UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO SECTION 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For August 13, 2004
Commission File Number: 001-14534
PRECISION DRILLING CORPORATION
(Exact name of registrant as specified in its charter)
4200, 150 - 6TH AVENUE S.W.
CALGARY, ALBERTA
CANADA T2P 3Y7
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F [_] Form 40-F [X]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1).____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in
paper of a Form 6-K if submitted solely to provide an attached annual report to
security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):_____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in
paper of a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- N/A
----
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRECISION DRILLING CORPORATION
Per: /s/ Jan M. Campbell
------------------------------
Jan M. Campbell
Corporate Secretary
Date: August 13, 2004
2004 PRECISION DRILLING CORPORATION INTERIM REPORT
Periods ended June 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGHLIGHTS
Three months ended June 30,
(Stated in thousands of dollars, except per share amounts) 2004 2003 % Change
----------------------------------------------------------------------------------------------------------------------
FINANCIAL RESULTS
Revenue $ 418,691 $ 345,641 21.1
Operating earnings (1) 29,435 13,266 121.9
Earnings from continuing operations 16,193 8,997 80.0
Net earnings 15,995 8,622 85.5
Diluted earnings per share:
From continuing operations 0.29 0.16 81.3
After discontinued operations 0.28 0.16 75.0
Funds provided by continuing operations 39,442 22,111 78.4
----------------------------------------------------------------------------------------------------------------------
JUNE 30, 2004 December 31, 2003
----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 301,176 $ 248,261
Long-term debt (2) 905,181 399,422
Long-term debt to long-term debt plus equity (2) 0.32 0.19
----------------------------------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 8
(2) EXCLUDES CURRENT PORTION OF LONG-TERM DEBT
OVERVIEW
Diluted earnings per share from continuing operations were $0.29 for the quarter
ended June 30, 2004 compared to $0.16 in 2003. Diluted earnings per share were
$0.28 in the second quarter of 2004 compared to $0.16 in 2003. Earnings from
continuing operations and net earnings were both increased in the second quarter
of 2004 by a $4.4 million ($0.05 per share) foreign exchange gain on temporary
bank borrowings incurred in connection with business acquisitions completed in
the quarter.
During the quarter the Corporation completed the acquisition of Reeves Oilfield
Services Limited ("Reeves") and the land drilling business of GlobalSantaFe
Corporation ("GlobalSantaFe") for US $164.9 and US $316.5 respectively. The
GlobalSantaFe acquisition added a drilling operation complete with experienced
people, 31 well-maintained rigs and operating contracts in five countries,
transforming Precision into the third largest player in the international
market. Reeves' unique Compact(TM) wireline technology will allow Technology
Services to service a broader market, particularly in the more mature oilfields
throughout the world.
To finance these acquisitions, the Corporation completed in May a public
offering of US $300 million, 5.625% Notes due 2014 and in July a public offering
of 4,000,000 common shares for gross proceeds of approximately US $200 million.
On August 10, 2004 an additional 400,000 common shares were issued in connection
with the exercise of the underwriting group's over-allotment option, for gross
proceeds of approximately US $20 million. In conjunction with the Notes offering
the Corporation sought and received a rating of Baa2 (positive outlook) from
Moody's to complement its Standard & Poor's rating of BBB+ (stable outlook) and
its Dominion Bond Rating Service rating of BBB (stable trend). With these
transactions Precision maintains its strong balance sheet allowing the
continuance of our internal growth initiatives and the exploration of
acquisition opportunities as they arise.
SEGMENT REVIEW
Three months ended Six months ended
June 30, June 30,
-------------------------------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------------------------------
OPERATING EARNINGS: (1)
Contract Drilling $ 41,319 $ 19,298 $ 189,927 $ 123,823
Technology Services (13,189) (10,430) 16,604 2,668
Rental and Production 9,613 14,190 19,354 22,461
Corporate and Other (8,308) (9,792) (23,254) (16,835)
-------------------------------------------------------------------------------
$ 29,435 $ 13,266 $ 202,631 $ 132,117
-------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 8
CONTRACT DRILLING
Three months ended June 30,
(Stated in thousand of dollars, except % OF % of
per day/hour amounts) 2004 REVENUE 2003 Revenue
------------------------------------------------------------------------------------------
Revenue 182,739 139,082
Expenses:
Operating 117,826 64.5 100,400 72.2
General and administrative 9,549 5.2 6,790 4.9
Depreciation and amortization 14,734 8.1 12,660 9.1
Foreign exchange (689) (0.4) (66) (0.1)
------------------------------------------------------------------------------------------
Operating earnings (1) 41,319 22.6 19,298 13.9
------------------------------------------------------------------------------------------
% Change
------------------------------------------------------------------------------------------
Number of drilling rigs (end of period) 275 239 15.1
Drilling operating days 6,608 6,500 1.7
Drilling revenue per operating day $ 18,774 $ 15,820 18.7
Number of service rigs (end of period) 239 240 (0.4)
Service rig operating hours 80,986 77,018 5.2
Service revenue per operating hour $ 458 $ 409 12.0
% OF % of
Six months ended June 30, 2004 REVENUE 2003 Revenue
------------------------------------------------------------------------------------------
Revenue 569,990 474,394
Expenses:
Operating 321,271 56.4 297,466 62.7
General and administrative 19,587 3.4 15,677 3.3
Depreciation and amortization 39,091 6.9 38,273 8.1
Foreign exchange 114 - (845) (0.2)
------------------------------------------------------------------------------------------
Operating earnings (1) 189,927 33.3 123,823 26.1
------------------------------------------------------------------------------------------
% Change
------------------------------------------------------------------------------------------
Number of drilling rigs (end of period) 275 239 15.1
Drilling operating days 23,455 21,966 6.8
Drilling revenue per operating day $ 18,329 $ 15,953 14.9
Number of service rigs (end of period) 239 240 (0.4)
Service rig operating hours 231,679 215,936 7.3
Service revenue per operating hour $ 507 $ 465 9.0
------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 8
Contract Drilling revenue increased by 31% in the second quarter compared to the
same period last year while operating earnings increased by 114%. The increase
in operating earnings as a percentage of revenue was driven primarily by year
over year drilling and service rig rate increases in the Canadian market.
Operating efficiency initiatives undertaken in the service rig operation have
also lead to cost savings.
International drilling operations contributed to the operating earnings
increase. The acquisition of 31 rigs in May, 3 additional rigs in Mexico, and
improving activity in Venezuela enabled the international fleet to generate a
47% increase in operating days.
The Canadian Drilling rig fleet achieved 5,297 operating days for a 26%
utilization rate in the quarter compared to 5,605 operating days and a 27%
utilization rate in the comparable quarter of the prior year. Activity was
slowed by wet weather which rendered ground conditions unsuitable for well site
construction and equipment transportation.
Service rig hours increased by 3,968 or 5% in the second quarter of 2004
compared to the same quarter of 2003. The increased activity occurred in the
northwestern portion of our operating area where customers were more willing to
transport rigs to complete work to take advantage of sustained high crude oil
and natural gas prices. This was offset somewhat by lower activity in the
southeastern portion of our operating area as a result of wet weather
conditions.
TECHNOLOGY SERVICES
Three months ended June 30, % OF % of
(Stated in thousand of dollars) 2004 REVENUE 2003 Revenue
------------------------------------------------------------------------------------------
Revenue $ 179,604 $ 142,727
Expenses:
Operating 139,092 77.4 110,205 77.2
General and administrative 18,936 10.5 16,063 11.3
Depreciation and amortization 22,733 12.7 18,193 12.7
Research and engineering 12,374 6.9 8,746 6.1
Foreign exchange (342) (0.2) (50) -
------------------------------------------------------------------------------------------
Operating loss $ (13,189) (7.3) $ (10,430) (7.3)
------------------------------------------------------------------------------------------
% Change
------------------------------------------------------------------------------------------
Wireline jobs performed 8,192 7,735 5.9
Directional wells drilled 907 553 64.0
Well testing/CPD (2) man-days (Canada only) 8,680 7,466 16.3
% OF % of
Six months ended June 30, 2004 REVENUE 2003 Revenue
------------------------------------------------------------------------------------------
Revenue $ 406,818 $ 345,764
Expenses:
Operating 288,509 70.9 253,637 73.3
General and administrative 33,554 8.3 36,032 10.4
Depreciation and amortization 43,388 10.7 36,946 10.7
Research and engineering 24,188 5.9 17,645 5.1
Foreign exchange 575 0.1 (1,164) (0.3)
------------------------------------------------------------------------------------------
Operating earnings (1) $ 16,604 4.1 $ 2,668 0.8
------------------------------------------------------------------------------------------
% Change
------------------------------------------------------------------------------------------
Wireline jobs performed 19,520 17,753 10.0
Directional wells drilled 1,866 1,362 37.0
Well testing/CPD (2) man-days (Canada only) 38,086 25,983 46.6
------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 8
(2) CONTROLLED PRESSURE DRILLING (CPD)
Technology Services revenue increased by 26% to $179.6 million from $142.7
million in the second quarter of 2003. The increase is attributable to improving
activity levels in the US market, the commencement of new contracts in the Asia
Pacific region, more wells being completed on the Burgos integrated services
project and the acquisition of Reeves Wireline in May. These improvements were
offset somewhat by reductions in Canada and the non-Burgos operations in Mexico.
Operating earnings, however, declined by $2.8 million in the second quarter
compared to the same period in 2003. Activity levels in Canada were curtailed by
wet weather conditions and the operation was unable to maintain winter pricing
levels. This operation has significant fixed costs that can not be quickly
adjusted downward when revenue expectations are not met and when operating
capability must be maintained to meet the high demand for service that is
expected to return when weather permits. The region also incurred higher repair
and maintenance costs in anticipation of a speedier pick up in activity.
Non-Burgos operations in Mexico also suffered in comparison to the prior year as
contracts for Testing/CPD and Drilling Services came to an end.
Elsewhere, there were encouraging signs especially in Burgos, Asia/Pacific and
United States where revenue and operating earnings grew, compared to the prior
year.
Research and engineering expense rose year over year as increased resources have
been put towards completing the design, testing and build out of the Rotary
Steerable tools in various hole sizes. R&E associated with the Reeves
acquisition is also reflected for the first time. Depreciation increased in line
with the continued build out of the logging-while-drilling (LWD),
measurement-while-drilling (MWD) and rotary steerable fleets.
RENTAL AND PRODUCTION
Three months ended June 30, % OF % of
(Stated in thousand of dollars) 2004 REVENUE 2003 Revenue
------------------------------------------------------------------------------------------
Revenue $ 56,348 $ 63,832
Expenses:
Operating 40,979 72.7 44,467 69.7
General and administrative 2,542 4.5 1,940 3.0
Depreciation and amortization 3,271 5.8 2,973 4.7
Foreign exchange (57) (0.1) 262 0.4
------------------------------------------------------------------------------------------
Operating earnings (1) $ 9,613 17.1 $ 14,190 22.2
------------------------------------------------------------------------------------------
% Change
------------------------------------------------------------------------------------------
Equipment rental days (000's) 166 173 (4.0)
Plant maintenance man-days (000's) 47 81 (42.0)
------------------------------------------------------------------------------------------
% OF % OF
Six months ended June 30, 2004 REVENUE 2003 REVENUE
------------------------------------------------------------------------------------------
Revenue $ 107,048 $ 113,453
Expenses:
Operating 75,979 71.0 79,631 70.2
General and administrative 5,186 4.8 4,594 4.1
Depreciation and amortization 6,573 6.1 6,292 5.5
Foreign exchange (44) - 475 0.4
------------------------------------------------------------------------------------------
Operating earnings (1) $ 19,354 18.1 $ 22,461 19.8
------------------------------------------------------------------------------------------
% Change
------------------------------------------------------------------------------------------
Equipment rental days (000's) 419 395 6.1
Plant maintenance man-days (000's) 106 141 (24.8)
------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 8
Rental and Production revenue declined by $7.5 million or 12% in the second
quarter compared to the second quarter of 2003. This decrease stemmed from the
industrial plant maintenance business (carried out by CEDA, a wholly-owned
subsidiary), which experienced a slowing of activity at the Fort McMurray area
oilsands operations where several projects were delayed or cancelled. Activity
in the rental operation was relatively consistent year over year with rental
rates improving somewhat.
CEDA continues to be recognized by its customers and industry associations for
its high safety standards and performance. The team recently received the
Syncrude President's Award for "Most Innovative Environmental, Health and Safety
Idea Implemented". This award was based on the introduction of Competency-Based
Training, Safety Audits and the development of the SuperLance(TM) tool used to
remove run limiting fouling in Syncrude's fluid cokers.
CORPORATE AND OTHER
CORPORATE AND OTHER EXPENSES
The operating loss associated with the Corporate and Other segment declined from
$9.8 million in the second quarter of 2003 to $8.3 million in the second quarter
of 2004. Expenses associated with these activities did increase year over year
in conjunction with the Corporation's expanded world wide operations. This
increase was offset by a foreign exchange gain on short-term US dollar
denominated debt incurred to finance the business acquisitions completed during
the quarter.
OTHER ITEMS
Interest expense for the three months ended June 30,
2004 increased by $1.8 million or 20% over the same period in 2003 due to the
debt incurred to finance business acquisitions.
The effective tax rate on earnings from continuing operations before income
taxes and non-controlling interest was 11% compared to a recovery of 69% in the
prior year. The tax benefit derived from how the Corporation has structured its
foreign operations is amplified in the second quarter when income is at a
seasonal low.
During July the Corporation issued 122,200 shares on the exercise of stock
options.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by continuing operations for the six months ended June 30, 2004
was $271.4 million up 80% from the prior year of $151.0 million. The Corporation
spent $97.7 million on capital additions, net of proceeds of disposal in the six
month period ended June 30, 2004. During this same period, the Corporation
received $40.7 million from the sale of Fleet Cementers and Polar Completions
and $36.8 million from the exercise of stock options. These items resulted in
the repayment of long-term debt and bank indebtedness prior to the business
acquisitions completed in the second quarter.
The acquisition of Reeves and the land drilling business of GlobalSantaFe for a
combined purchase price of, including acquisition costs, $670.3 million was
initially financed by borrowing on its operating line and through a bridge
financing facility with a Canadian chartered bank. These borrowings were
partially repaid with the proceeds from US $300 million public note issue
completed in May, 2004. These unsecured notes bear interest at 5.625% and mature
in 2014. The remainder of the acquisition borrowings has been repaid with
proceeds from the public offering of 4,000,000 common shares completed in July
2004. Gross proceeds from this offering amounted to approximately US $200
million. On August 10, 2004 an additional 400,000 common shares were issued in
connection with the exercise of the underwriting group's over-allotment option,
for gross proceeds of approximately US $20 million.
The Corporation's long-term debt to long-term debt plus equity ratio moved from
0.19 at December 31, 2003 to 0.32 at June 30, 2004 as a result of the
acquisition financing. Adjusting for the common share issue in July and the use
of the proceeds to repay debt, this ratio would be approximately 0.24.
QUARTERLY FINANCIAL SUMMARY
(STATED IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, WHICH ARE PRESENTED
ON A DILUTED BASIS)
2003 2004
Quarters ended September 30 December 31 March 31 June 30
--------------------------------------------------------------------------------------------------------
Revenue 455,625 528,697 665,165 418,691
Operating earnings (1) 62,614 94,378 173,196 29,435
Earnings from continuing operations 37,129 62,858 107,438 16,193
Per share 0.67 1.13 1.91 0.29
Net earnings 35,766 52,958 100,519 15,995
Per share 0.65 0.95 1.79 0.28
Funds provided by continuing operations 92,820 110,687 180,496 39,442
2002 2003
Quarters ended September 30 December 31 March 31 June 30
--------------------------------------------------------------------------------------------------------
Revenue 355,552 369,649 587,970 345,641
Operating earnings (1) 22,186 12,604 118,851 13,266
Earnings from continuing operations 12,593 4,651 74,146 8,997
Per share 0.23 0.08 1.34 0.16
Net earnings 10,196 6,616 83,129 8,622
Per share 0.19 0.12 1.51 0.16
Funds provided by continuing operations 26,839 35,095 132,402 22,111
--------------------------------------------------------------------------------------------------------
(1) NON-GAAP MEASURE
Operating earnings is not a recognized measure under Canadian generally accepted
accounting principles (GAAP). Management believes that in addition to net
earnings, operating earnings is a useful supplemental measure as it provides an
indication of the results generated by the Corporation's principal business
activities prior to consideration of how those activities are financed or how
the results are taxed in various jurisdictions. Investors should be cautioned,
however, that operating earnings should not be construed as an alternative to
net earnings determined in accordance with GAAP as an indicator of Precision's
performance. Precision's method of calculating operating earnings may differ
from other companies and, accordingly, operating earnings may not be comparable
to measures used by other companies.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS INTERIM REPORT, INCLUDING STATEMENTS WHICH
MAY CONTAIN WORDS SUCH AS "COULD", "PLANS", "SHOULD", "ANTICIPATES", "EXPECT",
"BELIEVE", "WILL" AND SIMILAR EXPRESSIONS AND STATEMENTS RELATING TO MATTERS
THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS UNDER THE UNITED
STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 INCLUDING, BUT NOT
LIMITED TO, STATEMENTS AS TO: FUTURE CAPITAL EXPENDITURES, INCLUDING THE AMOUNT
AND NATURE THEREOF; DRILLING ACTIVITY LEVELS; OIL AND GAS PRICES AND DEMAND;
EXPANSION AND OTHER DEVELOPMENT TRENDS OF THE OIL
AND GAS INDUSTRY; IMPROVEMENT IN DAY RATES; BUSINESS STRATEGY; EXPANSION AND
GROWTH OF THE CORPORATION'S BUSINESS AND OPERATIONS, INCLUDING THE CORPORATION'S
MARKET SHARE AND POSITION IN THE DOMESTIC AND INTERNATIONAL DRILLING AND
ANCILLARY OILFIELD SERVICES MARKETS; AND OTHER SUCH MATTERS.
THESE STATEMENTS ARE BASED ON CERTAIN ASSUMPTIONS AND ANALYSES MADE BY THE
CORPORATION IN LIGHT OF ITS EXPERIENCE AND ITS PERCEPTION OF HISTORICAL TRENDS,
CURRENT CONDITIONS AND EXPECTED FUTURE DEVELOPMENTS AS WELL AS OTHER FACTORS IT
BELIEVES ARE APPROPRIATE IN THE CIRCUMSTANCES. HOWEVER, WHETHER ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS WILL CONFORM WITH THE CORPORATION'S EXPECTATIONS AND
PREDICTIONS IS SUBJECT TO A NUMBER OF KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE CORPORATION'S
EXPECTATIONS, INCLUDING: FLUCTUATIONS IN THE PRICE AND DEMAND OF OIL AND GAS;
FLUCTUATIONS IN THE LEVEL OF OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES;
FLUCTUATIONS IN THE DEMAND FOR WELL SERVICING, CONTRACT DRILLING AND ANCILLARY
OILFIELD SERVICES; THE EXISTENCE OF COMPETITORS, TECHNOLOGICAL CHANGES AND
DEVELOPMENTS IN THE OIL AND GAS INDUSTRY; THE ABILITY OF OIL AND GAS COMPANIES
TO RAISE CAPITAL; THE EFFECTS OF SEVERE WEATHER CONDITIONS ON OPERATIONS AND
FACILITIES; THE EXISTENCE OF OPERATING RISKS INHERENT IN WELL SERVICING,
CONTRACT DRILLING AND ANCILLARY OILFIELD SERVICES; POLITICAL CIRCUMSTANCES
IMPEDING THE PROGRESS OF WORK IN ANY OF THE COUNTRIES IN WHICH THE CORPORATION
DOES BUSINESS; IDENTIFYING AND ACQUIRING SUITABLE ACQUISITION TARGETS ON
REASONABLE TERMS; GENERAL ECONOMIC, MARKET OR BUSINESS CONDITIONS, INCLUDING
STOCK MARKET VOLATILITY; CHANGES IN LAWS OR REGULATIONS, INCLUDING TAXATION,
ENVIRONMENTAL AND CURRENCY REGULATIONS; THE LACK OF AVAILABILITY OF QUALIFIED
PERSONNEL OR MANAGEMENT; AND OTHER UNFORESEEN CONDITIONS WHICH COULD IMPACT ON
THE USE OF SERVICES SUPPLIED BY THE CORPORATION.
CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS REPORT ARE
QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE THAT THE
ACTUAL RESULTS OR DEVELOPMENTS ANTICIPATED BY THE CORPORATION WILL BE REALIZED
OR, EVEN IF SUBSTANTIALLY REALIZED, THAT THEY WILL HAVE THE EXPECTED
CONSEQUENCES TO OR EFFECTS ON THE CORPORATION OR ITS BUSINESS OR OPERATIONS. THE
CORPORATION ASSUMES NO OBLIGATION TO UPDATE PUBLICLY ANY SUCH FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
CONSOLIDATED BALANCE SHEETS
JUNE 30, December 31,
(Stated in thousands of dollars) 2004 2003
--------------------------------------------------------------------------------------------------------
(unaudited) (restated - Note 5)
ASSETS
Current assets:
Cash $ 40,715 $ 21,370
Accounts receivable 527,751 544,850
Inventory 110,589 99,088
Assets of discontinued operations - 21,150
--------------------------------------------------------------------------------------------------------
679,055 686,458
Property, plant and equipment, net of accumulated depreciation 1,930,803 1,588,250
Intangibles, net of accumulated amortization 158,161 65,262
Goodwill 771,639 527,443
Other assets 14,571 8,932
Assets of discontinued operations - 32,040
--------------------------------------------------------------------------------------------------------
$ 3,554,229 $ 2,908,385
--------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 71,795 $ 147,909
Accounts payable and accrued liabilities 269,322 260,545
Income taxes payable 23,209 7,373
Current portion of long-term debt 13,553 17,158
Liabilities of discontinued operations - 5,212
--------------------------------------------------------------------------------------------------------
377,879 438,197
Long-term debt (NOTE 8) 905,181 399,422
Future income taxes 354,112 320,599
Future income taxes of discontinued operations - 1,107
Non-controlling interest 13,303 3,771
Shareholders' equity:
Share capital 974,470 936,744
Contributed surplus 17,260 14,266
Cumulative translation adjustment 1,231 -
Retained earnings 910,793 794,279
--------------------------------------------------------------------------------------------------------
1,903,754 1,745,289
Subsequent event (NOTE 9)
--------------------------------------------------------------------------------------------------------
$ 3,554,229 $ 2,908,385
--------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 55,909 54,846
Common share purchase options outstanding (000's) 2,408 3,393
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
--------------------------------------------------------------------------------------------------------------
Stated in thousands of dollars, except per
share amounts 2004 2003 2004* 2003
--------------------------------------------------------------------------------------------------------------
(restated - (restated -
Note 5) Note 5)
Revenue $ 418,691 $ 345,641 $ 1,083,856 $ 933,611
Expenses:
Operating 297,970 255,072 685,832 631,109
General and administrative 42,287 32,988 84,543 68,212
Depreciation and amortization 41,923 35,022 91,648 83,880
Research and engineering 12,374 8,746 24,188 17,645
Foreign exchange (5,298) 547 (4,986) 648
--------------------------------------------------------------------------------------------------------------
389,256 332,375 881,225 801,494
--------------------------------------------------------------------------------------------------------------
Operating earnings 29,435 13,266 202,631 132,117
Interest 10,706 8,943 18,894 18,212
Gain on disposal of investments (42) (1,164) (42) (1,164)
--------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and non-controlling interest 18,771 5,487 183,779 115,069
Income taxes:
Current 19,954 11,543 56,847 34,111
Future (17,805) (15,333) 2,015 (2,751)
--------------------------------------------------------------------------------------------------------------
2,149 (3,790) 58,862 31,360
--------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
before non-controlling interest 16,622 9,277 124,917 83,709
Non-controlling interest 429 280 1,286 566
--------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 16,193 8,997 123,631 83,143
Discontinued operations, net of tax (NOTE 4) (198) (375) (7,117) 8,608
--------------------------------------------------------------------------------------------------------------
Net earnings 15,995 8,622 116,514 91,751
Retained earnings, beginning of period 894,798 696,934 794,279 613,805
--------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 910,793 $ 705,556 $ 910,793 $ 705,556
--------------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations:
Basic $ 0.29 $ 0.17 $ 2.22 $ 1.53
Diluted $ 0.29 $ 0.16 $ 2.19 $ 1.51
--------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.29 $ 0.16 $ 2.09 $ 1.69
Diluted $ 0.28 $ 0.16 $ 2.06 $ 1.66
--------------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 55,909 54,399 55,909 54,399
Weighted average shares outstanding (000's) 55,871 54,325 55,677 54,243
Diluted shares outstanding (000's) 56,549 55,203 56,429 55,174
--------------------------------------------------------------------------------------------------------------
* CERTAIN EXPENSES HAVE BEEN RECLASSIFIED FROM GENERAL AND ADMINISTRATIVE
EXPENSES TO BE MORE APPROPRIATELY INCLUDED IN RESEARCH AND ENGINEERING AND
CONFORM TO CURRENT PERIOD CLASSIFICATION
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
--------------------------------------------------------------------------------------------------------------
Stated in thousands of dollars 2004 2003 2004 2003
--------------------------------------------------------------------------------------------------------------
(restated - (restated -
Note 5) Note 5)
Cash provided by (used in):
Continuing operations:
Earnings from continuing operations $ 16,193 $ 8,997 $ 123,631 $ 83,143
Items not affecting cash:
Stock-based compensation 1,898 2,254 3,949 3,926
Depreciation and amortization 41,923 35,022 91,648 83,880
Gain on disposal of investments (42) (1,164) (42) (1,164)
Future income taxes (17,805) (15,333) 2,015 (2,751)
Non-controlling interest 429 280 1,286 566
Amortization of deferred financing costs 360 322 680 644
Unrealized foreign exchange loss (gain) on
__long-term monetary items (3,514) (8,267) (3,229) (13,731)
--------------------------------------------------------------------------------------------------------------
Funds provided by continuing operations 39,442 22,111 219,938 154,513
Changes in non-cash working capital balances 162,697 146,236 51,459 (3,477)
--------------------------------------------------------------------------------------------------------------
202,139 168,347 271,397 151,036
Funds provided by (used in) discontinued operations (695) (1,821) (4,593) (4,051)
Changes in non-cash working capital
balances of discontinued operations (5,473) 3,831 3,119 3,560
--------------------------------------------------------------------------------------------------------------
(6,168) 2,010 (1,474) (491)
Investments:
Business acquisitions (NOTE 7) (658,212) - (658,842) (6,800)
Purchase of property, plant and equipment (55,253) (91,657) (108,981) (168,389)
Proceeds on sale of property, plant and equipment 6,533 6,909 11,246 11,146
Proceeds on disposal of investments 48 7,620 48 7,620
Proceeds on disposal of
discontinued operations (NOTE 4) 15,000 6,914 40,746 67,274
Investments (1,340) (115) (1,340) (874)
--------------------------------------------------------------------------------------------------------------
(693,224) (70,329) (717,123) (90,023)
Financing:
Increase in long-term debt 520,873 - 522,136 44,960
Repayment of long-term debt (6,898) (135,731) (11,263) (141,171)
Deferred financing costs on long-term debt (4,985) - (4,985) -
Issuance of common shares on exercise of options 6,236 3,940 36,771 10,149
Change in bank indebtedness 2,533 16,023 (76,114) 19,182
--------------------------------------------------------------------------------------------------------------
517,759 (115,768) 466,545 (66,880)
--------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 20,506 (15,740) 19,345 (6,358)
Cash, beginning of period 20,209 26,697 21,370 17,315
--------------------------------------------------------------------------------------------------------------
Cash, end of period $ 40,715 $ 10,957 $ 40,715 $ 10,957
--------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(TABULAR AMOUNTS STATED IN THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION
These interim financial statements were prepared using accounting policies and
methods of their application consistent with those used in the preparation of
the Corporation's audited financial statements for the year ended December 31,
2003, except as noted below. These interim financial statements conform in all
respects to the requirements of generally accepted accounting principles in
Canada for annual financial statements with the exception of certain note
disclosures regarding balance sheet items and transactions occurring prior to
the current reporting period. As a result, these interim financial statements
should be read in conjunction with the Corporation's audited financial
statements for the year ended December 31, 2003 contained in the Corporation's
2003 annual report.
2. SIGNIFICANT ACCOUNTING POLICIES (A) FOREIGN CURRENCY TRANSLATION
Accounts of foreign operations which are considered financially and
operationally integrated are translated to Canadian dollars using average
exchange rates for the reporting period for revenue and expenses. Monetary
assets and liabilities are translated at period end current exchange rate and
non-monetary assets and liabilities are translated using historical rates of
exchange. Gains or losses resulting from these translation adjustments are
included in net earnings.
With the acquisitions completed in the second quarter of 2004 the Corporation
has international operations which are considered financially and operationally
independent. These self sustaining operations are translated to Canadian dollars
using average rates for the reporting period for revenue and expenses and period
end rates for all assets and liabilities. Gains and losses resulting from these
translation adjustments are included as a component of shareholders' equity in
the cumulative translation adjustment account.
Transactions in foreign currencies are translated at rates in effect at the time
of the transaction. Monetary assets and liabilities are translated at current
rates. Gains or losses are included in net earnings.
(B) HEDGING
The Corporation has designated its US $300 million, 5.625% long-term notes as a
hedge of its investment in certain self sustaining foreign operations. Gains or
losses resulting from the translation of these notes at period end exchange
rates are included in the cumulative translation adjustment account.
3. SEASONALITY OF OPERATIONS
The majority of the Corporation's operations are carried on in Canada. The
ability to move heavy equipment in the Canadian oil and natural gas fields is
dependent on weather conditions. As warm weather returns in the spring, the
winter's frost comes out of the ground rendering many secondary roads incapable
of supporting the weight of heavy equipment until they have thoroughly dried
out. The duration of this "spring breakup" has a direct impact on the
Corporation's activity levels. In addition, many exploration and production
areas in northern Canada are accessible only in winter months when the ground is
frozen hard enough to support equipment. The timing of freeze up and spring
breakup affects the ability to move equipment in and out of these areas. As a
result, late March through May is traditionally the Corporation's slowest time.
4. DISPOSAL OF DISCONTINUED OPERATIONS
On February 12, 2004, the Corporation sold substantially all of the assets of
Fleet Cementers, Inc. for proceeds of $25.7 million. On May 7, 2004 the
Corporation sold the assets of the Polar Completions division for proceeds of
$15 million, subject to working capital adjustments. These assets were disposed
of as they were not a core component to the Corporation's energy services
globalization strategy. Effective January 1, 2003, the Corporation sold Energy
Industries Inc., a wholly-owned subsidiary included in the Rental and Production
segment.
Effective May 2003, the Corporation sold its 50% interest in Energy Equipment
Rentals General Partnership ("EER") and Oil Drilling Exploration (Argentina) SA
("OD&E"). Both entities were included in the Contract Drilling Segment.
Results of the operations of these businesses have been classified as results of
discontinued operations. The following table provides additional information
with respect to amounts included in the results of discontinued operations.
Three months ended Six months ended
June 30, June 30,
-------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------------------------------------------------------
Revenue
Fleet Cementers and Polar Completions $ 1,757 $ 10,920 $ 9,949 $ 22,623
Other - - - 560
-------------------------------------------------------------------------------------------------------
$ 1,757 $ 10,920 $ 9,949 $ 23,183
Gain on disposal of Energy Industries $ - $ - $ - $ 13,071
Gain on disposal of EER and OD&E - 4,389 - 4,389
Gain (loss) on disposal of Fleet Cementers' assets 595 - (348) -
-------------------------------------------------------------------------------------------------------
$ 595 $ 4,389 $ (348) $ 17,460
-------------------------------------------------------------------------------------------------------
Results of operations before income taxes
Fleet Cementers and Polar Completions $ 558 $ (5,360) $ (292) $ (10,156)
Other - - - 49
Writedown of assets held for sale - - (6,117) -
-------------------------------------------------------------------------------------------------------
558 (5,360) (6,409) (10,107)
Income tax expense (recovery) 1,351 (596) 360 (1,255)
-------------------------------------------------------------------------------------------------------
(793) (4,764) (6,769) (8,852)
-------------------------------------------------------------------------------------------------------
Discontinued operations $ (198) $ (375) $ (7,117) $ 8,608
-------------------------------------------------------------------------------------------------------
The following table provides additional information with respect to amounts
included in the cash flow statement of funds provided by (used in) assets
classified as discontinued operations:
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) of discontinued operations $ (198) $ (375) $ (7,117) $ 8,608
Items not affecting cash:
Loss (gain) on disposal of discontinued operations (595) (4,389) 348 (17,460)
Depreciation and amortization 92 2,892 874 4,780
Stock-based compensation - (14) - 82
Writedown of assets of discontinued operations - - 3,293 -
Future income taxes 6 65 (1,991) (61)
----------------------------------------------------------------------------------------------------------------------
Funds provided by (used in) discontinued operations $ (695) $ (1,821) $ (4,593) $ (4,051)
----------------------------------------------------------------------------------------------------------------------
5. STOCK-BASED COMPENSATION
Effective January 1, 2004, the Corporation adopted the revised Canadian
accounting standards with respect to accounting for stock-based compensation.
Under the new standard, the fair value of common share purchase options is
calculated at the date of grant and that value is recorded as compensation
expense over the vesting period of those grants. The Corporation has
retroactively applied this standard, with restatement of prior years, to all
common share purchase options granted since January 1, 2002. This has resulted
in a charge to net earnings for the three and six months ended June 30, 2004 of
$1.9 million and $3.9 million (2003 - $2.2 million and $4.0 million)
respectively, and a reduction to opening retained earnings of $14.5 million at
January 1, 2004 ($6.3 million at January 1, 2003).
Included in shareholders' equity at June 30, 2004 is $1.2 million (December 31,
2003 - $215,000) relating to stock-based compensation on options that were
exercised.
6. SEGMENT INFORMATION
Contract Technology Rental and Corporate
Three months ended June 30, 2004 Drilling Services Production and Other Total
------------------------------------------------------------------------------------------------------------------------
Revenue $ 182,739 $ 179,604 $ 56,348 $ - $ 418,691
Operating earnings (loss) 41,319 (13,189) 9,613 (8,308) 29,435
Research and engineering - 12,374 - - 12,374
Depreciation and amortization 14,734 22,733 3,271 1,185 41,923
Total assets 1,774,647 1,515,784 177,471 86,327 3,554,229
Goodwill 387,265 355,672 28,702 - 771,639
Capital expenditures* 22,334 23,714 3,020 6,185 55,253
------------------------------------------------------------------------------------------------------------------------
Contract Technology Rental and Corporate
Three months ended June 30, 2003 Drilling Services Production and Other Total
------------------------------------------------------------------------------------------------------------------------
Revenue $ 139,082 $ 142,727 $ 63,832 $ - $ 345,641
Operating earnings (loss) 19,298 (10,430) 14,190 (9,792) 13,266
Research and engineering - 8,746 - - 8,746
Depreciation and amortization 12,660 18,193 2,973 1,196 35,022
Total assets 1,274,722 1,225,377 178,104 60,880 2,739,083
Goodwill 257,531 241,340 28,572 - 527,443
Capital expenditures 21,698 61,180 3,345 5,434 91,657
------------------------------------------------------------------------------------------------------------------------
Contract Technology Rental and Corporate
Six months ended June 30, 2004 Drilling Services Production and Other Total
------------------------------------------------------------------------------------------------------------------------
Revenue $ 569,990 $ 406,818 $ 107,048 $ - $ 1,083,856
Operating earnings (loss) 189,927 16,604 19,354 (23,254) 202,631
Research and engineering - 24,188 - - 24,188
Depreciation and amortization 39,091 43,388 6,573 2,596 91,648
Total assets 1,774,647 1,515,784 177,471 86,327 3,554,229
Goodwill 387,265 355,672 28,702 - 771,639
Capital expenditures* 39,535 49,437 9,485 10,524 108,981
------------------------------------------------------------------------------------------------------------------------
Contract Technology Rental and Corporate
Six months ended June 30, 2003 Drilling Services Production and Other Total
------------------------------------------------------------------------------------------------------------------------
Revenue $ 474,394 $ 345,764 $ 113,453 $ - $ 933,611
Operating earnings (loss) 123,823 2,668 22,461 (16,835) 132,117
Research and engineering - 17,645 - - 17,645
Depreciation and amortization 38,273 36,946 6,292 2,369 83,880
Total assets 1,274,722 1,225,377 178,104 60,880 2,739,083
Goodwill 257,531 241,340 28,572 - 527,443
Capital expenditures* 29,996 121,208 7,194 9,991 168,389
------------------------------------------------------------------------------------------------------------------------
* EXCLUDES BUSINESS ACQUISITIONS
7. ACQUISITIONS
During the year the Corporation made several acquisitions, the most significant
of which were:
On May 14, 2004 the Corporation purchased all of the issued and outstanding
shares of Reeves Oilfield Services Limited ("Reeves"). Reeves provides open hole
and cased hole logging to the oil and gas industry. It has established
operations in Canada, the United States, Australia, Africa, Europe and the
Middle East.
On May 21, 2004, the Corporation purchased all of the worldwide land drilling
assets, located in Venezuela and the Middle East, from GlobalSantaFe Corporation
("GlobalSantaFe"). These acquisitions have been accounted for by the purchase
method with the results of the acquired operations to be included in the
financial statements from the effective date of acquisition. Details of the
transactions are as follows:
Reeves GlobalSantaFe Other Total
----------------------------------------------------------------------------------------------------
Net assets acquired at assigned values:
Working capital 23,000(a) 11,639 - 34,639
Intangibles 95,203 1,333 - 96,536
Property, plant and equipment 42,026 295,829 500 338,355
Goodwill 113,358 129,734 130 243,222
Future income taxes (33,522) - - (33,522)
Non-controlling interest (8,246) - - (8,246)
----------------------------------------------------------------------------------------------------
231,819 438,535 630 670,984
----------------------------------------------------------------------------------------------------
Consideration:
Cash 231,819 438,535 630 670,984
----------------------------------------------------------------------------------------------------
(A) INCLUDES CASH OF $12,142
8. LONG-TERM DEBT
On May 28, 2004 the Corporation issued US $300 million of long-term notes,
bearing interest at 5.625% and maturing on June 1, 2014. These notes are
redeemable at any time by the Corporation upon paying a redemption price equal
to the greater of an amount calculated with reference to the yield on a United
States treasury security with the same maturity and par. Proceeds of the
offering were used to pay down indebtedness incurred in connection with the
acquisition of the worldwide land based drilling assets of GlobalSantaFe
Corporation.
9. SUBSEQUENT EVENT
On July 26, 2004 the Corporation issued 4,000,000 common shares at US $49.80 for
proceeds of approximately US $200 million. On August 10, 2004 the Corporation
issued 400,000 common shares at US $49.80 for proceeds of approximately US $20
million. Proceeds of the offering were used to pay down indebtedness incurred in
connection with the acquisition of all the issued and outstanding shares of
Reeves Oilfield Services Limited.
SHAREHOLDER INFORMATION
DIRECTORS
W.C. (MICKEY) DUNN (2) (3)
Edmonton, Alberta
ROBERT J.S. GIBSON (1) (3)
Calgary, Alberta
MURRAY K. MULLEN (2)
Calgary, Alberta
PATRICK M. MURRAY (1)
Dallas, Texas
FREDERICK W. PHEASEY (2) (3)
Edmonton, Alberta
ROBERT L. PHILLIPS (3)
Vancouver, British Columbia
HANK B. SWARTOUT
Calgary, Alberta
H. GARTH WIGGINS (1)
Calgary, Alberta
(1) Audit Committee member
(2) Compensation Committee member
(3) Corporate Governance and Nominating Committee member
OFFICERS
HANK B. SWARTOUT
Chairman of the Board, President
and Chief Executive Officer
DALE E. TREMBLAY
Senior Vice President Finance
and Chief Financial Officer
IAN E. KELLY
Senior Vice President
International Drilling
JOHN R. KING
Senior Vice President
Technology Services
M.J. (MICK) MCNULTY
Senior Vice President
Operations Finance
R.T. (BOB) GERMAN
Vice President and
Chief Accounting Officer
JAN M. CAMPBELL
Corporate Secretary
HEAD OFFICE
Precision Drilling Corporation
4200, 150-6th Avenue S. W.
Calgary, Alberta, Canada T2P 3Y7
Telephone: 403-716-4500
Facsimile: 403-264-0251
Website: www.precisiondrilling.com
BANKER
Royal Bank of Canada
Calgary, Alberta
LEGAL COUNSEL
Borden Ladner Gervais LLP
Calgary, Alberta
AUDITORS
KPMG LLP
Calgary, Alberta
SHAREHOLDER INFORMATION
STOCK EXCHANGE LISTINGS
Common shares of Precision Drilling Corporation are listed on The Toronto Stock
Exchange under the trading symbols PD and PD.U, and on the New York Stock
Exchange under the trading symbol PDS.
TORONTO (TSX)
January 1, 2004 to June 30, 2004
High: $69.37
Low: $55.89
Volume traded: 37.4 million
NEW YORK (NYSE)
January 1, 2004 to June 30, 2004
High: US $51.30
Low: US $42.30
Volume traded: 26.4 million
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company of Canada
Calgary, Alberta
TRANSFER POINT
Computershare Trust Company, Inc.
New York, New York
ACCOUNT QUESTIONS
Our Transfer Agent can help you with a variety of shareholder related services,
including:
Change of address
Lost share certificates
Transfer of stock to another person
Estate settlement
YOU CAN CALL OUR TRANSFER AGENT TOLL FREE AT:
1-888-267-6555
YOU CAN WRITE TO THEM AT:
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
OR YOU CAN EMAIL THEM AT:
caregistryinfo@computershare.com
Shareholders of record who receive more than one copy of this report can contact
our Transfer Agent and arrange to have their accounts consolidated. Shareholders
who own Precision shares through a brokerage firm can contact their broker to
request consolidation of their accounts.
ONLINE INFORMATION
To receive our news releases by e-mail, or to view this interim report, please
visit our web site at www.precisiondrilling.com and refer to the Investor
Relations section.
ESTIMATED RELEASE DATES
FOR FINANCIAL RESULTS
2004 Third Quarter - October 28, 2004