Precision Drilling Trust Unveils Capital Expenditures for 2010
Precision Drilling Trust has revealed its planned capital expenditures for 2010 of approximately $75 million. This includes $50 million in sustaining upgrade and infrastructure expenditures and is based upon currently anticipated rig activity for 2010. In addition, $25 million is planned for performance improvements to certain rigs to align with potential customer opportunities in unconventional resource plays in Canada and the United States. These planned expenditures will move 10 rigs from Precision's Tier 2 classification up to Tier 1 (Precision's Super Series) and will move 3 to 5 rigs from Tier 3 to Tier 2 (Precision's high performance rigs capable of drilling both directionally and horizontally). There are currently no plans to build new rigs.
Precision announced today that it is decommissioning 38 drilling rigs, of which 26 are part of the Canadian fleet, and 12 are part of the United States fleet. All of these rigs are Tier 3 rigs. Certain component parts of these decommissioned rigs will be used in Precision's ongoing operations. The Trust is also decommissioning 30 service rigs and nine snubbing units. In conjunction with these decommissionings, the Trust will take a non-cash, pre-tax charge to earnings in the range of $80 to $90 million for the fourth quarter of 2009. After this decommissioning, Precision's rig fleet stands at 352 rigs, all of which are marketable and can return to work in a short period of time without additional capital. With the recent movement of three rigs to Canada from the United States, Precision has 203 rigs in Canada, 146 rigs in the United States and three internationally.
"The combination of upgrading 13 to 15 of our existing drilling rigs and permanently decommissioning 38 of our least efficient, least profitable Tier 3 rigs significantly high grades the Precision fleet. We expect to exit 2010 with over 72% of our fleet as Tier 1, Super Series and Tier 2, horizontally capable, high performance rigs", stated Kevin Neveu, President and Chief Executive Officer. "This repositioning of the Precision fleet supports our strategy of providing high performance, high value services for the rapidly changing demands of our customers pursing unconventional oil and gas reserves in our core markets. We remain poised to further upgrade Tier 3 rigs or consider new build opportunities when customer demand and contract economics fully support additional investment."
Precision also announced that earlier in the fourth quarter the Trust reduced its outstanding debt by a cash payment of US$75 million. Long-term debt at the end of November was $899 million, with secured term loans of $724 million and an unsecured senior note of $175 million. Since December 31, 2008, the Trust's long-term debt balance has been reduced by $559 million through net cash repayments. In conjunction with the voluntary repayment, the Trust will have a non-cash, pre-tax charge to earnings in the fourth quarter of 2009 of $8 million related to the amortization of the deferred financing costs associated with this debt reduction.
Mr. Neveu concluded, "Our top priority for 2009 was to strengthen the Trust's balance sheet and this payment was another step in the process. We have made significant improvement in our capital structure during the year and this debt reduction priority will carry over into 2010. Our goal is to continue to reduce outstanding indebtedness while maintaining a strong liquidity position to respond to customer opportunities in the North American and international drilling markets."
Precision also announced today that its Board of Trustees is continuing the indefinite suspension of cash distributions in order to maintain focus on debt reduction, and there will not be a special year-end distribution. The Board of Trustees is evaluating and planning for the conversion of Precision from a trust to a more traditional corporate structure. These plans are ongoing and it is anticipated that this conversion will take place well ahead of new Canadian tax measures for trusts slated for January 1, 2011. Precision will provide additional information and details as they become available.
With specific reference to goodwill impairment, Precision will continue to monitor the business climate for a significant adverse change from December 31, 2008, and will test for impairment at the end of 2009. At September 30, 2009, Precision reported goodwill of $772 million, of which $488 million related to the United States contract drilling business unit.
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