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Precision Drilling Second Quarter 2020

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   |    Thursday,July 23,2020

Precision Drilling announces 2020 second quarter financial results:

  • Revenue of $190 million was a decrease of 47% compared with the second quarter of 2019.
  • Net loss of $49 million or negative $0.18 per diluted share compared with a net loss of $14 million or negative $0.05 per diluted share in 2019.
  • Earnings before income taxes, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, impairment reversal, gain on asset disposals and depreciation and amortization (Adjusted EBITDA, see “NON-GAAP MEASURES”) of $58 million as compared with $81 million in the second quarter of 2019.
  • Generated cash and funds provided by operations (see “NON-GAAP MEASURES”) of $104 million and $27 million, respectively.
  • Second quarter ending cash balance was $175 million, an increase of $78 million from March 31, 2020.
  • Second quarter capital expenditures were $24 million.
  • Reduced our unsecured senior notes balance by $5 million and drew $5 million under our Senior Credit Facility.
  • In U.S., recognized US$8 million of idle but contracted rig revenue and US$8 million of contract cancellation fees of which US$2 million pertained to second quarter contracted days.
  • Recognized restructuring charges of $6 million and Government of Canada wage subsidies of $9 million.
  • To secure our liquidity position, on April 9, 2020, we amended our Senior Credit Facility to provide temporary covenant relief through March 31, 2022.

Precision’s President and CEO Kevin Neveu stated:

“The immediate and decisive steps the Precision team has executed during this pandemic and economic crisis have delivered very strong financial and operational results. Our actions have further strengthened and positioned the company both financially and competitively for an eventual industry recovery. During the second quarter we generated $58 million in Adjusted EBITDA and cash from operations of $104 million with our results further supported by field performance and operational excellence in all parts of our business. Also during the quarter, we improved our liquidity position by increasing our cash balance to $175 million bringing our total liquidity available to nearly $900 million, which supports our ability to persevere through a prolonged market downturn and capture value in a market recovery.”

“During the quarter, we executed structural cost reductions beyond those previously announced, which we expect will lead to an additional $14 million in annualized savings. We now expect our total annualized fixed cost reductions to be 35%, an increase from our previous target of 30% and our normalized general and administrative expense savings to exceed $30 million. We expect these cash preservation measures, combined with capital expenditure reductions and Canadian wage subsidy program, will reduce total 2020 cash outflows by up to $150 million, an increase from our previously communicated target of over $100 million. We will continue to explore every avenue to reduce our costs and spending and conserve cash to keep Precision on track to meet long-term debt reduction goals and support our High Performance, High Value competitive strategy.”

“Second quarter U.S. operating results reflected improved field margins delivered with tightly managed expenses and strong contract book performance, both critical in this challenged environment. While industry activity appears to be flattening, visibility remains limited for the second half of the year. In Canada, Precision achieved 36% market share during the second quarter driven by our Super Triple rig fleet, which is well-positioned for pad style development drilling activity in the Montney and Duvernay. We expect the third quarter seasonal rebound in Canada to remain muted with limited visibility into long-term customer demand. While global international rig activity is contracting sharply, we expect Precision’s six rigs under long-term contract in Kuwait and the Kingdom of Saudi Arabia to remain stable sources of revenue. Additional rig deployment and re-contracting opportunities will be delayed until the customers in these regions fully return to work.”

“Precision’s Alpha technologies continue to demonstrate exceptional field results, driving strong customer interest and field adoption of our broad portfolio of digital solutions. During the second quarter, we commercialized two additional drilling apps for a total of six commercial apps this year and we have 12 more under development. This year we have utilized AlphaApps on over 110 wells throughout North America, generating 890 AlphaApp days. Additionally, we are utilizing AlphaAnalytics for an integrated oil company in the Delaware basin and reduced drilling time on a 28-day horizontal well by 4.1 days, setting a new efficiency benchmark. In the Haynesville basin, we applied AlphaAnalytics to a separate customer’s full fleet of rigs and delivered an 8% improvement in drilling times compared to results achieved in the first quarter. AlphaAnalytics, AlphaApps and the AlphaAutomation platform are functioning on over half of our active North American fleet today and the drilling performance enhancements are inarguable. We believe the Alpha digital enablement of the drilling rig process to be the single most important technology transformation our customers can leverage to reduce their well construction costs and we believe this may be the ideal market to capitalize on these initiatives.”

“We will remain focused on the continued execution of our strategic priorities, including our 2020 deleveraging targets while preserving our strong liquidity position. We will concentrate on maximizing cash flow, stringently managing costs, leveraging our high-quality fleet and collaborating with our customers to utilize our Alpha portfolio to maximize efficiencies and deliver predictable, repeatable results” concluded Mr. Neveu.


In March 2020, the novel coronavirus (“COVID-19”) outbreak was declared a pandemic by the World Health Organization. Governments worldwide, including those countries in which Precision operates, have enacted emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused a material disruption to businesses globally resulting in an economic slowdown and decreased demand for oil. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions; however, the long-term success of these interventions is not yet determinable.

As a result of the decrease in demand, worldwide inventories of oil have increased significantly. However, in the second quarter voluntary production restraint from national oil companies and governments of oil-producing nations along with curtailments in the U.S. and Canada have shifted global oil markets from a position of over supply to inventory draws. The situation remains dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on the Corporation remains unknown at this time.



Precision’s strategic priorities for 2020 are as follows:

  1. Generate strong free cash flow and reduce debt by $100 million to $150 million in 2020 – In the second quarter of 2020, Precision generated $104 million of cash provided by operations (see “NON-GAAP MEASURES”) and $5 million of cash proceeds from the divestiture of non-core assets. We increased our cash balance by $78 million during the quarter, exiting with a cash balance of $175 million, compared to $97 million at March 31, 2020. We will place a high priority on maintaining a strong liquidity position and will continue to reduce debt levels once visibility improves.
  2. Demonstrate operational excellence in all aspects of our business – In Canada, we continued at record level market share of 36% and reported operating margins (revenue less operating costs) of $9,042 per utilization day. In the U.S., we lowered field costs and leveraged our contract book to generate reported operating margins of US$15,198 per utilization day. Internationally, we maintained stable activity, averaging eight active drilling rigs, and recorded average day rates of US$54,779.
  3. Leverage our Alpha Technology platform as a competitive differentiator and source of financial returns – As at June 30, 2020, we have 38 field-deployed rigs equipped with our AlphaAutomation platform which have drilled 316 wells in 2020. Since 2017, we have drilled approximately 1,500 wells with AlphaAutomation and currently have 18 AlphaApps available, of which six are commercial. In 2020, we have drilled over 110 wells with AlphaApps, generating 890 AlphaApp days, further allowing us to differentiate our High Performance, High Value offering. We are currently utilizing AlphaAnalytics for an integrated oil company in the Delaware basin and have reduced drilling time on a 28-day horizontal well by 4.1 days, setting a new drilling efficiency benchmark. With a separate customer in the Haynesville basin, we applied AlphaAnalytics to their full fleet of rigs and delivered an 8% improvement in drilling times compared to results achieved in the first quarter. AlphaAnalytics, AlphaApps and the AlphaAutomation platform are functioning on over half of our active North American fleet today.


The energy industry continues to have a challenging outlook as the COVID-19 pandemic has resulted in significant global oil supply imbalances and near-term crude oil price volatility. Our customers have responded by materially reducing capital spending leading to a rapid reduction in global oilfield service activity levels. In this reduced-activity environment, our customers remain focused on operational efficiencies. We anticipate this will accelerate the industry’s transition towards service providers with the highest performing assets and competitive digital technology offerings. Pursuit of predictable and repeatable results will further drive field application of drilling automation processes to create additional cost efficiencies and performance value for customers.

Precision continues to closely monitor announcements of available government financial support and economic stimulus programs. We are encouraged by the Government of Canada’s $1.7 billion well site abandonment and rehabilitation program, which will support industry activity levels and provide thousands of jobs throughout western Canada. The program is expected to run through to the end of 2022 with government funds being provided in stages. As the use of service rigs is an integral part of the well abandonment process, we believe our well servicing business is well positioned to capture these opportunities as a result of our scale, operational performance and strong safety record.

On April 1, 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (CEWS) program, which would subsidize 75% of employee wages for Canadian employers whose businesses have been affected by COVID-19. The program is intended to help employers re-hire previously laid off workers, prevent further job losses and better position Canadian businesses to resume normal operations. Under this program in the second quarter of 2020, we recognized $9 million of CEWS subsidies that were presented as reductions to operating and general and administrative expense of $6 million and $3 million, respectively. The Government of Canada recently indicated its continued support of this program through to the end of the year. We expect to participate in the third and fourth quarter of 2020 and receive similar levels of wage subsidies as recognized in the second quarter.


Year to date in 2020 we have entered into ten term contracts. The following chart outlines the average number of drilling rigs under contract by quarter as of July 22, 2020. For those quarters ending after June 30, 2020, this chart represents the minimum number of long-term contracts from which we will earn revenue. We expect the actual number of contracted rigs to vary in future periods as we sign additional contracts and certain customers elect to pay contract cancellation fees.

  Average for the quarter ended 2019 Average for the quarter ended 2020
  Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
Average rigs under term contract as of July 22, 2020:                
U.S. 56 52 49 41 41 32 26 22
Canada 8 5 5 5 5 4 3 3
International 8 8 9 9 8 8 6 6
Total 72 65 63 55 54 44 35 31

The following chart outlines the average number of drilling rigs that we had under contract for 2019 and the average number of rigs we have under contract as of July 22, 2020.

  Average for the year ended
  2019 2020 2021
Average rigs under term contract as of July 22, 2020:      
U.S. 49 30 6
Canada 6 4 2
International 9 7 6
Total 64 41 14

In Canada, term contracted rigs normally generate 250 utilization days per year because of the seasonal nature of well site access. In most regions in the U.S. and internationally, term contracts normally generate 365 utilization days per year.

Drilling Activity

The following chart outlines the average number of drilling rigs that we had working or moving by quarter for the periods noted.

  Average for the quarter ended 2019 2020
  Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30
Average Precision active rig count:            
U.S. 79 77 72 63 55 30
Canada 48 27 42 43 63 9
International 8 8 9 9 8 8
Total 135 112 123 115 126 47

According to industry sources, as of July 22, 2020, the U.S. active land drilling rig count is down 74% from the same point last year and the Canadian active land drilling rig count is down 73%. To date in 2020, approximately 82% of the U.S. industry’s active rigs and 58% of the Canadian industry’s active rigs were drilling for oil targets, compared with 81% for the U.S. and 58% for Canada at the same time last year.

Capital Spending

Capital spending in 2020 is expected to be $48 million and includes $34 million for sustaining, infrastructure and intangibles and $14 million for upgrade and expansion. We expect that the $48 million will be split $45 million in the Contract Drilling Services segment, $3 million in the Completion and Production Services segment and less than $1 million to the Corporate segment. At June 30, 2020, Precision had capital commitments of $113 million with payments expected through to 2022.

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