Precision Drilling Corporation Announces its Intention to Reorganize into an Income Trust
07 September 2005 - 2:00PM
PR Newswire (US)
CALGARY, Sept. 7 /PRNewswire-FirstCall/ -- Precision Drilling
Corporation ("Precision") announces that the Board of Directors
(the "Board") of Precision has unanimously approved the
reorganization (the "Reorganization") of Precision's existing
operations and holdings into an income trust by way of plan of
arrangement. Subject to shareholder approval, shareholders will
receive for each common share of Precision: - one unit (a "Trust
Unit") of a new trust (the "Trust") to be created from Precision's
Canadian contract drilling, service rig, snubbing, rentals, and
related services businesses ("Remaining Canadian Operations"); - a
pro rata share of the 26 million common shares of Weatherford
International Ltd. ("Weatherford") currently owned by Precision
(the "Weatherford Shares"); and - a pro rata share of up to Cdn
$850 million of cash (the "Special Cash Consideration"). The
maximum amount of the Special Cash Consideration assumes the
completion of the sale of CEDA Holdings Ltd. and will be reduced by
Cdn $273 million if that sale does not occur, and will also be
reduced if the closing price of Weatherford's common shares on the
New York Stock Exchange exceeds US $67.71 per share on the
effective date of the Reorganization. That reduction will be
necessary to allow Precision to retain funds to cover its increased
income tax obligations arising from the increase in value of the
Weatherford Shares at the time of their transfer to Precision
shareholders. Taxable shareholders resident in Canada will
alternatively be entitled, in addition to their pro rata share of
Weatherford Shares and the Special Cash Consideration, to elect to
receive limited partnership units ("Exchangeable LP Units") that
will be exchangeable into Trust Units on a one-for-one basis. There
will, however, be a maximum number of Exchangeable LP Units issued
under the Reorganization and, if requests for Exchangeable LP Units
exceed the maximum, the Exchangeable LP Units will be pro-rated
among those electing eligible shareholders. The Exchangeable LP
Units are intended to be, to the greatest extent practicable, the
economic and voting equivalent of Trust Units, being entitled to
the same monthly cash distributions as a Trust Unit and to vote on
Trust matters with holders of Trust Units through a special voting
unit. Redemption of Debentures ------------------------ Precision
will, as soon as reasonably possible, commence the process of fully
redeeming all of its outstanding debentures consisting of: Cdn $200
million 6.85% Series 1 debentures, Cdn $150 million 7.65% Series 2
debentures and US $300 million 5.625% debentures, in each case,
utilizing the early redemption provisions available in the
respective indentures. It is anticipated that all such redemptions
will be completed prior to the Reorganization. Precision expects to
have a bank loan facility in place by the time of the
Reorganization sufficient to cover initial requirements and ongoing
working capital needs. Rationale for the Transaction and
Recommendation of the Special Committee
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Over the past two years, the Board of Precision has studied various
alternatives to maximize shareholder value, including the merits of
income trust structures. In early 2005, the Board requested
management of Precision to undertake a detailed examination of
possible strategic alternatives available to Precision to ensure
the appropriate structure was in place for the future growth of
Precision and the enhancement of shareholder value. On June 6,
2005, Precision entered into an agreement to sell its Energy
Services and International Contract Drilling Divisions to
Weatherford for Cdn $1,130 million and 26 million Weatherford
common shares (the "Weatherford Transaction"). On June 15, 2005,
Precision announced that it was undertaking an examination of
available strategic alternatives with respect to its Remaining
Canadian Operations, including determining the viability of
conversion into an income trust. On August 31, 2005, Precision
announced the closing of the Weatherford Transaction and the
pending sale of CEDA Holdings Ltd. for Cdn $273 million. Subsequent
to the signing of the definitive agreement for the Weatherford
Transaction, a Special Committee of independent directors of
Precision was appointed to undertake a further examination of the
strategic alternatives with respect to Precision's Remaining
Canadian Operations. The Special Committee concluded that the
proposed Reorganization into an income trust is in the best
interests of Precision and its shareholders and recommended to the
Board of Directors that Precision proceed with the proposed
Reorganization. The Special Committee based its recommendation on a
number of factors including an opinion from FirstEnergy Capital
Corp. that the conversion of the Remaining Canadian Operations of
Precision into an income trust is fair from a financial point of
view to the holders of Precision common shares. Other factors that
were considered included: 1. It is anticipated that the cash
distribution to unitholders will provide an attractive rate of
return without impairing Precision's ability to finance maintenance
and expansion capital expenditures. 2. A trust structure provides a
tax efficient structure for providing cash distributions to
unitholders and, as Precision is currently cash taxable, the trust
structure should reduce or eliminate the income tax liability,
thereby increasing the amount of cash available for distribution to
unitholders and for future capital expenditures. 3. Precision's
Remaining Canadian Operations generate substantial levels of free
cash flow and have predictable yet flexible requirements for
capital expenditures. 4. A trust structure provides Precision with
a competitive structure to finance growth opportunities. 5. It is
anticipated that the combined value of the Weatherford Shares, the
Special Cash Consideration and the market value of the Trust Units
will be greater than the market value of the common shares of
Precision. Precision Trust --------------- The Trust, through
wholly-owned operating entities, will continue the business and
operations currently comprising the Remaining Canadian Operations.
Management of the Remaining Canadian Operations will be led by Hank
Swartout in a continuing role as Chairman and Chief Executive
Officer. Effective at the time of the Reorganization, Mr. Swartout
will relinquish the position of President of Precision and will
announce the appointment of Gene Stahl to the position of Chief
Operating Officer and President. Mr. Stahl has been employed with
Precision for the past nine years in a diverse mix of management
roles, most recently as Vice President, Rentals. The existing
operations management team will remain intact and the
Reorganization will have little impact on the operations of the
continuing businesses. Additionally, Precision will announce the
appointment of Doug Strong to the position of Chief Financial
Officer. Mr. Strong is a Chartered Accountant with nearly 20 years
of domestic and international oilfield service industry experience
and has been the Group Controller for the continuing businesses for
the past eight years. The current directors of Precision will serve
as the initial Trustees of the Trust. The Trust will employ a
strategy to: 1. Provide Trust unitholders and holders of
Exchangeable LP Units with an annual cash-on-cash yield by making
monthly cash distributions to Trust unitholders and holders of
Exchangeable LP Units; 2. Maintain Precision's existing operating
assets, and any additional assets acquired by any of the operating
entities owned, directly or indirectly, by the Trust, in a manner
that provides predictable cash flow; and 3. Enable Precision, and
any other operating entities owned, directly or indirectly by the
Trust, to continue to expand their businesses through development,
expansion and acquisition opportunities that will be accretive to
Trust unitholders. Based on current business conditions, it is
currently anticipated that the board of Trustees of the Trust will
set the initial monthly distribution at approximately Cdn $0.24 per
Trust Unit. The Trustees of the Trust will review the Trust's
distribution policy from time to time. The actual amount
distributed will be dependent on various economic factors and is at
the discretion of the Trustees. The anticipated distribution policy
targets the use of approximately 70% of available cash for
distribution to unitholders. Based upon current economic factors
and the size of the Trust's capital budget, it is expected that the
remaining approximately 30% of cash available for distribution will
fund the Trust's annual capital expenditure program. Plan of
Arrangement ------------------- The Reorganization will be
completed by way of Plan of Arrangement and will be subject to
finalization and execution of transaction documentation and to
shareholder, court, and applicable regulatory approvals. A special
meeting of shareholders is planned for late October 2005 to approve
the proposed trust conversion and transfer of Weatherford Shares
and the Special Cash Consideration. The Plan of Arrangement will
require the approval of 66 2/3% of the votes cast by shareholders
of Precision. An information circular describing the Reorganization
is expected to be mailed to Precision's shareholders in early
October 2005 and the closing of the Reorganization is expected to
occur in November 2005. Employee share purchase options either have
been or will be, as part of the Reorganization, accelerated and
will be available for exercise or surrender for cash equal to the
intrinsic value of the outstanding options. Tax Implications
---------------- For Precision shareholders resident in Canada,
other than eligible shareholders who are able to obtain a partial
tax deferral by electing to receive Exchangeable LP Units, the
exchange of Precision common shares for Trust Units, Weatherford
Shares and the Special Cash Consideration generally will result in
a disposition giving rise to a gain or a loss for Canadian tax
purposes. Precision shareholders who are not resident in Canada
generally will not be subject to Canadian taxation in respect of
the disposition of their common shares. The Weatherford Shares and
the Trust Units will be qualified investments for RRSP's, RESP's
and DPSP's. For Precision shareholders resident in the United
States, the receipt of Trust Units in exchange for Precision common
shares generally will not result in the recognition of a taxable
gain or loss for United States tax purposes. Receipt of Weatherford
Shares and the Special Cash Consideration by Precision shareholders
resident in the United States will, to the extent of current and
accumulated earnings and profits of Precision, generally result in
the recognition of dividend income in the amount of the fair market
value of Weatherford Shares and the Special Cash Consideration
received. Distributions on the Trust Units to holders who are
non-residents of Canada generally will be subject to Canadian
statutory withholding tax, which may be reduced by an applicable
tax treaty. Distributions on the Trust Units to holders who are
residents of the United States for purposes of the Canada-United
States Tax Convention generally will be subject to a 15 percent
Canadian statutory withholding tax. It is intended that the Trust
will elect to be treated as a corporation for United States federal
tax purposes, such that distributions (as computed under United
States tax principles) received by a United States holder of Trust
Units will be qualified dividend income for purposes of the
Internal Revenue Code that qualify for preferential tax rates for
individual United States shareholders. Forward-Looking Statement
Disclaimer ------------------------------------ Certain statements
contained in this press release may contain words such as
"anticipate", "could", "should", "expect", "believe", "will" and
similar expressions and statements relating to matters that are not
historical facts. These statements are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. Such forward-looking
statements involve known and unknown risks and uncertainties which
may cause the actual results, performance or achievements of the
entities discussed in this Press Release to be materially different
from any future results, performances or achievements expressed or
implied by such forward-looking statements. Such factors include
fluctuations in the market for oil and gas and related products and
services; competition; political and economic conditions in
countries in which Precision does business; the demand for services
provided by Precision; changes in laws and regulations, including
environmental regulations, to which Precision is subject and other
factors, which are described in further detail in Precision's
filings with the US Securities and Exchange Commission. Financial
Advisors ------------------ FirstEnergy Capital Corp. acted as
Financial Advisor to the Special Committee of the Board of
Directors of Precision with respect to the Reorganization.
Conference Call --------------- A conference call will be held with
senior management of Precision to provide an overview of the
proposed Reorganization at 9:00 a.m. (Mountain Standard Time) on
September 7, 2005. The conference call dial in number for callers
in North America is 1-800-814-4941 and the dial in number for
callers outside of North America is 1-416-640-4127. A live webcast
of the conference call will be accessible on Precision's website at
http://www.precisiondrilling.com/ by selecting "Investor
Relations", then "Webcasts". An archived recording of the
conference call will be available approximately one hour after the
completion of the call until September 14, 2005, by dialing
1-877-289-8525, and then entering the pass code 21151016 followed
by the number sign. Precision is listed on the Toronto Stock
Exchange under the trading symbols "PD" and "PD.U" and on the New
York Stock Exchange under the trading symbol "PDS". DATASOURCE:
Precision Drilling Corporation CONTACT: Mr. Hank Swartout,
Chairman, President and Chief Executive Officer, 4200, 150 - 6th
Avenue S.W., Calgary, Alberta, T2P 3Y7, Telephone: (403) 716-4500,
Fax: (403) 264-0251, Website: http://www.precisiondrilling.com/
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