Precision
Drilling Corporation
m o r e t h a n . . .
m e e t s t h e e y e
Annual Report
1999
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
C O N T E N T S
Selected Highlights
Report to Shareholders
Review of Operations
Management’s Discussion and Analysis
Consolidated Financial Statements
Supplementary Information
Corporate Directory
Shareholder Information
2
6
12
40
56
73
75
78
I M A G E S I N T H I S A N N U A L R E P O R T:
Page 5
Page 11
Page 39
Page 55
Page 72
A wireline
Precision’s
The establishment
Precision designs,
Exhaust gas
engineer monitors
breadth of services
of Advantage
data acquisition
and technology
Engineering
engineers and
builds purpose
generation unit
used as service gas
from downhole
can now be
Services, Inc. in
built rigs such as
supply for
tools in one of
Computalog’s
state-of-the-art
wireline trucks.
offered in an
Houston, Texas
our “Super
underbalanced
integrated
approach.
demonstrates
Precision’s
Single” drilling
drilling.
rigs to drill faster,
commitment to
safer and more
cutting-edge
research and
development.
effectively to 2,500
metres.
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A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M O R E T H A N
M E E T S T H E E Y E
Precision Drilling Corporation has assembled the pieces to create a major, multi-faceted, global oilfield
service company. The Corporation has grown from a small Canadian oilfield drilling company into an
integrated, high-tech performer on the international scene. With a series of specifically targeted
acquisitions, an intensified research commitment and a vastly expanded drilling fleet, Precision is
poised to meet customers’ increasingly complex demands anywhere in the world. Backed by a proud
and lengthy tradition of oilfield expertise and top performance, the Corporation now offers a
PrecisionDrilling Corporation
As our annual report cover illustrates, today there is much more than meets the eye at Precision.
technological spectrum of equipment and services proven in the rugged Canadian oilfield environment.
Our cover picture (top left) depicts Precision as a leading provider of underbalanced drilling packages to
offshore drilling platforms. Northland is the world leader in underbalanced drilling systems and services.
It has projects in the North Sea, Middle East, Far East and North America. Underbalanced drilling
techniques can dramatically reduce drilling time and improve productivity of oil and gas reservoirs.
In the centre picture, CEDA uses a highly pressurized stream of water to cut through metal in areas where
there may be a high risk of an explosion using conventional methods. CEDA’s mobile systems perform
this cutting operation without generating heat. This also protects against metal fatigue. This process is
ideal for cutting in refineries, petrochemical processing plants, pipelines and other potentially explosive
atmospheres.
On the bottom right, a highly trained operator is “rigging-up”, ready to run one of Computalog’s many
state-of-the-art, downhole, wireline logging tools. Tools, such as the Multi-Sensor Caliper, shown in the
other two frames, are run into cased wellbores to determine casing integrity.
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A N N U A L
R E P O R T
1
S E L E C T E D
H I G H L I G H T S
GROSS REVENUE
$ Millions
1200
1000
800
600
400
200
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Financial Performance Summary
(Stated in thousands of dollars, except per share amounts)
Revenue
Operating earnings
Cash flow (1)
Per share
Earnings before goodwill amortization
Per share
Net earnings
Per share
Shareholders’ equity
Per share
Net capital expenditures (2)
Long-term debt
1999
(audited)
734,740
117,494
100,036
2.25
50,081
1.13
34,250
0.77
908,795
20.42
41,148
226,815
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
Average number of shares outstanding (000’s)
(1) Funds provided by operations (2) Excludes acquisitions
44,500
Years ended December 31
1998
% Change
(unaudited)
819,135
180,486
168,059
4.01
92,030
2.20
78,415
1.87
751,163
17.93
119,652
280,651
41,904
- 10
- 35
- 40
- 44
- 46
- 49
- 56
- 59
+ 21
+ 14
- 66
- 19
+ 6
CASH FLOW
$ Millions
300
250
200
150
100
50
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
Disclosure Regarding Forward-Looking Statements
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this report which address activities, events or developments which the
Corporation expects or anticipates will or may occur in the future are forward-looking statements, including
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 and developments will conform
with the Corporation’s expectations and predictions is subject to a number of 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
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A N N U A L
R E P O R T
S E L E C T E D
H I G H L I G H T S
NET EARNINGS
Dollars per Share
3
2
1
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
CASH FLOW PER SHARE
Dollars per Share
8
7
6
5
4
3
2
1
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
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 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; changes in laws or
regulations, including environmental and currency regulations; 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.
Quarterly Results Summary (Stated in thousands of dollars, except per share amounts)
(Year ended December 31)
Q1
Q2
Q3
Q4
1999
Revenue
Operating earnings
Cash flow (1)
Per share
Earnings before goodwill amortization
Per share
Net earnings
Per share
193,855
98,134
185,081
257,670
734,740
41,259
2,489
0.06
12,779
0.30
9,057
0.21
4,766
18,937
0.45
5,454
0.13
1,849
0.05
25,802
28,361
0.63
45,667
117,494
50,249
100,036
1.11
2.25
11,797
20,051
50,081
0.44
1.13
15,701
34,250
0.26
7,643
0.17
(Year ended December 31)
Q1
Q2
Q3
Revenue
Operating earnings
Cash flow (1)
Per share
Earnings before goodwill amortization
Per share
Net earnings
Per share
(1) Funds provided by operations
302,763
161,214
180,285
174,873
89,071
99,690
2.39
41,830
1.00
39,014
0.94
23,307
24,203
0.58
20,101
0.48
17,049
0.40
32,475
25,324
0.60
15,201
0.37
11,305
0.27
35,633
18,842
0.44
14,898
0.35
11,047
0.26
0.34
Q4
0.77
1998
819,135
180,486
168,059
4.01
92,030
2.20
78,415
1.87
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P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Share Trading Summary — The Toronto Stock Exchange
$Cdn
1999
March 31
June 30
September 30
December 31
1998
March 31
June 30
September 30
December 31
High
($)
Low
($)
Close
($)
Volume
of shares
Value
($)
21.50
30.75
40.60
39.45
40.60
35.00
36.75
28.95
22.50
36.75
13.25
18.45
27.05
28.25
13.25
23.00
25.00
15.30
16.00
15.30
19.50
28.00
34.00
37.00
37.00
29.95
28.95
19.05
17.45
17.45
13,718,204
14,673,427
14,029,216
8,875,591
234,035,097
384,072,934
487,923,911
294,174,872
51,296,438
1,400,206,814
18,099,590
9,180,119
12,217,022
8,834,917
48,331,648
479,587,806
290,688,685
252,332,294
165,961,021
1,188,569,806
S E L E C T E D
H I G H L I G H T S
SHARE PERFORMANCE – TSE
Canadian Dollars
Precision
TSE 300
2500
2000
1500
1000
500
100
90
91
92
93
94
95 96 97
98 99
99
April 30
Dec. 31
Share Trading Summary — The New York Stock Exchange
SHARE PERFORMANCE – NYSE
US Dollars
Precision
Philadelphia Oil Service
Sector Index
S & P 500
200
180
160
140
120
100
11/96
4/97
4/98
4/99
12/99
$US
1999
March 31
June 30
September 30
December 31
1998
March 31
June 30
September 30
December 31
High
($)
Low
($)
Close
($)
Volume
of shares
Value
($)
14.00
21.13
27.75
26.94
27.75
24.50
25.75
19.75
14.69
25.75
8.81
12.31
18.38
19.13
8.81
16.00
16.94
10.00
10.25
10.00
13.00
19.06
23.19
25.69
25.69
21.13
19.63
12.56
11.31
11.31
4,453,900
7,252,400
9,008,500
9,422,900
30,137,700
14,959,800
7,064,100
8,674,000
4,212,600
34,910,500
50,536,487
126,663,654
212,591,281
212,297,850
602,089,272
276,125,045
156,522,625
119,097,016
51,400,177
603,144,863
4
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A N N U A L
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PrecisionDrilling Corporation
m o r e t h a n . . .
just brute steel.
Wi th leading edge
t echnology, w e
have the tools to
compete as a fully
int egrat ed oilf i eld
se r vi ce s group.
What we think
1999
5
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
R E P O R T T O
As I sit back and reflect on this past year, I marvel at the resilience of the oil and gas industry and the people who
S H A R E H O L D E R S
work in it. North America has just experienced the most dramatic crash and recovery in oil related commodity prices
since the Corporation went public in 1985, and all in a period of approximately eighteen months.
Only twelve months ago West Texas Intermediate (WTI) was at US$12 per barrel and observers were predicting the
final demise of oil and OPEC in particular. Now as we close out the twentieth century, WTI is hovering near US$26
and OPEC is once again demonstrating its strength and ability to capture the attention of all the world’s economies.
The oil and gas service industry is also alive and some companies, like Precision Drilling Corporation, are healthy
and free of the restraints that had been placed on them during the past eighteen months. We are in a unique position
to take advantage of the rationalization that the industry has experienced, as all of our divisions are leaner and
more efficient than at any other time in our history.
The Results
The Corporation decided early in 1999 to change its accounting year end from its original April 30 to December 31
to enable shareholders and analysts to more easily compare our results with our peers, particularly those south of
the border. We believe the comparison will not reflect badly upon us. Although not required, we have chosen to
present our results for a twelve month calendar period in 1999 as well as the obligatory disclosure of the eight month
stub period to December 31, 1999 (see Consolidated Financial Statements), again to facilitate comparisons. The
following summary financial information is provided to demonstrate the dramatic turnaround we have experienced
this year.
Summary Financial Information
(Stated in thousands,
except drilling days and per share amounts)
Number of drilling operating days
% Change
Revenue
% Change
Net earnings
% Change
Net earnings per share
% Change
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R E P O R T
Two Months
Ended December 31
1998
1999
Unaudited Unaudited
4,778
7,223
+51%
$ 179,935
+49%
$ 10,956
+32%
0.24
+26%
$
$ 120,418
$
$
8,296
0.19
Twelve Months
Ended December 31
1998
1999
Unaudited
Audited
32,894
29,084
-12%
$734,740
-10%
$ 34,250
-56%
0.77
-59%
$ 819,135
78,415
1.87
$
$
$
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
R E P O R T T O
S H A R E H O L D E R S
The revenue in calendar 1999 declined 10% to $735 million as drilling days fell 12% to 29,084. In the final two
months of 1999 we can happily report that the Corporation rebounded with a 49% surge in revenue to $180 million,
following a 51% increase in drilling days, over the same period in 1998. Net earnings followed suit with a 32% increase
to $11 million in the last two months, representing 32% of the entire twelve month result of $34 million.
More Than Meets the Eye
However these numbers fail to tell the whole story. In 1999 Precision changed dramatically. Our industrial rentals
company, Certified Rentals, was sold for a premium over cost. Then, just before the industry began to recover, the
Corporation entered a new and more technically demanding market place with the acquisition of Computalog Ltd.
While the sale of Certified removed a steady source of non-oil dependent cash flow, the acquisition of Computalog
added to the Corporation’s oil and gas service industry leadership in Canada and gained it instant access to the high-
tech world of wireline logging, directional drilling, Logging While Drilling (LWD) and Measurement While Drilling
(MWD) technologies. This was just the latest step in the transformation of Precision from simply a western Canadian
drilling company into an international, vertically integrated oilfield services group.
Step One - Broaden the Base
Precision started in 1985 with three drilling rigs and expanded to 19 rigs in 1987 while working solely in Alberta. By
1996 Precision had grown to 84 rigs and started the first phase of its transformation by broadening its base of
operations through the acquisition of EnServ. This first step added our rental and production group as well as adding
service rigs and snubbing units.
The rental group consisting of Smoky and Ducharme (the latter acquired in 1997) have added a strong source of
cash flow while also broadening our oilfield presence. This group, operating under the umbrella of Montero Oilfield
Services Ltd., returned a solid performance in 1999, and is now enjoying a significant strengthening as the well
count in Canada starts to climb.
Energy Industries, which packages and rents or sells gas compression units, had a great year as it benefited from the
huge swing towards drilling for natural gas, building a backlog of orders to $30 million at year end. Although
increased competition has begun to squeeze margins, we nevertheless expect another busy year for the compression
business as demand for natural gas continues unabated.
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P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
R E P O R T T O
S H A R E H O L D E R S
CEDA, the market leader in industrial maintenance and plant turnarounds, continued its steady growth while
providing a counter-cyclical offset to the seasonality associated with drilling in western Canada. CEDA, more than
any other of Precision’s businesses, is well positioned to benefit from the increased investment in the oilsands area
surrounding Fort McMurray, Alberta.
Step Two - Increase the Depth
In 1997 and 1998, we increased the depth of the Corporation by adding 130 drilling rigs to the fleet through a series
of acquisitions forming a strong backbone to support the Corporation’s growth. In 1999, drilling days declined from
the previous year yet the domestic contract drilling group adjusted well to the demands of the commodity price roller
coaster and still managed to generate free cash flow of $70.6 million. Precision operated 222 rigs in western Canada
and internationally.
For the coming year we can see great opportunities within the shallow through deep gas areas. Drilling for gas this
summer could be the busiest we have ever seen. Canada is now over-piped but has a large neighbour to the south
with an ever-increasing appetite for gas. Although demand for gas in North America remains high, the gas wells
being drilled produce fewer and fewer reserves, requiring more and more gas wells to be drilled.
In heavy oil, Precision’s traditional strength, the outlook is also positive. Our Super Single drilling rigs, with their
unique slant drilling capabilities, are in huge demand. In the now economically attractive oilsands areas, we believe
we have some innovative techniques that can aid the production of oil by drilling horizontal wells as an alternative
to open pit mining.
Step Three - Expand Internationally
Last year, while most service companies were focused on dealing with cost cutting and retrenchment, Precision was
turning its attention to further developing its presence in the international drilling arena. We can now boast a fleet
of 11 rigs in the international market place, seven in Venezuela, two in Argentina and one each in Oman and Brazil.
At the time of writing, all 11 rigs had active contracts. Few other international drilling companies can likely make
this claim.
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R E P O R T T O
S H A R E H O L D E R S
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Precision continues to bid on land drilling tenders in South America, the Middle East and the former Soviet Union.
We are pleased to report that we have just been awarded a large contract in Buzachi, Kazakhstan with a US
multinational oil company. While we will never overlook the massive contribution that the domestic fleet provides
to the organization, Precision is strategically enhancing its presence overseas, utilizing its technical know-how and
expertise gleaned from its market leadership position in Canada.
Step Four - Embrace Technology
With two major acquisitions (Northland and Inter-Tech) in 1998, Precision began to embrace a greater
technological focus. By acquiring Northland and Inter-Tech, Precision gained immediate worldwide leadership in
the development of underbalanced drilling techniques, a process that minimizes damage to the formation as it is
being drilled by reducing the weight of drilling fluids, yet still safely controlling the well. In July 1999, the
Corporation acquired the shares of Underbalanced Drilling Services Ltd., which had developed patented technology
for the generation of service gas for use in conjunction with underbalanced drilling projects. Although much
smaller than the others, this acquisition complemented our underbalanced drilling (UBD) group and now enables
us to provide a fully integrated underbalanced drilling product to our customers under the brand name
“Northland”.
The 1999 year however, was tough for Northland as it, more than any division, had to deal head on with the collapse
of international exploration and production investment. Northland has made huge strides to establish itself as a
cost conscious, quality service provider. Northland was honoured to be awarded a second underbalanced drilling
package to work for Shell in the North Sea and a further contract with YPF Maxus offshore in Indonesia. The
addition of the service gas division has brought with it some challenges, as we were forced to complement a process
that was a major technical advancement with sound operating experience and procedures. Again, through the
dedication of our first class operations group, this process is largely completed.
Finally in July 1999, Precision elevated itself to yet another technological plane with the acquisition of Computalog
Ltd. Computalog has long enjoyed a reputation in Canada for quality service in Cased Hole and Open Hole Wireline
Logging. In addition, it is one of the leaders in Canada in the provision of directional drilling, MWD and LWD
services, through United GeoCom Drilling Services, a joint venture with Geoservices of France. However, as a small
public company with limited financial resources, it had tended to lag its bigger competitors in the development of
new proprietary technology.
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P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
R E P O R T T O
S H A R E H O L D E R S
While Precision has the financial strength to fund this development, we also needed to add to the management
depth of that company. As a result, Larry Comeau joined us to provide leadership to the new acquisition and to
develop a strategy for us to elevate Computalog as a world class wireline, LWD and MWD provider. In addition, we
moved quickly to assemble a talented group of scientists in Houston that will focus on upgrading Computalog’s
existing technology and provide it with a truly competitive edge in Canada, the US and overseas.
The Future
As we turn our attention to the future, it is clear that the Corporation has come a long way. However, the journey is
just beginning. We are in the midst of a transformation that will take us from being a small Alberta drilling
company, and convert us into a true multi-faceted oilfield services group able to operate anywhere in the world.
Technology and international are words that can now be easily associated with Precision Drilling Corporation.
We have significant earning power within the contract drilling group that can now be focused on growing the
technology side of our business and that will enable us to compete as a viable, high-tech alternative to the large US
based companies that have dominated the oilfield service business on a worldwide scale. We look forward to adding
Precision Drilling Corporation’s name to that short list of world class oil and gas service companies.
Hank B. Swartout
Chairman of the Board,
President and Chief Executive Officer
March 21, 2000
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A N N U A L
R E P O R T
PrecisionDrilling Corporation
m o r e t h a n . . .
just brute steel.
Wi th l eading edge
t echnology, we
have the tools to
compete as a fully
int egrat ed oil field
se r v ic es group.
What and how we’re doing
1999
11
R E V I E W O F
O P E R A T I O N S
CRUDE OIL PRICES
WTI Calendar year average
US $/Bbl
25
20
15
10
5
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
State of the Industry
As Precision Drilling Corporation turns its eyes toward global expansion and technology, domestic Canadian assets
provide the critical mass with which to underwrite our business strategy. As we continue to transform the
Corporation, we know that the industry and segments we operate within will continue to change as well.
Macroeconomics associated with oil and natural gas supply and demand are the prime drivers for pricing and
profitability within the oilfield service industry.
Industry conditions in Canada, while a subsection of the North American and global market place, provide a special
window into the oil and gas industry. The Western Canadian Sedimentary Basin (WCSB) yields conventional light,
heavy and synthetic crude oil along with natural gas in predominantly shallow and deep formations. Within a
business climate that can experience volatile commodity prices, the WCSB is a vast and dynamic hydrocarbon basin
in a region characterized by cold winters, varied topography and geology, and responsible government regulation.
These winning conditions make western Canada an excellent proving ground for oilfield service providers and their
technology.
In Canada, Precision’s oilfield service segments work within a highly developed and mature industry. With
significant market presence in Contract Drilling, Oilfield Specialty and Rental and Production Services, our core
businesses provide integrated oilfield services that enable our customers to explore and develop oil and gas reserves.
Precision has accumulated knowledge and experience in one of the world’s most prolific and demanding
hydrocarbon basins, the WCSB. Elevated by our past and confident in our skill set, Precision is poised to benefit and
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be challenged by continual transformation underway within our industry. Government initiatives to deregulate the
natural gas industry and to remove artificial petroleum incentives have fostered a market driven economic base.
Investment capital is available purely on business fundamentals; opportunity prevails.
Noteworthy issues and developments in Canada with underlying global significance include the following:
Partnering with regulatory bodies such as Alberta’s Environment and Utility Board and Workers’
Compensation Board has raised industry standards and led to better long-term business decisions.
Precision’s resources, people and equipment, strive to be ‘best in class.’
The WCSB is a mature basin for conventional oil. Low cost service and technological innovation
are necessary to sustain and exploit new production.
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☛
☛
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
R E V I E W O F
O P E R A T I O N S
NATURAL GAS PRICES
AECO-C Calendar year average
Cdn. $/MmBtu
3
2
1
Natural gas demand is growing with excess capacity for export a reality. The rate of gas well
depletion is increasing. Industry needs to drill for natural gas as never before. The demand for
natural gas as an environmentally friendly fuel will increase with nuclear plant shutdowns and
gas-fuelled electrical co-generation for growing industrial, e-commerce and residential markets.
Environmental issues, such as green house gas emissions, will take centre stage. Heightened
global consciousness will influence consumer and business decision making. Investment will be
made — consumers, industries, and companies must do their part.
Heavy oil reserves are plentiful. Drilling will be required, as will technology and acceptable price
differentials to conventional crude.
Precision’s oilfield services are customized to benefit from promising niche markets. These include areas such as
shallow gas, heavy oil and deep foothills drilling. Technological innovation associated with MWD and LWD will
enable better management of downhole properties and will deliver the drill bit to the target zone with more accurate
interpretation of drilling results. As well, UBD techniques will improve the productivity of many existing reservoirs.
The push to explore and develop in more remote areas will promote greater use of camp and catering services.
Increased natural gas production from these remote locations will require higher capacity pipeline compressor
systems and more of them. Industrial maintenance and turnaround services will be in greater demand with oilsand
plant expansion in northeast Alberta.
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97 98 99
While Precision is vertically integrated within the oilfield service sector, drilling rig activity is a leading indicator of
industry health as it occurs early in the exploration and production (E & P) process and traditionally accounts for
approximately 50% of total E & P spending. The need to drill is primarily caused by depletion rates within producing
oil and gas wells.
Statistical averages, such as the following, bring into perspective the prospects for increased drilling and support
services: (Source: Simmons & Co.)
Natural gas decline rates are already steep and rising:
• offshore shelf, Gulf of Mexico – 40% to 50% in the first year of production;
• western Canada – 25% to 30% in in the first year of production.
World oil production is characterized as follows:
• 70% is from fields that are over 30 years old;
• 30% is from fields brought on stream post 1969.
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In response to depleting reserves, exploration and development activity will gradually shift to more remote drilling
locations. Specialized oilfield technology and deep drilling equipment for land and offshore use will be in high
demand in order to meet North American natural gas requirements. The Yukon, Northwest Territories (NWT) and
the Rocky Mountain foothills are being rediscovered. Over the past twenty years only 80 wells in the Yukon and 1,350
in the NWT have been drilled.
Conventional crude oil will be characterized by exploitation drilling and new exploratory and development drilling
in central and northern regions. In comparison to the number of wells drilled in some prolific land basins in the
southern US, opportunity for further infill conventional oil drilling in Canada continues to exist.
ALBERTA NATURAL GAS
PRODUCTION & DECLINE RATES
MMCF/D: FirstEnergy
The prospects for natural gas drilling are fundamentally very strong. The trend over the past 10 years is clear.
Canadian gas exports to the US have increased more than threefold and the number of natural gas wells required
25,000
20,000
15,000
10,000
5,000
Actual Forecast
to maintain and grow production is increasing. In addition, with new pipeline infrastructure such as Alliance and
Northern Border, western Canadian gas producers have tremendous opportunity to access new US markets.
Future
Production
During 1999, natural gas demonstrated price stability and strength as the AECO-C price averaged $2.79 per
gigajoule, an increase of 40% over 1998’s $1.99. With pipeline expansion to the US mid-west markets, western
Production from
1990 – 1999 wells
Canadian natural gas producers have finally narrowed price differentials with their US counterparts. For the third
year in succession, NYMEX versus AECO differentials have been lowered.
Production from
pre 1990 wells
In 1999 a record number of 6,309 natural gas wells were drilled, an increase of 17% over the previous record of 5,370
wells in 1994. Conversely, oil wells, despite a fourth quarter surge of activity, are reported at 2,730, significantly
12/90
12/95
12/00
12/05
below the 8,558 wells drilled in the record setting year of 1997.
While commodity pricing has improved for both natural gas and oil, each market is separate and distinct. Oil is a
global commodity with a vast distribution network. OPEC has significant influence on oil supply and price. Natural
gas is inherently different. In its gaseous state, it can only be transported by pipeline, therefore, its marketability is
dependent on pipeline infrastructure. Price is subject to regional supply and demand factors. As pipeline networks
expand, suppliers have greater access to markets.
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D R I L L I N G
C O R P O R A T I O N
In Canada, Precision’s equipment utilization varies with cash flow generated by our customers through oil and gas
production. Oil drilling in 1996 and 1997 boomed on the strength of heavy oil drilling activity. In response, the
drilling industry built an additional 150 double drilling rigs to meet demand. However, with collapsed oil prices and
unacceptable heavy oil differentials to conventional crude through much of 1998, the drilling industry experienced
a significant decline in rig use. Heavy oil is a tremendous resource to Canada. It offers security of supply and it will
be drilled and produced as technology and process improvements continue to lower production costs.
During 1999, each Precision segment felt the effects of a difficult business climate forged by low oil prices. Customer
demand for services was low and we continued to tightly control discretionary spending. Employment levels in the
field were dramatically cut after four very solid and robust years from 1994 through 1997. After bottoming in
February 1999 at below US$12 WTI a barrel, oil prices staged a steady climb in the second quarter, and strengthened
further to average US$19 and exit the year at US$26. OPEC supply tightening reduced production levels below daily
demand and excess world inventory supply has been significantly drawn down. The dramatic turnaround has
provided our customers with an enormous boost to cash flow. This in turn, after a six-month hesitation, resulted in
rising demand for our services as the oil and gas industry returns to the drill bit to replace and increase production.
Review of Operations
The Corporation operates in three business segments; Contract Drilling Services, Oilfield Speciality Services and
Rental and Production Services.
PRECISION
DRILLING
CORPORATION
OILFIELD
SPECIALTY
SERVICES
CONTRACT
DRILLING
SERVICES
RENTAL AND
PRODUCTION
SERVICES
CANADIAN
DRILLING
INTERNATIONAL
DRILLING
UBD AND
PRODUCTION
TESTING
WIRELINE AND
DIRECTIONAL
DRILLING
WELL SERVICING
RENTAL
PRODUCTION
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O P E R A T I O N S
Precision Drilling Corporation is a complex network of various business lines, many of them dependent on
sophisticated technology operated by highly trained employees and offered on an integrated or stand alone basis.
There is much more to Precision than meets the eye.
Division
Nature of Business
Units of Production
Location
Employees
REVENUE
12 months ended December 1999
Total: $734.7 MM
Contract Drilling Services
PDLP
Contract drilling
211 drilling rigs,
37% of industry
75 oilfield camps
Yard and shop facility,
41,000 square feet.
Camp and catering
Manufacture, repair and
sale of drilling equipment
Procurement and distribution Warehouse and
of oilfield supplies
Contract drilling
distribution facility
11 drilling rigs
LRG
Rostel
Columbia
PDI
Contract Drilling 53%
Oilfield Specialty 23%
Rental & Production 24%
REVENUE
12 months ended December 1998
Total: $819.1 MM
Contract Drilling 57%
Oilfield Specialty 10%
Rental & Production 33%
Oilfield Specialty Services
Computalog Open and cased hole
wireline services,
directional drilling services
Northland Well testing and
underbalanced drilling
services
Hydraulic well
assist snubbing
Contract service rigs
Live
Drive
Rental and Production Services
Montero
Wellsite trailers,
downhole drilling equipment,
surface oilfield equipment
EI
CEDA
Packaging, sales, lease,
rental, and servicing of
natural gas compression
equipment
Industrial maintenance
and turnaround services
December 31, 1999
31 open hole units,
124 cased hole units,
14 slickline,
55 drilling systems
45 testing systems,
38 RBOP ™,
20 UBD systems
20 snubbing units,
40% of industry
76 service rigs,
9% of the industry
300 trailers,
9,500 Jts. of specialty
drill stem, 4,000 tools,
3,500 surface units
95,000 square feet
of production
capacity
Canada – 5 operating
centres, 9 dealerships,
US – 10 operating
centres
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WCSB
WCSB
Calgary
Edmonton
International
WCSB,
US,
South America,
India
WCSB,
Eastern & Western
Hemispheres
WCSB
WCSB
WCSB
WCSB,
International,
excluding the US
Canada,
US
3,459
261
69
33
350
1,040
330
62
480
140
250
750
7,224
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
R E V I E W O F
O P E R A T I O N S
Precision’s Operations in 1999
CANADA
U. S. A.
MEXICO
NETH.
U. K.
GERMANY
VENEZUELA
COLOMBIA
BRAZIL
ARGENTINA
EGYPT
SAUDI ARABIA
OMAN
INDIA
I
N
D
O
N
E
S
I
A
We have begun to establish ourselves as a global provider of oilfield service expertise in each
of our three business segments. The map indicates countries in which Precision provided
services in 1999.
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Contract Drilling Services
Canadian Contract Drilling
RIG UTILIZATION RATE
Percent
Precision
Industry
80
70
60
50
40
30
20
10
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
Precision’s Canadian contract drilling segment continued to lead oilfield service activity in western Canada
throughout 1999. Canadian contract drilling is comprised of four divisions; Precision Drilling Limited
Partnership (PDLP), LRG Catering Ltd. (LRG), Rostel Industries Ltd. (Rostel) and Columbia Oilfield Supply
Ltd. (Columbia). While each business entity is specialized and unique, the primary focus is on the drilling rig
operating for the benefit of the oil and gas customer. Canadian contract drilling, with the breadth and depth of its
operating divisions, ensures that Precision’s customers are given high quality, standardized service at all well
locations. In drilling terms, Precision can efficiently rig-up, drill, tear-out and move a drilling rig. Purpose built
equipment is designed to meet the challenges of drilling and is regularly maintained to reduce field down time.
Precision’s advantage is its ability to operate an integrated group that runs 24 hours a day, 365 days a year, with
mobile equipment in remote locations, fulfilling customized client requirements.
Drilling Performance Summary
Years ended December
Market
Precision Industry Share % Precision Industry Share %
Market
% Change
Precision Industry
1999
1998
Number of drilling rigs
Number of operating days
(spud to release)
Wells drilled
Metres drilled (000’s)
Rig utilization rate
211
577*
29,084 81,748
3,803 11,816
4,613 13,018
37%
40%
*
excludes coiled tubing and non CAODC rigs
Precision Drilling Limited Partnership
37
36
32
35
214
563*
32,894
3,273
4,457
43%
89,401
9,740
12,165
45%
38
37
34
37
- 1
+ 2
- 12
+ 16
+ 4
- 9
+ 21
+ 7
Through all seasons and economic cycles, our oil and gas customers look to Precision to provide safe, reliable and
experienced contract drilling service. As the largest drilling rig contractor in Canada, PDLP operated 211 land
drilling rigs in the WCSB.
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Within contract drilling, we have always focused on partnering with the customer in an effort to provide innovative
solutions. This delivers lowest absolute cost in combination with optimal well production potential. As our industry
matures, competitive pressures guide Precision to continually improve equipment, drilling procedures and
employees’ skills. We are able to service all market segments with our large and versatile fleet of rigs. PDLP led the
industry in 1999 with 3,803 wells and 4,612,779 metres of hole drilled; the distance equivalent to driving from New
METRES DRILLED
Millions
York to Los Angeles.
8
6
4
2
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
MARKET SHARE
Wells Drilled — Percent
40
30
20
10
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
PDLP’s drilling rig fleet decreased by three during the year with two rigs being deployed to Venezuela and a third
retired in December. By depth, rating and derrick size, our rig fleet compares to industry as follows: (Source: CAODC
– includes coiled tubing and estimate of non CAODC member rigs)
Derrick
Super singles
Singles
Doubles
Light triples
Heavy triples
Total fleet
Depth
to 2,500 m.
to 1,200 m.
to 2,500 m.
to 3,600 m.
to 7,600 m.
PDLP
# of rigs % of fleet
6
7
46
23
18
100
13
15
96
49
38
211
Industry
# of rigs
16
92
284
131
72
595
% of fleet
3
15
48
22
12
100
PDLP
Market
Share %
81
16
34
37
53
35
The dramatic improvement in commodity pricing for oil and natural gas will fuel higher demand for our services
in all rig depth categories. After three sluggish quarters in calendar 1999, the fourth quarter’s drilling utilization at
10,320 drilling days and 53% utilization, confirms that our recovery is underway. PDLP exited 1999 with fourth
quarter rig utilization that is 21 percentage points or 65% higher than fourth quarter 1998. It also enabled PDLP to
have average rig utilization of 37% for 1999, 6 percentage points or 14% less than 1998.
Rig activity bottomed out at 10% utilization for the month of May 1999 but steadily increased from that point
through to December 1999. There was some concern over skilled manpower availability as PDLP ramped up from
25 rigs operating to 182 in eight months. The significant 1997-1998 organizational change and new information
systems along with a determined group of employees smoothed the company’s successful gear-up to full capacity.
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MEDICAL AID FREQUENCY
Accidents per 200,000
man hours worked
Precision
Industry * 1999 information
not yet available
12
10
8
6
4
2
93
94
95
96
97
98
99*
LOST TIME ACCIDENTS
Compensible accidents per
200,000 man hours worked
Precision
Industry
5
4
3
2
1
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
A key measure of performance is safety and in 1999 we demonstrated our commitment to eliminate employee
injuries:
817 prospective rig employees participated in PDLP’s 2.5 day in-house Orientation Training
Program, the only program of its kind in the industry; approximately 50% of those were hired;
A 5% reduction in recorded incidents requiring any medical aid;
Our Workers Compensation Board of Alberta experience rating was 17.5% better than industry;
Successfully met our 1999 target for the Alberta Partners in Injury Reduction Program;
Our safety department made 449 rig site visits;
177 drilling rigs, 84 % of our fleet, operated free of any lost time.
In terms of the coming year’s financial commitment, the drilling operations will focus capital expenditure based on
equipment utilization and tangible economic returns. Given the increasing demand for our Super Single rigs, at
least one new rig construction is planned for 2000. Capital will be allocated to Rostel to enhance plant capacity and
productivity in the manufacture and refurbishment of drilling equipment. Columbia is a vital link for our drilling
operations as it provides a centralized procurement system. With a fully integrated planning system, we look for
procurement cost savings and business processes that are simple and timely.
Over the past six months, PDLP’s engineering group has studied developments in coiled tubing technology and the
potential it has in the shallow drilling market. Considerable focus is being invested in the development and
construction of Precision’s advanced coiled tubing rig. A coiled tubing unit consists of a continuous string of flexible
steel pipe (tubing) coiled around a reel together with an injector and blowout preventer system. The drill bit and
mud motor are attached to the tubing to complete the drilling package.
Contract Drilling Support
Columbia became a wholly owned subsidiary of Precision in 1997. It was founded in 1977 as a general oilfield
supply store with drilling contractors as its main customers. Restructured to be fully integrated with the specific
needs of Precision business units, Columbia procures, packages and distributes large volumes of operational
supplies. Operating from a central warehouse facility, Columbia enables Precision to optimize its collective
purchasing power. By standardizing product selection, quality and reliability are enhanced. Through centralized
purchasing and information systems upgrades, Columbia is being positioned to exploit technology to facilitate
93
94
95
96
97
98
99
value based decision making and to simplify business processes.
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LRG is a camp and catering company providing food and accommodation to the Canadian oil and gas drilling
industry. Established in 1976, LRG has grown significantly over the past five years and now operates 75 quality camp
facilities, the second largest provider in Canada. A typical LRG camp is a five-unit structure strategically located near
a remote drilling operation. An oilfield camp facility has evolved to be mobile, operational within hours of arrival,
comfortable and fully equipped to lodge 20 people, with catering service to accommodate up to 80 individuals daily.
Rostel uniquely positions the Corporation as the only Canadian drilling contractor with in-house rig building
capability. Established in 1976 as a machining and fabricating shop, it was acquired by Precision in 1996.
Manufacturing of custom drilling and service rig components is its core business. In addition to quality repair and
construction service, Rostel can sustain high plant utilization providing specialized services that include drilling
equipment inspection and certification.
International Drilling
Precision Drilling International’s (PDI) strategy is to expand into selected global markets enabling the company
to capitalize on its domestic strengths while meeting specific growth goals. A new drilling contract for one rig in
Buzachi, Kazakhstan was awarded to the Company subsequent to year end, to begin in late 2000. In addition, PDI
has commenced business development activities in the Middle East where western oil companies are participating
in a buy-back program of existing oilfields. The company feels there is significant operating potential in markets
where there is strong demand for western technology to improve oil production.
In 1999, PDI had a great year with revenues exceeding $40 million. At year end we had a total of nine rigs in four
countries with a further two under construction for contracts commencing in the first quarter of 2000.
In Venezuela, our drilling operations achieved excellent results, adding an enhanced Super Single
rig to its 4-rig fleet. The newly upgraded rig PD SL735 is equipped to drill to a measured depth of
2,400 metres and has already exceeded customer requirements for drilling specialized infill
horizontal wells. Additionally, we were awarded contracts by Petrozuata to deliver two triple
electric top-drive rigs 736 and 737 in early 2000. Our ability to design, build and deliver high
performance equipment and services was critical in winning this 2-rig tender. Performance
records were set with Rigs 733 and 734, which have cut drilling times for Lasmo now averaging 6
to 7 days per well, down from the budgeted 20.
In Argentina, operations were slow until the last quarter when Rig 39 was awarded a three well
program with Tecpetrol. The outlook for 2000 is vastly improved with both Rig 38 and Rig 39 now
contracted.
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In Brazil, rig 742 was fully utilized throughout 1999 and continues with a further 18 months on
its extended contract.
In Oman, the operator terminated Rig 40’s contract five months prior to the end of its term due
to fiscal cutbacks. Nevertheless, by year-end, the rig had been awarded a 10-month contract
commencing in February 2000 with the same operator.
In 1999 we tendered a multi-rig, multi-year package to a western consortium of oil companies
located in the Aksai gas condensate region of northwest Kazakhstan. At the time of writing, this
contract award was still pending.
With a strong operating base established in Venezuela, PDI is growing in worldwide recognition. Drawing on the
strength of its experienced personnel and the superlative performance of its drilling rig crews, PDI expects to play a
larger role in the international drilling market in 2000.
Oilfield Specialty Services
Computalog Ltd.
Precision Drilling Corporation acquired Computalog Ltd. (Computalog) in July 1999 having recognized the
company’s core strengths of top quality service delivery, highly motivated employees and an ability to effectively
compete in the drilling services and wireline logging industry.
Computalog provides electric wireline logging and directional drilling services to exploration and production
companies. The company manufactures almost all of its tools as well as selling some to third parties. Wireline
services are offered from 11 locations in Canada, 15 in the US, two in Venezuela, one in Argentina and one in
Germany. Directional drilling services are offered from three locations in Canada, four in the US and one in India.
Wireline tools are primarily manufactured in Fort Worth, Texas while directional drilling equipment is engineered
and assembled in Edmonton, Alberta. Computalog also has research and development facilities in Fort Worth and
Houston, Texas.
Once a hole is drilled, wireline or “logging” services are used to measure the physical properties of underground
formations to help determine the location and quantity of oil and gas in a reservoir. Computalog’s wireline business
is divided into two categories: open hole services and cased hole services. Open hole logging assists in locating the
oil and gas by measuring certain characteristics of the geological formation and providing permanent records
called “logs”. Cased hole logging is performed at various times throughout the life of the well and includes
perforating, completion logging and production logging.
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Wireline services are provided from surface units which lower tools and sensors into the wellbore on a conductor
wireline. As the wireline pulls the tools through the wellbore, log measurements are gathered and relayed to a
computerized surface data acquisition and processing system. These state-of-the-art systems are an integral
component of each wireline unit. Computalog can relay this information in real time via a secure satellite
transmission network and secure internet connection to the client’s office for faster evaluation and decision making
to reduce their costs.
Open Hole Services
Open hole logging is performed after a well is drilled. This provides an invaluable benchmark that future well
procedures may be referenced to. The open hole sensors and tools are used to determine well lithology and the
presence of hydrocarbons. Formation characteristics such as resistivity, density and porosity are accurately measured
using sophisticated electronic and mechanical technologies. This data is then used to characterize the reservoir and
describe it in terms of porosity, oil, gas, or water content and an estimation of productivity. This information can
further be refined at a later time in one of the company’s log interpretation centres.
Most of Computalog’s tools and sensors are proprietary. They are deployed from its Canadian and international
bases by a fleet of 31 specialized open hole trucks and skid units.
Cased Hole Services
After the wellbore is cased and cemented, the cased hole division can be used to perform a number of different services.
Perforating the casing allows oil and gas to flow to the surface. Production logging may be performed throughout
the life of the well to measure temperature, fluid type, flow rate, pressure and other reservoir characteristics. This helps
the operator analyze and monitor well performance and determine when a well will need a workover or further
stimulation. In addition, cased hole services may involve wellbore remediation which could include the positioning
and installation of various plugs and packers to maintain production or repair well problems.
Computalog has a total of 124 cased hole and 14 slickline truck or skid mounted units. Of these, 58 cased hole and
six slickline units are based in Canada, 58 cased hole units are deployed in the US and eight cased hole and eight
slickline units operate in South America, through a joint venture.
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C O R P O R A T I O N
Drilling Services
Drilling services assist the client in the controlled drilling of a wellbore to a predetermined target location. The
company can supply specialized equipment including MWD and Computalog Commander™ Drilling Motor systems
along with experienced personnel for directional, horizontal, and underbalanced drilling operations. Services are
available for directional control, slant well drilling, single and multi-lateral horizontal wells, underbalanced drilling,
conduit hole and trenchless conduit drilling, and other directional drilling applications. Directional drilling typically
requires a downhole drilling motor that is hydraulically powered by the drilling mud. This motor then rotates the
drill bit without relying on the rotation of the drill pipe to drill ahead. In addition, MWD systems connected behind
the mud motors relay continuous real time information to the surface to monitor the trajectory of the well being
drilled. Using this information, the operator steers the drill bit to the prescribed target location. Unlike previous
technologies, MWD does not require the drill string to be tripped out so that the well trajectory can be surveyed, and
then tripped in to continue drilling, thus saving valuable time and improving accuracy.
In 1997 Computalog and Geoservices of France formed two unique joint ventures in Canada and the US operating
as United GeoCom Drilling Services. These joint ventures enabled Geoservices’ leading edge electromagnetic MWD
technology to be marketed in Canada and the US in an integrated directional drilling services package with
Computalog’s directional drilling and MWD services. United GeoCom has established itself into a dominant position
in the Canadian directional drilling market and enabled it to continue to expand its US based operation.
The company currently has 55 drilling systems it deploys from its locations in Canada, US and India.
Manufacturing
At its Fort Worth facility, which is ISO 9001 accredited, Computalog designs, manufactures and services open hole
and cased hole logging tools, surface equipment and specialized truck-mounted and skid-mounted wireline logging
units. Some of this production is sold worldwide to other users. Its Edmonton facility designs and assembles mud
pulse MWD systems, drilling motors and certain directional survey tools from parts manufactured by third parties
to the company’s specifications. These products are either used by the company or sold worldwide.
Research and Development
As part of Precision’s commitment to invest in and grow Computalog, the company has accelerated the pace of
development of new technology to better serve the needs of the oil and gas industry.
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The Research and Development (R&D) strategy is aimed at maintaining and advancing service offerings in the
markets in which Computalog has traditionally been strong. This should ensure rapid entry into new markets with
higher-end technology.
Technology Advances in Open Hole and Cased Hole Logging
One of the main R&D focuses has been the development of a new Wireline Communications System (WCS) capable
of handling high data rates. This is essential because of the increasing bandwidth required to transmit data as more
complex sensors are added to the logging tool string. This development is nearing completion and field deployment
will begin in 2000.
New or improved downhole sensor tools soon to be available for open hole logging that will take advantage of the
WCS include:
Monopole-Dipole Acoustic (MDA) tools;
High-Resolution Borehole Compensated Acoustic (HBC) tools;
High Definition Micro Imaging (HMI) tools;
Selective Formation Tester (SFT) tools.
For cased hole services the following tools are under development or improvement to take advantage of the WCS:
Multi-Array Neutron (MAN) tools;
Pulsed Neutron Devices (PND);
Multi-Sensor Caliper (MSC) tools.
Technology Advances In MWD And LWD Services
New markets were the rationale behind the formation of Advantage Engineering Services, Inc. (AES) in 1999. This
Computalog subsidiary will focus on the research and development of MWD and LWD technologies and advanced
drilling systems. This will position Computalog to expand into the higher-end MWD, LWD and directional drilling
markets currently worth over US $2 billion worldwide.
The AES R&D staff consists of leading MWD and LWD industry experts with over 280 years of cumulative experience
in the fields of physics, semiconductor applications, extreme environment, mechanical engineering, and software
design. Its R&D strategy is initially directed towards the high temperature MWD market as well as the Gulf of Mexico
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and deep water drilling markets. AES presently plans to develop and improve the existing MWD, Directional and
Gamma system and develop additional services such as resistivity measurement, pressure while drilling and
environment severity monitoring. Neutron porosity and bulk density sensors will follow.
The outlook is now positive for Computalog. Under Precision, it has the appropriate strategic direction, leadership
and capital to compete effectively with the larger multi-national service companies. At the same time, Precision’s
investment in this “higher end” technology sector of the service business will increase value to both clients and our
shareholders.
Northland Energy Corporation
Northland Energy Corporation (Northland) is a subsidiary of Precision Drilling Corporation created through the
acquisition of Northland and Inter-Tech Drilling Solutions Ltd. in mid 1998. Northland is a “best in class” service
company providing separation services for well testing and stimulation recovery as well as a package of integrated
wellsite services for UBD. It provides global services in three distinct sectors: Canada, the Western Hemisphere
inclusive of the US and Latin America, and the Eastern Hemisphere incorporating the UK, Europe, the Middle East,
Far East and Africa.
In Canada, Northland provides both separation and UBD services with the largest fleet of operating units and a staff
in excess of 200. Outside Canada, Northland’s focus is on UBD services for both land and offshore applications with
conventional separation (cleanup and testing) services limited to specific testing programs in the UK. Although
Northland is recognized as the world leader in UBD services, over 60% of its annual revenues are generated from
conventional separation services.
Conventional Separation and Testing Services
Separation and testing services provides personnel and equipment on a wellsite to recover a mixture of solids, liquids
and gases from oil and gas wells. These recoveries include drilling and workover fluids, stimulation products and
oil and gas hydrocarbons. Northland equipment is used to safely separate these recovered elements into the
respective solids, liquids and gases while accurately measuring each component and ensuring proper well control.
The operator requires these services to properly cleanup the well prior to undertaking a flow test to determine the
deliverability potential of the well. Clients may also utilize the equipment for “kick control” during drilling
operations.
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Northland is the largest provider of such services in Canada with the ability to provide personnel and equipment on
40-45 locations on any given day, 24 hours a day, 365 days a year. Over the last fifteen years Northland has
established a reputation as “best in class” in the provision of these services on the high-pressure, sour gas wells
common to the foothills regions of Alberta and British Columbia.
An extension to the conventional separation services provided by Northland is the provision of incineration systems.
In applications where the operator is forced by regulatory authorities to further restrict gas flaring, the use of portable
incineration systems can ensure a 99.95% efficiency destruction of the waste gases. Although incinerators have been
used for decades to destroy waste gases of various compositions, this equipment has been limited to permanent
installation applications. In 1999 Northland entered into an agreement with a third party to jointly develop portable
incineration units designed specifically to work in conjunction with wellsite separation equipment. Northland
currently has one incineration unit in operation with a second unit to be commissioned in March 2000. Additional
units are to be constructed later in the year based on customer requirements.
Underbalanced Drilling
Northland’s experience in conventional separation services and a commitment to solving our customers’ problems
led to the development of the first separation package for underbalanced drilling in the early 1990’s. From this early
start in underbalanced drilling operations, Northland has grown to be the market leader for UBD services in land
and offshore applications around the world. It offers a complete package of surface equipment as well as engineering
and data acquisition capabilities.
1999 was a year of significant transition for the company as the successful integration of Northland and Inter-Tech
was followed by the acquisition of Underbalanced Drilling Systems Ltd. (UDSL) and its patented exhaust gas process
(EGP) units. By acquiring the EGP technology, Northland is now able to offer an integrated package of UBD services
including wellhead pressure control, surface separation equipment and service gas units. The final piece of the
integrated package was achieved with the restructuring of the sales and engineering groups of the various acquired
entities. This step ensured that we are now able to provide technical support for UBD sales, pre-job engineering to
properly assess UBD candidate wells and the all important wellsite engineering services required to ensure successful
execution of a UBD drilling program.
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Underbalanced drilling involves the modification of the drilling fluid to reduce the Bottom Hole Circulating
Pressure (BHCP) during drilling operations. Although UBD began as a method of addressing formation damage in
horizontal wells, the technology is now applied in numerous other applications that will either increase well
production or reduce drilling and completion costs. In fact, the term underbalanced drilling is often applied to a
variety of drilling operations where the BHCP is equivalent to or above reservoir formation pressure. A more
appropriate name is Controlled Pressure Drilling (CPD), since the intent is to control the BHCP within a desired
operating envelope that satisfies the objectives of the drilling program.
Northland now offers the complete package of surface services for CPD operations including wellhead pressure
control, surface separation, service gas supply as well as wellsite engineering and data acquisition services. The
following discussion will briefly review each of the key elements of these services and the equipment utilized by
Northland.
Wellhead Pressure Control — RBOP™
Since the original applications of rotary drilling, operators have used the hydrostatic pressure of the drilling fluid
column to control the well during drilling operations. The rig blowout prevention (BOP) system was required to
ensure wellhead pressure and flow control during planned testing operations or in the event of a gas kick or
unanticipated reservoir pressure situation. In the event of any unplanned conditions, the operator would typically
suspend drilling operations and secure the well by closing the required BOP element. In CPD applications, the
operator requires an enhanced wellhead BOP system. This accommodates continuous drilling operations under
circulating conditions where there would be positive pressure on the wellhead annulus with live hydrocarbons
blended into the drilling fluid system. Rather than modify the existing wellhead BOP, that is still required for static
well control operations and limited stripping operations, an all-purpose rotating diverter was developed.
The system supplied by Northland is the original patented Rotating Blowout Prevention (RBOP™) technology
recognized worldwide as the optimum wellhead pressure control system for underbalanced drilling. Northland
operates a fleet of 38 RBOP™ units able to mobilize anywhere in the world in land and offshore applications.
Northland now has extensive experience in Canada, Europe, the Middle East, the US, Indonesia and Latin America.
The new 5000 PSI high pressure model is currently on the test stand and it is expected to be in full commercial
operation later in 2000.
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Closed Loop Separation Services
A fundamental component of any CPD program is the requirement for a closed loop surface separation system. The
separation system is a single horizontal or vertical pressure vessel designed to separate the drilling cuttings from the
liquids. It also separates the injected gas and recovered gas from the fluids for direction to flare or processing.
Northland has been the leader in the development of closed loop separation systems designed specifically for
underbalanced drilling operations. It is committed to ongoing separator system development for both land and
offshore applications. Northland currently operates a fleet of 20 CPD separation packages both on land and offshore,
from the cold Canadian north to offshore drilling in the North Sea and the heat of the Middle East. Northland was
the first company to operate an offshore CPD package in full underbalanced conditions for Shell in the North Sea.
We expect to have three or four similar packages on contract for the Eastern Hemisphere in the year 2000.
CPD Service Gas Supply
The final equipment component for most CPD programs is the addition of a gas phase to the drilling fluid. This
artificially reduces the hydrostatic pressure of the annular drilling fluid column. Although almost any gas will satisfy
the density requirements of CPD operations, the operator will typically use an inert gas system in the form of liquid
nitrogen, membrane nitrogen or exhaust gas.
Liquid nitrogen has been used in the oil and gas industry as a source of inert gas for many years. This is based on
availability and the pressure and rate versatility of nitrogen pumping units. Unfortunately, the transportation cost of
the liquid nitrogen from the air separation plant to the wellsite can significantly impact the cost of CPD operations.
In some areas, this added cost makes the overall CPD operation uneconomic. This has led to the development of
alternative nitrogen supply sources for CPD operations, including nitrogen membrane generation units and exhaust
gas compression units.
In mid 1999, Northland added inert gas services to its suite of products by acquiring UDSL, which had developed and
patented the exhaust gas technology. This new proven technology required significant management effort to convert
the science into a viable service focused operation. We believe that through the commitment of both old and new
employees and the in-house expertise of Precision’s own compression group, Energy Industries, this initiative is well
underway. Northland now can provide an oxygen-free inert gas system for all CPD applications and offer a truly
integrated package of “best in class” CPD services matched by no other service group in the world. Based on the
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advantages of the exhaust gas processing technology and the strong customer base for CPD operations in Canada
and the US, Northland constructed two new EGP units engineered and packaged by Energy Industries for delivery
in early 2000. Additional units will be added based on market demands.
As we enter the new millennium, Northland is positioned as the dominant service provider of CPD services on a
domestic and international basis with no peers in equipment or engineering capabilities. Northland’s extensive CPD
experience in Canada, gained through a high level of CPD drilling activity, allows the opportunity to maintain the
best operations and technical staff to fully exploit the growing list of international opportunities. Northland’s
Canadian business ended 1999 in an upswing, and additionally it was awarded CPD contracts for the North Sea,
Indonesia and the Middle East. These markets will expand significantly in the next year, with Northland being the
dominant CPD service provider in all regions.
Well Servicing Group
Precision’s Well Servicing Group was acquired in 1996 as part of the EnServ acquisition. Since this acquisition,
capital resources were committed to grow and upgrade equipment. However, with declining oil prices in 1998 and
faltering utilization, our fleet of service rigs and snubbing units did not expand in 1999. Nonetheless, quality
initiatives to enhance customer service and upgrade existing units of production continued to take priority.
Snubbing Services
Live Well Service (Live) is the largest supplier of snubbing service to the oil and gas industry in western Canada.
With an estimated industry count of 50 units, Live commands a 40% market share. Based in Nisku with an office
and shop facility, the company operates 20 snubbing units. A snubbing unit is truck mounted and, once deployed,
is operated by two employees. Snubbing is a call-out business with short lead times that requires a flexible and
responsive level of service.
Snubbing units are primarily used on natural gas wells while a service (workover) rig is servicing them. The
snubbing unit utilizes blowout prevention equipment at the top of the well bore to enable the extraction and re-
insertion of production tubing in a live well. Since the snubbing unit controls the well at surface, there is no damage
downhole and rates of production are preserved. With the growth in underbalanced drilling, snubbing services are
also being used, in certain instances, to insert the drill string into the top section of the hole to counteract upward
pressure from the well bore.
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Equipment utilization for the past two years has been marginally above 50%, slightly better than expected given
market conditions. With an increase in natural gas well drilling and forecast production increases to meet export
demand, Live is positioned for strong revenue growth.
Well Servicing
Drive Well Servicing (Drive) is based in Red Deer and operates 76 service rigs in western Canada. Drive is the fifth
largest operator in an industry that reported 834 service rigs and 61 different companies. While there are some large
competitors, the industry is highly fractured geographically and extremely competitive. Well service rigs are engaged
by customers to complete new wells and to workover existing wells to optimize and maintain oil and gas production.
Drive’s innovation, coupled with premium people and equipment, provides its clients with cost effective solutions.
This is evident in the success of a database tracking system that assists operators to track repetitive well bore failures,
eliminating costly return service visits to the wellhead. Another initiative was developed to provide a freestanding,
anchorless rig, with the capability to provide cementing services, pipe handling and tubular transport. It has
dramatically reduced customers’ costs.
Capital upgrades have revitalized Drive’s service rig fleet. These upgrades include technological innovation, such as
new generation electronic engines, equipment designed for horizontal directional drilling and water-cooled disc
brakes.
During 1999, Drive service rigs had utilization of 56% which, as reported by the publication “ Drilling Records for
Western Canadian Service Rigs”, matches that of industry.
Consistent with industry fundamentals, Drive is poised to achieve increased equipment utilization on the strength
of higher commodity pricing and improved oilfield service activity.
Rental and Production Services
Rental Services
Montero Oilfield Services Ltd. (Montero) operates rental services through three product lines; wellsite trailers,
downhole drilling equipment and surface oilfield equipment rental.
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Montero’s wellsite trailer business is the manufacture and rental of portable, industrial housing. These units are used
as office and living quarters for on-site supervisors and technical staff in the oil and gas, forestry and construction
industries. Trailer units are delivered to locations with Montero’s own air ride trucks and tri-axle trailers. Our present
rental accommodation fleet consists of 300 fully equipped and furnished units. We pride ourselves on providing
some of the highest quality and well appointed wellsite accommodation units in the industry.
Our 28,000 square foot manufacturing facility in Spruce Grove, Alberta is located on six acres of industrial property.
It is fully equipped to manufacture wellsite accommodation units including custom designed industrial relocatable
housing and office units. Montero manufactures units for its own rental fleet as well as providing sales and
distribution to drilling contractors and international vendors. A total of 19 trailers were manufactured last year.
With oil commodity prices stabilizing and optimism returning to the oil patch, we anticipate that horizontal drilling
will continue to increase. Horizontal drilling now is more complex and requires additional expertise and hence
more housing and office units at the wellsite.
Montero also rents specialized drilling equipment to hydrocarbon producers and service and drilling contractors. Its
present inventory consists of specialized sizes and grades of oilfield tubulars, blowout prevention equipment, valves,
pumps, diverter systems as well as light plants, generators and lighting towers.
The company focuses its marketing on projects that require specialized drill strings or blowout equipment. Each
wellsite is different and requires unique equipment. Orders may be for a single rental tool or for a complete drill
string consisting of drill pipe, heavy walled drill pipe, drill collars, kellys, kelly drives, handling tools, and blowout
preventers.
At the start of this fiscal period the outlook for specialized drilling equipment was bleak as drilling contractors
continued to supply this rental equipment at no charge in order to maintain rig utilization. However, recent
increases in drilling activity have created a huge demand to the point where such equipment is now in short supply.
Further, the stabilization of oil prices has boosted rig rates allowing drilling contractors to price services and supplies
separately.
A further aspect of Montero’s business is the provision of specialized downhole drilling tools. In previous years, it
served as a marketing agent for a major tool manufacturer. However, in recent months Montero has worked closely
with an affiliated company Computalog, to design and build its own line of downhole drilling tools to be marketed
to operators and directional drilling companies.
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Furthermore, Montero is Canada’s largest supplier of general oilfield rental equipment with more than 3,500 pieces
of equipment and a market share in excess of 50%. Montero provides equipment to operators covering all phases of
the E & P process from drilling through well completion to actual oil and gas production. Its fleet consists of storage
tanks, oil and gas separators and related equipment, drilling related surface equipment such as sump and shale
tanks, as well as the patented Vapour Tight Oil Battery that allows the safe single well production of oil with
H2S content.
Montero will continue to maintain market share by offering the best possible service and quality equipment at
pricing that is fair to our customers and shareholders. Growth will be selective rather than broad based. New
equipment will come from the need to add to specific lines that we now carry and by responding to special customer
needs by building equipment to suit.
Activity levels in the oilfield equipment rental business have improved substantially over the last few months,
increasing the need for the extensive inventory of oilfield related equipment that we offer. As drilling activity
continues to grow, we anticipate increased demand for all of Montero’s product lines.
Production Services
Energy Industries Inc. (EI), which serves the Canadian gas compression market, designs and packages a broad
range of natural gas compressors with units ranging from 100 to 5,000 horsepower. The company is an exclusive
original equipment manufacturer packager of the Gemini Gas Compressor Frames driven by Caterpillar and
Waukesha natural gas engines and various electric motor drivers. EI has established itself as an innovative leader
in the design, engineering, manufacturing, leasing and servicing of natural gas compressor packages.
Early in the year, EI solidified its future in Canada and expanded its exposure to the international stage by
renegotiating its distribution contract with Gemini Gas Compressors, which was recently acquired by GE Power
Systems and is now managed by GE Nuovo Pignone. This has enhanced EI’s position through:
extension of the Canadian exclusivity contract for the Gemini Compressor Line to 2010;
approval for expansion into international markets;
access to GE Nuovo Pignones’ high spec compressor line.
EI expanded its product line early in 1999 by signing a contract with the Frick Company to package its Frick Rotary
Screw compressor. The Frick Company has an established worldwide reputation. The screw compressor has been a
successful addition as it complements the reciprocating line by meeting increased demand for booster compression
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applications. The gas compression industry encompasses several applications, including wellhead compression, gas
gathering, gas storage, fuel gas boosting, gas lift, enhanced oil recovery, gas processing and acid gas disposal.
Over the past decade, declining reservoir pressures and production rates, and increasing distances to pipelines and
gas gathering systems have dictated the need for higher horsepower compression. Average horsepower requirements
have more than doubled, from 450 HP to 980 HP. This is evidenced by the company’s completion of one of its largest
orders consisting of four units totaling 13,340 HP.
In the past year, EI expanded its rental fleet from 20 to 24 units. The rental market is expected to grow as current
market conditions have restricted access to capital for many E & P operators. Renting or leasing is an attractive
alternative to outright purchasing as it permits cash flow to be freed up for reinvestment in more productive drilling
and development programs. The company offers a variety of flexible purchase options including renting, leasing,
and buyout options.
EI has also concentrated on enhancing its compressor stocking plan. Building stock packages has been a successful
strategy that facilitates just-in-time deliveries demanded by industry.
The gas compression industry has seen dynamic growth and offers tremendous potential for the future as gas
increasingly becomes the fuel of choice around the world. Recognizing this, EI took possession in March 1999 of an
additional facility in Calgary that now doubles previous production capacity.
CEDA International Corporation (CEDA) is a leading provider of industrial maintenance and turnaround services
as well as specialized services to various production industries in Canada and the US. The main areas of
specialization are industrial cleaning, catalyst handling and mechanical services. These services are often provided
under critical time pressures during scheduled shutdowns or emergencies. Canadian operations are based in five
permanent offices as well as nine dealerships, while in the US a full suite of services is provided out of ten operating
locations.
During the last eight months of 1999, CEDA felt the impact of a downturn in the maintenance budgets of our clients
throughout North America. With the price of oil hitting both an eight year low and high during this period, we found
our clients were delaying ongoing maintenance programs because of the uncertainty of their costs. On the positive
side, maintenance programs that were delayed during this period will have a positive impact on CEDA throughout
2000, as our clients will likely have to catch up on maintenance. Maintenance can only be delayed for so long and
when our clients restore their schedules, it usually means larger and longer projects for CEDA.
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North America’s growing industrial sector continues to create new and expanded business opportunities in the
industrial maintenance and turnaround services. Operations are ideally located in close proximity to the majority
of Alberta’s industrial activity. CEDA offers its industrial clients (which include oil refineries, petrochemical plants,
utility and pulp and paper operations) “one-stop shopping” for the many maintenance services that these plants
require to operate efficiently. CEDA’s diversified operations provide water blasting and vacuum truck services,
chemical cleaning, catalyst handling, environmental services, dredging, dewatering and mechanical services. Since
many processing companies outsource aspects of their operations not key to their core business, (such as industrial
cleaning), CEDA has structured its business to provide the types of industrial and environmental services no longer
done in-house by many processing companies.
For example, the chemical cleaning division has specialized in solving cleaning problems for its clients. Once
retained to clean a processing unit, CEDA’s team of specialists combine their expertise to provide our clients with an
economical and environmental solution. Our in-house chemical laboratory facilities are used to qualify the by-
product waste and through further testing determine the most effective approach for disposal. Skilled technicians
then move on-site and remove the waste product. The company continually updates its practices to ensure clients
receive the best and most environmentally sound maintenance services available.
High pressure water blasting and industrial vacuuming are two of the principal services provided. High pressure
water is used for cleaning processing equipment to ensure efficient heat transfer. It is also used for material cutting
and surface preparation. Various high pressure water cleaning processes have been adapted for use in the pulp and
paper, oil refining and petrochemical industries. The use of robotics in this field has provided CEDA with a
competitive edge while making the task far safer and more cost effective.
Catalyst handling is another specialized service offered. The company is a world leader in this area of industrial
maintenance. Members of CEDA’s Confined Space Entry Team are trained to use proprietary state-of-the-art life
support equipment. This enables them to perform tasks such as removal and replacement of catalysts, vessel
inspection and repair of internal structures inside processing facilities. Because of the specialized nature of this
work, CEDA has developed a number of unique processes and equipment to ensure safe performance in even the
most hostile environments. CEDA’s safety and training program is becoming one of our major selling features.
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During 1999, our Catalyst Group developed the equipment and personnel to lead CEDA into the tubular reactor
market. The Catalyst Group successfully completed two projects using our new equipment, both ahead of schedule
and beyond the expectations of our clients. The Catalyst Group expects increased sales from this area during 2000.
Training programs support CEDA’s outstanding safety record that is vital to new and existing clients.
A key environment-related service offered is the CEDA Emergency Response Team (CERT), which is immediately
available to clients in dealing with dangerous goods spills. Available around the clock, CERT comprises chemists,
engineers, service technicians and response coordinators who are trained in dangerous goods clean up and are
experienced in working in adverse emergency situations. CEDA is a founding member of the Canadian Emergency
Spill Responders Network that offers Canada-wide 24-hour emergency response.
The company operates a modern fleet of equipment that includes portable dredges, dewatering centrifuges and
unique oil-skimming equipment capable of assisting companies in dealing with a variety of water-related
maintenance services including recycling. The equipment and experienced staff service a variety of industries from
chemical plants and refineries to mining, utilities and pulp and paper operations.
Complementing the industrial and catalyst services are CEDA’s mechanical services, which include bolting,
machining and on-line leak repair services. Employing specialized proprietary designed tools, personnel can ensure
client bolting requirements are appropriate for the application, eliminating bolting problems. The company
provides a full range of machining equipment for on-site use to correct any problem flange connections.
Similarly, the company’s expertise in leak repair is well known throughout Canada’s industrial sector. Skilled
technicians can repair virtually any type of leak on-stream regardless of process, temperature or pressure. Repair
techniques are nondestructive and utilize proprietary enclose and clamp design. With over 20 years of experience in
the leak repair business, CEDA is the Canadian leader in this specialized service.
Since clients seek contractors who deliver a wide range of services, CEDA has entered into discussions to deliver full
maintenance contracts to our multi-facility clients. We will also continue to increase our product line. During 1999,
new specialty tools used in cleaning process lines and cokers were developed. These tools open new markets
throughout North America for our specialty divisions.
Mid-year, CEDA acquired the assets of Castlegar Pressure Wash Ltd. This acquisition allowed CEDA to expand its
services in the interior of British Columbia and the northern US. CEDA is continuing to evaluate acquisitions that
bring additional clients, equipment and personnel that complement or add to our current line of services.
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Health and Safety
Concern for the health, safety and well being of employees, customers and the public will continue to be a major
focus of Precision Drilling Corporation. Over the past few years Precision has formulated a participatory approach
to safety throughout the Corporation. Starting with the CEO, all officers, managers and employees are expected to
share an involvement and accountability for safe operations.
The Corporation accepts the responsibility for leadership of the safety program, for its effectiveness and improvement
of safe working conditions. To achieve this commitment, the Corporation has a Health and Safety Policy:
to comply with all municipal, provincial or federal regulations applicable to its operations;
to maintain a well managed safety program to prevent personal injury and to provide a safe and
healthy work environment;
to establish responsibilities for all levels of management, employees and contractors to implement
this policy and to hold them accountable for their actions;
to obtain wholehearted cooperation and input of all employees and contractors in carrying out
safe work procedures;
to ensure that all new employees receive proper orientation followed by constructive on-the-job
training.
The Corporation recognizes that alcohol and drug abuse is a health, safety and security problem that has a direct
negative impact on the workplace and on the strength of Canadian business as a whole. As a responsible employer,
and as a company dedicated to the pursuit of excellence, Precision has a Drug and Alcohol Policy aimed at
establishing as safe and productive work environment as possible. We expect all employees to assist in maintaining
this work environment.
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Environment
Precision Drilling Corporation views environmental issues as key priorities at all levels of the organization. The
Corporation considers the protection of the environment important to the day-to-day conduct of business. It is
committed to providing high standards of environmental care in all phases of operations.
Environmental protection is a team responsibility. Management has developed policies and procedures within each
of its divisions that effectively minimize environmental issues. Employees have the responsibility of bringing to
Management’s attention any procedures or incidents which may impair environmental protection. Procedures have
been developed, with the full involvement of field employees, to monitor and properly dispose of all waste materials.
Training courses covering the protection of the environment are encouraged at field and management levels.
To ensure environmental protection receives constant attention within Precision Drilling Corporation, it is the Policy
of the Corporation:
to comply with all laws and regulations applicable to its operations;
to ensure those potential environmental hazards resulting from company activities are considered
in the planning process and identified during operations in order to minimize concerns and/or
apply corrective action;
to inform employees of legal requirements and provide the training and equipment necessary to
be in compliance with legislation;
to develop the policies, emergency response and operating procedures to minimize the occurrence
and consequences of potential environmental incidents.
Prior to the finalization of any acquisition, the Corporation hires independent consultants to conduct a phase one
environmental study on any related property and facility being purchased or leased. If there is a potential concern,
the Corporation will extend the investigation to a phase two study and ensure that the necessary environmental
clean up is complete before taking responsibility for the property or facility.
Management provides environmental reports to the Board of Directors on a regular basis to keep them informed of
regulatory observance and environmental practices. The Corporation believes that it is in compliance with
applicable legislation and that no material contingent liabilities exist regarding environmental issues.
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PrecisionDrilling Corporation
m o r e t h a n . . .
just brute steel.
Wi th l eading edge
t echnology, we
have the tools to
compete as a fully
int egrat ed oil field
se r v ic es group.
The Results in Detail
1999
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M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
NET EARNINGS
$ Millions
120
100
80
60
40
20
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
The Management’s Discussion and Analysis focuses on key statistics from the Consolidated Financial Statements, and
pertains to known risks and uncertainties relating to the oilfield and industrial service sectors. This discussion should
not be considered all-inclusive, as it excludes changes that may occur in general economic, political and environmental
conditions. Additionally, other elements may or may not occur which could affect the Corporation in the future. In order
to obtain the best overall perspective, this discussion should be read in conjunction with the material contained in other
parts of this annual report including the Corporation’s audited financial statements and the related notes. The effects
on the financial statements arising from differences in generally accepted accounting principles between Canada and
the United States are described in Note 14 to the Consolidated Financial Statements.
Effective December 31, 1999, the Corporation has changed its fiscal period end to December 31 from April 30. The
discussion which follows focuses on the audited results for the twelve months ended December 31, 1999 compared
to the unaudited results for the twelve months ended December 31, 1998. This comparison will best illustrate the
dynamics of our seasonal business and will enhance the reader’s ability to assess the Corporation’s performance and
future prospects. In addition, a brief review of the audited results for the twelve months ended December 31, 1999
as compared to the audited results for the twelve months ended April 30, 1999 is also provided.
December 1999 Compared to December 1998
Highlights
(Stated in thousands of dollars, except per share amounts)
Revenue
Twelve Months Ended December 31
1998
1999
% of
(Audited) Revenue
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
Decrease
Operating earnings
Decrease
Earnings before goodwill amortization
Decrease
Earnings before goodwill amortization per share
Decrease
Net earnings
Decrease
Net earnings per share
Decrease
Funds provided by operations
Decrease
Funds provided by operations per share
Decrease
40
1 9 9 9
A N N U A L
R E P O R T
% of
(Unaudited) Revenue
$ 819,135
22%
11%
180,486
92,030
2.20
16%
7%
5%
78,415
10%
1.87
14%
168,059
21%
4.01
$ 734,740
10%
117,494
35%
50,081
46%
1.13
49%
34,250
56%
0.77
59%
100,036
40%
2.25
44%
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
OPERATING EARNINGS
$ Millions
300
250
200
150
100
50
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Summary Income Statement
(Stated in thousands of dollars)
Operating earnings:
Contract drilling services
Oilfield specialty services
Rental and production services
Corporate and other
Interest
Gain on disposal of subsidiary and investments
Reduction of carrying amount of investments
Reduction of carrying amount of property,
plant and equipment
Earnings before income taxes and goodwill amortization
Income taxes
Earnings before goodwill amortization
Goodwill amortization, net of tax
Net earnings
Consolidated Financial Review
December 31
1999
(Audited)
Twelve Months Ended
December 31
1998
(Unaudited)
$
93,348
11,312
19,705
(6,871)
117,494
16,544
(26,318)
13,101
10,200
103,967
53,886
50,081
15,831
34,250
$
$
$
132,795
9,877
48,091
(10,277)
180,486
19,385
(9,705)
–
–
170,806
78,776
92,030
13,615
78,415
April 30
1999
(Audited)
85,611
7,989
42,362
(4,417)
131,545
18,860
(34,755)
10,947
10,200
126,293
58,032
68,261
14,880
53,381
$
$
The past year tested the Corporation’s ability to adjust to the highs and lows of the oil and gas exploration and
production business. Late in 1998, crude oil prices sank to US $12 per barrel, the lowest level since 1985, and did
not begin to recover in earnest until March 1999. This put severe restraints on our customers’ cash flow and on their
access to external sources of debt and equity financing. As a direct result of limited funding, field activity levels and
pricing for our services declined, which in turn led to reduced revenue and operating margins for the Corporation.
As oil prices improved through the remainder of 1999, our customers used their improved cash flow to first
strengthen their balance sheets. It was not until the fourth quarter that exploration and production companies were
in a position to direct funds to drilling and production enhancement activities. Equipment utilization rates in the
fourth quarter of 1999 exceeded those of 1998, however, pricing was still at or below previous year levels.
The rapid change in business conditions in the span of less than a year presented a number of operational
challenges, the most significant of which was the securing of personnel to operate equipment as demand increased.
1 9 9 9
A N N U A L
R E P O R T
41
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
REVENUE
12 months ended December 1999
Total: $734.7 MM
Contract Drilling 53%
Oilfield Specialty 23%
Rental & Production 24%
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
The strength of the Canadian economy, and the construction industry in particular, produced greater demand for
the labour pool that we traditionally draw from to crew our drilling rigs and other field equipment. Additional
recruiting and training programs were put in place to address this challenge.
Results for the year were also impacted by the Corporation’s efforts to achieve its long-term goal of providing a full
slate of wellsite services. In February 1999, the strategic divestiture of the Corporation’s industrial rental division was
completed in order to take advantage of the strong industrial market and the attractive pricing of potential
investments in our core business. A gain of $23.6 million was realized on this transaction and the $119.3 million
cash proceeds strengthened the Corporation’s balance sheet and its ability to pursue further targeted growth
opportunities. To this end, in July 1999, the Corporation purchased all of the outstanding shares of Computalog.
These two transactions had a positive net impact on revenue in 1999 versus 1998 of approximately $30 million.
However, the sale of the high margin industrial rental division and the acquisition of an oilfield service provider
during a low point in the business cycle further eroded the Corporation’s overall operating margin.
The Corporation’s financial results are prepared in accordance with Canadian Generally Accepted Accounting
Principles (GAAP). In addition, note 14 to the consolidated financial statements describes the impact on the
consolidated financial statements of significant differences between Canadian and US GAAP. Under US GAAP, earnings
per share for the twelve months ended December 31, 1999 is $0.80 compared to $0.77 under Canadian GAAP.
Contract Drilling Services
(Stated in thousands of dollars)
Revenue
Expenses:
Operating
General and administrative
Depreciation
Operating earnings
Twelve Months Ended December 31
1998
1999
% of
(Audited) Revenue
% of
(Unaudited) Revenue
$ 383,921
$ 465,997
237,318
18,497
34,758
$ 93,348
62%
5%
9%
24%
280,063
23,861
29,278
$ 132,795
60%
5%
6%
29%
Contract Drilling Services revenue declined by $82.1 million or 18% in 1999. Canadian drilling operations saw
utilization fall by 12% in 1999 to 29,084 operating days from 32,894 in 1998. Average domestic day rates also
declined by approximately 9% year over year from $10,159 in 1998 to $9,265 in 1999. The decline in Canadian
42
1 9 9 9
A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
drilling activity was partially offset by increased activity internationally, most notably in Venezuela. The number of
rigs working in Venezuela increased from an average of 2.2 in 1998 to 3.6 in 1999 and finished the year with 5 rigs
working on contract.
Efforts to build cost structures that are scalable to activity levels have been successful. Operating and general and
administrative costs as a percent of revenue remained relatively constant at 67% in 1999 compared to 65% in 1998.
Depreciation expense increased in 1999 as the larger, more expensive rigs accounted for a larger portion of domestic
drilling days. Also, depreciation associated with the Venezuela operation increased by $1.8 million due to the
REVENUE
12 months ended December 1998
Total: $819.1 MM
additional rigs working in the country.
Oilfield Specialty Services
Contract Drilling 57%
Oilfield Specialty 10%
Rental & Production 33%
(Stated in thousands of dollars)
Revenue
Expenses:
Operating
General and administrative
Depreciation
Research and engineering
Operating earnings
Twelve Months Ended December 31
1998
1999
% of
(Audited) Revenue
% of
(Unaudited) Revenue
$ 171,881
$
83,932
120,966
18,391
17,583
3,629
$ 11,312
70%
11%
10%
2%
7%
60,425
6,966
6,664
–
9,877
$
72%
8%
8%
–
12%
The $87.9 million increase in Oilfield Specialty Services revenue is attributable to the acquisition of Computalog in
July 1999. Computalog contributed $86.6 million to revenue in 1999. Well servicing revenue declined by $3.0
million or 6% as operating hours fell from 108,255 in 1998 to 106,846 in 1999 and revenue per operating hour
declined by 4%. Utilization of our well servicing rigs was supported by arrangements with our alliance customers in
our key operating areas. Demand for production testing and underbalanced drilling services declined in 1999.
Associated revenues in 1999 amounted to $39.4 million, compared to $34.8 million for the period from May 1, 1998,
the date this business was acquired, to December 31, 1998.
Low oil prices in early 1999 slowed the development of underbalanced drilling in both domestic and foreign
markets, as producers were reluctant to commit scarce funds to relatively new technology. The cost of systems to
support the introduction of underbalanced drilling had a negative impact on margins.
1 9 9 9
A N N U A L
R E P O R T
43
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
The addition of Computalog has impacted the cost structure of this segment in a number of ways. First, general and
administrative expense increased relative to revenue due to the greater number of staff required to support
Computalog’s high tech operations. Second, depreciation expense is more of a fixed cost as Computalog’s capital
assets are depreciated on a straight-line basis. Well servicing capital assets are depreciated on a unit of production
basis. Finally, the Corporation’s commitment to invest in technological innovation is indicated by the amount of
research and engineering expenses being incurred.
Rental and Production Services
NET FIXED ASSETS
$ Millions
800
600
400
200
(Stated in thousands of dollars)
Revenue
Expenses:
Operating
General and administrative
Depreciation
Operating earnings
Twelve Months Ended December 31
1998
1999
% of
(Audited) Revenue
% of
(Unaudited) Revenue
$ 178,938
$ 268,885
133,809
10,849
14,575
$ 19,705
75%
6%
8%
11%
185,651
13,913
21,230
48,091
$
69%
5%
8%
18%
The $89.9 million decline in Rental and Production Services revenue was due to two factors. First was the sale of our
industrial equipment rental operation in February 1999. This resulted in a $56.2 million reduction in revenue.
Second, each of the gas compression, oilfield equipment rental and industrial maintenance and turnaround
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
businesses in this segment experienced reduced demand for their services as a result of depressed oil prices. This
segment was the last component of our business to feel the full affect of low oil prices as its products and services
are associated more with oil and gas production than with drilling activity. Similarly, activity level increases in this
segment will lag those of contract drilling by a short period.
Operating margins declined due to pricing pressures brought on by low demand and the sale of the higher margin
industrial rental business. General and administrative expenses were adjusted as revenues declined, however the
fixed nature of many of these items resulted in a marginal increase in expense as a percent of revenue. Capital assets
in this segment are depreciated on a straight-line basis. The decline in depreciation expense is a result of the sale of
the industrial rental operation.
44
1 9 9 9
A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
Corporate and Other Expenses
Corporate general and administrative expenses, including employee compensation packages, have been managed
in concert with the reduced activity levels across all our business units. The primary reason for the decline in
corporate expenses is reduced salary and bonus payments to employees. Substantial bonuses were incurred in early
1998 related to record activity levels and financial results generated by the Corporation during its old fiscal year
ended April 30, 1998.
Interest Expense
Net interest expense decreased by $2.8 million or 15% due largely to the reduction in the Corporation’s average net
borrowings as a result of the receipt of proceeds from the sale of the industrial rental division in February 1999. Net
borrowings increased in mid 1998 with the cash used in the acquisition of Northland and Inter-Tech and other asset
purchases.
Gain on Disposal of Subsidiary
In February 1999 the Corporation sold its 100% owned subsidiary, Certified Rentals Inc. Certified was in the
industrial tool and equipment rental business. This cash transaction netted proceeds of $119.3 million, after
transaction costs, and the associated gain was $23.6 million.
Gain on Disposal of Investments
CASH FLOW
$ Millions
300
250
200
150
100
50
The Corporation holds an equity investment in a company formerly known as Western Rock Bit Company Limited
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
(WRB) which sold substantially all of its assets and distributed the majority of the proceeds to its shareholders. The
excess of distributions from WRB over the carrying value of the Corporation’s investment in WRB was recognized as
a gain of $11.1 million on the sale of investment. The distributions were received in two components; therefore, $1.4
million of the gain was recorded in 1999 with the larger portion being recorded in 1998. In addition, the
Corporation realized a gain of $1.3 million on the sale of other equity investments.
Reduction of Carrying Amount of Investments
Prior to making the offer to purchase all the remaining shares of Computalog, the Corporation owned 2,563,000
common shares of the company. These shares had an average cost of $12.81 per share. The investment was written
down to a carrying amount of $9.00 per share being the amount originally offered by the Corporation for the
purchase of all the remaining shares of Computalog. In addition, certain other investments were written down to
their estimated net realizable value resulting in a combined charge to income of $13.1 million.
1 9 9 9
A N N U A L
R E P O R T
45
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
CAPITAL EXPENDITURES
$ Millions
150
120
90
60
30
Reduction of Carrying Amount of Property, Plant and Equipment
The carrying amount of the Corporation’s wellsite trailer rental fleet was written down to an amount that reflects
the net estimated revenue it will generate over its useful life. This resulted in a $10.2 million charge to income.
Income Taxes
The effective tax rate on income before taxes and goodwill amortization was 52% in 1999 compared to the statutory
rate of 45%. This increase resulted from the impact of non-deductible items including depreciation ($1.3 million)
and the write down of the investment in Computalog and other investments ($4.9 million). The impact of these
items was offset somewhat by the impact of the utilization of loss carry-forwards ($1.7 million).
Effective January 1, 2000, the Corporation will prospectively adopt the liability method of accounting for income
taxes in accordance with the recommendations of the Canadian Institute of Chartered Accountants. This method is
substantially the same as that required under US GAAP. Prior to this date, the Corporation followed the tax allocation
method of accounting for income taxes. The most significant impact of this change is that the Corporation’s
provision for income taxes in future years will not be increased by the affect of non-deductible depreciation.
Goodwill Amortization
Amortization of goodwill increased by $2.2 million in 1999 over 1998. Northland and Inter-Tech were acquired in
May and June, respectively, of 1998. A full year’s amortization of the goodwill associated with these acquisitions was
charged to income in 1999. The acquisition of Computalog in July 1999 also added to monthly goodwill
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
amortization of approximately $0.2 million.
The Corporation has adopted a recent recommendation of the Canadian Institute of Chartered Accountants’ which
allows the presentation of its earnings both before and after goodwill amortization. This recommendation is
consistent with a practice we expect to be adopted by US companies in 2001, in anticipation of a more restricted use
of the pooling of interests method of accounting for business combinations. This presentation will also better
facilitate a comparison of our results with those of our US peers who have used pooling of interest accounting in the
past.
46
1 9 9 9
A N N U A L
R E P O R T
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
TOTAL ASSETS
$ Millions
1500
1200
900
600
300
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
December 1999 Compared to April 1999
Consolidated Financial Review
Consolidated revenue increased by $40.9 million or 6% in the twelve months ended December 31, 1999 as compared
to the twelve months ended April 30, 1999. The $40.9 million increase in revenue is primarily attributable to the net
impact of the sale of the industrial rental division and the acquisition of Computalog. Canadian drilling activity
increased in the final quarter of calendar 1999 compared to the same period in 1998, however this was offset by
reduced revenue in the Corporation’s other businesses, which tend to lag drilling activity levels.
Consolidated operating earnings declined by $14.1 million and as a percent of revenue declined from 19% to 16%.
Slow demand for oilfield services resulted in steadily declining prices and margins. Although the pricing recovery in
the last quarter of 1999 was significant, it was not sufficient to offset the earlier impact of prolonged depressed
activity levels. In addition, the sale of the high margin industrial rental division and the acquisition of Computalog
at a low point in the oilfield services market, negatively affected operating profitability.
The following analysis addresses variations and items not previously discussed in the comparison of December 1999
and 1998 results.
Contract Drilling Services
(Stated in thousands of dollars)
Revenue
Expenses:
Operating
General and administrative
Depreciation
Operating earnings
December
1999
$ 383,921
237,318
18,497
34,758
$ 93,348
Twelve Months Ended
% of
Revenue
April
1999
% of
Revenue
$ 356,322
219,124
19,579
32,008
85,611
$
62%
5%
9%
24%
62%
5%
9%
24%
Contract Drilling Services revenue increased by $27.6 million or 8%. Canadian drilling operations saw activity
increase 11% to 29,084 operating days from 26,158 for the twelve months ended April 30, 1999. Operating days for
the fourth quarter of calendar 1999 increased by 65% to a total of 10,320 compared to 6,268 for the same period of
1998. In addition, activity in Venezuela increased revenue $16.5 million. Cost structures remained consistent
between the two periods.
1 9 9 9
A N N U A L
R E P O R T
47
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
Oilfield Specialty Services
C O N D I T I O N A N D
(Stated in thousands of dollars)
R E S U L T S O F
O P E R A T I O N S
WORKING CAPITAL
$ Millions
200
150
100
50
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
Revenue
Expenses:
Operating
General and administrative
Depreciation
Research and engineering
Operating earnings
December
1999
$ 171,881
120,966
18,391
17,583
3,629
$ 11,312
Twelve Months Ended
% of
Revenue
April
1999
% of
Revenue
$
94,912
68,114
10,342
8,467
–
7,989
$
70%
11%
10%
2%
7%
72%
11%
9%
–
8%
The increase in revenue is attributable to Computalog, which contributed $86.6 million since its acquisition in July
1999. This increase was offset by reduced demand for well servicing, well testing and underbalanced drilling services.
The overall cost structures of this segment have been relatively consistent between these two comparative periods.
Rental and Production Services
(Stated in thousands of dollars)
Revenue
Expenses:
Operating
General and administrative
Depreciation
Operating earnings
December
1999
$ 178,938
133,809
10,849
14,575
$ 19,705
Twelve Months Ended
% of
Revenue
April
1999
% of
Revenue
$ 242,561
166,628
13,501
20,070
42,362
$
75%
6%
8%
11%
69%
6%
8%
17%
Revenue declined by $63.6 million of which, $48.0 million was due to the sale of the industrial rental division in
February 1999. The remaining decrease is due to lower demand for the oilfield rental, gas compression and
industrial maintenance services offered by this segment. The decline in operating earnings as a percent of revenue
is also due to the sale of the relatively higher margin industrial rental division.
48
1 9 9 9
A N N U A L
R E P O R T
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
LONG TERM DEBT
$ Millions
300
250
200
150
100
50
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Net Interest Expense
Net interest expense decreased by $2.4 million from $18.9 million in the twelve months ended April 30, 1999 to $16.5
million in the twelve months ended December 31, 1999. The decrease is due to interest income earned on the cash
proceeds received on the sale of the industrial rental division offset somewhat by interest on debt assumed on the
acquisition of Computalog.
Liquidity and Capital Resources
Liquidity
Funds provided by operations for the twelve months ended December 31, 1999 amounted to $100.0 million and
capital expenditures amounted to $56.1 million. Over the years the Corporation has maintained the conservative
policy of correlating capital expenditure levels to cash flow. This practice is a key element of our business risk
management strategy and will continue in the future.
At December 31, 1999 the Corporation had working capital of $162.9 million. This amount is net of $50.5 million
of long-term debt, assumed on the acquisition of Computalog. The Corporation intends to repay this credit facility
within the next year, therefore the full amount has been included in current liabilities. The majority of the
Corporation’s remaining long-term debt does not have annual repayment requirements.
The Corporation’s cash balance in excess of what is required for day to day operations is invested in short-term
instruments issued by entities with not less than an R-1 Middle credit rating. The inventory of operating supplies,
parts and materials required to carry on daily operations has increased with the acquisition of Computalog.
Capital Resources
The Corporation has structured its credit arrangements to provide the flexibility necessary to act quickly when
business expansion opportunities arise. The credit facilities allow the Corporation to make investment decisions
independent of short-term cash flow considerations.
At year-end the Corporation had long-term debt of $226.8 million and its long-term debt to equity ratio was a
conservative 0.25 to 1. The Corporation has an extendable revolving unsecured facility of $125.0 million with a
syndicate led by a Canadian chartered bank, which remains unutilized. The Corporation believes that its strong
balance sheet and unutilized borrowing capacity, combined with funds generated from operations will provide
sufficient capital resources to fund its on-going operations and future expansion.
1 9 9 9
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R E P O R T
49
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Business Risks
Crude Oil and Natural Gas Prices
The price received by our customers for the crude oil and natural gas they produce has a direct impact on cash flow
available to them to finance the acquisition of services provided by the Corporation.
Prices for crude oil are established in a worldwide market in which supply and demand are subject to a vast array
of economic and political influences. This results in very volatile pricing; a prime example of which was
experienced in 1999. Natural gas prices are established in a more “local” North American market due to the
requirement to transport this gaseous product in pressurized pipelines. Demand for natural gas is seasonal and is
SHAREHOLDERS' EQUITY
Dollars per Share
correlated to heating and electricity generation requirements.
25
20
15
10
5
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
The Corporation manages the risk of volatile commodity prices, and thus fluctuating demand for its services, by
striving to maintain efficient cost structures that are scalable to activity levels. In addition, our strong balance sheet
and adherence to conservative financing practices provides the resilience to withstand and benefit from downturns
and upturns in the business cycle.
Workforce Availability
The Corporation’s ability to provide reliable services is dependent upon the availability of well trained, experienced
crews to operate our field equipment. The strong Canadian economy combined with the seasonality of employment
offered by many of our business units has increased the challenge of attracting qualified personnel. We must also
balance the requirement to maintain a skilled workforce with the need to establish cost structures that vary with
activity levels.
Our personnel departments have systems in place and expend considerable effort to maintain contact with
employees during periods of low utilization. The Corporation has established training programs for employees new
to the oilfield service sector and we work closely with industry associations to ensure competitive compensation
levels.
50
1 9 9 9
A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
Weather
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 in 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.
VALUE OF SHARES
OUTSTANDING
$ Millions
2000
Working with customers, we try to position equipment such that it can be working on location during spring
breakup, limiting the need to move equipment during this time period as much as possible. However, many
uncontrollable factors affect our ability to plan in this fashion and the spring season, which can occur any time
1500
1000
500
from March through May, is traditionally our slowest time.
Technology
Technological innovation by oilfield service companies has improved the profitability of the entire exploration and
production sector over the industry’s 140-year history. Recently, development of slant drilling, directional and
horizontal drilling, underbalanced drilling, coiled tubing drilling, and methods of providing real time data during
drilling and production operations have increased production volumes and the recoverable amount of discovered
reserves. Innovations such as 3-D and 4-D seismic have maintained the success rate of exploration wells as the
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
quantity of drillable prospects declines.
Our ability to deliver more efficient services is critical to our continued success. The Corporation has continuously
built upon its experience and teamed with customers to provide solutions to their unique problems. Our ability to
design and build specialized equipment has kept us on the leading edge of technology. With the acquisition of
Computalog, the Corporation has entered a segment of the market where high-end technological innovation is
paramount to success. Computalog has recently assembled a team of highly qualified experienced professionals to
focus on developing leading technologies in this market.
1 9 9 9
A N N U A L
R E P O R T
51
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
RETURN ON SALES
Percent
12
10
8
6
4
2
Equity and Debt Markets
The Corporation’s customers have depended on the public equity and debt markets to finance spending on
exploration and development activities that has traditionally exceeded internally generated cash flow. The ability of
our customers to access these sources of financing will impact the long-term demand for the Corporation’s services.
Natural Gas Supply
North American natural gas demand is strong and growing. The industry has focused on the WCSB as the source of
supply to satisfy a significant portion of this increased demand. The Corporation’s substantial operations in western
Canada are poised to benefit from the increased natural gas activity created by this supply and demand imbalance.
Recent offshore natural gas discoveries in eastern Canada could, in the long-term, provide competition to western
Canadian supplies.
Acquisition Integration
The Corporation has worked towards its strategic objective of becoming an integrated service provider of sufficient
size to benefit from economies of scale and to provide the foundation from which to pursue international
opportunities. Business acquisitions have been an important tool in this pursuit and will continue to be so in the
future. Continued successful integration of new businesses, people and systems is key to our future success.
Foreign Operations
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
The Corporation is working hard to export its expertise and technologies to oil and gas producing regions around
the world. With this comes the risk of dealing with business and political systems that are much different than we
are accustomed to in North America. The Corporation has hired employees who have experience working in the
international arena and is committed to including resident nationals on the staffs of international operations.
Foreign Currency Exchange Rates
The Corporation’s primary foreign currency risk exposure is to fluctuations in the Canadian to US dollar exchange
rate. This risk comes from two sources. First, transactions undertaken by the Corporation’s foreign operations are
denominated almost exclusively in US dollars. Second, many of our domestic business units buy a portion of their
parts and materials in the US. As a result, the Corporation is expected to be a net payer of US dollars in the year 2000.
However, this exposure is not significant to the Corporation’s overall operations.
52
1 9 9 9
A N N U A L
R E P O R T
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
RETURN ON ASSETS
Percent
15
12
9
6
3
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Merger and Acquisition Activity
Recent merger and acquisition activity in the oil and gas exploration and production sector has impacted demand
for our services as customers focus on reorganization activities prior to committing funds to significant drilling and
maintenance projects. Continued merger and acquisition activity could have a short-term impact on our business,
but in the long-term should result in stronger, more active customers.
Outlook
Management has an optimistic outlook for the future. Commodity prices in the oil and gas industry are arguably
the best they have ever been.
Oil prices have staged a remarkable recovery thanks to the newfound resolve and cooperation of
OPEC oil producers to reduce production levels. The high crude oil inventory levels that were
overhanging the world market and depressing prices a year ago have now disappeared. World oil
production now has to be increased to meet demand and US$20-plus per barrel oil prices appears
to be sustainable through 2000 and into 2001.
Transportation capacity to move natural gas out of western Canada is now in excess of production
capabilities. Natural gas demand is ever increasing, particularly in the US. Pricing reflects this
tight demand and supply situation. Analysts are currently predicting that Canadian natural gas is
expected to sell for near record prices in 2000.
The economics of heavy oil production, a plentiful resource in western Canada, have improved
dramatically with prices expected to be strong through 2000. Increased refining and pipeline
capacity will aid in maintaining this situation for the longer-term.
Strong commodity prices will give oil and gas producing companies the ability to fund near record
levels of exploration and production activity out of internally generated cash flow. Equity
financing, which has been nearly nonexistent in today’s high-tech focused market, will not be as
critical to sustaining activity levels in the near term.
All three of our business segments have gathered momentum in the last quarter of 1999 and indications are that
this will continue through 2000 and 2001, barring a collapse of crude oil prices. The diversity of our drilling fleet
will allow us to participate in the expected increased drilling for deep foothills gas, shallow gas and heavy oil.
1 9 9 9
A N N U A L
R E P O R T
53
☛
☛
☛
☛
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
M A N A G E M E N T ’ S
D I S C U S S I O N A N D
A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D
R E S U L T S O F
O P E R A T I O N S
OPERATING EARNINGS
Percent of Sales
30
25
20
15
10
5
93
94
95
96
97 98
99 98 99
April 30
Dec. 31
The cyclical downturn we experienced in 1998/1999 resulted in a more efficient operation, which will lead to
improved profitability as we take advantage of the operating leverage associated with our business. Our international
drilling operations have proven successful and we are optimistic that we will be able to announce further growth in
the near future.
The addition of Computalog to our Oilfield Specialty Services segment was timely. Its wireline logging, LWD and
MWD equipment are working at full capacity. The strong oilfield services market will provide ample opportunity to
capitalize on the anticipated results of our extensive research and development effort in this high-tech field. The
segment’s underbalanced drilling services are also in high demand in Canada and we have recently been awarded
additional international contracts by major companies. Acceptance of this new technology was delayed by the low
oil price induced cut backs in worldwide exploration and production activity. However, recent interest indicates that
this situation is changing. The call on our well servicing rigs and snubbing units to perform well completion and
production maintenance and enhancement work will be strong as high drilling activity results in new wells being
put into production.
Utilization of our fleet of rental equipment and wellsite trailers is weighted towards oil exploration and development
activity and these assets will generate improved results with the renewed interest in heavy oil. Our compression
manufacturing business entered 2000 with an order backlog of $30 million and demand should remain high as
new gas wells are brought on production in order to fill expanded transportation capacity. Our industrial services
group is expected to continue its steady growth and is well positioned to benefit from the increased investment in
Alberta’s oilsands projects.
Finally, we will continue to explore acquisition opportunities that will further our objective of being a high-tech,
international, integrated oil and gas service company.
54
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A N N U A L
R E P O R T
PrecisionDrilling Corporation
m o r e t h a n . . .
just brute steel.
Wi th l eading edge
t echnology, we
have the tools to
compete as a fully
int egrat ed oil field
se r v ic es group.
The Numbers in Full
1999
55
M A N A G E M E N T ’ S
R E P O R T
T O S H A R E H O L D E R S
For the eight months ended
December 31, 1999 and
years ended December 31
and April 30, 1999
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
The accompanying consolidated financial statements and all information in the Annual Report are the
responsibility of management. The consolidated financial statements have been prepared by management in
accordance with the accounting policies in the notes to financial statements. When necessary, management has
made informed judgments and estimates in accounting for transactions which were not complete at the balance
sheet date. In the opinion of management, the financial statements have been prepared within acceptable limits of
materiality, and are in accordance with Canadian generally accepted accounting principles appropriate in the
circumstances. The financial information elsewhere in the Annual Report has been reviewed to ensure consistency
with that in the consolidated financial statements.
Management has prepared Management’s Discussion and Analysis (MD&A). The MD&A is based upon the
Corporation’s financial results prepared in accordance with Canadian GAAP. The Corporation has changed its year
end to December 31 from April 30, effective December 31, 1999. The MD & A compares the audited financial results
for the twelve months ended December 31, 1999 to the unaudited results for the twelve months ended December 31,
1998. In addition, significant differences between the audited results for the twelve months ended December 31,
1999 and April 30, 1999 are highlighted. Note 14 to the consolidated financial statements describes the impact on
the consolidated financial statements of significant differences between Canadian and United States GAAP.
Management maintains appropriate systems of internal control. Policies and procedures are designed to give
reasonable assurance that transactions are properly authorized, assets are safeguarded and financial records
properly maintained to provide reliable information for the preparation of financial statements.
KPMG LLP, an independent firm of Chartered Accountants, was engaged, as approved by a vote of shareholders at
the Corporation’s most recent annual general meeting, to audit the consolidated financial statements in accordance
with generally accepted auditing standards in Canada and provide an independent professional opinion.
The Audit Committee of the Board of Directors, which is comprised of three directors who are independent of
management of the Corporation, has discussed the consolidated financial statements, including the notes thereto,
with management and external auditors. The consolidated financial statements have been approved by the Board
of Directors on the recommendation of the Audit Committee.
Hank B. Swartout
Chairman of the Board,
President and Chief Executive Officer
February 16, 2000
Dale E. Tremblay
Senior Vice President Finance
and Chief Financial Officer
56
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A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
A U D I T O R S ’ R E P O R T
We have audited the consolidated balance sheets of Precision Drilling Corporation as at December 31, 1999 and April
T O S H A R E H O L D E R S
30, 1999 and the consolidated statements of earnings and retained earnings and cash flow for the eight months
For the eight months ended
December 31, 1999 and
years ended December 31
and April 30, 1999
ended December 31, 1999 and the years ended December 31 and April 30, 1999. These financial statements are the
responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position
of the Corporation as at December 31 and April 30, 1999 and the results of its operations and its cash flow for the
eight months ended December 31, 1999 and the years ended December 31 and April 30, 1999 in accordance with
Canadian generally accepted accounting principles.
Accounting principles generally accepted in Canada vary in certain significant respects from accounting principles
generally accepted in the United States. Application of accounting principles generally accepted in the United States
would have affected results of operations for the eight months ended December 31, 1999 and the years ended
December 31, 1999 and April 30, 1999 and shareholders’ equity as of December 31, 1999 and April 30, 1999, to the
extent summarized in Note 14 to the consolidated financial statements.
KPMG LLP
Chartered Accountants
Calgary, Canada
February 16, 2000
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A N N U A L
R E P O R T
57
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
C O N S O L I D A T E D
B A L A N C E S H E E T S
(Stated in thousands of dollars)
ASSETS
Current assets:
Cash
Investment in short-term commercial paper
Accounts receivable
Income taxes recoverable
Inventory (Note 2)
Property, plant and equipment, at cost less
accumulated depreciation (Note 3)
Goodwill, net of amortization of $38,077 (April 30 - $27,230)
Investments (Note 4)
Deferred financing costs, net of amortization of $2,852 (April 30 - $2,070)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank indebtedness
Accounts payable and accrued liabilities
Income taxes payable
Current portion of long-term debt (Note 5)
Long-term debt (Note 5)
Deferred foreign exchange gain
Deferred income taxes
Shareholders’ equity:
Share capital (Note 6)
Retained earnings
December 31
1999
April 30
1999
$
5,550
46,775
239,088
3,531
59,566
354,510
761,589
304,400
7,399
8,389
$1,436,287
$
3,353
129,766
–
58,524
191,643
226,815
2,421
106,613
627,923
280,872
908,795
$
5,620
96,947
127,891
–
30,701
261,159
683,548
259,779
34,380
8,850
$ 1,247,716
$
6,445
74,680
72,139
16,734
169,998
215,014
–
94,393
508,011
260,300
768,311
Contingencies and commitments (Notes 8, 9 and 18)
See accompanying notes to consolidated financial statements.
$1,436,287
$ 1,247,716
Approved by the Board:
Hank B. Swartout
Director
H. Garth Wiggins
Director
58
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A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
C O N S O L I D A T E D
S T A T E M E N T S O F
E A R N I N G S A N D
R E T A I N E D E A R N I N G S
(Stated in thousands of dollars except
per share amounts)
Revenue
Expenses:
Operating
General and administrative
Depreciation
Research and engineering
Operating earnings
Interest:
Long-term debt
Other
Income
Eight months ended
December 31
1999
Years ended
December 31
1999
April 30
1999
$ 511,442
$ 734,740
$ 693,855
346,278
41,266
46,208
3,629
437,381
74,061
13,103
306
(2,564)
(1,268)
2,154
–
62,330
24,303
6,557
30,860
31,470
10,898
20,572
260,300
$ 280,872
$
$
$
$
0.69
0.68
0.45
0.45
487,960
58,429
67,228
3,629
617,246
117,494
19,634
481
(3,571)
(26,318)
13,101
10,200
103,967
69,299
(15,413)
53,886
50,081
15,831
34,250
246,622
$ 280,872
$
$
$
$
1.13
1.09
0.77
0.76
450,135
51,114
61,061
–
562,310
131,545
19,898
520
(1,558)
(34,755)
10,947
10,200
126,293
96,902
(38,870)
58,032
68,261
14,880
53,381
206,919
$ 260,300
$
$
$
$
1.62
1.56
1.27
1.22
Gain on disposal of subsidiary and investments (Note 9)
Reduction of carrying amount of investments
Reduction of carrying amount of property,
plant and equipment
Earnings before income taxes and goodwill amortization
Income taxes: (Note 10)
Current
Deferred (reduction)
Earnings before goodwill amortization
Goodwill amortization, net of tax
Net earnings
Retained earnings, beginning of period
Retained earnings, end of period
Earnings per share before goodwill amortization: (Note 11)
Basic
Fully diluted
Earnings per share: (Note 11)
Basic
Fully diluted
See accompanying notes to consolidated financial statements.
1 9 9 9
A N N U A L
R E P O R T
59
C O N S O L I D A T E D
S T A T E M E N T S O F C A S H
F L O W
(Stated in thousands of dollars except
per share amounts)
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Eight months ended
December 31
1999
Years ended
December 31
1999
April 30
1999
Cash provided by (used in):
Operations:
Net earnings
Items not affecting cash:
Depreciation
Goodwill amortization
Deferred income taxes
Amortization of deferred financing costs
Gain on disposal of subsidiary
and investment (Note 9)
Reduction of carrying amount of investments
Reduction of carrying amount of property,
plant and equipment
Funds provided by operations
Changes in non-cash working
capital balances (Note 17)
Investments:
Acquisitions (Note 13)
Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Investments
Proceeds on disposal of investment
and subsidiary (Note 9)
Financing:
Increase in long-term debt
Repayment of long-term debt
Issuance of common shares, net
Increase (decrease) in cash
Cash (bank indebtedness), beginning of period
Cash, end of period
Funds provided by operations per share: (Note 11)
Basic
Fully diluted
$
20,572
$
34,250
$
53,381
46,208
10,898
6,557
782
(1,268)
2,154
–
85,903
(116,965)
(31,062)
4,809
(46,079)
11,607
319
2,231
(27,113)
18,909
(15,973)
8,089
11,025
(47,150)
96,122
48,972
1.88
1.79
$
$
$
67,228
15,831
(15,413)
1,157
(26,318)
13,101
10,200
100,036
(62,219)
37,817
1,932
(56,117)
14,969
(3,125)
122,929
80,588
109,688
(187,860)
11,558
(66,614)
51,791
(2,819)
48,972
2.25
2.13
$
$
$
61,061
14,880
(38,870)
1,127
(34,755)
10,947
10,200
77,971
121,518
199,489
(164,069)
(102,054)
13,781
(10,828)
137,040
(126,130)
170,871
(194,414)
4,860
(18,683)
54,676
41,446
96,122
1.85
1.76
$
$
$
Cash is defined as cash and investment in short term commercial paper, net of bank indebtedness.
See accompanying notes to consolidated financial statements.
60
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A N N U A L
R E P O R T
N O T E S T O
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
Eight months ended December 31,
1999 and years ended December 31
and April 30, 1999
(Tabular amounts stated in thousands of
dollars except per share amounts)
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
integrated oilfield
Precision Drilling Corporation (the Corporation) is a
service company,
vertically
providing oilfield and industrial services to customers
worldwide.
The financial statements are prepared in accordance
with generally accepted accounting principles in
Canada. Management is required to make estimates
and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reported period. Actual results could differ
from these estimates.
During 1999, the Corporation changed its fiscal year
end from April 30 to December 31. The financial
statements presented are for the eight months ended
December 31, 1999 and for the years ended December
31 and April 30 1999.
1.
Significant Accounting Policies:
(a)
Principles of consolidation:
The consolidated financial statements include the
accounts of the Corporation, its subsidiaries, all of
which are wholly-owned, and its proportionate share
of joint ventures.
(b)
Inventory:
Inventory is valued at the lower of average cost and
replacement value.
(c)
Property, plant and equipment:
Drilling rig equipment is depreciated on a unit-of-
production method based on 3,650 drilling days,
except for drill pipe and drill collars, which are
depreciated over 1,100 drilling days. Service rig
equipment is depreciated on a unit-of-production
method based on the estimated useful life of the
equipment varying from 1,500 to 2,000 days.
Field technical equipment is depreciated on a straight-
line basis over periods ranging from 2 to 5 years.
Rental equipment is depreciated on a straight-line
basis over periods ranging from 5 to 15 years.
Other equipment is depreciated on a straight-line basis
over periods ranging from 3 to 10 years.
Light duty vehicles are depreciated on a straight-line
basis over four years. Heavy-duty vehicles are
depreciated on a straight-line basis over 10 years.
Buildings are depreciated on a straight-line basis over
periods ranging from 10 to 30 years.
(d)
Revenue recognition:
Revenue is primarily recognized after services are
rendered based upon daily or hourly rates. The
Corporation’s manufacturing operations recognize
revenue on contracts on a percentage of completion
basis.
(e)
Investments:
Investments in shares of associated companies, over
which the Corporation has significant influence, are
accounted for by the equity method. Other investments
are carried at cost. If there is an other than a temporary
decline in value, these investments would be written
down to their net realizable value.
(f)
Deferred financing costs:
Costs associated with the issuance of long-term debt
are deferred and amortized on a straight-line basis
over the term of the debt. The amortization is included
in interest expense.
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A N N U A L
R E P O R T
61
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
N O T E S T O C O N S O L I D A T E D F I N A N C I A L
(k)
Stock-based compensation plans:
S T A T E M E N T S
(g)
Goodwill:
Goodwill is recorded at cost and amortized on a straight-line basis over 20
years. The recoverability of goodwill is assessed, if indications of impairment
are present, based on estimated undiscounted future cash flows.
(h)
Income taxes:
The Corporation follows the tax allocation method of accounting for income
taxes. Under this method, deferred income taxes are recorded to the extent
that taxable income otherwise determined is adjusted by timing differences.
Effective January 1, 2000, the Corporation will prospectively adopt the
liability method of accounting for income taxes in accordance with the
recommendations of the Canadian Institute of Chartered Accountants. Under
this method, future income tax liabilities and assets are recognized to the
extent that assets and liabilities are recorded in the accounts at amounts
different than their tax basis.
(i)
Post employment benefits:
The Corporation has equity incentive plans, which are described in Note 6.
No compensation expense is recognized for these plans when stock options
are issued. Any consideration received on exercise of the stock options is
credited to share capital.
(l)
Research and engineering:
Research and engineering costs are charged to income as incurred. Costs
associated with the development of new operating tools and systems are
expensed during the period unless the recovery of these costs can be
reasonably assured given the existing and anticipated future industry
conditions. Upon successful completion and field testing of the tools any
deferred costs are transferred to the related capital asset accounts.
(m)
Comparative figures:
Certain comparative figures have been reclassified to conform with the
current financial statement presentation.
2.
Inventory:
$
December 31
1999
23,930
18,406
17,230
59,566
$
The Corporation has entered into an employment agreement of no fixed
term with a senior officer, which provides for certain post employment
benefits. Costs of these benefits are charged to earnings on a straight-line
basis over ten years.
Finished goods and work in progress
Operating supplies
Manufacturing parts and materials
(j)
Foreign currency translation:
Accounts of foreign operations, all of which are considered financially and
operationally integrated, are translated to Canadian dollars using average
exchange rates for the year for revenue and expenses. Monetary assets and
liabilities are translated at the year 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. Gains and losses related to foreign currency
denominated long-term debt are deferred and amortized over the term of the
debt.
3.
Property, Plant and Equipment:
December 31, 1999
Rig equipment
Field technical equipment
Rental equipment
Other equipment
Vehicles
Buildings
Other
Land
Accumulated
Cost depreciation
$ 126,935
11,962
22,877
29,289
9,592
5,186
5,569
–
$ 211,410
$ 632,015
106,563
80,815
76,259
27,174
26,093
13,062
11,018
$ 972,999
62
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A N N U A L
R E P O R T
April 30
1999
17,539
4,639
8,523
30,701
$
$
Net book
value
$ 505,080
94,601
57,938
46,970
17,582
20,907
7,493
11,018
$ 761,589
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
April 30, 1999
Rig equipment
Field technical equipment
Rental equipment
Other equipment
Vehicles
Buildings
Other
Land
Cost
617,438
24,429
83,699
67,298
25,842
21,583
12,941
8,843
862,073
$
$
Accumulated
depreciation
110,880
$
2,793
25,719
22,638
8,303
4,099
4,093
–
178,525
$
Net book
value
506,558
21,636
57,980
44,660
17,539
17,484
8,848
8,843
683,548
$
$
Included in property, plant and equipment are assets with net book value of
$121.1 million at December 31, 1999 ($125.1 million at April 30, 1999) that
are without tax basis. Depreciation expense related to these assets is non-
deductible for tax purposes resulting in an increase in the Corporation’s
effective tax rates.
4.
Investments:
Shares of Computalog Ltd., at lower
of cost and net realizable value
Others, at cost less provision for impairment
Others, at equity
December 31
1999
$
$
–
4,494
2,905
7,399
5.
Long-Term Debt:
Unsecured Debentures
Unsecured Notes (US $35,000)
EDC Facility (US $23,750)
Term Acquisition Loan
Capital lease obligations
Less amounts due within one year
$
December 31
1999
200,000
50,516
34,278
–
545
285,339
58,524
226,815
$
April 30
1999
23,070
11,210
100
34,380
April 30
1999
200,000
–
18,233
12,000
1,515
231,748
16,734
215,014
$
$
$
$
The $200.0 million 6.85% unsecured debentures mature June 26, 2007 and
have an effective interest rate of 7.44% after taking into account deferred
financing costs. The debentures are redeemable at any time at the option of
the Corporation upon payment of a redemption price equal to the greater of
the Canada Yield Price and par.
The US $35.0 million of unsecured senior notes bear interest at a fixed rate
of 7.78%. The Corporation has given notice to the lenders that it will be
exercising its early prepayment option with respect to these senior notes. The
principal amount outstanding along with accrued interest and early
prepayment costs will be paid in 2000. Accordingly, the amount outstanding
at December 31 has been included in the current portion of long-term debt.
The Corporation has established an unsecured US $23.8 million term
financing facility with the Export Development Corporation (EDC Facility).
This facility is repayable over five years in nine semi-annual installments
and bears interest at six-month US Libor plus applicable margin. The
margin is dependent upon the Corporation’s credit rating, which at
December 31, 1999 results in a margin of 0.8%.
The Corporation has an extendable revolving unsecured facility (the
Facility) of $125.0 million (or US $ equivalent) with a syndicate led by a
Canadian chartered bank. Advances under the Facility bear interest at the
bank’s prime lending rate. The Facility is extendable annually at the option
of the lenders. Should this facility not be extended, outstanding amounts will
be transferred to a two-year term facility repayable in equal quarterly
installments. As at December 31, 1999, no amount was drawn under this
facility.
During 1999, the Corporation had a $12.0 million term acquisition loan.
This loan was with the same banking syndicate as the revolving unsecured
facility described above and bore interest at the same rates. The loan was
repaid in September 1999.
Principal repayments over the next five years are as follows:
2000
2001
2002
2003
2004
$
58,524
7,748
7,637
7,621
3,809
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P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
6.
Share Capital:
Authorized
unlimited number of non-voting cumulative convertible redeemable preferred shares without nominal or par value
unlimited number of common shares without nominal or par value
Issued
The following is a summary of the changes in share capital:
Common Shares
Balance, April 30, 1998
Issued on acquisition of Northland Energy Corporation
Options exercised
Balance , December 31, 1998
Options exercised
Balance , April 30, 1999
Issued on acquisition of Computalog Ltd.
Issued on acquisition of Underbalanced Drilling Systems Ltd.
Options exercised
Balance, December 31, 1999
Number
41,497,518
450,000
131,000
42,078,518
320,050
42,398,568
4,031,441
217,158
515,852
$
Amount
489,651
13,500
1,390
504,541
3,470
508,011
106,107
5,716
8,089
47,163,019
$ 627,923
The Corporation has equity incentive plans under which a combined total of 4,036,235 options to purchase common shares can be granted to employees and
directors. Under these plans, the exercise price of each option equals the fair market value of the Corporation’s stock on the date of the grant and an option’s
maximum term is five years. Options vest over a period of four years from the date of grant as employees or directors render continuous service to the Corporation.
A summary of the status of the equity incentive plans as at December 31, 1999 and April 30, 1999, and changes during the periods then ended is presented below:
Outstanding at April 30, 1998
Granted
Exercised
Cancelled or expired
Outstanding at April 30, 1999
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 1999
Options
Outstanding
3,141,600
1,006,800
(451,050)
(336,500)
3,360,850
1,291,340
(515,852)
(196,500)
3,939,838
64
1 9 9 9
A N N U A L
R E P O R T
$
Range of
Exercise Price
2.25 - 44.38
13.50 - 25.50
2.25 - 21.15
14.08 - 34.50
6.50 - 44.38
25.75 - 33.60
6.50 - 34.50
7.00 - 34.50
$ 13.50 - 44.38
$
$
Weighted Average
Exercise Price
20.36
19.92
10.77
22.17
21.31
32.93
15.68
25.13
25.57
$
$
Options
Exercisable
208,462
496,500
827,097
☛
☛
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
The range of exercise prices for options outstanding at December 31, 1999 are as follows:
Total Options Outstanding
Exercisable Options
Range of Exercise Prices:
$
13.50 - 19.99
20.00 - 29.99
30.00 - 39.99
40.00 - 44.38
13.50 - 44.38
$
Weighted
Average
Weighted
Remaining
Average
Exercise Contractual
Life (Years)
2.8
2.8
4.0
2.7
3.3
Price
14.42
24.69
32.82
44.38
25.57
$
$
Number
309,800
263,297
244,000
10,000
827,097
Number
1,069,704
1,123,294
1,726,840
20,000
3,939,838
Weighted
Average
Exercise
Price
14.32
23.52
31.46
44.38
22.67
$
$
7.
Employee Benefit Plans:
Rent expense included in the statements of earnings is as follows:
The Corporation has a defined contribution employee benefit plan covering
a significant number of its employees. The Corporation matches individual
employee contributions up to 5% of the employee’s base compensation.
Employer matching contributions under the plan totalled $2.2 million for
the eight months ended December 31, 1999 and $3.0 million for the year
ended December 31, 1999 (year ended April 30, 1999 - $3.3 million).
Employer matching contributions vest over a five year period.
8.
Commitments:
The Corporation has commitments for operating lease agreements in the
aggregate amount of $75.7 million. Payments over the next five years are as
follows:
Gain on disposal
of Subsidiary
Gain on disposal
of Investments
2000
2001
2002
2003
2004
$
14,282
11,541
8,985
6,586
6,256
Eight months ended December 31, 1999
Year ended December 31, 1999
Year ended April 30, 1999
$
4,033
5,322
3,606
9.
Gain on Disposal of Subsidiary and Investments:
Eight months ended
December 31
1999
December 31
1999
Years ended
April 30
1999
23,607
11,148
34,755
$
$
$
$
–
$
23,607
1,268
1,268
$
2,711
26,318
Effective February 18, 1999, the Company sold its 100% owned subsidiary,
Certified Rentals Inc. (Certified), for cash proceeds of $119.3 million, net of
transaction costs. The purchase price adjustment provisions of the Certified
sale agreement are currently the subject of arbitration proceedings, the
outcome of which is not determinable at this time. The potential adjustment
is not significant to the Corporation’s financial position or results of
operations.
1 9 9 9
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R E P O R T
65
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
The Corporation has non-capital losses in the amounts of $26.0 million and
$6.1 million available to shelter future income earned in the US and
Venezuela, respectively. The benefit of these loss carry-forwards has not been
recognized.
The Corporation’s operations are complex and the computation of the
provision for income taxes involves tax interpretations, regulations and
legislation that are continually changing. There are tax matters that have
not yet been confirmed by taxation authorities, however, management
believes that the provision for income taxes is adequate.
11.
Earnings and Funds Provided by Operations Per Share:
Per share amounts have been calculated on the weighted average number of
common shares outstanding. The weighted average shares outstanding for
the eight months ended December 31, 1999 was 45,619,602 and for the year
ended December 31, 1999 was 44,499,837 (year ended April 30, 1999 -
42,085,695).
Fully diluted per share amounts reflect the dilutive effect of the exercise of the
options outstanding. The fully diluted shares outstanding for the eight
months ended December 31, 1999 was 49,080,000 and for the year ended
December 31, 1999 was 47,851,960 (year ended April 30, 1999 - 45,308,088).
Earnings on the funds which would have been received on exercise of the
options have been imputed at 5% per annum.
12.
Significant Customers:
During the eight months ended December 31, 1999 and the years ended
December 31 and April 30, 1999, no one customer accounted for more than
5% of the Corporation’s revenue.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L
S T A T E M E N T S
The gain on disposal of investment relates to the Corporation’s equity
investment in Western Rock Bit Company Limited (WRB) which sold
substantially all of its assets. In May 1998, the Corporation received a
liquidating dividend from WRB in the amount of $16.3 million and in April
1999, the Corporation received a liquidating dividend from WRB in the
amount of $1.4 million.
10.
Income Taxes:
The provision for income taxes differs from that which would be expected by
applying statutory rates. A reconciliation of the difference is as follows:
Eight months ended
December 31
1999
Years ended
December 31
1999
April 30
1999
Earnings
before income taxes
Income tax rate
Expected income
tax provision
Add (deduct):
$
$
Non-deductible expenses
Utilization of prior
period losses
Non-deductible
depreciation and
amortization
Liquidating dividend
from taxable
Canadian
corporation
Reduction of carrying
amount of
investments
Other
$
51,432
45%
88,136
45%
$ 111,413
45%
23,144
$
39,661
$
50,136
555
–
1,313
1,236
(1,657)
(1,657)
6,709
10,146
10,215
–
–
(5,016)
–
452
30,860
$
$
4,926
(503)
53,886
$
4,926
(1,808)
58,032
66
1 9 9 9
A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
13. Acquisitions:
During the eight months ended December 31, 1999, the Corporation
completed the following acquisitions:
(a) Acquisition of all the issued and outstanding shares of Computalog Ltd.
(Computalog) in July 1999. Computalog provides electric wireline logging
services and directional drilling services to the oil and gas industry and
manufactures and sells specialty products, tools and equipment.
(b) Acquisition of all the issued and outstanding shares of Underbalanced
Drilling Systems Ltd. (Underbalanced) in July 1999. Underbalanced provides
a service gas for use in underbalanced drilling applications.
The acquisitions have been accounted for by the purchase method with
results of operations of the acquired entities included in the financial
statements from the effective dates of acquisition. The details of the
acquisitions are as follows:
Computalog Underbalanced
Total
Net assets acquired at
assigned values:
Working capital
Property, plant
and equipment
Investments
Deferred financing costs
Goodwill
Long-term debt
Deferred income taxes
Consideration:
Common Shares
Carrying amount of
Computalog shares
acquired prior to
April 30, 1999
Cash
(a) Includes cash of $9,392
(b) Includes cash of $100
$
49,798(a) $
(303)(b) $
49,495
82,628
3,204
321
55,518
(52,165)
(5,663)
133,641
106,107
23,070
4,464
133,641
$
$
$
$
$
$
7,149
–
–
–
(911)
–
5,935
5,716
–
219
5,935
89,777
3,204
321
55,518
(53,076)
(5,663)
139,576
111,823
23,070
4,683
139,576
$
$
$
The following pro forma information provides an indication of what the
Corporation’s results of operations would have been had Computalog been
acquired effective May 1, 1999, January 1, 1999 or May 1, 1998:
Eight months ended
December 31
1999
Years ended
December 31
1999
April 30
1999
Revenue
Earnings before
goodwill amortization
Net earnings
Earnings per share before
goodwill amortization:
Basic
Fully diluted
Earnings per share:
Basic
Fully diluted
$
533,694
$
810,914
$
865,044
12,540
1,077
24,775
7,454
60,380
42,724
$
$
$
$
0.27
0.27
0.02
0.02
$
$
0.53
0.53
0.16
0.16
1.31
1.26
0.93
0.93
During the year ended April 30, 1999, the Corporation completed several
acquisitions, the most significant of which were:
(a) Acquisition of all the issued and outstanding shares of Northland Energy
Corporation (Northland) in May 1998. Northland provides underbalanced
drilling services domestically and internationally.
(b) Acquisition of all of the issued and outstanding shares of Inter-Tech
Drilling Solutions Ltd. (Inter-Tech) in June 1998. Inter-Tech owned and
marketed the RBOP™, a well control device used in underbalanced drilling
operations.
(c) Acquisition of seven drilling rigs and related equipment from Brinkerhoff
Drilling General Partnership in May 1998, and the acquisition of 16 well
service rigs and related equipment from Brockham Oilwell Servicing (1986)
Ltd. in June 1998.
1 9 9 9
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P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The acquisitions were accounted for by the purchase method with results of operations of the acquired entities included in the financial statements from the
effective dates of acquisition. The details of the acquisitions are as follows:
Net assets acquired at assigned values:
Working capital
Property, plant and equipment
Goodwill
Investments
Long-term debt
Deferred income taxes
Consideration:
Common Shares
Cash
(a)
(b)
(c)
Includes bank indebtedness of $1,617
Includes cash of $3,417
Includes bank indebtedness of $83
Northland
Inter-Tech
Brinkerhoff,
Brockham
$
$
$
$
5,493(a)
17,683
39,894
–
(4,242)
3,581
62,409
13,500
48,909
62,409
$
$
$
$
2,770(b)
9,903
37,400
1
(1,726)
(285)
48,063
–
48,063
48,063
$
$
$
$
–
43,500
–
–
–
–
43,500
–
43,500
43,500
$
$
$
$
Others
Total
2,597(c)
22,480
7,516
–
(7,279)
–
25,314
$
10,860
93,566
84,810
1
(13,247)
3,296
$ 179,286
–
25,314
25,314
$
13,500
165,786
$ 179,286
14. United States Generally Accepted Accounting Principles:
The impact on the consolidated balance sheets is as follows:
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP) which, in the
case of the Corporation, conform with United States generally accepted
accounting principles (US GAAP) in all material respects, except as follows:
Consolidated Balance Sheets
Under US GAAP, the purchase price allocation associated with the acquisition
of subsidiaries should recognize deferred taxes based on the difference
between assigned pre-tax values for property, plant and equipment and the
related tax balances.
December 31, 1999
Goodwill
Deferred income taxes
April 30, 1999
Goodwill
Deferred income taxes
As reported
Increase
US GAAP
$
$
$
$
304,400
106,613
259,779
94,393
$
$
$
$
70,032
70,032
$ 374,432
$ 176,645
56,300
56,300
$ 316,079
$ 150,693
68
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A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Consolidated Statements of Earnings
Under US GAAP, unrealized foreign exchange gains or losses arising on the
translation of long-term debt denominated in a foreign currency are
included in earnings. The effect of this difference on net earnings before
income taxes and goodwill amortization is as follows:
Eight months ended
December 31
1999
As reported
Effect of above difference
Under US GAAP
$
$
62,330
2,421
64,751
Years ended
December 31
1999
$
$
103,967
2,421
106,388
April 30
1999
126,293
–
126,293
$
$
Under US GAAP earnings per share (EPS) reflects the application of treasury
stock method for outstanding options. Earnings per share under US GAAP is
as follows: basic for the eight months ended December 31, 1999, $0.48 and
for the year ended December 31, 1999, $0.80 (April 30 - $1.27) and fully
diluted for the eight months ended December 31, 1999, $0.47 and for the 12
months ended December 31, 1999, $0.79 (April 30 - $1.26). Options to
purchase 2,061,827 common shares for the eight months ended December
31, 1999 and 1,904,465 common shares for the year ended December 31,
1999 (April 30 - 2,094,307) were not included in the computation of fully
diluted EPS as the options’ exercise prices were greater than the average
market price of the common shares during 1999.
Consolidated Statements of Cash Flow
Bank indebtedness would not be included as a component of cash. The
change in bank indebtedness would be presented as a financing activity as
follows:
Eight months ended
December 31
1999
Years ended
December 31
1999
April 30
1999
Change in bank
indebtedness
$
(3,092)
$
58
$
6,445
The effect of this difference on the consolidated statements of cash flow is as
follows:
Eight months ended
December 31
1999
Years ended
December 31
1999
April 30
1999
Financing:
As reported
Effect of above
differences
Under US GAAP
$
$
11,025
$
(66,614)
$
(18,683)
(3,092)
7,933
$
58
(66,556)
6,445
(12,238)
$
The net deferred tax liability is comprised of the tax effect of the following
temporary differences:
December 31
1999
April 30
1999
$
157,403
$
132,022
19,522
3,859
180,784
2,946
1,193
4,139
176,645
20,729
4,071
156,822
4,381
1,748
6,129
150,693
$
$
$
$
$
$
Deferred tax liabilities:
Property, plant and equipment
Assets held in partnership with
different tax year
Deferred financing costs
Deferred tax assets:
Reserves
Share issue costs
Net deferred tax liability
Stock Compensation
Under Canadian GAAP, no compensation cost has been recognized for stock
options in the financial statements. Under US GAAP, the Corporation applied
APB Opinion No. 25 in accounting for stock options and, accordingly, no
compensation cost is recognized in earnings. The per share weighted-average
fair value of stock options granted during the eight months ended December
31, 1999 was $9.44, and during the year ended December 31, 1999 was $8.66
(April 30, 1999 - $9.85) on the date of grant using the Black Scholes option-
following weighted-average assumptions:
pricing model with
the
1 9 9 9
A N N U A L
R E P O R T
69
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
N O T E S T O C O N S O L I D A T E D F I N A N C I A L
S T A T E M E N T S
for the eight months ended December 31, 1999 - risk-free interest rate of 5%,
expected life of five years and expected volatility of 43%; for the year ended
December 31, 1999 - risk-free interest rate of 5%, expected life of five years
and expected volatility of 46% (April 30, 1999 - risk-free interest rate of 5%,
expected life of five years and expected volatility of 50%).
Had the Corporation determined compensation cost based on the fair value at
the date of grant for its stock options under SFAS 123, net earnings in
15.
Segmented Information:
accordance with US GAAP would have decreased by $2.6 million to $18.0
million (basic EPS $0.39) for the eight months ended December 31, 1999
decreased by $6.3 million to $27.9 million (basic EPS $0.63) for the year
ended December 31, 1999 and decreased by $6.6 million to $46.8 million
(basic EPS - $1.11) for the year ended April 30, 1999. These pro forma
earnings reflect compensation cost amortized over the options’ vesting period.
Comprehensive Income
Comprehensive income is equal to net earnings.
The Corporation operates in three industry segments. Contract Drilling Services, which provides drilling services, Oilfield Specialty Services, which includes well
servicing, well testing, underbalanced drilling, wireline and directional drilling services and the manufacture and sale of wireline tools and equipment, and
Rental and Production Services, which includes compression equipment design, packaging, sales and service, oilfield equipment rental services, industrial
equipment rentals (to February 18, 1999) and other industrial process services.
$
Contract
Drilling
Services
248,397
55,273
22,619
764,264
22,492
$ 383,921
93,348
34,758
764,264
25,422
$
356,322
85,611
32,008
720,532
56,962
Oilfield
Specialty
Services
Rental and
Production
Services
Corporate
and
Other
$
141,214
10,610
14,318
408,640
9,392
$
121,831
14,594
9,124
188,524
10,936
$ 171,881
11,312
17,583
408,640
11,386
$ 178,938
19,705
14,575
188,524
15,800
$
94,912
7,989
8,467
193,143
12,542
$
242,561
42,362
20,070
194,956
32,185
$
$
$
–
(6,416)
147
74,859
3,259
–
(6,871)
312
74,859
3,509
60
(4,417)
516
139,085
365
$
$
$
Total
511,442
74,061
46,208
1,436,287
46,079
734,740
117,494
67,228
1,436,287
56,117
693,855
131,545
61,061
1,247,716
102,054
Eight months ended December 31, 1999
Revenue
Operating earnings
Depreciation
Assets
Capital expenditures*
Year ended December 31, 1999
Revenue
Operating earnings
Depreciation
Assets
Capital expenditures*
Year ended April 30, 1999
Revenue
Operating earnings
Depreciation
Assets
Capital expenditures*
*
excludes acquisitions
70
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A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
The Corporation’s operations are carried on in the following geographic
locations:
Domestic
International
Total
The Corporation is exposed to foreign currency fluctuations in relation to its
international operations, however, management believes this exposure is not
material to its overall operations.
Eight months ended
December 31, 1999
Revenue
Assets
Year ended
December 31, 1999
Revenue
Assets
Year ended
April 30, 1999
Revenue
Assets
17.
Supplemental Cash Flow Information:
$
426,740
1,273,649
$
84,702
162,638
$
511,442
1,436,287
$ 615,222
1,273,649
$ 119,518
162,638
$ 734,740
1,436,287
$
600,613
1,165,247
$
93,242
82,469
$
693,855
1,247,716
Eight months ended
December 31
1999
Cash interest paid
Cash income taxes paid
Components of change
in non-cash working
capital balances:
Accounts receivable
Inventory
Accounts payable
$
$
15,163
99,973
(84,682)
(5,242)
and accrued liabilities
Income taxes payable
35,981
(63,022)
$ (116,965)
Years ended
December 31
1999
$
$
$
16,663
120,238
(48,414)
(4,927)
16,072
(24,950)
(62,219)
April 30
1999
20,153
30,465
100,897
4,764
(52,785)
68,642
121,518
$
$
$
16. Financial Instruments:
The carrying value of cash, investments in short term commercial paper,
accounts receivable and accounts payable and accrued liabilities
approximate their fair value due to the relatively short period to maturity of
the instruments. The fair value of long-term debt, exclusive of the unsecured
debentures, approximates its carrying value as it bears interest at floating
rates. The $200 million unsecured debentures have a fair value of
approximately $191.8 million as at December 31, 1999 (April 30, 1999 -
$195.2 million). Investments have a carrying value of $7.4 million (April 30,
1999 - $34.4 million) and a fair value of approximately $7.4 million (April
30, 1999 - $33.3 million) as at December 31, 1999.
Accounts receivable includes balances from a large number of customers. The
Corporation assesses the credit worthiness of its customers on an ongoing
basis as well as monitoring the amount and age of balances outstanding.
Accordingly, the Corporation views the credit risks on these amounts as
normal for the industry. At December 31, 1999 the Corporation’s allowance for
doubtful accounts was $6.6 million (April 30, 1999 - $5.0 million).
The Corporation manages its exposure to interest rate risks through a
combination of fixed and floating rate borrowings. As at December 31, 1999,
12% of its total long-term debt was in floating rate borrowings.
The components of accounts payable and accrued liabilities are as follows:
December 31
1999
$
40,494
$
25,959
63,313
129,766
$
$
April 30
1999
21,652
14,265
38,763
74,680
Accounts payable
Accrued liabilities:
Payroll
Other
18. Contingencies:
The Corporation, through the performance of its services and product sales
obligations, is sometimes named as a defendant in litigation. The nature of
these claims is usually related to personal injury, completed operations or
product liability. The Corporation maintains a level of insurance coverage
deemed appropriate by management and for matters for which insurance
coverage can be maintained. The Corporation has no outstanding claims
having a potentially material adverse effect on the Corporation as a whole.
1 9 9 9
A N N U A L
R E P O R T
71
PrecisionDrilling Corporation
m o r e t h a n . . .
just brute steel.
Wi th l eading edge
t echnology, we
have the tools to
compete as a fully
int egrat ed oil field
se r v ic es group.
The track record
1999
72
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
S U P P L E M E N T A R Y I N F O R M A T I O N
Statements of Earnings and Retained Earnings
Years ended December 31
1998*
1999
1999
1998
Years ended April 30
1996
1997
1995
($millions except per share amounts)
Revenue
Expenses:
Operating
General and administrative
Depreciation
Research and engineering
Operating earnings
Interest, net
Gain on disposal of subsidiary and investments
Reduction of carrying amount of investments
Reduction of carrying amount of property, plant and equipment
Dividend income
Earnings before taxes, goodwill amortization and minority interest
Income taxes:
Current
Deferred (recovery)
Earnings before goodwill amortization and minority interest
Goodwill amortization
Earnings before minority interest
Minority interest
Net earnings
Retained earnings, beginning of period
Adjustment on purchase and cancellation of share capital
Dividends on preferred shares
Retained earnings, end of period
Earnings before goodwill amortization
and minority interest per share:
Basic ($)
Fully diluted ($)
Earnings per share:
Basic ($)
Fully diluted ($)
* Unaudited
734.7
819.1
693.9
1,012.5
455.1
163.1
178.6
488.0
58.4
67.2
3.6
117.5
16.5
(26.3)
13.1
10.2
–
522.7
57.8
58.1
–
180.5
19.4
(9.7)
–
–
–
450.1
51.1
61.1
–
131.6
18.9
(34.8)
11.0
10.2
–
104.0
170.8
126.3
69.3
(15.4)
53.9
50.1
15.8
34.3
–
34.3
246.6
–
–
280.9
1.13
1.09
0.77
0.76
52.3
26.5
78.8
92.0
13.6
78.4
–
78.4
175.8
(7.6)
–
246.6
2.20
2.08
1.87
1.78
96.9
(38.9)
58.0
68.3
14.9
53.4
–
53.4
206.9
–
–
260.3
1.62
1.56
1.27
1.22
620.3
59.3
60.5
–
272.4
17.1
–
–
–
1.9
257.2
29.2
99.3
128.5
128.7
11.2
117.5
–
117.5
97.4
(7.6)
(0.4)
206.9
3.10
2.94
2.82
2.67
314.9
29.4
21.8
–
89.0
4.0
–
–
–
0.7
85.7
31.3
8.6
39.9
45.8
3.4
42.4
–
42.4
55.0
–
–
97.4
1.55
1.46
1.44
1.36
112.5
12.3
7.7
–
30.6
0.7
–
–
–
0.4
30.3
9.8
2.7
12.5
17.8
–
17.8
0.2
17.6
37.4
–
–
55.0
1.05
0.97
1.04
0.96
122.4
12.1
9.8
–
34.3
1.5
–
–
–
0.7
33.5
14.9
1.5
16.4
17.1
–
17.1
0.2
16.9
20.7
(0.2)
–
37.4
1.04
0.95
1.03
0.94
1994
97.6
1993
44.3
68.1
8.8
5.0
–
15.7
0.6
–
–
–
–
15.1
3.8
3.3
7.1
8.0
–
8.0
–
8.0
12.7
–
–
20.7
0.51
n/a
0.51
n/a
31.0
4.2
2.2
–
6.9
0.4
–
–
–
0.3
6.8
1.5
1.5
3.0
3.8
–
3.8
0.1
3.7
9.0
–
–
12.7
0.33
n/a
0.32
n/a
1 9 9 9
A N N U A L
R E P O R T
73
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
S U P P L E M E N T A R Y I N F O R M A T I O N
Additional Selected Financial Data
($millions except per share amounts)
Returns
Return on Sales (1)
Return on Assets (2)
Return on Equity (3)
Financial Position
Working capital
Current ratio
Net fixed assets
Total assets
Long-term debt
Shareholders’ equity
Long-term debt to shareholders’ equity
Net capital expenditures excluding acquisitions
EBITDA(4)
EBITDA – % of sales
Operating earnings
Operating earnings - % of sales
Cash flow (5)
Cash flow per share ($)
Depreciation
Common Share Data
Book value per share ($)(6)
Earnings per share ($)(7)
Price Earnings Ratio (8)
Weighted average common shares outstanding (000’s)
Years ended December 31
1998*
1999
1999
1998
4.7%
2.6%
4.2%
9.6%
6.2%
10.4%
7.7%
9.3%
15.9%
11.6%
4.0%
7.1%
162.9
1.85
761.6
52.3
1.34
768.1
1,436.3 1,310.9
280.7
751.2
0.37
119.7
238.6
29.1
180.5
22.0%
168.1
4.01
58.1
226.8
908.8
0.25
41.1
184.9
25.2
117.5
16.0%
100.0
2.25
67.2
91.2
1.54
683.5
1,247.7
215.0
768.3
0.28
88.3
192.7
27.8%
131.6
19.0%
78.0
1.85
61.1
152.0
2.08
643.7
1,197.4
214.6
696.6
0.31
123.0
332.9
32.9%
272.4
26.9%
289.5
6.97
60.5
Years ended April 30
1996
1995
1997
9.3%
9.7%
16.2%
39.8
1.35
328.5
602.8
96.3
353.4
0.27
53.6
110.8
24.3%
89.0
19.6%
76.2
2.58
21.8
10.8%
13.2%
20.8%
67.0
4.01
82.0
175.6
9.7
130.8
0.07
23.1
38.3
23.5%
30.6
18.8%
28.2
1.66
7.7
9.5%
14.7%
29.1%
8.4
1.21
66.8
119.1
1.4
67.0
0.02
11.8
44.1
24.7%
34.3
19.2%
28.3
1.73
9.8
1994
1993
8.4%
8.2%
10.9% 11.2%
20.0% 21.0%
3.3
1.11
64.8
100.6
10.7
50.1
0.21
10.8
20.7
6.2
1.69
22.3
38.6
1.4
22.1
0.06
3.2
9.1
21.2% 20.5%
6.9
16.1% 15.5%
7.5
0.63
2.2
16.3
1.04
5.0
15.7
20.42
0.77
48.05
44,500
17.93
1.87
9.33
41,904
18.26
1.27
19.84
42,086
16.78
2.82
12.06
41,517
11.96
1.44
16.88
29,563
7.70
1.04
12.32
16,988
4.09
1.03
6.74
16,398
3.19
0.51
16.05
15,738
1.85
0.32
16.07
11,944
(1) Return on Sales was calculated by dividing net earnings by total revenues.
(2) Return on Assets was calculated by dividing net earnings by average total assets.
(3) Return on Equity was calculated by dividing net earnings by average total shareholders’ equity.
(4) Earnings before interest, taxes, dividends, depreciation and amortization.
(5) Funds provided from operations excluding forgiveness of debt for 1990 and funds provided from operations combined with dividend income.
(6) Book value per share was calculated by dividing shareholders’ equity by total weighted average number of common shares outstanding.
(7) Earnings per share was calculated by dividing net earnings by the weighted average number of common shares outstanding.
(8) Year-end closing price divided by earnings per share.
* Unaudited
74
1 9 9 9
A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
C O R P O R A T E
D I R E C T O R Y
Major Subsidiaries
Major Subsidiaries
Head Office
Precision Drilling Corporation
4200, Petro-Canada Centre
150 - 6th Avenue S.W.
Calgary, Alberta T2P 3Y7
Telephone: (403) 716-4500
Facsimile: (403) 264-0251
Website: www.precisiondrilling.com
CEDA International Corporation
LRG Catering Ltd.
200, 6712 Fisher Street S.E.
9280 - 25th Avenue
P. D. Technical Services Inc.
2nd Floor Trident House,
Calgary, Alberta T2H 2A7
Edmonton, Alberta T6N 1E1
Broad Street, Bridgetown,
Telephone: (403) 253-3233
Telephone: (780) 431-3484
Barbados, West Indies
Facsimile: (403) 252-6700
Facsimile: (780) 462-0676
Telephone: (246) 228-4293
Columbia Oilfield Supply Ltd.
Montero Oilfield Services Ltd.
Facsimile: (246) 426-5992
9280 - 25th Avenue
4200, 150 - 6th Avenue S.W.
Precision Drilling de Venezuela, C.A.
Edmonton, Alberta T6N 1E1
Calgary, Alberta T2P 3Y7
El Tigre, Venezuela
Telephone: (780) 437-5110
Telephone: (403) 716-4500
Telephone: 011-58-83412701
Facsimile: (780) 436-0229
Facsimile: (403) 264-0251
Facsimile: 011-58-83412822
Computalog Ltd.
Northland Energy Corporation
Precision Drilling Limited
4500, 150 - 6th Avenue S.W.
4600, 150 - 6th Avenue S.W.
Partnership
Calgary, Alberta T2P 3Y7
Calgary, Alberta T2P 3Y7
4400, 150 - 6th Avenue S.W.
Telephone: (403) 265-6060
Telephone: (403) 264-9700
Calgary, Alberta T2P 3Y7
Facsimile: (403) 237-8493
Facsimile: (403) 234-0854
Telephone: (403) 264-4882
Energy Industries Inc.
4303 - 11th Street N.E.
P. D. International Services Inc.
Facsimile: (403) 716-4968
4200, 150 - 6th Avenue S.W.
Rostel Industries Ltd.
Calgary, Alberta T2E 6K4
Calgary, Alberta T2P 3Y7
9699 Sheppard Road S.E.
Telephone: (403) 250-9415
Telephone: (403) 716-4500
Calgary, Alberta T2C 4K5
Facsimile: (403) 250-1339
Facsimile: (403) 264-0251
Telephone: (403) 720-3999
Facsimile: (403) 230-9504
1 9 9 9
A N N U A L
R E P O R T
75
C O R P O R A T E
D I R E C T O R Y
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
Divisions
Drive Well Servicing
7774 - 47th Avenue Close
Red Deer, Alberta T4P 2J9
Telephone: (403) 346-8921
Facsimile: (403) 347-9266
Live Well Service
607 - 15th Avenue
Nisku, Alberta T9E 7M6
Telephone: (780) 955-2029
Facsimile: (780) 955-8949
Directors
Troy E. Ducharme (3)
Calgary, Alberta
W.C. (Mickey) Dunn (2)
Edmonton, Alberta
Robert J. S. Gibson (1) (2)
Calgary, Alberta
Officers
Ducharme Oilfield Rentals
4600, 150 - 6th Avenue S.W.
Calgary, Alberta T2P 3Y7
Telephone: (403) 716-4770
Facsimile: (403) 716-4866
Smoky Oilfield Rentals
RR #2, Site 7, Box 33
Grande Prairie, Alberta T8V 2Z9
Telephone: (780) 532-0788
Facsimile: (780) 532-5602
Murray K. Mullen (3)
Calgary, Alberta
Brian E. Roberts (1) (3)
Calgary, 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
Hank B. Swartout
Chairman of the Board,
President, Chief Executive Officer
Larry J. Comeau
Senior Vice President
Oilfield Specialty Services
Dale E. Tremblay
Senior Vice President Finance,
Chief Financial Officer
M.J. (Mick) McNulty
Vice President Finance
W.B.G. (Bruce) Herron
Senior Vice President
Business Development
Jan M. Campbell
Corporate Secretary
76
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A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
C O R P O R A T E
D I R E C T O R Y
Operations Management
Ron Berg
Vice President
Canadian Drilling
Neil Brown
Vice President
Canadian Wireline
Computalog
Martin Byar
General Manager
Columbia
Larry Cavanna
Vice President
Computalog
Roland Chemali
Vice President
Research and Development
Computalog
Doug Evasiuk
Vice President, Marketing
Canadian Drilling
Tom Facette
Vice President, General Manager
Smoky
Brian Fitzmaurice
Vice President
Industrial Services
CEDA
Roger Hearn
Senior Vice President
CEDA
Ivan Heidecker
General Manager
Energy Industries
Mark Helmer
Vice President
International Drilling
Carel Hoyer
Vice President, General Manager
Northland
John Jacobsen
Vice President
Canadian Drilling Operations
Joe Kinder
Vice President
Western Hemisphere
Northland
Greg Kraus
Vice President
Catalyst Services
CEDA
Mike Larronde
Vice President, Drilling
Technology Development
Computalog
Larry MacPherson
General Manager
Live Well Service
Ian Martin
Vice President
Mechanical Services
CEDA
Robert Miller
Vice President, Drilling Services
Computalog
Don Pack
General Manager
Drive Well Servicing
Dwayne Peters
Senior Vice President
Canadian Drilling
Gordon Skulmoski
Vice President, General Manager
Ducharme
Yook Tong
General Manager
Rostel
Doug White
General Manager
LRG
1 9 9 9
A N N U A L
R E P O R T
77
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
S H A R E H O L D E R
I N F O R M A T I O N
As a Precision Drilling Corporation shareholder, you are invited to take advantage of shareholder services or to
request more information about the Corporation.
Banker
Legal Counsel
Auditors
Royal Bank of Canada
Calgary, Alberta
Borden Ladner Gervais LLP
Calgary, Alberta
KPMG LLP
Calgary, Alberta
Stock Exchange Listings
Trading Profile
Commons 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
January 1, 1999
New York
January 1, 1999
to December 31, 1999
to December 31, 1999
High: $40.60
Low: $13.25
Volume Traded - 51.3 million
High: US$27.75
Low: US$8.81
Volume Traded - 30.1 million
Share Split
Transfer Agent and Registrar
Transfer Point
In 1997, Precision’s Board of
Directors authorized a two for one
split of the Corporation’s common
shares. The record date for the split
was September 30, 1997.
Montreal Trust Company of Canada
Calgary, Alberta
Bank of Nova Scotia Trust
Company of New York
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
You can call our Transfer Agent
toll-free at: 1-888-267-6555
You can write them at:
Montreal Trust Company of Canada
Stock Transfer Services
600, 530 - 8th Avenue S.W.
Calgary, Alberta T2P 3S8
www.montrealtrust.com
Shareholders of record who receive
more than one copy of this annual
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.
Or you can e-mail them at:
Inquire@montrealtrust.com
78
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A N N U A L
R E P O R T
☛
☛
☛
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
S H A R E H O L D E R
I N F O R M A T I O N
Quarterly Updates
If you would like to receive quarterly reports but are not a registered shareholder, please write or call us with your
name and address. To receive our news releases by fax, please forward your fax number to us. To receive our news
releases by e-mail, please go to our website at www.precisiondrilling.com and refer to the Investor Relations section.
Online Information
Anyone with access to the internet can view this annual report electronically at www.precisiondrilling.com
Published Information
If you wish to receive copies of the 1999 Renewal Annual Information Form, or additional copies of this annual
report, please contact:
Corporate Secretary
Precision Drilling Corporation
4200, 150 - 6th Avenue S.W.
Calgary, Alberta T2P 3Y7
Telephone: 403-716-4500
Fax: 403-264-0251
Estimated Interim Release Dates
2000 First Quarter
May 11, 2000
2000 Second Quarter
August 10, 2000
2000 Third Quarter
November 9, 2000
Annual Meeting
The Annual General and Special Meeting of the Shareholders of Precision Drilling Corporation will be held in the
McMurray Room of the Calgary Petroleum Club, 319 - 5th Avenue S.W., Calgary, Alberta at 3:30 p.m. (Calgary time)
on Thursday, May 11, 2000. Shareholders are encouraged to attend and those unable to do so, are requested to
complete the Form of Proxy and forward it at their earliest convenience.
1 9 9 9
A N N U A L
R E P O R T
P R E C I S I O N
D R I L L I N G
C O R P O R A T I O N
4200, Petro-Canada Centre
150 - 6th Avenue S.W.
Calgary, Alberta T2P 3Y7
Telephone: (403) 716-4500
Facsimile: (403) 264-0251
Website: www.precisiondrilling.com