CALGARY, ALBERTA
This news release contains "forward-looking information and
statements" within the meaning of applicable securities laws. For a
full discussion of the forward-looking information and statements
and the risks to which they are subject, see the "Cautionary
Statement Regarding Forward-Looking Information and Statements"
later in this news release.
Precision Drilling Trust ("Precision" or the "Trust") reported
net earnings of $106 million or $0.84 per diluted unit for the
quarter ended March 31, 2008, a decrease of $52 million or 33%
compared to $158 million or $1.26 per diluted unit in the first
quarter of 2007. The decrease in net earnings was due to lower
industry demand and pricing for both operating segments in Canada
and was partially mitigated by new market growth. During the
quarter, geographical diversification outside Canada strengthened
as drilling rig operating days grew by 33% over the fourth quarter
of 2007 with 14 rigs positioned in the United States and one rig in
Latin America to exit the quarter.
Revenue in the first quarter was 17% lower than the prior year
period at $343 million decreasing 14% in the Contract Drilling
Services segment and 21% in the Completion and Production Services
segment.
"While it was a challenging quarter, I am pleased that the
organizational changes and fleet reductions implemented late last
year aligned with the first quarter's winter demand. I am
especially proud of the efforts and performance of our people
dealing with recruiting and operational ramp-up in the quarter
while continuing to improve safety and delivering strong financial
performance. The late winter demand supports the renewed optimism
we are beginning to sense in the Canadian market. Our United States
expansion remains on track with several imminent opportunities
following on the excellent performance of the 14 rigs we currently
have operating in five U.S. regions. I am very pleased with our
U.S. and international operations groups, collectively starting up
two new Super Series rigs, executing two new basin rig moves and
one international rig deployment with almost 100% rig fleet
utilization, in the quarter" said Kevin Neveu, Precision's Chief
Executive Officer.
SELECT FINANCIAL AND OPERATING INFORMATION
Three months ended March 31,
(stated in thousands of Canadian dollars, %
except per diluted unit amounts) 2008 2007 Change
----------------------------------------------------------------------------
Revenue $ 342,689 $ 410,542 (17)
Operating earnings(1) 124,238 178,179 (30)
Net earnings 106,266 158,067 (33)
Cash provided by operations 57,307 156,298 (63)
Net capital spending 22,165 54,574 (59)
Distributions declared 49,046 71,682 (32)
Per diluted unit information:
Net earnings 0.84 1.26 (33)
Distributions declared $ 0.39 $ 0.57 (32)
Contract Drilling Rig Fleet 246 246 -
Operating days (spud to release):
Canada 10,504 11,785 (11)
United States 1,016 147 591
International 70 - n/m
Completion and Production Service Rig Fleet 223 237 (6)
Operating hours in Canada 111,995 132,411 (15)
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(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".
n/m - calculation not meaningful
FINANCIAL POSITION AND RATIOS
(Stated in thousands of Canadian March 31, December 31, March 31,
dollars, except ratios) 2008 2007 2007
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Working capital $ 241,229 $ 140,374 $ 243,481
Working capital ratio 2.8 2.1 2.5
Long-term debt $ 213,507 $ 119,826 $ 147,690
Total assets $ 1,919,945 $ 1,763,477 $ 1,825,998
Long-term debt to long-term debt plus
equity ratio 0.13 0.08 0.10
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OVERVIEW
To begin the first quarter of 2008, the oilfield service sector
in Canada braced for low natural gas drilling levels. Customer
demand in western Canada commenced the year with the 2007 carry
over impact of low natural gas commodity prices, a weak U.S. dollar
and the negative economic impact from Alberta's royalty review
slated for implementation in 2009. Certain of these factors began
to impact the Canadian market in 2006 and led to declining
equipment activity and customer pricing for the past six
quarters.
To exit the quarter however, underlying fundamentals have
improved. The Canadian dollar has shown stability at close to
parity with the U.S. dollar, natural gas prices have strengthened
significantly and Alberta has announced plans to deal with certain
unintended consequences from the royalty review. In March 2008, for
the first time in the past 19 months, Precision's monthly drilling
rig activity in Canada matched prior year levels.
Precision continued to focus on customer service and earnings
margins. In the quarter the operating earnings margin was 36%
compared to 43% for the same period in 2007. Margins were supported
by Precision's highly variable operating cost structure and
industry labour constraints that kept industry supply closer to
demand.
Precision is focused on geographic diversification of its
high-performance, high-value service offering. Expansion of
operations into the United States land drilling market provided
growth in the earnings base and utilization rates. Precision
recorded 1,016 operating days in the United States which
represented a seven-fold increase over the first quarter of 2007
and 198 more operating days than the fourth quarter of 2007.
Precision's United States based rigs are all working under term
contracts and had a combined utilization rate including move days
near 100%. Drilling activity in the United States is not subject to
seasonal fluctuations to the same extent experienced in Canada.
Precision continues to look for accretive opportunities in the
United States and expects to move up to eight rigs from Canada to
this market during the second quarter of 2008.
International operations for Precision began in the quarter with
a drilling rig in Latin America spudding its first well and
realizing 70 operating days. Precision continues to evaluate global
opportunities in select regions not restricted by non-compete
obligations.
In the Western Canada Sedimentary Basin ("WCSB"), Precision
experienced lower equipment utilization, on a seasonally adjusted
basis, due to reduced customer drilling programs as budgets were
completed by producers in the fourth quarter of 2007 amid modest
natural gas fundamentals and general uncertainty around Alberta's
changing royalty structure. For the quarter Precision's drilling
rig utilization in Canada was 50% and well servicing rig
utilization was 55% compared to 54% and 62% in the equivalent
quarter of 2007.
Average customer pricing for Precision's services in Canada was
down 11% for drilling rigs and 8% for service rigs from the first
quarter of 2007. The pricing declines were due to a more
competitive bidding environment with reduced activity and greater
equipment availability, while pricing in the first quarter of 2007
was a continuation of the robust activity and record profitability
of 2006. Although rates were down from the prior year, relative to
the fourth quarter of 2007 the average operating day rate for
drilling rigs remained consistent while the average rate per well
servicing hour increased 7% due to higher winterization
revenue.
Average customer pricing for Precision in the United States held
up well. An active rig count and an increasing trend toward
directional and horizontal drilling programs created strong demand
for high-performing, versatile drilling rigs.
Precision initially estimated 2008 capital spending to be $370
million but now forecasts spending of $330 million with $70 million
for upgrade capital and $260 million for expansion capital. The
remaining $40 million relates to additional expansion capital to be
carried forward to 2009 for a total estimated expansion capital
carry forward of $90 million. New drillings rigs are expected to be
contracted with customers before completion. Up to five rigs from
the 2008 program are expected to be completed in 2008 with the
remaining rigs to be completed in 2009.
In aggregate there are 22 new rigs under construction including
three from the 2007 program. These three rigs are contracted with
customers and are expected to be commissioned during the second and
third quarters of 2008 for work in Canada's oil sands region. The
2008 expansion program is primarily targeted for 19 high
performance drilling rigs for the North American market. The first
three rigs in this program have been contracted for a drilling
program in the Rocky Mountain region of the United States.
Financial summary for the three months ended March 31, 2008:
- Precision maintained a strong financial position with working
capital of $241 million, long-term debt of $214 million and a
long-term debt to long-term debt plus equity ratio of 0.13.
- Revenue was $343 million, a decrease of $68 million or 17%
from the prior year quarter due to lower activity levels in
Precision's Canadian operations and lower customer pricing for most
of Precision's services partially offset by growth in the United
States.
- General and administrative costs were $19 million, an increase
of $5 million from the prior year due primarily to differences
associated with incentive compensation plan costs, professional
fees and reorganization costs.
- Operating earnings were $124 million, a decrease of $54
million or 30% from the first quarter in 2007. Operating earnings
were 36% of revenue, compared to 43% in 2007. Operating earnings
margins were negatively impacted by declines in customer pricing
for most Canadian divisions.
- During the quarter Precision paid $55 million to a provincial
taxing authority, due to the reassessment of income taxes relating
to tax filing positions taken in prior periods. The reassessment
has been recorded as a long-term receivable. The income tax related
portion of the reassessments is $36 million and was included in the
$300 million contingent liability note disclosed in the December
31, 2007 financial statements. Precision is in the process of
challenging these reassessments.
Operational summary for the three months ended March 31,
2008:
- Capital expenditures for the purchase of property, plant and
equipment were $23 million in the first quarter, a decrease of $32
million over the same period in 2007. Capital spending for the
first quarter of 2008 included $20 million on expansionary capital
initiatives and $3 million on the upgrade of existing assets.
- A new Super Triple drilling rig from the 2007 build program
and an existing rig from the Canadian fleet were deployed to the
United States. At the end of the quarter, Precision had 14 drilling
rigs in the United States an increase of two from December 31, 2007
with arrangements in place for the fifteenth rig to commence
mobilization from Canada during April.
The winter drilling season of 2008 was characterized by low
utilization for Precision and the industry as the drilling rig
count and other well site equipment infrastructure is capable of
servicing significantly higher well activity. At the end of the
quarter there were 893 drilling rigs registered with the Canadian
Association of Oilwell Drilling Contractors ("CAODC") and,
accordingly, Precision will continue to reposition assets to meet
customer opportunities in the United States.
The first quarter 2008 increase in natural gas commodity prices
raised expectations for higher natural gas drilling which continued
to represent about 70% of land drilling in Canada and the United
States. AECO natural gas spot prices averaged $7.90 per MMBtu in
the first quarter of 2008, an increase of 7% over the first quarter
2007 average of $7.38 per MMBtu. In the United States, Henry Hub
natural gas spot prices averaged US$8.61 per MMBtu in the first
quarter of 2008, an increase of 20% over the first quarter 2007
average of US$7.15 per MMBtu. West Texas Intermediate crude oil
averaged US$97.79 per barrel during the quarter compared to
US$58.18 per barrel in the same period in 2007. The one-year
forward price for North American natural gas improved, trading in a
range of about $7.00 to $10.50 on Canadian and U.S. exchanges in
the first quarter of 2008, compared to a range of about $7.00 to
$9.00 in the same quarter of 2007.
OUTLOOK
For Precision in Canada, the second half of 2008 carries
opportunity for seasonally adjusted higher drilling and service
levels. With natural gas inventories starting the heating season at
record highs, early 2008 sentiment was bearish, however, a cold
winter in North America reduced natural gas storage levels to exit
the quarter near the five-year average. This propelled natural gas
prices in the spot and forward markets. Stronger than expected
natural gas prices in 2008 should positively impact customer cash
flows and provide incentive to drill and service oil and natural
gas wells. Further, the Alberta government announced its plan to
address unintended consequences of the proposed January 1, 2009
royalty structure by offering certain deep drilling incentives.
The well license trends in Canada are marginally lower
year-over-year and Precision continues to expect that the second
quarter of 2008 will be challenging. Spring work generally results
in pricing pressure in Canada as the lack of activity during road
ban periods substantially reduces activity levels, however, the
improvement in commodity prices is expected to alleviate some of
this downward pricing pressure.
With United States natural gas storage near the five-year
average and uncertainty over liquefied natural gas imports,
economic fundamentals for drilling in 2008 have improved and may
result in higher demand for natural gas drilling in the late third
or fourth quarter. Canada exports over half its natural gas
production to the United States and Precision's oilfield service
businesses are highly dependent on associated customer
economics.
Many of the outlook indicators for 2008 have turned positive for
the WCSB as the winter drilling season finished on a solid footing.
However, a sustained period of higher natural gas prices is
required to instill producer confidence to meaningfully increase
drilling activity and current forward strip pricing is supportive
of these prices. We expect many customers to revisit their drilling
programs in the coming months and adjust their 2008 budgets with an
upward bias.
Precision is geographically diversifying to the United States
and international markets by leveraging its Canadian reputation for
high performance, high value onshore drilling services for oil and
natural gas exploration and development. Precision's
diversification strategy is focused on value-based high performance
services where customers recognize and reward superior performance
where Precision has a competitive advantage. This presents
Precision with significant opportunity to displace low performing
rigs, especially in technically demanding unconventional drilling
applications. A greater proportion of wells drilled in North
America are seeking unconventional oil and natural gas reserves and
due to the complexity of these programs high performance drilling
rigs and services are required. The delineation between
underperforming rigs and high performing, highly mobile, well
designed rigs with exceptional crews continues to emerge.
Precision remains focused on United States expansion and the
August 31, 2008 expiry of non-compete provisions creates
international diversification opportunities. Precision's growth
strategy lies within its organic new rig construction program and
its competitive strength in terms of people, systems and equipment.
As a drilling contractor operating one of the world's largest
fleets in one basin, Precision has a unique business model. A suite
of complimentary well site businesses, integrated system support
and employee depth provides Precision with a solid foundation to
consider acquisitions and oilfield service sector
consolidation.
SEGMENTED FINANCIAL RESULTS
Precision's operations are reported in two segments. The
Contract Drilling Services segment includes the drilling rig, camp
and catering, oilfield supply, and manufacturing divisions. The
Completion and Production Services segment includes the service
rig, snubbing, rental, and wastewater treatment divisions.
Three months ended March 31,
%
(stated in thousands of Canadian dollars) 2008 2007 Change
----------------------------------------------------------------------------
Revenue:
Contract Drilling Services $ 242,365 $ 280,895 (13.7)
Completion and Production Services 104,720 133,206 (21.4)
Inter-segment eliminations (4,396) (3,559) (23.5)
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$ 342,689 $ 410,542 (16.5)
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Operating earnings:(1)
Contract Drilling Services $ 100,881 $ 132,735 (24.0)
Completion and Production Services 33,865 51,815 (34.6)
Corporate and other (10,508) (6,371) (64.9)
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$ 124,238 $ 178,179 (30.3)
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(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
Three months ended March 31,
(stated in thousands of Canadian dollars, %
except where indicated) 2008 2007 Change
----------------------------------------------------------------------------
Revenue $ 242,365 $ 280,895 (13.7)
Expenses:
Operating 121,305 129,488 (6.3)
General and administrative 5,845 6,157 (5.1)
Depreciation 15,168 12,610 20.3
Foreign exchange (834) (95) 777.9
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Operating earnings(1) $ 100,881 $ 132,735 (24.0)
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Operating earnings as a percentage
of revenue 41.6% 47.3%
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Drilling rig revenue per operating day
in Canada $ 18,589 $ 20,894 (11.0)
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(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".
Three months ended March 31,
Drilling statistics:(1) 2008 2007
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Precision Industry(2) Precision Industry(2)
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Number of drilling rigs
(end of period) 231 893 244 865
Drilling rig operating days
(spud to release) 10,504 45,336 11,785 45,406
Drilling rig operating day
utilization 50% 56% 54% 59%
Number of wells drilled 1,450 5,126 1,728 5,961
Average days per well 7.2 8.8 6.8 7.6
Number of metres drilled (000s) 1,946 6,790 2,141 7,385
Average metres per well 1,342 1,325 1,239 1,239
Average metres per day 185 150 182 163
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(1) Canadian operations only.
(2) CAODC and Precision - excludes non-CAODC rigs and non-reporting CAODC
members.
In the Contract Drilling Services segment revenue for the first
quarter decreased by 14% to $242 million while operating earnings
decreased by 24% to $101 million compared to the same period in
2007. Activity in the WCSB was impacted by lower customer demand
due to the continued uncertainty over natural gas prices when
drilling programs were established in the fourth quarter of 2007.
Despite lower activity, industry labour remained in tight supply
and challenged all contractors as demand for rigs late in the
quarter increased with improved commodity pricing. Lower revenue in
Canada was partially offset by a six-fold increase in revenue from
Precision's United States based business.
Average drilling operating day rates for Precision in Canada
declined 11% to $18,589 as lower activity and high industry rig
capacity resulted in a competitive pricing market. The operating
day rates in the comparative first quarter of 2007 were strong as
rates carried forward from robust demand in 2006.
Drilling rig operating days, spud to rig release, in Canada
during the first quarter of 2008 were 10,504 a decrease of 11%
compared to 11,785 in 2007. Drilling rig activity for Precision in
the United States was 591% higher than the same quarter of 2007 as
the average number of rigs operating during the first quarter of
2008 was 13 compared to two in the prior year quarter. During the
quarter Precision commenced international operations in Latin
America with one rig and realized a total of 70 operating days.
Precision's camp and catering division experienced an activity
decrease of 18% over the prior year first quarter, however, a
greater number of days were realized from larger base camp
activity.
Operating expenses were 50% of revenue for the quarter compared
to 46% for the prior year quarter. The increase was due to lower
revenue per operating day in all of Precision's Canadian divisions
without a corresponding drop in costs and lower equipment
utilization increased daily operating day costs associated with
fixed cost overhead. On a per day basis, operating costs for the
drilling rig division in Canada were 2% lower than the prior year
quarter.
Depreciation in the Contract Drilling Services segment increased
from the prior year due to a higher cost base for working rigs and
activity growth in the United States that was partially offset by
lower equipment utilization in Canada.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
Three months ended March 31,
(stated in thousands of Canadian dollars, %
except where indicated) 2008 2007 Change
----------------------------------------------------------------------------
Revenue $ 104,720 $ 133,206 (21.4)
Expenses:
Operating 59,281 68,227 (13.1)
General and administrative 3,300 3,185 3.6
Depreciation 8,276 9,983 (17.1)
Foreign exchange (2) (4) (50.0)
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Operating earnings(1) $ 33,865 $ 51,815 (34.6)
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Operating earnings as a percentage of
revenue 32.3% 38.9%
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Three months ended March 31,
%
Well servicing statistics: 2008 2007 Change
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Number of service rigs (end of period) 223 237 (5.9)
Service rig operating hours 111,995 132,411 (15.4)
Service rig operating hour utilization 55% 62%
Service rig revenue per operating hour $ 743 $ 807 (7.9)
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(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".
In the Completion and Production Services segment revenue for
the first quarter decreased by 21% from 2007 to $105 million while
operating earnings declined by 35% to $34 million. The decrease in
revenue is attributed to the decline in industry activity due to
general uncertainty in the economics of natural gas drilling offset
partially by increased oil related work.
Service rig activity declined 15% from the prior year period,
with the service rig fleet generating 111,995 operating hours in
the first quarter of 2008 compared with 132,411 hours in 2007 for
utilization of 55% and 62%, respectively. The reduction was a
result of lower service rig demand due to decreased drilling
activity and spending on production maintenance of existing wells.
New well completions accounted for 36% of service rig operating
hours in the first quarter compared to 39% in the same quarter in
2007. There were 4,990 well completions in Canada in the first
quarter, a 25% decline from 6,632 wells in the same quarter in
2007.
Average service revenue per operating hour decreased over the
prior year as reduced demand resulted in a more competitive pricing
environment.
Higher variable operating expenses, fixed costs spread over a
lower activity base and lower revenue rates led to an increase in
operating expenses as a percent of revenue from 51% in the first
quarter of 2007 to 57% for the same period in 2008. On a per
operating hour basis, costs for the service rig division remained
unchanged from the same quarter in 2007.
Depreciation in the Completion and Production Services segment
in the first quarter of 2008 was 17% lower than the prior year
period due to lower equipment utilization.
SEGMENT REVIEW OF CORPORATE AND OTHER
Corporate and other expenses increased by 65% to $11 million in
the first quarter of 2008 compared to $6 million in the same period
of 2007. The increase was primarily due to the difference in
employee incentive compensation expense, increased professional
fees and reorganization costs.
OTHER ITEMS
Net interest expense of $2 million for the first quarter of 2008
was in line with the prior year.
The Trust's effective tax rate on earnings before income taxes
for the first three months of 2008 was 13% before enacted income
tax rate reductions compared to 10% for the same period in 2007.
Compared to a corporate tax rate, the low effective tax rate is
primarily the result of the income trust structure shifting all or
a portion of the income tax burden of the Trust to its
unitholders.
LIQUIDITY AND CAPITAL RESOURCES
Precision's liquidity and solvency position remained strong as
working capital exceeded long-term debt by $28 million as at March
31, 2008 compared to $21 million as at December 31, 2007. The
financial position was sustained despite a decrease in activity as
a significant percentage of operating costs are variable in nature
and Precision curtailed spending and distributions in line with
financial performance.
During the first quarter of 2008 Precision generated cash from
continuing operations of $57 million and increased its borrowing
position by $90 million. The cash was used to purchase property,
plant and equipment net of disposal proceeds and related non-cash
working capital of $23 million, make cash distributions to
unitholders of $69 million and pay assessed income taxes and
interest of $55 million.
The first three months of 2008 were further highlighted by the
following financial developments:
- The Trust declared monthly distributions to unitholders of
$0.13 per unit for aggregate distributions declared of $49 million
or $0.39 per unit.
- Long-term debt increased by $94 million from December 31, 2007
to $214 million for a long-term debt to long-term debt plus equity
ratio of 0.13.
- Working capital increased by $101 million during the first
quarter to $241 million as Precision realized higher activity and
corresponding revenue in the current quarter compared to the fourth
quarter of 2007.
DISTRIBUTIONS
Upon conversion to an income trust effective November 7, 2005
the Trust adopted a policy of making monthly distributions to
holders of Trust units and holders of exchangeable LP units
("unitholders"). Precision has a legal entity structure whereby the
trust entity, Precision Drilling Trust, effectively must flow its
taxable income to unitholders pursuant to its Declaration of Trust.
Distributions, including special distributions, may be declared in
cash or "in-kind" or a combination of both and reduced, increased
or suspended entirely depending on the operations of Precision, the
performance of its assets, or legislative changes in tax laws. The
actual cash flow available for distribution to unitholders is a
function of numerous factors, including the Trust's: financial
performance; debt covenants and obligations; working capital
requirements; upgrade and expansion capital expenditure
requirements for the purchase of property, plant and equipment; and
number of units outstanding.
In June 2007 the Government of Canada's Bill C-52 Budget
Implementation Act 2007 was enacted and included legislative
provisions that impose a tax on certain distributions from publicly
traded specified investment flow-through ("SIFT") trusts at a rate
equal to the applicable federal corporate tax rate plus a
provincial SIFT tax factor. After the enactment of federal tax rate
reductions in December 2007, the combined SIFT tax will be 29.5% in
2011, reducing to 28% in 2012. Precision will be a SIFT trust on
the earlier of January 1, 2011 or the first day after it exceeds
the normal growth guidelines announced by the federal Department of
Finance on December 15, 2006.
Key factors for consideration in determining actual cash flow
available for distribution, in an historical context, are disclosed
within the consolidated statements of cash flow. In calculating
distributable cash Precision makes the following adjustments to
cash provided by continuing operations:
- Deducts the purchase of property, plant and equipment for
upgrade capital as the minimum reinvestment required to maintain
current operating capacity;
- Deducts the purchase of property, plant and equipment for
expansion initiatives to grow capacity;
- Adds the proceeds on the sale of property, plant and equipment
capital which are incidental transactions occurring within the
normal course of operations; and
- Deducts long-term incentive plan changes as an unfunded
liability resulting from the operating activities in the current
period with payments beginning March 2009.
A quarterly two-year reconciliation of distributable cash from continuing
operations follows:
(Stated in thousands of Canadian dollars,
except per diluted unit amounts) 2007 2008
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Quarters ended June September December March
30 30 31 31
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Cash provided by continuing
operations $ 229,073 $ 20,270 $ 78,474 $ 57,307
Deduct:
Purchase of property, plant and
equipment for upgrade capital (8,602) (10,544) (9,241) (2,814)
Purchase of property plant and
equipment for expansion
initiatives (44,238) (30,382) (28,264) (20,654)
Add:
Proceeds on the sale of
property, plant and
equipment 2,130 1,273 1,236 1,303
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Standardized distributable
cash(1) 178,363 (19,383) 42,205 35,142
Unfunded long-term incentive
plan compensation 4,167 3,685 (1,817) 469
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Distributable cash from
continuing operations(1) $ 182,530 $ (15,698) $ 40,388 $ 35,611
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Cash distributions declared $ 56,591 $ 49,046 $ 69,166 $ 49,046
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Per diluted unit information:
Cash distributions declared $ 0.45 $ 0.39 $ 0.55 $ 0.39
Standardized distributable
cash(1) $ 1.42 $ (0.15) $ 0.33 $ 0.28
Distributable cash from
continuing operations(1) $ 1.45 $ (0.12) $ 0.32 $ 0.28
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2006 2007
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Quarters ended June September December March
30 30 31 31
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Cash provided by continuing
operations $ 339,619 $ 74,952 $ 154,233 $ 156,298
Deduct:
Purchase of property, plant and
equipment for upgrade capital (25,049) (24,503) (26,122) (17,583)
Purchase of property plant and
equipment for expansion
initiatives (36,238) (55,876) (46,211) (38,119)
Add:
Proceeds on the sale of
property, plant and equipment 13,180 4,251 3,742 1,128
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Standardized distributable
cash(1) 291,512 (1,176) 85,642 101,724
Unfunded long-term incentive
plan compensation (4,442) (5,262) (10,192) 2,461
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Distributable cash from
continuing operations(1) $ 287,070 $ (6,438) $ 75,450 $ 104,185
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Cash distributions declared $ 111,681 $ 116,785 $ 116,912 $ 71,682
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Per diluted unit information:
Cash distributions declared $ 0.89 $ 0.93 $ 0.93 $ 0.57
Standardized distributable
cash(1) $ 2.32 $ (0.01) $ 0.68 $ 0.81
Distributable cash from
continuing operations(1) $ 2.29 $ (0.05) $ 0.60 $ 0.83
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(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".
The quarterly distributable cash calculation over the past two
years demonstrates the wide variances from quarter to quarter and
highlights the need to consider seasonal and economic conditions
for cumulative quarters to assess performance and the
reasonableness of distributions.
For the quarter ended March 31, 2008 cash provided by operations
was $57 million, a decrease of $99 million from the 2007 first
quarter. The decrease was due primarily to the reduction in
operating earnings in the current quarter compared to the prior
year and a lower cash realization of non-cash working capital
balances of $46 million.
The Canadian drilling industry is subject to seasonality with
activity and earnings peaking during the winter months in the
fourth and first quarters. As temperatures rise in the spring, the
ground thaws and becomes unstable. Government road bans can
restrict activity at any time but are most typical for spring
break-up during the second quarter before equipment is able to move
for summer drilling programs.
As a result, in combination with economic cycles, Precision's
operating and financial results can vary significantly by quarter.
Working capital is typically at its highest level at the end of the
first quarter when accounts receivable increases from winter
activity and tends to be at its lowest during the second quarter.
The change in the non-cash working capital balance has a direct
impact on cash provided by operations.
Three Three Year ended
(stated in thousands of months ended months ended December
Canadian dollars) March 31, 2008 March 31, 2007 31, 2007
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Cash provided by
continuing
operations (A) $ 57,307 $ 156,298 $ 484,115
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Net earnings (B) $ 106,266 $ 158,067 $ 345,776
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Distributions declared
� $ 49,046 $ 71,682 $ 276,667
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Excess of cash provided
by continuing
operations over
distributions declared
(A-C) $ 8,261 $ 84,616 $ 207,448
----------------------------------------------------------------------------
Excess of net earnings
from operating
activities over
distributions declared
(B-C) $ 57,220 $ 86,385 $ 69,109
----------------------------------------------------------------------------
The Trust maintained a strong financial position and had
sufficient debt facilities to manage short-term funding needs as
well as planned equipment additions. Part of the debt management
strategy involves retaining sufficient funds from available
distributable cash to finance upgrade capital expenditures as well
as working capital needs. Planned asset growth will generally be
financed through existing debt facilities or cash retained from
continuing operations.
Periodically, Precision enters into cash generating transactions
that are outside the normal course of operations and, while such
transactions increase the cash available for distributions,
Precision does not rely on these sources of cash for
distributions.
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars,
except per diluted unit amounts)
2007 2008
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Revenue $ 122,005 $ 227,928 $ 248,726 $ 342,689
Operating earnings(1) 27,074 73,402 77,696 124,238
Earnings from continuing
operations 25,722 69,702 89,329 106,266
Per diluted unit 0.20 0.55 0.71 0.84
Net earnings 25,722 72,658 89,329 106,266
Per diluted unit 0.20 0.58 0.71 0.84
Cash provided by
continuing operations 229,073 20,270 78,474 57,307
Distributions declared $ 56,591 $ 49,046 $ 99,348 $ 49,046
----------------------------------------------------------------------------
2006 2007
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Revenue $ 223,569 $ 349,558 $ 328,049 $ 410,542
Operating earnings(1) 74,543 142,431 132,396 178,179
Earnings from continuing
operations 88,303 133,552 126,474 158,067
Per diluted unit 0.70 1.06 1.01 1.26
Net earnings 88,303 139,667 127,436 158,067
Per diluted unit 0.70 1.11 1.01 1.26
Cash provided by
continuing operations 339,619 74,952 154,233 156,298
Distributions declared $ 111,681 $ 116,785 $ 141,435 $ 71,682
----------------------------------------------------------------------------
(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".
NON-GAAP MEASURES AND RECONCILIATIONS
Precision uses both Generally Accepted Accounting Principles
("GAAP") and non-GAAP measures to assess performance and believes
the non-GAAP measures provide useful supplemental information to
investors. Following are the non-GAAP measures Precision uses in
assessing performance:
- Operating Earnings: Management believes that in addition to
net earnings, operating earnings as reported in the Consolidated
Statements of Earnings and Deficit is a useful supplemental measure
as it provides an indication of the results generated by
Precision's principal business activities prior to consideration of
how those activities are financed or how the results are taxed.
- Standardized Distributable Cash, Distributable Cash from
Continuing Operations, Standardized Distributable Cash per Diluted
Unit and Distributable Cash from Continuing Operations per Diluted
Unit: Management believes that in addition to cash provided by
continuing operations, standardized distributable cash and
distributable cash from continuing operations are useful
supplemental measures. They provide an indication of the funds
available for distribution to unitholders after consideration of
the impacts of capital expenditures and long-term unfunded
contractual operational obligations.
Precision's method of calculating these non-GAAP measures may
differ from other entities and, accordingly, may not be comparable
to measures used by other entities. Investors should be cautioned,
however, that these measures should not be construed as an
alternative to measures determined in accordance with GAAP as an
indicator of Precision's performance.
CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2008 the Trust adopted new Canadian
accounting standards relating to inventories (Section 3031) and
capital disclosures (Section 1535). Section 3031 requires
inventories to be measured at the lower of cost or net realizable
value and the reversal of previously recorded write downs to
realizable value when the circumstances that caused the write down
no longer exist. This new standard did not have a material impact
on the Trust's financial statements for the period ended March 31,
2008. Section 1535 requires the Trust to provide additional
quantitative and qualitative information regarding its objectives,
policies and processes for managing its capital.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed in
reports filed with, or submitted to, securities regulatory
authorities is recorded, processed, summarized and reported within
the time periods specified under Canadian and United States
securities laws. The information is accumulated and communicated to
management, including the principal executive officer and principal
financial and accounting officer, to allow timely decisions
regarding required disclosure.
As of March 31, 2008 an evaluation was carried out, under the
supervision of and with the participation of management, including
the principal executive officer and principal financial and
accounting officer, of the effectiveness of Precision's disclosure
controls and procedures as defined under the rules adopted by the
Canadian securities regulatory authorities and by the United States
Securities and Exchange Commission. Based on that evaluation, the
principal executive officer and principal financial and accounting
officer concluded that the design and operation of Precision's
disclosure controls and procedures were effective as at March 31,
2008.
During the quarter ended March 31, 2008 there have been no
changes in internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect,
Precision's internal control over financial reporting.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND
STATEMENTS
Certain statements contained in this news release, including
statements related to Precision's capital expenditures, projected
asset growth, view and outlook toward future commodity prices,
cyclical industry fundamentals, pricing competition, future natural
gas supply growth and storage levels, drilling activity in Canada
and the United States, expansion in the United States,
international market opportunities and statements that contain
words such as "could", "should", "can", "anticipate", "expect",
"believe", "will", "may" and similar expressions and statements
relating to matters that are not historical facts constitute
"forward-looking information" within the meaning of applicable
Canadian securities legislation and "forward-looking statements"
within the meaning of the "safe harbor" provisions of the United
States Private Securities Litigation Reform Act of 1995
(collectively "forward-looking information and statements").
In particular, forward-looking information and statements
include: new drilling rigs are expected to be contracted with
customers before completion; stronger than expected natural gas
prices in 2008 should positively impact customer cash flows and
provide incentive to drill and service oil and natural gas wells;
expecting to move up to eight rigs from Canada in the second
quarter of 2008; estimates that $330 million of the total capital
will be incurred in 2008 with $90 million carried forward to 2009;
three rigs contracted with customers are expected to be
commissioned during the second and third quarters of 2008; as many
as five rigs from the 2008 program are expected to be completed in
2008 with the remaining rigs to be completed in 2009; continued
repositioning of Canadian assets with customer opportunities in the
United States; opportunity in the second half of 2008 for higher
drilling and service levels; continued challenging operating
environment in Canada as well license trends are marginally lower
year-over-year; improvement in commodity prices is expected to
alleviate downward pricing pressure; sustained period of higher
prices required to instill enough producer confidence to increase
drilling activity; expecting customers to revisit their drilling
programs in the second half and adjust their 2008 budgets with an
upward bias; expiry of non-compete provisions creates international
diversification opportunities; planned asset growth will generally
be financed through existing debt facilities or cash retained from
continuing operations, all of which are stated under the headings
"Overview" and "Outlook" of this news release.
These statements include, but are not limited to, statements as
to seasonal and weather conditions affecting the Canadian oil and
natural gas industry and the demand for Precision's services. These
statements are based on certain assumptions and analysis made by
the Trust in light of its experience and its perception of
historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate
in the circumstances. However, whether actual results, performance
or achievements will conform to the Trust's expectations and
predictions is subject to a number of known and unknown risks and
uncertainties which could cause actual results to differ materially
from the Trust's expectations. Such risks and uncertainties
include, but are not limited to: fluctuations in the price and
demand for oil and natural gas; fluctuations in the level of oil
and natural gas exploration and development activities;
fluctuations in the demand for well servicing, contract drilling
and ancillary oilfield services; the effects of weather conditions
on operations and facilities; the existence of competitive
operating risks inherent in well servicing, contract drilling and
ancillary oilfield services; general economic, market or business
conditions; changes in laws or regulations, including taxation,
environmental and currency regulations; the lack of availability of
qualified personnel or management; and other unforeseen conditions
which could impact the use of services supplied by Precision.
Consequently, all of the forward-looking information and
statements made in this news release are qualified by these
cautionary statements and there can be no assurance that the actual
results or developments anticipated by the Trust will be realized
or, even if substantially realized, that they will have the
expected consequences to or effects on the Trust or its business or
operations. Except as may be required by law, the Trust assumes no
obligation to update publicly any such forward-looking information
and statements, whether as a result of new information, future
events or otherwise.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
(Stated in thousands of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
ASSETS
Current assets:
Accounts receivable $ 361,601 $ 256,616
Income tax recoverable 1,974 5,952
Inventory 8,826 9,255
----------------------------------------------------------------------------
372,401 271,823
Income tax recoverable (note 4) 58,092 -
Property, plant and equipment, net
of accumulated depreciation 1,208,408 1,210,587
Intangibles, net of accumulated
amortization 295 318
Goodwill 280,749 280,749
----------------------------------------------------------------------------
$ 1,919,945 $ 1,763,477
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 10,548 $ 14,115
Accounts payable and accrued liabilities 104,275 80,864
Distributions payable 16,349 36,470
----------------------------------------------------------------------------
131,172 131,449
Long-term compensation plans 6,443 13,896
Long-term debt 213,507 119,826
Future income taxes 194,735 181,633
----------------------------------------------------------------------------
545,857 446,804
----------------------------------------------------------------------------
Unitholders' equity:
Unitholders' capital 1,442,476 1,442,476
Contributed surplus 502 307
Deficit (68,890) (126,110)
----------------------------------------------------------------------------
1,374,088 1,316,673
----------------------------------------------------------------------------
$ 1,919,945 $ 1,763,477
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Units outstanding (000s) 125,758 125,758
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
(UNAUDITED)
(Stated in thousands of Canadian dollars, Three months ended March 31,
except per unit amounts) 2008 2007
----------------------------------------------------------------------------
Revenue $ 342,689 $ 410,542
Expenses:
Operating 176,190 194,156
General and administrative 19,152 14,555
Depreciation and amortization 24,367 23,484
Foreign exchange (1,258) 168
----------------------------------------------------------------------------
218,451 232,363
----------------------------------------------------------------------------
Operating earnings 124,238 178,179
Interest:
Long-term debt 2,235 2,530
Other 46 27
Income (85) (118)
----------------------------------------------------------------------------
Earnings before income taxes 122,042 175,740
Income taxes:
Current 2,652 320
Future 13,124 17,353
----------------------------------------------------------------------------
15,776 17,673
----------------------------------------------------------------------------
Net earnings 106,266 158,067
Deficit, beginning of period (126,110) (195,219)
Distributions declared (49,046) (71,682)
----------------------------------------------------------------------------
Deficit, end of period $ (68,890) $ (108,834)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per unit:
Basic $ 0.85 $ 1.26
Diluted $ 0.84 $ 1.26
----------------------------------------------------------------------------
Units outstanding (000s) 125,758 125,758
Weighted average units outstanding (000s) 125,758 125,758
Diluted units outstanding (000s) 125,777 125,758
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three months ended March 31,
(Stated in thousands of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings $ 106,266 $ 158,067
Adjustments and other items not
involving cash:
Long-term compensation plans (469) (2,461)
Depreciation and amortization 24,367 23,484
Future income taxes 13,124 17,353
Other (22) -
Changes in non-cash working capital balances (85,959) (40,145)
----------------------------------------------------------------------------
57,307 156,298
Investments:
Purchase of property, plant and equipment (23,468) (55,702)
Proceeds on sale of property, plant
and equipment 1,303 1,128
Increase in income tax recoverable (note 4) (55,185) -
Changes in non-cash working capital balances (904) (9,643)
----------------------------------------------------------------------------
(78,254) (64,217)
Financing:
Distributions paid (69,167) (86,773)
Increase in long-term debt 93,681 6,810
Change in bank indebtedness (3,567) (12,118)
----------------------------------------------------------------------------
20,947 (92,081)
Increase in cash and cash equivalents - -
Cash and cash equivalents, beginning
of period - -
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements (UNAUDITED)
(Tabular amounts are stated in thousands of Canadian dollars except
unit numbers)
1. Basis of Presentation
These interim financial statements for Precision Drilling Trust
(the "Trust") were prepared using accounting policies and methods
of their application consistent with those used in the preparation
of the Trust's consolidated audited financial statements for the
year ended December 31, 2007 except as noted below. These interim
financial statements conform in all material respects to the
requirements of generally accepted accounting principles in Canada
for annual financial statements with the exception of certain note
disclosures. As a result, these interim financial statements should
be read in conjunction with the Trust's consolidated audited
financial statements for the year ended December 31, 2007.
Effective January 1, 2008 the Trust adopted new Canadian
accounting standards relating to inventories (Section 3031) and
capital disclosures (Section 1535). Section 3031 requires
inventories to be measured at the lower of cost or net realizable
value and the reversal of previously recorded write downs to
realizable value when the circumstances that caused the write down
no longer exist. This new standard did not have a material impact
on the Trust's financial statements for the period ended March 31,
2008. Section 1535 requires the Trust to provide additional
quantitative and qualitative information regarding its objectives,
policies and processes for managing its capital.
In February 2008, the Canadian Institute of Chartered
Accountants issued Section 3064, Goodwill and intangible assets,
replacing Section 3062, Goodwill and other intangible assets and
Section 3450, Research and development costs. The new Section
establishes standards for the recognition, measurement,
presentation and disclosure of goodwill and intangible assets. The
new Section will be applicable to the Trust on January 1, 2009. The
Trust is currently evaluating the impact of this new Section on its
consolidated financial statements.
2. Seasonality of Operations
The majority of the Trust's operations are carried on in Canada.
The ability to move heavy equipment in the Canadian oil and natural
gas fields is dependent on weather conditions. As warm weather
returns in the spring, the winter's frost comes out of the ground
rendering many secondary roads incapable of supporting the weight
of heavy equipment until they have thoroughly dried out. The
duration of this "spring break-up" has a direct impact on the
Trust's activity levels. In addition, many exploration and
production areas in northern Canada are accessible only in winter
months when the ground is frozen hard enough to support equipment.
The timing of freeze up and spring break-up affects the ability to
move equipment in and out of these areas. As a result, late March
through May is traditionally the Trust's slowest time.
3. Unitholders' Capital
(a) Authorized - unlimited number of voting Trust units
- unlimited number of voting exchangeable LP units
(b) Units issued:
Trust units Number Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 125,587,919 $ 1,440,543
Issued on retraction of exchangeable LP units 798 9
----------------------------------------------------------------------------
Balance March 31, 2008 125,588,717 $ 1,440,552
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exchangeable LP units Number Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 170,005 $ 1,933
Redeemed on retraction of exchangeable LP units (798) (9)
----------------------------------------------------------------------------
Balance March 31, 2008 169,207 $ 1,924
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Summary Number Amount
----------------------------------------------------------------------------
Trust units 125,588,717 $ 1,440,552
Exchangeable LP units 169,207 1,924
----------------------------------------------------------------------------
Unitholders' capital 125,757,924 $ 1,442,476
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4. Income Taxes
Currently, the Trust incurs taxes to the extent that there are
certain provincial capital taxes, as well as taxes on any taxable
income, of its underlying subsidiaries. Future income taxes arise
from the differences between the accounting and tax basis of the
Trust's and its subsidiaries' assets and liabilities.
The provision for income taxes differs from that which would be
expected by applying statutory Canadian income tax rates. A
reconciliation of the difference at March 31 is as follows:
Three months ended March 31,
2008 2007
----------------------------------------------------------------------------
Earnings before income taxes $ 122,042 $ 175,740
Federal and provincial statutory rates 30% 33%
----------------------------------------------------------------------------
Tax at statutory rates $ 36,613 $ 57,994
Adjusted for the effect of:
Non-deductible expenses (226) 554
Income to be distributed to unitholders, not
subject to tax in the Trust (22,884) (41,166)
Other 2,273 291
----------------------------------------------------------------------------
Income tax expense $ 15,776 $ 17,673
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Effective income tax rate 13% 10%
----------------------------------------------------------------------------
The Trust received Notices of Reassessment from a provincial
taxing authority related to certain subsidiaries' taxation years
ending in 2001 through 2004. As a result of the notices, the Trust
was required to pay $36.1 million in taxes and $19.1 million in
assessed interest during the first quarter of 2008 and $1.6 million
in taxes and $1.3 million in assessed interest in 2007. The
reassessments relate to the treatment of interest in certain
provincial tax filings. The Trust is in the process of challenging
these reassessments. It is anticipated that the dispute will not be
resolved within one year and has recorded the amount paid as a
long-term receivable. No amounts related to the $58.1 million in
reassessments have been expensed.
5. Unit Based Compensation Plans
(a) Officers and Employees
Eligible participants of Precision's Performance Savings Plan
may elect to receive a portion of their annual performance bonus in
the form of deferred trust units ("DTUs"). These notional units are
redeemable in cash and are adjusted for each distribution to
unitholders by issuing additional DTUs based on the weighted
average trading price on the Toronto Stock Exchange for the five
days immediately following the ex-distribution date. All DTUs must
be redeemed within 60 days of ceasing to be an employee of
Precision or by the end of the second full calendar year after the
receipt of the DTUs.
During the first quarter of 2008 Precision issued 2,455 DTUs in
lieu of cash distributions and redeemed 8,588 DTUs on employee
resignations and employee withdrawals. As at March 31, 2008 $1.6
million is included in accounts payable and accrued liabilities for
outstanding DTUs. Included in net earnings for the three months
ended March 31, 2008 is an expense of $0.6 million.
(b) Executive
In 2007 the Trust instituted a Deferred Signing Bonus Unit Plan
for its Chief Executive Officer. Under the plan 178,336 notional
DTUs were granted on September 1, 2007. The units are redeemable
one-third annually beginning September 1, 2008 and are settled for
cash based on the Trust unit trading price on redemption. The
number of notional DTUs is adjusted for each distribution to
unitholders by issuing additional notional DTUs based on the
weighted average trading price on the Toronto Stock Exchange for
the five days immediately following the ex-distribution date. As at
March 31, 2008 $1.5 million is included in accounts payable and
accrued liabilities and $3.0 million in long-term incentive plan
payable for the 188,328 outstanding DTUs. Included in net earnings
for the three months ended March 31, 2008 is an expense of $1.7
million.
(c) Non-management directors
In 2007 a deferred trust unit plan was established for
non-management directors. Under the plan fully vested deferred
trust units are granted quarterly based upon an election by the
non-management director to receive all or a portion of their
compensation in deferred trust units. Distributions to unitholders
declared by the Trust prior to redemption are reinvested into
additional deferred trust units on the date of distribution. These
deferred trust units are redeemable into an equal number of Trust
units any time after the director's retirement. A summary of this
unit based incentive plan is presented below:
Number
Outstanding
----------------------------------------------------------------------------
Balance, December 31, 2007 18,280
Granted 8,414
Issued as a result of distributions 234
----------------------------------------------------------------------------
Balance, March 31, 2008 26,928
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended March 31, 2008 the Trust expensed
$195,000 as unit based compensation, with a corresponding increase
in contributed surplus.
6. Capital Management
The Trust's strategy is to carry a capital base to maintain
investor, creditor and market confidence and to sustain future
development of the business. The Trust seeks to maintain a balance
between the level of long-term debt and unitholders' equity to
ensure access to capital markets to fund growth and working capital
given the cyclical nature of the oilfield services sector. On an
historical basis, the Trust maintained a conservative ratio of
long-term debt to long-term debt plus equity. The Trust may
occasionally need to increase these levels to facilitate
acquisition or expansionary activities. As at March 31, 2008 and
December 31, 2007 these ratios were as follows:
March 31, 2008 December 31, 2007
Long-term debt 213,507 119,826
Unitholders' equity 1,374,088 1,316,673
----------------------------------------------------------------------------
Total capitalization 1,587,595 1,436,499
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt to long-term debt
plus equity ratio 0.13 0.08
----------------------------------------------------------------------------
On December 15, 2006 the Minister of Finance (Canada) issued
guidelines establishing "normal growth" limitations designed to
limit the ability of a trust to issue equity (including convertible
debentures or other equity substitutes) that exceeds certain
specified percentages of the market capitalization of a trust on
October 31, 2006. The normal growth limitation is cumulative in
nature to the extent not taken and for the year ended December 31,
2008 the Trust's normal growth limitation will be about $2.4
billion. Precision will be a specified investment flow-through
("SIFT") trust, subject to the SIFT tax rules, on the earlier of
January 1, 2011 or the first day after it exceeds the normal growth
guidelines.
The Trust is bound by a debt covenant requiring the Trust to
maintain a ratio of total liabilities to total equity of 1:1. The
Trust monitors this ratio to ensure compliance.
There were no changes in the Trust's approach to capital
management during the quarter.
7. Contingent Liability
The business and operations of the Trust are complex and the
Trust has executed a number of significant financings, business
combinations, acquisitions and dispositions over the course of its
history. The computation of income taxes payable as a result of
these transactions involves many complex factors as well as the
Trust's interpretation of relevant tax legislation and regulations.
The Trust's management believes that the provision for income tax
is adequate and in accordance with generally accepted accounting
principles and applicable legislation and regulations. However,
there are a number of tax filing positions that can still be the
subject of review by taxation authorities who may successfully
challenge the Trust's interpretation of the applicable tax
legislation and regulations, with the result that additional taxes
could be payable by the Trust and the amount payable, before
interest and penalties, could be up to $264 million.
8. Segmented Information
The Trust operates primarily in Canada, in two segments;
Contract Drilling Services and Completion and Production Services.
Contract Drilling Services includes drilling rigs, procurement and
distribution of oilfield supplies, camp and catering services and
manufacture, sale, and repair of drilling equipment. Completion and
Production Services includes service rigs, snubbing units,
wastewater treatment units, and oilfield equipment rental.
Completion
Contract and Inter-
Three months ended Drilling Production Corporate segment
March 31, 2008 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 242,365 $ 104,720 $ - $ (4,396) $342,689
Operating earnings 100,881 33,865 (10,508) - 124,238
Depreciation and
amortization 15,168 8,276 923 - 24,367
Total assets 1,370,904 471,542 77,499 - 1,919,945
Goodwill 172,440 108,309 - - 280,749
Capital
expenditures 19,603 3,772 93 - 23,468
----------------------------------------------------------------------------
Completion
Contract and Inter-
Three months ended Drilling Production Corporate segment
March 31, 2007 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 280,895 $ 133,206 $ - $ (3,559) $410,542
Operating earnings 132,735 51,815 (6,371) - 178,179
Depreciation and
amortization 12,610 9,983 891 - 23,484
Total assets 1,278,902 518,047 29,049 - 1,825,998
Goodwill 172,440 108,309 - - 280,749
Capital
expenditures 49,896 5,444 362 - 55,702
----------------------------------------------------------------------------
FIRST QUARTER 2008 EARNINGS CONFERENCE CALL AND WEBCAST
Precision Drilling Trust ("Precision") has scheduled a
conference call and webcast to begin promptly at 12:00 Noon MT
(2:00 p.m. ET) on Wednesday, April 23, 2008.
The conference call dial in numbers are 1-866-862-3915 or
416-641-6130
A live webcast of the conference call will be accessible on
Precision's website at www.precisiondrilling.com by selecting
"Investor Centre", then "Webcasts". Shortly after the live webcast,
an archived version will be available for approximately 30
days.
An archived recording of the conference call will be available
approximately one hour after the completion of the call until April
30, 2008 by dialing 1-800-408-3053 or 416-695-5800, passcode
3256393#.
Precision is a leading provider of safe, high performance energy
services to the North American oil and gas industry. Precision
provides customers with access to an extensive fleet of contract
drilling rigs, service rigs, camps, snubbing units, wastewater
treatment units and rental equipment backed by a comprehensive mix
of technical support services and skilled, experienced
personnel.
Precision Drilling Trust is listed on the Toronto Stock Exchange
under the trading symbol "PD.UN" and on the New York Stock Exchange
under the trading symbol "PDS".
Contacts: Doug Strong, Chief Financial Officer of Precision
Drilling Corporation, Administrator of the Trust (403) 716-4500
(403) 264-0251 (FAX) Precision Drilling Trust 4200, 150 - 6th
Avenue S.W. Calgary, AB T2P 3Y7 Website:
www.precisiondrilling.com
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