PRECISION DRILLING Corp 6-K, filed Oct 22, 2021
PRECISION DRILLING Corp (PDS)
About this 6-K
PRECISION DRILLING Corp filed this 6-K on October 22, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Section 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of, October 2021
Commission File Number: 001-14534
Precision Drilling Corporation
(Exact name of registrant as specified in its charter)
800, 525 - 8 Avenue S.W.
Calgary, Alberta
Canada T2P 1G1
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover 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): ___
SIGNATURE
Pursuant to the requirements of Section 12 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.
| Dated: October 22, 2021 | PRECISION DRILLING CORPORATION | ||
| By: | /s/ Carey T Ford | ||
| Name: | Carey T Ford | ||
| Title: | Senior Vice President & Chief Financial Officer | ||
Exhibit 31.1
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
I, Kevin A. Neveu, President and Chief Executive Officer of Precision Drilling Corporation, certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Precision Drilling Corporation (the "issuer"), for the interim period ended September 30, 2021. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
1
| 5.1 | Control framework: The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992) and the Control Objectives for Information and Related Technologies (COBIT). |
| 5.2 | ICFR – material weakness relating to design: N/A. |
| 5.3 | Limitation on scope of design: N/A. |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2021 and ended on September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: October 22, 2021
| By: | /s/ Kevin A Neveu | |
Name: Kevin A. Neveu | ||
| Title: President and Chief Executive Officer | ||
Exhibit 31.2
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
I, Carey T. Ford, Senior Vice President and Chief Financial Officer of Precision Drilling Corporation, certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Precision Drilling Corporation (the "issuer"), for the interim period ended September 30, 2021. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
1
| 5.1 | Control framework: The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992) and the Control Objectives for Information and Related Technologies (COBIT). |
| 5.2 | ICFR – material weakness relating to design: N/A. |
| 5.3 | Limitation on scope of design: N/A. |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2021 and ended on September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: October 22, 2021
| By: | /s/ Carey T Ford | |
Name: Carey T. Ford | ||
| Title: Senior Vice President and Chief Financial Officer | ||
Exhibit 99.1
PRECISION DRILLING CORPORATION
Third Quarter Report for the three and nine months ended September 30, 2021 and 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Discussion and Analysis for the three and nine months ended September 30, 2021 of Precision Drilling Corporation (“Precision” or the “Corporation”) prepared as of October 20, 2021 focuses on the unaudited Condensed Interim Consolidated Financial Statements and related notes and pertains to known risks and uncertainties relating to the oilfield services sector. This discussion should not be considered all-inclusive as it does not include all changes regarding general economic, political, governmental and environmental events. This discussion should be read in conjunction with the Corporation’s 2020 Annual Report, Annual Information Form, unaudited September 30, 2021 Condensed Interim Consolidated Financial Statements and related notes.
This report 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 report. This report contains references to Adjusted EBITDA (earnings before income taxes, loss (gain) on repurchase of unsecured senior notes, gain on investments and other assets, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization), 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 report.
Precision Drilling announces 2021 third quarter financial results:
| · | Adjusted EBITDA (See “NON-GAAP MEASURES”) of $45 million. Excluding the impact of share-based compensation charges our Adjusted EBITDA was $59 million. |
| · | Revenue of $254 million was an increase of 54% compared with the third quarter of 2020. |
| · | Net loss of $38 million or $2.86 per share compared with a net loss of $28 million or $2.08 per share in the third quarter of 2020. |
| · | Generated cash and funds provided by operations (see “NON-GAAP MEASURES”) of $22 million and $34 million, respectively. |
| · | Third quarter ending cash balance was $57 million, with available liquidity of $500 million. |
| · | Third quarter and year to date debt reduction of $8 million and $60 million, respectively. |
| · | Third quarter capital expenditures were $20 million. |
| · | Recognized the Canadian government’s Canada Emergency Wage Subsidy (CEWS) program assistance of $6 million. |
| 1 |
SELECT FINANCIAL AND OPERATING INFORMATION
Financial Highlights
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||
| (Stated in thousands of Canadian dollars, except per share amounts) | 2021 | 2020 | % Change | 2021 | 2020 | % Change | ||||||||||||||||||
| Revenue | 253,813 | 164,822 | 54.0 | 691,645 | 734,065 | (5.8 | ) | |||||||||||||||||
| Adjusted EBITDA(1) | 45,408 | 47,771 | (4.9 | ) | 128,891 | 208,140 | (38.1 | ) | ||||||||||||||||
| Operating earnings (loss)(1) | (20,762 | ) | (26,785 | ) | (22.5 | ) | (76,033 | ) | (23,375 | ) | 225.3 | |||||||||||||
| Net loss | (38,032 | ) | (28,476 | ) | 33.6 | (150,050 | ) | (82,620 | ) | 81.6 | ||||||||||||||
| Cash provided by operations | 21,871 | 41,950 | (47.9 | ) | 79,512 | 221,381 | (64.1 | ) | ||||||||||||||||
| Funds provided by operations(1) | 33,525 | 27,489 | 22.0 | 89,562 | 135,445 | (33.9 | ) | |||||||||||||||||
| Capital spending: | ||||||||||||||||||||||||
| Expansion and upgrade | 5,998 | - | n.m. | 15,881 | 13,764 | 15.4 | ||||||||||||||||||
| Maintenance and infrastructure | 13,502 | 3,211 | 320.5 | 32,310 | 24,859 | 30.0 | ||||||||||||||||||
| Intangibles | - | - | n.m. | - | 57 | (100.0 | ) | |||||||||||||||||
| Proceeds on sale | (4,476 | ) | (5,705 | ) | (21.5 | ) | (10,390 | ) | (16,416 | ) | (36.7 | ) | ||||||||||||
| Net capital spending | 15,024 | (2,494 | ) | (702.4 | ) | 37,801 | 22,264 | 69.8 | ||||||||||||||||
| Net loss per share: | ||||||||||||||||||||||||
| Basic | (2.86 | ) | (2.08 | ) | 37.4 | (11.27 | ) | (6.02 | ) | 87.2 | ||||||||||||||
| Diluted | (2.86 | ) | (2.08 | ) | 37.4 | (11.27 | ) | (6.02 | ) | 87.2 | ||||||||||||||
| (1) | See “NON-GAAP MEASURES.” |
n.m. Not meaningful
Operating Highlights
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||
| 2021 | 2020 | % Change | 2021 | 2020 | % Change | |||||||||||||||||||
| Contract drilling rig fleet | 227 | 227 | - | 227 | 227 | - | ||||||||||||||||||
| Drilling rig utilization days: | ||||||||||||||||||||||||
| U.S. | 3,785 | 1,957 | 93.4 | 10,315 | 9,684 | 6.5 | ||||||||||||||||||
| Canada | 4,648 | 1,613 | 188.2 | 10,963 | 8,216 | 33.4 | ||||||||||||||||||
| International | 552 | 559 | (1.3 | ) | 1,638 | 1,974 | (17.0 | ) | ||||||||||||||||
| Revenue per utilization day: | ||||||||||||||||||||||||
| U.S.(1) (US$) | 20,331 | 28,334 | (28.2 | ) | 20,904 | 26,335 | (20.6 | ) | ||||||||||||||||
| Canada (Cdn$) | 19,427 | 21,430 | (9.3 | ) | 20,295 | 21,593 | (6.0 | ) | ||||||||||||||||
| International (US$) | 52,277 | 54,887 | (4.8 | ) | 53,095 | 54,631 | (2.8 | ) | ||||||||||||||||
| Operating cost per utilization day: | ||||||||||||||||||||||||
| U.S. (US$) | 15,120 | 16,037 | (5.7 | ) | 14,639 | 14,727 | (0.6 | ) | ||||||||||||||||
| Canada (Cdn$) | 13,189 | 12,924 | 2.1 | 13,204 | 13,940 | (5.3 | ) | |||||||||||||||||
| Service rig fleet | 123 | 123 | - | 123 | 123 | - | ||||||||||||||||||
| Service rig operating hours | 32,244 | 15,599 | 106.7 | 93,777 | 54,666 | 71.5 | ||||||||||||||||||
| (1) | Includes revenue from idle but contracted rig days. |
Financial Position
| (Stated in thousands of Canadian dollars, except ratios) | September 30, 2021 | December 31, 2020 | ||||||
| Working capital(1) | 120,259 | 175,423 | ||||||
| Cash | 57,096 | 108,772 | ||||||
| Long-term debt | 1,162,841 | 1,236,210 | ||||||
| Total long-term financial liabilities | 1,241,708 | 1,304,162 | ||||||
| Total assets | 2,720,415 | 2,898,878 | ||||||
| Long-term debt to long-term debt plus equity ratio | 0.48 | 0.47 | ||||||
| (1) | See “NON-GAAP MEASURES.” |
| 2 |
Summary for the three months ended September 30, 2021:
| · | Revenue for the third quarter was $254 million, 54% higher than in 2020 and was the result of increased drilling and service rig activity, partially offset by lower drilling day rates. Drilling rig utilization days increased by 93% in the U.S. and 188% in Canada and well service activity increased 107% as compared with the third quarter of 2020. Our international drilling activity decreased slightly from 2020 due to the expiration of a drilling contract. |
| · | Adjusted EBITDA (see “NON-GAAP MEASURES”) for the quarter was $45 million, $2 million lower than 2020. Our Adjusted EBITDA as a percentage of revenue was 18% this quarter, compared with 29% in the comparative quarter. Our current quarter Adjusted EBITDA was negatively impacted by higher share-based compensation charges due to our increased share price and lower average day rates, partially offset by improved activity. Excluding the impact of $13 million of share-based compensation charges, our third quarter Adjusted EBITDA was $59 million as compared with the prior year Adjusted EBITDA excluding the impact of $4 million of share-based compensation of $51 million. |
| · | Operating loss (see “NON-GAAP MEASURES”) for the quarter was $21 million compared with $27 million in 2020. |
| · | General and administrative expenses this quarter were $24 million, $12 million higher than in 2020 due to our increased share-based compensation charges and lower CEWS program assistance. |
| · | Net finance charges for the quarter were $21 million, $7 million lower than in 2020 and was primarily due to reduced interest expense due to lower debt levels and lower average cost of borrowing. |
| · | In the U.S., revenue per utilization day in the third quarter of 2021 decreased to US$20,331 compared with US$28,334 in 2020. The decrease was primarily the result of lower revenue from idle but contracted rigs, turnkey activity and lower fleet average day rates, partially offset by higher Alpha revenue. During the third quarter of 2021, we recognized revenue from idle but contracted rigs and turnkey projects of nil, as compared with US$10 million and US$2 million, respectively, in 2020. Our third quarter operating costs on a per day basis decreased to US$15,120, compared with US$16,037 in 2020, and was mainly due to lower turnkey activity. On a sequential basis, revenue per utilization day, excluding revenue from turnkey drilling and idle but contracted rigs, increased by US$692 primarily due to higher fleet average day rates, while operating costs per day increased by US$1,375 due to higher repairs and maintenance. |
| · | In Canada, average revenue per utilization day for contract drilling rigs for the quarter was $19,427 compared with $21,430 in 2020. The lower average revenue per utilization day in 2021 was primarily due to our rig mix. Average operating costs per utilization day in Canada for the quarter increased to $13,189 compared with $12,924 in 2020. The increase was mainly due to industry wage increases, partially offset by fixed costs being spread over higher activity. |
| · | During the quarter, we recognized CEWS program assistance of $6 million as compared with $8 million in 2020. CEWS program assistance was presented as offsets to operating and general and administrative costs of $5 million and $1 million, respectively, as compared with $6 million and $2 million in 2020. |
| · | We realized third quarter revenue from international contract drilling of US$29 million in 2021, as compared with US$31 million in 2020. The lower revenue in 2021 was primarily due to lower day rates. The average revenue per utilization day for the quarter was US$52,277, 5% lower than in the third quarter of 2020. |
| · | Cash and funds provided by operations (see “NON-GAAP MEASURES”) in the third quarter of 2021 were $22 million and $34 million, respectively, compared with $42 million and $27 million in 2020. |
| · | Capital expenditures were $20 million as compared with $3 million in the third quarter of 2020. Capital spending included $6 million for expansion and upgrade capital and $14 million for the maintenance of existing assets, infrastructure spending and intangibles. |
| · | During the third quarter of 2021, we reduced long-term debt by $8 million. |
Summary for the nine months ended September 30, 2021:
| · | Revenue for the first nine months of 2021 was $692 million, a decrease of 6% from 2020. |
| · | Adjusted EBITDA (see “NON-GAAP MEASURES”) for the period was $129 million, $79 million lower than 2020. Our Adjusted EBITDA was negatively impacted by lower idle but contracted rig revenue, higher share-based compensation charges due to our increased share price and lower average day rates, partially offset by improved North American activity. |
| · | General and administrative costs were $77 million, an increase of $27 million from 2020. The increase was the result of higher share-based compensation charges. |
| · | Net finance charges were $71 million, a decrease of $12 million from 2020 primarily due to reduced interest expense due to lower debt levels and lower average cost of borrowing, partially offset by higher amortized debt issue costs. |
| 3 |
| · | Cash provided by operations was $80 million in 2021 as compared with $221 million in 2020. Funds provided by operations (see “NON-GAAP MEASURES”) in 2021 were $90 million, a decrease of $46 million from the prior year comparative period of $135 million. |
| · | Capital expenditures were $48 million in 2021, an increase of $10 million for the same period in 2020. Capital spending in 2021 included $16 million for expansion and upgrade capital and $32 million for the maintenance of existing assets, infrastructure spending and intangibles. |
| · | As of September 30, 2021, we have reduced long-term debt by $60 million and 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 – Precision exited the third quarter with 46 AC Super Triple Alpha-rigs equipped with our AlphaAutomation platform and 16 commercialized AlphaApps. Our third quarter paid AlphaApp days increased 36% compared with the second quarter of 2021, with the increase largely driven by operational performance, additional revenue generating days and further uptake of customers fully utilizing our suite of Alpha technologies. During the quarter, Precision added four new AlphaAutomation customers and increased paid AlphaAutomation days, AlphaApp days and AlphaAnalytics days quarter-over-quarter by 8%, 36% and 4%, respectively. |
| 2. | Demonstrate operational leverage to generate free cash flow and reduce debt – In the third quarter of 2021, Precision generated $22 million of cash provided by operations (see “NON-GAAP MEASURES”) and $4 million of cash proceeds from the divestiture of non-core assets. As of September 30, 2021, we have reduced debt levels by $60 million, leaving $40 million of further debt reduction to achieve the low end of our 2021 debt reduction target of $100-$125 million. Precision exited the quarter with a cash balance of $57 million, US$161 million drawn on our US$500 million Senior Credit Facility and available liquidity of $500 million. |
| 3. | Deliver leading ESG (environmental, social and governance) performance to strengthen customer and stakeholder positioning – During the third quarter, we introduced our Evergreen suite of environmental solutions focused on emissions reduction products and services to complement our Super Series drilling rigs and our Alpha digital products. We successfully deployed our first Evergreen hybrid battery storage, natural gas and low emission power generating system to a Super Triple drilling rig in the Canadian market. The system reduces GHG emissions and fuel costs, helping our customer achieve their GHG emission-reduction targets and improving their well construction economics. We have seen strong customer appetite in both Canada and the U.S. for hybrid battery power systems and have multiple commitments to deploy several additional systems by mid-2022. In the fourth quarter, we expect to deploy three real-time combustion fuel monitoring packages, using AlphaAnalytics to determine precise baseline emission data. These accurate baselines will enable us to make customer-specific recommendations to further reduce rig-generated GHG emissions. |
OUTLOOK
The continued rise in global energy demand, sustained periods of strong commodity prices and the multi-year period of upstream underinvestment provide a promising backdrop for the oilfield services industry. At current commodity prices, we anticipate higher demand for our services and improved fleet utilization as customers look to maintain and replenish production levels as drilled but uncompleted well inventories have depleted.
In Canada, industry activity has surpassed pre-pandemic levels as takeaway capacity continues to improve, price differentials shrink and the startup of LNG exports is expected in the medium term.
Interest in our Evergreen solutions has gained momentum as customers look for meaningful solutions to achieve their emission reduction targets, and in many cases, also improve their well economics. Our suite of Alpha digital technologies will continue to be a key competitive differentiator as our predictable and repeatable drilling results deliver exceptional value to our customers by reducing risks, time and well construction costs.
The Government of Canada’s $1.7 billion well site abandonment and rehabilitation program has supported industry activity levels and provided thousands of jobs throughout Western Canada. The program runs through to the end of 2022 with government funds provided in stages. Our well servicing business continues to capture opportunities because of our scale, operational performance and strong safety record. During the third quarter of 2021, our abandonment activity remained strong and we expect this momentum to continue through to the end of the program in 2022.
| 4 |
During 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. For the three months ended September 30, 2021, we recognized $6 million (2020 – $8 million) in CEWS program assistance, which is presented as offsets to operating and general and administrative expenses of $5 million (2020 - $6 million) and $1 million (2020 - $2 million), respectively. Unless extended, the CEWS program is expected to end in the fourth quarter of 2021.
Commodity Prices
During the third quarter of 2021, average West Texas Intermediate and Western Canadian Select oil prices were higher by 72% and 79%, respectively, from the comparative quarter. While average Henry Hub and AECO natural gas prices improved by 102% and 60%, respectively from 2020.
| For the three months ended September 30, | Year ended December 31, | |||||||||||
| 2021 | 2020 | 2020 | ||||||||||
| Average oil and natural gas prices | ||||||||||||
| Oil | ||||||||||||
| West Texas Intermediate (per barrel) (US$) | 70.49 | 40.90 | 39.40 | |||||||||
| Western Canadian Select (per barrel) (US$) | 56.96 | 31.81 | 35.59 | |||||||||
| Natural gas | ||||||||||||
| United States | ||||||||||||
| Henry Hub (per MMBtu) (US$) | 4.31 | 2.13 | 2.13 | |||||||||
| Canada | ||||||||||||
| AECO (per MMBtu) (CDN$) | 3.61 | 2.26 | 2.24 | |||||||||
Contracts
Year to date in 2021 we have entered into 28 term contracts. The following chart outlines the average number of drilling rigs under contract by quarter as of October 20, 2021. For those quarters ending after September 30, 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.
| 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 October 20, 2021: | ||||||||||||||||||||||||||||||||||
| U.S. | 41 | 32 | 26 | 24 | 21 | 24 | 22 | 22 | ||||||||||||||||||||||||||
| Canada | 5 | 4 | 3 | 4 | 6 | 6 | 7 | 7 | ||||||||||||||||||||||||||
| International | 8 | 8 | 6 | 6 | 6 | 6 | 6 | 6 | ||||||||||||||||||||||||||
| Total | 54 | 44 | 35 | 34 | 33 | 36 | 35 | 35 | ||||||||||||||||||||||||||
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 October 20, 2021.
| Average for the year ended | ||||||||
| 2020 | 2021 | |||||||
| Average rigs under term contract as of October 20, 2021: | ||||||||
| U.S. | 31 | 22 | ||||||
| Canada | 4 | 7 | ||||||
| International | 7 | 6 | ||||||
| Total | 42 | 35 | ||||||
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.
| 5 |
| 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 | ||||||||||||||||||||||
| Average Precision active rig count: | ||||||||||||||||||||||||||||
| U.S. | 55 | 30 | 21 | 26 | 33 | 39 | 41 | |||||||||||||||||||||
| Canada | 63 | 9 | 18 | 28 | 42 | 27 | 51 | |||||||||||||||||||||
| International | 8 | 8 | 6 | 6 | 6 | 6 | 6 | |||||||||||||||||||||
| Total | 126 | 47 | 45 | 60 | 81 | 72 | 98 | |||||||||||||||||||||
According to industry sources, as of October 20, 2021, the U.S. active land drilling rig count has increased 98% from the same point last year while the Canadian active land drilling rig count increased by 110%. To date in 2021, approximately 78% of the U.S. industry’s active rigs and 56% of the Canadian industry’s active rigs were drilling for oil targets, compared with 80% for the U.S. and 54% for Canada at the same time last year.
Capital Spending
Capital spending in 2021 is expected to be $74 million and includes $51 million for sustaining, infrastructure and intangibles and $23 million for expansion and upgrades. We expect that the $74 million will be split $68 million in the Contract Drilling Services segment, $5 million in the Completion and Production Services segment and $1 million to the Corporate segment. At September 30, 2021, Precision had capital commitments of $137 million with payments expected through 2023.
SEGMENTED FINANCIAL RESULTS
Precision’s operations are reported in two segments: Contract Drilling Services, which includes our drilling rig, directional drilling (divested in the third quarter of 2021), 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 September 30, | For the nine months ended September 30, | |||||||||||||||||||||||
| (Stated in thousands of Canadian dollars) | 2021 | 2020 | % Change | 2021 | 2020 | % Change | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Contract Drilling Services | 226,957 | 150,773 | 50.5 | 613,032 | 682,060 | (10.1 | ) | |||||||||||||||||
| Completion and Production Services | 28,143 | 14,443 | 94.9 | 81,354 | 53,631 | 51.7 | ||||||||||||||||||
| Inter-segment eliminations | (1,287 | ) | (394 | ) | 226.6 | (2,741 | ) | (1,626 | ) | 68.6 | ||||||||||||||
| 253,813 | 164,822 | 54.0 | 691,645 | 734,065 | (5.8 | ) | ||||||||||||||||||
| Adjusted EBITDA:(1) | ||||||||||||||||||||||||
| Contract Drilling Services | 55,384 | 51,594 | 7.3 | 163,118 | 236,940 | (31.2 | ) | |||||||||||||||||
| Completion and Production Services | 5,479 | 3,945 | 38.9 | 17,533 | 5,960 | 194.2 | ||||||||||||||||||
| Corporate and Other | (15,455 | ) | (7,768 | ) | 99.0 | (51,760 | ) | (34,760 | ) | 48.9 | ||||||||||||||
| 45,408 | 47,771 | (4.9 | ) | 128,891 | 208,140 | (38.1 | ) | |||||||||||||||||
| (1) | See “NON-GAAP MEASURES.” |
SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||
| (Stated in thousands of Canadian dollars, except where noted) | 2021 | 2020 | % Change | 2021 | 2020 | % Change | ||||||||||||||||||
| Revenue | 226,957 | 150,773 | 50.5 | 613,032 | 682,060 | (10.1 | ) | |||||||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Operating | 164,521 | 93,669 | 75.6 | 429,036 | 417,496 | 2.8 | ||||||||||||||||||
| General and administrative | 7,052 | 5,151 | 36.9 | 20,878 | 20,004 | 4.4 | ||||||||||||||||||
| Restructuring | - | 359 | (100.0 | ) | - | 7,620 | (100.0 | ) | ||||||||||||||||
| Adjusted EBITDA(1) | 55,384 | 51,594 | 7.3 | 163,118 | 236,940 | (31.2 | ) | |||||||||||||||||
| Depreciation | 62,751 | 70,675 | (11.2 | ) | 191,084 | 220,461 | (13.3 | ) | ||||||||||||||||
| Gain on asset disposals | (3,035 | ) | (2,684 | ) | 13.1 | (5,355 | ) | (8,617 | ) | (37.9 | ) | |||||||||||||
| Operating earnings (loss)(1) | (4,332 | ) | (16,397 | ) | (73.6 | ) | (22,611 | ) | 25,096 | (190.1 | ) | |||||||||||||
| Operating earnings (loss)(1) as a percentage of revenue | (1.9 | )% | (10.9 | )% | (3.7 | )% | 3.7 | % | ||||||||||||||||
| (1) | See “NON-GAAP MEASURES.” |
| 6 |
| 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 | ||||||||||||
| June 30 | 39 | 437 | 30 | 378 | ||||||||||||
| September 30 | 41 | 485 | 21 | 241 | ||||||||||||
| Year to date average | 38 | 433 | 35 | 461 | ||||||||||||
| (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 | ||||||||||||
| June 30 | 27 | 72 | 9 | 25 | ||||||||||||
| September 30 | 51 | 151 | 18 | 47 | ||||||||||||
| Year to date average | 40 | 123 | 30 | 89 | ||||||||||||
| (1) | Canadian operations only. |
| (2) | Baker Hughes rig counts. |
Revenue from Contract Drilling Services was $227 million this quarter, 51% higher than 2020, while Adjusted EBITDA (see “NON-GAAP MEASURES”) increased by 7% to $55 million. The increase in revenue and Adjusted EBITDA was primarily due to higher activity, partially offset by lower drilling day rates.
Drilling rig utilization days (drilling days plus move days) in the U.S. were 3,785, 93% higher than 2020. Drilling rig utilization days in Canada were 4,648 during the third quarter of 2021, 188% higher than 2020. The increase in utilization days in both the U.S. and Canada was consistent with higher industry activity. Drilling rig utilization days in our international business were 552, a decrease of 1% from 2020 due to the expiration of a drilling contract.
Revenue per utilization day in the U.S. in the third quarter of 2021 decreased 28% from the comparable quarter. The decrease was primarily the result of lower revenue from idle but contracted rigs, turnkey activity and lower fleet average day rates, partially offset by higher Alpha revenue. In the U.S., during the third quarter of 2021, we recognized revenue from idle but contracted rigs and turnkey projects of nil, as compared with US$10 million and US$2 million, respectively, in 2020. Compared with the same quarter in 2020, drilling rig revenue per utilization day in Canada decreased 9% due to our rig mix. Our international average revenue per utilization day for the quarter was 5% lower than the third quarter of 2020, primarily due to the expiration of a drilling contract.
In the U.S., 49% of utilization days were generated from rigs under term contract as compared with 78% in the third quarter of 2020. In Canada, 12% of our utilization days in the quarter were generated from rigs under term contract, compared with 15% in 2020.
In the U.S., operating costs for the quarter on a per day basis were lower than the prior year period primarily due to lower turnkey activity. On a per utilization day basis, operating costs in Canada were higher than the 2020 quarter, mainly due to industry wage increases, partially offset by fixed costs being spread over higher activity. During the quarter, CEWS program assistance offset operating costs by $5 million as compared with $4 million in 2020.
Depreciation expense in the quarter was 11% lower than in 2020 primarily because of a lower capital asset base as assets become fully depreciated, decommissioned or disposed.
In the third quarter of 2021, we sold used assets recognizing a gain on disposal of $3 million, consistent with 2020. During the quarter, we disposed of our directional drilling business for a gain of $1 million.
| 7 |
SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||
| (Stated in thousands of Canadian dollars, except where noted) | 2021 | 2020 | % Change | 2021 | 2020 | |||||||||||||||||||
| Revenue | 28,143 | 14,443 | 94.9 | 81,354 | 53,631 | 51.7 | ||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Operating | 21,188 | 9,872 | 114.6 | 59,703 | 42,056 | 42.0 | ||||||||||||||||||
| General and administrative | 1,476 | 626 | 135.8 | 4,118 | 3,020 | 36.4 | ||||||||||||||||||
| Restructuring | - | - | n.m. | - | 2,595 | (100.0 | ) | |||||||||||||||||
| Adjusted EBITDA(1) | 5,479 | 3,945 | 38.9 | 17,533 | 5,960 | 194.2 | ||||||||||||||||||
| Depreciation | 4,004 | 4,014 | (0.2 | ) | 11,859 | 12,416 | (4.5 | ) | ||||||||||||||||
| Gain on asset disposals | (95 | ) | (236 | ) | (59.7 | ) | (551 | ) | (1,237 | ) | (55.5 | ) | ||||||||||||
| Operating earnings (loss)(1) | 1,570 | 167 | 840.1 | 6,225 | (5,219 | ) | (219.3 | ) | ||||||||||||||||
| Operating earnings (loss)(1) as a percentage of revenue | 5.6 | % | 1.2 | % | 7.7 | % | (9.7 | )% | ||||||||||||||||
| Well servicing statistics: | ||||||||||||||||||||||||
| Number of service rigs (end of period) | 123 | 123 | - | 123 | 123 | - | ||||||||||||||||||
| Service rig operating hours | 32,244 | 15,599 | 106.7 | 93,777 | 54,666 | 71.5 | ||||||||||||||||||
| Service rig operating hour utilization | 28 | % | 14 | % | 28 | % | 16 | % | ||||||||||||||||
| (1) | See “NON-GAAP MEASURES.” |
| n.m. | Not meaningful. |
Completion and Production Services revenue for the third quarter of 2021 increased to $28 million as compared with $14 million in 2020. The higher revenue was primarily due to increased activity as our service rig operating hours increased by 107% from 2020. Approximately 87% of our third quarter Canadian service rig activity was oil related.
During the quarter, Completion and Production Services generated 12% of its revenue from U.S. operations compared with 19% in the comparative period.
Operating costs as a percentage of revenue increased to 75% as compared with 68% in the prior year comparative quarter. The higher percentage in 2021 was primarily the result of lower CEWS program assistance. In the third quarter of 2021, we received CEWS program assistance of $1 million as compared with $2 million in 2020.
Our third quarter Adjusted EBITDA (see “NON-GAAP MEASURES”) increased by $2 million as compared with 2020 primarily from increased service rig activity and improved service rates.
Depreciation expense in the quarter was consistent with 2020.
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 as compared with $8 million in the third quarter of 2020. Our Adjusted EBITDA was negatively impacted by higher share-based compensation costs as a result of our improved share price performance in 2021 and lower CEWS program assistance, partially offset by lower restructuring charges. During the quarter, CEWS program assistance offset general and administrative costs by $0.4 million as compared with $1 million in 2020. In the third quarter of 2020, we incurred $2 million of restructuring charges.
| 8 |
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 September 30, | For the nine months ended September 30, | |||||||||||||||
| (Stated in thousands of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Cash settled share-based incentive plans | 11,839 | 971 | 46,537 | (50 | ) | |||||||||||
| Equity settled share-based incentive plans: | ||||||||||||||||
| Executive PSU | 1,468 | 2,434 | 3,639 | 8,128 | ||||||||||||
| Stock option plan | 34 | 160 | 199 | 714 | ||||||||||||
| Total share-based incentive compensation plan expense (recovery) | 13,341 | 3,565 | 50,375 | 8,792 | ||||||||||||
| Allocated: | ||||||||||||||||
| Operating | 3,272 | 740 | 11,437 | 1,754 | ||||||||||||
| General and Administrative | 10,069 | 2,825 | 38,938 | 7,038 | ||||||||||||
| 13,341 | 3,565 | 50,375 | 8,792 | |||||||||||||
Cash settled share-based compensation expense increased by $11 million in the current quarter primarily due to our increasing share price and the reclassification of Executive PSUs as a cash settled share-based incentive plan. Our equity settled share-based compensation expense for the third quarter of 2021 decreased by $1 million as fewer Executive PSUs were outstanding as compared with 2020.
Finance Charges
Net finance charges were $21 million as compared with $28 million in the third quarter of 2020. Interest charges on our U.S. denominated long-term debt in the third quarter of 2021 were US$15 million ($19 million) as compared with US$18 million ($24 million) in 2020.
Income Tax
Income tax recovery for the quarter was $4 million as compared with an income tax expense of $1 million in 2020. During the third quarter of 2021 and 2020, we did not recognize deferred tax assets on certain Canadian and international operating losses.
LIQUIDITY AND CAPITAL RESOURCES
The oilfield services business is inherently cyclical in nature. To manage this, we focus on maintaining a strong balance sheet so we have the financial flexibility we need to continue to manage our growth and cash flow, regardless of where we are in the business cycle. We maintain a variable operating cost structure so we can be responsive to changes in demand.
Our maintenance capital expenditures are tightly governed and highly responsive to activity levels with additional cost savings leverage provided through our internal manufacturing and supply divisions. Term contracts on expansion capital for new-build and upgrade rig programs provide more certainty of future revenues and return on our capital investments.
| 9 |
Liquidity
| Amount | Availability | Used for | Maturity | |||
| Senior credit facility (secured) | ||||||
|
US$500 million1 (extendible, revolving term credit facility with US$300 million accordion feature) |
US$161 million drawn and US$31 million in outstanding letters of credit | General corporate purposes | June 18, 20251 | |||
| Real estate credit facilities (secured) | ||||||
| US$10 million | Fully drawn | General corporate purposes | November 19, 2025 | |||
| $19 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$3 million in outstanding letters of credit |
Letters of credit | ||||
| Unsecured senior notes (unsecured) | ||||||
| US$348 million – 7.125% | Fully drawn | Debt redemption and repurchases | January 15, 2026 | |||
| US$400 million – 6.875% | Fully drawn | Debt redemption and repurchases | January 15, 2029 |
| (1) | US$53 million expires on November 21, 2023. |
At September 30, 2021, we had $1,183 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.
The current blended cash interest cost of our debt is approximately 6.3%.
Senior Credit Facility
The Senior Credit Facility requires we comply with certain covenants including a leverage ratio of consolidated senior debt to consolidated Covenant EBITDA (see “NON-GAAP MEASURES”) of less than 2.5:1. For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.
On June 18, 2021, we agreed with the lenders of our Senior Credit Facility to extend the facility’s maturity date and extend and amend certain financial covenants during the Covenant Relief Period. The maturity date of the Senior Credit Facility was extended to June 18, 2025; however, US$53 million of the US$500 million will expire on November 21, 2023.
The lenders agreed to extend the Covenant Relief Period to September 30, 2022 and amend the consolidated Covenant EBITDA to consolidated interest coverage ratio for the most recent four consecutive quarters to be greater than or equal to 1.75:1 for the period ended September 30, 2021, 2.0:1, for the periods ending December 31, 2021 and March 31, 2022, 2.25:1 for the periods ending June 30, 2022 and September 30, 2022 and 2.5:1 for periods ending thereafter.
During the Covenant Relief Period, our distributions in the form of dividends, distributions and share repurchases are restricted to a maximum of 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.
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. We also have the option to voluntarily terminate the Covenant Relief Period prior September 30, 2022.
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.
Unsecured Senior Notes
The unsecured senior notes require that we comply with restrictive and financial covenants including an incurrence based consolidated interest coverage ratio test of consolidated cash flow, as defined in the senior note agreements, to consolidated interest expense of greater than 2.0:1 for the most recent four consecutive fiscal quarters. In the event our consolidated interest coverage ratio is less than 2.0:1 for the most recent four consecutive fiscal quarters, the unsecured senior notes restrict our ability to incur additional indebtedness.
The unsecured senior notes contain a restricted payment covenant that limits our ability to make payments in the nature of dividends, distributions and for share repurchases from shareholders. This restricted payment basket grows from a starting point of October 1, 2017 for the 2026 unsecured senior notes and from July 1, 2021 for the 2029 unsecured senior notes by, among other things, 50% of consolidated cumulative net earnings and decreases by 100% of consolidated cumulative net losses, as defined in the senior note agreements, and payments made to shareholders. The governing net restricted payments basket is currently negative, limiting our ability to declare and make dividend payments until such time as the restricted payments baskets become positive.
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For further information, please see the unsecured senior note indentures which are available on SEDAR and EDGAR.
Real Estate Credit Facilities
Our Canadian Real Estate Credit Facility is secured by real properties in Alberta, Canada. Principal plus interest payments are due quarterly, based on 15-year straight-line amortization with any unpaid principal and accrued interest due at maturity. Interest is calculated using a CDOR rate plus margin.
Our U.S. Real Estate Credit Facility is secured by real property located in Houston, Texas. Principal plus interest payments are due monthly, based on 15-year straight-line amortization with any unpaid principal and accrued interest due at maturity. Interest is calculated using a LIBOR rate plus margin.
Our Real Estate Credit Facilities contain certain affirmative and negative covenants and events of default, customary for these types of transactions. Under the terms of these facilities, we must maintain financial covenants in accordance with the Senior Credit Facility, described above, as of the last day of each period of four consecutive fiscal quarters. For the Canadian Real Estate Credit Facility, in the event the Senior Credit Facility expires, is cancelled or is terminated, financial covenants in effect at that time shall remain in place for the remaining duration of the facility. For the U.S. Real Estate Credit Facility, in the event the consolidated Covenant EBITDA to consolidated interest expense coverage ratio is waived or removed from the Senior Credit Facility, a minimum threshold of 1.15:1 is required.
Covenants
At September 30, 2021, we were in compliance with the covenants of our Senior Credit Facility and Real Estate Credit Facilities.
| Covenant | At September 30, 2021 | |||||||
| Senior Credit Facility | ||||||||
| Consolidated senior debt to consolidated covenant EBITDA(1) | <2.50 | 1.33 | ||||||
| Consolidated covenant EBITDA to consolidated interest expense | >1.75 | 1.96 | ||||||
| Real Estate Credit Facilities | ||||||||
| Consolidated covenant EBITDA to consolidated interest expense | >1.75 | 1.96 | ||||||
(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.
Impact of foreign exchange rates
The strengthening of the Canadian dollar during in 2021 resulted in lower translated U.S. denominated revenue and costs. On average, for the three and nine months ended September 30, 2021, the Canadian dollar strengthened by 5% and 7%, respectively, from the comparable 2020 periods. The following table summarizes the average and closing Canada-U.S. foreign exchanges rates.
For the three months ended September 30, | For the nine months ended September 30, | At December 31, | ||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||||||||||||
| Canada-U.S. foreign exchange rates | ||||||||||||||||||||
| Average | 1.26 | 1.33 | 1.25 | 1.35 | — | |||||||||||||||
| Closing | 1.27 | 1.33 | 1.27 | 1.33 | 1.27 | |||||||||||||||
Hedge of investments in foreign operations
We utilize foreign currency long-term debt to hedge our exposure to changes in the carrying values of our net investment in certain foreign operations as a result of changes in foreign exchange rates.
We have designated our U.S. dollar denominated long-term debt as a net investment hedge in our U.S. operations and other foreign operations that have a U.S. dollar functional currency. To be accounted for as a hedge, the foreign currency denominated long-term debt must be designated and documented as such and must be effective at inception and on an ongoing basis. We recognize the effective amount of this hedge (net of tax) in other comprehensive income. We recognize ineffective amounts (if any) in net earnings (loss).
| 11 |
QUARTERLY FINANCIAL SUMMARY
| (Stated in thousands of Canadian dollars, except per share amounts) | 2020 | 2021 | ||||||||||||||
| Quarters ended | December 31 | March 31 | June 30 | September 30 | ||||||||||||
| Revenue | 201,688 | 236,473 | 201,359 | 253,813 | ||||||||||||
| Adjusted EBITDA(1) | 55,263 | 54,539 | 28,944 | 45,408 | ||||||||||||
| Net loss | (37,518 | ) | (36,106 | ) | (75,912 | ) | (38,032 | ) | ||||||||
| Net loss per basic and diluted share | (2.74 | ) | (2.70 | ) | (5.71 | ) | (2.86 | ) | ||||||||
| Funds provided by operations(1) | 35,282 | 43,430 | 12,607 | 33,525 | ||||||||||||
| Cash provided by operations | 4,737 | 15,422 | 42,219 | 21,871 | ||||||||||||
| (Stated in thousands of Canadian dollars, except per share amounts) | 2019 | 2020 | ||||||||||||||
| Quarters ended | December 31 | March 31 | June 30 | September 30 | ||||||||||||
| Revenue | 372,301 | 379,484 | 189,759 | 164,822 | ||||||||||||
| Adjusted EBITDA(1) | 105,006 | 101,904 | 58,465 | 47,771 | ||||||||||||
| Net loss | (1,061 | ) | (5,277 | ) | (48,867 | ) | (28,476 | ) | ||||||||
| Net loss per basic and diluted share | (0.08 | ) | (0.38 | ) | (3.56 | ) | (2.08 | ) | ||||||||
| Funds provided by operations(1) | 75,779 | 81,317 | 26,639 | 27,489 | ||||||||||||
| Cash provided by operations | 74,981 | 74,953 | 104,478 | 41,950 | ||||||||||||
| (1) | See “NON-GAAP MEASURES.” |
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
Because of the nature of our business, we are required to make judgments and estimates in preparing our Condensed Consolidated Interim Financial Statements that could materially affect the amounts recognized. Our judgments and estimates are based on our past experiences and assumptions we believe are reasonable in the circumstances. The critical judgments and estimates used in preparing the Condensed Consolidated Interim Financial Statements are described in our 2020 Annual Report.
The COVID-19 global pandemic and commodity price volatility has created a challenging economic climate that may have significant adverse impacts on Precision. As the situation remains dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on Precision is not known at this time. Our estimates and judgments made in the preparation of our Condensed Consolidated Interim Financial Statements are increasingly difficult and subject to a higher degree of measurement uncertainty during this volatile period.
EVALUATION OF CONTROLS AND PROCEDURES
Based on their evaluation as at September 30, 2021, Precision’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the United States Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to ensure that information required to be disclosed by the Corporation in reports that are filed or submitted to Canadian and U.S. securities authorities is recorded, processed, summarized and reported within the time periods specified in Canadian and U.S. securities laws. In addition, as at September 30, 2021, there were no changes in the internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting. Management will continue to periodically evaluate the Corporation’s disclosure controls and procedures and internal control over financial reporting and will make any modifications from time to time as deemed necessary.
Based on their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements, and even those controls determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
NON-GAAP MEASURES
In this report 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.
| 12 |
Adjusted EBITDA
We believe that Adjusted EBITDA (earnings before income taxes, loss (gain) on repurchase of unsecured senior notes, loss (gain) on investments and other assets, 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 September 30, | For the nine months ended September 30, | |||||||||||||||
| (Stated in thousands of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenue | 253,813 | 164,822 | 691,645 | 734,065 | ||||||||||||
| Expenses: | ||||||||||||||||
| Operating | 184,422 | 103,147 | 485,998 | 457,926 | ||||||||||||
| General and administrative | 23,983 | 11,954 | 76,756 | 49,938 | ||||||||||||
| Restructuring | — | 1,950 | — | 18,061 | ||||||||||||
| Depreciation and amortization | 69,431 | 77,588 | 211,148 | 241,626 | ||||||||||||
| Gain on asset disposals | (3,261 | ) | (3,032 | ) | (6,224 | ) | (10,111 | ) | ||||||||
| Operating earnings (loss) | (20,762 | ) | (26,785 | ) | (76,033 | ) | (23,375 | ) | ||||||||
| Foreign exchange | 464 | 1,161 | 104 | 2,924 | ||||||||||||
| Finance charges | 20,639 | 27,613 | 70,783 | 83,276 | ||||||||||||
| Gain on investments and other assets | (327 | ) | — | (327 | ) | — | ||||||||||
| Loss (gain) on repurchase of unsecured notes | — | (27,971 | ) | 9,520 | (29,942 | ) | ||||||||||
| Loss before income taxes | (41,538 | ) | (27,588 | ) | (156,113 | ) | (79,633 | ) | ||||||||
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.
| 13 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements contained in this report, including statements that contain words such as "could", "should", "can", "anticipate", "estimate", "intend", "plan", "expect", "believe", "will", "may", "continue", "project", "potential" and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward-looking information and statements").
In particular, forward looking information and statements include, but are not limited to, the following:
| · | 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, 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, 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 natural 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.
14
Exhibit 99.2
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
| (Stated in thousands of Canadian dollars) | September 30, 2021 | December 31, 2020 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 57,096 | $ | 108,772 | ||||
| Accounts receivable | 249,553 | 207,209 | ||||||
| Inventory | 25,770 | 26,282 | ||||||
| Total current assets | 332,419 | 342,263 | ||||||
| Non-current assets: | ||||||||
| Deferred tax assets | 1,098 | 1,098 | ||||||
| Right-of-use assets | 52,337 | 55,168 | ||||||
| Property, plant and equipment | 2,301,873 | 2,472,683 | ||||||
| Intangibles | 25,087 | 27,666 | ||||||
| Investments and other assets (Note 5) | 7,601 | — | ||||||
| Total non-current assets | 2,387,996 | 2,556,615 | ||||||
| Total assets | $ | 2,720,415 | $ | 2,898,878 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 198,129 | $ | 150,957 | ||||
| Income taxes payable | 654 | 3,702 | ||||||
| Current portion of lease obligations | 11,152 | 11,285 | ||||||
| Current portion of long-term debt (Note 7) | 2,225 | 896 | ||||||
| Total current liabilities | 212,160 | 166,840 | ||||||
| Non-current liabilities: | ||||||||
| Share-based compensation (Note 9) | 25,430 | 11,507 | ||||||
| Provisions and other | 6,934 | 7,563 | ||||||
| Lease obligations | 46,503 | 48,882 | ||||||
| Long-term debt (Note 7) | 1,162,841 | 1,236,210 | ||||||
| Deferred tax liabilities | 12,600 | 21,236 | ||||||
| Total non-current liabilities | 1,254,308 | 1,325,398 | ||||||
| Shareholders’ equity: | ||||||||
| Shareholders’ capital (Note 10) | 2,281,444 | 2,285,738 | ||||||
| Contributed surplus | 76,753 | 72,915 | ||||||
| Deficit | (1,239,644 | ) | (1,089,594 | ) | ||||
| Accumulated other comprehensive income (Note 12) | 135,394 | 137,581 | ||||||
| Total shareholders’ equity | 1,253,947 | 1,406,640 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,720,415 | $ | 2,898,878 |
See accompanying notes to condensed interim consolidated financial statements.
1
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF NET LOSS (UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (Stated in thousands of Canadian dollars, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenue (Note 3) | $ | 253,813 | $ | 164,822 | $ | 691,645 | $ | 734,065 | ||||||||
| Expenses: | ||||||||||||||||
| Operating (Note 6) | 184,422 | 103,147 | 485,998 | 457,926 | ||||||||||||
| General and administrative (Note 6) | 23,983 | 11,954 | 76,756 | 49,938 | ||||||||||||
| Restructuring (Note 6) | — | 1,950 | — | 18,061 | ||||||||||||
| Earnings before income taxes, loss (gain) on repurchase of unsecured senior notes, gain on investments and other assets, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization | 45,408 | 47,771 | 128,891 | 208,140 | ||||||||||||
| Depreciation and amortization | 69,431 | 77,588 | 211,148 | 241,626 | ||||||||||||
| Gain on asset disposals | (3,261 | ) | (3,032 | ) | (6,224 | ) | (10,111 | ) | ||||||||
| Foreign exchange | 464 | 1,161 | 104 | 2,924 | ||||||||||||
| Finance charges (Note 8) | 20,639 | 27,613 | 70,783 | 83,276 | ||||||||||||
| Gain on investments and other assets | (327 | ) | — | (327 | ) | — | ||||||||||
| Loss (gain) on repurchase of unsecured senior notes | — | (27,971 | ) | 9,520 | (29,942 | ) | ||||||||||
| Loss before income taxes | (41,538 | ) | (27,588 | ) | (156,113 | ) | (79,633 | ) | ||||||||
| Income taxes: | ||||||||||||||||
| Current | 890 | 2,946 | 2,462 | 6,121 | ||||||||||||
| Deferred | (4,396 | ) | (2,058 | ) | (8,525 | ) | (3,134 | ) | ||||||||
| (3,506 | ) | 888 | (6,063 | ) | 2,987 | |||||||||||
| Net loss | $ | (38,032 | ) | $ | (28,476 | ) | $ | (150,050 | ) | $ | (82,620 | ) | ||||
| Net loss per share: (Note 11) | ||||||||||||||||
| Basic | $ | (2.86 | ) | $ | (2.08 | ) | $ | (11.27 | ) | $ | (6.02 | ) | ||||
| Diluted | $ | (2.86 | ) | $ | (2.08 | ) | $ | (11.27 | ) | $ | (6.02 | ) | ||||
See accompanying notes to condensed interim consolidated financial statements.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (Stated in thousands of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net loss | $ | (38,032 | ) | $ | (28,476 | ) | $ | (150,050 | ) | $ | (82,620 | ) | ||||
| Unrealized gain (loss) on translation of assets and liabilities of operations denominated in foreign currency | 33,364 | (36,384 | ) | (9,182 | ) | 49,313 | ||||||||||
| Foreign exchange gain (loss) on net investment hedge with U.S. denominated debt | (24,544 | ) | 29,404 | 6,995 | (34,832 | ) | ||||||||||
| Comprehensive loss | $ | (29,212 | ) | $ | (35,456 | ) | $ | (152,237 | ) | $ | (68,139 | ) | ||||
See accompanying notes to condensed interim consolidated financial statements.
2
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (Stated in thousands of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Cash provided by (used in): | ||||||||||||||||
| Operations: | ||||||||||||||||
| Net loss | $ | (38,032 | ) | $ | (28,476 | ) | $ | (150,050 | ) | $ | (82,620 | ) | ||||
| Adjustments for: | ||||||||||||||||
| Long-term compensation plans | 7,887 | 3,106 | 28,688 | 8,727 | ||||||||||||
| Depreciation and amortization | 69,431 | 77,588 | 211,148 | 241,626 | ||||||||||||
| Gain on asset disposals | (3,261 | ) | (3,032 | ) | (6,224 | ) | (10,111 | ) | ||||||||
| Foreign exchange | 415 | 1,293 | 1,437 | 2,447 | ||||||||||||
| Finance charges | 20,639 | 27,613 | 70,783 | 83,276 | ||||||||||||
| Income taxes | (3,506 | ) | 888 | (6,063 | ) | 2,987 | ||||||||||
| Other | 2 | (142 | ) | (562 | ) | (905 | ) | |||||||||
| Gain on investments and other assets | (327 | ) | — | (327 | ) | — | ||||||||||
| Loss (gain) on repurchase of unsecured senior notes | — | (27,971 | ) | 9,520 | (29,942 | ) | ||||||||||
| Income taxes paid | (1,134 | ) | (2,137 | ) | (5,200 | ) | (6,085 | ) | ||||||||
| Income taxes recovered | 44 | 1,228 | 47 | 1,228 | ||||||||||||
| Interest paid | (18,804 | ) | (22,644 | ) | (63,982 | ) | (75,687 | ) | ||||||||
| Interest received | 171 | 175 | 347 | 504 | ||||||||||||
| Funds provided by operations | 33,525 | 27,489 | 89,562 | 135,445 | ||||||||||||
| Changes in non-cash working capital balances | (11,654 | ) | 14,461 | (10,050 | ) | 85,936 | ||||||||||
| 21,871 | 41,950 | 79,512 | 221,381 | |||||||||||||
| Investments: | ||||||||||||||||
| Purchase of property, plant and equipment | (19,500 | ) | (3,211 | ) | (48,191 | ) | (38,623 | ) | ||||||||
| Purchase of intangibles | — | — | — | (57 | ) | |||||||||||
| Proceeds on sale of property, plant and equipment | 4,476 | 5,705 | 10,390 | 16,416 | ||||||||||||
| Purchase of investments and other assets | (3,000 | ) | — | (3,000 | ) | — | ||||||||||
| Changes in non-cash working capital balances | 500 | (1,367 | ) | 3,213 | (6,773 | ) | ||||||||||
| (17,524 | ) | 1,127 | (37,588 | ) | (29,037 | ) | ||||||||||
| Financing: | ||||||||||||||||
| Issuance of long-term debt | — | 123,029 | 696,341 | 128,059 | ||||||||||||
| Repayments of long-term debt | (8,209 | ) | (158,921 | ) | (769,668 | ) | (204,386 | ) | ||||||||
| Repurchase of share capital | — | — | (4,294 | ) | (5,259 | ) | ||||||||||
| Debt issuance costs | 344 | — | (9,450 | ) | — | |||||||||||
| Debt amendment fees | (3 | ) | (22 | ) | (913 | ) | (690 | ) | ||||||||
| Lease payments | (1,633 | ) | (1,987 | ) | (4,963 | ) | (5,612 | ) | ||||||||
| Changes in non-cash working capital balances | (1,829 | ) | — | — | — | |||||||||||
| (11,330 | ) | (37,901 | ) | (92,947 | ) | (87,888 | ) | |||||||||
| Effect of exchange rate changes on cash | 642 | (2,516 | ) | (653 | ) | (1,372 | ) | |||||||||
| Increase (decrease) in cash | (6,341 | ) | 2,660 | (51,676 | ) | 103,084 | ||||||||||
| Cash, beginning of period | 63,437 | 175,125 | 108,772 | 74,701 | ||||||||||||
| Cash, end of period | $ | 57,096 | $ | 177,785 | $ | 57,096 | $ | 177,785 | ||||||||
See accompanying notes to condensed interim consolidated financial statements.
3
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
| (Stated in thousands of Canadian dollars) | Shareholders’ Capital | Contributed Surplus | Accumulated Other Comprehensive Income (Note 12) | 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 | — | — | — | (150,050 | ) | (150,050 | ) | |||||||||||||
| Other comprehensive loss for the period | — | — | (2,187 | ) | — | (2,187 | ) | |||||||||||||
| Share repurchases | (4,294 | ) | — | — | — | (4,294 | ) | |||||||||||||
| Share-based compensation reclassification | — | (2,349 | ) | — | — | (2,349 | ) | |||||||||||||
| Share-based compensation expense | — | 6,187 | — | — | 6,187 | |||||||||||||||
| Balance at September 30, 2021 | $ | 2,281,444 | $ | 76,753 | $ | 135,394 | $ | (1,239,644 | ) | $ | 1,253,947 |
| (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 | — | — | — | (82,620 | ) | (82,620 | ) | |||||||||||||
| Other comprehensive income for the period | — | — | 14,481 | — | 14,481 | |||||||||||||||
| 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 | — | 8,842 | — | — | 8,842 | |||||||||||||||
| Balance at September 30, 2020 | $ | 2,291,796 | $ | 73,097 | $ | 148,736 | $ | (1,052,076 | ) | $ | 1,461,553 |
See accompanying notes to condensed interim consolidated financial statements.
4
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Tabular amounts are stated in thousands of Canadian dollars except share numbers and per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS
Precision Drilling Corporation (Precision or the Corporation) is incorporated under the laws of the Province of Alberta, Canada and is a provider of contract drilling and completion and production services primarily to oil and natural gas exploration and production companies in Canada, the United States and certain international locations. The address of the registered office is Suite 800, 525 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1G1.
NOTE 2. BASIS OF PRESENTATION
(a) Statement of Compliance
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and interpretations of the International Financial Reporting Interpretations Committee.
The condensed interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Corporation as at and for the year ended December 31, 2020.
These condensed interim consolidated financial statements were prepared using accounting policies and methods of their application consistent with those used in the preparation of the Corporation’s consolidated audited annual financial statements for the year ended December 31, 2020.
These condensed interim consolidated financial statements were approved by the Board of Directors on October 20, 2021.
(b) Use of Estimates and Judgments
The preparation of the condensed interim consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingencies. These estimates and judgments are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The estimation of anticipated future events involves uncertainty and, consequently, the estimates used in preparation of the condensed interim consolidated financial statements may change as future events unfold, more experience is acquired, or the Corporation’s operating environment changes.
Significant estimates and judgments used in the preparation of these condensed interim consolidated financial statements remained unchanged from those disclosed in the Corporation’s consolidated audited annual financial statements for the year ended December 31, 2020. As described in Note 4 of the consolidated audited annual financial statements for the year ended December 31, 2020, due to the outbreak of the Novel Coronavirus (COVID-19) and the resulting impact on the economy and in particular the prices of oil and natural gas, the estimates and judgments used to prepare these financial statements were subject to a higher degree of measurement uncertainty.
NOTE 3. Revenue
(a) Disaggregation of revenue
The following table includes a reconciliation of disaggregated revenue by reportable segment. Revenue has been disaggregated by primary geographical market and type of service provided.
5
| Three Months Ended September 30, 2021 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
| United States | $ | 96,751 | $ | 3,301 | $ | — | $ | — | $ | 100,052 | ||||||||||
| Canada | 93,869 | 24,842 | — | (1,287 | ) | 117,424 | ||||||||||||||
| International | 36,337 | — | — | — | 36,337 | |||||||||||||||
| $ | 226,957 | $ | 28,143 | $ | — | $ | (1,287 | ) | $ | 253,813 | ||||||||||
| Day rate/hourly services | $ | 223,380 | $ | 28,143 | $ | — | $ | (198 | ) | $ | 251,325 | |||||||||
| Directional services | 2,028 | — | — | — | 2,028 | |||||||||||||||
| Other | 1,549 | — | — | (1,089 | ) | 460 | ||||||||||||||
| $ | 226,957 | $ | 28,143 | $ | — | $ | (1,287 | ) | $ | 253,813 |
| Three Months Ended September 30, 2020 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
| United States | $ | 73,974 | $ | 2,714 | $ | — | $ | (1 | ) | $ | 76,687 | |||||||||
| Canada | 35,906 | 11,729 | — | (393 | ) | 47,242 | ||||||||||||||
| International | 40,893 | — | — | — | 40,893 | |||||||||||||||
| $ | 150,773 | $ | 14,443 | $ | — | $ | (394 | ) | $ | 164,822 | ||||||||||
| Day rate/hourly services | $ | 133,385 | $ | 14,443 | $ | — | $ | (62 | ) | $ | 147,766 | |||||||||
| Shortfall payments/idle but contracted | 12,731 | — | — | — | 12,731 | |||||||||||||||
| Turnkey drilling services | 3,328 | — | — | — | 3,328 | |||||||||||||||
| Directional services | 485 | — | — | — | 485 | |||||||||||||||
| Other | 844 | — | — | (332 | ) | 512 | ||||||||||||||
| $ | 150,773 | $ | 14,443 | $ | — | $ | (394 | ) | $ | 164,822 |
| Nine Months Ended September 30, 2021 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
| United States | $ | 269,553 | $ | 9,149 | $ | — | $ | (1 | ) | $ | 278,701 | |||||||||
| Canada | 234,659 | 72,205 | — | (2,740 | ) | 304,124 | ||||||||||||||
| International | 108,820 | — | — | — | 108,820 | |||||||||||||||
| $ | 613,032 | $ | 81,354 | $ | — | $ | (2,741 | ) | $ | 691,645 | ||||||||||
| Day rate/hourly services | $ | 590,995 | $ | 81,354 | $ | — | $ | (358 | ) | $ | 671,991 | |||||||||
| Shortfall payments/idle but contracted | 235 | — | — | — | 235 | |||||||||||||||
| Turnkey drilling services | 9,630 | — | — | — | 9,630 | |||||||||||||||
| Directional services | 7,871 | — | — | — | 7,871 | |||||||||||||||
| Other | 4,301 | — | — | (2,383 | ) | 1,918 | ||||||||||||||
| $ | 613,032 | $ | 81,354 | $ | — | $ | (2,741 | ) | $ | 691,645 |
6
| Nine Months Ended September 30, 2020 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
| United States | $ | 347,598 | $ | 11,757 | $ | — | $ | (11 | ) | $ | 359,344 | |||||||||
| Canada | 188,295 | 41,874 | — | (1,615 | ) | 228,554 | ||||||||||||||
| International | 146,167 | — | — | — | 146,167 | |||||||||||||||
| $ | 682,060 | $ | 53,631 | $ | — | $ | (1,626 | ) | $ | 734,065 | ||||||||||
| Day rate/hourly services | $ | 619,847 | $ | 53,631 | $ | — | $ | (309 | ) | $ | 673,169 | |||||||||
| Shortfall payments/idle but contracted | 41,550 | — | — | — | 41,550 | |||||||||||||||
| Turnkey drilling services | 7,930 | — | — | — | 7,930 | |||||||||||||||
| Directional services | 8,084 | — | — | — | 8,084 | |||||||||||||||
| Other | 4,649 | — | — | (1,317 | ) | 3,332 | ||||||||||||||
| $ | 682,060 | $ | 53,631 | $ | — | $ | (1,626 | ) | $ | 734,065 |
(b) Seasonality
Precision has operations that are carried on in Canada which represent approximately 44% (2020 - 31%) of consolidated revenue for the nine months ended September 30, 2021 and 36% (2020 - 36%) of consolidated total assets as at September 30, 2021. The ability to move heavy equipment in Canadian oil and natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter's frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly dried out. The duration of this “spring break-up” has a direct impact on Precision’s activity levels. In addition, many exploration and production areas in northern Canada are accessible only in winter months when the ground is frozen hard enough to support equipment. The timing of freeze up and spring break-up affects the ability to move equipment in and out of these areas. As a result, late March through May is traditionally Precision’s slowest time in this region.
NOTE 4. SEGMENTED INFORMATION
The Corporation has two reportable operating segments; Contract Drilling Services and Completion and Production Services. Contract Drilling Services includes drilling rigs, procurement and distribution of oilfield supplies, and manufacture, sale and repair of drilling equipment. Completion and Production Services includes service rigs, oilfield equipment rental and camp and catering services. The Corporation provides services primarily in Canada, the United States and certain international locations.
| Three Months Ended September 30, 2021 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
| Revenue | $ | 226,957 | $ | 28,143 | $ | — | $ | (1,287 | ) | $ | 253,813 | |||||||||
| Operating earnings (loss) | (4,332 | ) | 1,570 | (18,000 | ) | — | (20,762 | ) | ||||||||||||
| Depreciation and amortization | 62,751 | 4,004 | 2,676 | — | 69,431 | |||||||||||||||
| Gain on asset disposals | (3,035 | ) | (95 | ) | (131 | ) | — | (3,261 | ) | |||||||||||
| Total assets | 2,453,922 | 127,186 | 139,307 | — | 2,720,415 | |||||||||||||||
| Capital expenditures | 18,337 | 1,143 | 20 | — | 19,500 |
7
| Three Months Ended September 30, 2020 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
| Revenue | $ | 150,773 | $ | 14,443 | $ | — | $ | (394 | ) | $ | 164,822 | |||||||||
| Operating earnings (loss) | (16,397 | ) | 167 | (10,555 | ) | — | (26,785 | ) | ||||||||||||
| Depreciation and amortization | 70,675 | 4,014 | 2,899 | — | 77,588 | |||||||||||||||
| Gain on asset disposals | (2,684 | ) | (236 | ) | (112 | ) | — | (3,032 | ) | |||||||||||
| Total assets | 2,699,247 | 127,792 | 246,285 | — | 3,073,324 | |||||||||||||||
| Capital expenditures | 2,906 | 207 | 98 | — | 3,211 |
| Nine Months Ended September 30, 2021 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
| Revenue | $ | 613,032 | $ | 81,354 | $ | — | $ | (2,741 | ) | $ | 691,645 | |||||||||
| Operating earnings (loss) | (22,611 | ) | 6,225 | (59,647 | ) | — | (76,033 | ) | ||||||||||||
| Depreciation and amortization | 191,084 | 11,859 | 8,205 | — | 211,148 | |||||||||||||||
| Gain on asset disposals | (5,355 | ) | (551 | ) | (318 | ) | — | (6,224 | ) | |||||||||||
| Total assets | 2,453,922 | 127,186 | 139,307 | — | 2,720,415 | |||||||||||||||
| Capital expenditures | 45,460 | 2,553 | 178 | — | 48,191 |
| Nine Months Ended September 30, 2020 | Contract Drilling Services | Completion and Production Services | Corporate and Other | Inter- Segment Eliminations | Total | |||||||||||||||
| Revenue | $ | 682,060 | $ | 53,631 | $ | — | $ | (1,626 | ) | $ | 734,065 | |||||||||
| Operating earnings (loss) | 25,096 | (5,219 | ) | (43,252 | ) | — | (23,375 | ) | ||||||||||||
| Depreciation and amortization | 220,461 | 12,416 | 8,749 | — | 241,626 | |||||||||||||||
| Gain on asset disposals | (8,617 | ) | (1,237 | ) | (257 | ) | — | (10,111 | ) | |||||||||||
| Total assets | 2,699,247 | 127,792 | 246,285 | — | 3,073,324 | |||||||||||||||
| Capital expenditures | 36,261 | 2,086 | 333 | — | 38,680 |
A reconciliation of total segment operating earnings (loss) to loss before taxes is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Total segment operating loss | $ | (20,762 | ) | $ | (26,785 | ) | $ | (76,033 | ) | $ | (23,375 | ) | ||||
| Deduct: | ||||||||||||||||
| Foreign exchange | 464 | 1,161 | 104 | 2,924 | ||||||||||||
| Finance charges | 20,639 | 27,613 | 70,783 | 83,276 | ||||||||||||
| Gain on investments and other assets | (327 | ) | — | (327 | ) | — | ||||||||||
| Loss (gain) on repurchase of unsecured senior notes | — | (27,971 | ) | 9,520 | (29,942 | ) | ||||||||||
| Loss before income taxes | $ | (41,538 | ) | $ | (27,588 | ) | $ | (156,113 | ) | $ | (79,633 | ) | ||||
NOTE 5. DISPOSAL OF DIRECTIONAL DRILLING
During the third quarter of 2021, Precision sold its directional drilling business to Cathedral Energy Services Ltd. (Cathedral) for a purchase price of $6 million resulting in a gain on disposal of $1 million. The directional drilling business was previously contained within the Contract Drilling Services segment.
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The purchase price was satisfied through the issuance of 13,400,000 Cathedral common shares, along with warrants to purchase an additional 2,000,000 Cathedral common shares at a price of $0.60 per common share within a two-year period. In addition to the statutory hold period, the parties agreed to resale restrictions on the common share consideration that limits the timing and quantities of common shares Precision can sell over a two-year period. The Cathedral common shares and share purchase warrants held by Precision are presented as long-term investments and other assets and will be revalued at each reporting period using Level I and II inputs, respectively.
Pursuant to the transaction agreement, Precision fully disposed of its directional drilling operating assets and personnel, along with $3 million cash to support Cathedral’s growth and expansion.
NOTE 6. RESTRUCTURING AND OTHER
For the three and nine months ended September 30, 2020, Precision incurred restructuring charges of $2 million and $18 million, respectively. These charges were comprised of severance, as the Corporation aligned its cost structure to reflect reduced global activity, and certain costs associated with the shutdown of the directional drilling operations in the United States.
In response to the economic slowdown caused by COVID-19, governments enacted various employer assistance and economic stimulus programs. In 2020, the Government of Canada introduced the Canadian Emergency Wage Subsidy program. For the three and nine months ended September 30, 2021, Precision recognized $6 million (2020 - $8 million) and $24 million (2020 - $16 million) of salary and wage subsidies, respectively. For the nine months ended September 30, 2021, these subsidies were presented as reductions of operating and general and administrative expense of $21 million (2020 - $12 million) and $3 million (2020 - $4 million), respectively.
NOTE 7. LONG-TERM DEBT
| U.S. Denominated Facilities | Canadian Facilities and Translated U.S. Facilities | |||||||||||||||
| September 30, | December 31, | September 30, | December 31, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Current Portion of Long-Term Debt | ||||||||||||||||
| Canadian Real Estate Credit Facility | US | $ | — | US | $ | — | $ | 1,333 | $ | — | ||||||
| U.S. Real Estate Credit Facility | 704 | 704 | 892 | 896 | ||||||||||||
| US | $ | 704 | US | $ | 704 | $ | 2,225 | $ | 896 | |||||||
| Long-Term Debt | ||||||||||||||||
| Senior Credit Facility | US | $ | 161,000 | US | $ | 74,650 | $ | 203,886 | $ | 95,041 | ||||||
| Canadian Real Estate Credit Facility | — | — | 18,000 | — | ||||||||||||
| U.S. Real Estate Credit Facility | 9,269 | 9,797 | 11,738 | 12,474 | ||||||||||||
| Unsecured Senior Notes: | ||||||||||||||||
| 7.75% senior notes due 2023 | — | 285,734 | — | 363,782 | ||||||||||||
| 5.25% senior notes due 2024 | — | 263,205 | — | 335,099 | ||||||||||||
| 7.125% senior notes due 2026 | 347,765 | 347,765 | 440,399 | 442,757 | ||||||||||||
| 6.875% senior notes due 2029 | 400,000 | — | 506,548 | — | ||||||||||||
| US | $ | 918,034 | US | $ | 981,151 | 1,180,571 | 1,249,153 | |||||||||
| Less net unamortized debt issue costs and original issue discount | (17,730 | ) | (12,943 | ) | ||||||||||||
| $ | 1,162,841 | $ | 1,236,210 | |||||||||||||
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| Senior Credit Facility | Canadian Real Estate Credit Facility | U.S. Real Estate Credit Facility | Unsecured Senior Notes | Debt Issue Costs and Original Issue Discount | Total | |||||||||||||||||||
| Current | $ | — | $ | — | $ | 896 | $ | — | $ | — | $ | 896 | ||||||||||||
| Long-term | 95,041 | — | 12,474 | 1,141,638 | (12,943 | ) | 1,236,210 | |||||||||||||||||
| Balance December 31, 2020 | 95,041 | — | 13,370 | 1,141,638 | (12,943 | ) | 1,237,106 | |||||||||||||||||
| Changes from financing cash flows: | ||||||||||||||||||||||||
| Proceeds from unsecured senior notes | — | — | — | 482,064 | — | 482,064 | ||||||||||||||||||
| Proceeds from Senior Credit Facility | 194,277 | — | — | — | — | 194,277 | ||||||||||||||||||
| Proceeds from Real Estate Credit Facility | — | 20,000 | — | — | — | 20,000 | ||||||||||||||||||
| Repayment of unsecured senior notes | — | — | — | (676,058 | ) | — | (676,058 | ) | ||||||||||||||||
| Repayment of Senior Credit Facility | (92,282 | ) | — | — | — | — | (92,282 | ) | ||||||||||||||||
| Repayment of Real Estate Credit Facility | — | (667 | ) | (661 | ) | — | — | (1,328 | ) | |||||||||||||||
| Payment of debt issue costs | — | — | — | — | (9,450 | ) | (9,450 | ) | ||||||||||||||||
| 197,036 | 19,333 | 12,709 | 947,644 | (22,393 | ) | 1,154,329 | ||||||||||||||||||
| Loss on repurchase of unsecured senior notes | — | — | — | 9,520 | — | 9,520 | ||||||||||||||||||
| Amortization of debt issue costs | — | — | — | — | 8,185 | 8,185 | ||||||||||||||||||
| Original issue discount | — | — | — | 3,628 | (3,520 | ) | 108 | |||||||||||||||||
| Foreign exchange adjustment | 6,850 | — | (79 | ) | (13,845 | ) | (2 | ) | (7,076 | ) | ||||||||||||||
| Balance at September 30, 2021 | $ | 203,886 | $ | 19,333 | $ | 12,630 | $ | 946,947 | $ | (17,730 | ) | $ | 1,165,066 | |||||||||||
| Current | $ | — | $ | 1,333 | $ | 892 | $ | — | $ | — | $ | 2,225 | ||||||||||||
| Long-term | 203,886 | 18,000 | 11,738 | 946,947 | (17,730 | ) | 1,162,841 | |||||||||||||||||
| $ | 203,886 | $ | 19,333 | $ | 12,630 | $ | 946,947 | $ | (17,730 | ) | $ | 1,165,066 |
At September 30, 2021, Precision was in compliance with the covenants of the Senior Credit Facility and Real Estate Credit Facilities.
Long-term debt obligations at September 30, 2021 will mature as follows:
| 2021 | $ | 556 | ||
| 2022 | 2,225 | |||
| 2023 | 2,225 | |||
| 2024 | 2,225 | |||
| Thereafter | 1,175,565 | |||
| $ | 1,182,796 |
Senior Credit Facility
On June 18, 2021, Precision agreed with the lenders of its Senior Credit Facility to extend the facility’s maturity date and extend and amend certain financial covenants during the Covenant Relief Period. The maturity date of the Senior Credit Facility was extended to June 18, 2025, however, US$53 million of the US$500 million will expire on November 21, 2023.
The lenders agreed to extend the Covenant Relief Period to September 30, 2022 and amended the consolidated Covenant EBITDA to consolidated interest coverage ratio for the most recent four consecutive quarters to be greater than or equal to 1.75:1 for the period ended September 30, 2021, 2.0:1, for the periods ending December 31, 2021 and March 31, 2022, 2.25:1 for the periods ending June 30, 2022 and September 30, 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$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.
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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 September 30, 2022.
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.
The Senior Credit Facility contains certain covenants that place restrictions on Precision’s ability to incur or assume additional indebtedness; dispose of assets; change its primary business; incur liens on assets; engage in transactions with affiliates; enter into mergers, consolidations or amalgamations; and enter into speculative swap agreements.
Unsecured Senior Notes
On June 15, 2021, Precision issued US$400 million of 6.875% unsecured senior notes due in 2029 in a private offering. These unsecured senior notes were issued at a price equal to 99.253% of the face value, resulting in a US$3 million original issue discount. The original issue discount will be amortized over the life of the notes using the effective interest rate method.
The net proceeds from the issuance along with amounts drawn on the Senior Credit Facility were used to redeem in full US$286 million aggregate principal amount of the 7.750% unsecured senior notes due 2023 and redeem in full US$263 million aggregate principal amount of the 5.250% unsecured senior notes due 2024 for US$557 million plus accrued and unpaid interest resulting in a loss on redemption of US$8 million. The redemption of the unsecured senior notes occurred on June 16, 2021 and interest ceased to accrue on the notes on that date.
6.875% Unsecured Senior Notes due in 2029
These unsecured senior notes bear interest at a fixed rate of 6.875% per annum and mature on January 15, 2029. Interest is payable semi-annually on January 15 and July 15 of each year, commencing January 15, 2022.
These notes are unsecured, ranking equally with existing and future senior unsecured indebtedness, and have been guaranteed by current and future U.S. and Canadian subsidiaries that guarantee the Senior Credit Facility. These notes contain certain covenants that limit Precision’s ability and the ability of certain subsidiaries to incur additional indebtedness and issue preferred stock; create liens; make restricted payments; create or permit to restrict the ability of Precision or certain subsidiaries to make certain payments and distributions; engage in amalgamations, mergers or consolidations; make certain dispositions and transfers of assets; and engage in transactions with affiliates. If the notes receive an investment grade rating by Standard & Poor’s Financial Services, Moody’s Investors Service or Fitch Ratings and Precision and its subsidiaries are not in default under the indenture governing the notes, then Precision will not be required to comply with particular covenants contained in the indenture.
Prior to June 15, 2024, Precision may redeem up to 35% of the 6.875% unsecured senior notes due 2029 with the net proceeds of certain equity offerings at a redemption price equal to 106.875% of the principal amount plus accrued interest. Prior to January 15, 2025, Precision may redeem these notes in whole or in part at 100.0% of their principal amount, plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed and the excess, if any, of the present value of the January 15, 2025 redemption price plus required interest payments through January 15, 2025 (calculated using the U.S. Treasury rate plus 50 basis points) over the principal amount of the note. As well, Precision may redeem these notes in whole or in part at any time on or after January 15, 2025 and before January 15, 2027, at redemption prices ranging between 103.438% and 101.719% of their principal amount plus accrued interest. Any time on or after January 15, 2027, these notes can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.
Canadian Real Estate Credit Facility
In March 2021, Precision established a Canadian Real Estate Credit Facility in the amount of $20 million. The facility matures in March 2026 and is secured by real properties in Alberta, Canada. Principal plus interest payments are due quarterly, based on 15-year straight-line amortization with any unpaid principal and accrued interest due at maturity. Interest is calculated using a CDOR rate plus margin.
The Canadian Real Estate Credit Facility contains certain affirmative and negative covenants and events of default, customary for this type of transactions. Under the terms of the Canadian Real Estate Credit Facility, Precision must maintain a consolidated interest coverage ratio in accordance with the Senior Credit Facility, described above, as of the last day of each period of four consecutive fiscal quarters. In the event the Senior Credit Facility expires, is cancelled or is terminated, the consolidated interest coverage ratios in effect at that time shall remain in place for the remaining duration of the Canadian Real Estate Credit Facility.
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NOTE 8. FINANCE CHARGES
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Interest: | ||||||||||||||||
| Long-term debt | $ | 19,138 | $ | 24,708 | $ | 59,893 | $ | 76,594 | ||||||||
| Lease obligations | 681 | 736 | 2,060 | 2,452 | ||||||||||||
| Other | 1 | — | 6 | 107 | ||||||||||||
| Income | (22 | ) | (235 | ) | (178 | ) | (547 | ) | ||||||||
| Amortization of debt issue costs, loan commitment fees and original issue discount | 841 | 2,404 | 9,002 | 4,670 | ||||||||||||
| Finance charges | $ | 20,639 | $ | 27,613 | $ | 70,783 | $ | 83,276 | ||||||||
NOTE 9. SHARE-BASED COMPENSATION PLANS
Liability Classified Plans
Restricted Share Units (a) | Performance Share Units (a) | Executive Performance Share Units(b) | Non-Management Directors’ DSUs (c) | Total | ||||||||||||||||
| December 31, 2020 | $ | 6,624 | $ | 4,751 | $ | 6,833 | $ | 1,609 | $ | 19,817 | ||||||||||
| Expensed during period | 15,843 | 16,317 | 14,582 | 3,434 | 50,176 | |||||||||||||||
| Reclassified to contributed surplus | — | — | (3,639 | ) | — | (3,639 | ) | |||||||||||||
| Payments and redemptions | (5,747 | ) | (1,866 | ) | (4,808 | ) | — | (12,421 | ) | |||||||||||
| September 30, 2021 | $ | 16,720 | $ | 19,202 | $ | 12,968 | $ | 5,043 | $ | 53,933 | ||||||||||
| Current | $ | 10,657 | $ | 4,878 | $ | 12,968 | $ | — | $ | 28,503 | ||||||||||
| Long-term | 6,063 | 14,324 | — | 5,043 | 25,430 | |||||||||||||||
| $ | 16,720 | $ | 19,202 | $ | 12,968 | $ | 5,043 | $ | 53,933 |
(a) Restricted Share Units and Performance Share Units
A summary of the activity under the Restricted Share Unit (RSU) and the Performance Share Unit (PSU) plans are presented below:
|
RSUs Outstanding |
PSUs Outstanding |
|||||||
| December 31, 2020 | 484,782 | 565,379 | ||||||
| Granted | 354,710 | 487,190 | ||||||
| Redeemed | (216,820 | ) | (40,515 | ) | ||||
| Forfeited | (21,673 | ) | (24,539 | ) | ||||
| September 30, 2021 | 600,999 | 987,515 | ||||||
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(b) Executive Performance Share Units
A summary of the activity under Executive Performance Share Unit (Executive PSU) share-based incentive plan is presented below:
|
Executive PSUs Outstanding |
||||
| December 31, 2020 | 288,707 | |||
| Redeemed | (96,355 | ) | ||
| Forfeited | (2,388 | ) | ||
| September 30, 2021 | 189,964 | |||
Precision grants Executive PSUs to certain senior executives. On December 31, 2020, Precision changed its settlement intentions and anticipates settling vested Executive PSUs in cash. Included in net loss for the three and nine months ended September 30, 2021 is an expense of $3 million (2020 - $2 million) and $15 million (2020 - $8 million), respectively.
(c) Non-Management Directors – Deferred Share Unit Plan
A summary of the activity under the non-management director Deferred Share Unit (DSU) plan is presented below:
|
DSUs Outstanding |
||||
| December 31, 2020 | 77,574 | |||
| Granted | 20,927 | |||
| September 30, 2021 | 98,501 | |||
Equity Settled Plans
(d) Option Plan
A summary of the activity under the option plan is presented below:
| Canadian share options | Outstanding |
Range of Exercise Price |
Weighted Average Exercise Price |
Exercisable | ||||||||||||||||||||
| December 31, 2020 | 148,665 | $ | 87.00 | — | 286.20 | $ | 138.86 | 141,156 | ||||||||||||||||
| Forfeited | (33,060 | ) | 89.20 | — | 286.20 | 193.10 | ||||||||||||||||||
| September 30, 2021 | 115,605 | $ | 87.00 | — | 146.40 | $ | 123.35 | 115,605 | ||||||||||||||||
| U.S. share options | Outstanding |
Range of Exercise Price (US$) |
Weighted Average Exercise Price (US$) |
Exercisable | ||||||||||||||||||||
| December 31, 2020 | 283,793 | $ | 51.20 | — | 183.60 | $ | 86.23 | 239,521 | ||||||||||||||||
| Forfeited | (15,950 | ) | 183.60 | — | 183.60 | 183.60 | ||||||||||||||||||
| September 30, 2021 | 267,843 | $ | 51.20 | — | 115.80 | $ | 80.43 | 257,854 | ||||||||||||||||
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(e) Non-Management Directors – Deferred Share Unit Plan
Prior to January 1, 2012, Precision had a deferred share unit plan for non-management directors. Under the plan fully vested deferred share units were granted quarterly based upon an election by the non-management director to receive all or a portion of their compensation in deferred share units. These deferred share units are redeemable into an equal number of common shares any time after the director's retirement.
A summary of the activity under this share-based incentive plan is presented below:
|
DSUs Outstanding |
||||
| December 31, 2020 and September 30, 2021 | 1,470 | |||
NOTE 10. SHAREHOLDERS’ CAPITAL
| Common shares | Number | Amount | ||||||
| Balance December 31, 2020 | 13,459,593 | $ | 2,285,738 | |||||
| Share repurchase | (155,168 | ) | (4,294 | ) | ||||
| Balance September 30, 2021 | 13,304,425 | $ | 2,281,444 |
(a) Share Consolidation
On November 12, 2020, Precision Drilling Corporation completed a 20:1 consolidation of its common shares. Comparative period share-based compensation award units, share option quantities, share option exercise prices and basic and diluted weighted average shares outstanding have been retrospectively adjusted to reflect the share consolidation.
(b) Normal Course Issuer Bid
During the third quarter of 2021, the Toronto Stock Exchange approved Precision’s application to renew its Normal Course Issuer Bid (NCIB). Under the terms of the NCIB, Precision may purchase and cancel up to a maximum of 1,317,158 common shares, representing 10% of the public float of common shares as of August 13, 2021. The NCIB will terminate no later than August 26, 2022.
NOTE 11. PER SHARE AMOUNTS
The following tables reconcile the net loss and weighted average shares outstanding used in computing basic and diluted net loss per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net loss - basic and diluted | $ | (38,032 | ) | $ | (28,476 | ) | $ | (150,050 | ) | $ | (82,620 | ) | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (Stated in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Weighted average shares outstanding – basic | 13,304 | 13,725 | 13,319 | 13,736 | ||||||||||||
| Effect of share options and other equity compensation plans | — | — | — | — | ||||||||||||
| Weighted average shares outstanding – diluted | 13,304 | 13,725 | 13,319 | 13,736 | ||||||||||||
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NOTE 12. ACCUMULATED OTHER COMPREHENSIVE INCOME
Unrealized Foreign Currency Translation Gains (Losses) | Foreign Exchange Gain (Loss) on Net Investment Hedge | Tax Benefit Related to Net Investment Hedge of Long-Term Debt | Accumulated Other Comprehensive Income (Loss) | |||||||||||||
| December 31, 2020 | $ | 483,657 | $ | (351,474 | ) | $ | 5,398 | $ | 137,581 | |||||||
| Other comprehensive income (loss) | (9,182 | ) | 6,995 | — | (2,187 | ) | ||||||||||
| September 30, 2021 | $ | 474,475 | $ | (344,479 | ) | $ | 5,398 | $ | 135,394 |
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of cash, accounts receivable, and accounts payable and accrued liabilities approximates their fair value due to the relatively short period to maturity of the instruments. At the end of each reporting period, investments and other assets are measured at their estimated fair value, with changes in fair value recognized in profit or loss. Amounts drawn on the Senior Credit Facility and the Canadian and U.S. Real Estate Credit Facilities are measured at amortized cost and approximate fair value as this indebtedness is subject to floating rates of interest. The fair value of the unsecured senior notes at September 30, 2021 was approximately $982 million (December 31, 2020 – $1,023 million).
Financial assets and liabilities recorded or disclosed at fair value in the consolidated statement of financial position are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are based on the amount of subjectivity associated with the inputs in the fair determination and are as follows:
Level I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II—Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level III—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The estimated fair value of the Cathedral common shares held by Precision is based on a level I input, Cathedral’s unadjusted share price. The fair value of the common share purchase warrants is estimated using a Black-Scholes option pricing model, which uses level II inputs, including estimated standard deviation, annual risk-free interest rate, share price and exercise price of the warrant.
The estimated fair value of unsecured senior notes is based on level II inputs. The fair value is estimated considering the risk-free interest rates on government debt instruments of similar maturities, adjusted for estimated credit risk, industry risk and market risk premiums.
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SHAREHOLDER INFORMATION
STOCK EXCHANGE LISTINGS Shares of Precision Drilling Corporation are listed on the Toronto Stock Exchange under the trading symbol PD and on the New York Stock Exchange under the trading symbol PDS.
TRANSFER AGENT AND REGISTRAR Computershare Trust Company of Canada Calgary, Alberta
TRANSFER POINT Computershare Trust Company NA Canton, Massachusetts
Q3 2021 TRADING PROFILE Toronto (TSX: PD) High: $54.72 Low: $35.82 Close: $51.20 Volume Traded: 6,287,505 New York (NYSE: PDS) High: US$44.52 Low: US$28.00 Close: US$40.41 Volume Traded: 3,146,101
ACCOUNT QUESTIONS Precision’s Transfer Agent can help you with a variety of shareholder related services, including: • change of address • lost unit certificates • transfer of shares to another person • estate settlement
Computershare Trust Company of Canada 100 University Avenue 9th Floor, North Tower Toronto, Ontario M5J 2Y1 Canada
1-800-564-6253 (toll free in Canada and the United States) 1-514-982-7555 (international direct dialing) Email: service@computershare.com
ONLINE INFORMATION To receive news releases by email, or to view this interim report online, please visit Precision’s website at www.precisiondrilling.com and refer to the Investor Relations section. Additional information relating to Precision, including the Annual Information Form, Annual Report and Management Information Circular has been filed with SEDAR and is available at www.sedar.com and on the EDGAR website www.sec.gov |
CORPORATE INFORMATION
DIRECTORS Michael R. Culbert William T. Donovan Brian J. Gibson Steven W. Krablin Susan M. MacKenzie Kevin O. Meyers Kevin A. Neveu David W. Williams
OFFICERS Kevin A. Neveu President and Chief Executive Officer
Veronica H. Foley Senior Vice President, General Counsel and Chief Compliance Officer
Carey T. Ford Senior Vice President and Chief Financial Officer
Shuja U. Goraya Chief Technology Officer
Darren J. Ruhr Chief Administrative Officer
Gene C. Stahl Chief Marketing Officer
AUDITORS KPMG LLP Calgary, Alberta
HEAD OFFICE Suite 800, 525 8th Avenue SW Calgary, Alberta, Canada T2P 1G1 Telephone: 403-716-4500 Facsimile: 403-264-0251 Email: info@precisiondrilling.com www.precisiondrilling.com
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