 winter drilling season activity levels
in Canada exceeded our expectations and we are pleased to note that
Precision was the most active land driller in North America during
the fourth quarter of 2009 and the first quarter of 2010. Late last
year our expectations for activity levels during the winter season
in Canada were on par with the first quarter of 2009. However, as
the quarter unfolded, activity increased and Precision averaged 38%
more rigs working in the first quarter of 2010 than during the same
period in 2009. This increase was led by an increase in oil related
activity. As pricing for Precision's services are negotiated prior
to the winter drilling season, rates for Canadian drilling services
for the 2010 quarter were approximately 16% below 2009 levels."
"In the United States, activity levels continue to gradually
improve, again with oil related activity leading the way.
Precision's active rig count in the first quarter of 2010 was up
19% over the fourth quarter of last year. Dayrates in the United
States drilling markets have modestly improved from the bottom of
the cycle in mid 2009."
"We are now in the middle of spring break-up in Canada and as
such Precision's Canadian active rig count is down to 33. With over
half of the wells drilled by Precision in Canada being directed
toward oil over the last two quarters, we are encouraged and
believe that the remainder of 2010 activity levels will exceed
those in 2009. In the United States, Precision's active rig count
is currently 87 and we expect our rig count to continue to
increase. If the recent decline in and the generally negative
outlook for natural gas prices persists, there is the potential for
a pullback in gas related activity."
"Precision is poised to seize market opportunities and as such
has signed term contracts with two customers to build two new Super
Single® rigs for deployment in Canada later this year. We are also
in discussion with customers on potential new build opportunities
for rigs in both the United States and Canada for heavy oil
drilling and resource plays such as the Marcellus, Bakken, Horn
River and the Eagle Ford," concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
(stated in thousands of Canadian Three months ended March 31,
dollars, except per unit %
amounts) 2010 2009 Change
----------------------------------------------------------------------------
Revenue $ 373,136 $ 448,445 (16.8)
EBITDA(1) 118,403 169,387 (30.1)
Net earnings 62,017 57,417 8.0
Cash provided by operations 20,624 201,596 (89.8)
Capital spending:
Upgrade capital expenditures 6,796 13,760 (50.6)
Expansion capital expenditures 687 61,162 (98.9)
Proceeds on sale (1,153) (5,942) (80.6)
---------------------------------------
Net capital spending 6,330 68,980 (90.8)
Distributions declared - 6,408 (100.0)
Net earnings per unit:
Basic 0.23 0.30 (23.3)
Diluted 0.22 0.28 (21.4)
Distributions declared per unit $ - $ 0.04 (100.0)
Contract drilling rig fleet 351 380 (7.6)
Drilling rig utilization days:
Canada 10,205 7,482 36.4
United States 6,993 7,409 (5.6)
International 175 180 (2.8)
Service rig fleet 200 229 (12.7)
Service rig operating hours 76,242 64,854 17.6
----------------------------------------------------------------------------
(1) EBITDA is a non-GAAP measure. See "NON-GAAP MEASURES".
FINANCIAL POSITION AND RATIOS
(Stated in thousands of
Canadian dollars, except March 31, December 31, March 31,
ratios) 2010 2009 2009
----------------------------------------------------------------------------
Working capital $ 393,905 $ 320,860 $ 367,483
Working capital ratio 3.8 3.5 2.5
Long-term debt(1) $ 725,721 $ 748,725 $ 1,177,215
Total long-term financial
liabilities $ 748,497 $ 775,418 $ 1,202,665
Total assets $ 4,170,858 $ 4,191,713 $ 4,853,916
Long-term debt to
long-term debt plus
equity ratio 0.22 0.22 0.31
----------------------------------------------------------------------------
(1) Excludes current portion of long-term debt and is net of unamortized
debt issue costs
Revenue in the first quarter of 2010 was 17% lower than the
prior year period. The decrease was due to lower average dayrates
in the United States and Canada in 2010. This decrease was
partially offset by a year-over-year increase in utilization days
in Canada. The mix of drilling rigs working under term contracts
and on high performance well-to-well programs helped partially
mitigate the downward revenue pressure in the quarter. Revenue in
Precision's Contract Drilling Services segment decreased by 20%
while revenue increased 1% in the Canadian based Completion and
Production Services segment.
The Trust reported total EBITDA of $118 million for the first
quarter of 2010 compared with $169 million for the first quarter of
2009. EBITDA is not a recognized financial measure under Generally
Accepted Accounting Principles ("GAAP") see "Non-GAAP Measures" in
this report. EBITDA margin, calculated as EBITDA as a percentage of
revenues, was 32% for the first quarter of 2010 compared to 38% for
the same period in 2009. The six percentage point decline in EBITDA
margin was primarily attributable to lower market pricing for new
work. 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
owns 351 contract drilling rigs, including 202 in Canada, 146 in
the United States and three rigs in international locations and 96
drilling rig camps. Precision's Completion and Production Services
segment includes 200 service rigs, 20 snubbing units, 78 wastewater
treatment units and a broad mix of rental equipment.
During the quarter an average of 113 drilling rigs worked in
Canada and 80 in the United States and Mexico totaling an average
of 193 rigs working. This compares with an average of 138 rigs
working in the fourth quarter of 2009 and 167 rigs in the first
quarter a year ago.
Precision's priorities for 2010 are threefold. The first is to
continue to deliver the high performance, high value level of
services that customers require to drill the technically
challenging wells of today's resource play exploitation. Second,
Precision continues to improve its balance sheet, which provides
financial flexibility and liquidity to be able to seize market
opportunities, our third priority. To that end, Precision has
signed two term contracts with an average length of three years to
build two new Super Single® rigs for two customers for deployment
in Canada. Precision is planning to spend $48 million in 2010 to
upgrade rigs which will increase the marketability of these assets.
All in, Precision's capital expenditure plan for 2010 has been
increased by $47 million and now stands at $122 million.
The Canadian 2010 winter drilling season was characterized by
higher than expected utilization for Precision and the industry. In
the United States, the industry and Precision have experienced
improving utilization as customer spending has increased because of
higher oil commodity prices.
Oil and natural gas prices during the first quarter of 2010 were
higher than a year ago. For the first quarter of 2010 AECO natural
gas spot prices averaged $4.96 per MMBtu, nominally higher than the
first quarter 2009 average of $4.95 per MMBtu. In the United
States, Henry Hub natural gas spot prices averaged US$5.12 per
MMBtu in the first quarter of 2010 an increase of 13% over the
first quarter 2009 average of US$4.55 per MMBtu. West Texas
Intermediate crude oil averaged US$78.58 per barrel during the
quarter compared to US$43.21 per barrel in the same period in
2009.
Summary for the three months ended March 31, 2010:
- Precision continued to improve its balance sheet and reduced
its debt by making a voluntary principal repayment of $12 million
on March 31, 2010. As at March 31, 2010 Precision's debt to
capitalization ratio was 0.22 and Precision had a cash balance of
$132 million and in combination with its revolving credit facility,
continued to carry ample liquidity.
- Operating earnings were $73 million, a decrease of $53 million
or 42% from the first quarter in 2009. Operating earnings were 20%
of revenue, compared to 28% in 2009. Operating earnings margins
were negatively impacted by declines in customer pricing for most
of Precision's service offerings over the same period in 2009.
- Financial charges were $29 million, a decrease of $10 million
from the prior year primarily due to the reduction in long-term
debt during 2009.
- The majority of Precision's credit facilities are denominated
in U.S. dollars. During the quarter the Canadian dollar
strengthened in relation to the U.S. dollar giving rise to most of
the $20 million foreign exchange gain recognized in the
quarter.
- Capital expenditures for the purchase of property, plant and
equipment were $7 million in the first quarter, a decrease of $67
million over the same period in 2009. Capital spending for the
first quarter of 2010 included $1 million on expansionary capital
initiatives and $6 million on the upgrade of existing assets.
- Average revenue per utilization day for contract drilling rigs
decreased in the first quarter of 2010 to US$18,710 from the prior
year first quarter of US$25,154 in the United States and decreased
in Canada from $18,537 in the first three months of 2009 to $15,511
for the first quarter of 2010. The decrease in revenue rates for
the first quarter in the United States reflects the reduction of
rigs working under term contracts, more rigs working under
well-to-well contracts and the mix of turnkey operations. These
figures also include US$4 million in revenue generated from idle
but contracted rigs associated with term customer contracts.
Turnkey revenue for the first quarter of 2010 was US$13 million
generated from 243 utilization days. Within Precision's Completion
and Production Services segment, average hourly rates for service
rigs were $633 in the first quarter of 2010 compared to $731 in the
first quarter of 2009.
- Average operating costs per day for drilling rigs decreased in
the first quarter of 2010 to US$12,149 from the prior year first
quarter of US$14,456 in the United States and from $10,023 to
$8,453 in Canada. The cost decrease in Canada was primarily due to
rig mix as a higher percentage of spot market work for the double
and single rigs which are lower cost rigs and a crew wage reduction
implemented on May 1, 2009. In the United States the decrease was
impacted by 2009 crew wage reductions and less turnkey operations
compared to the prior year whereby there is a larger scope to
drilling costs that the drilling contractor is responsible to
provide and revenue increases accordingly. Within Precision's
Completion and Production Services segment, average hourly
operating costs for service rigs were $461 in the first quarter of
2010 as compared to $527 in the first quarter of 2009.
OUTLOOK
2010 has started with higher drilling activity in Canada than
was forecast and United States drilling activity continues to make
improvements. The global demand for energy is rising as the global
economies are starting to improve and move out of the bottom of the
recession. There is also increased liquidity in the capital markets
as well as higher oil commodity prices which is providing some of
Precision's customers' liquidity to increase drilling programs. The
drilling sector in both Canada and the United States is
experiencing a period of year-over-year improvements in
utilization. According to industry sources, as at April 16, 2010,
the United States active land drilling rig count was up about 54%
from the same period in the prior year while the Canadian drilling
rig count had increased about 65%. Even with the year-over-year
improvements in rig utilization, there has been virtually no change
in spot market dayrates charged to customers in Canada, and only
modest improvements in dayrates in the United States. As drilling
rigs complete term contracts and move to lower dayrate spot market
contracts, Precision's average revenue per working day declines.
This trend is expected to continue until there are meaningful
increases in spot market dayrates.
Precision has a strong portfolio of long-term customer contracts
that help mitigate the effects of lower dayrate spot market
contracts. Precision expects to have an average of approximately 83
rigs committed under term contract in North America in the second
quarter of 2010, an average of 74 rigs contracted for the third
quarter of 2010 and 63 for the fourth quarter of 2010. These term
contract totals include two 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 per rig a year due to the seasonal nature of well
access whereas in the United States they generate about 350
utilization days per rig in most regions.
For all of 2010, Precision expects to have an average of
approximately 75 rigs under term contract, with 37 rigs contracted
in the United States, 37 in Canada and one in Mexico. For 2011,
Precision expects to have an average of 24 rigs in Canada under
term contract and 17 in the United States and Mexico, for a total
of 41 for the full year. As noted earlier in this report, Precision
has added two term contracts for new build Super Single® rigs
expected to go to work in late 2010.
As part of its strategic plan, Precision expects to keep capital
expenditures at levels commensurate with market activity during
2010. Capital expenditures totaled $7 million in the first quarter
of 2010 and are expected to be approximately $122 million for the
full year, with approximately $103 million for upgrade capital and
$19 million for expansion capital. Capital expenditures for rig
tier improvements are included in upgrade capital. Expansion
capital includes two new build Super Single® rigs under contract
for deployment in Canada later this year and additional rental and
wastewater equipment.
Natural gas production in the United States has remained strong
despite the reduction in drilling activity over the last eighteen
months. United States natural gas storage levels are currently near
the upper range of the five-year average but in line with storage
levels of a year ago. This also strongly influences Canadian
activity since Canada exports roughly half of its natural gas
production to the United States. Increase in oil and natural gas
liquids drilling in areas like the Cardium, Bakken and Eagle Ford
have been strong and the United States oil rig count is 148% higher
than it was a year ago. Precision has more equipment working in oil
related plays than at any time in the last 20 years; however,
approximately 60% of Precision's current active rig count is
drilling for natural gas targets. With high storage levels,
consistent production and the view that North America has an
oversupply of natural gas, gas prices have moved down. To date,
there has been little change in customers' natural gas drilling
plans. If low natural gas prices continue, Precision and the North
American drilling industry could see a further reduction in demand
for natural gas drilling. Precision continues to manage its
operations to maximize cash flow, while providing our customers
with high performance, high value services.
Despite near term challenges the future of the global oil and
gas industry remains promising. For Precision, 2010 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) 2010 2009 Change
----------------------------------------------------------------------------
Revenue:
Contract Drilling Services $ 313,461 $ 389,879 (19.6)
Completion and Production Services 63,482 62,975 0.8
Inter-segment eliminations (3,807) (4,409) 13.7
----------------------------------------------------------------------------
$ 373,136 $ 448,445 (16.8)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA:(1)
Contract Drilling Services $ 110,562 $ 155,495 (28.9)
Completion and Production Services 16,589 18,548 (10.6)
Corporate and other (8,748) (4,656) (87.9)
----------------------------------------------------------------------------
$ 118,403 $ 169,387 (30.1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
Three months ended March 31,
(stated in thousands of
Canadian dollars, except %
where indicated) 2010 2009 Change
----------------------------------------------------------------------------
Revenue $ 313,461 $ 389,879 (19.6)
Expenses:
Operating 188,650 216,105 (12.7)
General and administrative 14,249 18,279 (22.0)
----------------------------------------------------------------------------
EBITDA(1) 110,562 155,495 (28.9)
Depreciation 38,450 37,963 1.3
----------------------------------------------------------------------------
Operating earnings(1) $ 72,112 $ 117,532 (38.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a percent
of revenue 23.0% 30.1%
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in Canada $ 15,511 $ 18,537 (16.3)
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in the U.S.(2) US$ 18,710 US$ 25,154 (25.6)
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Includes revenue from idle but contracted rig days and contract
lump sum payouts.
Three months ended March 31,
Canadian onshore
drilling statistics:(1) 2010 2009
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Number of drilling rigs
(end of period) 202 811 224 869
Drilling rig operating days
(spud to release) 9,111 38,399 6,599 28,157
Drilling rig operating day
utilization 50% 53% 33% 36%
Number of wells drilled 940 3,564 793 3,025
Average days per well 9.7 10.8 8.3 9.3
Number of metres drilled (000s) 1,524 5,783 1,092 4,086
Average metres per well 1,621 1,648 1,377 1,351
Average metres per day 167 153 166 145
----------------------------------------------------------------------------
(1) Canadian operations only.
(2) Canadian Association of Oilwell Drilling Contractors ("CAODC") and
Precision - excludes non-CAODC rigs and non-reporting CAODC members.
United States onshore
drilling statistics:(3) 2010 2009
----------------------------------------------------------------------------
Precision Industry(4) Precision Industry(4)
Average number of active land
rigs for quarters ended:
March 31 78 1,297 82 1,287
Year to date average 78 1,297 82 1,287
----------------------------------------------------------------------------
(3) United States lower 48 operations only.
(4) Baker Hughes rig counts.
Contract Drilling Services segment revenue for the first quarter
decreased by 20% to $313 million while EBITDA decreased by 29% to
$111 million compared to the same period in 2009. The decrease in
revenue and EBITDA was due to lower average pricing in both the
United States and Canada partially offset by increased rig
utilization in Canada.
Activity in North America was impacted by increased customer
demand due to improvements in U.S. natural gas prices and global
oil prices. Despite the increase in utilization rates, drilling rig
revenue per utilization day in Canada was down 16% over the prior
year due to declines in spot market dayrates year-over-year and the
flow through to customers of crew field rate reductions in the
second quarter of 2009. During the quarter 27% of Precision's
operating days in Canada were generated from rigs under term
contract compared with 28% in 2009. In the United States the
average drilling utilization dayrate for Precision in the quarter
was down due to fewer rigs working under term contracts and less
turnkey work with an average of three rigs working turnkey compared
to five in the first quarter of 2009. As at the end of the quarter
in the United States there were 40 drilling rigs working under term
contracts and another two 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 2010 were 10,205, an
increase of 36% compared to 7,482 in 2009. Drilling rig activity
for Precision in the United States was only 6% lower than the same
quarter of 2009 due to the recovery of drilling rig activity which
began in the second quarter of 2009. Precision had two rigs working
in Mexico during both periods. Precision's camp and catering
division experienced an activity decrease of 9% over the prior year
first quarter.
Operating costs were 60% of revenue for the quarter compared to
55% for the prior year quarter. The increase was due to the mix of
rigs working as a higher proportion of work was derived from
competitive spot market activity. On a per day basis, operating
costs for the drilling rig division in Canada were 16% lower than
the prior year quarter due to a reduction in crew wages and the
differences in rig mix as 2010 had a higher proportion of days from
single and double rigs which typically require less ancillary
equipment. Operating costs for the quarter in the United States on
a per day basis were down from the comparable period in 2009 due to
lower turnkey activity and a reduction in crew wages.
Depreciation in the Contract Drilling Services segment increased
slightly from the prior year due to the increase in activity in
Canada offset by activity decreases in the United States. Both the
United States and Canadian contract drilling operations use the
unit of production method of calculating depreciation.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
Three months ended March 31,
(stated in thousands of Canadian %
dollars, except where indicated) 2010 2009 Change
----------------------------------------------------------------------------
Revenue $ 63,482 $ 62,975 0.8
Expenses:
Operating 44,652 42,065 6.2
General and administrative 2,241 2,362 (5.1)
----------------------------------------------------------------------------
EBITDA(1) 16,589 18,548 (10.6)
Depreciation 6,001 4,993 20.2
----------------------------------------------------------------------------
Operating earnings(1) $ 10,588 $ 13,555 (21.9)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a percent of
revenue 16.7% 21.5%
----------------------------------------------------------------------------
Well servicing statistics:
Number of service rigs (end of period) 200 229 (12.7)
Service rig operating hours 76,242 64,854 17.6
Service rig operating hour utilization 42% 31%
Service rig revenue per operating hour $ 633 $ 731 (13.4)
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
Completion and Production Services segment revenue for the first
quarter increased by 1% from 2009 to $63 million while EBITDA
declined by 11% to $17 million. The increase in revenue is
attributed to an increase in operating hours partially offset by
lower rates for services rendered while the decrease in EBITDA is
the result of lower rates without a corresponding decrease in
variable costs.
Service rig activity increased 18% from the prior year period,
with the service rig fleet generating 76,242 operating hours in the
first quarter of 2010 compared with 64,854 hours in the prior year
quarter for utilization of 42% and 31%, respectively. The increase
was a result of higher service rig demand on production maintenance
of existing wells with an emphasis on oil wells. New well
completions accounted for 23% of service rig operating hours in the
first quarter compared to 32% in the same quarter in 2009. There
were 3,134 well completions in Canada in the first quarter of 2010,
a 29% decrease from 4,439 wells in the same quarter in 2009.
Average service revenue per operating hour decreased $98 from
the prior year period due to the current competitive nature of the
industry and lower ancillary revenue due to decreased boiler
activity.
Lower revenue rates were partially offset by lower crew wages
but ultimately led to an increase in operating expenses as a
percent of revenue from 67% in the first quarter of 2009 to 70% for
the same period in 2010. Operating costs per operating hour have
decreased over the comparable period in 2009 due primarily to lower
wages and cost reduction initiatives.
Depreciation in the Completion and Production Services segment
in the first quarter of 2010 was 20% higher than the prior year in
line with higher equipment utilization.
SEGMENT REVIEW OF CORPORATE AND OTHER
Corporate and other expenses increased by 88% to $9 million in
the first quarter of 2010 compared to $5 million in the same period
of 2009. The increase was primarily due to the difference in
employee incentive compensation expense.
OTHER ITEMS
Net financial charges were $29 million for the first quarter of
2010 which was down from $39 million when compared to the prior
year quarter. The decrease is attributable to the significant
reduction in long-term debt that was realized during 2009.
The Trust had a foreign exchange gain of $20 million during the
first quarter of 2010 due to the strengthening in the Canadian
dollar versus the United States dollar, as the majority of the
Trust's credit facilities are denominated in United States
dollars.
The Trust's effective tax rate on earnings before income taxes
for the first three months of 2010 was 3% compared to a recovery of
7% for the same period in 2009. The income tax recovery in 2009 was
primarily a result of tax deductions available in excess of taxable
earnings.
LIQUIDITY AND CAPITAL RESOURCES
In February 2010, Precision announced its intention to convert
to a corporation pursuant to a plan of arrangement under the
Business Corporations Act of Alberta. Precision will be seeking
approval for the conversion from its unitholders in conjunction
with its 2010 annual and special meeting of unitholders scheduled
for May 11, 2010. An information circular and proxy statement have
been mailed to unitholders in connection with the meeting. To be
implemented, the conversion to a corporation must be approved by
not less than two-thirds of the votes cast by unitholders at the
annual and special meeting. If approved, it is anticipated that the
conversion will be completed by June 1, 2010.
The oilfield services business is inherently cyclical in nature.
Precision employs a disciplined approach to minimize costs through
operational management practices and a variable cost structure, and
to maximize revenues through term contract positions with a focus
of maintaining a strong balance sheet. This operational discipline
provides Precision with the financial flexibility to capitalize on
strategic acquisition and internal growth opportunities at all
points in the business cycle.
Operating within a highly variable cost structure, Precision's
maintenance capital expenditures are tightly governed by and highly
responsive to activity levels with additional cost savings leverage
provided through Precision's internal manufacturing and supply
divisions. Expansion capital for new rig build programs require 2 -
5 year term contracts in order to mitigate capital recovery risk.
Analysis of current market opportunities and trends led Precision
to increase its anticipated capital expenditures by $47 million to
a total of $122 million in 2010.
In managing foreign exchange risk, Precision matches the
currency of its debt obligations with the currency of the
supporting operations cash flows. Interest rate risk is managed
through hedging activities.
During the first quarter of 2010 Precision used $102 million in
operating cash inflow to fund an $82 million increase in non-cash
working capital, $6 million in net capital spending and $12 million
in long-term debt reduction. Liquidity remains sufficient as
Precision had a cash balance of $132 million and the US$260 million
revolver in its secured facility remains undrawn except for $28
million in outstanding letters of credit as at March 31, 2010. In
addition to the secured facility, Precision has available a $25
million operating facility which is used for working capital
management and the issuance of letters of credit. During the
current quarter, working capital increased by $73 million over the
fourth quarter of 2009 to $394 million.
In the first quarter of 2010 Precision made a voluntary
prepayment of the secured facility of $12 million. Precision will
consider further voluntary long-term debt reduction as industry
fundamentals stabilize and operating cash flow forecasts become
clearer. As at March 31, 2010, approximately $678 million was
outstanding under the secured facility and $175 million was
outstanding under the unsecured facility. The blended cost of
Precision's debt is approximately 8.4%.
As at March 31, 2010 the Trust was in compliance with the
covenants under the secured facility. Precision expects to remain
in compliance with financial covenants under its secured facility
and expects to have complete access to credit lines during 2010.
The secured facility contains customary covenants including three
financial covenants: a leverage ratio; interest coverage ratio; and
fixed charge coverage ratio. During the first quarter of 2010
Precision successfully negotiated with lenders to amend certain
covenants and terms contained in the secured facility. These
amendments included an increase in the leverage ratio test to 3.5:1
through December 31, 2011, a decrease in the interest coverage
ratio test to 2.75:1 through December 31, 2011 and the removal of
the restrictions on expansion related capital expenditures
(limitations on total capital expenditures remained unchanged).
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of
Canadian dollars, except
per unit amounts)
2009 2010
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Revenue $ 209,597 $ 253,337 $ 286,067 $ 373,136
EBITDA(1) 59,260 85,739 92,615 118,403
Net earnings: 57,475 71,696 (24,885) 62,017
Per basic unit(2) 0.23 0.26 (0.09) 0.23
Per diluted unit(2) 0.22 0.25 (0.09) 0.22
Cash provided by
continuing operations 212,554 19,948 70,631 20,624
Distributions to
unitholders -
declared $ - $ - $ - $ -
----------------------------------------------------------------------------
2008 2009
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Revenue $ 138,514 $ 285,639 $ 335,049 $ 448,445
EBITDA(1) 35,574 118,820 134,795 169,387
Net earnings: 21,739 82,349 92,376 57,417
Per basic unit(2) 0.16 0.61 0.67 0.30
Per diluted unit(2) 0.16 0.61 0.66 0.28
Cash provided by
continuing operations 200,458 3,241 82,904 201,596
Distributions to
unitholders -
declared $ 49,045 $ 49,046 $ 77,551 $ 6,408
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Earnings per basic and diluted unit have been adjusted to reflect the
rights offering completed in the second quarter of 2009.
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 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, to EBITDA.
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2010 2009
----------------------------------------------------------------------------
EBITDA $ 118,403 $ 169,387
Add (deduct):
Depreciation and amortization (45,634) (43,949)
Foreign exchange gain (loss) 19,752 (32,491)
Finance charges (28,729) (38,670)
Income taxes (1,775) 3,140
----------------------------------------------------------------------------
Net earnings $ 62,017 $ 57,417
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Earnings
Management believes that in addition to net earnings, operating
earnings as reported in the Consolidated Statements of Earnings and
Retained Earnings 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) 2010 2009
----------------------------------------------------------------------------
Operating earnings $ 72,769 $ 125,438
Add (deduct):
Foreign exchange gain (loss) 19,752 (32,491)
Finance charges (28,729) (38,670)
Income taxes (1,775) 3,140
----------------------------------------------------------------------------
Net earnings $ 62,017 $ 57,417
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND
STATEMENTS
Certain statements contained in this report, 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 following: global demand for
energy is rising; the rig count will continue to increase; the
remainder of 2010 activity levels will exceed 2009 levels; United
States activity levels will continue to improve with oil-related
activity leading the way; the potential for further reduction in
natural gas drilling and related activity; the marketability of
upgraded rigs; the number of rigs under term contract and the trend
to move to spot market dayrates upon expiry; and capital
expenditure will remain at levels commensurate with market
activity.
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;
fluctuations in the level of oil and natural gas exploration and
development activities; fluctuations in the demand for contract
drilling, well servicing and ancillary oilfield services; capital
market liquidity available to fund customer drilling programs; the
effects of seasonal and weather conditions on operations and
facilities; the existence of competitive operating risks inherent
in contract drilling, well servicing and ancillary oilfield
services; general economic, market or business conditions; changes
in laws or regulations; the availability of qualified personnel,
management or other key inputs; currency exchange fluctuations; 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 report 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) 2010 2009
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 132,018 $ 130,799
Accounts receivable 367,759 283,899
Income tax recoverable 23,530 25,753
Inventory 9,149 9,008
----------------------------------------------------------------------------
532,456 449,459
Income tax recoverable 64,579 64,579
Property, plant and equipment, net of
accumulated depreciation 2,824,633 2,913,966
Intangibles 2,739 3,156
Goodwill 746,451 760,553
----------------------------------------------------------------------------
$ 4,170,858 $ 4,191,713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 138,107 $ 128,376
Current portion of long-term debt (note 5) 444 223
----------------------------------------------------------------------------
138,551 128,599
Long-term liabilities 22,776 26,693
Long-term debt (note 5) 725,721 748,725
Future income taxes 689,304 703,195
----------------------------------------------------------------------------
1,576,352 1,607,212
----------------------------------------------------------------------------
Contingencies (note 9)
Unitholders' equity:
Unitholders' capital (note 3) 2,770,708 2,770,708
Contributed surplus 5,459 4,063
Retained earnings 169,244 107,227
Accumulated other comprehensive loss (note 6) (350,905) (297,497)
----------------------------------------------------------------------------
2,594,506 2,584,501
----------------------------------------------------------------------------
$ 4,170,858 $ 4,191,713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
Three months ended March 31,
(Stated in thousands of Canadian dollars,
except per unit amounts) 2010 2009
----------------------------------------------------------------------------
Revenue $ 373,136 $ 448,445
Expenses:
Operating 229,495 253,761
General and administrative 25,238 25,297
Depreciation and amortization 45,634 43,949
Foreign exchange (19,752) 32,491
Finance charges (note 8) 28,729 38,670
----------------------------------------------------------------------------
Earnings before income taxes 63,792 54,277
Income taxes: (note 4)
Current 1,797 8,661
Future (reduction) (22) (11,801)
----------------------------------------------------------------------------
1,775 (3,140)
----------------------------------------------------------------------------
Net earnings 62,017 57,417
Retained earnings (deficit), beginning of period 107,227 (48,068)
Distributions declared - (6,408)
----------------------------------------------------------------------------
Retained earnings, end of period $ 169,244 $ 2,941
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per unit: (note 10)
Basic $ 0.23 $ 0.30
Diluted $ 0.22 $ 0.28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2010 2009
----------------------------------------------------------------------------
Net earnings $ 62,017 $ 57,417
Unrealized gain (loss) recorded on translation
of assets and liabilities of self-sustaining
operations in foreign currency (53,408) 52,833
----------------------------------------------------------------------------
Comprehensive income $ 8,609 $ 110,250
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2010 2009
----------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings $ 62,017 $ 57,417
Adjustments and other items not involving cash:
Long-term compensation plans 4,572 (2,524)
Depreciation and amortization 45,634 43,949
Future income taxes (22) (11,801)
Unrealized foreign exchange (18,346) 34,682
Amortization of debt issue costs (note 8) 10,055 6,281
Other (1,637) -
Changes in non-cash working capital balances (81,649) 73,592
----------------------------------------------------------------------------
20,624 201,596
Investments:
Purchase of property, plant and equipment (7,483) (74,922)
Proceeds on sale of property, plant and
equipment 1,153 5,942
Changes in non-cash working capital balances 556 (12,375)
----------------------------------------------------------------------------
(5,774) (81,355)
Financing:
Repayment of long-term debt (12,188) (362,539)
Debt issue costs - (14,753)
Distributions paid - (27,233)
Increase in long-term debt - 141,621
Issuance of trust units, net of issue costs - 206,890
Change in non-cash working capital balances - 1,700
----------------------------------------------------------------------------
(12,188) (54,314)
----------------------------------------------------------------------------
Effect on exchange rate changes on cash and cash
equivalents (1,443) 2,395
----------------------------------------------------------------------------
Increase in cash and cash equivalents 1,219 68,322
Cash and cash equivalents, beginning of period 130,799 61,511
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 132,018 $ 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, 2009. 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, 2009.
2. Seasonality of Operations
The Trust has operations that are carried on in Canada which
represent approximately 40% (2009 - 35%) of consolidated total
assets as at March 31, 2010 and 62% (2009 - 47%) of consolidated
revenue for the three months ended March 31, 2010. 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 in this region.
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, 2009 and March 31, 2010 275,516,778 $ 2,769,338
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exchangeable LP units Number Amount
----------------------------------------------------------------------------
Balance December 31, 2009 and March 31, 2010 118,820 $ 1,370
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Summary Number Amount
----------------------------------------------------------------------------
Trust units 275,516,778 $ 2,769,338
Exchangeable LP units 118,820 1,370
----------------------------------------------------------------------------
Unitholders'capital 275,635,598 $ 2,770,708
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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,
2010 2009
----------------------------------------------------------------------------
Earnings before income taxes $ 63,792 $ 46,977
Federal and provincial statutory rates 28% 29%
----------------------------------------------------------------------------
Tax at statutory rates $ 17,862 $ 13,623
Adjusted for the effect of:
Non-deductible expenses 2,865 5,133
Non-taxable capital gains (1,248) -
Income taxed at lower rates (20,773) (22,819)
Income to be distributed to unitholders, not
subject to tax in the Trust - (1,444)
Other 3,069 2,367
----------------------------------------------------------------------------
Income tax expense (reduction) $ 1,775 $ (3,140)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Effective income tax rate 3% (7)%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Long-Term Debt
March 31, December 31,
2010 2009
----------------------------------------------------------------------------
Secured facility:
Term Loan A $ 275,945 $ 288,887
Term Loan B 402,364 422,097
Revolving credit facility - -
Unsecured senior notes 175,000 175,000
----------------------------------------------------------------------------
853,309 885,984
Less net unamortized debt issue costs (127,144) (137,036)
----------------------------------------------------------------------------
726,165 748,948
Less current portion (444) (223)
----------------------------------------------------------------------------
$ 725,721 $ 748,725
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At March 31, 2010 the Term Loan A facility consists of a term
A-1 facility denominated in U.S. dollars in the amount of US$253.0
million and a term A-2 facility denominated in Canadian dollars in
the amount of $19.0 million. During the three months ended March
31, 2010 Precision made optional principal repayments of US$4.5
million on the term A-1 facility and $0.3 million on the term loan
A-2 facility.
At March 31, 2010 the Term Loan B facility consists of a term
loan B-1 facility and a term loan B-2 facility denominated in U.S.
dollars in the amounts of US$308.8 million and US$87.4 million,
respectively. During the three months ended March 31, 2010
Precision made optional principal repayments of US$7.1 million on
the Term Loan B facility.
During the first quarter of 2010 Precision successfully
negotiated with lenders to amend certain covenants and terms
contained in the Secured Facility. These amendments included an
increase in the leverage ratio test to 3.5:1 through December 31,
2011, a decrease in the interest coverage ratio test to 2.75:1
through December 31, 2011 and the removal of the restrictions on
expansion related capital expenditures (limitations on total
capital expenditures remained unchanged).
At March 31, 2010 mandatory principal repayments are as follows:
For the twelve month periods ended March 31,
----------------------------------------------------------------------------
2011 $ 444
2012 37,067
2013 74,739
2014 214,776
2015 409,617
Thereafter 116,666
----------------------------------------------------------------------------
6. Accumulated Other Comprehensive Loss
----------------------------------------------------------------------------
Balance, December 31, 2009 $ (297,497)
Unrealized foreign currency translation loss (53,408)
----------------------------------------------------------------------------
Balance, March 31, 2010 $ (350,905)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. Unit Based Compensation Plans
(a) Officers and Employees
During 2009 Precision introduced two new unit based incentive
plans to replace the Performance Saving Plan and the Long-Term
Incentive Plan. Under the Restricted Trust Unit incentive plan
units granted to eligible employees vest annually over a three year
term. Vested units are automatically paid out in cash in the first
quarter of the year following vesting at a value determined by the
fair market value of the units as at December 31 of the vesting
year. Under the Performance Trust Unit incentive plan units granted
to eligible employees vest at the end of a three year term. Vested
units are automatically paid out in cash in first quarter following
the vested term at a value determined by the fair market value of
the units at December 31 of the vesting year and based on the
number of performance units held multiplied by a performance factor
that ranges from zero to two times. The performance factor is based
on Precision achieving a predetermined rate of return on capital
employed compared to a peer group over the three year period. As at
March 31, 2010 $2.6 million is included in accounts payable and
$4.9 million in long-term liabilities for the plans. Included in
net earnings for the three months ended March 31, 2010 is an
expense of $2.8 million (2009 - $nil).
Notwithstanding that the Performance Savings Plan was replaced
in 2009, certain liabilities continue to exist as eligible
participants were able to 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 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, 2009 245,916
Redeemed on employee resignations and withdrawals (25,174)
----------------------------------------------------------------------------
Balance, March 31, 2010 220,742
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at March 31, 2010 $1.7 million is included in accounts
payable and accrued liabilities for outstanding DTUs. Included in
net earnings for the three months ended March 31, 2010 is an
expense recovery of $0.1 million (2009 - $0.4 million expense
recovery).
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, 2010 and 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, 2010 $0.5 million is included in accounts payable and
accrued liabilities for the 68,250 outstanding DTUs. Included in
net earnings for the three months ended March 31, 2010 is an
expense of $11,000 (2009 - $0.9 million expense recovery).
(c) Non-management directors
The Trust has a deferred trust unit plan 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, 2009 290,732
Granted 33,245
----------------------------------------------------------------------------
Balance, March 31, 2010 323,977
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended March 31, 2010 the Trust expensed
$258,000 (2009 - $545,000) as unit based compensation, with a
corresponding increase in contributed surplus.
(d) Option plan:
The Trust has a unit option plan under which a combined total of
11,103,500 options to purchase units are reserved to be granted to
employees. Of the amount reserved, 3,782,700 options have been
granted. Under this plan, the exercise price of each option equals
the fair market value of the option at the date of grant determined
by the weighted average trading price for the five days preceding
the grant. The options vests over a period of three years from the
date of grant as employees render continuous service to the Trust
and have a term of seven years.
A summary of the status of the equity incentive plan as at March 31, 2010 is
presented below:
Weighted
Range of average
Options exercise exercise Options
outstanding price price exercisable
----------------------------------------------------------------------------
Outstanding as at
December 31, 2009 1,787,700 $ 5.03 - 7.26 $ 5.58 -
Granted 1,853,500 8.18 - 8.59 8.41 -
Forfeitures (45,000) 5.03 - 8.59 6.59 -
----------------------------------------------------------------------------
Outstanding as at
March 31, 2010 3,596,200 $ 5.03 - 8.59 $ 7.05 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The per unit weighted average fair value of the unit options
granted during 2010 was $3.89 estimated on the grant date using the
Black-Scholes option pricing model with the following assumption:
average risk-free interest rate 2.2%, average expected life of four
years, expected forfeiture rate of 5% and expected volatility of
58%. Included in net earnings for the three months ended March 31,
2010 is an expense of $1.2 million (2009 - $nil).
8. Finance Charges
The following table provides a summary of the finance charges:
Three months ended March 31, 2010 2009
----------------------------------------------------------------------------
Interest:
Long-term debt $ 18,718 $ 32,418
Other 19 63
Income (63) (91)
Amortization of debt issue costs 9,069 6,280
Accelerated amortization of debt issue costs
from voluntary debt repayments 986 -
----------------------------------------------------------------------------
Finance charges $ 28,729 $ 38,670
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. 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 $403 million,
including the estimated amount pertaining to the long-term income
tax recoverable.
10. 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, 2010 2009
----------------------------------------------------------------------------
Net earnings - basic $ 62,017 $ 57,417
Impact of assumed conversion of convertible debt,
net of tax - 1,723
----------------------------------------------------------------------------
Net earnings - diluted $ 62,017 $ 59,140
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended March 31, 2010 2009
----------------------------------------------------------------------------
Weighted average units outstanding - basic 275,636 181,149
Effect of rights offering - 12,974
----------------------------------------------------------------------------
Weighted average units outstanding - basic 275,636 194,123
Effect of trust unit warrants 9,359 -
Effect of stock options and other equity
compensation plans 674 76
Effect of convertible debt - 15,586
Effect of rights offering - 1,122
----------------------------------------------------------------------------
Weighted average units outstanding - diluted 285,669 210,907
----------------------------------------------------------------------------
----------------------------------------------------------------------------
11. 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
Three months Contract and
ended March 31, Drilling Production Corporate Inter-segment
2010 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 313,461 $ 63,482 $ - $ (3,807) $ 373,136
Segment profit
(loss) 72,112 10,588 (9,931) - 72,769
Depreciation
and amortization 38,450 6,001 1,183 - 45,634
Total assets 3,570,586 396,951 203,321 - 4,170,858
Goodwill 634,312 112,139 - - 746,451
Capital
expenditures 5,385 1,043 1,055 - 7,483
----------------------------------------------------------------------------
Completion
Three months Contract and
ended March 31, Drilling Production Corporate Inter-segment
2009 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 389,879 $ 62,975 $ - $ (4,409) $ 448,445
Segment profit
(loss) 117,532 13,555 (5,649) - 125,438
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
----------------------------------------------------------------------------
A reconciliation of segment profit to earnings before income taxes is
as follows:
Three months ended March 31,
2010 2009
----------------------------------------------------------------------------
Total segment profit $ 72,769 $ 125,438
Add (deduct):
Foreign exchange 19,752 (32,491)
Finance charges (28,729) (38,670)
----------------------------------------------------------------------------
Earnings before income taxes $ 63,792 $ 54,277
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Trust's operations are carried on in the following geographic locations:
Three months
ended March 31, United Inter-segment
2010 Canada States International Elimination Total
----------------------------------------------------------------------------
Revenue $ 231,660 $ 136,094 $ 6,234 $ (852) $ 373,136
Total assets 1,662,578 2,454,868 53,412 - 4,170,858
----------------------------------------------------------------------------
Three months
ended March 31, United Inter-segment
2009 Canada States International Elimination 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
----------------------------------------------------------------------------
FIRST QUARTER 2010 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
Thursday, April 22, 2010.
The conference call dial in numbers are 1-877-240-9772 or
416-340-8527
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, 2010 by dialing 1-800-408-3053 or 416-695-5800, passcode
7601204.
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 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, Canada
T2P 3Y7 www.precisiondrilling.com
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