Precision Drilling Reports Loss in 2Q10
Precision Drilling reported a net loss of $67 million or $0.24 per diluted share for the three months ended June 30, 2010 compared to net earnings of $57 million or $0.22 per diluted share for the second quarter of 2009. The results for the second quarter of 2010 include a foreign exchange loss of $26 million and finance charges of $52 million which includes a non-cash charge of $24 million related to the amendment of the Corporation's credit agreement during the second quarter of 2010. During the second quarter of 2009, Precision recognized a foreign exchange gain of $74 million and finance charges of $45 million.
Revenue for the second quarter of 2010 totaled $262 million compared to $210 million for the same period of 2009. The increase in drilling activity in the second quarter of 2010 over the same period of 2009 led to the 25% increase in revenue. Earnings before interest, taxes, depreciation and amortization and foreign exchange ("EBITDA") were $59 million for both the second quarter of 2010 and 2009. EBITDA is not a recognized financial measure under Generally Accepted Accounting Principles ("GAAP") see "Non-GAAP Measures" in this report. Flat EBITDA between the two years is due to the increase in drilling activity being offset by lower average drilling revenue per day in both the Canadian and United States drilling markets.
Revenue for the first quarter of 2010 was $373 million and EBITDA totaled $118 million. Second quarter 2010 revenue and EBITDA were lower than first quarter 2010 due to the seasonality of oilfield service activity in Canada known as "spring break-up". This is a time in Canada where drilling rigs cannot change locations due to road conditions and normally occurs in March to June of each year.
For the six months ended June 30, 2010, Precision reported a net loss of $5 million or $0.02 per diluted share compared to net earnings of $115 million or $0.50 per diluted share for the same period of 2009. Revenue for the first half of 2010 was $635 million compared to $658 million for the corresponding period of 2009. EBITDA totaled $177 million for the first half of 2010 compared to $229 million in the first half 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 first half of 2010 include a foreign exchange loss of $6 million as compared to a gain of $42 million for the first half of 2009.
Kevin Neveu, Precision's President and Chief Executive Officer stated, "The strong rebound in North American drilling activity began in mid 2009 and has continued through the second quarter of this year. Despite the Canadian seasonal slowdown which has been prolonged by heavy rains, I am encouraged by the strengthening in customer demand."
"While Precision's activity levels bottomed during the second quarter of 2009 and the spot market dayrates on our tier I and tier II rigs have been improving sequentially from last year's lows, we know it takes several quarters following an activity trough before average dayrates and margins improve. We believe we are at or near that bottom now."
"In the United States, activity levels continue to modestly improve, with oil related activity leading the way. Precision's average active rig count in the second quarter of 2010 was up 14% over the first quarter of the year. Precision's active rig count is currently 91 and we expect it to continue to slowly increase. If low natural gas prices persist, there is the potential for a pullback in gas related activity; however, we would expect most of the pullback to be absorbed by oil and liquids rich drilling activity. Dayrates in the United States drilling markets are continuing to modestly improve from previous quarters."
"Persistent rainfall through much of the Western Canada Sedimentary Basin has prevented a full return to expected summer drilling levels. Nonetheless our current active rig count is at 77 compared to 51 in 2009. We currently expect to have close to 100 rigs working once the ground dries sufficiently to facilitate the moving of the rigs. With unconventional horizontal oil drilling techniques being applied to conventional oil reservoirs in Canada we believe that the remainder of 2010 activity levels will exceed those in 2009."
"Precision is poised to seize market opportunities and as such I am pleased to announce that Precision has added seven rigs to its 2010 new rig build program bringing the current total to nine rigs. This includes the two rigs we announced last quarter. Five of these rigs are Super Single® rigs with three to be deployed in Canada and two in the United States. The remaining four rigs are Super Triple rigs with all four projected for work in the United States. Four of these nine rigs have been contracted with an average contract term just under three years. We expect to have the remaining rigs contracted shortly as we are in advanced discussions and negotiations for contracting the remaining five rigs for resource plays such as the Marcellus, Bakken, Horn River and Eagle Ford with three customers," concluded Mr. Neveu.
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