Enhanced Investments - Financial Portal

Published: 2020-03-09



Management’s Report to the Shareholders The accompanying Consolidated Financial Statements and all information in this Annual Report are the responsibility of management. The Consolidated Financial Statements have been prepared by management in accordance with the accounting policies in the Notes to the Consolidated Financial Statements. When necessary, management has made informed judgments and estimates in accounting for transactions that were not complete at the balance sheet date. In the opinion of management, the Consolidated Financial Statements have been prepared within acceptable limits of materiality and are in accordance with International Financial Reporting Standards (IFRS) appropriate in the circumstances. The financial information elsewhere in this Annual Report has been reviewed to ensure consistency with that in the Consolidated Financial Statements.

Management has prepared Management’s Discussion and Analysis (MD&A). The MD&A is based on the financial results of Precision Drilling Corporation (the Corporation) prepared in accordance with IFRS. The MD&A compares the audited financial results for the years ended December 31, 2019 and December 31, 2018.

Management is responsible for establishing and maintaining adequate internal control over the Corporation’s financial reporting and is supported by an internal audit function that conducts periodic testing of these controls. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated Financial Statements for external reporting purposes in accordance with IFRS. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of, and with direction from, our principal executive officer and principal financial and accounting officer, management conducted an evaluation of the effectiveness of the Corporation’s internal control over financial reporting. Management’s evaluation of internal control over financial reporting was based on the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). Based on this evaluation, management concluded that the Corporation’s internal control over financial reporting was effective as of December 31, 2019. Also, management determined that there were no material weaknesses in the Corporation’s internal control over financial reporting as of December 31, 2019.

KPMG LLP (KPMG), an independent firm of Chartered Professional Accountants, was engaged, as approved by a vote of shareholders at the Corporation’s most recent annual meeting, to audit the Consolidated Financial Statements and provide an independent professional opinion.

KPMG also completed an audit of the design and effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2019, as stated in its report included in this Annual Report and expressed an unqualified opinion on the design and effectiveness of internal control over financial reporting as of December 31, 2019.

The Audit Committee of the Board of Directors, which is comprised of eight independent directors who are not employees of the Corporation, provides oversight to the financial reporting process. Integral to this process is the Audit Committee’s review and discussion with management and KPMG of the quarterly and annual financial statements and reports prior to their respective release. The Audit Committee is also responsible for reviewing and discussing with management and KPMG major issues as to the adequacy of the Corporation’s internal controls. KPMG has unrestricted access to the Audit Committee to discuss its audit and related matters. The Consolidated Financial Statements have been approved by the Board of Directors and its Audit Committee.



Kevin A. Neveu
		Carey T. Ford
President and Chief Executive Officer		Senior Vice President and Chief Financial Officer
Precision Drilling Corporation		Precision Drilling Corporation
March 6, 2020
		March 6, 2020



65	Consolidated Financial Statements



Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Precision Drilling Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Precision Drilling Corporation (the
“Corporation”) as of December 31, 2019 and 2018, the related consolidated statements of net earnings (loss), comprehensive
loss, changes in equity, and cash flow for the years then ended, and the related notes (collectively, the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Corporation as of December 31, 2019 and 2018, and the results of its financial performance and its cash flows for the years
then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards
Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Corporation’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 6, 2020 expressed an unqualified opinion on the effectiveness of the Corporation’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3(u) to the consolidated financial statements, the Corporation has changed its method of accounting for
leases as of January 1, 2019 due to the adoption of International Financial Reporting Standard 16, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of indicators of impairment for the Canadian cash generating units
As discussed in note 3(t) to the consolidated financial statements the Corporation reviews the carrying amount of each of the
cash generating units (“CGUs”) at each reporting date to determine whether an indicator of impairment exists based on an
analysis of relevant internal and external factors. The Corporation analyzes indicators that an asset may be impaired such as
financial performance of the CGUs compared to historical results and forecasts and consideration of the Corporation’s market
capitalization. The Corporation did not identify an indication of impairment within the Corporation’s Canadian CGUs as at
December 31, 2019. Accordingly, no impairment tests were performed. Total assets recognized in Canada at December 31,
2019 were approximately $1,134 million.
We identified the assessment of indicators of impairment for the Corporation’s Canadian CGUs as a critical audit matter.
Complex auditor judgement was required in evaluating certain of the internal and external impairment indicators included in the
Corporation’s indicators of impairment analysis including the financial performance of the CGUs compared to historical results
and forecasts and consideration of the Corporation’s market capitalization.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal
controls over the Corporation’s identification and evaluation of indicators that CGUs may be impaired, including controls related

Precision Drilling Corporation 2019 Annual Report	66



to the Corporation’s preparation and approval of the annual forecast which is used to identify possible indicators of impairment.
We evaluated the internal and external factors analyzed by the Corporation in their impairment indicators analysis and compared
them to relevant external market data or internal source documents. We evaluated the Corporation’s 2020 forecasted earnings
before interest, taxes, depreciation and amortization for the Canadian CGUs by comparing growth assumptions to historical
results. We compared the Corporation’s 2019 forecasted earnings before interest, taxes, depreciation and amortization for the
Canadian CGUs to actual results to assess the Corporation’s ability to accurately forecast. We evaluated the changes in market
capitalization over 2019 and its impact on the Corporation’s impairment indicator analysis.

Chartered Professional Accountants
We have served as the Corporation’s auditor since 1987.
Calgary, Canada
March 6, 2020


67			Consolidated Financial Statements



Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Precision Drilling Corporation
Opinion on Internal Control over Financial Reporting
We have audited Precision Drilling Corporation’s (the “Corporation”) internal control over financial reporting as of December 31,
2019, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated statements of financial position of the Corporation as of December 31, 2019 and 2018, the related
consolidated statements of net earnings (loss), comprehensive loss, changes in equity and cash flow for the years then ended,
and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated March 6, 2020
expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
to the Shareholders. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Chartered Professional Accountants
Calgary, Canada
March 6, 2020

Precision Drilling Corporation 2019 Annual Report	68



Consolidated Statements of Financial Position
					December 31,		December 31,

(Stated in thousands of Canadian dollars)						2019		2018
ASSETS
Current assets:
Cash					$	74,701 $		96,626
Accounts receivable				(Note 26)		310,204		372,336
Income tax recoverable						1,142		—
Inventory						31,718		34,081
						417,765		503,043
Assets held for sale				(Note 6)		—		19,658
Total current assets						417,765		522,701
Non-current assets:
Income taxes recoverable						—		2,449
Deferred tax assets				(Note 15)		4,724		36,880
Property, plant and equipment				(Note 7)	2,749,463		3,038,612
Intangibles				(Note 8)		31,746		35,401
Right of use assets				(Note 13)		66,142		—
Total non-current assets					2,852,075		3,113,342
Total assets					$	3,269,840 $		3,636,043
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities				(Note 26)	$	199,478 $		274,489
Current portion of lease obligation				(Note 13)		12,449		—
Income tax payable						4,142		7,673
Total current liabilities						216,069		282,162
Non-current liabilities:
Share based compensation				(Note 14)		8,830		6,520
Provisions and other				(Note 17)		9,959		10,577
Long-term debt				(Note 10)	1,427,181		1,706,253
Lease obligation				(Note 13)		54,980		—
Deferred tax liabilities				(Note 15)		25,389		72,779
Total non-current liabilities					1,526,339		1,796,129
Shareholders’ equity:
Shareholders’ capital				(Note 18)	2,296,378		2,322,280
Contributed surplus						66,255		52,332
Deficit					(969,456 )		(978,874)
Accumulated other comprehensive income				(Note 20)		134,255		162,014
Total shareholders’ equity					1,527,432		1,557,752
Total liabilities and shareholders’ equity					$	3,269,840 $		3,636,043
See accompanying notes to consolidated financial statements.
Approved by the Board of Directors:



	Allen R. Hagerman Director	Steven W. Krablin Director



69			Consolidated Financial Statements



Consolidated Statements of Net Earnings (Loss) Years ended December 31, (Stated in thousands of Canadian dollars, except per share amounts)

			2019	2018
Revenue		(Note 4)		$	1,541,320 $	1,541,189
Expenses:
Operating		(Note 26)	1,038,967	1,067,264
General and administrative		(Note 26)	104,010	111,830
Restructuring		(Note 11)	6,438	1,164
Other recoveries		(Note 11)			—	(14,200)
Earnings before income taxes, gain on redemption and repurchase of unsecured senior notes, finance charges, foreign exchange, impairment of goodwill, reversal of impairment of property, plant and equipment, loss on asset decommissioning, gain on asset disposals and depreciation and amortization					391,905	375,131

Depreciation and amortization			333,616	377,044
Gain on asset disposals			(50,741 )	(11,384)
Loss on asset decommissioning		(Note 7)			20,263		—
Reversal of impairment of property, plant and equipment		(Note 7)			(5,810 )		—
Impairment of goodwill		(Note 9)			—	207,544
Foreign exchange			(8,722 )	4,017
Finance charges		(Note 12)	118,453	127,178
Gain on redemption and repurchase of unsecured senior notes			(6,815 )	(5,672)
Loss before income taxes			(8,339 )	(323,596)
Income taxes:		(Note 15)
Current			1,080	8,573
Deferred			(16,037 )	(37,899)
			(14,957 )	(29,326)
Net earnings (loss)				$	6,618 $	(294,270)
Net earnings (loss) per share:		(Note 19)
Basic				$	0.02 $	(1.00)
Diluted				$	0.02 $	(1.00)
See accompanying notes to consolidated financial statements. Consolidated Statements of Comprehensive Loss Years ended December 31,

(Stated in thousands of Canadian dollars)			2019	2018
Net earnings (loss)				$	6,618 $	(294,270)
Unrealized gain on translation of assets and liabilities of operations denominated in foreign currency					(106,781 )	175,630

Foreign exchange loss on net investment hedge with U.S. denominated debt, net of tax					79,022	(145,226)

Comprehensive loss				$	(21,141 ) $	(263,866)
See accompanying notes to consolidated financial statements.

Precision Drilling Corporation 2019 Annual Report	70



Consolidated Statements of Cash Flow Years ended December 31,
(Stated in thousands of Canadian dollars)			2019	2018
Cash provided by:
Operations:
Net earnings (loss)					$	6,618 $	(294,270)
Adjustments for:
	Long-term compensation plans		19,457	17,401
	Depreciation and amortization						333,616	377,044
	Gain on asset disposals						(50,741 )	(11,384)
	Loss on asset decommissioning							20,263	—
	Reversal of impairment of property, plant and equipment							(5,810 )	—
	Impairment of goodwill							—	207,544
	Foreign exchange		(8,585 )	2,341
	Finance charges		118,453	127,178
	Gain on redemption and repurchase of unsecured senior notes		(6,815 )	(5,672)
	Income taxes		(14,957 )	(29,326)
	Other		(981 )	(1,269)
	Income taxes paid		(5,060 )	(4,446)
	Income taxes recovered		2,479	33,283
	Interest paid		(116,655 )	(108,622)
	Interest received		1,370	1,412
Funds provided by operations			292,652	311,214
Changes in non-cash working capital balances						(Note 26)	(4,493 )	(17,880)
Cash provided by operations							288,159	293,334
Investments:
Purchase of property, plant and equipment						(Note 7)	(159,886 )	(114,576)
Purchase of intangibles						(Note 8)	(808 )	(11,567)
Proceeds on sale of property, plant and equipment						(Note 7)	90,768	24,457
Changes in non-cash working capital balances						(Note 26)	(4,574 )	892
Cash used in investing activities			(74,500 )	(100,794)
Financing:
Redemption and repurchase of unsecured senior notes						(Note 10)	(198,387 )	(168,722)
Repurchase of share capital						(Note 18)		(25,902 )	—
Debt amendment fees						(Note 8)	(702 )	(638)
Lease payments								(6,823 )	—
Issuance of common shares on the exercise of options						(Note 18)		—	275
Cash used in financing activities			(231,814 )	(169,085)
Effect of exchange rate changes on cash and cash equivalents			(3,770 )	8,090
Increase (decrease) in cash and cash equivalents			(21,925 )	31,545
Cash and cash equivalents, beginning of year			96,626	65,081
Cash and cash equivalents, end of year					$	74,701 $	96,626
See accompanying notes to consolidated financial statements.


71		Consolidated Financial Statements



Consolidated Statements of Changes in Equity
						Accumulated
							Other
			Shareholders’			Comprehensive
				Capital	Contributed	Income
(Stated in thousands of Canadian dollars)			(Note 18)		Surplus	(Note 20)		Deficit	Total Equity
Balance at January 1, 2019				2,322,280		52,332	162,014		(978,874) $	1,557,752
Lease transition adjustment		(Note 3)		—					—	—	2,800	2,800
Net earnings for the period					—					—	—	6,618	6,618
Other comprehensive loss					—					—	(27,759 )		—	(27,759)
Share repurchase		(Note 18)		(25,902)					—	—	—	(25,902)
Share based compensation expense		(Note 14)		—	13,923		—	—	13,923
Balance at December 31, 2019				$	2,296,378		$	66,255	$	134,255 $		(969,456) $	1,527,432

						Accumulated
							Other
			Shareholders’			Comprehensive
				Capital	Contributed	Income
(Stated in thousands of Canadian dollars)			(Note 18)		Surplus	(Note 20)		Deficit	Total Equity
Balance at January 1, 2018				$	2,319,293		$	44,037	$	131,610 $		(684,604) $	1,810,336
Net loss for the period					—					—	—	(294,270)	(294,270)
Other comprehensive income					—					—	30,404	—	30,404
Share options exercised		(Note 18)		378					(103)	—	—		275
Redemption of non-management directors’ DSUs				2,609					(809)	—	—	1,800
		(Note 18)

Share based compensation expense		(Note 14)		—					9,207	—	—	9,207
Balance at December 31, 2018				$	2,322,280		$	52,332	$	162,014 $		(978,874) $	1,557,752
See accompanying notes to consolidated financial statements.

Precision Drilling Corporation 2019 Annual Report	72




Notes to Consolidated Financial Statements (Tabular amounts are stated in thousands of Canadian dollars except share numbers and per share amounts)

NOTE 1. DESCRIPTION OF BUSINESS
Precision Drilling Corporation (Precision or the Corporation) is incorporated under the laws of the Province of Alberta, Canada and is a provider of contract drilling and completion and production services primarily to oil and natural gas exploration and production companies in Canada, the United States and certain international locations. The address of the registered office is 800, 525 – 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1G1.

NOTE 2. BASIS OF PREPARATION
(a) Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements were authorized for issue by the Board of Directors on March 6, 2020.
(b) Basis of Measurement
The consolidated financial statements have been prepared using the historical cost basis and are presented in thousands of Canadian dollars.
(c) Use of Estimates and Judgments
The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingencies. These estimates and judgments are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The estimation of anticipated future events involves uncertainty and, consequently, the estimates used in preparation of the consolidated financial statements may change as future events unfold, more experience is acquired, or the Corporation’s operating environment changes. The Corporation reviews its estimates and assumptions on an ongoing basis. Adjustments that result from a change in estimate are recorded in the period in which they become known. Significant estimates and judgments used in the preparation of the financial statements are described in Note 3(d), (e), (g), (i), (j), (l), (s) and (t).
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
These consolidated financial statements include the accounts of the Corporation and all of its subsidiaries and partnerships, substantially al of which are wholly-owned. The financial statements of the subsidiaries are prepared for the same period as the parent entity, using consistent accounting policies. All significant intercompany balances and transactions and any unrealized gains and losses arising from intercompany transactions, have been eliminated.
Subsidiaries are entities controlled by the Corporation. Control exists when Precision has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are considered. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Precision does not hold investments in any companies where it exerts significant influence and does not hold interests in any special-purpose entities.
The acquisition method is used to account for acquisitions of subsidiaries and assets that meet the definition of a business under IFRS. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized immediately in the statement of earnings. Transaction costs, other than those associated with the issuance of debt or equity securities, that the Corporation incurs in connection with a business combination are expensed as incurred.
(b) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less.


73			Consolidated Financial Statements



(c) Inventory
Inventory is primarily comprised of operating supplies and carried at the lower of average cost, being the cost to acquire the inventory, and net realizable value. Inventory is charged to operating expenses as items are sold or consumed at the amount of the average cost of the item.
(d) Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation and any accumulated impairment losses.
Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, and borrowing costs on qualifying assets.
The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Corporation, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment (repair and maintenance) are recognized in profit or loss as incurred.
Property, plant, and equipment are depreciated as follows:
				Basis of Depreciation

		Expected Life	Salvage Value
Drilling rig equipment:
– Power & Tubulars		5 years	–	straight-line
– Dynamic		10 years	–	straight-line
– Structural		20 years	10%	straight-line
Service rig equipment		20 years	10%	straight-line
Drilling rig spare equipment		up to 15 years	–	straight-line
Service rig spare equipment		up to 15 years	–	straight-line
Rental equipment		up to 15 years	0 to 25%	straight-line
Other equipment		3 to 10 years	–	straight-line
Light duty vehicles		4 years	–	straight-line
Heavy duty vehicles		7 to 10 years	–	straight-line
Buildings		10 to 20 years	–	straight-line

Property, plant and equipment are depreciated based on estimates of useful lives and salvage values. These estimates consider data and information from various sources including vendors, industry practice, and Precision’s own historical experience and may change as more experience is gained, market conditions shift, or technological advancements are made.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal to the carrying amount of property, plant and equipment, and are recognized in the consolidated statements of earnings (loss).
Determination of which parts of the drilling rig equipment represent significant cost relative to the entire rig and identifying the consumption patterns along with the useful lives of these significant parts, are matters of judgment. This determination can be complex and subject to differing interpretations and views, particularly when rig equipment comprises individual components for which different depreciation methods or rates are appropriate.
The estimated useful lives, residual values and method and components of depreciation are reviewed annually, and adjusted prospectively if appropriate.

(e) Intangibles
Intangible assets that are acquired by the Corporation with finite lives are initial y recorded at estimated fair value and subsequently measured at cost less accumulated amortization and any accumulated impairment losses.
Subsequent expenditures are capitalized only when they increase the future economic benefits of the specific asset to which they relate.
Intangible assets are amortized based on estimates of useful lives. These estimates consider data and information from various sources including vendors and Precision’s own historical experience and may change as more experience is gained or technological advancements are made.
Amortization is recognized in profit and loss using the straight-line method over the estimated useful lives of the respective assets. Precision’s loan commitment fees are amortized over the term of the respective facility. Software is amortized over its expected useful life of up to 10 years.

Precision Drilling Corporation 2019 Annual Report	74



The estimated useful lives and methods of amortization are reviewed annually and adjusted prospectively if appropriate.	(f) Goodwill
Goodwill is the amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, less liabilities assumed, based on their fair values.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, attributed to the cash-generating unit (CGU) or groups of cash-generating units that are expected to benefit and as identified in the business combination.
(g) Impairment of Non-Financial Assets
The carrying amounts of the Corporation’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit). Judgment is required in the aggregation of assets into CGUs.
If any such indication exists, then the asset or CGU’s recoverable amount is estimated. Judgement is required when evaluating whether a CGU has indications of impairment. For CGUs that contain goodwill and other intangible assets that have indefinite lives or that are not yet available for use, an impairment test is, at a minimum, completed annually as of December 31.
The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using an after-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Value in use is general y computed by reference to the present value of the future cash flows expected to be derived from the cash-generating unit.
An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(h) Borrowing Costs
Interest and borrowing costs that are directly attributable to the acquisition, construction or production of assets that take a substantial period of time to prepare for their intended use are capitalized as part of the cost of those assets. Capitalization ceases during any extended period of suspension of construction or when substantially all activities necessary to prepare the asset for its intended use are complete.
All other interest and borrowing costs are recognized in earnings in the period in which they are incurred.
(i) Income Taxes
Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax is the expected tax payable or receivable on the taxable earnings or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in profit or loss in the period that includes the date of enactment or substantive enactment. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities that are expected to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.


75		Consolidated Financial Statements



The Corporation is subject to taxation in numerous jurisdictions. Uncertainties exist with respect to the interpretation of complex tax regulations and requires significant judgement. Differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable income and expense already recorded. The Corporation establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority.
(j) Revenue from Contracts with Customers
Precision recognizes revenue from a variety of sources. In general, customer invoices are issued upon rendering all performance obligations for an individual well-site job. Under the Corporation’s standard contract terms, customer payments are to be received within 30 days of the customer’s receipt of an invoice.
Contract Drilling Services
The Corporation contracts individual drilling rig packages, including crews and support equipment, to its customers. Depending on the customer’s drilling program, contracts may be for a single well, multiple wells or a fixed term. Revenue from contract drilling services is recognized over time from spud to rig release on a daily basis. Operating days are measured through industry standard tour sheets that document the daily activity of the rig. Revenue is recognized at the applicable day rate for each well, based on rates specified in the drilling contract.
The Corporation provides services under turnkey contracts, whereby Precision is required to drill a well to an agreed upon depth under specified conditions for a fixed price, regardless of the time required or problems encountered in drilling the well. Revenue from turnkey drilling contracts is recognized over time using the input method based on costs incurred to date in relation to estimated total contract costs, as that most accurately depicts the Corporation’s performance.
The Corporation also provides directional drilling services, which include the provision of directional drilling equipment, tools and personnel to the wellsite, and performance of daily directional drilling services. Directional drilling revenue is recognized over time, upon the daily completion of operating activities. Operating days are measured through daily tour sheets. Revenue is recognized at the applicable day rate, as stipulated in the directional drilling contract.
Completion and Production Services
The Corporation provides a variety of well completion and production services including well servicing and snubbing. In general, service rigs do not involve long-term contracts or penalties for termination. Revenue is recognized daily upon completion of services. Operating days are measured through daily tour sheets and field tickets. Revenue is recognized at the applicable daily or hourly rate, as stipulated in the contract.
The Corporation offers a variety of oilfield equipment for rental to its customers. Rental revenue is recognized daily at the applicable rate stated in the rental contract. Rental days are measured through field tickets.
The Corporation provides accommodation and catering services to customers in remote locations. Customers contract these services either as a package or individually for a fixed term. For accommodation services, the Corporation supplies camp equipment and revenue is recognized over time on a daily basis, once the equipment is on-site and available for use, at the applicable rate stated in the contract. For catering services, the Corporation recognizes revenue daily according to meals served. Accommodation and catering services provided are measured through field tickets.
(k) Employee Benefit Plans
Precision sponsors various defined contribution retirement plans for its employees. The Corporation’s contributions to defined contribution plans are expensed as employees earn the entitlement.
(l) Provisions
Provisions are recognized when the Corporation has a present obligation as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
(m) Share Based Incentive Compensation Plans
The Corporation has established several cash-settled share based incentive compensation plans for non-management directors, officers, and other eligible employees. The estimated fair value of amounts payable to eligible participants under these plans are recognized as an expense with a corresponding increase in liabilities over the period that the participants become unconditionally entitled to payment. The recorded liability is re-measured at the end of each reporting period until settlement with the resultant

Precision Drilling Corporation 2019 Annual Report	76



change to the fair value of the liability recognized in profit or loss for the period. When the plans are settled, the cash paid reduces the outstanding liability.
The Corporation has an employee share purchase plan that allows eligible employees to purchase common shares through payroll deductions. Under this plan, contributions made by employees are matched to a specific percentage by the Corporation. The contributions made by the Corporation are expensed as incurred.
Prior to January 1, 2012, the Corporation had an equity-settled deferred share unit plan whereby non-management directors of Precision could elect to receive all or a portion of their compensation in fully-vested deferred share units. Compensation expense was recognized based on the fair value price of the Corporation’s shares at the date of grant with a corresponding increase to contributed surplus. Upon redemption of the deferred share units into common shares, the amount previously recognized in contributed surplus is recorded as an increase to shareholders’ capital. The Corporation continues to have obligations under this plan.
The Corporation has a share option plan for certain eligible employees. Under this plan, the fair value of share purchase options is calculated at the date of grant using the Black-Scholes option pricing model, and that value is recorded as compensation expense over the grant’s vesting period with an offsetting credit to contributed surplus. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of options that vest. Upon exercise of the equity purchase option, the associated amount is reclassified from contributed surplus to shareholders’ capital. Consideration paid by employees upon exercise of the equity purchase options is credited to shareholders’ capital.
(n) Foreign Currency Translation
Transactions of the Corporation’s individual entities are recorded in the currency of the primary economic environment in which it operates (its functional currency). Transactions in currencies other than the entities’ functional currency are translated at rates in effect at the time of the transaction. At each period end, monetary assets and liabilities are translated at the prevailing period-end rates. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Gains and losses are included in profit or loss except for gains and losses on translation of long-term debt designated as a hedge of foreign operations, which are deferred and included in other comprehensive income.
For the purpose of preparing the Corporation’s consolidated financial statements, the financial statements of each foreign operation that does not have a Canadian dollar functional currency are translated into Canadian dollars. Assets and liabilities are translated at exchange rates in effect at the period end date. Revenues and expenses are translated using average exchange rates for the month of the respective transaction. Gains or losses resulting from these translation adjustments are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the foreign operation.
(o) Per Share Amounts
Basic per share amounts are calculated using the weighted average number of shares outstanding during the period. Diluted per share amounts are calculated by using the treasury stock method for equity-based compensation arrangements. The treasury stock method assumes that any proceeds obtained on exercise of equity-based compensation arrangements would be used to purchase common shares at the average market price during the period. The weighted average number of shares outstanding is then adjusted by the difference between the number of shares issued from the exercise of equity-based compensation arrangements and shares repurchased from the related proceeds.
(p) Financial Instruments
i) Non-Derivative Financial Instruments:
Financial assets and liabilities are classified and measured at amortized cost, fair value through other comprehensive income or fair value through profit and loss. The classification of financial assets and liabilities is general y based on the business model in which the asset or liability is managed and its contractual cash flow characteristics. Financial assets held within a business model whose objective is to collect contractual cash flows and whose contractual terms give rise to cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding are measured at amortized cost. After their initial fair value measurement, accounts receivable, accounts payable and accrued liabilities and long-term debt are classified and measured at amortized cost using the effective interest rate method.
Upon initial recognition of a non-derivative financial asset a loss allowance is recorded for expected credit losses (ECL). Loss allowances for trade receivables are measured based on lifetime ECL that incorporates historical loss information and is adjusted for current economic and credit conditions.
ii) Derivative Financial Instruments:


77			Consolidated Financial Statements



The Corporation may enter into certain financial derivative contracts in order to manage the exposure to market risks from fluctuations in interest rates or exchange rates. These instruments are not used for trading or speculative purposes. Precision has not designated its financial derivative contracts as effective accounting hedges, and thus has not applied hedge accounting, even though it considers certain financial contracts to be economic hedges. As a result, financial derivative contracts are classified as fair value through profit or loss and are recorded on the statement of financial position at estimated fair value. Transaction costs are recognized in profit or loss when incurred.
Derivatives embedded in financial assets are never separated. Rather, the financial instrument as a whole is assessed for classification. Derivatives embedded in financial liabilities are separated from the host contract and accounted for separately when their economic characteristics and risks are not closely related to the host contract. Embedded derivatives in financial liabilities are recorded on the statement of financial position at estimated fair value and changes in the fair value are recognized in earnings.
(q) Hedge Accounting
The Corporation utilizes foreign currency long-term debt to hedge its exposure to changes in the carrying values of the Corporation’s net investment in certain foreign operations from fluctuations in foreign exchange rates. To be accounted for as a hedge, the foreign currency long-term debt must be designated and documented as a hedge and must be effective at inception and on an ongoing basis. The documentation defines the relationship between the foreign currency long-term debt and the net investment in the foreign operations, as well as the Corporation’s risk management objective and strategy for undertaking the hedging transaction. The Corporation formally assesses, both at inception and on an ongoing basis, whether the changes in fair value of the foreign currency long-term debt is highly effective in offsetting changes in fair value of the net investment in the foreign operations. The portion of gains or losses on the hedging item determined to be an effective hedge is recognized in other comprehensive income, net of tax, and is limited to the translation gain or loss on the net investment, while ineffective portions are recorded through profit or loss.
A reduction in the fair value of the net investment in the foreign operations or increase in the foreign currency long-term debt balance may result in a portion of the hedge becoming ineffective. If the hedging relationship ceases to be effective or is terminated, hedge accounting is not applied to subsequent gains or losses. The amounts recognized in other comprehensive income are reclassified to profit and loss and the corresponding exchange gains or losses arising from the translation of the foreign operation are recorded through profit and loss upon dissolution or substantial dissolution of the foreign operation.
(r) Assets Held For Sale
Non-current assets, or disposal groups, are classified as held-for sale if it is highly probable that their carrying amount will be recovered primarily through a sale transaction rather than through continued use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held-for-sale and subsequent gains or losses on remeasurement are recognized in profit or loss.
(s) Leases
At inception, Precision assesses whether its contracts contain a lease. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The assessment of whether a contract conveys the right to control the use of an identified asset considers whether:
• the contract involves the use of an identified asset and the substantive substitution rights of the supplier. If the supplier has
a substantive substitution right, then the asset is not identified;
• the lessee’s right to obtain substantially all of the economic benefits from the use of the asset; and
• the lessee’s right to direct the use of the asset, including decision-making to change how and for what purpose the asset is
used.
At inception or on reassessment of a contract that contains a lease component, Precision allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
Leases in which Precision is a lessee
Precision recognizes a right of use asset and corresponding lease obligation at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for lease payments made on or before commencement date, incurred initial direct costs, estimated site retirement costs and any lease incentives received.
The right of use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The estimated useful lives of right of use assets are consistent with those of property, plant and equipment. In addition, the right of use asset is reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease obligation.
The lease obligation is initial y measured at the present value of the minimum lease payments not paid at commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, Precision’s incremental

Precision Drilling Corporation 2019 Annual Report	78



borrowing rate. Generally, Precision uses its incremental borrowing rate as the discount rate for those leases in which it is the lessee.
Lease payments included in the measurement of the lease obligation comprise the following:
• fixed payments, including in-substance fixed payments;
• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the
commencement date;
• amounts expected to be payable under a residual value guarantee; and
• the exercise price under a purchase option that Precision is reasonably certain to exercise, lease payments in an optional
renewal period if Precision is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless Precision is reasonably certain not to terminate early.
The lease obligation is measured at amortized cost using the effective interest method. The measurement of lease obligations require the use of certain estimates and assumptions including discount rates, exercise of lease term extension options, and escalating lease rates. It is remeasured when there is a change in:
• future lease payments arising from a change in an index or rate;
• the estimated amount expected to be payable under a residual value guarantee; or
• the assessment of whether Precision will exercise a purchase, extension or termination option.
When the lease obligation is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right of use asset, or is recorded in profit or loss if the carrying amount of the right of use asset has been reduced to zero.
Leases in which Precision is a lessor
When Precision acts as a lessor, at inception, Precision evaluates the classification as either a finance or operating lease.
To classify each lease, Precision makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease.
When acting as a sub-lessor, Precision accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right of use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease then Precision classifies the sub-lease as an operating lease.
If an arrangement contains lease and non-lease components, Precision applies IFRS 15 to allocate the consideration in the contract. Precision recognizes lease payments received under operating leases for drilling rigs as income on a systematic basis, drilling days, over the lease term as part of revenue.
The accounting policies applicable to Precision as a lessor in the comparative period were not different from IFRS 16. However, when Precision was an intermediate lessor the sub-leases were classified with reference to the underlying asset.
(t) Critical Accounting Assumptions and Estimates
i) Impairment of Long-Lived Assets
At each reporting date, the Corporation reviews the carrying amount of assets in each CGU to determine whether an indicator of impairment exists. The Corporation’s analysis is based on relevant internal and external factors that indicate a CGU may be impaired such as the obsolescence or planned disposal of significant assets, financial performance of the CGU compared to forecasts and consideration of the Corporation’s market capitalization.
When indications of impairment exist within a CGU, a recoverable amount is determined and requires assumptions to estimate future discounted cash flows. These estimates and assumptions include future drilling activity, margins and market conditions over the long-term life of the CGU. In selecting a discount rate, the Corporation uses observable market data inputs to develop a rate that the Corporation believes approximates the discount rate of market participants.
Although the Corporation believes the assumptions and estimates are reasonable and consistent with current conditions, internal planning, and expected future operations, such assumptions and estimations are subject to significant uncertainty and judgment.
ii) Income Taxes
Significant estimation and assumptions are required in determining the provision for income taxes. The recognition of deferred tax assets in respect of deductible temporary differences and unused tax losses and credits is based on the Corporation’s estimation of future taxable profit against which these differences, losses and credits may be used. The assessment is based upon existing tax laws and estimates of the Corporation’s future taxable income. These estimates may be materially different from the actual final tax return in future periods.


79			Consolidated Financial Statements



(u) Accounting Standards Adopted January 1, 2019
i) IFRS 16, Leases
IFRS 16 introduced a single, on-balance sheet lease accounting model for lessees and requires a lessee to recognize a right of use asset representing its right to direct the use of the underlying asset as well as a lease obligation representing the Corporation’s obligation to make future lease payments. Lessor accounting remained similar to the prior lease standard in which lessors classify leases as either finance or operating leases.
On January 1, 2019, Precision adopted IFRS 16 using the modified retrospective approach. Under this approach, comparative information has not been restated and continues to be reported under IAS 17 and related interpretations.
Transition
Precision adopted IFRS 16 on January 1, 2019 using the modified retrospective method of adoption. When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17 and related interpretations, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. On initial adoption of the new standard, Precision elected to use the following practical expedients, where applicable, to:
• grandfather the assessment of which contracts contained leases under IFRS 16 to only those previously identified as
		leases under IAS 17 and related interpretations;
• not apply the requirements of the standard to short-term and low-value leases;
• treat existing operating leases with a remaining term of less than 12 months at January 1, 2019 as short-term leases;
		and
• apply a single discount rate to a portfolio of leases with reasonably similar characteristics.
In addition, at the date of initial application, for those leases previously classified as an operating lease under IAS 17, Management elected to recognize and measure the respective right of use assets at the amount equal to the lease obligation, adjusted for any prepaid or accrued lease payment immediately before the date of initial application. The opening balance sheet adjustment in relation to these leases was:

			January 1, 2019
		Right of use asset	$	73,464
		Accounts payable and accrued liabilities		(2,800)
		Lease obligation		(73,464)
		Deficit		2,800
When measuring certain lease obligations at the date of transition, minimum lease payments were discounted using Precision’s incremental borrowing rate. The weighted average incremental borrowing rates applied was 6.1%. At the date of transition, Precision derecognized $3 million of its deferred base rent balance which was established to straight-line amortize escalating corporate office rent expenses over the term of the lease.

			January 1, 2019
		Operating lease commitment at December 31, 2018	$	67,392
		Discounted using the incremental borrowing rate at January 1, 2019		54,517
		Extension options reasonably certain to be exercised		18,947
		Lease obligation	$	73,464
In the comparative period, Precision classified its leases that transferred substantially all the risks and rewards of ownership as finance leases. These leased assets were measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments, excluding any contingent payments. Subsequently, these assets were accounted for in accordance with the applicable accounting policy respective to that asset.
Assets held under other leases were classified as operating leases and were not recognized on the consolidated statement of financial position. Payments made under operating leases were recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received were recognized as an integral part of the total lease expense, over the term of the lease.
ii) IFRIC 23, Uncertainty over Income Tax Treatments
IFRIC 23 clarifies the accounting for uncertainties in income taxes. The interpretation requires the entity to use the most likely amount or the expected value of the income tax treatment if it concludes that it is not probable that a particular income tax treatment will be accepted. It requires an entity to assume that a taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing

Precision Drilling Corporation 2019 Annual Report	80



so. Using the modified retrospective method of adoption, Precision initially applied IFRIC 23 on January 1, 2019 and it did not have a material impact on the consolidated financial statements.
NOTE 4. REVENUE
The following table includes a reconciliation of disaggregated revenue by reportable segment (Note 5). Revenue has been disaggregated by primary geographical market and type of service provided.
	Completion
			Contract	and		Inter-
				Drilling	Production	Corporate	Segment
Twelve months ended December 31, 2019				Services	Services	and Other		Eliminations	Total
Canada			$	336,483 $	128,202 $					— $	(5,308 ) $	459,377
United States				852,293	19,627					—	(269 )	871,651
International				210,292			—	—	—		210,292
			$	1,399,068 $	147,829 $					— $	(5,577 ) $	1,541,320

Day rate/hourly services			$	1,333,114 $	147,829 $					— $	(905 ) $	1,480,038
Shortfall payments/idle but contracted				9,789			—	—	—		9,789
Turnkey drilling services				3,754			—	—	—		3,754
Directional services				41,876			—	—	—		41,876
Other				10,535			—	—	(4,672 )		5,863
			$	1,399,068 $	147,829 $					— $	(5,577 ) $	1,541,320

	Completion
				Contract	and		Inter-
				Drilling	Production	Corporateand Other	Segment
Twelve months ended December 31, 2018				Services	Services			Eliminations	Total
Canada			$	426,475 $	138,030 $					— $	(5,759 ) $	558,746
United States				778,886	12,730					—	(304 )	791,312
International				191,131			—	—	—		191,131
			$	1,396,492 $	150,760 $					— $	(6,063 ) $	1,541,189

Day rate/hourly services			$	1,302,575 $	150,760 $					— $	(1,009 ) $	1,452,326
Shortfall payments/idle but contracted				12,520			—	—	—		12,520
Turnkey drilling services				37,811			—	—	—		37,811
Directional services				31,943			—	—	—		31,943
Other				11,643			—	—	(5,054 )		6,589
			$	1,396,492 $	150,760 $					— $	(6,063 ) $	1,541,189
NOTE 5. SEGMENTED INFORMATION
The Corporation operates primarily in Canada, the United States and certain international locations, in two industry segments; Contract Drilling Services and Completion and Production Services. Contract Drilling Services includes drilling rigs, directional drilling, procurement and distribution of oilfield supplies, and the manufacture, sale and repair of drilling equipment. Completion and Production Services includes service rigs, oilfield equipment rental, and camp and catering services.
	Completion
			Contract	and		Inter-
				Drilling	Production	Corporate	Segment
2019				Services	Services	and Other		Eliminations	Total
Revenue			$	1,399,068 $	147,829 $					— $	(5,577 ) $	1,541,320
Operating earnings (loss)				160,997	10,041	(76,461)	—		94,577
Depreciation and amortization				300,882	17,881	14,853	—		333,616
Gain on asset disposals				(46,849)	(3,767)					(125)	—	(50,741)
Loss on asset decommissioning				20,263			—	—	—		20,263
Reversal of impairment of property, plant and equipment				(5,810)			—	—	—		(5,810)
Total assets				2,963,260	152,611	153,969	—		3,269,840
Capital expenditures				154,066	5,448	1,180	—		160,694



81		Consolidated Financial Statements




				Completion
			Contract		and		Inter-
			Drilling	Production		Corporateand Other	Segment
2018			Services	Services				Eliminations	Total
Revenue		$	1,396,492 $		150,760 $					— $	(6,063 ) $	1,541,189
Operating loss			(129,965)	(8,998)		(59,110)	—	(198,073)
Depreciation and amortization			341,712	22,801		12,531	—	377,044
Loss (gain) on asset disposals			(7,157)	1,078		(5,305)	—	(11,384)
Impairment of goodwill			207,544		—				—	—	207,544
Total assets			3,301,457		170,113		164,473	—	3,636,043
Capital expenditures			108,610	5,004		12,529	—	126,143

A reconciliation of operating earnings (loss) to loss before income taxes is as follows:


									2019	2018
Operating earnings (loss)								$	94,577	$	(198,073)
Add (deduct):
Foreign exchange									(8,722 )	4,017
Finance charges									118,453	127,178
Gain on redemption and repurchase of unsecured senior notes												(6,815 )	(5,672)
Loss before income taxes								$	(8,339 ) $	(323,596)

The Corporation’s operations are carried on in the following geographic locations: 2019
											United States	Canada		International	Total
Revenue			$	871,651	$	459,377			$	210,292 $	1,541,320
Total assets											1,560,523	1,133,591	575,726	3,269,840
2018
											United States	Canada		International			Total
Revenue			$	791,312	$	558,746			$	191,131 $	1,541,189
Total assets											1,772,850	1,269,542	593,651	3,636,043
NOTE 6.													ASSETS HELD FOR SALE
In December 2018, Precision commenced a process to sell drilling rigs that no longer met the Corporation’s High Performance technology standards. The disposal group, contained within its Contract Drilling Services segment, was classified as held for sale and measured at the lower of its carrying value and fair value less costs to sell. At December 31, 2018, the disposal group was stated at its carrying value of $20 million, which was less than its estimated fair value. In 2019, Precision’s efforts to sell the disposal group were unsuccessful and the drilling rigs were decommissioned.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT

															2019	2018
Cost						$			6,670,979	$	6,937,062
Accumulated depreciation									(3,921,516 )		(3,898,450)
						$			2,749,463	$	3,038,612
Rig equipment									2,510,505		2,745,172
Rental equipment								34,437		43,992
Other equipment								38,604		52,195
Vehicles								7,796		12,702
Buildings								56,834		65,561
Assets under construction								67,740		84,561
Land								33,547		34,429
						$			2,749,463 $	3,038,612


Precision Drilling Corporation 2019 Annual Report	82



Cost
						Assets
			Rig	Rental	Other					Under
			Equipment	Equipment		Equipment Vehicles Buildings	Construction	Land	Total
Balance, December 31, 2017		$ 6,034,166 $ 148,011 $ 244,950 $ 43,201 $127,385 $				102,035 $ 33,886 $6,733,634
Additions			7,013	—	347									—	569	106,647		—	114,576
Disposals			(32,153)		(18,227)	(59,865)									(228)	(3,663)	—		(893) (115,029)
Reclassifications		127,668		—	507									—	—	(128,175 )		—	—
Reclassification to assets held for sale		(135,398)		—	—									—	—	—		— (135,398 )
Effect of foreign currency exchange differences		321,240		679	5,351 2,483										4,036	4,054 1,436			339,279

Balance, December 31, 2018		6,322,536		130,463	191,290									45,456	128,327	84,561 34,429			6,937,062
Additions			18,436		—	976									224	415	139,835		—	159,886
Disposals			(69,945)		(19,982)	(4,708) (6,014)						(58)	—		— (100,707 )
Reclassifications		150,674		—	1,197									—	—	(151,871 )		—	—
Asset decommissioning			(4,364)		—	—									—	—	—		—	(4,364)
Effect of foreign currency exchange differences		(307,954)		(174)	(3,436) (1,160)										(2,507)	(4,785 )		(882) (320,898)

Balance, December 31, 2019		$ 6,109,383 $ 110,307 $ 185,319 $ 38,506 $126,177 $				67,740 $ 33,547 $6,670,979

Accumulated Depreciation
						Assets
			Rig	Rental	Other					Under
			Equipment		Equipment	Equipment Vehicles Buildings					Construction		Land	Total
Balance, December 31, 2017		$ 3,210,384 $		87,832 $ 178,390 $ 26,921 $ 56,283 $		— $	— $3,559,810
Depreciation expense		335,215		9,418	15,993 4,820										8,126	—		—	373,572
Disposals			(28,399)		(11,249)	(59,857)									(220) (3,161)	—		— (102,886 )
Reclassification to assets held for sale		(115,740)		—	—									—	—	—		— (115,740 )
Effect of foreign currency exchange differences		175,904		470	4,569 1,233										1,518	—		—	183,694

Balance, December 31, 2018		3,577,364		86,471 139,095 32,754 62,766		—	— 3,898,450
Depreciation expense		289,056		7,473	13,023 3,521										7,663	—		—	320,736
Disposals			(33,929)		(17,933)	(3,274) (4,768)						(58)	—		—	(59,962)
Asset decommissioning			(3,518)	—	—									—	—	—		—	(3,518)
Reversal of impairment of property, plant and equipment			(5,810)	—	—									—	—	—		—	(5,810)

Effect of foreign currency exchange differences		(224,285)		(141)	(2,129)									(797) (1,028)	—		— (228,380 )

Balance, December 31, 2019		$ 3,598,878 $		75,870 $ 146,715 $ 30,710 $ 69,343 $		— $	— $3,921,516

(a) Asset Disposals
In addition to those items below, through the completion of normal course business operations, the Corporation sold used assets incurring gains or losses on disposal.
Mexico
In the second quarter of 2019, Precision concluded the sale of its Mexico-based drilling rigs and ancillary equipment, contained within its Contract Drilling Services segment, for total proceeds of US$48 million. Precision recognized a gain on asset disposal of US$24 million and reversed US$4 million of previous impairment charges.
Snubbing
In the second quarter of 2019, Precision disposed of certain snubbing units and related equipment, contained within the Completion and Production Services segment, for proceeds of $8 million resulting in a gain on asset disposal of $3 million.
(b) Impairment Test
Precision reviews the carrying value of its long-lived assets at each reporting period for indications of impairment. The Corporation did not identify an indication of impairment within the Corporation’s CGUs as at December 31, 2019. Accordingly, no impairment tests were performed.


83	Consolidated Financial Statements



For the year ended December 31, 2018, impairment charges of $208 million were recorded against goodwill. Refer to Note 9 for discussion of impairment tests performed.
(c) Decommissioned Drilling Rigs
In 2019, the Corporation incurred a $20 million (2018 – nil) loss on the decommissioning of certain drilling and ancillary equipment, contained within the Contract Drilling Services segment, that no longer met the Corporation’s High Performance technology standards. The decommissioning charge included those drilling rigs that were previously held for sale.
(d) Change in Rig Components
In the fourth quarter of 2019, Precision performed its annual review of estimated useful lives, residual values and methods and components of depreciation of property, plant and equipment. Due to changes in the timing, nature and complexity of certain rig recertifications, the Corporation determined the associated costs represent a separate component of property, plant and equipment. This change has been recognized prospectively and is expected to increase the Corporation’s 2020 depreciation expense by approximately $3 million.

NOTE 8. INTANGIBLES

		2019	2018
Cost			$	53,416 $	51,912
Accumulated amortization		(21,670 )	(16,511)
			$	31,746 $	35,401

Loan commitment fees related to Senior Credit Facility			$	2,272 $	2,307
Software		29,474	33,094
			$	31,746 $	35,401
Cost
			Loan
					Commitment
					Fees	Software	Total
Balance, December 31, 2017					$	14,138			$	25,569 $	39,707
Additions			638	11,567	12,205
Balance, December 31, 2018			14,776	37,136	51,912
Additions			702	808	1,510
Effect of foreign currency exchange differences			—				(6 )	(6)
Balance, December 31, 2019					$	15,478			$	37,938 $	53,416
Accumulated Amortization
			Loan
					Commitment
					Fees	Software	Total
Balance, December 31, 2017					$	11,018			$	573 $	11,591
Amortization expense			1,451	3,469	4,920
Balance, December 31, 2018			12,469	4,042	16,511
Amortization expense			737	4,422	5,159
Balance, December 31, 2019					$	13,206			$	8,464 $	21,670
NOTE 9. GOODWILL Balance, December 31, 2017
		$	205,167
Impairment charge			(207,544)
Exchange adjustment			2,377
Balance, December 31, 2018 and 2019		$						—
In 2018, Precision performed its annual impairment test for those CGUs containing goodwill and determined the goodwill associated with the Canadian Contract Drilling and U.S. Directional Drilling CGUs were not recoverable. Accordingly, an impairment charge of $208 million was recorded in the statement of net earnings (loss) for the period ended December 31, 2018. Both CGUs were contained within the Contract Drilling Services segment.

Precision Drilling Corporation 2019 Annual Report	84



In performing the 2018 goodwill impairment tests, the Corporation used a value in use approach. Projected cash flows covered a five-year period and were based on future expected outcomes taking into account existing term contracts, past experience and management’s expectation of future market conditions. The primary source of cash flow information was the strategic plan approved by the Corporation’s Board of Directors. These strategic plans were developed based on benchmark commodity prices and industry supply-demand fundamentals. Canadian Contract Drilling
Cash flows used in the impairment calculation were discounted using a discount rate specific to the Canadian Contract Drilling CGU. The after-tax discount rate derived from Precision’s weighted average cost of capital, adjusted for risk factors specific to the CGU and used in determining the recoverable amount for the Canadian Contract Drilling CGU was 11.66%. The test resulted in a goodwill impairment charge of $172 million as the carrying value of the CGU’s assets exceeded its value in use of $942 million.
The key assumptions used in the calculation of the CGU’s value in use included the discount rate and a terminal value growth rate of nil. An increase of 0.5% to the discount rate would result in approximately $37 million of additional impairment charges to the remaining assets within the CGU. US Directional Drilling
Cash flows used in the impairment calculation were discounted using a discount rate specific to the U.S. Directional Drilling CGU. The after-tax discount rate derived from Precision’s weighted average cost of capital, adjusted for risk factors specific to the CGU and used in determining the recoverable amount for the U.S. Directional Drilling CGU was 12.16%. The test resulted in a goodwill impairment charge of $35 million as the carrying value of the CGU’s assets exceeded its value in use of $39 million.
The key assumptions used in the calculation of the CGU’s value in use included the discount rate and a terminal value growth rate of nil. An increase of 0.5% to the discount rate would result in approximately $2 million of additional impairment charges to the remaining assets within the CGU.
NOTE 10. LONG-TERM DEBT
			2019	2018	2019	2018
Senior Credit Facility							US $	—	US $			—				$	—	$	—
Unsecured Senior Notes:
6.5% senior notes due 2021			90,625	165,625	117,678	226,113
7.75% senior notes due 2023			344,845	350,000	447,792	477,823
5.25% senior notes due 2024			307,690	351,104	399,545	479,331
7.125% senior notes due 2026			369,735	400,000	480,112	546,084
							US $	1,112,895 US $	1,266,729	1,445,127	1,729,351
Less net unamortized debt issue costs					(17,946 )	(23,098)
								$	1,427,181 $	1,706,253

	Senior Credit			Unsecured					Debt Issue
	Facility			Senior Notes	Costs	Total
Balance December 31, 2017	$								—	$	1,758,519 $	(28,082 ) $	1,730,437
Changes from financing cash flows:
Redemption / repurchase of senior notes									—	(168,722)						—	(168,722)
Non-cash changes:
Gain on redemption / repurchase of unsecured senior notes									—	(5,672)						—	(5,672)
Amortization of debt issue costs									—	—		4,984	4,984
Foreign exchange adjustment									—	145,226						—	145,226
Balance December 31, 2018									—	1,729,351	(23,098 )	1,706,253
Changes from financing cash flows:
Redemption / repurchase of senior notes									—	(198,387)						—	(198,387)
Non-cash changes:
Gain on redemption / repurchase of unsecured senior notes									—	(6,815)						—	(6,815)
Amortization of debt issue costs									—	—		5,152	5,152
Foreign exchange adjustment									—	(79,022)						—	(79,022)
Balance December 31, 2019				$								—	$	1,445,127 $	(17,946 ) $	1,427,181





85		Consolidated Financial Statements



Long-term debt obligations at December 31, 2019 will mature as follows:


2020		$	—
2021			117,678
2022			—
2023			447,792
Thereafter			879,657
		$	1,445,127
(a) Senior Credit Facility:
The senior secured revolving credit facility (Senior Credit Facility) provides Precision with senior secured financing for general corporate purposes, including for acquisitions, of up to US$500 million with a provision for an increase in the facility of up to an additional US$300 million. The Senior Credit Facility is secured by charges on substantially all of the present and future assets of Precision, its material U.S. and Canadian subsidiaries and, if necessary, to adhere to covenants under the Senior Credit Facility, certain subsidiaries organized in jurisdictions outside of Canada and the U.S.
The Senior Credit Facility requires that Precision comply with certain restrictive and financial covenants including a leverage
ratio of consolidated senior debt to consolidated Covenant EBITDA (as defined in the debt agreement) of less than 2.5:1. For
purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness. It also requires the
Corporation to maintain a ratio of consolidated Covenant EBITDA to consolidated interest expense for the most recent four
consecutive quarters, of greater than 2.5:1.
Distributions under the Senior Credit Facility are subject to a pro-forma senior net leverage covenant of less than or equal to 1.75:1. The Senior Credit Facility also limits the redemption and repurchase of junior debt subject to a pro-forma senior net leverage covenant test of less than or equal to 1.75:1.
The Senior Credit Facility has a term of four years, with an annual option on Precision’s part to request that the lenders extend, at their discretion, the facility to a new maturity date not to exceed five years from the date of the extension request. The current maturity date of the Senior Credit Facility is November 21, 2023.
Under the Senior Credit Facility, amounts can be drawn in U.S. dollars and/or Canadian dollars. At December 31, 2019, no amounts were drawn under this facility (2018 – nil). Up to US$200 million of the Senior Credit Facility is available for letters of credit denominated in U.S and/or Canadian dollars and other currencies acceptable to the fronting lender. As at December 31, 2019 outstanding letters of credit amounted to US$25 million (2018 – US$28 million).
The interest rate on loans that are denominated in U.S. dollars is, at the option of Precision, either a margin over a U.S. base rate or a margin over LIBOR. The interest rate on loans denominated in Canadian dollars is, at the option of Precision, either a margin over the Canadian prime rate or a margin over the Canadian Dollar Offered Rate (CDOR); such margins will be based on the then applicable ratio of consolidated total debt to EBITDA.
(b) Unsecured Senior Notes:
Precision has outstanding the following unsecured senior notes:
6.5% US$ senior notes due 2021
These notes bear interest at a fixed rate of 6.5% per annum and mature on December 15, 2021. Interest is payable semi-annually on June 15 and December 15 of each year.
Precision may redeem these notes in whole or in part after December 15, 2019 for their principal amount plus accrued
interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or a
portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of
purchase.
During 2019, Precision redeemed US$75 million principal amount of these notes for an aggregate purchase price of
US$76 million. The difference was recognized as a loss on redemption of unsecured senior notes within the consolidated
statement of earnings (loss).
Subsequent to December 31, 2019, Precision redeemed US$25 million principal amount of these notes for an aggregate
purchase price of US$25 million.
7.75% US$ senior notes due 2023
These notes bear interest at a fixed rate of 7.75% per annum and mature on December 15, 2023. Interest is payable semi-
annually on June 15 and December 15 of each year.

Precision Drilling Corporation 2019 Annual Report	86



Precision may redeem these notes in whole or in part at any time on or after December 15, 2019 and before December 15,
2021, at redemption prices ranging between 103.875% and 101.938% of their principal amount plus accrued interest. Any
time on or after December 15, 2021, these notes can be redeemed for their principal amount plus accrued interest. Upon
specified change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes
at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.
During 2019, Precision repurchased and cancelled US$5 million of these notes for an aggregate purchase price of US$5
million. The difference was recognized as a gain on redemption of unsecured senior notes within the consolidated
statement of earnings (loss).
5.25% US$ senior notes due 2024
These notes bear interest at a fixed rate of 5.25% per annum and mature on November 15, 2024. Interest is payable semi-
annually on May 15 and November 15 of each year.
Precision may redeem these notes in whole or in part at any time on or after May 15, 2019 and before May 15, 2022, at redemption prices ranging between 102.625% and 100.875% of their principal amount plus accrued interest. Any time on or after May 15, 2022, these notes can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.
During 2019, Precision repurchased and cancelled US$43 million of these notes for an aggregate purchase price of US$39 million. The difference was recognized as a gain on repurchase of unsecured senior notes within the consolidated statement of earnings (loss).
Subsequent to December 31, 2019, Precision repurchased and cancelled US$5 million of these notes for an aggregate purchase price of US$4 million.
7.125% US$ senior notes due 2026
These notes bear interest at a fixed rate of 7.125% per annum and mature on January 15, 2026. Interest is payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2018.
Prior to November 15, 2020, Precision may redeem up to 35% of the 7.125% senior notes due 2026 with the net proceeds of certain equity offerings at a redemption price equal to 107.125% of the principal amount plus accrued interest. Prior to November 15, 2020, Precision may redeem these notes in whole or in part at 100.0% of their principal amount, plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed and the excess, if any, of the present value of the November 15, 2020 redemption price plus required interest payments through November 15, 2020 (calculated using the U.S. Treasury rate plus 50 basis points) over the principal amount of the note. As well, Precision may redeem these notes in whole or in part at any time on or after November 15, 2020 and before November 15, 2022, at redemption prices ranging between 105.344% and 101.781% of their principal amount plus accrued interest. Any time on or after November 15, 2023, these notes can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.
During 2019, Precision repurchased and cancelled US$30 million of these notes for an aggregate purchase price of US$29 million. The difference was recognized as a gain on repurchase of unsecured senior notes within the consolidated statement of earnings (loss).
Subsequent to December 31, 2019, Precision repurchased and cancelled US$2 million of these notes for an aggregate purchase price of US$2 million.
The unsecured senior notes require Precision to comply with certain restrictive and financial covenants including an incurrence based test of Consolidated Interest Coverage Ratio, as defined in the senior note agreements, of greater than or equal to 2.0:1 for the most recent four consecutive fiscal quarters. In the event that the Consolidated Interest Coverage Ratio is less than 2.0:1 for the most recent four consecutive fiscal quarters the senior notes restrict our ability to incur additional indebtedness.
The unsecured senior notes also contain a restricted payments covenant that limits Precision’s ability to make payments in the nature of dividends, distributions and for repurchases from shareholders. This restricted payment basket grows by, among other things, 50% of cumulative consolidated net earnings, and decreases by 100% of cumulative consolidated net losses as defined in the note agreements, and cumulative payments made to shareholders. As at December 31, 2019, the governing net restricted payments basket was negative $517 million (2018 – negative $496 million), therefore limiting us from making any further dividend payments or share repurchases until the governing restricted payments basket once again becomes positive.
Precision’s unsecured senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all U.S. and Canadian subsidiaries that guaranteed the Senior Credit Facility (Guarantor Subsidiaries). These Guarantor Subsidiaries are directly or indirectly 100% owned by the parent company. Separate financial statements for each of the Guarantor Subsidiaries have not been provided; instead the Corporation has included in Note 28 condensed consolidating financial statements based on Rule 3-10 of the U.S. Securities and Exchange Commission’s Regulation S-X.


87			Consolidated Financial Statements




(c) Covenants:
Following is a listing of the currently applicable restrictive and financial covenants as at December 31, 2019:
		Covenant	At December 31, 2019
Senior Credit Facility
Consolidated senior debt to consolidated covenant EBITDA(1)		≤ 2.50				0.00
Consolidated covenant EBITDA to consolidated interest expense		≥ 2.50				3.39

Unsecured Senior Notes
Consolidated interest coverage ratio		≥ 2.00				3.30
(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.
At December 31, 2019, Precision was in compliance with the covenants of the Senior Credit Facility and unsecured senior notes.

NOTE 11.						RESTRUCTURING AND OTHER RECOVERIES
For the period ended December 31, 2019, the Corporation had restructuring charges of $6 million (2018 - $1 million) and other recoveries of nil (2018 - $14 million). Restructuring costs incurred in 2019 pertained to severance costs as the Corporation continued to align its cost structure to reflect reduced activity levels. In 2018, the Corporation had other recoveries of $14 million relating to the recovery of transactions costs resulting from the termination of an arrangement agreement to acquire an oilfield services drilling contractor.
NOTE 12. FINANCE CHARGES
							2019	2018
Interest:
Long-term debt		$		110,730 $	121,810
Lease obligation				3,389	—
Other			21		378
Income				(1,576 )	(1,444 )
Amortization of debt issue costs				5,889	6,434
Finance charges		$		118,453 $	127,178
NOTE 13. LEASES
(a) As a lessee
Precision recognizes right of use assets primarily from its leases of real estate and vehicles and equipment.
				Vehicles and
								Real Estate	Equipment	Total
Balance, January 1, 2019								$	—		$	— $		—
Transition adjustments		58,635	14,829	73,464
Additions									—			1,947	1,947
Derecognition									(29)			—		(29)
Depreciation		(4,055)	(4,403 )	(8,458)
Lease remeasurements									163			—		163
Effect of foreign currency exchange differences		(688)	(257 )		(945)
Balance, December 31, 2019								$	54,026		$	12,116 $	66,142

Precision Drilling Corporation 2019 Annual Report	88



Precision’s real estate lease contracts often contain renewal options which may impact the determination of the lease term for purposes of calculating the lease obligation. If it is reasonably certain that a renewal option will be exercised, the renewal period is included in the lease term. When entering into a lease, Precision assesses whether it is reasonably certain renewal options will be exercised. Reasonable certainty is established if all relevant facts and circumstances indicate an economic incentive to exercise the renewal option. For the majority of its real estate leases, Precision is reasonably certain it will exercise its renewal option. Accordingly, the renewal period has been included in the lease term used to calculate the lease obligation.
For the period ended December 31, 2019, Precision had total cash outflows of $10 million in relation to its lease obligations.
The Corporation has commitments under various lease agreements, primarily for real estate and vehicles and equipment. Terms of our real estate leases run for a period of one to 10 years while the vehicle leases are typically for terms of between three and four years. Expected non-cancellable operating lease payments are as follows:


				2019	2018
Less than one year						$	11,954 $	13,496
One to five years				33,566	36,639
More than five years				11,117	17,797
						$	56,637 $	67,932
(b) As a lessor
Precision leases its rig equipment under long-term drilling contracts with terms ranging from one to five years. For the year ended December 31, 2019, approximately 59% of our total contract drilling revenue pertained to drilling rigs working under term contracts. At December 31, 2019, the net book value of the underlying rig equipment subject to long-term drilling contracts was $1 billion.
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received after December 31, 2019.

Less than one year					$	297,425
One to five years						207,746
More than five years						12,437
				$	517,608
NOTE 14. SHARE BASED COMPENSATION PLANS
In May 2017 shareholders approved an omnibus equity incentive plan (Omnibus Plan) that al ows the Corporation to settle short-term incentive awards (annual bonus) and long-term incentive awards (options, performance share units and restricted share units) issued on or after February 8, 2017 in voting shares of Precision (either issued from treasury or purchased in the open market), cash, or a combination of both. Precision intends to settle all short-term incentive, restricted share unit and non-executive performance share unit awards issued under the Omnibus Plan in cash and to settle performance share awards issued to senior executives and all options in voting shares. No further grants will be made under the legacy stock option plan, performance share unit plan or restricted share unit plan.
Liability Classified Plans
								Non-
				Management
	Restricted					Performance	Directors’
								Share Units						Share Units	DSUs	Total
Balance, December 31, 2017	$		6,950 $			11,407 $		3,512 $	21,869
Expensed during the period			5,223						398	769	6,390
Payments			(6,764)			(7,284 )		(1,800)	(15,848)
Balance, December 31, 2018			5,409			4,521		2,481	12,411
Expensed during the period			5,755			1,583		855	8,193
Payments			(3,846)			(3,246 )		—	(7,092)
Balance, December 31, 2019	$		7,318 $			2,858 $		3,336 $	13,512
Current	$		3,956 $						726 $	—		$	4,682
Long-term			3,362			2,132		3,336	8,830
	$		7,318 $			2,858 $		3,336 $	13,512	(a) Restricted Share Units and Performance Share Units
Precision has two cash-settled share based incentive plans for officers and other eligible employees. Under the Restricted Share Unit (RSU) incentive plan, shares granted to eligible employees vest annually over a three-year term. Vested shares are


89		Consolidated Financial Statements



automatically paid out in cash at a value determined by the fair market value of the shares at the vesting date. Under the Performance Share Unit (PSU) incentive plan, shares granted to eligible employees vest at the end of a three-year term. Vested shares are automatical y paid out in cash in the first quarter following the vested term at a value determined by the fair market value of the shares at the vesting date and based on the number of performance shares held multiplied by a performance factor that ranges from zero to two times. The performance factor is based on Precision’s share price performance compared to a peer group over the three-year period.
A summary of the RSUs and PSUs outstanding under these share based incentive plans is presented below:
		RSUs	PSUs
			Outstanding	Outstanding
December 31, 2017		2,796,858	5,726,259
Granted		2,918,912	1,292,550
Redeemed		(1,404,284 )	(2,137,163)
Forfeited		(255,572 )	(338,656)
December 31, 2018		4,055,914	4,542,990
Granted		4,187,350	2,038,900
Redeemed		(1,505,683 )	(1,322,758)
Forfeited		(399,518 )	(1,923,782)
December 31, 2019		6,338,063	3,335,350	(b) Non-Management Directors
Precision has a deferred share unit (DSU) plan for non-management directors whereby fully vested DSUs are granted quarterly based on an election by the non-management director to receive all or a portion of his or her compensation in DSUs. These DSUs are redeemable in cash or for an equal number of common shares upon the director’s retirement. The redemption of DSUs in cash or common shares is solely at Precision’s discretion. Non-management directors can receive a lump sum payment or two separate payments any time up until December 15 of the year following retirement. If the non-management director does not specify a redemption date, the DSUs will be redeemed on a single date six months after retirement. The cash settlement amount is based on the weighted average trading price for Precision’s shares on the Toronto Stock Exchange for the five days immediately prior to payout. A summary of the DSUs outstanding under this share based incentive plan is presented below: Deferred Share Units
			Outstanding
Balance December 31, 2017					953,277
Granted					474,766
Redeemed					(374,408)
Balance December 31, 2018					1,053,635
Granted					738,619
Balance December 31, 2019					1,792,254
Equity Settled Plans

(c) Option Plan
Under this plan, the exercise price of each option equals the fair market value of the option at the date of grant determined by the weighted average trading price for the five days preceding the grant. The options are denominated in either Canadian or U.S. dollars, and vest over a period of three years from the date of grant, as employees render continuous service to the Corporation, and have a term of seven years.

A summary of the status of the equity incentive plan is presented below:

		Weighted
						Options	Range of	Average	Options
Canadian Share Options							Outstanding			Exercise Prices	Exercise Price	Exercisable
December 31, 2017							4,900,360			$ 4.46 – 14.50 $	8.50	3,734,019
Granted							490,200		4.35 – 4.35	4.35
Forfeited							(657,404)		10.44 – 14.50	10.58
December 31, 2018							4,733,156		4.35 – 14.31	7.78	3,786,473
Forfeited							(711,572)		7.15 – 10.67	10.51
December 31, 2019							4,021,584			$ 4.35 – 14.31 $	7.29	3,569,069

Precision Drilling Corporation 2019 Annual Report	90




						Weighted
					Range of	Average
				Options	Exercise Prices				Exercise Price	Options
U.S. Share Options				Outstanding	(US$)	(US$)	Exercisable
December 31, 2017								5,558,621	$ 3.21 – 15.21 $				6.16	2,891,808
Granted								1,569,250	3.44 – 3.62	3.45
Exercised								(66,000 )	3.21 – 3.21	3.21
Forfeited								(996,021)	3.21 – 15.21	8.08
December 31, 2018								6,065,850	3.21 – 10.74	5.17	3,224,078
Granted								599,300	2.56 – 2.56	2.56
Forfeited								(302,100)	7.79 – 10.74	10.68
December 31, 2019									6,363,050	$ 2.56 – 9.18 $				4.67	4,348,824
No options were exercised in 2019. The weighted average share price at the date of exercise for the U.S. share options exercised in 2018 was
	US$4.02.
Canadian Share Options
										Total Options Outstanding	Options Exercisable
		Weighted Average
				Weighted	Remaining		Weighted

												Average	Contractual Life					Average
Range of Exercise Prices:											Number	Exercise Price	(Years)						Number	Exercise Price
$ 4.35 – 6.99										1,105,400 $				4.41	4.04	778,595 $	4.44
7.00 – 8.99										1,533,334				7.32	2.59	1,407,624	7.32
9.00 – 14.31										1,382,850				9.57	0.56	1,382,850	9.57
$ 4.35 – 14.31										4,021,584 $				7.29	2.29	3,569,069 $	7.56

U.S. Share Options
										Total Options Outstanding	Options Exercisable
				Weighted	Weighted Average					Weighted
												Average	Remaining		Average
Range of Exercise Prices (US$):				Exercise Price	Contractual Life												Exercise Price
										Number				(US$)	(Years)	Number	(US$)
$ 2.56 – 3.99										3,646,250 $				3.21	4.50	2,011,540 $	3.27
4.00 – 6.99										1,924,500				5.61	3.37	1,544,984	5.62
7.00 – 9.18										792,300				9.08	0.60	792,300	9.08
$ 2.56 – 9.18										6,363,050 $				4.67	3.67	4,348,824 $	5.17

The per option weighted average fair value of the share options granted during 2019 was $1.54 (2018 – $1.96) estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: average risk-free interest rate of 2.5% (2018 – 2%), average expected life of four years (2018 – four years), expected forfeiture rate of 5% (2018 – 5%) and expected volatility of 57% (2018 – 56%). Included in net earnings for the year ended December 31, 2019 is an expense of $2 million (2018 – $3 million).
(d) Executive Performance Share Units
Precision grants PSUs to certain senior executives with the intention of settling them in voting shares of the Corporation either issued from treasury or purchased in the open market. These PSUs vest over a three year period and incorporate performance criteria established at the date of grant that can adjust the number of performance share units available for settlement from zero to two times the amount originally granted. A summary of the activity under this share based incentive plan is presented below:
							Weighted
Executive Performance Share Units						Outstanding	Fair Value
December 31, 2017						1,159,000 $	6.00
Granted						2,082,800	6.22
Forfeited						(50,733 )	6.12
December 31, 2018						3,191,067	6.14
Granted						4,211,600	4.11
Forfeited						(25,767 )	6.02
December 31, 2019						7,376,900	4.98

The per unit weighted average fair value of the performance share units granted during 2019 was $4.11 (2018 – $6.22) estimated on the grant date using a Monte Carlo simulation and Black-Scholes option pricing model with the following assumptions: share price of $3.23 (2018 – $4.29), average risk-free interest rate of 2.3% (2018 – 2.3%), average expected life of three years (2018 – three years), average expected volatility of 56% (2018 – 59%), and an expected dividend yield of nil (2018 – nil). Included in net earnings for year ended December 31, 2019 is an expense of $12 million (2018 - $6 million).


91			Consolidated Financial Statements



(e) Non-Management Directors
Prior to January 1, 2012, Precision had a deferred share unit plan for non-management directors. Under the plan, fully vested deferred share units were granted quarterly based on an election by the non-management director to receive all or a portion of his or her compensation in deferred share units. These deferred share units are redeemable into an equal number of common shares any time after the director’s retirement. A summary of this share based incentive plan is presented below:
Deferred Share Units
			Outstanding
December 31, 2017			195,743
Redeemed			(102,570)
December 31, 2018 and 2019			93,173
Employee Share Purchase Plan
The Corporation has an employee share purchase plan to encourage employees to become Precision shareholders and to attract and retain people. Under the plan, eligible employees can contribute up to 10% of their regular base salary through payroll deduction with Precision matching 20% of the employee’s contribution. These contributions are used to purchase the Corporation’s shares in the open market. No vesting conditions apply. During 2019, the Corporation recorded compensation expense of $1 million (2018 – $1 million) related to this plan.
NOTE 15. 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 for the years ended December 31, is as follows:
		2019	2018
Loss before income taxes				$	(8,339 ) $	(323,596)
Federal and provincial statutory rates		27 %			27%
Tax at statutory rates				$	(2,252 ) $	(87,371)
Adjusted for the effect of:
Non-deductible expenses		1,597	49,455
Non-taxable capital gains		(1,408 )	(845)
Impact of foreign tax rates		(13,549 )	4,861
Withholding taxes		1,262	1,061
Taxes related to prior years		(1,975 )	3,803
Other		1,368	(290)
Income tax recovery				$	(14,957 ) $	(29,326)
In 2019, the Province of Alberta announced various reductions to corporate income tax rates, that when fully implemented over the next three years will decrease the provincial corporate income tax rate from 12% to 8% by 2022. The impact of this rate reduction is nominal and has been reflected in the current year tax recovery.
On December 22, 2017, the United States government enacted new tax legislation which, in addition to changing certain U.S. federal income tax laws, reduced the U.S. federal income tax rate from 35% to 21% effective January 1, 2018. The impact of the lower U.S. federal income tax rate on Precision’s U.S. subsidiaries was reflected as at December 31, 2017.

Precision Drilling Corporation 2019 Annual Report	92




The net deferred tax liability is comprised of the tax effect of the following temporary differences:

		2019	2018
Deferred tax liability:
Property, plant and equipment and intangibles				$	426,934 $	467,109
Debt issue costs		3,280	3,534
Partnership deferrals		850	1,730
Other		7,926	5,722
		438,990	478,095
Offsetting of assets and liabilities		(413,601 )	(405,316)
		25,389	72,779

Deferred tax assets:
Losses (expire from time to time up to 2038)		402,025	423,595
Long-term incentive plan		6,131	6,849
Other		10,169	11,752
		418,325	442,196
Offsetting of assets and liabilities		(413,601 )	(405,316)
		4,724	36,880

Net deferred tax liability				$	20,665 $	35,899
Included in the deferred tax assets at December 31, 2019 is $5 million of tax-effected temporary differences related to the Corporation’s international operations and at December 31, 2018, $37 million related to the Corporation’s U.S. and international operations.
The Corporation has certain loss carryforwards in U.S. and international locations and capital loss carry forwards in Canada for which it is unlikely that sufficient future taxable income wil be available. Accordingly, the Corporation has not recognized a deferred tax asset on these losses totaling $31 million and $33 million, respectively.

The movement in temporary differences is as follows:
					Property,
					Plant and			Other	Long-		Other	Net
					Equipment			Deferred	Debt	Term		Deferred	Deferred
						and	Partnership	Tax					Issue	Incentive						Tax	Tax
						Intangibles		Deferrals	Liabilities	Losses					Costs	Plan		Assets	Liability

Balance, December 31, 2017					$ 454,613 $ (335 )$ 6,709 $ (368,133 )$ 3,352 $ (7,935 )	$ (11,182 )$ 77,089
Recognized in net loss						(9,667 )				2,065	(1,005 )	(30,660 )					182	1,325				(139 )	(37,899)
Effect of foreign currency exchange differences					22,163					—	18	(24,802)					—		(239 )				(431)	(3,291)

Balance, December 31, 2018					$ 467,109 $					1,730 $	5,722 $ (423,595 )$	3,534 $ (6,849 ) $ (11,752 )$	35,899
Recognized in net earnings					(26,825 )					(880 )	2,216			7,874	(254 )		572 1,260	(16,037)
Effect of foreign currency exchange differences					(13,350 )					—	(12)	13,696					—		146				323	803

Balance, December 31, 2019					$ 426,934 $					850 $	7,926 $ (402,025 )$	3,280 $ (6,131 ) $ (10,169 )$	20,665
At December 31, 2019, Precision had unrecognized tax benefits of $nil. At December 31, 2018, Precision had $2 million of unrecognized tax benefits that, if recognized, would have a favourable impact on Precision’s effective income tax rate in future periods. Precision classifies interest accrued on unrecognized tax benefits and income tax penalties as income tax expense. Included in the unrecognized tax benefit, as at December 31, 2018 was interest and penalties of $1 million.
NOTE 16. BANK INDEBTEDNESS
At December 31, 2019, Precision had available $40 million (2018 – $40 million) and US$15 million (2018 – US$15 million) under secured operating facilities, and a secured US$30 million (2018 – US$30 million) facility for the issuance of letters of credit and performance and bid bonds to support international operations. As at December 31, 2019 and 2018, no amounts had been drawn on any of the facilities. Availability of the $40 million and US$30 million facility were reduced by outstanding letters of credit in the amount of $26 million (2018 – $28 million) and US$2 million (2018 – US$2 million), respectively. The facilities are primarily secured by charges on substantially all present and future property of Precision and its material subsidiaries. Advances under the $40 million facility are available at the bank’s prime lending rate, U.S. base rate, U.S. LIBOR rate plus 80% of


93	Consolidated Financial Statements



applicable margin, or 80% of the applicable margin for Banker’s Acceptances, or in combination, and under the US$15 million facility at the bank’s prime lending rate.
NOTE 17. PROVISIONS AND OTHER
	Workers’
			Compensation
Balance December 31, 2017		$	13,232
Expensed during the year			3,359
Payment of deductibles and uninsured claims			(4,271)
Effects of foreign currency exchange differences			1,053
Balance December 31, 2018			13,373
Expensed during the year			4,047
Payment of deductibles and uninsured claims			(4,915)
Effects of foreign currency exchange differences			(639)
Balance December 31, 2019		$	11,866

		2019	2018
Current				$	1,907 $	2,796
Long-term		9,959	10,577
				$	11,866 $	13,373
Precision maintains a provision for the deductible and uninsured portions of workers’ compensation and general liability claims. The amount accrued for the provision for losses incurred varies depending on the number and nature of the claims outstanding at the balance sheet dates. In addition, the accrual includes management’s estimate of the future cost to settle each claim such as future changes in the severity of the claim and increases in medical costs. Precision uses third parties to assist in developing the estimate of the ultimate costs to settle each claim, which is based on historical experience associated with the type of each claim and specific information related to each claim. The specific circumstances of each claim may change over time prior to settlement and, as a result, the estimates made as of the balance sheet dates may change.

NOTE 18. SHAREHOLDERS’ CAPITAL (a) Authorized – unlimited number of voting common shares
						– unlimited number of preferred shares, issuable in series, limited to an amount equal to one half of the
						issued and outstanding common shares

(b) Issued
Common shares
		Number	Amount
Balance, December 31, 2017							293,238,858 $	2,319,293
Issued on redemption of non-management directors' DSUs		476,978	2,609
Options exercised – cash consideration					66,000	275
						– reclassification from contributed surplus		—	103
Balance, December 31, 2018							293,781,836 $	2,322,280
Share repurchase							(16,482,032 )	(25,902)
Balance, December 31, 2019							277,299,804 $	2,296,378
(c) Normal Course Issuer Bid
In 2019, the Toronto Stock Exchange (“TSX”) approved Precision’s application to implement a Normal Course Issuer Bid (“NCIB”). Under the terms of the NCIB, Precision may purchase and cancel up to a maximum of 29,170,887 common shares, representing 10% of the public float of common shares at the time the NCIB was approved. The NCIB commenced on August 27, 2019 and will terminate no later than August 26, 2020. Purchases under the NCIB were made through the facilities of the TSX, the New York Stock Exchange and various other designated exchanges in accordance with applicable regulatory requirements at a price per common share representative of the market price at the time of acquisition. Pursuant to the NCIB, 16 million common shares were purchased and cancel ed as of December 31, 2019 for $26 million. Subsequent to December 31, 2019, Precision purchased and cancelled an additional 3 million common shares, under the NCIB, for $5 million.


Precision Drilling Corporation 2019 Annual Report	94



NOTE 19. PER SHARE AMOUNTS
The following tables reconcile the net earnings (loss) and weighted average shares outstanding used in computing basic and diluted earnings (loss) per share:


		2019	2018
Net earnings (loss) – basic and diluted				$	6,618 $	(294,270)

(Stated in thousands)		2019	2018
Weighted average shares outstanding – basic					290,782	293,560
Effect of stock options and other equity compensation plans					6,397	—
Weighted average shares outstanding – diluted					297,179	293,560
NOTE 20. ACCUMULATED OTHER COMPREHENSIVE INCOME

							Unrealized		Accumulated
								Foreign Currency	Foreign Exchange	Other
								Translation Gains	Gain (Loss) on Net					Comprehensive
							(Losses)						Investment Hedge	Income
December 31, 2017						$	440,733								$	(309,123 ) $	131,610
Other comprehensive income							175,630						(145,226 )	30,404
December 31, 2018							616,363						(454,349 )	162,014
Other comprehensive loss							(106,781)				79,022	(27,759)
December 31, 2019						$	509,582								$	(375,327 ) $	134,255
NOTE 21. EMPLOYEE BENEFIT PLANS
The Corporation has a defined contribution pension plan covering a significant number of its employees. Under this plan, the Corporation matches individual contributions up to 5% of the employee’s eligible compensation. Total expense under the defined contribution plan in 2019 was $13 million (2018 – $12 million).

NOTE 22. RELATED PARTY TRANSACTIONS
Compensation of Key Management Personnel
The remuneration of key management personnel is as follows:

		2019	2018
Salaries and other benefits				$	8,747 $	6,732
Equity settled share based compensation		9,047	5,562
Cash settled share based compensation		1,432	722
				$	19,226 $	13,016
Key management personnel are comprised of the directors and executive officers of the Corporation. Certain executive officers have entered into employment agreements with Precision that provide termination benefits of up to 24 months base salary plus up to two times targeted incentive compensation upon dismissal without cause.
NOTE 23. CAPITAL COMMITMENTS
At December 31, 2019, the Corporation had commitments to purchase property, plant and equipment totaling $113 million (2018 – $180 million). Payments of $25 million for these commitments are expected to be made in 2020, $53 million in 2021 and $35 million in 2022.



95	Consolidated Financial Statements



NOTE 24. FINANCIAL INSTRUMENTS
Financial Risk Management
The Board of Directors is responsible for identifying the principal risks of Precision’s business and for ensuring the implementation of systems to manage these risks. With the assistance of senior management, who report to the Board of Directors on the risks of Precision’s business, the Board of Directors considers such risks and discusses the management of such risks on a regular basis.

Precision has exposure to the following risks from its use of financial instruments:
(a) Credit Risk
Accounts receivable includes balances from a large number of customers primarily operating in the oil and natural gas industry. The Corporation manages credit risk by assessing the creditworthiness of its customers before providing services and on an ongoing basis, and by monitoring the amount and age of balances outstanding. In some instances, the Corporation will take additional measures to reduce credit risk including obtaining letters of credit and prepayments from customers. When indicators of credit problems appear, the Corporation takes appropriate steps to reduce its exposure including negotiating with the customer, filing liens and entering into litigation. Precision’s most significant customer accounted for $12 million of the trade receivables amount at December 31, 2019 (2018 – $18 million).

The movement in the expected credit loss al owance during the year was as follows:

					2019	2018
Balance at January 1,						$	1,470 $	2,596
Impairment loss recognized					72		483
Amounts written-off as uncollectible					(537 )		(416)
Impairment loss reversed					(24 )	(1,247)
Effect of movement in exchange rates					(52 )		54
Balance at December 31,						$	929 $	1,470
The ageing of trade receivables at December 31 was as follows:

		2019							2018
		Provision for	Provision for
										Gross	Impairment			Gross	Impairment
Not past due				$						144,292 $	1 $	175,277 $		—
Past due 0 – 30 days										47,965	8	64,351		—
Past due 31 – 120 days										19,166	28	25,032		71
Past due more than 120 days										1,303	892	1,399	1,399
				$						212,726	$				929 $	266,059	$	1,470
(b) Interest Rate Risk
As at December 31, 2019 and 2018, all of Precision’s outstanding long-term debt bears fixed interest rates. As a result, Precision is not exposed to significant fluctuations in interest expense as a result of changes in interest rates. The Corporation would have exposure to interest rates if it were to draw upon its Senior Credit Facility.
(c) Foreign Currency Risk
The Corporation is primarily exposed to foreign currency fluctuations in relation to the working capital of its foreign operations and certain long-term debt facilities of its Canadian operations. The Corporation has no significant exposures to foreign currencies other than the U.S. dollar. The Corporation monitors its foreign currency exposure and attempts to minimize the impact by aligning appropriate levels of U.S. denominated debt with cash flows from U.S. based operations.


Precision Drilling Corporation 2019 Annual Report	96



The following financial instruments were denominated in U.S. dollars:
				2019	2018
	Canadian					Foreign	Canadian			Foreign
				Operations						Operations		Operations		Operations
Cash			US$	9,727 US$						41,154 US $	957 US$		49,302
Accounts receivable	242					150,873		482		181,609
Accounts payable and accrued liabilities	(17,730)					(86,324)					(20,655 )	(122,417)
Long-term liabilities, excluding long-term incentive plans(1)				—						(7,669)		—		(7,747)
Net foreign currency exposure			US$	(7,761) US$						98,034 US $		(19,216 ) US$	100,747
Impact of $0.01 change in the U.S. dollar to Canadian dollar exchange rate on net earnings (loss)			$	(78)			$	—	$	(192 )	$		—
Impact of $0.01 change in the U.S. dollar to Canadian dollar exchange rate on comprehensive loss			$	—			$			980	$	—	$	1,007
(1) Excludes U.S. dollar long-term debt that has been designated as a hedge of the Corporation’s net investment in certain self-sustaining foreign operations.
(d) Liquidity Risk
Liquidity risk is the exposure of the Corporation to the risk of not being able to meet its financial obligations as they become due. The Corporation manages liquidity risk by monitoring and reviewing actual and forecasted cash flows to ensure there are available cash resources to meet these needs. The following are the contractual maturities of the Corporation’s financial liabilities and other contractual commitments as at December 31, 2019:


											2020	2021	2022				2023	2024 Thereafter			Total
Accounts payable and accrued liabilities										$ 199,478 $	— $			— $	— $	— $	— $ 199,478
Share based compensation											5,130	6,649	6,026				—	—	—		17,805
Long-term debt (1)										32,463	85,215	— 447,792 399,545 480,112 1,445,127
Interest on long-term debt (2)(3)										95,427	95,196	89,888				88,442	52,562 35,633			457,148
Commitments										36,812	64,098	45,346				6,643	5,195 11,117			169,211
Total										$ 369,310	$ 251,158	$ 141,260				$ 542,877	$ 457,302 $ 526,862			$2,288,769

(1) At December 31, 2019, Precision committed to redeem US$25 million of its 6.5% unsecured senior notes due 2021 in the first quarter of 2020. (2) Calculated based on December 31, 2019 debt balance less first quarter unsecured senior notes redemptions, interest rates, and foreign exchange rates in effect as at December 31, 2019. (3) Excludes amortization of long-term debt issue costs.

Fair Values
The carrying value of cash, accounts receivable, and accounts payable and accrued liabilities approximates their fair value due to the relatively short period to maturity of the instruments. The fair value of the unsecured senior notes at December 31, 2019 was approximately $1,428 million (2018 – $1,548 million).

Financial assets and liabilities recorded or disclosed at fair value in the consolidated statements of financial position are categorized based on the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are based on the amount of subjectivity associated with the inputs in the fair determination and are as follows:

Level I – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II – Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level III – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The estimated fair value of Unsecured Senior Notes is based on level II inputs. The fair value is estimated considering the risk free interest rates on government debt instruments of similar maturities, adjusted for estimated credit risk, industry risk and market risk premiums.



97		Consolidated Financial Statements



NOTE 25. CAPITAL MANAGEMENT
The Corporation’s strategy is to carry a capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The Corporation seeks to maintain a balance between the level of long-term debt and shareholders’ equity to ensure access to capital markets to fund growth and working capital given the cyclical nature of the oilfield services sector. The Corporation strives to maintain a conservative ratio of long-term debt to long-term debt plus equity. As at December 31, 2019 and 2018, these ratios were as follows:
		2019	2018
Long-term debt			$	1,427,181 $	1,706,253
Shareholders’ equity				1,527,432	1,557,752
Total capitalization			$	2,954,613 $	3,264,005
Long-term debt to long-term debt plus equity ratio		0.48		0.52
As at December 31, 2019, liquidity remained sufficient as Precision had $75 million (2018 – $97 mil ion) in cash and access to the US$500 million Senior Credit Facility (2018 – US$500 million) and $98 million (2018 – $101 million) secured operating facilities. As at December 31, 2019, no amounts (2018 – US$ nil) were drawn on the Senior Credit Facility with availability reduced by US$25 million (2018 – US$28 million) in outstanding letters of credit. Availability of the $40 million secured operating facility and US$30 million secured facility for the issuance of letters of credit and performance and bid bonds were reduced by outstanding letters of credit of $26 million (2018 – $28 million) and US$2 million (2018 – US$2 million), respectively. There was no amount drawn on the US$15 million secured operating facility.
NOTE 26. SUPPLEMENTAL INFORMATION
Components of changes in non-cash working capital balances are as follows:

		2019	2018
Accounts receivable			$	51,152 $	(32,709)
Inventory		1,157	(7,504)
Accounts payable and accrued liabilities		(61,376 )	23,225
			$	(9,067 ) $	(16,988)
Pertaining to:
Operations			$	(4,493 ) $	(17,880)
Investments		(4,574 )		892
The components of accounts receivable are as follows:
		2019	2018
Trade			$	211,797 $	264,589
Accrued trade		32,167	47,426
Prepaids and other		66,240	60,321
			$	310,204 $	372,336
The components of accounts payable and accrued liabilities are as follows:
		2019	2018
Accounts payable			$	91,468 $	129,493
Accrued liabilities:
Payroll		54,334	73,682
Other		53,676	71,314
			$	199,478 $	274,489
Precision presents expenses in the consolidated statements of earnings by function with the exception of depreciation and amortization, gain on asset disposals, loss on asset decommissioning and reversal of impairment of property, plant and equipment, which are presented by nature. Operating expense and general and administrative expense would include $282 million and $15 million (2018 – $358 million and $7 million), respectively, of depreciation and amortization, gain on asset disposals, loss on asset decommissioning and reversal of impairment of property, plant and equipment if the statements of

Precision Drilling Corporation 2019 Annual Report	98



earnings (loss) were presented purely by function. The following table presents operating and general and administrative expenses by nature:
		2019	2018
Wages, salaries and benefits				$	697,935 $		728,101
Purchased materials, supplies and services		429,365	422,359
Share based compensation		22,115	15,598
				$	1,149,415 $		1,166,058
Allocated to:
Operating expense				$	1,038,967 $		1,067,264
General and administrative		104,010	111,830
Restructuring					6,438	1,164
Other recoveries					—	(14,200)
				$	1,149,415 $		1,166,058
NOTE 27. CONTINGENCIES AND GUARANTEES
The business and operations of the Corporation are complex and the Corporation has executed a number of significant financings, business combinations, acquisitions and dispositions over the course of its history. The computation of income taxes payable as a result of these transactions involves many complex factors as well as the Corporation’s interpretation of relevant tax legislation and regulations. The Corporation’s management believes that the provision for income tax is adequate and in accordance with IFRS and applicable legislation and regulations. However, there are tax filing positions that have been and can still be the subject of review by taxation authorities who may successful y challenge the Corporation’s interpretation of the applicable tax legislation and regulations, with the result that additional taxes could be payable by the Corporation.

The Corporation, through the performance of its services, product sales and business arrangements, is sometimes named as a defendant in litigation. The outcome of such claims against the Corporation is not determinable at this time; however, their ultimate resolution is not expected to have a material adverse effect on the Corporation.

The Corporation has entered into agreements indemnifying certain parties primarily with respect to tax and specific third-party claims associated with businesses sold by the Corporation. Due to the nature of the indemnifications, the maximum exposure under these agreements cannot be estimated. No amounts have been recorded for the indemnities as the Corporation’s obligations under them are not probable or estimable.



99	Consolidated Financial Statements



NOTE 28.		LONG-TERM DEBT GUARANTOR DISCLOSURE
Condensed Consolidated Statement of Financial Position as at December 31, 2019

					Non-
				Guarantor	Guarantor		Consolidating
			Parent	Subsidiaries		Subsidiaries	Adjustments	Total
Assets
Cash									$	20,952	$	20,651		$	33,098 $		—	$	74,701
Other current assets			3,952	242,968	96,140	4	343,064
Intercompany receivables			82,101	2,205,834	67,377 (2,355,312)			—
Investments in subsidiaries			4,535,625								30	—	(4,535,655)			—
Property, plant and equipment			48,416	2,263,355	437,413					279	2,749,463
Intangibles			30,434	1,312	—						—	31,746
Right of use assets			23,070	39,267	3,805					—	66,142
Other long-term assets			—			—	6,595					(1,871)	4,724
Total assets									$ 4,744,550	$ 4,773,417		$	644,428 $ (6,892,555) $ 3,269,840
Liabilities and shareholders’ equity
Current liabilities									$	33,862	$	130,232		$	51,975 $		—	$	216,069
Intercompany payables and debt			2,217,790	84,901	52,621 (2,355,312)			—
Long-term debt			1,427,181			—	—						—	1,427,181
Lease obligation			20,877	31,614	2,489					—	54,980
Other long-term liabilities			26,927	18,454	668					(1,871)	44,178
Total liabilities			3,726,637	265,201	107,753 (2,357,183)	1,742,408
Shareholders’ equity			1,017,913	4,508,216	536,675 (4,535,372)	1,527,432
Total liabilities and shareholders’ equity									$ 4,744,550	$ 4,773,417		$	644,428 $ (6,892,555) $ 3,269,840

Condensed Consolidated Statement of Financial Position as at December 31, 2018

					Non-
				Guarantor	Guarantor		Consolidating
			Parent	Subsidiaries		Subsidiaries	Adjustments	Total
Assets
Cash									$	28,626	$	37,138		$	30,862 $		—	$	96,626
Other current assets			4,798	308,450	93,166	3	406,417
Intercompany receivables			51,616	1,887,405	80,735 (2,019,756)			—
Investments in subsidiaries			4,522,964								68	—	(4,523,032)			—
Assets held for sale			—	19,658	—						—	19,658
Property, plant and equipment			55,430	2,541,060	441,509					613	3,038,612
Intangibles			33,548	1,853	—						—	35,401
Other long-term assets			—	46,620	5,479					(12,770)	39,329
Total assets									$ 4,696,982	$ 4,842,252		$	651,751 $ (6,554,942) $ 3,636,043
Liabilities and shareholders’ equity
Current liabilities									$	42,211	$	190,239		$	49,712 $		—	$	282,162
Intercompany payables and debt			1,918,306	60,101	41,349 (2,019,756)			—
Long-term debt			1,706,253			—	—						—	1,706,253
Other long-term liabilities			88,983	13,160	503					(12,770)	89,876
Total liabilities			3,755,753	263,500	91,564 (2,032,526)	2,078,291
Shareholders’ equity			941,229	4,578,752	560,187 (4,522,416)	1,557,752
Total liabilities and shareholders’ equity									$ 4,696,982	$ 4,842,252		$	651,751 $ (6,554,942) $ 3,636,043

Precision Drilling Corporation 2019 Annual Report	100



Condensed Consolidated Statement of Net Earnings (Loss) for the year ended December 31, 2019

				Non-
	Guarantor			Guarantor		Consolidating
			Parent	Subsidiaries				Subsidiaries	Adjustments	Total
Revenue			$	92	$ 1,341,624				$	210,292 $				(10,688) $ 1,541,320
Operating expense	56	909,898			139,701			(10,688)	1,038,967
General and administrative			38,418					57,119	8,473				—	104,010
Restructuring			2,822					3,616	—					—	6,438
Earnings (loss) before income taxes, equity in earnings of subsidiaries, gain on redemption and repurchase of unsecured senior notes, finance charges, foreign			(41,204)	370,991			62,118				—	391,905
exchange, reversal of impairment of property,
plant and equipment, loss on asset decommissioning, gain on asset disposals and depreciation and amortization
Depreciation and amortization			13,272	262,914			57,205				225	333,616
Gain on asset disposals	(47)							(50,439)	(255 )				—	(50,741)
Loss on asset decommissioning	—							20,263	—					—	20,263
Reversal of impairment of property, plant and equipment	—							(5,810)	—					—	(5,810)
Foreign exchange			(8,499)					(758)	535				—	(8,722)
Finance charges			118,775					(354)	32				—	118,453
Gain on redemption and repurchase of unsecured senior notes			(6,815)					—	—				—	(6,815)
Equity in earnings of subsidiaries			(102,114)					—	—			102,114	—
Earnings (loss) before income taxes			(55,776)	145,175			4,601		(102,339)	(8,339)
Income taxes			(62,619)					44,809	2,853				—	(14,957)
Net earnings (loss)			$	6,843	$	100,366				$	1,748 $		(102,339) $	6,618

Condensed Consolidated Statement of Net Loss for the year ended December 31, 2018

				Non-
	Guarantor			Guarantor		Consolidating
			Parent	Subsidiaries				Subsidiaries	Adjustments	Total
Revenue			$	104	$ 1,356,913				$	191,131 $				(6,959) $ 1,541,189
Operating expense	83							949,451	124,689				(6,959)	1,067,264
General and administrative			52,638					48,748	10,444				—	111,830
Restructuring	—							1,164	—					—	1,164
Other recoveries			(14,200)		—	—				—	(14,200)
Earnings (loss) before income taxes, equity in loss of subsidiaries, gain on redemption and repurchase of			(38,417)					357,550	55,998				—	375,131
unsecured senior notes, finance charges, foreign exchange, impairment of goodwill, gain on asset disposals and depreciation and amortization
Depreciation and amortization			12,196					304,070	60,562				216	377,044
Gain on asset disposals			(5,314)					(6,051)	(19 )				—	(11,384)
Impairment of goodwill	—							207,544	—					—	207,544
Foreign exchange			4,819					(443)	(359 )				—	4,017
Finance charges			126,758					(233)	653				—	127,178
Gain on redemption and repurchase of unsecured senior notes			(5,672)		—	—			—	(5,672)
Equity in loss of subsidiaries			168,975		—	—		(168,975)	—
Loss before income taxes			(340,179)	(147,337)			(4,839 )		168,759	(323,596)
Income taxes			(46,125)					13,863	2,936				—	(29,326)
Net loss			$ (294,054) $ (161,200) $	(7,775 ) $		168,759			$ (294,270)


101		Consolidated Financial Statements




Condensed Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2019

				Non-
			Guarantor	Guarantor		Consolidating
		Parent	Subsidiaries		Subsidiaries	Adjustments	Total
Net earnings								$	6,843	$	100,366		$	1,748 $	(102,339) $	6,618
Other comprehensive income (loss)		79,022	(79,018)	(27,655 )					(108)	(27,759)
Comprehensive income (loss)								$	85,865	$	21,348		$	(25,907 ) $	(102,447) $	(21,141)

Condensed Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2018

				Non-
			Guarantor	Guarantor		Consolidating
		Parent	Subsidiaries		Subsidiaries	Adjustments	Total
Net loss								$ (294,054) $ (161,200) $	(7,775 ) $		168,759	$ (294,270)
Other comprehensive income (loss)		(145,226)	129,804	45,190					636	30,404
Comprehensive income (loss)								$ (439,280) $	(31,396) $	37,415 $		169,395	$ (263,866)

Condensed Consolidated Statement of Cash Flow for the year ended December 31, 2019

				Non-
			Guarantor	Guarantor		Consolidating
		Parent	Subsidiaries		Subsidiaries	Adjustments	Total
Cash provided by (used in):
Operations								$ (189,376) $	480,215		$	(2,680 ) $				—	$	288,159
Investments		408,753	(56,937)	(15,337 )		(410,979)	(74,500)
Financing		(226,379)	(438,350)	21,936		410,979	(231,814)
Effect of exchange rate changes on cash and cash equivalents		(672)	(1,415)	(1,683 )					—	(3,770)
Increase (decrease) in cash and cash equivalents		(7,674)	(16,487)	2,236					—	(21,925)
Cash and cash equivalents, beginning of year		28,626	37,138	30,862					—	96,626
Cash and cash equivalents, end of year								$	20,952	$	20,651		$	33,098 $				—	$	74,701

Condensed Consolidated Statement of Cash Flow for the year ended December 31, 2018

				Non-
			Guarantor	Guarantor		Consolidating
		Parent	Subsidiaries		Subsidiaries	Adjustments	Total
Cash provided by (used in):
Operations								$ (102,901) $	351,782		$	44,453 $				—	$	293,334
Investments		277,501	(75,740)	(16,253 )		(286,302)	(100,794)
Financing		(169,085)	(247,017)	(39,285 )		286,302	(169,085)
Effect of exchange rate changes on cash and cash equivalents		2,268	2,691	3,131					—	8,090
Increase (decrease) in cash and cash equivalents		7,783	31,716	(7,954 )					—	31,545
Cash and cash equivalents, beginning of year		20,843	5,422	38,816					—	65,081
Cash and cash equivalents, end of year								$	28,626	$	37,138		$	30,862 $				—	$	96,626




Precision Drilling Corporation 2019 Annual Report	102



NOTE 29. SUBSIDIARIES
Significant Subsidiaries

		Ownership Interest
			Country of
			Incorporation	2019	2018
Precision Limited Partnership			Canada	100	100
Precision Drilling Canada Limited Partnership			Canada	100	100
Precision Diversified Oilfield Services Corp.			Canada	100	100
Precision Directional Services Ltd.			Canada	100	100
Precision Drilling (US) Corporation			United States	100	100
Precision Drilling Holdings Company			United States	100	100
Precision Drilling Company LP			United States	100	100
Precision Completion & Production Services Ltd.			United States	100	100
Precision Directional Services, Inc.			United States	100	100
Grey Wolf Drilling Limited			Barbados	100	100
Grey Wolf Drilling (Barbados) Ltd.			Barbados	100	100



103	Consolidated Financial Statements