Precision Drilling (NYSE: PDS) reported Q1 EPS of ($2.70), $2.65 worse than the analyst estimate of ($0.05). Revenue for the quarter came in at $236 million versus the consensus estimate of $308.31 million.

Precision Drilling announces 2021 first quarter financial results:

• Revenue of $236 million was a decrease of 38% compared with the first quarter of 2020.
• Net loss of $36 million or $2.70 per share compared to net loss of $5 million or $0.38 per share in 2020.
• Earnings before income taxes, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, gain on asset disposals and depreciation and amortization (Adjusted EBITDA, see “NON-GAAP MEASURES”) of $55 million was 47% lower than the first quarter of 2020.
• Generated cash and funds provided by operations (see “NON-GAAP MEASURES”) of $15 million and $43 million, respectively.
• First quarter ending cash balance was $78 million.
• Reduced our Senior Credit Facility balance by $49 million and established a $20 million Canadian Real Estate Credit Facility.
• First quarter capital expenditures were $8 million.
• Repurchased and cancelled 155,168 common shares for $4 million.
• Recognized the Canadian government’s Canada Emergency Wage Subsidy (CEWS) program assistance of $9 million.
• Increased U.S. rig activation costs contributed to higher average operating costs as a result of accelerated rig deployments during the quarter.
• Incurred $11 million of share-based compensation expense due to our increased share price and a $2 million charge relating to the reclassification of certain share-based compensation plans.

Precision’s President and CEO Kevin Neveu stated:

“I am pleased with Precision’s response to the rebounding North American drilling market during the first quarter of 2021. Our current active U.S. rig count sits at 40 rigs, a milestone achieved several weeks earlier than previously anticipated and represents a 40% increase since the beginning of the year. In Canada, which is now experiencing the seasonal break-up slowdown, we are operating 20 rigs, an increase of 100% from this time last year. During the first quarter, Precision added eight new Alpha customers and increased paid days from AlphaAutomation by 27% from the fourth quarter, demonstrating increased market penetration for our Alpha digital technologies. Additionally, we fully commercialized 10 AlphaApps and achieved a similar increase in market penetration with that offering.”

“Precision’s international business continues to generate stable cash flow and we are encouraged with early pre-tendering exercises now underway in the region. It is beginning to appear that rig reactivations may track the relaxation of oil export limits. We remain confident in our ability to reactivate our three idled ultra-high spec rigs in Kuwait. We will also continue to explore opportunities to activate our other idle rigs in the region.”

“Our Well Servicing business has experienced a sharp uptick in customer demand and we anticipate the Canadian Federal government’s well abandonment program will continue to provide additional opportunities for the well service industry through the remainder of the year and in 2022. Approximately 15% of our first quarter activity related to well abandonments.”

“During the quarter, Precision generated $55 million in Adjusted EBITDA and $15 million in cash from operations, largely driven by improving industry activity levels, our strong market share and customer adoption of Precision’s Alpha technologies. We have reduced debt levels by $51 million year to date, despite the temporary seasonal working capital build in the first quarter and expect the benefit of a working capital release in the second quarter. I am confident that the steps we have taken to reduce our fixed costs will continue to maximize the free cash flow generating capabilities of Precision. We remain tightly focused on meeting or exceeding our debt reduction goals for the year along with our other stated priorities.”

“Precision’s ESG-related initiatives produced encouraging results during the quarter, most notably our efforts to progress emission-reduction alternatives for our customers. This includes formalizing partnerships with green energy providers to expand our offering of hybrid battery energy storage systems, bi-fuel systems and natural gas rig power systems. We are also piloting a GHG monitoring system, which will provide our customers with real-time insights to establish performance baselines and drive continued improvement through the entire operation. These initiatives are well complimented by our modern, digitally controlled and highly efficient Super Series rig fleet combined with our industry-leading Alpha digital portfolio. We remain committed to minimizing the environmental impact from our operations while continuing to demonstrate the leading Social and Governance practices for which Precision is well known.”

“Above all, Precision remains focused on the safety of our employees on our rigs, operating centers and corporate offices as we continue to execute our High Performance, High Value strategy during this pandemic. Precision employees have successfully confronted many associated challenges over the past 12 months and I am excited about the opportunities for our people as the recovery continues to take shape,” 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 toward 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 continued to increase in the first quarter of 2021 compared with the fourth quarter of 2020 and we expect further increases through the end of the well site abandonment and rehabilitation program in 2022.

During the second quarter of 2020, the Government of Canada introduced the CEWS program to subsidize 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 three months ended March 31, 2021, we recognized $9 million in CEWS program assistance, presented as offsets to operating and general and administrative expenses of $8 million and $1 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.

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