Precision Drilling Corporation
Annual Report 2000

Plain-text annual report

PDar01DR10 3/28/01 3:02 PM Page 83 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 Canadian eh... 2000 A n n u a l R e p o r t Cover 4/5/01 11:10 AM Page 2 O U R G U I D A N C E A N D S U P P O R T This year’s annual report celebrates 15 years of robust growth for Precision. It focuses on the critical goals we have set and met over the last year and the factors crucial to the continued growth of our company. It is no accident that today, Precision is at the forefront of the drilling and service industry in Canada and making inroads globally. Our achievement is the result of a decade of hard work, careful planning, bold strategic moves and, as in any business, some good fortune. Precision Drilling Corporation is an international oilfield services company. In a 15 year span, Precision has grown from a three rig drilling contractor in western Canada, with $4 million in revenue to a multi-service international oil and gas service company with revenues exceeding $1.3 billion. Through a series of targeted acquisitions, the Corporation has expanded its suite of services and now provides them on five continents. In its steadfast pursuit of operational excellence in every endeavour, Precision has emerged in this, a new millennium, as a strong and tenacious competitor. We are well positioned to provide innovative technology, unparalleled service and dedicated support to our customers worldwide. We are committed to sustained strength and profitability – enterprise wide – for the benefit of all shareholders. Our Officers: from left to right Michael J. McNulty, Vice President Finance; Hank B. Swartout, Chairman, President and Chief Executive Officer; W. Bruce Herron, Senior Vice President Rental and Production Services; Dale E. Tremblay, Senior Vice President Finance and Chief Financial Officer; Jan M. Campbell, Corporate Secretary; Larry J. Comeau, Senior Vice President Oilfield Speciality Services. Our Board of Directors: from left to right back row W. C. (Mickey) Dunn; Murray K. Mullen; Brian E. Roberts; H. Garth Wiggins; Robert J. S. Gibson. Seated front row Hank B. Swartout; Steven C. Grant. 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 2 0 0 0 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 A N A D I A N text 4/5/01 11:23 AM Page 1 ...with a global presence France Netherlands Germany Switzerland Austria Hungary Italy Turkey Lithuania UK USA Mexico Venezuela Bolivia Brazil Colombia Canada USA Mexico Venezuela Colombia Brazil Bolivia Argentina UK Netherlands Germany France Switzerland Austria Lithuania Hungary Greece Egypt Turkey Syria Saudi Arabia UAE Oman Italy Tunisia Nigeria Russia Kazakhstan Turkmenistan China India Bangladesh Yemen Thailand Vietnam Indonesia Australia Greece Russia China Kazakhstan India Bangladesh Australia Vietnam Thailand Indonesia Argentina Nigeria Syria Egypt Tunisia Yemen Oman Saudi Arabia IN THIS ANNUAL REPORT UAE Turkmenistan ... with a global presence z Page 1 How We’ve Done This Year z Page 2 Disclosure Matters z Page 4 Tab 1 z G R O W I N G — Report of the Chief Executive Officer z Page 5 Tab 2 z D I V E R S E — Operating Matters: Our knowledge, products and services and skill sets z Page 13 Tab 3 z I N V O LV E D — Our role in the workplace, environment and our communities z Page 31 Tab 4 z S O L I D — Financial Matters: MD&A and our consolidated financial statements and notes z Page 39 Tab 5 z C A N A D I A N – How we’ve done historically, who we are and where to find us z Page 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 G L O B A L P R E S E N C E 1 text 4/5/01 11:23 AM Page 2 H O W W E ’ V E D O N E T H I S Y E A R FINANCIAL PERFORMANCE SUMMARY (Stated in thousands of dollars, except per share amounts which are presented on a fully diluted basis) Years ended December 31, 2000 1999 % Change 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 Number of shares outstanding, end of year (000’s) (1) (2) Funds provided by operations Excludes acquisitions $ 1,355,453 $ 260,845 297,873 5.69 154,321 2.98 131,560 2.55 1,206,895 23.08 180,484 548,096 52,283 734,740 117,494 100,036 2.13 50,081 1.09 34,250 0.76 908,795 19.27 41,148 226,815 47,163 T H E T R A C K R E C O R D Share Performance TSE Up 52% over 1999 Share Performance NYSE Up 46% over 1999 Value of Shares Outstanding Up 69% over 1999 $ Millions PD TSE 300 PDS S&P 500 OSX 3500 3000 2500 2000 1500 1000 500 0 350 300 250 200 150 100 50 0 84 122 198 167 208 173 284 236 33 20 339 142 11 3000 2500 2000 1500 1000 500 0 90 91 92 93 94 95 96 97 98 99 99 00 97 98 99 99 00 93 94 95 96 97 98 99 99 00 April 30 Dec. 31 April 30 Dec. 31 April 30 Dec. 31 2 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 M M A R I E S text 4/5/01 11:23 AM Page 3 H O W W E ’ V E D O N E T H I S Y E A R QUARTERLY RESULTS SUMMARY (Stated in thousands of dollars, except per share amounts which are presented on a fully diluted basis) Year ended December 31, 2000 Q1 Q2 Q3 Q4 Total Revenue Operating earnings Cash flow (1) Per share Earnings before goodwill amortization Per share Net earnings Per share Year ended December 31, 1999 Revenue Operating earnings Cash flow (1) Per share Earnings before goodwill amortization Per share Net earnings Per share (1) Funds provided by operations $ 384,400 $ 223,812 $ 303,354 $ 443,887 $ 1,355,453 93,847 107,148 2.10 49,573 0.98 45,291 0.90 Q1 24,131 35,096 0.68 11,136 0.23 6,835 0.14 Q2 48,141 56,092 1.09 23,453 0.46 16,903 0.34 Q3 94,726 99,537 1.82 70,159 1.31 62,531 1.17 Q4 260,845 297,873 5.69 154,321 2.98 131,560 2.55 Total $ 193,855 $ 98,134 $ 185,081 $ 257,670 $ 734,740 41,259 2,489 0.06 12,779 0.29 9,057 0.21 4,766 7,692 0.18 5,454 0.13 1,849 0.05 25,802 39,606 0.85 11,797 0.25 7,643 0.16 45,667 50,249 1.04 20,051 0.42 15,701 0.34 117,494 100,036 2.13 50,081 1.09 34,250 0.76 T H E T R A C K R E C O R D Gross Revenue Up 84% over 1999 $ Millions Cash Flow Up 167% over 1999 Dollars per share fully diluted Net Earnings Up 236% over 1999 Dollars per share fully diluted 1500 1200 900 600 300 0 8 7 6 5 4 3 2 1 0 3.0 2.5 2.0 1.5 1.0 0.5 0.0 93 94 95 96 97 98 99 99 00 93 94 95 96 97 98 99 99 00 93 94 95 96 97 98 99 99 00 April 30 Dec. 31 April 30 Dec. 31 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 S U M M A R I E S 3 text 4/5/01 11:23 AM Page 4 D I S C L O S U R E DISCLOSURE REGARDING FORWARD–LOOKING STATEMENTS Certain statements contained in this annual report, including statements which may contain words such as “could”, “should”, “expect”, “believe”, “will” and similar expressions and statements relating to matters that are not historical facts 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 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 taxation, environmental and currency regulations; the lack of availability of qualified personnel or management; and other unforeseen conditions which could impact on the use of services supplied by the Corporation. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Corporation will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Corporation or its business or operations. The Corporation assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. 4 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 D I S C L O S U R E PDar01DR10 3/28/01 3:01 PM Page 5 Growing... 1 – big enough to meet our customers’ needs – anywhere! 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 G R O W I N G 5 tabs 4/5/01 11:44 AM Page 6 R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R FELLOW SHAREHOLDERS, The delivery in August 2000, of Rig 709, one of our By almost any measure fiscal 2000 was a great year for our Canadian designed and built Super Single™ drilling rigs to company. It did not happen by chance. Kazakhstan, illustrates the desirability of our rig technology. Fifteen years ago we devised a strategy to build Precision into the premier drilling contractor in Canada. With the execution of this strategy well in hand, we expanded our focus to become the dominant player in the Canadian oilfield services industry. The key ingredients to success were technology, operating excellence and motivated people. From drilling rig design to satellite transmission to downhole tools, Precision has developed a unique product mix. As far back as the late 80’s, we invested heavily in rig technology. Today that is paying off, giving us an efficient, modern and high-tech fleet that is second to none in the world. Along with new drilling technology, we added complementary products and services. Part and parcel of this strategy was an unshaken commitment to safety throughout the entire expanding organization to protect the employees and assets of both Precision and our clients, while reducing costs and improving efficiency. MORE THAN CANADIAN Our multinational client required a fast moving, fast drilling rig to help it meet its contractual commitments. Rig 709 has been able to punch down holes in a few days where previous contractors took weeks. In Venezuela, our fleet has expanded and continues to be highly utilized, again underscoring the yields of our well planned investment in rig technology and rig management systems. The same discipline is applied to our Oilfield Specialty Services segment. Our wireline business developed and released several new tools, while expanding our open hole logging activities into the US to complement an established cased hole operation. Today’s underbalanced drilling (UBD) technology developed on the plains of southeastern Saskatchewan, has found its way to the production platforms of the southern North Sea. Using Precision’s new offshore UBD separation design, our multinational client was able to drill and profitably produce a previously unproducible reservoir. The ultramodern Polar Completions tool facility has enabled Precision to win supply contracts from Australasia to Precision has succeeded in executing this strategy and the Middle East through fast-track tool design and speedy now is adding a global element to it. We are clearly in the forefront of leading service companies in Canada. But through our focus on more exotic drilling technology, we are now developing a new generation of products and services that will address clients’ needs around the world. delivery. The Western Canadian Sedimentary Basin (WCSB), one of the most actively drilled basins, is at the forefront of directional and horizontal activity. As a leader in this market, 6 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 G R O W I N G text 4/5/01 11:23 AM Page 7 R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R Precision is exporting its expertise drilling deviated and lateral acquisitions and most importantly, a commitment to wellbores in new and existing reservoirs in Latin America, the significant research and development. More specifically, US, Europe and India. Precision last year spent $201.0 million in capital As our technology becomes more widely accepted, we expenditures (internal growth), $599.4 million on believe our customers will take us to even more frontiers. We already have a presence in a number of countries around the world but, to effectively and efficiently deliver all of our services under one umbrella, the Oilfield Specialty Services acquisitions (external growth) and $20.3 million on research and development. The total is $820.7 million, not an inconsequential sum. These investments are bearing great fruit and have positioned our company for what we believe will be segment has developed an international structure. The significant upside potential. position of Regional Director of Operations has been Revenues of $1,355.5 million rose $620.7 million or established for five strategic geographical areas: US, 84% over the prior year. Operating cash flow and net earnings Europe/Africa, Middle East, Asia Pacific and Latin America. of $297.9 million and $131.6 million were up $197.8 million Each Regional Director will be located in their area with a or 198% and $97.3 million or 284% respectively over fiscal local infrastructure to support the various product lines. 1999. Of this revenue growth, 73% was internal and 27% Our Regional Directors are seasoned oilfield professionals came through acquisitions. It is also noteworthy that our with experience and knowledge of all active local customers international revenue grew 109% from $119.5 million to within their regions. $250.3 million while our domestic revenue grew by 80%. With strong local familiarity, Precision will be able to Contributing to our earnings was a $19.9 million tax more effectively develop business operations in each of these reduction, which is a result of substantively enacted Federal geographical areas. Recent acquisitions have already tax changes. This reduction, plus the proposed Provincial tax contributed to this network creating support services from cuts, are anticipated to have significant positive impact on which the company can leverage. Precision’s earnings and cash flows in the future. This tax RECORD PERFORMANCE The results of fiscal year 2000 clearly reveal how our strategy is evolving. We depend and will continue to depend on internal organic growth, external growth through reform represents the biggest incentive given to business by our governments in recent history and creates an environment for increased corporate profitability. 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 G R O W I N G 7 text 4/5/01 11:23 AM Page 8 R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R Our financial success is due only in part to our corporate Our neighbour to the south, the United States, is hungry prowess. The business environment clearly played a significant for gas. Rotating blackouts in California this winter highlight role especially as rising oil and gas prices dictated greater a critical electrical shortage in certain areas of the US. The service activity. Yet, Precision was ready to deliver and absence of new electrical capacity, strangled by the prepared to capitalize on the business opportunities as they ineffectiveness of deregulation, and compounded by the ever- presented themselves. OUR OPPORTUNITIES We are positive about the continuing prospects for high levels of both gas and oil exploration and production. We possess many of the products, services and technologies that are in high demand now. The strategies we implemented several years ago now position the Corporation to leverage off the strong economic fundamentals. Natural gas continues to be a good news story throughout the WCSB. In the last few years, the supply of North American gas has lagged behind the growth in demand. The low oil price environment of 1997-98 reduced the cash flows of producers and contributed to curtailing gas drilling activity. There was always the incentive for consumers to want “clean” natural gas as a fuel but there was little incentive to produce it at then prevailing prices. There were few new utilities coming on stream even as the demand for natural gas grew and steeper decline curves appeared for reserves. This implies a tight supply for natural gas for some time to come. increasing electrical demand for the Internet and e-business, has sparked a flurry of announced additions to the US electrical generation fleet. Analysts predict that over 95% of these projects will be fired by natural gas, for economic and environmental reasons. US gas consumption is predicted to grow by 26% as we approach the end of the decade. Canada will remain an important source of gas supply for the US and Precision stands to benefit. To meet short-term demand, producers must develop their current reservoirs. This translates into high utilization, especially for our shallow and medium depth rigs. Our Oilfield Speciality Services and Rental and Production business segments will also experience high activity levels. Producers in their search for new, longer- life and more productive reservoirs will move west and north to drill deeper. With more than half the deep rigs in Canada, Precision will capitalize on this shift to deeper gas drilling. The gas reserves of the Mackenzie Valley and other northern gas basins are another important source of supply for burgeoning North American demand. Our participation with Mackenzie Delta Integrated Oilfield Services, an Inuvialuit company, qualifies Precision as one of the only two drilling 8 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 G R O W I N G text 4/5/01 11:23 AM Page 9 R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R contractors able to drill in the Canadian far north. We have The world reserves of light crude oil are in decline. laid the necessary foundations for all our segments to Refineries in North America are continuing to upgrade their participate in this vast northern expanse as explorers prove up plants as they switch their diets to heavier crudes. Heavy oil is northern gas and build the necessary infrastructure to deliver abundant in Canada and its geological risk is minimal. As it to voracious southern markets. North American demand for oil grows, the WCSB will Further south, Mexico with its untapped gas basins, can increasingly be a significant source of supply. Both our Super also be an important supplier to the US. Recently, Precision, as a part of a joint venture, was awarded a US $270 million, 240 gas well project, in the Burgos Basin in northern Mexico. As project manager and lead contractor, the Corporation will Single™ rigs and the horizontal drilling capabilities of the Oilfield Specialty Services segment will be called upon more as producers increase their use of Steam Assisted Gravity Drainage (SAGD) technology and multilateral technology in supply drilling rigs, wireline, directional drilling, and well order to exploit the heavy oil reservoirs. testing services, drill bits and downhole completion tools. In addition to heavy oil drilling, Precision’s downstream This high profile project gives Precision a foothold in a new, businesses are already benefiting from the increased oil sands expanding market eager for all the services and products we activity. Oil sands giants, with their multi-billion dollar can deliver. expansions of their plant facilities, plan to increase their We continue to observe a tight balance in the world combined output from around 300,000 bbl/day to over demand and supply of crude. Such conditions should keep the 900,000 bbl/day by 2008 providing opportunities for new price of crude relatively high, spurring on more oil drilling and ongoing maintenance requirements. activity. Analysts predict that overall exploration and ACQUISITIONS production spending will increase 20% world wide for this coming year and that the majority of all regions in the world will increase their drilling numbers for a second straight year. In 2000, Precision completed a number of significant acquisitions worth almost $600 million, which strengthened our market position in several sectors, and provided additional The demand for our oil-related technology, services and platforms for future growth. products both domestically and in international markets should continue to be robust. The Plains Energy Services acquisition underscores our belief in the strength and longevity of Canadian oil and gas production. Their wireline, UBD, coiled tubing drilling rigs, 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 G R O W I N G 9 text 4/5/01 11:23 AM Page 10 R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R workover rigs and well testing product lines expand or attractive short radius and rotary steerable technology. As small enhance most of the current product lines in our Contract private companies, both lacked the financial and operational Drilling and Oilfield Specialty Services business segments. depth to take full advantage of global markets. By combining Their coiled tubing drilling rigs, combined with our own our engineering and financial strength with their international existing design, propel Precision into a leading edge position presence we are creating the foundation for global expansion in this technology. The exceptional timing of this acquisition with a delivery system for new technologies. coincided with the strong recovery in Canada and now affords us the opportunity to harvest free cash flow to invest in our technological and strategic international expansion. Following each acquisition, integration teams, systems and infrastructure are put in place to ensure a smooth transition into the Precision fold. One of the groups I am proud of is our The takeover of CenAlta Energy Services, with its 163 Information Technology department. In past years Precision has service rigs and 10 drilling rigs catapulted Precision to the invested wisely in the development of our enterprise resource position of owning the largest workover rig fleet in Canada. planning software. This specialized software efficiently With service rig fleet ownership now consolidated (three accommodates our fast growth rate and our track record of public companies own 65% of the industry fleet), we envision acquisitions. For example our payroll system, one of the most a new era of pricing discipline and stable margins. The highly complex in Canada, seamlessly accepted 1,700 former CenAlta fragmented, low return characteristics of the traditional employees with their multitude of pay scales, tax withholding service rig market are beginning to disappear. When we requirements and multi-provincial tax rates. Timely consolidated our drilling rig fleet, we were able to utilize management information is paramount to operate our economies of scale, improve operating efficiency and leverage businesses profitably and efficiently and Precision will continue technology to lower our daily operating costs. These same to invest in such essential support services. disciplines and proven business models are now being applied TECHNOLOGY to our service rig business. The CenAlta acquisition, with its diverse range of rigs, also expands our capability to capitalize on future international well servicing opportunities. Precision’s traditional focus on technology is attracting increasing opportunities from our international customers. Advantage Engineering Services (AES), our new research and In recent years, Geoservices S.A., has developed leading development facility in Houston boasts a team of engineers, edge electromagnetic (EM) directional and horizontal technology. BecField Drilling Services was a niche player with scientists and programmers that are equal to any in the world. 10 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 G R O W I N G text 4/5/01 11:23 AM Page 11 R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R This group has a proven track record and 500 years of UBD technology advances included the completion of a combined experience in developing high-tech downhole tools. 5,000 psi rotating blowout preventer for higher pressure UBD AES’s mandate is to develop next generation Logging While well control as well as the commercialization of a new small Drilling (LWD) and Measurement While Drilling (MWD) footprint high pressure gas separator utilized in the tools whose performance and durability will create a higher demanding environment of the North Sea. standard of excellence in the industry. The prize is a share of the lucrative US $2.3 billion directional, MWD/LWD market in which there are only a few players. This market is expected to grow significantly as producers continue to explore and produce the deep-water offshore plays. Our first tools are scheduled to be in field trials in early 2001 and the remaining suite of tools will roll out regularly through 2002. While the costs of research and engineering are charged to current As I write, the next generation coiled tubing drilling rig, the Cisco 2000 is in field trials. As a leader in coiled tubing drilling we have taken our experiences and translated them into a new style of rig with major improvements in coiled tubing handling and injection. The Cisco 2000 rig will be able to drill to 2,000 metres with 3½” coiled tubing to qualify as the deepest and largest diameter rated coil land rig for grass roots drilling in the world. Developments such as these maintain periods, this technology will construct a new platform on Precision’s leadership in shallow and medium depth drilling. which to generate future earnings. The ability to produce free cash flow in our segments Our wireline product group has introduced a number of such as contract drilling has afforded us the ability to invest in new wireline innovations to the market in the past year. A high speed Wireline Communication System now enables our technology. As we continue in this positive up cycle, all segments will continue to generate the capital required to trucks to record more data at faster rates during logging support all planned technology development. operations and provide better quality data for our clients. New logging tools such as our ShortStak production logging tools, SAFETY Hi-Res Borehole Compensated Sonic tools, and Multi Array Neutron tools were released to complete and enhance our product offerings to our clients. All these tools now can connect to our satellite COMSTAR system so clients can view, manipulate and assess their logs in near real time over a secure Internet connection anywhere in the world. Before closing, I believe it is important to highlight Precision’s exceptional commitment to safety. Safety is key – it is fundamental – a priority. Our lower than industry Workers’ Compensation Board assessments are clear evidence that the efforts of our safety professionals and management are paying off. Safety at Precision however is not about cost reduction. In 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 G R O W I N G 11 text 4/5/01 11:23 AM Page 12 R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R fact we continue to invest more and more each year into our safety staff, employee programs, and safety equipment. Safety is not about regulatory compliance. Our safety standards are consistent, company wide and often exceed governmental requirements. Regardless of whether we are operating in the regulated winter access locations of north eastern British Columbia or in the emerging unregulated offshore fields of Bangladesh, the safety standards and practices of both operations mirror the other. Safety at Precision is an everyday concern. Safety means that worker protection is one of the prime parameters in the design of our new technology. From pre-employment orientations and safety reporting to standard operating procedures and continuous training of our field Chairman, President and Chief Executive Officer HANK B. SWARTOUT staff, Precision is dedicated to ensuring that our workers have the necessary knowledge, skills and equipment to perform their jobs safely. and for striving to create a safer work place for all of us. But as we look towards the future, I challenge each and every one of them to continue to improve the safety of our workplace while Safety does not stop at our yard gate nor at the edge of a carrying on our momentum of growth and profitability. drilling lease. Our safety culture means we must look beyond our boundaries. Precision continues to work cooperatively with customers, vendors and trade associations in enhancing safety throughout the industry. Many of these groups have similar strong safety commitments and share our goals of a safer industry. In closing, I make no apologies for restating the old adage, To our shareholders, I am proud of our legacy of value and growth over the last decade and a half. I thank you for your continued support of the Board and management. The future burns brightly for Precision as I look forward to another outstanding year. our people are Precision’s most vital asset. Their hard work and efforts have made 2000 the record year it was. I wish to take this moment to congratulate and thank them for their efforts Hank B. Swartout March 26, 2001 12 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 G R O W I N G PDar01DR10 3/28/01 3:01 PM Page 13 Diverse... 2 – enough to deliver top notch service – everywhere! 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 D I V E R S E 13 tabs 4/5/01 11:44 AM Page 14 CONTRACT DRILLING SERVICES Nature of Business Units of Production Location Employees Columbia Oilfield Supply Ltd. Fleet Coil Technologies (U.S.) Corp. Live Well Service Procurement and distribution Warehouse and of oilfield supplies Contract drilling Hydraulic well assist snubbing Camp and catering LRG Catering Ltd. Contract drilling Precision Drilling International Precision Drilling Limited Partnership Contract drilling distribution facility 2 drilling rigs 19 snubbing units, 32% of industry 74 oilfield camps 12 drilling rigs 230 drilling rigs, 38% of industry 257 service rigs, 28% of the industry Yard and shop facility, 38,000 square feet 30,000 square feet research and test facility 34 open hole units, 133 cased hole units, 23 slickline units, 2 barges with cased hole skids, 90 drilling systems 16 cement units, 7 acid units, 2 frac units, 2 nitrogen units, 6 coiled tubing units 108 testing systems, 41 RBOP™, 34 UBD systems 32 cased hole units, 10 slickline units, 7 combination units Yard and manufacturing facility, 55,000 square feet Manufacturing and operations support of 200 jobs/month 135 vacuum trucks, 55 high pressure units, 9 bundle blasters 90,000 square feet of production capacity 286 trailers, 9,500 joints of specialty drill stem, 4,000 tools, 3,600 surface units Canada US Canada Canada International Canada Canada Canada US Canada, US, International US Canada, US, International Canada Canada Canada Canada, US Canada Canada 40 45 65 212 350 4,114 1,765 87 39 1,531 92 555 189 81 16 1,000 250 144 10,575 D I V E R S E Precision Well Servicing Contract service rigs Rostel Industries Ltd. Manufacture, repair and sale of drilling equipment OILFIELD SPECIALTY SERVICES Advantage Engineering Services, Inc. MWD/LWD tool and Computalog Ltd. Fleet Cementers, Inc. Northland Energy Corporation Northland-Norward Energy Services Entest Plains Perforating Ltd. Challenger/Silverline Polar Completions Engineering Inc. United Diamond Ltd. RENTAL AND PRODUCTION SERVICES CEDA International Corporation Energy Industries Inc. Montero Oilfield Services Ltd. December 31, 2000 equipment research and engineering Open and cased hole wireline services, directional drilling services Oil and gas well pumping service, cementing, acidizing, fracturing, nitrogen, coiled tubing well servicing Well testing and control pressure drilling services Cased hole logging and perforating, H2S logging and mechanical services Design, manufacture and servicing of downhole completion and production equipment Design, manufacture, sales and rental of PDC drill bits Industrial maintenance and turnaround services Packaging, sales, lease, rental and servicing of natural gas compression Wellsite trailers, downhole drilling equipment, surface oilfield equipment 14 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 text 4/5/01 11:23 AM Page 15 P R E C I S I O N — A S U M O F I T S P A R T S INTRODUCTION The oil and gas industry is a constantly changing scene. At Precision Drilling Corporation we stress cutting edge technology, broad expertise and absolute service as the vehicles taking us into the global oil patch. We are headquartered in Calgary, Alberta and from this vibrant Canadian city we serve the world. The extensive experience in the dynamic proving ground of the Western Canadian Sedimentary Basin enables Precision to deliver top-to-bottom operational excellence to international corporations around the globe. Our range of state-of-the-art services – from underbalanced drilling and high-tech rigs to real time data transmission from well site to our clients’ offices – today are at work on five continents. Precision operates in three business segments: Contract Drilling Services, Oilfield Specialty Services and Rental and Production Services. These segments embrace a diverse wealth of innovative product and service lines. Wireline, MWD/LWD, drilling services, well testing and underbalanced drilling, the latest in international drilling rig design are just a few. We also offer rental equipment, compression packages, industrial maintenance services and more. From its headquarters in Calgary, Alberta at the foot of the Canadian Rockies and the home of the Calgary Stampede, Precision serves the world. We have taken the pioneering tradition of the Canadian west and our 15 years of oil and gas industry know-how and exported it around the world. 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 D I V E R S E 15 text 4/5/01 11:23 AM Page 16 P R E C I S I O N — A S U M O F I T S P A R T S CONTRACT DRILLING SERVICES Super Single™ Rigs Beauty is in the eye of the beholder. And we think our latest drilling hardware is a beauty. The sixth generation Super Single™ rig is our own design that replaces more traditional jack-knife and shallow telescopic doubles in shallow to medium depth drilling. It is Precision’s home-grown concept from engineering and design through manufacturing and operation. Its extreme flexibility allows custom fitting for clients in environments as diverse as the hot tropical climate of Venezuela or the frigid winters of Kazakhstan and Canada. Its small footprint makes it an environmental winner. On our Super Single™ rigs, the top drive travels along a track system built into a one piece mast which can be set to varying degrees, from vertical to a 45 degree slant position. Our Super Single™ rigs boast an automated pipe handling system that eliminates much of the manual and hazardous pipe work on the drill floor. The rig is safe, more compact and highly transportable, with a view to minimizing downtime between jobs. Its unique mast design allows it to move in one degree increments to drill from vertical to 45 degrees. Such features help our customers drive down their development costs and turn marginal projects into economic successes through faster pipe tripping, speedier drilling, and ease of moving the rig – anywhere in the world. Already the Super Single™ rig is a record holder – 5,235 feet of 8.5-inch horizontal hole in 22.5 hours! Now that’s a prime example of Precision’s commitment to back its vision of being a major player in the international oilfield industry with Canadian technology. 16 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 D I V E R S E text 4/5/01 11:23 AM Page 17 The Super Single™ rig’s pipe arm eliminates drillpipe handling by roughnecks with a view to improve safety. This patented arm is part of the overall automation of this rig that enables the rig to drill faster. 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 D I V E R S E 17 text 4/5/01 11:23 AM Page 18 P R E C I S I O N — A S U M O F I T S P A R T S Coiled Tubing Rigs It looks like a king-sized roll of flexible steel garden hose. Only it’s thousands of feet long and it goes into the ground like a plumber’s snake. No tool joint connections mean hazardous pipehandling is eliminated both during drilling operations and on rig moves. This built-in safety reduces the potential for accidents. Drilling power comes from a downhole mud motor that produces continuous rotary action at the end of the coil. Penetration rates of over 400 metres per hour are routinely achieved. Coiled tubing technology also means less drilling fluids spilled during operations – the coil is reeled in or played out in a single connection. This type of coil rig has a small footprint, requires minimal ground disturbance and is self levelling. This is a big environmental plus. Our patented injector head technology, pioneered in the abandonment of shallow wells, is now used to drill these types of wells. Operators save money on bulk cement since the hole drilled with coiled tubing is closer to the desired gauge. Fewer cavities to fill up with cement! Drilling controls are in the doghouse so workers’ exposure to the elements is reduced. It’s a revolutionary technology whose time has come and it is very much part of Precision’s diverse world of oilfield technology. Continuous coiled tubing, our newest drilling technology. Anchorless Service Rigs Guy wires are on their way out on Precision workover rigs. Today’s modern rig fleet is increasingly anchorless and customers are welcoming the added flexibility and reduction in environmental stress. That familiar signpost rig mast – about 69 feet high on a single or 112 feet high on a double – needed six strong guy wires to be safely anchored. 18 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 D I V E R S E text 4/5/01 11:23 AM Page 19 P R E C I S I O N — A S U M O F I T S P A R T S But today, Precision’s batwing rig assembly – in which the rig’s two arms swing out to anchor the rig through its own weight distribution – eliminates a rigging expense. As well, it cuts down on ground disturbance – no 10 to 20 feet deep auger-type anchors for attaching the guy wires to the ground are necessary. Some clients are so impressed they have paid the capital upgrade to alter specific rigs under contract. The batwing design, as illustrated on rigs 607 and 609, eliminates the need for guy wires to anchor the rigs’ masts prior to the start of operations. 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 D I V E R S E 19 text 4/5/01 11:24 AM Page 20 P R E C I S I O N — A S U M O F I T S P A R T S OILFIELD SPECIALTY SERVICES Flow Rate Tester (FRT) Developed and proven in the Canadian oilfields, Precision’s high-tech well testing system is ready for use this year in the US and overseas markets. It combines the best from earlier generations of conventional testing with the time saving and flexibility of wireline operation. Simply put, it’s a better method to open hole test oil or gas reservoirs. It saves the Precision client money while providing superior well information and protecting the environment. The client receives real time data and with precise depth control provided by gamma ray correlation, all potential formations can be tested in just one trip. The FRT tool records critical reservoir pressure and potential production data. Sensors identify fluids before multiple, uncontaminated reservoir fluid samples are taken. No gas or fluids are flowed to surface as in conventional testing, eliminating storage and environmentally unfriendly flaring. Safety is improved especially in poisonous hydrogen sulphide formations. Fast reservoir completion or abandonment decisions can now be made. From open hole to cased hole applications, the FRT delivers effective reservoir knowledge from the people whose best runs have always been below the surface. Within a protective housing, lies a downhole laboratory consisting of a complex network of electronic components, sensors, chambers and pumps able to analyze oil and gas formations at predetermined depths, which can be isolated for more zone specific readings by the FRT. 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 D I V E R S E text 4/5/01 11:24 AM Page 21 P R E C I S I O N — A S U M O F I T S P A R T S COMSTAR The client focuses on his computer monitor in his home office whilst he analyzes a log from a well just drilled several thousand miles away. At the wellsite, Precision’s logging truck is still on location. Its data is transmitted to the Galaxy XR satellite that is geostationed above earth at the Equator. From here the data is sent back to earth to computer centres in Precision’s Wide Area Network. It is all in near to real time. A secure Internet system delivers the data to where the client wants to view it. Our SEELOG software allows the client to manipulate the data to his required format. This means logs are viewed and decisions made faster than having to wait for couriers to deliver the data package. Satellites, secure Internet connections and sophisticated communications software linking wellbores to computers virtually anywhere in the world are all part of Precision’s diversity in a demanding, technological age. In near real time, data is transmitted via satellite to the client, for immediate well analysis. 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 D I V E R S E 21 text 4/5/01 11:24 AM Page 22 P R E C I S I O N — A S U M O F I T S P A R T S Electromagnetic Measurement While Drilling (EM-MWD) Tool A series of mud pulses from sensors positioned just above the drill bit is the traditional method of communicating real time drilling information to engineers on the surface. Today EM technology is winning industry-wide acceptance because of its superior performance. Precision, via its acquisition of EM-MWD technology and equipment license, uses electromagnetic waves through the formation outside the wellbore to allow the driller to monitor and control well trajectory. The key advantage of this EM tool, part of the bottom hole assembly, is that the solid state electronics do not rely on a fluid filled wellbore in order to transmit data. This is especially useful in underbalanced drilling where aerated fluids distort mud pulses resulting in lost data. As well it is more reliable, provides considerably more data and is cost effective with no moving parts and hydraulic issues to prolong survey times. After application in over 1,500 wells, this proven technology is becoming the communication method of choice. Another stake on Precision’s claim to being a leading innovator in the quest for faster, more cost effective drilling. EM-MWD broadcasts radio waves of downhole information to enable technicians to monitor and control well trajectory. 22 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 D I V E R S E text 4/5/01 11:24 AM Page 23 P R E C I S I O N — A S U M O F I T S P A R T S Underbalanced Drilling (UBD) Pioneering hasn’t stopped in western Canada. Precision lead the development of UBD in western Canada then took its innovative approach to the North Sea. Originally developed as a way to reduce formation damage during drilling operations, UBD provides a host of other positive benefits: an increase in recoverable reserves from the reservoir; basic real time reservoir evaluation; greater penetration rates while drilling; less downtime associated with lost circulation; and an overall reduction in drilling time. The Corporation has completed its second offshore North Sea system – a state of the art, closed loop UBD surface separation package for a multinational client. This integrated package allows our client to produce gas for the first time from this reservoir from an offshore platform and halves the usual time for projects of this magnitude in the southern North Sea gas field development. This technology, coupled with our newly engineered separation design that occupies only half the deck space of earlier packages, can be employed by a wider range of offshore rigs than previously possible. With a patented technique which allows separation of gas from wellbore returns at high pressure, gas can be sent straight to production or re-injection thus reducing environmentally unfriendly flaring. This type of integrated technology enlarges Precision’s overseas clout. It allows us a modest claim to be returning some of that pioneer spirit that built the Canadian West to its European roots. With safety as the paramount objective, Precision was challenged to engineer and build a UBD system capable of operating offshore in the harsh conditions of the North Sea. The second generation [shown above] has a smaller footprint, yet is capable of handling even greater rates of flow. 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 D I V E R S E 23 text 4/5/01 11:24 AM Page 24 P R E C I S I O N — A S U M O F I T S P A R T S Venezuelan Wireline Canadian technology is in full bloom in the development of Venezuela’s vast oil reserves. From the country’s El Tigre eastern field – a flat, dry terrain, rich in shallow heavy oils and deeper light crude deposits – to the Ojeda field in the west on Lake Maracaibo, Precision is a competitive supplier of high-tech services to PDVSA, Venezuela’s national petroleum company. A new US $1.4 million barge, measuring 40 feet by 110 feet, is part of our response to increased demand in this challenging offshore oil field. It is a complete high end logging unit with living quarters and anchor winch systems. This is Precision’s second barge to operate on Lake Maracaibo. The Corporation’s growing profile in Venezuela, with continued investment, has led to increased contracts in the area. Our Cutting Edge Forty-one polycrystalline diamond compact (PDC) wafers embedded in the fist of an 8¾ inch steel body. That is the business end of a drilling rig. Built in Nisku, Alberta by Canada’s sole PDC bit company, the new-age technology bits are designed for increased penetration and harder formations with greater stability – all to produce a constant torque, virtually no slipstick and much less wear and tear on drill collars and pipe. A PDC bit in 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 D I V E R S E text 4/5/01 11:24 AM Page 25 P R E C I S I O N — A S U M O F I T S P A R T S The distinction is in the placement of the PDC cutters, highly pressured wafers of black diamond layered in tungsten carbide slugs. These cutters use a more efficient shearing action than the crushing mode of traditional roller bits. After all, diamonds aren’t just about glitter. Precision’s Advantage The mandate of Advantage Engineering Services’ team of scientists, engineers and software programmers is to to develop the next generation of directional drilling MWD/LWD tools and gain a commanding share of the estimated US $2.3 billion market. The team operates out of a new 30,000 square foot state-of-the-art research and engineering facility complete with extensive testing and downhole simulation capabilities. The Advantage team, assembled just over a year ago, will begin to field test its first set of new tools starting in the second quarter of 2001. These tools are initially aimed at the deep-water segment of the market where current technology is at its limits. The objective – to provide a superior line of tools that log faster and more reliably in zones where extreme temperatures, flow rates and pressures are commonplace. Our commitment to this technology is evident – Precision is planning to spend approximately $55 million researching, developing and proving this new generation of tools. The result: an innovative technology platform from which to grow new earnings in a market where lost time is measured in seconds and lost dollars in millions. There has to be an Advantage in all that! On Advantage’s vibration table, tools or components of tools are tested to evaluate their durability. 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 D I V E R S E 25 text 4/5/01 11:24 AM Page 26 P R E C I S I O N — A S U M O F I T S P A R T S Completion Tools The tender mandated the design, manufacture and delivery of hydroseals – all within 30 days. Precision’s completion tool division met its deadline for the high quality order from a multinational producer in Australia and won repeat business. Expertise, honed on successful projects such as designing and manufacturing a complete recovery system for a major Saskatchewan heavy oil plant, backstop the Corporation’s move into the global scene. Other contracts which led to the repeat business, include hydroseal orders for a Middle East client in Oman and completion strings for horizontal re-entries in Kazakhstan. Further international contracts with oil majors were landed in Indonesia, Egypt, Yemen and Hungary. This willingness to move the bar, coupled with the ability to deliver Precision-style excellence, on time, is how we will vault to the next level of market penetration. A specialized laser measurement instrument ensures exact tolerances in the manufacture of completion tools. 26 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 D I V E R S E text 4/5/01 11:24 AM Page 27 A wireline technician inspects circuitry on one of our newly assembled open hole wireline trucks. 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 D I V E R S E 27 text 4/5/01 11:25 AM Page 28 P R E C I S I O N — A S U M O F I T S P A R T S RENTAL AND PRODUCTION SERVICES Industrial Maintenance Precision is cleaning up in the world of industrial plant maintenance. The Corporation, through its CEDA arm, specializes in industrial maintenance from chemical cleaning operations and plant turnarounds to highly specialized, state-of-the-art hydraulic bolt tensioning and the speedy removal of large heat exchangers. Last year we renewed long-term contracts with clients involving a broad range of industrial maintenance and cleaning services in the oil sands projects at Fort McMurray, Alberta. We also promoted the Unidense method of loading industrial reformers as the preferred technology around the world. Our skilled technicians, through an alliance, completed loading projects throughout North America, Chile, Sicily, Trinidad, Germany, South Korea, Norway and France. Our crews performed turn key turnarounds around the globe. The world is getting to be a cleaner place because of our efforts. With the billions of dollars of investment in plant expansions, oil sands players have begun the construction that should triple production to 900,000 barrels per day, adding more infrastructure to be maintained by our established industrial maintenance arm. 28 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 D I V E R S E text 4/5/01 11:25 AM Page 29 P R E C I S I O N — A S U M O F I T S P A R T S Rentals Polycrystalline diamonds are not always a driller’s best friends. Increasingly popular at the cutting edge of the drill, the diamond bits with their aggressive cutters create far more torque and torsional stresses on the drill string than traditional roller cone drill bits. Precision’s downhole rental tool division has a project underway: a torsional shock tool designed to reduce or eliminate random torsional stress cycles. These are what cause many drill string failures delaying drilling while the crew fishes for the detached drill pipe and tools. In some cases the hole must be abandoned and a new one drilled. The 4½ foot long tool, in the initial stages of field introduction, sits above the drill bit. Its function is to dampen the stress cycle and thus prevent a costly twist off. Yet another example of Precision’s constant effort to design excellence into its field operations. After each rental, the torsional shock tool is inspected and redressed. 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 D I V E R S E 29 text 4/5/01 11:25 AM Page 30 P R E C I S I O N — A S U M O F I T S P A R T S Packaging A portable compression unit looks like a big Meccano set on skids with its compressor, engine, process cooler, piping and pressure vessels. Precision sets the industry standard for excellence in packaging these tailor-made units, using 27 years of field experience to produce deftly engineered and easily serviced compression packages. The market for compression is expanding. Aging wells, declining reservoir pressures and production rates have almost doubled the demand for compression over the past decade. Drilling takes place further and further away from pipelines increasing the need for a greater network of gathering systems requiring more compressor units. A skid mounted portable natural gas compressor. The Corporation has an aggressive stocking program that ensures quick response to orders. Skilled teams, with decades of fieldwork behind them, understand the customers’ need regardless how remote the package. SUMMARY So as you can see, we have a broad base of services already being provided on a global basis. This, however, is just the beginning. We think “Best in Class”, and bolster that claim with more than 20 acquisitions over the past decade. Technologies such as Super Single™ rigs, UBD, and FRT are just three of our many calling cards. The expertise, encompassed within our organization of over ten thousand employees, backed by the information technology we deploy, enables us to successfully integrate all Precision services, wherever our clients want us to be. The mantra of “Operational Excellence” infuses all segments. We tailor our services to individual client needs while using our knowledge to reduce costs and improve margins. As we broaden our footprint on the world, we take the best of our homegrown skills and attitudes wherever we operate. These include standards of safety, environmental awareness and community involvement in a world that increasingly expects and receives the best from us – whether that be offshore in Venezuela’s Lake Maracaibo, in the always-challenging North Sea or back home in the Western Canadian Sedimentary Basin. From our Canadian backyard to the international oilfields: We commit; We deliver; No excuses. 30 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 D I V E R S E PDar01DR10 3/28/01 3:01 PM Page 31 Involved... 3 – striving to make a difference in our work and where we live – thoughtfully! 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 I N V O L V E D 31 tabs 4/5/01 11:45 AM Page 32 Precision invested in this rig floor simulator as a key component of its training program for entry level floorhands. 32 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 I N V O L V E D text 4/5/01 11:25 AM Page 33 W E A R E I N V O L V E D SAFETY Safety Is Everyone’s Business Safety pays. People, profits, and the Corporation all benefit when employees are part of a team committed to a safe At Precision, safety professionals make no apologies for their presence on a rig floor or checking out crews handling toxic industrial cleaning materials. Their on-site style is to bring safety training to the job, not just the employee to the working environment. Our safety record, backed by classroom. workplace experience and external audits, makes its own case. On the job, the safety crews audit every procedure. They Precision has more than 34 safety professionals on staff. Last year they logged more than 1,000 field visits. investigate incidents. They are trained to recognize hazards; situations that are accidents waiting to happen. Safety at Precision begins at the top. We not only preach safety – we practise it. Senior executives and managers continually go into the field to inspect working conditions and to ensure compliance with company policy. After Precision acquires a company, it immediately reviews the target’s safety procedures to ensure they match the high standards that apply throughout the Corporation, at home and abroad. The Corporation supports its large investment in safety by tracking trends from a global database. Customer alliances They know government regulations in depth. Their focus reaches outside Precision through membership in industry associations. Information systems designed especially for safety management are part of Precision’s Information Technology arsenal for producing a safe and healthy work environment. On the Job A moment of distraction is all it takes to send a derrick man plunging 100 feet from the monkey board to the ground to suffer permanent injuries or worse. with multinationals also link Precision’s safety committees to That’s reason enough for Precision to invest $350,000 in companies with world-class safety performance. For example, equipping derrick men with hook-on fall arresters, in addition this year, following a major audit of our safety programs and to their traditional pullback lines. practices by a large multinational producer, Precision was The arresters are on a slope line and already have paid off invited to take part in a round table on best safety practices, in four cases. to take place in Houston. Precision along with other key suppliers will expound their safety management practices in efforts to bring safety to a higher level. Safety Checks “I didn’t want to use it but I did,” says Precision derrickman Keith Northcott, 29 of Port Aux Basque, Newfoundland, who had unhooked his pullback line. “I was green. I fell handling pipe. I slid and the fall arrester saved me Safety is no longer secondary to the petroleum industry’s from falling.” Keith said “It works. Without it, I’d be crippled focus of drilling holes in the ground. or worse. I came down, no injuries at all. Certainly I’m one of the lucky ones.’’ He’s still scrambling around the monkey board, thanks to that fall arrester and the safety program that put it there. 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 I N V O L V E D 33 text 4/5/01 11:25 AM Page 34 W E A R E I N V O L V E D Roughneck U So you want to be a worker in the oilfields. The three-day course is free. There is no pay and there is no guarantee of a job on graduation. But you do get an insider’s look at what it’s like to work on a rig along with an early introduction into the role safety plays in the petroleum industry. Some quotes from a recent Precision orientation course evaluation: “This is a very helpful course to get me started. I wouldn’t want to go on a rig without a clue.” Another wrote: “It’s nice to see a company take the time and expense to give a new hand a good start.” “Hands on experience was necessary to get me the confidence to work efficiently. I hope I can produce quality workmanship, equal to the quality Precision has displayed to me.” And another: “The instructors did an excellent job. They never candy coat anything. They told me straight out what it would be like. I appreciate everything they said and showed me of their past experiences.” Graduate Programs Fall arresters save lives. A derrickman attaches his safety harness to the fall arrester prior to his ascent up the rig mast to the monkey They arrive in groups of eight or more at our Edmonton board. wireline technology boot-camp with degrees in engineering, geology or geophysics. Their first subject in this intensive six- month long training program is safety — or how to survive in The first task is to unload the trucks, get to know the equipment and what fellow oilfield workers do to service client wells in an era of high-tech. the modern oil patch. Safety covers basic first aid, professional driving, Precision’s company-wide safety policy and the dangers of working with hydrogen sulphide. The Edmonton Wireline Shops reclaim them for two weeks – their world expands with the theory of logging tools, operating processes, software and hardware. Six weeks in the field follow under the careful eye of a veteran wireline engineer. Then the new hires change into coveralls. It’s reality time for the next five weeks at one of the 15 wireline and cased hole Trouble shooting becomes part of their working lives as they learn the complexities of keeping an oilfield customer field operations in western Canada. happy. 34 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 I N V O L V E D text 4/5/01 11:25 AM Page 35 W E A R E I N V O L V E D Another two review weeks back at Edmonton and week- never stops. Intermediate and Senior Engineer ratings follow. long log interpretation school in Calgary are next before their And there is spring school for upgrading with new tools and final field assignments. Practise what we have taught you, their cutting edge technologies along with staying abreast of instructors tell them – you have six to eight weeks before you Precision’s constantly evolving computer systems. get to do the job all on your own. And one final program event – the gruelling eight-hour breakout exam day back at Calgary headquarters. The examiners ask trouble shooting questions, probe for practical solutions to scenarios they know are possible in the field. Expectations are high: the passing grade is 80 percent. A slip- up means a make-up exam with a 90 percent pass challenge. To ensure our wireline employees continually stay abreast of the No one ever said operational excellence would come easy. Offshore Safety Basics Most things are different on an offshore rig or production platform. “We come and go via helicopter, work long shifts in a confined space where there isn’t much room to move around, to store fuel and supplies.” explains an offshore veteran. “With underbalanced drilling, things are very different from conventional drilling. The pressure is at the surface. That means a potential fire hazard with hydrocarbons. Energized mixtures of gas, sand and liquids under pressure must be safely controlled. Being offshore just heightens this risk”. Precision’s UBD arm has major contracts in the North Sea. It has built three UBD packages for offshore platforms and along with our clients we have become aware of the need for intensive training courses for all of our technicians who work offshore. The Corporation joined several North Sea contractors and a major North Sea operator last year to set up a three-day course at Lowestoft, UK. Personnel learned how to deal with a lot of equipment in a confined space, with safety as a crucial theme. The service latest in tool design and computer technology, Precision administers companies provided a basic course in safety from their in-house training programs directed at all engineers as part of their continuing qualifications. particular perspectives. Directional drillers, snubbers, operators and well testers presented insights into how they work and what they do to prevent mishaps. Everybody’s knowledge was If all goes well the graduate has one last task – pick up a broadened. truck and get back to his assigned field district where, after six months on the job, he becomes what he set out to be – a Junior Field Engineer. Learning doesn’t stop there. In fact, it 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 I N V O L V E D 35 text 4/5/01 11:25 AM Page 36 W E A R E I N V O L V E D Precision’s offshore operations in the UK carry an Nature First impressive credential – ISO 9002 accreditation. This is an Anyone watching the caribou in their migrations across industry standard, based on strict six month audits, that assures northern Canada marvels at the spectacular sight of thousands clients that the services we provide are supported by top quality of animals moving to their feeding and calving grounds. procedures and safety tracking systems. The North Sea sector is highly regulated for safety by the UK Health and Safety Executive (HSE). We also won HSE approval for safety procedures in our pioneering package using Precision is aware of how important these great herds are to all Canadians and their special cultural value to northern people. The Corporation tailors its contracts working in harmony with customers, suspending operations or moving rigs so as to jointed pipe for the first time in a UBD operation offshore UK. intrude as little as possible during these vital periods. Safety is deeply ingrained throughout Precision’s Prevention is Better expanding world. ENVIRONMENT Leaving a Smaller Footprint Working with Mother Nature is a priority at all levels of Precision. Our commitment is to high standards of environmental care in all our operations, each and every day. While most of our operations are carried out on leases which are under the control of our clients, we ensure that we are familiar with their environmental polices and practices and those of the regulatory authorities as we work co-operatively to minimize the impact to the environment. Some of our clients are now practising zero percent disturbance drilling. Among other things, drilling cuttings are returned to the ground free of all contaminants. This requires that Precision modifies and services its equipment to meet these higher standards. For example, our rig mud systems are designed to eliminate the possibility of unwanted fluids and solids entering into them. Zero percent drilling disturbance specifications are so tight that even an introduction of hydrocarbon laced water into the mud system will require that the cuttings be hauled away and treated offsite in a proper facility instead of being land farmed in the immediate area. Spills are preventable. Precision’s well testing operations combine training, procedures and purpose built equipment to ensure no such an occurrence. The nature of the task requires us to flow and meter oil and gas to surface often at high rates and high pressures to assist our clients in evaluating the potential of their reservoirs. Trained supervisors hold pre-job meetings. An exhaustive pre-flow checklist with more than 230 items is reviewed. Nothing is left to chance – valves, flowlines, cables, anchors, oil and water lines, relief and supply lines, propane supply, and pressure vessels are all checked. Well flow does not begin until the crew all sign off. Many of our clients require our rigs to go sumpless. This replaces the traditional method of simply digging a pit or sump in which to dispose cuttings during a drilling or service operation. Today’s rigs are modified so that wastes are collected in transportable tanks and then hauled to hazardous waste landfill sites or treatment centres. Environmental protection is a team responsibility – from management through to field personnel. All are aware of laws and regulations that protect the environment. Potential hazards are identified before a job is undertaken. Emergency response plans are in place to minimize potential environmental incidents. 36 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 I N V O L V E D text 4/5/01 11:25 AM Page 37 W E A R E I N V O L V E D The industry itself has given environmental protection a Although the major responsibility for environmental new status throughout the oil patch. spills remains with the well operator, Precision also Within Precision, the environment is not a static issue but a dynamic one – we encourage training courses on updated protection issues at both field and management levels. We scrutinize all proposed acquisitions to ensure any necessary environmental clean up is complete before we take over a property or facility. The deal is not done until it gets an environmental clean bill of health. incorporates environmental protection in its equipment design and operation practices whenever possible. Many rigs have switched over to electronic fuel injected motors which reduce fuel consumption 15-20% and run cleaner. New catch systems collect drilling mud, from breaking joints of drill pipe, and route it back to the mud tanks instead of it collecting in the cellar. The use of our anchorless workover rigs is spreading as the industry recognizes their smaller footprint Precision management regularly provides a report to the along with that of our Super Single™ drilling rig. Board of Directors on environmental practices including any Environmental planning thus makes for sound business serious incidents. This policy applies to what occurs at home practices. or abroad. When a Spill Occurs As old fashioned as it sounds, a key element in any environmental safety program remains good housekeeping The surface stain spread over the ground near a Precision rig habits such as: and other equipment in a racking area in the Wildcat Hills west z simple checks to see that oil is not leaking out of of Cochrane, Alberta. A Precision supervisor called in an environmental consultant to inspect the site. The crew found hydrocarbons had equipment z the placing of absorbent pads around engines z the provision of segregated bins for waste plastics and leaked from the rig and from a diesel tank on skids. There was wire rope at rig sites another surface stain from a pile of stacked pipes. Waste is managed so that it is reduced. Contractors were hired to excavate 11 tons of topsoil to a Recycling plays its part – from office paper to used oil. depth of 25 cm and transport the material to a landfill. The The all-purpose burning waste barrel is no more. grassland site then was backfilled and contoured to grade with After all, we all live and work in the same world. fresh topsoil. The Corporation’s spill procedures stress quick response, full disclosure to government and senior staff at levels depending on size of spill, and a speedy clean-up. Each area has its own spill containment package with a list of emergency contacts if the spill is a large one. 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 I N V O L V E D 37 text 4/5/01 11:25 AM Page 38 W E A R E I N V O L V E D PRECISION IN THE COMMUNITY In education, Precision has begun a five-year The Corporation’s donation committee focuses on 12 commitment to the Southern Alberta Institute of major categories: community, both rural and urban; Technology’s (SAIT) new environmental technology centre. international aid; women’s groups; youth; aboriginal peoples; Our own world of technology education is strongly linked medical; the disabled; the homeless; education; the through many employees to SAIT. environment; the arts; and political organizations. Mount Royal College received its third payment in a The Corporation sets a budget, based on a percentage of four-year commitment to its capital program. net income, for the committee to distribute. The committee then accepts requests from various organizations. Funds are donated on a regular basis to each of the categories subject to internal category limits. The Corporation also supports overseas projects as it increases its own global presence. The Aga Khan Foundation of Canada receives annual donations towards its efforts to improve living conditions in the developing world. We also Traditionally we have kept a flexible view towards contributed to the Venezuelan Relief fund of the Canadian donations whereby we would exceed our set budget for Red Cross after devastating floods ravaged parts of that donations in years where we outperform. country. This year we supported STARS air ambulance in Last year we backed the Partners in Health program at recognition of its role in airlifting injured workers from the Foothills Hospital in Calgary. This initiative seeks to create remote sites. Its service covers much of the oil patch – a vital centres of excellence in health care research and medical reassuring presence for workers in isolated areas. Medical education. Precision also continues to donate to the Alberta evacuation to urban centres by air not only saves lives but it Cancer Foundation’s Tom Baker Centre. gets the injured worker quickly to skilled treatment. It also spares the injured worker from having to be driven over often rough, near impassable back-country roads. This year we have pledged a major contribution to the Alberta Children’s Hospital which will make us a significant patron of the institution over the next few years. Both Calgary and Edmonton United Way campaigns We are out there in the community and for the received grants for the many social agencies they fund. Our aim is to reach as many different and deserving groups as community. possible. 38 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 I N V O L V E D PDar01DR10 3/28/01 3:01 PM Page 39 Solid... 4 – the financial strength to sustain long term growth – consistently! 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 O L I D 39 tabs 4/5/01 11:46 AM Page 40 Crude Oil Prices Natural Gas Prices WTI Calendar year average – US$/Bbl AECO Calendar year average Cdn. $/MMbtu 35 30 25 20 15 10 5 0 6 5 4 3 2 1 0 92 93 94 95 96 97 98 99 00 92 93 94 95 96 97 98 99 00 2000 Revenue Total: $ 1,355.5 Million 1999 Revenue Total: $ 734.7 Million 2000 Sources of Funds Total: $ 734.4 Million 2000 Uses of Funds Total: $ 766.1 Million Oilfield Specialty Rental & Production Contract Drilling 27% 18% 55% Oilfield Specialty Rental & Production Contract Drilling 23% 24% 53% Proceeds on sale of equipment 3% Increase in long-term debt 44% Increase in bank indebtedness 10% Issue of common shares 3% 40% Funds from operations Acquisitions Repayment of long-term debt Non-cash working capital Redemption of warrants Purchase of equipment 48% 15% 8% 3% 26% Net Fixed Assets $ Millions Cash Flow $ Millions 1500 1200 900 600 300 0 300 250 200 150 100 50 0 93 94 95 96 97 98 99 99 00 93 94 95 96 97 98 99 99 00 April 30 Dec. 31 April 30 Dec. 31 40 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 O L I D text 4/5/01 11:25 AM Page 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 LY S I S 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 audited Consolidated Financial Statements and the related notes. The effects on the Consolidated Financial Statements arising from differences in generally accepted accounting principles between Canada and the United States are described in Note 13 to the Consolidated Financial Statements. HIGHLIGHTS (Stated in thousands of dollars, except per share amounts which are presented on a fully diluted basis) Years ended December 31, Revenue Increase (decrease) Operating earnings Increase (decrease) Earnings before goodwill amortization Increase (decrease) Earnings before goodwill amortization per share Increase (decrease) Net earnings Increase (decrease) Net earnings per share Increase (decrease) Funds provided by operations Increase (decrease) Funds provided by operations per share Increase (decrease) % of % of 2000 Revenue 1999 Revenue $1,355,453 84% 260,845 122% 154,321 208% 2.98 173% 19% 11% $ 734,740 (10%) 117,494 16% 7% (35%) 50,081 (46%) 1.09 (48%) 131,560 10% 34,250 5% 284% 2.55 236% (56%) 0.76 (57%) 297,873 22% 100,036 14% 198% 5.69 167% (40%) 2.13 (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 S O L I D 41 text 4/5/01 11:25 AM Page 42 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 LY S I S SUMMARY INCOME STATEMENT (Stated in thousands of dollars) Years ended December 31, Operating earnings Contract drilling services Oilfield specialty services Rental and production services Corporate and other expenses 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 2000 1999 $ 212,633 $ 97,864 30,620 43,289 (25,697) 260,845 28,713 (40) – – 232,172 77,851 154,321 22,761 6,796 19,705 (6,871) 117,494 16,544 (26,318) 13,101 10,200 103,967 53,886 50,081 15,831 $ 131,560 $ 34,250 The record results posted by the Corporation in 2000 which is produced by natural gas fueled generators, increased are indicative of the improved business fundamentals in the oil with the prolific rise in Internet and e-business utilization. and natural gas exploration and production industry in Natural gas production, however, has remained stagnant due Canada and internationally. The price of West Texas to the maturity of producing reservoirs and, until this year, Intermediate crude oil averaged US $30.31 per barrel in 2000 declining investment in exploration and production activity as compared to US $19.24 in 1999. Production discipline by low commodity prices did not provide acceptable returns on OPEC members and increased demand from strong world investment. As the year progressed our clients became more economies contributed to the improvement in world crude oil comfortable with the sustainability of oil and gas prices and prices. Similarly, North American natural gas prices rose with their improving financial positions. This in turn lead to dramatically in 2000 due to tightening supply and demand. increases in exploration and development spending and higher Natural gas on the New York Mercantile Exchange averaged activity levels across all our businesses. US $4.38 per mcf in 2000 compared to US $2.32 per mcf in 1999. Demand for electricity, a large and growing portion of 42 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 O L I D text 4/5/01 11:25 AM Page 43 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 LY S I S In the increasingly favourable business environment, Growth through acquisition is complemented by the Corporation continued to execute its strategy to internal development of new and existing services. The strengthen its Canadian base of operations and lever off this cornerstone of the Corporation’s strategy to become a full solid foundation to become a worldwide integrated oilfield service provider on the world oil and gas industry stage is our service provider. Acquisitions have remained a key element in research staff and facilities at Advantage Engineering Services, carrying out this plan. During the second quarter, the Inc. (AES) in Houston, Texas. The mandate of this group, is industrial maintenance group strengthened its presence in the to build the industry’s most reliable Logging While Drilling growing Fort McMurray oilsands operations with the (LWD) system with an emphasis on the global deepwater acquisition of the assets of JJay Exchanger Industries Ltd., an drilling market. Field testing of the tools is scheduled for the established business in plant maintenance and shutdown second quarter and the first commercial application will take work. The acquisition of Plains Energy Services Ltd. (Plains) place this summer. The evolution of our Super Single™ in July enhanced the Corporation’s capabilities in coiled drilling rig technology is also continuing with the tubing drilling, a technology especially suited to shallow gas construction of additional rigs for both domestic and drilling, and added experienced personnel and well international customers. maintained equipment to our well servicing, production testing, underbalanced drilling, and wireline operations. In October, Precision acquired CenAlta Energy Services Inc. (CenAlta), creating the largest and most diversified fleet of service rigs in the Western Canadian Sedimentary Basin (WCSB). Also in October, the Corporation acquired the global directional drilling and electromagnetic (EM) Measurement While Drilling (MWD) assets of Geoservices S.A. (Geoservices) of Paris, France and an exclusive worldwide license to its EM-MWD technology. This acquisition will allow for increased utilization of MWD technologies for directional and horizontal well applications on a global basis and enable Precision to more effectively integrate its underbalanced drilling capabilities. The expansion has continued. In January 2001, the Corporation acquired BecField Drilling Services Ltd. (BecField). BecField, with established operations in Europe and the Middle East, provides directional drilling and MWD services through its technical, field and support personnel to both onshore and offshore oil and gas companies. The maintenance of Precision’s strong balance sheet remained of paramount importance throughout this year of rapid growth. The Corporation ended the year with a debt to debt plus equity ratio of just over 0.3 and debt to trailing cash flow of 1.84. With the strong demand for our services expected in 2001, our financial position and flexibility should continue to improve. A development, the importance of which must not be overlooked, was the announcement of planned corporate tax rate reductions by the federal government of Canada and the provincial government of Alberta. The federal government introduced tax rate reductions in its February 28 and October 18, 2000 budgets that will reduce corporate tax rates by 7% over the next 4 years. The Alberta provincial government has also planned to reduce corporate tax rates by 7.5% over the next four years. These changes combine to reduce the Corporation’s tax rate on ordinary income earned in Alberta from 45% in 2000 to 30.5% in 2004. Our Canadian operations are the solid foundation upon which Precision is building its international presence and they will always be a critical contributor to the Corporation’s profitability. 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 O L I D 43 text 4/5/01 11:25 AM Page 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 LY S I S These significant tax rate reductions represent the biggest international markets. The Rental and Production Services fundamental change in the Canadian economy in recent segment includes the design, packaging, sales and service of history and create an environment of increased profitability. natural gas compression equipment; the manufacture and Precision’s operations are managed in three industry segments. Contract Drilling Services provides land drilling services in Canada and internationally, and provides well workover services in Canada. The Oilfield Specialty Services segment provides both open and cased hole wireline, directional drilling, MWD/LWD services, production testing and underbalanced drilling services, in domestic and CONTRACT DRILLING SERVICES (Stated in thousands of dollars, except per day/hour amounts) rental of oilfield wellsite trailers; the rental of equipment to the oil and gas industry for drilling, completion and production activities; and the provision of industrial process services, including specialized equipment and labour services to downstream oil and gas, petro-chemical and other process industry customers. Years ended December 31, Revenue Expenses: Operating General and administrative Depreciation Operating earnings Number of drilling rigs (end of year) Drilling operating days Revenue per operating day Number of service rigs (end of year) Service rig operating hours Revenue per operating hour % of % of 2000 Revenue 1999 Revenue 59% 4% 8% 29% $ 743,544 440,300 32,417 58,194 $ 212,633 244 43,376 $ 13,961 257 222,539 $ 380 63% 5% 9% 23% $ 429,848 272,589 19,359 40,036 $ 97,864 220 30,172 $ 12,266 76 106,846 $ 340 Contract Drilling Services revenue increased by Revenue per operating day in Canada increased by 14% in $313.7 million or 73% over 1999 as a result of the combined 2000 over 1999. This pricing momentum continues in 2001, impact of increased utilization, pricing increases and when for the first time in the Corporation’s history, drilling expansion of the equipment fleet. Of the 43,376 drilling day rates for certain rigs are expected to increase as we come operating days in 2000, 5% or 2,373 were from rigs working out of the winter drilling season. internationally. This compares to 1,088 or 4% in 1999. 44 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 O L I D text 4/5/01 11:25 AM Page 45 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 LY S I S The following table illustrates the change in the size, its own design innovations to establish a world leading makeup and deployment of the drilling fleet in 2000. The position in this technology. The acquisition of CenAlta added acquisition of Plains added 8 coiled tubing rigs to the fleet. 10 drilling rigs to the fleet and an additional 6 rigs were built This provided the equipment base to which Precision applied at our in-house machining and fabrication facilities. Type of Drilling Rig Depth Canada International Total Canada International Total 2000 1999 Single Super Single™ Double Light triple Heavy triple Coiled tubing Total fleet to 1,200 m to 2,500 m to 3,000 m to 3,600 m to 7,600 m 18 14 102 49 38 9 230 1 3 3 4 2 1 19 17 105 53 40 10 15 13 96 49 38 – 14 244 211 – 2 3 2 2 – 9 15 15 99 51 40 – 220 The size and breadth of the service rig fleet increased rig fleet was the one area across the Corporation that was dramatically with the acquisition of CenAlta and Plains. hampered by shortages of skilled labour. Utilization and hourly rates also increased. Service rig operating hours increased 108% to 222,539 in 2000 from 106,846 in 1999 and revenue per operating hour increased 12% from $340 to $380. However, utilization of the service The characteristics of the fleet, which currently operates only in the Western Canadian Sedimentary Basin, is illustrated in the following table: Type of Service Rig Single Freestanding mobile single Mobile single Double Freestanding mobile double Mobile double Heavy double Slant Swab Total fleet 2000 4 8 105 59 4 50 9 16 2 257 1999 – 4 42 24 – – 2 4 – 76 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 O L I D 45 text 4/5/01 11:25 AM Page 46 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 LY S I S With 257 workover rigs, Precision now services the efficiencies were gained from our in-house operating supply entire breadth of the market and has approximately 28% of procurement and distribution capabilities and our in-house the Canadian workover rig industry. The ownership of the rig repair and construction service. There is still room for Canadian service rig industry has been significantly improvement in operating cost structures as recent consolidated with three companies now owning 65% of the acquisitions become fully ensconced in our vertically fleet. As the history of the drilling business has shown, integrated service delivery system. Depreciation remained consolidation of an oilfield service brings pricing discipline relatively consistent on a per unit of production basis (per and improved margin stability. The much larger fleet allows us operating day or operating hour), further contributing to the to reap the benefit of economies of scale and will be managed operating earnings percentage increase. using the same integrated processes and operating philosophy that have proven successful in our drilling operation. An important component of the success of the Contract Drilling Services segment is the degree to which cost Operating earnings for the Contract Drilling Services structures have been developed to be as variable as possible segment increased to 29% of revenue from 23%. Expense with activity levels. This allows the Corporation to respond increases, primarily in employee compensation and fuel costs quickly to sudden changes in our extremely cyclical industry were more than offset by rate increases. In addition, further and produces superior returns in periods of high activity. OILFIELD SPECIALTY SERVICES (Stated in thousands of dollars) Years ended December 31, Revenue Expenses: Operating General and administrative Depreciation Research and engineering Operating earnings Wireline jobs performed MWD/directional drilling man days Well testing/CPD man days 2000 $ 372,425 254,628 38,920 27,969 20,288 $ 30,620 29,431 34,404 41,777 % of Revenue % of Revenue 1999 $ 125,954 68% 11% 8% 5% 8% 68% 14% 10% 3% 5% 85,695 17,529 12,305 3,629 6,796 9,179 10,171 24,493 $ Oilfield Specialty Services revenue increased by $246.5 from a competitor in May. In addition, Computalog Ltd. million or 196% in 2000 over 1999. This increase is the result (Computalog), which was acquired in July 1999, contributed of two factors. First, business acquisitions account for revenue for the full year in 2000. approximately $130.0 million of the change. The purchase of Plains in July expanded the depth of many services provided in this segment, as did the acquisition of well testing assets Second, activity levels increased significantly across all services offered by the segment. On a full year over year basis, adjusting out the effect of acquisitions, the number of wireline 46 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 O L I D text 4/5/01 11:25 AM Page 47 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 LY S I S jobs performed, MWD man days, well testing/controlled 2001. More significant, however, were the expenditures made pressure drilling man days and directional drilling man days across all the segment’s service lines to improve the increased by 40%, 68%, 38%, and 73% respectively. Pricing maintenance levels and reliability of the equipment fleet and for all of these services improved during the year. enhance the training programs provided to the workforce. Operating earnings amounted to $30.6 million or 8% of revenue in 2000. This segment will be the engine of Precision’s future growth and its results are characteristic of a global These upgrades were necessary to prepare the operations to move into the diverse international market place and to increase the number of qualified crews available. business in early stages of development. Costs are being Much of the impetus for the segment’s international incurred, and charged against income, which are preparing the growth initiatives is to reduce the Corporation’s exposure to platform for revenue and profitability expansion. The the cyclical North American market. The Canadian market is acquisitions noted above along with the purchase of assets from subject to large seasonal swings in activity levels. The North Geoservices in October, added critical mass, technology and American market responds quickly to commodity price international distribution channels. This strategy continued to fluctuations. Exploration and production projects in many unfold in 2001 with the acquisition of BecField. Consistent other areas of the world are less susceptible to these factors. with Precision’s experience throughout its acquisitive history, the This strategy will increase the utilization of the segment’s integration period carries cost redundancies and the resulting relatively mobile equipment fleets. Employee costs in this inefficiencies that take time to eliminate. segment are more fixed in nature making higher utilization The pursuit of Oilfield Specialty Services international key to improved profitability. growth objectives also contributed to higher expenses in 2000 Expansion of product lines is an important element of with no commensurate revenue contribution. Expansion of this plan. To move into new markets and compete in a the cased hole and open hole wireline operation in the US meaningful way, the Corporation will have to be a full service required expenditures in the latter half of the year to set up provider. The following charts illustrate the expansion of new operations centres. These operations will begin product lines within the Oilfield Specialty Services segment contributing noticeable revenue growth in the first quarter of and the geographic diversification of its revenue. Revenue by Service Line 2000: Total: $ 372.4 Million 1999: Total: $ 126.0 Million Well testing/controlled pressure drilling 15% Pumping services 4% Directional drilling 23% Downhole tools and completions 5% Drill bits 1% 52% Wireline Directional drilling 18% Well testing/controlled pressure drilling 30% Downhole tools and completions 3% Wireline 49% 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 O L I D 47 text 4/5/01 11:25 AM Page 48 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 LY S I S Revenue by Geographic Distribution 2000: Total: $ 372.4 Million 1999: Total: $ 126.0 Million Canada US Rest of world 58% 30% 12% Canada US Rest of world 62% 24% 14% As a new player in international markets, Precision will length in the industry. These tools are currently being field use its unique mix of skills and equipment to secure its initial tested and initial commercial applications are planned for the service contracts. Leading edge technologies being developed second half of 2001. by AES will play an increasing role in accomplishing this objective. While the cost of this world class research and engineering team and facility is being borne by current operations, the benefits will not be translated into meaningful revenue and margin increases until 2002. The advancements in MWD and LWD technology being developed at AES are projected to produce tools with the highest flow rating, highest pressure rating, fastest logging speed, and shortest tool The operational and administrative infrastructures necessary to deliver the segment’s services internationally are now being put in place. A Regional Director of Operations has been appointed in each of five strategic areas: US, Europe/Africa, Middle East, Asia Pacific and Latin America. These people are experienced oilfield professionals with business knowledge specific to these regions. RENTAL AND PRODUCTION SERVICES (Stated in thousands of dollars) Years ended December 31, Revenue Expenses: Operating General and administrative Depreciation Operating earnings Equipment rental days Number of compressor packages sold % of % of 2000 Revenue 1999 Revenue $ 239,220 170,729 11,207 13,995 $ 43,289 671,000 68 71% 5% 6% 18% $ 178,938 133,809 10,849 14,575 $ 19,705 478,000 59 75% 6% 8% 11% 48 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 O L I D text 4/5/01 11:25 AM Page 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 LY S I S Revenue in the Rental and Production Services level of information systems spending as operations with segment increased by $60.3 million or 34% with all product different hardware and software configurations are integrated lines increasing by relatively the same percentage. The into Precision’s systems. industrial maintenance and plant turnaround operation received a strong return from its expansion in Fort McMurray and has seen revenue climb as clients increase the scope and duration of their plant maintenance shutdowns. The oilfield equipment rental and natural gas compression packaging businesses saw activity levels rise in step with increased oilfield activity in western Canada. With the exception of natural gas compression packaging, operating margins increased across the segment in conjunction with the increased demand for their products and services. The gas compression business is experiencing strong competitive pressures as a result of over capacity in the Canadian market. CORPORATE AND OTHER EXPENSES Corporate and other expenses of $25.7 million have increased due to the increase in personnel required to manage the expanded business including the establishment of a corporate office in Houston, Texas. A significant portion of corporate employee compensation is comprised of incentive pay that is tied to corporate performance. The improved financial performance of the Corporation relative to 1999 resulted in increased employee compensation expense. In addition, the Corporation’s active acquisition program contributed to the increase in costs in 2000. There tends to be an increase in costs for a period after each acquisition until corporate functions can be rationalized. In total, general and administrative expense declined slightly as a percentage of revenue to 7.6% in 2000 from 8.0% in 1999. Interest Expense Net interest expense increased by $12.2 million or 74% in 2000 over 1999, in conjunction with the increase in net borrowings from $236.4 million to $675.4 million. The cash component of business acquisition costs in 2000 amounted to $365.0 million while debt assumed in these transactions totalled $93.3 million. As a percentage of revenue, net interest expense remained consistent at 2.1% in 2000 compared to 2.3% in 1999. Management is comfortable with this level of debt servicing cost. Income Taxes Tax expense in 2000 is equal to 34% of earnings before income taxes and goodwill amortization, compared to 52% in 1999. Half of this difference is due to the impact of the Canadian federal government’s plan to reduce corporate tax rates by 7% over the next four years. Canadian generally accepted accounting principles (GAAP) require that the effect of this rate reduction on the Corporation’s future tax balances be reflected as a decrease of future tax expense in 2000, since the rate reductions have been substantively enacted into law. The resultant reduction of tax expense in the fourth quarter of 2000 amounted to $19.9 million. This treatment differs from US GAAP in that this adjustment would not be recognized A significant component of corporate expenditures is until reduced rates have been formally passed into law, which dedicated to the maintenance of our management information will occur in 2001. In addition, a similar adjustment will systems. This department has expanded to meet the ever occur in 2001, under Canadian and US GAAP, should the increasing needs of our fast growing domestic and international Alberta provincial government proceed with its plan to reduce operations. Again, acquisition activity has an impact on the corporate tax rates by 7.5% over the next four years. 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 O L I D 49 text 4/5/01 11:25 AM Page 50 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 LY S I S The other primary reason for the reduced effective tax At December 31, 2000 the Corporation had working rate in 2000 relates to the Corporation’s change in method of capital of $157.7 million. This amount is net of $100.0 accounting for income taxes. Effective January 1, 2000, the million borrowed under the Corporation’s extendable Corporation retroactively adopted the liability method of revolving unsecured facility to finance the increase in accounts accounting for income taxes without restating prior periods in receivable resulting from the increase in activity. accordance with revised Canadian accounting standards. The new standards move Canadian practice in line with US income tax accounting methods. The most significant impact of this change is that the Corporation’s provision for income taxes is no longer increased by the effect of non-deductible depreciation. Goodwill Amortization Goodwill amortization increased by $6.9 million as a Maintaining a strong balance sheet has remained a focus of management throughout this past year of rapid growth. At year-end the Corporation had long-term debt of $548.1 million and its debt to debt plus equity ratio was conservative at 0.31. The longer-term component of the Corporation’s capital structure was increased with the addition of $150 million Series 2 unsecured debentures maturing in 2010. The $200 million Series 1 unsecured debentures mature result of adding $268.9 million to goodwill during 2000, in 2007. primarily from the Plains and CenAlta acquisitions. In Strong adherence to conservative financial philosophies addition, a full year of amortization was taken on the $55.5 has put the Corporation in good stead with current lenders million of goodwill associated with the Computalog and the public debt markets. This is very important for an acquisition in July 1999. Recently, accounting standards bodies in both Canada and the US have proposed changes that would eliminate the amortization of goodwill as an ongoing expense item and would also eliminate pooling of interests as an acceptable method of accounting for business combination transactions. organization that has and will continue to grow through acquisition and therefore requires ready access to funding sources. The Corporation believes that its strong balance sheet and unutilized borrowing capacity, combined with funds generated from operations, will provide sufficient capital to fund its on-going operations and future expansion. These changes will facilitate a closer comparison of our results BUSINESS RISKS with those of our US peers, most of whom have used pooling of interests accounting in the past. LIQUIDITY AND CAPITAL RESOURCES 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 In 2000 the Corporation adhered closely to its policy available to them to finance the acquisition of services of correlating capital expenditure levels to cash flow as a key provided by the Corporation. element of its business risk management strategy. Funds from operations amounted to $297.9 million for the year ended December 31, 2000 while capital expenditures totaled $201.0 million. 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 is West Texas Intermediate crude oil trading at US $12 per barrel in late 50 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 O L I D text 4/5/01 11:25 AM Page 51 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 LY S I S 1998 and in excess of US $40 per barrel at one point in 2000. comes out of the ground rendering many secondary roads Natural gas prices are established in a more “local” North incapable of supporting the weight of heavy equipment until American market due to the requirement to transport this they have thoroughly dried out. The duration of this “spring gaseous product in pressurized pipelines. Demand for natural breakup” has a direct impact on the Corporation’s activity gas is seasonal and is correlated to heating and electricity levels. In addition, many exploration and production areas in generation requirements. The Corporation manages the risk of volatile commodity prices, and thus volatile demand for its services, by striving to maintain efficient cost structures that are northern Canada are accessible only in winter months when the ground is frozen hard enough to support equipment. The timing of freeze up and spring breakup affects the ability to move equipment in and out of these areas. scalable to activity levels. In addition, our strong balance sheet Working with our customers, we strive to position and adherence to conservative financing practices provide the equipment where possible such that it can be working on resilience to withstand and benefit from downturns and location during spring breakup, limiting the need to move upturns in the business cycle. equipment during this period as much as possible. However, 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 and US economies combined with the seasonality of employment offered by many of our business units in Canada 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 most experienced people are retained during periods of low utilization by having them fill lower level positions on our field crews. 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 and to attract new workers to the industry as required. Weather The ability to move heavy equipment in the Canadian many uncontrollable factors affect our ability to plan in this fashion and the spring season, which can occur any time from late March through May, is traditionally our slowest time. This seasonal cyclicality is evidenced by the number of drilling operating days in Canada in the first quarter of 2000 versus the second quarter. In the period of January to March 2000, our Canadian drilling operating days totaled 13,937 while in the period of April to June, 2000 operating days amounted to 6,013. 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 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 quantity of drillable prospects oil and natural gas fields is dependent on weather conditions. declines. As warm weather returns in the spring, the winter’s frost 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 O L I D 51 text 4/5/01 11:25 AM Page 52 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 LY S I S Our ability to deliver more efficient services is critical Foreign Operations to our continued success. The Corporation has continuously The Corporation is working hard to export its expertise built upon its experience and teamed with customers to and technologies to oil and gas producing regions around the provide solutions to their unique problems. Our ability to world. With this comes the risk of dealing with business and design and build specialized equipment has kept us on the political systems that are much different than we are leading edge of technology. The success of our in-house accustomed to in North America. The Corporation has hired designed and built Super Single™ drilling rig, both in Canada employees who have experience working in the international and abroad, is testimony of our dedication to these efforts. arena and it is committed to recruiting resident nationals on The continued development of our Oilfield Specialty the staffs of all its international operations. Services segment, and in particular the research and Foreign Currency Exchange Rates development work of AES, puts the Corporation at another level where high-end technological innovation is paramount to success. The team of highly qualified experienced professionals, that has been assembled and working together for almost a year in a state of the art testing facility, is equal to any in the industry. Natural Gas Supply North American natural gas demand is strong and The Corporation has two sources of foreign currency exchange risk. On international contracts, attempts are made to structure revenue streams such that a portion sufficient to match local expenditures is denominated in the local currency, with the remainder being denominated in US dollars. In addition, many of our business units buy a portion of their parts and supplies from suppliers in the United States. As a result, the Corporation is a net payer of US dollars but at growing. The industry has focused on the Western Canadian present this exposure is not significant. Sedimentary Basin as the source of supply to satisfy a Merger and Acquisition Activity 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 natural gas discoveries in offshore fields 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. 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 holds an optimistic outlook for the future based upon the strong fundamentals of the oil and natural gas exploration and production industry and upon its internal initiatives to capitalize on them. 52 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 O L I D text 4/5/01 11:25 AM Page 53 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 LY S I S z The North American natural gas story is key to management’s optimistic outlook. Analysts estimate resource and will benefit from increased activity in this area. In addition, the Corporation has successfully that over 60% of Canadian drilling activity in 2001 exported this home grown expertise, particularly in will be targeting natural gas. The shortage of electricity Venezuela and Kazakhstan. in California is well documented and has resulted in a large number of electrical generating facilities being z The Corporation is confident that its significant research and engineering efforts, centered around proposed. Analysts predict that natural gas will be the AES’s staff and facilities, will produce the next fuel of choice for 95% of these plants. Canada will generation of LWD systems and sensors. Field tests of remain an important source of supply for this this equipment are underway and the first commercial expanding market and transportation capacity is no longer an issue. Meeting the demand will require increased drilling in existing reservoirs and exploration of new areas including the Mackenzie Delta and other northern regions. Precision is well positioned to take advantage of this increased activity. z Crude oil prices have remained high due to the tight supply and demand balance. This situation will likely applications are scheduled for the second half of 2001. z The Corporation’s success and critical mass in Canada now form the strong foundation upon which to grow internationally. Precision’s presence in the US is growing and experienced people have been put in place and infrastructure is currently being developed in Europe/Africa, Asia Pacific, the Middle East and Latin America to facilitate the export of our skills and continue for some time, as the impact of years of technologies, both old and new. declining investment in the oil industry due to uneconomic pricing levels can not be reversed in a short time frame. Higher commodity prices will provide the necessary financing but time is also required to attract and train technically skilled personnel, develop drilling prospects, and bring new reserves into production. The continued production discipline of OPEC is a factor in the supply and demand equation, but to a diminishing extent. OPEC’s surplus production capacity has declined substantially and many member states are now looking to attract western technology and capital to reverse this trend. z Canada’s heavy oil reserves are plentiful and improving technology is rapidly increasing the productive capacity of this known resource. Precision has long been a leader in developing drilling techniques to exploit this z In March 2001, Precision, as part of a joint venture was awarded a US $270 million, 240 well project in the Burgos Basin in northern Mexico. As project manager and lead contractor, the Corporation will supply drilling rigs, wireline, directional drilling, and well testing services, drill bits and downhole completion tools. This high profile project gives the Corporation a foothold in a new expanding market eager for all the services and products we can deliver. Based upon these longer-term fundamentals and the demand for the Corporation’s services currently being experienced, management expects 2001 to be another record year. 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 O L I D 53 text 4/5/01 11:25 AM Page 54 M A N A G E M E N T ’ S R E P O R T T O T H E S H A R E H O L D E R S 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 MD&A compares the audited financial results for the twelve months ended December 31, 2000 to the audited results for the twelve months ended December 31, 1999. Note 13 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 not employees 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, DALE E. TREMBLAY Senior Vice President Finance President and Chief Executive Officer and Chief Financial Officer February 14, 2001 54 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 O L I D text 4/5/01 11:25 AM Page 55 A U D I T O R S ’ R E P O R T T O T H E S H A R E H O L D E R S We have audited the consolidated balance sheets of Precision Drilling Corporation as at December 31, 2000 and 1999 and the consolidated statements of earnings and retained earnings and cash flow for the years then ended. 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, 2000 and 1999 and the results of its operations and its cash flow for the years then ended 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 years ended December 31, 2000 and 1999 and shareholders’ equity as of December 31, 2000 and 1999, to the extent summarized in Note 13 to the consolidated financial statements. KPMG LLP Chartered Accountants Calgary, Canada February 14, 2001 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 O L I D 55 text 4/5/01 11:25 AM Page 56 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 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) As at December 31, 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 Goodwill, net of accumulated amortization of $60,838 (1999 - $38,077) Other assets (Note 3) (Note 4) LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Bank indebtedness Accounts payable and accrued liabilities Current portion of long-term debt Long-term debt Future income taxes Deferred income taxes Shareholders’ equity: Share capital Retained earnings (Note 5) (Note 5) (Note 9) (Note 9) (Note 6) Contingencies and commitments (Notes 8 and 17) See accompanying notes to consolidated financial statements. Approved by the Board: 2000 1999 $ 20,702 – 424,817 2,050 85,688 533,257 1,287,932 550,502 16,445 $ 5,550 46,775 239,088 3,531 59,566 354,510 761,589 304,400 13,367 $ 2,388,136 $ 1,433,866 $ 112,620 227,548 35,353 375,521 548,096 257,624 – 864,495 342,400 1,206,895 $ 3,353 129,766 58,524 191,643 226,815 – 106,613 627,923 280,872 908,795 $ 2,388,136 $ 1,433,866 HANK B. SWARTOUT H. GARTH WIGGINS Director Director 56 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 O L I D text 4/5/01 11:25 AM Page 57 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 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) Years ended December 31, Revenue Expenses: Operating General and administrative Depreciation Research and engineering Operating earnings Interest: Long-term debt Other Income 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: Current Future Deferred (reduction) Earnings before goodwill amortization Goodwill amortization, net of tax Net earnings Retained earnings, beginning of year Adjustment on adoption of liability method of accounting for income taxes Retained earnings, end of year Earnings per share before goodwill amortization: (Note 10) Basic Fully diluted Earnings per share: Basic Fully diluted See accompanying notes to consolidated financial statements. (Note 10) 2000 1999 $ 1,355,453 $ 734,740 870,172 102,848 101,300 20,288 1,094,608 260,845 31,166 473 (2,926) (40) – – 487,960 58,429 67,228 3,629 617,246 117,494 19,634 481 (3,571) (26,318) 13,101 10,200 (Note 9) 232,172 103,967 36,252 41,599 – 77,851 154,321 22,761 131,560 280,872 (70,032) 69,299 – (15,413) 53,886 50,081 15,831 34,250 246,622 – $ $ $ $ $ 342,400 $ 280,872 3.17 2.98 2.70 2.55 $ $ $ $ 1.13 1.09 0.77 0.76 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 O L I D 57 text 4/5/01 11:25 AM Page 58 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 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) Years ended December 31, Cash provided by (used in): Operations: Net earnings Items not affecting cash: Depreciation Goodwill amortization Future income taxes Deferred income taxes Amortization of deferred financing costs Gain on disposal of subsidiary and investments Reduction of carrying amount of investments Reduction of carrying amount of property, plant and equipment Amortization and realization of deferred foreign exchange gain Funds provided by operations Changes in non-cash working capital balances Investments: Acquisitions Purchase of property, plant and equipment Proceeds on sale of property, plant and equipment Investments Proceeds on disposal of investment and subsidiary (Note 16) (Note 12) Financing: Increase in long-term debt Repayment of long-term debt Deferred financing costs Issuance of common shares Redemption of warrants Change in bank indebtedness Increase (decrease) in cash Cash, beginning of year Cash, end of year Funds provided by operations per share: (Note 10) Basic Fully diluted Cash is defined as cash and investment in short-term commercial paper. See accompanying notes to consolidated financial statements. 2000 1999 $ 131,560 $ 34,250 101,300 22,761 41,599 – 1,435 (40) – – (742) 297,873 (60,988) 236,885 (364,959) (201,004) 20,520 95 64 (545,284) 321,543 (118,219) (1,973) 21,009 (18,924) 73,340 276,776 (31,623) 52,325 20,702 6.11 5.69 $ $ $ 67,228 15,831 – (15,413) 1,157 (26,318) 13,101 10,200 – 100,036 (62,219) 37,817 2,250 (56,117) 14,969 (3,125) 122,929 80,906 109,688 (187,860) – 11,558 – (260) (66,874) 51,849 476 52,325 2.25 2.13 $ $ $ 58 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 O L I D text 4/5/01 11:25 AM Page 59 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Field technical equipment is depreciated on the straight- (Tabular amounts stated in thousands of dollars, line method over periods ranging from two to five years. except per share amounts) Precision Drilling Corporation (the Corporation) is a vertically integrated oilfield service company, 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. 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 by the 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 1,500 days for single and double rigs and 2,000 days for heavy double rigs. Rental equipment is depreciated on the straight-line method over periods ranging from five to 15 years. Other equipment is depreciated on a straight-line basis over periods ranging from three to 10 years. Light duty vehicles are depreciated on the straight-line method over four years. Heavy-duty vehicles are depreciated on the straight-line basis over 10 years. Buildings are depreciated on the straight-line method over periods ranging from 10 to 30 years. (d) Revenue recognition: Revenue is primarily recognized as services are rendered based upon agreed daily, hourly, or job rates. The Corporation’s manufacturing operations recognize revenue on work in progress 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 are other than temporary declines 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 the straight-line basis over the term of the debt. The amortization is included in interest expense. (g) Goodwill: Goodwill is recorded at cost and amortized on the straight-line method over 20 years. The recoverability of goodwill is assessed, if indications of impairment are present, based on estimated undiscounted future cash flows. 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 O L I D 59 text 4/5/01 11:25 AM Page 60 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 (h) Income taxes: Effective January 1, 2000, the Corporation adopted the liability method of accounting for future income taxes. Under the liability method, future income tax assets and liabilities are determined based on “temporary differences” (differences between the accounting basis 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. and the tax basis of the assets and liabilities), and are (k) Stock-based compensation plans: measured using the currently enacted, or substantively enacted, tax rates and laws expected to apply when these differences reverse. Income tax expense is the sum of the Corporation’s provision for current income taxes and the difference between opening and ending balances of the future income tax assets and liabilities. Prior to adoption of this new accounting standard, income tax expense was determined using the deferral method. Under this method, deferred income tax expense was determined based on “timing differences” (differences between the accounting and tax treatment of expense or income items), and were measured using the tax rates in effect in the year the differences originated. The Corporation has adopted the new income tax accounting standard retroactively, without restating the financial statements of any prior period. As a result, the Corporation has recorded an adjustment to retained earnings and future tax liability, formerly the deferred tax liability, in the amount of $70.0 million as at January 1, 2000. (i) Post employment benefits: The Corporation has entered into an employment agreement 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. (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 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) Earnings and funds provided by operations per share: Basic earnings and funds provided by operations per share are calculated using the weighted average number of shares outstanding during the year. Fully diluted earnings and funds provided by operations per share are calculated by adjusting earnings and funds from operations by the imputed earnings on funds which would have been received on exercise of options and by adjusting the weighted average number of shares outstanding by the number of options outstanding. (n) Comparative figures: Certain comparative figures have been reclassified to conform with the current financial statement presentation. 60 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 O L I D text 4/5/01 11:25 AM Page 61 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 2. INVENTORY: Finished goods and work in progress Operating supplies Manufacturing parts and materials 3. PROPERTY, PLANT AND EQUIPMENT: 2000 Rig equipment Field technical equipment Rental equipment Other equipment Vehicles Buildings Other Land 1999 Rig equipment Field technical equipment Rental equipment Other equipment Vehicles Buildings Other Land 2000 52,600 16,123 16,965 85,688 $ $ 1999 $ 23,930 18,406 17,230 $ 59,566 Accumulated Net Book Cost Depreciation Value $ 848,476 $ 163,244 $ 685,232 306,552 86,656 176,945 67,968 44,935 13,489 14,426 $ 1,559,447 $ 632,015 106,563 80,815 76,259 27,174 26,093 13,062 11,018 20,384 23,321 36,219 13,608 7,766 6,973 – 286,168 63,335 140,726 54,360 37,169 6,516 14,426 $ $ 271,515 $ 1,287,932 126,935 $ 505,080 11,962 22,877 29,289 9,592 5,186 5,569 – 94,601 57,938 46,970 17,582 20,907 7,493 11,018 $ 972,999 $ 211,410 $ 761,589 4. OTHER ASSETS: Investments, at cost less provision for impairment $ Investments, at equity Deferred financing costs, net of accumulated amortization Deferred foreign exchange loss (gain) 2000 4,125 3,183 8,927 210 $ 1999 4,494 2,905 8,389 (2,421) $ 16,445 $ 13,367 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 O L I D 61 text 4/5/01 11:25 AM Page 62 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 5. LONG-TERM DEBT: Unsecured debentures – Series 1 Unsecured debentures – Series 2 Unsecured notes (US $35,000) EDC facility (US $18,472) EDC facility (US $50,000) Extendable revolving unsecured facility Equipment loans Capital lease obligations Less amounts due within one year 2000 1999 $ 200,000 $ 200,000 150,000 – 27,712 75,010 94,468 30,760 5,499 583,449 35,353 – 50,516 34,278 – – – 545 285,339 58,524 $ 548,096 $ 226,815 The $200.0 million 6.85% Series 1 unsecured The $75.0 million unsecured term financing facility with debentures mature June 26, 2007 and have an effective the EDC is repayable over five years in semi-annual interest rate of 7.44% after taking into account deferred installments, matures September 15, 2005 and bears financing costs. The debentures are redeemable at any interest at six-month US Libor plus applicable margin. time at the option of the Corporation upon payment of The margin is dependent upon the Corporation’s credit a redemption price equal to the greater of an amount rating, which at December 31, 2000 resulted in a margin calculated with reference to the yield on a Government of of 0.9%. Canada bond with the same maturity, and par. The Corporation has an extendable revolving unsecured The $150.0 million 7.65% Series 2 unsecured facility of $300.0 million (or US equivalent) with a debentures mature October 27, 2010 and have an syndicate led by a Canadian chartered bank. Advances effective interest rate of 7.71% after taking into account under the facility bear interest at the bank’s prime lending deferred financing costs. The debentures are redeemable rate, US base rate, US Libor plus applicable margin or at any time at the option of the Corporation upon Bankers’ Acceptance plus applicable margin. The payment of a redemption price equal to the greater of an applicable margin is dependent on the Corporation’s amount calculated with reference to the yield on a credit rating, which at December 31, 2000 resulted in a Government of Canada bond with the same maturity, margin of 0.75%. The facility is extendable annually at and par. The $27.7 million unsecured term financing facility with the Export Development Corporation (EDC) is repayable in semi-annual installments, matures on January 20, 2004 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, 2000 resulted in a margin of 0.8%. 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, 2000 the Corporation had drawn $194.5 million under this facility, $100.0 million of which has been included in bank indebtedness as the funds were used to finance working capital. 62 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 O L I D text 4/5/01 11:25 AM Page 63 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 Equipment loans of $30.8 million bear interest at rates between 8.26% and 8.75% and are repayable in monthly installments. These loans are secured by specific well servicing equipment. Principal repayments over the next five years are as follows: 2001 2002 2003 2004 2005 6. SHARE CAPITAL: $ 35,353 32,866 35,537 19,673 15,041 Authorized: z unlimited number of non-voting cumulative convertible redeemable preferred shares without nominal or par value z unlimited number of common shares without nominal or par value The following is a summary of the changes in share capital: Issued: Common Shares: Balance, December 31, 1998 Issued on acquisition of Computalog Issued on acquisition of Underbalanced Options exercised Balance, December 31, 1999 Issued on acquisition of Plains Issued on acquisition of CenAlta Issued on acquisition of AQRIT assets Options exercised Warrants issued on acquisition of Plains Warrants repurchased by the Corporation Balance, December 31, 2000 Number Amount 42,078,518 $ 504,541 4,031,441 217,158 835,902 106,107 5,716 11,559 47,163,019 $ 627,923 113,882 4,025,743 48,000 932,409 6,555 202,535 2,500 21,009 52,283,053 $ 860,522 22,897 (18,924) $ 864,495 Each of the 351,604 warrants outstanding entitle the holder thereof to acquire one common share at an exercise price of $64.00 at any time prior to 4:00 p.m. on December 31, 2001. The warrant holders were entitled to put the warrants to Precision at any time prior to September 29, 2000 in return for $11.30 cash for each full warrant and holders of 1,674,671 warrants exercised their option to do so. 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 O L I D 63 text 4/5/01 11:25 AM Page 64 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 Corporation has equity incentive plans under which a combined total of 5,208,823 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 generally 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 2000, and changes during the periods then ended is presented below: Outstanding at December 31, 1998 Granted Exercised Cancelled or expired Outstanding at December 31, 1999 Granted Exercised Cancelled or expired Outstanding at December 31, 2000 Options Outstanding 3,370,600 1,718,540 (835,902) (313,400) 3,939,838 1,615,474 (932,409) (148,800) 4,474,103 $ Exercise Price 6.50 – 44.38 13.50 – 33.60 6.50 – 34.50 7.00 – 34.50 $ 13.50 – 44.38 25.50 – 54.20 13.50 – 34.50 16.30 – 40.25 $ 13.50 – 54.20 Range of Weighted Average Exercise Price 15.89 $ 28.12 13.87 24.21 25.57 39.51 22.53 28.55 31.18 $ $ Options Exercisable 772,000 827,097 946,087 The range of exercise prices for options outstanding at December 31, 2000 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 – 49.99 50.00 – 54.20 $ 13.50 – 54.20 7. EMPLOYEE BENEFIT PLANS: Number 712,854 772,985 2,126,590 805,274 56,400 4,474,103 Weighted Average Weighted Remaining Average Exercise Contractual Life (Years) 2.2 2.0 3.6 4.6 4.5 3.3 Price 14.49 25.05 34.58 41.11 52.24 31.18 $ $ Weighted Average Exercise Price 14.52 24.12 33.58 44.38 – 24.84 $ $ Number 301,904 282,658 346,525 15,000 – 946,087 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 compensation. Employer matching contributions under the plan totalled $4.3 million for the year ended December 31, 2000 (year ended December 31, 1999 - $3.0 million). 64 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 O L I D text 4/5/01 11:25 AM Page 65 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 8. COMMITMENTS: The Corporation has commitments for operating lease agreements in the aggregate amount of $120.6 million. Payments over the next five years are as follows: 2001 2002 2003 2004 $ 22,279 19,030 14,715 9,258 2005 Rent expense included in the statements of earnings is as follows: Year ended December 31, 2000 Year ended December 31, 1999 9. INCOME TAXES: 8,314 $ 12,064 5,322 The provision for income taxes differs from that which would be expected by applying statutory rates. A reconciliation of the difference is as follows: 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 Income taxed in jurisdictions with lower tax rates Reduction of carrying amount of investments Other Reduction of future tax balances due to substantively enacted tax rate reductions 2000 209,411 45% 94,235 1,458 (1,828) 10,106 (5,869) – (317) 97,785 (19,934) 77,851 $ $ $ $ 1999 88,136 45% 39,661 1,313 (1,657) 10,146 – 4,926 (503) 53,886 – 53,886 $ $ $ $ The Federal Government of Canada introduced tax rate reductions to be implemented over the next four years in its February 28 and October 18, 2000 budgets. The effect of the combined 7% tax rate reduction, from 29% to 22%, on the Corporation’s future tax balances has been reflected as a reduction of future tax expense in 2000. 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. 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 O L I D 65 text 4/5/01 11:25 AM Page 66 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 net future tax liability (1999 – deferred tax liability) is comprised of the tax effect of the following temporary differences: Liabilities: Property, plant and equipment Assets held in partnership with different tax year Deferred financing costs Assets: Losses carried forward Reserves Share issue costs 2000 1999 $ 220,364 $ 87,371 67,332 3,358 19,522 3,859 291,054 $ 110,752 30,528 2,902 – 33,430 257,624 $ $ – 2,946 1,193 4,139 $ 106,613 $ $ $ $ 10. 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 year ended December 31, 2000 was 48,722,141 (year ended December 31, 1999 – 44,499,837). Fully diluted per share amounts reflect the dilutive effect of the exercise of the options and warrants outstanding. The fully diluted shares outstanding for the year ended December 31, 2000 was 52,886,723 (year ended December 31, 1999 – 47,851,960). Earnings on the funds which would have been received on exercise of the options have been imputed at 5% per annum. 11. SIGNIFICANT CUSTOMERS: During the years ended December 31, 2000 and 1999, no one customer accounted for more than 5% of the Corporation’s revenue. 12. ACQUISITIONS: During the year ended December 31, 2000, the Corporation completed business acquisitions, the most significant of which were: (a) Acquisition of all the issued and outstanding shares of Plains Energy Services Ltd. (Plains) in July 2000. Plains provides wireline, surface control systems, well servicing and contract drilling services to the oil and gas industry and engineers, manufactures, sells and operates specialty products, tools and equipment. (b) Acquisition of all the issued and outstanding shares of CenAlta Energy Services Inc. (CenAlta) in October 2000. CenAlta provides equipment and crews for the servicing and drilling of oil and natural gas wells in western Canada. (c) Acquisition of the global directional drilling and electromagnetic measurement while drilling business and associated assets from Geoservices S.A. (Geoservices) in October 2000. 66 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 O L I D text 4/5/01 11:25 AM Page 67 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 have been accounted for by the purchase method with results of operations of the acquired businesses included in the financial statements from the effective dates of acquisition. The details of the acquisitions are as follows: Plains CenAlta Geoservices Other Total Net assets acquired at assigned values: Working capital Property, plant and equipment Goodwill Other assets Long-term debt Future income taxes Consideration: Common shares Warrants Cash $ 11,178 124,847 188,540 28 (42,535) (4,755) $ 277,303 $ 6,555 22,897 247,851 $ 277,303 $ (2,240) 219,411 72,351 – (50,725) (34,262) $ 204,535 $ 202,535 – 2,000 $ 204,535 $ $ $ $ 6,717 85,500 – – – – 92,217 – – 92,217 92,217 $ $ $ $ 18 17,401 7,972 – – – 25,391 2,500 – 22,891 25,391 $ 15,673 447,159 268,863 28 (93,260) (39,017) $ 599,446 $ 211,590 22,897 364,959 $ 599,446 The following proforma information provides an indication of what the Corporation’s results of operations would have been had Plains and CenAlta been acquired effective January 1, 2000: Revenues Earnings before goodwill amortization Net earnings Earnings per share before goodwill amortization: Basic Fully diluted Earnings per share: Basic Fully diluted 2000 $1,546,431 129,692 99,304 $ $ 2.50 2.37 1.91 1.83 During the year ended December 31, 1999 the Corporation completed several acquisitions, the most significant of which were: (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. 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 O L I D 67 text 4/5/01 11:25 AM Page 68 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 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: 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 Carrying amount of investment prior to January 1, 1999 Cash (a) (b) Includes cash of $9,392 Includes cash of $100 Computalog Underbalanced Other Total $ $ $ $ $ $ 49,798(a) 82,628 3,204 321 55,518 (52,165) (5,663) 133,641 106,107 23,070 – 4,464 (303)(b) $ 7,149 – – – (911) $ $ – 5,935 5,716 – – 219 $ 133,641 $ 5,935 $ (3) 10,716 – – 655 (7,279) (2) $ 49,492 100,493 3,204 321 56,173 (60,355) (5,665) 4,087 $ 143,663 – – 1,528 2,559 4,087 $ 111,823 23,070 1,528 7,242 $ 143,663 13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: 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: (a) Income taxes: In 1999 the Corporation followed the deferral method of accounting for income taxes. In 2000 the Corporation adopted the liability method as described in Note 1(h) without restatement of prior years. For 1999 and 2000 US GAAP required the use of the liability method prescribed in the Statement of Financial Accounting Standards No. 109, which substantially conforms with the Canadian GAAP accounting standard adopted in 2000. In 1999, adoption of US GAAP would have increased both goodwill and future tax liability by $70.0 million. In 2000 the US GAAP financial statements would reflect an increase of goodwill of $66.5 million and a corresponding increase in retained earnings. An additional charge to earnings of $3.5 million would be required related to this goodwill. Under Canadian GAAP, future tax liabilities and assets are calculated by reference to current tax legislation and proposed legislation that is considered to be substantively enacted but not yet enacted into law. US GAAP requires that only enacted income tax legislation be used for calculation of future tax amounts. 68 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 O L I D text 4/5/01 11:25 AM Page 69 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 (b) Translation of foreign currency denominated debt: Under Canadian GAAP, gains and losses on translation of foreign currency denominated debt are deferred and amortized over the debt term. US GAAP requires that such gains and losses be included in the determination of income. (c) Per share amounts: The Corporation calculates its fully diluted earnings per share following the policy outlined in Note 10. US GAAP requires the use of the treasury stock method for diluted per share amounts. The application of the US accounting principles would have the following impact on the consolidated financial statements: Consolidated Statements of Earnings Years ended December 31, Net earnings under Canadian GAAP Adjustments under US GAAP: Goodwill amortization Income tax rate Foreign currency translation Net income and comprehensive income under US GAAP Earnings per share under US GAAP: Basic Fully diluted Balance Sheet 2000 1999 $ 131,560 $ 34,250 (3,502) (19,934) (210) 107,914 2.22 2.14 $ $ $ – – 2,421 36,671 0.80 0.79 $ $ $ As at December 31, 2000 1999 Current assets Property, plant and equipment Goodwill Other assets Current liabilities Long-term debt Future income taxes Deferred income taxes Shareholders’ equity As reported 533,257 $ 1,287,932 550,502 16,445 $ 2,388,136 375,521 $ 548,096 257,624 – 1,206,895 $ 2,388,136 US GAAP $ 533,257 1,287,932 617,032 16,235 $ 2,454,456 375,521 $ 548,096 277,558 – 1,253,281 $ 2,454,456 As reported 354,510 $ 761,589 304,400 13,367 $ 1,433,866 191,643 $ 226,815 – 106,613 908,795 $ 1,433,866 US GAAP 354,510 $ 761,589 374,432 15,788 $ 1,506,319 191,643 $ 226,815 176,645 – 911,216 $ 1,506,319 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 O L I D 69 text 4/5/01 11:25 AM Page 70 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 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 year ended December 31, 2000 was $18.21 (year ended December 31, 1999 - $8.66) on the date of grant using the Black Scholes option-pricing model with the following assumptions: risk free interest rate of 6.0%, expected life of five years and expected volatility of 61% (year ended December 31, 1999 – risk-free interest rate of 5%, expected life of five years and expected volatility of 46%). 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 accordance with US GAAP would have decreased by $16.8 million to $91.2 million (basic EPS - $1.87) for the year ended December 31, 2000 and decreased by $6.3 million to $27.9 million (basic EPS - $0.63) for the year ended December 31, 1999. These pro forma earnings reflect compensation cost amortized over the options’ vesting period. Comprehensive Income Comprehensive income is equal to net earnings. 14. SEGMENTED INFORMATION: The Corporation operates in three industry segments. Contract Drilling Services, which provides drilling services and well servicing rigs, Oilfield Specialty Services, which includes 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 743,544 212,633 – 58,194 1,376,007 97,498 429,848 97,864 – 40,036 827,412 27,670 Oilfield Specialty Services Rental and Production Services Corporate and Other $ $ 372,425 30,620 20,288 27,969 718,680 78,468 125,954 6,796 3,629 12,305 345,492 9,138 $ 239,220 43,289 – 13,995 203,113 21,828 $ 178,938 19,705 – 14,575 188,524 15,800 $ $ 264 (25,697) – 1,142 90,336 3,210 – (6,871) – 312 72,438 3,509 Total $ 1,355,453 260,845 20,288 101,300 2,388,136 201,004 $ 734,740 117,494 3,629 67,228 1,433,866 56,117 2000 Revenue Operating earnings Research and engineering Depreciation Assets Capital expenditures* 1999 Revenue Operating earnings Research and engineering Depreciation Assets Capital expenditures* * excludes acquisitions 70 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 O L I D text 4/5/01 11:25 AM Page 71 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 Corporation’s operations are carried on in the following geographic locations: 2000 Revenue Assets 1999 Revenue Assets 15. FINANCIAL INSTRUMENTS: Domestic International Total $ 1,105,183 2,048,219 $ 250,270 339,917 $ 1,355,453 2,388,136 $ 615,222 1,271,228 $ 119,518 162,638 $ 734,740 1,433,866 The carrying value of cash, investments in short-term commercial paper, accounts receivable, 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 Series 1 debentures have a fair value of approximately $199.5 million as at December 31, 2000 (December 31, 1999 - $191.8 million) and the $150 million Series 2 unsecured debentures have a fair value of approximately $152.6 million at December 31, 2000. Investments have a carrying value of $7.3 million (December 31, 1999 - $7.4 million) and a fair value of approximately $12.0 million (December 31, 1999 - $7.4 million) as at December 31, 2000. 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, 2000 the Corporation’s allowance for doubtful accounts was $8.2 million (December 31, 1999 - $6.6 million). The Corporation manages its exposure to interest rate risks through a combination of fixed and floating rate borrowings. As at December 31, 2000, 34% of its total long-term debt was in floating rate borrowings. 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. 16. SUPPLEMENTAL CASH FLOW INFORMATION: Cash interest paid Cash income taxes paid Components of change in non-cash working capital balances: Accounts receivable Inventory Accounts payable and accrued liabilities Income taxes payable $ 2000 29,504 34,771 $ (120,686) (6,391) 64,479 1,610 (60,988) $ $ 1999 16,663 120,238 $ (48,414) (4,927) 16,072 (24,950) $ (62,219) 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 O L I D 71 text 4/5/01 11:25 AM Page 72 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 components of accounts payable and accrued liabilities are as follows: Accounts payable Accrued liabilities: Payroll Other 17. CONTINGENCIES: 2000 1999 $ 68,903 $ 40,494 50,522 108,123 227,548 $ 25,959 63,313 $ 129,766 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. 18. SUBSEQUENT EVENT: In January 2001, the Corporation acquired BecField Drilling Services Ltd. (BecField) for cash consideration of $30.0 million. BecField provides directional drilling and measurement while drilling services through its technical field and support personnel to the onshore and offshore oil and gas industry. It has established operations in Europe and the Middle East. 72 P R E C I S I O N D R I L L I N G C O R P O R A T I O N S O L I D PDar01DR10 3/28/01 3:02 PM Page 73 Canadian... – you bet! – and proud of our global presence! 5 P R E C I S I O N D R I L L I N G C O R P O R A T I O N C A N A D I A N 73 tabs 4/5/01 11:46 AM Page 74 H O W W E ’ V E P E R F O R M E D SHARE TRADING SUMMARY — THE TORONTO STOCK EXCHANGE Canadian 2000 March 31 June 30 September 30 December 31 1999 March 31 June 30 September 30 December 31 High ($) Low ($) Close ($) Volume of Shares Value ($) 48.95 59.50 59.00 57.15 59.50 21.50 30.75 40.60 39.45 40.60 33.90 43.80 47.90 39.30 33.90 13.25 18.45 27.05 28.25 13.25 48.55 57.20 53.85 56.25 56.25 19.50 28.00 34.00 37.00 37.00 15,684,504 643,952,179 15,846,874 851,428,913 13,604,034 731,986,873 15,461,804 747,323,156 60,597,216 2,974,691,121 13,718,204 234,035,097 14,673,427 384,072,934 14,029,216 487,923,911 8,875,591 294,174,872 51,296,438 1,400,206,814 SHARE TRADING SUMMARY — THE NEW YORK STOCK EXCHANGE US 2000 March 31 June 30 September 30 December 31 1999 March 31 June 30 September 30 December 31 High ($) Low ($) Close ($) Volume of Shares Value ($) 33.75 40.38 39.56 37.94 40.38 14.00 21.13 27.75 26.94 27.75 23.31 29.38 32.38 25.56 23.31 8.81 12.31 18.38 19.13 8.81 33.38 38.63 35.63 37.53 37.53 13.00 19.06 23.19 25.69 25.69 14,504,500 416,080,112 14,323,200 512,362,421 12,586,000 455,927,521 15,878,300 491,100,502 57,292,000 1,875,470,556 4,453,900 50,536,487 7,252,400 126,663,654 9,008,500 212,591,281 9,422,900 212,297,850 30,137,700 602,089,272 74 P R E C I S I O N D R I L L I N G C O R P O R A T I O N C A N A D I A N text 4/5/01 11:25 AM Page 75 H O W W E ’ V E P E R F O R M E D STATEMENTS OF EARNINGS AND RETAINED EARNINGS ($ 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 Forgiveness of long-term debt Dividend income Earnings before taxes, goodwill amortization and minority interest Income taxes Earnings before goodwill amortization and minority interest Goodwill amortization Earnings before minority interest Minority interest Net earnings Retained earnings, beginning of period Adjustment on adoption of liability method of accounting for income taxes Adjustment on purchase and cancellation of share capital Retained earnings, end of period Earnings before goodwill amortization and minority interest per share: Basic ($) Fully diluted ($) Earnings per share: Basic ($) Fully diluted ($) Years ended December 31 2000 1,355.5 870.2 102.9 101.3 20.3 260.8 28.6 – – – – – 232.2 77.9 154.3 22.7 131.6 – 131.6 280.9 (70.1) – 324.4 3.17 2.98 2.70 2.55 1999 734.7 488.0 58.4 67.2 3.6 117.5 16.5 (26.3) 13.1 10.2 – – 104.0 53.9 50.1 15.8 34.3 – 34.3 246.6 – – 280.9 1.13 1.09 0.77 0.76 Years ended April 30 1995 178.6 122.4 12.1 9.8 – 34.3 1.5 – – – – 0.7 33.5 16.4 17.1 – 17.1 0.2 16.9 20.7 – (0.2) 37.4 1.04 0.95 1.03 0.94 1999 693.9 450.1 51.1 61.1 – 131.6 18.9 (34.8) 11.0 10.2 – – 126.3 58.0 68.3 14.9 53.4 – 53.4 206.9 – – 260.3 1.62 1.56 1.27 1.22 8 months ending Dec. 31 1985 4.0 3.3 0.3 0.2 – 0.2 – – – – – – 0.2 0.1 0.1 – 0.1 – 0.1 – – – 0.1 0.01 n/a 0.01 n/a 1990 31.7 24.7 3.9 1.1 – 2.0 1.2 – – 5.1 (5.2) – 0.9 – 0.9 – 0.9 – 0.9 5.7 – – 6.6 0.08 n/a 0.08 n/a 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 A N A D I A N 75 text 4/5/01 11:25 AM Page 76 H O W W E ’ V E P E R F O R M E D ADDITIONAL SELECTED FINANCIAL DATA ($ millions except per share amounts) 2000 1999 1999 Years ended December 31 Years ended April 30 1995 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) 9.7% 7.5% 13.5% 157.7 1.42 1,287.9 2,388.1 548.1 1,206.9 0.45 180.5 362.1 26.7% 260.8 19.2% 297.9 6.11 101.3 24.75 2.70 20.8 48,772 1990 2.8% 3.2% 7.0% 3.8 1.53 15.7 27.4 5.6 12.7 0.44 1.1 3.1 9.8% 2.0 6.2% 2.0 0.18 1.1 8 months ending Dec. 31 1985 3.0% 3.7% 8.7% 0.1 1.05 2.9 4.8 0.8 2.1 0.37 1.4 0.4 10.8% 0.2 5.7% 0.4 0.04 0.2 0.23 0.01 – 9,006 4.7% 2.6% 4.2% 7.7% 9.5% 9.3% 14.7% 15.9% 29.1% 162.9 1.85 761.6 1,436.3 226.8 908.8 0.25 41.1 184.9 25.2% 117.5 16.0% 100.0 2.25 67.2 8.4 91.2 1.21 1.54 66.8 683.5 119.1 1,247.7 1.4 215.0 67.0 768.3 0.02 0.28 11.8 88.3 192.7 44.1 27.8% 24.7% 34.3 131.6 19.0% 19.2% 28.3 1.73 9.8 78.0 1.85 61.1 20.42 0.77 48.1 44,500 18.26 1.27 19.8 42,086 4.09 1.03 6.7 16,398 1.14 0.08 17.4 11,218 (1) Return on sales was calculated by dividing net earning 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, 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) Earning per share was calculated by dividing net earnings by the total weighted average number of common shares outstanding (8) Year end closing price divided by basic earnings per share 76 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 A N A D I A N text 4/5/01 11:25 AM Page 77 W H O W E A R E A N D H O W T O F I N D U S HEAD OFFICE Precision Drilling Corporation Oilfield Specialty Services – Latin America P.D. Technical Services Ltd. 4200, Petro-Canada Centre 150-6th Avenue SW Calgary, Alberta T2P 3Y7 Telephone: (403) 716-4500 Facsimile: (403) 264-0251 Website: www.precisiondrilling.com Av. la Estancia 2nd Floor Trident House, Centro Ciudad Comercial Tamanaca Broad Street, Bridgetown, Torre B, Piso 1, Oficina B105 Barbados, West Indies Chuao, Caracas, Venezuela Codigo Postal 1064 Telephone: 58-212-959-9906 Telephone: (246) 228-4293 Facsimile: (246) 426-5992 Precision Drilling de Venezuela, C.A. INTERNATIONAL OFFICES Oilfield Specialty Services – Middle East Avenida Intercomunal El Tigre-El Tigrito Oilfield Specialty Services – Asia Pacific Jakarta Stock Exchange Building Tower 2, 23rd Floor, Suite 2303A JL. Jend. Suidirman Kav 52-53 Jakarta, 12910 Indonesia Telephone: 62-21-7883-5381 Facsimile: 62-21-7883-5383 Oilfield Specialty Services – Europe/Africa Eddesser Strabe 1 31234 Edemissen, Germany Telephone: 49-5176-9896-11 Facsimile: 49-5176-9896-12 P.O. Box 2146 Al Lado de American Diesel, Abu Dhabi, United Arab Emirates El Tigre, Estado Anzoategui, Venezuela Telephone: 00971-2-6449966 Telephone: 58-2832-412701 Facsimile: 00971-2-6442765 Facsimile: 58-2832-412822 PD Holdings (USA) Inc. Suite 1700 Precision Drilling International 4400, 150-6th Avenue SW 363 N. Sam Houston Parkway East Calgary, Alberta T2P 3Y7 Houston, Texas 77060, US Telephone: (281) 260-5600 Facsimile: (281) 260-5670 Telephone: (403) 716-4500 Facsimile: (403) 716-4867 MAJOR SUBSIDIARIES, DIVISIONS AND OPERATIONS MANAGEMENT Advantage Engineering Services, Inc. Ducharme Oilfield Rentals Fleet Coil Technologies (U.S.) Corp. Mike Larronde President CEDA International Corporation Roger Hearn Senior Vice President Columbia Oilfield Supply Ltd. Martin Byar General Manager Computalog Ltd. Neil Brown President Big D Rentals Gordon Skulmoski Vice President, General Manager Energy Industries Inc. Ivan Heidecker General Manager Fleet Cementers, Inc. Tim Dame President Kyle Swingle President Live Well Service Larry MacPherson General Manager LRG Catering Ltd. Doug White General Manager 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 A N A D I A N 77 text 4/5/01 11:25 AM Page 78 W H O W E A R E A N D H O W T O F I N D U S MAJOR SUBSIDIARIES, DIVISIONS AND OPERATIONS MANAGEMENT (Continued) Northland-Norward Energy Services Plains Perforating Ltd. Precision Drilling Limited Partnership Entest Carel Hoyer President Challenger/Silverline Chris Oddy President Oilfield Specialty Services Polar Completions Engineering Inc. Kurt Beilner John Nash Regional Director of Operations President, Sales and Operations Vitold Serafin President, Engineering and Manufacturing Precision Drilling International Mark Helmer Vice President Precision Drilling de Venezuela, C.A. David Hobbs President Europe/Africa Marwan Bitar Regional Director of Operations Middle East Jerry Dugas Regional Director of Operations Latin America John Mahar Regional Director of Operations US Dan Robson Regional Director of Operations Asia Pacific Dwayne Peters Senior Vice President Ron Berg Vice President Doug Evasiuk Vice President John Jacobsen Vice President Precision Well Servicing Marv Clifton Senior Vice President Rostel Industries Ltd. Yook Tong General Manager Smoky Oilfield Rentals Tom Facette Vice President, General Manager United Diamond Ltd. Ian Gillis President BANKER LEGAL COUNSEL AUDITORS Royal Bank of Canada Calgary, Alberta Borden Ladner Gervais llp Calgary, Alberta KPMG LLP Calgary, Alberta 78 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 A N A D I A N text 4/5/01 11:25 AM Page 79 W H O W E A R E A N D H O W T O F I N D U S DIRECTORS W.C. (Mickey) Dunn (1) Edmonton, Alberta Robert J. S. Gibson (1) (2) Calgary, Alberta Steven C. Grant (2) Houston, Texas OFFICERS Hank B. Swartout Chairman of the Board, Murray K. Mullen (3) Calgary, Alberta Brian E. Roberts (3) Calgary, Alberta Hank B. Swartout Calgary, Alberta Larry J. Comeau Senior Vice President President and Chief Executive Officer Oilfield Specialty Services Dale E. Tremblay W. Bruce Herron Senior Vice President Finance Senior Vice President and Chief Financial Officer Rental and Production Services H. Garth Wiggins (1) Calgary, Alberta (1) Audit Committee Member (2) Compensation Committee Member (3) Corporate Governance Committee Member M.J. (Mick) McNulty Vice President Finance Jan M. Campbell Corporate Secretary STOCK EXCHANGE LISTINGS SHARE SPLIT TRADING PROFILE Common shares of Precision In 1997, Precision’s Board of Directors Toronto 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. Warrants of Precision Drilling Corporation are listed on The Toronto Stock Exchange under the trading symbol PD.WT. authorized a two for one split of the January 1, 2000 to December 31, 2000 Corporation’s common shares. The record date for the split was High: $59.50 Low: $33.90 September 30, 1997. Volume traded – 60.6 million New York January 1, 2000 to December 31, 2000 High: US$40.38 Low: US$23.31 Volume traded – 57.3 million 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 A N A D I A N 79 text 4/5/01 11:25 AM Page 80 W H O W E A R E A N D H O W T O F I N D U S SHAREHOLDER INFORMATION As a Precision Drilling Corporation shareholder, you are invited to take advantage of shareholder services or to request more information about the Corporation. TRANSFER AGENT AND REGISTRAR Shareholders of record who receive ESTIMATED INTERIM RELEASE DATES Computershare Trust Company of Canada more than one copy of this annual Calgary, Alberta TRANSFER POINT Computershare Trust Company, Inc. New York, New York ACCOUNT QUESTIONS 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. Our Transfer Agent can help you with QUARTERLY UPDATES 2001 First Quarter May 9, 2001 2001 Second Quarter August 8, 2001 2001 Third Quarter November 8, 2001 ANNUAL MEETING a variety of shareholder related services, If you would like to receive quarterly including: reports but are not a registered The Annual General and Special Meeting of the Shareholders of Precision Drilling z Change of address z Lost share certificates z Transfer of stock to another person z Estate Settlement shareholder, please write or call us with Corporation will be held in the your name and address. To receive our McMurray Room of the Calgary news releases by fax, please forward your Petroleum Club, 319-5th Avenue SW, fax number to us. To receive our news Calgary, Alberta at 3:30 p.m. (Calgary releases by e-mail, please visit our website time) on Tuesday, May 15, 2001. You can call our Transfer Agent at www.precisiondrilling.com and refer to Shareholders are encouraged to attend toll free at: 1-800 558 0046 the Investor Relations section. You can write them at: ONLINE INFORMATION Computershare Trust Company of Canada Anyone with access to the Internet can and those unable to do so, are requested to complete the Form of Proxy at their earliest convenience. 600, 530-8th Ave. SW Calgary, Alberta T2P 3S8 Or you can email them at: caregistryinfo@computershare.com view this annual report electronically at www.precisiondrilling.com PUBLISHED INFORMATION If you wish to receive copies of the 2000 Renewal Annual Information Form, or additional copies of this annual report, please contact: Corporate Secretary Precision Drilling Corporation 4200, 150-6th Avenue SW Calgary, Alberta T2P 3Y7 Telephone: 403-716-4500 Fax: 403-264-0251 80 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 A N A D I A N a d a n a C n i d e t n i r P Cover 4/5/01 11:10 AM Page 2 O U R G U I D A N C E A N D S U P P O R T This year’s annual report celebrates 15 years of robust growth for Precision. It focuses on the critical goals we have set and met over the last year and the factors crucial to the continued growth of our company. It is no accident that today, Precision is at the forefront of the drilling and service industry in Canada and making inroads globally. Our achievement is the result of a decade of hard work, careful planning, bold strategic moves and, as in any business, some good fortune. Precision Drilling Corporation is an international oilfield services company. In a 15 year span, Precision has grown from a three rig drilling contractor in western Canada, with $4 million in revenue to a multi-service international oil and gas service company with revenues exceeding $1.3 billion. Through a series of targeted acquisitions, the Corporation has expanded its suite of services and now provides them on five continents. In its steadfast pursuit of operational excellence in every endeavour, Precision has emerged in this, a new millennium, as a strong and tenacious competitor. We are well positioned to provide innovative technology, unparalleled service and dedicated support to our customers worldwide. We are committed to sustained strength and profitability – enterprise wide – for the benefit of all shareholders. Our Officers: from left to right Michael J. McNulty, Vice President Finance; Hank B. Swartout, Chairman, President and Chief Executive Officer; W. Bruce Herron, Senior Vice President Rental and Production Services; Dale E. Tremblay, Senior Vice President Finance and Chief Financial Officer; Jan M. Campbell, Corporate Secretary; Larry J. Comeau, Senior Vice President Oilfield Speciality Services. Our Board of Directors: from left to right back row W. C. (Mickey) Dunn; Murray K. Mullen; Brian E. Roberts; H. Garth Wiggins; Robert J. S. Gibson. Seated front row Hank B. Swartout; Steven C. Grant. 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 2 0 0 0 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 A N A D I A N PDar01DR10 3/28/01 3:02 PM Page 82 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 2 0 0 0 A N N U A L R E P O R T P D C 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 

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