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 May 12, 2005
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: May 12, 2005
1st QUARTER 2005
PRECISION DRILLING CORPORATION INTERIM REPORT
PERIODS ENDED MARCH 31, 2005 AND 2004
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGHLIGHTS
THREE MONTHS ENDED MARCH 31,
(STATED IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 2005 2004 % Change
--------------------------------------------------------------------------------------------------------------------------
FINANCIAL RESULTS
Revenue $ 791,876 $ 659,365 20.1
Operating earnings (1) 224,241 169,631 32.2
Earnings from continuing operations 138,518 106,082 30.6
Net earnings 138,518 100,519 37.8
Diluted earnings per share:
From continuing operations 2.22 1.88 18.1
Net earnings 2.22 1.79 24.0
Funds provided by continuing operations $ 204,989 $ 178,186 15.0
--------------------------------------------------------------------------------------------------------------------------
MARCH 31, December 31,
2005 2004
--------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 722,638 $ 557,311
Long-term debt (2) 717,095 718,870
Cash and cash equivalents 177,563 122,012
Long-term debt to long-term debt plus equity (2) 0.22 0.24
--------------------------------------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 7
(2) EXCLUDES CURRENT PORTION OF LONG-TERM DEBT
PRECISION DRILLING CORPORATION 1
1st QUARTER 2005
OVERVIEW
Income from continuing operations for the first quarter of 2005 was $139 million
or $2.22 per diluted share, compared to $106 million or $1.88 per diluted share
for the first quarter of 2004.
Revenue increased by 20% to $792 million, with
operating earnings substantially surpassing this
improvement, increasing 32% to $224 million.
Year-over-year, Precision Drilling's three business segments increased
operating earnings with growth of 107% in Energy Services, 43% in Rental and
Production and 16% in Contract Drilling. These improvements were the result of:
o The successful integration of the Compact(TM) wireline services and the
internationally based land drilling rigs acquisitions executed in the
second quarter of 2004;
o Increased service pricing in response to continued strong demand; and
o Enhanced equipment utilization in Energy Services.
It is important to note that this improvement in year-over-year
profitability occurred despite decreased overall activity levels in Canada,
demonstrating the success of Precision's efforts to expand internationally, as
well as its pricing strength in the Canadian market.
International revenue in the first quarter of 2005 increased 51% over
the same period in 2004 due to our successful acquisition of 31 internationally
based land drilling rigs and geographic expansion into high growth markets by
our Energy Services segment. Internationally, Energy Services generated higher
earnings across all product lines in nearly all of the regions in which the
company operates.
PRECISION DRILLING CORPORATION 2
1st QUARTER 2005
SEGMENT REVIEW
THREE MONTHS ENDED MARCH 31,
(STATED IN THOUSANDS OF DOLLARS) 2005 2004 % Change
-----------------------------------------------------------------------------------------------------
OPERATING EARNINGS: (1)
Contract Drilling $ 170,675 $ 147,719 15.5
Energy Services 56,011 27,117 106.6
Rental and Production 13,977 9,741 43.5
Corporate and Other (16,422) (14,946) (9.9)
-----------------------------------------------------------------------------------------------------
$ 224,241 $ 169,631 32.2
-----------------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 7
CONTRACT DRILLING
THREE MONTHS ENDED MARCH 31, % OF % of
(STATED IN THOUSANDS OF DOLLARS, EXCEPT PER DAY/HOUR AMOUNTS) 2005 REVENUE 2004 Revenue
-------------------------------------------------------------------------------------------------------------------------------
Revenue $ 443,192 $ 400,468
Expenses:
Operating 233,095 52.6 216,405 54.0
General and administrative 11,155 2.5 11,054 2.8
Depreciation and amortization 27,763 6.3 24,487 6.1
Foreign exchange 504 0.1 803 0.2
---------------------------------------------------------------------------------------------------------------------------------
Operating earnings (1) $ 170,675 38.5 $ 147,719 36.9
---------------------------------------------------------------------------------------------------------------------------------
% CHANGE
---------------------------------------------------------------------------------------------------------------------------------
Number of drilling rigs (end of period) 277 244 13.5
Drilling rig operating days 16,811 16,097 4.4
Drilling revenue per operating day $ 19,652 $ 17,903 9.8
Number of service rigs (end of period) 239 239 -
Service rig operating hours 139,674 150,693 (7.3)
Service revenue per operating hour $ 600 $ 534 12.4
---------------------------------------------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 7
Revenue in the Contract Drilling segment increased by 11% to $443
million in the first quarter compared to the same period in 2004. This revenue
increase was primarily driven by the acquisition of 31 internationally based
land drilling rigs in May 2004 as well as higher pricing levels in the Canadian
market. This revenue growth rate was partially reduced by lower activity levels
in Canada due to an early spring breakup, which shortened the winter drilling
season.
Operating earnings of $171 million in the first quarter of 2005
increased 16% compared to the same period in 2004. The strong growth in
operating earnings was driven by international drilling rig fleet expansion and
pricing improvements in Canada. Further gains were limited by lower activity in
Canada and by relatively lower margins in the Eastern Hemisphere compared to
Canada. However, recent contract awards in the Eastern Hemisphere have been for
substantially increased drilling rig day rates and improved utilization is
anticipated over the coming months.
The Canadian drilling rig fleet achieved 13,999 operating days, for an
overall utilization rate of 68% in the quarter, compared to 14,768 operating
days and a 72% utilization rate in the first quarter of 2004. The service rig
operation saw operating hours decrease by 7% year-over-year from 150,693 in the
first quarter of 2004 compared to 139,674 in the first quarter of 2005.
PRECISION DRILLING CORPORATION 3
1st QUARTER 2005
The international drilling rig fleet achieved 2,812 operating days, for
an overall utilization rate of 65% in the quarter, compared to 1,329 operating
days and a 77% utilization rate in the first quarter of 2004. The utilization
rate was reduced in the first quarter of 2005 relative to 2004 as there were 400
fewer operating days associated with the Burgos project in Mexico. The rig fleet
numbered 48 at quarter end, an increase of 29 rigs over the prior year.
ENERGY SERVICES
THREE MONTHS ENDED MARCH 31, % OF % of
(STATED IN THOUSANDS OF DOLLARS) 2005 REVENUE 2004 Revenue
---------------------------------------------------------------------------------------------------------------------
Revenue $ 281,725 $ 208,197
Expenses:
Operating 168,850 59.9 134,783 64.7
General and administrative 23,105 8.2 13,129 6.3
Depreciation and amortization 24,213 8.6 20,428 9.8
Research and engineering 11,323 4.0 11,810 5.7
Foreign exchange (1,777) (0.6) 930 0.5
---------------------------------------------------------------------------------------------------------------------
Operating earnings (1) $ 56,011 19.9 $ 27,117 13.0
---------------------------------------------------------------------------------------------------------------------
% Change
---------------------------------------------------------------------------------------------------------------------
Wireline jobs performed 10,403 11,058 (5.9)
Drilling and evaluation operating days 10,607 10,083 5.2
Well testing/CPD (2) man-days 35,881 29,406 22.0
---------------------------------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 7
(2) CONTROLLED PRESSURE DRILLING (CPD)
Energy Services generated revenue of $282 million in the first quarter
of 2005, an increase of 35% or $74 million over the same period in 2004. Of this
increase, $36 million related to the Compact(TM) wireline services acquisition
in May, 2004. Excluding the impact of this acquisition, the remaining $38
million of growth was achieved primarily in international operations with
Canadian revenues effectively flat year over year. In Canada, strong activity in
the first two months of the year was offset by the effects of an early spring
break up.
Wireline Services revenue was $144 million in the first quarter of
2005, an increase of $52 million over the same period in 2004. Excluding the
impact of the Compact(TM) wireline services acquisition, revenues increased by
$16 million or 18%. Of this increase, $5 million was generated in Canada as a
result of increased activity in the first two months of the year, partially
offset by the effects of an early spring break up. The remaining $11 million
increase was driven by improved international results based on increased
activity in the United States, Mexico, Latin America, Asia Pacific and the
Middle East.
Drilling & Evaluation Services revenue increased 25% to $100 million in
the first quarter of 2005 from $80 million in the first quarter of 2004. During
the quarter, revenues from international operations grew by $28 million, driven
by increased utilization of Precision's LWD/HEL tools and rotary steerable
systems, which together provided $14 million of incremental revenue. Offsetting
these results were the effects of an early spring break up in 2005 combined with
increased commoditization of the MWD tools in Canada.
Revenues from Production Services grew by 20% to $36 million in the
first three months of 2005 from $30 million in the first quarter of 2004,
reflecting higher activity in Canada and the Middle East.
Operating earnings increased by $29 million or 107% to $56 million for
the first quarter of 2005, compared to $27 million in the same period of 2004.
This increase is attributable to the Compact(TM) wireline services acquisition,
combined with revenue growth across all product lines and operating cost
PRECISION DRILLING CORPORATION 4
1st QUARTER 2005
improvements. Cost improvements as a percentage of revenue have occurred in the
segment's mature markets as a result of cost control initiatives, and in its
developing markets through the achievement of critical mass. Increased
depreciation, resulting from an increased tool fleet, partially offset these
gains.
RENTAL AND PRODUCTION
THREE MONTHS ENDED MARCH 31, % OF % of
(STATED IN THOUSANDS OF DOLLARS) 2005 REVENUE 2004 Revenue
------------------------------------------------------------------------------------------------------------
Revenue $ 66,959 $ 50,700
Expenses:
Operating 47,144 70.4 35,000 69.0
General and administrative 2,497 3.7 2,644 5.2
Depreciation and amortization 3,311 4.9 3,302 6.5
Foreign exchange 30 0.1 13 0.1
-------------------------------------------------------------------------------------------------------------
Operating earnings (1) $ 13,977 20.9 $ 9,741 19.2
-------------------------------------------------------------------------------------------------------------
% Change
-------------------------------------------------------------------------------------------------------------
Equipment rental days (000's) 223 253 (11.9)
-------------------------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 7
The Rental and Production segment saw a 32% increase in revenue and a
43% increase in operating earnings in the first quarter of 2005 compared to the
same period in 2004. These increases were driven primarily by the industrial
plant maintenance business and its increased activity in the Alberta oil sands
projects.
OTHER ITEMS
Corporate and other expenses remained consistent year over year with
the one exception being foreign exchange gains which amounted to $1.4 million in
the first quarter of 2005 compared to a loss of $0.3 million in 2004.
The Corporation's effective tax rate for the first quarter of 2005 of
34.8% was also consistent with the 2004 rate of 34.3%.
Interest expense increased in the first quarter of 2005 compared to the
same period of the prior year as a result of additional debt incurred in the
second quarter of 2004 to finance business acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity position continues to improve with cash
flow from operations and from the exercise of stock options exceeding net
capital spending by $56 million in the first three months of 2005. The long-term
debt to long-term debt plus equity ratio continued to decline from 0.24 at
December 31, 2004 to 0.22 at March 31, 2005 and the Corporation's $335 million
revolving bank credit facility remains undrawn. During April 2005 the
Corporation issued 30,105 shares on the exercise of stock options.
PRECISION DRILLING CORPORATION 5
1st QUARTER 2005
QUARTERLY FINANCIAL SUMMARY
(STATED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS,
WHICH ARE PRESENTED ON A DILUTED BASIS)
2004 2005
Quarters ended June 30 September 30 December 31 MARCH 31
------------------------------------------------------------------------------------------------------------------------------
Revenue 416,317 570,047 679,487 791,876
Operating earnings (1) 29,037 77,074 148,711 224,241
Earnings from continuing operations 15,982 41,034 86,489 138,518
Per share 0.28 0.68 1.40 2.22
Net earnings 15,995 42,707 88,183 138,518
Per share 0.28 0.71 1.43 2.22
Funds provided by continuing operations 38,947 103,095 174,750 204,989
------------------------------------------------------------------------------------------------------------------------------
2003 2004
Quarters ended June 30 September 30 December 31 March 31
------------------------------------------------------------------------------------------------------------------------------
Revenue 342,246 450,942 523,646 659,365
Operating earnings (1) 12,314 60,958 91,173 169,631
Earnings from continuing operations 8,489 36,455 61,434 106,082
Per share 0.15 0.66 1.11 1.88
Net earnings 8,622 35,765 52,958 100,519
Per share 0.16 0.65 0.95 1.79
Funds provided by continuing operations 21,215 91,764 108,252 178,186
------------------------------------------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 7
(1) OPERATING EARNINGS - 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 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 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
PRECISION DRILLING CORPORATION 6
1st QUARTER 2005
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.
PRECISION DRILLING CORPORATION 7
1st QUARTER 2005
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
(STATED IN THOUSANDS OF DOLLARS) 2005 2004
(UNAUDITED)
-------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 177,563 $ 122,012
Accounts receivable 818,653 690,999
Inventory 120,201 114,352
Future income tax asset 9,266 8,711
-------------------------------------------------------------------------------------------------------------
1,125,683 936,074
Property, plant and equipment, net of accumulated depreciation 1,954,851 1,945,521
Intangibles, net of accumulated amortization 188,550 191,665
Goodwill 734,979 735,413
Other assets 8,658 9,116
Future income tax asset 27,133 32,984
-------------------------------------------------------------------------------------------------------------
$ 4,039,854 $ 3,850,773
-------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 344,649 $ 340,372
Income taxes payable 53,445 31,103
Current portion of long-term debt 18 18
Future income tax liability 4,933 7,270
-------------------------------------------------------------------------------------------------------------
403,045 378,763
Long-term debt 717,095 718,870
Future income taxes 432,801 431,399
Shareholders' equity:
Share capital 1,298,769 1,274,967
Contributed surplus 29,588 26,024
Cumulative translation adjustment (21,645) (20,933)
Retained earnings 1,180,201 1,041,683
-------------------------------------------------------------------------------------------------------------
2,486,913 2,321,741
-------------------------------------------------------------------------------------------------------------
$ 4,039,854 $ 3,850,773
-------------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 61,330 60,790
Common share purchase options outstanding (000's) 2,994 3,348
PRECISION DRILLING CORPORATION 8
1st QUARTER 2005
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
(STATED IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 2005 2004
-------------------------------------------------------------------------------------------------------------
Revenue $ 791,876 $ 659,365
Expenses:
Operating 449,089 386,188
General and administrative 51,912 41,783
Depreciation and amortization 56,736 49,628
Research and engineering 11,323 11,810
Foreign exchange (1,425) 325
-------------------------------------------------------------------------------------------------------------
567,635 489,734
-------------------------------------------------------------------------------------------------------------
Operating earnings 224,241 169,631
Interest 11,748 8,188
-------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes 212,493 161,443
Income taxes:
Current 70,489 35,541
Future 3,486 19,820
-------------------------------------------------------------------------------------------------------------
73,975 55,361
-------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 138,518 106,082
Discontinued operations, net of tax (Note 4) - (5,563)
-------------------------------------------------------------------------------------------------------------
Net earnings 138,518 100,519
Retained earnings, beginning of period 1,041,683 794,279
-------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 1,180,201 $ 894,798
-------------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations:
Basic $ 2.26 $ 1.91
Diluted $ 2.22 $ 1.88
-------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 2.26 $ 1.81
Diluted $ 2.22 $ 1.79
-------------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 61,330 55,753
Weighted average shares outstanding (000's) 61,157 55,485
Diluted shares outstanding (000's) 62,438 56,309
PRECISION DRILLING CORPORATION 9
1st QUARTER 2005
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
(STATED IN THOUSANDS OF DOLLARS) 2005 2004
-------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Continuing operations:
Earnings from continuing operations $ 138,518 $ 106,082
Items not affecting cash:
Depreciation and amortization 56,736 49,628
Stock-based compensation 4,875 2,051
Future income taxes 3,486 19,820
Amortization of deferred financing costs 459 320
Unrealized foreign exchange loss on long-term monetary items 915 285
-------------------------------------------------------------------------------------------------------------
Funds provided by continuing operations 204,989 178,186
Changes in non-cash working capital balances (107,457) (110,258)
-------------------------------------------------------------------------------------------------------------
97,532 67,928
-------------------------------------------------------------------------------------------------------------
Discontinued operations:
Funds used in discontinued operations (Note 4) - (1,588)
Changes in non-cash working capital
balances of discontinued operations - 7,612
-------------------------------------------------------------------------------------------------------------
- 6,024
-------------------------------------------------------------------------------------------------------------
Investments:
Business acquisitions - (630)
Purchase of property, plant and equipment (72,960) (53,728)
Purchase of intangibles (20) -
Proceeds on sale of property, plant and equipment 8,512 4,713
Proceeds on disposal of discontinued operations - 25,746
-------------------------------------------------------------------------------------------------------------
(64,468) (23,899)
-------------------------------------------------------------------------------------------------------------
Financing:
Increase in long-term debt - 1,263
Repayment of long-term debt (4) (4,365)
Issuance of common shares on exercise of options 22,491 30,535
Change in bank indebtedness - (78,647)
-------------------------------------------------------------------------------------------------------------
22,487 (51,214)
-------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 55,551 (1,161)
Cash and cash equivalents, beginning of period 122,012 21,370
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 177,563 $ 20,209
-------------------------------------------------------------------------------------------------------------
PRECISION DRILLING CORPORATION 10
1st QUARTER 2005
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, 2004, 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, 2004 contained in
the Corporation's 2004 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. CHANGES IN ACCOUNTING ESTIMATE
Effective January 1, 2005 Precision changed the useful life of its
drilling rigs for purposes of determining depreciation expense to 5,000
utilization days from 4,150 utilization days (3,650 operating days), and its
drill string to 1,500 from 1,100 operating days. Utilization days include both
operating and rig move days. This change in accounting estimate has been applied
prospectively and resulted in a $4.7 million reduction of depreciation expense
for the three months ended March 31, 2005.
4. DISPOSAL OF DISCONTINUED OPERATIONS
On February 12, 2004, the Corporation sold substantially all of the
assets of Fleet Cementers Inc. On May 7, 2004 the Corporation sold the assets of
the Polar Completions division. On August 31, 2004 the Corporation sold its 65%
interest in United Diamond Ltd. These assets were included in the Energy
Services segment and were disposed of as they were not a core component of the
Corporation's Energy Services globalization strategy.
Results of the operations of these businesses were classified as
results of discontinued operations. The following table provides additional
information with respect to amounts included in the results of discontinued
operations for the three months ended March 31,2004:
-------------------------------------------------------------------------------
Revenue $ 13,992
-------------------------------------------------------------------------------
Results of operations before income taxes $ 2,715
Writedown of assets held for sale (6,117)
-------------------------------------------------------------------------------
(3,402)
PRECISION DRILLING CORPORATION 11
1st QUARTER 2005
Income tax expense 361
-------------------------------------------------------------------------------
Results of operations, before non-controlling interest (3,763)
Non-controlling interest 857
-------------------------------------------------------------------------------
Results of operations (4,620)
Loss on disposal of Fleet Cementers' assets (943)
-------------------------------------------------------------------------------
Discontinued operations $ (5,563)
-------------------------------------------------------------------------------
The following table provides additional information with respect to
amounts included in the statement of cash flow related to discontinued
operations for the three months ended March 31, 2004:
--------------------------------------------------------------------------------
Net loss of discontinued operations $ (5,563)
Items not affecting cash:
Loss on disposal of discontinued operations 943
Depreciation and amortization 879
Non-controlling interest 857
Writedown of assets of discontinued operations 3,293
Future income taxes (1,997)
--------------------------------------------------------------------------------
Funds used in discontinued operations $ (1,588)
--------------------------------------------------------------------------------
5. SEGMENTED INFORMATION
THREE MONTHS ENDED CONTRACT ENERGY RENTAL AND CORPORATE
MARCH 31, 2005 DRILLING SERVICES PRODUCTION AND OTHER TOTAL
-------------------------------------------------------------------------------------------------------------------
Revenue $ 443,192 $ 281,725 $ 66,959 $ - $ 791,876
Operating earnings (loss) 170,675 56,011 13,977 (16,422) 224,241
Research and engineering - 11,323 - - 11,323
Depreciation and
amortization 27,763 24,213 3,311 1,449 56,736
Total assets 1,999,672 1,682,192 194,736 163,254 4,039,854
Goodwill 350,507 355,770 28,702 - 734,979
Capital expenditures 19,694 35,935 10,764 6,587 72,980
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED Contract Energy Rental and Corporate
MARCH 31, 2004 Drilling Services Production and Other Total
-------------------------------------------------------------------------------------------------------------------
Revenue $ 400,468 $ 208,197 $ 50,700 $ - $ 659,365
Operating earnings (loss) 147,719 27,117 9,741 (14,946) 169,631
Research and engineering - 11,810 - - 11,810
Depreciation and
amortization 24,487 20,428 3,302 1,411 49,628
Total assets 1,503,219 1,319,876 177,513 55,927 3,056,535
Goodwill 257,531 242,314 28,702 - 528,547
Capital expenditures* 17,201 25,723 6,465 4,339 53,728
-------------------------------------------------------------------------------------------------------------------
* EXCLUDES BUSINESS ACQUISITIONS
6. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the
current financial statement presentation.
PRECISION DRILLING CORPORATION 12
1st QUARTER 2005
SHAREHOLDER INFORMATION
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the first quarter ended March 31, 2005, an evaluation
of the effectiveness of Precision's "disclosure controls and procedures" (as
such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) was carried out by Precision's
principal executive officer and principal financial officer. Based upon that
evaluation, the principal executive officer and principal financial officer have
concluded that as of the end of that fiscal quarter, Precision's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by Precision in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms.
During the first quarter ending March 31, 2005, there were no changes
in Precision's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, Precision's internal
control over financial reporting.
It should be noted that while Precision's principal executive officer
and principal financial officer believe that Precision's disclosure controls and
procedures provide a reasonable level of assurance that they are effective, they
do not expect that Precision's disclosure controls and procedures or internal
control over financial reporting will prevent all errors and fraud. A control
system, no matter how well conceived or operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
PRECISION DRILLING CORPORATION 13
1st QUARTER 2005
SHAREHOLDER INFORMATION
DIRECTORS
W.C. (Mickey) Dunn (2) (3)
EDMONTON, ALBERTA
Robert J.S. Gibson (1) (3)
CALGARY, ALBERTA
Patrick M. Murray (1)
DALLAS, TEXAS
Frederick W. Pheasey (2) (3)
EDMONTON, ALBERTA
Robert L. Phillips (2) (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,
ENERGY SERVICES
M.J. (Mick) McNulty
SENIOR VICE PRESIDENT,
OPERATIONS FINANCE
R.T. (Bob) German
VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
PRECISION DRILLING CORPORATION 14
1st QUARTER 2005
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
LEAD BANK
ROYAL BANK OF CANADA
CALGARY, ALBERTA
LEGAL COUNSEL
BORDEN LADNER GERVAIS LLP
CALGARY, ALBERTA
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
NEW YORK, NEW YORK
AUDITORS
KPMG LLP
CALGARY, ALBERTA
STOCK EXCHANGE LISTINGS
Common shares of Precision Drilling Corporation are listed on The Toronto
Stock Exchange under the trading symbol PD and PD.U, and on the New York
Stock Exchange under the trading symbol PDS.
TRADING PROFILE
TORONTO (TSX:PD)
January 1, 2005 to
March 31, 2005
High: $97.50
Low: $71.24
Volume traded: 22.5 million
NEW YORK (NYSE:PDS)
January 1, 2005 to
March 31, 2005
High: US $79.69
Low: US $57.77
Volume traded: 18.0 million
TRANSFER AGENT AND REGISTRAR
COMPUTERSHARE TRUST COMPANY OF CANADA
CALGARY, ALBERTA
PRECISION DRILLING CORPORATION 15
1st QUARTER 2005
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
2005 Second Quarter -
July 28, 2005
2005 Third Quarter -
October 27, 2005
PRECISION DRILLING CORPORATION
4200, 150 - 6th Avenue SW, Calgary, Alberta, Canada T2P 3Y7
T 403 716 4500 F 403 264 0251 www.precisiondrilling.com
PRECISION DRILLING CORPORATION 16