EXHIBIT 99.1
Precision Drilling Corporation Announces 2022 Second Quarter Unaudited Financial Results
CALGARY, Alberta, July 27, 2022 (GLOBE NEWSWIRE) -- This news release contains “forward-looking information and statements” within the meaning of applicable securities laws. For a full disclosure of the forward-looking information and statements and the risks to which they are subject, see the “Cautionary Statement Regarding Forward-Looking Information and Statements” later in this news release. This news release contains references to certain Financial Measures and Ratios, including Adjusted EBITDA (earnings before income taxes, gain (loss) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization), Funds Provided by (Used in) Operations, Net Capital Spending and Working Capital. These terms do not have standardized meanings prescribed under International Financial Reporting Standards (IFRS) and may not be comparable to similar measures used by other companies, see “Financial Measures and Ratios” later in this news release.
Precision Drilling announces 2022 second quarter financial results:
Precision’s President and CEO, Kevin Neveu, stated:
“Precision’s strong second quarter financial results reflect steadily increasing customer demand and demonstrate the exceptional operational leverage inherent in Precision’s business model. Second quarter revenue was $326 million, 62% higher than the same period last year, and reported Adjusted EBITDA more than doubled from 2021. These strong results were underpinned by improving field margins and continued focus on cost management and cost control.
“We remain firmly on track to deliver on our 2022 strategic priorities, which include generating free cash flow and using cash generated to strengthen our balance sheet and reinvest in our business. Our High Performance, High Value strategy is well-aligned with customer objectives and demand for our services continues to strengthen. Even with commodity price volatility and recession concerns, our customers continue to seek the most efficient drilling rigs available as they remain focused on strict capital discipline and capital efficiency. Consequently, we expect both of our Super Triple and pad Super Single rig fleets to become fully utilized later this year.
“Our recent well servicing transaction adds 51 marketed well service rigs, increasing our marketed fleet to over 130 rigs in Canada. The transaction aligns with both our short-term and long-term strategic priorities, particularly leveraging our scale and reducing our debt levels. The outlook for our well service business continues to be positive as strong customer demand and an industry-wide shortage of high-quality assets and skilled labor is driving leading edge rates to over $1,000 per hour. During the second quarter, we realized 30,389 service rig operating hours, our most active second quarter since 2018, and anticipate this momentum will continue for the foreseeable future. I welcome the high-quality field and support staff of over 200 who are joining the Precision family. I believe this acquisition positions our well servicing business for a promising future.
“In the U.S., we averaged 55 active drilling rigs during the second quarter and are currently operating 57 rigs, an increase from 48 rigs at the start of the year. Customer demand remains strong and leading-edge day rates are approaching the mid-US$30,000s, while year over year normalized average fleet rates are up over US$4,000 per day, as customers recognize both the efficiency savings generated by our Super Series rigs and seek to ensure they have access to their preferred rigs.
“In Canada, we averaged 37 active rigs during the second quarter, representing a 35% increase over the same period last year. This is the highest activity level since 2014 and highest average second quarter day rates in a decade. We currently have 61 rigs active and expect activity in both the third and fourth quarters to exceed the first quarter as our customers remain committed to their drilling plans, particularly in the Montney, conventional heavy oil, and Clearwater plays.
“During the second quarter, we began to lock in higher day rates with take-or-pay term contracts, particularly for opportunities that require capital for rig upgrades. With rising concerns about high-specification rig availability, many customers are seeking longer-term commitments and since the beginning of the second quarter we have signed 18 new term contracts at leading-edge day rates, including five contracts for two years or longer. The pace of rig contracting and margin expansion is driving an improved outlook for Precision’s free cash flow in the second half of the year and into 2023. We are raising our capital budget to include over 20 expected fully-contracted rig upgrades and anticipate capital spending will now total $149 million, which includes $76 million of upgrade and expansion capital.
“On the international front, our existing operations in Kuwait and Saudi Arabia continue to perform well, leveraging our scale in each country and generating cash flow for our business. We recently submitted a bid for a tender including three of our idle AC Super Triple rigs in Kuwait and believe there are additional Middle East opportunities where we can deploy our Super Series rigs.
“Both Alpha and EverGreen are driving revenue growth and establishing a sustainable competitive advantage for Precision. In the second quarter, we installed three AlphaAutomation systems, bringing our total to 53 Alpha rigs. Currently over 50% of our North American Super Triple fleet have been converted to Alpha and we see a clear path to converting the remaining rigs by the end of 2024. We are currently earning incremental revenue on nearly 90% of our Alpha-equipped rigs as customers continue to see the value of this technology, which provides automation to deliver consistent record well times, access to several applications to maximize drilling efficiencies and real-time data to analyze and drive performance and KPIs.
“We also continue to develop our portfolio of EverGreen suite of environmental solutions, offering customers several products and applications to help measure and reduce their emissions during drilling operations. In the second quarter, we began drilling an exploratory geothermal well on Cornell University’s Ithaca campus as part of Cornell’s Earth Source Heat project. We are utilizing an EverGreen grid-powered Super Triple rig, which will significantly decrease rig emissions and mitigate noise in an environmentally sensitive area. We believe geothermal energy will be an important energy component in the net zero global energy mix and are well positioned to support this transition, having participated in geothermal projects for the past 25 years.
“Notwithstanding current economic uncertainty and commodity price volatility, robust market fundamentals exist and provide a foundation for Precision’s business, creating opportunities for us to grow shareholder value. I would like to thank our shareholders for their continued support and the team at Precision for their hard work and dedication,” concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
Financial Highlights
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||
(Stated in thousands of Canadian dollars, except per share amounts) | 2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||||||||||
Revenue | 326,016 | 201,359 | 61.9 | 677,355 | 437,832 | 54.7 | ||||||||||||
Adjusted EBITDA(1) | 64,099 | 28,944 | 121.5 | 100,954 | 83,483 | 20.9 | ||||||||||||
Net loss | (24,611 | ) | (75,912 | ) | (67.6 | ) | (68,455 | ) | (112,018 | ) | (38.9 | ) | ||||||
Cash provided by (used in) operations | 135,174 | 42,219 | 220.2 | 69,880 | 57,641 | 21.2 | ||||||||||||
Funds provided by operations(1) | 60,373 | 12,607 | 378.9 | 90,328 | 56,037 | 61.2 | ||||||||||||
Cash used in investing activities | 36,782 | 10,150 | 262.4 | 67,125 | 20,064 | 234.6 | ||||||||||||
Capital spending by spend category(1) | ||||||||||||||||||
Expansion and upgrade | 15,530 | 6,446 | 140.9 | 25,145 | 9,883 | 154.4 | ||||||||||||
Maintenance and infrastructure | 23,906 | 13,809 | 73.1 | 50,693 | 18,808 | 169.5 | ||||||||||||
Proceeds on sale | (6,849 | ) | (2,590 | ) | 164.4 | (9,696 | ) | (5,914 | ) | 63.9 | ||||||||
Net capital spending(1) | 32,587 | 17,665 | 84.5 | 66,142 | 22,777 | 190.4 | ||||||||||||
Net loss per share: | ||||||||||||||||||
Basic | (1.81 | ) | (5.71 | ) | (68.3 | ) | (5.06 | ) | (8.41 | ) | (39.8 | ) | ||||||
Diluted | (1.81 | ) | (5.71 | ) | (68.3 | ) | (5.06 | ) | (8.41 | ) | (39.8 | ) |
(1) See “FINANCIAL MEASURES AND RATIOS.”
Operating Highlights
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||
2022 | 2021 | % Change | 2022 | 2021 | % Change | |||||||||||||
Contract drilling rig fleet | 226 | 227 | (0.4 | ) | 226 | 227 | (0.4 | ) | ||||||||||
Drilling rig utilization days: | ||||||||||||||||||
U.S. | 5,037 | 3,579 | 40.7 | 9,627 | 6,530 | 47.4 | ||||||||||||
Canada | 3,376 | 2,497 | 35.2 | 9,029 | 6,315 | 43.0 | ||||||||||||
International | 546 | 546 | - | 1,086 | 1,086 | - | ||||||||||||
Revenue per utilization day: | ||||||||||||||||||
U.S. (US$) | 25,547 | 20,497 | 24.6 | 24,951 | 21,236 | 17.5 | ||||||||||||
Canada (Cdn$) | 26,746 | 20,634 | 29.6 | 25,192 | 20,935 | 20.3 | ||||||||||||
International (US$) | 54,612 | 54,269 | 0.6 | 52,436 | 53,512 | (2.0 | ) | |||||||||||
Operating cost per utilization day: | ||||||||||||||||||
U.S. (US$) | 18,864 | 13,745 | 37.2 | 18,628 | 14,360 | 29.7 | ||||||||||||
Canada (Cdn$) | 19,010 | 13,510 | 40.7 | 16,749 | 13,216 | 26.7 | ||||||||||||
Service rig fleet | 93 | 123 | (24.4 | ) | 93 | 123 | (24.4 | ) | ||||||||||
Service rig operating hours | 30,389 | 26,630 | 14.1 | 68,654 | 61,533 | 11.6 |
Financial Position
(Stated in thousands of Canadian dollars, except ratios) | June 30, 2022 | December 31, 2021 | ||||
Working capital(1) | 111,492 | 81,637 | ||||
Cash | 51,641 | 40,588 | ||||
Long-term debt | 1,139,720 | 1,106,794 | ||||
Total long-term financial liabilities | 1,226,744 | 1,185,858 | ||||
Total assets | 2,704,686 | 2,661,752 | ||||
Long-term debt to long-term debt plus equity ratio (1) | 0.49 | 0.47 |
(1) See “FINANCIAL MEASURES AND RATIOS.”
Summary for the three months ended June 30, 2022:
Summary for the six months ended June 30, 2022:
STRATEGY
Precision’s strategic priorities for 2022 are as follows:
OUTLOOK
The return of global energy demand and the reality of a multi-year period of upstream oil and natural gas underinvestment has resulted in a shortage of oil and natural gas and higher commodity prices, providing a promising outlook for the oilfield services industry. The war in Ukraine and sanctions on Russian hydrocarbons have exacerbated the challenged supply situation and many importing countries are looking toward North America and the Middle East to fill the supply gap, both from exports of crude oil and natural gas through the global Liquified Natural Gas (LNG) market. Constrained natural gas production levels and low natural gas storage volumes have resulted in North American natural gas prices more than doubling in the last year. With U.S. LNG exports growing as countries look to displace Russian natural gas and various Canadian LNG projects to come online in 2025, we anticipate a sustained period of elevated natural gas drilling activity.
At current commodity price levels, we anticipate higher demand for our services and improved fleet utilization as customers seek to maintain production levels and replenish inventories, as drilled but uncompleted wells have been depleted over the past several years. However, broad economic concerns exist with respect to inflation, rising interest rates and geopolitical instability. These concerns may negatively impact customer spending plans.
With North American industry activity expected to further increase in 2022, we anticipate tightness in the high specification rig market with customers seeking term contracts to secure rigs and ensure fulfilment of their development programs. Accordingly, the tightening of available high specification rigs is expected to drive higher day rates and necessitate customer funded rig upgrades.
Interest in our EverGreenTM suite of environmental solutions continues to gain momentum as customers seek meaningful solutions to achieve their emission reduction targets and improve their well economics. We expect our growing suite of AlphaTM technologies paired with our EverGreenTM suite of environmental solutions to be key competitive differentiators as our predictable and repeatable drilling results deliver exceptional value to our customers by reducing risks, well construction costs and carbon footprint.
The outlook for our Precision Well Servicing business remains positive with strong commodity prices supporting maintenance and completion activity as well as both federal and provincial support for increased well abandonment and rehabilitation projects. In addition, we are focusing on the successful integration of the recent purchase of High Arctic’s well service and associated rental operations. By leveraging our existing platform and continuing our strict focus on cost control, we expect to realize $5 million in annualized savings, realizable within one year of completing the acquisition.
Contracts
Year-to-date in 2022, we have entered into 39 term contracts and 18 new contracts since the end of the first quarter of 2022. The following chart outlines the average number of drilling rigs under contract by quarter as of July 26, 2022. For those quarters ending after June 30, 2022, this chart represents the minimum number of long-term contracts from which we will earn revenue. We expect the actual number of contracted rigs to vary in future periods as we sign additional contracts.
Average for the quarter ended 2021 | Average for the quarter ended 2022 | |||||||||||||||||||||||
Mar. 31 | June 30 | Sept. 30 | Dec. 31 | Mar. 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||||||
Average rigs under term contract as of July 26, 2022: | ||||||||||||||||||||||||
U.S. | 21 | 24 | 22 | 24 | 27 | 29 | 31 | 27 | ||||||||||||||||
Canada | 6 | 6 | 7 | 7 | 6 | 8 | 10 | 11 | ||||||||||||||||
International | 6 | 6 | 6 | 6 | 6 | 6 | 4 | 4 | ||||||||||||||||
Total | 33 | 36 | 35 | 37 | 39 | 43 | 45 | 42 |
The following chart outlines the average number of drilling rigs that we had under contract for 2021 and the average number of rigs we have under contract as of July 26, 2022.
Average for the year ended | ||||||
2021 | 2022 | |||||
Average rigs under term contract as of July 26, 2022: | ||||||
U.S. | 23 | 29 | ||||
Canada | 7 | 9 | ||||
International | 6 | 5 | ||||
Total | 36 | 43 |
In Canada, term contracted rigs normally generate 250 utilization days per year because of the seasonal nature of well site access. In most regions in the U.S. and internationally, term contracts normally generate 365 utilization days per year.
Drilling Activity
The following chart outlines the average number of drilling rigs that we had working or moving by quarter for the periods noted.
Average for the quarter ended 2021 | Average for the quarter ended 2022 | |||||||||||||||||
Mar. 31 | June 30 | Sept. 30 | Dec. 31 | Mar. 31 | June 30 | |||||||||||||
Average Precision active rig count: | ||||||||||||||||||
U.S. | 33 | 39 | 41 | 45 | 51 | 55 | ||||||||||||
Canada | 42 | 27 | 51 | 52 | 63 | 37 | ||||||||||||
International | 6 | 6 | 6 | 6 | 6 | 6 | ||||||||||||
Total | 81 | 72 | 98 | 103 | 120 | 98 |
According to industry sources, as of July 26, 2022, the U.S. active land drilling rig count has increased 57% from the same point last year while the Canadian active land drilling rig count has increased by 31%. To date in 2022, approximately 79% of the U.S. industry’s active rigs and 60% of the Canadian industry’s active rigs were drilling for oil targets, compared with 82% for the U.S. and 58% for Canada at the same time last year.
Capital Spending and Free Cash Flow Allocation
During the quarter, we increased our capital spending plan to reflect higher maintenance capital from our increasing activity, strategic purchase of drill pipe and customer funded rig upgrades. Capital spending in 2022 is expected to be $149 million and by spend category includes $73 million for sustaining, infrastructure and intangibles and $76 million for expansion and upgrades. We expect that the $149 million will be split $141 million in the Contract Drilling Services segment, $6 million in the Completion and Production Services segment and $2 million to the Corporate segment. At June 30, 2022, Precision had capital commitments of $159 million with payments expected through 2024.
Our debt reduction plans continue with the goal of repaying over $400 million of debt over the next four years and reaching a sustained Net Debt to Adjusted EBITDA ratio of below 1.5 times. At the end of 2025, we expect to have reduced debt by well over $1 billion since 2018. In addition to our debt reduction target through 2025, we plan to allocate 10% to 20% of free cash flow before debt principal repayments toward the return of capital to shareholders.
SEGMENTED FINANCIAL RESULTS
Precision’s operations are reported in two segments: Contract Drilling Services, which includes our drilling rig, oilfield supply and manufacturing divisions; and Completion and Production Services, which includes our service rig, rental and camp and catering divisions.
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||||||||||
Revenue: | ||||||||||||||||||
Contract Drilling Services | 294,299 | 181,256 | 62.4 | 608,444 | 386,075 | 57.6 | ||||||||||||
Completion and Production Services | 33,041 | 20,667 | 59.9 | 71,279 | 53,211 | 34.0 | ||||||||||||
Inter-segment eliminations | (1,324 | ) | (564 | ) | 134.8 | (2,368 | ) | (1,454 | ) | 62.9 | ||||||||
326,016 | 201,359 | 61.9 | 677,355 | 437,832 | 54.7 | |||||||||||||
Adjusted EBITDA:(1) | ||||||||||||||||||
Contract Drilling Services | 70,429 | 47,703 | 47.6 | 141,603 | 107,734 | 31.4 | ||||||||||||
Completion and Production Services | 4,839 | 4,252 | 13.8 | 11,378 | 12,054 | (5.6 | ) | |||||||||||
Corporate and Other | (11,169 | ) | (23,011 | ) | (51.5 | ) | (52,027 | ) | (36,305 | ) | 43.3 | |||||||
64,099 | 28,944 | 121.5 | 100,954 | 83,483 | 20.9 |
(1) See “FINANCIAL MEASURES AND RATIOS.”
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||
(Stated in thousands of Canadian dollars, except where noted) | 2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||||||||||
Revenue | 294,299 | 181,256 | 62.4 | 608,444 | 386,075 | 57.6 | ||||||||||||
Expenses: | ||||||||||||||||||
Operating | 215,676 | 126,394 | 70.6 | 445,727 | 264,515 | 68.5 | ||||||||||||
General and administrative | 8,194 | 7,159 | 14.5 | 21,114 | 13,826 | 52.7 | ||||||||||||
Adjusted EBITDA(1) | 70,429 | 47,703 | 47.6 | 141,603 | 107,734 | 31.4 | ||||||||||||
Adjusted EBITDA as a percentage of revenue(1) | 23.9 | % | 26.3 | % | 23.3 | % | 27.9 | % |
(1) See “FINANCIAL MEASURES AND RATIOS.”
United States onshore drilling statistics:(1) | 2022 | 2021 | ||||||||||
Precision | Industry(2) | Precision | Industry(2) | |||||||||
Average number of active land rigs for quarters ended: | ||||||||||||
March 31 | 51 | 603 | 33 | 378 | ||||||||
June 30 | 55 | 687 | 39 | 437 | ||||||||
Year to date average | 53 | 645 | 36 | 408 |
(1) United States lower 48 operations only.
(2) Baker Hughes rig counts.
Canadian onshore drilling statistics:(1) | 2022 | 2021 | ||||||||||
Precision | Industry(2) | Precision | Industry(2) | |||||||||
Average number of active land rigs for quarters ended: | ||||||||||||
March 31 | 63 | 205 | 42 | 145 | ||||||||
June 30 | 37 | 113 | 27 | 72 | ||||||||
Year to date average | 50 | 159 | 35 | 109 |
(1) Canadian operations only.
(2) Baker Hughes rig counts.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||
(Stated in thousands of Canadian dollars, except where noted) | 2022 | 2021 | % Change | 2022 | 2021 | |||||||||||||
Revenue | 33,041 | 20,667 | 59.9 | 71,279 | 53,211 | 34.0 | ||||||||||||
Expenses: | ||||||||||||||||||
Operating | 26,200 | 15,125 | 73.2 | 56,167 | 38,515 | 45.8 | ||||||||||||
General and administrative | 2,002 | 1,290 | 55.2 | 3,734 | 2,642 | 41.3 | ||||||||||||
Adjusted EBITDA(1) | 4,839 | 4,252 | 13.8 | 11,378 | 12,054 | (5.6 | ) | |||||||||||
Adjusted EBITDA as a percentage of revenue(1) | 14.6 | % | 20.6 | % | 16.0 | % | 22.7 | % | ||||||||||
Well servicing statistics: | ||||||||||||||||||
Number of service rigs (end of period) | 93 | 123 | (24.4 | ) | 93 | 123 | (24.4 | ) | ||||||||||
Service rig operating hours | 30,389 | 26,630 | 14.1 | 68,654 | 61,533 | 11.6 | ||||||||||||
Service rig operating hour utilization | 36 | % | 24 | % | 41 | % | 27 | % |
(1) See “FINANCIAL MEASURES AND RATIOS.”
SEGMENT REVIEW OF CORPORATE AND OTHER
Our Corporate and Other segment provides support functions to our operating segments. The Corporate and Other segment had negative Adjusted EBITDA of $11 million as compared with $23 million in the second quarter of 2021. Our Adjusted EBITDA was positively impacted by decreased share-based compensation costs from our lower share price, partially offset by lower CEWS program assistance. During the quarter, we did not recognize any CEWS program assistance as compared with $1 million in 2021.
OTHER ITEMS
Share-based Incentive Compensation Plans
We have several cash and equity-settled share-based incentive plans for non-management directors, officers, and other eligible employees. Our accounting policies for each share-based incentive plan can be found in our 2021 Annual Report.
A summary of amounts expensed under these plans during the reporting periods are as follows:
For the three months ended June 30, | For the six months ended June 30, | |||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||
Cash settled share-based incentive plans | 5,048 | 24,830 | 52,259 | 34,698 | ||||||||
Equity settled share-based incentive plans: | ||||||||||||
Executive PSU | — | 1,398 | 407 | 2,171 | ||||||||
Share option plan | — | 34 | 20 | 165 | ||||||||
Total share-based incentive compensation plan expense | 5,048 | 26,262 | 52,686 | 37,034 | ||||||||
Allocated: | ||||||||||||
Operating | 1,852 | 5,901 | 12,772 | 8,165 | ||||||||
General and Administrative | 3,196 | 20,361 | 39,914 | 28,869 | ||||||||
5,048 | 26,262 | 52,686 | 37,034 |
Cash settled share-based compensation expense for the quarter was $5 million as compared with $26 million in 2021. The decreased expense in 2022 was primarily due to our lower share price. Our equity settled share-based compensation expense for the second quarter of 2022 was nil as our Executive PSUs and share options fully vested in the first quarter of 2022.
As at June 30, 2022, the majority of our share-based compensation plans were classified as cash-settled and will be impacted by changes in our share price. Although accounted for as cash-settled, Precision retains the ability to settle certain vested units in common shares at its discretion.
Finance Charges
Second quarter net finance charges were $21 million as compared with $28 million in 2021. The decreased finance charges were primarily due to lower debt issue costs. In 2021, we accelerated the amortization of issue costs associated with the unsecured senior notes that were fully redeemed in the quarter. Interest charges on our U.S. denominated long-term debt in the second quarter were US$15 million ($19 million) as compared with US$16 million ($19 million) in 2021.
Income Tax
Income tax expense for the quarter was $4 million as compared with $1 million recovery in 2021. During the second quarter, we did not recognize deferred tax assets on certain Canadian and international operating losses.
Well Control Event
Late in the second quarter of 2022, we experienced a well control event during a turnkey drilling project. We recognized revenue of nil and US$5 million of drilling-related operating costs. Additionally, the net book value of our damaged drilling rig was derecognized resulting in a US$1 million charge to depreciation and amortization expense. We 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 our best estimates at June 30, 2022. As the assessment of damage is ongoing, the provisions may be subject to change.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Amount | Availability | Used for | Maturity | |||
Senior credit facility (secured) | ||||||
US$500 million(1) (extendible, revolving term credit facility with US$300 million accordion feature) | US$128 million drawn and US$32 million in outstanding letters of credit | General corporate purposes | June 18, 2025(1) | |||
Real estate credit facilities (secured) | ||||||
US$9 million | Fully drawn | General corporate purposes | November 19, 2025 | |||
$18 million | Fully drawn | General corporate purposes | March 16, 2026 | |||
Operating facilities (secured) | ||||||
$40 million | Undrawn, except $7 million in outstanding letters of credit | Letters of credit and general corporate purposes | ||||
US$15 million | Undrawn | Short-term working capital requirements | ||||
Demand letter of credit facility (secured) | ||||||
US$30 million | Undrawn, except US$12 million in outstanding letters of credit | Letters of credit | ||||
Unsecured senior notes (unsecured) | ||||||
US$348 million – 7.125% | Fully drawn | Debt redemption and repurchases | January 15, 2026 | |||
US$400 million – 6.875% | Fully drawn | Debt redemption and repurchases | January 15, 2029 |
(1) US$53 million expires on November 21, 2023.
At June 30, 2022, we had $1,158 million outstanding under our Senior Credit Facility, Real Estate Credit Facilities and unsecured senior notes as compared with $1,126 million at December 31, 2021.
The current blended cash interest cost of our debt is approximately 6.6%.
Covenants
At June 30, 2022, we were in compliance with the covenants of our Senior Credit Facility and Real Estate Credit Facilities.
Covenant | At June 30, 2022 | ||||
Senior Credit Facility | |||||
Consolidated senior debt to consolidated covenant EBITDA(1) | < 2.50 | 0.79 | |||
Consolidated covenant EBITDA to consolidated interest expense | > 2.25 | 3.88 | |||
Real Estate Credit Facilities | |||||
Consolidated covenant EBITDA to consolidated interest expense | > 2.25 | 3.88 |
(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.
Average shares outstanding
The following table reconciles the weighted average shares outstanding used in computing basic and diluted net loss per share:
For the three months ended June 30, | For the 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 stock options and other equity compensation plans | — | — | — | — | ||||||||
Weighted average shares outstanding – diluted | 13,588 | 13,304 | 13,533 | 13,327 |
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share amounts) | 2021 | 2022 | ||||||||||
Quarters ended | September 30 | December 31 | March 31 | June 30 | ||||||||
Revenue | 253,813 | 295,202 | 351,339 | 326,016 | ||||||||
Adjusted EBITDA(1) | 45,408 | 63,881 | 36,855 | 64,099 | ||||||||
Net loss | (38,032 | ) | (27,336 | ) | (43,844 | ) | (24,611 | ) | ||||
Net loss per basic and diluted share | (2.86 | ) | (2.05 | ) | (3.25 | ) | (1.81 | ) | ||||
Funds provided by operations(1) | 33,525 | 62,681 | 29,955 | 60,373 | ||||||||
Cash provided by (used in) operations | 21,871 | 59,713 | (65,294 | ) | 135,174 |
(Stated in thousands of Canadian dollars, except per share amounts) | 2020 | 2021 | ||||||||||
Quarters ended | September 30 | December 31 | March 31 | June 30 | ||||||||
Revenue | 164,822 | 201,688 | 236,473 | 201,359 | ||||||||
Adjusted EBITDA(1) | 47,771 | 55,263 | 54,539 | 28,944 | ||||||||
Net loss | (28,476 | ) | (37,518 | ) | (36,106 | ) | (75,912 | ) | ||||
Net loss per basic and diluted share | (2.08 | ) | (2.74 | ) | (2.70 | ) | (5.71 | ) | ||||
Funds provided by operations(1) | 27,489 | 35,282 | 43,430 | 12,607 | ||||||||
Cash provided by operations | 41,950 | 4,737 | 15,422 | 42,219 |
(1) See “FINANCIAL MEASURES AND RATIOS.”
FINANCIAL MEASURES AND RATIOS
Non-GAAP Financial Measures | |
We reference certain additional Non-Generally Accepted Accounting Principles (Non-GAAP) measures that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors. | |
Adjusted EBITDA | We believe Adjusted EBITDA (earnings before income taxes, gain (loss) on investments and other assets, loss on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization), as reported in our Condensed Interim Consolidated Statements of Net Loss and our reportable operating segment disclosures, is a useful measure, because it gives an indication of the results from our principal business activities prior to consideration of how our activities are financed and the impact of foreign exchange, taxation and depreciation and amortization charges. The most directly comparable financial measure is net earnings (loss). |
Funds Provided by (Used in) Operations | We believe funds provided by (used in) operations, as reported in our Condensed Interim Consolidated Statements of Cash Flows, is a useful measure because it provides an indication of the funds our principal business activities generate prior to consideration of working capital changes, which is primarily made up of highly liquid balances. The most directly comparable financial measure is cash provided by (used in) operations. |
Net Capital Spending | We believe net capital spending is a useful measure as it provides an indication of our primary investment activities. The most directly comparable financial measure is cash provided by (used in) investing activities. Net capital spending is calculated as follows: |
For the three months ended June 30, | For the six months ended June 30, | ||||||||||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | |||||||
Capital spending by spend category | |||||||||||
Expansion and upgrade | 15,530 | 6,446 | 25,145 | 9,883 | |||||||
Maintenance and infrastructure | 23,906 | 13,809 | 50,693 | 18,808 | |||||||
39,436 | 20,255 | 75,838 | 28,691 | ||||||||
Proceeds on sale of property, plant and equipment | (6,849 | ) | (2,590 | ) | (9,696 | ) | (5,914 | ) | |||
Net capital spending | 32,587 | 17,665 | 66,142 | 22,777 | |||||||
Purchase of investments and other assets | 536 | — | 536 | — | |||||||
Changes in non-cash working capital balances | 3,659 | (7,515 | ) | 447 | (2,713 | ) | |||||
Cash used in investing activities | 36,782 | 10,150 | 67,125 | 20,064 |
Working Capital | We define working capital as current assets less current liabilities, as reported in our Condensed Interim Consolidated Statements of Financial Position. Working capital is calculated as follows: |
At June 30, | At December 31, | |||
(Stated in thousands of Canadian dollars) | 2022 | 2021 | ||
Current assets | 394,717 | 319,757 | ||
Current liabilities | 283,225 | 238,120 | ||
Working capital | 111,492 | 81,637 |
Non-GAAP Ratios | |
We reference certain additional Non-GAAP ratios that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors. | |
Adjusted EBITDA % of Revenue | We believe Adjusted EBITDA as a percentage of consolidated revenue, as reported in our Condensed Interim Consolidated Statements of Net Loss, provides an indication of our profitability from our principal business activities prior to consideration of how our activities are financed and the impact of foreign exchange, taxation and depreciation and amortization charges. |
Long-term debt to long-term debt plus equity | We believe that long-term debt (as reported in our Condensed Interim Consolidated Statements of Financial Position) to long-term debt plus equity (total shareholders’ equity as reported in our Condensed Interim Consolidated Statements of Financial Position) provides an indication to our debt leverage. |
Net Debt to Adjusted EBITDA | We believe that the Net Debt (long-term debt less cash, as reported in our Condensed Interim Consolidated Statements of Financial Position) to Adjusted EBITDA ratio provides an indication to the number of years it would take for us to repay our debt obligations. |
Supplementary Financial Measures | |
We reference certain supplementary financial measures that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors. | |
Capital Spending by Spend Category | We provide additional disclosure to better depict the nature of our capital spending. Our capital spending is categorized as expansion and upgrade, maintenance and infrastructure, or intangibles. |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements contained in this release, including statements that contain words such as "could", "should", "can", "anticipate", "estimate", "intend", "plan", "expect", "believe", "will", "may", "continue", "project", "potential" and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward-looking information and statements").
In particular, forward looking information and statements include, but are not limited to, the following:
These forward-looking information and statements are based on certain assumptions and analysis made by Precision in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. These include, among other things:
Undue reliance should not be placed on forward-looking information and statements. Whether actual results, performance or achievements will conform to our expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from our expectations. Such risks and uncertainties include, but are not limited to:
Readers are cautioned that the forgoing list of risk factors is not exhaustive. Additional information on these and other factors that could affect our business, operations or financial results are included in reports on file with applicable securities regulatory authorities, including but not limited to Precision’s Annual Information Form for the year ended December 31, 2021, which may be accessed on Precision’s SEDAR profile at www.sedar.com or under Precision’s EDGAR profile at www.sec.gov. The forward-looking information and statements contained in this release are made as of the date hereof and Precision undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by law.
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 | 2,240 | 2,223 | |||||
Total current liabilities | 283,225 | 238,120 | |||||
Non-current liabilities: | |||||||
Share-based compensation | 34,475 | 26,728 | |||||
Provisions and other | 6,907 | 6,513 | |||||
Lease obligations | 45,642 | 45,823 | |||||
Long-term debt | 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 | 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 |
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 | $ | 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 | 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: | |||||||||||||||
Basic | $ | (1.81 | ) | $ | (5.71 | ) | $ | (5.06 | ) | $ | (8.41 | ) | |||
Diluted | $ | (1.81 | ) | $ | (5.71 | ) | $ | (5.06 | ) | $ | (8.41 | ) |
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 | ) |
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 |
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 |
SECOND QUARTER RESULTS CONFERENCE CALL AND WEBCAST
Precision Drilling Corporation has scheduled a conference call and webcast to begin promptly at 12:00 noon MT (2:00 p.m. ET) on Wednesday, July 27, 2022. To participate in the live call please register at the URL link below:
https://register.vevent.com/register/BI520cba3a13144e1e995738278dc02cf4
This link replaces the dial-in details that were included in past releases. Once registered, you will receive a dial-in number and a unique PIN, which will allow you to ask questions.
An archived version of the webcast will be available through the webcast on-demand for 12 months.
About Precision
Precision is a leading provider of safe and environmentally responsible High Performance, High Value services to the energy industry, offering customers access to an extensive fleet of Super Series drilling rigs. Precision has commercialized an industry-leading digital technology portfolio known as “Alpha” that utilizes advanced automation software and analytics to generate efficient, predictable, and repeatable results for energy customers. Additionally, Precision offers well service rigs, camps and rental equipment all backed by a comprehensive mix of technical support services and skilled, experienced personnel.
Precision is headquartered in Calgary, Alberta, Canada and is listed on the Toronto Stock Exchange under the trading symbol “PD” and on the New York Stock Exchange under the trading symbol “PDS.”
For further information, please contact:
Carey Ford, Senior Vice President and Chief Financial Officer
713.435.6100
800, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1
Website: www.precisiondrilling.com