(Canadian dollars, except as noted)
This news release contains "forward-looking information and
statements" within the meaning of applicable securities laws. For a
full disclosure of the forward-looking information and statements
and the risks to which they are subject, see the "Cautionary
Statement Regarding Forward-Looking Information and Statements"
later in this news release.
Precision Drilling Trust (the "Trust" or "Precision") reported a
51% revenue increase and a 67% rise in earnings before interest,
taxes, depreciation and amortization and foreign exchange
("EBITDA") for the second quarter of 2009 over the second quarter
of 2008. Revenue for the second quarter of 2009 totaled $210
million compared to $139 million for the same period in 2008.
EBITDA was $59 million for the second quarter of 2009, an increase
of $24 million over the second quarter of 2008. The increase in
revenue and EBITDA is due to the acquisition in December 2008 of
Grey Wolf, Inc ("Grey Wolf"), an onshore drilling contractor in the
United States with 123 rigs including two in Mexico. Precision
reported net earnings of $57 million or $0.22 per diluted unit for
the quarter ended June 30, 2009, an increase of $35 million or 164%
compared to $22 million or $0.16 per diluted unit in the second
quarter of 2008. Earnings in the second quarter of 2009 were
reduced by a $43 million increase in finance charges. Earnings were
increased in the quarter by a $74 million foreign exchange gain, or
after-tax $0.20 per diluted unit. Net earnings per unit were
impacted by the 119% increase in units outstanding in the one-year
period ending June 30, 2009.
For the six months ended June 30, 2009, net earnings were $115
million or $0.50 per diluted unit, a decrease of $13 million or 10%
compared to $128 million or $0.95 per diluted unit for the first
half of 2008. Net earnings decreased due to increased financing
charges and lower utilization rates throughout North America
partially offset by growth in Precision's rig fleet in the United
States. Rig utilization days for the first six months of 2009 were
23% higher than the same period of 2008 due to growth in
Precision's United States operations. EBITDA for the first half of
2009 totaled $229 million, a 25% increase from $183 million for the
first half of 2008.
"Precision's second quarter results were achieved against the
back drop of historically low utilization during Canadian spring
break-up and the apparent bottoming of customer demand in the
United States" stated Kevin Neveu, President and Chief Executive
Officer. "Under these challenging market conditions, I appreciate
the exceptional efforts of our people delivering cost reductions
and successfully integrating the Grey Wolf acquisition while
reinforcing our promise of high performance, high value services to
our customers.
"We are pleased to have completed our financing activities
during the quarter. Through a combination of equity, debt and cash
generation activities, we have paid off and eliminated our bridge
facility, reduced total debt, significantly reduced annual interest
expense and removed financing uncertainties. We believe Precision
has sufficient financial capacity and liquidity to operate through
a prolonged downturn. Further net debt reduction remains a top
priority going forward.
"Low Canadian activity levels experienced during the first
quarter continued right through the second quarter and resulted in
second quarter utilization levels at a record low. Precision's
Canadian results were bolstered by a strong contract presence in
the north eastern British Columbia shale plays. While these shale
plays represent a significant development opportunity, early
indications for the third quarter suggest Canadian activity will
remain depressed with a diminishing likelihood of a meaningful
recovery this year.
"The activity collapse in the United States drilling market
which started last year and persisted through the first quarter of
2009 appears to have troughed in the second quarter. However due to
rig oversupply, day rate pressure will persist in many areas of the
market for some time to come. Our term contract position provides
Precision with a solid base of activity, somewhat insulating us
from full spot market exposure. Precision was able to build on its
reputation for high performance services with six new term
contracts signed during the second quarter for existing rigs. These
rigs will be deployed to the Marcellus shale play in late 2009 and
2010. This is a very important development as we believe
Precision's high performance, high value capabilities are ideally
suited for all North American shale gas opportunities, but
especially so for the challenging logistics of Pennsylvania.
"Sustained improvement in North America drilling markets will be
driven by customer demand resulting from increases in the
underlying commodity price of natural gas. We believe that due to
the abrupt reduction in drilling activity, natural gas production
declines will accelerate in Canada. United States natural gas
production, which is showing initial signs of decline, should be
significantly impacted in the near future. These supply factors,
coupled with improvement in the global economy, should lead to
strengthening natural gas prices and a need to replace declining
production through the drill bit. Precision has the experienced
personnel, geographically positioned high performance rigs and the
financial capacity to excel in the eventual upturn" concluded Mr.
Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
Three months ended June 30, Six months ended June 30,
(stated in thousands
of Canadian dollars,
except per % %
unit amounts) 2009 2008 Change 2009 2008 Change
----------------------------------------------------------------------------
Revenue $ 209,597 $ 138,514 51.3 $ 658,042 $ 481,203 36.7
EBITDA(1) 59,260 35,574 66.6 228,647 182,921 25.0
Net earnings 57,475 21,739 164.4 114,892 128,005 (10.2)
Cash provided by
operations 212,554 200,458 6.0 414,150 257,765 60.7
Capital spending 88,436 29,201 202.9 157,416 51,366 206.5
Distributions
declared - 49,045 (100.0) 6,408 98,091 (93.5)
Net earnings per
unit: (2)
Basic 0.23 0.16 43.8 0.51 0.95 (46.3)
Diluted 0.22 0.16 37.5 0.50 0.95 (47.4)
Distributions
declared per unit $ - $ 0.39 (100.0) $ 0.04 $ 0.78 (94.9)
Contract drilling
rig fleet 388 248 56.5 388 248 56.5
Drilling rig
utilization days:
Canada 2,499 3,442 (27.4) 9,981 15,374 (35.1)
United States 4,529 1,403 222.8 11,938 2,562 366.0
International 182 57 219.3 362 143 153.1
Service rig fleet 229 223 2.7 229 223 2.7
Service rig
operating hours 32,818 55,631 (41.0) 97,672 167,626 (41.7)
----------------------------------------------------------------------------
(1) EBITDA is a non-GAAP measure and is defined as earnings before interest,
taxes, depreciation and amortization and foreign exchange. See "NON-GAAP
MEASURES".
(2) Net earnings per basic and diluted unit have been adjusted to reflect
the rights offering completed in the second quarter of 2009. See note 10
to the unaudited financial statements.
FINANCIAL POSITION AND RATIOS
(Stated in thousands of June 30, December 31, June 30,
Canadian dollars, except ratios) 2009 2008 2008
----------------------------------------------------------------------------
Working capital $ 253,663 $ 345,329 $ 88,295
Working capital ratio 2.6 2.0 1.8
Long-term debt (1) $ 868,933 $ 1,368,349 $ 104,948
Total long-term financial liabilities $ 893,769 $ 1,399,300 $ 113,671
Total assets $4,521,430 $ 4,833,702 $1,756,302
Long-term debt to long-term
debt plus equity ratio 0.24 0.37 0.07
----------------------------------------------------------------------------
(1) Excludes current portion of long-term debt and is net of unamortized
debt issue costs.
During the first half of 2009, Precision remained focused on
reducing debt levels and strengthening its capital structure and
decisive steps were taken to conserve cash and improve Precision's
financial position. Precision repaid long-term debt by $251 million
during the quarter and working capital declined by $114 million to
$254 million at June 30, 2009. Cash continues to be conserved
through the indefinite suspension of cash distributions to
unitholders and cost reduction measures that include personnel
reductions and operating facility consolidation. Planned upgrade
capital expenditures on existing equipment were significantly
reduced and the remaining two new Super Series rigs from the 18 rig
2008 build program are near completion.
As announced on April 20, 2009, Precision entered into a series
of financing transactions that raised approximately $380 million
used to strengthen the Trust's balance sheet by refinancing and
restructuring debt incurred in the acquisition of Grey Wolf. A
summary of the financing transactions is set forth below:
- The Trust completed a transaction with Alberta Investment
Management Corporation ("AIMCo"), pursuant to which AIMCo purchased
by way of private placement:
-- $175 million aggregate principal amount of senior unsecured
notes of Precision bearing interest at 10% per annum and having an
eight-year life;
-- 35,000,000 Trust units at a subscription price of $3.00 per
Trust unit for gross proceeds of $105 million; and
-- 15,000,000 purchase warrants of the Trust entitling AIMCo to
acquire up to an additional 15,000,000 Trust units at a price of
$3.22 per trust unit for a period of five years from the date of
issue.
- The Trust also completed a rights offering for proceeds of
$103 million that allowed unitholders to purchase Trust units at a
price of $3.00 per unit.
The financing transactions enabled the repayment of Precision's
unsecured bridge facility loan of $296 million (US$235 million)
which bore interest of 17% and allowed Precision's secured
facilities to be fully syndicated and thereby provide certainty to
the cost of debt.
The financing transactions, coupled with the Trust's February
2009 unit offering, substantially reduced Precision's blended
interest rate to approximately 8.3%, reduced Precision's cash
interest expense by approximately $70 million on an annual basis
and reduced the Trust's overall leverage.
Revenue of $210 million in the second quarter was 51% higher
than the prior year period. The increase was due to 2008 expansion
initiatives through organic and acquisition growth in the United
States onshore contract drilling rig market. Precision marketed an
average United States fleet of 157 rigs during the second quarter
of 2009 as compared to a fleet of 17 rigs in 2008 and quarterly
revenue increased four-fold. Revenue in Precision's Canadian
Contract Drilling Services segment decreased by 20% while revenue
declined 46% in the Canadian based Completion and Production
Services segment compared to the second quarter of 2008. The mix of
drilling rigs under term contracts and on complex well-to-well
programs supported relatively strong average rig day rate results
in the quarter.
The Trust reported total EBITDA for the second quarter of $59
million compared with $36 million for the second quarter of 2008.
EBITDA is not a recognized financial measure under Generally
Accepted Accounting Principles ("GAAP") as discussed under
"Non-GAAP Measures and Reconciliations" in this report. EBITDA
margin, calculated as EBITDA as a percentage of revenues, was 28%
for the second quarter of 2009 compared to 26% for the same period
in 2008. The 2% EBITDA margin increase was attributable to higher
revenue per operating day due to rig mix and margin from idle but
contracted rigs in the United States offset by lower overall
utilization in both operating segments. Consistent with the
previous quarter, Precision's term contract position with
customers, a highly variable operating cost structure and economies
achieved through vertical integration of the supply chain and
maintenance facilities served to limit the declines.
In the Contract Drilling Services segment Precision currently
markets 388 contract drilling rigs, including 226 in Canada, 159 in
the United States, three rigs in international locations and 99
drilling rig camps. Precision's Completion and Production Services
segment markets 229 service rigs, 29 snubbing units, 76 wastewater
treatment units and a broad mix of rental equipment.
During the quarter an average of 25 drilling rigs worked in
Canada, 50 in the United States and two in Mexico totaling 77 rigs
working. This compares with an average of 167 rigs working in the
first quarter of 2009 and 48 rigs in the second quarter a year ago.
Canadian drilling activity was subject to seasonal slowdowns and
very weak customer demand in the second quarter during the spring
break-up period.
The first half of 2009 continued to reflect a weak and declining
global economy and resulting low energy commodity prices. While oil
pricing has recovered somewhat during the quarter, there remains
considerable demand uncertainty for both oil and natural gas and
this has triggered very low underlying customer demand for the
industry and Precision's oilfield services. Accordingly, these
factors have eroded oilfield services activity levels for a third
consecutive quarter as evidenced by minimal spot market
opportunities, pricing declines and low equipment utilization.
At the end of the quarter these conditions persist as the
fundamentals for natural gas continue to show weakness through
record high storage levels in the United States. The supply
capacity was delivered through drilling activity peaking in 2008 in
many regions within the United States, including unconventional
resource plays in Texas and Louisiana. A significant portion of
these wells, and the associated gas production gains, are subject
to high depletion rates and the recent steep decline in drilling is
expected to eventually result in supply reductions.
Precision is focused on further diversification of its high
performance, high value service offering when the market rebounds
and as debt levels are reduced. Expansion of operations in the
United States land drilling market provided second quarter growth
in EBITDA and cash flow continuity that offsets the seasonal nature
of Precision's oilfield service business in Canada.
Besides new rig deployments in the quarter, no existing rigs
were moved for customers between Canada and the United States.
Outside Canada and the United States, there was no change in
activity as Precision continued to operate two drilling rigs in
Mexico and has one idle rig in Chile. Precision will be
opportunistic in deploying rigs to international markets with
moderate new capital investment requirements and contracts that
reward high value high performance services.
Summary for the three months ended June 30, 2009:
- The integration of the Grey Wolf acquisition in the United
States has proceeded on schedule with implementation of a new
organizational structure and financial systems. The roll-out of
vertical business support through supply chain and equipment
management is well underway for implementation during the second
half of 2009.
- Revenue was $210 million, an increase of $71 million or 51%
from the prior year quarter due to growth in Precision's United
States operations offset by seasonally lower activity levels in
Precision's Canadian operations and lower customer pricing for most
of Precision's services.
- Operating earnings were $31 million, an increase of $9 million
or 40% from the second quarter in 2008. Operating earnings were 15%
of revenue, compared to 16% in 2008.
- Capital expenditures for the purchase of property, plant and
equipment were $90 million in the second quarter, an increase of
$59 million over the same period in 2008, and included $86 million
on expansionary capital initiatives and $4 million on the upgrade
of existing assets. During the quarter eight newly-built Super
Series drilling rigs were added to the fleet under long-term
customer contracts, three in Canada and five in the United
States.
- Financial charges were $45 million, an increase of $43 million
from the prior year due to credit facilities entered into during
the fourth quarter 2008 as a result of acquisition growth in the
United States contract drilling market.
- A significant portion of Precision's secured credit facilities
are denominated in US dollars. During the quarter Precision
recorded a foreign exchange gain of $74 million primarily due to a
weakening of the US dollar compared to the Canadian dollar and the
effect on the financial statement translation of long-term monetary
items.
- General and administrative costs were $25 million an increase
of $8 million from the prior year due primarily to growth in
Precision's United States operations partially offset by personnel
reductions and reduced discretionary expenses.
- Bad debt expense was $4 million as the allowance for doubtful
accounts was increased to $19 million. Credit worthiness remains a
high priority as low energy commodity prices are creating financial
hardship for certain customers.
- Average revenue per utilization day for contract drilling rigs
in the second quarter of 2009 compared to the same period in 2008
increased to US$24,817 per day from US$22,006 per day in the United
States and from $15,924 in 2008 to $18,335 for Canada. The increase
in revenue rates for the second quarter in the United States
reflects the new rig mix associated with the acquisition, including
turnkey operations. These figures include US$17 million in revenue
generated from idle but contracted rigs associated with term
customer contracts and US$6 million in revenue from early contract
terminations on two rigs. Turnkey revenue was US$9 million
generated from 142 utilization days. Within Precision's Completion
and Production Services segment, average hourly rates for service
rigs were $604 in the second quarter of 2009 compared to $731 in
the first quarter of 2009 and $649 for the second quarter of
2008.
- Average operating costs per utilization day for drilling rigs
increased in the second quarter of 2009 to US$14,405 per day from
the prior year second quarter of US$10,331 per day in the United
States and decreased marginally in Canada from $10,685 to $10,573.
Within Precision's Completion and Production Services segment,
average hourly operating costs for service rigs were $507 in the
second quarter of 2009 compared to $453 in the second quarter of
2008. Costs were slightly lower on Canadian drilling rigs due to
cost saving initiatives implemented in the quarter. Other cost
escalations were primarily attributable to deeper capacity drilling
rig mix and lower equipment activity to allocate fixed costs. In
the United States the increase was also impacted by turnkey
operations where there is a larger scope to drilling costs that the
drilling contractor is responsible for providing, with a
commensurate increase in revenue.
Summary for the six months ended June 30, 2009:
- Precision lowered its debt to capitalization ratio from 0.37
to 0.24 with debt repayment of $472 million from proceeds through
three equity raises in the first half of 2009 and cash flow from
operations. As at June 30, 2009 Precision had a cash balance of
$180 million and in combination with access to its US$260 million
revolving credit facility, Precision continues to carry ample
liquidity.
- Revenue was $658 million, an increase of $177 million or 37%
from the prior year due to growth in Precision's United States
operations offset by lower activity levels and lower customer
pricing.
- Operating earnings were $156 million, an increase of $11
million or 8% from 2008. Operating earnings were 24% of revenue,
compared to 30% in 2008.
- Capital expenditures for the purchase of property, plant and
equipment were $165 million in the first half of 2009, an increase
of $110 million over the same period in 2008, and included $147
million on expansionary capital initiatives and $18 million on the
upgrade of existing assets. During the first six months 14
newly-built Super Series drilling rigs were added to the fleet
under long-term customer contracts, seven in Canada and seven in
the United States.
- Financial charges were $84 million, an increase of $79 million
from the prior year due to debt service and refinancing costs
associated with acquisition growth late in the fourth quarter of
2008.
- A significant portion of Precision's secured credit facilities
are denominated in US dollars. During the first half of the year
Precision recorded a foreign exchange gain of $42 million primarily
due to a weakening of the US dollar compared to the Canadian dollar
and the effect on the translation of long-term monetary items.
- General and administrative costs were $50 million, an increase
of $14 million from the prior year due primarily to acquisition
growth in Precision's United States operations partially offset by
personnel reductions and reduced discretionary expenses.
The industry and Precision have been experiencing declining
utilization as customer spending has been dramatically reduced
because of lower oil and natural gas commodity prices. For the
second quarter of 2009 AECO natural gas spot prices averaged $3.46
per MMBtu, a decrease of 66% over the second quarter 2008 average
of $10.22 per MMBtu. In the United States, Henry Hub natural gas
spot prices averaged US$3.70 per MMBtu in the second quarter of
2009 a decrease of 67% over the second quarter 2008 average of
US$11.37 per MMBtu. West Texas Intermediate crude oil averaged
US$59.69 per barrel during the quarter compared to US$124.29 per
barrel in the same period in 2008. The one-year forward price for
North American natural gas was also lower, trading in a range of
about $4.50 to $5.50 on Canadian and U.S. exchanges in the second
quarter of 2009, compared to a range of about $9.00 to $13.00 in
the same quarter of 2008.
OUTLOOK
The global economic recession, the tight and high-cost capital
markets and low oil and natural gas commodity prices continue to
have a negative impact on the oilfield service industry. The
drilling sector in both Canada and the United States experienced a
period of significant decline in utilization. According to industry
sources, as at July 10, 2009, the United States active land
drilling rig count was down about 52% from the same period in the
prior year while the Canadian drilling rig count was down about
57%.
With the decrease in utilization, the competitive pressure on
all of Precision's service offerings intensified resulting in lower
rates for services. In the United States there has been a recent
leveling of rigs working and a seasonal increase in rigs working in
Canada though significantly lower than the third quarter of 2008.
Precision expects these low levels of utilization to persist into
the third quarter of 2009 and potentially longer depending on
natural gas prices. Customers have provided very little visibility
for oilfield services in the fourth quarter of 2009. Precision
expects EBITDA and EBITDA as a percentage of revenue to continue to
decline from first half 2009 levels, though third quarter Canadian
levels should be higher than second quarter 2009 levels as rigs are
returned to service.
Precision has a strong portfolio of long-term customer contracts
that help mitigate the effects of the current downturn. Precision
expects to have an average of approximately 88 rigs under day work
term contract in North America in the third quarter of 2009 and an
average of 79 for the fourth quarter of 2009. These term contract
totals include 17 rigs in the United States that are currently not
working but receiving margin revenue from customers. In Canada,
term contracted drilling rigs generate about 200 to 250 utilization
days a year due to the seasonal nature of well access whereas in
the United States Precision expects about 350 utilization days in
most regions.
For all of 2009, Precision expects to have an average of
approximately 92 rigs under term contract, with 56 rigs contracted
in the United States, 34 in Canada and 2 in Mexico. For 2010,
Precision expects to have an average of approximately 27 rigs in
Canada under term contract and 32 in the United States and Mexico,
for a total of 59 for the full year. For the calendar year of 2011,
Precision expects an average of approximately 34 rigs to be
generating revenue under existing term contracts, with 15 of these
in Canada and 19 in the United States. Precision's long-term
contracts continue to be honoured by its customers and in some
cases, term revisions have been negotiated within original economic
terms. During the second quarter, Precision added six new term
contracts for existing rig deployment expected during the second
half of 2009 and early 2010 in the Marcellus shale play in the
United States.
As part of its ongoing net debt reduction plan, Precision
expects to keep capital expenditures at low levels during 2009.
Capital expenditures totaled $165 million in the first half of 2009
and are expected to be approximately $210 million for the full
year, with approximately $40 million for upgrade capital and $170
million for previously committed expansion capital. The expansion
capital is for 16 new rigs to be placed into service in 2009 with
the completion of the 2008 Super Series new build program of which
14 were completed by the end of the second quarter.
With the recession negatively impacting energy demand and with
increased onshore domestic production, the United States natural
gas storage levels are at a record high level surpassing the
five-year range as at July 10, 2009 and 26% higher than storage
volumes a year ago. The increase in United States natural gas
production, concerns over the declines in industrial gas
consumption and the prospect of higher liquefied natural gas
("LNG") imports has overshadowed lower Canadian imports and the
drop in active North American rigs drilling for natural gas.
Precision expects the United States supply of natural gas to show
significant declines in the near future as United States production
has begun to level off according to the latest available data.
Subject to demand, this should provide for higher commodity prices
and support a recovery in drilling activity.
Despite the near term challenges, the future of the global oil
and gas service industry remains promising. For Precision, 2009
represents an opportunity to demonstrate its value to customers
through delivery of high performance, high value services that
deliver low customer well costs and strong relative margins to
Precision.
SEGMENTED FINANCIAL RESULTS
Precision's operations are reported in two segments. The
Contract Drilling Services segment includes the drilling rig, camp
and catering, oilfield supply, and manufacturing divisions. The
Completion and Production Services segment includes the service
rig, snubbing, rental, and wastewater treatment divisions.
Three months ended June 30, Six months ended June 30,
(stated in thousands % %
of Canadian dollars) 2009 2008 Change 2009 2008 Change
----------------------------------------------------------------------------
Revenue:
Contract Drilling
Services $ 185,226 $ 93,006 99.2 $ 575,105 $ 335,371 71.5
Completion and
Production
Services 25,590 47,559 (46.2) 88,565 152,279 (41.8)
Inter-segment
eliminations (1,219) (2,051) 40.6 (5,628) (6,447) 12.7
----------------------------------------------------------------------------
$ 209,597 $ 138,514 51.3 $ 658,042 $ 481,203 36.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings: (1)
Contract Drilling
Services $ 43,520 $ 23,816 82.7 $ 161,052 $ 123,863 30.0
Completion and
Production
Services (681) 8,810 (107.7) 12,875 42,673 (69.8)
Corporate and other (11,801) (10,446) (13.0) (17,451) (21,376) 18.4
----------------------------------------------------------------------------
$ 31,038 $ 22,180 39.9 $ 156,476 $ 145,160 7.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
Three months ended June 30, Six months ended June 30,
(stated in thousands
of Canadian dollars, % %
except where noted) 2009 2008 Change 2009 2008 Change
----------------------------------------------------------------------------
Revenue $ 185,226 $ 93,006 99.2 $ 575,105 $ 335,371 71.5
Expenses:
Operating 106,208 55,133 92.6 322,313 176,438 82.7
General and
administrative 12,064 5,615 114.9 30,343 11,460 164.8
----------------------------------------------------------------------------
EBITDA (1) 66,954 32,258 107.6 222,449 147,473 50.8
Depreciation 23,434 8,442 177.6 61,397 23,610 160.0
----------------------------------------------------------------------------
Operating
earnings (1) $ 43,520 $ 23,816 82.7 $ 161,052 $ 123,863 30.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings
as a percentage of
revenue 23.5% 25.6% 28.0% 36.9%
----------------------------------------------------------------------------
Drilling rig revenue
per utilization
day in Canada $ 18,335 $ 15,924 15.1 $ 18,487 $ 16,265 13.7
----------------------------------------------------------------------------
Drilling rig revenue
per utilization
day in the United
States (2) US$24,817 US$22,006 12.8 US$25,079 US$22,365 12.1
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Includes revenue from idle but contracted rig days and rig contract lump
sum payouts.
Three months ended June 30,
--------------------------------------------------
Canadian drilling statistics: (1) 2009 2008
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Number of drilling rigs
(end of period) 226 868 228 886
Drilling rig operating days
(spud to release) 2,272 8,367 3,066 15,744
Drilling rig operating day
utilization 11% 11% 15% 19%
Number of wells drilled 289 782 413 1,568
Average days per well 7.9 10.7 7.4 10.0
Number of metres
drilled (000s) 504 1,274 602 2,444
Average metres per well 1,744 1,629 1,457 1,559
Average metres per day 222 152 196 155
----------------------------------------------------------------------------
Six months ended June 30,
--------------------------------------------------
Canadian drilling statistics: (1) 2009 2008
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Number of drilling rigs
(end of period) 226 868 228 886
Drilling rig operating
days (spud to release) 8,871 36,611 13,570 61,082
Drilling rig operating
day utilization 22% 23% 32% 38%
Number of wells drilled 955 3,753 1,863 6,694
Average days per well 9.3 9.8 7.3 9.1
Number of metres
drilled (000s) 1,596 5,315 2,548 9,234
Average metres per well 1,671 1,416 1,368 1,379
Average metres per day 180 145 188 151
----------------------------------------------------------------------------
(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
second quarter of 2009 increased by 99% to $185 million while
EBITDA increased by 108% to $67 million compared to the same period
in 2008. The increase in revenue and EBITDA was due to acquisition
growth in December, 2008. Activity in North America was impacted by
lower customer demand due to continued low natural gas and oil
prices. Lower industry activity levels were offset by the growth
and term contract positioning of Precision's rig fleet. Drilling
rig revenue per utilization day in Canada was up 15% over the prior
year due to a greater percentage of contracted rig days compared to
prior year and proportionately more activity from the Super Triple
and Super Single(TM) rigs which typically receive a day rate
premium. During the quarter 57% of Precision's utilization days in
Canada and 79% of the utilization days in the United States were
generated from rigs under term contract. In the United States the
average drilling utilization day rates for Precision remained
relatively strong due to term contracted rigs, the lump sum
payments associated with the early termination of two rig contracts
and margin contributions from idle but contracted rigs. As at the
end of the quarter in the United States there were 40 drilling rigs
working under term contracts and another 17 idle but contracted
rigs where Precision was receiving the margin payment only.
Drilling rig utilization days (spud to rig release plus move
days) in Canada during the second quarter of 2009 were 2,499, a
decrease of 27% compared to 3,442 in 2008. Drilling rig activity
for Precision in the United States was 223% higher than the same
quarter of 2008 due to the acquisition in December, 2008. In the
prior year quarter Precision had one drilling rig working in Latin
America and realized a total of 57 utilization days as compared to
182 utilization days in the current quarter from operations in
Mexico.
Precision's camp and catering division experienced an activity
decrease of 44% over the prior year second quarter as demand for
base camp and traditional rig camps fell with the overall decline
in oilfield service activity in western Canada.
Operating expenses were 57% of revenue for the quarter compared
to 59% for the prior year quarter. The decrease was due to
proportionately higher activity in the United States than Canada
where activity in the second quarter is impacted by spring
break-up. On a per day basis, operating costs for the drilling rig
division in Canada were 1% lower than the prior year quarter due to
cost containment measures. Operating costs percentage in the United
States was marginally higher due to rig mix, an additional
provision for bad debts of about $4 million and higher state
commodity taxes.
Despite the drop in activity and increased pressure on day
rates, EBITDA margins in contract drilling improved from prior year
due to term contracts, management control over costs and efforts to
minimize the erosion of drilling rig day rates.
Depreciation in the Contract Drilling Services segment increased
from the prior year due to the increase in activity in the United
States and the increase in carrying value of rigs to fair market
value on acquisition. The segment applies the unit of production
method in calculating rig depreciation expense.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
Three months ended June 30, Six months ended June 30,
(stated in thousands
of Canadian dollars, % %
except where noted) 2009 2008 Change 2009 2008 Change
----------------------------------------------------------------------------
Revenue $ 25,590 $ 47,559 (46.2) $ 88,565 $ 152,279 (41.8)
Expenses:
Operating 20,463 32,713 (37.4) 62,528 91,994 (32.0)
General and
administrative 2,110 1,992 5.9 4,471 5,292 (15.5)
----------------------------------------------------------------------------
EBITDA: (1) 3,017 12,854 (76.5) 21,566 54,993 (60.8)
Depreciation 3,698 4,044 (8.6) 8,691 12,320 (29.5)
----------------------------------------------------------------------------
Operating
earnings (1) $ (681) $ 8,810 (107.7) $ 12,875 $ 42,673 (69.8)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as
a percentage of
revenue (2.7%) 18.5% 14.5% 28.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
Canadian well servicing % %
statistics: 2009 2008 Change 2009 2008 Change
----------------------------------------------------------------------------
Number of service rigs
(end of period) 229 223 2.7 229 223 2.7
Service rig operating
hours 32,818 55,631 (41.0) 97,672 167,626 (41.7)
Service rig operating
hour utilization 16% 27% 24% 41%
----------------------------------------------------------------------------
Service rig revenue
per operating hour $ 604 $ 649 (6.9) $ 689 $ 712 (3.2)
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
In the Completion and Production Services segment, revenue for
the second quarter decreased by 46% from 2008 to $26 million while
EBITDA declined by 77% to $3 million. The decrease in revenue and
margins is attributed to the decline in industry activity as
customers reduced spending in response to sharply lower oil and
natural gas commodity prices.
Service rig activity declined 41% from the prior year period,
with the service rig fleet generating 32,818 operating hours in the
second quarter of 2009 compared with 55,631 hours in 2008 for
utilization of 16% and 27%, 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 7% of service rig operating
hours in the second quarter compared to 20% in the same quarter in
2008. There were 1,504 well completions in Canada in the second
quarter, a 52% decline from 3,148 wells in the same quarter in
2008.
Average service rig revenue decreased $45 per operating hour
over the prior year which represents EBITDA margin compression
given labour cost increases of about $25 per operating hour during
the fourth quarter of 2008.
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 69% in the second
quarter of 2008 to 80% for the same period in 2009. Operating costs
per operating hour increased over the comparable period in 2008 due
primarily to increased wages and lower activity.
Depreciation in the Completion and Production Services segment
in the second quarter of 2009 was 9% lower than the prior year
period due to lower equipment utilization.
SEGMENT REVIEW OF CORPORATE AND OTHER
Corporate and other expenses increased by 13% to $12 million in
the second quarter of 2009 compared to $10 million in the same
period of 2008. The increase was primarily associated with the
expanded United States operations.
OTHER ITEMS
Net financing charges of $45 million for the second quarter of
2009 were $43 million higher than the prior year. Included in
financing charges is $17 million for the amortization of deferred
financing costs. With the repayment of the unsecured bridge
facility $10 million of the capitalized financing costs associated
with this facility were expensed in the quarter. The increase in
interest expense is attributable to higher long-term debt
associated with the acquisition of Grey Wolf. During the second
quarter, Precision entered into interest rate agreements that
effectively fixed the overall effective interest rate at current
levels on most of the term debt in the secured credit facility for
the remaining term and scheduled debt repayment.
The Trust's effective tax rate on earnings before income taxes
for the first six months of 2009 was a tax recovery of 0.3%
compared to a 9.9% expense for the same period in 2008. The income
tax recovery is primarily a result of tax deductions available in
excess of tax earnings. Compared to a corporate tax rate, the low
effective tax rate can also be the result of the income trust
structure shifting all or a portion of the income tax burden of the
Trust to its unitholders and due to a portion of the Trust's
taxable income being taxed at lower rates than the Canadian
corporate tax rate.
At June 30, 2009 Precision reported goodwill of $813 million of
which $529 relates to the United States contract drilling business
unit. With specific reference to goodwill impairment, Precision
will continue to monitor the business climate for a significant
adverse change from December 31, 2008 and may test for impairment
during 2009, between customary annual tests.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the 2008 acquisition of Grey Wolf, a
subsidiary of the Trust entered into a new senior secured credit
facility (the "Secured Facility") with a syndicate of lenders that
is guaranteed by the Trust and was comprised of term loans and a
revolving facility (the "Revolver"). Precision also entered into an
unsecured bridge facility with certain of the lenders (the
"Unsecured Facility" and, together with the Secured Facility, the
"Credit Facilities") that is also guaranteed by the Trust. The
Credit Facilities funded the cash portion of the acquisition and
refinanced the pre-closing Precision bank debt and certain
pre-closing debt obligations of Grey Wolf.
On February 18, 2009 the Trust issued 46 million Trust units at
US$3.75 per unit for gross proceeds of $217 million and proceeds
net of fees and expenses of $209 million. The proceeds were used to
repurchase the outstanding convertible notes assumed in conjunction
with the Grey Wolf acquisition. All of the note holders with the
exception of US$10,000 exercised the repurchase option.
In April, Precision announced a series of financing transactions
that raised approximately $380 million which was used to strengthen
the Trust's balance sheet by refinancing and restructuring the debt
incurred in the acquisition of Grey Wolf. The financing
transactions enabled the repayment of Precision's Unsecured
Facility loans of $296 million (US$235 million) which bore interest
at 17% and allowed Precision's Secured Facility to be fully
syndicated and thereby provide certainty to the cost of debt.
Precision issued $175 million of unsecured notes with an eight-year
life requiring no principal payments for the first five years, and
reduced the available Revolver capacity to US$260 million in
conjunction with the closing of these financing transactions.
The financing transactions, coupled with the Trust's February
2009 unit offering, reduced Precision's blended interest rate to
approximately 8.3%, reduced Precision's cash interest expense by
approximately $70 million on an annual basis and reduced the
Trust's overall leverage.
The terms of the documents governing the Secured Facility
contain provisions that in the event of default or in liquidation
scenario ensures that the lenders have priority as to payment over
the unitholders in respect to the assets and income of the Trust
and its subsidiaries. Amounts due and owing to the lenders under
the Secured Facility must be paid before any distributions can be
made to unitholders. This relative priority of payments could
result in a temporary or permanent interruption of distributions to
unitholders.
As at June 30, 2009, approximately $889 million was outstanding
under the Secured Facility and approximately $175 million was
outstanding under the unsecured notes.
During the first half of 2009 the Trust generated cash from
continuing operations of $414 million and issued Trust units for
net proceeds of $414 million. The cash generated was used to
purchase property plant and equipment net of disposal proceeds and
related non-cash working capital of $179 million, repay long-term
debt of $472 million, pay additional finance charges of $21
million, and make cash distributions to unitholders of $27 million
leaving a cash increase at June 30, 2009 of $118 million.
As at June 30, 2009 the Trust had a long-term debt to long-term
debt plus equity ratio of 0.24 compared to 0.07 as at the
comparable period in 2008 and 0.37 at December 31, 2008. The
significant increase over the prior year is due to the additional
debt arising from the acquisition of Grey Wolf. Precision has made
net debt reduction a priority and is employing initiatives to
deleverage from current levels.
In addition to the Secured Facility, Precision has a $25 million
operating facility which is utilized for working capital management
and the issuance of letters of credit.
During the second quarter of 2009, working capital decreased by
$114 million to $254 million as Precision realized lower activity
and corresponding operating results in the current quarter compared
to the first quarter of 2009.
DISTRIBUTIONS
Precision converted to an income trust in 2005 as the Canadian
tax rules of the day allowed the market to place a higher value for
unitholders on the flow-through structure than the traditional
corporate structure. In light of legislated and proposed changes,
the oilfield service sector outlook and resulting financial
operating performance and loan covenants the Trust continues to
examine whether the current structure is optimal for Precision's
business strategy and in the best interest of unitholders.
On February 9, 2009 the Trust announced the suspension of cash
distributions for an indefinite period for distributions to be paid
after February 17, 2009. The suspension of cash distributions was
taken in response to lower financial operating performance at the
start of 2009 and allowed Precision to increase debt repayment
capability and balance sheet strength.
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.
A quarterly two-year reconciliation of distributable cash from continuing
operations follows:
(Stated in thousands of
Canadian dollars,
except per diluted unit amounts) 2008 2009
----------------------------------------------------------------------------
Quarters ended September 30 December 31 March 31 June 30
----------------------------------------------------------------------------
Cash provided by continuing
operations $ 3,241 $ 82,904 $ 201,596 $ 212,554
Deduct:
Purchase of property,
plant and equipment for
upgrade capital (17,270) (30,506) (13,760) (4,040)
Purchase of property plant
and equipment for expansion
initiatives (58,187) (68,804) (61,162) (86,283)
Add:
Proceeds on the sale of
property, plant and
equipment 1,879 5,115 5,942 1,887
----------------------------------------------------------------------------
Standardized distributable
cash (1) (70,337) (11,291) 132,616 124,118
Unfunded long-term incentive
plan compensation 93 (559) 2,524 (442)
----------------------------------------------------------------------------
Distributable cash from
continuing operations $ (70,244) $ (11,850) $ 135,140 $ 123,676
----------------------------------------------------------------------------
Cash distributions declared $ 49,046 $ 53,522 $ 6,408 $ -
----------------------------------------------------------------------------
Per diluted unit information:
Cash distributions declared $ 0.39 $ 0.39 $ 0.04 $ -
Standardized distributable
cash (1)(2) $ (0.52) $ (0.08) $ 0.63 $ 0.48
Distributable cash from
continuing
operations (1)(2) $ (0.52) $ (0.08) $ 0.64 $ 0.48
----------------------------------------------------------------------------
(Stated in thousands of
Canadian dollars,
except per diluted unit amounts) 2007 2008
----------------------------------------------------------------------------
Quarters ended September 30 December 31 March 31 June 30
----------------------------------------------------------------------------
Cash provided by continuing
operations $ 20,270 $ 78,474 $ 57,307 $ 200,458
Deduct:
Purchase of property, plant
and equipment for upgrade
capital (10,544) (9,241) (2,814) (8,864)
Purchase of property plant
and equipment for expansion
initiatives (30,382) (28,264) (20,654) (22,480)
Add:
Proceeds on the sale of
property, plant and equipment 1,273 1,236 1,303 2,143
----------------------------------------------------------------------------
Standardized distributable
cash (1) (19,383) 42,205 35,142 171,257
Unfunded long-term incentive
plan compensation 3,685 (1,817) 469 (2,166)
----------------------------------------------------------------------------
Distributable cash from
continuing operations $ (15,698) $ 40,388 $ 35,611 $ 169,091
----------------------------------------------------------------------------
Cash distributions declared $ 49,046 $ 69,166 $ 49,046 $ 49,045
----------------------------------------------------------------------------
Per diluted unit information:
Cash distributions declared $ 0.39 $ 0.55 $ 0.39 $ 0.39
Standardized distributable
cash (1)(2) $ (0.14) $ 0.31 $ 0.26 $ 1.27
Distributable cash from
continuing operations (1)(2) $ (0.12) $ 0.30 $ 0.26 $ 1.25
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Distributable cash calculations per basic and diluted unit have been
adjusted to reflect the rights offering completed in the second
quarter of 2009.
(stated in thousands Six months ended Six months ended Year ended
of Canadian dollars) June 30, 2009 June 30, 2008 December 31, 2008
----------------------------------------------------------------------------
Cash provided by
continuing
operations (A) $ 414,150 $ 257,765 $ 343,910
----------------------------------------------------------------------------
Net earnings (B) $ 114,892 $ 128,005 $ 302,730
----------------------------------------------------------------------------
Distributions
declared � $ 6,408 $ 98,091 $ 224,688
----------------------------------------------------------------------------
Excess of cash provided
by continuing operations
over distributions
declared (A-C) $ 407,742 $ 159,674 $ 119,222
----------------------------------------------------------------------------
Excess of net earnings
from operating
activities over
distributions
declared (B-C) $ 108,484 $ 29,914 $ 78,042
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Precision has initiated a number of cost reduction and cash
generation plans designed to strengthen its capability to reduce
net long-term debt and improve its underlying credit quality and
capital structure. The near-term management strategy involves
retaining funds from available distributable cash to repay debt and
fund required capital expenditures and finance working capital
needs. Planned asset growth will generally be financed through
existing debt facilities or cash retained from continuing
operations.
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per unit amounts)
2008 2009
----------------------------------------------------------------------------
Quarters ended September 30 December 31 March 31 June 30
----------------------------------------------------------------------------
Revenue $ 285,639 $ 335,049 $ 448,445 $ 209,597
EBITDA (1) 118,820 134,795 169,387 59,259
Earnings from continuing
operations: 82,349 92,376 57,417 57,475
Per basic unit (2) 0.61 0.67 0.30 0.23
Per diluted unit (2) 0.61 0.66 0.27 0.22
Net earnings: 82,349 92,376 57,417 57,475
Per basic unit (2) 0.61 0.67 0.30 0.23
Per diluted unit (2) 0.61 0.66 0.27 0.22
Cash provided by continuing
operations 3,241 82,904 201,596 212,554
Distributions declared $ 49,046 $ 77,551 $ 6,408 $ -
----------------------------------------------------------------------------
2007 2008
----------------------------------------------------------------------------
Quarters ended September 30 December 31 March 31 June 30
----------------------------------------------------------------------------
Revenue $ 227,928 $ 248,726 $ 342,689 $ 138,514
EBITDA (1) 92,068 103,351 147,347 35,574
Earnings from continuing
operations: 69,702 89,329 106,266 21,739
Per basic unit (2) 0.52 0.66 0.79 0.16
Per diluted unit (2) 0.52 0.66 0.79 0.16
Net earnings: 72,658 89,329 106,266 21,739
Per basic unit (2) 0.54 0.66 0.79 0.16
Per diluted unit (2) 0.54 0.66 0.79 0.16
Cash provided by continuing
operations 20,270 78,474 57,307 200,458
Distributions declared $ 49,046 $ 99,348 $ 49,046 $ 49,045
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Earnings per basic and diluted unit has been adjusted to reflect the
rights offering completed in the second quarter of 2009.
NON-GAAP MEASURES
Precision uses certain measures that are not recognized under
Canadian generally accepted accounting principles to assess
performance and believes these non-GAAP measures provide useful
supplemental information to investors. Following are the non-GAAP
measures Precision uses in assessing performance.
EBITDA
Management believes that in addition to net earnings, EBITDA as
derived from information reported in the Consolidated Statements of
Earnings and Retained Earnings (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, the impact of foreign exchange,
how the results are taxed, how funds are invested or how non-cash
depreciation and amortization charges affect results.
The following table provides a reconciliation of net earnings
under GAAP, as disclosed in the Consolidated Statement of Earnings
and Retained Earnings (Deficit), to EBITDA.
Three months ended Six months ended
(Stated in thousands June 30, June 30
of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
EBITDA $ 59,260 $ 35,574 $ 228,647 $ 182,921
Add (deduct):
Depreciation and amortization (28,222) (13,394) (72,171) (37,761)
Foreign exchange 74,060 (133) 41,569 1,125
Financing charges (44,881) (2,087) (83,551) (4,283)
Income taxes (2,742) 1,779 398 (13,997)
----------------------------------------------------------------------------
Net earnings $ 57,475 $ 21,739 $ 114,892 $ 128,005
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings
Management believes that in addition to net earnings, operating
earnings as reported in the Consolidated Statements of Earnings and
Retained Earnings (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, the impact of foreign exchange or how the
results are taxed. Operating earnings as calculated by Precision
was changed in the quarter and it now excludes the effects of
foreign exchange. The revised calculation is a better reflection of
results from operations without consideration as to how results
were impacted by foreign exchange.
The following table provides a reconciliation of net earnings
under GAAP, as disclosed in the Consolidated Statement of Earnings
and Retained Earnings (Deficit), to operating earnings.
Three months ended Six months ended
(Stated in thousands June 30, June 30
of Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Operating earnings $ 31,038 $ 22,180 $ 156,476 $ 145,160
Add (deduct):
Foreign exchange 74,060 (133) 41,569 1,125
Financing charges (44,881) (2,087) (83,551) (4,283)
Income taxes (2,742) 1,779 398 (13,997)
----------------------------------------------------------------------------
Net earnings $ 57,475 $ 21,739 $ 114,892 $ 128,005
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 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
that these measures should not be construed as an alternative to
measures determined in accordance with GAAP as an indicator of
Precision's performance.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND
STATEMENTS
Certain statements contained in this report, including
statements that contain words such as "could", "should", "can",
"anticipate", "estimate", "propose", "plan", "expect", "believe",
"will", "may" and similar expressions and statements relating to
matters that are not historical facts constitute "forward-looking
information" within the meaning of applicable Canadian securities
legislation and "forward-looking statements" within the meaning of
the "safe harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995 (collectively,
"forward-looking information and statements").
In particular, forward-looking information and statements
include, but are not limited to: the impact of conservation
efforts, the number of rigs under daywork term contracts in Canada,
the United States and Mexico; the global economic situation;
persisting low rig utilization; continued declines in EBITDA and
EBITDA as a percentage of revenue; the decline rate on newly
drilled wells; overall natural gas supply declines and
consequential effect on commodity prices; the potential rebound in
land drilling activity and its impact on Precision's asset
utilization and rates; the integration of Precision and Grey Wolf;
the potential for goodwill impairment; the timing of completion of
rigs in the 2008 rig build program; and statements as to the demand
for Precision's services; and the impact of certain accounting
changes on Precision.
These forward-looking information and statements are based on
certain assumptions and analysis made by the Trust in light of its
experience and its perception of historical trends, current
conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However,
whether actual results, performance or achievements will conform to
the Trust's expectations and predictions is subject to a number of
known and unknown risks and uncertainties which could cause actual
results to differ materially from the Trust's expectations. Such
risks and uncertainties include, but are not limited to:
fluctuations in the price and demand for oil and natural gas; the
current global financial situation and the dislocation in the
credit markets; 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 seasonal and 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; failure to realize anticipated synergies
in the Grey Wolf acquisition; and other unforeseen conditions which
could impact the use of services supplied by Precision.
Consequently, all of the forward-looking information and
statements made in this report are qualified by these cautionary
statements and there can be no assurance that the actual results or
developments anticipated by the Trust will be realized or, even if
substantially realized, that they will have the expected
consequences to, or effects on, the Trust or its business or
operations. Readers are therefore cautioned not to place undue
reliance on such forward-looking information and statements. Except
as may be required by law, the Trust assumes no obligation to
update publicly any such forward-looking information and
statements, whether as a result of new information, future events
or otherwise.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
(Stated in thousands of Canadian dollars) 2009 2008
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 179,979 $ 61,511
Accounts receivable 213,281 601,753
Income tax recoverable 11,863 13,313
Inventory 8,924 8,652
----------------------------------------------------------------------------
414,047 685,229
Income tax recoverable (note 4) 58,055 58,055
Property, plant and equipment, net of
accumulated depreciation 3,231,628 3,243,213
Intangibles 4,421 5,676
Goodwill 813,279 841,529
----------------------------------------------------------------------------
$ 4,521,430 $ 4,833,702
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 122,887 $ 270,122
Distributions payable - 20,825
Current portion of long-term debt (note 5) 37,497 48,953
----------------------------------------------------------------------------
160,384 339,900
Long-term liabilities 24,836 30,951
Long-term debt (note 5) 868,933 1,368,349
Future income taxes 729,196 770,623
----------------------------------------------------------------------------
1,783,349 2,509,823
----------------------------------------------------------------------------
Contingencies (note 9)
Unitholders' equity:
Unitholders' capital (note 3) 2,771,159 2,355,590
Contributed surplus 2,023 998
Retained earnings (deficit) 60,416 (48,068)
Accumulated other comprehensive income (note 6) (95,517) 15,359
----------------------------------------------------------------------------
2,738,081 2,323,879
----------------------------------------------------------------------------
$ 4,521,430 $ 4,833,702
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(DEFICIT) (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
(Stated in thousands of Canadian
dollars, except per unit amounts)
2009 2008 2009 2008
----------------------------------------------------------------------------
Revenue $ 209,597 $ 138,514 $ 658,042 $ 481,203
Expenses:
Operating 125,591 85,795 379,352 261,985
General and administrative 24,746 17,145 50,043 36,297
Depreciation and amortization 28,222 13,394 72,171 37,761
Foreign exchange (74,060) 133 (41,569) (1,125)
Finance charges (note 8) 44,881 2,087 83,551 4,283
----------------------------------------------------------------------------
Earnings before income taxes 60,217 19,960 114,494 142,002
Income taxes: (note 4)
Current (497) 2,045 8,164 4,697
Future (reduction) 3,239 (3,824) (8,562) 9,300
----------------------------------------------------------------------------
2,742 (1,779) (398) 13,997
----------------------------------------------------------------------------
Net earnings 57,475 21,739 114,892 128,005
Retained earnings (deficit),
beginning of period 2,941 (68,890) (48,068) (126,110)
Distributions declared - (49,045) (6,408) (98,091)
----------------------------------------------------------------------------
Retained earnings (deficit),
end of period $ 60,416 $ (96,196) $ 60,416 $ (96,196)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per unit: (note 10)
Basic $ 0.23 $ 0.16 $ 0.51 $ 0.95
Diluted $ 0.22 $ 0.16 $ 0.50 $ 0.95
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
(Stated in thousands of
Canadian dollars)
2009 2008 2009 2008
----------------------------------------------------------------------------
Net earnings $ 57,475 $ 21,739 $ 114,892 $ 128,005
Unrealized loss recorded on
translation of assets and
liabilities of self-sustaining
operations denominated in
foreign currency (163,709) - (110,876) -
----------------------------------------------------------------------------
Comprehensive income (loss) $ (106,234) $ 21,739 $ 4,016 $ 128,005
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
(Stated in thousands of
Canadian dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings $ 57,475 $ 21,739 $ 114,892 $ 128,005
Adjustments and other items
not involving cash:
Long-term compensation plans 652 2,166 (1,872) 1,697
Depreciation and amortization 28,222 13,394 72,171 37,761
Future income taxes 3,239 (3,824) (8,562) 9,300
Amortization of debt issue
costs 16,782 - 23,063 -
Foreign exchange on long-term
monetary items
(85,680) 5 (50,998) (17)
Changes in non-cash working
capital balances 191,864 166,978 265,456 81,019
----------------------------------------------------------------------------
212,554 200,458 414,150 257,765
Investments:
Purchase of property, plant
and equipment (90,323) (31,344) (165,245) (54,812)
Proceeds on sale of property,
plant and equipment 1,887 2,143 7,829 3,446
Change in income tax recoverable
(note 4) - 37 - (55,148)
Changes in non-cash working
capital balances (9,513) 3,975 (21,888) 3,071
----------------------------------------------------------------------------
(97,949) (25,189) (179,304) (103,443)
Financing:
Increase in long-term debt 267,272 - 408,893 93,681
Repayment of long-term debt (518,499) (108,559) (881,038) (108,559)
Financing costs on long-term
debt (6,201) - (20,954) -
Distributions paid - (49,045) (27,233) (118,212)
Issuance of trust units, net
of issue costs 206,866 - 413,756 -
Change in non-cash working
capital balances (1,269) - 431 -
Change in bank indebtedness - (10,548) - (14,115)
----------------------------------------------------------------------------
(51,831) (168,152) (106,145) (147,205)
----------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (12,628) - (10,233) -
----------------------------------------------------------------------------
Increase in cash and cash
equivalents 50,146 7,117 118,468 7,117
Cash and cash equivalents,
beginning of period 129,833 - 61,511 -
----------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 179,979 $ 7,117 $ 179,979 $ 7,117
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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, 2008 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, 2008.
Effective January 1, 2009 the Trust adopted new Canadian
accounting standards relating to goodwill and intangible assets
(Section 3064). This new section establishes standards for the
recognition, measurement, presentation and disclosure of goodwill
and intangible assets. The new section did not have an impact on
the consolidated financial statements.
Precision has a combination of equity based incentive
compensation plans outstanding, some of which are settled in trust
units and others that are settled in cash. Compensation cost
associated with equity settled plans is recorded at fair value and
expensed over the instruments vesting period. Under Precision's
option plan the fair value of the option grant is calculated at the
date of grant using the Black-Scholes option pricing model and that
value is recorded as compensation expense over the grant's vesting
period with an offsetting credit to contributed surplus.
Forfeitures are estimated on the date of grant. Under the
non-management director trust unit plan the fair value is based on
the trading price of a Precision unit on the date of grant.
Compensation cost associated with cash settled compensation plans
is recorded at intrinsic value over the instruments vesting period.
Intrinsic value is determined by the unit price at the period end
applied to the units that have vested under the plan. The
associated liability is included in accounts payable or long-term
liabilities as appropriate.
2. Seasonality of Operations
The Trust has operations that are carried on in Canada which
represent approximately 37% (2008 - 88%) of consolidated total
assets as at June 30, 2009 and 43% (2008 - 87%) of consolidated
revenue for the six months ended June 30, 2009. The ability to move
heavy equipment in Canadian oil and natural gas fields is dependent
on weather conditions. As warm weather returns in the spring, the
winter's frost comes out of the ground rendering many secondary
roads incapable of supporting the weight of heavy equipment until
they have thoroughly dried out. The duration of this "spring
break-up" has a direct impact on the Trust's activity levels. In
addition, many exploration and production areas in northern Canada
are accessible only in winter months when the ground is frozen hard
enough to support equipment. The timing of freeze up and spring
break-up affects the ability to move equipment in and out of these
areas. As a result, late March through May is traditionally the
Trust's slowest time.
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, 2008 160,042,065 $ 2,353,843
Issued February 18, 2009 46,000,000 217,281
Issued on retraction of exchangeable LP units 32,021 369
Issued pursuant to private placement 35,000,000 70,181
Issued upon the exercise of rights on June 4,
2009 34,441,950 103,326
Unit issue costs, net of related tax effect of
$1.8 million - (10,038)
----------------------------------------------------------------------------
275,516,036 $ 2,734,962
Warrants issued pursuant to private placement - 34,819
----------------------------------------------------------------------------
Balance, June 30, 2009 275,516,036 $ 2,769,781
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exchangeable LP units Number Amount
----------------------------------------------------------------------------
Balance, December 31, 2008 151,583 $ 1,747
Redeemed on retraction of exchangeable LP units (32,021) (369)
----------------------------------------------------------------------------
Balance, June 30, 2009 119,562 $ 1,378
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Summary Number Amount
----------------------------------------------------------------------------
Trust units 275,516,036 $ 2,769,781
Exchangeable LP units 119,562 1,378
----------------------------------------------------------------------------
Unitholders'capital 275,635,598 $ 2,771,159
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(c) Warrants:
On April 22, 2009 the Trust issued 15,000,000 purchase warrants
pursuant to a private placement. Each warrant is exercisable into a
unit of the Trust at a price of $3.22 per trust unit for a period
of five years from the date of issue.
4. Income Taxes
Currently, the Trust incurs taxes to the extent that there are
certain provincial capital taxes or state franchise taxes, as well
as taxes on any taxable income, of its underlying subsidiaries.
Future income taxes arise from the differences between the
accounting and tax basis of the Trust's and its subsidiaries'
assets and liabilities.
The provision for income taxes differs from that which would be
expected by applying statutory Canadian income tax rates. A
reconciliation of the difference at June 30 is as follows:
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
----------------------------------------------------------------------------
Earnings before income taxes $ 60,217 $19,960 $114,494 $142,002
Federal and provincial statutory
rates 29% 30% 29% 30%
----------------------------------------------------------------------------
Tax at statutory rates $ 17,463 $ 5,988 $ 33,203 $ 42,601
Adjusted for the effect of:
Non-deductible expenses (1,504) 29 2,182 (197)
Income taxed at lower rates (12,605) - (35,424) -
Income to be distributed to
unitholders, not subject to tax
in the Trust (879) (8,685) (2,323) (31,569)
Other 267 889 1,964 3,162
----------------------------------------------------------------------------
Income tax expense (reduction) $ 2,742 $(1,779) $ (398) $ 13,997
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Effective income tax rate 5% (9)% -% 10%
----------------------------------------------------------------------------
The Trust received Notices of Reassessment in 2008 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 $37.7 million in taxes and
$20.4 million in assessed interest. The reassessments relate to the
treatment of interest in certain provincial tax filings. The Trust
is in the process of challenging these reassessments. The Trust
anticipates 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. Long-Term Debt
June 30, December 31,
2009 2008
----------------------------------------------------------------------------
Secured facility:
Term Loan A $ 357,038 $ 489,215
Term Loan B 531,582 489,840
Revolving credit facility - 107,981
Unsecured facility - 168,352
Unsecured senior notes 175,000 -
Unsecured convertible notes
3.75% notes (US$137.5 million) - 168,413
Floating rate notes (US$124.8 million) - 152,801
----------------------------------------------------------------------------
1,063,620 1,576,602
Less net unamortized debt issue costs (157,190) (159,300)
----------------------------------------------------------------------------
906,430 1,417,302
Less current portion (37,497) (48,953)
----------------------------------------------------------------------------
$ 868,933 $ 1,368,349
----------------------------------------------------------------------------
As at June 30, 2009 Precision had borrowed $1,063.6 million,
comprised of US$745.5 million under secured facilities and $175.0
million under an unsecured facility. Precision had available a
further US$260.0 million under the secured revolving credit
facility, of which none was drawn. Availability of the revolving
credit facility was reduced by outstanding letters of credit of
US$28.0 million.
During the second quarter Precision entered into an interest
rate swap arrangement to fix the libor rate at 1.7% on US$250.0
million of the Term A-1 facility (with scheduled reductions in the
balance through September 2013 to match the reduction in principal
balances) and paid US$2.1 million for an interest rate cap of 3.25%
on US$350.0 million of the Term B facilities (with scheduled
reductions in the hedged balance through December 2013). The net
amount owing under the interest rate derivative contract is settled
quarterly.
During the second quarter, Precision fully repaid and cancelled
the outstanding balance of the unsecured facility and completed
syndication of the Secured Facility.
On April 22, 2009, the Trust completed a private placement of
$175.0 million principal amount of 10% senior unsecured notes (the
"Senior Notes"). which have an eight-year term, with one-third of
the initial outstanding principal amount payable on each of the
6th, 7th and 8th anniversaries of the closing date of the private
placement. The Senior Notes are unsecured and have been guaranteed
by the Trust and each subsidiary of the Trust that guaranteed the
Secured Facility. The terms of the Senior Notes requires Precision
to maintain certain affirmative and negative covenants.
During the first quarter, holders of 3.75% Notes and Floating
Rate Notes representing US$137.5 million and US$124.8 million,
respectively accepted the purchase offer made pursuant to change in
control provisions in the indenture agreements governing the notes.
Precision was required to purchase these notes on March 24, 2009 at
the principal balance plus accrued interest.
At June 30, 2009 principal repayments are as follows:
For the twelve month periods ended June 30,
----------------------------------------------------------------------------
2010 $ 37,497
2011 65,794
2012 75,427
2013 85,061
2014 229,562
Thereafter 570,279
----------------------------------------------------------------------------
6. Accumulated Other Comprehensive Income
----------------------------------------------------------------------------
Balance, December 31, 2008 $ 15,359
Unrealized foreign currency translation loss (110,876)
----------------------------------------------------------------------------
Balance, June 30, 2009 $ (95,517)
----------------------------------------------------------------------------
7. Unit Based Compensation Plans
(a) Option plan:
During the quarter the Trust implemented a unit option plan
under which a combined total of 11,103,500 options to purchase
units are reserved to be granted to employees. Of the amount
reserved, 1,920,100 options have been granted. Under this plan, the
exercise price of each option equals the fair market of the option
at the date of grant determined by the weighted average trading
price for the five days preceding the grant. The options vests over
a period of three years from the date of grant as employees render
continuous service to the Trust and have a term of seven years.
A summary of the status of the equity incentive plan as at June
30, 2009 is presented below:
Weighted
average
Options Range of exercise Options
Outstanding exercise price price exercisable
----------------------------------------------------------------------------
Outstanding as at
December 31, 2008 -
Granted 1,920,100 $ 5.80 - 5.85 $ 5.83 -
----------------------------------------------------------------------------
Outstanding as at
June 30, 2009 1,920,100 $ 5.80 - 5.85 $ 5.83 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The per unit weighted average fair value of the unit options
granted during the quarter ended June 30, 2009 was $2.54 based on
the date of grant valuation using the Black-Scholes option pricing
model with the following assumption: average risk-free interest
rate 2%, average expected life of four years and expected
volatility of 56%. Unit based compensation of $0.2 million was
expensed during the three and six months ended June 30, 2009.
(b) Officers and employees:
During the quarter Precision introduced two new unit based
incentive plans to replace the Performance Saving Plan and the
Long-Term Incentive Plan. Under the Restricted Trust Unit incentive
plan units granted to eligible employees vest annually over a three
year term. Vested units are automatically paid out in cash in the
first quarter of the year following vesting at a value determined
by the fair market value of the units as at December 31 of the
vesting year. Under the Performance Trust Unit incentive plan units
granted to eligible employees vest at the end of a three year term.
Vested units are automatically paid out in cash in first quarter
following the vested term based on the number of performance units
held multiplied by a performance factor that ranges from zero to
two times. The performance factor is based on Precision's returns
compared to a peer group. Included in net earnings for the three
and six months ended June 30, 2009 is an expense of $0.3 million
(2008 - $nil) and $2.4 million (2008 - $nil), respectively.
Certain liabilities under the Performance Savings Plan continue
to exist as eligible participants were able to elect to receive a
portion of their annual performance bonus in the form of deferred
trust units ("DTUs"). These notional units are redeemable in cash
and are adjusted for each distribution to unitholders by issuing
additional DTUs based on the weighted average trading price on the
Toronto Stock Exchange for the five days immediately following the
ex-distribution date. All DTUs must be redeemed within 60 days of
ceasing to be an employee of Precision or by the end of the second
full calendar year after receipt of the DTUs. A summary of the DTUs
outstanding under this unit based incentive plan is presented
below:
Deferred Trust Units Outstanding
----------------------------------------------------------------------------
Balance, December 31, 2008 83,435
Issued, including as a result of distributions 211,156
Redeemed on employee resignations and withdrawals (4,395)
----------------------------------------------------------------------------
Balance, June 30, 2009 290,196
----------------------------------------------------------------------------
As at June 30, 2009 $1.6 million is included in accounts payable
and accrued liabilities for outstanding DTUs. Included in net
earnings for the three and six months ended June 30, 2009 is an
expense of $ 0.7 million (2008 - $0.5 million) and $0.3 million
(2008 - $1.1 million), respectively.
The Trust has a Unit Appreciation Rights ("UAR") plan. Under the
plan eligible participants were granted UAR's that entitle the
rights holder to receive cash payments calculated as the excess of
the market price over the exercise price per unit on the exercise
date. The exercise price of the UAR is reduced by the aggregate
unit distributions paid or payable on Trust units from the grant
date to the exercise date. The UAR's vest over a period of 5 years
and expire 10 years from the date of grant. No amounts relating to
the UAR plan have been recorded as compensation expense or accrued
liability as at June 30, 2009 as the intrinsic value of the awards
was nil.
(c) 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
June 30, 2009 $0.4 million is included in accounts payable and
accrued liabilities and $0.4 million in long-term incentive plan
payable for the 136,500 outstanding DTUs. Included in net earnings
for the three and six months ended June 30, 2009 is an expense of
$0.3 million (2008 - $0.8 million) and a recovery of $0.6 million
(2008 - $2.5 million expense), respectively.
(d) 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
deferred trust units outstanding under this unit based incentive
plan is presented below:
Number
Outstanding
----------------------------------------------------------------------------
Balance, December 31, 2008 54,543
Granted 161,450
Issued as a result of distributions 2,051
----------------------------------------------------------------------------
Balance, June 30, 2009 218,044
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Included in net earnings for the three and six months ended June
30, 2009 as unit based compensation with a corresponding increase
in contributed surplus, is $270,000 (2008 - $240,000) and $815,000
(2008 - $435,000 expense), respectively.
8. Finance Charges
The following table provides a summary of the finance
charges:
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
----------------------------------------------------------------------------
Interest:
Long-term debt $ 28,151 $ 2,109 $ 60,569 $ 4,344
Other 57 53 120 99
Income (110) (75) (201) (160)
Amortization of debt issue costs 6,884 - 13,164 -
Loss on settlement of unsecured
facility (note 5) 9,899 - 9,899 -
----------------------------------------------------------------------------
Finance charges $ 44,881 $ 2,087 $ 83,551 $ 4,283
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. Contingencies
The business and operations of the Trust are complex and the
Trust has executed a number of significant financings, business
combinations, acquisitions and dispositions over the course of its
history. The computation of income taxes payable as a result of
these transactions involves many complex factors as well as the
Trust's interpretation of relevant tax legislation and regulations.
The Trust's management believes that the provision for income tax
is adequate and in accordance with generally accepted accounting
principles and applicable legislation and regulations. However,
there are a number of tax filing positions that can still be the
subject of review by taxation authorities who may successfully
challenge the Trust's interpretation of the applicable tax
legislation and regulations, with the result that additional taxes
could be payable by the Trust and the amount owed, with estimated
interest but without penalties, could be up to $391 million,
including $58 million recorded as a long-term receivable.
10. Per Unit Amounts
The following tables reconcile the net earnings and weighted
average units outstanding used in computing basic and diluted
earnings per unit:
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
----------------------------------------------------------------------------
Net earnings - basic $ 57,475 $ 21,739 $ 114,892 $ 128,005
Impact of assumed conversion of
convertible debt, net of tax - - 1,723 -
----------------------------------------------------------------------------
Net earnings - diluted $ 57,475 $ 21,739 $ 116,615 $ 128,005
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average units outstanding 242,573 125,758 211,861 125,758
Effect of rights offering 11,733 9,007 12,354 9,007
----------------------------------------------------------------------------
Weighted average units outstanding
- basic 254,306 134,765 224,215 134,765
Effect of trust unit warrants 5,344 - 2,672 -
Effect of stock options and other
equity compensation plans 172 27 124 23
Effect of convertible debt - - 7,793 -
Effect of rights offering 247 2 684 2
----------------------------------------------------------------------------
Weighted average units outstanding
- diluted 260,069 134,794 235,488 134,790
----------------------------------------------------------------------------
----------------------------------------------------------------------------
11. Segmented Information
The Trust operates primarily in Canada and the United States, in
two segments; Contract Drilling Services and Completion and
Production Services. Contract Drilling Services includes drilling
rigs, procurement and distribution of oilfield supplies, camp and
catering services and manufacture, sale, and repair of drilling
equipment. Completion and Production Services includes service
rigs, snubbing units, wastewater treatment units, and oilfield
equipment rental.
Completion
Three months Contract and
ended June 30, Drilling Production Corporate Inter-segment
2009 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 185,226 $ 25,590 $ - $ (1,219) $209,597
Segment profit
(loss) 43,520 (681) (11,801) - 31,038
Depreciation and
amortization 23,434 3,698 1,090 - 28,222
Total assets 3,899,840 393,367 228,223 - 4,521,430
Goodwill 701,140 112,139 - - 813,279
Capital
expenditures 88,529 97 1,697 - 90,323
----------------------------------------------------------------------------
Completion
Three months Contract and
ended June 30, Drilling Production Corporate Inter-segment
2008 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 93,006 $ 47,559 $ - $ (2,051) $138,514
Segment profit
(loss) (1) 23,816 8,810 (10,446) - 22,180
Depreciation and
amortization 8,442 4,044 908 - 13,394
Total assets 1,252,737 432,896 70,669 - 1,756,302
Goodwill 172,440 108,309 - - 280,749
Capital
expenditures 25,209 5,409 726 - 31,344
----------------------------------------------------------------------------
Completion
Contract and
Six months ended Drilling Production Corporate Inter-segment
June 30, 2009 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 575,105 $ 88,565 $ - $ (5,628) $ 658,042
Segment profit
(loss) 161,052 12,875 (17,451) - 156,476
Depreciation and
amortization 61,397 8,691 2,083 - 72,171
Total assets 3,899,840 393,367 228,223 - 4,521,430
Goodwill 701,140 112,139 - - 813,279
Capital
expenditures 159,907 521 4,817 - 165,245
----------------------------------------------------------------------------
Completion
Contract and
Six months ended Drilling Production Corporate Inter-segment
June 30, 2008 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 335,371 $ 152,279 $ - $ (6,447) $ 481,203
Segment profit
(loss) (1) 123,863 42,673 (21,376) - 145,160
Depreciation and
amortization 23,610 12,320 1,831 - 37,761
Total assets 1,252,737 432,896 70,669 - 1,756,302
Goodwill 172,440 108,309 - - 280,749
Capital
expenditures 44,812 9,181 819 - 54,812
----------------------------------------------------------------------------
(1) Amounts have been restated to effect the removal of foreign exchange
expense which is now excluded from the calculation of segment profit.
A reconciliation of segment profit to earnings from before income taxes is
as follows:
Three months ended Six months ended
(Stated In thousands of Canadian June 30, June 30,
dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------
Total segment profit $ 31,038 $ 22,180 $156,476 $145,160
Add (deduct):
Foreign exchange 74,060 (133) 41,569 1,125
Finance charges (44,881) (2,087) (83,551) (4,283)
----------------------------------------------------------------------------
Earnings before income taxes $ 60,217 $ 19,960 $114,494 $142,002
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Trust's operations are carried on in the following geographic locations:
Three months
ended June United Inter-segment
30, 2009 Canada States International Eliminations Total
----------------------------------------------------------------------------
Revenue $ 73,884 $ 131,567 $ 5,337 $ (1,191) $ 209,597
Total Assets 1,656,793 2,807,998 56,639 - 4,521,430
----------------------------------------------------------------------------
Three months
ended June United Inter-segment
30, 2008 Canada States International Eliminations Total
----------------------------------------------------------------------------
Revenue $ 105,961 $ 31,189 $ 1,750 $ (386) $ 138,514
Total Assets 1,548,475 203,006 4,821 - 1,756,302
----------------------------------------------------------------------------
Six months
ended June United Inter-segment
30, 2009 Canada States International Eliminations Total
----------------------------------------------------------------------------
Revenue $ 284,297 $ 363,875 $ 12,479 $ (2,609) $ 658,042
Total Assets 1,656,793 2,807,998 56,639 - 4,521,430
----------------------------------------------------------------------------
Six months
ended June United Inter-segment
30, 2008 Canada States International Eliminations Total
----------------------------------------------------------------------------
Revenue $ 420,363 $ 57,733 $ 3,831 $ (724) $ 481,203
Total Assets 1,548,475 203,006 4,821 - 1,756,302
----------------------------------------------------------------------------
12. Financial Instruments
(a) Interest rate risk
As at June 30, 2009 approximately 82% of Precision's $1.06
billion of long-term debt is subject to fixed interest rates after
taking into consideration the interest rate derivatives that have
been entered into by Precision. As a result, Precision is not
exposed to significant fluctuations in interest expense as a result
of changes in interest rates. Applying a 100 basis points change in
interest rates to the Trust's long-term debt balance at June 30,
2009, with all other variables held constant, would impact earnings
from continuing operations, on a go forward basis, by approximately
$0.9 million.
(b) Liquidity risk
The following are the contractual maturities of the Trust's
long-term debt
obligations as at June 30, 2009:
(Stated in
thousands) 2009 2010 2011 2012 2013 Thereafter Total
----------------------------------------------------------------------------
Long-term
debt $ 14,193 $ 56,201 $ 65,794 $ 85,061 $258,462 $583,909 $1,063,620
Interest on
long-term
debt (1) 43,303 84,238 79,789 74,848 69,146 87,171 438,495
----------------------------------------------------------------------------
Total $57,496 $140,439 $145,583 $159,909 $327,608 $671,080 $1,502,115
----------------------------------------------------------------------------
(1) - interest has been calculated based upon debt balances, interest rates
and foreign exchange rates in effect as at June 30, 2009.
2009 SECOND QUARTER RESULTS CONFERENCE CALL AND WEBCAST
Precision Drilling Trust has scheduled a conference call and
webcast to begin promptly at 12:00 Noon MT (2:00 p.m. ET) on
Wednesday, July 22, 2009.
The conference call dial in numbers are 866-225-0198 or
416-340-8061
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 also be
available approximately one hour after the completion of the call
until July 29, 2009 by dialing 1-800-408-3053 or 416-695-5800,
passcode 1210140#.
About Precision
Precision is a leading provider of safe, high performance energy
services to the North American oil and gas industry. Precision
provides customers with access to an extensive fleet of contract
drilling rigs, service rigs, camps, snubbing units, wastewater
treatment units and rental equipment backed by a comprehensive mix
of technical support services and skilled, experienced
personnel.
Precision is headquartered in Calgary, Alberta, Canada.
Precision is listed on the Toronto Stock Exchange under the trading
symbol "PD.UN" and on the New York Stock Exchange under the trading
symbol "PDS".
Contacts: David Wehlmann, Executive Vice President, Investor
Relations Precision Drilling Corporation, Administrator of
Precision Drilling Trust (403) 716-4575 (403) 716-4755 (FAX)
Precision Drilling Trust 4200, 150 - 6th Avenue S.W. Calgary,
Alberta T2P 3Y7 Website: www.precisiondrilling.com
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