(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 (TSX:PD) (NYSE:PDS) reported net
earnings of $111 million or $0.39 per diluted share for the three
months ended March 31, 2012 compared to net earnings of $66 million
or $0.23 per diluted share for the first quarter of 2011.
Revenue for the first quarter of 2012 totalled $640 million
compared to $525 million for the same period of 2011. Earnings
before income taxes, other items and depreciation and amortization
("EBITDA") were $246 million for the first quarter of 2012 compared
to $186 million for the first quarter of 2011 (see "Additional GAAP
Measures" in this news release). Higher dayrates in both the
Canadian and U.S. markets and increased drilling activity in the
United States in the first quarter of 2012 over the same period of
2011, led to the 22% increase in revenue and 32% increase in
EBITDA.
Revenue for the fourth quarter of 2011 was $587 million and
EBITDA totalled $230 million. First quarter 2012 revenue and EBITDA
were higher than the fourth quarter of 2011 due to higher
utilization in Canada and higher revenue rates in the Canadian and
United States drilling operations and Canadian well servicing
operations. Average drilling rig revenue per day increased by
$1,120 in Precision's Canadian operations and by US$215 in the
United States operations in the first quarter of 2012 over the
fourth quarter of 2011.
Kevin Neveu, Precision's President and Chief Executive Officer,
stated: "Strong demand for Precision's services resulted in high
revenue levels in the first quarter of 2012. Despite a significant
decline in dry gas drilling activity, drilling rigs performing
horizontal drilling for oil and gas liquids and the related
services provided by Precision remain in demand. Compared to the
first quarter of 2011, all of Precision's drilling and service
lines operating in Canada and the United States contributed both
increased revenue and improved operating margins during the period.
Also, we are pleased to announce a contract for the deployment of
three additional drilling rigs to central Mexico for deep oil
drilling under an integrated services project managed by a major
oil service company, bringing our total international fleet to
eight rigs."
"For much of the quarter Precision had near full utilization for
our Tier 1 and Tier 2 assets in Canada. This utilization was
reached despite an overall depressed gas drilling market and the
virtual absence of the shallow gas drilling market. The high
activity levels are representative of continued demand for drilling
services to develop unconventional oil and liquids targets. For
Canada the unseasonably warm weather created a delay in rig
start-up for the winter drilling season and the annual spring
break-up arrived earlier than last year. These factors combined to
lower average utilization rates for the quarter, but we are
encouraged by the activity levels we achieved, our conversations
with customers about post break-up plans and the visibility we have
for the second half of the year. We see continued customer interest
in both new build rigs and upgrades to our current fleet to satisfy
their needs later in the year."
"In the U.S. market we continue to experience strong demand for
Precision's Super Series rigs as customers recognize Precision's
High Performance, High Value services and capabilities to develop
unconventional resources. We are in discussions with several
customers for new build rigs to meet drilling challenges in
unconventional oil focused drilling plays such as West Texas
Permian, the Mississippian Lime, the Bakken and the Niobrara."
"The industry is experiencing regional activity and pricing
softness in gas-driven markets; the decrease in gas-directed
activity has been steep and swift with the U.S. gas directed land
rig count declining approximately 35% or 315 rigs since October
2011. Precision has mitigated the impact by redeploying many of our
rigs to oil targets; however, we do expect this regional gas
directed weakness to continue until the gas rig count reaches its
bottom over the coming months. As a result of Precision's rig
redeployments over the past 16 months and new build and upgrade rig
deliveries, we have established stronger positions in the Bakken,
Eagle Ford and horizontal Permian markets as well as some of the
emerging oil and gas liquids plays. Across North America,
approximately 75% of Precision's rigs working during the first
quarter were drilling for oil targets and over 80% were drilling
horizontal or directional wells."
"Drilling margins for the quarter increased by more than $2,000
per utilization day in Canada and the United States over the prior
year comparable quarter. Despite the unseasonably warm weather in
the quarter, Precision's active rig count in Canada peaked at 163
rigs and for most of the quarter we were more active than the prior
year. In the United States Precision averaged 104 active drilling
rigs of which approximately 75% were drilling for oil compared with
approximately 55% in the prior year comparable quarter. Precision's
current active count in the United States is 101 rigs."
"The dayrate increases achieved over the past two years point to
the demand for Precision's High Performance, High Value services
and the strength of the oil and liquids market in North America.
The strong dayrate and margin performance helped drive Precision's
revenue and EBITDA increase over the comparable quarter in
2011."
"Precision's successful execution of organic growth initiatives
continues in 2012. By the end of this month we expect to have
deployed 10 new build drilling rigs to the market and have 23
additional contracted new build drilling rigs to deliver prior to
the end of the year. We continue to have encouraging conversations
with customers about new build drilling rigs and expect to fill our
few remaining new build slots for 2012 delivery. We have one of the
Saudi rigs drilling and expect the remaining rigs to be operating
within the next few weeks. As mentioned earlier, we recently signed
a long-term contract with an international service company in
Mexico for three of our high performance rigs, two to move from the
U.S. and one rig to relocate from Colombia. Operations are
scheduled to commence in the second quarter."
"We continue to be encouraged about the performance of our
directional drilling business where we have been adding people,
equipment and support facilities and have a current job capacity of
77. Most importantly, we have been adding customers with our
combined marketing team and our operating personnel are engaging
with customers about our integrated service offering. This new
service offering is expected to grow substantially in Precision as
our customers realize the cost savings and performance enhancement
we can provide."
"Our Canadian Completion and Production business achieved strong
first quarter results and demand for our well servicing rigs
continues to be strong as the increased Canadian drilling activity
over the past two years has established a solid foundation for
future well service work. Rate increases and margins are beginning
to track demand and we expect this trend to continue through the
year. Average hourly rates for service rigs in Canada increased by
$92 in the first quarter of 2012 compared to first quarter of 2011,
while operating margins increased $46 per hour. To address the
horizontal completions market, Precision has deployed its first two
coiled tubing units now working in the Canadian market with six
additional units expected to be deployed later this year. Also,
Precision has continued to deploy well snubbing units and rental
equipment to the northern U.S. markets and is gaining traction with
customers in those regions."
"Continued investment in High Performance, High Value Tier 1
drilling rigs and service equipment remains a key element in
Precision's organic growth plans. Precision continues to employ
strict capital discipline, seeking contracts with strong financial
returns and will continue that strict discipline throughout the
year as we evaluate further investment opportunities. Our
management and board review our capital budget and spending plans
on a regular basis and communicate to the market when we have
material changes in planned expenditures. For 2012 we now expect to
spend $975 million in capital, a reduction of more than a $150
million from our original 2012 budget. The decrease reflects a
deferral of some infrastructure projects, reduced maintenance and
deferral of some non-contracted projects. The revised capital
expenditure forecast still includes all previously announced and
fully contracted new build drilling rigs. We will continue to
consider additional new builds or expansion opportunities if the
economics meet our internal economic hurdles and contract
requirements."
"Precision demonstrated continued growth in revenue and earnings
in the first quarter of 2012. We have made significant strategic
investments supporting the near-term and longer-term growth of the
business and expect to continue to build our presence in North
America and internationally and create value for our shareholders
throughout 2012 and into the future," concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
Three months ended March 31,
(Stated in thousands of
Canadian dollars, except
per share amounts) 2012 2011 % Change
----------------------------------------------------------------------------
Revenue $ 640,066 $ 525,350 21.8
EBITDA(1) 245,574 186,411 31.7
Net earnings 111,081 65,560 69.4
Cash provided by
operations 162,440 117,322 38.5
Funds provided by
operations(1) 247,739 192,337 28.8
Investing activities:
Capital spending:
Expansion capital
expenditures 136,472 35,573 284.5
Upgrade capital
expenditures 54,259 20,778 161.1
Maintenance and
infrastructure capital
expenditures 30,952 8,449 262.9
Proceeds from disposals (5,079) (735) 591.0
--------------------------------------------------
Net capital spending 216,604 64,065 238.1
Business acquisitions
(net of cash acquired) - 33,143 100.0
Net earnings - per share:
Basic 0.40 0.24 66.7
Diluted 0.39 0.23 69.6
Contract drilling rig
fleet 344 359 (4.2)
Drilling rig utilization
days:
Canada 12,369 12,542 (1.4)
United States 9,451 9,021 4.8
International 185 180 2.8
Service rig fleet 210 220 (4.5)
Service rig operating
hours 94,042 96,148 (2.2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
FINANCIAL POSITION AND RATIOS
(Stated in thousands of Canadian
dollars, except ratios) March 31, 2012 December 31, 2011
----------------------------------------------------------------------------
Working capital $ 587,233 $ 610,429
Long-term debt(1) $ 1,221,402 $ 1,239,616
Total long-term financial
liabilities $ 1,243,110 $ 1,267,040
Total assets $ 4,488,470 $ 4,427,874
Long-term debt to long-term debt
plus equity ratio(1) 0.35 0.37
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Net of unamortized debt issue costs.
Revenue in the first quarter of 2012 was $115 million higher
than the prior year period. The increase was due to a
year-over-year increase in rates in both Canada and the United
States and higher utilization days in the United States. Revenue in
Precision's Contract Drilling Services segment increased by 25%
while revenue increased 7% in the Completion and Production
Services segment in the first quarter of 2012 compared to the prior
year quarter.
EBITDA margin (EBITDA as a percentage of revenue) was 38% for
the first quarter of 2012 compared to 35% for the same period in
2011. The increase in EBITDA margin for the quarter over the prior
year was primarily attributable to higher average dayrates in both
Canada and the United States and new build and upgraded rigs
achieving higher than average margins. 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 345 contract drilling rigs, including 193 in Canada, 144 in
the United States and eight rigs in international locations.
Precision's Completion and Production Services segment includes 191
service rigs, 19 snubbing units, two coil tubing units, 102
wastewater treatment units, 63 drilling and base camps and a broad
mix of rental equipment.
During the quarter, an average of 136 drilling rigs worked in
Canada, while 104 worked in the United States and two
internationally. The total average drilling rigs working in the
first quarter of 2012 was 242, which compares with an average of
225 rigs working in the fourth quarter of 2011 and 242 in the first
quarter a year ago.
Precision's 2012 priorities are threefold:
1. Execute High Performance, High Value strategy. Continue to deliver safe,
repeatable, predictable and reliable performance with high environmental
responsibility and community standards.
2. Continue to pursue growth opportunities. Execute on existing organic
growth opportunities including contracting additional new build and
upgraded drilling rigs, adding assets and people to the directional
drilling and Completion and Production Services segment and pursuing
additional rig deployments internationally. Continue to evaluate
accretive acquisitions.
3. Build our brand. Continue to promote Precision's High Performance, High
Value brand with customers, employees, investors and the communities in
which we operate.
Oil prices were higher and natural gas prices were lower during
the first quarter of 2012 compared with the year ago period. For
the first quarter of 2012, West Texas Intermediate crude oil
averaged US$102.84 per barrel, 9% higher when compared to US$94.11
per barrel in the same period in 2011. AECO natural gas spot prices
averaged $2.15 per MMBtu, 43% lower than the first quarter 2011
average of $3.76 per MMBtu. In the United States, Henry Hub natural
gas spot prices averaged US$2.45 per MMBtu in the first quarter of
2012, a decrease of 41% over the first quarter 2011 average of
US$4.17 per MMBtu.
Summary for the three months ended March 31, 2012:
-- Operating earnings (see "Additional GAAP Measures" in this news release)
were $171 million and 27% of revenue, compared to $123 million and 23%
of revenue in 2011. Operating earnings were positively impacted by the
increase in rates in all of Precision's service offerings in North
America and activity increases in the U.S. market over the same period
in 2011.
-- General and administrative expenses were $38 million, an increase of $3
million from the first quarter of 2011, as a result of growth in
international and directional drilling activity.
-- Funds provided by operations (see "Additional GAAP Measures" in this
news release) in the first quarter of 2012 were $248 million, an
increase of $56 million from the prior year comparative quarter of $192
million.
-- Financial charges were $22 million, a decrease of $21 million from the
first quarter of 2011 due to the first quarter 2011 charge of $27
million for the make-whole premium from refinancing the previously
outstanding $175 million 10% senior notes.
-- Capital expenditures for the purchase of property, plant and equipment
were $222 million in the first quarter, an increase of $157 million over
the same period in 2011. Capital spending for the first quarter of 2012
included $137 million for expansion capital, $54 million for upgrade
capital and $31 million for the maintenance of existing assets and
infrastructure.
-- Average revenue per utilization day for contract drilling rigs increased
in the first quarter of 2012 to US$23,225 from the prior year first
quarter of US$20,864 in the United States and increased in Canada to
$21,091 in the first quarter of 2012 from $17,820 for the first quarter
of 2011. Within Precision's Completion and Production Services segment,
average hourly rates for service rigs were $819 in the first quarter of
2012 compared to $720 in the first quarter of 2011.
-- Average operating costs per utilization day for drilling rigs increased
in the first quarter of 2012 to US$13,860 from the prior year first
quarter of US$13,537 in the United States and increased in Canada to
$9,691 in 2012 from the prior year first quarter of $8,740. The cost
increase in Canada was primarily due to a labour rate increase that
became effective in the fourth quarter of 2011. In the United States,
the increase was also due to a labour rate increase effective December
2011, partially offset by cost discipline. Within Precision's Completion
and Production Services segment, average hourly operating costs for
service rigs increased to $549 in the first quarter of 2012 as compared
to $499 in the first quarter of 2011 primarily due to a labour cost
increase which was recovered by a corresponding increase in the revenue
rate.
-- Precision realized revenue from directional services of $37 million in
the first quarter of 2012 compared with $3 million in the prior year
period. The increase is primarily due to 2011 business acquisitions.
OUTLOOK
Precision has a strong portfolio of long-term customer contracts
that provides a base level of activity and revenue. Precision has
an average of 136 rigs committed under term contracts for the
second quarter of 2012, an average of 106 rigs contracted for the
third quarter of 2012 and 97 for the fourth quarter of 2012. In
Canada, term contracted rigs normally generate 250 utilization days
per rig year due to the seasonal nature of well access, whereas in
the United States and international they usually generate 365
utilization days per rig year in most regions.
For 2012, based on current drilling rig contracts, Precision
currently has an average of 54 rigs in Canada under term contract,
63 in the United States and five internationally. For 2013,
Precision currently has term contracts in place for an average of
79 rigs, with 28 in Canada and 45 in the United States and six
internationally.
Capital expenditures are expected to be approximately $975
million for 2012, of which $222 million was expended during the
first quarter. The 2012 total includes $584 million for expansion
capital and includes the cost to complete 28 of the 42 drilling
rigs from the 2011 new build rig program and the five additional
contracted new build rigs for 2012. The total capital expenditures
also include the cost to upgrade approximately 14 rigs in 2012 and
to purchase long lead time items for the Corporation's capital
inventory at an anticipated cost of $173 million. These long lead
time items include top drives, masts and engines that can be used
for North American or international new build rig opportunities and
rig tier upgrades. In addition, $218 million is expected to be
spent on sustaining and infrastructure expenditures and is based
upon currently anticipated activity levels for 2012. Precision
expects that the $975 million will be split $816 million for the
Contract Drilling segment and $159 million for the Completion and
Production Services segment. An additional $171 million of capital
expenditures is expected to carry forward to 2013.
Customers continue to show interest in new build Tier 1 Super
Series rigs for Canada and the United States. Precision believes
that customer demand, driven by strong oil and liquids fundamentals
in North America, will result in additional new build rig
opportunities throughout 2012.
To date in 2012, there have been continued high drilling
activity levels in Canada and the United States. The higher oil
prices are providing some of Precision's customers with cash flow
to support or increase drilling programs. According to industry
sources, as at April 20, 2012, the United States active land
drilling rig count was up about 9% from the same period in the
prior year while the Canadian drilling rig count had increased
about 2%. With the year-over-year improvements in rig utilization,
there have been improvements in dayrates charged to customers in
Canada and in the United States.
Natural gas production in the United States has remained strong
despite reduced drilling activity. United States natural gas
storage levels as at April 13, 2012 are 58% above the five-year
average and 53% above 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 Permian Basin, Bakken and Eagle Ford has been
strong and the U.S. oil rig count as at April 20, 2012 is 46%
higher than it was a year ago. On average, Precision has more
equipment working in oil related plays than at any time in the last
20 years with approximately 75% of Precision's active rig count
drilling for oil targets.
With high storage levels, consistent production and the view
that North America has an oversupply of natural gas, gas prices
have remained at very low levels. To date, customer changes in
natural gas drilling plans are 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 in the
current pricing environment, Precision believes further reductions
in natural gas directed drilling will continue to be largely offset
by increases in oil and liquids rich natural gas drilling.
SEGMENTED FINANCIAL RESULTS
Precision's operations are reported in two segments; the
Contract Drilling Services segment includes the drilling rig,
directional drilling, oilfield supply and manufacturing divisions;
and the Completion and Production Services segment includes the
service rig, snubbing, coiled tubing services, rental, camp and
catering and wastewater treatment divisions.
Three months ended March 31,
(Stated in thousands of
Canadian dollars) 2012 2011 % Change
----------------------------------------------------------------------------
Revenue:
Contract Drilling Services $ 531,066 $ 426,027 24.7
Completion and Production
Services 111,085 104,229 6.6
Inter-segment eliminations (2,085) (4,906) (57.5)
----------------------------------------------------------------------------
$ 640,066 $ 525,350 21.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA:(1)
Contract Drilling Services $ 227,556 $ 172,550 31.9
Completion and Production
Services 39,204 34,451 13.8
Corporate and other (21,186) (20,590) 2.9
----------------------------------------------------------------------------
$ 245,574 $ 186,411 31.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
Three months ended March 31,
(Stated in thousands of
Canadian dollars, except
where indicated) 2012 2011 % Change
----------------------------------------------------------------------------
Revenue $ 531,066 $ 426,027 24.7
Expenses:
Operating 291,134 243,699 19.5
General and administrative 12,376 9,778 26.6
----------------------------------------------------------------------------
EBITDA(1) 227,556 172,550 31.9
Depreciation 67,335 54,527 23.5
----------------------------------------------------------------------------
Operating earnings(1) $ 160,221 $ 118,023 35.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings as a
percent of revenue 30.2% 27.7%
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in Canada $ 21,091 $ 17,820 18.4
----------------------------------------------------------------------------
Drilling rig revenue per
utilization day in the
United States(2) US$ 23,225 US$ 20,864 11.3
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
(2) Includes revenue from idle but contracted rig days and lump
sum payouts.
Three months ended March 31,
Canadian onshore
drilling statistics:(1) 2012 2011
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
----------------------------------------------------------------------------
Number of drilling rigs
(end of period) 192 811 202 793
Drilling rig operating
days (spud to release) 11,042 48,121 11,127 47,462
Drilling rig operating
day utilization 64% 65% 61% 67%
Number of wells drilled 872 3,019 1,091 3,607
Average days per well 12.7 15.9 10.2 13.2
Number of metres
drilled (000s) 1,619 6,411 1,720 6,511
Average metres per well 1,856 2,124 1,577 1,805
Average metres per day 147 133 155 137
----------------------------------------------------------------------------
(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) 2012 2011
----------------------------------------------------------------------------
Precision Industry(2) Precision Industry(2)
Average number of active
land rigs for quarter
ended March 31 104 1,947 100 1,695
----------------------------------------------------------------------------
(1) United States lower 48 operations only.
(2) Baker Hughes rig counts.
Contract Drilling Services segment revenue for the first quarter
of 2012 increased by 25% to $531 million and EBITDA increased by
32% to $228 million compared to the same period in 2011. The
increase in revenue and EBITDA was due to the higher average rates
per day for both Canada and the United States and higher drilling
rig activity in the United States.
Activity in North America was impacted by increased customer
demand for oil related drilling activity as a result of higher
global oil prices. In the first quarter, drilling rig revenue per
utilization day in Canada was up 18% over the prior year as a
result of increased rates for rigs working on well-to-well
contracts. During the quarter, 36% of Precision's utilization days
in Canada were generated from rigs under term contract compared
with 24% in 2011 while in the United States 82% of utilization days
were generated from rigs under term contract as compared to 70% in
the prior year period. As at the end of the quarter, Precision had
85 drilling rigs working under term contracts in the United States
and 57 in Canada.
Drilling rig utilization days in Canada (drilling days plus move
days) during the first quarter of 2012 were 12,369, a decrease of
1% compared to 12,542 in 2011. Relative to the prior year, activity
in Canada was negatively impacted by a slow start in January and an
earlier spring break-up period. Drilling rig utilization days for
Precision in the United States were 9,451, an increase of 5%
compared to 9,021 in 2011. The increase was due to higher customer
demand with additional activity coming from oil and liquids rich
natural gas related plays. On average Precision had two rigs
working in Mexico during the first quarter of 2012, the same as the
corresponding quarter of 2011. During the quarter the first
drilling rig working in Saudi Arabia spudded and realized 23
utilization days.
Contract Drilling Services operating costs were 55% of revenue
for the quarter which is two percentage points lower than the prior
year period. On a per day basis, operating costs for the drilling
rig division in Canada were above the prior year because of an
increase in crew wage expense effective October 2011. Operating
costs for the quarter in the United States on a per day basis were
up from the comparable period in 2011 due to a crew wage increase
effective October 2011 partially offset by continued cost control
focus in 2012.
Quarterly depreciation in the Contract Drilling Services segment
increased 23% from the prior year. As discussed in Management's
Discussion and Analysis for the year ended December 31, 2011,
Precision changed its depreciation policy on certain Tier 3 rigs
from unit of production to straight-line over four years resulting
in an estimated $5 million in additional depreciation in the
quarter. With the exception of the certain Tier 3 rigs, both the
United States and Canadian contract drilling operations use the
unit of production method of calculating depreciation.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
Three months ended March 31,
(Stated in thousands
of Canadian
dollars, except
where indicated) 2012 2011 % Change
----------------------------------------------------------------------------
Revenue $ 111,085 $ 104,229 6.6
Expenses:
Operating 67,537 65,532 3.1
General and
administrative 4,344 4,246 2.3
----------------------------------------------------------------------------
EBITDA(1) 39,204 34,451 13.8
Depreciation 8,034 7,071 13.6
----------------------------------------------------------------------------
Operating
earnings(1) $ 31,170 $ 27,380 13.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating earnings
as a percent of
revenue 28.1% 26.3%
----------------------------------------------------------------------------
Well servicing
statistics:
Number of service
rigs (end of
period) 210 220 (4.5)
Service rig
operating hours 94,042 96,148 (2.2)
Service rig
operating hour
utilization 49.8% 48.6%
Service rig revenue
per operating hour $ 819 $ 720 13.8
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
Completion and Production Services segment revenue for the first
quarter increased by 7% from the first quarter of 2011 to $111
million and EBITDA increased by 14% to $39 million. The increase in
revenue and EBITDA is attributed to the increase in rates.
Well servicing and snubbing activity decreased 2% from the prior
year period, with the fleet generating 94,042 operating hours in
the first quarter of 2012 compared with 96,148 hours in the prior
year quarter for utilization of 50% and 49%, respectively. The
decrease was a result of an early break-up of activity in March due
to warm weather, which was partially offset with high demand for
rigs for production work on existing wells, particularly with oil
wells and expansion into the United States. Approximately 97% of
the first quarter service rig activity was oil related. New well
completions were 51% lower than the prior year quarter and
accounted for 12% of service rig operating hours in the first
quarter compared to 23% in the same quarter in 2011. Precision's
rentals division benefitted from the addition of new equipment to
the fleet and the initial stages of expansion of product line
offerings.
Average service rig revenue increased $99 per operating hour to
$819 from the prior year period due to higher rates driven by
increased demand for the services and the pass through of field
wage increases implemented during 2011.
Operating costs as a percentage of revenue decreased to 61% in
the first quarter of 2012 from 63% in the same period of 2011 as
higher revenue from service rig and equipment rental rates was
partially offset by higher crew wages in the service rig division.
Operating costs per service rig operating hour increased over the
comparable period in 2011 due primarily to higher wages and higher
fuel prices.
Depreciation in the Completion and Production Services segment
in the first quarter of 2012 was 14% higher than the prior year due
to the addition of new equipment to the fleet and the disposal of
equipment for a gain in the same period of 2011. The well servicing
operation uses the unit of production method of calculating
depreciation while the other operating divisions within the
Completion and Production Services segment use the straight-line
method.
SEGMENT REVIEW OF CORPORATE AND OTHER
Precision views its corporate segment as support functions that
provide assistance to more than one segment. The Corporate and
other segment had an EBITDA loss of $21 million for the first
quarter of 2012, in line with the prior year comparative
period.
OTHER ITEMS
Net financial charges were $22 million, a decrease of $21
million from the first quarter of 2011 due to the first quarter
2011 charge of $27 million for the make-whole premium from
refinancing the previously outstanding $175 million 10% senior
notes partially offset by higher long-term debt interest
expense.
Three months ended March 31,
(Stated in thousands of
Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Interest:
Long-term debt $ 21,283 $ 15,021
Other 49 31
Income (400) (187)
Amortization of debt issue
costs 988 721
Loss on settlement of debt
facilities - 26,942
----------------------------------------------------------------------------
Finance charges $ 21,920 $ 42,528
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Corporation had a foreign exchange loss of $5 million during
the first quarter of 2012 due to the strengthening of the Canadian
dollar versus the U.S. dollar and the impact on the net U.S. dollar
denominated monetary position in the Canadian dollar based
companies.
Precision's effective tax rate on earnings before income taxes
for the first quarter of 2012 was 23%.
LIQUIDITY AND CAPITAL RESOURCES
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 requires
two to five year term contracts in order to mitigate capital
recovery risk.
Liquidity remains sufficient as Precision had a cash balance of
$370 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 March 31, 2012. In addition to
the Secured Facility, Precision has available $40 million in
operating facilities which are used for working capital management
and are undrawn except for $3 million in outstanding letters of
credit.
As at March 31, 2012 and December 31, 2011 Precision had the
following long-term debt balances:
March 31, 2012 December 31, 2011
----------------------------------------------------------------------------
Senior secured revolving
credit facility $ - $ -
Unsecured senior notes:
6.625% senior notes due
2020 (US$650 million) 649,415 661,050
6.5% senior notes due
2021 (US$400 million) 399,640 406,800
6.5% senior notes due
2019 200,000 200,000
----------------------------------------------------------------------------
1,249,055 1,267,850
Less net unamortized debt
issue costs (27,653) (28,234)
----------------------------------------------------------------------------
$ 1,221,402 $ 1,239,616
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at March 31, 2012, the Corporation was in compliance with the
covenants under the Secured Facility and expects to remain in
compliance with such covenants and have complete access to credit
lines during the remainder of 2012.
The current blended cash interest cost of Precision's debt is
approximately 6.6%.
Precision has designated its U.S. dollar denominated long-term
debt as a hedge of its investment in its United States operations.
To be accounted for as a hedge, the foreign currency denominated
long-term debt must be designated and documented as such and must
be effective at inception and on an ongoing basis.
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share
amounts)
2011 2012
-------------------------------------------------------------- -------------
Quarters ended June 30 September 30 December 31 March 31
------------------------------ ------------------------------- -------------
Revenue $ 345,325 $ 492,944 $ 587,408 $ 640,066
EBITDA(1) 92,566 186,248 229,839 245,574
Net earnings: 16,403 83,468 28,046 111,081
Per basic share 0.06 0.30 0.10 0.40
Per diluted
share 0.06 0.29 0.10 0.39
Funds provided
by
operations(1) 70,766 73,182 256,103 247,739
Cash provided by
operations 176,312 20,281 218,857 162,440
----------------------------------------------------------------------------
2010 2011
----------------------------------------------------------------------------
Quarters ended June 30 September 30 December 31 March 31
----------------------------------------------------------------------------
Revenue $ 261,828 $ 359,152 $ 435,537 $ 525,350
EBITDA(1) 60,125 112,607 144,518 186,411
Net earnings
(loss): (69,418) 56,286 (250) 65,560
Per basic
share (0.25) 0.20 - 0.24
Per diluted
share (0.25) 0.20 - 0.23
Funds provided
by
operations(1) 40,692 126,811 133,903 192,337
Cash provided
by operations 143,001 67,575 75,064 117,322
----------------------------------------------------------------------------
(1) See "ADDITIONAL GAAP MEASURES".
ADDITIONAL GAAP MEASURES
Precision uses certain additional GAAP measures that are not
defined terms under International Financial Reporting Standards to
assess performance and believes these measures provide useful
supplemental information to investors. The following are the
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, 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 or how depreciation and amortization charges affect
results.
Operating Earnings
Management believes that in addition to net earnings, operating
earnings as reported in the Consolidated Statements of 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.
Funds Provided by Operations
Management believes that in addition to cash provided by
operations, funds provided by operations, as reported in the
Consolidated Statements of Cash Flow is a useful supplemental
measure as it provides an indication of the funds generated by
Precision's principal business activities prior to consideration of
working capital, which is primarily made up of highly liquid
balances.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND
STATEMENTS
Certain statements contained in this report, including
statements that contain words such as "could", "should", "can",
"anticipate", "estimate", "intend", "plan", "expect", "believe",
"will", "may", "continue", "project", "potential" and similar
expressions and statements relating to matters that are not
historical facts constitute "forward-looking information" within
the meaning of applicable Canadian securities legislation and
"forward-looking statements" within the meaning of the "safe
harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995 (collectively, "forward-looking
information and statements").
In particular, forward-looking information and statements
include, but are not limited to, the following: that Precision sees
continued customer interest in both new build rigs and upgrades to
its current fleet; that regional gas directed weakness is expected
to continue until the gas rig count reaches its bottom over the
coming months; the deployment of new build drilling rigs by the end
of the month and the delivery of additional rigs prior to the end
of the year; that Precision expects to fill the few remaining new
build slots for 2012 delivery; that the remaining Saudi rigs are
expected to be up and running within the next few weeks; that
operations relating to the long-term contract with an international
service company in Mexico are expected to commence in the second
quarter; that Precision's new integrated directional service
offering is expected to grow substantially; that six additional
coil tubing units are expected to be deployed later this year; that
rate increases and margins will continue to track demand; that
Precision expects to continue to build its presence in North
America and internationally; Precision's planned capital
expenditures and anticipated uses of capital and the timing of such
expenditures; that if low natural gas prices continue, Precision
and the North American drilling industry could see a further
reduction in demand for natural gas drilling; that reductions in
natural gas directed drilling will continue to be largely offset by
increases in oil and liquids rich natural gas drilling; and that
there will be additional new build opportunities.
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, liquids
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; availability of cash flow, debt and/or equity
sources to fund the Corporation's capital and operating
requirements, as needed; the effects of seasonal and weather
conditions on operations and facilities; the existence of
competitive operating risks inherent in contract drilling,
directional drilling, well servicing and ancillary oilfield
services; general economic, market or business conditions; changes
in laws or regulations; 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.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(Stated in thousands of March 31, December 31,
Canadian dollars) 2012 2011
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 369,644 $ 467,476
Accounts receivable 619,932 576,243
Inventory 10,818 7,163
----------------------------------------------------------------------------
Total current assets 1,000,394 1,050,882
Non-current assets:
Income tax recoverable 64,579 64,579
Property, plant and
equipment 3,054,710 2,942,296
Intangibles 5,611 6,471
Goodwill 363,176 363,646
----------------------------------------------------------------------------
Total non-current assets 3,488,076 3,376,992
----------------------------------------------------------------------------
Total assets $ 4,488,470 $ 4,427,874
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 388,910 $ 436,667
Income tax payable 24,251 3,786
----------------------------------------------------------------------------
Total current liabilities 413,161 440,453
Non-current liabilities:
Share based compensation 5,505 11,303
Provisions and other 16,203 16,121
Long-term debt 1,221,402 1,239,616
Deferred tax liabilities 591,347 587,790
----------------------------------------------------------------------------
Total non-current
liabilities 1,834,457 1,854,830
Shareholders' equity:
Shareholders' capital 2,250,160 2,248,217
Contributed surplus 19,862 18,396
Retained earnings
(deficit) 27,921 (83,160)
Accumulated other
comprehensive loss (57,091) (50,862)
----------------------------------------------------------------------------
Total shareholders'
equity 2,240,852 2,132,591
----------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 4,488,470 $ 4,427,874
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three months ended March 31,
(Stated in thousands of
Canadian dollars, except
per share amounts) 2012 2011
----------------------------------------------------------------------------
Revenue $ 640,066 $ 525,350
Expenses:
Operating 356,586 304,325
General and administrative 37,906 34,614
----------------------------------------------------------------------------
Earnings before income
taxes, other items and
depreciation and
amortization 245,574 186,411
Depreciation and
amortization 74,824 63,319
----------------------------------------------------------------------------
Operating earnings 170,750 123,092
Other items:
Foreign exchange 5,367 3,332
Finance charges 21,920 42,528
----------------------------------------------------------------------------
Earnings before income taxes 143,463 77,232
Income taxes:
Current 22,839 1,140
Deferred 9,543 10,532
----------------------------------------------------------------------------
32,382 11,672
----------------------------------------------------------------------------
Net earnings $ 111,081 $ 65,560
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share:
Basic $ 0.40 $ 0.24
Diluted $ 0.39 $ 0.23
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended March 31,
(Stated in thousands of
Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Net earnings $ 111,081 $ 65,560
Unrealized loss on
translation of assets and
liabilities of operations
denominated in foreign
currency (25,024) (26,808)
Foreign exchange gain on
net investment hedge with
U.S. denominated debt,
net of tax 18,795 12,944
----------------------------------------------------------------------------
Comprehensive income $ 104,852 $ 51,696
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three months ended March 31,
(Stated in thousands of
Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Cash provided by (used
in):
Operations:
Net earnings $ 111,081 $ 65,560
Adjustments for:
Long-term compensation
plans 9,451 8,845
Depreciation and
amortization 74,824 63,319
Foreign exchange 5,552 3,344
Finance charges 21,920 42,528
Income taxes 32,382 11,672
Other 171 199
Income taxes paid (810) (565)
Income taxes recovered 36 246
Interest paid (7,260) (3,052)
Interest received 392 241
----------------------------------------------------------------------------
Funds provided by
operations 247,739 192,337
Changes in non-cash
working capital balances (85,299) (75,015)
----------------------------------------------------------------------------
162,440 117,322
Investments:
Business acquisitions,
net of cash acquired - (33,143)
Purchase of property,
plant and equipment (221,683) (64,800)
Proceeds on sale of
property, plant and
equipment 5,079 735
Changes in income tax
recoverable - (108,176)
Changes in non-cash
working capital balances (38,111) (29,340)
----------------------------------------------------------------------------
(254,715) (234,724)
Financing:
Repayment of long-term
debt - (175,000)
Premium paid on
settlement of unsecured
senior notes - (26,688)
Debt issue costs - (3,839)
Increase in long-term
debt - 200,000
Issuance of common shares
on the exercise of
options 1,172 436
Changes in non-cash
working capital balances - (746)
----------------------------------------------------------------------------
1,172 (5,837)
----------------------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents (6,729) (3,904)
----------------------------------------------------------------------------
Decrease in cash and cash
equivalents (97,832) (127,143)
Cash and cash equivalents,
beginning of period 467,476 256,831
----------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 369,644 $ 129,688
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
(Stated in thousands of Canadian dollars)
Accumulated
other
Shareholders' Contributed comprehensive
capital surplus loss
----------------------------------------------------------------------------
Balance at
January 1, 2012 $ 2,248,217 $ 18,396 $ (50,862)
Net earnings for
the period - - -
Other
comprehensive
loss for the
period - - (6,229)
Share options
exercised 1,713 (541) -
Issued on
redemption of
non-management
directors DSUs 221 (221) -
Issued on waiver
of right to
dissent by
dissenting
unitholder 9 (3) -
Share based
compensation
expense - 2,231 -
----------------------------------------------------------------------------
Balance at March
31, 2012 $ 2,250,160 $ 19,862 $ (57,091)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Stated in thousands of Canadian dollars)
Retained earnings
(deficit) Total equity
----------------------------------------------------------------------------
Balance at
January 1, 2012 $ (83,160) $ 2,132,591
Net earnings for
the period 111,081 111,081
Other
comprehensive
loss for the
period - (6,229)
Share options
exercised - 1,172
Issued on
redemption of
non-management
directors DSUs - -
Issued on waiver
of right to
dissent by
dissenting
unitholder - 6
Share based
compensation
expense - 2,231
----------------------------------------------------------------------------
Balance at March
31, 2012 $ 27,921 $ 2,240,852
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Stated in thousands of Canadian dollars)
Accumulated
other
Shareholders' Contributed comprehensive
capital surplus loss
---------------------------------------------------------------------------
Balance at January
1, 2011 $ 2,244,417 $ 11,266 $ (46,220)
Net earnings for
the period - - -
Other
comprehensive
loss for the - -
period (13,864)
Share options
exercised 667 (231) -
Share based
compensation
expense - 2,193 -
---------------------------------------------------------------------------
Balance at March
31, 2011 $ 2,245,084 $ 13,228 $ (60,084)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(Stated in thousands of Canadian dollars)
Retained earnings Total
(deficit) equity
----------------------------------------------------------------------------
Balance at January
1, 2011 $ (276,637) $ 1,932,826
Net earnings for
the period 65,560 65,560
Other
comprehensive
loss for the -
period (13,864)
Share options
exercised - 436
Share based
compensation
expense - 2,193
----------------------------------------------------------------------------
Balance at March
31, 2011 $ (211,077) $ 1,987,151
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FIRST QUARTER 2012 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, April 26, 2012.
The conference call dial in numbers are 1-877-240-9772 or
416-340-8530.
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 May
3, 2012 by dialing 1-800-408-3053 or 905-694-9451, pass code
6532321.
About Precision
Precision is a leading provider of safe and High Performance,
High Value services to the oil and gas industry. Precision provides
customers with access to an extensive fleet of contract drilling
rigs, directional drilling services, well service & snubbing
rigs, coiled tubing services, camps, rental equipment, and
wastewater treatment units 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 Carey Ford Vice
President, Finance and Investor Relations 403.716.4575 403.716.4755
(FAX) Precision Drilling Corporation 800, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1 www.precisiondrilling.com
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