Precision Drilling Corporation Announces 2021 First Quarter Unaudited Financial Results

CALGARY, Alberta, April 22, 2021 (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 2021 first quarter financial results:

  • Revenue of $236 million was a decrease of 38% compared with the first quarter of 2020.
  • Net loss of $36 million or $2.70 per share compared to net loss of $5 million or $0.38 per share in 2020.
  • Earnings before income taxes, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization (Adjusted EBITDA, see “NON-GAAP MEASURES”) of $55 million was 47% lower than the first quarter of 2020.
  • Generated cash and funds provided by operations (see “NON-GAAP MEASURES”) of $15 million and $43 million, respectively.
  • First quarter ending cash balance was $78 million.
  • Reduced our Senior Credit Facility balance by $49 million and established a $20 million Canadian Real Estate Credit Facility.
  • First quarter capital expenditures were $8 million.
  • Repurchased and cancelled 155,168 common shares for $4 million.
  • Recognized the Canadian government’s Canada Emergency Wage Subsidy (CEWS) program assistance of $9 million.
  • Increased U.S. rig activation costs contributed to higher average operating costs as a result of accelerated rig deployments during the quarter.
  • Incurred $11 million of share-based compensation expense due to our increased share price and a $2 million charge relating to the reclassification of certain share-based compensation plans.

Precision’s President and CEO Kevin Neveu stated:

“I am pleased with Precision’s response to the rebounding North American drilling market during the first quarter of 2021. Our current active U.S. rig count sits at 40 rigs, a milestone achieved several weeks earlier than previously anticipated and represents a 40% increase since the beginning of the year. In Canada, which is now experiencing the seasonal break-up slowdown, we are operating 20 rigs, an increase of 100% from this time last year. During the first quarter, Precision added eight new Alpha customers and increased paid days from AlphaAutomation by 27% from the fourth quarter, demonstrating increased market penetration for our Alpha digital technologies. Additionally, we fully commercialized 10 AlphaApps and achieved a similar increase in market penetration with that offering.”

“Precision’s international business continues to generate stable cash flow and we are encouraged with early pre-tendering exercises now underway in the region. It is beginning to appear that rig reactivations may track the relaxation of oil export limits. We remain confident in our ability to reactivate our three idled ultra-high spec rigs in Kuwait. We will also continue to explore opportunities to activate our other idle rigs in the region.”

“Our Well Servicing business has experienced a sharp uptick in customer demand and we anticipate the Canadian Federal government’s well abandonment program will continue to provide additional opportunities for the well service industry through the remainder of the year and in 2022. Approximately 15% of our first quarter activity related to well abandonments.”

“During the quarter, Precision generated $55 million in Adjusted EBITDA and $15 million in cash from operations, largely driven by improving industry activity levels, our strong market share and customer adoption of Precision’s Alpha technologies. We have reduced debt levels by $51 million year to date, despite the temporary seasonal working capital build in the first quarter and expect the benefit of a working capital release in the second quarter. I am confident that the steps we have taken to reduce our fixed costs will continue to maximize the free cash flow generating capabilities of Precision. We remain tightly focused on meeting or exceeding our debt reduction goals for the year along with our other stated priorities.”

“Precision’s ESG-related initiatives produced encouraging results during the quarter, most notably our efforts to progress emission-reduction alternatives for our customers. This includes formalizing partnerships with green energy providers to expand our offering of hybrid battery energy storage systems, bi-fuel systems and natural gas rig power systems. We are also piloting a GHG monitoring system, which will provide our customers with real-time insights to establish performance baselines and drive continued improvement through the entire operation. These initiatives are well complimented by our modern, digitally controlled and highly efficient Super Series rig fleet combined with our industry-leading Alpha digital portfolio. We remain committed to minimizing the environmental impact from our operations while continuing to demonstrate the leading Social and Governance practices for which Precision is well known.”

“Above all, Precision remains focused on the safety of our employees on our rigs, operating centers and corporate offices as we continue to execute our High Performance, High Value strategy during this pandemic. Precision employees have successfully confronted many associated challenges over the past 12 months and I am excited about the opportunities for our people as the recovery continues to take shape,” concluded Mr. Neveu.

SELECT FINANCIAL AND OPERATING INFORMATION

Financial Highlights

(Stated in thousands of Canadian dollars, except per share amounts)For the three months ended March 31, 
2021  2020  % Change 
Revenue 236,473   379,484   (37.7)
Adjusted EBITDA(1) 54,539   101,904   (46.5)
Operating earnings (loss)(1) (15,415)  22,599   (168.2)
Net loss (36,106)  (5,277)  584.2 
Cash provided by operations 15,422   74,953   (79.4)
Funds provided by operations(1) 43,430   81,317   (46.6)
Capital spending:           
Expansion and upgrade 3,437   1,653   107.9 
Maintenance and infrastructure 4,999   9,832   (49.2)
Intangibles -   57   (100.0)
Proceeds on sale (3,324)  (5,690)  (41.6)
Net capital spending 5,112   5,852   (12.6)
Net loss per share:           
Basic (2.70)  (0.38)  611.8 
Diluted (2.70)  (0.38)  611.8 

(1)    See “NON-GAAP MEASURES.”


Operating Highlights

 For the three months ended March 31, 
 2021  2020  % Change 
Contract drilling rig fleet 227   227   - 
Drilling rig utilization days:           
U.S. 2,951   4,984   (40.8)
Canada 3,818   5,769   (33.8)
International 540   728   (25.8)
Revenue per utilization day:           
U.S.(1) (US$) 22,133   23,878   (7.3)
Canada (Cdn$) 21,131   21,444   (1.5)
International (US$) 52,744   54,294   (2.9)
Operating cost per utilization day:           
U.S. (US$) 15,106   14,534   3.9 
Canada (Cdn$) 13,025   14,239   (8.5)
            
Service rig fleet 123   123   - 
Service rig operating hours 34,903   34,365   1.6 

(1)    Includes revenue from idle but contracted rig days.


Financial Position

(Stated in thousands of Canadian dollars, except ratios)March 31, 2021  December 31, 2020  
Working capital(1) 161,632   175,423  
Cash 77,831   108,772  
Long-term debt 1,189,880   1,236,210  
Total long-term financial liabilities 1,252,203   1,304,162  
Total assets 2,795,596   2,898,878  
Long-term debt to long-term debt plus equity ratio 0.47   0.47  

(1)    See “NON-GAAP MEASURES.”


Summary for the three months ended March 31, 2021:

  • Revenue this quarter was $236 million, 38% lower than the first quarter of 2020 and was primarily the result of lower contract drilling activity and day rates. Drilling rig utilization days, decreased by 41% in the U.S., 34% in Canada and 26% internationally, compared to the first quarter of 2020.
  • Adjusted EBITDA (see “NON-GAAP MEASURES”) for the quarter was $55 million, $47 million lower than the previous year. Our Adjusted EBITDA as a percentage of revenue was 23% this quarter, compared with 27% in the comparative quarter. Adjusted EBITDA in the quarter was negatively impacted by lower activity and higher share-based compensation expense, partially offset by CEWS program assistance. Our increased share-based compensation charges in the quarter were attributable to our increased share price and reclassification of certain Performance Share Unit (PSU) share-based compensation plans, resulting in $2 million of incremental share-based compensation expense for the quarter. See discussion on share-based incentive compensation under “Other Items” later in this release for additional details.
  • Operating loss (see “NON-GAAP MEASURES”) this quarter was $15 million compared with operating earnings of $23 million in the first quarter of 2020.
  • General and administrative expenses this quarter were $21 million, $2 million higher than in 2020. Our higher general and administrative costs in 2021 were primarily due to increased share-based compensation charges, partially offset by CEWS program assistance of $1 million. Excluding share-based compensation and CEWS program assistance, our general and administrative expenses decreased by 36% as compared with the first quarter of 2020.
  • Net finance charges were $22 million, a decrease of $5 million compared with the first quarter of 2020, primarily due to reduced interest expense related to retired debt.
  • Revenue per utilization day in the U.S. decreased in the first quarter of 2021 to US$22,133 from US$23,878 in the prior year quarter. The decrease was the result of lower fleet average day rates and revenue from idle but contracted rigs, partially offset by higher turnkey activity. Operating costs on a per day basis increased to US$15,106 in the first quarter of 2021 compared with US$14,534 in 2020. The increase was mainly due to higher turnkey activity and reactivation expenses incurred on additional rig deployments. On a sequential basis, revenue per utilization day, excluding revenue from turnkey drilling and idle but contracted rigs, decreased by US$354 due to lower fleet average day rates, partially offset by higher operating cost recoveries, while operating costs per day increased by US$687 due to higher reactivation costs and labor-related expenses.
  • In Canada, average revenue per utilization day for contract drilling rigs was $21,131 compared with $21,444 in the first quarter of 2020. The lower average revenue per utilization day in the first quarter of 2021 was primarily due to our rig mix. Average operating costs per utilization day for drilling rigs in Canada decreased to $13,025 compared with the prior year quarter of $14,239. The decrease was mainly due to the impact of the CEWS program assistance, cost reduction initiatives and rig mix.
  • During the quarter, we recognized CEWS program assistance of $9 million, of which $8 million and $1 million were presented as offsets to our operating and general and administrative costs, respectively.
  • We realized revenue from international contract drilling of US$28 million in the first quarter of 2021, as compared to US$40 million in the prior year period. The lower revenue in the current quarter was primarily due to lower activity as our average active rig count decreased by two. Average revenue per utilization day decreased 3% to US$52,744 from the comparable prior year quarter, primarily due to changes in service and rig mix.
  • Cash and funds provided by operations (see “NON-GAAP MEASURES”) in the first quarter of 2021 were $15 million and $43 million, respectively, compared to $75 million and $81 million in the prior year comparative period.
  • Capital expenditures were $8 million, a decrease of $3 million from the prior year quarter. Capital spending included $3 million for upgrade and expansion capital and $5 million for the maintenance of existing assets, infrastructure spending and intangibles.
  • During the first quarter of 2021, we repurchased and cancelled 155,168 common shares for $4 million pursuant to our Normal Course Issuer Bid.

STRATEGY

Precision’s strategic priorities for 2021 are as follows:

  1. Grow revenue and market share through our digital leadership position – In the first quarter of 2021, Precision exited with 40 AC Super Triple Alpha-Rigs equipped with our AlphaAutomation platform. During the quarter, we commercialized 10 additional AlphaApps, bringing the total count to 16 with several more in development. In the first quarter alone, AlphaApp days reached over 1,200, which compares to approximately 2,300 for the full year 2020. This increase was largely driven by operational performance, additional revenue generating days and uptake on new customers utilizing the full suite of Alpha technologies. During the quarter, Precision added eight new AlphaAutomation customers and increased paid AlphaAutomation days, AlphaApp days and AlphaAnalytics days quarter-over-quarter by 27%, 40% and 15%, respectively.
  2. Demonstrate operational leverage to generate free cash flow and reduce debt – In the first quarter of 2021, Precision generated $15 million of cash provided by operations (see “NON-GAAP MEASURES”) and $3 million of cash proceeds from the divestiture of non-core assets. Using cash on hand and cash generated, we reduced our debt levels by $29 million as of March 31, 2021 and another $22 million subsequently, achieving total year to date debt reduction of $51 million. Precision exited the quarter with a cash balance of $78 million and US$36 million drawn on our US$500 million Senior Credit Facility. Precision also established a $20 million Canadian Real Estate Credit Facility, extending debt maturities while providing flexibility to reduce interest expenses and maintaining strong liquidity.
  3. Deliver leading ESG (environmental, social and governance) performance to strengthen customer and stakeholder positioning – In the first quarter of 2021, Precision initiated the formation of partnerships with green solution providers to expand our offering of energy storage systems, bi-fuel and natural gas generators. We are piloting the launch of a rig-based GHG (greenhouse gas) monitoring system and are in the deployment phase of a plug and play mobile natural gas generator and energy storage system for existing electricity-powered drilling rigs with a major customer.

OUTLOOK

The oilfield services industry outlook and customer sentiment has improved in recent months, largely due to vaccine announcements, reopening of economies and steadily increasing commodity prices. Although longer-term visibility remains limited, improved fundamentals from recovering global oil demand should further stabilize commodity prices and result in customers continuing to increase activity levels throughout the year. In this environment, our customers are expected to remain focused on capital discipline and maximizing operational efficiencies. We anticipate these industry dynamics will accelerate the industry’s transition toward 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 remain 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 will run through the end of 2022 with government funds provided in stages. As the use of service rigs is an integral part of the well abandonment process, our well servicing business is positioned to capture these opportunities as a result of our scale, operational performance and strong safety record. During the fourth quarter, we saw a continued rise in the number of approved abandonment applications and further distribution of program funding to oilfield service providers. Our abandonment service activity continued to increase in the first quarter of 2021 compared with the fourth quarter of 2020 and we expect further increases through the end of the well site abandonment and rehabilitation program in 2022.

During the second quarter of 2020, the Government of Canada introduced the CEWS program to subsidize a portion of employee wages for Canadian employers whose businesses have been adversely 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. For the three months ended March 31, 2021, we recognized $9 million in CEWS program assistance, presented as offsets to operating and general and administrative expenses of $8 million and $1 million, respectively. The CEWS program has benefitted both Precision and our employees as it has allowed us to retain a higher employment level for Canadian positions within our organization. We remain highly supportive of this effective government program.

Contracts

Year to date in 2021 we have entered into 14 term contracts. The following chart outlines the average number of drilling rigs under contract by quarter as of April 21, 2021. For those quarters ending after March 31, 2021, 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 2020 Average for the quarter ended 2021 
 Mar. 31  June 30  Sept. 30  Dec. 31 Mar. 31  June 30  Sept. 30  Dec. 31 
Average rigs under term contract as of April 21, 2021:                              
U.S. 41   32   26   24  21   24   17   13 
Canada 5   4   3   4  6   6   6   6 
International 8   8   6   6  6   6   6   6 
Total 54   44   35   34  33   36   29   25 

The following chart outlines the average number of drilling rigs that we had under contract for 2020 and the average number of rigs we have under contract as of April 21, 2021.

  Average for the
year ended
   
  2020  2021   
Average rigs under term contract as of April 21, 2021:          
U.S.  31   19   
Canada  4   6   
International  7   6   
Total  42   31   

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 2020 Average for the quarter ended 2021 
 Mar. 31  June 30  Sept. 30  Dec. 31  Mar. 31 
Average Precision active rig count:                   
U.S. 55   30   21   26   33 
Canada 63   9   18   28   42 
International 8   8   6   6   6 
Total 126   47   45   60   81 

According to industry sources, as of April 21, 2021, the U.S. active land drilling rig count is down 17% from the same point last year while the Canadian active land drilling rig count is up 87%. To date in 2021, approximately 86% of the U.S. industry’s active rigs and 52% of the Canadian industry’s active rigs were drilling for oil targets, compared with 85% for the U.S. and 61% for Canada at the same time last year.

Capital Spending

Capital spending in 2021 is expected to be $54 million and includes $38 million for sustaining, infrastructure and intangibles and $16 million for upgrade and expansion. We expect that the $54 million will be split $50 million in the Contract Drilling Services segment, $3 million in the Completion and Production Services segment and $1 million to the Corporate segment. At March 31, 2021, Precision had capital commitments of $109 million with payments expected through to 2023.

SEGMENTED FINANCIAL RESULTS

 For the three months ended March 31, 
(Stated in thousands of Canadian dollars)2021  2020  % Change 
Revenue:           
Contract Drilling Services 204,819   346,549   (40.9)
Completion and Production Services 32,544   33,663   (3.3)
Inter-segment eliminations (890)  (728)  22.3 
  236,473   379,484   (37.7)
Adjusted EBITDA:(1)           
Contract Drilling Services 60,031   110,733   (45.8)
Completion and Production Services 7,802   3,235   141.2 
Corporate and Other (13,294)  (12,064)  10.2 
  54,539   101,904   (46.5)

(1)   See “NON-GAAP MEASURES.”

SEGMENT REVIEW OF CONTRACT DRILLING SERVICES

(Stated in thousands of Canadian dollars, except where noted)For the three months ended March 31, 
2021  2020  % Change 
Revenue 204,819   346,549   (40.9)
Expenses:           
Operating 138,121   222,329   (37.9)
General and administrative 6,667   8,770   (24.0)
Restructuring -   4,717  n/m 
Adjusted EBITDA(1) 60,031   110,733   (45.8)
Depreciation 65,232   75,724   (13.9)
Gain on asset disposals (1,725)  (2,842)  (39.3)
Operating earnings (loss)(1) (3,476)  37,851   (109.2)
Operating earnings (loss)(1) as a percentage of revenue (1.7)%  10.9%    

(1)   See “NON-GAAP MEASURES.”

United States onshore drilling statistics:(1)2021  2020 
 Precision  Industry(2)  Precision  Industry(2) 
Average number of active land rigs for quarters ended:               
March 31 33   378   55   764 

(1)   United States lower 48 operations only.
(2)   Baker Hughes rig counts.

Canadian onshore drilling statistics:(1)2021  2020 
 Precision  Industry(2)  Precision  Industry(2) 
Average number of active land rigs for quarters ended:               
March 31 42   145   63   196 

(1)   Canadian operations only.
(2)   Baker Hughes rig counts.

SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES

(Stated in thousands of Canadian dollars, except where noted)For the three months ended March 31, 
2021  2020  % Change 
Revenue 32,544   33,663   (3.3)
Expenses:           
Operating 23,390   26,626   (12.2)
General and administrative 1,352   1,479   (8.6)
Restructuring -   2,323  n/m 
Adjusted EBITDA(1) 7,802   3,235   141.2 
Depreciation 4,001   4,283   (6.6)
Gain on asset disposals (243)  (739)  (67.1)
Operating earnings (loss)(1) 4,044   (309)  (1,408.7)
Operating earnings (loss)(1) as a percentage of revenue 12.4%  (0.9)%    
Well servicing statistics:           
Number of service rigs (end of period) 123   123   - 
Service rig operating hours 34,903   34,365   1.6 
Service rig operating hour utilization 32%  31%    

(1)   See “NON-GAAP MEASURES.”

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 $13 million as compared with $12 million in the first quarter of 2020. Our Adjusted EBITDA was negatively impacted by higher share-based compensation costs as a result of our increased share price and the reclassification of certain share-based compensation plans, partially offset by CEWS program assistance of $1 million. During the first quarter of 2020, we incurred restructuring charges of $3 million to better align our cost structure with reduced activity.

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 2020 Annual Report.

A summary of amounts expensed under these plans during the reporting periods are as follows:

 For the three months ended March 31, 
(Stated in thousands of Canadian dollars)2021  2020 
Cash settled share-based incentive plans 9,868   (6,393)
Equity settled share-based incentive plans:       
Executive PSU 773   2,735 
Stock option plan 131   386 
Total share-based incentive compensation plan expense (recovery) 10,772   (3,272)
        
Allocated:       
Operating 2,264   (973)
General and Administrative 8,508   (2,299)
  10,772   (3,272)

Cash settled share-based compensation expense increased by $16 million in the current quarter primarily due to our increasing share price and reclassification of Executive PSUs as a cash settled share-based incentive plan. Conversely, our equity settled share-based compensation expense for the first quarter of 2021 decreased by $2 million from the Executive PSU reclassification.

Finance Charges

Net finance charges were $22 million, a decrease of $5 million compared with the first quarter of 2020, primarily due to reduced interest expense related to retired debt.

Interest charges on our U.S. denominated long-term debt in the first quarter of 2021 were US$16 million ($20 million) as compared with US$19 million ($26 million) in 2020.

Income Tax

Income tax recovery for the quarter was $2 million, consistent with 2020. As compared with the first quarter of 2020, we had a lower income tax recovery as a percentage of loss before income taxes as we did not recognize deferred tax assets on certain Canadian and international operating losses.

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$36 million drawn and US$32 million in outstanding letters of credit General corporate purposes November 21, 2023
Real estate credit facilities (secured)      
US$10 million Fully drawn General corporate purposes November 19, 2025
$20 million Fully drawn General corporate purposes March 16, 2026
Operating facilities (secured)      
$40 million Undrawn, except $7 million in outstanding letters of credit Letters of credit and general corporate purposes  
US$15 million Undrawn Short-term working capital requirements  
Demand letter of credit facility (secured)      
US$30 million Undrawn, except US$2 million in outstanding letters of credit Letters of credit  
Unsecured senior notes (unsecured)      
US$286 million – 7.75% Fully drawn Debt redemption and repurchases December 15, 2023
US$263 million – 5.25% Fully drawn Capital expenditures and general corporate purposes November 15, 2024
US$348 million – 7.125% Fully drawn Debt redemption and repurchases January 15, 2026

At March 31, 2021, we had $1,205 million outstanding under our Senior Credit Facility, Real Estate Credit Facilities and unsecured senior notes as compared with $1,250 million at December 31, 2020. To provide additional liquidity during the quarter, we established a $20 million Canadian Real Estate Credit Facility secured by real properties in Alberta, Canada.

The current blended cash interest cost of our debt is approximately 6.6%.

Covenants

Following is a listing of applicable financial covenants and their calculations for our Senior Credit Facility and Real Estate Credit Facilities:

 Covenant At March 31, 2021 
Senior Credit Facility     
Consolidated senior debt to consolidated covenant EBITDA(1)< 2.50  0.30 
Consolidated covenant EBITDA to consolidated interest expense> 1.25  2.14 
Real Estate Credit Facilities     
Consolidated covenant EBITDA to consolidated interest expense> 1.25  2.14 

(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.

At March 31, 2021, we were in compliance with the covenants of our Senior Credit Facility and Real Estate Credit Facilities.

Average shares outstanding

The following table reconciles the weighted average shares outstanding used in computing basic and diluted net loss per share:

 For the three months ended March 31, 
(Stated in thousands)2021  2020 
Weighted average shares outstanding – basic 13,349   13,771 
Effect of stock options and other equity compensation plans     
Weighted average shares outstanding – diluted 13,349   13,771 

QUARTERLY FINANCIAL SUMMARY

(Stated in thousands of Canadian dollars, except per share amounts) 2020  2021 
Quarters ended June 30  September 30  December 31  March 31 
Revenue  189,759   164,822   201,688   236,473 
Adjusted EBITDA(1)  58,465   47,771   55,263   54,539 
Net loss  (48,867)  (28,476)  (37,518)  (36,106)
Net loss per basic and diluted share  (3.56)  (2.08)  (2.74)  (2.70)
Funds provided by operations(1)  26,639   27,489   35,282   43,430 
Cash provided by operations  104,478   41,950   4,737   15,422 


(Stated in thousands of Canadian dollars, except per share amounts) 2019  2020 
Quarters ended June 30  September 30  December 31  March 31 
Revenue  359,424   375,552   372,301   379,484 
Adjusted EBITDA(1)  81,037   97,895   105,006   101,904 
Net loss  (13,801)  (3,534)  (1,061)  (5,277)
Net loss per basic and diluted share  (0.93)  (0.23)  (0.08)  (0.38)
Funds provided by operations(1)  40,950   79,930   75,779   81,317 
Cash provided by operations  106,035   66,556   74,981   74,953 

(1)   See “NON-GAAP MEASURES.”

IMPACT OF COVID-19

In March 2020, the 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 lockdowns, travel bans, 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 success of these interventions is not yet determinable. The situation remains dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on us is not known at this time.

Financial Impacts

The current challenging economic climate may have significant adverse impacts on Precision including, but not limited to, substantial reductions in revenue and cash flows, increased risk of non-collection of accounts receivable and future impairments of property, plant and equipment and intangible assets.

Our estimates and judgements made in the preparation of our financial statements are increasingly difficult and subject to a higher degree of measurement uncertainty during this volatile period.

At March 31, 2021, we reviewed each cash-generating unit (CGU) and did not identify any indications of impairment. Accordingly, we did not test our CGUs for impairment.

Operational impacts

During the pandemic, the oil and natural gas extractive services industry has been classified as an “essential service” and Precision’s operations, including all field operations, technical support centres and administration groups, have remained open. The vertical integration of our operations has ensured minimal supply chain constraints and service disruptions.

To manage the additional safety risks presented by COVID-19, we implemented a comprehensive infectious disease plan and added safety, sanitization and physical distancing procedures. Precision’s procedures are in accordance with recommendations from the World Health Organization, Center for Disease Control and various federal, state and provincial government health authorities.

Liquidity

Despite the challenges posed by COVID-19, we have maintained a strong liquidity position. We exited the quarter with a cash balance of $78 million and $595 million of available borrowing capacity under our secured credit facilities, providing us with $673 million of total liquidity as compared with $661 million at December 31, 2020. We expect that cash provided by operations, cash on hand and our sources of financing, including our Senior Credit Facility, will be sufficient to meet our debt obligations and fund committed and future capital expenditures.

NON-GAAP MEASURES

In this release we reference non-GAAP (Generally Accepted Accounting Principles) measures. Adjusted EBITDA, Covenant EBITDA, Operating Earnings (Loss), Funds Provided by (Used in) Operations and Working Capital are terms used by us to assess performance as we believe they provide useful supplemental information to investors. 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, gain on assets disposals and depreciation and amortization), as reported in the Interim Consolidated Statement of Net 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 March 31, 
(Stated in thousands of Canadian dollars)2021  2020 
Revenue 236,473   379,484 
Expenses:       
Operating 160,621   248,227 
General and administrative 21,313   19,535 
Restructuring    9,818 
Depreciation and amortization 72,013   82,914 
Gain on asset disposals (2,059)  (3,609)
Operating earnings (loss) (15,415)  22,599 
Foreign exchange (64)  2,691 
Finance charges 22,446   27,580 
Gain on repurchase of unsecured notes    (850)
Loss before income taxes (37,797)  (6,822)

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:

  • our strategic priorities for 2021;
  • our capital expenditure plans for 2021;
  • anticipated activity levels in 2021;
  • anticipated demand for our drilling rigs;
  • the average number of term contracts in place for 2021;
  • anticipated cash savings and liquidity;
  • customer adoption of Alpha technologies;
  • potential commercial opportunities and rig contract renewals; and
  • our future debt reduction plans.

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:

  • the fluctuation in oil prices may pressure customers into reducing or limiting their drilling budgets;
  • the success of our response to the COVID-19 global pandemic;
  • the status of current negotiations with our customers and vendors;
  • customer focus on safety performance;
  • existing term contracts are neither renewed nor terminated prematurely;
  • our ability to deliver rigs to customers on a timely basis; and
  • the general stability of the economic and political environments in the jurisdictions where we operate.

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:

  • volatility in the price and demand for oil and natural gas;
  • fluctuations in the level of oil and natural gas exploration and development activities;
  • fluctuations in the demand for contract drilling, directional drilling, well servicing and ancillary oilfield services;
  • our customers’ inability to obtain adequate credit or financing to support their drilling and production activity;
  • the success of vaccinations for COVID-19 worldwide;
  • changes in drilling and well servicing technology, which could reduce demand for certain rigs or put us at a competitive advantage;
  • shortages, delays and interruptions in the delivery of equipment supplies and other key inputs;
  • liquidity of the capital markets to fund customer drilling programs;
  • availability of cash flow, debt and equity sources to fund our capital and operating requirements, as needed;
  • the impact of weather and seasonal conditions on operations and facilities;
  • competitive operating risks inherent in contract drilling, directional drilling, well servicing and ancillary oilfield services;
  • ability to improve our rig technology to improve drilling efficiency;
  • general economic, market or business conditions;
  • the availability of qualified personnel and management;
  • a decline in our safety performance which could result in lower demand for our services;
  • changes in laws or regulations, including changes in environmental laws and regulations such as increased regulation of hydraulic fracturing or restrictions on the burning of fossil fuels and greenhouse gas emissions, which could have an adverse impact on the demand for oil and gas;
  • terrorism, social, civil and political unrest in the foreign jurisdictions where we operate;
  • fluctuations in foreign exchange, interest rates and tax rates; and
  • other unforeseen conditions which could impact the use of services supplied by Precision and Precision’s ability to respond to such conditions.

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, 2020, 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 report 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) March 31, 2021  December 31, 2020 
ASSETS        
Current assets:        
Cash $77,831  $108,772 
Accounts receivable  220,878   207,209 
Inventory  25,605   26,282 
Total current assets  324,314   342,263 
Non-current assets:        
Deferred tax assets  1,265   1,098 
Right-of-use assets  53,122   55,168 
Property, plant and equipment  2,390,395   2,472,683 
Intangibles  26,500   27,666 
Total non-current assets  2,471,282   2,556,615 
Total assets $2,795,596  $2,898,878 
         
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable and accrued liabilities $145,128  $150,957 
Income taxes payable  4,181   3,702 
Current portion of lease obligations  11,155   11,285 
Current portion of long-term debt  2,218   896 
Total current liabilities  162,682   166,840 
         
Non-current liabilities:        
Share-based compensation  7,747   11,507 
Provisions and other  7,465   7,563 
Lease obligations  47,111   48,882 
Long-term debt  1,189,880   1,236,210 
Deferred tax liabilities  18,371   21,236 
Total non-current liabilities  1,270,574   1,325,398 
Shareholders’ equity:        
Shareholders’ capital  2,281,444   2,285,738 
Contributed surplus  73,819   72,915 
Deficit  (1,125,700)  (1,089,594)
Accumulated other comprehensive income  132,777   137,581 
Total shareholders’ equity  1,362,340   1,406,640 
Total liabilities and shareholders’ equity $2,795,596  $2,898,878 


CONDENSED INTERIM CONSOLIDATED STATEMENTS OF NET LOSS (UNAUDITED)

(Stated in thousands of Canadian dollars, except per share amounts) Three Months Ended March 31, 
 2021  2020 
         
         
Revenue $236,473  $379,484 
Expenses:        
Operating  160,621   248,227 
General and administrative  21,313   19,535 
Restructuring     9,818 
Earnings before income taxes, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization  54,539   101,904 
Depreciation and amortization  72,013   82,914 
Gain on asset disposals  (2,059)  (3,609)
Foreign exchange  (64)  2,691 
Finance charges  22,446   27,580 
Gain on repurchase of unsecured senior notes     (850)
Loss before income taxes  (37,797)  (6,822)
Income taxes:        
Current  784   1,059 
Deferred  (2,475)  (2,604)
   (1,691)  (1,545)
Net loss $(36,106) $(5,277)
Net loss per share:        
Basic $(2.70) $(0.38)
Diluted $(2.70) $(0.38)


CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

  Three Months Ended March 31, 
(Stated in thousands of Canadian dollars) 2021  2020 
Net loss $(36,106) $(5,277)
Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency  (20,998)  157,008 
Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt  15,909   (118,156)
Tax benefit related to net investment hedge of long-term debt  285    
Comprehensive income (loss) $(40,910) $33,575 


CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

  Three Months Ended March 31, 
(Stated in thousands of Canadian dollars) 2021  2020 
Cash provided by (used in):        
Operations:        
Net loss $(36,106) $(5,277)
Adjustments for:        
Long-term compensation plans  7,148   (703)
Depreciation and amortization  72,013   82,914 
Gain on asset disposals  (2,059)  (3,609)
Foreign exchange  558   2,872 
Finance charges  22,446   27,580 
Income taxes  (1,691)  (1,545)
Other  3   60 
Gain on repurchase of unsecured senior notes     (850)
Income taxes paid  (161)  (820)
Interest paid  (18,766)  (19,495)
Interest received  45   190 
Funds provided by operations  43,430   81,317 
Changes in non-cash working capital balances  (28,008)  (6,364)
   15,422   74,953 
Investments:        
Purchase of property, plant and equipment  (8,436)  (11,485)
Purchase of intangibles     (57)
Proceeds on sale of property, plant and equipment  3,324   5,690 
Changes in non-cash working capital balances  (4,802)  (3,526)
   (9,914)  (9,378)
Financing:        
Issuance of long-term debt  20,000    
Repayments of long-term debt  (49,425)  (40,554)
Repurchase of share capital  (4,294)  (5,244)
Debt issuance costs  (244)   
Debt amendment fees     (21)
Lease payments  (1,621)  (1,728)
   (35,584)  (47,547)
Effect of exchange rate changes on cash  (865)  4,273 
Increase (decrease) in cash  (30,941)  22,301 
Cash, beginning of period  108,772   74,701 
Cash, end of period $77,831  $97,002 


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, 2021 $2,285,738  $72,915  $137,581  $(1,089,594) $1,406,640 
Net loss for the period           (36,106)  (36,106)
Other comprehensive loss for the period        (4,804)     (4,804)
Share repurchases  (4,294)           (4,294)
Share-based compensation reclassification     (1,455)        (1,455)
Share-based compensation expense     2,359         2,359 
Balance at March 31, 2021 $2,281,444  $73,819  $132,777  $(1,125,700) $1,362,340 


(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           (5,277)  (5,277)
Other comprehensive income for the period        38,852      38,852 
Share repurchases  (5,244)           (5,244)
Share-based compensation reclassification     (1,498)        (1,498)
Share-based compensation expense     3,121         3,121 
Balance at March 31, 2020 $2,291,134  $67,878  $173,107  $(974,733) $1,557,386 


FIRST QUARTER 2021 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, April 22, 2021.

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 April 26, 2021 by dialing 855-859-2056 or 404-537-3406, passcode 6870957.

About Precision

Precision is a leading provider of safe and environmentally responsible High Performance, High Value services to the energy industry, offering customers access to an extensive fleet of Super Series drilling rigs. Precision has commercialized an industry-leading digital technology portfolio known as “Alpha” that utilizes advanced automation software and analytics to generate efficient, predictable, and repeatable results for energy customers. Additionally, Precision offers well service rigs, camps and rental equipment 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, Director, Investor Relations and Corporate Development
403.716.4500

800, 525 - 8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1
Website: www.precisiondrilling.com


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