Precision Drilling Corporation (“Precision” or “the Company”)
(TSX:PD; NYSE:PDS) provides a series of announcements in
response to the COVID-19 pandemic and current market conditions.
These include: 1) risk mitigation and employee health plan; 2)
changes to 2020 capital expenditure plan; 3) reductions to fixed
costs; 4) liquidity update; and 5) updated strategic priorities.
COVID-19 Transmission Risk Mitigation
and Employee Health
Precision considers the health, welfare and
safety of our employees and the communities where we operate as a
foundation of our business. Beginning in February, Precision
implemented a comprehensive global pandemic response plan to ensure
the wellbeing of our employees and our communities, while
continuing to deliver our customary industry leading High
Performance, High Value services to our customers.
Our response plan includes:
- Providing all employees access to clear and consistent
communications, a Crisis Management Response Plan and a Crisis
Management Website
- Implementing prescriptive personal hygiene, distancing and
self-quarantine standards along with work area disinfecting
requirements based on CDC and WHO standards
- Implementing employee health support and revised leave plans to
assist employees who may be at risk
- Banning non-essential travel globally
- Strongly encouraging staff to work remotely
- Ensuring that all employees are fit-for-duty on a regular basis
by checking for health and wellness and prior social contacts
- Implementing standards for interacting with third party
contractors and visitors to minimize risk of exposure
- Establishing Operational Recovery and Disinfecting Plans for
rigs and facilities in case of an infectious virus contamination
event
Precision’s operations and supply chain
functions have experienced minimal disruptions and we do not
anticipate any supply chain impacts for the foreseeable future. The
Company will continue to monitor the situation and will adjust
business and safety management procedures if conditions change. We
remain firmly committed to providing support to our people and
operations as the Company continues to meet the needs of our
customers.
Capital Expenditure Plan
Reduction
In response to the expected reduction in demand
as customers reduce spending due to lower than anticipated
commodity prices, Precision is reducing its 2020 capital
expenditure plan to $48 million, down approximately 50% from its
previously set plan of $95 million. Further adjustments may be
considered depending on activity levels realized as the year
progresses.
Fixed Cost Reductions
Precision is taking measures to enhance free
cash flow by reducing fixed operating overhead and G&A costs
throughout the organization, including:
- CEO salary reduction of 20%
- Board of Director compensation reductions of 20%
- Executive officer salary reductions of 10%
- Staff headcount and salary reductions
- Elimination of all non-essential travel, entertaining and other
discretionary spending
We expect these fixed cost reduction measures
will reduce annualized fixed costs by over 30%, including up to a
$30 million reduction in G&A expense.
Liquidity Update
Preserving Precision’s strong liquidity profile
will remain a key financial priority in 2020. At 2019 year-end,
Precision reported a cash balance of $75 million and the completion
of a one-year extension of its US$500 million revolving credit
facility, maturing November 2023. Excluding letters of credit, the
Company’s revolving credit facility remains undrawn, and with the
year-end cash balance, Precision reported access to over $700
million in liquidity.
In addition, the Company has materially reduced
share repurchase activity under its Normal Course Issuer Bid
program to maintain liquidity.
During the second quarter of this year,
Precision is estimating receipt of an additional $80 million to
$100 million of cash from released working capital as a result of
seasonal and commodity price driven activity declines in North
America. The Company remains well in line with its covenants and
will continue to ensure full access to its credit facility.
Strategic Priorities
Considering the new macro environment with
highly volatile commodity prices, Precision reaffirms its strategic
priorities for 2020:
- Generate strong free cash flow and utilize $100 million to $150
million to reduce debt in 2020. Precision reaffirms its 2020
debt reduction targeted range. As a component of this priority, in
the near term, the Company will focus on maximizing free cash flow
by reducing capital spending by 50% and fixed costs by over 30%. As
of today, the Company has redeemed $41 million of its debt in 2020
and will continue prioritizing its 2021 senior notes during the
year.
- Demonstrate operational excellence in all aspects of our
business including operational, financial and ESG (environmental,
social and governance) metrics.Precision believes its comprehensive
actions to mitigate the health risks to our employees and our
communities while supporting and sustaining our business operations
is in full alignment with our operational excellence strategic
priority.
- Leverage our Alpha technology platform as a competitive
differentiator and source of financial returns for
Precision.Precision will continue to focus on optimization and
customer interface with our technology offerings during 2020. We
will continue to pursue further customer traction with our
AlphaAutomation and AlphaApps; however, will temporarily scale back
our previously disclosed plans to roll out an additional 24
AlphaAutomation systems during the year.
Regarding the above announcements, Precision’s
CEO, Kevin Neveu stated: “Precision extends our thoughts to those
affected by the COVID-19 pandemic and we remain committed to doing
our part to minimize the spread of this very serious virus. Our top
priority is the well-being of our people and local communities and
we have taken comprehensive proactive measures to make sure that
their health and safety is not compromised while we continue to
provide our High Performance, High Value service to our
customers.”
“Financially, the progress we have achieved over
the last three years to generate free cash flow, prioritize
aggressive debt reduction, manage debt maturities and preserve cash
liquidity through stringent cost management and responsible capital
deployment, leaves Precision well positioned to navigate this
challenging environment. Our reaffirmed debt reduction targets
demonstrate the financial flexibility of the company and we will
continue to ensure that our liquidity needs are not compromised.
With future drilling activity levels uncertain, the capital
spending and fixed cost reductions announced today will continue to
support Precision’s strong free cash flow capability and financial
flexibility. We remain actively engaged in managing the
business accordingly and will continue to heavily scrutinize all
expenditures to further protect the interests of our
stakeholders.”
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements contained in this report,
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:
- our planned capital expenditures for 2020;
- anticipated positive cash flows and fixed cost savings;
and
- future debt repayments and liquidity.
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:
- 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 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,
2019, 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.
About PrecisionPrecision 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 Super Series drilling rigs supported by an
industry leading technology platform that offers innovative
drilling solutions to deliver efficient, predictable and repeatable
results through service differentiation. Precision also offers
directional drilling services, well service rigs, camps and rental
equipment all 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 Officer713.435.6136 Dustin Honing, CPAManager, Investor
Relations and Corporate Development403.716.4515 Precision Drilling
Corporation800, 525 - 8th Avenue S.W.Calgary, Alberta, Canada T2P
1G1Website: www.precisiondrilling.com
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