This news release contains "forward-looking
information and statements" within the meaning of applicable
securities laws. For important information with respect to such
forward-looking information and statements and the further
assumptions and risks to which they are subject, see the
"Cautionary Statement Regarding Forward-Looking Information and
Statements" later in this news release.
Precision Drilling Corporation (“Precision” or “the Company”)
(TSX:PD; NYSE:PDS) today made a series of announcements including:
transaction updates in relation to the combination of Precision and
Trinidad Drilling Ltd. (“Trinidad”) (TSX:TDG); preliminary 2019
financial guidance following the completion of the combination
(“Post-Arrangement Precision”); and transaction benefits
highlighted in its management information circular filed jointly
with Trinidad.
Transaction Update
Both Precision and Trinidad management teams
have been working closely on planning efforts and completing all
necessary regulatory processes related to the transaction. On
October 31, 2018, Precision announced that the U.S. Federal Trade
Commission granted early termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
parties expect to provide an update on the Canadian Competition Act
process in the coming weeks. In addition, on November 5,
2018, Trinidad obtained the interim order from the Court of Queen’s
Bench of Alberta in connection with the transaction and Precision
and Trinidad have filed a joint management information circular
dated November 5, 2018 which is in the process of being mailed to
their respective securityholders.
Precision’s President and CEO Kevin Neveu
stated: “Precision remains focused on the significant value created
by this combination and I believe it is important to outline our
2019 strategic priorities and provide initial 2019 financial
guidance for Post-Arrangement Precision to allow the investment
community to further understand the upside of this
transaction.”
“The Precision team has completed a detailed
review of the combined companies’ potential fixed cost synergies
and operational scale-based efficiencies. Regarding the fixed
cost synergies, including administration, corporate costs and
redundant facilities, we expect annualized costs savings of
approximately $37 million once full integration is
complete.”
“We are also introducing our estimate of
operations and scale-based synergies, previously mentioned but not
quantified. Utilizing Precision’s systems and vertical
integration; central procurement and asset management and repair
capabilities, we expect an additional $15 million per year of
operations synergies can be achieved. We estimate that value
creation, specifically cash flow accretion, totaling approximately
$52 million annually, will be generated by this exceedingly
well-structured combination.”
“As a result, we expect Post-Arrangement
Precision can accelerate and increase our current debt reduction
targets by $100 million through the end of 2021 while continuing to
fund attractive growth and expansion opportunities.”
“As previously stated, despite the current
equity market volatility, we continue to fully endorse this
transaction, which is also supported by Trinidad and its Board
after conducting significant due diligence on Precision and our
combined businesses. We believe the agreed ownership split of 29%
of Precision shares to the Trinidad shareholders is fair and the
value creation opportunity is exceptional. As such, we are firm on
our current offer and will not increase our bid,” concluded Mr.
Neveu.
Precision’s Preliminary 2019 Financial
Guidance for Post-Arrangement Precision
Our preliminary 2019 financial guidance for
Post-Arrangement Precision is as follows:
- Adjusted EBITDA (see “NON-GAAP MEASURES” later in this news
release) of $625 million to $725 million without accounting for
benefits of synergies, costs related to achieving synergies or
transaction costs
- Interest expense of approximately $150 million
- Capital spending of $275 million to $325 million
This financial guidance is based on a number of
assumptions including, but not limited to, the following material
assumptions:
- Completion of the combination before the end of the first
quarter of 2019
- West Texas Intermediate (WTI) oil prices of US$60-US$75 per
barrel
- Henry Hub natural gas prices of US$3.00-US$3.50 per Million
Btu
- Canadian industry drilling and service rig count approximately
in-line with 2018 levels
- U.S. land industry drilling rig count increase of approximately
2% to 8% from current levels with continued strong demand for the
most technically capable and operationally efficient rigs
- An average of approximately 10 to 12 Post-Arrangement Precision
active rigs internationally
- An exchange rate of 1.30 Canadian dollars per U.S. dollar
In addition to the material assumptions referred
to above, the preliminary 2019 financial guidance for
Post-Arrangement Precision is subject to risks and uncertainties
related to the transaction and those inherent in Precision’s and
Trinidad’s businesses. See "Cautionary Statement Regarding
Forward-Looking Information and Statements".
Transaction Benefits Highlighted in
Management Information Circular
2019 Post-Arrangement Precision Strategic
Priorities
Following completion of the combination, our
2019 strategic priorities for Post-Arrangement Precision will be as
follows:
- Execute successful integration of Trinidad and maximize
financial performance through leveraging scale and fixed cost
management with $52 million of annualized synergies in place by
year-end 2019 as detailed below.
- Enhance High Performance, High Value strategy and expand
operations through larger growth platforms in the U.S. and
international markets, and drive technology deployment across the
combined company.
- Generate strong cash flow to accelerate and increase debt
repayments with a near-term target to reduce debt by $100 million
to $150 million in 2019 and a long-term target to reduce debt by
$400 million to $600 million by the end of 2021 (including debt
repayment achieved in 2018).
Update on Expected Synergies
Precision has refined the previously announced
estimate of annualized fixed cost synergies and is now expecting to
realize synergies of approximately $37 million (Precision had
previously disclosed an estimate of more than $30 million)
resulting from:
- Administrative efficiencies
- Facility consolidation
- Identified at least 10 overlapping facilities across
geographies
- Corporate cost synergies
- Public company
- Accounting, Legal and IT infrastructure
Precision has also completed additional analysis
relating to operating efficiency synergies and expects to realize
additional annualized field-level synergies of approximately $15
million (Precision had not previously quantified a dollar amount)
resulting from:
- Integration onto Precision’s IT infrastructure and ERP
system
- Utilizing Precision’s technical support centres to facilitate
in house repair and maintenance
- Centralizing supply chain management, including drill pipe
procurement
- Utilizing Precision’s manufacturing and project management
capabilities
- Leveraging Precision’s extensive safety and training
program
- Fixed cost leverage in international operations
Precision expects all cost reductions to be in
place by year-end 2019, including both the fixed component and
operational cost savings. The aforementioned synergies do not
include potential asset sale proceeds (including rigs and
properties), which would be directed towards accelerated debt
repayments.
Debt Repayment and Updated Debt Reduction
Targets
Precision expects to complete a pro rata partial
paydown of US$30 million principal amount of its 6.50% senior notes
due 2021 (the "Notes"), plus accrued and unpaid interest by
mid-December. The partial paydown of the Notes will be funded with
cash on hand. Following this redemption and other open market
repurchases in the quarter, Precision will have repaid
approximately $117 million of debt by year-end 2018, approaching
the upper end of our stated target range of $75 million to $125
million. We are pleased with the progress we have made this year as
debt reduction remains a key priority for the Company.
Based upon the expected synergies and
preliminary 2019 financial guidance for Post-Arrangement Precision
discussed above, we are targeting $400 million to $600 million of
debt reduction for Post-Arrangement Precision by the end of 2021.
This represents a $100 million increase from Precision’s previously
stated long-term target range ($300 million to $500 million by the
end of 2021). Included in this target is Precision’s debt
repayments in 2018 and a shorter-term target of $100 million to
$150 million in 2019. Precision expects to fund all stated debt
reduction targets from free cash flow.
Asset Sale Process
Precision has been approached by multiple
counterparties interested in the previously announced non-core rig
divestiture from the combined Precision-Trinidad rig fleets. RBC
Capital Markets has been retained to assist with the sale of these
non-core rigs (“Non-Core Rig Sale”). The Non-Core Rig Sale would be
targeted to close shortly after completion of the Trinidad
transaction. Precision is not providing disclosure on the expected
proceeds from the rig sales at this time.
In addition to the Non-Core Rig Sale, Precision
and Trinidad have identified several properties that Precision
would look to sell immediately after the closing the transaction.
Gross proceeds from these property sales are expected to be
approximately $50 million.
As previously stated, proceeds from asset sales
would be directed towards accelerated debt repayments.
Benefits of Precision and Trinidad
Combination
Trinidad and Precision strongly believe the
financial and strategic benefits of this combination are uniquely
compelling for shareholders and will provide shareholders of both
Trinidad and Precision an opportunity to realize significant
long-term value creation based on the following:
- Long-term value creation opportunity through continued equity
ownership
- Sizeable and immediate cost synergies
- Significant free cash flow generation potential
- Creates a unique industry-leading, high performance land
driller
- Third-largest U.S. land driller
- Expanded international growth opportunities
- Leader in land drilling technology with future growth
opportunities
- Shared values create strong strategic fit
- Increased size and trading liquidity
- Stronger balance sheet and credit profile
NON-GAAP MEASURES
In this news release we reference non-GAAP
(Generally Accepted Accounting Principles) measures. Adjusted
EBITDA (net income before finance charges, transaction costs,
income tax expense, depreciation and amortization, impairment of
property, plant and equipment, foreign exchange, loss on repurchase
and redemption of unsecured notes, fair value adjustments and gains
from investments in joint ventures) is a term used by us to assess
operating performance. As stated above, our preliminary 2019
Adjusted EBITDA guidance for Post-Arrangement Precision is provided
without accounting for the benefits of synergies, costs related to
achieving synergies or transaction costs. We believe Adjusted
EBITDA provides useful supplemental information and have provided
the preliminary 2019 Adjusted EBITDA guidance for Post-Arrangement
Precision to assist investors and analysts in understanding our
expected and targeted financial results upon completion of the
combination transaction with Trinidad. Adjusted EBITDA does not
have standardized meaning prescribed under International Financial
Reporting Standards (IFRS) and may not be comparable to similar
measures used by other companies, including Trinidad.
The following tables provide historical Adjusted
EBITDA and reconcile net income to Adjusted EBITDA for each of
Precision, Trinidad and Post-Arrangement Precision for each of the
periods indicated:
|
For the year ended December 31,
2017 |
(C$000s) |
Precision |
|
Trinidad(1) |
|
Pro FormaAdjustments |
|
Pro FormaPrecision |
Net loss |
(132,036 |
) |
|
(80,481 |
) |
|
106,499 |
|
|
(106,018 |
) |
Adjustments: |
|
|
|
|
|
|
|
Finance charges |
137,928 |
|
|
39,991 |
|
|
- |
|
|
177,919 |
|
Transaction costs |
- |
|
|
2,068 |
|
|
- |
|
|
2,068 |
|
Income tax expenses |
(100,021 |
) |
|
(58,815 |
) |
|
32,715 |
|
|
(126,121 |
) |
Depreciation and amortization |
377,746 |
|
|
197,796 |
|
|
(139,214 |
) |
|
436,328 |
|
Impairment of property, plant and equipment |
15,313 |
|
|
2,993 |
|
|
- |
|
|
18,306 |
|
Foreign exchange |
(2,970 |
) |
|
9,295 |
|
|
- |
|
|
6,325 |
|
Loss on repurchase and redemption of unsecured
notes |
9,021 |
|
|
- |
|
|
- |
|
|
9,021 |
|
Fair value adjustments |
- |
|
|
2,052 |
|
|
- |
|
|
2,052 |
|
Gain from investments in joint ventures |
- |
|
|
(17,659 |
) |
|
- |
|
|
(17,659 |
) |
Adjusted EBITDA |
304,981 |
|
|
97,240 |
|
|
- |
|
|
402,221 |
|
|
For the six months
ended June 30, 2018 |
(C$000s) |
Precision |
|
Trinidad(1) |
|
Pro FormaAdjustments |
|
Pro FormaPrecision |
Net loss |
(65,294 |
) |
|
(34,447 |
) |
|
70,518 |
|
|
(29,223 |
) |
Adjustments: |
|
|
|
|
|
|
|
Finance charges |
63,782 |
|
|
18,849 |
|
|
- |
|
|
82,631 |
|
Income tax expenses |
(17,713 |
) |
|
(19,288 |
) |
|
21,663 |
|
|
(15,338 |
) |
Depreciation and amortization |
175,929 |
|
|
115,502 |
|
|
(92,181 |
) |
|
199,250 |
|
Foreign exchange |
1,771 |
|
|
(4,527) |
|
|
- |
|
|
(2,756) |
|
Loss on repurchase and redemption of unsecured
notes |
1,176 |
|
|
- |
|
|
- |
|
|
1,176 |
|
Fair value adjustments |
- |
|
|
(1,809) |
|
|
- |
|
|
(1,809) |
|
Gain from investments in joint ventures |
- |
|
|
(7,608 |
) |
|
- |
|
|
(7,608 |
) |
Adjusted EBITDA |
159,651 |
|
|
66,672 |
|
|
- |
|
|
226,323 |
|
Note:
- Historical Adjusted EBITDA presented for Trinidad has been
calculated by Precision in a different manner than Trinidad uses
for its own reporting purposes.
The foregoing should be read in conjunction with
the unaudited pro forma consolidated financial statements of
Precision and Trinidad for the year ended December 31, 2017 and the
six-month period ended June 30, 2018, including the notes thereto,
copies of which are available on SEDAR.
In addition, the preliminary 2019 Adjusted
EBITDA guidance for Post-Arrangement Precision is subject to a
number of assumptions, risks and uncertainties related to the
combination transaction and those inherent in Precision’s and
Trinidad’s businesses. See "Cautionary Statement Regarding
Forward-Looking Information and Statements" below.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION AND STATEMENTS
Certain statements contained in this news
release, including statements that contain words such as “could”,
“should”, “can”, “anticipate”, “estimate”, “intend”, “plan”,
“expect”, “believe”, “will”, “may”, “continue”, “project”,
“potential” and similar expressions and statements relating to
matters that are not historical facts constitute “forward-looking
information” within the meaning of applicable Canadian securities
legislation and “forward-looking statements” within the meaning of
the “safe harbor” provisions of the United States Private
Securities Litigation Reform Act of 1995 (collectively,
“forward-looking information and statements”).
In particular, forward-looking information and
statements include, but are not limited to, the following:
- expected timing for the Canadian Competition Act process;
- the 2019 strategic priorities for Post-Arrangement
Precision;
- expected cost synergies arising from the Arrangement;
- timing to realize expected synergies;
- the preliminary 2019 financial guidance for Post-Arrangement
Precision, including Adjusted EBITDA, interest expense and capital
spending;
- targeted acceleration and increase in debt repayments for
Post-Arrangement Precision;
- expected partial paydown of the Notes;
- anticipated rig and property sales, including the timing
thereof and expected proceeds therefrom;
- the anticipated benefits of the combination transaction;
- expectation that the combination transaction will create
near-term and long-term value for shareholders of Precision and
Trinidad achieved through the share exchange structure;
- expected free cash flow generation potential of the combination
transaction;
- expectations regarding Trinidad's and Precision's ability to
carry out expansion and growth plans;
- the increased size and trading liquidity of Post-Arrangement
Precision's securities; and
- the expectation that the combination transaction will improve
Post-Arrangement Precision’s balance sheet and credit profile.
These forward-looking information and statements
are based on certain assumptions and analysis made by Precision in
light of our experience and our perception of historical trends,
current conditions, expected future developments and other factors
we believe are appropriate under the circumstances. These include,
among other things:
- the specific assumptions set forth above under “Precision’s
Preliminary 2019 Financial Guidance for Post-Arrangement Precision”
and “Update on Expected Synergies”;
- the timely receipt of required regulatory and Court
approvals;
- the satisfaction of other closing conditions in all material
respects and on a timely basis in accordance with the terms of the
arrangement agreement between Precision and Trinidad;
- Precision's anticipated financial performance;
- the success of Trinidad's and Precision's operations;
- prevailing commodity prices and exchange rates;
- future operating costs of Trinidad's and Precision's
assets;
- the market for Post-Arrangement Precision’s rigs;
- prevailing regulatory, tax and environmental laws and
regulations;
- stock market volatility and market valuations;
- that there will be no significant events occurring outside of
the normal course of business of Trinidad or Precision, as
applicable;
- the fluctuation in oil prices may pressure customers into
reducing or limiting their drilling budgets;
- the status of current negotiations with our customers and
vendors;
- customer focus on safety performance;
- existing term contracts are neither renewed nor terminated
prematurely;
- our ability to deliver rigs to customers on a timely basis;
and
- the general stability of the economic and political
environments in the jurisdictions where we operate.
Undue reliance should not be placed on
forward-looking information and statements. Whether actual results,
performance or achievements will conform to our expectations and
predictions is subject to a number of known and unknown risks and
uncertainties which could cause actual results to differ materially
from our expectations. Such risks and uncertainties include, but
are not limited to:
- failure to complete the transaction in all material respects in
accordance with the arrangement agreement between Precision and
Trinidad or at all;
- unforeseen delays in completing this transaction;
- unforeseen difficulties or delays in integrating the assets of
Trinidad into Precision's operations;
- volatility in the price and demand for oil and natural
gas;
- fluctuations in the demand for contract drilling, well
servicing and ancillary oilfield services;
- our customers’ inability to obtain adequate credit or financing
to support their drilling and production activity;
- changes in drilling and well servicing technology which could
reduce demand for certain rigs or put us at a competitive
disadvantage;
- shortages, delays and interruptions in the delivery of
equipment supplies and other key inputs;
- the effects of seasonal and weather conditions on operations
and facilities;
- the availability of qualified personnel and management;
- a decline in our safety performance which could result in lower
demand for our services;
- changes in environmental laws and regulations such as increased
regulation of hydraulic fracturing or restrictions on the burning
of fossil fuels and greenhouse gas emissions, which could have an
adverse impact on the demand for oil and gas;
- terrorism, social, civil and political unrest in the foreign
jurisdictions where we operate;
- fluctuations in foreign exchange, interest rates and tax rates;
and
- other unforeseen conditions which could impact the use of
services supplied by Precision and Precision’s ability to respond
to such conditions.
Readers are cautioned that the forgoing list of
risk factors is not exhaustive. Additional information on these and
other factors that could affect our business, operations or
financial results or those of Post-Arrangement Precision or that
could affect completion of the proposed combination of Precision
and Trinidad are included in reports on file with applicable
securities regulatory authorities, including but not limited to
Precision’s Annual Information Form for the year ended December 31,
2017 and the joint management information circular of
Precision and Trinidad dated November 5, 2018, which may be
accessed on Precision’s SEDAR profile at www.sedar.com or under
Precision’s EDGAR profile at www.sec.gov. The forward-looking
information and statements contained in this news release are made
as of the date hereof and Precision undertakes no obligation to
update publicly or revise any forward-looking statements or
information, whether as a result of new information, future events
or otherwise, except as required by law.
The purpose of the preliminary 2019 financial
guidance for Post-Arrangement Precision is to assist investors and
analysts in understanding our expected and targeted financial
results upon completion of the combination transaction with
Trinidad and this information may not be appropriate for other
purposes.
About Precision
Precision is a leading provider of safe and High
Performance, High Value services to the oil and gas industry.
Precision provides customers with access to an extensive fleet of
contract drilling rigs, directional drilling services, well service
and snubbing rigs, camps, rental equipment, and wastewater
treatment units backed by a comprehensive mix of technical support
services and skilled, experienced personnel.
Precision is headquartered in Calgary, Alberta,
Canada. Precision is listed on the Toronto Stock Exchange under the
trading symbol “PD” and on the New York Stock Exchange under the
trading symbol “PDS”.
For further information, please contact:
Carey Ford, CFASenior Vice President and Chief
Financial Officer713.435.6111
Ashley Connolly, CFAManager, Investor
Relations403.716.4725
Precision Drilling Corporation800, 525 - 8th
Avenue S.W.Calgary, Alberta, Canada T2P 1G1Website:
www.precisiondrilling.com
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