Precision Drilling Corporation (TSX:PD)(NYSE:PDS) - (Canadian dollars except as indicated) -
Precision Drilling announces 2017 first quarter financial results:
Kevin Neveu, Precision's President and Chief Executive Officer, stated: "The rebound which began in mid-2016 has continued unabated through the first quarter of 2017. During the quarter, we activated 17 rigs in the U.S. growing from 39 to 56 operating rigs by the end of the quarter. In Canada, we experienced a seasonal peak of 91 active rigs, almost 50% higher than the same quarter of 2016 with our total drilling days up 71% over last year. With three consecutive quarters of increased activity, all signs point to a strengthening recovery and Precision has responded as promised, rehiring more than 2,000 field personnel and activating over 100 rigs from 2016 trough activity."
"During the first quarter, we experienced some increased costs, primarily due to repositioning rigs which included moving six U.S. rigs from the Marcellus and Bakken regions to the higher demand markets such as the Permian, where our active rig count is now 27 rigs. We also moved rigs to Oklahoma for SCOOP/STACK opportunities, the Niobrara and the Eagle Ford. Our customer contracts include provisions to recover most of these costs during the initial contract period."
"During the quarter we completed and deployed eight rig upgrades, primarily adding higher pressure and higher capacity mud systems, pad walking systems and rig automation software. These upgrades have been supported by take-or-pay customer term contracts as year to date we have added nine term contracts. The day rates for both our newly contracted rigs and our non-contracted day work projects are continuing to strengthen as demand for our Super Series rigs remains strong. In the U.S., we are currently operating 59 rigs representing a tripling of activity from a year ago."
"In Canada, while demand was significantly stronger than 2016, the day rate increases have lagged due to the seasonal timing of customer negotiations, however, we expect Canadian pricing to improve as the year progresses."
"Internationally we have eight active rigs in the Middle East and no contract rollovers in 2017. We have built critical mass in our operations in Kuwait with five newly built rigs deployed over the last three years, all generating solid returns. We continue to look to expand our two core markets of Kuwait and Saudi Arabia and are actively bidding our four idle rigs in the region to new opportunities."
"Over the last 18 months, our well servicing group has done a remarkable job of managing costs in a rapidly increasing activity environment. Fixed costs in this division are down 42% compared to 2015 and the business is now operated from Red Deer with branch offices in major operating regions across Western Canada, allowing us to be more competitive in certain markets. I am very pleased with the integration of the Essential service rig assets, market share growth and improving financial performance of this division."
"We continue to view our ability to deploy efficiency-generating technologies as a key competitive advantage for Precision and have been working diligently with our partners to automate many manual processes on our rigs and further integrate and automate directional drilling. Beta-style field trials of these technologies are ongoing and we expect to commercialize these new automation features during 2017, details of which will be discussed at our Analyst and Investor day on May 15th," concluded Mr. Neveu.
Summary for the three months ended March 31, 2017:
Precision's strategic priorities for 2017 are as follows:
For the first quarter of 2017, the average West Texas Intermediate price of oil and average Henry Hub natural gas price were 55% higher than the prior year comparative period.
In general, lower oil prices caused producers to significantly reduce their drilling budgets in 2015 and 2016, decreasing demand for drilling rigs, resulting in pricing pressure on spot market day rates and significantly depressed industry activity levels. Following OPEC's actions to limit production to stabilize oil prices, we have experienced increased demand for our rigs and if current commodity prices continue to improve we expect our customers to enhance their drilling programs further strengthening rig demand.
With improved commodity prices and increasing activity levels we have recently been able to increase prices on spot market rigs across the majority of our fleet. Should commodity prices continue to improve, we expect sequential improvements in pricing in the U.S. and the Deep Basin in Canada. We expect pricing improvements in the shallower parts of the Canadian market; however, the increases are not expected to be of the same magnitude as other North American markets in which we operate.
In 2017, drilling activity has increased relative to this time last year for both Canada and the U.S. According to industry sources, as of April 21, 2017, the U.S. active land drilling rig count was up approximately 107% from the same point last year and the Canadian active land drilling rig count was up approximately 148%.
In Canada there has been a strengthening 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 2017, approximately 53% of the Canadian industry's active rigs and 80% of the U.S. industry's active rigs were drilling for oil targets, compared with 46% for Canada and 80% for the U.S. at the same time last year.
We expect Tier 1 rigs to remain the preferred rigs of customers globally. The economic value created by the significant drilling and mobility efficiencies delivered by the most advanced XY pad walking rigs have been highlighted and widely accepted by our customers. The trend to longer-reach horizontal completions and the importance of the rig delivering these complex wells consistently and efficiently has been well established by the industry. We expect that demand for leading edge high efficiency Tier 1 rigs will continue to strengthen, as the drilling rig capability has been a key economic facilitator of horizontal/unconventional resource exploitation.
Development and field application of drilling equipment process automation coupled with closed loop drilling controls and de-manning of the rigs will continue this technical evolution while creating further cost efficiencies and performance value for customers and further differentiating the specific capabilities of the leading edge Tier 1 rigs and those rig contractors capable of widely deploying those technologies.
Capital spending in 2017 is expected to be $119 million:
SEGMENT REVIEW OF CORPORATE AND OTHER
Our Corporate and Other segment provides support functions to our operating segments. The Corporate and Other segment had an adjusted EBITDA loss of $14 million in line with the first quarter of 2016 as slightly higher share based incentive compensation was offset by cost saving initiatives.
Net financial charges for the quarter were $33 million, a decrease of $3 million compared with the first quarter of 2016 primarily due to a reduction in interest expense related to debt retired in 2016. For the current quarter we incurred a nominal foreign exchange loss compared with a loss of $8 million during the first quarter of 2016.
Income tax expense for the quarter was a recovery of $23 million compared with a recovery of $15 million in the same quarter in 2016. The recoveries are due to negative pretax earnings.
LIQUIDITY AND CAPITAL RESOURCES
The oilfield services business is inherently cyclical in nature. To manage this, we focus on maintaining a strong balance sheet so we have the financial flexibility we need to continue to manage our growth and cash flow, regardless of where we are in the business cycle.
We apply a disciplined approach to managing and tracking results of our operations to keep costs down. We maintain a variable cost structure so we can be responsive to changes in demand.
Our maintenance capital expenditures are tightly governed by and highly responsive to activity levels with additional cost savings leverage provided through our internal manufacturing and supply divisions. Term contracts on expansion capital for new-build rig programs provide more certainty of future revenues and return on our capital investments
FIRST QUARTER 2017 EARNINGS CONFERENCE CALL AND WEBCAST
Precision Drilling Corporation has scheduled a conference call and webcast to begin promptly at 12:00 noon MT (2:00 p.m. ET) on Monday, April 24, 2017.
The conference call dial in numbers are 1-844-515-9176 or 614-999-9312.
A live webcast of the conference call will be accessible on Precision's website at www.precisiondrilling.com by selecting "Investor Relations", then "Webcasts & Presentations". Shortly after the live webcast, an archived version will be available for approximately 60 days.
An archived recording of the conference call will be available approximately one hour after the completion of the call until April 26, 2017 by dialing 1-855-859-2056 or 404-537-3406, pass code 91818718.
Precision is a leading provider of safe and High Performance, High Value services to the oil and gas industry. Precision provides customers with access to an extensive fleet of contract drilling rigs, directional drilling services, well service and snubbing rigs, camps, rental equipment, and water treatment units backed by a comprehensive mix of technical support services and skilled, experienced personnel.
Precision is headquartered in Calgary, Alberta, Canada. Precision is listed on the Toronto Stock Exchange under the trading symbol "PD" and on the New York Stock Exchange under the trading symbol "PDS".
SOURCE: Precision Drilling Corporation
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