CALGARY, Sept. 7 /CNW/ - Precision Drilling Corporation ("Precision")
announces that the Board of Directors (the "Board") of Precision has
unanimously approved the reorganization (the "Reorganization") of Precision's
existing operations and holdings into an income trust by way of plan of
arrangement. Subject to shareholder approval, shareholders will receive for
each common share of Precision:
- one unit (a "Trust Unit") of a new trust (the "Trust") to be
created from Precision's Canadian contract drilling, service rig,
snubbing, rentals, and related services businesses ("Remaining
Canadian Operations");
- a pro rata share of the 26 million common shares of Weatherford
International Ltd. ("Weatherford") currently owned by Precision
(the "Weatherford Shares"); and
- a pro rata share of up to Cdn $850 million of cash (the "Special
Cash Consideration").
The maximum amount of the Special Cash Consideration assumes the
completion of the sale of CEDA Holdings Ltd. and will be reduced by
Cdn $273 million if that sale does not occur, and will also be reduced if the
closing price of Weatherford's common shares on the New York Stock Exchange
exceeds US $67.71 per share on the effective date of the Reorganization. That
reduction will be necessary to allow Precision to retain funds to cover its
increased income tax obligations arising from the increase in value of the
Weatherford Shares at the time of their transfer to Precision shareholders.
Taxable shareholders resident in Canada will alternatively be entitled,
in addition to their pro rata share of Weatherford Shares and the Special Cash
Consideration, to elect to receive limited partnership units ("Exchangeable LP
Units") that will be exchangeable into Trust Units on a one-for-one basis.
There will, however, be a maximum number of Exchangeable LP Units issued under
the Reorganization and, if requests for Exchangeable LP Units exceed the
maximum, the Exchangeable LP Units will be pro-rated among those electing
eligible shareholders. The Exchangeable LP Units are intended to be, to the
greatest extent practicable, the economic and voting equivalent of Trust
Units, being entitled to the same monthly cash distributions as a Trust Unit
and to vote on Trust matters with holders of Trust Units through a special
voting unit.
Redemption of Debentures
------------------------
Precision will, as soon as reasonably possible, commence the process of
fully redeeming all of its outstanding debentures consisting of:
Cdn $200 million 6.85% Series 1 debentures, Cdn $150 million 7.65% Series 2
debentures and US $300 million 5.625% debentures, in each case, utilizing the
early redemption provisions available in the respective indentures. It is
anticipated that all such redemptions will be completed prior to the
Reorganization. Precision expects to have a bank loan facility in place by the
time of the Reorganization sufficient to cover initial requirements and
ongoing working capital needs.
Rationale for the Transaction and Recommendation of the Special Committee
-------------------------------------------------------------------------
Over the past two years, the Board of Precision has studied various
alternatives to maximize shareholder value, including the merits of income
trust structures. In early 2005, the Board requested management of Precision
to undertake a detailed examination of possible strategic alternatives
available to Precision to ensure the appropriate structure was in place for
the future growth of Precision and the enhancement of shareholder value.
On June 6, 2005, Precision entered into an agreement to sell its Energy
Services and International Contract Drilling Divisions to Weatherford for
Cdn $1,130 million and 26 million Weatherford common shares (the "Weatherford
Transaction"). On June 15, 2005, Precision announced that it was undertaking
an examination of available strategic alternatives with respect to its
Remaining Canadian Operations, including determining the viability of
conversion into an income trust. On August 31, 2005, Precision announced the
closing of the Weatherford Transaction and the pending sale of CEDA Holdings
Ltd. for Cdn $273 million.
Subsequent to the signing of the definitive agreement for the Weatherford
Transaction, a Special Committee of independent directors of Precision was
appointed to undertake a further examination of the strategic alternatives
with respect to Precision's Remaining Canadian Operations. The Special
Committee concluded that the proposed Reorganization into an income trust is
in the best interests of Precision and its shareholders and recommended to the
Board of Directors that Precision proceed with the proposed Reorganization.
The Special Committee based its recommendation on a number of factors
including an opinion from FirstEnergy Capital Corp. that the conversion of the
Remaining Canadian Operations of Precision into an income trust is fair from a
financial point of view to the holders of Precision common shares. Other
factors that were considered included:
1. It is anticipated that the cash distribution to unitholders
will provide an attractive rate of return without impairing
Precision's ability to finance maintenance and expansion
capital expenditures.
2. A trust structure provides a tax efficient structure for
providing cash distributions to unitholders and, as Precision
is currently cash taxable, the trust structure should reduce or
eliminate the income tax liability, thereby increasing the
amount of cash available for distribution to unitholders and
for future capital expenditures.
3. Precision's Remaining Canadian Operations generate substantial
levels of free cash flow and have predictable yet flexible
requirements for capital expenditures.
4. A trust structure provides Precision with a competitive
structure to finance growth opportunities.
5. It is anticipated that the combined value of the Weatherford
Shares, the Special Cash Consideration and the market value of
the Trust Units will be greater than the market value of the
common shares of Precision.
Precision Trust
---------------
The Trust, through wholly-owned operating entities, will continue the
business and operations currently comprising the Remaining Canadian
Operations. Management of the Remaining Canadian Operations will be led by
Hank Swartout in a continuing role as Chairman and Chief Executive Officer.
Effective at the time of the Reorganization, Mr. Swartout will relinquish the
position of President of Precision and will announce the appointment of Gene
Stahl to the position of Chief Operating Officer and President. Mr. Stahl has
been employed with Precision for the past nine years in a diverse mix of
management roles, most recently as Vice President, Rentals. The existing
operations management team will remain intact and the Reorganization will have
little impact on the operations of the continuing businesses. Additionally,
Precision will announce the appointment of Doug Strong to the position of
Chief Financial Officer. Mr. Strong is a Chartered Accountant with nearly
20 years of domestic and international oilfield service industry experience
and has been the Group Controller for the continuing businesses for the past
eight years.
The current directors of Precision will serve as the initial Trustees of
the Trust.
The Trust will employ a strategy to:
1. Provide Trust unitholders and holders of Exchangeable LP Units
with an annual cash-on-cash yield by making monthly cash
distributions to Trust unitholders and holders of
Exchangeable LP Units;
2. Maintain Precision's existing operating assets, and any
additional assets acquired by any of the operating entities
owned, directly or indirectly, by the Trust, in a manner that
provides predictable cash flow; and
3. Enable Precision, and any other operating entities owned,
directly or indirectly by the Trust, to continue to expand
their businesses through development, expansion and acquisition
opportunities that will be accretive to Trust unitholders.
Based on current business conditions, it is currently anticipated that
the board of Trustees of the Trust will set the initial monthly distribution
at approximately Cdn $0.24 per Trust Unit. The Trustees of the Trust will
review the Trust's distribution policy from time to time. The actual amount
distributed will be dependent on various economic factors and is at the
discretion of the Trustees. The anticipated distribution policy targets the
use of approximately 70% of available cash for distribution to unitholders.
Based upon current economic factors and the size of the Trust's capital
budget, it is expected that the remaining approximately 30% of cash available
for distribution will fund the Trust's annual capital expenditure program.
Plan of Arrangement
-------------------
The Reorganization will be completed by way of Plan of Arrangement and
will be subject to finalization and execution of transaction documentation and
to shareholder, court, and applicable regulatory approvals. A special meeting
of shareholders is planned for late October 2005 to approve the proposed trust
conversion and transfer of Weatherford Shares and the Special Cash
Consideration. The Plan of Arrangement will require the approval of 66 2/3% of
the votes cast by shareholders of Precision. An information circular
describing the Reorganization is expected to be mailed to Precision's
shareholders in early October 2005 and the closing of the Reorganization is
expected to occur in November 2005.
Employee share purchase options either have been or will be, as part of
the Reorganization, accelerated and will be available for exercise or
surrender for cash equal to the intrinsic value of the outstanding options.
Tax Implications
----------------
For Precision shareholders resident in Canada, other than eligible
shareholders who are able to obtain a partial tax deferral by electing to
receive Exchangeable LP Units, the exchange of Precision common shares for
Trust Units, Weatherford Shares and the Special Cash Consideration generally
will result in a disposition giving rise to a gain or a loss for Canadian tax
purposes. Precision shareholders who are not resident in Canada generally will
not be subject to Canadian taxation in respect of the disposition of their
common shares. The Weatherford Shares and the Trust Units will be qualified
investments for RRSP's, RESP's and DPSP's.
For Precision shareholders resident in the United States, the receipt of
Trust Units in exchange for Precision common shares generally will not result
in the recognition of a taxable gain or loss for United States tax purposes.
Receipt of Weatherford Shares and the Special Cash Consideration by Precision
shareholders resident in the United States will, to the extent of current and
accumulated earnings and profits of Precision, generally result in the
recognition of dividend income in the amount of the fair market value of
Weatherford Shares and the Special Cash Consideration received.
Distributions on the Trust Units to holders who are non-residents of
Canada generally will be subject to Canadian statutory withholding tax, which
may be reduced by an applicable tax treaty. Distributions on the Trust Units
to holders who are residents of the United States for purposes of the
Canada-United States Tax Convention generally will be subject to a 15 percent
Canadian statutory withholding tax. It is intended that the Trust will elect
to be treated as a corporation for United States federal tax purposes, such
that distributions (as computed under United States tax principles) received
by a United States holder of Trust Units will be qualified dividend income for
purposes of the Internal Revenue Code that qualify for preferential tax rates
for individual United States shareholders.
Forward-Looking Statement Disclaimer
------------------------------------
Certain statements contained in this press release may contain words such
as "anticipate", "could", "should", "expect", "believe", "will" and similar
expressions and statements relating to matters that are not historical facts.
These statements are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Act of 1934. Such forward-looking statements involve known and unknown risks
and uncertainties which may cause the actual results, performance or
achievements of the entities discussed in this Press Release to be materially
different from any future results, performances or achievements expressed or
implied by such forward-looking statements. Such factors include fluctuations
in the market for oil and gas and related products and services; competition;
political and economic conditions in countries in which Precision does
business; the demand for services provided by Precision; changes in laws and
regulations, including environmental regulations, to which Precision is
subject and other factors, which are described in further detail in
Precision's filings with the US Securities and Exchange Commission.
Financial Advisors
------------------
FirstEnergy Capital Corp. acted as Financial Advisor to the Special
Committee of the Board of Directors of Precision with respect to the
Reorganization.
Conference Call
---------------
A conference call will be held with senior management of Precision to
provide an overview of the proposed Reorganization at 9:00 a.m. (Mountain
Standard Time) on September 7, 2005. The conference call dial in number for
callers in North America is 1-800-814-4941 and the dial in number for callers
outside of North America is 1-416-640-4127.
A live webcast of the conference call will be accessible on Precision's
website at www.precisiondrilling.com by selecting "Investor Relations", then
"Webcasts".
An archived recording of the conference call will be available
approximately one hour after the completion of the call until September 14,
2005, by dialing 1-877-289-8525, and then entering the pass code 21151016
followed by the number sign.
Precision is listed on the Toronto Stock Exchange under the trading
symbols "PD" and "PD.U" and on the New York Stock Exchange under the trading
symbol "PDS".
%SEDAR: 00002052E
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