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Precision Drilling Earnings Take Near 75% Dive in 1Q

Share Print Bookmark    |    Monday,April 27,2015

The Board of Directors of Precision Drilling Corporation has declared a dividend on its common shares of $0.07 per share, payable on May 29, 2015, to shareholders of record on May 15, 2015.

Net earnings this quarter were $24 million, or $0.08 per diluted share, compared to net earnings of $102 million, or $0.35 per diluted share, in the first quarter of 2014.

Revenue this quarter was $512 million or 24% lower than the first quarter of 2014, mainly due to lower drilling activity in the U.S. and Canada. Revenue from our Contract Drilling Services and Completion and Production Services segments decreased over the comparative prior year period by 22% and 36%, respectively.

Earnings before income taxes, finance charges, foreign exchange, and depreciation and amortization (adjusted EBITDA) this quarter were $163 million or 31% less than the first quarter of 2014. Our activity for the quarter, as measured by drilling rig utilization days, decreased 45% in Canada and 15% in the U.S. and increased 15% internationally, compared to the first quarter of 2014. Our adjusted EBITDA as a percent of revenue was 32% this quarter, compared to 35% in the first quarter of 2014. The decrease in adjusted EBITDA as a percent of revenue was mainly due to decreased activity in our Contract Drilling Services segment, decreased activity and lower pricing in our Completion and Production Services segment and costs associated with restructuring, which were $7 million this quarter.

Our current expected capital plan for 2015 is $506 million, an increase of $39 million compared to the $467 million capital plan announced in February 2015. The increase relates to changes in the forecasted foreign exchange rate on U.S. dollar denominated capital. Of the 17 new-build contracted drilling rigs scheduled for delivery in 2015 (13 in the U.S., three in Canada and one internationally) ten were delivered in the first quarter. After delivery of the remaining seven contracted new-build rigs in 2015, Precision's drilling rig fleet will consist of 330 drilling rigs, including 234 Tier 1 rigs, 74 Tier 2 rigs and 22 PSST rigs. For the Tier 1 rigs, 122 will be in Canada, 106 in the U.S. and six internationally.

Kevin Neveu, Precision's President and Chief Executive Officer, stated: "During the first quarter, demand for North American land drilling services failed to meet even the most pessimistic forecasts as our customers continue to seek ways to reduce spending and budgets in this low commodity price environment. Nowhere is this more apparent than in Canada where the industry spring break-up activity is 53% below 2014 levels, and in the U.S., most oil-weighted regions are more than 50% below November 2014 peak activity levels.

"Precision's first quarter results have been significantly impacted by the abrupt collapse in customer demand with total revenue down 24% from the first quarter of 2014. We have been able to mitigate the full impact of the industry slowdown through effective execution of Precision's variable cost business model, preemptive fixed cost management and customer contract coverage on our Tier 1 asset base. Despite the lower activity environment and revenue base, we achieved EBITDA margins of 32% in the quarter, compared to 35% in the first quarter of 2014.

"As of the end of the first quarter, we held a cash position of $449 million, and post-quarter-end received $69 million from the Ontario tax authorities in settlement of our income tax recoverable plus interest. We continue to support our strong liquidity position through excellent working capital management and have adjusted credit terms to ensure maximum access to our revolver. Our financial flexibility, tight spending controls and free cash flow focus enable us to continue to deliver our High Performance, High Value strategy through an extended downturn.

"Through the first quarter and continuing today, competitive pricing tension remains a dominate feature in virtually every customer conversation. Despite the challenging environment, and while at times our utilization may suffer, Precision has held firm on our strategy to defend field margins. Notably and despite these headwinds, our take or pay term contracts continue to demonstrate integrity with our customers honouring commitments.

"Over the last few months we have made many difficult decisions that have affected all within the Precision family. We have consolidated three operating facilities across our North American operations and since our peak in November 2014 we have reduced our salaried employee headcount by approximately 14% and field headcount by approximately 2,500. Should activity levels improve, Precision will respond as it has in the past and I am certain we will work to bring back many of our dedicated employees. We understand our people will distinguish us in the end and will continue to deliver the High Performance, High Value services our customers expect from Precision," concluded Mr. Neveu.