Precision Drilling Corporation Announces 2015 Third Quarter Dividend and 2015 Second Quarter Financial Results
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 07/23/15 -- (Canadian dollars except as indicated)
This news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For a full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release.
The Board of Directors of Precision Drilling Corporation (TSX: PD) (NYSE: PDS) ("Precision" or the "Corporation") has declared a dividend on its common shares of $0.07 per common share, payable on August 21, 2015, to shareholders of record on August 10, 2015. For Canadian income tax purposes, all dividends paid by Precision on its common shares are designated as "eligible dividends", unless otherwise indicated by Precision.
Net loss this quarter was $30 million, or $0.10 per diluted share, compared to a net loss of $7 million, or $0.02 per diluted share, in the second quarter of 2014.
Revenue this quarter was $334 million or 30% lower than the second quarter of 2014, mainly due to lower activity from our North American operations. Revenue from our Contract Drilling Services and Completion and Production Services segments decreased over the comparative prior year period by 27% and 46%, respectively.
Earnings before income taxes, finance charges, foreign exchange, and depreciation and amortization (adjusted EBITDA see "Additional GAAP Measures") this quarter were $88 million or 32% lower than the second quarter of 2014. Our activity for the quarter, as measured by drilling rig utilization days, decreased 52% in Canada and 39% in the U.S. while increasing 17% internationally, compared to the second quarter of 2014. Our adjusted EBITDA as a percentage of revenue was 26% this quarter, compared to 27% in the second quarter of 2014. The decrease in adjusted EBITDA as a percent of revenue was mainly due to decreased activity and lower pricing in our Completion and Production Services segment and costs associated with restructuring, which were $3 million this quarter. EBITDA margin in our Completion and Production Services segment decreased 10 percentage points over the prior year, as activity and pricing remains challenged for this segment.
Net loss for the first six months of 2015 was $6 million, or $0.02 per diluted share, compared to net earnings of $94 million, or $0.32 per diluted share in 2014, while revenue was $847 million, or 26% less than 2014.
Our current expected capital plan for 2015 is $546 million, an increase of $40 million compared to the $506 million capital plan announced in April 2015. The capital increase is due to one additional new-build contract for a ST-1200 rig for deep basin drilling in Canada and additional long lead items. A portion of the 2015 capital plan is utilization based and if activity levels change, Precision has the ability to adjust its plan accordingly. Of the 18 new-build drilling rigs scheduled for delivery in 2015 (13 rigs in the U.S., four in Canada and one internationally) ten were delivered in the first quarter, six were delivered in the second quarter, one was delivered early in the third quarter and the final rig is scheduled for delivery in the fourth quarter. After delivery of the remaining contracted new-build rig in 2015, Precision''s drilling rig fleet will consist of 331 drilling rigs, including 236 Tier 1 rigs, 73 Tier 2 rigs and 22 PSST rigs. For the Tier 1 rigs, 124 will be in Canada, 106 in the U.S. and six internationally.
Kevin Neveu, Precision''s President and Chief Executive Officer, stated: "The first half of 2015 has been characterized by substantially reduced demand for our services as our customers grapple with depressed commodity prices and sharply reduced drilling budgets. During this period, the superior performance and value offered by Precision Drilling has been partially overshadowed by the rapid decline in activity, yet we see signs of our market share improving and an emerging shift by customers from managing drilling programs based on contract portfolios to the traditional performance and value based decision factors."
"Despite the sharply reduced customer demand and a particularly harsh Canadian spring break-up, Precision''s resilient margins and cash flow from operations during the second quarter demonstrate the effectiveness of our variable cost business model and strong contract position enjoyed with our Super Series rigs. Our High Performance drilling fleet of 235 Super Series Tier 1 rigs, comprehensive North American and Middle East footprint, excellent field reputation and strong balance sheet position are foundations for growth as our customers shift their focus back to performance and value."
"The Canadian new-build rig announced today, redeployment of several of our U.S. ST-1200 Tier 1 rigs to Canada for deep basin plays and our emerging discussions with customers to reactivate idle Tier 1 rigs later this year are signs that our customers'' focus is indeed shifting to High Performance, High Value services we provide."
"Internationally, we have successfully deployed our third rig to Kuwait, bringing total deployments for the last twelve months to five rigs, three to Kuwait, one to Saudi Arabia and one to country of Georgia. International activity is generally less volatile than North America, and although there are near-term headwinds, we remain focused on expanding this segment of our business over the long term."
"Through this challenging market environment, we will continue to invest in our people, particularly in training and safety for our Precision crews at our Houston and Nisku Tech Centres, while we leverage our scale to lower operating costs and to create value for our customers and shareholders," concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
Adjusted EBITDA and funds provided by operations are additional GAAP measures. See "ADDITIONAL GAAP MEASURES".
Financial Highlights
Operating Highlights
Financial Position
Precision''s strategic priorities for 2015 are as follows:
For the second quarter of 2015, the average natural gas prices and the West Texas Intermediate price of oil were lower than the 2014 averages.
Summary for the three months ended June 30, 2015:
Summary for the six months ended June 30, 2015:
OUTLOOK
Contracts
Our portfolio of term customer contracts provides a base level of activity and revenue and, as of July 22, 2015, we had term contracts in place for an average of 45 rigs in Canada, 43 in the U.S. and nine internationally for the third quarter of 2015 and an average of 46 rigs contracted in Canada, 47 in the U.S. and 11 internationally for the full year. 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
In the U.S., our average active rig count in the quarter was 58 rigs, down 36 rigs over the second quarter in 2014 and down 22 rigs from the first quarter of 2015. We currently have 51 rigs active in the U.S.
In Canada, our average active rig count in the quarter was 26 rigs, a decrease of 27 over the second quarter in 2014. We currently have 56 rigs active in Canada and expect typical seasonal volatility through the third quarter, but in general we expect to benefit from the fleet enhancements over the past several years.
Internationally, our average active rig count in the quarter was 13 rigs, up 2 rigs over the second quarter in 2014 and in line with the first quarter of 2015. During the quarter one new-build rig went to work in Kuwait and was operating at the end of the quarter. We currently have 12 rigs active internationally.
Industry Conditions
To date in 2015, drilling activity has decreased relative to this time last year for both Canada and the U.S. According to industry sources, as of July 17, 2015, the U.S. active land drilling rig count was down approximately 54% from the same point last year and the Canadian active land drilling rig count was down approximately 50%. The decrease in the North American rig count has resulted in the trend of high-grading toward Tier 1 rigs, which continue to show relative strength given the current market conditions.
In Canada there has been strength in natural gas and gas liquids drilling activity related to deep basin drilling in northwestern Alberta and northeastern British Columbia while the trend towards oil-directed drilling in the U.S. continues. To date in 2015, approximately 45% of the Canadian industry''s active rigs and 77% of the U.S. industry''s active rigs were drilling for oil targets, compared to 60% for Canada and 82% for the U.S. at the same time last year.
Capital Spending
Capital spending in 2015 is expected to be $546 million:
SEGMENTED FINANCIAL RESULTS
Precision''s operations are reported in two segments: the Contract Drilling Services segment, which includes the drilling rig, directional drilling, oilfield supply and manufacturing divisions; and the Completion and Production Services segment, which includes the service rig, snubbing, coil tubing, rental, camp and catering and wastewater treatment divisions.
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
Revenue from Contract Drilling Services was $300 million this quarter, or 27% lower than the second quarter of 2014, while adjusted EBITDA decreased by 26% to $110 million. The decreases were mainly due to lower drilling rig utilization days in our Canadian and U.S. contract drilling businesses partially offset by higher average day rates in Canada and the U.S. along with higher activity and average day rates in our international drilling business.
Drilling rig utilization days in Canada (drilling days plus move days) were 2,327 during the second quarter of 2015, a decrease of 52% compared to 2014 primarily due to the decrease in industry activity resulting from lower commodity prices. Drilling rig utilization days in the U.S. were 5,219 or 39% lower than the same quarter of 2014 as U.S. activity was down due to lower industry activity. The majority of our North American activity came from oil and liquids-rich natural gas related plays. Drilling rig utilization days in our international business were 1,129 or 17% higher than the same quarter of 2014 due to contracted rigs added in Kuwait and the Kingdom of Saudi Arabia in 2014 and the country of Georgia and Kuwait in 2015 partially offset by lower activity in Mexico.
Compared to the same quarter in 2014, drilling rig revenue per utilization day was up 3% in Canada, 14% in the U.S. and 4% in international. The increase in average day rates for the U.S. was primarily due to a higher percentage of revenue being generated from Tier 1 rigs compared to the prior year quarter, idle-but-contracted payments and large turnkey jobs in the quarter relative to the prior year comparative quarter. In Canada the day rate increase was the result of rig mix as proportionately more Tier 1 rigs are working compared to the prior year. The average international day rate is up as we are realizing a higher percentage of our fleet utilization from our Middle East operations.
In Canada, 62% of utilization days in the quarter were generated from rigs under term contract, compared to 53% in the second quarter of 2014. In the U.S., 78% of utilization days were generated from rigs under term contract as compared to 72% in the second quarter of 2014. At the end of the quarter, we had 48 drilling rigs under contract in Canada, 47 in the U.S. and 12 internationally.
Operating costs were 60% of revenue for the quarter, which was one percentage point lower than the prior year period. On a per utilization day basis, operating costs for the drilling rig division in Canada were higher over the prior year primarily because of the impact of fixed costs on lower activity increase and an increase in crew labour rates. In the U.S., operating costs for the quarter on a per day basis were higher than the prior year primarily from higher labour burden costs and large turnkey jobs in the quarter relative to the prior year comparative quarter.
Depreciation expense in the quarter was 17% higher than in the second quarter of 2014 due to the addition of new-build rigs deployed in 2014 and the first half of 2015.
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
Revenue from Completion and Production Services was down $31 million or 46% compared to the second quarter of 2014 due to lower activity levels in all service lines and lower average rates. In response to lower oil prices, customers curtailed spending and activity including well completion and production programs. Our well servicing activity in the quarter was down 45% from the second quarter of 2014. Revenue was also negatively impacted by the sale of our U.S. coil tubing operations in the fourth quarter of last year. Approximately 92% of our first quarter Canadian service rig activity was oil related.
During the quarter, Completion and Production Services generated 76% of its revenue from Canadian and 24% from U.S. operations.
Average service rig revenue per operating hour in the second quarter was $718 or $222 lower than the second quarter of 2014. The decrease was primarily the result of industry pricing pressure and the sale of our U.S. coil tubing assets which generally received a higher rate per hour.
Adjusted EBITDA was $6 million lower than the second quarter of 2014 due to a decline in activity and pricing.
Operating costs as a percentage of revenue increased to 90% in the second quarter of 2015, from 85% in the second quarter of 2014. Operating costs per service rig operating hour were lower than in the second quarter of 2014 due to cost cutting measures and the sale of our U.S. coil tubing which typically operates at a higher cost per hour.
Depreciation in the quarter was 24% lower than the second quarter of 2014 because of decommissioning assets in the fourth quarter of 2014 and the disposal of our U.S. coil tubing assets.
SEGMENT REVIEW OF CORPORATE AND OTHER
Our Corporate and Other segment provides support functions to our operating segments. The Corporate and Other segment had an adjusted EBITDA loss of $21 million for the second quarter of 2015, $3 million less than 2014 comparative period due primarily to lower share based incentive compensation.
OTHER ITEMS
Net financial charges for the quarter were $32 million, an increase of $7 million from the second quarter of 2014. The increase is due to the impact of the weaker Canadian dollar on the value of our U.S. dollar denominated debt and the issuance of US$400 million 5.25% Senior Notes on June 3, 2014. We had a foreign exchange loss of $8 million during the second quarter of 2014 due to the strengthening of the Canadian dollar versus the U.S. dollar from March 31, 2015, which affected our net U.S. dollar denominated monetary position in the Canadian dollar-based companies.
Income tax expense for the quarter was a recovery of $43 million compared with an expense of $6 million in the same quarter in 2014. Income tax expense is recognized by applying the income tax rate expected for the full financial year to the pre-tax income of the interim reporting period. On June 29, 2015, the province of Alberta increased the Alberta corporate income tax rate from 10% to 12% effective July 1, 2015. The impact of this income tax rate increase was recognized in the current quarter.
In August 2014 the Ontario Court of Appeal ruled in favour of Precision''s wholly owned subsidiary, reversing a decision by the Ontario Superior Court of Justice in June 2013 regarding the reassessment of Ontario income tax for the subsidiary''s 2001 through 2004 taxation years. The Ontario Minister of Revenue made an application to the Supreme Court of Canada seeking leave to appeal this decision. On March 5, 2015, the Supreme Court of Canada brought the appeal process to an end and in April we received payment of $69 million from the Ontario tax authorities, $55 million for the refund of assessed taxes and $14 million in interest.
LIQUIDITY AND CAPITAL RESOURCES
The oilfield services business is inherently cyclical in nature. To manage this, we focus on maintaining a strong balance sheet so we have the financial flexibility we need to continue to manage our growth and cash flow throughout the business cycle.
We apply a disciplined approach to managing and tracking results of our operations to keep costs down. We maintain a variable cost structure so we can respond to changes in demand.
Our maintenance capital expenditures are tightly governed by and highly responsive to activity levels with additional cost savings leverage provided through our internal manufacturing and supply divisions. Term contracts on expansion capital for new-build rig programs provide more certainty of future revenues and return on our capital investments.
Liquidity
During the quarter we increased the size of our demand letter of credit facility from US$25 million to US$40 million to provide additional availability to issue letters of credit for international opportunities.
In June 2014 we issued US$400 million of 5.25% Senior Notes due in 2024 in a private offering. The Notes are guaranteed on a senior unsecured basis by current and future U.S. and Canadian subsidiaries that also guarantee our revolving credit facility and certain other indebtedness.
In addition, we amended our credit agreement governing our revolving credit facility to, among other things, voluntarily reduce the size of the revolving credit facility from US$850 million to US$650 million and extend the maturity to June 3, 2019.
As at June 30, 2015 we had $2,009 million outstanding under our senior unsecured notes. The current blended cash interest cost of our debt is approximately 6.2%.
Covenants
Senior Facility
The revolving term credit facility requires that we comply with certain financial covenants including leverage ratios of consolidated senior debt to earnings before interest, taxes, depreciation and amortization as defined in the agreement (Adjusted EBITDA) of less than 3:1 and consolidated total debt to Adjusted EBITDA of less than 4:1 for the most recent four consecutive fiscal quarters. During the first quarter we received temporary relief for the period up to and including December 31, 2016 for the ratio of consolidated total debt to Adjusted EBITDA whereby the ratio of less than 4:1 is increased to less than 6:1. For purposes of calculating the leverage ratios, consolidated total debt includes all outstanding secured and unsecured indebtedness, while consolidated senior debt only includes secured indebtedness. EBITDA as defined in our revolving term facility agreement differs from Adjusted EBITDA as defined under Additional GAAP Measures by the exclusion of bad debt expense and certain foreign exchange amounts. As at June 30, 2015 our consolidated senior debt to Adjusted EBITDA ratio was 0.14:1 while our consolidated total debt to EBITDA ratio was 3.14:1.
Under the revolving credit facility we are also required to maintain an Adjusted EBITDA coverage ratio, calculated as Adjusted EBITDA to interest expense, of greater than 2.75:1 for the most recent four consecutive fiscal quarters. During the first quarter we received temporary relief for the period up to and including December 31, 2016 for the interest to Adjusted EBITDA coverage ratio whereby ratio of greater than 2.75:1 is reduced to greater than 2.5:1. As at June 30, 2015 our Adjusted EBITDA coverage ratio was 5.89:1.
In addition, the revolving credit facility contains certain covenants that place restrictions on our ability to incur or assume additional indebtedness; dispose of assets; pay dividends, share redemptions or other distributions; change its primary business; incur liens on assets; engage in transactions with affiliates; enter into mergers, consolidations or amalgamations; and enter into speculative swap agreements. At June 30, 2015, we were in compliance with the covenants of the revolving credit facility.
Senior Notes
The senior notes require that we comply with certain financial covenants including an Adjusted EBITDA to interest coverage ratio of greater than 2.5:1 for the most recent four consecutive fiscal quarters.
In addition, the senior notes contain certain covenants that limit our ability and the ability of certain subsidiaries to incur additional indebtedness and issue preferred shares; create liens; make restricted payments (including the payment of dividends); create or permit to exist restrictions on our ability or certain subsidiaries to make certain payments and distributions; engage in amalgamations, mergers or consolidations; make certain dispositions and engage in transactions with affiliates. At June 30, 2015, we were in compliance with the covenants of our senior notes.
Hedge of investments in foreign operations
We utilize foreign currency long-term debt to hedge our exposure to changes in the carrying values of our net investment in certain foreign operations as a result of changes in foreign exchange rates.
Effective January 1, 2015 we have included the US$400 million of 5.25% Senior Notes due in 2024 as a designated hedge of our investment in our U.S. dollar denominated foreign operations and now all of our U.S. dollar Senior notes are designated as a net investment hedge.
Effective April 30, 2015 a portion of our U.S. dollar denominated debt that was previously treated as a hedge of our net investment in our U.S. operations was designated as a hedge of the investment in our foreign operations that have a U.S. dollar functional currency.
To be accounted for as a hedge, the foreign currency denominated long-term debt must be designated and documented as such and must be effective at inception and on an ongoing basis. We recognize the effective amount of this hedge (net of tax) in other comprehensive income. We recognize ineffective amounts (if any) in earnings.
Average shares outstanding
The following table reconciles the weighted average shares outstanding used in computing basic and diluted earnings per share:
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share amounts)
ADDITIONAL GAAP MEASURES
We reference Generally Accepted Accounting Principles (GAAP) measures that are not defined terms under International Financial Reporting Standards to assess performance because we believe they provide useful supplemental information to investors.
Adjusted EBITDA
We believe that adjusted EBITDA (earnings before income taxes, financing charges, foreign exchange, and depreciation and amortization) as reported in the Consolidated Statement of Earnings (Loss) 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 non-cash depreciation and amortization charges.
Operating Earnings (Loss)
We believe that operating earnings (loss), as reported in the Consolidated Statements of Earnings (Loss), is a useful measure because it provides an indication of the results of our principal business activities before consideration of how those activities are financed and the impact of foreign exchange and taxation.
Funds Provided by Operations
We believe that funds provided by operations, as reported in the Consolidated Statements of Cash Flow is a useful measure because it provides an indication of the funds our principal business activities generate prior to consideration of working capital, which is primarily made up of highly liquid balances.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements contained in this report, including statements that contain words such as "could", "should", "can", "anticipate", "estimate", "intend", "plan", "expect", "believe", "will", "may", "continue", "project", "potential" and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward-looking information and statements").
In particular, forward looking information and statements include, but are not limited to, the following:
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, 2014, which may be accessed on Precision''s SEDAR profile at or under Precision''s EDGAR profile at . The forward-looking information and statements contained in this news 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, unless so required by applicable securities laws.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
SECOND QUARTER 2015 EARNINGS CONFERENCE CALL AND WEBCAST
Precision Drilling Corporation has scheduled a conference call and webcast to begin promptly at 12:00 noon MT (2:00 p.m. ET) on Thursday, July 23, 2015.
The conference call dial in numbers are 1-866-226-1793 or 416-340-2216.
A live webcast of the conference call will be accessible on Precision''s website at by selecting "Investor Centre", then "Webcasts". Shortly after the live webcast, an archived version will be available for approximately 30 days.
An archived recording of the conference call will be available approximately one hour after the completion of the call until August 23, 2015 by dialing 1-800-408-3053 or 905-694-9451, pass code 4661905.
About Precision
Precision is a leading provider of safe and High Performance, High Value services to the oil and gas industry. Precision provides customers with access to an extensive fleet of contract drilling rigs, directional drilling services, well service and snubbing rigs, coil tubing services, camps, rental equipment, and wastewater treatment units backed by a comprehensive mix of technical support services and skilled, experienced personnel.
Precision is headquartered in Calgary, Alberta, Canada. Precision is listed on the Toronto Stock Exchange under the trading symbol "PD" and on the New York Stock Exchange under the trading symbol "PDS".
Contacts:
Precision Drilling Corporation
Rob McNally
Executive Vice President & CFO
403.716.4771
403.716.4755 (FAX)
Suite 800, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1
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Datum: 23.07.2015 - 04:00 Uhr
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