Precision Drilling Corporation Announces 2016 Second Quarter Financial Results
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 07/21/16 -- Precision Drilling Corporation - (TSX: PD)(NYSE: PDS)
(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.
For the second quarter of 2016, we recorded earnings before income taxes, finance charges, foreign exchange, and depreciation and amortization (adjusted EBITDA see "Additional GAAP Measures") of $22 million, 75% lower than the second quarter of 2015. Our activity for the quarter, as measured by drilling rig utilization days, decreased 48% in Canada, 58% in the U.S. and 44% internationally, compared to the second quarter of 2015. Our adjusted EBITDA as a percentage of revenue was 14% this quarter, compared to 26% in the second quarter of 2015. The decrease in adjusted EBITDA as a percent of revenue was mainly due to decreased activity in all of our businesses and lower spot market pricing.
We recorded a net loss this quarter of $58 million, or $0.20 per diluted share, compared to a net loss of $30 million, or $0.10 per diluted share, in the second quarter of 2015.
Revenue this quarter was $164 million or 51% lower than the second quarter of 2015, 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 51% and 53%, respectively.
Net loss for the first six months of 2016 was $78 million, or $0.26 per diluted share, compared to a net loss of $6 million, or $0.02 per diluted share in 2015, while revenue was $466 million, or 45% less than 2015.
Kevin Neveu, Precision''s President and Chief Executive Officer, stated: "Precision''s second quarter results were adversely affected by weak customer demand and seasonally low Canadian spring break-up activity levels. During the quarter, North American oil and gas companies demonstrated a near instantaneous reaction to the low commodity prices experienced earlier this year by slashing spending, which resulted in the lowest drilling activity levels in decades. Despite this industry-wide pullback, Precision did not record any further cancelations in its contracted rig backlog, and all customer contracts continue to perform as expected. In addition, our second quarter results highlight the ability of Precision to generate strong field level margins on a full cycle basis. This is a result of Precision''s High Performance Tier 1 asset base, variable cost operating model and most importantly the efforts and results of our people focused on safe and highly efficient operations."
"As commodity prices have recently improved, our activity levels have also modestly improved, up 27% in the US from trough levels to 28 active rigs and seasonally increasing in Canada to 26 active rigs. Notably, we have increased our contract backlog by one rig in 2016 and added four rigs on average under contract for 2017. Our customers appear to be looking beyond the oil price lows of earlier this year, resetting spending to current commodity price levels, and beginning the early stages of planning for improved longer term fundamentals."
"While the customer base is facing similar commodity price pressure in our international markets, Precision''s activity and pricing held steady through the quarter. For our two new-build Kuwait rigs, we continue to take advantage of improved supplier lead times and expect to finish construction early and on budget, delivering the rigs sequentially to Kuwait later this quarter and early in the fourth quarter. Ending 2016 with a five rig operating base in Kuwait will provide both the scale and market position we seek in one of the lowest cost hydrocarbon producing regions in the world."
"For the balance of the year, we remain committed to our 2016 priorities. We will maintain strong liquidity, continue to deliver the Precision High Performance, High Value services to the field with leading safety and mechanical uptime performance, and be prepared for a rebound in activity. Precision''s fleet of Tier 1 rigs are maintained to the best industry standards, and our recruitment and training teams are working rigorously to identify and bring back as many field employees to the Precision family when activity resumes," concluded Mr. Neveu.
SELECT FINANCIAL AND OPERATING INFORMATION
Adjusted EBITDA and funds provided by operations are additional GAAP measures. See "ADDITIONAL GAAP MEASURES".
Our portfolio of term customer contracts, a scalable operating cost structure and economies achieved through vertical integration of the supply chain all help us manage our business through the industry cycles.
Precision''s strategic priorities for 2016 are as follows:
For the second quarter of 2016, the average natural gas prices and the West Texas Intermediate price of oil were lower than the 2015 comparable averages.
Summary for the three months ended June 30, 2016:
Summary for the six months ended June 30, 2016:
OUTLOOK
Contracts
Our portfolio of term customer contracts provides a base level of activity and revenue. As of July 20, 2016, for the third quarter of 2016 we had, on average, term contracts for 29 rigs in Canada, 21 in the U.S. and seven internationally. For the 2016 calendar year we have on average 30 rigs contracted in Canada, 21 in the U.S. and seven internationally and a total average of 35 rigs for the full year in 2017. 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 24 rigs, down 33 rigs over the second quarter in 2015 and down eight rigs from the first quarter of 2016. We currently have 28 rigs active in the U.S.
In Canada, our average active rig count in the quarter was 13 rigs, a decrease of 13 over the second quarter in 2015. We currently have 27 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.
In general, lower oil prices have caused producers to significantly reduce drilling budgets decreasing demand for drilling rigs, resulting in pricing pressure on spot market day rates. We expect Tier 1 rigs to remain the preferred rigs of customers globally and for us to benefit from our completed fleet enhancements.
Internationally, our average active rig count in the quarter was seven rigs, down five rigs over the second quarter in 2015 and down one rig from the first quarter of 2016. The decrease from the first quarter is the result of one fewer rig working in Mexico while the decrease over the prior year is primarily coming from fewer rigs working in Mexico and no rigs currently working in Kurdistan. We currently have seven rigs active internationally.
Industry Conditions
To date in 2016, drilling activity has decreased relative to this time last year for both Canada and the U.S. According to industry sources, as of July 15, 2016, the U.S. active land drilling rig count was down approximately 49% from the same point last year and the Canadian active land drilling rig count was down approximately 51%. 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 2016, approximately 45% of the Canadian industry''s active rigs and 80% of the U.S. industry''s active rigs were drilling for oil targets, compared to 45% for Canada and 77% for the U.S. at the same time last year.
Capital Spending
Capital spending in 2016 is expected to be $202 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.
Revenue from Contract Drilling Services was $148 million this quarter, or 51% lower than the second quarter of 2015, while adjusted EBITDA decreased by 60% to $43 million. The decreases were mainly due to lower drilling rig utilization days in our Canadian, U.S. and international contract drilling businesses.
Drilling rig utilization days in Canada (drilling days plus move days) were 1,202 during the second quarter of 2016, a decrease of 48% compared to 2015 primarily due to the decrease in industry activity resulting from lower commodity prices. Drilling rig utilization days in the U.S. were 2,198 or 58% lower than the same quarter of 2015 as U.S. activity was down due to lower industry activity. Drilling rig utilization days in our international business were 637 or 44% lower than the same quarter of 2015 due to lower activity in the Middle East and Mexico.
Compared to the same quarter in 2015, drilling rig revenue per utilization day was up 9% in Canada due to one-time contract short-fall payments. Excluding one-time contract shortfall payments, drilling rig revenue per utilization day in Canada was down 9% due to the decline of spot market rates as industry activity has dropped. Drilling rig revenue per utilization day for the current quarter in the U.S. was down 1% from the prior comparative period, while internationally revenue per day was down 3%. The decrease in the U.S. average rate was due to lower spot market rates and a lower percentage of revenue coming from turnkey activity partially offset by additional relative idle but contracted revenue.
In Canada, 55% of utilization days in the quarter were generated from rigs under term contract, compared to 62% in the second quarter of 2015. In the U.S., 70% of utilization days were generated from rigs under term contract as compared to 78% in the second quarter of 2015. At the end of the quarter, we had 32 drilling rigs under contract in Canada, 22 in the U.S. and seven internationally.
Operating costs were 64% of revenue for the quarter, which was five percentage points higher 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 partially offset by crew wage reductions and cost saving initiatives. In the U.S., operating costs for the quarter on a per day basis were lower than the prior year primarily due to sales tax adjustments, lower turnkey activity and cost saving initiatives partially offset by fixed costs spread over lower activity.
General and administrative costs are lower than the prior year by $3 million due to cost saving initiatives taken throughout 2015 and in the first half of 2016.
Restructuring costs in the quarter relate to cost cutting measures taken in response to the continued downturn in industry activity levels.
Depreciation expense in the quarter was 20% lower than in the second quarter of 2015 because of a lower asset base after decommissioning equipment and the recording of an impairment charge to our property, plant and equipment in the fourth quarter of 2015 partially offset by new-build rigs deployed in 2015 and the impact of the weakening Canadian dollar compared with the U.S. dollar and the associated impact on our U.S. denominated depreciation expense.
Revenue from Completion and Production Services was down $19 million or 53% compared to the second quarter of 2015 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 48% from the second quarter of 2015. Approximately 89% of our second quarter Canadian service rig activity was oil related.
During the quarter, Completion and Production Services generated 87% of its revenue from Canadian and 13% from U.S. operations.
Average service rig revenue per operating hour in the second quarter was $602 or $116 lower than the second quarter of 2015. The decrease was primarily the result of industry pricing.
Adjusted EBITDA was $2 million lower than the second quarter of 2015 due to a decline in activity and pricing.
Operating costs as a percentage of revenue increased to 97% in the second quarter of 2016, from 95% in the second quarter of 2015. The increase is the result of the impact of lower activity levels on fixed costs, as well as lower revenue from pricing pressure.
Depreciation in the quarter was 25% lower than the second quarter of 2015 because of a lower asset base after an impairment charge in the third quarter of 2015.
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 $18 million for the second quarter of 2016, in line with the prior year comparable as higher share based incentive compensation was partially offset by cost saving initiatives.
OTHER ITEMS
Net finance charges were $33 million, an increase of $1 million compared with the second quarter of 2015 due to the impact of foreign exchange on our U.S. dollar denominated interest partially offset by interest received in the current quarter on a tax dispute settlement.
Income tax expense for the quarter was a recovery of $50 million compared with a recovery of $43 million in the same quarter in 2015. 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 with adjustments for transactions specific to the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The oilfield services business is inherently cyclical in nature. To manage this, we focus on maintaining a strong balance sheet in order to 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
In April, 2016 we agreed with our lending group to the following amendments to our senior credit facility:
During the quarter we reduced the size of our demand letter of credit facility from US$40 million to US$30 million as the size of the facility was too large for the intended purpose.
As at June 30, 2016 we had $2,073 million outstanding under our senior unsecured notes. The current blended cash interest cost of our debt is approximately 6.2%.
Covenants
Senior Facility
The senior credit facility requires that we comply with certain financial covenants including a leverage ratio of consolidated senior debt to earnings before interest, taxes, depreciation and amortization as defined in the agreement (Adjusted EBITDA) of less than 2.5:1. For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness. Adjusted 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, 2016 our consolidated senior debt to Adjusted EBITDA ratio was negative 0.97:1.
Under the senior credit facility we are required to maintain an Adjusted EBITDA coverage ratio, calculated as Adjusted EBITDA to interest expense, of greater than 1.5:1 reverting to 2.5:1 for periods ending after March 31, 2018 for the most recent four consecutive fiscal quarters. As at June 30, 2016 our Adjusted EBITDA coverage ratio was 2.68:1.
The senior credit facility also prevents us from making distributions prior to April 1, 2018 and restricts our ability to repurchase our unsecured notes subject to a pro forma liquidity test of US$500 million.
In addition, the senior 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 our 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, 2016, 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 2.0:1 for the most recent four consecutive fiscal quarters. In the event that our Adjusted EBITDA to interest coverage ratio is less than 2.0:1 for the most recent four consecutive fiscal quarters the senior notes restrict our ability to incur additional indebtedness. The senior notes contain a restricted payments covenant that limits our ability to make payments in the nature of dividends, distributions and repurchases from shareholders. This restricted payment basket grows by, among other things, 50% of consolidated net earnings and decreases by 100% of consolidated net losses as defined in the note agreements, and payments made to shareholders. As at June 30, 2016 our restricted payments basket is negative and we are no longer able to make dividend payments until such time as the basket once again becomes positive. For further information please see the senior note indentures which are available on SEDAR and EDGAR.
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; 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, 2016, 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.
We have designated our U.S. dollar denominated long-term debt as a net investment hedge in our U.S. operations and other 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:
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, gain on repurchase of unsecured notes, financing charges, foreign exchange, and depreciation and amortization) as reported in the Consolidated Statement of 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 Loss
We believe that operating loss, as reported in the Consolidated Statements of 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 (Used In) Operations
We believe that funds provided by (used in) 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, 2015, 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 results of new information, future events or otherwise, except as required by law.
SECOND QUARTER 2016 EARNINGS CONFERENCE CALL AND WEBCAST
Precision Drilling Corporation has scheduled a conference call and webcast to begin promptly at 11:00 a.m. MT (1:00 p.m. ET) on Thursday, July 21, 2016.
The conference call dial in numbers are 1-866-225-2055 or 416-340-2218.
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 20, 2016 by dialing 1-800-408-3053 or 905-694-9451, pass code 7249285.
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
Carey Ford
Senior Vice President & Chief Financial Officer
403.716.4566
403.716.4755 (FAX)
Suite 800, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1
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Datum: 21.07.2016 - 04:00 Uhr
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