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 2023
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
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 27, 2023 |
PRECISION DRILLING CORPORATION |
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By: /s/Carey T Ford |
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Name: Carey
T Ford |
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Title: 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, 2023. |
| 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. |
| 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, 2023 and ended on September 30, 2023 that has
materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: October 27, 2023
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, 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, 2023. |
| 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. |
| 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, 2023 and ended on September 30, 2023 that has
materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: October 27, 2023
By: |
/s/Carey T. Ford |
|
Name: Carey T. Ford
Title: Chief Financial Officer
|
Exhibit 99.1
PRECISION DRILLING ANNOUNCES 2023 THIRD QUARTER UNAUDITED FINANCIAL RESULTS
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 certain Financial Measures and Ratios, including Adjusted EBITDA (earnings before income taxes,
loss (gain) on investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on
asset disposals and depreciation and amortization), Funds Provided by (Used in) Operations, Net Capital Spending 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 “Financial Measures and Ratios” later in this report.
Precision Drilling announces strong 2023 third quarter financial results:
| · | Revenue increased to $447 million compared with $429 million in the third quarter of 2022 driven by higher
drilling day rates, offset in part by lower drilling and service activity. |
| · | Revenue per utilization day continues to be strong and grew 20% in Canada to $32,224 and 26% in the U.S.
to US$35,135 compared to the same quarter last year. |
| · | We continued to scale our AlphaTM digital technologies and EverGreenTM suite of
environmental solutions across our Super Triple rig fleet, increasing revenue from these offerings by 30% year over year. Approximately
75% of our Super Triple rig fleet is equipped with AlphaTM and at least one EverGreenTM product. |
| · | Adjusted EBITDA(1) was $115 million and included $31 million of share-based compensation as
our share price increased 41% during the quarter, bringing our year to date share-based compensation to $22 million. In the third quarter
of 2022, Adjusted EBITDA was $120 million and included a $6 million charge for share-based compensation. |
| · | Net earnings were $20 million or $1.45 per share compared to $31 million or $2.26 per share in 2022. For
the first nine months of the year, we have generated net earnings of $10.45 per share. |
| · | During the quarter, we generated cash from operations of $89 million and repurchased and cancelled US$18
million of 2026 unsecured senior notes. |
| · | As at September 30, 2023, we have reduced total debt by $126 million since the beginning of the year and
remain on track to meet our 2023 debt reduction target of $150 million. |
| · | We ended the quarter with $49 million of cash and more than $600 million of available liquidity. |
| · | In Canada, we averaged 57 active rigs in the third quarter, similar to our activity for the same quarter
last year. Demand for our Super Triple and Super Single pad-capable fleets continues to exceed supply and we expect these
rigs to remain fully utilized well into 2024. |
| · | In the U.S., we averaged 41 active rigs compared to 57 in the third quarter of 2022 due to lower industry
activity year over year. |
| · | Internationally, we activated our seventh rig in late September and expect to activate our eighth rig
in the next few weeks. In 2024, we expect to have eight rigs working under long-term contracts, increasing our international earnings
approximately 50% over 2023. |
| · | Completion and Production Services generated revenue of $58 million and Adjusted EBITDA of $14 million,
largely consistent with the third quarter of 2022. |
| · | We expect the acquisition of CWC Energy Service Corp. (CWC) to be completed in the fourth quarter
and provide accretive cash flow on a per share basis in 2024. |
| · | In response to increased customer-funded rig upgrades and to facilitate the strategic purchase of certain
long-lead items, we have increased our 2023 capital spending budget from $195 million to $215 million. |
| (1) | See “FINANCIAL
MEASURES AND RATIOS.” |
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) | |
|
2023 |
| |
|
2022 |
| |
|
% Change |
| |
|
2023 |
| |
|
2022 |
| |
|
% Change |
|
Revenue | |
| 446,754 | | |
| 429,335 | | |
| 4.1 | | |
| 1,430,983 | | |
| 1,106,690 | | |
| 29.3 | |
Adjusted EBITDA(1) | |
| 114,575 | | |
| 119,561 | | |
| (4.2 | ) | |
| 459,887 | | |
| 220,515 | | |
| 108.6 | |
Net earnings (loss) | |
| 19,792 | | |
| 30,679 | | |
| (35.5 | ) | |
| 142,522 | | |
| (37,776 | ) | |
| (477.3 | ) |
Cash provided by operations | |
| 88,500 | | |
| 8,142 | | |
| 987.0 | | |
| 330,316 | | |
| 78,022 | | |
| 323.4 | |
Funds provided by operations(1) | |
| 91,608 | | |
| 81,327 | | |
| 12.6 | | |
| 388,220 | | |
| 171,655 | | |
| 126.2 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash used in investing activities | |
| 34,278 | | |
| 31,711 | | |
| 8.1 | | |
| 157,157 | | |
| 98,836 | | |
| 59.0 | |
Capital spending by spend category(1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Expansion and upgrade | |
| 13,479 | | |
| 25,461 | | |
| (47.1 | ) | |
| 39,439 | | |
| 50,606 | | |
| (22.1 | ) |
Maintenance and infrastructure | |
| 38,914 | | |
| 25,642 | | |
| 51.8 | | |
| 108,463 | | |
| 76,335 | | |
| 42.1 | |
Proceeds on sale | |
| (6,698 | ) | |
| (22,337 | ) | |
| (70.0 | ) | |
| (20,724 | ) | |
| (32,033 | ) | |
| (35.3 | ) |
Net capital spending(1) | |
| 45,695 | | |
| 28,766 | | |
| 58.9 | | |
| 127,178 | | |
| 94,908 | | |
| 34.0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net earnings (loss) per share: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 1.45 | | |
| 2.26 | | |
| (35.8 | ) | |
| 10.45 | | |
| (2.79 | ) | |
| (474.6 | ) |
Diluted | |
| 1.45 | | |
| 2.03 | | |
| (28.6 | ) | |
| 9.84 | | |
| (2.79 | ) | |
| (452.7 | ) |
| (1) | See “FINANCIAL
MEASURES AND RATIOS.” |
Operating Highlights
| |
For the three months ended September 30, | |
For the nine months ended September 30, |
| |
|
2023 |
| |
|
2022 |
| |
|
% Change |
| |
|
2023 |
| |
|
2022 |
| |
|
% Change |
|
Contract drilling rig fleet | |
| 224 | | |
| 225 | | |
| (0.4 | ) | |
| 224 | | |
| 225 | | |
| (0.4 | ) |
Drilling rig utilization days: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. | |
| 3,815 | | |
| 5,287 | | |
| (27.8 | ) | |
| 13,823 | | |
| 14,914 | | |
| (7.3 | ) |
Canada | |
| 5,284 | | |
| 5,432 | | |
| (2.7 | ) | |
| 15,247 | | |
| 14,461 | | |
| 5.4 | |
International | |
| 554 | | |
| 552 | | |
| 0.4 | | |
| 1,439 | | |
| 1,638 | | |
| (12.1 | ) |
Revenue per utilization day: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. (US$) | |
| 35,135 | | |
| 27,847 | | |
| 26.2 | | |
| 35,216 | | |
| 25,864 | | |
| 36.2 | |
Canada (Cdn$) | |
| 32,224 | | |
| 26,927 | | |
| 19.7 | | |
| 32,583 | | |
| 25,843 | | |
| 26.1 | |
International (US$) | |
| 51,570 | | |
| 50,216 | | |
| 2.7 | | |
| 51,306 | | |
| 51,687 | | |
| (0.7 | ) |
Operating costs per utilization day: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. (US$) | |
| 21,655 | | |
| 18,220 | | |
| 18.9 | | |
| 20,217 | | |
| 18,484 | | |
| 9.4 | |
Canada (Cdn$) | |
| 18,311 | | |
| 16,893 | | |
| 8.4 | | |
| 19,239 | | |
| 16,803 | | |
| 14.5 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Service rig fleet | |
| 121 | | |
| 135 | | |
| (10.4 | ) | |
| 121 | | |
| 135 | | |
| (10.4 | ) |
Service rig operating hours | |
| 46,894 | | |
| 52,340 | | |
| (10.4 | ) | |
| 144,944 | | |
| 120,994 | | |
| 19.8 | |
Financial Position
(Stated in thousands of Canadian dollars, except ratios) | |
|
September 30, 2023 |
| |
|
December 31, 2022 |
|
Working capital(1) | |
| 177,740 | | |
| 60,641 | |
Cash | |
| 49,065 | | |
| 21,587 | |
Long-term debt | |
| 963,827 | | |
| 1,085,970 | |
Total long-term financial liabilities | |
| 1,054,661 | | |
| 1,206,619 | |
Total assets | |
| 2,808,201 | | |
| 2,876,123 | |
Long-term debt to long-term debt plus equity ratio (1) | |
| 0.41 | | |
| 0.47 | |
| (1) | See “FINANCIAL
MEASURES AND RATIOS.” |
Summary for the three months ended September 30, 2023:
| · | Revenue of $447 million was 4% higher than 2022 due to the further strengthening of drilling and service
revenue rates, partially offset by lower activity. Drilling rig utilization days decreased 28% and 3% in the U.S. and Canada, respectively,
while international activity remained consistent. Our service rig operating hours decreased 10% as compared with 2022. |
| · | Adjusted EBITDA was $115 million as compared with $120 million in 2022. Our lower 2023 Adjusted EBITDA
was primarily the result of increased share-based compensation charges and lower activity, partially offset by higher revenue rates. Share-based
compensation was $31 million as compared with $6 million in 2022. Please refer to “Other Items” later in this report for additional
information on share-based compensation charges. |
| · | Adjusted EBITDA as a percentage of revenue was 26% as compared with 28% in 2022. |
| · | Our U.S. revenue per utilization day was US$35,135 compared with US$27,847 in 2022. The increase was primarily
the result of higher fleet average day rates and higher idle but contracted rig revenue. We recognized revenue from idle but contracted
rigs of US$6 million as compared with US$1 million in 2022. Consistent with 2022, we did not recognize revenue from turnkey projects during
the quarter. Revenue per utilization day, excluding the impact of idle but contracted rigs was US$33,543, compared to US$27,682 in 2022,
an increase of US$5,861 or 21%. Revenue per utilization day, excluding idle but contracted rigs, decreased US$1,014 from the second quarter
of 2023. |
| · | Our U.S. operating costs per utilization day increased to US$21,655
compared with US$18,220 in 2022. The increase was primarily due to higher rig operating costs, repairs and maintenance and the impact
of fixed costs being spread over fewer activity days. Our higher rig operating costs in the current period pertained to field rate increases
completed in the fourth quarter of 2022. U.S. operating costs per utilization day, excluding turnkey, was US$21,623 compared with US$18,236
in 2022. Sequentially, excluding the impact of turnkey activity, operating costs per utilization day increased US$2,677. The increase
was primarily due to higher repairs and maintenance and the impact of fixed costs being spread over fewer activity days. |
| · | In Canada, revenue per utilization day was $32,224 compared with $26,927 in 2022. The increase was a result
of higher average day rates and customer cost recoveries. Sequentially, revenue per utilization day decreased $1,311 due to lower customer
cost recoveries. |
| · | Our Canadian operating costs per utilization day increased to $18,311, compared with $16,893 in 2022,
due to higher field wages, repairs and maintenance and costs that were recovered from our customers. Sequentially, our daily operating
costs decreased $3,021 due to lower repairs and maintenance, customer cost recoveries and operating overheads being spread over a higher
activity base. |
| · | Completion and Production Services revenue and Adjusted EBITDA were $58 million and $14 million, respectively, compared with $57 million
and $15 million in 2022. |
| · | We realized US$29 million of international contract drilling revenue compared with US$28 million in 2022. |
| · | General and administrative expenses were $44 million as compared with $25 million in 2022. The increase
was primarily due to higher share-based compensation charges. |
| · | Net finance charges were $20 million, a decrease of $3 million compared with 2022 and was the result of
lower outstanding long-term debt. |
| · | Cash provided by operations was $89 million compared with $8 million in 2022. We generated $92 million of funds provided by operations
compared with $81 million in 2022. Our increased day rates, revenue efficiency and operational leverage continued to drive higher cash
generation in the current quarter. |
| · | Capital expenditures were $52 million compared with $51 million in 2022. Capital spending by spend category (see “FINANCIAL
MEASURES AND RATIOS”) included $13 million for expansion and upgrades and $39 million for the maintenance of existing assets, infrastructure,
and intangible assets. |
| · | We repaid $26 million of debt, repurchasing and cancelling US$18 million of 2026 unsecured senior notes, and ended the quarter with
$49 million of cash and more than $600 million of available liquidity. |
Summary for the nine months ended September 30, 2023:
| · | Revenue for the first nine months of 2023 was $1,431 million, an increase of 29% from 2022. |
| · | Adjusted EBITDA was $460 million as compared with $221 million in 2022. Our higher Adjusted EBITDA was
attributable to increased revenue rates, higher Canadian drilling and service activity and lower share-based compensation, partially offset
by lower U.S. and international drilling activity. |
| · | General and administrative costs were $83 million, a decrease of $19 million from 2022 primarily due to
lower share-based compensation, partially offset by higher labour-related costs and the impact of the weakening Canadian dollar on our
translated U.S. dollar-denominated costs. |
| · | Net finance charges were $64 million, consistent with 2022, as the impact of our lower debt balance was
offset by higher variable debt interest rates and higher translated U.S. dollar-denominated interest expense due to the weakening of the
Canadian dollar. |
| · | Cash provided by operations was $330 million as compared with $78 million in 2022. Funds provided by operations
in 2023 were $388 million, an increase of $217 million from the comparative period. |
| · | Capital expenditures were $148 million in 2023, an increase of $21 million from 2022. Capital spending
by spend category included $39 million for expansion and upgrades and $108 million for the maintenance of existing assets, infrastructure,
and intangible assets. |
| · | Year to date, we have reduced our total debt by $126 million through the full repayment of our Senior
Credit Facility and the repurchase and cancellation of US$48 million of our 2026 unsecured senior notes. In addition, we repurchased and
cancelled 193,616 common shares for $13 million under our Normal Course Issuer Bid (NCIB). |
STRATEGY
Precision’s vision is to be globally recognized as the High Performance,
High Value provider of land drilling services. We work toward this vision by defining and measuring our results against strategic
priorities that we establish at the beginning of every year.
Precision’s 2023 strategic priorities and the progress made during
the third quarter and year to date are as follows:
| 1. | Deliver High Performance, High Value service through operational excellence. |
| · | Year to date, we have increased our Canadian drilling rig utilization days and well servicing rig operating
hours, maintaining our position as the leading provider of high-quality and reliable services in Canada. |
| · | Activated our seventh rig in the Middle East and expect to have an eighth rig working in the next few
weeks. These eight rigs represent over US$500 million in backlog revenue that stretches into 2028. |
| · | Announced the acquisition of CWC, expanding our Canadian well servicing business and our drilling fleets
in both the U.S. and Canada. The proposed transaction is expected to provide approximately $20 million in annual synergies and be accretive
on a 2024 cash flow per share basis. |
| · | Reinvested $148 million year to date into our equipment and infrastructure as we progress toward our total
expected 2023 investment of $215 million. |
| 2. | Maximize free cash flow by increasing Adjusted EBITDA margins, revenue efficiency, and growing revenue
from AlphaTM technologies and EverGreenTM suite of environmental solutions. |
| · | Realized third quarter daily operating margins (revenue per utilization day less operating costs per utilization
day) of $13,913 in Canada and US$13,480 in the U.S., representing increases of 39% and 40%, respectively, compared with the third quarter
of 2022. |
| · | Grew combined AlphaTM technologies and EverGreenTM suite of environmental solutions
third quarter revenue by 30% compared with the same quarter last year. |
| · | At September 30, we had 74 of our AC Super Triple rigs equipped with AlphaTM technologies,
representing a 19% increase over the third quarter of 2022. |
| · | Continued to scale our EverGreenTM suite of environmental solutions. Approximately 75% of our
Super Triple fleet is equipped with at least one EverGreenTM product, including 11 field deployed EverGreenTM
Battery Energy Storage Systems (BESS). |
| 3. | Reduce debt by at least $150 million and allocate 10% to 20% of free cash flow before debt repayments
for share repurchases. Long-term debt reduction target of $500 million between 2022 and 2025 and sustained Net Debt to Adjusted EBITDA
ratio(1) of below 1.0 times by the end of 2025. |
| · | Generated significant third quarter cash from operations of $89 million which allowed us to repurchase
and cancel US$18 million of 2026 unsecured senior notes. |
| · | As of September 30, 2023, we have reduced debt by $126 million and remain committed to reducing debt by
at least $150 million in 2023. |
| · | We have allocated $13 million of free cash flow to share repurchases for the first nine months of the
year and in September we renewed our NCIB for an additional year as we believe it continues to be another tool to enhance shareholder
value. |
| · | We
remain committed to our long-term debt reduction target and reaching a sustained Net Debt to Adjusted EBITDA ratio of below 1.0 times
by the end of 2025. |
| | (1)
See “FINANCIAL MEASURES AND RATIOS.” |
OUTLOOK
Energy industry fundamentals continue to support drilling activity for
oil and natural gas despite economic uncertainty and geopolitical instability. During the third quarter, persistent challenges and stresses
from interest rate hikes and recessionary risks began to weaken, and commodity prices moved higher. While the recent conflict in the Middle
East has had little direct impact on global oil and natural gas supply, an escalation of events and involvement from additional regional
powers could disrupt supply in the world’s top oil producing region.
Today, oil prices are supported by increasing global demand and limited
supply growth as OPEC continues to honour its lower production quotas and producers remain committed to returning capital to shareholders
versus increasing production. Natural gas has demonstrated short-term price weaknesses; however, this lower-carbon energy source is becoming
increasingly favored as countries around the world stress the importance of sustainability, decarbonization and energy security. With
demand for Liquefied Natural Gas (LNG) exports growing and the next wave of North American LNG projects expected to begin coming
online in 2025 (including LNG Canada), we anticipate a sustained period of elevated natural gas drilling activity in both the U.S. and
Canada.
In Canada, Precision’s year to date drilling activity has surpassed
2022 levels and we expect high activity levels to continue into 2024, due to strong oil prices and increases in hydrocarbon export capacity.
The Trans Mountain oil pipeline expansion and the Coastal GasLink pipeline are each expected to begin operations in the first quarter
of 2024. Northwestern Alberta and Northeastern British Columbia natural gas developments are prime beneficiaries of the LNG Canada project
and the January 2023 agreement between the Government of British Columbia and the Blueberry River First Nation, which has facilitated
a significant increase in drilling license approvals and should lead to more drilling activity in the region. Large pad drilling programs
are ideally suited for our Super Triple rigs, resulting in strong customer interest for these rigs for the next several years.
Our Super Triple fleet is currently fully utilized and we expect customer demand to continue to exceed supply, driving higher day
rates, daily operating margins and longer-term take-or-pay contracts. We are currently upgrading one of our Canadian rigs and expect to
add it to our Super Triple Canadian fleet in January 2024 on a three-year term contract, bringing our fleet size to 30.
In the Canadian heavy oil market, we expect activity levels to remain strong
as Canadian producers are benefiting from favorable oil pricing due to a weaker Canadian dollar exchange rate and improving heavy oil
differentials. Precision’s Super Single rigs are well suited for long-term conventional heavy oil development in the oil
sands and Clearwater formation. We expect our Super Single pad-capable rigs to be fully utilized well into 2024, driving higher
day rates.
In the U.S., drilling activity had been increasing since mid-2020 but began
to weaken in early 2023 due to lower natural gas prices and oil price volatility. As at October 25, 2023, the Baker Hughes’ active
U.S. land rig count declined 21% from the start of the year. If oil prices remain stable and around today’s level, we expect demand
to improve late in the fourth quarter and gain momentum in 2024 as customers embark on a new budget cycle and seek to maintain or possibly
increase production levels and replenish inventories.
Our AlphaTM technologies and EverGreenTM suite of
environmental solutions continue to gain momentum and have become key competitive differentiators for our rigs as these offerings deliver
exceptional value to our customers by reducing risks, well construction costs and carbon footprint. We currently have 11 EverGreenTM
BESS deployed in the field and have commitments for two additional deployments by year end. Precision’s EverGreenTM BESS
have proven to be an economically viable emissions reduction solution for our customers and we anticipate continued demand for additional
deployments in 2024.
Internationally, we currently have seven rigs working on term contracts,
four in Kuwait and three in the Kingdom of Saudi Arabia, increasing to eight in the next few weeks. In 2024, our international earnings
are expected to increase approximately 50% over 2023 levels and provide stable and predictable cash flow that stretches into 2028. We
continue to bid our remaining idle rigs within the region and remain optimistic about our ability to secure rig reactivations.
Precision is the leading provider of high-quality and reliable well services
in Canada and the outlook for this business is positive. High customer demand for well maintenance and completion services is expected
to add tightness to the availability of staffed service rigs, supporting healthy activity and pricing into the foreseeable future. In
September, Precision announced the acquisition of CWC, which will allow us to enhance our Canadian well service offering with high-quality
rigs in complementary geographic regions. The acquisition is expected to close in the fourth quarter of 2023 and provide accretive cash
flow on a per share basis in 2024.
Commodity Prices
Third quarter average West Texas Intermediate and Western Canadian Select
oil prices decreased 10% and 3%, respectively, from 2022. Average Henry Hub and AECO natural gas prices declined 66% and 42%, respectively
from 2022.
| |
|
For
the three months ended
September 30, |
| |
|
Year ended
December 31, |
|
| |
|
2023 |
| |
|
2022 |
| |
|
2022 |
|
Average oil and natural gas prices | |
| | | |
| | | |
| | |
Oil | |
| | | |
| | | |
| | |
West Texas Intermediate (per barrel) (US$) | |
| 82.18 | | |
| 91.66 | | |
| 94.23 | |
Western Canadian Select (per barrel) (US$) | |
| 69.39 | | |
| 71.56 | | |
| 78.15 | |
Natural gas | |
| | | |
| | | |
| | |
United States | |
| | | |
| | | |
| | |
Henry Hub (per MMBtu) (US$) | |
| 2.66 | | |
| 7.89 | | |
| 6.51 | |
Canada | |
| | | |
| | | |
| | |
AECO (per MMBtu) (CDN$) | |
| 2.61 | | |
| 4.47 | | |
| 5.43 | |
Contracts
The following chart outlines the average number of drilling rigs under
term contract by quarter as at October 25, 2023. For those quarters ending after September 30, 2023, this chart represents the minimum
number of 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 term contracts.
| |
Average for the quarter ended 2022 | |
Average for the quarter ended 2023 |
| |
|
Mar. 31 |
| |
|
June 30 |
| |
|
Sept. 30 |
| |
|
Dec. 31 |
| |
|
Mar. 31 |
| |
|
June 30 |
| |
|
Sept. 30 |
| |
|
Dec. 31 |
|
Average rigs under term contract as of October 25, 2023: | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. | | |
| 27 | | |
| 29 | | |
| 31 | | |
| 35 | | |
| 40 | | |
| 37 | | |
| 32 | | |
| 28 | |
| Canada | | |
| 6 | | |
| 8 | | |
| 10 | | |
| 16 | | |
| 19 | | |
| 23 | | |
| 23 | | |
| 21 | |
| International | | |
| 6 | | |
| 6 | | |
| 6 | | |
| 6 | | |
| 4 | | |
| 5 | | |
| 7 | | |
| 8 | |
Total | | |
| 39 | | |
| 43 | | |
| 47 | | |
| 57 | | |
| 63 | | |
| 65 | | |
| 62 | | |
| 57 | |
The following chart outlines the average number of drilling rigs that we
had under term contract for 2022 and the average number of rigs we have under term contract as at October 25, 2023.
| |
|
Average for the year ended |
|
| |
|
2022 |
| |
|
2023 |
|
Average rigs under term contract
as of October 25, 2023: | |
| |
|
| U.S. | | |
| 31 | | |
| 34 | |
| Canada | | |
| 10 | | |
| 22 | |
| International | | |
| 6 | | |
| 6 | |
Total | | |
| 47 | | |
| 62 | |
In Canada, term contracted rigs normally
generate 250 utilization days per year because of the seasonal nature of well site access. Accordingly, our anticipated Canadian rigs
under term contract may fluctuate as customers complete their commitments earlier than projected. In most regions in the U.S. and
internationally, term contracts normally generate 365 utilization days per year. Internationally, we expect to have eight rigs operating
under long-term contract by the end of 2023.
Drilling Activity
The following chart outlines the average number of drilling rigs that we
had working or moving by quarter for the periods noted.
| |
|
Average for the quarter ended
2022 |
| |
|
Average for the quarter ended
2023 |
|
| |
|
Mar. 31 |
| |
|
June 30 |
| |
|
Sept. 30 |
| |
|
Dec. 31 |
| |
|
Mar. 31 |
| |
|
June 30 |
| |
|
Sept. 30 |
|
Average Precision active rig count: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. | |
| 51 | | |
| 55 | | |
| 57 | | |
| 60 | | |
| 60 | | |
| 51 | | |
| 41 | |
Canada | |
| 63 | | |
| 37 | | |
| 59 | | |
| 66 | | |
| 69 | | |
| 42 | | |
| 57 | |
International | |
| 6 | | |
| 6 | | |
| 6 | | |
| 6 | | |
| 5 | | |
| 5 | | |
| 6 | |
Total | |
| 120 | | |
| 98 | | |
| 122 | | |
| 132 | | |
| 134 | | |
| 98 | | |
| 104 | |
According to industry sources, as at October 25, 2023, the U.S. active
land drilling rig count has decreased 21% from the same point last year while the Canadian active land drilling rig count has decreased
6%. To date in 2023, approximately 79% of the U.S. industry’s active rigs and 59% of the Canadian industry’s active rigs were
drilling for oil targets, compared with 79% for the U.S. and 63% for Canada at the same time last year.
Capital Spending and Free Cash Flow Allocation
We remain committed to disciplined cash flow management, capital spending
and returning capital to shareholders. In response to increased customer contracted rig upgrades and to facilitate the strategic purchase
of certain long-lead items, capital spending in 2023 is expected to increase by $20 million to $215 million. By spend category, we expect
to incur $155 million for sustaining, infrastructure and intangibles and $60 million for expansion and upgrades. We expect that the $215
million will be split as follows: $201 million in the Contract Drilling Services segment, $11 million in the Completion and Production
Services segment, and $3 million in the Corporate segment. As at September 30, 2023, Precision had capital commitments of approximately
$229 million with payments expected through 2026.
SEGMENTED FINANCIAL RESULTS
Precision’s operations are reported in two segments: Contract Drilling
Services, which includes our drilling rig, 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) | |
|
2023 |
| |
|
2022 |
| |
|
% Change |
| |
|
2023 |
| |
|
2022 |
| |
|
% Change |
|
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Contract Drilling Services | |
| 390,728 | | |
| 374,465 | | |
| 4.3 | | |
| 1,257,762 | | |
| 982,909 | | |
| 28.0 | |
Completion and Production Services | |
| 57,573 | | |
| 56,642 | | |
| 1.6 | | |
| 178,257 | | |
| 127,921 | | |
| 39.3 | |
Inter-segment eliminations | |
| (1,547 | ) | |
| (1,772 | ) | |
| (12.7 | ) | |
| (5,036 | ) | |
| (4,140 | ) | |
| 21.6 | |
| |
| 446,754 | | |
| 429,335 | | |
| 4.1 | | |
| 1,430,983 | | |
| 1,106,690 | | |
| 29.3 | |
Adjusted EBITDA:(1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Contract Drilling Services | |
| 131,701 | | |
| 118,599 | | |
| 11.0 | | |
| 468,302 | | |
| 260,202 | | |
| 80.0 | |
Completion and Production Services | |
| 14,118 | | |
| 14,788 | | |
| (4.5 | ) | |
| 39,031 | | |
| 26,166 | | |
| 49.2 | |
Corporate and Other | |
| (31,244 | ) | |
| (13,826 | ) | |
| 126.0 | | |
| (47,446 | ) | |
| (65,853 | ) | |
| (28.0 | ) |
| |
| 114,575 | | |
| 119,561 | | |
| (4.2 | ) | |
| 459,887 | | |
| 220,515 | | |
| 108.6 | |
| (1) | See “FINANCIAL
MEASURES AND RATIOS.” |
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) | |
|
2023 |
| |
|
2022 |
| |
|
% Change |
| |
|
2023 |
| |
|
2022 |
| |
|
% Change |
|
Revenue | |
| 390,728 | | |
| 374,465 | | |
| 4.3 | | |
| 1,257,762 | | |
| 982,909 | | |
| 28.0 | |
Expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating | |
| 247,937 | | |
| 246,442 | | |
| 0.6 | | |
| 759,750 | | |
| 692,169 | | |
| 9.8 | |
General and administrative | |
| 11,090 | | |
| 9,424 | | |
| 17.7 | | |
| 29,710 | | |
| 30,538 | | |
| (2.7 | ) |
Adjusted EBITDA(1) | |
| 131,701 | | |
| 118,599 | | |
| 11.0 | | |
| 468,302 | | |
| 260,202 | | |
| 80.0 | |
Adjusted EBITDA as a percentage of revenue(1) | |
| 33.7 | % | |
| 31.7 | % | |
| | | |
| 37.2 | % | |
| 26.5 | % | |
| | |
| (1) | See “FINANCIAL
MEASURES AND RATIOS.” |
United States onshore drilling statistics:(1) | |
2023 | |
2022 |
| |
|
Precision |
| |
|
Industry(2) |
| |
|
Precision |
| |
|
Industry(2) |
|
Average number of active land rigs for quarters ended: | |
| | | |
| | | |
| | | |
| | |
March 31 | |
| 60 | | |
| 744 | | |
| 51 | | |
| 603 | |
June 30 | |
| 51 | | |
| 700 | | |
| 55 | | |
| 687 | |
September 30 | |
| 41 | | |
| 631 | | |
| 57 | | |
| 746 | |
Year to date average | |
| 51 | | |
| 692 | | |
| 54 | | |
| 679 | |
| (1) | United States lower 48 operations only. |
| (2) | Baker Hughes rig counts. |
Canadian onshore drilling statistics:(1) | |
2023 | |
2022 |
| |
|
Precision |
| |
|
Industry(2) |
| |
|
Precision |
| |
|
Industry(2) |
|
Average number of active land rigs for quarters ended: | |
| | | |
| | | |
| | | |
| | |
March 31 | |
| 69 | | |
| 221 | | |
| 63 | | |
| 205 | |
June 30 | |
| 42 | | |
| 117 | | |
| 37 | | |
| 113 | |
September 30 | |
| 57 | | |
| 188 | | |
| 59 | | |
| 199 | |
Year to date average | |
| 56 | | |
| 175 | | |
| 53 | | |
| 172 | |
| (1) | Canadian operations only. |
| (2) | Baker Hughes rig counts. |
Revenue from Contract Drilling Services was $391 million, 4% higher than
2022, while Adjusted EBITDA increased 11% to $132 million. The increase in revenue and Adjusted EBITDA was primarily due to higher day
rates, partially offset by lower North America drilling activity.
Drilling rig utilization days (drilling days plus move days) in the U.S.
were 3,815, 28% lower than 2022. Drilling rig utilization days in Canada were 5,284, 3% lower than 2022. The movement in utilization days
in both the U.S. and Canada was consistent with changes in industry activity. Drilling rig utilization days in our international business
were 554, consistent with 2022.
Revenue per utilization day in the U.S. increased 26% from 2022 and was
primarily the result of higher fleet average day rates and higher idle but contracted rig revenue. We recognized revenue from idle but
contracted rigs of US$6 million as compared with US$1 million in 2022. Consistent with 2022, we did not recognize revenue from turnkey
projects during the quarter. Drilling rig revenue per utilization day in Canada increased 20% due to higher average day rates and customer
cost recoveries. Our international revenue per utilization day for the quarter was 3% higher than 2022 as our rigs commenced drilling
under renewed long-term contracts.
In the U.S., 63% of utilization days were generated from rigs under term
contract as compared with 54% in 2022. In Canada, 37% of our utilization days were generated from rigs under term contract, compared with
14% in 2022.
U.S. operating costs per utilization
day increased 19% from 2022 and was primarily due to higher rig operating costs, repairs and maintenance and the impact of fixed costs
being spread over fewer activity days. Our higher rig operating costs in the current period pertained to field rate increases completed
in the fourth quarter of 2022. U.S. operating costs per utilization day, excluding turnkey, was US$21,623 compared with US$18,236 in 2022.
Our Canadian operating costs per utilization day increased 8% as compared with 2022 and was due to higher field wages, repairs and maintenance
and costs that were recovered from our customers.
Our general and administrative expenses increased $2 million as compared
with 2022 and was primarily the result of higher share-based compensation charges and higher translated U.S. dollar-denominated costs.
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) | |
|
2023 |
| |
|
2022 |
| |
|
% Change |
| |
|
2023 |
| |
|
2022 |
| |
|
Revenue | |
| 57,573 | | |
| 56,642 | | |
| 1.6 | | |
| 178,257 | | |
| 127,921 | | |
| 39.3 | |
Expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating | |
| 41,612 | | |
| 40,198 | | |
| 3.5 | | |
| 133,325 | | |
| 96,365 | | |
| 38.4 | |
General and administrative | |
| 1,843 | | |
| 1,656 | | |
| 11.3 | | |
| 5,901 | | |
| 5,390 | | |
| 9.5 | |
Adjusted EBITDA(1) | |
| 14,118 | | |
| 14,788 | | |
| (4.5 | ) | |
| 39,031 | | |
| 26,166 | | |
| 49.2 | |
Adjusted EBITDA as a percentage of revenue(1) | |
| 24.5 | % | |
| 26.1 | % | |
| | | |
| 21.9 | % | |
| 20.5 | % | |
| | |
Well servicing statistics: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Number of service rigs (end of period) | |
| 121 | | |
| 135 | | |
| (10.4 | ) | |
| 121 | | |
| 135 | | |
| (10.4 | ) |
Service rig operating hours | |
| 46,894 | | |
| 52,340 | | |
| (10.4 | ) | |
| 144,944 | | |
| 120,994 | | |
| 19.8 | |
Service rig operating hour utilization | |
| 42 | % | |
| 47 | % | |
| | | |
| 44 | % | |
| 43 | % | |
| | |
| (1) | See “FINANCIAL
MEASURES AND RATIOS.” |
Completion and Production Services revenue increased to $58 million, an
increase of $1 million from 2022. Our increased revenue was due to higher service rates, offset by lower activity. Our third quarter service
rig operating hours decreased 10% compared with 2022. Completion and Production Services generated 7% of its revenue from U.S. operations
compared with 8% in 2022.
Operating costs as a percentage of revenue were 72% as compared with 71%
in 2022. The increased percentage in 2023 was the result of higher labour-related costs. As compared to 2022, our third quarter general
and administrative expenses increased 11%, primarily due to higher share-based compensation charges.
Adjusted EBITDA was $14 million as compared with $15 million in 2022. Our
lower Adjusted EBITDA in 2023 was due to decreased activity, higher labour-related costs and higher share-based compensation, partially
offset by increased service rates.
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 of $31 million as compared with $14 million in 2022. Our higher
current quarter Adjusted EBITDA was impacted by higher share-based compensation charges and higher translated U.S. dollar-denominated
costs.
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 2022 Annual Report.
A summary of expense amounts 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) | |
|
2023 |
| |
|
2022 |
| |
|
2023 |
| |
|
2022 |
|
Cash settled share-based incentive plans | |
| 30,105 | | |
| 5,543 | | |
| 20,091 | | |
| 57,802 | |
Equity settled share-based incentive plans | |
| 701 | | |
| — | | |
| 1,834 | | |
| 427 | |
Total share-based incentive compensation plan expense | |
| 30,806 | | |
| 5,543 | | |
| 21,925 | | |
| 58,229 | |
| |
| | | |
| | | |
| | | |
| | |
Allocated: | |
| | | |
| | | |
| | | |
| | |
Operating | |
| 7,692 | | |
| 1,922 | | |
| 6,732 | | |
| 14,694 | |
General and Administrative | |
| 23,114 | | |
| 3,621 | | |
| 15,193 | | |
| 43,535 | |
| |
| 30,806 | | |
| 5,543 | | |
| 21,925 | | |
| 58,229 | |
Cash settled share-based compensation expense for the quarter was $30 million
as compared with $6 million in 2022. The higher expense in 2023 was primarily due to our improved share price performance as compared
with 2022.
During the first quarter of 2023, we issued Executive Restricted Share
Units (Executive RSUs) to certain senior executives. Accordingly, our equity-settled share-based compensation expense for the quarter
was $1 million as compared with nil in 2022.
As at September 30, 2023, the majority of our share-based compensation
plans were classified as cash-settled and will be impacted by changes in our share price. Although accounted for as cash-settled, Precision
retains the ability to settle certain vested units in common shares at its discretion.
Finance Charges
Net finance charges were $20 million, a decrease of $3 million compared
with 2022 and the result of lower outstanding long-term debt. Interest charges on our U.S. dollar-denominated long-term debt were US$13
million ($17 million) as compared with US$16 million ($20 million) in 2022.
Income Tax
Income tax expense for the quarter was $8 million as compared with $6 million
in 2022. During the third quarter, we continued to not recognize deferred tax assets on certain Canadian and international operating losses.
Normal Course Issuer Bid
During the quarter, the Toronto Stock Exchange (TSX) approved the
renewal of our Normal Course Issuer Bid. Pursuant to the NCIB, we are authorized to repurchase and cancel up to a maximum of 1,326,321
common shares. Purchases under the renewed NCIB may commence on September 19, 2023 and will terminate no later than September 18, 2024,
or such earlier time as we complete our maximum purchases pursuant to the NCIB or provide notice of termination.
Cathedral Energy Services Ltd.
During the third quarter of 2023, we exercised 2 million warrants for $1
million in exchange for 2 million common shares of Cathedral Energy Services Ltd. (Cathedral). In addition, we divested 11 million
common shares of Cathedral for net proceeds of $10 million.
LIQUIDITY AND CAPITAL RESOURCES
The oilfield services business is inherently cyclical in nature. To manage
this, we focus on maintaining a strong balance sheet in order to have the financial flexibility 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 provide more certainty of future revenues and return on our capital investments.
Liquidity
Amount |
|
Availability |
|
Used for |
|
Maturity |
Senior Credit Facility (secured) |
|
|
|
|
|
|
US$447 million (extendible, revolving
term credit facility with US$353 million accordion feature) |
|
Nil drawn and US$55 million in outstanding letters of credit |
|
General corporate purposes |
|
June 18, 2025 |
Real estate credit facilities (secured) |
|
|
|
|
|
|
US$9 million |
|
Fully drawn |
|
General corporate purposes |
|
November 19, 2025 |
$17 million |
|
Fully drawn |
|
General corporate purposes |
|
March 16, 2026 |
Operating facilities (secured) |
|
|
|
|
|
|
$40 million |
|
Undrawn, except $20 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$40 million |
|
Undrawn, except US$21 million in
outstanding letters of credit |
|
Letters of credit |
|
|
Unsecured senior notes (unsecured) |
|
|
|
|
|
|
US$299 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 |
As at September 30, 2023, we had $978 million outstanding under our Senior
Credit Facility, Real Estate Credit Facilities and unsecured senior notes as compared with $1,103 million at December 31, 2022. The current
blended cash interest cost of our debt is approximately 7.0%.
During the quarter, we repurchased and cancelled US$18 million principal
amount of our 2026 unsecured senior notes.
Senior Credit Facility
Our Senior Credit Facility requires that we comply with certain covenants
including a leverage ratio of consolidated senior debt to consolidated Covenant EBITDA of less than 2.5:1. For purposes of calculating
the leverage ratio, consolidated senior debt only includes secured indebtedness. 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 matures on June 18, 2025.
Unsecured Senior Notes
The unsecured senior notes require that we comply with certain 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.
For further information, please see the unsecured senior note indentures
which are available on SEDAR and EDGAR.
Covenants
As at September 30, 2023, we were in compliance with the covenants of our
Senior Credit Facility and Real Estate Credit Facilities.
| |
|
Covenant |
| |
|
At September 30, 2023 |
|
Senior Credit Facility | |
| | | |
| | |
Consolidated senior debt to consolidated covenant EBITDA(1) | |
| <2.50 | | |
| 0.05 | |
Consolidated covenant EBITDA to consolidated interest expense | |
| >2.50 | | |
| 6.74 | |
Real Estate Credit Facilities | |
| | | |
| | |
Consolidated covenant EBITDA to consolidated interest expense | |
| >2.50 | | |
| 6.74 | |
| (1) | For purposes of calculating the leverage
ratio consolidated senior debt only includes secured indebtedness. |
Impact of foreign exchange rates
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, |
|
| |
|
2023 |
| |
|
2022 |
| |
|
2023 |
| |
|
2022 |
| |
|
2022 |
|
Canada-U.S. foreign exchange rates | |
| | | |
| | | |
| | | |
| | | |
| | |
Average | |
| 1.34 | | |
| 1.31 | | |
| 1.35 | | |
| 1.28 | | |
| — | |
Closing | |
| 1.36 | | |
| 1.38 | | |
| 1.36 | | |
| 1.38 | | |
| 1.36 | |
Hedge of investments in foreign operations
We utilize foreign currency long-term debt to hedge our exposure to changes
in the carrying value 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).
QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share amounts) | |
|
2022 |
| |
|
2023 |
|
Quarters ended | |
|
December 31 |
| |
|
March 31 |
| |
|
June 30 |
| |
|
September 30 |
|
Revenue | |
| 510,504 | | |
| 558,607 | | |
| 425,622 | | |
| 446,754 | |
Adjusted EBITDA(1) | |
| 91,090 | | |
| 203,219 | | |
| 142,093 | | |
| 114,575 | |
Net earnings | |
| 3,483 | | |
| 95,830 | | |
| 26,900 | | |
| 19,792 | |
Net earnings per basic share | |
| 0.27 | | |
| 7.02 | | |
| 1.97 | | |
| 1.45 | |
Net earnings per diluted share | |
| 0.27 | | |
| 5.57 | | |
| 1.63 | | |
| 1.45 | |
Funds provided by operations(1) | |
| 111,339 | | |
| 159,653 | | |
| 136,959 | | |
| 91,608 | |
Cash provided by operations | |
| 159,082 | | |
| 28,356 | | |
| 213,460 | | |
| 88,500 | |
(Stated in thousands of Canadian dollars, except per share amounts) | |
|
2021 |
| |
|
2022 |
|
Quarters ended | |
|
December 31 |
| |
|
March 31 |
| |
|
June 30 |
| |
|
September 30 |
|
Revenue | |
| 295,202 | | |
| 351,339 | | |
| 326,016 | | |
| 429,335 | |
Adjusted EBITDA(1) | |
| 63,881 | | |
| 36,855 | | |
| 64,099 | | |
| 119,561 | |
Net earnings (loss) | |
| (27,336 | ) | |
| (43,844 | ) | |
| (24,611 | ) | |
| 30,679 | |
Net earnings (loss) per basic share | |
| (2.05 | ) | |
| (3.25 | ) | |
| (1.81 | ) | |
| 2.26 | |
Net earnings (loss) per diluted share | |
| (2.05 | ) | |
| (3.25 | ) | |
| (1.81 | ) | |
| 2.03 | |
Funds provided by operations(1) | |
| 62,681 | | |
| 29,955 | | |
| 60,373 | | |
| 81,327 | |
Cash provided by (used in) operations | |
| 59,713 | | |
| (65,294 | ) | |
| 135,174 | | |
| 8,142 | |
| (1) | See “FINANCIAL
MEASURES AND RATIOS.” |
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
Because of the nature of our business, we are required to make judgements
and estimates in preparing our Condensed Consolidated Interim Financial Statements that could materially affect the amounts recognized.
Our judgements and estimates are based on our past experiences and assumptions we believe are reasonable in the circumstances. The critical
judgements and estimates used in preparing the Condensed Consolidated Interim Financial Statements are described in our 2022 Annual Report.
EVALUATION OF CONTROLS AND PROCEDURES
Based on their evaluation as at September 30, 2023, 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, 2023, 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, 2023 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.
FINANCIAL MEASURES AND RATIOS
Non-GAAP Financial Measures
|
We reference certain additional Non-Generally Accepted Accounting Principles (Non-GAAP) measures that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors.
|
Adjusted EBITDA |
We believe Adjusted EBITDA (earnings before income taxes, loss (gain) on
investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals
and depreciation and amortization), as reported in our Condensed Interim Consolidated Statements of Net Earnings (Loss) and our reportable
operating segment disclosures, 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.
The most directly comparable financial measure is net earnings (loss). |
| |
For the three months ended September 30, | |
For the nine months ended September 30, |
(Stated in thousands of Canadian dollars) | |
|
2023 |
| |
|
2022 |
| |
|
2023 |
| |
|
2022 |
|
Adjusted EBITDA by segment: | |
| | | |
| | | |
| | | |
| | |
Contract Drilling Services | |
| 131,701 | | |
| 118,599 | | |
| 468,302 | | |
| 260,202 | |
Completion and Production Services | |
| 14,118 | | |
| 14,788 | | |
| 39,031 | | |
| 26,166 | |
Corporate and Other | |
| (31,244 | ) | |
| (13,826 | ) | |
| (47,446 | ) | |
| (65,853 | ) |
Adjusted EBITDA | |
| 114,575 | | |
| 119,561 | | |
| 459,887 | | |
| 220,515 | |
Depreciation and amortization | |
| 73,192 | | |
| 69,448 | | |
| 218,823 | | |
| 207,662 | |
Gain on asset disposals | |
| (2,438 | ) | |
| (8,238 | ) | |
| (15,586 | ) | |
| (22,152 | ) |
Foreign exchange | |
| 363 | | |
| 1,344 | | |
| (894 | ) | |
| 1,362 | |
Finance charges | |
| 19,618 | | |
| 22,521 | | |
| 63,946 | | |
| 64,294 | |
Gain on repurchase of unsecured notes | |
| (37 | ) | |
| — | | |
| (137 | ) | |
| — | |
Loss (gain) on investments and other assets | |
| (3,813 | ) | |
| (2,515 | ) | |
| 6,075 | | |
| (3,738 | ) |
Incomes taxes | |
| 7,898 | | |
| 6,322 | | |
| 45,138 | | |
| 10,863 | |
Net earnings (loss) | |
| 19,792 | | |
| 30,679 | | |
| 142,522 | | |
| (37,776 | ) |
Funds Provided by (Used in) Operations |
We believe funds provided by (used in) operations, as reported in our Condensed
Interim Consolidated Statements of Cash Flows, is a useful measure because it provides an indication of the funds our principal business
activities generate prior to consideration of working capital changes, which is primarily made up of highly liquid balances.
The most directly comparable financial measure is cash provided by (used
in) operations.
|
Net Capital Spending |
We believe net capital spending is a useful measure as it provides an indication
of our primary investment activities.
The most directly comparable financial measure is cash provided by (used
in) investing activities.
Net capital spending is calculated as follows:
|
| |
For the three months ended September 30, | |
For the nine months ended September 30, |
(Stated in thousands of Canadian dollars) | |
|
2023 |
| |
|
2022 |
| |
|
2023 |
| |
|
2022 |
|
Capital spending by spend category | |
| | | |
| | | |
| | | |
| | |
Expansion and upgrade | |
| 13,479 | | |
| 25,461 | | |
| 39,439 | | |
| 50,606 | |
Maintenance, infrastructure and intangibles | |
| 38,914 | | |
| 25,642 | | |
| 108,463 | | |
| 76,335 | |
| |
| 52,393 | | |
| 51,103 | | |
| 147,902 | | |
| 126,941 | |
Proceeds on sale of property, plant and equipment | |
| (6,698 | ) | |
| (22,337 | ) | |
| (20,724 | ) | |
| (32,033 | ) |
Net capital spending | |
| 45,695 | | |
| 28,766 | | |
| 127,178 | | |
| 94,908 | |
Business acquisitions | |
| — | | |
| 10,200 | | |
| 28,000 | | |
| 10,200 | |
Proceeds from sale of investments and other assets | |
| (10,013 | ) | |
| — | | |
| (10,013 | ) | |
| — | |
Purchase of investments and other assets | |
| 3,211 | | |
| 73 | | |
| 5,282 | | |
| 609 | |
Receipt of finance lease payments | |
| (64 | ) | |
| — | | |
| (64 | ) | |
| — | |
Changes in non-cash working capital balances | |
| (4,551 | ) | |
| (7,328 | ) | |
| 6,774 | | |
| (6,881 | ) |
Cash used in investing activities | |
| 34,278 | | |
| 31,711 | | |
| 157,157 | | |
| 98,836 | |
Working Capital |
We define working capital as current assets less current liabilities, as
reported in our Condensed Interim Consolidated Statements of Financial Position.
Working capital is calculated as follows:
|
| |
|
September 30, |
| |
|
December 31, |
|
(Stated in thousands of Canadian dollars) | |
|
2023 |
| |
|
2022 |
|
Current assets | |
| 477,396 | | |
| 470,670 | |
Current liabilities | |
| 299,656 | | |
| 410,029 | |
Working capital | |
| 177,740 | | |
| 60,641 | |
Non-GAAP Ratios
|
We reference certain additional Non-GAAP ratios that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors.
|
Adjusted EBITDA % of Revenue |
We believe Adjusted EBITDA as a percentage of consolidated revenue, as reported in our Condensed Interim Consolidated Statements of Net Earnings (Loss), provides an indication of our profitability 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.
|
Long-term debt to long-term debt plus equity |
We believe that long-term debt (as reported in our Condensed Interim Consolidated Statements of Financial Position) to long-term debt plus equity (total shareholders’ equity as reported in our Condensed Interim Consolidated Statements of Financial Position) provides an indication of our debt leverage.
|
Net Debt to Adjusted EBITDA |
We believe that the Net Debt (long-term debt less cash, as reported in our Condensed Interim Consolidated Statements of Financial Position) to Adjusted EBITDA ratio provides an indication of the number of years it would take for us to repay our debt obligations.
|
Supplementary Financial Measures
|
We reference certain supplementary financial measures that are not defined terms under IFRS to assess performance because we believe they provide useful supplemental information to investors.
|
Capital Spending by Spend Category |
We provide additional disclosure to better depict the nature of our capital spending. Our capital spending is categorized as expansion and upgrade, maintenance and infrastructure, or intangibles. |
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 2023; |
| · | our capital expenditures, free cash flow allocation and debt reduction plan for 2023; |
| · | anticipated activity levels, demand for our drilling rigs, day rates and daily operating margins in 2023; |
| · | the average number of term contracts in place for 2023; |
| · | customer adoption of AlphaTM technologies and EverGreenTM suite of environmental
solutions; |
| · | timing and amount of accretive cash flow from acquired drilling and well servicing assets; |
| · | 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:
| · | our ability to react to customer spending plans as a result of changes in oil and natural gas prices; |
| · | 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; |
| · | the impact of an increase/decrease in capital spending; 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; |
| · | 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, 2022, 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.
15
Exhibit 99.2
CONDENSED INTERIM
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(Stated in thousands of Canadian dollars) | |
September 30, 2023 | | |
December 31, 2022 | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 49,065 | | |
$ | 21,587 | |
Accounts receivable | |
| 393,286 | | |
| 413,925 | |
Inventory | |
| 35,045 | | |
| 35,158 | |
Total current assets | |
| 477,396 | | |
| 470,670 | |
Non-current assets: | |
| | | |
| | |
Income tax recoverable | |
| 699 | | |
| 1,602 | |
Deferred tax assets | |
| 454 | | |
| 455 | |
Property, plant and equipment | |
| 2,238,680 | | |
| 2,303,338 | |
Intangibles | |
| 18,047 | | |
| 19,575 | |
Right-of-use assets | |
| 57,168 | | |
| 60,032 | |
Finance lease receivables | |
| 5,112 | | |
| — | |
Investments and other assets | |
| 10,645 | | |
| 20,451 | |
Total non-current assets | |
| 2,330,805 | | |
| 2,405,453 | |
Total assets | |
$ | 2,808,201 | | |
$ | 2,876,123 | |
| |
| | | |
| | |
LIABILITIES AND EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 280,519 | | |
$ | 392,053 | |
Income taxes payable | |
| 3,197 | | |
| 2,991 | |
Current portion of lease obligations | |
| 13,650 | | |
| 12,698 | |
Current portion of long-term debt (Note 5) | |
| 2,290 | | |
| 2,287 | |
Total current liabilities | |
| 299,656 | | |
| 410,029 | |
| |
| | | |
| | |
Non-current liabilities: | |
| | | |
| | |
Share-based compensation (Note 7) | |
| 28,360 | | |
| 60,133 | |
Provisions and other | |
| 7,331 | | |
| 7,538 | |
Lease obligations | |
| 55,143 | | |
| 52,978 | |
Long-term debt (Note 5) | |
| 963,827 | | |
| 1,085,970 | |
Deferred tax liabilities | |
| 70,149 | | |
| 28,946 | |
Total non-current liabilities | |
| 1,124,810 | | |
| 1,235,565 | |
Shareholders’ equity: | |
| | | |
| | |
Shareholders’ capital (Note 8) | |
| 2,306,545 | | |
| 2,299,533 | |
Contributed surplus | |
| 74,389 | | |
| 72,555 | |
Deficit | |
| (1,158,751 | ) | |
| (1,301,273 | ) |
Accumulated other comprehensive income | |
| 161,552 | | |
| 159,714 | |
Total shareholders’ equity | |
| 1,383,735 | | |
| 1,230,529 | |
Total liabilities and shareholders’ equity | |
$ | 2,808,201 | | |
$ | 2,876,123 | |
See accompanying notes to condensed interim
consolidated financial statements.
CONDENSED INTERIM
CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS) (UNAUDITED)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
(Stated in thousands of Canadian dollars, except per share amounts) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Revenue (Note 3) | |
$ | 446,754 | | |
$ | 429,335 | | |
$ | 1,430,983 | | |
$ | 1,106,690 | |
Expenses: | |
| | | |
| | | |
| | | |
| | |
Operating | |
| 288,002 | | |
| 284,868 | | |
| 888,039 | | |
| 784,394 | |
General and administrative | |
| 44,177 | | |
| 24,906 | | |
| 83,057 | | |
| 101,781 | |
Earnings before income taxes, loss (gain) on investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals, and depreciation and amortization | |
| 114,575 | | |
| 119,561 | | |
| 459,887 | | |
| 220,515 | |
Depreciation and amortization | |
| 73,192 | | |
| 69,448 | | |
| 218,823 | | |
| 207,662 | |
Gain on asset disposals | |
| (2,438 | ) | |
| (8,238 | ) | |
| (15,586 | ) | |
| (22,152 | ) |
Foreign exchange | |
| 363 | | |
| 1,344 | | |
| (894 | ) | |
| 1,362 | |
Finance charges (Note 6) | |
| 19,618 | | |
| 22,521 | | |
| 63,946 | | |
| 64,294 | |
Gain on repurchase of unsecured senior notes | |
| (37 | ) | |
| — | | |
| (137 | ) | |
| — | |
Loss (gain) on investments and other assets | |
| (3,813 | ) | |
| (2,515 | ) | |
| 6,075 | | |
| (3,738 | ) |
Earnings (loss) before income taxes | |
| 27,690 | | |
| 37,001 | | |
| 187,660 | | |
| (26,913 | ) |
Income taxes: | |
| | | |
| | | |
| | | |
| | |
Current | |
| 2,047 | | |
| 958 | | |
| 4,008 | | |
| 2,563 | |
Deferred | |
| 5,851 | | |
| 5,364 | | |
| 41,130 | | |
| 8,300 | |
| |
| 7,898 | | |
| 6,322 | | |
| 45,138 | | |
| 10,863 | |
Net earnings (loss) | |
$ | 19,792 | | |
$ | 30,679 | | |
$ | 142,522 | | |
$ | (37,776 | ) |
Net earnings (loss) per share: (Note 9) | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 1.45 | | |
$ | 2.26 | | |
$ | 10.45 | | |
$ | (2.79 | ) |
Diluted | |
$ | 1.45 | | |
$ | 2.03 | | |
$ | 9.84 | | |
$ | (2.79 | ) |
See accompanying notes to condensed interim
consolidated financial statements.
CONDENSED INTERIM CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
(Stated in thousands of Canadian dollars) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net earnings (loss) | |
$ | 19,792 | | |
$ | 30,679 | | |
$ | 142,522 | | |
$ | (37,776 | ) |
Unrealized gain on translation of assets and liabilities of operations denominated in foreign currency | |
| 39,180 | | |
| 111,811 | | |
| 3,322 | | |
| 139,478 | |
Foreign exchange loss on net investment hedge with U.S. denominated debt | |
| (24,616 | ) | |
| (84,060 | ) | |
| (1,484 | ) | |
| (105,123 | ) |
Comprehensive income (loss) | |
$ | 34,356 | | |
$ | 58,430 | | |
$ | 144,360 | | |
$ | (3,421 | ) |
See accompanying notes to condensed interim consolidated financial
statements.
CONDENSED INTERIM
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
(Stated in thousands of Canadian dollars) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Cash provided by (used in): | |
| | | |
| | | |
| | | |
| | |
Operations: | |
| | | |
| | | |
| | | |
| | |
Net earnings (loss) | |
$ | 19,792 | | |
$ | 30,679 | | |
$ | 142,522 | | |
$ | (37,776 | ) |
Adjustments for: | |
| | | |
| | | |
| | | |
| | |
Long-term compensation plans | |
| 11,577 | | |
| 411 | | |
| 9,200 | | |
| 34,847 | |
Depreciation and amortization | |
| 73,192 | | |
| 69,448 | | |
| 218,823 | | |
| 207,662 | |
Gain on asset disposals | |
| (2,438 | ) | |
| (8,238 | ) | |
| (15,586 | ) | |
| (22,152 | ) |
Foreign exchange | |
| 1,275 | | |
| 773 | | |
| (13 | ) | |
| 924 | |
Finance charges | |
| 19,618 | | |
| 22,521 | | |
| 63,946 | | |
| 64,294 | |
Income taxes | |
| 7,898 | | |
| 6,322 | | |
| 45,138 | | |
| 10,863 | |
Other | |
| — | | |
| (2 | ) | |
| (220 | ) | |
| 273 | |
Loss (gain) on investments and other assets | |
| (3,813 | ) | |
| (2,515 | ) | |
| 6,075 | | |
| (3,738 | ) |
Gain on repurchase of unsecured senior notes | |
| (37 | ) | |
| — | | |
| (137 | ) | |
| — | |
Income taxes paid | |
| (187 | ) | |
| (220 | ) | |
| (2,395 | ) | |
| (3,023 | ) |
Income taxes recovered | |
| 4 | | |
| 10 | | |
| 7 | | |
| 10 | |
Interest paid | |
| (35,500 | ) | |
| (38,005 | ) | |
| (79,702 | ) | |
| (80,706 | ) |
Interest received | |
| 227 | | |
| 143 | | |
| 562 | | |
| 177 | |
Funds provided by operations | |
| 91,608 | | |
| 81,327 | | |
| 388,220 | | |
| 171,655 | |
Changes in non-cash working capital balances | |
| (3,108 | ) | |
| (73,185 | ) | |
| (57,904 | ) | |
| (93,633 | ) |
| |
| 88,500 | | |
| 8,142 | | |
| 330,316 | | |
| 78,022 | |
Investments: | |
| | | |
| | | |
| | | |
| | |
Purchase of property, plant and equipment | |
| (51,546 | ) | |
| (51,103 | ) | |
| (146,378 | ) | |
| (126,941 | ) |
Purchase of intangibles | |
| (847 | ) | |
| — | | |
| (1,524 | ) | |
| — | |
Proceeds on sale of property, plant and equipment | |
| 6,698 | | |
| 22,337 | | |
| 20,724 | | |
| 32,033 | |
Proceeds from sale of investments and other assets | |
| 10,013 | | |
| — | | |
| 10,013 | | |
| — | |
Business acquisitions | |
| — | | |
| (10,200 | ) | |
| (28,000 | ) | |
| (10,200 | ) |
Purchase of investments and other assets | |
| (3,211 | ) | |
| (73 | ) | |
| (5,282 | ) | |
| (609 | ) |
Receipt of finance lease payments | |
| 64 | | |
| — | | |
| 64 | | |
| — | |
Changes in non-cash working capital balances | |
| 4,551 | | |
| 7,328 | | |
| (6,774 | ) | |
| 6,881 | |
| |
| (34,278 | ) | |
| (31,711 | ) | |
| (157,157 | ) | |
| (98,836 | ) |
Financing: | |
| | | |
| | | |
| | | |
| | |
Issuance of long-term debt | |
| 23,600 | | |
| 50,360 | | |
| 162,649 | | |
| 144,889 | |
Repayments of long-term debt | |
| (49,517 | ) | |
| (34,475 | ) | |
| (288,538 | ) | |
| (118,586 | ) |
Repurchase of share capital | |
| — | | |
| (5,010 | ) | |
| (12,951 | ) | |
| (10,010 | ) |
Issuance of common shares from the exercise of options | |
| — | | |
| — | | |
| — | | |
| 6,162 | |
Lease payments | |
| (2,410 | ) | |
| (1,777 | ) | |
| (6,413 | ) | |
| (5,186 | ) |
| |
| (28,327 | ) | |
| 9,098 | | |
| (145,253 | ) | |
| 17,269 | |
Effect of exchange rate changes on cash | |
| 251 | | |
| 2,878 | | |
| (428 | ) | |
| 3,005 | |
Increase (decrease) in cash | |
| 26,146 | | |
| (11,593 | ) | |
| 27,478 | | |
| (540 | ) |
Cash, beginning of period | |
| 22,919 | | |
| 51,641 | | |
| 21,587 | | |
| 40,588 | |
Cash, end of period | |
$ | 49,065 | | |
$ | 40,048 | | |
$ | 49,065 | | |
$ | 40,048 | |
See accompanying notes to condensed interim
consolidated financial statements.
CONDENSED INTERIM
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(Stated in thousands of Canadian dollars) | |
Shareholders’ Capital | | |
Contributed Surplus | | |
Accumulated Other Comprehensive Income | | |
Deficit | | |
Total Equity | |
Balance at January 1, 2023 | |
$ | 2,299,533 | | |
$ | 72,555 | | |
$ | 159,714 | | |
$ | (1,301,273 | ) | |
$ | 1,230,529 | |
Net earnings for the period | |
| — | | |
| — | | |
| — | | |
| 142,522 | | |
| 142,522 | |
Other comprehensive income for the period | |
| — | | |
| — | | |
| 1,838 | | |
| — | | |
| 1,838 | |
Settlement of Executive Performance and Restricted Share Units | |
| 19,206 | | |
| — | | |
| — | | |
| — | | |
| 19,206 | |
Share repurchases | |
| (12,951 | ) | |
| — | | |
| — | | |
| — | | |
| (12,951 | ) |
Redemption of non-management directors share units | |
| 757 | | |
| — | | |
| — | | |
| — | | |
| 757 | |
Share-based compensation expense | |
| — | | |
| 1,834 | | |
| — | | |
| — | | |
| 1,834 | |
Balance at September 30, 2023 | |
$ | 2,306,545 | | |
$ | 74,389 | | |
$ | 161,552 | | |
$ | (1,158,751 | ) | |
$ | 1,383,735 | |
(Stated in thousands of Canadian dollars) | |
Shareholders’ Capital | | |
Contributed Surplus | | |
Accumulated Other Comprehensive Income | | |
Deficit | | |
Total Equity | |
Balance at January 1, 2022 | |
$ | 2,281,444 | | |
$ | 76,311 | | |
$ | 134,780 | | |
$ | (1,266,980 | ) | |
$ | 1,225,555 | |
Net loss for the period | |
| — | | |
| — | | |
| — | | |
| (37,776 | ) | |
| (37,776 | ) |
Other comprehensive income for the period | |
| — | | |
| — | | |
| 34,355 | | |
| — | | |
| 34,355 | |
Share options exercised | |
| 8,843 | | |
| (2,681 | ) | |
| — | | |
| — | | |
| 6,162 | |
Share repurchases | |
| (10,010 | ) | |
| — | | |
| — | | |
| — | | |
| (10,010 | ) |
Share-based compensation reclassification | |
| 14,083 | | |
| (219 | ) | |
| — | | |
| — | | |
| 13,864 | |
Share-based compensation expense | |
| — | | |
| 646 | | |
| — | | |
| — | | |
| 646 | |
Balance at September 30, 2022 | |
$ | 2,294,360 | | |
$ | 74,057 | | |
$ | 169,135 | | |
$ | (1,304,756 | ) | |
$ | 1,232,796 | |
See accompanying notes to condensed interim
consolidated financial statements.
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 and geothermal exploration and production companies in Canada, the United States
and certain international locations.
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, 2022.
These condensed interim consolidated financial
statements were prepared using accounting policies and methods of their application are consistent with those used in the preparation
of the Corporation’s consolidated annual financial statements for the year ended December 31, 2022, except as noted in Note 2 (c).
These condensed interim consolidated financial
statements were approved by the Board of Directors on October 25, 2023.
(b) Use of Estimates and Judgements
The preparation of the condensed interim consolidated
financial statements requires management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosure of contingencies. These estimates and judgements 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 judgements used in the
preparation of these condensed interim consolidated financial statements remained unchanged from those disclosed in the Corporation’s
consolidated annual financial statements for the year ended December 31, 2022.
(c) Significant Accounting Policies
Interests in equity-accounted investees
An associate is an entity for which the Corporation
has significant influence and thereby has the power to participate in the financial and operational decisions but does not control or
jointly control the investee. Investments in associates are accounted for using the equity method of accounting and are recognized at
cost and subsequently adjusted for the proportionate share of the investee's net assets. The Corporation's consolidated financial statements
include its share of the investee's net earnings (loss) and other comprehensive income (loss) until the date that significant influence
ceases.
Foreign currency translation
Change in functional currency
On July 1, 2023, as a result of changing facts
and circumstances in the current year, a subsidiary of the Corporation changed its functional currency from U.S. Dollars (USD)
to Kuwaiti Dinar (KWD) to reflect the business activities within the primary economic environment in which the subsidiary operates.
The changes in facts and circumstances that led to this determination included, but were not limited to, the expiration of multiple material
USD denominated customer drilling contracts and the execution of multiple material KWD denominated customer drilling contracts. The change
in functional currency was applied prospectively, in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates,
on July 1, 2023, with the assets and liabilities of the subsidiary being converted into KWD from USD at a fixed exchange rate of USD1
: KWD3.24.
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.
Three Months Ended September 30, 2023 | |
Contract Drilling Services | | |
Completion and Production Services | | |
Corporate and Other | | |
Inter- Segment Eliminations | | |
Total | |
United States | |
$ | 179,827 | | |
$ | 4,262 | | |
$ | — | | |
$ | (6 | ) | |
$ | 184,083 | |
Canada | |
| 172,546 | | |
| 53,311 | | |
| — | | |
| (1,541 | ) | |
| 224,316 | |
International | |
| 38,355 | | |
| — | | |
| — | | |
| — | | |
| 38,355 | |
| |
$ | 390,728 | | |
$ | 57,573 | | |
$ | — | | |
$ | (1,547 | ) | |
$ | 446,754 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Day rate/hourly services | |
$ | 380,519 | | |
$ | 57,573 | | |
$ | — | | |
$ | (146 | ) | |
$ | 437,946 | |
Shortfall payments/idle but contracted | |
| 8,136 | | |
| — | | |
| — | | |
| — | | |
| 8,136 | |
Other | |
| 2,073 | | |
| — | | |
| — | | |
| (1,401 | ) | |
| 672 | |
| |
$ | 390,728 | | |
$ | 57,573 | | |
$ | — | | |
$ | (1,547 | ) | |
$ | 446,754 | |
Three Months Ended September 30, 2022 | |
Contract Drilling Services | | |
Completion and Production Services | | |
Corporate and Other | | |
Inter- Segment Eliminations | | |
Total | |
United States | |
$ | 189,744 | | |
$ | 4,496 | | |
$ | — | | |
$ | (5 | ) | |
$ | 194,235 | |
Canada | |
| 148,525 | | |
| 52,146 | | |
| — | | |
| (1,767 | ) | |
| 198,904 | |
International | |
| 36,196 | | |
| — | | |
| — | | |
| — | | |
| 36,196 | |
| |
$ | 374,465 | | |
$ | 56,642 | | |
$ | — | | |
$ | (1,772 | ) | |
$ | 429,335 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Day rate/hourly services | |
$ | 371,018 | | |
$ | 56,642 | | |
$ | — | | |
$ | (166 | ) | |
$ | 427,494 | |
Shortfall payments/idle but contracted | |
| 1,161 | | |
| — | | |
| — | | |
| — | | |
| 1,161 | |
Other | |
| 2,286 | | |
| — | | |
| — | | |
| (1,606 | ) | |
| 680 | |
| |
$ | 374,465 | | |
$ | 56,642 | | |
$ | — | | |
$ | (1,772 | ) | |
$ | 429,335 | |
Nine Months Ended September 30, 2023 | |
Contract Drilling Services | | |
Completion and Production Services | | |
Corporate and Other | | |
Inter- Segment Eliminations | | |
Total | |
United States | |
$ | 655,154 | | |
$ | 11,946 | | |
$ | — | | |
$ | (23 | ) | |
$ | 667,077 | |
Canada | |
| 503,312 | | |
| 166,311 | | |
| — | | |
| (5,013 | ) | |
| 664,610 | |
International | |
| 99,296 | | |
| — | | |
| — | | |
| — | | |
| 99,296 | |
| |
$ | 1,257,762 | | |
$ | 178,257 | | |
$ | — | | |
$ | (5,036 | ) | |
$ | 1,430,983 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Day rate/hourly services | |
$ | 1,226,836 | | |
$ | 178,257 | | |
$ | — | | |
$ | (383 | ) | |
$ | 1,404,710 | |
Shortfall payments/idle but contracted | |
| 15,377 | | |
| — | | |
| — | | |
| — | | |
| 15,377 | |
Turnkey drilling services | |
| 8,988 | | |
| — | | |
| — | | |
| — | | |
| 8,988 | |
Other | |
| 6,561 | | |
| — | | |
| — | | |
| (4,653 | ) | |
| 1,908 | |
| |
$ | 1,257,762 | | |
$ | 178,257 | | |
$ | — | | |
$ | (5,036 | ) | |
$ | 1,430,983 | |
Nine Months Ended September 30, 2022 | |
Contract Drilling Services | | |
Completion and Production Services | | |
Corporate and Other | | |
Inter- Segment Eliminations | | |
Total | |
United States | |
$ | 495,183 | | |
$ | 12,833 | | |
$ | — | | |
$ | (33 | ) | |
$ | 507,983 | |
Canada | |
| 379,115 | | |
| 115,088 | | |
| — | | |
| (4,107 | ) | |
| 490,096 | |
International | |
| 108,611 | | |
| — | | |
| — | | |
| — | | |
| 108,611 | |
| |
$ | 982,909 | | |
$ | 127,921 | | |
$ | — | | |
$ | (4,140 | ) | |
$ | 1,106,690 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Day rate/hourly services | |
$ | 949,078 | | |
$ | 127,921 | | |
$ | — | | |
$ | (592 | ) | |
$ | 1,076,407 | |
Shortfall payments/idle but contracted | |
| 1,791 | | |
| — | | |
| — | | |
| — | | |
| 1,791 | |
Turnkey drilling services | |
| 26,580 | | |
| — | | |
| — | | |
| — | | |
| 26,580 | |
Other | |
| 5,460 | | |
| — | | |
| — | | |
| (3,548 | ) | |
| 1,912 | |
| |
$ | 982,909 | | |
$ | 127,921 | | |
$ | — | | |
$ | (4,140 | ) | |
$ | 1,106,690 | |
Precision has operations that are carried on in
Canada which represent approximately 46% (2022 – 44%) of consolidated revenue for the
nine months ended September 30, 2023 and 37% (2022 – 36%)
of consolidated total assets as at September 30, 2023. 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, 2023 | |
Contract Drilling Services | | |
Completion and Production Services | | |
Corporate and Other | | |
Inter- Segment Eliminations | | |
Total | |
Revenue | |
$ | 390,728 | | |
$ | 57,573 | | |
$ | — | | |
$ | (1,547 | ) | |
$ | 446,754 | |
Earnings before income taxes, loss (gain) on investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals, and depreciation and amortization | |
| 131,701 | | |
| 14,118 | | |
| (31,244 | ) | |
| — | | |
| 114,575 | |
Depreciation and amortization | |
| 67,431 | | |
| 3,485 | | |
| 2,276 | | |
| — | | |
| 73,192 | |
Gain on asset disposals | |
| (2,402 | ) | |
| (22 | ) | |
| (14 | ) | |
| — | | |
| (2,438 | ) |
Total assets | |
| 2,494,557 | | |
| 172,127 | | |
| 141,517 | | |
| — | | |
| 2,808,201 | |
Capital expenditures | |
| 48,517 | | |
| 2,818 | | |
| 1,058 | | |
| — | | |
| 52,393 | |
Three Months Ended September 30, 2022 | |
Contract Drilling Services | | |
Completion and Production Services | | |
Corporate and Other | | |
Inter- Segment Eliminations | | |
Total | |
Revenue | |
$ | 374,465 | | |
$ | 56,642 | | |
$ | — | | |
$ | (1,772 | ) | |
$ | 429,335 | |
Earnings before income taxes, loss (gain) on investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals, and depreciation and amortization | |
| 118,599 | | |
| 14,788 | | |
| (13,826 | ) | |
| — | | |
| 119,561 | |
Depreciation and amortization | |
| 63,513 | | |
| 3,598 | | |
| 2,337 | | |
| — | | |
| 69,448 | |
Gain on asset disposals | |
| (6,780 | ) | |
| (762 | ) | |
| (696 | ) | |
| — | | |
| (8,238 | ) |
Total assets | |
| 2,605,071 | | |
| 192,917 | | |
| 129,396 | | |
| — | | |
| 2,927,384 | |
Capital expenditures | |
| 49,647 | | |
| 1,289 | | |
| 167 | | |
| — | | |
| 51,103 | |
Nine Months Ended September 30, 2023 | |
Contract Drilling Services | | |
Completion and Production Services | | |
Corporate and Other | | |
Inter- Segment Eliminations | | |
Total | |
Revenue | |
$ | 1,257,762 | | |
$ | 178,257 | | |
$ | — | | |
$ | (5,036 | ) | |
$ | 1,430,983 | |
Earnings before income taxes, loss (gain) on investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals, and depreciation and amortization | |
| 468,302 | | |
| 39,031 | | |
| (47,446 | ) | |
| — | | |
| 459,887 | |
Depreciation and amortization | |
| 201,137 | | |
| 10,854 | | |
| 6,832 | | |
| — | | |
| 218,823 | |
Gain on asset disposals | |
| (14,688 | ) | |
| (736 | ) | |
| (162 | ) | |
| — | | |
| (15,586 | ) |
Total assets | |
| 2,494,557 | | |
| 172,127 | | |
| 141,517 | | |
| — | | |
| 2,808,201 | |
Capital expenditures | |
| 138,716 | | |
| 7,043 | | |
| 2,143 | | |
| — | | |
| 147,902 | |
Nine Months Ended September 30, 2022 | |
Contract Drilling Services | | |
Completion and Production Services | | |
Corporate and Other | | |
Inter- Segment Eliminations | | |
Total | |
Revenue | |
$ | 982,909 | | |
$ | 127,921 | | |
$ | — | | |
$ | (4,140 | ) | |
$ | 1,106,690 | |
Earnings before income taxes, loss (gain) on investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals, and depreciation and amortization | |
| 260,202 | | |
| 26,166 | | |
| (65,853 | ) | |
| — | | |
| 220,515 | |
Depreciation and amortization | |
| 190,306 | | |
| 10,202 | | |
| 7,154 | | |
| — | | |
| 207,662 | |
Gain on asset disposals | |
| (19,243 | ) | |
| (2,151 | ) | |
| (758 | ) | |
| — | | |
| (22,152 | ) |
Total assets | |
| 2,605,071 | | |
| 192,917 | | |
| 129,396 | | |
| — | | |
| 2,927,384 | |
Capital expenditures | |
| 122,696 | | |
| 3,847 | | |
| 398 | | |
| — | | |
| 126,941 | |
A reconciliation of total segment earnings before income taxes, loss
(gain) on investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset
disposals, depreciation and amortization to net earnings (loss) is as follows:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Total segment earnings before income taxes, loss (gain) on investments and other assets, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals, and depreciation and amortization | |
$ | 114,575 | | |
$ | 119,561 | | |
$ | 459,887 | | |
$ | 220,515 | |
Deduct: | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| 73,192 | | |
| 69,448 | | |
| 218,823 | | |
| 207,662 | |
Gain on asset disposals | |
| (2,438 | ) | |
| (8,238 | ) | |
| (15,586 | ) | |
| (22,152 | ) |
Foreign exchange | |
| 363 | | |
| 1,344 | | |
| (894 | ) | |
| 1,362 | |
Finance charges | |
| 19,618 | | |
| 22,521 | | |
| 63,946 | | |
| 64,294 | |
Gain on repurchase of unsecured senior notes | |
| (37 | ) | |
| — | | |
| (137 | ) | |
| — | |
Loss (gain) on investments and other assets | |
| (3,813 | ) | |
| (2,515 | ) | |
| 6,075 | | |
| (3,738 | ) |
Income taxes | |
| 7,898 | | |
| 6,322 | | |
| 45,138 | | |
| 10,863 | |
Net earnings (loss) | |
$ | 19,792 | | |
$ | 30,679 | | |
$ | 142,522 | | |
$ | (37,776 | ) |
NOTE 5. LONG-TERM DEBT
| |
U.S. Denominated Facilities | | |
Canadian Facilities and Translated
U.S. Facilities | |
| |
| | |
| |
| |
| September 30, | | |
| December 31, | | |
| September 30, | | |
| December 31, | |
| |
| 2023 | | |
| 2022 | | |
| 2023 | | |
| 2022 | |
| |
| | | |
| | | |
| | | |
| | |
Current Portion of Long-Term Debt | |
| | | |
| | | |
| | | |
| | |
Canadian Real Estate Credit Facility | |
US$ | — | | |
US$ | — | | |
$ | 1,333 | | |
$ | 1,333 | |
U.S. Real Estate Credit Facility | |
| 704 | | |
| 704 | | |
| 957 | | |
| 954 | |
| |
US$ | 704 | | |
US$ | 704 | | |
$ | 2,290 | | |
$ | 2,287 | |
| |
| | | |
| | | |
| | | |
| | |
Long-Term Debt | |
| | | |
| | | |
| | | |
| | |
Senior Credit Facility | |
US$ | — | | |
US$ | 44,000 | | |
$ | — | | |
$ | 59,620 | |
Canadian Real Estate Credit Facility | |
| — | | |
| — | | |
| 15,334 | | |
| 16,334 | |
U.S. Real Estate Credit Facility | |
| 7,861 | | |
| 8,389 | | |
| 10,679 | | |
| 11,368 | |
Unsecured Senior Notes: | |
| | | |
| | | |
| | | |
| | |
7.125% senior notes due 2026 | |
| 299,330 | | |
| 347,765 | | |
| 406,631 | | |
| 471,225 | |
6.875% senior notes due 2029 | |
| 400,000 | | |
| 400,000 | | |
| 543,387 | | |
| 542,004 | |
| |
US$ | 707,191 | | |
US$ | 800,154 | | |
| 976,031 | | |
| 1,100,551 | |
Less net unamortized debt issue costs and original issue discount | |
| | | |
| | | |
| (12,204 | ) | |
| (14,581 | ) |
| |
| | | |
| | | |
$ | 963,827 | | |
$ | 1,085,970 | |
| |
Senior Credit
Facility | | |
Unsecured
Senior Notes | | |
Canadian Real
Estate Credit
Facility | | |
U.S. Real
Estate Credit
Facility | | |
Debt Issue
Costs and
Original Issue
Discount | | |
Total | |
Current | |
$ | — | | |
$ | — | | |
$ | 1,333 | | |
$ | 954 | | |
$ | — | | |
$ | 2,287 | |
Long-term | |
| 59,620 | | |
| 1,013,229 | | |
| 16,334 | | |
| 11,368 | | |
| (14,581 | ) | |
| 1,085,970 | |
December 31, 2022 | |
| 59,620 | | |
| 1,013,229 | | |
| 17,667 | | |
| 12,322 | | |
| (14,581 | ) | |
| 1,088,257 | |
Changes from financing cash flows: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Proceeds from Senior Credit Facility | |
| 162,649 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 162,649 | |
Repayment of unsecured senior notes | |
| — | | |
| (64,611 | ) | |
| — | | |
| — | | |
| — | | |
| (64,611 | ) |
Repayment of Senior Credit Facility | |
| (222,216 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| (222,216 | ) |
Repayment of Real Estate Credit Facility | |
| — | | |
| — | | |
| (1,000 | ) | |
| (711 | ) | |
| — | | |
| (1,711 | ) |
| |
| 53 | | |
| 948,618 | | |
| 16,667 | | |
| 11,611 | | |
| (14,581 | ) | |
| 962,368 | |
Gain on repurchase of unsecured senior notes | |
| — | | |
| (137 | ) | |
| — | | |
| — | | |
| — | | |
| (137 | ) |
Amortization of debt issue costs | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,377 | | |
| 2,377 | |
Foreign exchange adjustment | |
| (53 | ) | |
| 1,537 | | |
| — | | |
| 25 | | |
| — | | |
| 1,509 | |
September 30, 2023 | |
$ | — | | |
$ | 950,018 | | |
$ | 16,667 | | |
$ | 11,636 | | |
$ | (12,204 | ) | |
$ | 966,117 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Current | |
$ | — | | |
$ | — | | |
$ | 1,333 | | |
$ | 957 | | |
$ | — | | |
$ | 2,290 | |
Long-term | |
| — | | |
| 950,018 | | |
| 15,334 | | |
| 10,679 | | |
| (12,204 | ) | |
| 963,827 | |
September 30, 2023 | |
$ | — | | |
$ | 950,018 | | |
$ | 16,667 | | |
$ | 11,636 | | |
$ | (12,204 | ) | |
$ | 966,117 | |
As at September 30, 2023, Precision was in compliance
with the covenants of the Senior Credit Facility and Real Estate Credit Facilities.
NOTE 6. FINANCE CHARGES
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Interest: | |
| | |
| | |
| | |
| |
Long-term debt | |
$ | 17,990 | | |
$ | 20,898 | | |
$ | 58,863 | | |
$ | 59,575 | |
Lease obligations | |
| 948 | | |
| 757 | | |
| 2,719 | | |
| 2,082 | |
Other | |
| 105 | | |
| 226 | | |
| 293 | | |
| 412 | |
Income | |
| (342 | ) | |
| (146 | ) | |
| (702 | ) | |
| (191 | ) |
Amortization of debt issue costs, loan commitment fees and original issue discount | |
| 917 | | |
| 786 | | |
| 2,773 | | |
| 2,416 | |
Finance charges | |
$ | 19,618 | | |
$ | 22,521 | | |
$ | 63,946 | | |
$ | 64,294 | |
NOTE 7. SHARE-BASED COMPENSATION PLANS
Liability Classified Plans
| |
Restricted Share Units (a) | | |
Performance Share Units (a) | | |
Non-
Management Directors’
DSUs (b) | | |
Total | |
December 31, 2022 | |
$ | 38,190 | | |
$ | 100,858 | | |
$ | 12,297 | | |
$ | 151,345 | |
Expensed during period | |
| 8,615 | | |
| 12,402 | | |
| (926 | ) | |
| 20,091 | |
Settlement in shares | |
| (2,102 | ) | |
| (17,104 | ) | |
| (757 | ) | |
| (19,963 | ) |
Payments and redemptions | |
| (26,524 | ) | |
| (47,846 | ) | |
| (385 | ) | |
| (74,755 | ) |
Foreign exchange | |
| 12 | | |
| 21 | | |
| — | | |
| 33 | |
September 30, 2023 | |
$ | 18,191 | | |
$ | 48,331 | | |
$ | 10,229 | | |
$ | 76,751 | |
| |
| | | |
| | | |
| | | |
| | |
Current | |
$ | 14,274 | | |
$ | 34,117 | | |
$ | — | | |
$ | 48,391 | |
Long-term | |
| 3,917 | | |
| 14,214 | | |
| 10,229 | | |
| 28,360 | |
| |
$ | 18,191 | | |
$ | 48,331 | | |
$ | 10,229 | | |
$ | 76,751 | |
| (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, 2022 | |
| 495,168 | | |
| 1,136,671 | |
Granted | |
| 65,507 | | |
| 121,350 | |
Redeemed | |
| (266,191 | ) | |
| (437,113 | ) |
Forfeited | |
| (9,832 | ) | |
| (11,705 | ) |
September 30, 2023 | |
| 284,652 | | |
| 809,203 | |
| (b) | Non-Management Directors – Deferred Share Units Plan |
A summary of the activity under the non-management
director Deferred Share Unit (DSU) plan is presented below:
| |
DSUs Outstanding | |
December 31, 2022 | |
| 118,774 | |
Granted | |
| 12,458 | |
Redeemed | |
| (18,830 | ) |
September 30, 2023 | |
| 112,402 | |
During the second quarter of 2023, 18,830 DSUs were redeemed upon the
retirement of a non-management director. Precision elected to settle the redemption of DSUs through a combination of cash and common shares.
Equity Settled Plans
| (c) | Executive Restricted Share Units Plan |
Precision granted Executive RSUs to certain senior
executives with the intention of settling them in voting shares of the Corporation either issued from treasury or purchased in the open
market. Granted units vest annually over a three-year term.
| |
Executive RSUs
Outstanding | | |
Weighted Average
Fair Value | |
December 31, 2022 | |
| — | | |
$ | — | |
Granted | |
| 46,740 | | |
| 96.90 | |
September 30, 2023 | |
| 46,740 | | |
$ | 96.90 | |
The per unit weighted average fair value of the
Executive RSUs granted during 2023 was $96.90 estimated on the grant date using a Black-Scholes option pricing model with the following
assumptions: average risk-free interest rate of 4%, average expected life of two years, expected forfeiture rate of 5% and expected volatility
of 68%. Included in net earnings (loss) for the three and nine months ended September 30, 2023 were expenses of $1 million (2022 –
nil) and $2 million (2022 – nil) respectively.
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, 2022 and September 30, 2023 | |
| 23,055 | | |
$ | 87.00 | | |
| — | | |
| 145.97 | | |
$ | 113.01 | | |
| 23,055 | |
U.S. share options | |
Outstanding | | |
Range of Exercise Price (US$) | | |
Weighted Average Exercise Price (US$) | | |
Exercisable | |
December 31, 2022 | |
| 141,748 | | |
$ | 51.20 | | |
| — | | |
| 111.47 | | |
$ | 84.84 | | |
| 141,748 | |
Forfeited | |
| (13,350 | ) | |
| 64.20 | | |
| — | | |
| 100.40 | | |
| 75.66 | | |
| | |
September 30, 2023 | |
| 128,398 | | |
$ | 51.20 | | |
| — | | |
| 111.47 | | |
$ | 85.80 | | |
| 128,398 | |
| (e) | Non-Management Directors – Deferred Share Unit Plan |
As at September 30, 2023, there were 1,470
(2022 – 1,470) deferred share units outstanding.
NOTE 8. SHAREHOLDERS’ CAPITAL
Common shares | |
Number | | |
Amount | |
December 31, 2022 | |
| 13,558,525 | | |
| 2,299,533 | |
Settlement of PSUs and RSUs | |
| 230,336 | | |
| 19,206 | |
Share repurchases | |
| (193,616 | ) | |
| (12,951 | ) |
Redemption of non-management directors share units | |
| 12,494 | | |
| 757 | |
September 30, 2023 | |
| 13,607,739 | | |
| 2,306,545 | |
| (a) | Normal Course Issuer Bid |
During the third quarter of 2023, the Toronto
Stock Exchange (TSX) approved the renewal of Precision's Normal Course Issuer Bid (NCIB). Pursuant to the NCIB, the Corporation
has been authorized by the TSX to repurchase and cancel up to a maximum of 1,326,321 common shares. The NCIB will terminate no later than
September 18, 2024. Prior to the renewal of the NCIB, Precision had repurchased and cancelled 193,616 common shares for $13 million in
2023.
NOTE 9. PER SHARE AMOUNTS
The following tables reconcile net earnings (loss)
and weighted average shares outstanding used in computing basic and diluted net earnings (loss) per share:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net earnings (loss) – basic | |
$ | 19,792 | | |
$ | 30,679 | | |
$ | 142,522 | | |
$ | (37,776 | ) |
Effect of share options and other equity compensation plans | |
| — | | |
| (94 | ) | |
| 3,679 | | |
| — | |
Net earnings (loss) – diluted | |
$ | 19,792 | | |
$ | 30,585 | | |
$ | 146,201 | | |
$ | (37,776 | ) |
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
(Stated in thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Weighted average shares outstanding – basic | |
| 13,607 | | |
| 13,580 | | |
| 13,643 | | |
| 13,549 | |
Effect of share options and other equity compensation plans | |
| 3 | | |
| 1,464 | | |
| 1,215 | | |
| — | |
Weighted average shares outstanding – diluted | |
| 13,610 | | |
| 15,044 | | |
| 14,858 | | |
| 13,549 | |
NOTE 10. 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, 2023 was approximately $921 million (December 31, 2022 – $965 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 judgement 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 value 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 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.
NOTE 11. BUSINESS COMBINATION
During the quarter ended September 30, 2023, Precision
entered into an agreement to acquire all of the issued and outstanding common shares of CWC Energy Services Corp. (CWC), comprised
of 947,909 Precision common shares, valued at approximately $88 million as of September 1, 2023 market close, $14 million in cash, plus
the assumption of CWC's outstanding debt. The transaction is expected to be completed in the fourth quarter of 2023, subject to CWC shareholder
and regulatory approvals and the satisfaction of other customary closing conditions.
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 2023 TRADING PROFILE
Toronto (TSX: PD)
High: $100.23
Low: $61.81
Close: $91.01
Volume Traded: 5,167,035
New York (NYSE: PDS)
High: US$73.82
Low: US$46.29
Close: US$67.12
Volume Traded: 3,914,000
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
Steven W. Krablin
Susan M. MacKenzie
Lori A. Lancaster
Kevin O. Meyers
Kevin A. Neveu
David W. Williams
OFFICERS
Kevin A. Neveu
President and Chief Executive Officer
Veronica H. Foley
Chief Legal & Compliance Officer
Carey T. Ford
Chief Financial Officer
Shuja U. Goraya
Chief Technology Officer
Darren J. Ruhr
Chief Administrative Officer
Gene C. Stahl
President, North American Drilling
AUDITORS
KPMG LLP
Calgary, Alberta
HEAD OFFICE
Suite 800, 525 8th Avenue SW
Calgary, Alberta, T2P 1G1
Canada
Telephone: 403-716-4500
Facsimile: 403-264-0251
Email: info@precisiondrilling.com
www.precisiondrilling.com |
15
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