(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 Corporation ("Precision" or the
"Corporation") (TSX:PD) (NYSE:PDS) reported net earnings of $39
million or $0.14 per diluted share for the three months ended
September 30, 2012 compared to net earnings of $83 million or $0.29
per diluted share for the third quarter of 2011. In the quarter
Precision recognized an after tax foreign exchange loss that
reduced net earnings by $4 million and net earnings per diluted
share by $0.01 compared to the prior year when an after tax foreign
exchange gain was recognized that increased net earnings by $25
million and net earnings per diluted share by $0.09.
Revenue for the third quarter of 2012 was $485 million and
earnings before income taxes, other items and depreciation and
amortization ("EBITDA") totalled $151 million compared to $493
million and $186 million, respectively, during the comparable
period in 2011. Third quarter 2012 revenue and EBITDA were lower
than the comparable period in 2011 primarily due to lower industry
activity in Canada and the United States and start-up costs
incurred in international operations.
Third quarter 2012 revenue and EBITDA were higher than the
second quarter 2012 revenue and EBITDA by $103 million and $54
million, respectively, due to the seasonality of oilfield service
activity in Canada known as spring break-up that typically takes
place during the second quarter. This is a time in Canada where
heavy equipment cannot change locations due to road bans and
normally occurs in March to June of each year.
In the Contract Drilling Services segment, average drilling rig
revenue per day increased by US$2,090 to US$23,110 in Precision's
United States operations and by $2,484 to $20,099 in the Canadian
operations in the third quarter of 2012 over the comparable quarter
in 2011. Average revenue per day in the third quarter of 2012
decreased over the second quarter by US$35 and $550 in the United
States and Canadian operations, respectively. Declines in spot
market pricing is the primary reason for the rate decreases from
the second quarter in both the United States and Canada, while
revenue from winter related operations in the second quarter also
contributed to the decrease in Canada.
For the nine months ended September 30, 2012, Precision reported
net earnings of $169 million or $0.59 per diluted share compared to
net earnings of $165 million or $0.57 per diluted share for the
same period of 2011. Revenue for the first nine months of 2012 was
$1,507 million compared to $1,364 million for the corresponding
period of 2011. EBITDA totalled $494 million for the first nine
months of 2012 compared to $465 million in the corresponding period
of 2011. The year-over-year increase in revenue resulted from
higher pricing in the Contract Drilling Services and Completion and
Production Services segments, growth in Precision's international
drilling and growth in the Corporation's directional drilling
businesses partially offset by lower drilling activity levels.
Average drilling rig revenue per utilization day was up 16% in
Canada and up 9% in the United States for the first nine months of
the year when compared with the same period in 2011 while activity,
as measured by drilling utilization days, decreased 12% in Canada
and 5% in the United States.
Precision signed long-term contracts for two specialized new
build service rigs to work for two separate customers in heavy oil
operations in Canada.
Precision is increasing its 2012 capital expenditure plan from
$875 million to $921 million. This increase is primarily due to
expenditures associated with additional rig upgrade contracts and
the two new service rig contracts.
Kevin Neveu, Precision's President and Chief Executive Officer
stated: "Precision's third quarter results reflect weakening North
American customer demand, a muted Canadian seasonal recovery,
continued reductions in dry gas and gas-liquids drilling and a
pause in the rapid growth of oil directed drilling in the North
Dakota Bakken. Despite these challenging market conditions, we
continue to see customer demand through additional long-term
contracts for upgrades of Precision's existing rigs and for
Precision's newly introduced "rack and pinion" heavy oil well
service rig. These additional customer commitments coupled with the
11 contracted new build Super Series drilling rigs deployed during
the third quarter demonstrate our ability to seize market
opportunities backed with firm customer commitments."
"Also, I believe it is important to note, that despite
headwinds, Precision has only two drilling rigs currently
classified as "idle but contracted" and we have not experienced any
early contract terminations this year. I remain pleased that
Precision's High Performance, High Value services continue to
provide leading-edge performance for our customers in their quest
to improve drilling efficiency and reduce total well cost; however,
our value goes well beyond delivering efficiency. Our Precision
rigs and crews deliver the consistency, predictability and
repeatability our customers need to achieve cost reductions while
importantly mitigating the safety and environmental risks which
concern our customers and the communities in which we operate."
"Precision continues to make investments in our people,
technology and systems, and as of today, we have delivered 51 Super
Series rigs since the beginning of 2010 and upgraded approximately
35 existing rigs. Precision now has 171 Tier 1 rigs in our fleet,
compared to 109 at the beginning of 2010. The fleet enhancement
over the past few years is one example of our commitment to
delivering High Performance, High Value services to our
customers."
"This past quarter, the seasonal recovery in drilling activity
never fully materialized with Canadian industry drilling activity
down 29 percent from this time last year. The U.S. industry rig
count is down 10 percent from this time last year and down seven
percent since the beginning of the third quarter. Across North
America, and despite healthy oil prices, we have seen a reduction
in demand from our customers as they have moderated spending during
the second half of the year in an effort to operate within stated
2012 budgets."
"Despite current market pressures, Precision remains focused on
ensuring we deliver High Performance, High Value services that we
know are critical to our customers in meeting their objectives."
concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
(Stated in
thousands of
Canadian
dollars, except
per share Three months ended Nine months ended
amounts) September 30, September 30,
% %
2012 2011 Change 2012 2011 Change
----------------------------------------------------------------------------
Revenue $484,761 $492,944 (1.7) $1,506,793 $1,363,619 10.5
EBITDA(1) 151,000 186,248 (18.9) 493,766 465,225 6.1
Net earnings 39,357 83,468 (52.8) 168,699 165,431 2.0
Cash provided by
operations 61,183 20,281 201.7 498,969 313,915 59.0
Funds provided
by
operations(1) 146,124 73,182 99.7 456,236 336,285 35.7
Capital
spending:
Expansion
capital
expenditures 177,783 136,591 30.2 473,131 234,107 102.1
Upgrade capital
expenditures 23,166 45,619 (49.2) 107,388 93,733 14.6
Maintenance and
infrastructure
capital
expenditures 37,701 37,466 0.6 100,888 70,530 43.0
Proceeds on
sale (5,011) (4,610) 8.7 (13,820) (8,694) 59.0
----------------------------------------------------------------------------
Net capital
spending 233,639 215,066 8.6 667,587 389,676 71.3
Business
acquisitions
(net of cash
acquired) - 59,709 (100.0) 25 92,886 (100.0)
Net earnings -
per share:
Basic 0.14 0.30 (53.3) 0.61 0.60 1.7
Diluted 0.14 0.29 (51.7) 0.59 0.57 3.5
Contract
drilling rig
fleet 363 366 (0.8) 363 366 (0.8)
Drilling rig
utilization
days:
Canada 7,735 10,505 (26.4) 24,110 27,246 (11.5)
United States 8,305 9,716 (14.5) 26,583 28,053 (5.2)
International 736 177 315.8 1,319 530 148.9
Service rig
fleet 213 220 (3.2) 213 220 (3.2)
Service rig
operating
hours(2) 72,766 86,146 (15.5) 217,368 229,301 (5.2)
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
(2) Prior year comparatives have changed to include United
States based service rig activity.
FINANCIAL POSITION AND RATIOS
(Stated in thousands of Canadian dollars, except September 30, December 31,
ratios) 2012 2011
----------------------------------------------------------------------------
Working capital $ 323,653 $ 610,429
Long-term debt(1) $ 1,206,425 $ 1,239,616
Total long-term financial liabilities $ 1,232,220 $ 1,267,040
Total assets $ 4,506,689 $ 4,427,874
Long-term debt to long-term debt plus equity
ratio(1) 0.34 0.37
----------------------------------------------------------------------------
(1) Net of unamortized debt issue costs.
Revenue in the third quarter of 2012 was $8 million lower than
the prior year period. The decrease was mainly due to a
year-over-year decrease in drilling utilization days in both Canada
and the United States partially offset by higher drilling rig
revenue per day in both Canada and the United States. In addition,
Precision experienced a four-fold increase in international
drilling rig activity with an average of eight rigs working during
the quarter compared with two in the prior year period. Revenue in
Precision's Contract Drilling Services segment decreased by 1%
while revenue decreased 7% in the Completion and Production
Services segment in the third quarter of 2012 compared to the prior
year.
EBITDA margin (EBITDA as a percentage of revenue) was 31% for
the third quarter of 2012 compared to 38% for the same period in
2011. The decrease in EBITDA margin for the quarter was primarily
attributable to lower equipment utilization and higher costs offset
partially by higher average dayrates in both Canada and the United
States. Higher operating costs in the quarter were the result of
crew labour costs and increased maintenance costs in the United
States and start-up costs internationally. Precision's term
contract position with customers, a highly variable operating cost
structure and economies achieved through vertical integration of
the supply chain continue to support EBITDA margins.
In the Contract Drilling Services segment, Precision currently
owns 365 contract drilling rigs, including 203 in Canada, 154 in
the United States and eight rigs in international locations and the
capacity to run concurrently 90 directional drilling jobs.
Precision's Completion and Production Services segment includes 190
service rigs, 19 snubbing units, four coil tubing units, 107
wastewater treatment units, 67 drilling and base camps and a broad
mix of rental equipment.
During the quarter, an average of 84 drilling rigs worked in
Canada, 90 worked in the United States and eight worked
internationally totalling an average of 182 rigs. This compares
with an average of 222 rigs in the third quarter a year ago.
Oil prices were higher and natural gas prices were lower during
the third quarter of 2012 compared with the year ago period. For
the third quarter of 2012, West Texas Intermediate crude oil
averaged US$92.26 per barrel, 3% higher when compared to US$89.59
per barrel in the same period in 2011. AECO natural gas spot prices
averaged $2.28 per MMBtu, 38% lower than the third quarter 2011
average of $3.66 per MMBtu. In the United States, Henry Hub natural
gas spot prices averaged US$2.88 per MMBtu in the third quarter of
2012, a decrease of 30% over the third quarter 2011 average of
US$4.12 per MMBtu.
Summary for the three months ended September 30, 2012:
-- Operating earnings were $74 million and 15% of revenue, compared to $122
million and 25% of revenue in the third quarter of 2011. Operating
earnings were negatively impacted by higher depreciation costs
associated with new depreciation policies on Tier 3 rigs and newer
equipment in our Contract Drilling and Completion and Production
services segments, the decrease in activity in Precision's United States
and Canadian drilling operations, start-up costs internationally and
higher labour and maintenance costs in the United States operations. In
general, activity in Canada was down from the prior year due to
unusually wet weather in the western Canada sedimentary basin continuing
into July as well as spending restraint exhibited by our customers.
-- General and administrative expenses were $33 million, an increase of $9
million from the third quarter of 2011, due to incremental costs
associated with growth in international and directional drilling
activity along with additional costs associated with incentive
compensation tied to the price of Precision's common shares.
-- Finance charges were $22 million, a decrease of $12 million from the
third quarter of 2011 due to interest expense associated with Canadian
income tax settlements in the prior year of $15 million partially offset
by an increase in the average long-term debt balance.
-- Capital expenditures for the purchase of property, plant and equipment
were $239 million in the third quarter, an increase of $19 million over
the same period in 2011. Capital spending for the third quarter of 2012
included $178 million for expansion capital, $23 million for upgrade
capital and $38 million for the maintenance of existing assets and
infrastructure.
-- Average revenue per utilization day for contract drilling rigs increased
in the third quarter of 2012 to US$23,110 from the prior year third
quarter of US$21,020 in the United States and increased in Canada to
$20,099 in the third quarter of 2012 from $17,615 for the prior year
period. The increase in revenue rates for the third quarter in Precision
reflects the higher percentage of utilization days realized from Tier 1
rigs relative to total days and the pass through of increased labour
costs. In the United States, for the third quarter of 2012, 73% of
Precision's working rigs were working under term contracts compared to
79% in the 2011 comparative period. Turnkey revenue for the third
quarter of 2012 was US$10 million compared with US$7 million in 2011.
Within Precision's Completion and Production Services segment, average
hourly rates for service rigs were $734 in the third quarter of 2012
compared to $683 in the third quarter of 2011.
-- Average operating costs per utilization day for drilling rigs increased
in the third quarter of 2012 to US$14,816 from the prior year period of
US$12,467 in the United States and increased in Canada to $9,828 in the
third quarter of 2012 from $8,922. The cost increase in the United
States was primarily due to crew labour cost increases and higher repair
and maintenance costs. The cost increase in Canada was primarily due to
a labour rate increase that became effective in the fourth quarter of
2011. Within Precision's Completion and Production Services segment,
average hourly operating costs for service rigs in Canada increased to
$519 in the third quarter of 2012 as compared to $484 in the third
quarter of 2011, primarily due to a labour rate increase and higher fuel
costs. Typically labour rate increases are recovered in dayrate
increases.
-- Precision realized revenue from directional services of $33 million in
the third quarter of 2012 compared with $21 million in the prior year
period.
-- Funds provided by operations in the third quarter of 2012 were $146
million, an increase of $73 million from the prior year quarter of $73
million.
Summary for the nine months ended September 30, 2012:
-- Revenue for the first nine months of 2012 was $1,507 million, an
increase of 10% from the 2011 period.
-- Operating earnings were $276 million, a decrease of $9 million or 3%
from 2011. Operating earnings were 18% of revenue in 2012 compared to
21% in 2011.
-- General and administrative costs were $97 million, an increase of $7
million over the first nine months of 2011 primarily due to incremental
costs associated with the growth in international and directional
drilling activity partially offset by a decrease in incentive
compensation costs tied to the performance of Precision's common shares.
-- Finance charges were $65 million, a decrease of $27 million from the
first nine months of 2011 due to the 2011 charge of $27 million for the
make-whole premium from refinancing a previously outstanding debt and
interest expense associated with Canadian income tax settlements offset
by higher interest costs from an increased average long-term debt
balance.
-- Funds provided by operations in the first nine months of 2012 were $456
million, an increase of $120 million from the prior year comparative
period of $336 million.
-- Capital expenditures for the purchase of property, plant and equipment
were $681 million in the first nine months of 2012, an increase of $283
million over the same period in 2011. Capital spending for 2012 to date
included $473 million for expansion capital, $107 million for upgrade
capital and $101 million for the maintenance of existing assets and
infrastructure.
OUTLOOK
Precision has a strong portfolio of long-term customer contracts
that provides a base level of activity and revenue. Precision has
an average of 119 rigs committed under term contracts for the
fourth quarter of 2012, an average of 100 rigs contracted for the
first quarter of 2013 and 91 for the second quarter of 2013. In
Canada, term contracted rigs normally generate 250 utilization days
per rig year due to the seasonal nature of well access, whereas in
the United States and international they usually generate 365
utilization days per rig year in most regions.
Capital expenditures are expected to be approximately $921
million for 2012, of which $681 million has been expended during
the first nine months of 2012. The expected 2012 total includes
$139 million for sustaining and infrastructure expenditures and is
based upon currently anticipated activity levels for 2012.
Additionally, $631 million is slated for expansion capital and
includes the cost to complete the drilling rigs from the 2011 new
build rig program and the new build rigs for 2012. The total
capital expenditures also include an estimated $151 million to
upgrade approximately 14 rigs in 2012. These long-lead time items
include top drives, masts and engines, that can be used for North
American or international new build rig opportunities and rig tier
upgrades. Precision expects that the $921 million will be split
$802 million for the Contract Drilling segment and $119 million for
the Completion and Production Services segment. An additional $90
million of committed expansion capital, upgrades in progress and
long-lead commitments are expected to carry forward to 2013.
Demand remains solid for existing Tier 1 Super Series rigs for
both Canada and the United States, however, customer's interest in
contracting new build Super Series rigs has softened. Precision
believes it will have opportunities to contract additional new
build and upgraded rigs in late 2012 and during 2013, although the
pace of contracts awards is likely to be significantly slower than
the pace during 2011. According to industry sources, as at October
19, 2012, the United States active land drilling rig count was down
9% from the prior year period while the Canadian drilling rig count
had decreased about 29%.
Natural gas production in the United States has moderated, but
remains strong despite reduced drilling activity. United States
natural gas storage levels as at October 12, 2012 are 7% above the
five-year average and 5% above storage levels of a year ago. This
strongly influences Canadian activity since Canada has historically
exported a significant portion of its natural gas production to the
United States. The increase in oil and liquids rich natural gas
drilling in areas like the Permian Basin, Bakken and Eagle Ford has
been strong and the United States oil rig count as at October 19,
2012 is 30% higher than it was a year ago. On average, Precision
has more equipment working in oil related plays than at any time in
its history with approximately 84% of Precision's active rig count
drilling for oil targets.
With high storage levels, consistent production and the view
that North America has an oversupply of natural gas, gas prices
have remained at low levels. To date, customer changes in natural
gas drilling plans are reflected in a decline in the rig count
targeting dry gas plays. If low natural gas prices continue,
Precision and the North American drilling industry can expect
continued weak demand for natural gas drilling. However, the
budgets of many of our customers are driven in part by cash flow
from existing hydrocarbon production, which would be positively
influenced by higher gas prices.
SEGMENTED FINANCIAL RESULTS
Precision's operations are reported in two segments; the
Contract Drilling Services segment includes the drilling rig,
directional drilling, oilfield supply and manufacturing divisions;
and the Completion and Production Services segment includes the
service rig, snubbing, coiled tubing, rental, camp and catering and
wastewater treatment divisions.
(Stated in
thousands of
Canadian Three months ended Nine months ended
dollars) September 30, September 30,
% %
2012 2011 Change 2012 2011 Change
----------------------------------------------------------------------------
Revenue:
Contract
Drilling
Services $409,889 $413,131 (0.8) $1,273,136 $1,137,640 11.9
Completion and
Production
Services 77,506 83,153 (6.8) 240,854 234,960 2.5
Inter-segment
eliminations (2,634) (3,340) (21.1) (7,197) (8,981) (19.9)
----------------------------------------------------------------------------
$484,761 $492,944 (1.7) $1,506,793 $1,363,619 10.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA:(1)
Contract
Drilling
Services $146,080 $171,950 (15.0) $ 477,112 $ 448,669 6.3
Completion and
Production
Services 23,143 28,010 (17.4) 71,332 70,694 0.9
Corporate and
other (18,223) (13,712) 32.9 (54,678) (54,138) 1.0
----------------------------------------------------------------------------
$151,000 $186,248 (18.9) $ 493,766 $ 465,225 6.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
(Stated in thousands of Canadian
dollars, except where noted) Three months ended September 30,
2012 2011 % Change
----------------------------------------------------------------------------
Revenue $ 409,889 $ 413,131 (0.8)
Expenses:
Operating 252,556 233,957 7.9
General and administrative 11,253 7,224 55.8
----------------------------------------------------------------------------
EBITDA(1) 146,080 171,950 (15.0)
Depreciation 67,659 56,158 20.5
----------------------------------------------------------------------------
Operating earnings(1) $ 78,421 $ 115,792 (32.3)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a percentage
of revenue 19.1% 28.0%
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in Canada $ 20,099 $ 17,615 14.1
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in the United
States(2) US$ 23,110 US$ 21,020 9.9
----------------------------------------------------------------------------
(Stated in thousands of Canadian
dollars, except where noted) Nine months ended September 30,
2012 2011 % Change
----------------------------------------------------------------------------
Revenue $ 1,273,136 $ 1,137,640 11.9
Expenses:
Operating 765,749 665,035 15.1
General and administrative 30,275 23,936 26.5
----------------------------------------------------------------------------
EBITDA(1) 477,112 448,669 6.3
Depreciation 193,666 156,631 23.6
----------------------------------------------------------------------------
Operating earnings(1) $ 283,446 $ 292,038 (2.9)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a percentage
of revenue 22.3% 25.7%
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in Canada $ 20,699 $ 17,840 16.0
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in the United
States(2) US$ 23,162 US$ 21,302 8.7
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
(2) Includes revenue from idle but contracted rig days and lump
sum payouts.
Three months ended September 30,
Canadian onshore drilling
statistics:(1) 2012 2011
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Number of drilling rigs (end
of period) 202 825 205 810
Drilling rig operating days
(spud to release) 6,957 30,220 9,487 40,763
Drilling rig operating day
utilization 38% 40% 51% 55%
Number of wells drilled 948 3,607 1,005 3,601
Average days per well 7.3 8.4 9.4 11.3
Number of metres drilled
(000s) 1,491 5,853 1,594 6,787
Average metres per well 1,573 1,623 1,586 1,885
Average metres per day 214 194 168 167
----------------------------------------------------------------------------
Nine months ended September 30,
Canadian onshore drilling
statistics:(1) 2012 2011
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Number of drilling rigs (end of
period) 202 825 205 810
Drilling rig operating days
(spud to release) 21,579 93,470 24,393 104,108
Drilling rig operating day
utilization 41% 42% 44% 48%
Number of wells drilled 2,223 7,940 2,492 8,634
Average days per well 9.7 11.8 9.8 12.1
Number of metres drilled (000s) 3,798 15,013 3,936 16,052
Average metres per well 1,708 1,891 1,579 1,859
Average metres per day 176 161 161 154
----------------------------------------------------------------------------
(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:(1) 2012 2011
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Average number of active land
rigs for quarters ended:
March 31 104 1,947 100 1,695
June 30 97 1,924 102 1,803
September 30 90 1,855 106 1,915
----------------------------------------------------------------------------
Year to date average 97 1,909 103 1,805
----------------------------------------------------------------------------
(1) United States lower 48 land operations only.
(2) Baker Hughes rig counts.
Contract Drilling Services segment revenue for the third quarter
of 2012 decreased by 1% to $410 million and EBITDA decreased by 15%
to $146 million compared to the same period in 2011. The decrease
in revenue was due to lower activity for both Canada and the United
States partially offset by higher average rates per day in Canada
and the United States, increased activity internationally and
higher directional drilling revenues. The decrease in EBITDA was
the result of lower activity in Canada and the United States,
start-up costs internationally, lower margin in the United States
as a result of increased crew labour and maintenance costs.
Activity in North America was centered on oil and liquids rich
natural gas related drilling activity. In the third quarter,
drilling rig revenue per utilization day over the prior year was up
14% in Canada and 10% in the United States as a result of increased
rates for rigs working on well-to-well contracts and new build
rigs.
Drilling rig utilization days in Canada (drilling days plus move
days) during the third quarter of 2012 were 7,735, a decrease of
26% compared to 10,505 in 2011 due to lower industry activity with
low natural gas prices and uncertainty in global markets with West
Texas Intermediate crude oil prices dipping below $80 per barrel in
late June. Drilling rig utilization days for Precision in the
United States were 15% lower than the same quarter of 2011 due to a
continued reduction in natural gas targeted drilling. On average,
Precision had eight rigs working internationally as the Saudi
Arabia based business ramped up and Precision had mobilized three
additional rigs into Mexico during the second quarter of 2012.
Contract Drilling Services segment operating costs were 62% of
revenue for the quarter which is five percentage points higher than
the prior year period. Higher operating costs in the quarter were
the result of start-up costs internationally and increased
maintenance costs in the United States. In addition, crew wage
increases in Canada and the United States in the fourth quarter of
2011 contributed to the year-over-year increase.
Quarterly depreciation in the Contract Drilling Services segment
increased 20% from the prior year. As discussed in Management's
Discussion and Analysis for the year ended December 31, 2011,
Precision changed its depreciation policy on certain Tier 3 rigs
from the unit of production method to straight-line over four years
resulting in approximately $6 million in additional depreciation in
the quarter. Additional increases in depreciation are the result of
a greater proportion operating days from our Tier 1 drilling rigs
in 2012 relative to 2011 and depreciation from the growth in
directional drilling and international contract drilling. With the
exception of certain Tier 3 equipment and directional drilling
equipment, contract drilling operations use the unit of production
method of calculating depreciation.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
(Stated in thousands
of Canadian dollars, Three months ended Nine months ended
except where noted) September 30, September 30,
% %
2012 2011 Change 2012 2011 Change
----------------------------------------------------------------------------
Revenue $77,506 $ 83,153 (6.8) $240,854 $234,960 2.5
Expenses:
Operating 50,474 51,750 (2.5) 157,943 153,212 3.1
General and
administrative 3,889 3,393 14.6 11,579 11,054 4.7
----------------------------------------------------------------------------
EBITDA(1) 23,143 28,010 (17.4) 71,332 70,694 0.9
Depreciation 7,640 6,676 14.4 21,775 18,830 15.6
----------------------------------------------------------------------------
Operating earnings(1) $15,503 $ 21,334 (27.3) $ 49,557 $ 51,864 (4.4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as
a percentage of
revenue 20.0% 25.7% 20.6% 22.1%
----------------------------------------------------------------------------
Well servicing
statistics:
Number of service
rigs (end of period) 213 220 (3.2) 213 220 (3.2)
Service rig operating
hours(2) 72,766 86,146 (15.5) 217,368 229,301 (5.2)
Service rig operating
hour utilization(2) 37% 43% 37% 38%
Service rig revenue
per operating
hour(2) $ 734 $ 683 7.5 $ 745 $ 672 10.9
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
(2) Prior year comparatives have changed to include United
States based service rig activity.
Completion and Production Services segment revenue for the third
quarter decreased by 7% from the third quarter of 2011 to $78
million and EBITDA decreased by 17% to $23 million. The decrease in
revenue and EBITDA is attributed to a decrease in activity
partially offset by increased service rig rates.
Well servicing and snubbing activity decreased 16% from the
prior year period, with the fleet generating 72,766 operating hours
in the third quarter of 2012 compared with 86,146 hours in the
prior year quarter for utilization of 37% and 43%, respectively.
The decrease was a result of lower service rig activity compared to
the previous year which had a very active quarter with customers
performing well completion and production work on a backlog of oil
wells from a prolonged spring break-up. Approximately 98% of the
third quarter service rig activity was oil related. New well
completions were 57% lower than the prior year quarter and
accounted for 8% of service rig operating hours in the third
quarter compared to 15% in the same quarter in 2011. Precision's
rental division benefitted from new equipment additions in the
quarter, but utilization for some equipment decreased in
conjunction with lower industry drilling and completion
activity.
Average service rig revenue increased $51 per operating hour to
$734 from the prior year period due to rig mix and increased labour
and operating costs passed through to customers.
Operating costs as a percentage of revenue in the third quarter
of 2012 was 65%, compared to 62% in the same period of 2011.
Operating costs per service rig hour increased over the comparable
period in 2011 primarily due to higher wages and fuel prices.
Depreciation in the Completion and Production Services segment
in the third quarter of 2012 was 14% higher than the prior year due
to the addition of new assets to the service rig, camp and rental
equipment fleet. The well servicing division uses the unit of
production method of calculating depreciation while the other
operating divisions within the Completion and Production Services
segment use the straight-line method.
SEGMENT REVIEW OF CORPORATE AND OTHER
Precision views its corporate segment as support functions that
provide assistance to more than one segment. The Corporate and
other segment had an EBITDA loss of $18 million for the third
quarter of 2012, $5 million more than the prior year comparative
period primarily due to increased costs associated with share based
performance incentive plans.
OTHER ITEMS
Net financial charges for the quarter were $22 million, a
decrease of $12 million from the third quarter of 2011 due to
interest expense associated with Canadian income tax settlements in
the prior year of $15 million partially offset by an increase in
the average long-term debt balance.
Finance charges for the three and nine month periods ended
September 30, 2012 and 2011 are as follows:
Three months ended Nine months ended
September 30, September 30,
(Stated in thousands of Canadian
dollars) 2012 2011 2012 2011
----------------------------------------------------------------------------
Interest:
Long-term debt $ 21,181 $ 18,942 $ 63,818 $ 48,415
Tax settlement and reassessment - 14,621 - 14,621
Other 14 55 109 101
Income (641) (317) (1,621) (735)
Amortization of debt issue costs 1,038 931 3,025 2,462
Loss on settlement of debt
facilities - - - 26,942
Debt amendment fees 149 - 149 1,134
----------------------------------------------------------------------------
Finance charges $ 21,741 $ 34,232 $ 65,480 $ 92,940
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Corporation had a foreign exchange loss of $5 million during
the third quarter of 2012 due to the weakening of the U.S. dollar
versus the Canadian dollar and the impact thereof on the net U.S.
dollar denominated monetary position in the Canadian dollar based
companies.
Precision's effective tax rate on earnings before income taxes
for the nine months ended September 30, 2012 was 18%.
LIQUIDITY AND CAPITAL RESOURCES
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 acquisitions and internal growth opportunities at all
points in the business cycle.
Operating within a variable cost structure, Precision's
maintenance capital expenditures are tightly governed by and
responsive to activity levels with additional cost savings leverage
provided through Precision's internal manufacturing and supply
divisions. Expansion capital for new build rig programs require two
to five year term contracts in order to mitigate capital recovery
risk.
During the quarter Precision amended its senior secured revolver
("Secured Facility") with a syndicate of lenders. The amendment
increases the amount available under the Secured Facility to US$850
million from US$550 million and extends the maturity date from
November 17, 2015 to November 17, 2017. Precision also increased
its operating facilities to $80 million from $40 million in the
quarter.
Liquidity remains sufficient as Precision had a cash balance of
$227 million and the US$850 million Secured Facility remains
undrawn except for US$27 million in outstanding letters of credit
as at September 30, 2012. In addition to the Secured Facility,
Precision has available $80 million in operating facilities which
remain undrawn except for $21 million in outstanding letters of
credit as at September 30, 2012.
As at September 30, 2012 and December 31, 2011 Precision had the
following long-term debt balances:
September 30, December 31,
(Stated in thousands of Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Senior secured revolving credit facility $ - $ -
Unsecured senior notes:
6.625% senior notes due 2020 (US$650
million) 639,405 661,050
6.5% senior notes due 2021 (US$400 million) 393,480 406,800
6.5% senior notes due 2019 200,000 200,000
----------------------------------------------------------------------------
1,232,885 1,267,850
Less net unamortized debt issue costs (26,460) (28,234)
----------------------------------------------------------------------------
$ 1,206,425 $ 1,239,616
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at September 30, 2012, the Corporation was in compliance with
the covenants under the Secured Facility and expects to remain in
compliance with such covenants and have complete access to credit
lines during the remainder of 2012 and for 2013.
The current blended cash interest cost of Precision's debt is
approximately 6.6%.
Precision has designated its U.S. dollar denominated long-term
debt as a hedge of its investment in its United States operations.
To be accounted for as a hedge, the foreign currency denominated
long-term debt must be designated and documented as such and must
be effective at inception and on an ongoing basis.
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian
dollars, except per share
amounts)
2011 2012
----------------------------------------------------------------------------
Quarters ended December 31 March 31 June 30 September 30
----------------------------------------------------------------------------
Revenue $ 587,408 $ 640,066 $ 381,966 $ 484,761
EBITDA(1) 229,839 245,574 97,192 151,000
Net earnings: 28,046 111,081 18,261 39,357
Per basic share 0.10 0.40 0.07 0.14
Per diluted share 0.10 0.39 0.06 0.14
Funds provided by operations(1) 256,103 247,739 62,373 146,124
Cash provided by operations 218,857 162,440 275,346 61,183
----------------------------------------------------------------------------
2010 2011
----------------------------------------------------------------------------
Quarters ended December 31 March 31 June 30 September 30
----------------------------------------------------------------------------
Revenue $ 435,537 $ 525,350 $ 345,325 $ 492,944
EBITDA(1) 144,518 186,411 92,566 186,248
Net earnings (loss): (250) 65,560 16,403 83,468
Per basic share - 0.24 0.06 0.30
Per diluted share - 0.23 0.06 0.29
Funds provided by operations(1) 133,903 192,337 70,766 73,182
Cash provided by operations 75,064 117,322 176,312 20,281
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
ADDITIONAL GAAP MEASURES
Precision uses certain additional GAAP measures that are not
defined terms under IFRS to assess performance and believes these
measures provide useful supplemental information to investors. The
following are the measures Precision uses in assessing
performance.
EBITDA
Management believes that in addition to net earnings (loss),
EBITDA, as derived from information reported in the Interim
Consolidated Statements of 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 or how depreciation and amortization
charges affect results.
Operating Earnings
Management believes that in addition to net earnings (loss),
operating earnings as reported in the Interim Consolidated
Statements of 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 or how the
results are taxed.
Funds Provided by Operations
Management believes that in addition to cash provided by
operations, funds provided by operations, as reported in the
Interim Consolidated Statements of Cash Flow is a useful
supplemental measure as it provides an indication of the funds
generated by Precision's principal business activities prior to
consideration of working capital, which is primarily made up of
highly liquid balances.
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", "continue", "project", "appears", "potential" and
similar expressions and statements relating to matters that are not
historical facts constitute "forward-looking information" within
the meaning of applicable Canadian securities legislation and
"forward-looking statements" within the meaning of the "safe
harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995 (collectively, "forward-looking
information and statements").
In particular, forward-looking information and statements
include, but are not limited to, the following: That Precision will
remain focused on ensuring it delivers High Performance, High Value
services that it knows are critical to its customers in meeting
their objectives; challenging market conditions; Precision's
average number of rigs committed under term contracts; Precision's
expected capital expenditures for 2012 and the anticipated uses of
capital and the timing of such expenditures including the carry
forward to 2013; demand for Super Series rigs; Precision believes
it will have opportunities to contract additional new build and
upgraded rigs in late 2012 and 2013, although the number of
contracts is likely to be significantly lower than the 42 rigs
contracted during 2011; if low natural gas prices continue,
Precision and the North American drilling industry can expect
continued weak demand for natural gas drilling; the producer
budgets of many of Precision's customers are driven in part by cash
flow from existing hydrocarbon production, which would be
positively influenced by higher gas prices; and Precision expects
to remain in compliance with the covenants under the Secured
Facility and have complete access to credit lines during the
remainder of 2012 and for 2013.
These forward-looking information and statements are based on
certain assumptions and analysis made by the Corporation 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 Corporation'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 Corporation'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; availability of cash flow, debt and/or equity
sources to fund the Corporation's capital and operating
requirements, as needed; 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;
interpretation of tax filing position for prior period
transactions; 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 Corporation will be realized or,
even if substantially realized, that they will have the expected
consequences to, or effects on, the Corporation 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 Corporation assumes no obligation to
update publicly any such forward-looking information and
statements, whether as a result of new information, future events
or otherwise.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
September 30, December 31,
(Stated in thousands of Canadian dollars) 2012 2011
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 226,841 $ 467,476
Accounts receivable 496,304 576,243
Inventory 14,541 7,163
----------------------------------------------------------------------------
Total current assets 737,686 1,050,882
Non-current assets:
Income tax recoverable 64,579 64,579
Property, plant and equipment 3,334,704 2,942,296
Intangibles 6,923 6,471
Goodwill 362,797 363,646
----------------------------------------------------------------------------
Total non-current assets 3,769,003 3,376,992
----------------------------------------------------------------------------
Total assets $ 4,506,689 $ 4,427,874
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 371,161 $ 436,667
Income tax payable 42,872 3,786
----------------------------------------------------------------------------
Total current liabilities 414,033 440,453
Non-current liabilities:
Share based compensation 7,164 11,303
Provisions and other 18,631 16,121
Long-term debt 1,206,425 1,239,616
Deferred tax liabilities 567,515 587,790
----------------------------------------------------------------------------
Total non-current liabilities 1,799,735 1,854,830
Shareholders' equity:
Shareholders' capital 2,250,819 2,248,217
Contributed surplus 23,468 18,396
Retained earnings (deficit) 85,539 (83,160)
Accumulated other comprehensive loss (66,905) (50,862)
----------------------------------------------------------------------------
Total shareholders' equity 2,292,921 2,132,591
----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,506,689 $ 4,427,874
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
(Stated in thousands of Canadian
dollars, except per share
amounts) 2012 2011 2012 2011
----------------------------------------------------------------------------
Revenue $484,761 $492,944 $1,506,793 $1,363,619
Expenses:
Operating 300,396 282,367 916,495 809,266
General and administrative 33,365 24,329 96,532 89,128
----------------------------------------------------------------------------
Earnings before income taxes,
other items and depreciation
and amortization 151,000 186,248 493,766 465,225
Depreciation and amortization 76,754 64,504 218,247 180,416
----------------------------------------------------------------------------
Operating earnings 74,246 121,744 275,519 284,809
Other items:
Foreign exchange 5,277 (34,105) 5,610 (31,300)
Finance charges 21,741 34,232 65,480 92,940
Other - - (758) -
----------------------------------------------------------------------------
Earnings before income taxes 47,228 121,617 205,187 223,169
Income taxes:
Current 15,135 38,730 47,160 40,882
Deferred (7,264) (581) (10,672) 16,856
----------------------------------------------------------------------------
7,871 38,149 36,488 57,738
----------------------------------------------------------------------------
Net earnings $ 39,357 $ 83,468 $ 168,699 $ 165,431
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share:
Basic $ 0.14 $ 0.30 $ 0.61 $ 0.60
Diluted $ 0.14 $ 0.29 $ 0.59 $ 0.57
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
(Stated in thousands of Canadian
dollars) 2012 2011 2012 2011
----------------------------------------------------------------------------
Net earnings $ 39,357 $ 83,468 $168,699 $165,431
Unrealized gain (loss) on
translation of assets and
liabilities of operations
denominated in foreign currency (53,424) 96,717 (49,476) 59,865
Foreign exchange gain (loss) on net
investment hedge with U.S.
denominated debt, net of tax 35,638 (80,034) 33,433 (62,835)
----------------------------------------------------------------------------
Comprehensive income $ 21,571 $100,151 $152,656 $162,461
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
(Stated in thousands of Canadian
dollars) 2012 2011 2012 2011
----------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings $ 39,357 $ 83,468 $ 168,699 $ 165,431
Adjustments for:
Long-term compensation plans 3,830 1,144 15,057 15,156
Depreciation and
amortization 76,754 64,504 218,247 180,416
Foreign exchange 5,886 (34,204) 6,092 (31,696)
Finance charges 21,741 34,232 65,480 92,940
Income taxes 7,871 38,149 36,488 57,738
Other (320) 1,350 1,279 (1,070)
Income taxes paid (2,741) (108,655) (7,315) (111,166)
Income taxes recovered 271 154 613 400
Interest paid (7,181) (7,307) (49,964) (32,646)
Interest received 656 347 1,560 782
----------------------------------------------------------------------------
Funds provided by operations 146,124 73,182 456,236 336,285
Changes in non-cash working
capital balances (84,941) (52,901) 42,733 (22,370)
----------------------------------------------------------------------------
61,183 20,281 498,969 313,915
Investments:
Business acquisitions, net of
cash acquired - (59,709) (25) (92,886)
Purchase of property, plant
and equipment (238,650) (219,676) (681,407) (398,370)
Proceeds on sale of property,
plant and equipment 5,011 4,610 13,820 8,694
Changes in income tax
recoverable - 108,176 - -
Changes in non-cash working
capital balances 11,295 27,427 (62,410) 10,637
----------------------------------------------------------------------------
(222,344) (139,172) (730,022) (471,925)
Financing:
Repayment of long-term debt - - - (175,000)
Premium paid on settlement of
unsecured senior notes - - - (26,688)
Debt issue costs (2,855) (8,946) (2,855) (13,304)
Debt facility amendment costs (149) - (149) (1,134)
Increase in long-term debt - 381,520 - 581,520
Issuance of common shares on
the exercise of options 185 961 1,490 2,100
Changes in non-cash working
capital balances - - - (746)
----------------------------------------------------------------------------
(2,819) 373,535 (1,514) 366,748
----------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (7,523) 39,275 (8,068) 35,576
----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (171,503) 293,919 (240,635) 244,314
Cash and cash equivalents,
beginning of period 398,344 207,226 467,476 256,831
----------------------------------------------------------------------------
Cash and cash equivalents, end
of period $ 226,841 $ 501,145 $ 226,841 $ 501,145
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
(Stated in
thousands of
Canadian
dollars)
----------------------------------------------------------------------------
Accumulated
other Retained
Shareholders' Contributed comprehensive earnings Total
capital surplus loss (deficit) equity
----------------------------------------------------------------------------
Balance at
January 1,
2012 $ 2,248,217 $ 18,396 $ (50,862) $(83,160) $2,132,591
Net earnings
for the
period - - - 168,699 168,699
Other
comprehensive
income for
the period - - (16,043) - (16,043)
Share options
exercised 2,372 (882) - - 1,490
Issued on
redemption of
non-
management
directors
DSUs 221 (221) - - -
Issued on
waiver of
right to
dissent by
dissenting
unitholder 9 (3) - - 6
Share based
compensation
expense - 6,178 - - 6,178
----------------------------------------------------------------------------
Balance at
September 30,
2012 $ 2,250,819 $ 23,468 $ (66,905) $ 85,539 $2,292,921
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Stated in
thousands of
Canadian
dollars)
----------------------------------------------------------------------------
Accumulated
other Retained
Shareholders' Contributed comprehensive earnings Total
capital surplus loss (deficit) equity
----------------------------------------------------------------------------
Balance at
January 1,
2011 $2,244,417 $ 11,266 $ (46,220) $(276,637) $1,932,826
Net earnings
for the
period - - - 165,431 165,431
Other
comprehensive
loss for the
period - - (2,970) - (2,970)
Share options
exercised 3,198 (1,098) - - 2,100
Issued on
redemption of
non-
management
directors
DSUs 384 (384) - - -
Share based
compensation
expense - 6,426 - - 6,426
----------------------------------------------------------------------------
Balance at
September 30,
2011 $2,247,999 $ 16,210 $ (49,190) $(111,206) $2,103,813
----------------------------------------------------------------------------
----------------------------------------------------------------------------
THIRD QUARTER 2012 EARNINGS CONFERENCE CALL AND WEBCAST
Precision Drilling Corporation has scheduled a conference call
and webcast to begin promptly at 12:00 noon MT (2:00 p.m. ET) on
Thursday, October 25, 2012.
The conference call dial in numbers are 1-800-396-7098 or
416-695-6616
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
November 1, 2012 by dialing 1-800-408-3053 or 905-694-9451, pass
code 6282411.
About Precision
Precision is a leading provider of safe and High Performance,
High Value services to the oil and gas industry. Precision provides
customers with access to an extensive fleet of contract drilling
rigs, directional drilling services, well service & snubbing
rigs, coiled tubing services, camps, rental equipment, and
wastewater treatment units backed by a comprehensive mix of
technical support services and skilled, experienced personnel.
Precision is headquartered in Calgary, Alberta, Canada.
Precision is listed on the Toronto Stock Exchange under the trading
symbol "PD" and on the New York Stock Exchange under the trading
symbol "PDS".
Contacts: Precision Drilling Corporation Carey Ford Vice
President, Finance and Investor Relations 403.716.4575 403.716.4755
(FAX) Precision Drilling Corporation Suite 800, 525 - 8th Avenue
S.W. Calgary, Alberta, Canada T2P 1G1 www.precisiondrilling.com
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