Targets 2018 upgrades to stay below $34 million
Precision Drilling Corporation (ticker: PDS) had fourth quarter 2017 revenues of CDN$347 million, an increase of 15% over Q4 2016. Precision posted a Q4 2017 net loss of CDN$47 million, or (CDN$0.16) per share, compared with a net loss of CDN$31 million (CDN$0.10 per share) in the fourth quarter of 2016.
During the current quarter, Precision Drilling incurred an asset impairment charge for $15 million, related to its Mexico contract drilling business, that after tax, increased the company’s net loss by $10 million. In addition, because of changes in U.S. tax regulations, Precision recorded a $16 million future tax expense in the quarter.
Precision recorded full year revenue of CDN$1,321 million, a 32% increase from CDN$1,003 million in 2016. Full year net loss was CDN$132 million (CDN$0.45) per share, compared to a net loss of CDN$156 million (CDN$0.53) per share in 2016.
Fourth quarter capital expenditures were CDN$25 million, with full year capital spending of CDN$98 million. Precision exited 2017 with 63 active rigs in the U.S., representing a 62% increase from where the company entered the year.
Wells drilled
In 2017, Precision drilled 154 wells utilizing Process Automation Control (PAC) technology, which is installed on 20 Super Triple Rigs. Year-to-date in 2018, Precision has drilled an additional 50 wells utilizing PAC technology.
Additionally, Precision has drilled a total of 173 wells, including 57 wells in 2017 and 25 wells year-to-date in 2018 utilizing Directional Guidance System (DGS).
2018 CapEx
Capital spending in 2018 is expected to be $94 million. The plan includes $45 million for sustaining and infrastructure, $34 million to upgrade existing rigs and $15 million on intangibles.
Precision expects that the $94 million will be split: $74 million for the contract drilling services segment, $5 million for the completion and production services segment and $15 million for the corporate segment.
CEO Neveu provides a broad update
Precision President and CEO Kevin Neveu said, “As projected, Precision’s U.S. activity recovered to peak 2017 levels during the fourth quarter with 63 active rigs by year end. Pricing momentum returned during the fourth quarter with well-to-well and term contract renewals pricing into higher day rates as customer demand for the most efficient rigs remains strong. Precision’s Super Triple pad walking rigs with long-reach horizontal capability are now pricing US$10,000 per day higher than the lows in 2016. We have signed 21 term contracts in the U.S. since the end of the third quarter and have 65 rigs running today. With confirmed customer contracts we expect our active rig count will move through 70 rigs later this quarter.
“In Canada, Precision remains well positioned in the deep basins and heavy oil regions where our Super Triple and Super Single fleets represent the rigs of choice for high-efficiency drilling applications in each region. Rates for these rigs have remained firm, and our continued efforts to reduce cost with the benefit of our scale have underpinned our financial results. While our current activity of 85 rigs is slightly lower than expected, our deep basin and heavy oil activity remains on track. We expect the spring break-up slowdown in Canada will be customer spending driven rather than weather related, and at this stage visibility for activity levels in the second half of 2018 is limited. With relatively low exposure to dry gas activity and leading market share in the most attractive basins, we expect to leverage our scale and fleet investment to generate strong free cash flow in 2018.
“In Kuwait and Saudi Arabia our activity levels are steady with eight rigs running today, and our operational performance is excellent. We are actively bidding our four idle rigs to opportunities in the Middle East region and plan to grow our presence in the region only if financial returns warrant. With recent Brent oil price strength, I would expect more idle rig redeployment opportunities from what we have experienced over the past few years.
“Looking back at 2017, I am pleased with the successes related to our strategic priorities. First, our High Performance, High Value service offering delivered 99.6% and 99.0% uptime in Canada and the U.S., respectively. Second, we generated $184 million in funds provided by operations in 2017 with $83 million in capital expenditures net of disposals and achieved a 16% reduction in general and administrative costs with a 64% increase in North American activity levels when compared to 2016. We extended the maturity profile of our senior notes and used US$49 million of cash to pay down long-term debt. Finally, we progressed our technology initiatives utilizing our Super Series rigs as the platform for technology deployment to the field. We managed the field testing and confirmation of our rig automation technologies throughout the year setting the stage for full commercialization in 2018. We anticipate strong customer adoption in process automation control (PAC) and directional guidance system (DGS) technology in the coming twelve months.
“Precision will further enhance our Super Series fleet with PAC, walking systems, increased pressure and hydraulic pumping capacity and DGS offerings. All growth and upgrade investments will be backed by customer contracts with pricing that ensures attractive rates of return on our investments. In 2017, we completed 29 rig upgrades at an average of approximately $1.3 million per rig for pumping capacity increases, PAC technology and walking systems. We currently have 10-20 rig upgrades slated for 2018, all of which are under $3 million per rig and we expect to spend less than $34 million on these upgrades. This approach will ensure we continue to generate free cash flow and reduce our debt levels during the year,” Neveu said.
