Precision Drilling (PDS) Tops Q4 EPS by 5c, Revenues Beat

Precision Drilling (NYSE: PDS) reported Q4 EPS of $0.00, $0.05 better than the analyst estimate of ($0.05). Revenue for the quarter came in at $427 million versus the consensus estimate of $308.31 million.

• Revenue of $427 million was an increase of 23% over the prior year comparative quarter.
• Net loss of $198 million ($0.68 per share) compares to a net loss of $47 million ($0.16 per share) in the fourth quarter of 2017. During the quarter we incurred goodwill impairment charges totaling $208 million that, after-tax, reduced net earnings by $199 million and net earnings per diluted share by $0.68. Excluding the impact of the goodwill impairment net earnings would have been $1 million ($0.00 per share).
• Earnings before income taxes, loss or gain on redemption and repurchase of unsecured senior notes, finance charges, foreign exchange, impairment of goodwill, impairment of property, plant and equipment and depreciation and amortization (adjusted EBITDA see “NON-GAAP MEASURES”) of $134 million was 48% higher than the fourth quarter of 2017. During the quarter we realized a transaction recovery, net of costs, of $14 million.
• Funds provided by operations (see “NON-GAAP MEASURES”) of $93 million versus $28 million in the prior year comparative quarter.
• During the fourth quarter we reduced the principal amount of our outstanding debt by US$74 million through redemptions and repurchases for a gain of $7 million. Fourth quarter ending cash balance was $97 million, up $32 million from the December 31, 2017 balance of $65 million.
• Fourth quarter capital expenditures were $30 million.
• As at December 31, 2018 we have classified 22 North American drilling rigs (18 in Canada and four in the U.S.) as assets held for sale and reported these assets at their carrying value of $20 million.

Precision’s President and CEO Kevin Neveu stated: “Precision executed on its 2018 business plan and delivered operating and financial results far exceeding our expectations. This execution was clear in all key financial and operating metrics; delivering strong rig and crew operating and safety performance, diligent variable and fixed cost control, growth in U.S. market share and forging the path to commercializing our technology initiatives, all while strictly controlling our capital spending. Precision’s execution in 2018 resulted in better than expected cash flow, allowing us to accelerate our debt repayment plan well beyond our stated target range for the year, retiring $174 million of debt in 2018.”

“In the fourth quarter, strong demand for our Super Series rigs and firm pricing in the U.S. combined with aggressive cost management in our Canadian businesses drove better than expected financial results. We enter 2019 with liquidity of over $800 million and remain firmly committed to our deleveraging plan, recently increasing our longer-term debt reduction target range by $100 million to $400 million to $600 million by the end of 2021.”

“While customer sentiment has recently improved with firming WTI pricing, the extreme volatility and widened Canadian differentials experienced during the fourth quarter weighed heavily on our customers’ planning as we entered 2019. We see the effects sharply in Canada as winter drilling activity is trending down 30% from last winter. In Canada, currently we have 58 rigs operating and do not expect activity to strengthen until the second half of the year as oil inventories decline and takeaway capacity improves. Canadian differentials have narrowed substantially following the Government of Alberta’s mandatory production curtailment program driving improved cash flows for many of our customers and potentially strengthening the outlook for later in the year. Despite near-term softness, our Canadian business is well positioned to generate strong cash flow through leveraging our scale with unmatched rig fleet quality and Precision’s High Performance operations.”

“In the U.S. we have 81 rigs operating, 16 more than this time last year representing 25% year-over-year growth. While our U.S. activity is steady, our customers are still cautiously assessing 2019 spending plans. Precision has signed eight term contracts year-to-date, in addition to 11 in the fourth quarter of 2018, indicative of continued strength in high spec rig demand. Over the last year we have increased our AC Super Triple 1500 rig fleet in the U.S. by five, including two rigs redeployed from Canada and three new builds largely assembled from spare components and vendor credits. Additionally, we completed 31 rig upgrades including pad-walking systems, third mud pump additions and Process Automation Control upgrades. All cash deployed to mobilize, build new and upgrade rigs was backed with take or pay customer contracts at leading edge rates and we managed these U.S. fleet enhancements with relatively modest capital spending.”

“Currently we have eight rigs operating in the Middle East all performing exceedingly well. In Saudi Arabia we expect to sign long-term contracts on the two rigs currently up for renewal by the end of the quarter, and in Kuwait we are on time and on budget to deploy a sixth new build rig in June. By mid-year we expect to have nine rigs operating in the Middle East, all under long-term contracts providing stable cash flow visibility.”

“Precision’s technology strategy displayed significant progress throughout 2018, with 33 Process Automation Control systems installed, 31 of which are active in the field. During the year, we were able to demonstrate to our customers our system’s ability to deliver consistent and repeatable, high-quality results while improving safety, performance and operational efficiency. Going into 2019, our priorities revolve around further commercialization of the Process Automation Control platform, PD-Apps and PD-Analytics as Precision remains a leader in advanced rig technology offerings.”

“Precision remains focused on the things in which it can control, namely, allocating free cash flow toward debt repayment, capital discipline, cost management and operational excellence. Commodity price volatility is likely to persist throughout 2019; however, we believe we are well-positioned across each of our geographies to manage our business and create value for our customers and investors,” concluded Mr. Neveu.

For earnings history and earnings-related data on Precision Drilling (PDS) click here.

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