Precision Drilling Corporation (TSX: PD) (NYSE: PDS)
(Canadian dollars except as indicated)
This news release contains "forward-looking information and
statements" within the meaning of applicable securities laws. For a
full disclosure of the forward-looking information and statements
and the risks to which they are subject, see the "Cautionary
Statement Regarding Forward-Looking Information and Statements"
later in this news release.
Precision Drilling Corporation ("Precision" or the
"Corporation") reported net earnings of $6 million or $0.02 per
diluted share for the three months ended December 31, 2010 compared
to a net loss of $25 million or $0.09 per diluted share for the
fourth quarter of 2009. Financing costs for the fourth quarter of
2010 were $109 million which includes a non-cash charge of $91
million ($0.29 per diluted share after tax) related to Precision's
long-term debt refinancing that was completed during the
quarter.
Revenue for the fourth quarter of 2010 totalled $436 million
compared to $286 million for the same period of 2009. Earnings
before interest, taxes, depreciation and amortization and foreign
exchange ("EBITDA") were $145 million for the fourth quarter of
2010 compared to $93 million for the fourth quarter of 2009. EBITDA
is not a recognized financial measure under Generally Accepted
Accounting Principles ("GAAP") see "Non-GAAP Measures" in this
report. The increase in drilling activity both in Canada and the
United States in the fourth quarter of 2010 over the same period of
2009 led to the 52% increase in revenue and the 57% increase in
EBITDA.
Revenue for the third quarter of 2010 was $359 million and
EBITDA totalled $113 million. Fourth quarter 2010 revenue and
EBITDA were higher than the third quarter of 2010 due to higher
utilization and rates in the Canadian and United States drilling
operations as well as in Precision's other service offerings.
For the year ended December 31, 2010, Precision reported net
earnings of $62 million or $0.22 per diluted share compared to net
earnings of $162 million or $0.63 per diluted share for the same
period of 2009. Revenue for the year was $1,430 million compared to
$1,197 million for 2009. EBITDA totalled $435 million for 2010
compared to $407 million for 2009. Higher activity levels in 2010
were offset by lower average pricing as more Tier 2 and Tier 3 rigs
went to work. Results for the year ended December 31, 2010 include
a loss on settlement of debt totalling $116 million related to the
expensing of deferred debt issue costs mainly arising from the
refinancing that occurred in late 2010 compared to a loss of $18
million in 2009 arising from the settlement of the unsecured bridge
facility and the voluntary prepayments on the term loan A and term
loan B notes. In addition, a foreign exchange gain of $13 million
was included in the 2010 results as compared to a foreign exchange
gain of $123 million for the same period of 2009 which also
included an $82 million charge for asset decommissioning compared
to no charge for the current year.
Kevin Neveu, Precision's President and Chief Executive Officer,
stated: "The resurgence of oil targeted drilling in Canada and the
United States, and particularly the application of horizontal
drilling in both conventional and unconventional oil resource plays
continues to drive strong demand for our High Performance, High
Value services. We have fully contracted our previously announced
2011 five rig new build program and have several prospects in the
final stages of negotiation for additional new build rigs. From our
discussions with customers, we understand that all of these new
build rigs are intended for oil and liquids rich natural gas
drilling targets. Approximately 60% of Precision's rigs working
today are drilling for oil or liquids rich natural gas targets and
approximately 80% are drilling complex horizontal or directional
wells."
"In the United States, the strong oil and liquids rich natural
gas demand for Tier 1 and Tier 2 rigs continues to absorb rigs that
have been let go as our customers reduce activity in dry gas
resource plays. We continue to see additional opportunities for new
build Super Series rigs to satisfy this rapidly developing market.
Over the past 18 months, oil has re-emerged as a key driver for
Precision and we believe that trend is sustainable and will
continue to provide Precision with organic growth opportunities.
The same trend holds true in Canada, where oil drilling increases
in the Cardium, Viking and Upper and Lower Shaunavon and the growth
of several SAGD projects is expected to result in year over year
growth in oil driven activity."
"During the fourth quarter of 2010, Precision realized improved
average revenue per day over the third quarter of 2010 in both
Canada and the United States. These higher rates coupled with
higher utilizations in both markets led to a fourth quarter EBITDA
increase of 57% from prior year levels and an increase of 29% from
the third quarter of 2010."
"Precision's average active rig count in the United States for
the fourth quarter of 2010 was up four rigs over the third quarter
of the year and 52% over the same period in 2009. Precision's
active rig count in the United States is currently 102 and we
expect it to stay at this level or increase modestly over the
coming months as Precision's new build rigs enter the market. If
low natural gas prices persist, there is the potential for further
regional pullback in gas related activity; however, we would expect
most of these rigs to be absorbed by oil and liquids rich natural
gas drilling activity. As demand for Super Series and Tier 2 rigs
remains strong, average dayrates in the United States markets are
continuing to modestly improve from previous quarters."
"Canadian drilling activity is at levels that haven't been
reached for several years. Precision's current active rig count in
Canada is 155 and the average rig count of 106 for the fourth
quarter of 2010 was 29% higher than the third quarter of 2010 and
48% higher than the comparable quarter of 2009. Most of this
increase is driven by unconventional horizontal drilling and
completion techniques being applied to conventional oil reservoirs
in Western Canada. We believe that with the exception of the
traditional spring break-up slow down, most of this oil related
drilling demand will continue. Higher market dayrates are being
realized in Canada because of the strong demand for high
performance drilling assets."
"Precision continues to seize market opportunities; during 2010
we contracted and began construction of nine new rigs. Five of
these new build rigs are Super Singles of which four have been
delivered on time and on budget. Three of these rigs are working in
Canada and one in the United States and the remaining rig will be
delivered by the end of the second quarter of 2011 into the United
States. Four rigs are Super Triples, of which two are working in
the United States while the remaining two are expected to be
deployed in the United States by mid-year 2011."
"For 2011, Precision previously announced the construction of
four Super Single rigs for Canada and one Super Triple rig for the
United States. All of these rigs have been contracted, with four of
those being signed in the last month. The new build rig contracts
for 2010 and 2011 have an average term of approximately three
years. Precision is continuing its high value focused organic
growth program as we believe there will be additional opportunities
for new build Super Series rigs which will provide the High
Performance, High Value service that meets and exceeds customer
requirements. With the completion of the late 2010 refinancing,
Precision's balance sheet is stronger and provides the financial
flexibility to capitalize on potential opportunities as Precision
looks toward expanding its drilling, directional drilling and
international presence during 2011", concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
(stated in thousands of Canadian Three months ended
dollars, except per share/unit December 31,
amounts) 2010 2009 % Change
----------------------------------------------------------------------------
Revenue $ 435,537 $ 286,067 52.2
EBITDA(1) 145,389 92,615 57.0
Net earnings (loss) 5,543 (24,885) n/m
Cash provided by operations 75,192 70,631 6.5
Capital spending:
Upgrade capital 54,008 8,483 536.7
Expansion capital 56,940 5,509 933.6
Proceeds on sale (2,885) (5,721) (49.6)
-------------------------------------------
Net capital spending 108,063 8,271 1,206.5
Net earnings (loss) - per
share/unit:
Basic 0.02 (0.09) n/m
Diluted 0.02 (0.09) n/m
Contract drilling rig fleet 355 352 0.9
Drilling rig utilization days:
Canada 9,730 6,595 47.5
United States 8,915 5,899 51.1
International 122 172 (29.1)
Service rig fleet(2) 220 220 -
Service rig operating hours(2) 84,758 64,045 32.3
----------------------------------------------------------------------------
SELECT FINANCIAL AND OPERATING INFO
(stated in thousands of Canadian
dollars, except per share/unit Year ended December 31,
amounts) 2010 2009 % Change
----------------------------------------------------------------------------
Revenue $ 1,429,653 $ 1,197,446 19.4
EBITDA(1) 435,383 407,001 7.0
Net earnings (loss) 62,091 161,703 (61.6)
Cash provided by operations 305,395 504,729 (39.5)
Capital spending:
Upgrade capital 104,722 30,303 245.6
Expansion capital 71,179 163,132 (56.4)
Proceeds on sale (12,256) (15,978) (23.3)
-------------------------------------------
Net capital spending 163,645 177,457 (7.8)
Net earnings (loss) - per
share/unit:
Basic 0.23 0.65 (64.6)
Diluted 0.22 0.63 (65.1)
Contract drilling rig fleet 355 352 0.9
Drilling rig utilization days:
Canada 31,176 21,229 46.9
United States 32,450 22,672 43.1
International 602 710 (15.2)
Service rig fleet(2) 220 220 -
Service rig operating hours(2) 294,126 219,649 33.9
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Now includes snubbing services. Comparative numbers have been restated
to reflect this change.
n/m calculation not meaningful.
FINANCIAL POSITION AND RATIOS
(stated in thousands of Canadian dollars, December 31, December 31,
except ratios) 2010 2009
----------------------------------------------------------------------------
Working capital $ 460,149 $ 320,860
Working capital ratio 3.1 3.5
Long-term debt(1) $ 804,494 $ 748,725
Total long-term financial liabilities $ 834,813 $ 775,418
Total assets $ 4,296,788 $ 4,191,713
Long-term debt to long-term debt plus
equity ratio(1) 0.24 0.22
----------------------------------------------------------------------------
(1) Excludes current portion of long-term debt and is net of unamortized
debt issue costs.
Revenue in the fourth quarter of 2010 was $149 million higher
than the prior year period. The increase was due to a
year-over-year increase in rates and utilization days both in
Canada and the United States. The mix of drilling rigs working
under term contracts and well-to-well contracts moved average
dayrate pricing higher in the United States and Canada during the
quarter over the third quarter of 2010. Revenue in Precision's
Contract Drilling Services segment increased by 53% while revenue
increased 46% in the Canadian based Completion and Production
Services segment in the fourth quarter of 2010 compared to the
prior year quarter.
EBITDA margin (EBITDA as a percentage of revenue) was 33% for
the fourth quarter of 2010 compared to 32% for the same period in
2009. The increase in EBITDA margin was primarily attributable to
higher utilizations and higher average dayrates in both markets in
the fourth quarter of 2010 versus the prior year period.
Precision's term contract position with customers, a highly
variable operating cost structure and economies achieved through
vertical integration of the supply chain continue to support EBITDA
margins.
In the Contract Drilling Services segment, Precision currently
owns 357 contract drilling rigs, including 203 in Canada, 151 in
the United States and three rigs in international locations and 82
drilling rig camps. Precision's Completion and Production Services
segment includes 200 service rigs, 20 snubbing units, 80 water
treatment units and a broad mix of rental equipment.
During the quarter, an average of 106 drilling rigs worked in
Canada and 98 worked in the United States and Mexico totalling an
average of 204 rigs working. This compares with an average of 176
rigs working in the third quarter of 2010 and 138 rigs in the
fourth quarter a year ago.
Precision's priorities are threefold:
1. Deliver the High Performance, High Value level of services
that customers require to drill the technically challenging wells
of today's unconventional resource play exploitation.
2. Focus on North American organic growth program. Precision's
2010 new build rig program included nine rigs. Six of those rigs
are complete and working and the remaining three are projected to
be completed and working by the end of the second quarter of 2011.
Precision's 2011 new build rig program currently stands at five
rigs, all of which are contracted and expected to be completed by
the end of 2011. Total capital spending for 2010 was $176 million.
For 2011, the Corporation previously announced an estimated $405
million in capital expenditures but as a result of additional
equipment on contracted rigs and the timing of expenditures that
total is now projected to be $423 million.
3. Improve financial flexibility, which provides the financial
liquidity to be able to continue to seize opportunities to grow the
Corporation. Precision plans on pursuing both organic growth and
acquisition opportunities in the directional drilling and
international drilling arena during 2011. During the fourth quarter
of 2010, Precision refinanced its long-term debt with the issuance
of US$650 million of senior unsecured notes due in 2020. These
unsecured notes bear interest at 6.625% per annum. The net proceeds
from the notes offering were used to repay, in full, the
outstanding indebtedness under the Corporation's then existing term
loan A and term loan B credit facilities. In conjunction with the
closing of the notes offering, Precision terminated its then
existing senior secured credit facilities and entered into a new
US$550 million senior secured revolving credit facility expiring in
2013.
As previously disclosed in Note 26 to the December 31, 2009
financial statements, certain Canadian tax authorities may review
prior period transactions. On February 9, 2011, the Corporation
received a notice of reassessment from Canada Revenue Agency for
$216 million relating to a transaction that occurred in the 2005
tax year. The Corporation is in the process of carefully reviewing
the reassessment. Precision will appeal this reassessment as it
vigorously defends what it believes to be a correct filing position
related to this transaction. The appeal process requires the
Corporation to pay or post security of approximately $108 million.
This appeal process could be lengthy and the ultimate outcome of
the process is unknown.
Oil prices were higher and natural gas prices were lower during
the fourth quarter of 2010 than a year ago. For the fourth quarter
of 2010 AECO natural gas spot prices averaged $3.62 per MMBtu, 20%
lower than the fourth quarter 2009 average of $4.53 per MMBtu. In
the United States, Henry Hub natural gas spot prices averaged
US$3.78 per MMBtu in the fourth quarter of 2010, a decrease of 12%
over the fourth quarter 2009 average of US$4.29 per MMBtu. West
Texas Intermediate crude oil averaged US$85.06 per barrel during
the quarter, 12% higher when compared to US$75.83 per barrel in the
same period in 2009.
Summary for the three months ended December 31, 2010:
- Precision continues to have a strong balance sheet. As at
December 31, 2010 Precision had a debt to capitalization ratio of
0.24, a cash balance of $257 million and, in combination with
availability under its revolving credit facility and demand
operating lines, continued to maintain ample liquidity.
- Operating earnings were $95 million and 22% of revenue,
compared to $57 million and 20% of revenue in 2009 after adjusting
for an $82 million charge related to the decommissioning of assets.
Operating earnings were positively impacted by the increase in
activity in all of Precision's service offerings over the same
period in 2009.
- Financial charges were $109 million, an increase of $74
million from the fourth quarter of 2009 due to the refinancing of
Precision's long-term debt which required the Corporation to take a
non-cash charge of $91 million for the expensing of deferred
financing costs related to the previously outstanding long-term
debt compared to an $18 million charge in 2009 related to the
settlement of the unsecured bridge facility and the voluntary
prepayments on the term loan A and term loan B notes.
- The majority of Precision's credit facilities are denominated
in U.S. dollars. Precision designated its new foreign currency
long-term debt as a hedge of its exposure to changes in the
carrying values of certain self-sustaining operations. During the
fourth quarter, the Canadian dollar strengthened in relation to the
U.S. dollar giving rise to unrealized translation gains which
accounted for most of the $1 million foreign exchange gain
recognized in the quarter compared to an $18 million gain in
2009.
- Capital expenditures for the purchase of property, plant and
equipment were $111 million in the fourth quarter, an increase of
$97 million over the same period in 2009. Capital spending for the
fourth quarter of 2010 included $57 million for expansion capital
and $54 million on the maintenance and upgrade of existing
assets.
- Average revenue per utilization day for contract drilling rigs
increased in the fourth quarter of 2010 to US$19,424 from the prior
year fourth quarter of US$19,059 in the United States and increased
in Canada from $16,513 in the fourth quarter of 2009 to $17,149 for
the fourth quarter of 2010. The increase in revenue rates for the
fourth quarter in the United States reflects the greater proportion
of rigs working under term contracts, the pricing leverage of
higher utilization and increased turnkey revenue compared to the
prior year partially offset by idle but contracted rig revenue in
2009. In the United States, for the fourth quarter of 2010, 64% of
Precision's working rigs were working under term contract compared
to 55% in the 2009 comparative period. For the fourth quarter of
2010 revenue in the United States includes US$1 million generated
from idle but contracted rigs associated with term customer
contracts, a reduction of US$7 million compared to the prior year
fourth quarter. Turnkey revenue for the fourth quarter of 2010 was
US$12 million compared with US$3 million in 2009. In Canada,
contract drilling rates have increased from the prior year
comparative period due to higher rig activity and increased demand
for Precision's Canadian rigs. Within Precision's Completion and
Production Services segment, average hourly rates for service rigs
were $679 in the fourth quarter of 2010 compared to $640 in the
fourth quarter of 2009.
- Average operating costs per day for drilling rigs increased in
the fourth quarter of 2010 to US$12,681 from the prior year fourth
quarter of US$11,934 in the United States and decreased from $8,724
to $8,687 in Canada. The cost decrease in Canada was primarily due
to cost control efforts offset by a labour rate increase that
became effective at the beginning of the fourth quarter. In the
United States, the increase was due to higher repairs and
maintenance, proportionately higher activity in turnkey services
and higher sales and use taxes. Within Precision's Completion and
Production Services segment, average hourly operating costs for
service rigs increased to $476 in the fourth quarter of 2010 as
compared to $455 in the fourth quarter of 2009 due to a labour cost
increase in late 2010 which was offset by an increase in the
revenue rate.
- General and administrative expenses were $34 million, an
increase of $11 million from the fourth quarter of 2009 as
incentive compensation costs tied to share price performance
increased due to the rise in Precision's share price.
Summary for the year ended December 31, 2010:
- Revenue was $1,430 million, an increase of $232 million or 19%
from the prior year due to higher activity in both of Precision's
business segments.
- Operating earnings were $253 million, an increase of $66
million from 2009. Excluding the decommissioning charge in 2009
operating earnings for 2010 were down from the prior year by $16
million. Operating earnings were 18% of revenue, compared to 22% in
2009 excluding the charge for equipment decommissioning. This
decrease was primarily due to lower average dayrates realized for
the full year of 2010 compared to 2009.
- Capital expenditures for the purchase of property, plant and
equipment were $176 million in 2010, a decrease of $18 million over
2009, and included $71 million on expansionary capital initiatives
and $105 million on the maintenance and upgrade of existing assets.
During 2009, 16 new build Super Series drilling rigs were added to
the fleet under long-term customer contracts, seven in Canada and
nine in the United States. During 2010, four new build Super Series
rigs were added to the fleet with two in Canada and two in the
United States.
- Financial charges were $211 million, an increase of $64
million from the prior year, as reduced interest charges were
offset by a non-cash charge of $116 million for the expensing of
deferred financing costs on the repayment of the term loan A and
term loan B notes.
- During 2010, Precision recorded a foreign exchange gain of $13
million compared to a $123 million gain in 2009. A significant
component of the change in the foreign exchange gain relates to the
translation of Precision's U.S. dollar denominated term loan A and
term loan B notes which were repaid and replaced with U.S. dollar
denominated debt that is accounted for as a hedge against certain
self sustaining U.S. dollar denominated operations.
- General and administrative costs were $9 million higher in
2010 as compared to 2009 as share based incentive compensation
expenses increased due to the rise in Precision's share price.
OUTLOOK
Precision has a strong portfolio of long-term customer contracts
that provides a base level of activity and revenue for the
Corporation. Precision expects to have an average of approximately
110 rigs and 93 rigs committed under term contracts in North
America in the first and second quarters of 2011, respectively, and
an average of 85 rigs contracted for the entire year of 2011. In
Canada, term contracted rigs generate from 200 to 250 utilization
days per rig year due to the seasonal nature of well access,
whereas in the United States they generate about 350 utilization
days per rig year in most regions.
For 2011, based on the current position, Precision expects to
have an average of 33 rigs in Canada under term contract, 50 in the
United States and two in Mexico. Since the third quarter 2010
earnings release in October, Precision has added term contracts
that increased the expected average for 2011 from 65 rigs to 85
rigs working under term contract. For 2012, Precision currently has
term contracts in place for an average of 33 rigs, with 19 in
Canada and 14 in the United States and Mexico.
During the fourth quarter, Precision entered into new contracts
with the same major service provider for the two 3,000 horsepower
rigs that have been working in Mexico for the past several years.
These term contracts are for approximately 30 months and are
expected to expire in early 2013.
Capital expenditures are expected to be approximately $423
million for 2011 and include $117 million for sustaining and
infrastructure expenditures and are based upon currently
anticipated activity levels for 2011. Additionally, $184 million is
slated for expansion capital and includes the cost to complete the
remaining five of the nine new build rigs previously announced and
an anticipated five additional new rig builds for 2011. The total
capital expenditures also include the cost to upgrade eight to
twelve rigs in 2011 and to purchase long lead time items for the
Corporation's capital inventory at an anticipated cost of $122
million. These long lead time items include top drives, masts and
engines, that can be used for North American or international new
build opportunities and rig tier upgrades. Precision expects that
the $423 million will be split $371 million in the Contract
Drilling segment and $52 million in the Production and Completion
segment.
2010 experienced substantially higher drilling activity in
Canada and the United States than the prior year. The demand for
energy is rising as the global economies are starting to improve.
There is also increased liquidity in the capital markets as well as
higher oil commodity prices which is providing some of Precision's
customers' liquidity to increase drilling programs. The drilling
sector in both Canada and the United States is experiencing a
period of year-over-year improvements in utilization. According to
industry sources, as at February 4, 2011, the United States active
land drilling rig count was up about 33% from the same period in
the prior year while the Canadian drilling rig count had increased
about 12%. With the year-over-year improvements in rig utilization,
there has been a recent improvement in spot market dayrates charged
to customers in Canada, with most of the increases coming in 2011.
There still continues to be modest improvements in average dayrates
in the United States. The improvements in dayrates in Canada are
expected to hold for the remainder of 2011 and United States
average rates are expected to continue to modestly improve.
Due to the increased demand for drilling rigs, Precision is
experiencing increased demand for rig personnel. On October 1, 2010
a wage increase for Canadian rig based personnel went into effect.
Precision is also seeing this increase in demand for rig personnel
in the United States which resulted in a December wage increase.
Precision expects to recoup the majority of these wage increases
through higher dayrates to our customers.
Natural gas production in the United States has remained strong
despite reduced drilling activity over the last two years. However
with the recent cold weather in North America, United States
natural gas storage levels as at the end of January 2011 are near
the five-year average and 3% below storage levels of a year ago.
This also strongly influences Canadian activity since Canada
exports a significant portion of its natural gas production to the
United States. The increase in oil and liquids rich natural gas
drilling in areas like the Cardium, Bakken and Eagle Ford have been
strong and the United States oil rig count as at February 4, 2011
is 84% higher than it was a year ago. Precision has more equipment
working in oil related plays than at any time in the last 20 years;
however, approximately 40% of Precision's current active rig count
is drilling for dry natural gas targets.
With high storage levels, consistent production and the view
that North America has an oversupply of natural gas, gas prices
have remained at relatively low levels. To date, there have been
some changes in customers' natural gas drilling plans reflected in
a decline in the rig count targeting dry gas plays. If low natural
gas prices continue, Precision and the North American drilling
industry could see a further reduction in demand for natural gas
drilling. With the current demand for oil and liquids rich natural
gas drilling, Precision believes further reductions in gas directed
drilling would continue to be mostly offset by increases in oil and
liquids rich natural gas drilling.
Despite near term challenges, the future of the global oil and
gas industry remains promising. For Precision, 2011 represents an
opportunity to demonstrate our value to customers through delivery
of High Performance, High Value services that deliver low customer
well costs and strong margins to Precision.
As of January 1, 2011, Precision began preparing its financial
statements under International Financial Reporting Standards
("IFRS") and future financial statements will be required to be
prepared in compliance with IFRS as if Precision had always
followed these standards. Certain first time adoption elections may
be made which will impact the opening balance sheet amounts and
those key first time elections are discussed later in this report
under the section "Transition to International Financial Reporting
Standards (IFRS)."
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 water treatment divisions.
Three months ended
(stated in thousands of Canadian December 31,
dollars) 2010 2009 % Change
----------------------------------------------------------------------------
Revenue:
Contract Drilling Services $ 367,141 $ 239,356 53.4
Completion and Production
Services 71,596 49,119 45.8
Inter-segment eliminations (3,200) (2,408) 32.9
----------------------------------------------------------------------------
$ 435,537 $ 286,067 52.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA(1)
Contract Drilling Services $ 137,073 $ 88,924 54.1
Completion and Production
Services 22,257 12,683 75.5
Corporate and other (13,941) (8,992) 55.0
----------------------------------------------------------------------------
$ 145,389 $ 92,615 57.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(stated in thousands of Canadian Year ended December 31,
dollars) 2010 2009 % Change
----------------------------------------------------------------------------
Revenue:
Contract Drilling Services $ 1,212,656 $ 1,030,852 17.6
Completion and Production
Services 227,835 176,422 29.1
Inter-segment eliminations (10,838) (9,828) 10.3
----------------------------------------------------------------------------
$ 1,429,653 $ 1,197,446 19.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA(1)
Contract Drilling Services $ 416,638 $ 397,467 4.8
Completion and Production
Services 59,158 42,499 39.2
Corporate and other (40,413) (32,965) 22.6
----------------------------------------------------------------------------
$ 435,383 $ 407,001 7.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
Three months ended
(stated in thousands of Canadian December 31,
dollars, except where noted) 2010 2009 % Change
----------------------------------------------------------------------------
Revenue $ 367,141 $ 239,356 53.4
Expenses:
Operating 212,799 138,712 53.4
General and
administrative 17,269 11,720 47.3
----------------------------------------------------------------------------
EBITDA (1) 137,073 88,924 54.1
Loss on asset
decommissioning - 67,794 (100.0)
Depreciation 43,617 31,882 36.8
----------------------------------------------------------------------------
Operating earnings (loss)(1) $ 93,456 $ (10,752) n/m
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings (loss) as a
percentage of revenue 25.5% (4.5%)
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in Canada(2) $ 17,149 $ 16,113 3.8
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in the United
States(2) US$ 19,424 US$ 19,059 1.9
----------------------------------------------------------------------------
(stated in thousands of
Canadian dollars, except where Year ended December 31,
noted) 2010 2009 % Change
----------------------------------------------------------------------------
Revenue $ 1,212,656 $ 1,030,852 17.6
Expenses:
Operating 738,515 578,225 27.7
General and
administrative 57,503 55,160 4.2
----------------------------------------------------------------------------
EBITDA (1) 416,638 397,467 4.8
Loss on asset
decommissioning - 67,794 (100.0)
Depreciation 156,179 118,889 31.4
----------------------------------------------------------------------------
Operating earnings(1) $ 260,459 $ 210,784 23.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a
percentage of revenue 21.5% 20.4%
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in Canada(2) $ 16,139 $ 17,824 (9.5)
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in the United
States(2) US$ 18,965 US$ 22,951 (17.4)
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Includes revenue from idle but contracted rig days and lump sum payouts.
n/m calculation not meaningful.
Canadian onshore Three months ended December 31,
drilling statistics:(1) 2010 2009
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Precision Industry(2) Precision Industry(2)
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Number of drilling rigs (end of
period) 202 799 203 829
Drilling rig operating days
(spud to release) 8,661 35,944 5,864 24,988
Drilling rig operating day
utilization 47% 49% 28% 32%
Number of wells drilled 1,119 4,034 657 2,643
Average days per well 7.7 8.9 8.9 9.5
Number of metres drilled (000s) 1,662 6,542 1,035 4,193
Average metres per well 1,485 1,622 1,575 1,587
Average metres per day 192 182 176 168
----------------------------------------------------------------------------
Canadian onshore Year ended December 31,
drilling statistics:(1) 2010 2009
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Number of drilling rigs (end of
period) 202 799 203 829
Drilling rig operating days
(spud to release) 27,975 119,300 18,967 78,005
Drilling rig operating day
utilization 38% 41% 23% 25%
Number of wells drilled 3,196 11,936 2,198 8,254
Average days per well 8.8 10.0 8.6 9.5
Number of metres drilled (000s) 5,119 20,298 3,316 12,470
Average metres per well 1,602 1,701 1,509 1,511
Average metres per day 183 170 175 160
----------------------------------------------------------------------------
(1) Canadian operations only.
(2) Canadian Association of Oilwell Drilling Contractors ("CAODC") and
Precision - excludes non-CAODC rigs and non-reporting CAODC members.
United States onshore drilling
statistics:(1) 2010 2009
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Average number of active land
rigs for quarters ended:
March 31 78 1,297 82 1,287
June 30 88 1,464 50 885
September 30 93 1,603 53 936
December 31 97 1,665 64 1,073
----------------------------------------------------------------------------
Year to date average 89 1,514 62 1,046
----------------------------------------------------------------------------
(1) United States lower 48 operations only.
(2) Baker Hughes rig counts.
Contract Drilling Services segment revenue for the fourth
quarter of 2010 increased by 53% to $367 million and EBITDA
increased by 54% to $137 million compared to the same period in
2009. The increase in revenue and EBITDA was due to the higher
drilling rig activity and higher average rates per day for both
Canada and the United States.
Activity in North America was impacted by increased customer
demand due to the improvement in global oil prices. In the fourth
quarter drilling rig revenue per utilization day in Canada was up
4% over the prior year as a result of increased rates in the more
active spot market. During the quarter, 30% of Precision's
utilization days in Canada were generated from rigs under term
contract compared with 36% in 2009 while in the United States 60%
of utilization days were generated from rigs under term contract.
The majority of the additional activity was associated with oil
related plays. As at the end of the quarter in the United States,
Precision had 65 drilling rigs working under term contracts and 40
in Canada.
Drilling rig utilization days (spud to rig release plus move
days) in Canada during the fourth quarter of 2010 were 9,730, an
increase of 48% compared to 6,595 in 2009. Drilling rig activity
for Precision in the United States was 51% higher than the same
quarter of 2009 due to the recovery of drilling rig activity which
began in the third quarter of 2009. On average Precision had one
rig working in Mexico during the fourth quarter of 2010 and
averaged two rigs in the corresponding quarter of 2009. Precision's
camp and catering division benefited from the start up of a 500 man
base camp in Canada that is contracted through the second quarter
2011.
Contract Drilling Services operating costs were 58% of revenue
for the quarter which was in-line with the prior year. On a per day
basis, operating costs for the drilling rig division in Canada were
in line with the prior year as an increase in crew wage expense was
offset by the differences in rig mix as 2009 had a higher
proportion of days from deeper rigs which typically require more
ancillary equipment and utilize a larger crew complement. Operating
costs for the quarter in the United States on a per day basis were
up from the comparable period in 2009 due to higher repairs and
maintenance, proportionately higher turnkey services and sales and
use taxes.
Quarterly depreciation in the Contract Drilling Services segment
increased 37% from the prior year due to the increase in activity
in both Canada and the United States. Both the United States and
Canadian contract drilling operations use the unit of production
method of calculating depreciation. During 2009, the Contract
Drilling Services segment recognized a non-cash charge of $68
million related to the decommissioning of 38 drilling rigs.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
Three months ended
(stated in thousands of Canadian December 31,
dollars, except where noted) 2010 2009 % Change
----------------------------------------------------------------------------
Revenue $ 71,596 $ 49,119 45.8
Expenses:
Operating 46,143 33,528 37.6
General and
administrative 3,196 2,908 9.9
----------------------------------------------------------------------------
EBITDA(1) 22,257 12,683 75.5
Loss on asset
decommissioning - 14,379 (100.0)
Depreciation 5,327 4,781 11.4
----------------------------------------------------------------------------
Operating earnings(loss)(1) $ 16,930 $ (6,477) n/m
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings (loss) as a
percentage of revenue 23.6% (13.2%)
----------------------------------------------------------------------------
Well servicing statistics:(2)
Number of service rigs
(end of period) 220 220 -
Service rig operating hours 84,758 64,045 32.3
Service rig operating hour
utilization 42% 32%
Service rig revenue per
operating hour $ 679 $ 640 6.1
----------------------------------------------------------------------------
(stated in thousands of Canadian Year ended December 31,
dollars, except where noted) 2010 2009 % Change
----------------------------------------------------------------------------
Revenue $ 227,835 $ 176,422 29.1
Expenses:
Operating 159,071 123,846 28.4
General and
administrative 9,606 10,077 (4.7)
----------------------------------------------------------------------------
EBITDA(1) 59,158 42,499 39.2
Loss on asset
decommissioning - 14,379 (100.0)
Depreciation 21,491 17,186 25.0
----------------------------------------------------------------------------
Operating earnings(1) $ 37,667 $ 10,934 244.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a
percentage of revenue 16.5% 6.2%
----------------------------------------------------------------------------
Well servicing statistics:(2)
Number of service rigs
(end of period) 220 220 -
Service rig operating hours 294,126 219,649 33.9
Service rig operating hour
utilization 37% 27%
Service rig revenue per
operating hour $ 637 $ 662 (3.8)
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
(2) Now includes snubbing services. Comparative numbers have been restated
to reflect this change.
n/m calculation not meaningful.
Completion and Production Services segment revenue for the
fourth quarter increased by 46% from 2009 to $72 million and EBITDA
increased by 75% to $22 million. The increase in revenue and EBITDA
is attributed to the increase in activity as customers increased
spending in response to higher oil and liquids rich natural gas
commodity prices.
Service and snubbing activity increased 32% from the prior year
period, with the fleet generating 84,758 operating hours in the
fourth quarter of 2010 compared with 64,045 hours in the prior year
quarter for utilization of 42% and 32%, respectively. The increase
was a result of higher service rig demand for completions of new
wells along with production maintenance of existing wells, both
with an emphasis on oil wells. New well completions accounted for
30% of service rig operating hours in the fourth quarter compared
to 27% in the same quarter in 2009.
Average service revenue increased $39 per operating hour to $679
from the prior year period due to a crew wage increase in the
fourth quarter that was passed along to customers.
Operating costs as a percentage of revenue decreased to 64% in
the fourth quarter of 2010 from 68% in the same period of 2009 as
fixed costs spread over a higher activity base was partially offset
by higher crew wages in the service rig division. Operating costs
per service rig operating hour have increased slightly over the
comparable period in 2009 due primarily to higher wages, and higher
repair and maintenance costs to prepare for increased activity.
Depreciation in the Completion and Production Services segment
in the fourth quarter of 2010 was 11% higher than the prior year
due to higher equipment utilization. The well servicing operation
uses the unit of production method of calculating depreciation.
SEGMENT REVIEW OF CORPORATE AND OTHER
The Corporate and other segment had an EBITDA loss of $14
million for the fourth quarter of 2010 and was higher than the
prior year comparative period by $5 million due to increased costs
associated with the share based performance incentive plans and
higher professional fees in the current year quarter.
OTHER ITEMS
Net financial charges were $109 million for the fourth quarter
of 2010 which increased $74 million over the prior year quarter.
The increase was attributable to a loss on settlement of debt
facility which represented the expensing of deferred financing
costs related to the refinancing of Precision's term loan A and
term loan B credit facilities during the fourth quarter of
2010.
The Corporation had a foreign exchange gain of $1 million during
the fourth quarter of 2010 due to the strengthening of the Canadian
dollar versus the United States dollar.
Precision's effective tax rate on earnings before income taxes
for 2010 was negative 15% compared to nil for the same period in
2009.
LIQUIDITY AND CAPITAL RESOURCES
In June 2010, Precision converted to a corporation pursuant to a
Plan of Arrangement under the Business Corporations Act of Alberta.
Precision obtained approval for the conversion from its unitholders
in conjunction with its 2010 Annual and Special Meeting of
Unitholders held on May 11, 2010. An information circular and proxy
statement were mailed to unitholders in connection with the
meeting.
The oilfield services business is inherently cyclical in nature.
Precision employs a disciplined approach to minimize costs through
operational management practices and a variable cost structure, and
to maximize revenues through term contract positions with a focus
of maintaining a strong balance sheet. This operational discipline
provides Precision with the financial flexibility to capitalize on
strategic acquisitions and internal growth opportunities at all
points in the business cycle.
Operating within a highly variable cost structure, Precision's
maintenance capital expenditures are tightly governed by and highly
responsive to activity levels with additional cost savings leverage
provided through Precision's internal manufacturing and supply
divisions. Expansion capital for new build rig programs require 2
to 5 year term contracts in order to mitigate capital recovery
risk.
During the fourth quarter of 2010 Precision used $134 million in
operating cash inflow to fund a $58 million increase in non-cash
working capital and $70 million in net capital spending. In
addition Precision added a net $47 million in cash from financing
activities. Liquidity remains sufficient as Precision had a cash
balance of $257 million and the US$550 million senior secured
revolver ("Secured Facility") remains undrawn except for US$23
million in outstanding letters of credit as at December 31, 2010.
In addition to the Secured Facility, Precision has available $40
million in operating facilities which are used for working capital
management. During the current quarter, working capital increased
by $68 million over the third quarter of 2010 to $460 million.
During November 2010, Precision closed an offering of US$650
million aggregate principal amount of 6.625% senior unsecured notes
due 2020 (the "Unsecured Notes") in a private placement. The net
proceeds from the Unsecured Notes offering were used to repay in
full the outstanding indebtedness under the Corporation's then
existing term loan A and term loan B credit facilities. At that
time, the outstanding balance under the term loan A credit facility
was approximately US$263 million and the outstanding balance under
the term loan B credit facility was approximately US$318 million.
In conjunction with the closing of the Unsecured Notes offering,
Precision terminated its existing secured credit facilities and
entered into a new US$550 million senior secured revolving credit
facility expiring in 2013. Subject to certain conditions, the new
Secured Facility may be increased by an additional US$100
million.
As at December 31, 2010, the Corporation was in compliance with
the covenants under the Secured Facility. Precision expects to
remain in compliance with financial covenants under its Secured
Facility and have complete access to credit lines during 2011.
The current blended cash interest cost of Precision's debt is
approximately 7.3%. Precision considers its new U.S. dollar
denominated long-term debt to hedge its exposure to changes in the
carrying values of certain self-sustaining operations as a result
of changes in foreign exchange rates. To be accounted for as a
hedge, the foreign currency long-term debt must be designated and
documented as such and must be effective at inception and on an
ongoing basis.
QUARTERLY FINANCIAL SUMMARY
(stated in thousands of Canadian dollars, except per share/unit amounts)
2010
----------------------------------------------------------------------------
September December
Quarters ended March 31 June 30 30 31
----------------------------------------------------------------------------
Revenue $ 373,136 $ 261,828 $ 359,152 $435,537
EBITDA(1) 118,403 58,994 112,597 145,389
Net earnings (loss): 62,017 (66,547) 61,078 5,543
Per basic share/unit 0.23 (0.24) 0.22 0.02
Per diluted share/unit 0.22 (0.24) 0.21 0.02
Cash provided by operations 20,624 142,004 67,575 75,192
Distributions - declared $ - $ - $ - $ -
----------------------------------------------------------------------------
2009
----------------------------------------------------------------------------
September December
Quarters ended March 31 June 30 30 31
----------------------------------------------------------------------------
Revenue $ 448,445 $209,597 $ 253,337 $ 286,067
EBITDA(1) 169,387 59,260 85,739 92,615
Net earnings: 57,417 57,475 71,696 (24,885)
Per basic share/unit 0.30 0.23 0.26 (0.09)
Per diluted share/unit 0.28 0.22 0.25 (0.09)
Cash provided by operations 201,596 212,554 19,948 70,631
Distributions - declared $ 6,408 $ - $ - $ -
----------------------------------------------------------------------------
(1) Non-GAAP measure. See "NON-GAAP MEASURES".
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. The following are the
non-GAAP measures Precision uses in assessing performance.
EBITDA
Management believes that in addition to net earnings (loss),
EBITDA, as derived from information reported in the Consolidated
Statements of Earnings (Loss) and Retained Earnings, is a useful
supplemental measure as it provides an indication of the results
generated by Precision's principal business activities prior to
consideration of how those activities are financed, the impact of
foreign exchange, how the results are taxed, how funds are invested
or how depreciation and amortization charges affect results.
The following table provides a reconciliation of net earnings
(loss) under GAAP, as disclosed in the Consolidated Statement of
Earnings (Loss) and Retained Earnings, to EBITDA.
Three months ended Year ended
(stated in thousands of December 31, December 31,
Canadian dollars) 2010 2009 2010 2009
----------------------------------------------------------------------------
EBITDA $ 145,389 $ 92,615 $435,383 $ 407,001
Add (deduct):
Loss on asset decommissioning - (82,173) - (82,173)
Depreciation and amortization (50,431) (35,451) (182,719) (138,000)
Foreign exchange 1,042 17,791 12,712 122,846
Finance charges (108,508) (34,454) (211,327) (147,401)
Income taxes 18,051 16,787 8,042 (570)
----------------------------------------------------------------------------
Net earnings (loss) $ 5,543 $ (24,885) $ 62,091 $ 161,703
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Earnings
Management believes that in addition to net earnings (loss),
operating earnings as reported in the Consolidated Statements of
Earnings (Loss) and Retained Earnings is a useful supplemental
measure as it provides an indication of the results generated by
Precision's principal business activities prior to consideration of
how those activities are financed, the impact of foreign exchange
or how the results are taxed.
The following table provides a reconciliation of net earnings
(loss) under GAAP, as disclosed in the Consolidated Statement of
Earnings (Loss)and Retained Earnings, to operating earnings
(loss).
Three months ended Year ended
(stated in thousands of December 31, December 31,
Canadian dollars) 2010 2009 2010 2009
----------------------------------------------------------------------------
Operating earnings (loss) $ 94,958 $ (25,009) $ 252,664 $ 186,828
Add (deduct):
Foreign exchange 1,042 17,791 12,712 122,846
Finance charges (108,508) (34,454) (211,327) (147,401)
Income taxes 18,051 16,787 8,042 (570)
----------------------------------------------------------------------------
Net earnings (loss) $ 5,543 $ (24,885) $ 62,091 $ 161,703
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS)
Precision is required to report its financial results in
accordance with IFRS from January 1, 2011, the changeover date set
by the Canadian Accounting Standards Board (AcSB). IFRS compliant
comparative financial information for one year will be required on
the effective date.
Precision's IFRS project is on schedule and progressing well.
Precision's IFRS project team and management continue to liaise
with the external auditors and key stakeholders in the Corporation
to enable a timely and smooth transition to IFRS in 2011.
With respect to the key areas identified in previous reports,
the following is a summary of additional progress:
IFRS 1 - First Time Adoption
IFRS 1 - First Time Adoption of IFRS - provides one-time
accounting choices in the form of mandatory and optional
exemptions.
Precision has identified the preferred IFRS 1 elections and
calculated the potential impact of the elections on its financial
statements.
Precision intends to restate its December 2008 acquisition of
Grey Wolf under the principles outlined in IFRS 3 - Business
Combinations. This is expected to reduce goodwill on Precision's
balance sheet by the amount of goodwill recorded on the acquisition
of approximately US$455 million with an equivalent reduction in
shareholder's capital. The difference arises in the accounting for
the purchase consideration under IFRS versus Canadian GAAP. Under
Canadian GAAP purchase consideration is valued based on Precision's
share price on the date at which the acquisition was announced and
under IFRS it is valued based on the share price on the date at
which the acquisition closed.
In accordance with the guidance in IFRS 1, upon implementation
of IFRS, Precision intends to record certain drilling rigs at fair
value as the deemed cost. Precision's project team and management
have obtained valuations for the selected rigs. It is anticipated
that the adjustment to the carrying value of these rigs to bring
them to their fair value at the time of initial adoption of IFRS is
a reduction of carrying value of approximately $145 million. The
offsetting entry will be recorded in future income tax and retained
earnings. The adjustment to the carrying value is subject to
finalization of the valuation estimate and review by Precision's
auditor.
Precision has rebuilt historical property, plant and equipment
records as if it had always followed IFRS principles except for
those drilling rigs identified in the preceding paragraph. As a
result of rebuilding Precision's historical records, there is
expected to be a reduction in the opening IFRS net book value for
property, plant and equipment of approximately $110 million. The
offsetting entry will be recorded in future income tax and retained
earnings as required under IFRS 1.
Capital Assets
Precision has analyzed the potential impact of component
accounting on its financial statements. Based on the data collected
in 2010, it is anticipated that upon adoption of IFRS, annual
depreciation and amortization expense will increase by
approximately 20% to 25% compared to depreciation and amortization
recorded under Canadian GAAP. This is primarily due to the
componentization of drilling rigs into three categories. The
additional two categories are meant to better reflect the shorter
useful lives of specific assets on the rig.
Internal controls over financial reporting of the capital and
asset management process have been reviewed by Precision. Internal
controls under IFRS are expected to remain similar to the controls
under Canadian GAAP with the exception of management reports that
have been redesigned for transition to IFRS.
Precision's procedures for property, plant and equipment
accounting have been revised to reflect changes as a result of
transition to IFRS. Precision's budget preparation procedures have
also been revised to incorporate the changes resulting from
differing treatment of capital and expense items under
International Accounting Standards.
Financial Statement Disclosure
Sample financial statements were drafted and reviewed by
management in the second quarter 2010. During the fourth quarter
2010, management and Precision's IFRS project team further refined
the sample financial statements to enable efficient preparation of
the first set of fully compliant IFRS statements for the first
quarter 2011.
Income Taxes
Precision continues to work on analyzing and implementing the
requirements of IAS 12 Income Taxes.
Impairments
Precision continues to refine its IFRS Impairment test model by
testing and reviewing the assumptions used in the model.
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 following: global demand for
energy is rising; customer demand for oil and liquids rich natural
gas drilling; active rig counts remaining stable or increasing; the
rig count and utilization will continue to increase; increased
liquidity in capital markets and higher oil commodity prices
provide liquidity for customers to increase drilling programs;
United States activity levels will continue to improve with oil and
liquids rich natural gas activity leading the way; North American
drilling activity levels will be higher in the first quarter of
2011 and, in Canada, during the 2011 winter drilling season;
amount, timing, and allocation of capital expenditures; the
potential for further reduction in natural gas drilling and related
activity; the outcome of discussions regarding potential new build
opportunities for rigs; the marketability of upgraded rigs; market
dayrates will continue to improve; the deployment of new build rigs
and the location thereof; Precision's financial flexibility; the
outcome of the tax reassessment and appeal process; Precision's
expansion of drilling, directional drilling and international
presence; demand for rig personnel and possibility of wage
increases offset by higher dayrates; the potential impacts of
Precision's transition to IFRS; the effectiveness of Precision's
risk management efforts; Precision's continued compliance with its
financial covenants and ability to access its credit lines;
possibility of further voluntary long-term debt reduction; the
number of rigs under term contract and the trend to move to spot
market dayrates upon expiry; a reduction in gas directed drilling
would be offset by an increase in oil and liquids rich natural gas
drilling; and dayrate levels.
These forward-looking information and statements are based on
certain assumptions and analysis made by the Corporation in light
of its experience and its perception of historical trends, current
conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However,
whether actual results, performance or achievements will conform to
the Corporation's expectations and predictions is subject to a
number of known and unknown risks and uncertainties which could
cause actual results to differ materially from the Corporation's
expectations. Such risks and uncertainties include, but are not
limited to: fluctuations in the price and demand for oil and
natural gas; fluctuations in the level of oil and natural gas
exploration and development activities; fluctuations in the demand
for contract drilling, well servicing and ancillary oilfield
services; capital market liquidity available to fund customer
drilling programs; the effects of seasonal and weather conditions
on operations and facilities; the existence of competitive
operating risks inherent in contract drilling, well servicing and
ancillary oilfield services; general economic, market or business
conditions; changes in laws or regulations; interpretation of tax
filing position for prior period transactions; the availability of
qualified personnel, management or other key inputs; currency
exchange fluctuations; and other unforeseen conditions which could
impact the use of services supplied by Precision.
Consequently, all of the forward-looking information and
statements made in this report are qualified by these cautionary
statements and there can be no assurance that the actual results or
developments anticipated by the Corporation will be realized or,
even if substantially realized, that they will have the expected
consequences to, or effects on, the Corporation or its business or
operations. Readers are therefore cautioned not to place undue
reliance on such forward-looking information and statements. Except
as may be required by law, the Corporation assumes no obligation to
update publicly any such forward-looking information and
statements, whether as a result of new information, future events
or otherwise.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, December 31,
(stated in thousands of Canadian dollars) 2010 2009
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 256,831 $ 130,799
Accounts receivable 414,901 283,899
Income tax recoverable - 25,753
Inventory 4,933 9,008
----------------------------------------------------------------------------
676,665 449,459
Income tax recoverable 64,579 64,579
Property, plant and equipment, net of
accumulated depreciation 2,812,281 2,913,966
Intangibles 6,366 3,156
Goodwill 736,897 760,553
----------------------------------------------------------------------------
$ 4,296,788 $ 4,191,713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 215,653 $ 128,376
Income taxes payable 863 -
Current portion of long-term debt - 223
----------------------------------------------------------------------------
216,516 128,599
Long-term liabilities 30,319 26,693
Long-term debt 804,494 748,725
Future income taxes 667,540 703,195
----------------------------------------------------------------------------
1,718,869 1,607,212
----------------------------------------------------------------------------
Shareholders' equity:
Shareholders' capital 2,771,023 -
Unitholders' capital - 2,770,708
Contributed surplus 10,471 4,063
Retained earnings 169,318 107,227
Accumulated other comprehensive loss (372,893) (297,497)
----------------------------------------------------------------------------
2,577,919 2,584,501
----------------------------------------------------------------------------
$ 4,296,788 $ 4,191,713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS (UNAUDITED)
Three months ended Year ended
December 31, December 31,
(stated in thousands of Canadian
dollars, except per share/unit
amounts) 2010 2009 2010 2009
----------------------------------------------------------------------------
Revenue $435,537 $ 286,067 $1,429,653 $1,197,446
Expenses:
Operating 255,742 169,832 886,748 692,243
General and administrative 34,406 23,620 107,522 98,202
Depreciation and amortization 50,431 35,451 182,719 138,000
Loss on asset decommissioning - 82,173 - 82,173
Foreign exchange (1,042) (17,791) (12,712) (122,846)
Finance charges 108,508 34,454 211,327 147,401
----------------------------------------------------------------------------
Earnings (loss) before income
taxes (12,508) (41,672) 54,049 162,273
Income taxes:
Current 2,879 (28,281) 7,634 (14,901)
Future (20,930) 11,494 (15,676) 15,471
----------------------------------------------------------------------------
(18,051) (16,787) (8,042) 570
----------------------------------------------------------------------------
Net earnings (loss) 5,543 (24,885) 62,091 161,703
Retained earnings (deficit),
beginning of period 163,775 132,112 107,227 (48,068)
Distributions declared - - - (6,408)
----------------------------------------------------------------------------
Retained earnings, end of period $169,318 $ 107,227 $ 169,318 $ 107,227
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings (loss) per share/unit:
Basic $ 0.02 $ (0.09) $ 0.23 $ 0.65
Diluted $ 0.02 $ (0.09) $ 0.22 $ 0.63
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
Three months ended Year ended
December 31, December 31,
(stated in thousands of Canadian
dollars) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings (loss) $ 5,543 $ (24,885) $ 62,091 $ 161,703
Unrealized loss recorded
on translation of assets and
liabilities of self-sustaining
operations denominated in
foreign currency (61,051) (47,390) (90,213) (312,856)
Foreign exchange gain on net
investment hedge with U.S,
denominated debt, net of tax
of $2,148 14,817 - 14,817 -
----------------------------------------------------------------------------
Comprehensive loss $ (40,691) $ (72,275) $ (13,305) $(151,153)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three months ended Year ended
December 31, December 31,
(stated in thousands of Canadian
dollars) 2010 2009 2010 2009
----------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings (loss) $ 5,543 $ (24,885) $ 62,091 $ 161,703
Adjustments and other items not
involving cash:
Long-term compensation plans 6,642 396 15,526 3,310
Depreciation and amortization 50,431 35,451 182,719 138,000
Loss on asset decommissioning - 82,173 - 82,173
Future income taxes (20,930) 11,494 (15,676) 15,471
Foreign exchange (1,885) 4,670 (12,480) (113,649)
Amortization of debt issue costs 93,193 13,774 143,593 43,893
Other 511 655 (1,075) 655
Changes in non-cash working
capital balances (58,313) (53,097) (69,303) 173,173
----------------------------------------------------------------------------
75,192 70,631 305,395 504,729
Investments:
Purchase of property, plant and
equipment (110,948) (13,992) (175,901) (193,435)
Proceeds on sale of property,
plant and equipment 2,885 5,721 12,256 15,978
Changes in income tax recoverable - (6,524) - (6,524)
Changes in non-cash working
capital balances 37,747 (6,103) 45,532 (26,250)
----------------------------------------------------------------------------
(70,316) (20,898) (118,113) (210,231)
Financing:
Increase in long-term debt 663,455 - 663,455 408,893
Repayment of long-term debt (593,103) (86,666) (696,863) (974,271)
Debt issue costs (24,217) - (26,382) (21,628)
Issuance of common shares on
exercise of options 122 - 122 -
Re-purchase of trust units - - (6) -
Distributions paid - - - (27,233)
Issuance of trust units, net of
issue costs - - - 413,223
Changes in non-cash working
capital balances 985 - 985 -
----------------------------------------------------------------------------
47,242 (86,666) (58,689) (201,016)
----------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents (3,996) (9,797) (2,561) (24,194)
----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 48,122 (46,730) 126,032 69,288
Cash and cash equivalents, beginning
of period 208,709 177,529 130,799 61,511
----------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 256,831 $ 130,799 $ 256,831 $ 130,799
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following tabular information is stated in thousands of
Canadian dollars except for share/unit amounts which are stated in
thousands of shares/units.
Long-Term Debt
December 31, December 31,
2010 2009
----------------------------------------------------------------------------
Senior secured revolving credit facility $ - $ -
Unsecured senior notes:
6.625% senior notes 646,490 -
10.0% senior notes 175,000 175,000
Secured facility:
Term loan A - 288,887
Term loan B - 422,097
Revolving credit facility - -
----------------------------------------------------------------------------
821,490 885,984
Less net unamortized debt issue costs (16,996) (137,036)
----------------------------------------------------------------------------
804,494 748,948
Less current portion - (223)
----------------------------------------------------------------------------
$ 804,494 $ 748,725
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per Share/Unit Amounts
The following tables reconcile the net earnings (loss) and
weighted average shares outstanding used in computing basic and
diluted earnings (loss) per share/unit:
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings (loss)- basic $ 5,543 $ (24,885) $ 62,091 $161,703
Impact of assumed conversion of
convertible debt, net of tax - - - 1,229
----------------------------------------------------------------------------
Net earnings (loss) - diluted $ 5,543 $ (24,885) $ 62,091 $162,932
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average shares/units
outstanding
- basic 275,670 275,636 275,655 243,748
Effect of rights offering - - - 6,177
----------------------------------------------------------------------------
Weighted average shares/units
outstanding
- basic 275,670 275,636 275,655 249,925
Effect of warrants 9,259 8,363 8,787 5,261
Effect of share options and other
equity compensation plans 827 257 619 181
Effect of convertible debt - - - 3,896
Effect of rights offering - - - 342
----------------------------------------------------------------------------
Weighted average shares/units
outstanding
- diluted 285,756 284,256 285,061 259,605
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance Charges
The following table provides a summary of the finance charges:
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
----------------------------------------------------------------------------
Interest:
Long-term debt $ 15,677 $ 20,846 $ 67,570 $101,108
Other 34 27 97 2,883
Income (269) (193) (803) (483)
Amortization of debt issue costs 2,320 5,461 27,097 25,681
Accelerated amortization of debt
issue costs from voluntary debt
repayments - 8,313 1,590 8,313
Loss on settlement of debt
facilities 90,746 - 115,776 9,899
----------------------------------------------------------------------------
Finance charges $ 108,508 $ 34,454 $211,327 $147,401
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income Taxes
The provision for income taxes differs from that which would be
expected by applying statutory Canadian income tax rates. A
reconciliation of the difference at December 31 is as follows:
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
----------------------------------------------------------------------------
Earnings (loss) before income taxes $ (12,508) $(41,672) $ 54,049 $162,273
Federal and provincial statutory
rates 28% 29% 28% 29%
----------------------------------------------------------------------------
Tax at statutory rates $ (3,502) $ 12,085 $ 15,134 $ 47,059
Adjusted for the effect of:
Non-deductible expenses 10,506 1,190 15,849 7,562
Non-taxable capital gains (2,473) (3,320) (2,601) (20,136)
Income taxed at lower rates (22,384) 5,829 (43,557) (30,983)
Income to be distributed to
unitholders, not subject to
tax in the Trust - (246) - (2,771)
Other (198) (8,155) 7,133 (161)
----------------------------------------------------------------------------
Income tax expense (recovery) $ (18,051) $(16,787) $ (8,042) $ 570
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segmented Information
Completion
Contract and
Three months ended Drilling Production Corporate Inter-segment
December 31,2010 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 367,141 $ 71,596 $ - $ (3,200) $ 435,537
Segment profit
(loss) 93,456 16,930 (15,428) - 94,958
Depreciation and
amortization 43,617 5,327 1,487 - 50,431
Total assets 3,550,844 395,109 350,835 - 4,296,788
Goodwill 624,758 112,139 - - 736,897
Capital expenditures 103,485 5,888 1,575 - 110,948
----------------------------------------------------------------------------
Completion
Contract and
Three months ended Drilling Production Corporate Inter-segment
December 31,2009 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 239,356 $ 49,119 $ - $ (2,408) $ 286,067
Segment profit
(loss) (10,752) (6,477) (7,780) - (25,009)
Depreciation and
amortization 31,882 4,781 (1,212) - 35,451
Total assets 3,566,078 388,245 237,390 - 4,191,713
Goodwill 648,414 112,139 - - 760,553
Capital expenditures 11,086 1,875 1,031 - 13,992
----------------------------------------------------------------------------
Completion
Contract and
Year ended Drilling Production Corporate Inter-segment
December 31, 2010 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 1,212,656 $ 227,835 $ - $ (10,838) $1,429,653
Segment profit
(loss) 260,459 37,667 (45,462) - 252,664
Depreciation and
amortization 156,179 21,491 5,049 - 182,719
Total assets 3,550,844 395,109 350,835 - 4,296,788
Goodwill 624,758 112,139 - - 736,897
Capital expenditures 158,575 12,134 5,192 - 175,901
----------------------------------------------------------------------------
Completion
Contract and
Year ended Drilling Production Corporate Inter-segment
December 31, 2009 Services Services and Other Eliminations Total
----------------------------------------------------------------------------
Revenue $ 1,030,852 $ 176,422 $ - $ (9,828) $1,197,446
Segment profit
(loss) 210,784 10,934 (34,890) - 186,828
Depreciation and
amortization 118,889 17,186 1,925 - 138,000
Total assets 3,566,078 388,245 237,390 - 4,191,713
Goodwill 648,414 112,139 - - 760,553
Capital expenditures 182,855 2,897 7,683 - 193,435
----------------------------------------------------------------------------
FOURTH QUARTER AND YEAR END 2010 EARNINGS CONFERENCE CALL AND
WEBCAST
Precision Drilling Corporation has scheduled a conference call
and webcast to begin promptly at 12:00 noon MT (2:00 p.m. ET) on
Thursday, February 10, 2011.
The conference call dial in numbers are 1-877-240-9772 or
416-340-9531
A live webcast of the conference call will be accessible on
Precision's website at www.precisiondrilling.com by selecting
"Investor Centre", then "Webcasts". Shortly after the live webcast,
an archived version will be available for approximately 30
days.
An archived recording of the conference call will be available
approximately one hour after the completion of the call until
February 17, 2011 by dialing 1-800-408-3053 or 905-694-9451, pass
code 6675718.
About Precision
Precision is a leading provider of safe, High Performance, High
Value 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, water
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" and on the New York Stock Exchange under the trading
symbol "PDS".
Contacts: Precision Drilling Corporation David Wehlmann
Executive Vice President, Investor Relations 403.716.4575
403.716.4755 (FAX) Precision Drilling Corporation 4200, 150 - 6th
Avenue S.W. Calgary, Alberta, Canada T2P 3Y7
www.precisiondrilling.com
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