(Canadian dollars)
CALGARY, April 26 /CNW/ - Precision Drilling Trust ("Precision" or the
"Trust") today reports record results for the first quarter ended March 31,
2006 from its continuing operations in Canada and the first full reporting
quarter as an income trust. Precision is also announcing plans to expand
contract drilling operations into the United States.
Earnings from continuing operations in the first quarter of 2006 were
$224.2 million compared to $88.3 million for the comparable quarter in 2005
and $120.9 million in the quarter ended December 31, 2005. Earnings from
continuing operations increased by $1.08 per diluted unit or 152% to $1.79 in
the first quarter of 2006 compared to $0.71 in 2005. The increase is
attributable to a number of factors including exceptionally strong customer
demand, favourable weather conditions and a lower effective tax rate due to
Precision's conversion to an income trust. Significant year over year
increases in equipment activity and pricing for both the Contract Drilling
Services and Completion and Production Services segments resulted in increased
earnings per diluted unit of $0.50 in the first quarter of 2006, which is 70%
higher than the comparable quarter in 2005. The lower effective tax rate added
$0.58 per diluted unit in the current quarter.
Precision had a very successful first quarter in 2006 as sequential
quarterly momentum associated with high oil and natural gas commodity prices
realized in 2005 carried over into the current year. During the first quarter
of 2006, oil prices remained strong while North American Henry Hub natural gas
spot prices ranged from a high of US$10.05 per Mmbtu to a low of US$6.50 per
Mmbtu. Despite the softening of natural gas prices, customers continue to
aggressively pursue their drilling and well servicing programs and Precision
expects to return to high seasonal activity levels once second quarter spring
breakup runs its course and road bans are lifted.
Precision is pleased to announce its strategic expansion into the United
States drilling market. "The U.S. market offers an opportunity for higher year
round utilization and strong customer demand," said Gene Stahl, President and
Chief Operating Officer. "More importantly, there is a strong technical fit
for Precision's equipment and expertise in some key drilling markets in the
U.S. and we feel the time is right for Precision to take advantage of this
opportunity." Precision will initially provide one Super Single(R) rig under
contract to a customer in the second quarter of 2006 and will commission
construction of an additional five rigs to be delivered over the next 12 to 18
months. Another five rigs will be built in anticipation of demand from this
market for completion by the second quarter of 2008. "We believe this
initiative will serve as an initial platform for growth in the United States
market and represents an opportunity for Precision to demonstrate its
capabilities," added Stahl. These new U.S. rigs will be rated to approximately
3,200 metres (10,000 feet) and will represent the next generation of
Precision's Super Single(R). Based on current planning and rig specifications,
Precision is expecting these initiatives to require capital expenditures of
approximately $115 million with an estimated 25% of this amount to be incurred
during 2006.
The first quarter of 2006 is highlighted by numerous operational and
financial developments, including:
- In its first full quarter as an income trust, Precision announced
distributions to unitholders of $0.27 per month per unit for
aggregate cash distributions declared of $101.6 million or $0.81 per
unit;
- Long-term debt increased by $127.8 million during the quarter to
$224.6 million as at March 31, 2006. The increase is associated with
funding requirements for payment of prior year income taxes payable;
- Working capital increased by $234.9 million during the quarter to
$387.7 million as at March 31, 2006 as record activity in the quarter
increased accounts receivable to $597.1 million, further
strengthening Precision's positive net debt position;
- Rig delivery under our planned fleet expansion program of 19 rigs is
proceeding on schedule. Two Super Single(R) rigs were delivered in
the fourth quarter of 2005. In the first quarter of 2006, three rigs
were commissioned: one 4,000 metre electric triple and two Super
Single(R) rigs. The remaining 14 rigs - six electric triple and eight
Super Single(R) rigs - are expected to be completed at a steady pace
through the first quarter of 2007; and
- An additional four rigs are being built for customers in Canada. Two
new Super Singles(R) have been contracted with delivery expected in
the second quarter of 2007 and two 4,000 metre electric triple rigs
have been contracted and are under construction, with delivery
expected in the fourth quarter of 2006.
The previously announced $285 million capital expenditure program has
been increased by an estimated $145 million for U.S. expansion and
construction of additional rigs for the Canadian market. The revised capital
expenditure program is estimated to be $430 million, with $330 million to be
incurred during 2006 and the remaining $100 million over the following 18
months. For the current year, sustaining capital expenditures to upgrade and
maintain Precision's existing equipment and infrastructure remain at an
estimated $120 million. Upon completion of the expansion program in 2008,
Precision will have increased its drilling rig fleet to 261, with 250 rigs
operating in western Canada and 11 in the United States. This represents a 13%
increase over the year end 2005 fleet total of 230 rigs.
With Precision's conversion to an income trust on November 7, 2005 and
consistent with the December 31, 2005 year end financial statement reporting,
Precision Drilling Trust, as the successor in interest to Precision Drilling
Corporation, has been accounted for as a continuity of interest. Accordingly,
the consolidated financial statements of Precision for the first quarter ended
March 31, 2006 and comparables for the quarter ended March 31, 2005 reflect
the financial position, results of operations and cash flows as if Precision
had always carried on the business formerly carried on by Precision Drilling
Corporation.
Results of Continuing Operations
Revenue of $536.4 million and operating earnings of $245.9 million in the
first quarter of 2006 represented increases of 40% and 61% respectively
compared to the same period for 2005. The increases are attributable to very
strong industry demand resulting in higher equipment utilization and higher
pricing. For the third successive quarter, all business units performed
exceptionally well and contributed to record quarterly results. The variable
per day and per hour operating cost escalations remained well contained,
within a 5% increase year over year. As a percentage of revenue, strong
pricing increased operating earnings margins to 46% in the first quarter of
2006 versus 40% for the first quarter of 2005. The Completion and Production
Services segment improved considerably in each of its well servicing, rental
and snubbing businesses. Well servicing in particular showed strength with an
hourly revenue rate increase of 22%.
Precision's continuing operations are reported in two segments. The
Contract Drilling Services segment contains the contract drilling rig, camp
and catering, oilfield supply, and manufacturing divisions. The Completion and
Production Services segment contains the service rig, snubbing and rental
divisions.
<<
Three Months Ended March 31,
2006 2005 % Change
-------------------------------------------------------------------------
Contract Drilling Services:
Number of drilling rigs
(end of period) 233 229 1.7
Drilling operating days
(excluding move days) 16,694 13,999 19.3
Drilling revenue per operating day $ 20,886 $ 18,545 12.6
Drilling rig operating day
utilization 80% 68%
Completion and Productions Services:
Number of service rigs
(end of period) 237 239 (0.8)
Service rig operating hours 165,591 139,674 18.6
Service revenue per operating hour $ 732 $ 600 22.0
Service rig operating hour
utilization 77% 65%
-------------------------------------------------------------------------
Exceptional first quarter earnings were the result of unprecedented
industry rig demand and near perfect weather conditions for Precision's
service offerings. The increase in activity for Precision's equipment was in
direct correlation to the rise in industry activity. In Canada, industry
drilling rig operating days increased by approximately 23% to 55,974, industry
well completions increased by 21% to 6,178 wells and the available rig count
increased by 9% to approximately 779. For Precision, drilling operating days
and service rig operating hours in the first quarter of 2006 increased by 19%
over the same period in 2005. Cold weather in late February and March extended
the winter drilling season by approximately two weeks and enabled Precision to
close out the quarter on a very positive note.
Consistent with the momentum carried over from 2005, the demand for
Contract Drilling Services during the first quarter of 2006 reached
unprecedented levels, with 231 out of 233 drilling rigs active and all 92
camps utilized. The 16,694 drilling operating days for the quarter establishes
a new high for Precision, surpassing the 16,550 achieved in the first quarter
of 2001. At that time, Precision had 227 drilling rigs out of an industry
total of 611 whereas today Precision has 233 out of an industry total of 779.
Demand for Completion and Production Services also hit record activity
levels, with the service rig fleet generating 165,591 operating hours for 77%
utilization in the first quarter, an increase of 19% over the prior year. The
improvement is a result of continuing strong demand, as customers attempted to
keep pace with new well completion work during the quarter while keeping
production maintenance for existing wells on schedule. New well completions
accounted for 45% of the service rig operating hours in the first quarter,
unchanged from 2005.
Accordingly, both operating segments reported significant quarterly
revenue increases year over year. Completion and Production Services increased
revenue by 45% while Contract Drilling Services increased by 37%. The
improvement in Completion and Production Services is attributable to a 52%
increase in the rental division due to strong industry activity and demand for
ancillary equipment, pricing strength in the service rig division and standby
revenue in the snubbing division.
Leveraged by higher revenue rates, operating costs were lower as a
percentage of revenue despite crew wage rate increases and associated
personnel costs. Operating expenses declined from 49% of revenue in the first
quarter of 2005 to 45% in 2006. Equipment repair and maintenance expenses were
lower on a per day and per hour basis as scheduled costs were spread over a
higher activity level relative to last year. The general wage rate increase of
approximately 7% that went into effect October 1, 2005 is the primary factor
in daily and hourly cost increases for the current quarter. Further, the
operational efficiency and procurement savings provided by Precision's
consumable supply and manufacturing and repair businesses served to control
the pace of industry cost escalations. With 233 drilling rigs and 237 service
rigs operating within the Western Canada Sedimentary Basin, this
infrastructure support provided Precision with economic leverage.
General and administrative costs for the first quarter amounted to
$22.9 million, an increase of $3.1 million over the same period in 2005. As a
percentage of revenue, general and administrative costs fell to 4.3% from
5.2%.
Depreciation expense in the first quarter of 2006 amounted to $24.9
million, an increase of $3.5 million or 17% over the same period in 2005. The
increase is attributable to the rise in equipment utilization during the
quarter as rig assets are depreciated by the unit of production method.
Interest expense of $2.8 million declined by 76% in 2006 compared to the
first quarter of 2005, and is attributable to the repayment of long-term debt
in October 2005.
The Trust's effective income tax rate on first quarter earnings from
continuing operations before income taxes was 8% in 2006 compared to 38% in
2005. The decrease in the tax rate is primarily a result of the conversion to
an income trust which has the effect of shifting all or a portion of the
income tax burden of the Trust to its unitholders.
Distribution Policy of the Trust
With Precision Drilling Corporation's conversion to an income trust
effective November 7, 2005, the Trust adopted a policy of making monthly cash
distributions to unit holders. Pursuant to the Trust Indenture, distributions
may be reduced, increased or suspended entirely depending on the operations of
Precision and the performance of its assets. The actual cash flow available
for distribution to holders of Trust units and holders of Exchangeable LP
units is a function of numerous factors, including Precision's:
- financial performance;
- debt covenants and obligations;
- working capital requirements;
- maintenance and expansion capital expenditure requirements for the
purchase of property, plant and equipment; and
- number of units outstanding.
During the first quarter of 2006 the Trust declared monthly cash
distributions of $0.27 for each of the units outstanding, including
Exchangeable LP units, for total distributions of $101.6 million. Throughout
the 2006 first quarter there were 125,461,303 Trust and Exchangeable LP units
outstanding.
Key factors for consideration in determining actual cash flow available
for distribution, in a historical context, is disclosed within the
consolidated statements of cash flow. The increase or decrease in cash is
shown for each of the operating, investing and financing activities undertaken
by the Trust.
- Within operating activities, first quarter 2006 cash provided by
continuing operations was $46.2 million. Adjusted for changes in
non-cash working capital balances of $203.5 million, funds of
$249.7 million were provided by operations; and
- Within investing activities, the purchase of property, plant and
equipment ("PPE") during the first quarter of 2006 was $49.0 million.
Purchases included $32.3 million for expansion capital expenditures
to grow and expand Precision's underlying asset base and
$16.7 million for maintenance capital expenditures to sustain and
upgrade existing PPE.
The oilfield service industry in Canada can be extremely cyclical as
commodity price fluctuations can be compounded by seasonal trends.
Accordingly, there could be a wide fluctuation in financial performance from
quarter to quarter, year over year and quarterly results should not be
annualized. Seasonally, the first quarter is usually the most active and
prosperous as winter ground conditions typically allow complete access to well
locations. In the second quarter, spring weather softens ground conditions and
can slow oilfield service activity dramatically. Subject to dry weather,
activity resumes and will typically gain momentum in the third and fourth
quarters.
Certain statements contained in this press release, including statements
related to Precision's planned capital expenditures and planned expansion into
the U.S. and statements that contain words such as "anticipate", "could",
"should", "may", "expect", "believe", "will" and similar terms are not
historical facts and constitute "forward-looking information" within the
meaning of Canadian Securities Laws and "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. Such forward-looking information and
statements involve known and unknown risks and uncertainties which may cause
the actual results, performance or achievements of Precision 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 natural 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 Canadian securities regulators and the United States
Securities and Exchange Commission.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (DEFICIT)
Three Months Ended
March 31
CDN $000's, except per unit/share amounts (unaudited) 2006 2005
-------------------------------------------------------------------------
Revenue $ 536,408 $ 383,407
Expenses:
Operating 242,653 189,533
General and administrative 22,891 19,794
Depreciation and amortization 24,900 21,369
Foreign exchange 55 (309)
-------------------------------------------------------------------------
290,499 230,387
-------------------------------------------------------------------------
Operating earnings 245,909 153,020
Interest expense 2,777 11,539
-------------------------------------------------------------------------
Earnings from continuing operations
before income taxes 243,132 141,481
Income taxes:
Current 18,364 44,025
Future 585 9,175
-------------------------------------------------------------------------
18,949 53,200
-------------------------------------------------------------------------
Earnings from continuing operations 224,183 88,281
Discontinued operations, net of tax - 50,237
-------------------------------------------------------------------------
Net earnings 224,183 138,518
Retained earnings (deficit), beginning of period (303,284) 1,041,683
Distributions (101,623) -
-------------------------------------------------------------------------
Retained earnings (deficit), end of period $ (180,724) $ 1,180,201
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per unit/share from continuing
operations:
Basic $ 1.79 $ 0.72
Diluted $ 1.79 $ 0.71
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per unit/share:
Basic $ 1.79 $ 1.13
Diluted $ 1.79 $ 1.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Trust units/shares outstanding (000's) 125,461 122,660
Weighted average units/shares outstanding (000's) 125,461 122,314
Diluted units/shares outstanding (000's) 125,461 124,876
CONSOLIDATED BALANCE SHEETS
March 31 December 31
CDN $ 000's (unaudited) 2006 2005
-------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable 597,129 500,655
Inventory 7,796 7,035
-------------------------------------------------------------------------
604,925 507,690
Property, plant and equipment, net of
accumulated depreciation 959,889 943,900
Intangibles, net of
accumulated amortization 443 465
Goodwill 266,827 266,827
-------------------------------------------------------------------------
$ 1,832,084 $ 1,718,882
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Unitholders' Equity
Current liabilities:
Bank indebtedness $ 13,822 $ 20,468
Accounts payable and accrued liabilities 160,386 134,303
Income taxes payable 9,146 163,530
Distributions payable 33,875 36,635
-------------------------------------------------------------------------
217,229 354,936
Long-term debt 224,602 96,838
Future income taxes 193,102 192,517
Unitholders' equity:
Unitholders' capital 1,377,875 1,377,875
Deficit (180,724) (303,284)
-----------------------------------------------------------------------
1,197,151 1,074,591
-------------------------------------------------------------------------
$ 1,832,084 $ 1,718,882
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Trust units outstanding (000's) 125,461 125,461
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months Ended
March 31
CDN $000's (unaudited) 2006 2005
-------------------------------------------------------------------------
Cash provided by (used in):
Continuing operations:
Earnings from continuing operations $ 224,183 $ 88,281
Items not affecting cash:
Depreciation and amortization 24,900 21,369
Stock-based compensation - 2,780
Future income taxes 585 9,175
Amortization of deferred financing costs - 459
Unrealized foreign exchange gain on
long-term monetary items - 11
Changes in non-cash working capital balances (203,476) (30,313)
-------------------------------------------------------------------------
46,192 91,762
Discontinued operations:
Funds provided by discontinued operations - 82,914
Changes in non-cash working capital balances
of discontinued operations - (77,144)
-------------------------------------------------------------------------
- 5,770
Investments:
Purchase of property, plant and equipment (49,031) (30,105)
Purchase of intangibles - (20)
Proceeds on sale of property, plant and equipment 8,164 2,939
Purchase of property, plant and equipment of
discontinued operations - (42,855)
Proceeds on sale of property, plant and equipment
of discontinued operations - 5,573
-------------------------------------------------------------------------
(40,867) (64,468)
Financing:
Increase in long-term debt 127,764 -
Repayment of long-term debt - (4)
Distributions (104,383) -
Issuance of common shares on exercise
of options - 22,491
Changes in non-cash working capital balances (22,060) -
Change in bank indebtedness (6,646) -
-------------------------------------------------------------------------
(5,325) 22,487
Increase in cash and cash equivalents - 55,551
Cash and cash equivalents, beginning of period - 122,012
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ - $ 177,563
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SEGMENT INFORMATION
Three months ended March 31, 2006
Contract Completion
CDN $000's Drilling & Production Corporate Inter-segment
(unaudited) Services Services and Other Eliminations Total
-------------------------------------------------------------------------
Revenue $ 384,162 $ 156,638 $ - $ (4,392) $ 536,408
Operating
earnings 193,683 63,787 (11,561) - 245,909
Depreciation
and
amortization 13,526 10,286 1,088 - 24,900
Total assets 1,268,052 517,397 46,635 - 1,832,084
Goodwill 172,440 94,387 - - 266,827
Capital
expenditures 41,785 6,972 274 - 49,031
-------------------------------------------------------------------------
Three months ended March 31, 2005
Contract Completion
CDN $000's Drilling & Production Corporate Inter-segment
(unaudited) Services Services and Other Eliminations Total
-------------------------------------------------------------------------
Revenue $ 280,337 $ 108,264 $ - $ (5,194) $ 383,407
Operating
earnings 129,647 35,118 (11,745) - 153,020
Depreciation
and
amortization 12,231 7,786 1,352 - 21,369
Total
assets(1) 1,044,238 470,510 223,389 - 1,738,137
Goodwill 172,440 94,387 - - 266,827
Capital
expenditures 16,518 7,051 6,536 - 30,105
-------------------------------------------------------------------------
(1) excludes assets of discontinued operations
CANADIAN DRILLING OPERATING STATISTICS
Three Months Ended March 31,
2006 2005
-------------------------------------------------------------------------
Market Market
Precision Industry(x) Share % Precision Industry(x) Share %
-------------------------------------------------------------------------
Number of
drilling rigs 233 779 29.9 229 712 32.2
Number of
operating days
(spud to
release) 16,694 55,974 29.8 13,999 45,670 30.7
Wells drilled 2,302 7,429 31.0 2,162 6,184 35.0
Average days
per well 7.3 7.5 6.5 7.4
Metres drilled
(000's) 2,815 8,897 31.6 2,566 7,357 34.9
Average
metres/day 169 159 183 161
Average
metres/well 1,223 1,198 1,187 1,190
Rig utilization
rate (%) 80.3 81.1 67.9 71.3
(x) Excludes non-CAODC rigs and non-reporting CAODC members
A conference call to review the quarter end results has been scheduled
for 12:00 noon MT on Wednesday, April 26, 2006. The conference call dial-in
number is 1-800-814-4861 or 416-644-3418.
A live webcast will be accessible at www.precisiondrilling.com by
selecting Investor Relations, then Webcast. An archived recording of the
conference call will be available approximately one hour after completion of
the call until May 3, 2006 by dialing 1-877-289-8525 or 416-640-1917, passcode
21184628 followed by the number sign.
Precision Drilling Trust is Canada's largest energy services trust.
Headquartered in Calgary, Alberta, Canada, Precision is the leading provider
of energy services to the Canadian oil and gas industry. Precision provides
customers with access to an extensive fleet of contract drilling rigs,
services rigs, camps, snubbing units and rental equipment backed by a
comprehensive mix of technical support services and skilled, experienced
personnel.
Precision is listed on the Toronto Stock Exchange under the trading
symbol "PD.UN" and in U.S. dollars "PD.U" and on the New York Stock Exchange
under the trading symbol "PDS".
>>
%SEDAR: 00022925E
