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 14, 2003
Commission File Number:
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
-----
HIGHLIGHTS
(Stated in thousands of dollars, except per share amounts)
=========================================================================================================================
Three months ended June 30, Six months ended June 30,
2003 2002 % Change 2003 2002 % Change
Financial Results
Revenue $ 356,561 $ 324,328 9.9 $ 956,234 $ 862,931 10.8
Operating earnings (1) 10,168 2,577 294.6 126,157 114,176 10.5
Earnings from continuing operations 6,473 1,412 358.4 78,250 66,468 17.7
Net earnings 10,862 3,327 226.5 95,759 70,156 36.5
Diluted earnings per share:
From continuing operations 0.12 0.03300.0 1.42 1.2216.4
After discontinued operations 0.20 0.06233.3 1.74 1.2835.9
Funds provided by
continuing operations 20,750 9,494 118.6 151,460 123,998 22.1
=========================================================================================================================
Jun. 30 Dec. 31
2003 2002
Financial Position
Working capital $ 172,516 $ 210,256
Long-term debt (2) $ 411,144 $ 514,878
Long-term debt to long-term debt plus equity (2) 0.20 0.25
-------------------------------------------------------------------------------------------------------------------------
(1) See explanation on page 8
(2) Excludes current portion of long-term debt
This discussion should be read in conjunction with the annual audited
consolidated financial statements of Precision Drilling Corporation
(Corporation) for the fiscal year ended December 31, 2002, as well as the
Management Discussion and Analysis which appears on pages 37 to 49 of the
Corporation's 2002 annual report, and with the interim financial statements for
the periods ending June 30, 2003.
OVERVIEW AND OUTLOOK
Earnings per share from continuing operations for the three months
ended June 30, 2003 was $0.12 compared to $0.03 in the same quarter of 2002.
Included in earnings from continuing operations is a $1.2 million ($0.02 per
share) gain on disposal of equity investments and a $4.3 million ($0.05 per
share) writedown of operating assets in the Technology Services segment. Also
during the quarter the Corporation sold its interest in an Argentinian drilling
rig joint venture realizing a gain on disposal of discontinued operations of
$4.4 million or $0.08 per share, bringing total earnings per share to $0.20. For
the six month period ended June 30, 2003, earnings per share from continuing
operations was $1.42 compared to $1.22 for the same period in 2002.
Revenue of $356.6 million for the quarter increased by $32.2 million or
10% over the prior year. The majority of this increase came from the
Corporation's Canadian operations. Uncertainty as to the timing and duration of
spring breakup always presents challenges in predicting second quarter operating
results and this year was no exception. Strong first quarter demand for services
continued into the second quarter; however activity levels were curtailed by
heavy snowfalls late in the season and extended periods of rain throughout most
of the Western Canadian Sedimentary Basin limiting access to drilling sites.
During the quarter Precision had as many as 80 drilling rigs waiting on weather
conditions to allow them to go to work. The Corporation's Canadian operations
should continue to be the driver for improved earnings in 2003. Customer
requests for services indicate that the activity shortfall experienced in the
second quarter should be made up in the second half of the year.
The Technology Services segment continues with its new tool build
program. The active fleet of HEL(TM) (Hostile Environment Logging) was at 99
strings at June 30. All regional operations have now carried out HEL(TM) jobs
with critical mass now established in Mexico. Future investment is being
directed to increasing tool sizes and expanding concurrent job capability.
The 4 3/4" Revolution(TM) rotary steerable tool was deployed on eight
wells during the second quarter of 2003. The current fleet of 4 3/4" tools
stands at 11 units with the construction of 20 more tools scheduled for the
balance of 2003. The design work for the 6 3/4" rotary steerable is virtually
complete and materials have been ordered to build the initial prototypes. Bench
testing of the 6 3/4" prototypes is scheduled for November and December with
field tests planned for January, 2004.
The TorkBuster(TM) tool is also being deployed in the field with a
total of 60 runs being completed to date. There are currently 19 TorkBuster(TM)
tools (12 - 61/2", 7 - 4 3/4") in the fleet.
Management continues to focus on prioritizing the deployment of these
new tools and improving the efficiency of operations in the Technology Services
segment. The segment's strategic business plan is also being reviewed to
incorporate market developments. Future capital spending decisions and
assessment of the carrying value of the Corporation's investment in the
Technology Services segment will be based upon the results of this process.
During the quarter the Corporation was pleased to announce a US $339
million extension of its multi-well integrated services contract for work in the
Burgos basin in northern Mexico through its affiliate PD Mexicana S. de R.L. de
C.V. (a jointly owned company). The drilling activity will be a seamless
continuation of the initial contract and involves the mobilization of an
additional three rigs by the Corporation bringing the total number of rigs
working under this contract to 10. The Corporation will continue as lead
contractor and will supply services from its other business units.
SEGMENT REVIEW
(Stated in thousands of dollars)
===================================================================================================================
Three months ended June 30, Six months ended June 30,
2003 2002 % Change 2003 2002 % Change
Operating earnings: (1)
Contract Drilling $ 19,552 $ 15,764 24.0 $ 124,315 $ 117,861 5.5
Technology Services (15,449) (15,965) 3.2 (6,485) (7,942) 18.3
Rental and Production 14,275 10,480 36.2 22,610 19,473 16.1
Corporate and Other (8,210) (7,702) (6.6) (14,283) (15,216) 6.1
-------------------------------------------------------------------------------------------------------------------
$ 10,168 $ 2,577 294.6 $ 126,157 $ 114,176 10.5
(1) See explanation on page 8
CONTRACT DRILLING
(Stated in thousands of dollars, except per day/hour amounts)
===================================================================================================================
% of % of
Three months ended June 30, 2003 Revenue 2002 Revenue
Revenue $ 139,082 $ 122,120
Expenses:
Operating 100,400 72.1 87,524 71.7
General and administrative 6,536 4.7 7,479 6.1
Depreciation and amortization 12,660 9.1 11,479 9.4
Foreign exchange (66) -- (126) (0.1)
Operating earnings $ 19,552 14.1 $ 15,764 12.9
-------------------------------------------------------------------------------------------------------------------
% Change
Number of drilling rigs (end of period) 239 239 --
Drilling operating days 6,500 4,966 30.9
Drilling revenue per operating day $ 15,820 $ 16,839 (6.1)
Number of service rigs (end of period) 240 242 (0.8)
Service rig operating hours 77,018 74,946 2.8
Service revenue per operating hour $ 409 $ 405 1.0
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===================================================================================================================
% of % of
Six months ended June 30, 2003 Revenue 2002 Revenue
Revenue $ 474,394 $ 426,680
Expenses:
Operating 297,466 62.7 259,953 61.0
General and administrative 15,185 3.2 16,734 3.9
Depreciation and amortization 38,273 8.1 32,030 7.5
Foreign exchange (845) (0.2) 102 --
-------------------------------------------------------------------------------------------------------------------
Operating earnings $ 124,315 26.2 $ 117,861 27.6
-------------------------------------------------------------------------------------------------------------------
% Change
Number of drilling rigs (end of period) 239 239 --
Drilling operating days 21,966 18,223 20.5
Drilling revenue per operating day $ 15,953 $ 16,896 (5.6)
Number of service rigs (end of period) 240 242 (0.8)
Service rig operating hours 215,936 204,234 5.7
Service revenue per operating hour $ 465 $ 463 0.4
-------------------------------------------------------------------------------------------------------------------
The Contract Drilling Group's revenue increased by 14% in the second
quarter compared to the same quarter last year. For the six-month period,
revenue has increased 11% from the prior year.
In Canada, the rig fleet achieved 5,605 operating days for a 27%
utilization in the quarter compared to 4,146 operating days last year with a 20%
utilization. The increase in rig operating days of 35% for the quarter and 23%
for the six-month period follows the overall industry activity. Average revenue
per day was down marginally in the second quarter of 2003 compared to the second
quarter of 2002 due to the mix of equipment working. However, rig day rates
remained consistent with the second quarter of 2002. Pricing in Canada is
expected to improve in 2003 as anticipated activity reaches record levels.
During the quarter the Corporation experienced an increase in
international drilling activity as the number of operating days increased over
the same quarter in 2002 by 41% to 895 days. The increase in days is the result
of increased activity in Mexico and a one rig project in India. The Corporation
has entered into a second rig contract in India, is mobilizing another rig to
the Middle East and is adding three rigs to its fleet in Mexico.
In 2002 the Corporation was carrying on drilling operations in the US
and accumulated 186 and 405 rig operating days in the three and six month
periods ended June 30, 2002, respectively. No such operations were carried on in
2003.
The service rig fleet generated 77,018 operating hours in the second
quarter, up 3% from the same quarter last year. Average hourly rates have
remained consistent with the second quarter of 2002.
Operating earnings for the quarter as a percentage of revenue for
Contract Drilling increased from 13% to 14%. The increase is due to increased
activity in Canada partially offset by activity disruptions in Venezuela and the
impact of a one time benefit received from the early cancellation of an
international contract received in 2002.
TECHNOLOGY SERVICES
(Stated in thousands of dollars)
===================================================================================================================
% of % of
Three months ended June 30, 2003 Revenue 2002 Revenue
Revenue $ 153,647 $ 146,991
Expenses:
Operating 122,728 79.9 115,447 78.5
General and administrative 16,948 11.1 21,374 14.6
Depreciation and amortization 21,085 13.7 13,986 9.5
Research and engineering 8,364 5.4 8,227 5.6
Foreign exchange (29) -- 3,922 2.7
Operating loss $ (15,449) (10.1) $ (15,965) (10.9)
-------------------------------------------------------------------------------------------------------------------
% Change
Wireline jobs performed 7,735 6,321 22.4
Directional wells drilled 553 372 48.7
Well testing/CPD (1) man-days (Canada only) 7,466 8,329 (10.4)
-------------------------------------------------------------------------------------------------------------------
===================================================================================================================
% of % of
Six months ended June 30, 2003 Revenue 2002 Revenue
Revenue $ 368,387 $ 333,187
Expenses:
Operating 277,038 75.2 248,748 74.7
General and administrative 39,673 10.8 43,207 12.9
Depreciation and amortization 41,593 11.3 29,676 8.9
Research and engineering 17,645 4.8 16,288 4.9
Foreign exchange (1,077) (0.3) 3,210 1.0
Operating loss $ (6,485) (1.8) $ (7,942) (2.4)
-------------------------------------------------------------------------------------------------------------------
% Change
Wireline jobs performed 17,753 15,573 14.0
Directional wells drilled 1,362 787 73.1
Well testing/CPD (1) man-days (Canada only) 25,983 26,549 (2.1)
-------------------------------------------------------------------------------------------------------------------
(1) Controlled Pressure Drilling (CPD)
In the current quarter, revenue for the Technology Services segment was
5% higher than the comparable quarter of 2002. Increases were experienced in all
geographical regions except Europe/Africa and the Mexico integrated services
project. The most significant increase was realized in the Middle East region
where revenue increased $6.7 million (a 113% increase over 2002) due to the
start up of wireline operations in Yemen and additional Controlled Pressure
Drilling contracts in the last 12 months. The US region has experienced revenue
growth in line with the increased rig count. Revenue for the quarter was
contributed from Canada at 31% (2002 - 32%), US 26% (2002- 24%) and
International 43% (2002 - 44%).
Operating earnings as a percentage of revenue improved moderately from
a loss of 11% in the second quarter of 2002 to a loss of 10% this year.
Excluding the $4.3 million writedown of operating assets, operating earnings as
a percentage of revenue would have been a loss of 7%. Depreciation expense
increased as a result of asset writedowns, increased capital assets and a gain
on disposal of capital assets in 2002 of $2.7 million compared to a loss on
disposal in 2003 of $0.4 million. Total capital expenditures in the Technology
Services segment in the last twelve months have been $233.3 million.
The steps initiated in the first quarter to reduce costs and improve
profitability are continuing. In certain international locations these steps
have proven to be a significant challenge and will require more time and
attention to achieve desired results.
RENTAL AND PRODUCTION
(Stated in thousands of dollars)
===================================================================================================================
% of % of
Three months ended June 30, 2003 Revenue 2002 Revenue
Revenue $ 63,832 $ 55,217
Expenses:
Operating 44,467 69.7 38,600 69.9
General and administrative 1,855 2.9 2,349 4.2
Depreciation and amortization 2,973 4.6 3,370 6.1
Foreign exchange 262 0.4 418 0.8
Operating earnings $ 14,275 22.4 $ 10,480 19.0
-------------------------------------------------------------------------------------------------------------------
% Increase
Equipment rental days (000's) 173 125 38.4
Plant maintenance man-days (000's) 81 73 11.0
-------------------------------------------------------------------------------------------------------------------
===================================================================================================================
% of % of
Six months ended June 30, 2003 Revenue 2002 Revenue
Revenue $ 113,453 $ 103,064
Expenses:
Operating 79,631 70.2 71,602 69.4
General and administrative 4,445 3.9 4,843 4.7
Depreciation and amortization 6,292 5.6 6,664 6.5
Foreign exchange 475 0.4 482 0.5
Operating earnings $ 22,610 19.9 $ 19,473 18.9
-------------------------------------------------------------------------------------------------------------------
% Increase
Equipment rental days (000's) 395 299 32.1
Plant maintenance man-days (000's) 141 131 7.6
-------------------------------------------------------------------------------------------------------------------
The Rental and Production Group experienced an increase in revenue of
16% over the prior year to $63.8 million. The segment's rental division realized
higher revenues due to increased rental days and a modest increase in revenue
per rental day driven by the activity levels in Canada. Industrial plant
maintenance revenue was up on the prior year by 11% due to an increase in
activity in Canada. The second quarter of a year is typically the busiest
quarter for industrial plant maintenance.
CORPORATE AND OTHER EXPENSES
Corporate and other expenses of $8.2 million for the second quarter
have remained relatively consistent with the prior year. General and
administrative costs included in corporate and other expenses are comprised
primarily of head office functions.
OTHER ITEMS
Interest expense for the three months ended June 30, 2003 was $9.0
million, an increase of $0.4 million or 5% from the same period last year. The
increase is the result of an increase in average net debt outstanding as the
balance increased from $557.5 million for the second quarter in 2002 to $588.3
million in 2003. Net debt is defined as long-term debt, including current
portion, plus bank indebtedness less cash. The increase in average net debt is
principally due to capital spending in excess of funds provided from operations
over the last 6 months of 2002. For the first six months of 2003 capital
spending, net of proceeds of disposal, is in line with funds provided by
continuing operations.
The effective tax rate on earnings before income taxes, non-controlling
interest and discontinued operations was a recovery of 185% in comparison to a
recovery of 131% in the prior year. The tax benefit derived from how the
Corporation has structured its foreign operations is amplified in the second
quarter and amounts to approximately $0.09 per share for the three months ended
June 30, 2003.
During July the Corporation issued 14,600 shares on the exercise of
stock options.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated from continuing operations for the current quarter were
$20.8 million up 119% from the prior year of $9.5 million. For the six month
period ended June 30, 2003 funds generated from continuing operations was $151.5
million, up 22% from the prior year. Working capital decreased from $210.3
million at December 31, 2002 to $172.5 million at June 30, 2003 and the working
capital ratio declined marginally from 1.54 to 1.46.
The Corporation spent $84.7 million and $157.2 million on capital
additions, net of proceeds of disposal, in the three and six month periods ended
June 30, 2003, respectively. The principal capital additions related to the
Corporation's expansion in the Technology Services segment as the Corporation
continues its new technology roll out and global expansion. During the first
quarter the Corporation received $60.4 million on the sale of Energy Industries
Inc. During the second quarter the Corporation received $7.6 million on the
disposal of investments, $6.9 million on the sale of an Argentina joint venture
and $3.9 million on the exercise of stock options while repaying a net $119.7
million on the debt facilities.
The Corporation's total borrowing at June 30, 2003 amounted to $548.3
million of which 67% was fixed and 33% was floating. The Corporation's long-term
debt to long-term debt plus equity ratio improved from 0.25 as at December 31,
2002 to 0.20 as at June 30, 2003. The Corporation has unused lines of credit
amounting to $269.4 million at the end of the second quarter.
NON-GAAP MEASURE
(1) 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 including, but not limited to, statements as to: future capital
expenditures, including the amount and nature thereof; oil and gas prices and
demand; expansion and other development trends of the oil and gas industry;
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 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 an gas companies to raise capital; the effects of severe weather
conditions on operations and facilities; the existence of operating risks
inherent in the 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
(Stated in thousands of dollars)
===================================================================================================================
June 30, December 31,
2003 2002
(unaudited)
Assets
Current assets:
Cash $ 10,957 $ 17,315
Accounts receivable 414,956 443,799
Income taxes recoverable 7,568 7,804
Inventory 114,081 132,909
-------------------------------------------------------------------------------------------------------------------
547,562 601,827
Property, plant and equipment, net of accumulated depreciation 1,573,462 1,521,444
Intangibles, net of accumulated amortization 69,150 72,380
Goodwill 537,692 546,921
Other assets 11,217 17,443
-------------------------------------------------------------------------------------------------------------------
$ 2,739,083 $ 2,760,015
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (Note 5) $ 114,503 $ 95,321
Accounts payable and accrued liabilities 237,890 268,568
Current portion of long-term debt 22,653 27,682
-------------------------------------------------------------------------------------------------------------------
375,046 391,571
Long-term debt 411,144 514,878
Future income taxes 311,400 318,547
Non-controlling interest 2,585 2,019
Shareholders' equity:
Share capital 923,065 912,916
Retained earnings 715,843 620,084
-------------------------------------------------------------------------------------------------------------------
1,638,908 1,533,000
$ 2,739,083 $ 2,760,015
Common shares outstanding (000's) 54,399 54,067
Common share purchase options outstanding (000's) 3,741 4,119
Consolidated Statements of Earnings and Retained Earnings (unaudited)
(Stated in thousands of dollars, except per share amounts)
===================================================================================================================
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
Revenue $ 356,561 $ 324,328 $ 956,234 $ 862,931
Expenses:
Operating 267,595 241,571 654,510 580,303
General and administrative 31,952 37,835 68,660 77,874
Depreciation and amortization 37,914 29,904 88,527 70,496
Research and engineering 8,364 8,227 17,645 16,288
Foreign exchange 568 4,214 735 3,794
-------------------------------------------------------------------------------------------------------------------
346,393 321,751 830,077 748,755
Operating earnings 10,168 2,577 126,157 114,176
Interest 8,965 8,543 18,400 17,460
Dividend Income -- (39) -- (39)
Gain on disposal of investments (1,164) -- (1,164) --
-------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, non-controlling interest
and discontinued operations 2,367 (5,927) 108,921 96,755
Income taxes:
Current 10,882 11,953 32,917 40,666
Future (15,268) (19,726) (2,812) (11,118)
-------------------------------------------------------------------------------------------------------------------
(4,386) (7,773) 30,105 29,548
Earnings before non-controlling interest
and discontinued operations 6,753 1,846 78,816 67,207
Non-controlling interest 280 434 566 739
-------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 6,473 1,412 78,250 66,468
Gain on disposal of discontinued operations 4,389 -- 17,460 --
Discontinued operations, net of tax (Note 4) -- 1,915 49 3,688
-------------------------------------------------------------------------------------------------------------------
Net earnings 10,862 3,327 95,759 70,156
Retained earnings, beginning of period 704,981 595,648 620,084 528,819
-------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 715,843 $ 598,975 $ 715,843 $ 598,975
Earnings per share from continuing operations:
Basic $ 0.12 $ 0.03 $ 1.44 $ 1.24
Diluted $ 0.12 $ 0.03 $ 1.42 $ 1.22
-------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.20 $ 0.06 $ 1.77 $ 1.31
Diluted $ 0.20 $ 0.06 $ 1.74 $ 1.28
-------------------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 54,399 53,877 54,399 53,877
Weighted average shares outstanding (000's) 54,325 53,612 54,243 53,434
Diluted shares outstanding (000's) 55,203 55,047 55,174 54,638
Consolidated Statements of Cash Flow (unaudited)
(Stated in thousands of dollars)
===================================================================================================================
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
Cash provided by (used in):
Continuing operations:
Net earnings $ 6,473 $ 1,412 $ 78,250 $ 66,468
Items not affecting cash:
Depreciation and amortization 37,914 29,904 88,527 70,496
Gain on disposal of investments (1,164) -- (1,164) --
Future income taxes (15,268) (19,726) (2,812) (11,118)
Non-controlling interest 280 434 566 739
Amortization of deferred financing costs 322 324 644 648
Unrealized foreign exchange gain
on long-term debt (7,807) (2,854) (12,551) (3,235)
-------------------------------------------------------------------------------------------------------------------
Funds provided by continuing operations 20,750 9,494 151,460 123,998
Changes in non-cash working capital balances 149,607 124,842 (1,097) 28,250
170,357 134,336 150,363 152,248
-------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Net earnings 4,389 1,915 17,509 3,688
Items not affecting cash:
Gain on disposal of discontinued operations (4,389) -- (17,460) --
Depreciation and amortization -- 593 133 1,175
Future income taxes -- (45) -- 369
Funds provided by discontinued operations -- 2,463 182 5,232
-------------------------------------------------------------------------------------------------------------------
Investments:
Business acquisitions (Note 3) -- -- (6,800) --
Purchase of property, plant and equipment (91,657) (59,612) (168,383) (106,392)
Purchase of intangibles -- (1,971) (6) (2,086)
Proceeds on sale of property, plant and equipment 6,909 11,144 11,146 17,302
Proceeds on disposal of investments 7,620 -- 7,620 --
Proceeds on disposal of
discontinued operations (Note 4) 6,914 -- 67,274 --
Investments (115) -- (874) (147)
(70,329) (50,439) (90,023) (91,323)
-------------------------------------------------------------------------------------------------------------------
Financing:
Increase in long-term debt -- -- 44,960 10,119
Repayment of long-term debt (135,731) (80,100) (141,171) (86,445)
Issuance of common shares on exercise of options 3,940 14,603 10,149 20,025
Change in bank indebtedness 16,023 (483) 19,182 4,131
-------------------------------------------------------------------------------------------------------------------
(115,768) (65,980) (66,880) (52,170)
Increase (decrease) in cash (15,740) 20,380 (6,358) 13,987
Cash, beginning of period 26,697 6,838 17,315 13,231
-------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 10,957 $ 27,218 $ 10,957 $ 27,218
Notes to Consolidated Financial Statements (unaudited)
(Tabular amounts stated in thousands of dollars, except per share amounts)
--------------------------------------------------------------------------------
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, 2002. 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, 2002 contained in the Corporation's 2002 annual report.
2. 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 our slowest time.
3. ACQUISITION
In February, the Corporation acquired the operating assets of MacKenzie
Caterers (1984) Ltd., a provider of oilfield camp and catering services, for
$6.8 million. The net assets acquired were property, plant and equipment. No
value was assigned to intangibles or goodwill.
4. DISPOSAL OF SUBSIDIARIES
Effective January 1, 2003 the Corporation sold its 100% owned
subsidiary, Energy Industries Inc., for cash proceeds of $ 60.4 million, net of
transaction costs and bank indebtedness assumed by the purchaser. Energy
Industries Inc. was disposed of as it was not a core business to the
Corporations' energy services globalization strategy. Results of Energy
Industries Inc.'s operations have been disclosed as discontinued operations in
comparative periods. Energy Industries Inc. was a component of the Rental and
Production segment.
In May 2003 the Corporation sold its 50% interest in Energy Equipment
Rentals General Partnership ("EER") and Oil Drilling & Exploration (Argentina)
SA ("OD&E") for cash proceeds of $ 6.9 million, net of transaction costs.
Results of EER and OD&E `s operations have been disclosed as discontinued
operations in the current and comparative periods. Both entities were components
of the Contract Drilling segment.
5. BANK INDEBTEDNESS
In May 2003, the Corporation secured a new $30.0 million revolving
demand facility with a Canadian chartered bank. This facility expires on October
31, 2003 and is to be used as bridge financing for the construction of certain
drilling rigs and associated assets. At that time it is anticipated that this
financing will have been converted to term debt. Advances are available under
this facility either at the bank's prime lending rate, U.S. base rate, U.S.
Libor plus .65%, or Bankers' Acceptance plus .65% or in combination. The
Corporation has drawn $10.8 million on this facility as at June 30, 2003.
6. STOCK-BASED COMPENSATION PLANS
The Corporation uses the intrinsic value based method to account for
share options and accordingly, no compensation costs have been recognized in the
financial statements. In accordance with the Corporation's stock option plans,
these options have an exercise price equal to the market price at date of grant.
The per share weighted average fair value of stock options granted during the
six and three month periods ended June 30, 2003 were $19.74 and $17.53
respectively, based on the date of grant using the Black-Scholes option pricing
model with the following assumptions: average risk-free interest rate of 3.76%,
average expected life of 3.37 years and expected volatility of 49% for the six
months ended June 30, 2003 and 3.91%, 2.99 years and 49% respectively for the
three months ended June 30, 2003.
Had the Corporation determined compensation costs based on the fair
value at the date of grant for stock options granted since January 1, 2002; net
earnings and earnings per share (EPS) would have decreased to the pro forma
amounts indicated below. These pro forma amounts reflect compensation cost
amortized over the options vesting period.
===================================================================================================================
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
Net earnings - As reported $ 10,862 $ 3,327 $ 95,759 $ 70,156
- Pro forma $ 8,527 $ 2,135 $ 91,058 $ 68,213
Diluted EPS - As reported $ 0.20 $ 0.06 $ 1.74 $ 1.28
- Pro forma $ 0.15 $ 0.04 $ 1.65 $ 1.25
-------------------------------------------------------------------------------------------------------------------
7. GUARANTEES
The Corporation has entered into agreements indemnifying certain
parties primarily with respect to environmental, tax and specific third party
claims associated with businesses sold by Precision. Due to the nature of the
indemnifications, the maximum exposure under these agreements cannot be
estimated. No amounts have been recorded for such indemnities as the
Corporation's obligations under them are not probable and estimable.
8. SEGMENT INFORMATION
===================================================================================================================
Contract Technology Rental and Corporate
Three months ended June 30 Drilling Services Production and Other Total
2003
Revenue $ 139,082 $ 153,647 $ 63,832 $ -- $ 356,561
Operating earnings (loss) 19,552 (15,449) 14,275 (8,210) 10,168
Research and engineering -- 8,364 -- -- 8,364
Depreciation and amortization 12,660 21,085 2,973 1,196 37,914
Total assets 1,274,722 1,225,377 178,104 60,880 2,739,083
Goodwill 257,531 251,589 28,572 -- 537,692
Capital expenditures 21,698 61,180 3,345 5,434 91,657
-------------------------------------------------------------------------------------------------------------------
2002
Revenue $ 122,120 $ 146,991 $ 55,217 $ -- $ 324,328
Operating earnings (loss) 15,764 (15,965) 10,480 (7,702) 2,577
Research and engineering -- 8,227 -- -- 8,227
Depreciation and amortization 11,479 13,986 3,370 1,069 29,904
Total assets 1,259,952 1,027,329 237,227 80,103 2,604,611
Goodwill 257,531 250,045 37,801 -- 545,377
Capital expenditures 9,163 48,859 3,099 462 61,583
-------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Contract Technology Rental and Corporate
Six months ended June 30 Drilling Services Production and Other Total
2003
Revenue $ 474,394 $ 368,387 $ 113,453 $ -- $ 956,234
Operating earnings (loss) 124,315 (6,485) 22,610 (14,283) 126,157
Research and engineering -- 17,645 -- -- 17,645
Depreciation and amortization 38,273 41,593 6,292 2,369 88,527
Total assets 1,274,722 1,225,377 178,104 60,880 2,739,083
Goodwill 257,531 251,589 28,572 -- 537,692
Capital expenditures* 29,996 121,208 7,194 9,991 168,389
-------------------------------------------------------------------------------------------------------------------
2002
Revenue $426,680 $ 333,187 $ 103,064 $ -- $ 862,931
Operating earnings (loss) 117,861 (7,942) 19,473 (15,216) 114,176
Research and engineering -- 16,288 -- -- 16,288
Depreciation and amortization 32,030 29,676 6,664 2,126 70,496
Total assets 1,259,952 1,027,329 237,227 80,103 2,604,611
Goodwill 257,531 250,045 37,801 -- 545,377
Capital expenditures 19,004 77,022 11,710 742 108,478
-------------------------------------------------------------------------------------------------------------------
(1) Certain expenses have been reclassified between segments to more
appropriately reflect operating earnings.
* Excludes business acquisitions.
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 (3)
Edmonton, Alberta
Hank B. Swartout
Calgary, Alberta
H. Garth Wiggins (1)
Calgary, Alberta
(1) Audit Committee member
(2) Compensation Committee member
(3) Corporate Governance 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
John R. King
Senior Vice President
Technology Services Group
M.J. (Mick) McNulty
Senior Vice President
Operations Finance
R.T. (Bob) German
Vice President Finance 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 symbol PD and on the New York Stock Exchange under
the trading symbol PDS.
Toronto (TSX)
January 1, 2003
to June 30, 2003
High: $56.68
Low: $45.30
Volume traded: 36.3 million
New York (NYSE)
January 1, 2003
to June 30, 2003
High: US $40.52
Low: US $31.10
Volume traded: 28.3 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:
z Change of address
z Lost share certificates
z Transfer of stock to another person
z 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 ourwebsite at www.precisiondrilling.com and refer to the Investor
Relations section.
ESTIMATED RELEASE DATES FOR FINANCIAL RESULTS
2003 Third Quarter
October 30, 2003
2003 Year End Results
February 12, 2004
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 14, 2003
Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and
rules promulgated thereunder, certain certifications are required in respect of
annual and periodic reports filed with the Securities and Exchange Commission.
Although quarterly reports furnished to the SEC on Form 6-K are "current" and
not "periodic" reports, and do not require certification, the following
certifications are given here voluntarily.
FORM 6K EXHIBIT INDEX
EXHIBIT NO. PAGE
----------- ----
99.1 302 Certification - Chief Executive Officer 21
99.2 302 Certification - Chief Financial Officer 22
99.3 906 Certification - Chief Executive Officer 23
99.4 906 Certification - Chief Financial Officer 24