UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of July 2020
Commission File Number: 001-14534
Precision Drilling Corporation
(Translation of registrant's name into English)
800, 525 - 8 Avenue S.W.
Calgary, Alberta
Canada T2P 1G1
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [ ] Form 40-F [ X ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Precision Drilling Corporation | ||
(Registrant) | ||
Date: July 23, 2020 | /s/Carey T. Ford | |
Carey T. Ford | ||
Senior Vice President and Chief Financial Officer | ||
Exhibit | DESCRIPTION | |
99.1 | PRECISION DRILLING CORPORATION ANNOUNCES 2020 SECOND QUARTER UNAUDITED FINANCIAL RESULTS |
EXHIBIT 99.1
Precision Drilling Corporation Announces 2020 Second Quarter Unaudited Financial Results
CALGARY, Alberta, July 23, 2020 (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 Adjusted EBITDA, Covenant EBITDA, Operating Earnings (Loss), Funds Provided by (Used in) Operations 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 “Non-GAAP Measures” later in this news release.
Precision Drilling announces 2020 second quarter financial results:
Precision’s President and CEO Kevin Neveu stated:
“The immediate and decisive steps the Precision team has executed during this pandemic and economic crisis have delivered very strong financial and operational results. Our actions have further strengthened and positioned the company both financially and competitively for an eventual industry recovery. During the second quarter we generated $58 million in Adjusted EBITDA and cash from operations of $104 million with our results further supported by field performance and operational excellence in all parts of our business. Also during the quarter, we improved our liquidity position by increasing our cash balance to $175 million bringing our total liquidity available to nearly $900 million, which supports our ability to persevere through a prolonged market downturn and capture value in a market recovery.”
“During the quarter, we executed structural cost reductions beyond those previously announced, which we expect will lead to an additional $14 million in annualized savings. We now expect our total annualized fixed cost reductions to be 35%, an increase from our previous target of 30% and our normalized general and administrative expense savings to exceed $30 million. We expect these cash preservation measures, combined with capital expenditure reductions and Canadian wage subsidy program, will reduce total 2020 cash outflows by up to $150 million, an increase from our previously communicated target of over $100 million. We will continue to explore every avenue to reduce our costs and spending and conserve cash to keep Precision on track to meet long-term debt reduction goals and support our High Performance, High Value competitive strategy.”
“Second quarter U.S. operating results reflected improved field margins delivered with tightly managed expenses and strong contract book performance, both critical in this challenged environment. While industry activity appears to be flattening, visibility remains limited for the second half of the year. In Canada, Precision achieved 36% market share during the second quarter driven by our Super Triple rig fleet, which is well-positioned for pad style development drilling activity in the Montney and Duvernay. We expect the third quarter seasonal rebound in Canada to remain muted with limited visibility into long-term customer demand. While global international rig activity is contracting sharply, we expect Precision’s six rigs under long-term contract in Kuwait and the Kingdom of Saudi Arabia to remain stable sources of revenue. Additional rig deployment and re-contracting opportunities will be delayed until the customers in these regions fully return to work.”
“Precision’s Alpha technologies continue to demonstrate exceptional field results, driving strong customer interest and field adoption of our broad portfolio of digital solutions. During the second quarter, we commercialized two additional drilling apps for a total of six commercial apps this year and we have 12 more under development. This year we have utilized AlphaApps on over 110 wells throughout North America, generating 890 AlphaApp days. Additionally, we are utilizing AlphaAnalytics for an integrated oil company in the Delaware basin and reduced drilling time on a 28-day horizontal well by 4.1 days, setting a new efficiency benchmark. In the Haynesville basin, we applied AlphaAnalytics to a separate customer’s full fleet of rigs and delivered an 8% improvement in drilling times compared to results achieved in the first quarter. AlphaAnalytics, AlphaApps and the AlphaAutomation platform are functioning on over half of our active North American fleet today and the drilling performance enhancements are inarguable. We believe the Alpha digital enablement of the drilling rig process to be the single most important technology transformation our customers can leverage to reduce their well construction costs and we believe this may be the ideal market to capitalize on these initiatives.”
“We will remain focused on the continued execution of our strategic priorities, including our 2020 deleveraging targets while preserving our strong liquidity position. We will concentrate on maximizing cash flow, stringently managing costs, leveraging our high-quality fleet and collaborating with our customers to utilize our Alpha portfolio to maximize efficiencies and deliver predictable, repeatable results” concluded Mr. Neveu.
IMPACT OF COVID-19
In March 2020, the novel coronavirus (“COVID-19”) outbreak was declared a pandemic by the World Health Organization. Governments worldwide, including those countries in which Precision operates, have enacted emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused a material disruption to businesses globally resulting in an economic slowdown and decreased demand for oil. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions; however, the long-term success of these interventions is not yet determinable.
As a result of the decrease in demand, worldwide inventories of oil have increased significantly. However, in the second quarter voluntary production restraint from national oil companies and governments of oil-producing nations along with curtailments in the U.S. and Canada have shifted global oil markets from a position of over supply to inventory draws. The situation remains dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on the Corporation remains unknown at this time.
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) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||
Revenue | 189,759 | 359,424 | (47.2 | ) | 569,243 | 793,467 | (28.3 | ) | ||||
Adjusted EBITDA(1) | 58,465 | 81,037 | (27.9 | ) | 160,369 | 189,004 | (15.2 | ) | ||||
Operating earnings (loss)(1) | (19,189 | ) | 5,569 | (444.6 | ) | 3,410 | 67,643 | (95.0 | ) | |||
Net earnings (loss) | (48,867 | ) | (13,801 | ) | 254.1 | (54,144 | ) | 11,213 | (582.9 | ) | ||
Cash provided by operations | 104,478 | 106,035 | (1.5 | ) | 179,431 | 146,622 | 22.4 | |||||
Funds provided by operations(1) | 26,639 | 40,950 | (34.9 | ) | 107,956 | 136,943 | (21.2 | ) | ||||
Capital spending: | ||||||||||||
Expansion and upgrade | 12,111 | 33,595 | (63.9 | ) | 13,764 | 99,712 | (86.2 | ) | ||||
Maintenance and infrastructure | 11,816 | 9,874 | 19.7 | 21,648 | 14,719 | 47.1 | ||||||
Intangibles | - | 26 | (100.0 | ) | 57 | 464 | (87.7 | ) | ||||
Proceeds on sale | (5,021 | ) | (24,575 | ) | (79.6 | ) | (10,711 | ) | (82,452 | ) | (87.0 | ) |
Net capital spending | 18,906 | 18,920 | (0.1 | ) | 24,758 | 32,443 | (23.7 | ) | ||||
Net earnings (loss) per share: | ||||||||||||
Basic | (0.18 | ) | (0.05 | ) | 256.4 | (0.20 | ) | 0.04 | (600.0 | ) | ||
Diluted | (0.18 | ) | (0.05 | ) | 256.4 | (0.20 | ) | 0.04 | (600.0 | ) |
(1) | See “NON-GAAP MEASURES”. |
Operating Highlights | ||||||||
For the three months ended June 30, | For the six months ended June 30, | |||||||
2020 | 2019 | % Change | 2020 | 2019 | % Change | |||
Contract drilling rig fleet | 227 | 232 | (2.2 | ) | 227 | 232 | (2.2 | ) |
Drilling rig utilization days: | ||||||||
U.S. | 2,743 | 6,994 | (60.8 | ) | 7,727 | 14,117 | (45.3 | ) |
Canada | 834 | 2,413 | (65.4 | ) | 6,603 | 6,757 | (2.3 | ) |
International | 687 | 728 | (5.6 | ) | 1,415 | 1,448 | (2.3 | ) |
Revenue per utilization day: | ||||||||
U.S.(1) (US$) | 29,370 | 23,425 | 25.4 | 25,828 | 23,312 | 10.8 | ||
Canada(2) (Cdn$) | 22,940 | 21,613 | 6.1 | 21,633 | 22,490 | (3.8 | ) | |
International (US$) | 54,779 | 51,542 | 6.3 | 54,529 | 50,746 | 7.5 | ||
Operating cost per utilization day: | ||||||||
U.S. (US$) | 14,172 | 14,803 | (4.3 | ) | 14,406 | 14,584 | (1.2 | ) |
Canada (Cdn$) | 13,898 | 17,414 | (20.2 | ) | 14,196 | 15,840 | (10.4 | ) |
Service rig fleet | 123 | 123 | - | 123 | 123 | - | ||
Service rig operating hours | 4,702 | 29,540 | (84.1 | ) | 39,067 | 72,438 | (46.1 | ) |
(1) | Includes revenue from idle but contracted rig days and contract cancellation fees. |
(2) | Includes lump sum contract shortfall revenue. |
Financial Position | |||
(Stated in thousands of Canadian dollars, except ratios) | June 30, 2020 | December 31, 2019 | |
Working capital(1) | 237,867 | 201,696 | |
Cash | 175,125 | 74,701 | |
Long-term debt | 1,450,900 | 1,427,181 | |
Total long-term financial liabilities | 1,521,067 | 1,500,950 | |
Total assets | 3,204,233 | 3,269,840 | |
Long-term debt to long-term debt plus equity ratio | 0.49 | 0.48 |
(1) | See “NON-GAAP MEASURES”. |
Summary for the three months ended June 30, 2020:
Summary for the six months ended June 30, 2020:
STRATEGY
Precision’s strategic priorities for 2020 are as follows:
OUTLOOK
The energy industry continues to have a challenging outlook as the COVID-19 pandemic has resulted in significant global oil supply imbalances and near-term crude oil price volatility. Our customers have responded by materially reducing capital spending leading to a rapid reduction in global oilfield service activity levels. In this reduced-activity environment, our customers remain focused on operational efficiencies. We anticipate this will accelerate the industry’s transition towards service providers with the highest performing assets and competitive digital technology offerings. Pursuit of predictable and repeatable results will further drive field application of drilling automation processes to create additional cost efficiencies and performance value for customers.
Precision continues to closely monitor announcements of available government financial support and economic stimulus programs. We are encouraged by the Government of Canada’s $1.7 billion well site abandonment and rehabilitation program, which will support industry activity levels and provide thousands of jobs throughout western Canada. The program is expected to run through to the end of 2022 with government funds being provided in stages. As the use of service rigs is an integral part of the well abandonment process, we believe our well servicing business is well positioned to capture these opportunities as a result of our scale, operational performance and strong safety record.
On April 1, 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (CEWS) program, which would subsidize 75% of employee wages for Canadian employers whose businesses have been affected by COVID-19. The program is intended to help employers re-hire previously laid off workers, prevent further job losses and better position Canadian businesses to resume normal operations. Under this program in the second quarter of 2020, we recognized $9 million of CEWS subsidies that were presented as reductions to operating and general and administrative expense of $6 million and $3 million, respectively. The Government of Canada recently indicated its continued support of this program through to the end of the year. We expect to participate in the third and fourth quarter of 2020 and receive similar levels of wage subsidies as recognized in the second quarter.
Contracts
Year to date in 2020 we have entered into ten term contracts. The following chart outlines the average number of drilling rigs under contract by quarter as of July 22, 2020. For those quarters ending after June 30, 2020, 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 and certain customers elect to pay contract cancellation fees.
Average for the quarter ended 2019 | Average for the quarter ended 2020 | |||||||
Mar. 31 | June 30 | Sept. 30 | Dec. 31 | Mar. 31 | June 30 | Sept. 30 | Dec. 31 | |
Average rigs under term contract as of July 22, 2020: | ||||||||
U.S. | 56 | 52 | 49 | 41 | 41 | 32 | 26 | 22 |
Canada | 8 | 5 | 5 | 5 | 5 | 4 | 3 | 3 |
International | 8 | 8 | 9 | 9 | 8 | 8 | 6 | 6 |
Total | 72 | 65 | 63 | 55 | 54 | 44 | 35 | 31 |
The following chart outlines the average number of drilling rigs that we had under contract for 2019 and the average number of rigs we have under contract as of July 22, 2020.
Average for the year ended | |||
2019 | 2020 | 2021 | |
Average rigs under term contract as of July 22, 2020: | |||
U.S. | 49 | 30 | 6 |
Canada | 6 | 4 | 2 |
International | 9 | 7 | 6 |
Total | 64 | 41 | 14 |
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 2019 | 2020 | |||||
Mar. 31 | June 30 | Sept. 30 | Dec. 31 | Mar. 31 | June 30 | |
Average Precision active rig count: | ||||||
U.S. | 79 | 77 | 72 | 63 | 55 | 30 |
Canada | 48 | 27 | 42 | 43 | 63 | 9 |
International | 8 | 8 | 9 | 9 | 8 | 8 |
Total | 135 | 112 | 123 | 115 | 126 | 47 |
According to industry sources, as of July 22, 2020, the U.S. active land drilling rig count is down 74% from the same point last year and the Canadian active land drilling rig count is down 73%. To date in 2020, approximately 82% of the U.S. industry’s active rigs and 58% of the Canadian industry’s active rigs were drilling for oil targets, compared with 81% for the U.S. and 58% for Canada at the same time last year.
Capital Spending
Capital spending in 2020 is expected to be $48 million and includes $34 million for sustaining, infrastructure and intangibles and $14 million for upgrade and expansion. We expect that the $48 million will be split $45 million in the Contract Drilling Services segment, $3 million in the Completion and Production Services segment and less than $1 million to the Corporate segment. At June 30, 2020, Precision had capital commitments of $113 million with payments expected through to 2022.
SEGMENTED FINANCIAL RESULTS
Precision’s operations are reported in two segments: Contract Drilling Services, which includes our drilling rig, directional drilling, 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) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||
Revenue: | ||||||||||||
Contract Drilling Services | 184,738 | 334,475 | (44.8 | ) | 531,287 | 713,739 | (25.6 | ) | ||||
Completion and Production Services | 5,525 | 26,145 | (78.9 | ) | 39,188 | 81,964 | (52.2 | ) | ||||
Inter-segment eliminations | (504 | ) | (1,196 | ) | (57.9 | ) | (1,232 | ) | (2,236 | ) | (44.9 | ) |
189,759 | 359,424 | (47.2 | ) | 569,243 | 793,467 | (28.3 | ) | |||||
Adjusted EBITDA:(1) | ||||||||||||
Contract Drilling Services | 74,613 | 93,295 | (20.0 | ) | 185,346 | 211,750 | (12.5 | ) | ||||
Completion and Production Services | (1,220 | ) | 2,781 | (143.9 | ) | 2,015 | 13,299 | (84.8 | ) | |||
Corporate and Other | (14,928 | ) | (15,039 | ) | (0.7 | ) | (26,992 | ) | (36,045 | ) | (25.1 | ) |
58,465 | 81,037 | (27.9 | ) | 160,369 | 189,004 | (15.2 | ) |
(1) | See “NON-GAAP MEASURES”. |
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) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||
Revenue | 184,738 | 334,475 | (44.8 | ) | 531,287 | 713,739 | (25.6 | ) | ||||
Expenses: | ||||||||||||
Operating | 101,498 | 231,422 | (56.1 | ) | 323,827 | 477,937 | (32.2 | ) | ||||
General and administrative | 6,083 | 9,758 | (37.7 | ) | 14,853 | 21,006 | (29.3 | ) | ||||
Restructuring | 2,544 | - | n/m | 7,261 | 3,046 | 138.4 | ||||||
Adjusted EBITDA(1) | 74,613 | 93,295 | (20.0 | ) | 185,346 | 211,750 | (12.5 | ) | ||||
Depreciation | 74,062 | 75,155 | (1.5 | ) | 149,786 | 153,154 | (2.2 | ) | ||||
Gain on asset disposals | (3,091 | ) | (4,271 | ) | (27.6 | ) | (5,933 | ) | (39,272 | ) | (84.9 | ) |
Impairment reversal | - | - | n/m | - | (5,810 | ) | (100.0 | ) | ||||
Operating earnings(1) | 3,642 | 22,411 | (83.7 | ) | 41,493 | 103,678 | (60.0 | ) | ||||
Operating earnings(1) as a percentage of revenue | 2.0 | % | 6.7 | % | 7.8 | % | 14.5 | % |
(1) | See “NON-GAAP MEASURES”. |
n/m | Not meaningful |
United States onshore drilling statistics:(1) | 2020 | 2019 | ||
Precision | Industry(2) | Precision | Industry(2) | |
Average number of active land rigs for quarters ended: | ||||
March 31 | 55 | 764 | 79 | 1,023 |
June 30 | 30 | 378 | 77 | 967 |
Year to date average | 42 | 571 | 78 | 995 |
(1) | United States lower 48 operations only. |
(2) | Baker Hughes rig counts. |
Canadian onshore drilling statistics:(1) | 2020 | 2019 | ||
Precision | Industry(2) | Precision | Industry(2) | |
Average number of active land rigs for quarters ended: | ||||
March 31 | 63 | 196 | 48 | 183 |
June 30 | 9 | 25 | 27 | 82 |
Year to date average | 36 | 110 | 37 | 132 |
(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) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||
Revenue | 5,525 | 26,145 | (78.9 | ) | 39,188 | 81,964 | (52.2 | ) | ||||
Expenses: | ||||||||||||
Operating | 5,558 | 21,823 | (74.5 | ) | 32,184 | 64,956 | (50.5 | ) | ||||
General and administrative | 915 | 1,541 | (40.6 | ) | 2,394 | 3,252 | (26.4 | ) | ||||
Restructuring | 272 | - | n/m | 2,595 | 457 | 467.8 | ||||||
Adjusted EBITDA(1) | (1,220 | ) | 2,781 | (143.9 | ) | 2,015 | 13,299 | (84.8 | ) | |||
Depreciation | 4,119 | 4,341 | (5.1 | ) | 8,402 | 9,290 | (9.6 | ) | ||||
Gain on asset disposals | (262 | ) | (3,546 | ) | (92.6 | ) | (1,001 | ) | (3,602 | ) | (72.2 | ) |
Operating earnings (loss)(1) | (5,077 | ) | 1,986 | (355.6 | ) | (5,386 | ) | 7,611 | (170.8 | ) | ||
Operating earnings (loss)(1) as a percentage of revenue | (91.9 | )% | 7.6 | % | (13.7 | )% | 9.3 | % | ||||
Well servicing statistics: | ||||||||||||
Number of service rigs (end of period) | 123 | 123 | - | 123 | 123 | - | ||||||
Service rig operating hours | 4,702 | 29,540 | (84.1 | ) | 39,067 | 72,438 | (46.1 | ) | ||||
Service rig operating hour utilization | 4 | % | 26 | % | 17 | % | 31 | % |
(1) | See “NON-GAAP MEASURES”. |
n/m | Not meaningful |
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 (see “NON-GAAP MEASURES”) of $15 million, slightly lower than the second quarter of 2019 primarily due to Canadian wage subsidies offset by higher share-based compensation expense and increased restructuring charges. During the second quarter of 2020, we incurred $3 million of restructuring charges and recognized $2 million of Canadian wage subsidies.
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 2019 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) | 2020 | 2019 | 2020 | 2019 | |
Cash settled share-based incentive plans | 5,372 | 515 | (1,021 | ) | 6,319 |
Equity settled share-based incentive plans: | |||||
Executive PSU | 2,959 | 3,024 | 5,694 | 5,396 | |
Stock option plan | 168 | 506 | 554 | 1,237 | |
Total share-based incentive compensation plan expense | 8,499 | 4,045 | 5,227 | 12,952 | |
Allocated: | |||||
Operating | 1,987 | 798 | 1,014 | 3,227 | |
General and Administrative | 6,512 | 3,247 | 4,213 | 9,725 | |
8,499 | 4,045 | 5,227 | 12,952 |
Cash settled shared-based compensation expense increased by $5 million in the current quarter primarily due to our increasing share price. Our total equity settled share-based compensation expense for the second quarter of 2020 was $3 million, slightly lower than 2019 due to vesting of stock options granted in prior years.
Finance Charges
Net finance charges were $28 million, a decrease of $2 million compared with the second quarter of 2019, primarily due to reduced interest expense related to retired debt, offset by the impact of the weakening of the Canadian dollar on our U.S. dollar denominated interest.
Interest charges on our U.S. denominated long-term debt in the second quarter of 2020 were US$19 million ($26 million) as compared with US$21 million ($28 million) in 2019.
Income Tax
Income tax expense for the quarter was $4 million compared with a recovery of $6 million in the same quarter in 2019. The higher income tax expense in the second quarter of 2020 was the result of not recognizing the benefit of $14 million on Canadian deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Amount | Availability | Used for | Maturity |
Senior credit facility (secured) | |||
US$500 million (extendible, revolving term credit facility with US$300 million accordion feature) | US$4 million drawn and US$32 million in outstanding letters of credit | General corporate purposes | November 21, 2023 |
Operating facilities (secured) | |||
$40 million | Undrawn, except $8 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$2 million in outstanding letters of credit | Letters of credit | |
Unsecured senior notes (unsecured) | |||
US$63 million – 6.5% | Fully drawn | Capital expenditures and general corporate purposes | December 15, 2021 |
US$344 million – 7.75% | Fully drawn | Debt redemption and repurchases | December 15, 2023 |
US$303 million – 5.25% | Fully drawn | Capital expenditures and general corporate purposes | November 15, 2024 |
US$368 million – 7.125% | Fully drawn | Debt redemption and repurchases | January 15, 2026 |
As at June 30, 2020, we had US$1,080 million ($1,467 million) outstanding under our Senior Credit Facility and unsecured senior notes as compared with US$1,113 million ($1,445 million) at December 31, 2019. During the first half of 2020, we redeemed US$25 million principal amount and repurchased and cancelled US$3 million of our 6.50% unsecured senior notes due 2021, repurchased and cancelled US$5 million of our 5.25% unsecured senior notes due 2024, US$2 million of our 7.125% unsecured senior notes due 2026 and US$1 million of our 7.75% unsecured senior notes due 2023 and we drew US$4 million on our Senior Credit Facility. The weakening of the Canadian dollar resulted in $64 million of additional stated debt such that at June 30, 2020, we had $1,462 million of outstanding unsecured senior notes and $16 million in unamortized debt issue costs.
The current blended cash interest cost of our debt is approximately 6.7%.
Covenants
Following is a listing of our applicable Senior Credit Facility financial covenants and the calculations as at June 30, 2020:
Covenant | At June 30, 2020 | ||
Senior Credit Facility | |||
Consolidated senior debt to consolidated covenant EBITDA(1) | < 2.50 | (0.23 | ) |
Consolidated covenant EBITDA to consolidated interest expense(1) | > 2.50 | 3.39 |
(1) | For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness. |
At June 30, 2020, we were in compliance with the covenants of our Senior Credit Facility.
Senior Credit Facility
On April 9, 2020 we agreed with the lenders of our Senior Credit Facility to reduce the consolidated Covenant EBITDA to consolidated interest expense coverage ratio for the most recent four consecutive quarters greater than or equal to 2.5:1 to 2.0:1 for the period ending September 30, 2020, 1.75:1 for the period ending December 31, 2020, 1.25:1 for the periods ending March 31, June 30 and September 30, 2021, 1.75:1, for the period ending December 31, 2021, 2.0:1 for the period ending March 31, 2022 and 2.5:1 for periods ending thereafter.
During the covenant relief period, Precision’s distributions in the form of dividends, distributions and share repurchases are restricted to a maximum of US$15 million in 2020 and US$25 million in each of 2021 and 2022, subject to a pro forma senior net leverage ratio (as defined in the credit agreement) of less than or equal to 1.75:1.
In addition, during 2021, the North American and acceptable secured foreign assets must directly account for at least 65% of consolidated Covenant EBITDA calculated quarterly on a rolling twelve-month basis, increasing to 70% thereafter. Precision also has the option to voluntarily terminate the covenant relief period prior to its March 31, 2022 end date.
The Senior Credit Facility limits the redemption and repurchase of junior debt subject to a pro forma senior net leverage covenant test of less than or equal to 1.75:1.
NON-GAAP MEASURES
In this release we reference non-GAAP (Generally Accepted Accounting Principles) measures. 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.
Adjusted EBITDA
We believe that Adjusted EBITDA (earnings before income taxes, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, impairment reversal, gain on assets disposals and depreciation and amortization), as reported in the Interim Consolidated Statement of Net 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 depreciation and amortization charges.
Covenant EBITDA
Covenant EBITDA, as defined in our Senior Credit Facility agreement, is used in determining the Corporation’s compliance with its covenants. Covenant EBITDA differs from Adjusted EBITDA by the exclusion of bad debt expense, restructuring costs, certain foreign exchange amounts and the deduction of cash lease payments incurred after December 31, 2018.
Operating Earnings (Loss)
We believe that operating 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. Operating earnings is calculated as follows:
For the three months ended June 30, | For the six months ended June 30, | |||||||
(Stated in thousands of Canadian dollars) | 2020 | 2019 | 2020 | 2019 | ||||
Revenue | 189,759 | 359,424 | 569,243 | 793,467 | ||||
Expenses: | ||||||||
Operating | 106,552 | 252,049 | 354,779 | 540,657 | ||||
General and administrative | 18,449 | 26,338 | 37,984 | 57,368 | ||||
Restructuring | 6,293 | — | 16,111 | 6,438 | ||||
Depreciation and amortization | 81,124 | 83,327 | 164,038 | 170,080 | ||||
Gain on asset disposals | (3,470 | ) | (7,859 | ) | (7,079 | ) | (42,909 | ) |
Impairment reversal | — | — | — | (5,810 | ) | |||
Operating earnings (loss) | (19,189 | ) | 5,569 | 3,410 | 67,643 | |||
Foreign exchange | (928 | ) | (3,763 | ) | 1,763 | (5,886 | ) | |
Finance charges | 28,083 | 30,385 | 55,663 | 61,688 | ||||
Gain on repurchase of unsecured notes | (1,121 | ) | (1,085 | ) | (1,971 | ) | (1,398 | ) |
Earnings (loss) before income taxes | (45,223 | ) | (19,968 | ) | (52,045 | ) | 13,239 |
Funds Provided By (Used In) Operations
We believe that funds provided by (used in) operations, as reported in the Interim 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.
Working Capital
We define working capital as current assets less current liabilities as reported on the Interim Consolidated Statement of Financial Position.
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, 2019, 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, 2020 | December 31, 2019 | ||||
ASSETS | ||||||
Current assets: | ||||||
Cash | $ | 175,125 | $ | 74,701 | ||
Accounts receivable | 192,645 | 310,204 | ||||
Inventory | 31,502 | 31,718 | ||||
Income tax recoverable | 1,194 | 1,142 | ||||
Total current assets | 400,466 | 417,765 | ||||
Non-current assets: | ||||||
Deferred tax assets | 6,011 | 4,724 | ||||
Right of use assets | 63,412 | 66,142 | ||||
Property, plant and equipment | 2,704,377 | 2,749,463 | ||||
Intangibles | 29,967 | 31,746 | ||||
Total non-current assets | 2,803,767 | 2,852,075 | ||||
Total assets | $ | 3,204,233 | $ | 3,269,840 | ||
LIABILITIES AND EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable and accrued liabilities | $ | 148,139 | $ | 199,478 | ||
Income taxes payable | 4,285 | 4,142 | ||||
Current portion of lease obligation | 10,175 | 12,449 | ||||
Total current liabilities | 162,599 | 216,069 | ||||
Non-current liabilities: | ||||||
Share-based compensation | 4,785 | 8,830 | ||||
Provisions and other | 9,655 | 9,959 | ||||
Lease obligation | 55,727 | 54,980 | ||||
Long-term debt | 1,450,900 | 1,427,181 | ||||
Deferred tax liabilities | 26,152 | 25,389 | ||||
Total non-current liabilities | 1,547,219 | 1,526,339 | ||||
Shareholders’ equity: | ||||||
Shareholders’ capital | 2,291,796 | 2,296,378 | ||||
Contributed surplus | 70,503 | 66,255 | ||||
Deficit | (1,023,600 | ) | (969,456 | ) | ||
Accumulated other comprehensive income | 155,716 | 134,255 | ||||
Total shareholders’ equity | 1,494,415 | 1,527,432 | ||||
Total liabilities and shareholders’ equity | $ | 3,204,233 | $ | 3,269,840 |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS) (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(Stated in thousands of Canadian dollars, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||
Revenue | $ | 189,759 | $ | 359,424 | $ | 569,243 | $ | 793,467 | ||||
Expenses: | ||||||||||||
Operating | 106,552 | 252,049 | 354,779 | 540,657 | ||||||||
General and administrative | 18,449 | 26,338 | 37,984 | 57,368 | ||||||||
Restructuring | 6,293 | — | 16,111 | 6,438 | ||||||||
Earnings before income taxes, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, impairment reversal, gain on asset disposals and depreciation and amortization | 58,465 | 81,037 | 160,369 | 189,004 | ||||||||
Depreciation and amortization | 81,124 | 83,327 | 164,038 | 170,080 | ||||||||
Gain on asset disposals | (3,470 | ) | (7,859 | ) | (7,079 | ) | (42,909 | ) | ||||
Impairment reversal | — | — | — | (5,810 | ) | |||||||
Foreign exchange | (928 | ) | (3,763 | ) | 1,763 | (5,886 | ) | |||||
Finance charges | 28,083 | 30,385 | 55,663 | 61,688 | ||||||||
Gain on repurchase of unsecured senior notes | (1,121 | ) | (1,085 | ) | (1,971 | ) | (1,398 | ) | ||||
Earnings (loss) before income taxes | (45,223 | ) | (19,968 | ) | (52,045 | ) | 13,239 | |||||
Income taxes: | ||||||||||||
Current | 2,116 | 1,403 | 3,175 | 3,013 | ||||||||
Deferred | 1,528 | (7,570 | ) | (1,076 | ) | (987 | ) | |||||
3,644 | (6,167 | ) | 2,099 | 2,026 | ||||||||
Net earnings (loss) | $ | (48,867 | ) | $ | (13,801 | ) | $ | (54,144 | ) | $ | 11,213 | |
Net earnings (loss) per share: | ||||||||||||
Basic | $ | (0.18 | ) | $ | (0.05 | ) | $ | (0.20 | ) | $ | 0.04 | |
Diluted | $ | (0.18 | ) | $ | (0.05 | ) | $ | (0.20 | ) | $ | 0.04 |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(Stated in thousands of Canadian dollars) | 2020 | 2019 | 2020 | 2019 | |||||||||
Net earnings (loss) | $ | (48,867 | ) | $ | (13,801 | ) | $ | (54,144 | ) | $ | 11,213 | ||
Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency | (71,311 | ) | (42,846 | ) | 85,697 | (91,364 | ) | ||||||
Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt, net of tax | 53,920 | 29,859 | (64,236 | ) | 68,873 | ||||||||
Comprehensive loss | $ | (66,258 | ) | $ | (26,788 | ) | $ | (32,683 | ) | $ | (11,278 | ) |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(Stated in thousands of Canadian dollars) | 2020 | 2019 | 2020 | 2019 | |||||||||
Cash provided by (used in): | |||||||||||||
Operations: | |||||||||||||
Net earnings (loss) | $ | (48,867 | ) | $ | (13,801 | ) | $ | (54,144 | ) | $ | 11,213 | ||
Adjustments for: | |||||||||||||
Long-term compensation plans | 6,324 | 3,612 | 5,621 | 10,924 | |||||||||
Depreciation and amortization | 81,124 | 83,327 | 164,038 | 170,080 | |||||||||
Gain on asset disposals | (3,470 | ) | (7,859 | ) | (7,079 | ) | (42,909 | ) | |||||
Impairment reversal | — | — | — | (5,810 | ) | ||||||||
Foreign exchange | (1,718 | ) | (3,880 | ) | 1,154 | (6,118 | ) | ||||||
Finance charges | 28,083 | 30,385 | 55,663 | 61,688 | |||||||||
Income taxes | 3,644 | (6,167 | ) | 2,099 | 2,026 | ||||||||
Other | (823 | ) | (281 | ) | (763 | ) | (159 | ) | |||||
Gain on repurchase of unsecured senior notes | (1,121 | ) | (1,085 | ) | (1,971 | ) | (1,398 | ) | |||||
Income taxes paid | (3,128 | ) | (3,550 | ) | (3,948 | ) | (3,887 | ) | |||||
Income taxes recovered | — | — | — | 1,071 | |||||||||
Interest paid | (33,548 | ) | (40,263 | ) | (53,043 | ) | (60,496 | ) | |||||
Interest received | 139 | 512 | 329 | 718 | |||||||||
Funds provided by operations | 26,639 | 40,950 | 107,956 | 136,943 | |||||||||
Changes in non-cash working capital balances | 77,839 | 65,085 | 71,475 | 9,679 | |||||||||
104,478 | 106,035 | 179,431 | 146,622 | ||||||||||
Investments: | |||||||||||||
Purchase of property, plant and equipment | (23,927 | ) | (43,469 | ) | (35,412 | ) | (114,431 | ) | |||||
Purchase of intangibles | — | (26 | ) | (57 | ) | (464 | ) | ||||||
Proceeds on sale of property, plant and equipment | 5,021 | 24,575 | 10,711 | 82,452 | |||||||||
Changes in non-cash working capital balances | (1,880 | ) | 2,536 | (5,406 | ) | (727 | ) | ||||||
(20,786 | ) | (16,384 | ) | (30,164 | ) | (33,170 | ) | ||||||
Financing: | |||||||||||||
Proceeds from senior credit facility | 5,030 | — | 5,030 | — | |||||||||
Repurchase of unsecured senior notes | (4,911 | ) | (107,161 | ) | (45,465 | ) | (123,833 | ) | |||||
Share repurchase | (15 | ) | — | (5,259 | ) | — | |||||||
Lease payments | (1,897 | ) | (1,685 | ) | (3,625 | ) | (3,357 | ) | |||||
Debt amendment fees | (647 | ) | — | (668 | ) | — | |||||||
(2,440 | ) | (108,846 | ) | (49,987 | ) | (127,190 | ) | ||||||
Effect of exchange rate changes on cash | (3,129 | ) | (1,255 | ) | 1,144 | (2,308 | ) | ||||||
Increase in cash | 78,123 | (20,450 | ) | 100,424 | (16,046 | ) | |||||||
Cash, beginning of period | 97,002 | 101,030 | 74,701 | 96,626 | |||||||||
Cash, end of period | $ | 175,125 | $ | 80,580 | $ | 175,125 | $ | 80,580 |
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, 2020 | $ | 2,296,378 | $ | 66,255 | $ | 134,255 | $ | (969,456 | ) | $ | 1,527,432 | |||
Net loss for the period | — | — | — | (54,144 | ) | (54,144 | ) | |||||||
Other comprehensive income for the period | — | — | 21,461 | — | 21,461 | |||||||||
Share repurchases | (5,259 | ) | — | — | — | (5,259 | ) | |||||||
Redemption of non-management director DSUs | 677 | (502 | ) | — | 175 | |||||||||
Share-based compensation reclassification | — | (1,498 | ) | — | — | (1,498 | ) | |||||||
Share-based compensation expense | — | 6,248 | — | — | 6,248 | |||||||||
Balance at June 30, 2020 | $ | 2,291,796 | $ | 70,503 | $ | 155,716 | $ | (1,023,600 | ) | $ | 1,494,415 |
(Stated in thousands of Canadian dollars) | Shareholders’ Capital | Contributed Surplus | Accumulated Other Comprehensive Income | Deficit | Total Equity | |||||||||
Balance at January 1, 2019 | $ | 2,322,280 | $ | 52,332 | $ | 162,014 | $ | (978,874 | ) | $ | 1,557,752 | |||
Lease transition adjustment | — | — | — | 2,800 | 2,800 | |||||||||
Net earnings for the period | — | — | — | 11,213 | 11,213 | |||||||||
Other comprehensive loss for the period | — | — | (22,491 | ) | — | (22,491 | ) | |||||||
Share-based compensation expense | — | 6,633 | — | — | 6,633 | |||||||||
Balance at June 30, 2019 | $ | 2,322,280 | $ | 58,965 | $ | 139,523 | $ | (964,861 | ) | $ | 1,555,907 |
SECOND QUARTER 2020 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, 2020.
The conference call dial in numbers are 1-844-515-9176 or 614-999-9312.
A live webcast of the conference call will be accessible on Precision’s website at www.precisiondrilling.com by selecting “Investor Relations”, then “Webcasts & Presentations”. Shortly after the live webcast, an archived version will be available for approximately 60 days.
An archived version of the webcast will be available for approximately 60 days. An archived recording of the conference call will be available approximately one hour after the completion of the call until July 29, 2020 by dialing 855-859-2056 or 404-537-3406, passcode 5483895.
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 Super Series drilling rigs supported by an industry leading technology platform that offers innovative drilling solutions to deliver efficient, predictable and repeatable results through service differentiation. Precision also offers well service rigs, camps and rental equipment and directional drilling services, all 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”.
For further information, please contact:
Carey Ford, Senior Vice President and Chief Financial Officer
713.435.6100
Dustin Honing, Manager, Investor Relations and Corporate Development
403.716.4500
800, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1
Website: www.precisiondrilling.com