Service & Supply | Rig Count | Quarterly / Earnings Reports | Oilfield Services | Second Quarter (2Q) Update | Financial Results | Capital Markets | Capital Expenditure | Drilling Contractor

Precision Drilling Ups Initial Capex, Focuses on Tier 1 Rigs

Email    |    Print    |    Bookmark

You Need to login first

   |    Thursday,July 23,2015

Precision Drilling Corporation has announced Q2 2015 results.

Highlights:

• Current expected capital plan for 2015 is $546 million, an increase of $40 million compared to the $506 million capital plan announced in April 2015.  The capital increase is due to one additional new-build contract for a ST-1200 rig for deep basin drilling in Canada and additional long lead items. A portion of the 2015 capital plan is utilization based and if activity levels change, Precision has the ability to adjust its plan accordingly. 
• The 2015 capital expenditure plan includes $422 million for expansion capital, $78 million for sustaining and infrastructure expenditures, and $46 million to upgrade existing rigs. We expect that the $546 million will be split $540 million in the Contract Drilling segment and $6 million in the Completion and Production Services segment.

View Source

• Precision's expansion capital plan for 2015 includes 18 new-build drilling rigs, 16 of which were delivered in the first half of the year. Of the remaining two rigs, one rig was deployed to Canada early in the third quarter and one is expected to be deployed in Canada in the fourth quarter. Of the 16 rigs delivered, 13 rigs went to the U.S., four to Canada and one to Kuwait, all of which are on long-term contracts.
• Of the 18 new-build drilling rigs scheduled for delivery in 2015 (13 rigs in the U.S., four in Canada and one internationally) ten were delivered in the first quarter, six were delivered in the second quarter, one was delivered early in the third quarter and the final rig is scheduled for delivery in the fourth quarter. After delivery of the remaining contracted new-build rig in 2015, Precision's drilling rig fleet will consist of 331 drilling rigs, including 236 Tier 1 rigs, 73 Tier 2 rigs and 22 PSST rigs. For the Tier 1 rigs, 124 will be in Canada, 106 in the U.S. and six internationally.

View Source

• Revenue this quarter was $334 million or 30% lower than the second quarter of 2014, mainly due to lower activity from our North American operations. 
• Average operating costs per utilization day for drilling rigs increased in the second quarter of 2015 in both Canada and the United States. In Canada costs increased to $12,818, compared to the prior year second quarter of $11,695 and in the U.S. costs increased to US$15,896 in 2015 compared to US$13,502 in 2014. The cost increase in both markets was primarily due to higher labour burden and a lower activity base to spread fixed costs and larger turnkey jobs during the quarter in the United States.

Outlook

View Source

Contracts

• Our portfolio of term customer contracts provides a base level of activity and revenue and, as of July 22, 2015, we had term contracts in place for an average of 45 rigs in Canada, 43 in the U.S. and nine internationally for the third quarter of 2015 and an average of 46 rigs contracted in Canada, 47 in the U.S. and 11 internationally for the full year. 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

• In the U.S., our average active rig count in the quarter was 58 rigs, down 36 rigs over the second quarter in 2014 and down 22 rigs from the first quarter of 2015. We currently have 51 rigs active in the U.S.
• In Canada, our average active rig count in the quarter was 26 rigs, a decrease of 27 over the second quarter in 2014. We currently have 56 rigs active in Canada and expect typical seasonal volatility through the third quarter, but in general we expect to benefit from the fleet enhancements over the past several years.
• Internationally, our average active rig count in the quarter was 13 rigs, up 2 rigs over the second quarter in 2014 and in line with the first quarter of 2015. During the quarter one new-build rig went to work in Kuwait and was operating at the end of the quarter. We currently have 12 rigs active internationally.

Industry Conditions

• To date in 2015, drilling activity has decreased relative to this time last year for both Canada and the U.S. According to industry sources, as of July 17, 2015, the U.S. active land drilling rig count was down approximately 54% from the same point last year and the Canadian active land drilling rig count was down approximately 50%. The decrease in the North American rig count has resulted in the trend of high-grading toward Tier 1 rigs, which continue to show relative strength given the current market conditions.
• In Canada there has been strength in natural gas and gas liquids drilling activity related to deep basin drilling in northwestern Alberta and northeastern British Columbia while the trend towards oil-directed drilling in the U.S. continues. To date in 2015, approximately 45% of the Canadian industry's active rigs and 77% of the U.S. industry's active rigs were drilling for oil targets, compared to 60% for Canada and 82% for the U.S. at the same time last year.

View Source

Kevin Neveu, Precision's President and Chief Executive Officer, stated: "The first half of 2015 has been characterized by substantially reduced demand for our services as our customers grapple with depressed commodity prices and sharply reduced drilling budgets. During this period, the superior performance and value offered by Precision Drilling has been partially overshadowed by the rapid decline in activity, yet we see signs of our market share improving and an emerging shift by customers from managing drilling programs based on contract portfolios to the traditional performance and value based decision factors.

Despite the sharply reduced customer demand and a particularly harsh Canadian spring break-up, Precision's resilient margins and cash flow from operations during the second quarter demonstrate the effectiveness of our variable cost business model and strong contract position enjoyed with our Super Series rigs. Our High Performance drilling fleet of 235 Super Series Tier 1 rigs, comprehensive North American and Middle East footprint, excellent field reputation and strong balance sheet position are foundations for growth as our customers shift their focus back to performance and value.

The Canadian new-build rig announced today, redeployment of several of our U.S. ST-1200 Tier 1 rigs to Canada for deep basin plays and our emerging discussions with customers to reactivate idle Tier 1 rigs later this year are signs that our customers' focus is indeed shifting to High Performance, High Value services we provide.

Internationally, we have successfully deployed our third rig to Kuwait, bringing total deployments for the last twelve months to five rigs, three to Kuwait, one to Saudi Arabia and one to country of Georgia. International activity is generally less volatile than North America, and although there are near-term headwinds, we remain focused on expanding this segment of our business over the long term.

Through this challenging market environment, we will continue to invest in our people, particularly in training and safety for our Precision crews at our Houston and Nisku Tech Centres, while we leverage our scale to lower operating costs and to create value for our customers and shareholders."

Precision's strategic priorities for 2015 are as follows:

• Work with our customers to lower well costs - Deliver High Performance, High Value services to customers to create maximum efficiency and lower risks for development drilling programs. Utilize our unique platform of Tier 1 assets, geographically diverse operations and highly efficient service offering to deliver cost-reducing solutions. Grow our cost-reducing integrated directional drilling service.
• Maximize cost efficiency throughout the organization - Continue to leverage Precision's scale to reduce costs and continue to deliver High Performance. Maximize the benefits of the variable nature of operating and capital expenses. Maintain an efficient corporate cost structure by optimizing systems for assets, people and business management. Maintain our uncompromising focus on worker safety, premium service quality and employee development.
• Reinforce our competitive advantage - Gain market share as Tier 1 assets remain most in demand rigs. High-grade our active rig fleet by delivering new-build rigs and maximizing customer opportunities to utilize High Performance assets. Deliver consistent, reliable, High Performance service. Retain and continue to develop the industry's best people.
• Manage liquidity and focus activities on cash flow generation. Monitor working capital, debt and liquidity. Maintain a scalable cost structure that is responsive to changing competition and market demand. Adjust capital plans according to utilization and customer demand.