Exhibit 99.2
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(Stated in thousands of Canadian dollars) | June 30, 2022 | December 31, 2021 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 51,641 | $ | 40,588 | ||||
Accounts receivable | 316,529 | 255,740 | ||||||
Inventory | 26,547 | 23,429 | ||||||
Total current assets | 394,717 | 319,757 | ||||||
Non-current assets: | ||||||||
Income tax recoverable | 1,521 | — | ||||||
Deferred tax assets | 840 | 867 | ||||||
Right-of-use assets | 51,553 | 51,440 | ||||||
Property, plant and equipment | 2,225,236 | 2,258,391 | ||||||
Intangibles | 21,678 | 23,915 | ||||||
Investments and other assets | 9,141 | 7,382 | ||||||
Total non-current assets | 2,309,969 | 2,341,995 | ||||||
Total assets | $ | 2,704,686 | $ | 2,661,752 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 268,688 | $ | 224,123 | ||||
Income taxes payable | 695 | 839 | ||||||
Current portion of lease obligations | 11,602 | 10,935 | ||||||
Current portion of long-term debt (Note 5) | 2,240 | 2,223 | ||||||
Total current liabilities | 283,225 | 238,120 | ||||||
Non-current liabilities: | ||||||||
Share-based compensation (Note 7) | 34,475 | 26,728 | ||||||
Provisions and other | 6,907 | 6,513 | ||||||
Lease obligations | 45,642 | 45,823 | ||||||
Long-term debt (Note 5) | 1,139,720 | 1,106,794 | ||||||
Deferred tax liabilities | 15,341 | 12,219 | ||||||
Total non-current liabilities | 1,242,085 | 1,198,077 | ||||||
Shareholders’ equity: | ||||||||
Shareholders’ capital (Note 8) | 2,299,370 | 2,281,444 | ||||||
Contributed surplus | 74,057 | 76,311 | ||||||
Deficit | (1,335,435 | ) | (1,266,980 | ) | ||||
Accumulated other comprehensive income | 141,384 | 134,780 | ||||||
Total shareholders’ equity | 1,179,376 | 1,225,555 | ||||||
Total liabilities and shareholders’ equity | $ | 2,704,686 | $ | 2,661,752 |
See accompanying notes to condensed interim consolidated financial statements.
1 |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF NET LOSS (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Stated in thousands of Canadian dollars, except per share amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenue (Note 3) | $ | 326,016 | $ | 201,359 | $ | 677,355 | $ | 437,832 | ||||||||
Expenses: | ||||||||||||||||
Operating | 240,552 | 140,955 | 499,526 | 301,576 | ||||||||||||
General and administrative | 21,365 | 31,460 | 76,875 | 52,773 | ||||||||||||
Earnings before income taxes, loss (gain) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization | 64,099 | 28,944 | 100,954 | 83,483 | ||||||||||||
Depreciation and amortization | 69,757 | 69,704 | 138,214 | 141,717 | ||||||||||||
Gain on asset disposals | (10,800 | ) | (904 | ) | (13,914 | ) | (2,963 | ) | ||||||||
Foreign exchange | 536 | (296 | ) | 18 | (360 | ) | ||||||||||
Finance charges (Note 6) | 21,043 | 27,698 | 41,773 | 50,144 | ||||||||||||
Loss on repurchase of unsecured senior notes | — | 9,520 | — | 9,520 | ||||||||||||
Loss (gain) on investments and other assets | 4,346 | — | (1,223 | ) | — | |||||||||||
Loss before income taxes | (20,783 | ) | (76,778 | ) | (63,914 | ) | (114,575 | ) | ||||||||
Income taxes: | ||||||||||||||||
Current | 635 | 788 | 1,605 | 1,572 | ||||||||||||
Deferred | 3,193 | (1,654 | ) | 2,936 | (4,129 | ) | ||||||||||
3,828 | (866 | ) | 4,541 | (2,557 | ) | |||||||||||
Net loss | $ | (24,611 | ) | $ | (75,912 | ) | $ | (68,455 | ) | $ | (112,018 | ) | ||||
Net loss per share: (Note 9) | ||||||||||||||||
Basic | $ | (1.81 | ) | $ | (5.71 | ) | $ | (5.06 | ) | $ | (8.41 | ) | ||||
Diluted | $ | (1.81 | ) | $ | (5.71 | ) | $ | (5.06 | ) | $ | (8.41 | ) |
See accompanying notes to condensed interim consolidated financial statements.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Net loss | $ | (24,611 | ) | $ | (75,912 | ) | $ | (68,455 | ) | $ | (112,018 | ) | ||||
Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency | 44,638 | (21,548 | ) | 27,667 | (42,546 | ) | ||||||||||
Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt | (33,831 | ) | 15,630 | (21,063 | ) | 31,539 | ||||||||||
Tax expense related to net investment hedge of long-term debt | — | (285 | ) | — | — | |||||||||||
Comprehensive loss | $ | (13,804 | ) | $ | (82,115 | ) | $ | (61,851 | ) | $ | (123,025 | ) |
See accompanying notes to condensed interim consolidated financial statements.
2 |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Cash provided by (used in): | ||||||||||||||||
Operations: | ||||||||||||||||
Net loss | $ | (24,611 | ) | $ | (75,912 | ) | $ | (68,455 | ) | $ | (112,018 | ) | ||||
Adjustments for: | ||||||||||||||||
Long-term compensation plans | 3,224 | 13,653 | 34,436 | 20,801 | ||||||||||||
Depreciation and amortization | 69,757 | 69,704 | 138,214 | 141,717 | ||||||||||||
Gain on asset disposals | (10,800 | ) | (904 | ) | (13,914 | ) | (2,963 | ) | ||||||||
Foreign exchange | 422 | 464 | 151 | 1,022 | ||||||||||||
Finance charges | 21,043 | 27,698 | 41,773 | 50,144 | ||||||||||||
Income taxes | 3,828 | (866 | ) | 4,541 | (2,557 | ) | ||||||||||
Other | 275 | (567 | ) | 275 | (564 | ) | ||||||||||
Loss (gain) on investments and other assets | 4,346 | — | (1,223 | ) | — | |||||||||||
Loss on repurchase of unsecured senior notes | — | 9,520 | — | 9,520 | ||||||||||||
Income taxes paid | (2,576 | ) | (3,905 | ) | (2,803 | ) | (4,066 | ) | ||||||||
Income taxes recovered | — | 3 | — | 3 | ||||||||||||
Interest paid | (4,540 | ) | (26,412 | ) | (42,701 | ) | (45,178 | ) | ||||||||
Interest received | 5 | 131 | 34 | 176 | ||||||||||||
Funds provided by operations | 60,373 | 12,607 | 90,328 | 56,037 | ||||||||||||
Changes in non-cash working capital balances | 74,801 | 29,612 | (20,448 | ) | 1,604 | |||||||||||
135,174 | 42,219 | 69,880 | 57,641 | |||||||||||||
Investments: | ||||||||||||||||
Purchase of property, plant and equipment | (39,436 | ) | (20,255 | ) | (75,838 | ) | (28,691 | ) | ||||||||
Proceeds on sale of property, plant and equipment | 6,849 | 2,590 | 9,696 | 5,914 | ||||||||||||
Purchase of investments and other assets | (536 | ) | — | (536 | ) | — | ||||||||||
Changes in non-cash working capital balances | (3,659 | ) | 7,515 | (447 | ) | 2,713 | ||||||||||
(36,782 | ) | (10,150 | ) | (67,125 | ) | (20,064 | ) | |||||||||
Financing: | ||||||||||||||||
Issuance of long-term debt | 6,405 | 676,341 | 94,529 | 696,341 | ||||||||||||
Repayments of long-term debt | (75,921 | ) | (712,034 | ) | (84,111 | ) | (761,459 | ) | ||||||||
Repurchase of share capital | (5,000 | ) | — | (5,000 | ) | (4,294 | ) | |||||||||
Issuance of common shares on the exercise of options | 4,766 | — | 6,162 | — | ||||||||||||
Debt issuance costs | — | (9,550 | ) | — | (9,794 | ) | ||||||||||
Debt amendment fees | — | (910 | ) | — | (910 | ) | ||||||||||
Lease payments | (1,842 | ) | (1,709 | ) | (3,409 | ) | (3,330 | ) | ||||||||
Changes in non-cash working capital balances | — | 1,829 | — | 1,829 | ||||||||||||
(71,592 | ) | (46,033 | ) | 8,171 | (81,617 | ) | ||||||||||
Effect of exchange rate changes on cash | 739 | (430 | ) | 127 | (1,295 | ) | ||||||||||
Increase (decrease) in cash | 27,539 | (14,394 | ) | 11,053 | (45,335 | ) | ||||||||||
Cash, beginning of period | 24,102 | 77,831 | 40,588 | 108,772 | ||||||||||||
Cash, end of period | $ | 51,641 | $ | 63,437 | $ | 51,641 | $ | 63,437 |
See accompanying notes to condensed interim consolidated financial statements.
3 |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(Stated in thousands of Canadian dollars) | Shareholders’ Capital | Contributed Surplus | Accumulated Other Comprehensive Income | Deficit | Total Equity | |||||||||||||||
Balance at January 1, 2022 | $ | 2,281,444 | $ | 76,311 | $ | 134,780 | $ | (1,266,980 | ) | $ | 1,225,555 | |||||||||
Net loss for the period | — | — | — | (68,455 | ) | (68,455 | ) | |||||||||||||
Other comprehensive income for the period | — | — | 6,604 | — | 6,604 | |||||||||||||||
Share options exercised | 8,843 | (2,681 | ) | — | — | 6,162 | ||||||||||||||
Share repurchases | (5,000 | ) | — | — | — | (5,000 | ) | |||||||||||||
Share-based compensation reclassification | 14,083 | (219 | ) | — | — | 13,864 | ||||||||||||||
Share-based compensation expense | — | 646 | — | — | 646 | |||||||||||||||
Balance at June 30, 2022 | $ | 2,299,370 | $ | 74,057 | $ | 141,384 | $ | (1,335,435 | ) | $ | 1,179,376 |
(Stated in thousands of Canadian dollars) | Shareholders’ Capital | Contributed Surplus | Accumulated Other Comprehensive Income | Deficit | Total Equity | |||||||||||||||
Balance at January 1, 2021 | $ | 2,285,738 | $ | 72,915 | $ | 137,581 | $ | (1,089,594 | ) | $ | 1,406,640 | |||||||||
Net loss for the period | — | — | — | (112,018 | ) | (112,018 | ) | |||||||||||||
Other comprehensive loss for the period | — | — | (11,007 | ) | — | (11,007 | ) | |||||||||||||
Share repurchases | (4,294 | ) | — | — | — | (4,294 | ) | |||||||||||||
Share-based compensation reclassification | — | (1,958 | ) | — | — | (1,958 | ) | |||||||||||||
Share-based compensation expense | — | 4,293 | — | — | 4,293 | |||||||||||||||
Balance at June 30, 2021 | $ | 2,281,444 | $ | 75,250 | $ | 126,574 | $ | (1,201,612 | ) | $ | 1,281,656 |
See accompanying notes to condensed interim consolidated financial statements.
4 |
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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 and geothermal exploration and production companies in Canada, the United States and certain international locations.
NOTE 2. BASIS OF PRESENTATION
(a) Statement of Compliance
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and interpretations of the International Financial Reporting Interpretations Committee.
The condensed interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Corporation as at and for the year ended December 31, 2021.
These condensed interim consolidated financial statements were prepared using accounting policies and methods of their application consistent with those used in the preparation of the Corporation’s consolidated audited annual financial statements for the year ended December 31, 2021.
These condensed interim consolidated financial statements were approved by the Board of Directors on July 26, 2022.
(b) Use of Estimates and Judgements
The preparation of the condensed interim consolidated financial statements requires management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingencies. These estimates and judgements 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 condensed interim consolidated financial statements may change as future events unfold, more experience is acquired, or the Corporation’s operating environment changes.
Significant estimates and judgements used in the preparation of these condensed interim consolidated financial statements remained unchanged from those disclosed in the Corporation’s consolidated audited annual financial statements for the year ended December 31, 2021.
NOTE 3. Revenue
(a) | Disaggregation of revenue |
The following table includes a reconciliation of disaggregated revenue by reportable segment. Revenue has been disaggregated by primary geographical market and type of service provided.
5 |
Three Months Ended June 30, 2022 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
United States | $ | 164,174 | $ | 4,299 | $ | — | $ | (27 | ) | $ | 168,446 | |||||||||
Canada | 92,073 | 28,742 | — | (1,297 | ) | 119,518 | ||||||||||||||
International | 38,052 | — | — | — | 38,052 | |||||||||||||||
$ | 294,299 | $ | 33,041 | $ | — | $ | (1,324 | ) | $ | 326,016 | ||||||||||
Day rate/hourly services | $ | 280,010 | $ | 33,041 | $ | — | $ | (233 | ) | $ | 312,818 | |||||||||
Shortfall payments/idle but contracted | 630 | — | — | — | 630 | |||||||||||||||
Turnkey drilling services | 11,842 | — | — | — | 11,842 | |||||||||||||||
Other | 1,817 | — | — | (1,091 | ) | 726 | ||||||||||||||
$ | 294,299 | $ | 33,041 | $ | — | $ | (1,324 | ) | $ | 326,016 |
Three Months Ended June 30, 2021 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
United States | $ | 90,128 | $ | 2,540 | $ | — | $ | (1 | ) | $ | 92,667 | |||||||||
Canada | 54,707 | 18,127 | — | (563 | ) | 72,271 | ||||||||||||||
International | 36,421 | — | — | — | 36,421 | |||||||||||||||
$ | 181,256 | $ | 20,667 | $ | — | $ | (564 | ) | $ | 201,359 | ||||||||||
Day rate/hourly services | $ | 174,266 | $ | 20,667 | $ | — | $ | (52 | ) | $ | 194,881 | |||||||||
Shortfall payments/idle but contracted | 119 | — | — | — | 119 | |||||||||||||||
Turnkey drilling services | 3,684 | — | — | — | 3,684 | |||||||||||||||
Directional services | 2,064 | — | — | — | 2,064 | |||||||||||||||
Other | 1,123 | — | — | (512 | ) | 611 | ||||||||||||||
$ | 181,256 | $ | 20,667 | $ | — | $ | (564 | ) | $ | 201,359 | ||||||||||
Six Months Ended June 30, 2022 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
United States | $ | 305,439 | $ | 8,337 | $ | — | $ | (28 | ) | $ | 313,748 | |||||||||
Canada | 230,590 | 62,942 | — | (2,340 | ) | 291,192 | ||||||||||||||
International | 72,415 | — | — | — | 72,415 | |||||||||||||||
$ | 608,444 | $ | 71,279 | $ | — | $ | (2,368 | ) | $ | 677,355 | ||||||||||
Day rate/hourly services | $ | 578,060 | $ | 71,279 | $ | — | $ | (426 | ) | $ | 648,913 | |||||||||
Shortfall payments/idle but contracted | 630 | — | — | — | 630 | |||||||||||||||
Turnkey drilling services | 26,580 | — | — | — | 26,580 | |||||||||||||||
Other | 3,174 | — | — | (1,942 | ) | 1,232 | ||||||||||||||
$ | 608,444 | $ | 71,279 | $ | — | $ | (2,368 | ) | $ | 677,355 |
6 |
Six Months Ended June 30, 2021 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
United States | $ | 172,802 | $ | 5,848 | $ | — | $ | (1 | ) | $ | 178,649 | |||||||||
Canada | 140,790 | 47,363 | — | (1,453 | ) | 186,700 | ||||||||||||||
International | 72,483 | — | — | — | 72,483 | |||||||||||||||
$ | 386,075 | $ | 53,211 | $ | — | $ | (1,454 | ) | $ | 437,832 | ||||||||||
Day rate/hourly services | $ | 367,615 | $ | 53,211 | $ | — | $ | (160 | ) | $ | 420,666 | |||||||||
Shortfall payments/idle but contracted | 235 | — | — | — | 235 | |||||||||||||||
Turnkey drilling services | 9,630 | — | — | — | 9,630 | |||||||||||||||
Directional services | 5,843 | — | — | — | 5,843 | |||||||||||||||
Other | 2,752 | — | — | (1,294 | ) | 1,458 | ||||||||||||||
$ | 386,075 | $ | 53,211 | $ | — | $ | (1,454 | ) | $ | 437,832 |
(b) | Seasonality |
Precision has operations that are carried on in Canada which represent approximately 43% (2021 - 43%) of consolidated revenue for the six months ended June 30, 2022 and 35% (2021 - 36%) of consolidated total assets as at June 30, 2022. The ability to move heavy equipment in Canadian oil and natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter's frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly dried out. The duration of this “spring break-up” has a direct impact on Precision’s activity levels. In addition, many exploration and production areas in northern Canada are accessible only in winter months when the ground is frozen hard enough to support equipment. The timing of freeze up and spring break-up affects the ability to move equipment in and out of these areas. As a result, late March through May is traditionally Precision’s slowest time in this region.
NOTE 4. SEGMENTED INFORMATION
The Corporation has two reportable operating segments; Contract Drilling Services and Completion and Production Services. Contract Drilling Services includes drilling rigs, procurement and distribution of oilfield supplies, and manufacture, sale and repair of drilling equipment. Completion and Production Services includes service rigs, oilfield equipment rental and camp and catering services. The Corporation provides services primarily in Canada, the United States and certain international locations.
Three Months Ended June 30, 2022 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
Revenue | $ | 294,299 | $ | 33,041 | $ | — | $ | (1,324 | ) | $ | 326,016 | |||||||||
Earnings before income taxes, loss (gain) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization | 70,429 | 4,839 | (11,169 | ) | — | 64,099 | ||||||||||||||
Depreciation and amortization | 64,140 | 3,254 | 2,363 | — | 69,757 | |||||||||||||||
Gain on asset disposals | (10,581 | ) | (219 | ) | — | — | (10,800 | ) | ||||||||||||
Total assets | 2,446,080 | 124,838 | 133,768 | — | 2,704,686 | |||||||||||||||
Capital expenditures | 37,821 | 1,558 | 57 | — | 39,436 |
7 |
Three Months Ended June 30, 2021 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
Revenue | $ | 181,256 | $ | 20,667 | $ | — | $ | (564 | ) | $ | 201,359 | |||||||||
Earnings before income taxes, loss (gain) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization | 47,703 | 4,252 | (23,011 | ) | — | 28,944 | ||||||||||||||
Depreciation and amortization | 63,101 | 3,854 | 2,749 | — | 69,704 | |||||||||||||||
Gain on asset disposals | (595 | ) | (213 | ) | (96 | ) | — | (904 | ) | |||||||||||
Total assets | 2,420,314 | 123,403 | 152,592 | — | 2,696,309 | |||||||||||||||
Capital expenditures | 19,685 | 506 | 64 | — | 20,255 |
Six Months Ended June 30, 2022 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
Revenue | $ | 608,444 | $ | 71,279 | $ | — | $ | (2,368 | ) | $ | 677,355 | |||||||||
Earnings before income taxes, loss (gain) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization | 141,603 | 11,378 | (52,027 | ) | — | 100,954 | ||||||||||||||
Depreciation and amortization | 126,793 | 6,604 | 4,817 | — | 138,214 | |||||||||||||||
Gain on asset disposals | (12,463 | ) | (1,389 | ) | (62 | ) | — | (13,914 | ) | |||||||||||
Total assets | 2,446,080 | 124,838 | 133,768 | — | 2,704,686 | |||||||||||||||
Capital expenditures | 73,049 | 2,558 | 231 | — | 75,838 |
Six Months Ended June 30, 2021 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
Revenue | $ | 386,075 | $ | 53,211 | $ | — | $ | (1,454 | ) | $ | 437,832 | |||||||||
Earnings before income taxes, loss (gain) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization | 107,734 | 12,054 | (36,305 | ) | — | 83,483 | ||||||||||||||
Depreciation and amortization | 128,333 | 7,855 | 5,529 | — | 141,717 | |||||||||||||||
Gain on asset disposals | (2,320 | ) | (456 | ) | (187 | ) | — | (2,963 | ) | |||||||||||
Total assets | 2,420,314 | 123,403 | 152,592 | — | 2,696,309 | |||||||||||||||
Capital expenditures | 27,123 | 1,410 | 158 | — | 28,691 |
8 |
A reconciliation of total segment earnings before income taxes, loss (gain) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization to net loss is as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Total segment earnings before income taxes, loss (gain) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization | $ | 64,099 | $ | 28,944 | $ | 100,954 | $ | 83,483 | ||||||||
Deduct: | ||||||||||||||||
Depreciation and amortization | 69,757 | 69,704 | 138,214 | 141,717 | ||||||||||||
Gain on asset disposals | (10,800 | ) | (904 | ) | (13,914 | ) | (2,963 | ) | ||||||||
Foreign exchange | 536 | (296 | ) | 18 | (360 | ) | ||||||||||
Finance charges | 21,043 | 27,698 | 41,773 | 50,144 | ||||||||||||
Loss on repurchase of unsecured senior notes | — | 9,520 | — | 9,520 | ||||||||||||
Loss (gain) on investments and other assets | 4,346 | — | (1,223 | ) | — | |||||||||||
Income taxes | 3,828 | (866 | ) | 4,541 | (2,557 | ) | ||||||||||
Net loss | $ | (24,611 | ) | $ | (75,912 | ) | $ | (68,455 | ) | $ | (112,018 | ) |
NOTE 5. LONG-TERM DEBT
U.S. Denominated Facilities | Canadian Facilities and Translated U.S. Facilities | |||||||||||||||
June 30, | December 31, | June 30, | December 31, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Current Portion of Long-Term Debt | ||||||||||||||||
Canadian Real Estate Credit Facility | US$ | — | US$ | — | $ | 1,333 | $ | 1,333 | ||||||||
U.S. Real Estate Credit Facility | 704 | 704 | 907 | 890 | ||||||||||||
US$ | 704 | US$ | 704 | $ | 2,240 | $ | 2,223 | |||||||||
Long-Term Debt | ||||||||||||||||
Senior Credit Facility | US$ | 128,000 | US$ | 118,000 | $ | 164,767 | $ | 149,206 | ||||||||
Canadian Real Estate Credit Facility | — | — | 17,000 | 17,667 | ||||||||||||
U.S. Real Estate Credit Facility | 8,741 | 9,093 | 11,251 | 11,498 | ||||||||||||
Unsecured Senior Notes: | ||||||||||||||||
7.125% senior notes due 2026 | 347,765 | 347,765 | 447,657 | 439,735 | ||||||||||||
6.875% senior notes due 2029 | 400,000 | 400,000 | 514,896 | 505,784 | ||||||||||||
US$ | 884,506 | US$ | 874,858 | 1,155,571 | 1,123,890 | |||||||||||
Less net unamortized debt issue costs and original issue discount | (15,851 | ) | (17,096 | ) | ||||||||||||
$ | 1,139,720 | $ | 1,106,794 |
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Senior Credit Facility | Unsecured Senior Notes | Canadian Real Estate Credit Facility | U.S. Real Estate Credit Facility | Debt Issue Costs and Original Issue Discount | Total | |||||||||||||||||||
Current | $ | — | $ | — | $ | 1,333 | $ | 890 | $ | — | $ | 2,223 | ||||||||||||
Long-term | 149,206 | 945,519 | 17,667 | 11,498 | (17,096 | ) | 1,106,794 | |||||||||||||||||
December 31, 2021 | 149,206 | 945,519 | 19,000 | 12,388 | (17,096 | ) | 1,109,017 | |||||||||||||||||
Changes from financing cash flows: | ||||||||||||||||||||||||
Proceeds from Senior Credit Facility | 94,529 | — | — | — | — | 94,529 | ||||||||||||||||||
Repayment of Senior Credit Facility | (82,997 | ) | — | — | — | — | (82,997 | ) | ||||||||||||||||
Repayment of Real Estate Credit Facility | — | — | (667 | ) | (447 | ) | — | (1,114 | ) | |||||||||||||||
160,738 | 945,519 | 18,333 | 11,941 | (17,096 | ) | 1,119,435 | ||||||||||||||||||
Amortization of debt issue costs | — | — | — | — | 1,248 | 1,248 | ||||||||||||||||||
Foreign exchange adjustment | 4,029 | 17,034 | — | 217 | (3 | ) | 21,277 | |||||||||||||||||
June 30, 2022 | $ | 164,767 | $ | 962,553 | $ | 18,333 | $ | 12,158 | $ | (15,851 | ) | $ | 1,141,960 | |||||||||||
Current | $ | — | $ | — | $ | 1,333 | $ | 907 | $ | — | $ | 2,240 | ||||||||||||
Long-term | 164,767 | 962,553 | 17,000 | 11,251 | (15,851 | ) | 1,139,720 | |||||||||||||||||
$ | 164,767 | $ | 962,553 | $ | 18,333 | $ | 12,158 | $ | (15,851 | ) | $ | 1,141,960 |
At June 30, 2022, Precision was in compliance with the covenants of the Senior Credit Facility and Real Estate Credit Facilities.
NOTE 6. FINANCE CHARGES
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Interest: | ||||||||||||||||
Long-term debt | $ | 19,516 | $ | 19,893 | $ | 38,677 | $ | 40,755 | ||||||||
Lease obligations | 666 | 678 | 1,325 | 1,379 | ||||||||||||
Other | 101 | — | 186 | 5 | ||||||||||||
Income | (11 | ) | (60 | ) | (45 | ) | (156 | ) | ||||||||
Amortization of debt issue costs, loan commitment fees and original issue discount | 771 | 7,187 | 1,630 | 8,161 | ||||||||||||
Finance charges | $ | 21,043 | $ | 27,698 | $ | 41,773 | $ | 50,144 |
NOTE 7. SHARE-BASED COMPENSATION PLANS
Liability Classified Plans
Restricted Share | Performance Share Units (a) | Executive Performance Share Units(b) | Non- Directors’ DSUs (c) | Total | ||||||||||||||||
December 31, 2021 | $ | 18,050 | $ | 21,524 | $ | 16,507 | $ | 4,674 | $ | 60,755 | ||||||||||
Expensed during period | 16,990 | 27,001 | 4,172 | 4,504 | 52,667 | |||||||||||||||
Settlement in shares | — | — | (14,083 | ) | — | (14,083 | ) | |||||||||||||
Reclassification from equity-settled plans | — | — | (406 | ) | — | (406 | ) | |||||||||||||
Payments and redemptions | (14,182 | ) | (7,496 | ) | (6,190 | ) | — | (27,868 | ) | |||||||||||
Foreign exchange | (54 | ) | (51 | ) | — | — | (105 | ) | ||||||||||||
June 30, 2022 | $ | 20,804 | $ | 40,978 | $ | — | $ | 9,178 | $ | 70,960 | ||||||||||
Current | $ | 14,897 | $ | 21,588 | $ | — | $ | — | $ | 36,485 | ||||||||||
Long-term | 5,907 | 19,390 | — | 9,178 | 34,475 | |||||||||||||||
$ | 20,804 | $ | 40,978 | $ | — | $ | 9,178 | $ | 70,960 |
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(a) Restricted Share Units and Performance Share Units
A summary of the activity under the Restricted Share Unit (RSU) and the Performance Share Unit (PSU) plans are presented below:
RSUs Outstanding | PSUs Outstanding | |||||||
December 31, 2021 | 598,156 | 983,734 | ||||||
Granted | 173,580 | 237,160 | ||||||
Redeemed | (265,757 | ) | (73,295 | ) | ||||
Forfeited | (13,484 | ) | (13,514 | ) | ||||
June 30, 2022 | 492,495 | 1,134,085 |
(b) Executive Performance Share Units
A summary of the activity under Executive Performance Share Unit (Executive PSU) share-based incentive plan is presented below:
Executive PSUs Outstanding | ||||
December 31, 2021 | 189,964 | |||
Redeemed | (189,964 | ) | ||
June 30, 2022 | — |
Pursuant to the Omnibus Plan, Precision elected to settle 131,950 vesting Executive PSUs in 263,900 common shares.
(c) Non-Management Directors – Deferred Share Unit Plan
A summary of the activity under the non-management director Deferred Share Unit (DSU) plan is presented below:
DSUs Outstanding | ||||
December 31, 2021 | 104,591 | |||
Granted | 6,378 | |||
June 30, 2022 | 110,969 |
Equity Settled Plans
(d) Option Plan
A summary of the activity under the option plan is presented below:
Canadian share options | Outstanding |
Range of Exercise Price |
Weighted Average Exercise Price |
Exercisable | ||||||||||||||||||||
December 31, 2021 | 115,605 | $ | 87.00 | — | 146.40 | $ | 123.35 | 115,605 | ||||||||||||||||
Exercised | (19,210 | ) | 87.00 | — | 89.20 | 88.50 | ||||||||||||||||||
Forfeited | (52,980 | ) | 146.40 | — | 146.40 | 146.40 | ||||||||||||||||||
June 30, 2022 | 43,415 | $ | 87.00 | — | 145.97 | $ | 110.64 | 43,415 |
U.S. share options | Outstanding |
Range of Exercise Price (US$) |
Weighted Average Exercise Price (US$) |
Exercisable | ||||||||||||||||||||
December 31, 2021 | 267,843 | $ | 51.20 | — | 115.80 | $ | 80.43 | 257,854 | ||||||||||||||||
Exercised | (58,690 | ) | 51.20 | — | 68.80 | 60.10 | ||||||||||||||||||
Forfeited | (32,205 | ) | 115.80 | — | 115.80 | 115.80 | ||||||||||||||||||
June 30, 2022 | 176,948 | $ | 51.20 | — | 111.47 | $ | 80.74 | 176,948 |
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(e) Non-Management Directors – Deferred Share Unit Plan
A summary of the activity under this share-based incentive plan is presented below:
DSUs Outstanding | ||||
December 31, 2021 and June 30, 2022 | 1,470 |
NOTE 8. SHAREHOLDERS’ CAPITAL
Common shares | Number | Amount | ||||||
December 31, 2021 | 13,304,425 | 2,281,444 | ||||||
Settlement of Executive PSUs | 263,900 | 14,083 | ||||||
Share options exercised | 77,900 | 8,843 | ||||||
Share repurchases | (60,796 | ) | (5,000 | ) | ||||
June 30, 2022 | 13,585,429 | 2,299,370 |
NOTE 9. PER SHARE AMOUNTS
The following tables reconcile the net loss and weighted average shares outstanding used in computing basic and diluted net loss per share:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net loss - basic and diluted | $ | (24,611 | ) | $ | (75,912 | ) | $ | (68,455 | ) | $ | (112,018 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Stated in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Weighted average shares outstanding – basic | 13,588 | 13,304 | 13,533 | 13,327 | ||||||||||||
Effect of share options and other equity compensation plans | — | — | — | — | ||||||||||||
Weighted average shares outstanding – diluted | 13,588 | 13,304 | 13,533 | 13,327 |
NOTE 10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values 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. At the end of each reporting period, investments and other assets are measured at their estimated fair value, with changes in fair value recognized in profit or loss. Amounts drawn on the Senior Credit Facility and the Canadian and U.S. Real Estate Credit Facilities are measured at amortized cost and approximate fair value as this indebtedness is subject to floating rates of interest. The fair value of the unsecured senior notes at June 30, 2022 was approximately $881 million (December 31, 2021 – $969 million).
Financial assets and liabilities recorded or disclosed at fair value in the consolidated statement of financial position are categorized based upon the level of judgement 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 value 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.
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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.
NOTE 11. OTHER MATTERS
Late in the second quarter of 2022, Precision experienced a well control event on one of its turnkey drilling jobs. Precision recognized revenue of nil and US$5 million of drilling-related operating costs, resulting in a US$5 million project loss.
The net book value of the damaged drilling rig was derecognized resulting in a US$1 million charge to depreciation and amortization expense. Precision accrued US$12 million of associated well site clean-up and remediation costs and accrued estimated insurance recoveries of US$16 million for the drilling rig and associated costs.
The provisions for the associated costs and insurance recoveries are based on management’s best estimates at June 30, 2022. As the assessment of damage is ongoing, the provisions may be subject to change.
NOTE 12. SUBSEQUENT EVENT
Subsequent to June 30, 2022, Precision agreed to acquire the well servicing business and associated rental assets of High Arctic Energy Services Inc. for an aggregate purchase price of $38 million, payable in cash. Precision adds to its Canadian well servicing operation a fleet of 80 service rigs (51 marketed and 29 inactive), rental assets, ancillary support equipment, inventories and spares and real estate.
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SHAREHOLDER INFORMATION
STOCK EXCHANGE LISTINGS
Shares of Precision Drilling Corporation are listed on the Toronto Stock Exchange under the trading symbol PD and on the New York Stock Exchange under the trading symbol PDS.
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company of Canada
Calgary, Alberta
TRANSFER POINT
Computershare Trust Company NA
Canton, Massachusetts
Q2 2022 TRADING PROFILE
Toronto (TSX: PD)
High: $109.29
Low: $74.32
Close: $82.71
Volume Traded: 8,663,509
New York (NYSE: PDS)
High: US$87.19
Low: US$57.08
Close: US$64.02
Volume Traded: 5,077,530
ACCOUNT QUESTIONS
Precision’s Transfer Agent can help you with a variety of shareholder related services, including:
• change of address
• lost unit certificates
• transfer of shares to another person
• estate settlement
Computershare Trust Company of Canada
100 University Avenue
9th Floor, North Tower
Toronto, Ontario M5J 2Y1
Canada
1-800-564-6253 (toll free in Canada and the United States)
1-514-982-7555 (international direct dialing)
Email: service@computershare.com
ONLINE INFORMATION
To receive news releases by email, or to view this interim report online, please visit Precision’s website at www.precisiondrilling.com and refer to the Investor Relations section. Additional information relating to Precision, including the Annual Information Form, Annual Report and Management Information Circular has been filed with SEDAR and is available at www.sedar.com and on the EDGAR website www.sec.gov
CORPORATE INFORMATION
DIRECTORS
Michael R. Culbert
William T. Donovan
Brian J. Gibson
Steven W. Krablin
Susan M. MacKenzie
Kevin O. Meyers
Kevin A. Neveu
David W. Williams
OFFICERS
Kevin A. Neveu
President and Chief Executive Officer
Veronica H. Foley
Chief Legal and Compliance Officer
Carey T. Ford
Senior Vice President and Chief Financial Officer
Shuja U. Goraya
Chief Technology Officer
Darren J. Ruhr
Chief Administrative Officer
Gene C. Stahl
Chief Marketing Officer
AUDITORS
KPMG LLP
Calgary, Alberta
HEAD OFFICE
Suite 800, 525 8th Avenue SW
Calgary, Alberta, Canada T2P 1G1
Telephone: 403-716-4500
Facsimile: 403-264-0251
Email: info@precisiondrilling.com
www.precisiondrilling.com
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