Precision Drilling Corporation
Third Quarter Report for the nine months ended September 30, 2014 and 2013
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Discussion and Analysis for the three and nine month periods ended September 30, 2014 of Precision Drilling Corporation (“Precision” or the “Corporation”) prepared as at October 24, 2014 focuses on the unaudited Interim Consolidated Financial Statements and related notes and pertains to known risks and uncertainties relating to the oilfield services sector. This discussion should not be considered all inclusive as it does not include all changes regarding general economic, political, governmental and environmental events. This discussion should be read in conjunction with the Corporation’s 2013 Annual Report, Annual Information Form, unaudited September 30, 2014 Interim Consolidated Financial Statements and related notes and the cautionary statement regarding forward-looking information and statements on page 14 of this report.
SELECT FINANCIAL AND OPERATING INFORMATION
Adjusted EBITDA and funds provided by operations are additional GAAP measures. See “ADDITIONAL GAAP MEASURES”.
Financial Highlights
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
(Stated in thousands of Canadian dollars, except per share amounts)
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
Revenue
|
|
|
584,590 |
|
|
|
488,450 |
|
|
|
19.7 |
|
|
|
1,732,013 |
|
|
|
1,463,068 |
|
|
|
18.4 |
|
Adjusted EBITDA
|
|
|
199,390 |
|
|
|
137,660 |
|
|
|
44.8 |
|
|
|
566,359 |
|
|
|
441,089 |
|
|
|
28.4 |
|
Adjusted EBITDA % of revenue
|
|
|
34.1 |
% |
|
|
28.2 |
% |
|
|
|
|
|
|
32.7 |
% |
|
|
30.1 |
% |
|
|
|
|
Net earnings
|
|
|
52,813 |
|
|
|
29,443 |
|
|
|
79.4 |
|
|
|
147,196 |
|
|
|
123,229 |
|
|
|
19.4 |
|
Cash provided by operations
|
|
|
146,733 |
|
|
|
88,341 |
|
|
|
66.1 |
|
|
|
545,272 |
|
|
|
333,634 |
|
|
|
63.4 |
|
Funds provided by operations
|
|
|
196,217 |
|
|
|
127,684 |
|
|
|
53.7 |
|
|
|
525,415 |
|
|
|
306,157 |
|
|
|
71.6 |
|
Capital spending:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion
|
|
|
149,908 |
|
|
|
70,108 |
|
|
|
113.8 |
|
|
|
335,747 |
|
|
|
228,411 |
|
|
|
47.0 |
|
Upgrade
|
|
|
48,496 |
|
|
|
39,548 |
|
|
|
22.6 |
|
|
|
93,946 |
|
|
|
111,206 |
|
|
|
(15.5 |
) |
Maintenance and infrastructure
|
|
|
39,183 |
|
|
|
36,264 |
|
|
|
8.0 |
|
|
|
88,747 |
|
|
|
73,145 |
|
|
|
21.3 |
|
Proceeds on sale(1)
|
|
|
(31,286 |
) |
|
|
(3,335 |
) |
|
|
838.1 |
|
|
|
(48,522 |
) |
|
|
(10,021 |
) |
|
|
384.2 |
|
Net capital spending
|
|
|
206,301 |
|
|
|
142,585 |
|
|
|
44.7 |
|
|
|
469,918 |
|
|
|
402,741 |
|
|
|
16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.18 |
|
|
|
0.11 |
|
|
|
63.6 |
|
|
|
0.50 |
|
|
|
0.45 |
|
|
|
11.1 |
|
Diluted
|
|
|
0.18 |
|
|
|
0.10 |
|
|
|
80.0 |
|
|
|
0.50 |
|
|
|
0.43 |
|
|
|
16.3 |
|
Dividends paid per share
|
|
|
0.06 |
|
|
|
0.05 |
|
|
|
20.0 |
|
|
|
0.18 |
|
|
|
0.15 |
|
|
|
20.0 |
|
(1)
|
Includes proceeds of US$24 million from the disposal of certain trucks and other related assets used to support drilling rig moves in Texas and New Mexico in the third quarter of 2014.
|
Operating Highlights
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
Contract drilling rig fleet
|
|
|
335 |
|
|
|
326 |
|
|
|
2.8 |
|
|
|
335 |
|
|
|
326 |
|
|
|
2.8 |
|
Drilling rig utilization days: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
8,071 |
|
|
|
7,622 |
|
|
|
5.9 |
|
|
|
24,260 |
|
|
|
22,329 |
|
|
|
8.6 |
|
U.S.
|
|
|
8,898 |
|
|
|
7,412 |
|
|
|
20.0 |
|
|
|
25,861 |
|
|
|
22,010 |
|
|
|
17.5 |
|
International
|
|
|
1,012 |
|
|
|
969 |
|
|
|
4.4 |
|
|
|
2,964 |
|
|
|
2,503 |
|
|
|
18.4 |
|
Service rig fleet
|
|
|
221 |
|
|
|
222 |
|
|
|
(0.5 |
) |
|
|
221 |
|
|
|
222 |
|
|
|
(0.5 |
) |
Service rig operating hours
|
|
|
69,010 |
|
|
|
70,493 |
|
|
|
(2.1 |
) |
|
|
202,844 |
|
|
|
211,563 |
|
|
|
(4.1 |
) |
Financial Position
|
|
|
|
|
|
|
(Stated in thousands of Canadian dollars, except ratios)
|
|
September 30,
2014
|
|
|
December 31,
2013
|
|
Working capital
|
|
|
693,246 |
|
|
|
305,783 |
|
Long-term debt(1)
|
|
|
1,794,319 |
|
|
|
1,323,268 |
|
Total long-term financial liabilities
|
|
|
1,831,167 |
|
|
|
1,355,535 |
|
Total assets
|
|
|
5,317,581 |
|
|
|
4,579,123 |
|
Long-term debt to long-term debt plus equity ratio(1)
|
|
|
0.41 |
|
|
|
0.36 |
|
(1)
|
Net of unamortized debt issue costs.
|
Net earnings this quarter were $53 million, or $0.18 per diluted share, compared to net earnings of $29 million, or $0.10 per diluted share, in the third quarter of 2013. Effective January 1, 2014 we began calculating depreciation on our drilling rigs and service rigs on a straight-line basis which reduced net earnings for the quarter by approximately $10 million or $0.03 per diluted share compared with what net earnings would have been using the previous depreciation method.
Revenue this quarter was $585 million, or 20% higher than the third quarter of 2013. The increase of $96 million was primarily due to a year-over-year increase in activity and rates from our contract drilling operations. Revenue from our Contract Drilling Services and Completion and Production Services segments both increased over the comparative prior year period by 22% and 7%, respectively.
Earnings before income taxes, finance charges, foreign exchange, and depreciation and amortization (adjusted EBITDA see “Additional GAAP Measures”) this quarter were $199 million or 45% higher than the third quarter of 2013. The increase in adjusted EBITDA was mainly due to increases in activity and profitability in our Contract Drilling Services segment and decreases in our share based compensation accruals.
Adjusted EBITDA as a percent of revenue was 34% this quarter, compared to 28% in the third quarter of 2013. The increase in adjusted EBITDA as a percent of revenue was mainly due to higher dayrates and increased activity in our U.S., Canadian and international Contract Drilling operations. Our activity for the quarter, as measured by drilling rig utilization days, increased 6% in Canada, 20% in the U.S. and 4% internationally, compared to the third quarter of 2013.
For the nine months ended September 30, 2014, Precision reported net earnings of $147 million or $0.50 per diluted share compared to $123 million or $0.43 per diluted share for the same period of 2013. Effective January 1, 2014 we began calculating depreciation on our drilling rigs and service rigs on a straight-line basis which reduced net earnings for the period by approximately $27 million or $0.09 per diluted share compared with what net earnings would have been using the previous depreciation method.
Revenue for the first nine months of 2014 was $1,732 million compared to $1,463 million for the corresponding period of 2013. Adjusted EBITDA totaled $566 million for the first nine months of 2014 compared to $441 million in the first nine months of 2013. The increase in revenue and EBITDA was mainly the result of higher activity levels and dayrates across our Contract Drilling Services segment partially offset by lower activity in our Completion and Production businesses and increased stock based compensation expense. Activity for Precision, as measured by drilling utilization days, increased 9% in Canada, 18% in the U.S. and 18% internationally for the first nine months of the year compared with the same period in 2013.
Our current expected capital plan for 2014 is $908 million, a decrease of $26 million compared to the $934 million capital plan announced in July 2014. The capital decrease relates to the deferral of infrastructure and upgrade projects. Our 2014 capital plan includes long-lead items for announced new-build rig deliveries in 2015. The number of new-build deliveries scheduled for Precision in 2014 totals 18 rigs (eight in the U.S., seven in Canada and three internationally). For 2015 deliveries, we have announced contracts or firm customer commitments for 16 new-build rigs (15 for the U.S. and one for Kuwait).
On October 24, 2014 the Board of Directors declared a dividend of $0.07 per common share, a 17% increase over the prior quarter. The dividend is payable on November 24, 2014 to shareholders of record on November 14, 2014.
Our portfolio of term customer contracts, a scalable operating cost structure and economies achieved through vertical integration of the supply chain all help us manage our business through the cycles.
Precision’s strategic priorities are as follows:
1.
|
Execute our High Performance, High Value strategy - Invest in Precision’s physical and human capital infrastructure to advance field level professional development, provide industry leading service to customers and promote safe operations. Continue to measure and benchmark performance with a view to exceeding the high standards we set.
|
The construction of our Nisku Centre was completed in the third quarter of this year and has commenced operations. The Nisku Centre will support safety, technical and leadership training for our Canadian workforce.
We recently entered into a technology and service agreement and marketing alliance with Schlumberger that enables us to market a full range of downhole technology, significantly enhancing our technology and service offering to customers.
2.
|
Leverage our scale in operations - Utilize established systems to promote consistent and reliable service and to improve operating efficiencies across all geographies and service lines.
|
We have demonstrated our ability to increase activity levels while managing daily operating costs per rig in our operations. Additionally, we have increased the utilization of our centralized U.S. repair and maintenance facilities at our Houston Tech Centre.
3.
|
Execute on existing organic growth opportunities - Deliver new-build and upgraded rigs to customer contracts, expand international activity in existing operating regions and grow our Canadian LNG drilling leadership position. Be a recognized leader in the integrated directional drilling transformation.
|
We have announced delivery or planned delivery for 18 new-build rigs in 2014, including six ST-1500 rigs for deep basin and LNG related drilling in Canada. Internationally in 2014, we have contracted: two new-build rigs for the Middle East; four existing rigs for integrated project management projects in Mexico; and an existing 2,000 horsepower rig to work under term contract in the country of Georgia commencing operations during the first quarter of 2015. In addition, we commenced operations with the two Kuwait new-build rigs near the end of the second quarter. For 2015, we have signed contracts or firm customer commitments for the delivery of 16 new-build rigs (15 to the U.S. and one to Kuwait).
Our integrated directional drilling activity continues to increase reaching approximately 1,800 days through the first nine months of 2014.
4.
|
Increase returns for our investors.
|
We remain well positioned to increase returns for investors with our continued strong activity levels and margins, favorable contracted terms on new-build and upgraded rigs and our low cost and flexible capital structure.
For the third quarter of 2014, the average natural gas prices were higher than the 2013 average while the West Texas Intermediate price of oil was consistent with the 2013 average.
|
|
Three months ended September 30,
|
|
|
Year ended December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
Average oil and natural gas prices
|
|
|
|
|
|
|
|
|
|
Oil
|
|
|
|
|
|
|
|
|
|
West Texas Intermediate (per barrel) (US$)
|
|
|
97.69 |
|
|
|
105.94 |
|
|
|
98.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
AECO (per MMBtu) (Cdn$)
|
|
|
4.03 |
|
|
|
2.45 |
|
|
|
3.18 |
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Hub (per MMBtu) (US$)
|
|
|
3.93 |
|
|
|
3.55 |
|
|
|
3.73 |
|
West Texas Intermediate oil prices displayed volatility throughout the third quarter of this year and have declined by approximately 20% since the third quarter peak on July 20, 2014. As of October 24, West Texas Intermediate oil prices were approximately US$81.
Summary for the three months ended September 30, 2014:
● Operating earnings (see “Additional GAAP Measures”) this quarter were $92 million, or 16% of revenue, compared to $52 million and 11% of revenue in the third quarter of 2013. Operating earnings were positively impacted by the increase in drilling activity and dayrates in our contract drilling rig operations partially offset by an increase in depreciation from moving to the straight-line method and the depreciation on asset additions.
● General and administrative expenses this quarter were $37 million, $1 million lower than the third quarter of 2013. The decrease is due to lower costs associated with incentive compensation that are tied to the price of our common shares, partially offset by increased costs associated with expansion efforts.
● As a result of our annual review of the estimated useful lives and method of depreciation for our property, plant and equipment, effective January 1, 2014 we began calculating depreciation on our drilling rigs and service rigs on a straight-line basis. Existing assets were assessed for their remaining useful lives and are being depreciated prospectively on a straight-line basis. New drilling rigs will be depreciated based on the expected life of individual asset components with an approximate weighted average life of 15 years and approximately 7% salvage value. New service rigs will be depreciated based on the expected life of the asset component with an approximate weighted average life of 20 years with approximately 10% salvage value. The move to straight-line reflects the demand for technologically advanced assets which are expected to depreciate over time rather than on a per unit basis. The use of straight-line depreciation will result in idle assets being more aggressively depreciated. In the third quarter of 2014 depreciation expense calculated using the straight-line method with revised asset life expectancy was $108 million. Had we continued to depreciate assets using units of production, depreciation would have been $94 million. The estimated additional depreciation expense for the year ending December 31, 2014 from this change is approximately $50 million.
● Net finance charges were $29 million, an increase of $6 million compared with the third quarter of 2013 due to the issuance of US$400 million of 5.25% Senior Notes on June 3, 2014.
● Average revenue per utilization day for contract drilling rigs increased slightly in the third quarter of 2014 to $21,110 from the prior year third quarter of $20,862 in Canada and increased in the U.S. to US$24,734 from US$22,595. The increase in revenue rates for Canada is primarily due to added new-build and upgraded rigs entering the fleet compared to the prior year quarter partially offset by competitive pricing in some rig segments. The increase in revenue rates for the U.S. is primarily due to additional Tier 1 and upgraded rigs entering the fleet compared to the prior year quarter, increased turnkey revenue in the current year quarter and higher rates for well-to-well and re-contracted term rigs. Turnkey revenue for the third quarter of 2014 was US$18 million compared with US$7 million in the 2013 comparative period. Within the Completion and Production Services segment, average hourly rates for service rigs were $919 in the third quarter of 2014 compared to $863 in the third quarter of 2013. The increase in the average hourly rate is the result of rig mix.
● Average operating costs per utilization day for drilling rigs increased in the third quarter of 2014 to $10,778 from the prior year third quarter of $10,310 in Canada while in the U.S. costs increased to US$14,826 in 2014 from US$14,789 in 2013. The cost increase in Canada was primarily due to a labour rate increase that became effective in the fourth quarter of 2013. The cost increase in the U.S. was primarily due to costs associated with higher turnkey activity partially offset by a reduction in crew labour and a larger activity base to spread fixed costs. Within the Completion and Production Services segment, average hourly operating costs for service rigs increased to $621 in the third quarter of 2014 as compared to $595 in the third quarter of 2013 primarily due to costs associated with coil tubing.
● Precision realized revenue from international contract drilling of $55 million in the third quarter of 2014, an $18 million increase over the prior year period due to expansion in the Middle East and an early termination payment of $8 million related to our Mexico operations.
● Directional drilling services realized revenue of $36 million in the third quarter of 2014 compared with $32 million in the prior year period.
● Funds provided by operations in the third quarter of 2014 were $196 million, an increase of $68 million from the prior year comparative quarter of $128 million. The increase was primarily the result of improved operations and a decrease in income tax installments paid.
● Capital expenditures for the purchase of property, plant and equipment were $238 million in the third quarter, an increase of $92 million over the same period in 2013. Capital spending for the third quarter of 2014 included $150 million for expansion capital, $49 million for upgrade capital and $39 million for the maintenance of existing assets and infrastructure spending.
● During the quarter we sold certain trucks and other related assets which were used to support drilling rig moving operations in Texas and New Mexico to a third party for proceeds of US$24 million. The assets were included in the contract drilling services segment and generated annual revenues of approximately US$30 million.
Summary for the nine months ended September 30, 2014:
● Revenue for the first nine months of 2014 was $1,732 million, an increase of 18% from the 2013 period.
● Operating earnings were $247 million, an increase of $49 million or 25% from the 2013 period. Operating earnings were 14% of revenue in 2014 consistent with the same period in 2013. Operating earnings were positively impacted by the increase in drilling activity and rates in our contract drilling rig operations partially offset by an increase in depreciation from moving to the straight-line method and the depreciation on asset additions.
● General and administrative costs were $119 million, an increase of $10 million over the first nine months of 2013 primarily as a result of the increase in incentive compensation costs tied to the performance of Precision’s common shares in 2014.
● Depreciation expense calculated using the straight-line method with revised asset life expectancy was $319 million for the first nine months of 2014. Had we continued to depreciate assets using units of production, depreciation would have been $279 million.
● Net finance charges were $79 million, an increase of $9 million from the first nine months of 2013. In June 2014 we issued US$400 million of 5.25% Senior Notes.
● Funds provided by operations (see “Additional GAAP Measures”) in the first nine months of 2014 were $525 million, an increase of $219 million from the prior year comparative period of $306 million.
● Capital expenditures for the purchase of property, plant and equipment were $518 million in the first nine months of 2014, an increase of $106 million over the same period in 2013. Capital spending for 2014 to date included $336 million for expansion capital, $94 million for upgrade capital and $88 million for the maintenance of existing assets and infrastructure.
OUTLOOK
Contracts
Our portfolio of term customer contracts provides a base level of activity and revenue and, as of October 24, 2014, we had term contracts in place for an average of 50 rigs in Canada, 63 in the U.S. and 12 internationally for the fourth quarter of 2014 and an average of 45 rig contracts in Canada, 57 in the U.S. and 12 internationally for the first quarter of 2015. For the full year in 2015, we currently have contracts in place for an average of 40 rigs in the Canada, 41 in the U.S. and 11 internationally. In Canada, term contracted rigs normally generate 250 utilization days per year because of the seasonal nature of well site access. In most regions in the U.S. and internationally, term contracts normally generate 365 utilization days per year.
Drilling Activity
In the U.S., our average active rig count in the quarter was 97 rigs, up 16 rigs over the third quarter in 2013 and up 3 rigs over the average for the first half of 2014. As at October 24, 2014 we had 101 rigs active in the U.S.
In Canada, our average active rig count in the quarter was 88 rigs, an increase of five over the third quarter in 2013. As at October 24, 2014 we had 101 rigs active in Canada. In general we expect volatility on uncontracted rigs as commodity prices fluctuate but we expect to benefit from the fleet enhancements over the past several years and the scheduled delivery of new-build and upgraded rigs to the North American market in 2014 and 2015.
Internationally, our average active rig count in the quarter was 11 rigs, consistent with the third quarter in 2013 and up one rig over the average for the first half of 2014. As at October 24, 2014 we had 11 rigs under contract internationally and expect delivery of two new-build rigs for the Middle East, one to begin operations in the Kingdom of Saudi Arabia in November of this year and the other to begin operations in Kuwait in mid-2015. Also, we have an existing 2,000 horsepower rig preparing to move to the country of Georgia to work on a term contract starting in the first quarter of 2015. In Mexico, we currently have four rigs working on integrated project management contracts.
Industry Conditions
To date in 2014, drilling activity has increased relative to this time last year for both Canada and the U.S. According to industry sources, as of October 24, 2014, the U.S. active land drilling rig count was up approximately 12% from the same point last year and the Canadian active land drilling rig count was up approximately 5%. The increase in the North American rig count has been driven by demand for Tier 1 assets, which continues to be strong, benefiting drilling contractors, like Precision, with a high percentage of Tier 1 assets.
Canada has been experiencing an increase in natural gas and gas liquids drilling activity related to deep basin drilling in northwestern Alberta and northeastern British Columbia while the trend towards oil-directed drilling in the U.S. continues. To date in 2014, approximately 59% of the Canadian industry’s active rigs and 82% of the U.S. industry’s active rigs were drilling for oil targets, compared to 68% for Canada and 78% for the U.S. at the same time last year.
The recent decline in oil prices has yet to impact our activity levels in any meaningful way, but we are monitoring our customers’ spending plans and will react accordingly.
Capital Spending
Capital spending in 2014 is expected to be $908 million:
●
|
The 2014 capital expenditure plan includes $577 million for expansion capital, $187 million for sustaining and infrastructure expenditures, and $144 million to upgrade existing rigs. We expect that the $908 million will be split $871 million in the Contract Drilling segment and $37 million in the Completion and Production Services segment.
|
●
|
Precision’s expansion capital plan for 2014 includes 18 new-build drilling rigs delivered in 2014 including seven for Canada, eight for the U.S., and three for the Middle East.
|
The seven rigs for Canada include six Super Triple rigs for northern gas and gas liquids drilling and one Precision Super Single for heavy oil development drilling. The U.S. new-builds consist of eight ST-1500 rigs. Internationally in Kuwait two ST-3000 rigs began operating in the second quarter with an additional new-build contracted rig, an ST-2000, expected to be deployed to the Kingdom of Saudi Arabia in November 2014.
The majority of the remainder of the expansion capital is allocated to long-lead items which we anticipate using for new-build drilling rigs for delivery in 2015.
Following is a new-build delivery schedule for deliveries for the first nine months of 2014 and expected deliveries in the fourth quarter of 2014 and full year 2015 where we have either a long-term contract or a firm customer commitment for a long-term contract.
|
|
|
|
|
|
|
|
|
2014
|
|
|
2015
|
|
|
|
|
Q1 |
|
|
|
Q2 |
|
|
|
Q3 |
|
|
|
Q4 |
|
|
Total
|
|
|
|
Q1 |
|
|
|
Q2 |
|
|
|
Q3 |
|
|
|
Q4 |
|
|
Total
|
|
Rig Deliveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
2 |
|
|
|
- |
|
|
|
1 |
|
|
|
4 |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
U.S.
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
5 |
|
|
|
8 |
|
|
|
6 |
|
|
|
7 |
|
|
|
2 |
|
|
|
- |
|
|
|
15 |
|
International
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
1 |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
|
3 |
|
|
|
3 |
|
|
|
2 |
|
|
|
10 |
|
|
|
18 |
|
|
|
6 |
|
|
|
7 |
|
|
|
3 |
|
|
|
- |
|
|
|
16 |
|
●
|
The 2014 capital plan includes 17 rig upgrades and will vary depending on the scope of the upgrades.
|
●
|
Precision’s sustaining and infrastructure capital plan is based upon currently anticipated activity levels and includes a technical and operational support centre in Nisku, Alberta along with regional support facilities and corporate systems. The Nisku Centre consolidates Precision’s existing operations and technical support centres and will contain a new employee training centre complete with a fully functioning training rig equipped with the latest drilling technology. The centre is expected to support Canadian operations for several decades, provide increased capacity and efficiency, and ensure that we continue to deliver services with highly skilled and well trained field personnel. This centre accounts for approximately $30 million of the 2014 capital expenditure plan.
|
SEGMENTED FINANCIAL RESULTS
Precision’s operations are reported in two segments: the Contract Drilling Services segment which includes the drilling rig, directional drilling, oilfield supply and manufacturing divisions; and the Completion and Production Services segment which includes the service rig, snubbing, coil tubing, rental, camp and catering and wastewater treatment divisions.
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
(Stated in thousands of Canadian dollars)
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services
|
|
|
502,596 |
|
|
|
411,987 |
|
|
|
22.0 |
|
|
|
1,485,400 |
|
|
|
1,235,561 |
|
|
|
20.2 |
|
Completion and Production Services
|
|
|
84,539 |
|
|
|
78,960 |
|
|
|
7.1 |
|
|
|
254,112 |
|
|
|
237,968 |
|
|
|
6.8 |
|
Inter-segment eliminations
|
|
|
(2,545 |
) |
|
|
(2,497 |
) |
|
|
1.9 |
|
|
|
(7,499 |
) |
|
|
(10,461 |
) |
|
|
(28.3 |
) |
|
|
|
584,590 |
|
|
|
488,450 |
|
|
|
19.7 |
|
|
|
1,732,013 |
|
|
|
1,463,068 |
|
|
|
18.4 |
|
Adjusted EBITDA:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling Services
|
|
|
200,865 |
|
|
|
144,633 |
|
|
|
38.9 |
|
|
|
589,054 |
|
|
|
453,393 |
|
|
|
29.9 |
|
Completion and Production Services
|
|
|
17,350 |
|
|
|
12,363 |
|
|
|
40.3 |
|
|
|
41,940 |
|
|
|
44,771 |
|
|
|
(6.3 |
) |
Corporate and other
|
|
|
(18,825 |
) |
|
|
(19,336 |
) |
|
|
(2.6 |
) |
|
|
(64,635 |
) |
|
|
(57,075 |
) |
|
|
13.2 |
|
|
|
|
199,390 |
|
|
|
137,660 |
|
|
|
44.8 |
|
|
|
566,359 |
|
|
|
441,089 |
|
|
|
28.4 |
|
(1) See “ADDITIONAL GAAP MEASURES”.
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
(Stated in thousands of Canadian dollars, except where noted)
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
Revenue
|
|
|
502,596 |
|
|
|
411,987 |
|
|
|
22.0 |
|
|
|
1,485,400 |
|
|
|
1,235,561 |
|
|
|
20.2 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
287,674 |
|
|
|
255,683 |
|
|
|
12.5 |
|
|
|
856,518 |
|
|
|
746,049 |
|
|
|
14.8 |
|
General and administrative
|
|
|
14,057 |
|
|
|
11,671 |
|
|
|
20.4 |
|
|
|
39,828 |
|
|
|
36,119 |
|
|
|
10.3 |
|
Adjusted EBITDA(1)
|
|
|
200,865 |
|
|
|
144,633 |
|
|
|
38.9 |
|
|
|
589,054 |
|
|
|
453,393 |
|
|
|
29.9 |
|
Depreciation
|
|
|
94,618 |
|
|
|
75,421 |
|
|
|
25.5 |
|
|
|
279,094 |
|
|
|
212,530 |
|
|
|
31.3 |
|
Operating earnings(1)
|
|
|
106,247 |
|
|
|
69,212 |
|
|
|
53.5 |
|
|
|
309,960 |
|
|
|
240,863 |
|
|
|
28.7 |
|
Operating earnings as a percentage ofrevenue
|
|
|
21.1 |
% |
|
|
16.8 |
% |
|
|
|
|
|
|
20.9 |
% |
|
|
19.5 |
% |
|
|
|
|
Drilling rig revenue per utilization day in Canada
|
|
|
21,110 |
|
|
|
20,862 |
|
|
|
1.2 |
|
|
|
22,110 |
|
|
|
21,805 |
|
|
|
1.4 |
|
Drilling rig revenue per utilization day in the U.S.(2) (US$)
|
|
|
24,734 |
|
|
|
22,595 |
|
|
|
9.5 |
|
|
|
24,407 |
|
|
|
23,474 |
|
|
|
4.0 |
|
(1) See “ADDITIONAL GAAP MEASURES”.
(2) Includes revenue from idle but contracted rig days and lump sum payouts in 2013.
|
|
|
|
|
|
Three months ended September 30,
|
|
Canadian onshore drilling statistics:(1)
|
|
2014
|
|
|
2013
|
|
|
|
Precision
|
|
|
Industry(2)
|
|
|
Precision
|
|
|
Industry(2)
|
|
Number of drilling rigs (end of period)
|
|
|
190 |
|
|
|
814 |
|
|
|
188 |
|
|
|
821 |
|
Drilling rig operating days (spud to release)
|
|
|
7,160 |
|
|
|
34,209 |
|
|
|
6,779 |
|
|
|
30,649 |
|
Drilling rig operating day utilization
|
|
|
41 |
% |
|
|
46 |
% |
|
|
39 |
% |
|
|
41 |
% |
Number of wells drilled
|
|
|
829 |
|
|
|
3,052 |
|
|
|
912 |
|
|
|
3,202 |
|
Average days per well
|
|
|
8.6 |
|
|
|
11.2 |
|
|
|
7.4 |
|
|
|
9.6 |
|
Number of metres drilled (000s)
|
|
|
1,594 |
|
|
|
6,821 |
|
|
|
1,550 |
|
|
|
6,481 |
|
Average metres per well
|
|
|
1,922 |
|
|
|
2,235 |
|
|
|
1,700 |
|
|
|
2,024 |
|
Average metres per day
|
|
|
223 |
|
|
|
199 |
|
|
|
229 |
|
|
|
211 |
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
Canadian onshore drilling statistics:(1)
|
|
2014
|
|
|
2013
|
|
|
|
Precision
|
|
|
Industry(2)
|
|
|
Precision
|
|
|
Industry(2)
|
|
Number of drilling rigs (end of period)
|
|
|
190 |
|
|
|
814 |
|
|
|
188 |
|
|
|
821 |
|
Drilling rig operating days (spud to release)
|
|
|
21,527 |
|
|
|
97,280 |
|
|
|
19,781 |
|
|
|
87,527 |
|
Drilling rig operating day utilization
|
|
|
42 |
% |
|
|
44 |
% |
|
|
39 |
% |
|
|
39 |
% |
Number of wells drilled
|
|
|
2,172 |
|
|
|
7,933 |
|
|
|
2,338 |
|
|
|
7,928 |
|
Average days per well
|
|
|
9.9 |
|
|
|
12.3 |
|
|
|
8.5 |
|
|
|
11.0 |
|
Number of metres drilled (000s)
|
|
|
4,220 |
|
|
|
17,911 |
|
|
|
4,086 |
|
|
|
16,433 |
|
Average metres per well
|
|
|
1,943 |
|
|
|
2,258 |
|
|
|
1,748 |
|
|
|
2,073 |
|
Average metres per day
|
|
|
196 |
|
|
|
184 |
|
|
|
207 |
|
|
|
188 |
|
(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)
|
|
2014
|
|
|
2013
|
|
|
|
Precision
|
|
|
Industry(2)
|
|
|
Precision
|
|
|
Industry(2)
|
|
Average number of active land rigs
for quarters ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
94 |
|
|
|
1,724 |
|
|
|
81 |
|
|
|
1,706 |
|
June 30
|
|
|
93 |
|
|
|
1,802 |
|
|
|
80 |
|
|
|
1,710 |
|
September 30
|
|
|
97 |
|
|
|
1,842 |
|
|
|
81 |
|
|
|
1,709 |
|
Year to date average
|
|
|
95 |
|
|
|
1,789 |
|
|
|
81 |
|
|
|
1,708 |
|
(1) United States lower 48 operations only.
(2) Baker Hughes rig counts.
Revenue from Contract Drilling Services was $503 million this quarter, or 22% higher than the third quarter of 2013, while adjusted EBITDA increased by 39% to $201 million. The increases were mainly due to higher drilling rig utilization days and dayrates in our U.S., Canadian and international drilling businesses.
Operating results for our international business improved as drilling rig utilization days for the quarter were 1,012, 4% higher than the prior year comparative period and we received an early termination payment of $8 million related to our Mexico operations.
Drilling rig utilization days in Canada (drilling days plus move days) during the third quarter of 2014 were 8,071, an increase of 6% compared to 2013 primarily resulting from the delivery of new-build and upgraded rigs over the last 12 months. Drilling rig utilization days in the U.S. were 8,898, or 20% higher than the same quarter of 2013. The increase in U.S. activity was primarily due to strong demand for Tier 1 assets and has resulted in market share gains over the past year due to our high percentage of Tier 1 assets. The majority of our North American activity came from oil and liquids-rich natural gas related plays.
Compared to the same quarter in 2013, drilling rig revenue per utilization day was up 10% in the U.S. while Canada was up 1%. The increase in average dayrates for the U.S. was driven by improved rig mix, increased turnkey revenue and higher rates for well-to-well and re-contracted rigs. In Canada the dayrate increase was the result of new-build rigs, along with upgraded rigs entering the fleet compared to the prior year quarter offset by competitive pricing in some rig segments.
In Canada, 45% of utilization days in the quarter were generated from rigs under term contract, compared to 46% in the third quarter of 2013. In the U.S., 65% of utilization days were generated from rigs under term contract as compared to 60% in the third quarter of 2013. At the end of the quarter, we had 52 drilling rigs under contract in Canada, 62 in the U.S. and 11 internationally.
Operating costs were 57% of revenue for the quarter, which was five percentage points lower than the prior year period. On a per utilization day basis, operating costs for the drilling rig division in Canada were higher than the prior year primarily because of higher crew wages and labour burden. In the U.S., operating costs for the quarter on a per day basis were up from the third quarter in 2013 primarily as a result of increased turnkey activity partially offset by labour efficiencies and reduction in labour related costs.
Depreciation expense in the quarter was 25% higher than in the third quarter of 2013 due to changes in the estimated remaining useful life of our capital equipment, a change to straight-line depreciation and depreciation expense associated with new equipment.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
(Stated in thousands of Canadian dollars, except where noted)
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
|
2014
|
|
|
2013
|
|
|
% Change
|
|
Revenue
|
|
|
84,539 |
|
|
|
78,960 |
|
|
|
7.1 |
|
|
|
254,112 |
|
|
|
237,968 |
|
|
|
6.8 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
62,581 |
|
|
|
59,364 |
|
|
|
5.4 |
|
|
|
198,129 |
|
|
|
177,569 |
|
|
|
11.6 |
|
General and administrative
|
|
|
4,608 |
|
|
|
7,233 |
|
|
|
(36.3 |
) |
|
|
14,043 |
|
|
|
15,628 |
|
|
|
(10.1 |
) |
Adjusted EBITDA(1)
|
|
|
17,350 |
|
|
|
12,363 |
|
|
|
40.3 |
|
|
|
41,940 |
|
|
|
44,771 |
|
|
|
(6.3 |
) |
Depreciation
|
|
|
10,911 |
|
|
|
7,988 |
|
|
|
36.6 |
|
|
|
33,772 |
|
|
|
24,306 |
|
|
|
38.9 |
|
Operating earnings(1)
|
|
|
6,439 |
|
|
|
4,375 |
|
|
|
47.2 |
|
|
|
8,168 |
|
|
|
20,465 |
|
|
|
(60.1 |
) |
Operating earnings as a percentage of revenue
|
|
|
7.6 |
% |
|
|
5.5 |
% |
|
|
|
|
|
|
3.2 |
% |
|
|
8.6 |
% |
|
|
|
|
Well servicing statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of service rigs (end of period)
|
|
|
221 |
|
|
|
222 |
|
|
|
(0.5 |
) |
|
|
221 |
|
|
|
222 |
|
|
|
(0.5 |
) |
Service rig operating hours
|
|
|
69,010 |
|
|
|
70,493 |
|
|
|
(2.1 |
) |
|
|
202,844 |
|
|
|
211,595 |
|
|
|
(4.1 |
) |
Service rig operating hour utilization
|
|
|
32 |
% |
|
|
32 |
% |
|
|
|
|
|
|
31 |
% |
|
|
34 |
% |
|
|
|
|
Service rig revenue per operating hour
|
|
|
919 |
|
|
|
863 |
|
|
|
6.5 |
% |
|
|
922 |
|
|
|
844 |
|
|
|
9.2 |
|
(1)
|
See “ADDITIONAL GAAP MEASURES”.
|
Revenue from Completion and Production Services was up $6 million or 7% compared to the third quarter of 2013, as higher average rates resulted from improved product mix as a greater proportion of higher end services were provided in the current year compared with the prior year. Well servicing activity in the third quarter was consistent with the third quarter of 2013 in both Canada and the U.S. Approximately 85% of the third quarter Canadian service rig activity was oil related.
Average service rig revenue per operating hour in the third quarter was $919, or $56 higher than the third quarter of 2013. The increase was primarily the result of rig mix as we completed a greater proportion of higher end services in the current year.
Adjusted EBITDA was $5 million higher than the third quarter of 2013 due to higher average rates in both Canada and in the U.S. and a vendor related charge incurred during the prior year period.
Operating costs as a percentage of revenue decreased to 74% in the third quarter of 2014, from 75% in the third quarter of 2013. Operating costs per service rig operating hour were higher than in the third quarter of 2013 mainly because of the increase in costs associated with the coil tubing operations.
Depreciation in the third quarter of 2014 was 37% higher than the third quarter of 2013 because of changes in the estimated remaining useful life of our capital equipment, a change to straight-line depreciation and depreciation expense associated with new equipment.
SEGMENT REVIEW OF CORPORATE AND OTHER
Our Corporate and Other segment provides support functions to our operating segments. The Corporate and Other segment had an adjusted EBITDA loss of $19 million for the third quarter of 2014, $1 million lower than 2013 comparative period due primarily to lower share based incentive compensation.
OTHER ITEMS
Net financial charges for the quarter were $29 million, an increase of $6 million from the third quarter of 2013, driven by the impact of the issuance of US$400 million 5.25% Senior Notes on June 3, 2014 and the weaker Canadian dollar on our U.S. dollar denominated interest. We had a foreign exchange loss of $2 million during the third quarter of 2014 due to the weakening of the Canadian dollar versus the U.S. dollar, which affected the net U.S. dollar denominated monetary position in the Canadian dollar-based companies.
Income tax expense for the quarter was $8 million compared with a recovery of $4 million in the same quarter in 2013. The increase is due to improved pretax earnings in the current quarter compared to the prior year period. Our effective tax rate on earnings before income taxes for the nine months ended September 30, 2014 was 13.4%.
On August 7, 2014 the Ontario Court of Appeal ruled in favour of Precision’s wholly owned subsidiary, reversing a decision by the Ontario Superior Court of Justice dated June 26, 2013 regarding the reassessment of Ontario income tax for the subsidiary’s 2001 through 2004 taxation years. The Ontario Minister of Revenue has made an application to the Supreme Court of Canada seeking leave to appeal this decision. We expect the Supreme Court of Canada to render its decision on the application for leave to appeal by the end of the first half of 2015.
The approximate $55 million paid to the Ontario tax authorities in 2008, related to the reassessed taxation years, will continue to be reflected as a long-term receivable by Precision until this matter is fully resolved.
LIQUIDITY AND CAPITAL RESOURCES
The oilfield services business is inherently cyclical in nature. To manage this, we focus on maintaining a strong balance sheet so we have the financial flexibility we need to continue to manage our growth and cash flow, regardless of where we are in the business cycle.
We apply a disciplined approach to managing and tracking results of our operations to keep costs down. We maintain a variable cost structure so we can be responsive to changes in demand.
Our maintenance capital expenditures are tightly governed by and highly responsive to activity levels with additional cost savings leverage provided through our internal manufacturing and supply divisions. Term contracts on expansion capital for new-build rig programs provide more certainty of future revenues and return on our capital investments.
Liquidity
In June 2014 we issued US$400 million of 5.25% Senior Notes due in 2024 in a private offering. The Notes are guaranteed on a senior unsecured basis by current and future U.S. and Canadian subsidiaries that also guarantee our revolving credit facility and certain other indebtedness. We expect to use the net proceeds from this placement for general corporate purposes, including building new drilling rigs.
In addition, we amended our credit agreement governing our revolving credit facility to, among other things, voluntarily reduce the size of the revolving credit facility from US$850 million to US$650 million and extend the maturity to September 3, 2019.
In addition to a cash balance of $558 million as at September 30, 2014, we had available capacity of $759 million under our secured facilities.
As at September 30, 2014 we had $1,825 million outstanding under our senior unsecured notes.
Amount
|
Availability
|
Used for
|
Maturity
|
Senior facility (secured)
|
|
|
|
US$650 million (extendible, revolving term credit facility with US$250 million accordion feature)
|
Drawn US$26 million in outstanding
letters of credit
|
General corporate purposes
|
June 3, 2019
|
Operating facilities (secured)
|
|
|
$40 million
|
Undrawn, except $17 million in outstanding
letters of credit
|
Letters of credit and general corporate
purposes
|
|
US$15 million
|
Undrawn
|
Short term working capital requirements
|
|
Demand letter of credit facility (secured)
|
US$25 million
|
Undrawn, except US$8 million in outstanding letters of credit
|
Letters of credit
|
|
Senior notes (unsecured)
|
|
|
$200 million
|
Fully drawn
|
Debt repayment
|
March 15, 2019
|
US$650 million
|
Fully drawn
|
Debt repayment and general corporate purposes
|
November 15, 2020
|
US$400 million
|
Fully drawn
|
Capital expenditures and general corporate purposes
|
December 15, 2021
|
US$400 million
|
Fully drawn
|
Capital expenditures and general corporate purposes
|
November 15, 2024
|
Our secured facility includes financial ratio covenants that are tested quarterly; we are compliant with these covenants and expect to remain compliant.
The current blended cash interest cost of our debt is approximately 6.2%.
Hedge of investments in U.S. operations
We have designated a portion of our U.S. dollar denominated long-term debt as a hedge of our investment in our operations in the U.S. 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. We recognize the effective amount of this hedge (net of tax) in other comprehensive income. We recognize ineffective amounts (if any) in earnings.
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share amounts)
|
|
2013
|
|
|
2014
|
|
Quarters ended
|
|
December 31
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
Revenue
|
|
|
566,909 |
|
|
|
672,249 |
|
|
|
475,174 |
|
|
|
584,590 |
|
Adjusted EBITDA(1)
|
|
|
197,744 |
|
|
|
237,274 |
|
|
|
129,695 |
|
|
|
199,390 |
|
Net earnings (loss):
|
|
|
67,921 |
|
|
|
101,557 |
|
|
|
(7,174 |
) |
|
|
52,813 |
|
Per basic share
|
|
|
0.24 |
|
|
|
0.35 |
|
|
|
(0.02 |
) |
|
|
0.18 |
|
Per diluted share
|
|
|
0.24 |
|
|
|
0.35 |
|
|
|
(0.02 |
) |
|
|
0.18 |
|
Funds provided by operations(1)
|
|
|
155,816 |
|
|
|
231,393 |
|
|
|
97,805 |
|
|
|
196,217 |
|
Cash provided by operations
|
|
|
94,452 |
|
|
|
170,127 |
|
|
|
228,412 |
|
|
|
146,733 |
|
Dividends paid per share
|
|
|
0.06 |
|
|
|
0.06 |
|
|
|
0.06 |
|
|
|
0.06 |
|
|
|
2012
|
|
|
2013
|
|
Quarters ended
|
|
December 31
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
Revenue
|
|
|
533,948 |
|
|
|
595,720 |
|
|
|
378,898 |
|
|
|
488,450 |
|
Adjusted EBITDA(1)
|
|
|
177,026 |
|
|
|
215,181 |
|
|
|
88,248 |
|
|
|
137,660 |
|
Net earnings (loss):
|
|
|
(116,339 |
) |
|
|
93,313 |
|
|
|
473 |
|
|
|
29,443 |
|
Per basic share
|
|
|
(0.42 |
) |
|
|
0.34 |
|
|
|
0.00 |
|
|
|
0.11 |
|
Per diluted share
|
|
|
(0.42 |
) |
|
|
0.33 |
|
|
|
0.00 |
|
|
|
0.10 |
|
Funds provided by operations(1)
|
|
|
142,576 |
|
|
|
144,682 |
|
|
|
33,791 |
|
|
|
127,684 |
|
Cash provided by operations
|
|
|
136,317 |
|
|
|
62,948 |
|
|
|
182,345 |
|
|
|
88,341 |
|
Dividends paid per share
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.05 |
|
(1) See “ADDITIONAL GAAP MEASURES”.
ADDITIONAL GAAP MEASURES
We reference Generally Accepted Accounting Principles (GAAP) measures that are not defined terms under International Financial Reporting Standards to assess performance because we believe they provide useful supplemental information to investors.
Adjusted EBITDA
We believe that adjusted EBITDA (earnings before income taxes, financing charges, foreign exchange, and depreciation and amortization) as reported in the Consolidated Statement of Earnings is a useful measure, because it gives an indication of the results from our principal business activities prior to consideration of how our activities are financed and the impact of foreign exchange, taxation and non-cash depreciation and amortization charges.
Operating Earnings
We believe that operating earnings, as reported in the Consolidated Statements of Earnings, is a useful measure because it provides an indication of the results of our principal business activities before consideration of how those activities are financed and the impact of foreign exchange and taxation.
Funds Provided by Operations
We believe that funds provided by operations, as reported in the Consolidated Statements of Cash Flow is a useful measure because it provides an indication of the funds our principal business activities generate 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", "intend", "plan", "expect", "believe", "will", "may", "continue", "project", "potential" and similar expressions and statements relating to matters that are not historical facts constitute "forward‐looking information" within the meaning of applicable Canadian securities legislation and "forward‐looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward‐looking information and statements").
In particular, forward looking information and statements include, but are not limited to, the following:
|
·
|
the payment of our declared quarterly dividend;
|
|
·
|
our new-build rig program including the timing on the delivery and number of new build rigs to be deployed to Canada, the U.S. and internationally;
|
|
·
|
the continued development of Canadian LNG and our expectations in becoming a key player in the sector;
|
|
·
|
our expectations for becoming a leader in integrated directional drilling capabilities;
|
|
·
|
our expectations regarding continuing growth internationally including the commencement of operations in Georgia;
|
|
·
|
our enhanced operational capabilities due to the startup of our recently-completed Nisku technical support centre;
|
|
·
|
the accounting effect on our assets as a result of the change in depreciation calculation from per unit to a straight-line basis;
|
|
·
|
expected volatility on uncontracted rigs as commodity prices fluctuate;
|
|
·
|
our ability to react to customers’ spending plans as a result of the recent decline in oil prices;
|
|
·
|
our capital expenditure plans including the amounts allocated for expansion capital, sustaining and infrastructure expenditures and rig upgrades;
|
|
·
|
the number of rigs we expect to upgrade;
|
|
·
|
the outcome of the tax appeal proceedings involving one of our subsidiaries;
|
|
·
|
the expected use of the net proceeds from our 2014 Senior Notes offering; and
|
|
·
|
our expectations regarding our ability to remain compliant with our financial ratio covenants under our secured facility.
|
These forward‐looking information and statements are based on certain assumptions and analysis made by Precision in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances. These include, among other things:
|
·
|
our ability to continue to make advances in drilling and completion techniques and make efficiency gains;
|
|
·
|
continued drilling demand in Canada, the U.S., and our target international markets;
|
|
·
|
continued market demand for our rigs as result of the investments we have made in our fleet;
|
|
·
|
increasing demand for integrated directional drilling capabilities;
|
|
·
|
the status of current negotiations with our customers;
|
|
·
|
the economic viability of unconventional North American oil and gas plays including the growing potential of LNG export development in Canada; and
|
|
·
|
the general stability of the economic and political environment in the jurisdictions where we operate;
|
Undue reliance should not be placed on forward-looking information and statements. Whether actual results, performance or achievements will conform to our expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from our expectations. Such risks and uncertainties include, but are not limited to:
|
·
|
volatility in the price and demand for oil and natural gas;
|
|
·
|
fluctuations in the demand for contract drilling, well servicing and ancillary oilfield services and its impact on customer spending;
|
|
·
|
the risks associated with our investments in capital assets and changing technology;
|
|
·
|
shortages, delays and interruptions in the delivery of equipment, supplies and other key inputs;
|
|
·
|
the effects of seasonal and weather conditions on operations and facilities;
|
|
·
|
the availability of qualified personnel and management;
|
|
·
|
the existence of competitive operating risks inherent in our businesses;
|
|
·
|
changes in environmental and safety rules or regulations including increased regulatory burden on horizontal drilling and hydraulic fracturing;
|
|
·
|
terrorism, social, civil and political unrest in the foreign jurisdictions where we operate;
|
|
·
|
fluctuations in foreign exchange, interest rates and tax rates; and
|
|
·
|
other unforeseen conditions which could impact the use of services supplied by Precision and Precision’s ability to respond to such conditions.
|
Readers are cautioned that the forgoing list of risk factors is not exhaustive. Additional information on these and other factors that could affect our business, operations or financial results are included in reports on file with applicable securities regulatory authorities, including but not limited to Precision’s Annual Information Form for the year ended December 31, 2013, which may be accessed on Precision’s SEDAR profile at www.sedar.com or under Precision’s EDGAR profile at www.sec.gov. The forward-looking statements contained in this news release are made as of the date hereof and Precision undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
(Stated in thousands of Canadian dollars)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net earnings
|
|
$ |
52,813 |
|
|
$ |
29,443 |
|
|
$ |
147,196 |
|
|
$ |
123,229 |
|
Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency
|
|
|
93,930 |
|
|
|
(36,460 |
) |
|
|
99,313 |
|
|
|
51,415 |
|
Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt, net of tax
|
|
|
(55,860 |
) |
|
|
23,835 |
|
|
|
(60,060 |
) |
|
|
(35,280 |
) |
Comprehensive income
|
|
$ |
90,883 |
|
|
$ |
16,818 |
|
|
$ |
186,449 |
|
|
$ |
139,364 |
|
See accompanying notes to interim consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
(Stated in thousands of Canadian dollars)
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
52,813 |
|
|
$ |
29,443 |
|
|
$ |
147,196 |
|
|
$ |
123,229 |
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term compensation plans
|
|
|
1,950 |
|
|
|
5,720 |
|
|
|
20,741 |
|
|
|
16,477 |
|
Depreciation and amortization
|
|
|
107,537 |
|
|
|
85,544 |
|
|
|
319,165 |
|
|
|
243,017 |
|
Foreign exchange
|
|
|
1,183 |
|
|
|
4,035 |
|
|
|
(1,126 |
) |
|
|
(4,513 |
) |
Finance charges
|
|
|
29,239 |
|
|
|
23,411 |
|
|
|
79,233 |
|
|
|
69,920 |
|
Income taxes
|
|
|
7,989 |
|
|
|
(3,622 |
) |
|
|
22,880 |
|
|
|
10,348 |
|
Other
|
|
|
(1,168 |
) |
|
|
(1,571 |
) |
|
|
(3,096 |
) |
|
|
(409 |
) |
Income taxes paid
|
|
|
(1,218 |
) |
|
|
(7,951 |
) |
|
|
(14,087 |
) |
|
|
(102,675 |
) |
Income taxes recovered
|
|
|
5,060 |
|
|
|
127 |
|
|
|
8,414 |
|
|
|
2,087 |
|
Interest paid
|
|
|
(7,588 |
) |
|
|
(7,600 |
) |
|
|
(54,558 |
) |
|
|
(51,880 |
) |
Interest received
|
|
|
420 |
|
|
|
148 |
|
|
|
653 |
|
|
|
556 |
|
Funds provided by operations
|
|
|
196,217 |
|
|
|
127,684 |
|
|
|
525,415 |
|
|
|
306,157 |
|
Changes in non-cash working capital balances
|
|
|
(49,484 |
) |
|
|
(39,343 |
) |
|
|
19,857 |
|
|
|
27,477 |
|
|
|
|
146,733 |
|
|
|
88,341 |
|
|
|
545,272 |
|
|
|
333,634 |
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(237,587 |
) |
|
|
(145,920 |
) |
|
|
(518,440 |
) |
|
|
(412,762 |
) |
Proceeds on sale of property, plant and equipment
|
|
|
31,286 |
|
|
|
3,335 |
|
|
|
48,522 |
|
|
|
10,021 |
|
Changes in non-cash working capital balances
|
|
|
35,282 |
|
|
|
11,476 |
|
|
|
35,586 |
|
|
|
16,443 |
|
|
|
|
(171,019 |
) |
|
|
(131,109 |
) |
|
|
(434,332 |
) |
|
|
(386,298 |
) |
Financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in long-term debt
|
|
|
– |
|
|
|
15,000 |
|
|
|
436,600 |
|
|
|
15,000 |
|
Repayment of long-term debt
|
|
|
– |
|
|
|
– |
|
|
|
(30,670 |
) |
|
|
– |
|
Debt issue costs
|
|
|
– |
|
|
|
(883 |
) |
|
|
(10,166 |
) |
|
|
(883 |
) |
Dividends paid
|
|
|
(17,566 |
) |
|
|
(13,838 |
) |
|
|
(52,646 |
) |
|
|
(41,495 |
) |
Issuance of common shares on the exercise of options
|
|
|
733 |
|
|
|
1,434 |
|
|
|
6,836 |
|
|
|
2,154 |
|
|
|
|
(16,833 |
) |
|
|
1,713 |
|
|
|
349,954 |
|
|
|
(25,224 |
) |
Effect of exchange rate changes on cash and cash equivalents
|
|
|
22,717 |
|
|
|
(4,524 |
) |
|
|
16,591 |
|
|
|
6,935 |
|
Increase (decrease) in cash and cash equivalents
|
|
|
(18,402 |
) |
|
|
(45,579 |
) |
|
|
477,485 |
|
|
|
(70,953 |
) |
Cash and cash equivalents, beginning of period
|
|
|
576,493 |
|
|
|
127,394 |
|
|
|
80,606 |
|
|
|
152,768 |
|
Cash and cash equivalents, end of period
|
|
$ |
558,091 |
|
|
$ |
81,815 |
|
|
$ |
558,091 |
|
|
$ |
81,815 |
|
See accompanying notes to interim consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED
(Stated in thousands of Canadian dollars)
|
|
Shareholders’
capital
|
|
|
Contributed
surplus
|
|
|
Accumulated
other
comprehensive income
(loss) (Note 6)
|
|
|
Retained earnings
|
|
|
Total
equity
|
|
Balance at January 1, 2014
|
|
$ |
2,305,227 |
|
|
$ |
29,175 |
|
|
$ |
(23,475 |
) |
|
$ |
88,416 |
|
|
$ |
2,399,343 |
|
Net earnings for the period
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
147,196 |
|
|
|
147,196 |
|
Other comprehensive income for the period
|
|
|
– |
|
|
|
– |
|
|
|
39,253 |
|
|
|
– |
|
|
|
39,253 |
|
Dividends
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(52,646 |
) |
|
|
(52,646 |
) |
Share options exercised (Note 5)
|
|
|
9,936 |
|
|
|
(3,100 |
) |
|
|
– |
|
|
|
– |
|
|
|
6,836 |
|
Share based compensation expense (Note 7)
|
|
|
– |
|
|
|
4,102 |
|
|
|
– |
|
|
|
– |
|
|
|
4,102 |
|
Balance at September 30, 2014
|
|
$ |
2,315,163 |
|
|
$ |
30,177 |
|
|
$ |
15,778 |
|
|
$ |
182,966 |
|
|
$ |
2,544,084 |
|
(Stated in thousands of Canadian dollars)
|
|
Shareholders’
capital
|
|
|
Contributed
surplus
|
|
|
Accumulated
other
comprehensive income
(loss)
|
|
|
Retained earnings
(deficit)
|
|
|
Total
equity
|
|
Balance at January 1, 2013
|
|
$ |
2,251,982 |
|
|
$ |
24,474 |
|
|
$ |
(60,535 |
) |
|
$ |
(44,621 |
) |
|
$ |
2,171,300 |
|
Net earnings for the period
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
123,229 |
|
|
|
123,229 |
|
Other comprehensive income for the period
|
|
|
– |
|
|
|
– |
|
|
|
16,135 |
|
|
|
– |
|
|
|
16,135 |
|
Dividends
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(41,495 |
) |
|
|
(41,495 |
) |
Issued on redemption of non-management director DSUs
|
|
|
1,238 |
|
|
|
(1,031 |
) |
|
|
|
|
|
|
|
|
|
|
207 |
|
Share options exercised
|
|
|
3,297 |
|
|
|
(1,143 |
) |
|
|
– |
|
|
|
– |
|
|
|
2,154 |
|
Share based compensation expense (Note 7)
|
|
|
– |
|
|
|
5,172 |
|
|
|
– |
|
|
|
– |
|
|
|
5,172 |
|
Balance at September 30, 2013
|
|
$ |
2,256,517 |
|
|
$ |
27,472 |
|
|
$ |
(44,400 |
) |
|
$ |
37,113 |
|
|
$ |
2,276,702 |
|
See accompanying notes to interim consolidated financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Tabular amounts are stated in thousands of Canadian dollars except share numbers and per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS
Precision Drilling Corporation (“Precision” or the “Corporation”) is incorporated under the laws of the Province of Alberta, Canada and is a provider of contract drilling and completion and production services primarily to oil and natural gas exploration and production companies in Canada, the United States and certain international locations. The address of the registered office is Suite 800, 525 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1G1.
NOTE 2. BASIS OF PRESENTATION
(a) Statement of Compliance
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and interpretations of the International Financial Reporting Interpretations Committee. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Corporation as at and for the year ended December 31, 2013.
These condensed consolidated interim financial statements were prepared using accounting policies and methods of their application consistent with those used in the preparation of the Corporation’s consolidated audited annual financial statements for the year ended December 31, 2013 except for the adoption of the following new accounting standard. On January 1, 2014 Precision adopted IFRIC 21, Levies. The adoption of this standard had no material impact on the amounts recorded in these financial statements.
These condensed consolidated interim financial statements were approved by the Board of Directors on October 24, 2014.
(b) Seasonality
Precision has operations that are carried on in Canada which represent approximately 49% (2013 - 46%) of consolidated total assets as at September 30, 2014 and 45% (2013 - 50%) of consolidated revenue for the nine months ended September 30, 2014. 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 Precision’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 Precision’s slowest time in this region.
(c) Change in Accounting Estimate
Effective January 1, 2014, the Company changed the method for depreciating its drilling and service rig equipment from unit-of-production to straight-line. Precision believes that due to technological developments within the industry, straight-line depreciation better reflects the allocation of the cost of the assets over their expected lives. A summary of the new depreciation method for drilling and service rig equipment is as follows:
|
Expected life |
Salvage value |
Basis of depreciation |
Drilling rig equipment: |
|
|
|
– Power & Tubulars
|
5 years |
– |
straight-line |
– Dynamic
|
10 years |
– |
straight-line |
– Structural
|
20 years |
10% |
straight-line |
Service rig equipment |
20 years |
10% |
straight-line |
For the nine months ended September 30, 2014 the change in depreciation method resulted in $40.0 million of additional depreciation over what would have been expensed had the previous method been continued. The estimated additional depreciation expense for the year ending December 31, 2014 from this change is approximately $50.0 million.
NOTE 3. LONG-TERM DEBT
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Secured revolving credit facility
|
|
$ |
– |
|
|
$ |
29,781 |
|
Unsecured senior notes:
|
|
|
|
|
|
|
|
|
6.625% senior notes due 2020 (US$650 million)
|
|
|
728,520 |
|
|
|
691,340 |
|
6.5% senior notes due 2021 (US$400 million)
|
|
|
448,320 |
|
|
|
425,440 |
|
5.25% senior notes due 2024 (US$400 million)
|
|
|
448,320 |
|
|
|
– |
|
6.5% senior notes due 2019
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
1,825,160 |
|
|
|
1,346,561 |
|
Less net unamortized debt issue costs
|
|
|
(30,841 |
) |
|
|
(23,293 |
) |
|
|
$ |
1,794,319 |
|
|
$ |
1,323,268 |
|
During June 2014, Precision issued US$400.0 million aggregate principal amount of 5.25% senior unsecured notes due 2024 (“5.25% Senior Notes due 2024”). These notes bear interest at a fixed rate of 5.25% per annum, and mature on November 15, 2024. Interest is payable semi-annually on May 15 and November 15 of each year, commencing on November 15, 2014.
The 5.25% Senior Notes due 2024 are unsecured, ranking equally with existing and future senior unsecured indebtedness, and have been guaranteed by current and future U.S. and Canadian subsidiaries that guaranteed the revolving credit facility. These notes contain certain covenants that limit Precision’s ability and the ability of certain subsidiaries to incur additional indebtedness and issue preferred stock; create liens; make restricted payments; create or permit to exist restrictions on the ability of Precision or certain subsidiaries to make certain payments and distributions; engage in amalgamations, mergers or consolidations; make certain dispositions and transfers of assets; and engage in transactions with affiliates. If the notes receive an investment grade rating by Standard & Poor’s or Moody’s Investors Service and Precision and its subsidiaries are not in default under the indenture governing the notes, then Precision will not be required to comply with particular covenants contained in the indenture.
Prior to May 15, 2017, Precision may redeem up to 35% of the 5.25% Senior Notes due 2024 with the net proceeds of certain equity offerings at a redemption price equal to 105.25% of the principal amount plus accrued interest. Prior to May 15, 2019, Precision may redeem these notes in whole or in part at 100.0% of their principal amount, plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed and the excess, if any, of the present value of the May 15, 2019 redemption price plus required interest payments through May 15, 2019 (calculated using the United States Treasury rate plus 50 basis points) over the principal amount of the note. As well, Precision may redeem these notes in whole or in part at any time on or after May 15, 2019 and before May 15, 2022, at redemption prices ranging between 102.625% and 100.875% of their principal amount plus accrued interest. Any time on or after May 15, 2022 these notes can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.
In addition, Precision entered into an amendment to the credit agreement governing its secured revolving credit facility (the “Credit Agreement Amendment”). The Credit Agreement Amendment, among other things, (i) reduced the size of the revolving credit facility from US$850.0 million to US$650.0 million, (ii) extended the maturity from November 17, 2018 to June 3, 2019 and (iii) increased the maximum consolidated senior debt to EBITDA ratio from 3.0:1.0 to 3.5:1.0 for the first three fiscal quarters following a material acquisition that involves total consideration of more than 5% of Precision’s consolidated net tangible assets.
Long-term debt obligations at September 30, 2014 will mature as follows:
2019
|
|
$ |
200,000 |
|
Thereafter
|
|
|
1,625,160 |
|
|
|
$ |
1,825,160 |
|
NOTE 4. INCOME TAXES
The provision for income taxes differs from that which would be expected by applying statutory Canadian income tax rates. A reconciliation of the difference is as follows:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Earnings before income taxes
|
|
$ |
60,802 |
|
|
$ |
25,821 |
|
|
$ |
170,076 |
|
|
$ |
133,577 |
|
Federal and provincial statutory rates
|
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
Tax at statutory rates
|
|
$ |
15,200 |
|
|
$ |
6,455 |
|
|
$ |
42,519 |
|
|
$ |
33,394 |
|
Adjusted for the effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible expenses
|
|
|
813 |
|
|
|
1,174 |
|
|
|
2,090 |
|
|
|
3,253 |
|
Non-taxable capital gains
|
|
|
(52 |
) |
|
|
(103 |
) |
|
|
(128 |
) |
|
|
(164 |
) |
Income taxed at lower rates
|
|
|
(8,240 |
) |
|
|
(8,558 |
) |
|
|
(24,071 |
) |
|
|
(21,127 |
) |
Impact of foreign tax rates
|
|
|
(570 |
) |
|
|
(3,777 |
) |
|
|
(3,396 |
) |
|
|
(4,658 |
) |
Withholding taxes
|
|
|
918 |
|
|
|
635 |
|
|
|
2,954 |
|
|
|
1,724 |
|
Taxes related to prior years
|
|
|
– |
|
|
|
3 |
|
|
|
– |
|
|
|
8 |
|
Other
|
|
|
(80 |
) |
|
|
549 |
|
|
|
2,912 |
|
|
|
(2,082 |
) |
Income tax expense (recovery)
|
|
$ |
7,989 |
|
|
$ |
(3,622 |
) |
|
$ |
22,880 |
|
|
$ |
10,348 |
|
NOTE 5. SHAREHOLDERS’ CAPITAL
|
|
Number
|
|
|
Amount
|
|
Common shares
|
|
|
|
|
|
|
Balance December 31, 2013
|
|
|
291,979,671 |
|
|
$ |
2,305,227 |
|
Options exercised:
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
|
798,684 |
|
|
|
6,836 |
|
Reclassification from contributed surplus
|
|
|
– |
|
|
|
3,100 |
|
Balance September 30, 2014
|
|
|
292,778,355 |
|
|
$ |
2,315,163 |
|
NOTE 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
|
Unrealized Foreign Currency Translation Gains
|
|
|
Foreign Exchange Loss on Net Investment Hedge
|
|
|
Accumulated Other Comprehensive
Income (Loss)
|
|
Balance, December 31, 2013
|
|
$ |
48,330 |
|
|
$ |
(71,805 |
) |
|
$ |
(23,475 |
) |
Other comprehensive income (loss)
|
|
|
99,313 |
|
|
|
(60,060 |
) |
|
|
39,253 |
|
Balance, September 30, 2014
|
|
$ |
147,643 |
|
|
$ |
(131,865 |
) |
|
$ |
15,778 |
|
NOTE 7. SHARE BASED COMPENSATION PLANS
Liability Classified Plans
|
|
Restricted Share Units(a)
|
|
|
Performance Share Units(a)
|
|
|
Share Appreciation Rights(b)
|
|
|
Non-Management Directors’ DSUs(c)
|
|
|
Total
|
|
Balance, December 31, 2013
|
|
$ |
13,538 |
|
|
$ |
12,962 |
|
|
$ |
246 |
|
|
$ |
1,854 |
|
|
$ |
28,600 |
|
Expensed during the period
|
|
|
11,879 |
|
|
|
10,777 |
|
|
|
17 |
|
|
|
1,108 |
|
|
|
23,781 |
|
Payments
|
|
|
(10,001 |
) |
|
|
(4,339 |
) |
|
|
(69 |
) |
|
|
– |
|
|
|
(14,409 |
) |
Balance, September 30, 2014
|
|
$ |
15,416 |
|
|
$ |
19,400 |
|
|
$ |
194 |
|
|
$ |
2,962 |
|
|
$ |
37,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
10,357 |
|
|
$ |
7,563 |
|
|
$ |
194 |
|
|
$ |
– |
|
|
$ |
18,114 |
|
Long-term
|
|
|
5,059 |
|
|
|
11,837 |
|
|
|
– |
|
|
|
2,962 |
|
|
|
19,858 |
|
|
|
$ |
15,416 |
|
|
$ |
19,400 |
|
|
$ |
194 |
|
|
$ |
2,962 |
|
|
$ |
37,972 |
|
(a) Restricted Share Units and Performance Share Units
A summary of the activity under the restricted share unit (RSUs) and the performance share unit (PSUs) plans are presented below:
|
|
RSUs
Outstanding
|
|
|
PSUs
Outstanding
|
|
December 31, 2013
|
|
|
2,113,495 |
|
|
|
2,437,928 |
|
Granted
|
|
|
1,331,743 |
|
|
|
1,686,238 |
|
Issued as a result of cash dividends
|
|
|
34,206 |
|
|
|
49,374 |
|
Redeemed
|
|
|
(961,699 |
) |
|
|
(433,249 |
) |
Forfeitures
|
|
|
(209,083 |
) |
|
|
(257,857 |
) |
September 30, 2014
|
|
|
2,308,662 |
|
|
|
3,482,434 |
|
(b) Share Appreciation Rights
A summary of the activity under the share appreciation rights plan is presented below:
|
|
Outstanding
|
|
|
Range of Exercise Price (US$)
|
|
|
Weighted Average Exercise Price (US$)
|
|
|
Exercisable
|
|
December 31, 2013
|
|
|
588,162 |
|
|
$ |
9.26 – 17.38 |
|
|
$ |
14.71 |
|
|
|
588,162 |
|
Redeemed
|
|
|
(31,506 |
) |
|
|
9.26 – 9.26 |
|
|
|
9.26 |
|
|
|
|
|
Forfeitures
|
|
|
(111,691 |
) |
|
|
9.26 – 17.38 |
|
|
|
13.83 |
|
|
|
|
|
September 30, 2014
|
|
|
444,965 |
|
|
$ |
9.26 – 17.38 |
|
|
$ |
15.32 |
|
|
|
444,965 |
|
(c) Non-Management Directors – Deferred Share Unit Plan
A summary of the activity under the non-management director deferred share unit plan is presented below:
|
|
Outstanding
|
|
December 31, 2013
|
|
|
188,575 |
|
Granted
|
|
|
52,960 |
|
Issued as a result of cash dividends
|
|
|
2,878 |
|
September 30, 2014
|
|
|
244,413 |
|
Equity Settled Plans
(d) Non-Management Directors
Prior to January 1, 2012, Precision had a deferred share unit plan for non-management directors. Under the plan fully vested deferred share units were granted quarterly based upon an election by the non-management director to receive all or a portion of their compensation in deferred share units. These deferred share units are redeemable into an equal number of common shares any time after the director's retirement. A summary of the activity under this share based incentive plan is presented below:
Deferred Share Units
|
|
Outstanding
|
|
December 31, 2013
|
|
|
221,112 |
|
Issued as a result of cash dividends
|
|
|
3,106 |
|
September 30, 2014
|
|
|
224,218 |
|
(e) Option Plan
A summary of the activity under the option plan is presented below:
Canadian share options
|
|
Outstanding
|
|
|
Range of Exercise Price
|
|
|
Weighted Average Exercise Price
|
|
|
Exercisable
|
|
December 31, 2013
|
|
|
4,900,886 |
|
|
$ |
5.22 – 14.50 |
|
|
$ |
9.14 |
|
|
|
2,676,865 |
|
Granted
|
|
|
881,700 |
|
|
|
10.15 – 14.31 |
|
|
|
10.24 |
|
|
|
|
|
Exercised
|
|
|
(489,172 |
) |
|
|
5.85 – 11.16 |
|
|
|
8.25 |
|
|
|
|
|
Forfeitures
|
|
|
(65,202 |
) |
|
|
5.85 – 10.67 |
|
|
|
9.36 |
|
|
|
|
|
September 30, 2014
|
|
|
5,228,212 |
|
|
$ |
5.22 – 14.50 |
|
|
$ |
9.40 |
|
|
|
3,248,291 |
|
U.S. share options
|
|
Outstanding
|
|
|
Range of Exercise Price (US$)
|
|
|
Weighted Average Exercise Price (US$)
|
|
|
Exercisable
|
|
December 31, 2013
|
|
|
3,173,808 |
|
|
$ |
4.95 -15.21 |
|
|
$ |
9.32 |
|
|
|
1,438,335 |
|
Granted
|
|
|
827,300 |
|
|
|
9.18 – 9.18 |
|
|
|
9.18 |
|
|
|
|
|
Exercised
|
|
|
(309,512 |
) |
|
|
4.95– 10.96 |
|
|
|
8.26 |
|
|
|
|
|
Forfeitures
|
|
|
(184,722 |
) |
|
|
4.95 – 14.58 |
|
|
|
9.61 |
|
|
|
|
|
September 30, 2014
|
|
|
3,506,874 |
|
|
$ |
4.95 – 15.21 |
|
|
$ |
9.37 |
|
|
|
1,835,687 |
|
The per option weighted average fair value of the share options granted during 2014 was $3.17 estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: average risk-free interest rate 1%, average expected life of four years, expected forfeiture rate of 5% and expected volatility of 46%. Included in net earnings for the three and nine months ended September 30, 2014 is an expense of $1.3 million (2013 - $1.6 million) and $4.1 million (2013 - $5.2 million), respectively.