Precision Drilling (NYSE: PDS) reported Q1 EPS of ($0.02), $0.03 better than the analyst estimate of ($0.05).

Precision Drilling announces 2020 first quarter financial results:

• Revenue of $379 million was a decrease of 13% compared with the first quarter of 2019.
• Net loss of $5 million or negative $0.02 per diluted share compared to net earnings of $25 million or $0.08 per diluted share in the comparable 2019 period.
• 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 $102 million was 6% lower than the first quarter of 2019.
• Generated cash and funds provided by operations (see “NON-GAAP MEASURES”) of $75 million and $81 million, respectively.
• First quarter ending cash balance was $97 million, an increase of $22 million from December 31, 2019.
• First quarter capital expenditures were $12 million.
• Reduced our unsecured senior notes balance by $41 million and repurchased and cancelled 3 million common shares for $5 million.
• Recognized restructuring charges of $10 million, comprised of $9 million of severance and $1 million of costs associated with the shutdown of our U.S. directional drilling operations.
• 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 COVID-19 virus outbreak and associated mitigation efforts, including travel and economic restrictions, has led to a severe destruction in global oil demand. This has been compounded by an oil price war, led by major oil producing countries, resulting in collapsed commodity prices and the deepest downturn the oil and gas services industry has ever experienced. While Precision’s first quarter results were only nominally impacted by the commodity price collapse, we expect a significant and sustained reduction in customer demand for oil and gas services well into next year.”

“Precision first responded by implementing comprehensive safety protocols to protect the health and welfare of our people and stakeholders from the risks of COVID-19. As a result of acting quickly and aggressively, Precision has not suffered a shut down, interruption in services, or any capability reduction due to the pandemic. We previously announced a series of steps to substantially reduce our fixed costs and capital spending plans, while continuing to support our High Performance, High Value business model. We believe these expenditure reductions and other cash preservation measures will reduce our 2020 annualized cash outflow by more than $100 million, continue to generate substantial savings in 2021 and improve our existing liquidity position. Furthermore, we worked with our banking group to amend the covenants on our revolving credit facility to maintain revolver access during these uncertain times with relief through the first quarter of 2022. We will continue to prioritize Precision’s cash liquidity during this downturn and will actively pursue any additional cash generating opportunities within the organization.”

“Despite the weakening North American industry rig activity during the first quarter, Precision generated better than expected financial results with Adjusted EBITDA of $102 million and cash provided by operations of $75 million. We executed on our deleveraging strategic priority, retiring $41 million of debt, while increasing our cash balance by $22 million to $97 million. Combined with our undrawn Senior Credit Facility, we exited the quarter with over $800 million in available liquidity. We have positioned our business to operate through lower activity periods and believe our cash flow generation profile will allow us to maintain strong liquidity, manage our debt maturities and reduce financial leverage over time.”

“Our other strategic priorities of demonstrating operational excellence and leveraging our Alpha technology platform as a differentiator remain critical in today’s operating environment. We believe our strong North American market share achieved during the first quarter and sustained through the current downturn demonstrates Precision’s competitive positioning and operational excellence.”

“Once rig activity stabilizes, we expect our customers’ attention will shift back to capital efficiency and rig performance. We expect Precision’s modern Super Triple rig fleet and industry leading technology offering will continue to position us well to reliably meet these requirements. Precision’s AlphaAutomation continues to perform very well and is generating commercial returns. During the quarter, we installed six systems bringing our installed base up to 40 rigs, including our two training rigs. We recently partnered with a large U.S. customer to launch AlphaAnalytics on their full fleet of Precision rigs. During the first quarter an IOC standardized all U.S. Precision rigs to have AlphaAutomation and will be utilizing several apps on each rig. We believe our High Performance, High Value service offering will continue to appeal to customers requiring predictable and repeatable results.”

“We are encouraged by the Canadian federal government’s $1.7 billion well abandonment and site rehabilitation program, which we anticipate will be largely allocated to well service providers. We believe that we are very well positioned to capture these opportunities.”

“The voracity of this downturn is felt most by the many thousands of dedicated men and women working in this industry and especially those who through no fault of their own are now without jobs. It is my, and the Precision organization’s hope, that as our industry recovers, we can attract those people back. We have faced significant challenges to start 2020 and Precision’s people have responded exceptionally well by executing our enhanced safety protocols and cost reduction initiatives while ensuring we continue to support our customers’ needs. We are thankful for their continued strong performance despite the ongoing challenges of this pandemic event” concluded Mr. Neveu.

IMPACT OF COVID-19

In March 2020, the coronavirus (“COVID-19”) outbreak was declared a pandemic by the World Health Organization (WHO). 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 success of these interventions is not yet determinable. In response to the dramatic reduction in demand, governments of oil-producing nations and national oil companies are working together to limit supply, but to date in 2020 there has been a significant decline in the global price of oil. The situation remains dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on us is not known at this time.

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