Precision Drilling Posts 3Q Financial Results for 2010
Precision Drilling reported net earnings of $61 million or $0.21 per diluted share for the three months ended September 30, 2010 compared to net earnings of $72 million or $0.25 per diluted share for the third quarter of 2009. The results for the third quarter of 2010 include a foreign exchange gain of $18 million while the third quarter of 2009 included a foreign exchange gain of $63 million.
Revenue for the third quarter of 2010 totaled $359 million compared to $253 million for the same period of 2009. The increase in drilling activity both in Canada and in the United States in the third quarter of 2010 over the same period of 2009 led to the 42% increase in revenue. Earnings before interest, taxes, depreciation and amortization and foreign exchange ("EBITDA") were $113 million for the third quarter of 2010 compared to EBITDA of $86 million for the third quarter of 2009. EBITDA is not a recognized financial measure under Generally Accepted Accounting Principles ("GAAP") see "Non-GAAP Measures" in this report. The increase in EBITDA between the two years is due to the increase in drilling activity.
Revenue for the second quarter of 2010 was $262 million and EBITDA totaled $59 million. Third quarter 2010 revenue and EBITDA were higher than the second quarter of 2010 due to the seasonality of oilfield service activity in Canada known as "spring break-up" that takes place during the second quarter. This is a time in Canada in which drilling rigs cannot change locations due to road conditions and normally occurs in March to June of each year.
For the nine months ended September 30, 2010, Precision reported net earnings of $57 million or $0.20 per diluted share compared to net earnings of $187 million or $0.75 per diluted share for the same period of 2009. Revenue for the nine months ended September 30, 2010 was $994 million compared to $911 million for the corresponding period of 2009. EBITDA totaled $290 million for the nine months ended September 30, 2010 compared to $314 million for the same period of 2009. Higher activity levels in 2010 were offset by lower average drilling revenue per day in the Corporation's operating areas. Results for the nine months ended September 30, 2010 include a foreign exchange gain of $12 million as compared to a foreign exchange gain of $105 million for the same period of 2009.
Kevin Neveu, Precision's President and Chief Executive Officer, stated, "The strong customer demand for high performance rigs targeting oil has led the rig count higher and continues to provide an encouraging outlook for Precision. Approximately 60% of Precision's rigs working today are drilling for oil or natural gas liquids targets and approximately 80% are drilling complex horizontal or directional wells."
"The third quarter of 2010 was the second consecutive quarter which Precision realized improved average revenue per day over the previous quarter in the United States. This confirms our previously stated view that the second quarter of 2010 represented the bottom of Precision's average dayrate for this cycle. In addition, third quarter EBITDA increased by 31% from prior year levels. These improvements are being driven by high customer demand for Precision's Tier 1 and 2 rigs in both the United States and Canada and from the re-establishment of oil drilling demand."
"In the United States, oil related activity has continued to strengthen. Precision's average active rig count in the United States for the third quarter of 2010 was up 5% over the second quarter of the year and 76% over the same period in 2009. Precision's active rig count in the United States is currently 99 and we expect it to stay at this level or increase modestly over the coming months. If low natural gas prices persist, there is the potential for further regional pullback in gas related activity; however, we would expect most of these rigs to be absorbed by oil and natural gas liquids rich drilling activity. As demand for Tier 1-Super Series and Tier 2 rigs remains strong, dayrates in the United States markets are continuing to modestly improve from previous quarters."
"Higher than normal rainfall through much of the Western Canada Sedimentary Basin during the third quarter hampered drilling activity. Over the past few weeks, Precision has reactivated approximately 30 rigs sidelined due to poor weather conditions. Precision's current active rig count in Canada is at 119 and, despite the wet weather, the average rig count of 82 for the third quarter of 2010 was 62% higher than the comparable quarter of 2009. Most of this increase is driven by unconventional horizontal drilling and completion techniques being applied to conventional oil reservoirs in Western Canada and we believe that the remainder of 2010 activity levels will exceed those achieved in 2009. While in early discussions with customers, the Canadian 2011 winter drilling season is expected to be at least as busy as winter 2010. We would expect there to be higher market dayrates because of this level of anticipated customer demand."
"Precision has seized market opportunities during 2010 which includes the contracting and construction of nine new rigs that were announced last quarter. Five of these new-rig builds are Super Singles of which two have been delivered on time and on budget in Canada. Of the remaining three Super Single rigs, two are expected to be deployed in the United States and one in Canada. The other four new-rig builds are Super Triple rigs with all four expected to work in the United States. All nine rigs have been contracted with an average contract term of approximately three years."
"Looking forward to 2011, Precision is going to continue its high-value focused organic growth program as we believe there will be ample opportunities for new-build Super Series rigs which will continue to provide the High Performance High Value service that meets and exceeds customer requirements. Precision's balance sheet is solid and provides the financial flexibility to capitalize on potential opportunities as Precision looks toward expanding its drilling, directional drilling and international presence during 2011," concluded Mr. Neveu.
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