Precision Drilling (NYSE: PDS) reported Q4 EPS of ($2.74), $2.69 worse than the analyst estimate of ($0.05). Revenue for the quarter came in at $202 million versus the consensus estimate of $308.31 million.

Precision Drilling announces 2020 fourth quarter and year end highlights:

• Net loss of $38 million or $2.74 per diluted share compared to a net loss of $1 million or $0.08 per diluted share in 2019.
• Generated cash and funds provided by operations (see “NON-GAAP MEASURES”) of $5 million and $35 million, respectively, in the fourth quarter of 2020.
• Fourth quarter capital expenditures were $23 million.
• Completed a 20:1 consolidation of our common shares.
• Recognized the Canadian government’s Canada Emergency Wage Subsidy (“CEWS”) program assistance of $10 million in the fourth quarter of 2020.

Precision’s President and CEO, Kevin Neveu stated:

“Precision’s fourth quarter and full year 2020 financial results demonstrate the resiliency of our business model and strong cash generating capabilities of our High Performance rig fleet. Despite unprecedented obstacles caused by the COVID-19 pandemic and oil price collapse, we exceeded the targets set out in our 2020 strategic priorities. I am thrilled with our organization’s performance and the outstanding business execution that our people delivered during these incredibly challenging times. Notably, during the year, we delivered our best safety performance in the history of Precision, improved our capital structure and strengthened Precision’s overall competitive positioning through targeted investments in our assets, people and our Alpha digital technologies.”

“Precision generated $55 million of Adjusted EBITDA and $5 million of cash provided by operations in the fourth quarter of 2020, with results driven by improving market share and intense cost control throughout the organization. During the year, we reduced our fixed costs by over 35% and lowered general and administrative expenses by over $30 million. We believe these reductions are sustainable in a recovering market. We reduced debt levels by $171 million, exceeding the high end of our annual targeted range for the third consecutive year and we increased our long-term debt reduction target from $700 million to $800 million from 2018 through 2022, targeting a debt leverage level of less than two-times net debt to Adjusted EBITDA. At the end of 2020, we have reduced debt by $550 million in just three years, leaving $250 million remaining over the next two years for us to achieve this target.”

“Precision’s operational excellence was further evidenced by several key performance indicators including our reported market share and resilient field margins. In Canada, Precision sustained fourth quarter market share levels above 30%, led by outstanding performance in heavy oil and the deeper liquid-rich gas plays where we expect to remain strong in 2021. In the U.S., Precision achieved a 9% fourth quarter market share and sustained strong margins by leveraging our contract book and reducing operating costs. Internationally, our operations continued to deliver High Performance operating results and steady cash flow from our six contracted rigs.”

“Precision’s Completion and Production Services business demonstrated a notable uptick in activity throughout 2020, driven by improving customer demand and Precision’s participation in the Government of Canada’s $1.7 billion well abandonment program. During the fourth quarter, almost one-third of Precision’s well service work was derived from well abandonment projects.”

“2020 marked another year of strong progress for our suite of Alpha digital technologies, as we consistently reported growing demand and value creation for our customers, achieving record performance and new efficiency benchmarks throughout North America. We increased our AlphaAutomation market penetration of Precision wells drilled, from 23% in 2019 to 41% in 2020. In 2020, our commercial suite of AlphaApps generated over 2,300 App-days, while our AlphaAnalytics data analysis platform delivered over 800 Analytics-days. We believe our digital drilling technology momentum represents an important competitive differentiator and revenue driver for Precision as customers continue to prioritize digital strategies and operational efficiencies.”

“Looking forward, we see improving oil fundamentals supported by OPEC+ curtailments and modestly recovering oil demand and anticipate this recovery continuing with further vaccine rollouts. North American natural gas fundamentals are also strengthening with domestic and LNG demand increasing and storage levels decreasing. While we believe our customers’ commitment to capital discipline will hold, we expect continued improvements to rig demand as inventories of drilled but uncompleted wells are further depleted. Internationally, we remain optimistic in our ability to secure re-activations as our customers return to pre-pandemic operations.”

“For 2021, Precision’s strategic priorities include further market penetration of our Alpha Digital Technologies, utilizing operational leverage to generate free cash flow for continued de-leveraging and adding a strategic focus on our ESG performance to strengthen our customer and stakeholder positioning. Precision has long been a strong performer on ESG business elements, and we have a unique opportunity to both support our customers efforts to reduce their GHG emissions with our technologies and provide stakeholders additional disclosure on how Precision is managing these initiatives. In addition to our stated strategic priorities and in light of the additional health risks of COVID-19, the health and wellbeing of our employees and our communities will remain a key focus, while Precision continues to deliver our customary industry leading High Performance, High Value services to our customers,” concluded Mr. Neveu.

OUTLOOK

The oilfield services industry outlook and customer sentiment has improved in recent months, largely due to vaccine announcements, reopening of economies and steadily increasing commodity prices. Although longer-term visibility remains limited, improved fundamentals from recovering global oil demand should further stabilize commodity prices and result in customers continuing to increase activity levels throughout the year. In this environment, our customers are expected to remain focused on capital discipline and maximizing operational efficiencies. We anticipate these industry dynamics 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 remain 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 will run through the end of 2022 with government funds provided in stages. As the use of service rigs is an integral part of the well abandonment process, our well servicing business is positioned to capture these opportunities as a result of our scale, operational performance and strong safety record. During the fourth quarter, we saw a continued rise in the number of approved abandonment applications and further distribution of program funding to oilfield service providers. Our abandonment service activity increased in the fourth quarter of 2020 compared with the third quarter and we expect further increases through the end of the well site abandonment and rehabilitation program in 2022.

On April 1, 2020, the Government of Canada announced the CEWS program, which subsidizes a portion of employee wages for Canadian employers whose businesses have been adversely 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. For the year ended December 31, 2020, we recognized $26 million in CEWS program assistance, reducing operating and general and administrative expenses by $21 million and $5 million, respectively. The CEWS program has benefitted both Precision and our employees as it has allowed us to retain a higher employment level for Canadian positions within our organization. We remain highly supportive of this effective government program that extends to June of 2021.

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