Precision
Drilling
Corporation
2017
Annual
Report
Precision
Management’s Discussion and Analysis
Consolidated Financial Statements and Notes
Precision Drilling Corporation 2017
What’s Inside
5 About Precision
9 2017 Highlights and Outlook
14 Understanding Our Business Drivers
14 The Energy Industry
17 A Competitive Operating Model
21 An Effective Strategy
22 2017 Results
23 2017 Compared with 2016
23 2016 Compared with 2015
25 Segmented Results
28 Quarterly Financial Results
31 Financial Condition
31 Liquidity
32 Capital Management
33 Sources and Uses of Cash
34 Capital Structure
37 Accounting Policies and Estimates
41 Risks in Our Business
50 Evaluation of Controls and Procedures
51 Management’s Report to the Shareholders
52
Independent Auditors’ Reports
54 Consolidated Financial Statements and Notes
88 Supplemental Information
90 Shareholder Information
91 Corporate Information
2017 SHARE TRADING SUMMARY
The Toronto Stock Exchange (TSX)
Volume (millions)
Daily Closing Share Price (Cdn$)
)
$
n
d
C
(
e
c
i
r
P
e
r
a
h
S
$8
$6
$4
$2
$-
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Toronto (TSX:PD)
High: $8.11
Low: $2.89
Close December 29, 2017: $3.81
Volume Traded: 515,273,662
The New York Stock Exchange (NYSE)
Volume (millions)
Daily Closing Share Price (US$)
$8
$6
$4
$2
)
$
S
U
(
e
c
i
r
P
e
r
a
h
S
$-
Jan
Feb
Mar
Apr
M…
Jun
Jul
Aug
Sep
Oct
Nov
Dec
New York (NYSE: PDS)
High: $6.14
Low: $2.26
Close December 29, 2017: $3.02
Volume Traded: 722,529,628
12
9
6
3
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12
9
6
3
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Precision Drilling Corporation 2017 Annual Report
1
MD&A
Management’s
Discussion and
Analysis
information
business
This management’s discussion and analysis
to help you
(MD&A) contains
understand
financial
and
our
performance. Information is as of March 9, 2018.
This MD&A focuses on our Consolidated Financial
Statements and Notes and includes a discussion
of known risks and uncertainties relating to our
business and the oilfield services sector. It does
not, however, cover
the potential effects of
general economic, political, governmental and
environmental events, or other events that could
affect us in the future.
Precision Drilling
Corporation
2017
read
should
this MD&A with
You
the
accompanying audited Consolidated Financial
Statements and Notes, which have been prepared
International Financial
in accordance with
Reporting Standards
the
(IFRS) and with
information
in Cautionary Statement About
Forward-Looking Information and Statements on
page 3.
The terms we, us, our, Precision Drilling and
Precision mean Precision Drilling Corporation and
our subsidiaries and include any partnerships that
we and/or our subsidiaries, of which we are part.
All amounts are
otherwise stated.
in Canadian dollars unless
Precision Drilling Corporation 2017 Annual Report
2
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION AND STATEMENTS
We disclose forward-looking information to help current and prospective investors understand our future prospects.
Certain statements contained in this MD&A, including statements that contain words such as could, should, can,
anticipate, estimate, intend, plan, expect, believe, will, may, continue, project, potential and similar expressions and
statements relating to matters that are not historical facts constitute forward-looking information within the meaning of
applicable Canadian securities legislation and forward-looking statements within the meaning of the safe harbor
provisions of the United States Private Securities Litigation Reform Act of 1995 (collectively, forward-looking
information and statements).
Our forward-looking information and statements in this MD&A include, but are not limited to, the following:
(cid:131) our outlook on oil and natural gas prices
(cid:131) our expectations about drilling activity in North America and the demand for drilling rigs
(cid:131) our capital expenditure plans for 2018
(cid:131) our 2018 strategic priorities
(cid:131) the potential impact liquefied natural gas export development could have on North American drilling activity
(cid:131) our expectations that new or newer rigs will enter the markets we currently operate in
(cid:131) our ability to remain compliant with our senior secured credit facility financial debt covenants.
The forward-looking information and statements are based on certain assumptions and analysis made by Precision in
light of our experience and our perception of historical trends, current conditions and expected future developments as
well as other factors we believe are appropriate in the circumstances. These include, among other things:
(cid:131) our ability to react to customer spending plans as a result of changes in oil and natural gas prices
(cid:131) the status of current negotiations with our customers and vendors
(cid:131) customer focus on safety performance
(cid:131) existing term contracts are neither renewed or terminated prematurely
(cid:131) continued market demand for Tier 1 rigs
(cid:131) our ability to deliver rigs to customers on a timely basis
(cid:131) the general stability of the economic and political environment in the jurisdictions we operate in
(cid:131) the impact of an increase/decrease in capital spending.
Undue reliance should not be placed on forward-looking information and statements. Whether actual results,
performance or achievements will conform to our expectations and predictions is subject to a number of known and
unknown risks and uncertainties which could cause actual results to differ materially from our expectations. Such risks
and uncertainties include, but are not limited to:
(cid:131) volatility in the price and demand for oil and natural gas
(cid:131) fluctuations in the level of oil and natural gas exploration and development activities
(cid:131) fluctuations in the demand for contract drilling, directional drilling, well servicing and ancillary oilfield services
(cid:131) our customers’ inability to obtain adequate credit or financing to support their drilling and production activity
(cid:131) changes in drilling and well servicing technology, which could reduce demand for certain rigs or put us at a
competitive advantage
(cid:131) shortages, delays and interruptions in the delivery of equipment supplies and other key inputs
(cid:131) liquidity of the capital markets to fund customer drilling programs
(cid:131) availability of cash flow, debt and equity sources to fund our capital and operating requirements, as needed
(cid:131) the impact of weather and seasonal conditions on operations and facilities
(cid:131) competitive operating risks inherent in contract drilling, directional drilling, well servicing and ancillary oilfield
services
(cid:131) ability to improve our rig technology to improve drilling efficiency
(cid:131) general economic, market or business conditions
(cid:131) the availability of qualified personnel and management
(cid:131) a decline in our safety performance which could result in lower demand for our services
(cid:131) changes in laws or regulations, including changes in environmental laws and regulations such as increased
regulation of hydraulic fracturing or restrictions on the burning of fossil fuels and greenhouse gas emissions,
which could have an adverse impact on the demand for oil and gas
(cid:131) terrorism, social, civil and political unrest in the foreign jurisdictions where we operate
Precision Drilling Corporation 2017 Annual Report
3
(cid:131) fluctuations in foreign exchange, interest rates and tax rates, and
(cid:131) other unforeseen conditions which could impact the use of services supplied by Precision and Precision’s ability
to respond to such conditions.
Readers are cautioned that the foregoing list of risk factors is not exhaustive. You can find more information about these
and other factors that could affect our business, operations or financial results in reports on file with securities regulatory
authorities from time to time, including but not limited to our annual information form (AIF) for the year ended
December 31, 2017, which you can find in our profile on SEDAR (www.sedar.com) or in our profile on EDGAR
(www.sec.gov).
All of the forward-looking information and statements made in this MD&A are expressly qualified by these cautionary
statements. There can be no assurance that actual results or developments that we anticipate will be realized. We
caution you not to place undue reliance on forward-looking information and statements. The forward-looking information
and statements made in this MD&A are made as of the date hereof. We will not necessarily update or revise this
forward-looking information as a result of new information, future events or otherwise, unless we are required to by
securities law.
NON-GAAP MEASURES
In this MD&A, we reference additional generally accepted accounting principles (GAAP) measures that are not defined
terms under IFRS to assess performance because we believe they provide useful supplemental information to investors.
Adjusted EBITDA
We believe that Adjusted EBITDA (earnings before income taxes, loss on redemption and repurchase of unsecured
senior notes, finance charges, foreign exchange, impairment of goodwill, gain on re-measurement of property, plant and
equipment, impairment of property, plant and equipment, loss on asset decommissioning, and depreciation and
amortization), as reported in the Consolidated Statements of Loss, is a useful supplemental measure because it gives
us, and our investors, an indication of the results from our principal business activities before consideration of how our
activities are
impairment,
impact of
financed and exclude
decommissioning, depreciation, and amortization charges.
taxation, and non-cash
foreign exchange,
the
Covenant EBITDA
Covenant EBITDA, as defined in our Senior Credit Facility agreement differs from Adjusted EBITDA by the exclusion of
bad debt expense, restructuring costs and certain foreign exchange amounts that may differ from what is disclosed on
the Consolidated Statements of Loss. Covenant EBITDA is a useful measure as it used in the determination on our
Senior Credit Facility covenants.
Operating Loss
We believe that operating loss, as reported in the Consolidated Statements of Loss, is a useful measure of our income
because it gives us, and our investors, an indication of the results of our principal business activities before consideration
of how our activities are financed and exclude the impact of foreign exchange and taxation.
Funds Provided by (Used In) Operations
We believe that funds provided by (used in) operations, as reported in the Consolidated Statements of Cash Flow, is a
useful measure because it gives us, and our investors, an indication of the funds our principal business activities
generated prior to consideration of working capital, which is primarily made up of highly liquid balances.
Working Capital
We define working capital as current assets less current liabilities as reported on the Consolidated Statements of
Financial Position.
Precision Drilling Corporation 2017 Annual Report
4
About Precision
Management’s
Discussion
and
Analysis
Precision Drilling Corporation provides onshore drilling and completion and production services to exploration and
production companies in the oil and natural gas industry.
Headquartered in Calgary, Alberta, Canada, we are a large oilfield
services company with broad geographic scope in North America.
We also have operations in the Middle East.
Our common shares trade on the Toronto Stock Exchange, under
the symbol PD, and on the New York Stock Exchange, under the
symbol PDS.
Vision
Our vision is to be globally recognized as the
High Performance, High Value provider of land
drilling services.
You can read about our strategic priorities for
2018 on page 21.
COMPETITIVE ADVANTAGE
From our founding as a private oilfield drilling contractor in the 1950s, Precision has grown to become one of the most
active drillers in North America. Our competitive advantage is underpinned by five distinguishing features:
(cid:131) a competitive operating model that drives efficiency, quality and cost control
(cid:131) a culture focused on safety and field performance
(cid:131) size and scale of operations that provide higher margins and better service capabilities
(cid:131) a drilling rig platform that allows us to deploy efficiency driven technologies to the field, and
(cid:131) a capital structure that provides long-term stability, flexibility and liquidity that allows us to take advantage of
business cycle opportunities.
CORPORATE GOVERNANCE
At Precision, we believe that a transparent culture of corporate governance and ethical behaviour in decision-making is
fundamental to the way we do business.
We have a diverse and experienced Board of Directors (Board). Our directors have a history of achievement and an
effective mix of skills, knowledge, and business experience. The directors oversee the conduct of our business, provide
oversight in support of future operations and monitor regulatory developments and governance best practices in Canada
and the U.S. Our Board also reviews our governance charters, guidelines, policies and procedures to make sure they
are appropriate and that we maintain high governance standards.
Our Board has established three standing committees, comprised of independent directors, to help it carry out its
responsibilities effectively:
(cid:131) Audit Committee
(cid:131) Corporate Governance, Nominating and Risk Committee, and
(cid:131) Human Resources and Compensation Committee.
The Board may also create special ad hoc committees from time to time to deal with important matters that arise.
You can find more information about our approach to governance in our management information circular, available on
our website (www.precisiondrilling.com).
Precision Drilling Corporation 2017 Annual Report
5
TWO BUSINESS SEGMENTS
We operate our business in two segments, supported by vertically integrated business support systems.
Precision Drilling Corporation
Contract Drilling Services
(cid:129) Drilling rig operations
– Canada
– U.S.
– International
(cid:129) Directional drilling operations
– Canada
– U.S.
Completion and Production Services
(cid:129) Canada and U.S.
– Service rigs
– Equipment rentals
(cid:129) Canada
– Snubbing
– Camps and catering
– Water systems
Business support systems
(cid:129) Sales and
marketing
(cid:129) Procurement and
distribution
(cid:129) Manufacturing
(cid:129) Equipment maintenance
and certification
(cid:129) Engineering
Corporate support
(cid:129) Information
systems
(cid:129) Health, safety and
environment
(cid:129) Human
resources
(cid:129) Finance
(cid:129) Legal and enterprise
risk management
2017 Revenue by Segment
2017 Revenue by Location
Completion and
Production Services
12%
International 14%
Canada 43%
U.S. 43%
Services 88%
Precision Drilling Corporation 2017 Annual Report
6
Contract Drilling Services
We provide onshore drilling services to exploration and production companies in the oil and natural gas industry,
operating in Canada, the U.S. and internationally.
We are a large, multi-basin oilfield operator servicing approximately 25% of the active land drilling market in Canada and
7% of the active U.S. market. We also have an international presence with operations in Mexico and the Middle East.
At December 31, 2017, our Contract Drilling Services segment consisted of:
(cid:131) 256 land drilling rigs, including:
– 136 in Canada
– 103 in the U.S.
– 5 in Mexico
– 4 in Saudi Arabia
– 5 in Kuwait
– 2 in the Kurdistan region of Iraq
– 1 in the country of Georgia
(cid:131) capacity for approximately 90 concurrent directional drilling jobs in Canada and the U.S.
(cid:131) engineering, manufacturing and repair services, primarily for Precision’s operations
(cid:131) centralized procurement, inventory and distribution of consumable supplies for our global operations.
At March 9, 2018, we had 240 Super Series drilling rigs, with 16 additional rigs that are good candidates to be upgraded.
Our Tier 1, or Super Series rigs are highly mobile and mechanized, which make them safer and more efficient in drilling
directional and horizontal wells than older generation drilling rigs. Our Super Series rigs have a broad range of features
to meet a diverse range of customer needs with a focus on high efficiency development drilling applications, from drilling
shallow- to medium-depth wells to deeper, extended reach horizontal well bores and all depths of conventional wells.
Available features include alternating current (AC) power, digital control systems, integrated top drive, omni-directional
pad walking systems for multi-pad well drilling, highly mechanized pipe handling, and high capacity mud pumps.
Contract Drilling
Revenue
Contract Drilling
Adjusted EBITDA
Contract Drilling
Utilization Days
$ Millions
$2,500
$2,000
$1,500
$1,000
$500
$0
$ Millions
$1,000
$800
$600
$400
$200
$0
80,000
60,000
40,000
20,000
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Precision Drilling Corporation 2017 Annual Report
7
Completion and Production Services
We provide well completion, workover, abandonment, and re-entry preparation services, as well as snubbing units for
pressure control services and equipment rentals to oil and natural gas exploration and production companies in Canada
and the U.S.
In December 2016 we acquired 48 well service rigs and ancillary equipment in a business acquisition for consideration of
$12 million and our coil tubing assets and associated equipment.
On an operating hour basis in 2017, we serviced approximately 14% of the well completion and workover service rig
market demand in Canada and less than 1% in the U.S.
At December 31, 2017, our Completion and Production Services segment consisted of:
(cid:1494)(cid:3) 198 well completion and workover service rigs, including:
– 190 in Canada
– 8 in the U.S.
(cid:1494)(cid:3) 12 snubbing units in Canada
(cid:1494)(cid:3) approximately 1,900 oilfield rental items, including surface storage, small-flow wastewater treatment, power
generation, and solids control equipment, primarily in Canada
(cid:1494)(cid:3) 133 wellsite accommodation units in Canada
(cid:1494)(cid:3) 43 drill camps and four base camps in Canada
(cid:1494)(cid:3) 10 large-flow wastewater treatment units, 22 pump houses and eight potable water production units in Canada.
Completion and Production
Revenue
Completion and Production
Adjusted EBITDA
Completion and Production
Service Rig Hours
$ Millions
$400
$300
$200
$100
$0
2013
2014
2015
2016
2017
$ Millions
$150
$100
$50
$0
-$50
Hours
400,000
300,000
200,000
100,000
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Precision Drilling Corporation 2017 Annual Report
8
2017 Highlights and Outlook
Management’s
Discussion
and
Analysis
Adjusted EBITDA, funds provided by operations and working capital are Non-GAAP measures. See page 4 for more
information.
Financial Highlights
Year ended December 31
(thousands of dollars, except where noted)
Revenue
Adjusted EBITDA
Adjusted EBITDA % of revenue
Net loss
Cash provided by operations
Funds provided by operations
Investing activities
Capital spending
Expansion
Upgrade
Maintenance and infrastructure
Intangibles
Proceeds on sale
Net capital spending
Business acquisition
Loss per share ($)
Basic and diluted
Dividends per share ($)
n/m – calculation not meaningful
Operating Highlights
Year ended December 31
Contract drilling rig fleet
Drilling rig utilization days
Canada
U.S.
International
Revenue per utilization day
Canada (Cdn$)
U.S. (US$)
International (US$)
Operating cost per utilization day
Canada (Cdn$)
U.S. (US$)
%
increase/
(decrease)
2017
1,321,224
304,981
23.1 %
(132,036 )
116,555
183,935
31.7
33.7
(15.1 )
(4.9 )
74.6
%
increase/
(decrease)
2016
1,003,233
228,075
22.7 %
(155,555 )
122,508
105,375
2015
1,634,758
473,865
29.0 %
(363,436 )
517,016
357,090
(38.6 )
(51.9 )
(57.2 )
(76.3 )
(70.5 )
%
increase/
(decrease)
(34.3 )
(40.8 )
(1,196.3 )
(24.0 )
(48.8 )
11,946
37,086
25,791
23,179
(14,841 )
83,161
—
(92.0 )
86.7
(25.7 )
n/m
89.3
(57.5 )
(100.0 )
148,887
19,862
34,723
—
(7,840 )
195,632
12,200
(58.8 )
(59.0 )
(28.8 )
—
(19.9 )
(56.4 )
n/m
361,425
48,487
48,798
—
(9,786 )
448,924
—
(36.7 )
(64.5 )
(67.2 )
—
(90.4 )
(40.5 )
—
(0.45 )
—
(15.1 )
—
(0.53 )
—
(57.3 )
(100.0 )
(1.24 )
0.28
(1,227.3 )
12.0
2017
256
18,883
20,479
2,920
21,143
19,861
50,240
13,140
13,846
%
increase/
(decrease)
0.4
2016
255
% increase/
(decrease)
1.6
2015
251
% increase/
(decrease)
(19.8 )
48.4
80.5
4.8
(13.7 )
(24.0 )
9.8
(7.8 )
(10.9 )
1.4
73.8
(1.4 )
12,722
11,343
2,786
24,509
26,145
45,753
14,258
15,547
207
99,451
646
(26.2 )
(46.4 )
(31.8 )
(9.1 )
(2.2 )
5.2
(4.2 )
(0.5 )
17,238
21,172
4,084
26,976
26,728
43,491
14,884
15,618
27.0
(33.5 )
(17.6 )
163
149,574
784
(47.5 )
(39.6 )
1.2
6.0
6.3
(0.9 )
5.4
4.9
(7.9 )
(45.2 )
(13.6 )
Service rig fleet
Service rig operating hours
Revenue per operating hour (Cdn$)
210
172,848
637
Precision Drilling Corporation 2017 Annual Report
9
Financial Position and Ratios
December 31,
December 31,
2017
2016
(thousands of dollars, except ratios)
Working capital(1)
Working capital ratio
Long-term debt
Total long-term financial liabilities
Total assets
Enterprise value(2)
Long-term debt to long-term debt plus equity(3)
Long-term debt to cash provided by operations
Long-term debt to enterprise value
(1) See NON-GAAP MEASURES on page 4 of this report
(2) Share price multiplied by the number of shares outstanding plus long-term debt minus cash. See page 36 for more information.
(3) Net of unamortized debt issue costs.
230,874
2.0
1,906,934
1,946,742
4,324,214
3,937,737
0.5
15.6
0.5
232,121
2.1
1,730,437
1,754,059
3,892,931
2,782,596
0.5
14.8
0.6
December 31,
2015
536,815
3.2
2,180,510
2,210,231
4,878,690
3,337,980
0.5
4.2
0.7
RECAST
During the third quarter of 2017, we changed our treatment of how certain amounts that were historically netted against
operating expense should be classified. Certain amounts that were historically netted against operating expenses are
now treated as revenue, with a corresponding increase to operating expenses. The primary nature of these amounts
related to additional labour charges to customers above our standard drilling crew configuration, subsistence allowances
paid to the drilling crew which varies depending on whether the crews were staying in a camp or hotel, and equipment
rental. As a result, previously reported revenues and operating expenses were understated by equivalent amounts.
To conform to current year presentation, certain immaterial reclassifications between operating and general
administrative expenses have also been made in the comparative periods.
As a result of these reclassifications, we have recast the prior years’ comparative amounts as follows:
For the Year Ended December 31, 2016
For the Year Ended December 31, 2015
(thousands of dollars)
Revenue
Expenses:
As
previously
Revenue
recast
951,411 51,822
reported
As
previously
Expense
recast As recast
Revenue
recast
— 1,003,233 1,555,624 79,134
reported
Expense
recast As recast
— 1,634,758
Operating
General and administrative
Restructuring
Adjusted EBITDA(1)
(1) See NON-GAAP MEASURES on page 4 of this report.
607,295 51,822
—
110,287
—
5,754
—
228,075
2,598 661,715 934,693 79,134
—
(2,598 ) 107,689 126,423
—
—
20,643
5,754
—
— 228,075 473,865
7,657 1,021,484
(7,657 ) 118,766
—
20,643
— 473,865
2017 OVERVIEW
Crude oil prices began to decline in mid-2014, reaching a low point in 2016 and resulting in a severe, industry-wide
downturn with low oil and natural gas prices reducing our customers’ cash flows, causing them to scale back their capital
budgets. As a result, customer demand and drilling activity declined significantly over this period which had a negative
impact on our activity and resulting cash flow. In the fourth quarter of 2016, the Organization of Petroleum Exporting
Countries (OPEC) and certain non-OPEC countries agreed to production caps, resulting in more stable and higher crude
oil prices. Although natural gas prices remain historically low, higher oil prices in 2017 resulted in significantly higher
customer demand and drilling activity for us in 2017 with total utilization days increasing 64% over 2016 levels.
For the year ended December 31, 2017, our net loss was $132 million, or $0.45 per diluted share, compared with a net
loss of $156 million, or $0.53 per diluted share in 2016. During 2017 we incurred an asset impairment charge of $15
million, related to our Mexico contract drilling business, that after tax increased our net loss by $12 million and net loss
per diluted share by $0.04.
Revenue in 2017 was $1,321 million, or 32% higher than in 2016, mainly due to higher activity. Contract Drilling Services
revenue was up 29%, while Completion and Production Services revenue was up 54%. Our Canadian, U.S. and
international drilling activity increased 48%, 81% and 5%, respectively.
Precision Drilling Corporation 2017 Annual Report
10
Adjusted EBITDA in 2017 was $305 million, or 34% higher than in 2016. Our Adjusted EBITDA margin was 23%, in-line
with 2016. Adjusted EBITDA improved because of lower share-based compensation expense and higher utilization in
North America offset by the expiry of some legacy long-term drilling rig contracts. Adjusted EBITDA margin for the year in
our Contract Drilling Services segment was 29%, compared with 33% in the prior year, while Adjusted EBITDA margin
from our Completion and Production Services segment was 8%, compared with a prior year margin of negative 4%.
Increased activity has led to fixed costs and operating overhead being spread over a larger base resulting in improved
margins compared with the prior year in our Completion and Production Services segment. Our portfolio of term
customer contracts, a scalable operating cost structure, and economies achieved through vertical integration of the
supply chain help us manage our Adjusted EBITDA margin.
We undertook several measures to manage our variable costs during the industry downturn including reducing our
capital and operating expenditures. We also reduced our fixed cost structure by consolidating several of our North
American operating facilities, streamlining management reporting structures, and reducing staff, which resulted in one-
time costs of $6 million in 2016. We have continued to maintain the reduced overhead levels despite the significant
increase in activity.
Capital expenditures for the purchase of property, plant and equipment were $98 million in 2017, a decrease of
$105 million over 2016. Capital spending for 2017 included $12 million on expansion capital, $37 million on upgrade
capital, $26 million on the maintenance of existing assets and infrastructure and $23 million on intangibles, which
primarily related to information technology infrastructure. Expansion capital relates to the completion of the two new-build
drilling rigs for Kuwait delivered in the fourth quarter of 2016.
In 2017, we added one Super Series drilling rig to the U.S. fleet compared with the addition of four in 2016 (one in
Canada, one in the U.S. and two in Kuwait). In December 2016, we also added 48 well service rigs and ancillary
equipment in a business acquisition for consideration of $12 million and our coil tubing units and associated equipment.
Under International Financial Reporting Standards, we are required to assess the carrying value of assets in our cash
generating units (CGUs) containing goodwill annually and when indicators of impairment exist. Because of no activity in
2017, we completed an impairment test for our Mexico contract drilling CGU as of December 31, 2017. The test involves
determining a value in use based on a multi-year discounted cash flow using assumptions on expected future results.
The resulting value in use is then compared to the carrying value of the CGU. Because of this test it was determined that
property, plant and equipment in our Mexico contract drilling business was impaired by US$12 million.
In November 2017 we issued US$400 million of 7.125% senior notes due in 2026 in a private offering. The Notes are
guaranteed on a senior unsecured basis by current and future U.S. and Canadian subsidiaries that also guarantee our
Senior Credit Facility and certain other indebtedness. The Notes were issued to redeem and repurchase all our
outstanding 6.625% unsecured senior notes due 2020 and redeem a portion of our 6.5% unsecured senior notes due
2021. In addition, we agreed with our lending group to amend the terms of our Senior Credit Facility to among other
things, reduce the Covenant EBITDA, as defined in the debt agreement, (see NON-GAAP MEASURES on page 4 of this
report) to interest expense coverage ratio, reduce the size of the facility to US$500 million and extend the maturity to
November 21, 2021. For added amendments and detail on the new debt and redemption of our existing debt see
LIQUIDITY on page 31 of this report.
OUTLOOK
Contracts
Term customer contracts provide a base level of activity and
revenue. As of March 9, 2018, we had term contracts in place for an
average of 43 rigs: seven in Canada, 29 in the U.S. and seven
internationally for 2018. In Canada, term contracted rigs normally
generate 250 utilization days per rig year because of the seasonal
nature of wellsite access. In most region in the U.S. and internationally term contracts normally generate 365 utilization
days per rig year. In 2017, we had an average of 57 drilling rigs working under term contracts and revenue from these
contracts was approximately 47% of our total contract drilling revenue for the year.
In 2017, approximately 47% of our total contract
drilling revenue was generated from rigs under
term contracts.
Pricing, Demand and Utilization
While global crude oil prices remained volatile throughout 2017, production cuts put in place by OPEC and select non-
OPEC countries in late-2016 have supported higher oil prices and provided a level of stability in the market. In 2017,
West Texas Intermediate (WTI) crude oil prices averaged US$50.95 per barrel, increasing from cyclical lows in
2016. Following the decision in late-2017 to extend the cuts through the end of 2018, global crude oil prices strengthened
further with WTI crude closing the year at US$60.46 per barrel and averaging US$62.96 per barrel for the first two
months of 2018. Although global crude prices have strengthened, certain Canadian grades of crude, such as Western
Canada Select (WCS) became deeply discounted from WTI in the second half of 2017 because of takeaway capacity
Precision Drilling Corporation 2017 Annual Report
11
constraints from oil producing regions in Western Canada, a dynamic that continued into 2018. In the first two months of
2018 WCS averaged US$36.75 or a US$26.21 discount from the average WTI price.
Natural gas prices have remained rangebound by historical standards as growth in associated gas from unconventional
oil development, higher than average storage levels, infrastructure constraints and the lack of a fully developed export
market from North America continue to cap pricing. Natural gas prices in the U.S., referenced by the Henry Hub price on
the New York Mercantile Exchange (NYMEX), averaged US$2.98 per MMBtu in 2017, and closed the year at US$3.69
per MMBtu. In Canada, the AECO gas benchmark witnessed price weakness and volatility in 2017 particularly in the
summer months driven by plant maintenance, pipeline shut-ins, and challenges exporting gas as a Canadian LNG export
industry has not been developed leaving a well-supplied U.S. market as the only export option for Canadian
gas. Differences between NYMEX (U.S.) prices and AECO (Canada) prices are expected to continue if Canadian export
markets remained challenged.
The rig count at March 9, 2018 was 13% lower in Canada than it was a year ago while the year-to-date rig count has
averaged 8% less than 2017. Activity for the remainder of the year is expected to be determined by the strength in
commodity prices and the resulting oil and gas customer budgets.
In the U.S., strengthening crude prices have resulted in increased drilling activity and demand for our rigs. As a result,
spot market pricing and activity each increased throughout 2017 and have improved further year-to-date in 2018. As of
March 9, 2018, the rig count was 30% higher than the same time last year and has averaged 34% higher year-to-date
compared to 2017. Activity levels for the remainder of 2018 are expected to be dependent on commodity prices and
resulting customer budgets.
The Canadian dollar averaged US$0.7704 (Cdn$/US$1.2979) for 2017 and closed the year at US$0.7954
(Cdn$/US$1.2573). The lower Canadian dollar relative to the U.S. dollar serves to partially offset the impact of lower U.S.
dollar-denominated crude oil and natural gas prices for Canadian exploration and production companies. Year to date,
the Canadian dollar has weakened in relation to the U.S. dollar and as of March 9, 2018, the Canadian dollar closed at
US$0.7802.
International
Our international drilling rig fleet consists of 17 rigs with five in Kuwait, five in Mexico, four in the Kingdom of Saudi
Arabia, two in the Kurdistan region of Iraq and one in the country of Georgia. We currently have eight rigs working on
term contracts with five in Kuwait and three in the Kingdom of Saudi Arabia.
Upgrading the Fleet
The industry trend toward more complex drilling programs has accelerated the retirement of older generation, less
capable rigs. Over the past several years, we and some of our competitors have been upgrading the drilling rig fleet by
building new rigs, upgrading existing rigs, and decommissioning lower capacity rigs. We believe this retooling of the
industry-wide fleet has been making legacy rigs virtually obsolete in North America.
After our new-build program, the upgrading of a number of existing rigs, and the cumulative decommissioning of 236
legacy rigs, our fleet now consists of 240 Tier 1 rigs with 16 additional rigs that are good candidates for upgrade.
Capital Spending
We expect capital spending in 2018 to be $94 million, including $34 million on expansion and upgrade, $45 million on
maintenance and infrastructure expenditures and $15 million on intangibles, primarily relating to information technology
infrastructure. We expect that the $94 million will be split $74 million in the Contract Drilling segment, $5 million in the
Completion and Production Services segment and $15 million in the Corporate segment. Precision’s sustaining and
infrastructure capital plan is based on currently anticipated activity levels for 2018. If we can obtain attractive term
contracts we would consider additional upgrade and expansion capital opportunities. Maintenance capital is variable and
will increase or decrease with activity.
Precision Drilling Corporation 2017 Annual Report
12
Revenue and
Adjusted EBITDA
Revenue
Adjusted EBITDA
EBITDA Margin
Funds From Operations
s
n
o
i
l
l
i
M
$
s
n
o
i
l
l
i
M
$
$2,500
$2,000
$1,500
$1,000
$500
$0
$800
$700
$600
$500
$400
$300
$200
$100
$0
Drilling Utilization Days
80,000
60,000
40,000
s
y
a
D
20,000
0
International
U.S.
Canada
50%
40%
30%
20%
10%
0%
%
n
i
g
r
a
M
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Precision Drilling Corporation 2017 Annual Report
13
Understanding Our Business Drivers
Management’s
Discussion
and
Analysis
THE ENERGY INDUSTRY
Precision operates in the energy services business, which is an inherently challenging cyclical sector of the energy
industry. We depend on oil and natural gas exploration and production companies to contract our services as part of their
exploration and development activities. The economics of their businesses are dictated by the current and expected
future margin between their finding and development costs and the eventual market price for the commodities they
produce: crude oil, natural gas, and natural gas liquids.
Conventional / Unconventional wells
Oil and gas reservoirs can be conventional, where a vertical well is drilled into a highly pressurized reservoir allowing the
oil and gas to flow freely shortly after completing the drilling process. Unconventional reservoirs are exploited by drilling a
vertical section of a well followed by a horizontal section to access a large portion of the oil or gas formation. These
“unconventional” or “shale” reservoirs are typically lower pressure and require extra stimulation to generate production.
The practice of
the unconventional drilling process with high horsepower
equipment pumping water and proppant down a wellbore at high pressure to frack the rock, releasing hydrocarbons.
fracturing”
“hydraulic
follows
Commodity Prices
Cash flow to fund exploration and development is dependent on commodity prices: higher prices increase cash flow and
encourage investment and when prices decline, the opposite is true.
Oil can be transported relatively easily, so it is generally priced in a global market that is influenced by an array of
economic and political factors. Higher oil prices typically result in stronger demand for drilling services with funding for
drilling programs directed toward the most economically attractive drilling opportunities. As the volume of unconventional
oil development has dramatically increased over the past decade, generating efficiencies through industrialized
processes, more capital has been directed toward unconventional oil development in North America, reflecting the
region’s competitiveness globally.
Natural gas and natural gas liquids continue to be priced more regionally. In North America, natural gas demand largely
depends on the weather. Colder winter temperatures, and to a lesser extent, warmer summer temperatures, result in
greater natural gas demand. Other demand drivers, such as natural gas fired power generation, industrial applications,
and transportation, have shown positive growth over the past several years driven by a preference for natural gas over
coal, favourable regulation, and lower prices. The potential for liquefied natural gas (LNG) export development in Canada
and continued development in the U.S. could serve as a catalyst for natural gas directed drilling activity over the medium
to long term.
The key natural gas price driver continues to be increased production from unconventional shale gas drilling. Since the
winter of 2014, pricing for natural gas in North America has been depressed, as supplies of unconventional natural gas
have increased, and current inventory levels are viewed as adequate to keep North American markets well supplied.
Average Oil and Natural Gas Prices
Oil
WTI (US$ per barrel)
Natural gas
Canada
AECO ($ per MMBtu)
U.S.
Henry Hub (US$ per MMBtu)
Source: WTI and Henry; Hub Energy Information Administration, AECO; Gas Alberta Inc.
2017
2016
2015
50.95
43.30
48.77
2.16
2.14
2.98
2.48
2.70
2.60
Precision Drilling Corporation 2017 Annual Report
14
WTI Oil Prices and
Henry Hub
Natural Gas Prices
12
12
u
u
t
t
B
B
M
M
M
M
/
/
$
$
S
S
U
U
8
8
4
4
Henry Hub Natural Gas
Henry Hub Natural Gas
WTI Oil
WTI Oil
0
0
Jan-13
Source: Energy Information Administration
120
120
80
80
40
40
l
l
e
e
r
r
r
r
a
a
b
b
/
/
$
$
S
S
U
U
0
0
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
New Technology
Exploration and production companies across the U.S. and Canada have been increasingly focused on drilling and
completion efficiency as they have adapted to a lower commodity price environment. Our customers have adopted large-
scale industrialization techniques, utilizing multi-well pads and high efficiency rig systems in order to remain competitive
in today’s environment. The next wave of efficiency is centered around rig automation technologies with customers
desiring consistent, predictable and repeatable results in their development-style drilling programs.
U.S. Lower 48 Production
120
100
80
60
40
20
/
)
d
F
C
B
(
s
a
G
l
a
r
u
t
a
N
Natural Gas Production
Crude Oil Production
Source: Energy Information Administration
0
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
12
10
8
6
4
2
0
l
/
)
d
s
b
b
M
M
(
l
i
O
e
d
u
r
C
Precision Drilling Corporation 2017 Annual Report
15
Natural gas production in Canada has been flat because of lower natural gas directed drilling due to pricing pressure and
Canada’s lack of an export market other than the U.S.
Canadian Production
20
16
12
8
4
/
)
d
F
C
B
(
s
a
G
l
a
r
u
t
a
N
Natural Gas Production
Crude Oil Production
Source: Energy Information Administration, FEC
0
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
5
4
3
2
1
0
/
l
)
d
s
b
b
M
M
(
l
i
O
e
d
u
r
C
Drilling Activity
Following a decline in activity in 2015 and 2016, the North American land drilling market showed increased activity levels
in 2017 as customer demand improved with higher oil prices.
In 2017, the industry drilled 6,959 wells in western Canada, compared with 3,963 in 2016 and 5,241 in 2015. Total
industry drilling operating days were 66,138 in 2017 compared with 42,391 in 2016 and 64,880 in 2015. Average industry
drilling operating days per well was 9.5 compared with 10.7 in 2016 and 12.4 in 2015. From 2017 to 2016 the average
depth of a well increased 5% compared with an increase of 2% from 2015 to 2016.
In 2017 approximately 15,800 wells were started onshore in the U.S., compared with approximately 11,200 in 2016 and
20,400 in 2015.
In Canada, there has been relative strength in natural gas liquids and light tight oil drilling activity in the deeper basins of
northwestern Alberta and northeastern British Columbia, while in the U.S. the bias towards oil-directed drilling continues.
In 2017, approximately 53% of the Canadian industry’s active rigs and 80% of the U.S. industry’s active rigs were drilling
for oil targets, compared with 48% for Canada and 80% for the U.S. in 2016.
The graphs below show the shift in drilling activity to oil targets since 2013, in both the U.S. and Canada. The Canadian
drilling rig activity graph also shows how Canadian drilling activity fluctuates with the seasons, a market dynamic that
generally is not present in the U.S.
U.S. Active Rig Count
1,600
1,200
800
400
g
n
i
k
r
o
w
s
g
i
R
Series1
Series2
Source: Baker Hughes
0
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Precision Drilling Corporation 2017 Annual Report
16
Canadian Active Rig Count
600
g
n
i
k
r
o
w
s
g
i
R
400
200
Oil
Natural
Gas
Source: Baker Hughes
0
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
A COMPETITIVE OPERATING MODEL
The contract drilling business is highly competitive, with many industry participants. We compete for drilling contracts that
are often awarded in a competitive bid process. We believe potential customers focus on pricing and rig availability when
selecting a drilling contractor, but also consider many other things, including drilling capabilities, condition of rigs, quality
of rig crews, breadth of service, technology offering, and safety record, among others.
Providing High Performance, High Value services to our customers is the core of our competitive strategy. We deliver
High Performance through passionate people supported by quality business systems, drilling technology, equipment and
infrastructure designed to optimize results and reduce risks. We create High Value by operating safely and sustainably,
lowering our customers’ risks and costs while improving efficiency, developing our people, and generating superior
financial returns for our investors.
Operating Efficiency
We keep customer well costs down by maximizing the efficiency of operations in several ways:
(cid:1494) using innovative and advanced drilling technology that is efficient and reduces costs
(cid:1494)(cid:3) having equipment that is geographically dispersed, reliable and well maintained
(cid:1494)(cid:3) monitoring our equipment to minimize mechanical downtime
(cid:1494)(cid:3) managing operations effectively to keep non-productive time to a minimum
(cid:1494)(cid:3) staffing our rigs with(cid:3)well-trained crews with performance measured against defined competencies, and
(cid:1494)(cid:3) compensating our executives and eligible employees based on performance against safety, operational,
employee retention, and financial measures.
Efficient, Cost-Reducing Technologies
We focus on providing efficient, cost-reducing drilling technologies. Design innovations and technology improvements,
such as multi-well pad capability and rapid mobility between wells, capture incremental time savings during the drilling
process.
Our Super Series rigs have a broad range of features to meet a diverse range of customer needs with a focus on high-
efficiency development drilling applications, from drilling shallow- to medium-depth wells to deeper, extended reach
horizontal well bores. Available features include alternating current (AC) power, digital control systems, integrated top
drives, omni-directional pad walking systems for multi-pad well drilling, highly mechanized pipe handling, and high
capacity mud pumps. Our Super Series fleet includes a number of smaller, fast-moving, hydraulically-powered
mechanized rigs that are optimized for shallow- to medium-depth resource plays found across North America.
Broad Geographic Footprint
Geographic proximity and fleet versatility support the High Performance, High Value services we provide to our
customers. Our large, diverse fleet of rigs is strategically deployed across the most active drilling regions in North
America, including all major unconventional oil and natural gas basins.
Precision Drilling Corporation 2017 Annual Report
17
Managing Downtime
Minimizing downtime is a key operating metric for us and our customers. Reliable and well-maintained equipment
minimizes downtime and non-productive time during operations. We manage mechanical downtime through preventative
maintenance programs, detailed inspection processes, an extensive fleet of strategically-located spare equipment, and
an in-house supply chain. We minimize non-productive time (to move, rig-up and rig-out) by utilizing walking systems,
reducing the number of move loads per rig, and using mechanized equipment for safer and quicker rig component
connections.
Tracking Our Results
We unitize key financial information per day and per hour and compare these measures to established benchmarks and
past performance. We evaluate the relative strength of our financial position by monitoring our working capital, debt
ratios, and returns on capital employed. We track industry rig utilization statistics to evaluate our performance against
competitors.
We reward executives and eligible employees through incentive compensation plans for performance against the
following measures:
(cid:1494)(cid:3) safety performance – total recordable incident frequency per 200,000 man-hours, recordable free facilities and
“Triple Target Zero” days (defined on page 19 under ‘Safe Operations’). Measured against prior year
performance and current year industry performance in Canada and the U.S.
(cid:1494)(cid:3) operational performance – rig down time for repair as measured by time not billed to the customer. Measured
against a predetermined target of available billable time
(cid:1494)(cid:3) key field employee retention – senior field employee retention rates. Measured against predetermined target
rates of retention
(cid:1494)(cid:3) strategic initiatives – achieving strategic operational goals. Measured against predetermined target metrics
(cid:1494)(cid:3) financial performance – Adjusted EBITDA, adjusted cash flow and return on capital employed. Measured against
predetermined targets
(cid:1494)(cid:3) investment returns – total shareholder return performance (including dividends) against a group of industry peers,
over a three-year period. The peer group consists of a predetermined group of companies with similar business
operations that we compete with for investors.
Top Tier Service
We pride ourselves on providing quality equipment operated by experienced and well-trained crews. We also strive to
align our capabilities with evolving technical requirements associated with more complex well bore programs.
High Performance Rig Fleet
Our fleet of drilling rigs is well positioned to address the unconventional drilling programs of our customers. The vast
majority of our drilling rigs have been designed or significantly upgraded to drill horizontal wells. With a breadth of
horsepower types and drilling depth capabilities, our large fleet can address every type of onshore unconventional and
conventional oil and natural gas drilling opportunity in North America.
Our service rigs provide completion, workover, abandonment, well maintenance, high pressure operations and critical
sour gas well work, and well re-entry preparation across the Western Canada Sedimentary Basin and in the northern
U.S. Service rigs are supported by four field locations in Alberta, two in Saskatchewan, and one each in Manitoba, British
Columbia and North Dakota.
Snubbing units complement traditional natural gas well servicing by allowing customers to work on wells while they are
pressurized and production has been suspended. We have two kinds of snubbing units: rig-assist and self-contained.
Self-contained units do not require a service rig on site and are capable of snubbing and performing many other well
servicing procedures. Included in our self-contained units are three patented L-frame units, which are more efficient in
the rig up and rig out process than standard self-contained units.
Upgrade Opportunities
We leverage our internal manufacturing and repair capabilities and inventory of quality rigs to address market demand
through upgraded drilling rigs. For drilling rigs, the upgrade is typically performed at the request of a customer and
includes a term contract. Certain upgrades have sometimes resulted in a change in tier classification.
Ancillary Equipment and Services
An inventory of equipment (top drives, loaders, boilers, tubulars, and well control equipment) supports our fleet of drilling
and service rigs. We also maintain an inventory of key rig components to minimize downtime due to equipment failure.
Precision Drilling Corporation 2017 Annual Report
18
We benefit from internal services for equipment certifications and component manufacturing from our manufacturing
division in Canada and for standardization and distribution of consumable oilfield products through our procurement
divisions in Canada and the U.S.
Precision Rentals provides specialized equipment and wellsite accommodations to customers on a rental basis.
Precision Camp Services provides food and accommodation to personnel working at the wellsite, typically in remote
locations in Western Canada. Terra Water Systems designs, fabricates and rents units to customers including: portable
wastewater handling, treatment and disposal facilities, potable water production plants, and potable water delivery
systems for remote sites in Western Canada.
Technical Centres
We operate two contract drilling technical centres, one in Nisku, Alberta and one in Houston, Texas. We also operate
one completion and production services technical centre in Red Deer, Alberta. These centres accommodate our
technical service and field training groups and enable us to consolidate support and training for our operations. Both of
our contract drilling technical centres include fully functioning training rigs with the latest drilling technologies. In addition,
our Houston facility accommodates our rig manufacturing group.
People
Having an experienced, high performance crew is a competitive
strength and highly valued by our customers. There are often
shortages of industry manpower in peak operating periods. We rely
heavily on our safety record, investment in employee development,
comprehensive employee training, competency development, and
reputation to attract and retain employees. Our people strategies focus on initiatives that provide a safe and productive
work environment, opportunity for advancement, and added wage security. We have centralized personnel, orientation,
and training programs in Canada and the U.S. Our people strategies have enabled us to deliver sufficient and good
quality field crews at all points in the industry cycle.
Toughnecks
been a highly successful
program for us since we introduced it in 2008.
(www.toughnecks.com)
has
recruiting
field
Systems
In 2017 we commenced an upgrade to our enterprise-wide reporting system (ERP) with completion expected in the
second quarter of 2018. The upgraded system will fully integrate our drilling rigs with our field facilities and corporate
offices increasing operating efficiencies and positioning the organization to better handle the increased data flows
associated with our business. All our divisions operate using standardized business processes across marketing,
equipment maintenance, procurement, manufacturing, HSE, inventory control, engineering, finance, payroll and human
resources.
We continue to invest in information systems that provide competitive advantages. Electronic links between field and
financial systems provide accuracy and timely processing. This repository of rig data improves response time to
customer inquiries. Rig manufacturing projects also benefit from scheduling and budgeting tools, which identify and help
leverage economies of scale as construction demands increase.
Safe Operations
Safety, environmental stewardship and employee wellness are critical for us and for our customers and are the
foundation of our culture.
Safety performance is a fundamental contributor to operating
performance and
for our
shareholders. We track safety using three separate metrics:
financial results we generate
the
(cid:1494)(cid:3)(cid:3)Total Recordable Incident Frequency
(cid:1494)(cid:3)(cid:3)Facilities Recordable Free
(cid:1494)(cid:3)(cid:3)Triple Target Zero Days.
Target Zero
Our safety vision for eliminating workplace
incidents is a core belief that all injuries can be
prevented.
Total Recordable Incident Frequency (TRIF) is an industry standard and benchmarks our success and isolates areas for
improvement. We have taken it to another level by tracking and measuring all injuries, regardless of severity, because
they are leading indicators for the potential for more serious events. In 2017, 86% of our drilling rigs and 91% of our
service rigs achieved Target Zero. Facilities recordable free includes all of our rigs, operating centers and offices and
measures how many of our facilities do not have a recordable during the year. In addition, we have a goal of achieving
“Triple Target Zero” every day. A Triple Target Zero day is a day when we have no vehicle incidents, no recordable
injuries and no spills. For 2017 we achieved 282 Triple Target Zero days.
Precision Drilling Corporation 2017 Annual Report
19
We continuously review our rig designs and components and use advanced technologies to improve the life cycle,
maintain safety and operational efficiency, reduce energy use, and manage our energy and resources.
Energy Footprint
Together with our customers, we are continuously looking for opportunities to reduce our consumption of non-renewable
resources and reduce our environmental footprint. We use technology to minimize our impact on the environment,
including:
(cid:1494)(cid:3) heat recovery and distribution systems
(cid:1494)(cid:3) power generation and distribution
(cid:1494)(cid:3) fuel management
(cid:1494)(cid:3) fuel type
(cid:1494)(cid:3) noise reduction
(cid:1494)(cid:3) recycling of used materials
(cid:1494)(cid:3) use of recycled materials
(cid:1494)(cid:3) efficient equipment designs
(cid:1494)(cid:3) spill containment.
Precision Drilling Corporation 2017 Annual Report
20
AN EFFECTIVE STRATEGY
Precision’s vision is to be globally recognized as the High Performance, High Value provider of land drilling services. We
work toward this vision by defining and measuring our results against strategic priorities we establish at the beginning of
every year.
2017 Strategic Priorities
2017 Results
Deliver High Performance, High Value service offerings
in
environment while
demonstrating fixed cost leverage.
improving demand
an
and
costs
general
administrative
Delivered 99.56% and 98.97% uptime in Canada and the
U.S. respectively
Reduced
by
approximately $18 million representing a 16% year-over-
year decrease
Maintained a stable corporate headcount notwithstanding
a 64% increase in North American drilling activity
Achieved a near record low operating cost per utilization
day in the U.S. in the third quarter
Achieved a 1.14 Total Recordable Incident Rate (TRIR)
and 282 Triple Target Zero Days with no life altering
incidents.
Commercialize rig automation and efficiency-driven
technologies across our Super Series fleet.
Maintain strict financial discipline in pursuing growth
opportunities with a focus on free cash flow and debt
reduction.
Installed and ran 20 Process Automation Control systems
on our rigs and drilled 154 wells utilizing the technology
Drilled 57 wells in 2017 using a Directional Guidance
System, 30% of which were integrated jobs with a reduced
crew
Remained the industry leader in utilizing wired drill pipe
having drilled over 95% of wells on land utilizing this
technology
Initiated the implementation of a new ERP system aimed
at driving increased operating efficiencies, improving our
fixed cost leverage and positioning the organization to
better handle increased data flows.
Generated $184 million of funds from operations, see Non-
GAAP Measures on page 4
In 2017 we added 29 contracts greater than six months,
the majority of which were linked to covering the capital
investment for upgrades
Reduced long-term debt by $52 million utilizing cash on
hand following a $213 million reduction in 2016
Extended the earliest maturity of our long-term debt by 13
months to December 2021
Maintained modest capital plan in 2017 with actual spend
$40 million below plan
Extended the maturity of our Senior Credit Facility to
November 2021 to reinforce strong liquidity position.
Our Corporate and Competitive Strategies are designed to optimize resource allocation and differentiate us from the
competition, generating value for investors. Unconventional drilling is the primary opportunity in the North American
marketplace. Unconventional resource development requires advanced Tier 1 drilling rigs and other highly developed
services that facilitate the drilling of reliable, predictable and repeatable horizontal wells. Customer adoption of large-
scale industrialization techniques and high efficiency rig systems continues to increase and Precision’s Super Series rig
fleet and High Performance, High Value strategy positions the Company to benefit from that trend. The completion and
production work associated with unconventional wells provides the most profitable growth opportunities for our
Completion and Production Services segment.
Strategic Priorities for 2018
1. Reduce debt by generating free cash flow while continuing to fund only the most attractive investment opportunities.
2. Reinforce Precision’s High Performance competitive advantage by deploying Process Automation Controls,
Directional Guidance Systems and Drilling Performance Applications on a wide scale commercial basis.
3. Enhance financial performance through higher utilization and improved operating margins.
Precision Drilling Corporation 2017 Annual Report
21
2017 Results
Management’s
Discussion
and
Analysis
Adjusted EBITDA and operating loss are Non-GAAP measures. See page 4 for more information.
Consolidated Statements of Loss Summary
Year ended December 31 (thousands of dollars)
Revenue
Contract Drilling Services
Completion and Production Services
Inter-segment elimination
Adjusted EBITDA(1)
Contract Drilling Services
Completion and Production Services
Corporate and Other
Depreciation and amortization
Impairment of property, plant and equipment
Gain on re-measurement of property, plant and equipment
Loss on asset decommissioning
Operating loss(1)
Impairment of goodwill
Foreign exchange
Finance charges
Loss on redemption and repurchase of unsecured senior notes
Loss before income taxes
Income taxes
Net loss
(1) See Non-GAAP Measures on page 4 of this report.
Results by Geographic Segment
Year ended December 31 (thousands of dollars)
Revenue
Canada
U.S.
International
Inter-segment elimination
Total assets
Canada
U.S.
International
2017
2016
2015
1,173,930
154,146
(6,852 )
1,321,224
907,821
100,049
(4,637 )
1,003,233
1,457,470
186,317
(9,029 )
1,634,758
342,970
11,888
(49,877 )
304,981
377,746
15,313
—
—
(88,078 )
—
(2,970 )
137,928
9,021
(232,057 )
(100,021 )
(132,036 )
296,651
(3,649 )
(64,927 )
228,075
391,659
—
(7,605 )
—
(155,979 )
—
6,008
146,360
239
(308,586 )
(153,031 )
(155,555 )
535,394
10,239
(71,768 )
473,865
486,655
281,987
—
166,486
(461,263 )
17,117
(33,251 )
121,043
—
(566,172 )
(202,736 )
(363,436 )
2017
2016
2015
578,817
568,573
190,401
(16,567 )
1,321,224
1,631,838
1,666,368
594,725
3,892,931
418,030
426,546
169,286
(10,629 )
1,003,233
1,738,853
1,861,908
723,453
4,324,214
646,753
781,612
226,129
(19,736 )
1,634,758
2,077,077
2,096,214
705,399
4,878,690
Precision Drilling Corporation 2017 Annual Report
22
2017 COMPARED WITH 2016
Net loss in 2017 was $132 million, or $0.45 per diluted share, compared with net loss of $156 million, or $0.53 per diluted
share, in 2016.
Revenue was $1,321 million (32% higher than 2016) because of higher activity in all our operations.
Adjusted EBITDA in 2017 was $305 million (34% higher than 2016), mainly because activity levels were higher in all our
operations. Activity, as measured by drilling utilization days, increased 48% in Canada, 81% in the U.S., and 5%
internationally compared with 2016.
Impairment
Under International Financial Reporting Standards, we are required to assess the carrying value of assets in our cash
generating units (CGUs) containing goodwill annually and when indicators of impairment exist. Because of no activity in
2017, we completed an impairment test for our Mexico contract drilling CGU as of December 31, 2017. The test involves
determining a value in use based on a multi-year discounted cash flow using assumptions on expected future results.
The resulting value in use is then compared to the carrying value of the CGU. Because of this test it was determined that
property, plant and equipment in our Mexico contract drilling business was impaired by US$12 million.
Foreign Exchange
We recognized a foreign exchange gain of $3 million in 2017 (2016 – $6 million loss) because the Canadian dollar
strengthened in value against the U.S. dollar and this affected the net U.S. dollar denominated monetary position in our
Canadian dollar-based companies.
Finance Charges
Finance charges were $138 million, a decrease of $8 million compared with 2016. The decrease is the result of a
stronger Canadian dollar on our U.S. dollar denominated interest expense and a reduction in interest expense related to
debt retired during the past two years.
Loss on Redemption and Repurchase of Unsecured Senior Notes
During the year we redeemed and/or repurchased US$442 million of our previously outstanding senior notes incurring a
loss of $9 million.
Income Taxes
Income taxes were a recovery of $100 million, $53 million lower than the $153 million recovery booked in 2016 mainly
due to higher operating results in 2017 and from the fourth quarter tax reform implemented in the U.S. reducing tax rates
which reduced the benefit of our losses carried forward.
2016 COMPARED WITH 2015
Net loss in 2016 was $156 million, or $0.53 per diluted share, compared with net loss of $363 million, or $1.24 per diluted
share, in 2015. In 2015 we recorded a pre-tax asset decommissioning charge, impairment of property, plant and
equipment and goodwill write down totaling $466 million that increased after-tax net loss by $329 million and net loss per
diluted share by $1.12.
Revenue was $1,003 million (39% lower than 2015) because of lower activity in all of our operations.
Adjusted EBITDA in 2016 was $228 million (52% lower than 2015), mainly because activity levels were lower in all of our
operations. Activity, as measured by drilling utilization days, decreased 26% in Canada, 46% in the U.S., and 32%
internationally compared with 2015.
Impairment
With activity and results in-line with expectations and the stabilization of commodity prices in the fourth quarter
indications of impairment did not exist as of any reporting dates in 2016 with the exception of our Mexico contract drilling
operations as of December 31, 2016. As a result we completed an impairment test on only the CGUs that contained
goodwill and our Mexico drilling business. The tests did not result in any impairments for the year ended December 31,
2016.
As a result of continued low commodity prices and their impact on industry activity, we completed an impairment test for
all of our CGUs as of December 31, 2015. As a result of these tests, it was determined that property, plant and
equipment was impaired by US$73 million in our U.S. contract drilling business, by US$49 million in our international
contract drilling business, and by US$26 million in our Mexico contract drilling business. From similar tests during the
Precision Drilling Corporation 2017 Annual Report
23
third quarter of 2015, it was determined that property, plant and equipment in our Canadian well service business were
impaired by $73 million and property, plant and equipment in our U.S. completion and production business were
impaired by $7 million. In addition, goodwill associated with our rentals cash generating unit was impaired for its full
value of $17 million. These impairment adjustments were reflected in our third quarter 2015 financial statements.
Foreign Exchange
We recognized a foreign exchange loss of $6 million in 2016 (2015 – $33 million gain) because the Canadian dollar
strengthened in value against the U.S. dollar and this affected the net U.S. dollar denominated monetary position in our
Canadian dollar-based companies.
Finance Charges
Finance charges were $146 million, an increase of $25 million compared with 2015. The increase is the result of the
recognition of $14 million of interest revenue in the comparative period related to an income tax dispute settlement, the
recognition of deferred financing costs related to the early redemption of our senior unsecured notes and the impact of
foreign exchange on our U.S. dollar denominated interest partly offset by a reduction in interest expense related to debt
retired during the year.
Income Taxes
Income taxes were a recovery of $153 million, $50 million lower than the $203 million recovery booked in 2015 mainly
due to lower operating results in 2015 from the loss on asset decommissioning and impairment charges in the year.
Precision Drilling Corporation 2017 Annual Report
24
Segmented Results
CONTRACT DRILLING SERVICES
Financial Results
Adjusted EBITDA and operating loss are Non-GAAP measures. See page 4 for more information.
Year ended December 31
(thousands of dollars, except where noted)
Revenue
Expenses (1)
2017
1,173,930
% of
revenue
2016
907,821
% of
revenue
2015
1,457,470
% of
revenue
Operating
General and administrative
Restructuring
Adjusted EBITDA(2)
Depreciation and amortization
Loss on asset decommissioning
Impairment of property, plant and equipment
Operating loss(2)
(1) Certain expenses in the prior year have been reclassified to conform to current year presentation.
(2) See Non-GAAP measures on page 4 of this report.
798,655
32,305
—
342,970
334,587
—
15,313
(6,930 )
574,104
34,026
3,040
296,651
348,005
—
—
(51,354 )
68.0
2.8
—
29.2
28.5
—
1.3
(0.6 )
63.2
3.7
0.3
32.7
38.3
—
—
(5.7 )
868,467
42,700
10,909
535,394
439,261
165,109
202,414
(271,390 )
59.6
2.9
0.7
36.7
30.1
11.3
13.9
(18.6 )
2017 Compared with 2016
Revenue from Contract Drilling Services was $1,174 million, 29% higher than 2016, mainly because of higher activity in
all our contract drilling operations and higher average day rates in our international business partially offset by lower
average day rates in North America.
In 2017, total shortfall payments in Canada and idle but contracted revenue in the U.S. were $31 million and US$6
million, compared with $29 million and US$42 million, respectively in 2016.
Operating expenses were 68% of revenue, compared with 63% in 2016. On a per utilization day basis, operating costs
for our international drilling rig division were 6% higher than 2016 due to the addition of two rigs in the fourth quarter of
2016 in our Kuwait business and no activity in our Mexico business. In the U.S., operating costs on a per utilization day
basis were 11% lower than 2016 because of cost saving initiatives and fixed costs spread across higher activity. In
Canada, operating costs on a per utilization day basis were lower than the prior year by 8% primarily due to cost saving
initiatives and fixed costs spread across higher activity. General and administrative expenses for 2017 were lower due to
the strengthening Canadian dollar on our U.S. dollar denominated costs and cost saving initiatives. Restructuring costs
incurred in 2016 were primarily severance related to right sizing the business for current activity levels.
Operating loss was $7 million, compared with an operating loss of $51 million in 2016. Operating results in 2017 were
positively impacted by an increase in drilling activity in all of the regions in which we operate. Depreciation in the year
was down from 2016 due to lower capital asset base. Operating results in 2017 were affected by the impairment of
property, plant and equipment of certain drilling rigs and spare equipment. Excluding asset impairment and
decommissioning charges, operating earnings would have been $8 million in 2017.
Capital expenditures in 2017 for our Contract Drilling segment were $69 million:
(cid:1494)(cid:3) $11 million – to expand our asset base
(cid:1494)(cid:3) $37 million – to upgrade existing equipment
(cid:1494)(cid:3) $21 million – on maintenance and infrastructure.
Precision Drilling Corporation 2017 Annual Report
25
Operating Statistics
Year ended December 31
Number of drilling rigs (year-end)
Drilling utilization days (operating and
moving)
Canada
U.S.
International
Drilling revenue per utilization day
Canada (Cdn$)
U.S. (US$)
International (US$)
Drilling statistics (Canadian operations only)
Wells drilled
Average days per well
Metres drilled (hundreds)
Average metres per well
Canadian Drilling
%
increase/
(decrease)
0.4
2017
256
2016
255
% increase/
(decrease)
1.6
2015
251
% increase/
(decrease)
(19.8 )
18,883
20,479
2,920
21,143
19,861
50,240
1,729
9.7
4,597
2,659
48.4
80.5
4.8
12,722
11,343
2,786
(13.7 )
(24.0 )
9.8
24,509
26,145
45,753
79.7
(17.1 )
80.4
0.4
962
11.7
2,548
2,649
(26.2 )
(46.4 )
(31.8 )
(9.1 )
(2.2 )
5.2
(28.8 )
2.6
(21.0 )
11.0
17,238
21,172
4,084
26,976
26,728
43,491
1,351
11.4
3,224
2,386
(47.5 )
(39.6 )
1.2
6.0
6.3
(0.9 )
(56.3 )
21.3
(45.0 )
25.8
Revenue from Canadian drilling was $399 million, 28% higher than 2016. Drilling rig activity, as measured by utilization
days, was up 48% while average day rates were down 14%.
Adjusted EBITDA was $142 million, 15% higher than 2016, because of higher drilling activity offset by lower average day
rates.
Depreciation expense for the year was $114 million in-line with 2016.
Drilling Statistics – Canada
In 2017, we transferred one drilling rig from the U.S. to Canada, bringing our Canadian 2017 year-end net rig count to
136 (2016 –135).
The industry drilling rig fleet has decreased – there were approximately 627 rigs at the end of 2017 compared with 668 at
the end of 2016. Our operating day utilization was 34% (2016 – 22%), compared with industry utilization of 29% (2016 –
17%).
U.S. Drilling
Revenue from U.S. drilling was US$407 million, 37% higher than 2016. Drilling rig activity, as measured by utilization
days, was up 81% while average revenue per day was down 24%.
Adjusted EBITDA was US$106 million, 4% higher than 2016, mainly because of higher industry activity offset by lower
average day rates and lower idle but contracted revenue.
Depreciation expense for the year was US$121 million, US$5 million lower than 2016 because of a lower capital asset
base.
Drilling Statistics – U.S.
In 2017, we completed one new-build rig and transferred one rig to Canada leaving our U.S. year-end net rig count
unchanged at 103. In 2017, we averaged 56 rigs working, an 81% increase from 31 rigs in 2016. The industry drilling
fleet increased as well, averaging 856 active land rigs in 2017, up 76% from 486 rigs in 2016.
Our average dayrates in the U.S. decreased 24% in 2017 as legacy contracts expired and newly contracted rigs were at
lower day rates. Revenue from idle but contracted rigs was US$35 million less than 2016. Turnkey utilization days
decreased 24% over 2016 and accounted for approximately 2% of our revenue compared with 5% in 2016.
Precision Drilling Corporation 2017 Annual Report
26
Drilling Statistics – U.S.
Average number of active land rigs
for quarters ended:
March 31
June 30
September 30
December 31
Annual average
(1) Source: Baker Hughes
2017
Industry
2016
2015
Precision
(1) Precision Industry (1) Precision Industry (1)
47
59
61
58
56
722
874
927
902
856
32
24
29
39
31
516
397
465
567
486
80
57
51
45
58
1,353
873
829
720
944
COMPLETION AND PRODUCTION SERVICES
Financial Results
Adjusted EBITDA and operating loss are Non-GAAP measures. See page 4 for more information.
Year ended December 31
(thousands of dollars, except where noted)
Revenue
Expenses(1)
2017
154,146
% of
revenue
2016
100,049
% of
revenue
2015
186,317
% of
revenue
134,368
7,890
—
11,888
29,638
Operating
General and administrative
Restructuring
Adjusted EBITDA(2)
Depreciation and amortization
Gain on re-measurement of property, plant and
equipment
Loss on asset decommissioning
Impairment of property, plant and equipment
Operating loss(2)
(1) Certain expenses in the prior year have been reclassified to conform to current year presentation.
(2) See Non-GAAP Measures on page 4 of this report.
n/m – calculation not meaningful
92,248
9,429
2,021
(3,649 )
—
—
—
(11.5 )
87.2
5.1
—
7.7
19.2
—
—
—
29,272
(25,316 )
(17,750 )
(7,605 )
—
—
162,046
93.0
10,398
8.6
2.0
3,634
(3.6 ) 10,239
32,396
29.3
n/m
—
—
—
1,377
79,573
(25.3 ) (103,107 )
87.0
5.6
2.0
5.5
17.4
—
1
43
(55.3 )
Revenue from Completion and Production Services was $154 million in 2017, 54% higher than 2016, mainly because of
higher activity across all our product lines.
Operating loss was $18 million in 2017, compared with a loss of $25 million in 2016. The decrease in our operating loss
was because of higher activity in all our product lines partially offset by moderately lower average rates resulting from a
highly competitive market.
Operating expenses were 87% of revenue, 6% points lower than 2016, mainly because of higher activity over fixed costs.
Depreciation in 2017 was in-line with the prior year.
Capital expenditures in 2017 for our Completions and Production segment were $5 million:
(cid:1494)(cid:3) $2 million – to expand our asset base
(cid:1494)(cid:3) $3 million – on maintenance and infrastructure.
In December 2016 we acquired 48 well service rigs and ancillary equipment in a business acquisition for consideration of
$12 million and our coil tubing assets and associated equipment.
Revenue from Precision Well Servicing in Canada was $98 million, up $41 million from 2016 as activity was up 71% and
average revenue rates were in-line with the prior year.
Revenue from our U.S. based completion and production businesses was US$12 million, 39% higher than 2016. The
increase was the result of both higher activity and average rates.
Revenue from Precision Rentals was $23 million, 18% higher than 2016. The increase was due to higher activity partially
offset by slightly lower average revenue rates.
Revenue from Precision Camp Services was $13 million, 103% higher than 2016, because of an increase in camp
activity. Precision operated four base camps and 43 drill camps during 2017.
Precision Drilling Corporation 2017 Annual Report
27
Operating Results
Year ended December 31
Number of service rigs (end of year)
Service rig operating hours
Revenue per operating hour
%
increase/
(decrease)
1.4
73.8
(1.4 )
2017
210
172,848
637
2016
207
99,451
646
% increase/
(decrease)
(27.0 )
(33.5 )
(17.6 )
2015
163
149,574
784
% increase/
(decrease)
(7.9 )
(45.2 )
(13.6 )
In December 2016, we acquired 48 well service rigs for consideration of $12 million and our coil tubing assets and
associated equipment.
Service rig hours increased 74% due to the December 2016 acquisition and increased industry activity. Service rig rates
were in-line with the prior year.
CORPORATE AND OTHER
Financial Results
Adjusted EBITDA and operating loss are Non-GAAP measures. See page 4 for more information.
Year ended December 31
(thousands of dollars, except where noted)
Revenue
Expenses
Operating
General and administrative
Restructuring
Adjusted EBITDA(1)
Depreciation and amortization
Operating loss(1)
(1) See Non-GAAP Measures on page 4 of this report.
2017
—
2016
—
2015
—
—
49,877
—
(49,877 )
13,521
(63,398 )
—
64,234
693
(64,927 )
14,382
(79,309 )
—
65,668
6,100
(71,768 )
14,998
(86,766 )
Our Corporate and Other segment has support functions that provide assistance to our other business segments. It
includes costs incurred in corporate groups in both Canada and the U.S.
Corporate and Other expenses were $50 million in 2017, $14 million less than 2016. The decrease is mainly related to
lower share-based incentive compensation expense and foreign exchange translation on U.S. dollar based costs. In
2017, corporate general and administrative costs were 3.8% of consolidated revenue compared with 6.4% in 2016 and
4.0% in 2015.
Quarterly Financial Results
Adjusted EBITDA and funds provided by (used in) operations are Non-GAAP measures. See page 4 for more
information.
2017 – Quarters Ended
(thousands of dollars, except per share amounts)
Revenue
Adjusted EBITDA(1)
Net loss
per basic and diluted share
Funds provided by (used in) operations(1)
Cash provided by (used in) operations
(1) See Non-GAAP measures on page 4 of this report.
2016 – Quarters Ended
(thousands of dollars, except per share amounts)
Revenue
Adjusted EBITDA(1)
Net loss
per basic and diluted share
Funds provided by (used in) operations(1)
Cash provided by (used in) operations
(1) See Non-GAAP measures on page 4 of this report.
March 31
368,673
84,308
(22,614 )
(0.08 )
85,659
33,770
March 31
316,505
99,264
(19,883 )
(0.07 )
93,593
112,174
June 30
290,860
56,520
(36,130 )
(0.12 )
(15,187 )
2,739
June 30
170,407
22,400
(57,677 )
(0.20 )
(31,372 )
20,665
September
30
314,504
73,239
(26,287 )
(0.09 )
85,140
56,757
December
31
347,187
90,914
(47,005 )
(0.16 )
28,323
23,289
September
30
213,668
41,411
(47,377 )
(0.16 )
31,688
17,515
December 31
302,653
65,000
(30,618 )
(0.10 )
11,466
(27,846 )
Precision Drilling Corporation 2017 Annual Report
28
Seasonality
Drilling and well servicing activity is affected by seasonal weather patterns and ground conditions. In northern Canada,
some drilling sites can only be accessed in the winter once the terrain is frozen, which is usually late in the fourth
quarter. As a result activity peaks in the winter, in the fourth and first quarters. In the spring, wet weather and the
spring thaw in Canada and the northern U.S. make the ground unstable. Government road bans restrict the movement
of rigs and other heavy equipment, reducing activity in the second quarter. This leads to quarterly fluctuations in
operating results and working capital requirements.
Fourth Quarter 2017 Compared with Fourth Quarter 2016
In the fourth quarter of 2017, we recorded a net loss of $47 million, or net loss per diluted share of $0.16, compared with
a net loss of $31 million, or a net loss of $0.10 per diluted share, in the fourth quarter of 2016. During the current quarter
we incurred an asset impairment charge for $15 million, related to our Mexico contract drilling business, that after tax
increased our net loss by $12 million and net loss per diluted share by $0.04.
Revenue in the fourth quarter was $347 million or 15% higher than the fourth quarter of 2016, mainly due to increased
activity in our North American based business partially offset by a decrease in our average day rate in our U.S. contract
drilling business and no utilization in our Mexico based contract drilling business. Compared with the fourth quarter of
2016 our activity, as measured by drilling rig utilization days, increased by 6% in Canada and 50% in the U.S. and
decreased by 1% internationally. Revenue from our Contract Drilling Services and Completion and Production Services
segments both increased over the comparative prior year period by 13% and 32%, respectively.
Adjusted EBITDA this quarter was $91 million, an increase of $26 million from the fourth quarter of 2016. Our Adjusted
EBITDA as a percentage of revenue was 26% this quarter, compared with 21% in the fourth quarter of 2016. The
increase in Adjusted EBITDA as a percent of revenue was mainly due to fixed costs spread over higher activity in our
North American businesses partially offset by lower average pricing in our U.S. contract drilling business.
As a percentage of revenue, operating costs were 67% in the fourth quarter of 2017 compared with 68% in the same
quarter of 2016. The decrease is primarily due to the impact of higher activity on fixed costs partially offset by lower
average day rates in our U.S. contract drilling business. Our portfolio of term customer contracts and a highly variable
operating cost structure, helped us manage our Adjusted EBITDA margin.
Contract Drilling Services
Revenue from Contract Drilling Services was $309 million this quarter, or 13% higher than the fourth quarter of 2016,
while adjusted EBITDA increased by 16% to $100 million. The increase in revenue was primarily due to higher utilization
days in Canada and the U.S. During the quarter we recognized $13 million in shortfall payments in our Canadian contract
drilling business, which was $1 million higher than in the prior year. In the U.S. we recognized idle but contracted
revenue of US$1 million in the quarter compared with US$5 million in the comparative period and current period turnkey
revenue of US$3 million with no revenue in the comparative quarter of 2016.
Drilling rig utilization days in Canada (drilling days plus move days) were 4,938 during the fourth quarter of 2017, an
increase of 6% compared to 2016 primarily due to the increase in industry activity resulting from higher oil prices. Drilling
rig utilization days in the U.S. were 5,365, or 50% higher than the same quarter of 2016 as U.S. activity was up with
higher industry activity. Drilling rig utilization days in our international businesses were 736 or 1% lower than the same
quarter of 2016 due to no activity in Mexico in the fourth quarter of 2017.
Compared with the same quarter in 2016, drilling rig revenue per utilization day was up 1% in Canada due to higher
average spot market rates partially offset by fewer legacy contracts. Drilling rig revenue per utilization day for the quarter
in the U.S. and international were each down 5% from the prior comparative period. The decrease in the U.S. average
day rate was due to long-term contracts ending and rigs being re-contracted at lower spot market rates, lower idle but
contracted revenue partially offset by an increase in turnkey activity in the current quarter and strengthening spot market
rates. International revenue per utilization day was down due to demobilization revenue received in Mexico in the fourth
quarter of 2016.
In Canada, 13% of our utilization days in the quarter were generated from rigs under term contract, compared with 35%
in the fourth quarter of 2016. In the U.S., 55% of utilization days were generated from rigs under term contract as
compared with 56% in the fourth quarter of 2016.
Operating costs were 65% of revenue for the quarter which was in-line with the prior year period. On a per utilization day
basis, operating costs for the drilling rig division in Canada were slightly higher than the prior year period primarily due to
timing of equipment certifications. In the U.S., operating costs for the quarter on a per day basis were lower than the prior
year period primarily due to fixed costs spread over higher utilization and lower lump sum move costs partially offset by
turnkey work and higher repair costs for rig activations. Both Canada and U.S. operating costs benefited from cost saving
initiatives taken in 2015 and 2016.
Precision Drilling Corporation 2017 Annual Report
29
Depreciation expense in the quarter was 9% lower than in the fourth quarter of 2016.
Completion and Production Services
Revenue from Completion and Production Services was up $10 million or 32% compared with the fourth quarter of 2016
due to higher activity levels. As oil prices have recovered, customers have increased spending and activity in well
completion and production programs. Our well servicing activity in the quarter was up 34% from the fourth quarter of
2016 as a result of improved industry activity levels and a larger fleet following the acquisition of service rigs late in the
fourth quarter of 2016. Approximately 96% of our fourth quarter Canadian service rig activity was oil related.
During the quarter, Completion and Production Services generated 92% of its revenue from Canadian operations and 8%
from U.S. operations compared with 88% from Canada and 12% from U.S. operations in the fourth quarter of 2016.
Average service rig revenue per operating hour in the quarter was $644 or $15 higher than the fourth quarter of 2016.
The increase was primarily the result of increased labour costs which were passed through to the customer.
Adjusted EBITDA was $2 million higher than the fourth quarter of 2016 due to increased activity in the segment.
Operating costs as a percentage of revenue decreased to 88% in the fourth quarter of 2017, from 92% in the fourth
quarter of 2016. The decrease is the result of the impact of fixed costs spread across greater activity combined with our
reduced cost structure.
While we were successful in 2017 in reducing our fixed costs, margins in our Completion and Production Services have
been challenged primarily due to intense pricing pressure, repair and maintenance as well as labor costs associated with
service rig reactivations.
Depreciation in the quarter was $8 million in-line with the previous year comparative period.
Corporate and Other
Our Corporate and Other segment provides support functions to our operating segments. The Corporate and Other
segment had an adjusted EBITDA loss of $12 million a decrease of $10 million compared with the fourth quarter of 2016
primarily due to higher share-based incentive compensation.
Net financial charges for the quarter were $38 million, a decrease of $4 million compared with the fourth quarter of 2016
primarily because of a stronger Canadian dollar and its impact on our U.S. dollar denominated interest expense and a
reduction in interest expense related to debt retired in 2016.
During the quarter, we redeemed and/or repurchased US$442 million of our previously outstanding senior notes incurring
a loss on redemption of $9 million. For the current quarter, we incurred a foreign exchange gain of $2 million in-line with
the fourth quarter of 2016.
Income tax expense for the quarter was a recovery of $17 million compared with a recovery of $51 million in the same
quarter in 2016. The recoveries are due to negative pretax earnings. During the quarter the U.S. implemented tax reform
legislation reducing tax rates which reduced the benefit of our losses carried forward.
Capital expenditures were $25 million in the fourth quarter compared with $45 million in the fourth quarter of 2016.
Spending in the fourth quarter of 2017 included:
(cid:1494)(cid:3) $1 million – to expand our asset base
(cid:1494)(cid:3) $3 million – to upgrade existing equipment
(cid:1494)(cid:3) $14 million – on maintenance and infrastructure
(cid:1494)(cid:3) $7 million – on intangibles.
Precision Drilling Corporation 2017 Annual Report
30
Financial Condition
Management’s
Discussion
and
Analysis
The oilfield services business is inherently cyclical. To manage this variability, we focus on maintaining a strong balance
sheet so we have the financial flexibility we need to continue to manage our capital expenditures and cash flows, no
matter where we are in the business cycle.
We apply a disciplined approach to managing and tracking the results of our operations to keep costs down. We maintain
a scalable cost structure so we can be responsive to changing competition and market demand. We also invest in our
fleet to make sure we remain competitive. Our maintenance capital expenditures are tightly governed by and highly
responsive to activity levels with additional cost savings leverage provided through our internal manufacturing and supply
divisions. Term contracts on expansion capital for new-build rig programs help provide more certainty of future revenues
and return on our growth capital investments.
LIQUIDITY
On November 21, 2017 we agreed with our lenders to the following amendments to our senior credit facility:
(cid:1494)(cid:3) reduce the Covenant EBITDA (as defined in the debt agreement) (See Non-GAAP Measures on page 4 of this
report) to interest expense coverage ratio to greater than or equal to 2.0:1 for the periods ending June 30,
September 30, and December 31, 2018 and March 31, 2019 reverting to 2.5:1 thereafter
(cid:1494)(cid:3) reduced the size of the facility to US$500 million
(cid:1494)(cid:3) extend the maturity date of the facility to November 21, 2021
(cid:1494)(cid:3) amend certain negative covenants, to among other things, permit the redemption and repurchase of junior debt
on a permanent basis subject to a pro forma senior net leverage covenant test of less than or equal to 1.75:1
(cid:1494) add a new covenant that permits distributions post the covenant relief period subject to a pro forma senior net
leverage covenant of less than or equal to 1.75:1.
On January 20, 2017 we agreed with our lenders to the following amendments to our senior credit facility:
(cid:1494)(cid:3) reduce the Covenant EBITDA (as defined in the debt agreement) to interest expense coverage ratio to greater
than or equal to 1.25:1 for the periods ending March 31, June 30 and September 30, 2017. For the periods
ending December 31, 2017 and March 31, 2018 the ratio is 1.5:1 reverting to 2.5:1 thereafter
(cid:1494)(cid:3) reduce the size of the facility to US$525 million.
On November 22, 2017, we issued US$400 million of 7.125% senior notes due in 2026 in a private offering. These notes
are guaranteed on a senior unsecured basis by current and future U.S. and Canadian subsidiaries that also guarantee
our Senior Credit Facility and certain other indebtedness. These notes were issued to redeem and repurchase existing
debt.
On November 22, 2017 we also repurchased pursuant to an early tender offer US$310 million of our 6.625% unsecured
senior notes due 2020 and US$70 million of our 6.5% unsecured senior notes due 2021 for US$387 plus accrued and
unpaid interest incurring a loss on the repurchase of US$6 million.
On December 7, 2017 we redeemed our remaining outstanding 6.625% unsecured senior notes due 2020 for
US$62 million plus accrued and unpaid interest incurring a loss on redemption of US$1 million.
During 2016 we repurchased and cancelled US$28 million face value of our 6.625% unsecured senior notes due 2020
and US$81 million face value of our 6.5% unsecured senior notes due 2021, realizing a total gain on repurchase of
$10 million.
On November 4, 2016, we issued US$350 million of 7.75% senior notes due in 2023 in a private offering. The Notes are
guaranteed on a senior unsecured basis by current and future U.S. and Canadian subsidiaries that also guarantee our
Senior Credit Facility and certain other indebtedness. The Notes were issued to redeem and repurchase existing debt.
On December 4, 2016 we also redeemed in full our $200 million 6.5% unsecured senior notes due 2019 for $203 million
plus accrued and unpaid interest and redeemed on a pro rata basis US$250 million of our then outstanding 6.625%
unsecured senior notes due 2020 for US$256 million plus accrued and unpaid interest incurring a loss on redemption of
$11 million.
As of December 31, 2017, our liquidity was supported by a cash balance of $65 million, our Senior Credit Facility of
US$500 million, operating facilities totaling approximately $59 million, and a US$30 million secured facility for letters of
Precision Drilling Corporation 2017 Annual Report
31
credit. Our ability to draw on our Senior Credit Facility is governed by financial covenants. See Capital Structure –
Covenants on page 34.
We expect that cash provided by operations and our sources of financing, including our Senior Credit Facility, will be
sufficient to meet our debt obligations and to fund future capital expenditures.
including
letters of credit, we had
At December 31, 2017,
approximately $1,822 million (2016 – $2,020 million) outstanding
under our secured and unsecured credit facilities and $28 million in
unamortized debt issue costs. Our Senior Credit Facility includes
financial ratio covenants that are tested quarterly.
Key Ratios
We ended 2017 with a long-term debt to long-
term debt plus equity ratio of 0.5, and a ratio of
long-term debt to cash provided by operations
of 14.8.
We ended 2017 with a long-term debt to long-term debt plus equity ratio of 0.5 (2016 – 0.5) and a ratio of long-term debt
to cash provided by operations of 14.8 (2016 – 15.6).
The current blended cash interest cost of our debt is about 6.6%.
Ratios and Key Financial Indicators
We evaluate the relative strength of our financial position by monitoring our working capital, debt ratios and liquidity.
We also monitor returns on capital, and we link our executives’ incentive compensation to the returns to our shareholders
relative to the shareholder returns of our peers.
Financial Position and Ratios
(in thousands of dollars, except ratios)
Working capital(1)
Working capital ratio
Long-term debt
Total long-term financial liabilities
Total assets
Enterprise value (see table on page 36)
Long-term debt to long-term debt plus equity
Long-term debt to cash provided by operations
Long-term debt to Adjusted EBITDA
Long-term debt to enterprise value
(1) See Non-GAAP measures on page 4 of this report.
Credit Rating
December 31,
December 31,
2017
232,121
2.10
1,730,437
1,754,059
3,892,931
2,782,596
0.5
14.8
5.7
0.6
2016
230,874
2.0
1,906,934
1,946,742
4,324,214
3,937,737
0.5
15.6
8.4
0.5
December 31,
2015
536,815
3.2
2,180,510
2,210,231
4,878,690
3,337,980
0.5
4.2
4.6
0.7
Credit ratings affect our ability to obtain short and long-term financing, the cost of this financing, and our ability to engage
in certain business activities cost-effectively. In November 2017 we initiated rating coverage with Fitch which issued a
corporate credit rating of B+, senior credit facility rating of BB+, and a senior unsecured rating of BB-. In March 2016,
Moody’s downgraded our corporate credit rating from Ba2 to B2 and senior unsecured credit rating from Ba2 to B3 and,
S&P downgraded our corporate rating from BB+ to BB.
Corporate credit rating
Senior Credit Facility rating
Senior unsecured credit rating
CAPITAL MANAGEMENT
Moody’s
B2
Not rated
B3
S&P
BB
Not rated
BB
Fitch
B+
BB+
BB-
To maintain and grow our business, we invest in growth, upgrade and sustaining capital. We base expansion and
upgrade capital decisions on return on capital employed and payback, and we mitigate the risk that we may not be able
to fully recover our capital by requiring two- to five-year term contracts for new-build rigs.
We base our maintenance capital decisions on actual activity levels, using key financial indicators that we express as per
operating day or per operating hour. Sourcing internally (through our manufacturing and supply divisions) helps keep our
maintenance capital costs as low as possible.
Precision Drilling Corporation 2017 Annual Report
32
Foreign Exchange Risk
Our U.S. and international operations have revenue, expenses, assets and liabilities denominated in currencies other
than the Canadian dollar (mostly in U.S. dollars and currencies that are pegged to the U.S. dollar). This means that
changes in currency exchange rates can materially affect our income statement, balance sheet and statement of cash
flow. We manage this risk by matching the currency of our debt obligations with the currency of cash flows generated by
the operations that the debt supports.
Hedge of Investments in Foreign Operations
We utilize foreign currency long-term debt to hedge our exposure to changes in the carrying values of our net investment
in certain foreign operations as a result of changes in foreign exchange rates.
Effective November 22, 2017, we included the US$400 million of 7.125% senior notes due in 2026 as a designated
hedge of our investment in our U.S. dollar denominated foreign operations, and now all of our U.S. dollar senior notes
are designated as a net investment hedge.
To be accounted for as a hedge, the foreign currency denominated long-term debt must be designated and documented
as such and must be effective at inception and on an ongoing basis. We recognize the effective amount of this hedge
(net of tax) in other comprehensive income. We recognize ineffective amounts in earnings.
SOURCES AND USES OF CASH
At December 31 (thousands of dollars)
Cash from operations
Cash used in investing
Surplus (deficit)
Cash used in financing
Effect of exchange rate changes on cash
Net cash used
Cash from Operations
2017
2016
116,555
(91,150 )
25,405
(73,784 )
(2,245 )
(50,624 )
122,508
(213,925 )
(91,417 )
(218,324 )
(19,313 )
(329,054 )
2015
517,016
(541,102 )
(24,086 )
(84,044 )
(61,408 )
(46,722 )
In 2017, we generated cash from operations of $117 million compared with $123 million in 2016. The decrease is
primarily the result of an increase in non-cash working capital.
Investing Activity
We made growth and sustaining capital investments of $98 million in 2017:
(cid:1494)(cid:3) $12 million on expansion capital
(cid:1494)(cid:3) $37 million on upgrade capital
(cid:1494)(cid:3) $26 million on maintenance and infrastructure capital
(cid:1494)(cid:3) $23 million on intangibles.
The $98 million in capital expenditures in 2017 was split between segments as follows:
(cid:1494)(cid:3) $69 million in Contract Drilling Services
(cid:1494)(cid:3) $5 million in Completion and Production Services
(cid:1494)(cid:3) $24 million in Corporate and Other.
Expansion and upgrade capital includes the cost of long-lead items purchased for our capital inventory, such as
integrated top drives, drill pipe, control systems, engines and other items we can use to complete new-build projects or
upgrade our rigs in North America and internationally.
We sold underutilized capital assets for proceeds of $15 million in 2017 compared with $8 million in 2016.
Financing Activity
As discussed on page 31 during the year we issued US$400 million of senior notes, redeemed US$62 million of senior
notes and repurchased and cancelled US$380 million of senior notes.
During 2016 we issued US$350 million of senior notes, redeemed US$250 million and $200 million of senior notes and
repurchased and cancelled US$109 million of senior notes.
In April 2016, we reduced the size of our demand facility for letters of credit with HSBC Canada to US$30 million to align
with our expected requirements for this facility.
Precision Drilling Corporation 2017 Annual Report
33
As of December 31, 2017, our operating facility of $40 million with Royal Bank of Canada was undrawn except for
$21 million in outstanding letters of credit; our operating facility of US$15 million with Wells Fargo remained undrawn;
and our demand facility for letters of credit of US$30 million with HSBC Canada had US$17 million available.
CAPITAL STRUCTURE
Debt
As of December 31, 2017, we had a cash balance of $65 million and available capacity under our secured facilities of
$661 million.
As of December 31, 2017, we had $1,759 million outstanding under our senior unsecured notes.
Amount
Senior facility (secured)
US$500 million (extendible, revolving
term credit facility with US$250 million(1)
accordion feature)
Operating facilities (secured)
$40 million
US$15 million
Demand letter of credit facility (secured)
US$30 million
Senior notes (unsecured)
US$249 million – 6.5%
US$350 million – 7.75%
US$400 million – 5.25%
US$400 million – 7.125%
Availability
Used for
Maturity
Undrawn, except US$21 million in
outstanding letters of credit
General corporate purposes
November 21, 2021
Undrawn, except $21 million in
outstanding letters of credit
Undrawn
Letters of credit and general
corporate purposes
Short term working capital
requirements
Undrawn, except US$13 million in
outstanding letters of credit
Letters of credit
Fully drawn
Fully drawn
Fully drawn
Fully drawn
Capital expenditures and general
corporate purposes
Debt redemption and repurchases
Capital expenditures and general
corporate purposes
December 15, 2021
December 15, 2023
November 15, 2024
Debt redemption and repurchases
January 15, 2026
(1)
Increases to US$300 million at the end of the covenant relief period of March 31, 2019.
Covenants
Senior Credit Facility
The Senior Credit Facility requires that we comply with certain financial covenants including a leverage ratio of
consolidated senior debt to earnings before interest, taxes, depreciation and amortization as defined in the agreement
(Covenant EBITDA) of less than or equal to 2.5:1. For purposes of calculating the leverage ratio, consolidated senior
debt only includes secured indebtedness. Covenant EBITDA as defined in our Senior Credit Facility agreement differs
from Adjusted EBITDA as defined under Non-GAAP Measures by the exclusion of bad debt expense and certain foreign
exchange amounts. As of December 31, 2017, our consolidated senior debt to Adjusted EBITDA ratio was 0.12:1.
Under the Senior Credit Facility, we are required to maintain an Covenant EBITDA coverage ratio, calculated as
Covenant EBITDA to interest expense for the most recent four consecutive fiscal quarters, of greater than or equal to
1.5:1, which, after the January 2017 amendment, reduced to 1.25:1 for the periods ending March 31, June 30 and
September 30, 2017, and increased to 1.5:1 for the periods ending December 31, 2017 and March 31, 2018 and
pursuant to the November 2017 amendment increases to 2.0:1 for the periods June 30, September 30, December 31,
2018 and March 31, 2019 and reverts to 2.5:1 for periods ending after March 31, 2019 until the maturity date of the
facility. As of December 31, 2017, our Covenant EBITDA coverage ratio was 2.22:1.
The Senior Credit Facility prevents us from making distributions prior to April 1, 2019, after which, distributions are
subject to a pro forma senior net leverage covenant of less than or equal to 1.75:1. The Senior Credit Facility also limits
the redemption and repurchase of junior debt subject to a pro forma senior net leverage covenant test of less than or
equal to 1.75:1.
In addition, the Senior Credit Facility contains certain covenants that place restrictions on our ability to incur or assume
additional indebtedness; dispose of assets; pay dividends, share redemptions or other distributions; change our primary
business; incur liens on assets; engage in transactions with affiliates; enter into mergers, consolidations or
amalgamations; and enter into speculative swap agreements.
At December 31, 2017, we were in compliance with the covenants of the Senior Credit Facility.
Precision Drilling Corporation 2017 Annual Report
34
Senior Notes
The senior notes require that we comply with certain covenants including an incurrence based consolidated interest
coverage ratio test, as defined in the senior note agreements, of greater than or equal to 2.0:1 for the most recent four
consecutive fiscal quarters. In the event that our consolidated interest coverage ratio is less than 2.0:1 for the most
recent four consecutive fiscal quarters the senior notes restrict our ability to incur additional indebtedness, except as
permitted under the agreements, until such time as we are in compliance with the ratio test but would not restrict our
access to available funds under the Senior Credit Facility or refinance our existing debt. Furthermore, it does not give rise
to any cross-covenant violations, give the lenders the right to demand repayment of any outstanding portion of the senior
notes prior to the stated maturity dates, or provide any other forms of recourse to the lenders. As of December 31, 2017,
our senior notes consolidated interest coverage ratio was 2.16:1.
The senior notes contain a restricted payments covenant that limits our ability to make payments in the nature of
dividends, distributions and repurchases from shareholders. The restricted payments basket grows from a starting point
of October 1, 2010 for the 2021 and 2024 Senior Notes, from October 1, 2016 for the 2023 Senior Note and October 1,
2017 for the 2026 Senior Note by, among other things, 50% of cumulative consolidated net earnings, and decreases by
100% of cumulative consolidated net losses as defined in the note agreements, and cumulative payments made to
shareholders. Based on our consolidated financial results for the period ended December 31, 2015, the governing net
restricted payments basket under the senior notes was negative $152 million prohibiting us from making any further
dividend payments for dividends declared on or after December 31, 2015 until the restricted payments baskets become
positive. As a result, Precision suspended our dividend on February 11, 2016.
Based on our consolidated financial results for the period ended December 31, 2017, the governing net restricted
payments basket was negative $213 million.
For further information, please see the senior note indentures which are available on SEDAR and EDGAR.
In addition, the senior notes contain certain covenants that limit our ability, and the ability of certain subsidiaries, to incur
additional indebtedness and issue preferred shares; create liens; create or permit to exist restrictions on our ability or
certain subsidiaries to make certain payments and distributions; engage in amalgamations, mergers or consolidations;
make certain dispositions and engage in transactions with affiliates.
Shelf Registration
In August 2016, we completed the filing of a short form base shelf prospectus with the securities regulatory authorities in
each of the provinces of Canada and a corresponding registration statement in the U.S., for the offering of up to $1 billion
of common shares, preferred shares, debt securities, warrants, subscription receipts or units (the Securities). The
Securities may be offered from time to time during the 25-month period for which the short form base shelf prospectus
remains valid.
Contractual Obligations
Our contractual obligations include both financial obligations (long-term debt and interest) and non-financial obligations
(new-build rig commitments, operating leases, and equity-based compensation for key executives and officers).
The table below shows the amounts of these obligations and when payments are due for each.
At December 31, 2017
(thousands of dollars)
Payments due (by period)
Long-term debt(1)
Interest on long-term debt(1)
Purchase of property, plant and equipment(1)(2)
Operating leases(1)
Contractual incentive plans(1)(3)
Total
(1) U.S. dollar denominated balances are translated at the period end exchange rate of Cdn$1.00 equals US$0.7953.
(2) The balance relates primarily to the costs of rig equipment with a flexible delivery schedule wherein we can take delivery of the
1-3 years
—
233,322
109,469
15,627
19,000
377,418
4-5 years
312,601
212,157
18,244
11,818
—
554,820
Total
1,758,519
753,325
132,900
61,602
27,658
2,734,004
More than
5 years
1,445,918
191,185
—
21,909
—
1,659,012
Less than
1 year
—
116,661
5,187
12,248
8,658
142,754
equipment between 2018 and 2021 at our discretion.
(3) Includes amounts we have not yet accrued but are likely to pay at the end of the contract term. Our long-term incentive plans
compensate officers and key employees through cash payments when their awards vest. Equity-based compensation amounts are
shown based on the five-day weighted average share price on the TSX of $3.68 at December 31, 2017.
Precision Drilling Corporation 2017 Annual Report
35
Shareholders Capital
Shares outstanding
Deferred shares outstanding
Share options outstanding
March 9,
2018
293,238,858
195,743
11,577,331
December
31,
2017
293,238,858
195,743
10,458,981
December
31,
2016
293,238,858
195,743
11,525,742
December
31,
2015
292,912,090
195,743
10,750,833
You can find more information about our capital structure in our AIF, available on our website and on SEDAR.
Common Shares
Our articles of amalgamation allow us to issue an unlimited number of common shares.
In the fourth quarter of 2012, our Board of Directors approved the introduction of an annualized dividend of $0.20 per
common share, payable quarterly. In the fourth quarter of 2013, our Board of Directors approved an increase in the
quarterly dividend payment to $0.06 per common share and in the fourth quarter of 2014, our Board of Directors
approved an increase in the quarterly dividend to $0.07 per common share.
In the first quarter of 2016, we suspended our quarterly dividend. See Covenants – Senior Notes on page 35 for more
information.
Preferred Shares
We can issue preferred shares in one or more series. The number of preferred shares that may be authorized for issue at
any time cannot exceed more than half of the number of issued and outstanding common shares. We currently have no
preferred shares issued.
Enterprise Value
(thousands of dollars, except shares outstanding and per share amounts)
Shares outstanding
Year-end share price on the TSX
Shares at market
Long-term debt
Less cash
Enterprise value
December 31,
2017
293,238,858
3.81
1,117,240
1,730,437
(65,081 )
2,782,596
December 31,
2016
293,238,858
7.32
2,146,508
1,906,934
(115,705 )
3,937,737
December 31,
2015
292,912,090
5.47
1,602,229
2,180,510
(444,759 )
3,337,980
Precision Drilling Corporation 2017 Annual Report
36
Accounting Policies and Estimates
Management’s
Discussion
and
Analysis
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Because of the nature of our business, we are required to make estimates about the future that affect the reported
amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Estimates are based on
our past experience, our best judgment and assumptions we think are reasonable.
Our significant accounting policies are described in Note 3 to the Consolidated Financial Statements. We believe the
following are the most difficult, subjective or complex judgments, and are the most critical to how we report our financial
position and results of operations:
(cid:1494)(cid:3) impairment of long-lived assets
(cid:1494)(cid:3) depreciation and amortization
(cid:1494)(cid:3) income taxes.
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment, intangibles and goodwill, comprise the majority of our
assets. The carrying value of these assets is reviewed for impairment periodically or whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. For property, plant and equipment, this
requires us to forecast future cash flows to be derived from the utilization of these assets based on assumptions about
future business conditions and technological developments. Significant, unanticipated changes to these assumptions
could require a provision for impairment in the future.
For goodwill, we conduct impairment tests annually in the fourth quarter or whenever there is a change in circumstance
that indicates that the carrying value may not be recoverable. The recoverability of goodwill requires a calculation of the
recoverable amount of the CGU or groups of CGUs to which goodwill has been allocated. A CGU is the smallest
identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets
or groups of assets. Judgment is required in the aggregation of assets into CGUs. The recoverability calculation requires
an estimation of the future cash flows from the CGU or group of CGUs, and judgment is required in projecting cash flows
and selecting the appropriate discount rate. We use observable market data inputs to develop a discount rate that we
believe approximates the discount rate from market participants.
In deriving the underlying projected cash flows, assumptions must also be made about future drilling activity, margins and
market conditions over the long-term life of the assets or CGUs. We cannot predict if an event that triggers impairment
will occur, when it will occur or how it will occur, or how it will affect reported asset amounts. Although we believe the
estimates are reasonable and consistent with current conditions, internal planning, and expected future operations, such
estimations are subject to significant uncertainty and judgment.
Depreciation and Amortization
Our property, plant and equipment and intangible assets are depreciated and amortized based on estimates of useful
lives and salvage values. These estimates consider data and information from various sources, including vendors,
industry practice, and our own historical experience, and may change as more experience is gained, market conditions
shift, or new technological advancements are made.
Determination of which parts of the drilling rig equipment represent a significant cost relative to the entire rig and
identifying the consumption patterns along with the useful lives of these significant parts are matters of judgment. This
determination can be complex and subject to differing interpretations and views, particularly when rig equipment
comprises individual components for which different depreciation methods or rates are appropriate.
Precision Drilling Corporation 2017 Annual Report
37
Income Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and
timing of future taxable income. Differences arising between the actual results and the assumptions made, or future
changes to such assumptions, could necessitate future adjustments to taxable income and expenses already recorded.
We establish provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of
the respective countries in which we operate. The amount of such provisions is based on various factors, such as
experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible
tax authority.
AMENDMENTS TO ACCOUNTING STANDARDS ADOPTED JANUARY 1, 2017
We applied the following mandatorily effective amendments to IFRSs in the current year. Outside of additional disclosure
requirements, these amendments had no impact on the amounts recorded in our financial statements.
Amendments to IAS 7 Disclosure Initiative
These amendments require an entity to provide disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities, including both cash and non-cash changes.
Our liabilities arising from financing activities consist entirely of long-term debt. A reconciliation between opening and
closing balances of long-term debt has been provided in Note 11. Consistent with the transition provisions of the
amendments, we have not disclosed comparative information for the prior year.
Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses
These amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against
which it can utilize a deductible temporary difference.
ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS TO EXISTING STANDARDS NOT YET
EFFECTIVE
IFRS 9, Financial Instruments
Effective for annual periods beginning on or after January 1, 2018, IFRS 9 replaces IAS 39 Financial Instruments,
Recognition and Measurement. IFRS 9 contains three principal classification categories for financial assets: measured at
amortized cost, fair value through other comprehensive income and fair value through profit or loss. The classification of
financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and the
characteristics of its contractual cash flows. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans
and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial
asset under the standard are never separated. Instead the hybrid financial instrument as a whole is assessed for
classification.
For us, accounts receivable will continue to be classified and measured at amortized cost. Accounts payable and
accrued liabilities and long-term debt will also continue to be classified and measured at amortized cost.
Impairment
IFRS 9 replaces the incurred loss model of IAS 39 with an expected credit loss model. The loss allowance to be recorded
against trade receivables is measured as the lifetime expected credit losses. As we have very short credit periods for
trade receivables, we do not expect a material adjustment to our allowance for credit losses.
Hedge accounting
IFRS 9 requires entities to ensure its hedge accounting relationships align with its risk management objectives and
strategies and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. This may
allow for more types of instruments and risk components to qualify for hedge accounting.
We do not expect the application of the hedge accounting requirements under IFRS 9 to have a material impact on our
consolidated financial statements.
IFRS 9 also introduces expanded disclosure requirements and changes in presentation. These are expected to change
the nature and extent of our disclosures about financial instruments. We are drafting the relevant disclosures to reflect
the requirements of the new standard.
Precision Drilling Corporation 2017 Annual Report
38
IFRS 15, Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model to address how and when to recognize revenue as well as requiring
entities to provide users of financial statements with more informative, relevant disclosures in order to understand the
nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. It replaces
existing revenue recognition guidance including IAS 18 Revenue and IAS 11 Construction Contracts.
The standard provides a principle based five-step model to be applied to all contracts with customers. This five-step
model involves identifying the contract(s) with a customer; identifying the performance obligations in the contract;
determining the transaction price; allocating the transaction price to the performance obligations in the contract; and
recognizing revenue when (or as) the entity satisfies a performance obligation.
Application of this new standard is mandatory for annual reporting periods beginning on or after January 1, 2018.
There are two methods by which the new guidance can be adopted: (1) a full retrospective approach with a restatement
of all prior periods presented, or (2) a modified retrospective approach with a cumulative-effect adjustment recognized in
retained earnings as of the date of adoption. We plan to adopt IFRS 15 using the modified retrospective method whereby
the cumulative impact of adopting the standard will be recognized in retained earnings as at January 1, 2018 and the
comparative periods will not be restated.
We have assessed the estimated impact that the initial application of IFRS 15 will have on our consolidated financial
statements. Our evaluation of the new standard included the identification of accounting and disclosure gaps specific to
the individual revenue streams of the Corporation, and mapping of the processes to determine whether changes were
required to policies, procedures, and controls.
We recognize revenue from the following major sources:
Contract Drilling Services
We contract individual drilling rig packages, including crews and support equipment, to our customers. Depending on the
customer’s drilling program, contracts may be for a single well, multiple wells or a fixed term. We expect that revenue
recognition on these contracts under IFRS 15 will be materially the same as revenue recognition under the existing
standard. Revenue from contract drilling services will be recognized over time from spud to rig release, on a daily basis.
Operating days are measured through the use of industry standard tour sheets that document the daily activity of the rig.
Revenue will be recognized at the applicable average day rate for each well, based on rates specified in each contract.
We also provide services under turnkey contracts, whereby we are required to drill a well to an agreed upon depth under
specified conditions for a fixed price, regardless of the time required or the problems encountered in drilling the well.
Revenue from turnkey drilling contracts is recognized over time using the input method based on costs incurred to date in
relation to estimated total contract costs, as that most accurately depicts our performance. As this method is permitted
under the new standard, we will continue in its application, and do not expect this to have a significant impact, if any, on
our cumulative-effect adjustment.
We also provide directional drilling services, which include the provision of directional drilling equipment, tools and
personnel to the wellsite, and performance of daily directional drilling services. We expect that revenue recognition on
these contracts under IFRS 15 will be materially the same as revenue recognition under the existing standard. Directional
drilling revenue will be recognized over time, upon the daily completion of operating activities. Operating days are to be
measured through the use of daily tour sheets. Revenue will be recognized at the applicable day rate, as stipulated in the
directional drilling contract.
Completion and Production Services
We provide a variety of well completion and production services including well servicing and snubbing. In general,
service rigs do not involve long-term contracts or penalties for termination. We expect that revenue recognition on these
contracts under IFRS 15 will be materially the same as revenue recognition under the existing standard. Revenue will be
recognized daily. Operating days are measured through daily tour sheets and field tickets. Revenue will be recognized at
the applicable daily or hourly rate, as stipulated in the contract.
We also offer a variety of oilfield equipment for rental to our customers. We expect that revenue recognition on these
contracts under IFRS 15 will be materially the same as revenue recognition under the existing standard. Rental revenue
will be recognized daily. Rental days are measured through field tickets. Revenue will be recognized at the applicable
daily rate, as stipulated in the contract.
Based on its detailed assessment, we do not expect the application of IFRS 15 to result in a material impact to our
consolidated financial statements. The actual impact of adopting the standard at January 1, 2018 may differ as the
accounting policies are subject to change until we present our first interim financial statements that include the date of
initial application.
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As a result of the adoption of the new standard, we will be required to include significant disclosures in the financial
statements based on the prescribed requirements. These new disclosures will include information regarding the
significant judgments used in evaluating how and when revenues are recognized and information related to contract
assets and deferred revenues. In addition, IFRS 15 requires that our revenue recognition policy disclosure include
additional detail regarding the various performance obligations and the nature, amount, timing, and estimates of
revenues and cash flows generated from contracts with customers. We are drafting the relevant disclosures to reflect the
requirements of the new standard.
IFRS 16, Leases
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for
both lessors and lessees. It replaces existing lease guidance including IAS 17 Leases and IFRIC 4 Determining whether
an Arrangement contains a Lease. The new standard is effective for annual periods beginning on or after January 1,
2019.
IFRS 16 brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between
operating and finance leases. A right-of-use asset and a corresponding liability will be recognized for all leases by the
lessee except for short-term leases and leases of low value assets.
Our initial assessment indicates that many of the operating lease arrangements identified in Note 18 will meet the
definition of a lease under IFRS 16 and thus be recognized in the statement of financial position as a right-of-use asset
with a corresponding liability. In addition, the nature of expenses related to these arrangements will change as the
current presentation of operating lease expense will be replaced with a depreciation charge for the right-of use asset and
interest expense on the lease liabilities. As well, the classification of cash flows will be impacted as the current
presentation of operating lease payments as operating cash flows will be split into financing (principal portion) and
operating (interest portion) cash flows under IFRS 16.
Lessor accounting will not significantly change under the new standard. However, some differences may arise upon
adoption of IFRS 16 as a result of new guidance on the definition of a lease. Under IFRS 16 a contract is, or contains a
lease if the contract conveys control of the use of an identified asset for a period of time in exchange for some form of
consideration. We are assessing whether this new guidance will impact the treatment of its drilling rigs under long-term
contracts.
Extensive disclosures will also be required under IFRS 16.
We plan to apply IFRS 16 initially on January 1, 2019 using the cumulative effect method whereby the cumulative impact
of adopting the standard will be recognized in retained earnings as at January 1, 2019 and the comparative periods will
not be restated.
IFRIC 23, Uncertainty over Income Tax Treatments
IFRIC 23 clarifies the accounting for uncertainties in income taxes. The interpretation requires the entity to use the most
likely amount or the expected value of the tax treatment if it concludes that it is not probable that a particular tax
treatment will be accepted. It requires an entity is to assume that a taxation authority with the right to examine any
amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so.
IFRIC 23 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted.
The requirements are applied by recognizing the cumulative effect of initially applying them in retained earnings, or in
other appropriate components of equity, at the start of the reporting period in which an entity first applies them, without
adjusting comparative information. Full retrospective application is permitted, if an entity can do so without using
hindsight. We have yet to determine the impact this standard will have on our consolidated financial statements.
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Risks in Our Business
Management’s
Discussion
and
Analysis
Our key business risks are summarized below. Additional information and other risks in business are discussed in our
AIF, available on our website (www.precisiondrilling.com).
Our enterprise risk management framework operates at the business and functional levels and is designed to identify,
evaluate, and mitigate risks within each of the risk categories below. It leverages the risk framework in each of our
businesses, which includes our risk policies, guidelines and review mechanisms.
Our businesses routinely encounter and manage risks, some of which may cause our future results to be different,
sometimes materially different, than what we presently anticipate. We describe certain important strategic, operational,
financial, and legal and compliance risks. Our response to development in those risk areas and our reactions to material
future developments will affect our future results.
Our operations depend on the price of oil and natural gas
We sell our services to oil and natural gas exploration and production companies. Macroeconomic and geopolitical
factors associated with oil and natural gas supply and demand are the primary factors driving pricing and profitability in
the oilfield services industry. Generally, we experience high demand for our services when commodity prices are
relatively high and the opposite is true when commodity prices are low, as is currently the case. The volatility of crude oil
and natural gas prices accounts for much of the cyclical nature of the oilfield services business.
The markets for oil and natural gas are separate and distinct. Oil is a global commodity with a vast distribution network,
although the differential between benchmarks such as West Texas Intermediate, Western Canadian Select, and
European Brent crude oil can fluctuate. As in all markets, when supply, demand, inability to access domestic or export
markets and other factors change, so can the spreads between benchmarks. The most economical way to transport
natural gas is in its gaseous state by pipeline, and the natural gas market depends on pipeline infrastructure and regional
supply and demand. However, developments in the transportation of liquefied natural gas in ocean going tanker ships
have introduced an element of globalization to the natural gas market.
Worldwide military, political and economic events, such as conflict in the Middle East, expectations for global economic
growth, or initiatives by OPEC and other major petroleum exporting countries, can affect supply and demand for oil and
natural gas. Weather conditions, governmental regulation (in Canada and elsewhere), levels of consumer demand, the
availability and pricing of alternate sources of energy (including renewal energy initiatives), the availability of pipeline
capacity, U.S. and Canadian natural gas storage levels, and other factors beyond our control can also affect the supply
of and demand for oil and natural gas and lead to future price volatility.
The North American land drilling industry has been in a deep downturn for over three years, a result of lower commodity
prices restricting customer spending and decreasing drilling demand. In 2017, approximately 15,800 wells were started
onshore in the U.S., compared to approximately 11,200 in 2016, 20,500 in 2015 and 43,700 in 2014. In 2017, the
industry drilled 6,959 wells in western Canada, compared to 3,963 in 2016, 5,241 in 2015 and 10,942 in 2014. According
to industry sources, the U.S. average active land drilling rig count was up approximately 76% in 2017, compared to 2016,
and the Canadian average active land drilling rig count was up approximately 58% during the same period. However, oil
and natural gas prices remained volatile throughout 2017 and could continue at these relatively low levels or lower levels
for the foreseeable future. Prices have been negatively affected since late 2014 by a combination of factors, including
increased production, the decisions of OPEC and a strengthening in the U.S. dollar relative to most other currencies.
These factors have adversely affected, and could continue to adversely affect, the prices of oil and natural gas, which
would adversely affect the level of capital spending by our customers and in turn could have a material and adverse
effect on our results of operations. As a result of the continued pressure on commodity prices, many of our customers
have reduced spending budgets for 2018 compared to periods prior to the downturn, and further reductions in commodity
prices or prices remaining at current levels for a prolonged period may result in further reductions in capital budgets in
the future. Moreover, the prolonged reduction in oil and natural gas prices has depressed, and may continue to depress,
and the availability and pricing of alternative sources of energy may depress, the overall level of exploration and
production activity, resulting in corresponding decline in the demand for our services that has had, could continue to have
and may have, as applicable, a material adverse effect on our revenue, cash flow and profitability and restrict our ability
to make capital expenditures compared to periods prior to the downturn. In addition, sustained periods with oil and
natural gas prices at current or lower levels could also lead to lower future revenues if these prices caused our customers
to avoid re-contracting rigs currently under contract, therefore making our Senior Credit Facility financial covenants more
difficult to attain.
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Lower oil and natural gas prices could also cause our customers to renegotiate, terminate or fail to honour their drilling
contracts with us, which could affect the anticipated revenues that support our capital expenditure program and future
contracted deliveries of new-build rigs. In addition, lower oil and natural gas prices, lower demand for oilfield services or
lower rig utilization could affect the existing fair market value of our rig fleet, which in turn could trigger a write down for
accounting purposes. There is no assurance that demands for our services or conditions in the oil and natural gas and
oilfield services sector will not decline in the future, and a significant decline in demand could have a material adverse
effect on our financial condition.
We have accounts receivable with customers in the oil and natural gas industry and their revenues may be affected by
fluctuations in commodity prices. Our ability to collect receivables may be adversely affected by any prolonged weakness
in oil and natural gas prices.
Intense price competition and the cyclical nature of the contract drilling industry could have an adverse effect
on revenue and profitability
The contract drilling business is highly competitive with many industry participants. We compete for drilling contracts that
are usually awarded based on competitive bids. We believe pricing and rig availability are the primary factors potential
customers consider when selecting a drilling contractor. We believe other factors are also important, such as the drilling
capabilities and condition of drilling rigs, the quality of service and experience of rig crews, the safety record of the
contractor and the particular drilling rig, the offering of ancillary services, the ability to provide drilling equipment that is
adaptable to and having personnel familiar with new technologies and drilling techniques, and rig mobility and efficiency.
Historically, contract drilling has been cyclical with periods of low demand, excess rig supply and low dayrates, followed
by periods of high demand, short rig supply and increasing dayrates. Periods of excess drilling rig supply intensify the
competition and often result in rigs being idle. There are numerous contract drilling companies in the markets where we
operate, and an oversupply of drilling rigs can cause greater price competition. Contract drilling companies compete
primarily on a regional basis, and the intensity of competition can vary significantly from region to region at any particular
time. If demand for drilling services is better in a region where we operate, our competitors might respond by moving
suitable drilling rigs in from other regions, reactivating previously stacked rigs or purchasing new drilling rigs. An influx of
drilling rigs into a market from any source could rapidly intensify competition and make any improvement in the demand
for our drilling rigs short-lived, which could in turn have a material adverse effect on our revenue, cash flow and earnings.
Our business results and the strength of our financial position are affected by our ability to strategically manage our
capital expenditure program in a manner consistent with industry cycles and fluctuations in the demand for contract
drilling services. If we do not effectively manage our capital expenditures or respond to market signals relating to the
supply or demand for contract drilling and oilfield services, it could have a material adverse effect on our revenue,
operations and financial condition.
New capital expenditures in the contract drilling industry expose us to the risk of oversupply of equipment
Periods of high demand often lead to higher capital expenditures on drilling rigs and other oilfield services equipment.
The number of newer drilling rigs competing for work in markets where we operate has increased as the industry has
added new and upgraded rigs. The industry supply of drilling rigs may exceed actual demand because of the relatively
long-life span of oilfield services equipment as well as the typically long time from when a decision is made to upgrade or
build new equipment to when the equipment is built and placed into service. Excess supply resulting from industry-wide
capital expenditures could lead to lower demand for term drilling contracts and for our equipment and services. The
additional supply of drilling rigs has intensified price competition in the past and could continue to do so. This could lead
to lower rates in the oilfield services industry generally and lower utilization of existing rigs. If any of these factors
materialize, it would have an adverse effect on our revenue, cash flow, earnings and asset valuation.
We require sufficient cash flows to service and repay our debt
We will need sufficient cash flows in the future to service and repay our debt. Our ability to generate cash in the future is
affected to some extent by general economic, financial, competitive and other factors that may be beyond our control. If
we need to borrow funds in the future to service our debt, our ability will depend on covenants in the Senior Credit
Facility, the 2021 Note Indenture, the 2023 Note Indenture, the 2024 Note Indenture, the 2026 Note indenture and other
debt agreements we may have in the future, and on our credit ratings. We may not be able to access sufficient amounts
under the Senior Credit Facility or from the capital markets in the future to pay our obligations as they mature or to fund
other liquidity requirements. If we are not able to borrow a sufficient amount or generate enough cash flow from
operations to service and repay our debt, we will need to refinance our debt or we will be in default, and we could be
forced to reduce or delay investments and capital expenditures or dispose of material assets or issue equity. We may not
be able to refinance or arrange alternative measures on favourable terms or at all. If we are unable to service, repay or
refinance our debt, it could have a negative impact on our financial condition and results of operations.
Repaying the debt depends on our guarantor subsidiaries generating cash flow and making it available to us by dividend,
debt repayment or otherwise. Our guarantor subsidiaries may not be able to, or may not be permitted to, make
distributions to allow us to make payments on our debt. Each guarantor subsidiary is a distinct legal entity, and, under
certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from the subsidiaries. While
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the agreements governing certain existing debt limits the ability of our subsidiaries to incur consensual restrictions on
their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications
and exceptions.
A substantial portion of our operations is carried out through subsidiaries, and some of them are not guarantors of our
debt. The assets and operations of the non-guarantor subsidiaries are not material, and these subsidiaries do not have
any obligation to pay amounts due on the debt or to make funds available for that purpose.
If we do not receive dividends from our guarantor subsidiaries, we may be unable to make the required principal and
interest payments, which could have a material adverse effect on our financial position and results of operations.
Customers’ inability to obtain credit/financing could lead to lower demand for our services
Many of our customers require reasonable access to credit facilities and debt capital markets to finance their oil and gas
drilling activity. If the availability of credit to our customers is reduced, they may reduce their drilling and production
expenditures, thereby decreasing demand for our products and services. A reduction in spending by our customers could
adversely affect our operating results and financial condition.
Our debt facilities contain restrictive covenants
The Senior Credit Facility, the 2021 Note Indenture, the 2023 Note Indenture, the 2024 Note Indenture and the 2026
Note indenture contain a number of covenants which, among other things, restrict us and some of our subsidiaries from
conducting certain activities (see Capital Structure – Covenants – Senior Notes on page 35). In the event Consolidated
Interest Coverage Ratio (as defined in our four senior note indentures) is less than 2.0:1 for the most recent four
consecutive fiscal quarters the senior note indentures restrict our ability to incur additional indebtedness. As at
December 31, 2017, our Consolidated Interest Coverage Ratio, as calculated per our senior notes indentures, was
2.16:1.
In addition, we must satisfy and maintain certain financial ratio tests under the Senior Credit Facility (see Capital
Structure – Covenants – Senior Credit Facility on page 34). Events beyond our control could affect our ability to meet
these tests in the future. If we breach any of the covenants, it could result in a default under the Senior Credit Facility or
any of the note indentures. If there is a default under our Senior Credit Facility, the applicable lenders could decide to
declare all amounts outstanding under the Senior Credit Facility or any of the note indentures to be due and payable
immediately, and terminate any commitments to extend further credit. If there is an acceleration by the lenders and the
accelerated amounts exceed a specific threshold, the applicable noteholders could decide to declare all amounts
outstanding under any of the note indentures to be due and payable immediately.
At December 31, 2017, we were in compliance with the covenants of the Senior Credit Facility.
Uncertainty as to the position of the United States in respect of world affairs and events
As a result of the 2016 U.S. presidential election and the related change in political agenda, there is continued
uncertainty as to the position the United States will take with respect to world affairs and events. This uncertainty may
include issues such as U.S. support for existing treaty and trade relationships with other countries, including Canada.
The executive branch of the U.S. government has also initiated the renegotiation of the terms of the North American Free
Trade Agreement (NAFTA). Implementation by the U.S. of new legislative or regulatory regimes or revisions to NAFTA
could impose additional costs on us, decrease U.S. demand for our services or otherwise negatively impact us or our
customers, which may have a material adverse effect on our business, financial condition and operations.
Risks and uncertainties associated with our international operations can negatively affect our business
We conduct some of our business in Mexico and the Middle East. Our growth plans contemplate establishing operations
in other international regions, including countries where the political and economic systems may be less stable than in
Canada or the U.S.
Our international operations are subject to risks normally associated with conducting business in foreign countries,
including, but not limited to, the following:
(cid:1494) an uncertain political and economic environment
(cid:1494) the loss of revenue, property and equipment as a result of expropriation, confiscation, nationalization, contract
deprivation and force majeure
(cid:1494) war, terrorist acts or threats, civil insurrection and geopolitical and other political risks
(cid:1494) fluctuations in foreign currency and exchange controls
(cid:1494) restrictions on the repatriation of income or capital
(cid:1494) increases in duties, taxes and governmental royalties
(cid:1494) renegotiation of contracts with governmental entities
(cid:1494) changes in laws and policies governing operations of companies
(cid:1494) compliance with anti-corruption and anti-bribery legislation in Canada, the U.S. and other countries, and
(cid:1494) trade restrictions or embargoes imposed by the U.S. or other countries.
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If there is a dispute relating to our international operations, we may be subject to the exclusive jurisdiction of foreign
courts or may not be able to subject foreign persons to the jurisdiction of a court in Canada or the U.S.
Government-owned petroleum companies located in some of the countries where we operate now or in the future may
have policies, or may be subject to governmental policies, that give preference to the purchase of goods and services
from companies that are majority-owned by local nationals. As such, we may rely on joint ventures, license arrangements
and other business combinations with local nationals in these countries, which may expose us to certain counterparty
risks, including the failure of local nationals to meet contractual obligations or comply with local or international laws that
apply to us.
In the international markets where we operate, we are subject to various laws and regulations that govern the operation
and taxation of our businesses and the import and export of our equipment from country to country. There may be
uncertainty about how these laws and regulations are imposed, applied or interpreted, and they could be subject to
change. Since we derive a portion of our revenues from subsidiaries outside of Canada and the U.S., the subsidiaries
paying dividends or making other cash payments or advances may be restricted from transferring funds in or out of the
respective countries, or face exchange controls or taxes on any payments or advances. We have organized our foreign
operations partly based on certain assumptions about various tax laws (including capital gains and withholding taxes),
foreign currency exchange, and capital repatriation laws and other relevant laws of a variety of foreign jurisdictions. We
believe these assumptions are reasonable; however, there is no assurance that foreign taxing or other authorities will
reach the same conclusion. If these foreign jurisdictions change or modify the laws, we could suffer adverse tax and
financial consequences.
While we have developed policies and procedures designed to achieve compliance with applicable international laws, we
could be exposed to potential claims, economic sanctions or other restrictions for alleged or actual violations of
international laws related to our international operations, including anti-corruption and anti-bribery legislation, trade laws
and trade sanctions. The Canadian government, the U.S. Department of Justice, the Securities and Exchange
Commission (SEC), the U.S. Office of Foreign Assets Control and similar agencies and authorities in other jurisdictions
have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for such
violations, including injunctive relief, disgorgement, fines, penalties and modifications to business practices and
compliance programs, among other things. While we cannot accurately predict the impact of any of these factors, if any
of those risks materialize, it could have a material adverse effect on our reputation, business, financial condition, results
of operations and cash flow.
Our and our customer’s operations are subject to numerous environmental laws, regulations and guidelines
Our operations are affected by numerous laws, regulations and guidelines relating to the protection of the environment,
including those governing the management, transportation and disposal of hazardous substances and other waste
materials. These include those relating to spills, releases and discharges of hazardous substances or other waste
materials into the environment, requiring removal or remediation of pollutants or contaminants, and imposing civil and
criminal penalties for violations. Some of these apply to our operations and authorize the recovery of natural resource
damages by the government, injunctive relief, and the imposition of stop, control, remediation and abandonment orders.
In addition, our land drilling operations may be conducted in or near ecologically sensitive areas, such as wetlands that
are subject to special protective measures, which may expose us to additional operating costs and liabilities for
noncompliance with certain laws. Some environmental laws and regulations may impose strict and, in certain cases joint
and several, liability. This means that in some situations we could be exposed to liability as a result of conduct that was
lawful at the time it occurred, or conditions caused by prior operators or other third parties, including any liability related
to offsite treatment or disposal facilities. The costs arising from compliance with these laws, regulations and guidelines
may be material.
Major projects which would benefit our customers, such as new pipelines and other facilities, may be inhibited, delayed
or stopped by a variety of factors, including inability to obtain regulatory or governmental approvals or public opposition.
In western Canada, delays and/or the inability to obtain necessary regulatory approvals for pipeline projects that would
provide additional transportation capacity and access to refinery capacity for our customers has led to downward price
pressure on oil and gas produced in western Canada which has depressed, and may continue to depress, the overall
exploration and production activity of our customers, resulting in a corresponding decline in the demand for our services
that could have a material adverse effect on our revenue, cash flow and profitability.
We maintain liability insurance, including insurance for certain environmental claims, but coverage is limited and some of
our policies exclude coverage for damages resulting from environmental contamination. We cannot assure that insurance
will continue to be available to us on commercially reasonable terms, that the possible types of liabilities that we may
incur will be covered by insurance, or that the dollar amount of the liabilities will not exceed our policy limits. Even a
partially uninsured claim, if successful and of sufficient magnitude, could have a material adverse effect on our business,
results of operations and prospects.
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Environment regulations could have a significant impact on the energy industry
The subject of energy and the environment has created intense public debate around the world in recent years. Debate is
likely to continue for the foreseeable future and could potentially have a significant impact on all aspects of the economy.
The trend in environmental regulation has been to impose more restrictions and limitations on activities that may impact
the environment. Any regulatory changes that impose additional environmental restrictions or requirements on us, or our
customers, could increase our operating costs and potentially lead to lower demand for our services and have an
adverse effect on us. For example, there is growing concern about the apparent connection between the burning of fossil
fuels and climate change. Laws, regulations or treaties concerning climate change or greenhouse gas emissions can
have an adverse impact on the demand for oil and natural gas, which could have a material adverse effect on us.
Governments in Canada and the U.S. are also considering more stringent regulation or restriction of hydraulic fracturing,
a technology used by most of our customers that involves the injection of water, sand and chemicals under pressure into
rock formations to stimulate oil and natural gas production.
Increasing regulatory restrictions could have a negative impact on the exploration of unconventional energy resources,
which are only commercially viable with the use of hydraulic fracturing. Laws relating to hydraulic fracturing are in various
stages of development at levels of governments in markets where we operate and the outcome of these developments
and their effect on the regulatory landscape and the contract drilling industry is uncertain. Hydraulic fracturing laws or
regulations that cause a decrease in the completion of new oil and natural gas wells and an associated decrease in
demand for our services could have a material adverse effect on our operations and financial results.
Poor safety performance could lead to lower demand for our services
Standards for accident prevention in the oil and natural gas industry are governed by service company safety policies
and procedures, accepted industry safety practices, customer-specific safety requirements, and health and safety
legislation. Safety is a key factor that customers consider when selecting an oilfield services company. A decline in our
safety performance could result in lower demand for services, and this could have a material adverse effect on our
revenue, cash flow and earnings.
We are subject to various health and safety laws, rules, legislation and guidelines which can impose material liability,
increase our costs or lead to lower demand for our services.
Relying on third-party suppliers has risks
We source certain key rig components, raw materials, equipment and component parts from a variety of suppliers in
Canada, the U.S. and overseas. We also outsource some or all construction services for drilling and service rigs,
including new-build rigs, as part of our capital expenditure programs. We maintain relationships with several key
suppliers and contractors and an inventory of key components, materials, equipment and parts. We also place advance
orders for components that have long lead times. We may, however, experience cost increases, delays in delivery due to
strong activity or financial hardship of suppliers or contractors, or other unforeseen circumstances relating to third parties.
If our current or alternate suppliers are unable to deliver the necessary components, materials, equipment, parts and
services we require for our businesses, including the construction of new-build drilling rigs, it can delay service to our
customers and have a material adverse effect on our revenue, cash flow and earnings.
Acquisitions entail numerous risks and may disrupt our business or distract management
We consider and evaluate acquisitions of, or significant investments in, complementary businesses and assets as part of
our business strategy. Acquisitions involve numerous risks, including unanticipated costs and liabilities, difficulty in
integrating the operations and assets of the acquired business, the ability to properly access and maintain an effective
internal control environment over an acquired company to comply with public reporting requirements, potential loss of key
employees and customers of the acquired companies, and an increase in our expenses and working capital
requirements. Any acquisition could have a material adverse effect on our operating results, financial condition or the
price of our securities.
We may incur substantial debt to finance future acquisitions and also may issue equity securities or convertible securities
for acquisitions. Debt service requirements could be a burden on our results of operations and financial condition. We
would also be required to meet certain conditions to borrow money to fund future acquisitions. Acquisitions could also
divert the attention of management and other employees from our day-to-day operations and the development of new
business opportunities. Even if we are successful in integrating future acquisitions into our operations, we may not derive
the benefits, such as operational or administrative synergies, we expect from acquisitions, which may result in us
committing capital resources and not receiving the expected returns. In addition, we may not be able to continue to
identify attractive acquisition opportunities or successfully acquire identified targets.
New technology could reduce demand for certain rigs or put us at a competitive disadvantage
Complex drilling programs for the exploration and development of conventional and unconventional oil and natural gas
reserves demand high performance drilling rigs. The ability of drilling rig service providers to meet this demand depends
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on continuous improvement of existing rig technology, such as drive systems, control systems, automation, mud systems
and top drives, to improve drilling efficiency. Our ability to deliver equipment and services that meet customer demand is
essential to our continued success. We cannot guarantee that our rig technology will continue to meet the needs of our
customers, especially as rigs age and technology advances, or that our competitors will not develop technological
improvements that are more advantageous, timely, or cost effective.
Our operations face risks of interruption and casualty losses
Our operations face many hazards inherent in the drilling and well servicing industries, including blowouts, cratering,
explosions, fires, loss of well control, loss of hole, reservoir damage, loss of directional control, damaged or lost
equipment, and damage or loss from inclement weather or natural disasters. Any of these hazards could result in
personal injury or death, damage to or destruction of equipment and facilities, suspension of operations, environmental
damage, damage to the property of others, and damage to producing or potentially productive oil and natural gas
formations that we drill through.
Generally, drilling and service rig contracts separate the responsibilities of a drilling or service rig company and the
customer, and we try to obtain indemnification from our customers by contract for some of these risks even though we
also have insurance coverage to protect us. We cannot assure, however, that any insurance or indemnification
agreements will adequately protect us against liability from all the consequences described above. If there is an event
that is not fully insured or indemnified against, or a customer or insurer does not meet its indemnification or insurance
obligations, it could result in substantial losses. In addition, we may not be able to get insurance to cover any or all these
risks, or the coverage may not be adequate. Insurance premiums or other costs may rise significantly in the future,
making the insurance prohibitively expensive or uneconomic. Significant events, including terrorist attacks in the U.S.,
severe hurricane damage and well blowout damage in the U.S. Gulf Coast region, have resulted in significantly higher
insurance costs, deductibles and coverage restrictions. When we renew our insurance, we may decide to self-insure at
higher levels and assume increased risk in order to reduce costs associated with higher insurance premiums.
Business in our industry is seasonal and highly variable
Seasonal weather patterns in Canada and the northern U.S. affect activity in the oilfield services industry. During the
spring months, wet weather and the spring thaw make the ground unstable, so municipalities and counties and provincial
and state transportation departments enforce road bans that restrict the movement of rigs and other heavy equipment.
This reduces activity and highlights the importance of the location of our equipment prior to the imposition of the road
bans. The timing and length of road bans depend on weather conditions leading to the spring thaw and during the
thawing period.
Additionally, certain oil and natural gas producing areas are located in parts of western Canada that are only accessible
during the winter months because the ground surrounding or containing the drilling sites in these areas consists of terrain
known as muskeg. Rigs and other necessary equipment cannot cross this terrain to reach the drilling site until the
muskeg freezes. Moreover, once the rigs and other equipment have been moved to a drilling site, they may become
stranded or be unable to move to another site if the muskeg thaws unexpectedly. Our business activity depends, at least
in part, on the severity and duration of the winter season.
Global climate change could impact the timing and length of the spring thaw and the period in which the muskeg freezes
and thaws and it could impact the severity of winter, which could adversely affect our business and operating results. We
cannot; however, estimate the degree to which climate change could impact our business and operating results.
Our operations are subject to foreign exchange risk
Our U.S. and international operations have revenue, expenses, assets and liabilities denominated in currencies other
than the Canadian dollar, and are mostly in U.S. dollars and currencies that are pegged to the U.S. dollar. This means
that currency exchange rates can affect our income statement, balance sheet and statement of cash flow.
Precision Drilling Corporation 2017 Annual Report
46
Translation into Canadian Dollars
When preparing our consolidated financial statements, we translate the financial statements for foreign operations that
do not have a Canadian dollar functional currency into Canadian dollars. We translate assets and liabilities at exchange
rates in effect at the period end date. We translate revenues and expenses using average exchange rates for the month
of the transaction. We initially recognize gains or losses from these translation adjustments in other comprehensive
income, and reclassify them from equity to net earnings on disposal or partial disposal of the foreign operation. Changes
in currency exchange rates could materially increase or decrease our foreign currency-denominated net assets, which
would increase or decrease shareholders’ equity. Changes in currency exchange rates will affect the amount of revenues
and expenses we record for our U.S. and international operations, which will increase or decrease our net earnings. If the
Canadian dollar strengthens against the U.S. dollar, the net earnings we record in Canadian dollars from our U.S. and
international operations will be lower.
Transaction exposure
We have long-term debt denominated in U.S. dollars. We have designated our U.S. dollar denominated unsecured senior
notes as a hedge against the net asset position of our U.S. and foreign operations. This debt is converted at the
exchange rate in effect at the period end dates with the resulting gains or losses included in the statement of
comprehensive income. If the Canadian dollar strengthens against the U.S. dollar, we will incur a foreign exchange gain
from the translation of this debt. Similarly, if the Canadian dollar weakens against the U.S. dollar, we will incur a foreign
exchange loss from the translation of this debt. The vast majority of our international operations are transacted in U.S.
dollars or U.S. dollar-pegged currencies. Transactions for our Canadian operations are primarily transacted in Canadian
dollars. We occasionally purchase goods and supplies in U.S. dollars for our Canadian operations, and we maintain U.S.
dollar cash in our Canadian operations.
We may be unable to access additional financing
We may need to obtain additional debt or equity financing in the future to support ongoing operations, undertake capital
expenditures, repay existing or future debt (including the Senior Credit Facility, the 2021 Notes, the 2023 Notes, the 2024
Notes and the 2026 Notes), or pursue acquisitions or other business combination transactions. Volatility or uncertainty in
the credit markets may increase costs associated with issuing debt or equity, and there is no assurance that we will be
able to access additional financing when we need it, or on terms we find acceptable or favourable. If we are unable to
obtain financing to support ongoing operations or to fund capital expenditures, acquisitions, debt repayments, or other
business combination transactions, it could limit growth and may have a material adverse effect on our revenue, cash
flow and profitability.
Risks associated with turnkey drilling operations could adversely affect our business
We earn some of our revenue from turnkey drilling contracts. We expect that turnkey drilling will continue to be part of our
service offering; however, turnkey contracts pose substantially more risk than wells drilled on a daywork basis. Under a
typical turnkey drilling contract, we agree to drill a well for a customer to a specified depth and under specified conditions
for a fixed price. We typically provide technical expertise and engineering services, as well as most of the equipment
required for the drilling of turnkey wells, and use subcontractors for related services. We typically do not receive progress
payments and are entitled to payment by the customer only after we have met the full terms of the drilling contract. We
sometimes encounter difficulties on wells and incur unanticipated costs, and not all the costs are covered by insurance.
As a result, under turnkey contracts we assume most of the risks associated with drilling operations that are generally
assumed by customers under a daywork contract. Operating cost overruns or operational difficulties on turnkey jobs
could have a material adverse effect on our financial position and results of operations.
There are risks associated with increased capital expenditures
The timing and amount of capital expenditures we incur will directly affect the amount of cash available to us. The cost of
equipment generally escalates as a result of high input costs during periods of high demand for our drilling rigs and
oilfield services equipment and other factors. There is no assurance that we will be able to recover higher capital costs
through rate increases to our customers.
A successful challenge by the tax authorities of expense deductions could negatively affect the value of our
common shares
Taxation authorities may not agree with the classification of expenses we or our subsidiaries have claimed, or they may
challenge the amount of interest expense deducted. If the taxation authorities successfully challenge our classifications
or deductions, it could have an adverse effect on our return to shareholders.
Precision Drilling Corporation 2017 Annual Report
47
Losing key management could reduce our competitiveness and prospects for future success
Our future success and growth depends partly on the expertise and experience of our key management. There is no
assurance that we will be able to retain key management. Losing these individuals could have a material adverse effect
on our operations and financial condition.
Our assessment of goodwill or capital assets for impairment may result in a non-cash charge against our
consolidated net income
We are required to assess our goodwill balance for impairment at least annually, and our capital assets balance for
impairment when certain internal and external factors indicate the need for further analysis. We calculate impairment
based on management’s estimates and assumptions. We may consider several factors, including any declines in our
share price and market capitalization, lower future cash flow and earnings estimates, significantly reduced or depressed
markets in our industry, and general economic conditions, among other things. Any impairment write-down to goodwill or
capital assets would result in a non-cash charge against net earnings, and it could be material.
Our credit ratings may change
Credit ratings affect our financing costs, liquidity and operations over the long term and are intended as an independent
measure of the credit quality of long-term debt. Credit ratings affect our ability to obtain short and long-term financing and
the cost of this financing, and our ability to engage in certain business activities cost-effectively.
If a rating agency reduces its current rating on our debt, or downgrades us, or we experience a negative change in our
ratings outlook, it could have an adverse effect on our financing costs and access to liquidity and capital.
The price of our common shares can fluctuate
Several factors can cause volatility in our share price, including increases or decreases in revenue or earnings, changes
in revenue or earnings estimates by the investment community, failure to meet analysts’ expectations, changes in credit
ratings, and speculation in the media or investment community about our financial condition or results of operations.
General market conditions and Canadian, U.S. or international economic factors and political events unrelated to our
performance may also affect the price of our common shares. Investors should therefore not rely on past performance of
our common shares to predict the future performance of our common shares or financial results.
Selling additional common shares could affect share value
We may issue additional common shares in the future to fund our needs or those of other entities owned directly or
indirectly by us, as authorized by the Board. We do not need shareholder approval to issue additional common shares,
and shareholders do not have any pre-emptive rights related to share issues (see Capital Structure on page 34).
Any difficulty in retaining, replacing, or adding personnel could adversely affect our business
Our ability to provide reliable services depends on the availability of well-trained, experienced crews to operate our field
equipment. We must also balance our need to maintain a skilled workforce with cost structures that fluctuate with activity
levels. We retain the most experienced employees during periods of low utilization by having them fill lower level
positions on field crews. Many of our businesses experience manpower shortages in peak operating periods, and we
may experience more severe shortages if the industry adds more rigs, oilfield services companies expand and new
companies enter the business.
We may not be able to find enough skilled labour to meet our needs, and this could limit growth. We may also have
difficulty finding enough skilled and unskilled labour in the future if demand for our services increases. Shortages of
qualified personnel have occurred in the past during periods of high demand. The demand for qualified rig personnel
generally increases with stronger demand for land drilling services and as new and refurbished rigs are brought into
service. Increased demand typically leads to higher wages that may or may not be reflected in any increases in service
rates.
Other factors can also affect our ability to find enough workers to meet our needs. Our business requires skilled workers
who can perform physically demanding work. Volatility in oil and natural gas activity and the demanding nature of the
work, however, may prompt workers to pursue other kinds of jobs that offer a more desirable work environment and
wages competitive to ours. Our success depends on our ability to continue to employ and retain skilled technical
personnel and qualified rig personnel. If we are unable to, it could have a material adverse effect on our operations.
Our business is subject to cybersecurity risks.
Threats to information technology systems associated with cybersecurity risks and cyber incidents or attacks continue to
grow. Cybersecurity attacks could include, but are not limited to, malicious software, attempts to gain unauthorized
access to data and the unauthorized release, corruption or loss of data and personal information, account takeovers, and
Precision Drilling Corporation 2017 Annual Report
48
other electronic security breaches that could lead to disruptions in our critical systems. Risks associated with these
attacks include, among other things, loss of intellectual property, disruption of our and our customers’ business
operations and safety procedures, loss or damage to our data delivery systems, unauthorized disclosure of personal
information and increased costs to prevent, respond to or mitigate cybersecurity events. Although we use various
procedures and controls to mitigate our exposure to such risk, cybersecurity attacks are evolving and unpredictable. The
occurrence of such an attack could go unnoticed for a period of time. Any such attack could have a material adverse
effect on our business, financial condition and results of operations.
As a foreign private issuer in the U.S., we may file less information with the SEC than a company incorporated in
the U.S.
As a foreign private issuer, we are exempt from certain rules under the United States Exchange Act of 1934 (the
Exchange Act) that impose disclosure requirements, as well as procedural requirements, for proxy solicitations under
Section 14 of the Exchange Act. Our directors, officers and principal shareholders are also exempt from the reporting and
short-swing profit recovery provisions of Section 16 of the Exchange Act. We are not required to file periodic reports and
financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under
the Exchange Act, nor are we generally required to comply with Regulation FD, which restricts the selective disclosure of
material non-public information. As a result, there may be less publicly available information about us than U.S. public
companies and this information may not be provided as promptly. In addition, we are permitted, under a multi-
jurisdictional disclosure system adopted by the U.S. and Canada, to prepare our disclosure documents in accordance
with Canadian disclosure requirements, including preparing our financial statements in accordance with International
Financial Reporting Standards (IFRS), which differs in some respects from U.S. GAAP. We are required to assess our
foreign private issuer status under U.S. securities laws annually at the end of the second quarter. If we were to lose our
status as a foreign private issuer under U.S. securities laws, we would be required to fully comply with U.S. securities
and accounting requirements.
We have retained liabilities from prior reorganizations
We have retained all liabilities of our predecessor companies, including liabilities relating to corporate and income
tax matters.
We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to
U.S. investors
Management does not believe that we are or will be treated as a passive foreign investment company (PFIC) for U.S. tax
purposes. However, because PFIC status is determined annually and will depend on the composition of our income and
assets from time to time, it is possible that we could be considered a PFIC in the future. This could result in adverse U.S.
tax consequences to a U.S. investor. In particular, a U.S. investor would be subject to U.S. federal income tax at ordinary
income rates, plus a possible interest charge, for any gain derived from a disposition of common shares, as well as
certain distributions by us. In addition, a step-up in the tax basis of our common shares would not be available if an
individual holder dies.
An investor who acquires 10% or more of our common shares may be subject to taxation under the controlled foreign
corporation (CFC) rules.
Under certain circumstances, a U.S. person who directly or indirectly owns 10% or more of the voting power of a foreign
corporation that is a CFC (generally, a foreign corporation where 10% of the U.S. shareholders own more than 50% of
the voting power or value of the stock of the foreign corporation) for 30 straight days or more during a taxable year and
who holds any shares of the foreign corporation on the last day of the corporation’s tax year must include in gross
income for U.S. federal income tax purposes its pro rata share of certain income of the CFC even if the share is not
distributed to the person. We are not currently a CFC, but this could change in the future.
Precision Drilling Corporation 2017 Annual Report
49
Evaluation of
Controls and Procedures
Management’s
Discussion
and
Analysis
Internal Control over Financial Reporting
We maintain internal control over financial reporting that is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Rules 13a – 15(f) and 15d – 15(f) under the United States Securities Exchange Act of 1934, as amended (the
Exchange Act) and under National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings
(NI 52-109).
Management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), has conducted an
evaluation of our internal control over financial reporting based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013).
Based on management’s assessment as of December 31, 2017, management has concluded that our internal control
over financial reporting is effective.
The effectiveness of internal control over financial reporting as of December 31, 2017 was audited by KPMG LLP, an
independent registered public accounting firm, as stated in their Report of Independent Registered Public Accounting
Firm, which is included in this annual report.
Due to its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a
misstatement of our financial statements would be prevented or detected. Further, the evaluation of the effectiveness of
internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is
subject to the risks that controls may become inadequate.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to
be disclosed in our interim and annual filings is reviewed, recognized and disclosed accurately and in the appropriate
time period.
Management, including the CEO and CFO, carried out an evaluation, as of December 31, 2017, of the effectiveness of
the design and operation of Precision’s disclosure controls and procedures, as defined in Rule 13a – 15(e) and 15d –
15(e) under the Exchange Act and NI 52-109. Based on that evaluation, the CEO and CFO have concluded that the
design and operation of Precision’s disclosure controls and procedures were effective to ensure that information required
to be disclosed in the reports we file or submit under the Exchange Act or Canadian securities legislation is recorded,
processed, summarized and reported within the time periods specified in the rules and forms therein.
It should be noted that while the CEO and CFO believe that our disclosure controls and procedures provide a reasonable
level of assurance that they are effective, they do not expect that these disclosure controls and procedures will prevent
all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
Precision Drilling Corporation 2017 Annual Report
50
Management’s Report to the Shareholders
The accompanying Consolidated Financial Statements and all information in this 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 the Consolidated Financial Statements. When necessary, management has made
informed judgments and estimates in accounting for transactions that were not complete at the balance sheet date. In the
opinion of management, the Consolidated Financial Statements have been prepared within acceptable limits of
materiality and are in accordance with International Financial Reporting Standards (IFRS) appropriate in the
circumstances. The financial information elsewhere in this 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 on the financial results
of Precision Drilling Corporation (the Corporation) prepared in accordance with IFRS. The MD&A compares the audited
financial results for the years ended December 31, 2017 and December 31, 2016.
Management is responsible for establishing and maintaining adequate internal control over the Corporation’s financial
reporting and is supported by an internal audit function that conducts periodic testing of these controls. Internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of Consolidated Financial Statements for external reporting purposes in accordance with
IFRS. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision of, and with direction from, our principal executive officer and principal financial and accounting
officer, management conducted an evaluation of the effectiveness of the Corporation’s internal control over financial
reporting. Management’s evaluation of internal control over financial reporting was based on the Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO
2013). Based on this evaluation, management concluded that the Corporation’s internal control over financial reporting
was effective as of December 31, 2017. Also, management determined that there were no material weaknesses in the
Corporation’s internal control over financial reporting as of December 31, 2017.
KPMG LLP (KPMG), an independent firm of Chartered Professional Accountants, was engaged, as approved by a vote
of shareholders at the Corporation’s most recent annual meeting, to audit the Consolidated Financial Statements and
provide an independent professional opinion.
KPMG also completed an audit of the design and effectiveness of the Corporation’s internal control over financial
reporting as of December 31, 2017, as stated in its report included in this Annual Report and expressed an unqualified
opinion on the design and effectiveness of internal control over financial reporting as of December 31, 2017.
The Audit Committee of the Board of Directors, which is comprised of five independent directors who are not employees
of the Corporation, provides oversight to the financial reporting process. Integral to this process is the Audit Committee’s
review and discussion with management and KPMG of the quarterly and annual financial statements and reports prior to
their respective release. The Audit Committee is also responsible for reviewing and discussing with management and
KPMG major issues as to the adequacy of the Corporation’s internal controls. KPMG has unrestricted access to the Audit
Committee to discuss its audit and related matters. The Consolidated Financial Statements have been approved by the
Board of Directors and its Audit Committee.
Kevin A. Neveu
President and Chief Executive Officer
Precision Drilling Corporation
Carey T. Ford
Senior Vice President and Chief Financial Officer
Precision Drilling Corporation
March 9, 2018
March 9, 2018
Precision Drilling Corporation 2017 Annual Report
51
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Precision Drilling Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Precision Drilling Corporation (the
“Corporation”), which comprise the consolidated statements of financial position as at December 31, 2017 and December
31, 2016, the consolidated statements of loss, comprehensive loss, changes in equity and cash flows for the years then
ended, and the related notes, comprising a summary of significant accounting policies and other explanatory information
(collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Corporation as at December 31, 2017 and December 31, 2016, and its consolidated financial performance
and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
Report on Internal Control Over Financial Reporting
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Corporation’s internal control over financial reporting as of December 31, 2017, based on the criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated March 9, 2018 expressed an unqualified (unmodified) opinion
on the effectiveness of the Corporation’s internal control over financial reporting.
Basis for Opinion
A - Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
B - Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States) (“PCAOB”). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement, whether due to error or fraud. Those standards also require that we comply with ethical requirements,
including independence. We are required to be independent with respect to the Corporation in accordance with the
ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We are a public accounting firm registered with the PCAOB.
An audit includes performing procedures to assess the risks of material misstatements of the consolidated financial
statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures
included obtaining and examining, on a test basis, audit evidence regarding the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the
risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those
risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies and principles used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a reasonable
basis for our audit opinion.
We have served as the Corporation's auditor since 1987.
Chartered Professional Accountants
Calgary, Canada
March 9, 2018
Precision Drilling Corporation 2017 Annual Report
52
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Precision Drilling Corporation
Opinion on Internal Control over Financial Reporting
We have audited Precision Drilling Corporation’s (the “Corporation”) internal control over financial reporting as of
December 31, 2017, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Report on the Consolidated Financial Statements
We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the
Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the
Corporation, which comprise the consolidated statements of financial position as at December 31, 2017 and December
31, 2016, the consolidated statements of loss, comprehensive loss, changes in equity and cash flows for the years then
ended, and the related notes, comprising a summary of significant accounting policies and other explanatory information
(collectively referred to as the “consolidated financial statements”) and our report dated March 9, 2018 expressed an
unmodified (unqualified) opinion on those consolidated financial statements.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report to the Shareholders. Our responsibility is to express an opinion on the Corporation’s internal control over financial
reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB and in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Chartered Professional Accountants
Calgary, Canada
March 9, 2018
Precision Drilling Corporation 2017 Annual Report
53
Consolidated Statements of Financial Position
(Stated in thousands of Canadian dollars)
ASSETS
Current assets:
Cash
Accounts receivable
Income tax recoverable
Inventory
Total current assets
Non-current assets:
Income taxes recoverable
Deferred tax assets
Property, plant and equipment
Intangibles
Goodwill
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
December 31,
2017
December 31,
2016
$
(Note 23)
(Note 12)
(Note 5)
(Note 6)
(Note 7)
$
$
65,081
322,585
29,449
24,631
441,746
2,256
41,822
3,173,824
28,116
205,167
3,451,185
3,892,931
$
115,705
293,682
38,087
24,136
471,610
—
—
3,641,889
3,316
207,399
3,852,604
4,324,214
Accounts payable and accrued liabilities
(Note 23)
$
209,625
$
240,736
Non-current liabilities:
Share based compensation
Provisions and other
Long-term debt
Deferred tax liabilities
Total non-current liabilities
Shareholders’ equity:
Shareholders’ capital
Contributed surplus
Deficit
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
Approved by the Board of Directors:
(Note 9)
(Note 10)
(Note 11)
(Note 12)
(Note 13)
(Note 14)
13,536
10,086
1,730,437
118,911
1,872,970
2,319,293
44,037
(684,604 )
131,610
1,810,336
3,892,931
$
27,387
12,421
1,906,934
174,618
2,121,360
2,319,293
38,937
(552,568 )
156,456
1,962,118
4,324,214
$
Allen R. Hagerman
Director
Steven W. Krablin
Director
Precision Drilling Corporation 2017 Annual Report
54
Consolidated Statements of Loss
Years ended December 31,
(Stated in thousands of Canadian dollars, except per share amounts)
Revenue
Expenses:
Operating
General and administrative
Restructuring
Earnings before income taxes, loss on redemption and repurchase of unsecured
senior notes, finance charges, foreign exchange, impairment of property, plant
and equipment, gain on re-measurement of property, plant and equipment and
depreciation and amortization
Depreciation and amortization
Impairment of property, plant and equipment
Gain on re-measurement of property, plant and equipment
Operating loss
Foreign exchange
Finance charges
Loss on redemption and repurchase of unsecured senior notes
Loss before tax
Income taxes:
Current
Deferred
Net loss
Loss per share:
Basic
Diluted
(Note 5)
(Note 15)
(Note 12)
(Note 19)
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Loss
Years ended December 31,
(Stated in thousands of Canadian dollars)
Net loss
Unrealized loss on translation of assets and liabilities of operations
denominated in foreign currency
Foreign exchange gain on net investment hedge with U.S. denominated debt,
net of tax
Comprehensive loss
See accompanying notes to consolidated financial statements.
2017
1,321,224
$
2016
1,003,233
$
(Note 23)
(Note 23)
926,171
90,072
—
661,715
107,689
5,754
304,981
377,746
15,313
—
(88,078 )
(2,970 )
137,928
9,021
(232,057 )
(1,331 )
(98,690 )
(100,021 )
(132,036 )
(0.45 )
(0.45 )
$
$
$
228,075
391,659
—
(7,605 )
(155,979 )
6,008
146,360
239
(308,586 )
(31,195 )
(121,836 )
(153,031 )
(155,555 )
(0.53 )
(0.53 )
2017
(132,036 )
$
2016
(155,555 )
(146,545 )
(76,608 )
121,699
(156,882 )
$
66,963
(165,200 )
$
$
$
$
$
Precision Drilling Corporation 2017 Annual Report
55
Consolidated Statements of Cash Flow
Years ended December 31,
(Stated in thousands of Canadian dollars)
Cash provided by (used in):
Operations:
Net loss
Adjustments for:
Long-term compensation plans
Depreciation and amortization
Impairment of property, plant and equipment
Gain on re-measurement of property, plant and equipment
Foreign exchange
Finance charges
Loss on redemption and repurchase of unsecured senior notes
Income taxes
Other
Income taxes paid
Income taxes recovered
Interest paid
Interest received
Funds provided by operations
Changes in non-cash working capital balances
Investments:
Purchase of property, plant and equipment
Purchase of intangibles
Proceeds on sale of property, plant and equipment
Business acquisition, net of cash acquired
Income taxes recovered
Changes in non-cash working capital balances
Financing:
Redemption and repurchase of unsecured senior notes
Debt issue costs
Debt amendment fees
Proceeds from issuance of long-term debt
Issuance of common shares on the exercise of options
Effect of exchange rate changes on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
2017
2016
$
(132,036 )
$
(155,555 )
6,795
377,746
15,313
—
(2,873 )
137,928
9,021
(100,021 )
(2,025 )
(3,645 )
11,932
(136,065 )
1,865
183,935
(67,380 )
116,555
(74,823 )
(23,179 )
14,841
—
—
(7,989 )
(91,150 )
(571,975 )
(9,196 )
(1,793 )
509,180
—
(73,784 )
(2,245 )
(50,624 )
115,705
65,081
$
28,313
391,659
—
(7,605 )
6,791
146,360
239
(153,031 )
(1,889 )
(14,605 )
795
(139,575 )
3,478
105,375
17,133
122,508
(203,472 )
—
7,840
(12,200 )
2,917
(9,010 )
(213,925 )
(677,704 )
(10,752 )
(1,214 )
469,420
1,926
(218,324 )
(19,313 )
(329,054 )
444,759
115,705
(Note 23)
(Note 5)
(Note 6)
(Note 23)
(Note 11)
(Note 11)
(Note 11)
$
Precision Drilling Corporation 2017 Annual Report
56
Consolidated Statements of Changes in Equity
(Stated in thousands of Canadian
dollars)
Balance at January 1, 2017
Net loss for the period
Other comprehensive loss for the period
Share based compensation expense
Balance at December 31, 2017
(Note 9)
(Stated in thousands of Canadian
dollars)
Balance at January 1, 2016
Net loss for the period
Other comprehensive income for
the period
Share options exercised
Share based compensation expense
Balance at December 31, 2016
Shareholders’
Capital
(Note 13)
$ 2,319,293 $
—
—
—
$ 2,319,293 $
Contributed
Accumulated
other
Comprehensive
Income
(Note 14)
156,456 $
—
(24,846 )
—
131,610 $
Surplus
38,937 $
—
—
5,100
44,037 $
Shareholders’
Capital
(Note 13)
$ 2,316,321 $
—
Contributed
Surplus
35,800 $
—
Accumulated
other
Comprehensive
Income
(Note 14)
166,101 $
—
Deficit Total Equity
(552,568 ) $ 1,962,118
(132,036 )
(132,036 )
—
(24,846 )
—
5,100
(684,604 ) $ 1,810,336
Deficit Total Equity
(397,013 ) $ 2,121,209
(155,555 )
(155,555 )
(Note 9)
—
2,972
—
$ 2,319,293 $
—
(1,046 )
4,183
38,937 $
(9,645 )
—
—
156,456 $
—
—
—
(9,645 )
1,926
4,183
(552,568 ) $ 1,962,118
See accompanying notes to consolidated financial statements.
Precision Drilling Corporation 2017 Annual Report
57
Notes to Consolidated Financial Statements
(Tabular amounts are stated in thousands of Canadian dollars except share numbers and per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS
Precision Drilling Corporation (Precision or the Corporation) is incorporated under the laws of the Province of Alberta,
Canada and is a provider of contract drilling and completion and production services primarily to oil and natural gas
exploration and production companies in Canada, the United States and certain international locations. The address of
the registered office is 800, 525 – 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1G1.
NOTE 2. BASIS OF PREPARATION
(a) Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements were authorized for issue by the Board of Directors on March 9, 2018.
(b) Basis of Measurement
The consolidated financial statements have been prepared using the historical cost basis and are presented in thousands
of Canadian dollars.
(c) Use of Estimates and Judgments
The preparation of the consolidated financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingencies. These
estimates and judgments are based on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. The estimation of anticipated future events involves uncertainty and, consequently,
the estimates used in preparation of the consolidated financial statements may change as future events unfold, more
experience is acquired, or the Corporation’s operating environment changes. The Corporation reviews its estimates and
assumptions on an ongoing basis. Adjustments that result from a change in estimate are recorded in the period in which
they become known. Significant estimates and judgments used in the preparation of the financial statements are
described in Note 3(d), (g)(ii), (i) and (r).
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
These consolidated financial statements include the accounts of the Corporation and all of its subsidiaries and
partnerships, substantially all of which are wholly-owned. The financial statements of the subsidiaries are prepared for
the same period as the parent entity, using consistent accounting policies. All significant intercompany balances and
transactions and any unrealized gains and losses arising from intercompany transactions, have been eliminated.
Subsidiaries are entities controlled by the Corporation. Control exists when Precision has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential
voting rights that currently are exercisable are considered. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases.
Precision does not hold investments in any companies where it exerts significant influence and does not hold interests in
any special-purpose entities.
The acquisition method is used to account for acquisitions of subsidiaries and assets that meet the definition of a
business under IFRS. The cost of an acquisition is measured as the fair value of the assets given, equity instruments
issued, and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
The excess of the cost of acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities
acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognized immediately in the statement of earnings. Transaction costs, other than those
associated with the issuance of debt or equity securities, that the Corporation incurs in connection with a business
combination are expensed as incurred.
(b) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less.
Precision Drilling Corporation 2017 Annual Report
58
(c) Inventory
Inventory is primarily comprised of operating supplies and is carried at the lower of average cost, being the cost to
acquire the inventory, and net realizable value. Inventory is charged to operating expenses as items are sold or
consumed at the amount of the average cost of the item.
(d) Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation and any accumulated impairment
losses.
Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed
assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a
working condition for their intended use, and borrowing costs on qualifying assets.
The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if
it is probable that the future economic benefits embodied within the part will flow to the Corporation, and its cost can be
measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of
property, plant and equipment (repair and maintenance) are recognized in profit or loss as incurred.
Property, plant, and equipment are depreciated as follows:
Drilling rig equipment:
– Power & Tubulars
– Dynamic
– Structural
Seasonal, stratification and turnkey drilling equipment
Service rig equipment
Drilling rig spare equipment
Service rig spare equipment
Rental equipment
Other equipment
Light duty vehicles
Heavy duty vehicles
Buildings
Expected Life
Salvage Value
Basis of
Depreciation
5 years
10 years
20 years
4 years
20 years
up to 15 years
up to 15 years
10 to 15 years
3 to 10 years
4 years
7 to 10 years
10 to 20 years
–
–
10%
0 to 20%
10%
–
–
0 to 25%
–
–
–
–
straight-line
straight-line
straight-line
straight-line
straight-line
straight-line
straight-line
straight-line
straight-line
straight-line
straight-line
straight-line
Property, plant and equipment are depreciated based on estimates of useful lives and salvage values. These estimates
consider data and information from various sources including vendors, industry practice, and Precision(cid:835)s own historical
experience and may change as more experience is gained, market conditions shift, or technological advancements are
made.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds
from disposal to the carrying amount of property, plant and equipment, and are recognized in the consolidated
statements of loss.
Determination of which parts of the drilling rig equipment represent significant cost relative to the entire rig and identifying
the consumption patterns along with the useful lives of these significant parts, are matters of judgment. This
determination can be complex and subject to differing interpretations and views, particularly when rig equipment
comprises individual components for which different depreciation methods or rates are appropriate.
The estimated useful lives, residual values and methods of depreciation are reviewed annually, and adjusted
prospectively if appropriate.
(e) Intangibles
Intangible assets that are acquired by the Corporation with finite lives are initially recorded at estimated fair value and
subsequently measured at cost less accumulated amortization and any accumulated impairment losses.
Subsequent expenditures are capitalized only when they increase the future economic benefits of the specific asset to
which they relate.
Intangible assets are amortized based on estimates of useful lives. These estimates consider data and information from
various sources including vendors and Precision(cid:835)s own historical experience and may change as more experience is
gained or technological advancements are made.
Precision Drilling Corporation 2017 Annual Report
59
Amortization is recognized in profit and loss using the straight-line method over the estimated useful lives of the
respective assets.
The estimated useful lives and methods of amortization are reviewed annually and adjusted prospectively if appropriate.
(f) Goodwill
Goodwill is the amount that results when the purchase price of an acquired business exceeds the sum of the amounts
allocated to the assets acquired, less liabilities assumed, based on their fair values.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, attributed to the cash
generating unit (CGU) or groups of cash generating units that are expected to benefit and as identified in the business
combination.
(g) Impairment:
i) Financial Assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is any objective evidence that it is impaired. A financial asset is tested for impairment if objective
evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that
asset.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring
of an amount due to the Corporation on terms that the Corporation would not consider otherwise, and indications
that a debtor will enter bankruptcy. Precision considers evidence of impairment for receivables at both a specific
asset and collective level. All individually significant receivables are assessed for specific impairment. All significant
receivables found not to be specifically impaired are then collectively assessed for impairment by grouping
together receivables with similar risk characteristics.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the original
effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognized in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.
ii) Non-Financial Assets
The carrying amounts of the Corporation’s non-financial assets, other than inventories and deferred tax assets, are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated. Judgement is required when evaluating whether a CGU
has indications of impairment. For CGUs that contain goodwill and other intangible assets that have indefinite lives
or that are not yet available for use, an impairment test is, at a minimum, completed annually as of December 31.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or
groups of assets (the cash-generating unit). Judgment is required in the aggregation of assets into CGUs.
The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted to their present value using an after-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. Value in use is generally computed by reference to the present value of the future cash flows expected to be
derived from the cash generating unit.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable
amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are
allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying
amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized
in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
Precision Drilling Corporation 2017 Annual Report
60
carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized.
(h) Borrowing Costs
Interest and borrowing costs that are directly attributable to the acquisition, construction or production of assets that take
a substantial period of time to prepare for their intended use are capitalized as part of the cost of those assets.
Capitalization ceases during any extended period of suspension of construction or when substantially all activities
necessary to prepare the asset for its intended use are complete.
All other interest and borrowing costs are recognized in earnings in the period in which they are incurred.
(i) Income Taxes
Income tax expense is recognized in net earnings except to the extent that it relates to items recognized directly in
equity, in which case it is recognized in equity.
Current tax is the expected tax payable or receivable on the taxable earnings or loss for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not
recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition,
deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax
is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the
laws that have been enacted or substantively enacted at the reporting date. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in net earnings in the period that includes the date of enactment or
substantive enactment. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset and
they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities that are
expected to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against
which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit will be realized.
The Company is subject to taxation in numerous jurisdictions. Uncertainties exist with respect to the interpretation of
complex tax regulations and requires significant judgement. Differences arising between the actual results and the
assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable income and
expense already recorded. The Corporation establishes provisions, based on reasonable estimates, for possible
consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such
provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax
regulations by the taxable entity and the responsible tax authority.
(j) Revenue Recognition
The Corporation’s services are generally sold based on service orders or contracts with a customer that include fixed or
determinable prices based on daily, hourly or job rates. Customer contract terms do not include provisions for significant
post-service delivery obligations. Revenue is recognized when services and equipment rentals are rendered and only
when collectability is reasonably assured. The Corporation also provides services under turnkey contracts whereby it
drills a well to an agreed upon depth under specified conditions for a fixed price, regardless of the time required or the
problems encountered in drilling the well. Revenue from turnkey drilling contracts is recognized using the percentage-of-
completion method based on costs incurred to date and estimated total contract costs. Anticipated losses, if any, on
uncompleted contracts are recorded at the time the estimated costs exceed the contract revenue.
(k) Employee Benefit Plans
Precision sponsors various defined contribution retirement plans for its employees. The Corporation’s contributions to
defined contribution plans are expensed as employees earn the entitlement.
(l) Provisions
Provisions are recognized when the Corporation has a present obligation (legal or constructive) as a result of a past
event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation, and when a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at
the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present
value of those cash flows.
Precision Drilling Corporation 2017 Annual Report
61
(m) Share Based Incentive Compensation Plans
The Corporation has established several cash-settled share based incentive compensation plans for non-management
directors, officers, and other eligible employees. As estimated by management, the fair values of the amounts payable to
eligible participants under these plans are recognized as an expense with a corresponding increase in liabilities over the
period that the participants become unconditionally entitled to payment. The recorded liability is re-measured at the end
of each reporting period until settlement with the resultant change to the fair value of the liability recognized in net
earnings for the period. When the plans are settled, the cash paid reduces the outstanding liability.
The Corporation has implemented an employee share purchase plan that allows eligible employees to purchase common
shares through payroll deductions. Under this plan, contributions made by employees are matched to a specific
percentage by the Corporation. The contributions made by the Corporation are expensed as incurred.
Prior to January 1, 2012, the Corporation had an equity-settled deferred share unit plan whereby non-management
directors of Precision could elect to receive all or a portion of their compensation in fully-vested deferred share units.
Compensation expense was recognized based on the fair value price of the Corporation’s shares at the date of grant with
a corresponding increase to contributed surplus. Upon redemption of the deferred share units into common shares, the
amount previously recognized in contributed surplus is recorded as an increase to shareholders’ capital. The Corporation
continues to have obligations under this plan.
A share option plan has been established for certain eligible employees. Under this plan, the fair value of share purchase
options is calculated at the date of grant using the Black-Scholes option pricing model, and that value is recorded as
compensation expense over the grant’s vesting period with an offsetting credit to contributed surplus. A forfeiture rate is
estimated on the grant date and is adjusted to reflect the actual number of options that vest. Upon exercise of the equity
purchase option, the associated amount is reclassified from contributed surplus to shareholders’ capital. Consideration
paid by employees upon exercise of the equity purchase options is credited to shareholders’ capital.
(n) Foreign Currency Translation
Transactions of the Corporation’s individual entities are recorded in the currency of the primary economic environment in
which it operates (its functional currency). Transactions in currencies other than the entities’ functional currency are
translated at rates in effect at the time of the transaction. At each period end, monetary assets and liabilities are
translated at the prevailing period-end rates. Non-monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated. Gains and losses are included in net earnings except for gains and losses on
translation of long-term debt designated as a hedge of foreign operations, which are deferred and included in other
comprehensive income.
For the purpose of preparing the Corporation’s consolidated financial statements, the financial statements of each foreign
operation that does not have a Canadian dollar functional currency are translated into Canadian dollars. Assets and
liabilities are translated at exchange rates in effect at the period end date. Revenues and expenses are translated using
average exchange rates for the month of the respective transaction. Gains or losses resulting from these translation
adjustments are recognized initially in other comprehensive income and reclassified from equity to net earnings on
disposal or partial disposal of the foreign operation.
(o) Per Share Amounts
Basic per share amounts are calculated using the weighted average number of shares outstanding during the period.
Diluted per share amounts are calculated by using the treasury stock method for equity based compensation
arrangements. The treasury stock method assumes that any proceeds obtained on exercise of equity based
compensation arrangements would be used to purchase common shares at the average market price during the period.
The weighted average number of shares outstanding is then adjusted by the difference between the number of shares
issued from the exercise of equity based compensation arrangements and shares repurchased from the related
proceeds.
(p) Financial Instruments
i) Non-Derivative Financial Instruments:
Financial assets are classified as either fair value through profit and loss, loans and receivables, held to maturity or
available for sale. Financial liabilities are classified as either fair value through profit and loss or other financial
liabilities. Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair
value through profit or loss, any directly attributable transaction costs. Transaction costs attributable to fair value
through profit or loss items are expensed as incurred. Subsequent to initial recognition, non-derivative financial
instruments are measured based on their classification.
Accounts receivable are classified as loans and receivables. After their initial fair value measurement, they are
measured at amortized cost using the effective interest rate method. For the Corporation, the measured amount
generally corresponds to historical cost.
Precision Drilling Corporation 2017 Annual Report
62
Accounts payable and accrued liabilities and long-term debt are classified as other financial liabilities. After their
initial fair value measurement, they are measured at amortized cost using the effective interest rate method. For
the Corporation, the measured amount generally corresponds to historical cost.
ii) Derivative Financial Instruments:
The Corporation may enter into certain financial derivative contracts in order to manage the exposure to market
risks from fluctuations in interest rates or exchange rates. These instruments are not used for trading or
speculative purposes. Precision has not designated its financial derivative contracts as effective accounting
hedges, and thus has not applied hedge accounting, even though it considers certain financial contracts to be
economic hedges. As a result, financial derivative contracts are classified as fair value through profit or loss and
are recorded on the statement of financial position at estimated fair value. Transaction costs are recognized in
profit or loss when incurred.
Derivatives embedded in other instruments or host contracts are separated from the host contract and accounted
for separately when their economic characteristics and risks are not closely related to the host contract. Embedded
derivatives are recorded on the statement of financial position at estimated fair value and changes in the fair value
are recognized in earnings.
(q) Hedge Accounting
The Corporation utilizes foreign currency long-term debt to hedge its exposure to changes in the carrying values of the
Corporation’s net investment in certain foreign operations as a result of changes in foreign exchange rates.
To be accounted for as a hedge, the foreign currency long-term debt must be designated and documented as a hedge
and must be effective at inception and on an ongoing basis. The documentation defines the relationship between the
foreign currency long-term debt and the net investment in the foreign operations, as well as the Corporation’s risk
management objective and strategy for undertaking the hedging transaction. The Corporation formally assesses, both at
inception and on an ongoing basis, whether the changes in fair value of the foreign currency long-term debt is highly
effective in offsetting changes in fair value of the net investment in the foreign operations. The portion of gains or losses
on the hedging item that is determined to be an effective hedge is recognized in other comprehensive income, net of tax,
and is limited to the translation gain or loss on the net investment, while the ineffective portion is recorded in earnings. If
the hedging relationship is terminated or ceases to be effective, hedge accounting is not applied to subsequent gains or
losses. The amounts recognized in other comprehensive income are reclassified to net earnings when corresponding
exchange gains or losses arising from the translation of the foreign operation are recorded in net earnings.
(r) Critical Accounting Assumptions and Estimates
i) Impairment of Long-Lived Assets
When indications of impairment exist within a CGU, a recoverable amount is determined and requires assumptions
to estimate future discounted cash flows. These estimates and assumptions include future drilling activity, margins
and market conditions over the long-term life of the CGU. In selecting a discount rate, we use observable market
data inputs to develop a rate that we believe approximates the discount rate from market participants.
Although we believe the estimates are reasonable and consistent with current conditions, internal planning, and
expected future operations, such estimations are subject to significant uncertainty and judgment.
ii) Income taxes
Significant estimation and assumptions are required in determining the provision for income taxes. The recognition
of deferred tax assets in respect of deductible temporary differences and unused tax losses and credits is based
on the Corporation(cid:835)s estimation of future taxable profit against which these differences, losses and credits may
be used. The assessment is based upon existing tax laws and estimates of the Corporation(cid:835)s future taxable
income. These estimates may be materially different from the actual final tax return in future periods.
(s) Amendments to Accounting Standards Adopted January 1, 2017
The Corporation has applied the following mandatorily effective amendments to IFRSs in the current year. Outside
of additional disclosure requirements, these amendments had no impact on the amounts recorded in the
Corporation(cid:835)s financial statements.
i) Amendments to IAS 7 Disclosure Initiative
These amendments require an entity to provide disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities, including both cash and non-cash changes.
Precision(cid:835)s liabilities arising from financing activities consist entirely of long-term debt. A reconciliation between
opening and closing balances of long-term debt has been provided in Note 11. Consistent with the transition
provisions of the amendments, Precision has not disclosed comparative information for the prior year.
Precision Drilling Corporation 2017 Annual Report
63
ii) Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses
These amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits
against which it can utilize a deductible temporary difference.
The application of these amendments has had no impact on the consolidated financial statements as the
Corporation already assesses the sufficiency of future taxable profits in a way that is consistent with these
amendments.
(t) Accounting Standards, Interpretations and Amendments to Existing Standards not yet Effective
i) IFRS 9, Financial Instruments
Effective for annual periods beginning on or after January 1, 2018, IFRS 9 replaces IAS 39 Financial Instruments,
Recognition and Measurement. IFRS 9 contains three principal classification categories for financial assets:
measured at amortized cost, fair value through other comprehensive income and fair value through profit or loss.
The classification of financial assets under IFRS 9 is generally based on the business model in which a financial
asset is managed and the characteristics of its contractual cash flows. IFRS 9 eliminates the previous IAS 39
categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in
contracts where the host is a financial asset under the standard are never separated. Instead the hybrid financial
instrument as a whole is assessed for classification.
For Precision, accounts receivable will continue to be classified and measured at amortized cost. Accounts
payable and accrued liabilities and long-term debt will also continue to be classified and measured at amortized
cost.
Impairment
IFRS 9 replaces the incurred loss model of IAS 39 with an expected credit loss model. The loss allowance to be
recorded against trade receivables is measured as the lifetime expected credit losses. As the Corporation has
very short credit periods for trade receivables, it does not expect it a material adjustment to its allowance for
credit losses.
Hedge accounting
IFRS 9 requires entities to ensure its hedge accounting relationships align with its risk management objectives
and strategies and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.
This may allow for more types of instruments and risk components to qualify for hedge accounting.
Precision does not expect the application of the hedge accounting requirements under IFRS 9 to have a
material impact on the consolidated financial statements.
IFRS 9 also introduces expanded disclosure requirements and changes in presentation. These are expected to
change the nature and extent of the Corporation’s disclosures about its financial instruments. The Corporation is
drafting the relevant disclosures to reflect the requirements of the new standard.
ii) IFRS 15, Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model to address how and when to recognize revenue as well as
requiring entities to provide users of financial statements with more informative, relevant disclosures in order to
understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with
customers. It replaces existing revenue recognition guidance including IAS 18 Revenue and IAS 11 Construction
Contracts.
The standard provides a principle based five-step model to be applied to all contracts with customers. This five-
step model involves identifying the contract(s) with a customer; identifying the performance obligations in the
contract; determining the transaction price; allocating the transaction price to the performance obligations in the
contract; and recognizing revenue when (or as) the entity satisfies a performance obligation.
Application of this new standard is mandatory for annual reporting periods beginning on or after January 1, 2018.
There are two methods by which the new guidance can be adopted: (1) a full retrospective approach with a
restatement of all prior periods presented, or (2) a modified retrospective approach with a cumulative-effect
adjustment recognized in retained earnings as of the date of adoption. Precision plans to adopt IFRS 15 using the
modified retrospective method whereby the cumulative impact of adopting the standard will be recognized in
retained earnings as at January 1, 2018 and the comparative periods will not be restated.
The Corporation has assessed the estimated impact that the initial application of IFRS 15 will have on its
consolidated financial statements. Precision’s evaluation of the new standard included the identification of
Precision Drilling Corporation 2017 Annual Report
64
accounting and disclosure gaps specific to the individual revenue streams of the Corporation, and mapping of its
processes to determine whether changes were required to policies, procedures, and controls.
Precision recognizes revenue from the following major sources:
Contract Drilling Services
The Corporation contracts individual drilling rig packages, including crews and support equipment, to its
customers. Depending on the customer’s drilling program, contracts may be for a single well, multiple wells or a
fixed term. Precision expects that revenue recognition on these contracts under IFRS 15 will be materially the
same as revenue recognition under the existing standard. Revenue from contract drilling services will be
recognized over time from spud to rig release, on a daily basis. Operating days are measured through the use
of industry standard tour sheets that document the daily activity of the rig. Revenue will be recognized at the
applicable average day rate for each well, based on rates specified in each contract.
The Corporation also provides services under turnkey contracts, whereby Precision is required to drill a well to
an agreed upon depth under specified conditions for a fixed price, regardless of the time required or the
problems encountered in drilling the well. Revenue from turnkey drilling contracts is recognized over time using
the input method based on costs incurred to date in relation to estimated total contract costs, as that most
accurately depicts the Corporation’s performance. As this method is permitted under the new standard, the
Corporation will continue in its application, and does not expect this to have a significant impact, if any, on its
cumulative-effect adjustment.
The Corporation also provides directional drilling services, which include the provision of directional drilling
equipment, tools and personnel to the wellsite, and performance of daily directional drilling services. Precision
expects that revenue recognition on these contracts under IFRS 15 will be materially the same as revenue
recognition under the existing standard. Directional drilling revenue will be recognized over time, upon the daily
completion of operating activities. Operating days are to be measured through the use of daily tour sheets.
Revenue will be recognized at the applicable day rate, as stipulated in the directional drilling contract.
Completion and Production Services
The Corporation provides a variety of well completion and production services including well servicing and
snubbing. In general, service rigs do not involve long-term contracts or penalties for termination. Precision
expects that revenue recognition on these contracts under IFRS 15 will be materially the same as revenue
recognition under the existing standard. Revenue will be recognized daily. Operating days are measured
through daily tour sheets and field tickets. Revenue will be recognized at the applicable daily or hourly rate, as
stipulated in the contract.
The Corporation also offers a variety of oilfield equipment for rental to its customers. Precision expects that
revenue recognition on these contracts under IFRS 15 will be materially the same as revenue recognition under
the existing standard. Rental revenue will be recognized daily. Rental days are measured through field tickets.
Revenue will be recognized at the applicable daily rate, as stipulated in the contract.
Based on its detailed assessment, the Corporation does not expect the application of IFRS 15 to result in a
material impact to its consolidated financial statements. The actual impact of adopting the standard at January 1,
2018 may differ as the accounting policies are subject to change until the Corporation presents its first interim
financial statements that include the date of initial application.
As a result of the adoption of the new standard, the Corporation will be required to include significant disclosures in
the financial statements based on the prescribed requirements. These new disclosures will include information
regarding the significant judgments used in evaluating how and when revenues are recognized and information
related to contract assets and deferred revenues. In addition, IFRS 15 requires that the Corporation’s revenue
recognition policy disclosure includes additional detail regarding the various performance obligations and the
nature, amount, timing, and estimates of revenues and cash flows generated from contracts with customers. The
Corporation is drafting the relevant disclosures to reflect the requirements of the new standard.
iii) IFRS 16, Leases
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments
for both lessors and lessees. It replaces existing lease guidance including IAS 17 Leases and IFRIC 4 Determining
whether an Arrangement Contains a Lease. The new standard is effective for annual periods beginning on or after
January 1, 2019.
IFRS 16 brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between
operating and finance leases. A right-of-use asset and a corresponding liability will be recognized for all leases by
the lessee except for short-term leases and leases of low value assets.
Precision Drilling Corporation 2017 Annual Report
65
The Corporation’s initial assessment indicates that many of the operating lease arrangements identified in Note 18
will meet the definition of a lease under IFRS 16 and thus be recognized in the statement of financial position as a
right-of-use asset with a corresponding liability. In addition, the nature of expenses related to these arrangements
will change as the current presentation of operating lease expense will be replaced with a depreciation charge for
the right-of use asset and interest expense on the lease liabilities. As well, the classification of cash flows will be
impacted as the current presentation of operating lease payments as operating cash flows will be split into
financing (principal portion) and operating (interest portion) cash flows under IFRS 16.
Lessor accounting will not significantly change under the new standard. However, some differences may arise
upon adoption of IFRS 16 as a result of new guidance on the definition of a lease. Under IFRS 16 a contract is, or
contains a lease if the contract conveys control of the use of an identified asset for a period of time in exchange for
some form of consideration. Precision is assessing whether this new guidance will impact the treatment of its
drilling rigs under long-term contracts.
Extensive disclosures will also be required under IFRS 16.
Precision plans to apply IFRS 16 initially on January 1, 2019 using the cumulative effect method whereby the
cumulative impact of adopting the standard will be recognized in retained earnings as at January 1, 2019 and the
comparative periods will not be restated.
iv) IFRIC 23, Uncertainty over Income Tax Treatments
IFRIC 23 clarifies the accounting for uncertainties in income taxes. The interpretation requires the entity to use the
most likely amount or the expected value of the tax treatment if it concludes that it is not probable that a particular
tax treatment will be accepted. It requires an entity is to assume that a taxation authority with the right to examine
any amounts reported to it will examine those amounts and will have full knowledge of all relevant information
when doing so.
IFRIC 23 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application is
permitted. The requirements are applied by recognizing the cumulative effect of initially applying them in retained
earnings, or in other appropriate components of equity, at the start of the reporting period in which an entity first
applies them, without adjusting comparative information. Full retrospective application is permitted, if an entity can
do so without using hindsight. The Corporation has yet to determine the impact this standard will have on its
consolidated financial statements.
NOTE 4. RECAST OF PRIOR PERIOD AMOUNTS
During the third quarter of 2017, the Corporation changed its treatment of how certain amounts that were
historically netted against operating expense should be classified. In particular, certain amounts that were
historically netted against operating expenses are now treated as revenue, with a corresponding increase to
operating expenses. The primary nature of these amounts related to additional labour charges to customers above
our standard drilling crew configuration and subsistence allowances paid to the drilling crew which varies
depending on whether the crews were staying in a camp or hotel and equipment rental. As a result previously
reported revenues and operating expenses were understated by equivalent amounts.
As well, to conform to current year presentation, certain immaterial reclassifications between operating and general
administrative expenses have been made in the comparative periods.
As a result of these reclassifications, we have recast the prior year comparative amounts as follows:
Year ended December 31, 2016
Revenue
Expenses:
Operating
General and administrative
Restructuring
Earnings before income taxes, loss on redemption and repurchase
of unsecured senior notes, finance charges, foreign exchange,
impairment of property, plant and equipment, gain on re-
measurement of property, plant and equipment and depreciation
and amortization
As previously
Revenue
Expense
reclassification
reclassification
reported
951,411 $
$
As
recast
— $ 1,003,233
607,295
110,287
5,754
51,822 $
51,822
—
—
2,598
(2,598 )
—
661,715
107,689
5,754
$
228,075 $
— $
— $
228,075
Precision Drilling Corporation 2017 Annual Report
66
There is no impact on net loss and comprehensive loss and the consolidated statement of financial position,
consolidated statement of changes in equity and the consolidated statement of cash flows remain unchanged as a
result of this recast.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Cost
Accumulated depreciation
Rig equipment
Rental equipment
Other equipment
Vehicles
Buildings
Assets under construction
Land
Cost
Balance, December 31, 2015
Additions
Additions through business
acquisition
Re-measurement to fair value
before disposal
Disposals
Reclassifications
Effect of foreign currency exchange
differences
Balance, December 31, 2016
Additions
Disposals
Reclassifications
Effect of foreign currency exchange
differences
Balance, December 31, 2017
Accumulated Depreciation
Balance, December 31, 2015
Depreciation expense
Disposals
Effect of foreign currency exchange
differences
Balance, December 31, 2016
Depreciation expense
Disposals
Impairment
Effect of foreign currency exchange
differences
Balance, December 31, 2017
$
$
$
$
$
2017
6,733,634
(3,559,810 )
3,173,824
2,823,782
60,179
66,560
16,280
71,102
102,035
33,886
3,173,824 $
2016
7,011,178
(3,369,289 )
3,641,889
3,210,933
79,398
85,731
22,030
82,335
126,430
35,032
3,641,889
Rental
Equipment
Rig
Equipment Vehicles Buildings
Equipment
$ 6,069,179 $ 171,220 $ 240,192 $ 43,552 $ 131,164 $
913
88,277
1,092
166
Other
92
Total
Land
258,952 $ 35,587 $ 6,949,846
— 203,472
112,932
Assets
Under
Construction
28,125
—
—
—
—
—
—
28,125
7,605
(50,384 )
229,012
—
(11,389 )
—
—
—
(4,988 )
(440 )
12,874 2,573
—
—
702
—
—
(245,161 )
—
—
—
7,605
(67,201 )
—
(779 )
(2,097 )
(1,418 )
(104,823 )
6,266,991 159,144 247,073 45,147 131,361
235
(930 )
—
21,268
(71,014 )
67,779
71
(9,758 )
84
49
(785 )
216
42
(339 )
113
(704 )
(293 )
(555 ) (110,669 )
126,430 35,032 7,011,178
74,823
(82,826 )
(374 )
53,158
—
(68,566 )
—
—
—
(250,858 )
(3,281 )
$ 6,034,166 $ 148,011 $ 244,950 $ 43,201 $ 127,385 $
(1,603 ) (1,762 )
(1,530 )
(8,987 ) (1,146 ) (269,167 )
102,035 $ 33,886 $ 6,733,634
Other
Rental
Equipment
Rig
Equipment
Equipment Vehicles Buildings
$ 2,789,991 $ 74,220 $ 142,846 $ 18,712 $ 40,745 $
22,504 5,060 8,591
342,224
—
(417 )
(3,241 )
(32,427 )
16,039
(10,246 )
Assets
Under
Construction Land
Total
— $ — $ 3,066,514
— — 394,418
— —
(46,331 )
(43,730 )
3,056,058
334,896
(67,304 )
15,313
(267 )
(238 )
(767 )
(310 )
79,746 161,342 23,117 49,026
19,914 5,064 8,488
15,159
(208 )
(320 )
(6,331 )
—
—
—
(592 )
—
(128,579 )
(940 ) (1,023 )
$ 3,210,384 $ 87,832 $ 178,390 $ 26,921 $ 56,283 $
(2,274 )
(742 )
— —
(45,312 )
— — 3,369,289
— — 383,521
— —
(74,755 )
— —
15,313
— — (133,558 )
— $ — $ 3,559,810
Precision Drilling Corporation 2017 Annual Report
67
Impairment Test
Precision reviews the carrying value of its long-lived assets at each reporting period for indicators of impairment. As at
December 31, 2017 the Corporation determined that the uncertainty around future activity levels within Mexico was an
indicator of impairment and performed a comprehensive assessment of the carrying values of property, plant and
equipment of the Mexico drilling CGU within the Contract Drilling Services segment.
The recoverable amount was determined using a value in use calculation. Projected cash flows covered a five-year
period and were based on future expected outcomes taking into account existing term contracts, past experience and
management’s expectation of future market conditions. The primary source of cash flow information was the strategic
plan approved by executives of the Corporation. The strategic plan was developed based on benchmark commodity
prices and industry supply-demand fundamentals.
Cash flows used in the calculation were discounted using a discount rate specific to the Mexico drilling CGU. The
discount rate derived from Precision’s weighted average cost of capital, adjusted for risk factors specific to the CGU and
used in determining the recoverable amount for the Mexico drilling CGU was 17.1% (2016 – 15.1%). The test resulted in
an impairment charge of $15.3 million as the carrying value of the CGU’s assets exceeded its value in use of $26.3
million.
NOTE 6. INTANGIBLES
Cost
Accumulated amortization
Loan commitment fees related to Senior Credit Facility
Software
Cost
Balance, December 31, 2015
Additions
Balance, December 31, 2016
Additions
Reclassifications
Balance, December 31, 2017
Accumulated Amortization
Balance, December 31, 2015
Amortization expense
Balance, December 31, 2016
Amortization expense
Balance, December 31, 2017
$
$
$
$
$
2017
39,707 $
(11,591 )
28,116 $
3,120 $
24,996
28,116 $
Loan
Commitment
Fees
11,131 $
1,214
12,345
1,793
—
14,138 $
Software
— $
—
—
23,179
2,390
$
25,569
2016
12,345
(9,029 )
3,316
3,316
—
3,316
Total
11,131
1,214
12,345
24,972
2,390
39,707
Loan
Commitment
Fees
7,768 $
1,261
9,029
1,989
11,018 $
Software
— $
—
—
573
573 $
Total
7,768
1,261
9,029
2,562
11,591
$
$
$
$
During 2017, the Corporation spent $23.2 million upgrading its ERP system. The upgrade is expected to be completed in
2018 at which time an appropriate amortization period will be determined.
Precision Drilling Corporation 2017 Annual Report
68
NOTE 7. GOODWILL
Balance, December 31, 2015
Exchange adjustment
Balance, December 31, 2016
Exchange adjustment
Balance, December 31, 2017
$
$
208,479
(1,080 )
207,399
(2,232 )
205,167
The carrying value of goodwill is comprised of $172.3 million associated with the Canada contract drilling CGU and
$32.9 million associated with the U.S. directional drilling CGU. In performing its annual good will impairment tests, the
Corporation used a value in use approach. Projected cash flows covered a five-year period and were based on future
expected outcomes taking into account existing term contracts, past experience and management’s expectation of future
market conditions. The primary source of cash flow information was the strategic plans approved by executives of the
Corporation. These strategic plans were developed based on benchmark commodity prices and industry supply-demand
fundamentals.
Canada Contract Drilling
The Corporation performed its annual goodwill impairment test at December 31, 2017 and determined no impairment
was required. The key assumptions used in the calculation of the CGU’s value in use included a discount rate of 9.72%
(2016 – 11.6%) and terminal value growth rates of nil (2016- nil). A discount rate higher than 13.44% would have resulted
in an impairment of goodwill, with each 0.5% increase resulting in approximately $39.4 million of additional impairment
charges.
US Directional Drilling
The Corporation performed its annual goodwill impairment test at December 31, 2017 and determined no impairment
was required. The key assumptions used in the calculation of the CGU’s value in use included a discount rate of 11.72%
(2016 – 13.61%) and terminal value growth rates of nil (2016- nil). A discount rate higher than 19.21% would have
resulted in an impairment of goodwill, with each 0.5% increase resulting in approximately $0.9 million of additional
impairment charges.
NOTE 8. BANK INDEBTEDNESS
At December 31, 2017, Precision had available $40.0 million (2016 – $40.0 million) and US$15.0 million (2016 –
US$15.0 million) under secured operating facilities, and a secured US$30.0 million (2016 – US$30.0 million) facility for
the issuance of letters of credit and performance and bid bonds to support international operations. As at December 31,
2017 and 2016, no amounts had been drawn on any of the facilities. Availability of the $40.0 million and US$30.0 million
facility were reduced by outstanding letters of credit in the amount of $20.8 million (2016 – $22.0 million) and
US$13.3 million (2016 – US$6.5 million), respectively. The facilities are primarily secured by charges on substantially all
present and future property of Precision and its material subsidiaries. Advances under the $40.0 million facility are
available at the bank’s prime lending rate, U.S. base rate, U.S. LIBOR plus applicable margin, or Banker’s Acceptance
plus applicable margin, or in combination, and under the US$15.0 million facility at the bank’s prime lending rate.
NOTE 9. SHARE BASED COMPENSATION PLANS
In May 2017 shareholders approved a new omnibus equity incentive plan (Omnibus Plan) that will allow the Corporation
to settle short-term incentive awards (annual bonus) and long-term incentive awards (options, performance share unit
and restricted share units) issued on or after February 8, 2017 in voting shares of Precision (either issued from treasury
or purchased in the open market), cash, or a combination of both. Precision intends to settle all short-term incentive,
restricted share unit and non-executive performance share unit awards issued under the Omnibus Plan in cash and to
settle performance share awards issued to senior executives and all options in voting shares. No further grants will be
made under the legacy stock option plan, performance share unit plan or restricted share unit plan. Vesting conditions for
incentive awards issued under the Omnibus Plan are unchanged from what existed under the legacy plans.
Precision Drilling Corporation 2017 Annual Report
69
Liability Classified Plans
Balance, December 31, 2015
Expensed (recovered) during the period
Payments
Balance, December 31, 2016
Expensed (recovered) during the period
Payments
Balance, December 31, 2017
Current
Long-term
Performance
Share Units
Share
Appreciation
Rights
Restricted
Share Units
$
10,459 $
10,888
(5,755 )
15,592
2,115
(10,757 )
6,950 $
4,719 $
2,231
6,950 $
19,624 $
18,920
(9,499 )
29,045
(4,188 )
(13,450 )
11,407 $
3,614 $
7,793
11,407 $
$
$
$
Non-
Management
Directors’
DSUs
2,383 $
2,219
—
4,602
(1,090 )
—
3,512 $
— $
3,512
3,512 $
6 $
(3 )
—
3
(3 )
—
— $
— $
—
— $
Total
32,472
32,024
(15,254 )
49,242
(3,166 )
(24,207 )
21,869
8,333
13,536
21,869
(a) Restricted Share Units and Performance Share Units
Precision has two cash-settled share based incentive plans for officers and other eligible employees. Under the
Restricted Share Unit (RSU) incentive plan, shares granted to eligible employees vest annually over a three-year term.
Vested shares are automatically paid out in cash at a value determined by the fair market value of the shares at the
vesting date. Under the Performance Share Unit (PSU) incentive plan, shares granted to eligible employees vest at the
end of a three-year term. Vested shares are automatically paid out in cash in the first quarter following the vested term at
a value determined by the fair market value of the shares at the vesting date and based on the number of performance
shares held multiplied by a performance factor that ranges from zero to two times. The performance factor is based on
Precision’s share price performance compared to a peer group over the three-year period.
A summary of the RSUs and PSUs outstanding under these share based incentive plans is presented below:
December 31, 2015
Granted
Redeemed
Forfeitures
December 31, 2016
Granted
Redeemed
Forfeitures
December 31, 2017
RSUs
Outstanding
2,896,818
1,911,200
(1,311,580 )
(367,399 )
3,129,039
1,343,669
(1,404,271 )
(271,579 )
2,796,858
PSUs
Outstanding
4,898,455
3,443,600
(1,136,720 )
(711,537 )
6,493,798
828,400
(1,325,692 )
(270,247 )
5,726,259
(b) Share Appreciation Rights
The Corporation has a U.S. dollar denominated Share Appreciation Rights (SAR) plan under which eligible participants
were granted SARs that entitle the rights holder to receive cash payments calculated as the excess of the market price
over the exercise price per share on the exercise date. The SARs vest over a period of five years and expire 10 years
from the date of grant. At December 31, 2017 and 2016 the intrinsic value of these awards was $nil.
Share Appreciation Rights
December 31, 2015
Forfeited
December 31, 2016
Forfeited
December 31, 2017
Range of
Exercise Price
(US$)
Weighted
Average
Exercise
Price (US$)
Outstanding
343,132 $ 15.22 – 17.38 $
15.22 – 13.26
(89,756 )
15.22 – 15.79
253,376
15.22 – 17.38
(117,207 )
136,169 $ 15.22 – 15.22 $
15.93
17.22
15.47
15.75
15.22
Exercisable
343,132
253,376
136,169
Precision Drilling Corporation 2017 Annual Report
70
Range of Exercise Prices (US$):
$ 15.22 – 15.79
Number
136,169
$
Weighted
Average
Exercise
Price (US$)
15.22
Weighted
Average
Remaining
Contractual Life
(Years)
0.16
Total SARs Outstanding and Exercisable
(c) Non-Management Directors
Effective January 1, 2012, Precision instituted a new deferred share unit (DSU) plan for non-management directors
whereby fully vested DSUs are granted quarterly based on an election by the non-management director to receive all or
a portion of his or her compensation in DSUs. These DSUs are redeemable in cash or for an equal number of common
shares upon the director’s retirement. The redemption of DSUs in cash or common shares is solely at Precision’s
discretion. Non-management directors can receive a lump sum payment or two separate payments any time up until
December 15 of the year following retirement. If the non-management director does not specify a redemption date, the
DSUs will be redeemed on a single date six months after retirement. The cash settlement amount is based on the
weighted average trading price for Precision’s shares on the Toronto Stock Exchange for the five days immediately prior
to payout. A summary of the DSUs outstanding under this share based incentive plan is presented below:
Deferred Share Units
Balance December 31, 2015
Granted
Balance December 31, 2016
Granted
Balance December 31, 2017
Outstanding
428,028
193,793
621,821
331,456
953,277
Equity Settled Plans
(d) Non-Management Directors
Prior to January 1, 2012, Precision had a deferred share unit plan for non-management directors. Under the plan, fully
vested deferred share units were granted quarterly based on an election by the non-management director to receive all
or a portion of his or her compensation in deferred share units. These deferred share units are redeemable into an equal
number of common shares any time after the director’s retirement. A summary of this share based incentive plan is
presented below:
Deferred Share Units
December 31, 2016 and 2017
Outstanding
195,743
(e) Option Plan
The Corporation has a share option plan under which a combined total 16,569,134 options to purchase common shares
are reserved to be granted to employees. Of the amount reserved, 13,752,016 options have been granted. Under this
plan, the exercise price of each option equals the fair market value of the option at the date of grant determined by the
weighted average trading price for the five days preceding the grant. The options are denominated in either Canadian or
U.S. dollars, and vest over a period of three years from the date of grant, as employees render continuous service to the
Corporation, and have a term of seven years.
A summary of the status of the equity incentive plan is presented below:
Canadian Share Options
December 31, 2015
Granted
Exercised
Forfeitures
December 31, 2016
Granted
Forfeitures
December 31, 2017
Options
Outstanding
Range of
Exercise
Prices
6,168,596 $ 5.22 – 14.50 $
4.46 – 4.46
5.22 – 5.85
5.85 – 11.16
4.46 – 14.50
7.30 – 7.30
7.32 – 14.50
4,900,360 $ 4.46 – 14.50 $
615,200
(295,768 )
(299,356 )
6,188,672
377,100
(1,665,412 )
Weighted
Average
Exercise
Options
Price
Exercisable
8.93 3,870,673
4.46
5.85
7.57
8.70 4,369,155
7.30
8.98
8.50 3,734,019
Precision Drilling Corporation 2017 Annual Report
71
U.S. Share Options
December 31, 2015
Granted
Exercised
Forfeitures
December 31, 2016
Granted
Forfeitures
December 31, 2017
Options
Outstanding
Range of
Exercise
Prices
(US$)
4,582,237 $ 4.95 – 15.21 $
3.21 – 5.02
2,130,700
4.95 – 4.95
(31,000 )
3.21 – 10.74
(1,344,867 )
3.21 – 15.21
5,337,070
3.99 – 5.57
1,165,900
5.79 – 10.96
(944,349 )
5,558,621 $ 3.21 – 15.21 $
Weighted
Average
Exercise
Price
Options
Exercisable
(US$)
8.30 2,468,185
3.30
4.95
6.86
6.69 2,626,326
5.56
8.42
6.16 2,891,808
The weighted average share price at the date of exercise for share options exercised in 2016 was $6.37 for the Canadian
share options and US$5.14 for the U.S. share options.
Canadian Share
Options
Range of Exercise
Prices:
$ 4.46 – 7.99
8.00 – 9.99
10.00 – 14.50
$ 4.46 – 14.50
U.S. Share Options
Range of Exercise
Prices
(US$):
$ 3.21 – 4.99
5.00 – 7.99
8.00 – 15.21
$ 3.21 – 15.21
Total Options Outstanding
Options Exercisable
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
(Years)
6.50
9.02
10.51
8.50
4.74
2.11
1.45
3.01
Number
2,153,234 $
830,017
1,917,109
4,900,360 $
Weighted
Average
Exercise Price
6.73
9.02
10.51
9.18
Number
986,893 $
830,017
1,917,109
3,734,019 $
Total Options Outstanding
Options Exercisable
Weighted
Average
Exercise Price
(US$)
Weighted
Average
Remaining
Contractual Life
(Years)
3.23
5.64
9.79
6.16
5.16
5.26
1.82
4.18
Number
1,731,100 $
2,127,900
1,699,621
5,558,621 $
Weighted
Average
Exercise Price
(US$)
3.23
5.76
9.79
7.63
Number
572,460 $
619,727
1,699,621
2,891,808 $
The per option weighted average fair value of the share options granted during 2017 was $1.59 (2016 – $1.79) estimated
on the grant date using the Black-Scholes option pricing model with the following assumptions: average risk-free interest
rate of 1% (2016 – 1%), average expected life of four years (2016 – four years), expected forfeiture rate of 5% (2016 –
5%) and expected volatility of 54% (2016 – 50%). Included in net loss for the year ended December 31, 2017 is an
expense of $3.2 million (2016 – $4.2 million).
(f) Executive Performance Share Units
During 2017 Precision granted PSUs to certain senior executives with the intention of settling them in voting shares of
the Corporation either issued from treasury or purchased in the open market. These PSUs vest over a three year period
and incorporate performance criteria established at the date of grant that can adjust the number of performance share
units available for settlement from zero to two times the amount originally granted. A summary of the activity under this
share based incentive plan is presented below:
December 31, 2016
Granted
December 31, 2017
Outstanding
— $
1,159,000
1,159,000 $
Weighted
Fair Value
—
6.00
6.00
The per unit weighted average fair value of the performance share units granted during 2017 was $6.00 estimated on the
grant date using a Monte Carlo simulation with the following assumptions: share price of $5.08, average risk-free interest
rate of 1.2%, average expected life of three years, expected volatility of 60%, and an expected dividend yield of nil.
Included in net loss for year ended December 31, 2017 is an expense of $1.9 million (2016 - $nil).
Precision Drilling Corporation 2017 Annual Report
72
Employee Share Purchase Plan
The Corporation has an employee share purchase plan to encourage employees to become Precision shareholders and
to attract and retain people. Under the plan, eligible employees can contribute up to 10% of their regular base salary
through payroll deduction with Precision matching 20% of the employee’s contribution. These contributions are used to
purchase the Corporation’s shares in the open market. No vesting conditions apply. During 2017, the Corporation
recorded compensation expense of $0.8 million (2016 – $0.6 million) related to this plan.
NOTE 10. PROVISIONS AND OTHER
Balance December 31, 2015
Expensed during the year
Payment of deductibles and uninsured claims
Effects of foreign currency exchange differences
Balance December 31, 2016
Expensed during the year
Payment of deductibles and uninsured claims
Effects of foreign currency exchange differences
Balance December 31, 2017
Current
Long-term
$
$
2017
3,146 $
10,086
13,232 $
$
$
Workers’
Compensation
18,829
2,279
(5,050 )
(597 )
15,461
2,613
(3,929 )
(913 )
13,232
2016
3,040
12,421
15,461
Precision maintains a provision for the deductible and uninsured portions of workers’ compensation and general liability
claims. The amount accrued for the provision for losses incurred varies depending on the number and nature of the
claims outstanding at the balance sheet dates. In addition, the accrual includes management’s estimate of the future cost
to settle each claim such as future changes in the severity of the claim and increases in medical costs. Precision uses
third parties to assist in developing the estimate of the ultimate costs to settle each claim, which is based on historical
experience associated with the type of each claim and specific information related to each claim. The specific
circumstances of each claim may change over time prior to settlement and, as a result, the estimates made as of the
balance sheet dates may change.
NOTE 11. LONG-TERM DEBT
Senior Credit Facility
Unsecured senior notes:
6.625% senior notes due 2020 (US$ nil)
6.5% senior notes due 2021 (US$248.6 million)
7.75% senior notes due 2023 (US$350.0 million)
5.25% senior notes due 2024 (US$400.0 million)
7.125% senior notes due 2026 (US$400.0 million)
Less net unamortized debt issue costs
$
2017
— $
2016
—
—
312,601
440,062
502,928
502,928
1,758,519
(28,082 )
1,730,437 $
499,150
427,818
469,945
537,080
—
1,933,993
(27,059 )
1,906,934
$
Precision Drilling Corporation 2017 Annual Report
73
Balance December 31, 2016
Changes from financing cash flows:
Proceeds from issue of senior notes
Redemption of senior notes
Payment of debt issue costs
Loss on redemption of unsecured senior notes
Amortization of debt issue costs
Foreign exchange adjustment
Balance December 31, 2017
$
$
Senior Credit
Facility
Unsecured
senior notes
— $ 1,933,993 $
Debt issue
costs
Total
(27,059 ) $ 1,906,934
—
509,180
(571,975 )
—
—
—
(62,795 )
—
—
9,021
—
—
—
(121,700 )
— $ 1,758,519 $
—
—
(9,196 )
(9,196 )
—
8,173
—
509,180
(571,975 )
(9,196 )
(71,991 )
9,021
8,173
(121,700 )
$ 1,730,437
(28,082 )
(a) Senior Credit Facility:
The senior secured revolving credit facility (as amended, the Senior Credit Facility) provides Precision with senior
secured financing for general corporate purposes, including for acquisitions, of up to US$500.0 million with a provision for
an increase in the facility of up to an additional US$250.0 million. The Senior Credit Facility is secured by charges on
substantially all of Precision’s present and future assets and the present and future assets of its material U.S. and
Canadian subsidiaries and, if necessary in order to adhere to covenants under the Senior Credit Facility, on certain
assets of certain subsidiaries organized in a jurisdiction outside of Canada or the U.S.
During 2017, Precision agreed with its lending group to amend certain financial covenants and terms governing its Senior
Credit Facility. These amendments among other things: (i) temporarily reduce the Covenant EBITDA (as defined in the
debt agreement) to interest expense coverage ratio to the greater of or equal to 1.25:1 for the periods ending March 31,
June 30 and September 30, 2017, 1.50:1 for the periods ending December 31, 2017 and March 31, 2018, 2.00:1 for the
periods ending June 30, September 30, December 31, 2018 and March 31, 2019 reverting to 2.50:1 thereafter until
maturity of the facility; (ii) increase the additional borrowing capacity available under the facility to US$300.0 million after
the covenant relief period; (iii) extended the maturity date of the facility to November 21, 2021.
The Senior Credit Facility prevents us from making distributions prior to April 1, 2019, after which, distributions are
subject to a pro-forma senior net leverage covenant of less than or equal to 1.75:1. The Senior Credit Facility also limits
the redemption and repurchase of junior debt subject to a pro-forma senior net leverage covenant test of less than or
equal to 1.75:1.
In addition, the Senior Credit Facility contains certain covenants that place restrictions on Precision’s ability to incur or
assume additional indebtedness; dispose of assets; make or pay dividends, share redemptions or other distributions;
change its primary business; incur liens on assets; engage in transactions with affiliates; enter into mergers,
consolidations or amalgamations; and enter into speculative swap agreements. At December 31, 2017, Precision was in
compliance with the covenants of the Senior Credit Facility.
The Senior Credit Facility has a term of four years, with an annual option on Precision’s part to request that the lenders
extend, at their discretion, the facility to a new maturity date not to exceed five years from the date of the extension
request. The current maturity date of the Senior Credit Facility is November 21, 2021.
Under the Senior Credit Facility, amounts can be drawn in U.S. dollars and/or Canadian dollars and, as at December 31,
2017 and 2016 no amounts were drawn under this facility. Up to US$200.0 million of the Senior Credit Facility is
available for letters of credit denominated in U.S and/or Canadian dollars and other currencies acceptable to the fronting
lender. As at December 31, 2017 outstanding letters of credit amounted to US$20.9 million (2016 – US$41.5 million).
The interest rate on loans that are denominated in U.S. dollars is, at the option of Precision, either a margin over a U.S.
base rate or a margin over LIBOR. The interest rate on loans denominated in Canadian dollars is, at the option of
Precision, either a margin over the Canadian prime rate or a margin over the bankers’ acceptance rate; such margins will
be based on the then applicable ratio of consolidated total debt to EBITDA.
(b) Unsecured Senior Notes:
Precision has outstanding the following unsecured senior notes:
6.5% US$ senior notes due 2021
These notes bear interest at a fixed rate of 6.5% per annum and mature on December 15, 2021. Interest is payable
semi-annually on June 15 and December 15 of each year.
These notes are unsecured, ranking equally with existing and future senior unsecured indebtedness, and have
been guaranteed by current and future U.S. and Canadian subsidiaries that guaranteed the Senior Credit Facility.
These notes contain certain covenants that limit Precision’s ability and the ability of certain subsidiaries to incur
Precision Drilling Corporation 2017 Annual Report
74
additional indebtedness and issue preferred stock; create liens; make restricted payments; create or permit to exist
restrictions on the ability of Precision or certain subsidiaries to make certain payments and distributions; engage in
amalgamations, mergers or consolidations; make certain dispositions and transfers of assets; and engage in
transactions with affiliates. If the notes receive an investment grade rating by Standard & Poor’s or Moody’s
Investors Service and Precision and its subsidiaries are not in default under the indenture governing the notes,
then Precision will not be required to comply with particular covenants contained in the indenture.
Precision may redeem these notes in whole or in part before December 15, 2019, at redemption prices ranging
between 102.167% and 101.083% of their principal amount plus accrued interest. Any time on or after
December 15, 2019, these notes can be redeemed for their principal amount plus accrued interest. Upon specified
change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at
a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.
During 2017, Precision redeemed US$70.0 million of these notes for an aggregate purchase price of
US$71.8 million. The difference was recognized as a loss on redemption of unsecured senior notes within the
consolidated statement of loss.
7.75% US$ senior notes due 2023
These notes bear interest at a fixed rate of 7.75% per annum and mature on December 15, 2023. Interest is
payable semi-annually on June 15 and December 15 of each year.
These notes are unsecured, ranking equally with existing and future senior unsecured indebtedness, and have
been guaranteed by current and future U.S. and Canadian subsidiaries that guaranteed the Senior Credit Facility.
These notes contain certain covenants that limit Precision’s ability and the ability of certain subsidiaries to incur
additional indebtedness and issue preferred stock; create liens; make restricted payments; create or permit to exist
restrictions on the ability of Precision or certain subsidiaries to make certain payments and distributions; engage in
amalgamations, mergers or consolidations; make certain dispositions and transfers of assets; and engage in
transactions with affiliates. If the notes receive an investment grade rating by Standard & Poor’s or Moody’s
Investors Service and Precision and its subsidiaries are not in default under the indenture governing the notes,
then Precision will not be required to comply with particular covenants contained in the indenture.
Prior to December 15, 2019, Precision may redeem up to 35% of the 7.75% senior notes due 2023 with the net
proceeds of certain equity offerings at a redemption price equal to 107.75% of the principal amount plus accrued
interest. Prior to December 15, 2019, Precision may redeem these notes in whole or in part at 100.0% of their
principal amount, plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed
and the excess, if any, of the present value of the December 15, 2019 redemption price plus required interest
payments through December 15, 2019 (calculated using the U.S. Treasury rate plus 50 basis points) over the
principal amount of the note. As well, Precision may redeem these notes in whole or in part at any time on or after
December 15, 2019 and before December 15, 2021, at redemption prices ranging between 103.875% and
101.938% of their principal amount plus accrued interest. Any time on or after December 15, 2021, these notes
can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each
holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal
to 101% of the principal amount, plus accrued interest to the date of purchase.
5.25% US$ senior notes due 2024
These notes bear interest at a fixed rate of 5.25% per annum and mature on November 15, 2024. Interest is
payable semi-annually on May 15 and November 15 of each year.
These notes are unsecured, ranking equally with existing and future senior unsecured indebtedness, and have
been guaranteed by current and future U.S. and Canadian subsidiaries that guaranteed the Senior Credit Facility.
These notes contain certain covenants that limit Precision’s ability and the ability of certain subsidiaries to incur
additional indebtedness and issue preferred stock; create liens; make restricted payments; create or permit to exist
restrictions on the ability of Precision or certain subsidiaries to make certain payments and distributions; engage in
amalgamations, mergers or consolidations; make certain dispositions and transfers of assets; and engage in
transactions with affiliates. If the notes receive an investment grade rating by Standard & Poor’s or Moody’s
Investors Service and Precision and its subsidiaries are not in default under the indenture governing the notes,
then Precision will not be required to comply with particular covenants contained in the indenture.
Prior to May 15, 2019, Precision may redeem these notes in whole or in part at 100.0% of their principal amount,
plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed and the excess, if
any, of the present value of the May 15, 2019 redemption price plus required interest payments through May 15,
2019 (calculated using the U.S. Treasury rate plus 50 basis points) over the principal amount of the note. As well,
Precision may redeem these notes in whole or in part at any time on or after May 15, 2019 and before May 15,
2022, at redemption prices ranging between 102.625% and 100.875% of their principal amount plus accrued
interest. Any time on or after May 15, 2022, these notes can be redeemed for their principal amount plus accrued
Precision Drilling Corporation 2017 Annual Report
75
interest. Upon specified change of control events, each holder of a note will have the right to sell to Precision all or
a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued interest to the
date of purchase.
7.125% US$ senior notes due 2026
These notes, issued in 2017, bear interest at a fixed rate of 7.125% per annum and mature on January 15, 2026.
Interest is payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2018.
These notes are unsecured, ranking equally with existing and future senior unsecured indebtedness, and have
been guaranteed by current and future U.S. and Canadian subsidiaries that guaranteed the Senior Credit Facility.
These notes contain certain covenants that limit Precision(cid:835)s ability and the ability of certain subsidiaries to incur
additional indebtedness and issue preferred stock; create liens; make restricted payments; create or permit to exist
restrictions on the ability of Precision or certain subsidiaries to make certain payments and distributions; engage in
amalgamations, mergers or consolidations; make certain dispositions and transfers of assets; and engage in
transactions with affiliates. If the notes receive an investment grade rating by Standard & Poor(cid:835)s or Moody(cid:835)s
Investors Service and Precision and its subsidiaries are not in default under the indenture governing the notes,
then Precision will not be required to comply with particular covenants contained in the indenture.
Prior to November 15, 2020, Precision may redeem up to 35% of the 7.125% senior notes due 2026 with the net
proceeds of certain equity offerings at a redemption price equal to 107.125% of the principal amount plus accrued
interest. Prior to November 15, 2020, Precision may redeem these notes in whole or in part at 100.0% of their
principal amount, plus accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed
and the excess, if any, of the present value of the November 15, 2020 redemption price plus required interest
payments through November 15, 2020 (calculated using the U.S. Treasury rate plus 50 basis points) over the
principal amount of the note. As well, Precision may redeem these notes in whole or in part at any time on or after
November 15, 2020 and before November 15, 2022, at redemption prices ranging between 105.344% and
101.781% of their principal amount plus accrued interest. Any time on or after November 15, 2023, these notes
can be redeemed for their principal amount plus accrued interest. Upon specified change of control events, each
holder of a note will have the right to sell to Precision all or a portion of its notes at a purchase price in cash equal
to 101% of the principal amount, plus accrued interest to the date of purchase.
The senior notes require that we comply with certain financial covenants including an incurrence based test of
Consolidated Interest Coverage Ratio, as defined in the senior note agreements, of greater than or equal to 2.0:1 for the
most recent four consecutive fiscal quarters. In the event that our Consolidated Interest Coverage Ratio is less than 2.0:1
for the most recent four consecutive fiscal quarters the senior notes restrict our ability to incur additional indebtedness.
As at December 31, 2017, our senior notes Consolidated Interest Coverage Ratio was 2.16:1.
The senior notes also contain a restricted payments covenant that limits our ability to make payments in the nature of
dividends, distributions and repurchases from shareholders. This restricted payment basket grows by, among other
things, 50% of cumulative consolidated net earnings, and decreases by 100% of cumulative consolidated net losses as
defined in the note agreements, and cumulative payments made to shareholders. As at December 31, 2017, the
restricted payments basket was negative $213 million (2016 – negative $310 million), therefore prohibiting us from
making any further dividend payments until the governing restricted payments basket once again becomes positive. No
dividends have been declared or paid subsequent to December 31, 2017.
During 2017, Precision redeemed all the remaining US$371.8 million 6.625% senior notes due 2020 for an aggregate
purchase price of US$377.1 million. The difference was recognized as a loss on redemption of unsecured senior notes
within the consolidated statement of loss.
Long-term debt obligations at December 31, 2017 will mature as follows:
2021
Thereafter
$
$
312,601
1,445,918
1,758,519
Precision Drilling Corporation 2017 Annual Report
76
(c) Guarantor Disclosures
Our unsecured senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis
by all U.S. and Canadian subsidiaries that guaranteed the senior Credit Facility (Guarantor Subsidiaries). These
Guarantor Subsidiaries are directly or indirectly 100% owned by the parent company. Separate financial statements for
each of the Guarantor Subsidiaries have not been provided; instead we have included condensed consolidating financial
statements based on Rule 3-10 of the U.S. Securities and Exchange Commission’s Regulation S-X.
Condensed Consolidating Statement of Financial Position as at December 31, 2017
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Total
Assets
Cash
Other current assets
Intercompany receivables
Investments in subsidiaries
Property, plant and equipment
Intangibles
Goodwill
Other long-term assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Intercompany payables and debt
Long-term debt
Other long-term liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$
4,822,876
5,422 $
20,843 $
38,558
261,883
93,662 2,669,280
61
64,605 2,659,831
2,472
25,644
—
205,167
—
53,908
— $
65,081
3 376,665
—
—
(529 ) 3,173,824
—
28,116
— 205,167
44,078
$ 5,066,188 $ 5,858,024 $ 652,866 $ (7,684,147 ) $ 3,892,931
38,816 $
76,221
84,861
—
449,917
—
—
3,051
(2,847,803 )
(4,822,937 )
(12,881 )
— $ 209,625
$
36,331 $ 124,482 $
—
1,795,141 1,000,167
— 1,730,437
—
1,730,437
(12,881 ) 142,533
17,978
135,053
(2,860,684 ) 2,082,595
3,696,962 1,142,627
1,369,226 4,715,397
(4,823,463 ) 1,810,336
$ 5,066,188 $ 5,858,024 $ 652,866 $ (7,684,147 ) $ 3,892,931
48,812 $
52,495
—
2,383
103,690
549,176
(2,847,803 )
Condensed Consolidating Statement of Financial Position as at December 31, 2016
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Total
Assets
Cash
Other current assets
Intercompany receivables
Investments in subsidiaries
Property, plant and equipment
Intangibles
Goodwill
Total assets
Liabilities and shareholders’ equity
Current liabilities
Intercompany payables and debt
Long-term debt
Other long- term liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$
61,794 $
43,630
13,138 $
210,125
1,475,431 3,024,724
60
4,913,785
78,849 3,023,968
—
207,399
— $ 115,705
3 355,905
—
—
(142 ) 3,641,889
—
3,316
— 207,399
$ 6,576,805 $ 6,479,414 $ 750,901 $ (9,482,906 ) $ 4,324,214
40,773 $
102,147
68,767
—
539,214
—
—
(4,568,922 )
(4,913,845 )
3,316
—
— $ 240,736
$
42,657 $ 126,870 $
—
3,071,032 1,412,257
— 1,906,934
—
1,906,934
— 214,426
32,781
181,940
(4,568,922 ) 2,362,096
5,202,563 1,571,908
1,374,242 4,907,506
(4,913,984 ) 1,962,118
$ 6,576,805 $ 6,479,414 $ 750,901 $ (9,482,906 ) $ 4,324,214
71,209 $
85,633
—
(295 )
156,547
594,354
(4,568,922 )
Precision Drilling Corporation 2017 Annual Report
77
Condensed Consolidating Statement of Loss for the Year ended December 31, 2017
Revenue
Operating expense
General and administrative expense
Earnings (loss) before income taxes, loss on redemption
and repurchase of unsecured senior notes, finance
charges, foreign exchange, impairment of property, plant
and equipment and depreciation and amortization
Depreciation and amortization
Impairment of property, plant and equipment
Operating loss
Foreign exchange
Finance charges
Loss on redemption and repurchase of unsecured senior
notes
Equity in loss of subsidiaries
Loss before tax
Income taxes
Net loss
Parent
Guarantor
Subsidiaries
89 $ 1,138,049 $
809,233
44,932
138
35,605
Non-
Guarantor
Subsidiaries
190,401 $
124,115
9,535
Consolidating
Adjustments
Total
(7,315 ) $ 1,321,224
(7,315 ) 926,171
90,072
—
$
(35,654 )
13,118
—
(48,772 )
(2,375 )
138,027
283,884
302,958
15,313
(34,387 )
(889 )
(68 )
56,751
61,450
—
(4,699 )
294
(31 )
— 304,981
220 377,746
—
15,313
(88,078 )
(220 )
—
(2,970 )
— 137,928
9,021
(12,383 )
(181,062 )
(47,567 )
$ (133,495 ) $
—
—
(33,430 )
(59,120 )
25,690 $
—
—
(4,962 )
6,666
(11,628 ) $
—
12,383
(12,603 )
—
9,021
—
(232,057 )
(100,021 )
(12,603 ) $ (132,036 )
Condensed Consolidating Statement of Loss for the Year ended December 31, 2016
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$
103 $ 846,867 $ 169,287 $
123,041
160
11,173
37,193
—
285
551,538
59,323
5,469
Consolidating
Adjustments
Total
(13,024 ) $ 1,003,233
(13,024 ) 661,715
— 107,689
—
5,754
Revenue
Operating expense
General and administrative expense
Restructuring
Earnings (loss) before income taxes, loss on redemption
and repurchase of unsecured senior notes, finance
charges, foreign exchange, gain re-measurement of
property, plant and equipment and depreciation and
amortization
Depreciation and amortization
Gain on re-measurement of property, plant and equipment
Operating loss
Foreign exchange
Finance charges
Loss on redemption and repurchase of unsecured senior
notes
Equity in loss of subsidiaries
Loss before tax
Income taxes
Net loss
(37,535 )
13,828
—
(51,363 )
6,731
146,053
230,537
324,649
(7,605 )
(86,507 )
(2,121 )
118
35,073
52,957
—
(17,884 )
1,398
189
- 228,075
225 391,659
—
(7,605 )
(225 )
(155,979 )
—
6,008
— 146,360
239
23,042
(227,428 )
(72,098 )
$ (155,330 ) $
—
—
(84,504 )
(83,404 )
(1,100 ) $
—
—
(19,471 )
2,471
(21,942 ) $
—
(23,042 )
22,817
—
239
—
(308,586 )
(153,031 )
22,817 $ (155,555 )
Condensed Consolidating Statement of Comprehensive Loss for the Year ended December 31, 2017
Net loss
Other comprehensive income (loss)
Comprehensive loss
$ (133,495 ) $
121,699
(11,796 ) $
$
25,690 $
(110,717 )
(85,027 ) $
(11,628 ) $
(35,661 )
(47,289 ) $
Total
(12,603 ) $ (132,036 )
(24,846 )
(12,770 ) $ (156,882 )
(167 )
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Precision Drilling Corporation 2017 Annual Report
78
Condensed Consolidating Statement of Comprehensive Loss for the Year ended December 31, 2016
Net loss
Other comprehensive income (loss)
Comprehensive income (loss)
$ (155,330 ) $
66,963
(88,367 ) $
$
(1,100 ) $
(62,459 )
(63,559 ) $
(21,942 ) $
(11,270 )
(33,212 ) $
Condensed Consolidating Statement of Cash Flow for the Year ended December 31, 2017
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Total
22,817 $ (155,555 )
(9,645 )
(2,879 )
19,938 $ (165,200 )
Cash provided by (used in):
Operations
Investments
Financing
Effects of exchange rate changes on cash and cash
equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Total
$ (160,698 ) $ 243,364 $
(58,942 )
191,638
(190,360 )
(73,784 )
33,889 $
(11,152 )
(22,334 )
— $ 116,555
(91,150 )
(73,784 )
(212,694 )
212,694
1,893
(40,951 )
61,794
20,843 $
(1,778 )
(7,716 )
13,138
5,422 $
(2,360 )
(1,957 )
40,773
38,816 $
$
—
(2,245 )
—
(50,624 )
— 115,705
— $
65,081
Condensed Consolidating Statement of Cash Flow for the Year ended December 31, 2016
Cash provided by (used in):
Operations
Investments
Financing
Effects of exchange rate changes on cash and cash
equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
NOTE 12. INCOME TAXES
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Total
$ (185,430 ) $ 298,342 $
145,451
(65,939 )
(257,263 )
(218,324 )
9,596 $
(149,151 )
112,977
— $ 122,508
(213,925 )
(218,324 )
(144,286 )
144,286
(10,661 )
(268,964 )
330,758
61,794 $
$
(5,041 )
(29,901 )
43,039
13,138 $
(3,611 )
(30,189 )
70,962
40,773 $
—
(19,313 )
—
(329,054 )
— 444,759
- $ 115,705
The provision for income taxes differs from that which would be expected by applying statutory Canadian income tax
rates.
A reconciliation of the difference for the years ended December 31, is as follows:
Loss before income taxes
Federal and provincial statutory rates
Tax at statutory rates
Adjusted for the effect of:
Non-deductible expenses
Non-taxable capital gains
Income taxed at lower rates
Impact of foreign tax rates
Withholding taxes
Taxes related to prior years
Other
Income tax recovery
$
$
$
2017
(232,057 ) $
27 %
(62,655 ) $
2,672
(175 )
(42,334 )
(2,814 )
1,165
(618 )
4,738
(100,021 ) $
2016
(308,586 )
27 %
(83,318 )
3,473
(4,461 )
(43,232 )
(23,658 )
1,638
(1,227 )
(2,246 )
(153,031 )
Precision Drilling Corporation 2017 Annual Report
79
On December 22, 2017, the United States government enacted new tax legislation which affects the taxation of
Precision’s U.S. subsidiaries. In additional to changing certain U.S. federal income tax laws, this new tax legislation
reduced the U.S. federal income tax rate from 35% to 21% effective January 1, 2018. Precision will also be affected by
the provisions within this legislation that will limit the deductibility of interest by its U.S. subsidiaries under its current
financing arrangements and repeal the alternative minimum tax. Precision has recorded; a $15.8 million deferred income
tax expense on the revaluation of its U.S. subsidiaries net deferred income tax assets which incorporates the reduction in
the U.S. federal income tax rate and the expected impact of other applicable provisions within the new U.S tax
legislation. The Corporation has also recognized a $2.3 million long-term receivable for the recovery of its U.S.
subsidiaries alternative minimum tax carryforward balance.
The net deferred tax liability is comprised of the tax effect of the following temporary differences:
Deferred income tax liability:
Property, plant and equipment and intangibles
Debt issue costs
Other
Offsetting of assets and liabilities
Deferred income tax assets:
Losses (expire from time to time up to 2036)
Partnership deferrals
Long-term incentive plan
Other
Offsetting of assets and liabilities
$
2017
2016
454,613 $
3,352
6,709
464,674
(345,763 )
118,911
368,133
335
7,935
11,182
387,585
(345,763 )
41,822
629,967
4,215
6,159
640,341
(465,723 )
174,618
418,253
16,447
18,270
12,753
465,723
(465,723 )
—
Net deferred income tax liability
$
77,089 $
174,618
Included in the deferred income tax assets is $38.8 million (2016 – $14.0 million liability) of tax-effected temporary
differences related to the Corporation’s U.S. operations.
The Corporation has certain loss carryforwards in the U.S. and international locations for which it is unlikely that sufficient
future taxable income will be available. Accordingly, the Corporation has not recognized a deferred income tax asset on
these losses totaling $31.5 million.
The movement in temporary differences is as follows:
Balance, December 31, 2015
Recognized in net loss
Recognized in other comprehensive loss
Effect of foreign currency exchange
differences
Balance, December 31, 2016
Recognized in net loss
Effect of foreign currency exchange
differences
Balance, December 31, 2017
Property,
Plant and
Equipment
and
Intangibles
637,106
5,960
—
Other
Deferred
Income Tax
Liabilities
4,668
1,483
—
Debt Issue
Long-Term
Incentive
Costs
5,802
(1,587 )
—
Plan
(12,477 )
(5,979 )
—
Other
Deferred
Income Tax
Net
Deferred
Income Tax
Liability
Assets
(8,271 ) 303,466
(121,836 )
(4,543 )
—
(2,933 )
Losses
(335,966 )
(88,119 )
(2,933 )
Partnership
Deferrals
12,604
(29,051 )
—
(13,099 )
$ 629,967 $
(149,489 )
—
(16,447 ) $
16,112
8
6,159 $
545
8,765
(418,253 ) $
24,124
—
4,215 $
(863 )
186
(18,270 ) $
9,651
61
(4,079 )
(12,753 ) $ 174,618
(98,690 )
1,230
(25,865 )
$ 454,613 $
—
(335 ) $
5
6,709 $
25,996
(368,133 ) $
—
3,352 $
684
(7,935 )
341
(11,182 ) $
1,161
77,089
On December 31, 2017, Precision had $2.0 million (2016 – $1.9 million) of unrecognized tax benefits that, if recognized,
would have a favourable impact on Precision’s effective income tax rate in future periods. Precision classifies interest
accrued on unrecognized tax benefits and income tax penalties as income tax expense. Included in the unrecognized tax
benefit, as at December 31, 2017 was interest and penalties of $0.5 million (2016 – $0.4 million).
Precision Drilling Corporation 2017 Annual Report
80
Reconciliation of Uncertain Tax Positions
Unrecognized tax benefits, beginning of year
Additions:
Prior year’s tax positions
Reductions:
Prior year’s tax positions
Unrecognized tax benefits, end of year
$
$
2017
1,923 $
2016
19,618
57
56
—
1,980 $
(17,751 )
1,923
It is anticipated that approximately $nil (2016 – $nil) of unrecognized tax positions that relate to prior year activities will be
realized during the next 12 months. Subject to the results of audit examinations by taxing authorities and/or legislative
changes by taxing jurisdictions, Precision does not anticipate further adjustments of unrecognized tax positions during
the next 12 months that would have a material impact on the financial statements.
NOTE 13. SHAREHOLDERS’ CAPITAL
(a) Authorized – unlimited number of voting common shares
– unlimited number of preferred shares, issuable in series, limited to an amount equal to one half of
the issued and outstanding common shares
(b) Issued
Common shares
Balance, December 31, 2016 and 2017
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME
Number
293,238,858 $
Amount
2,319,293
December 31, 2015
Other comprehensive loss
December 31, 2016
Other comprehensive loss
December 31, 2017
NOTE 15. FINANCE CHARGES
Interest:
Long-term debt
Other
Income
Amortization of debt issue costs
Other
Finance charges
Unrealized
Foreign Currency
Translation Gains
(Losses)
663,886 $
(76,608 )
587,278
(146,545 )
440,733 $
Foreign Exchange
Gain (Loss) on Net
Investment Hedge
(497,785 )
66,963
(430,822 )
121,699
(309,123 )
$
$
$
$
Accumulated
Other
Comprehensive
Income
166,101
(9,645 )
156,456
(24,846 )
131,610
2017
2016
$
$
128,381
1,083
(1,858 )
10,162
160
137,928
$
$
138,335
226
(3,445 )
11,244
—
146,360
Precision Drilling Corporation 2017 Annual Report
81
NOTE 16. EMPLOYEE BENEFIT PLANS
The Corporation has a defined contribution pension plan covering a significant number of its employees. Under this plan,
the Corporation matches individual contributions up to 5% of the employee’s eligible compensation. Total expense under
the defined contribution plan in 2017 was $10.4 million (2016 – $8.6 million).
NOTE 17. RELATED PARTY TRANSACTIONS
Compensation of Key Management Personnel
The remuneration of key management personnel is as follows:
Salaries and other benefits
Equity settled share based compensation
Cash settled share based compensation
$
$
2017
6,078 $
3,036
(3,945 )
5,169 $
2016
6,983
2,749
8,629
18,361
Key management personnel are comprised of the directors and executive officers of the Corporation. Certain executive
officers have entered into employment agreements with Precision that provide termination benefits of up to 24 months
base salary plus up to two times targeted incentive compensation upon dismissal without cause.
NOTE 18. COMMITMENTS
Operating Lease Commitments
The Corporation has commitments under various operating lease agreements, primarily for vehicles and office space.
Terms of the office leases run for a period of one to 10 years while the vehicle leases are typically for terms of between
three and four years. Expected non-cancellable operating lease payments are as follows:
Less than one year
Between one and five years
Later than five years
$
$
2017
12,248 $
27,445
21,909
61,602 $
2016
16,564
35,615
—
52,179
One of the leased properties was sublet by the Corporation.
The following amounts were recognized as expenses in respect of operating leases in the consolidated statements of
loss:
Operating leases
Sub-lease recoveries
$
$
2017
16,311 $
(441 )
15,870 $
2016
18,084
(587 )
17,497
Capital Commitments
At December 31, 2017, the Corporation had commitments to purchase property, plant and equipment totaling
$132.9 million (2016 – $141.6 million). Payments of $5.2 million for these commitments are expected to be made in
2018, $36.5 million in 2019, $73.0 million in 2020 and $18.2 million in 2021.
Precision Drilling Corporation 2017 Annual Report
82
NOTE 19. PER SHARE AMOUNTS
The following tables reconcile the net loss and weighted average shares outstanding used in computing basic and diluted
loss per share:
Net loss – basic and diluted
(Stated in thousands)
Weighted average shares outstanding – basic
Effect of stock options and other equity compensation plans
Weighted average shares outstanding – diluted
NOTE 20. SEGMENTED INFORMATION
$
2017
(132,036 ) $
2016
(155,555 )
2017
293,239
—
293,239
2016
293,133
—
293,133
The Corporation operates primarily in Canada, the United States and certain international locations, in two industry
segments; Contract Drilling Services and Completion and Production Services. Contract Drilling Services includes drilling
rigs, directional drilling, procurement and distribution of oilfield supplies, and the manufacture, sale and repair of drilling
equipment. Completion and Production Services includes service rigs, snubbing units, oilfield equipment rental, camp
and catering services, and wastewater treatment units.
2017
Revenue
Operating loss
Depreciation and amortization
Impairment of property, plant and equipment
Total assets
Goodwill
Capital expenditures
2016
Revenue
Operating loss
Depreciation and amortization
Total assets
Goodwill
Capital expenditures*
*- excludes business acquisitions
Contract
Drilling
Services
$ 1,173,930 $
(6,930 )
334,587
15,313
3,491,393
205,167
69,076
Completion
and
Production
Services
154,146 $
(17,750 )
29,638
—
209,353
—
4,509
$
Contract
Drilling
Services
907,821 $
(51,354 )
348,005
3,914,604
207,399
196,013
Completion
and
Production
Services
100,049 $
(25,316 )
29,272
217,064
—
1,204
Corporate
and Other
Inter-
Segment
Eliminations
— $
(63,398 )
13,521
—
192,185
—
24,417
Corporate
and Other
— $
(79,309 )
14,382
192,546
—
6,255
Total
(6,852 ) $ 1,321,224
(88,078 )
377,746
15,313
3,892,931
205,167
98,002
—
—
—
—
—
—
Inter-
Segment
Eliminations
Total
(4,637 ) $ 1,003,233
(155,979 )
391,659
4,324,214
207,399
203,472
—
—
—
—
—
The Corporation’s operations are carried on in the following geographic locations:
2017
Revenue
Total assets
2016
Revenue
Total assets
$
Canada United States
578,817 $
1,631,838
568,573 $
1,666,368
International
190,401 $
594,725
Canada United States
International
$
418,030 $
1,738,853
426,546 $
1,861,908
169,286 $
723,453
Inter-
Segment
Eliminations
Total
(16,567 ) $ 1,321,224
3,892,931
—
Inter-
Segment
Eliminations
Total
(10,629 ) $ 1,003,233
4,324,214
—
During the years ended December 31, 2017 and 2016, no one individual customer accounted for more than 10% of the
Corporation’s total revenue.
Precision Drilling Corporation 2017 Annual Report
83
NOTE 21. FINANCIAL INSTRUMENTS
Financial Risk Management
The Board of Directors is responsible for identifying the principal risks of Precision’s business and for ensuring the
implementation of systems to manage these risks. With the assistance of senior management, who report to the Board of
Directors on the risks of Precision’s business, the Board of Directors considers such risks and discusses the
management of such risks on a regular basis.
Precision has exposure to the following risks from its use of financial instruments:
(a) Credit Risk
Accounts receivable includes balances from a large number of customers primarily operating in the oil and gas industry.
The Corporation manages credit risk by assessing the creditworthiness of its customers before providing services and on
an ongoing basis, and by monitoring the amount and age of balances outstanding. In some instances, the Corporation
will take additional measures to reduce credit risk including obtaining letters of credit and prepayments from customers.
When indicators of credit problems appear, the Corporation takes appropriate steps to reduce its exposure including
negotiating with the customer, filing liens and entering into litigation. Precision’s most significant customer accounted for
$11.7 million of the trade receivables amount at December 31, 2017 (2016 – $8.6 million).
The movement in the allowance for doubtful accounts during the year was as follows:
Balance at January 1
Impairment loss recognized
Amounts written-off as uncollectible
Impairment loss reversed
Effect of movement in exchange rates
Balance at December 31
The ageing of trade receivables at December 31 was as follows:
$
$
2017
6,072 $
56
(3,296 )
(30 )
(206 )
2,596 $
2016
9,089
188
(218 )
(2,786 )
(201 )
6,072
2017
2016
Not past due
Past due 0 – 30 days
Past due 31 – 120 days
Past due more than 120 days
$
$
Provision
for
Impairment
— $
—
580
2,016
2,596 $
Gross
92,880 $
66,723
19,410
2,016
181,029 $
Gross
94,988 $
38,130
14,921
8,175
156,214 $
Provision for
Impairment
—
—
—
6,072
6,072
(b) Interest Rate Risk
As at December 31, 2017 and 2016, all of Precision’s long-term debt, with the exception of the Senior Credit Facility,
bears fixed interest rates. As a result, Precision is not exposed to significant fluctuations in interest expense as a result of
changes in interest rates.
(c) Foreign Currency Risk
The Corporation is primarily exposed to foreign currency fluctuations in relation to the working capital of its foreign
operations and certain long-term debt facilities of its Canadian operations. The Corporation has no significant exposures
to foreign currencies other than the U.S. dollar. The Corporation monitors its foreign currency exposure and attempts to
minimize the impact by aligning appropriate levels of U.S. denominated debt with cash flows from U.S. based operations.
Precision Drilling Corporation 2017 Annual Report
84
The following financial instruments were denominated in U.S. dollars:
2017
Canadian
Operations
(1)
2016
Foreign
Operations
Canadian
Operations (1)
$
$
Cash
Accounts receivable
Accounts payable and accrued liabilities
Long-term liabilities, excluding long-term incentive plans
Net foreign currency exposure
Impact of $0.01 change in the U.S. dollar to Canadian dollar
exchange rate on net loss
Impact of $0.01 change in the U.S. dollar to Canadian dollar
exchange rate on comprehensive loss
(1) Excludes U.S. dollar long-term debt that has been designated as a hedge of the Corporation’s net investment in certain self-sustaining foreign operations.
37,583 $
—
(20,054 )
—
17,529 $
39,636
152,216
(98,008 )
(8,023 )
85,821
1,720
—
(13,221 )
—
(11,501 )
175 $
— $
(115 )
858
—
—
$
$
$
$
$
$
$
$
$
$
Foreign.
Operations
45,800
144,302
(106,635 )
(9,251 )
74,216
—
742
(d) Liquidity Risk
Liquidity risk is the exposure of the Corporation to the risk of not being able to meet its financial obligations as they
become due. The Corporation manages liquidity risk by monitoring and reviewing actual and forecasted cash flows to
ensure there are available cash resources to meet these needs. The following are the contractual maturities of the
Corporation’s financial liabilities and other contractual commitments as at December 31, 2017:
Accounts payable and accrued liabilities
Share based compensation
Long-term debt
Interest on long-term debt (1)
Commitments
Total
2021
2018
2020
2019
$ 209,625 $
— $
8,658 14,057
—
Total
— $ 209,625
— $
—
—
27,658
— 1,445,918 1,758,519
116,661 116,661 116,661 115,815 96,342 191,185 753,325
17,435 45,077 80,019 24,664
21,909 194,502
$ 352,379 $ 175,795 $ 201,623 $ 453,080 $ 101,740 $ 1,659,012 $ 2,943,629
— $
—
— 312,601
— $
4,943
2022 Thereafter
5,398
—
(1) Interest has been calculated based on debt balances, interest rates, and foreign exchange rates in effect as at December 31, 2017 and excludes amortization of
long-term debt issue costs.
Fair Values
The carrying value of cash, accounts receivable, and accounts payable and accrued liabilities approximates their fair
value due to the relatively short period to maturity of the instruments. The fair value of the unsecured senior notes at
December 31, 2017 was approximately $1,765 million (2016 – $1,917 million).
Financial assets and liabilities recorded or disclosed at fair value in the consolidated statements of financial position are
categorized based on the level of judgment associated with the inputs used to measure their fair value. Hierarchical
levels are based on the amount of subjectivity associated with the inputs in the fair determination and are as follows:
Level I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the
measurement date.
Level II—Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for
the asset or liability through correlation with market data at the measurement date and for the duration of the
instrument’s anticipated life.
Level III—Inputs reflect management’s best estimate of what market participants would use in pricing the
asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation
technique and the risk inherent in the inputs to the model.
The estimated fair value of unsecured senior notes is based on level II inputs. The fair value is estimated considering the
risk free interest rates on government debt instruments of similar maturities, adjusted for estimated credit risk, industry
risk and market risk premiums.
Precision Drilling Corporation 2017 Annual Report
85
NOTE 22. CAPITAL MANAGEMENT
The Corporation’s strategy is to carry a capital base to maintain investor, creditor and market confidence and to sustain
future development of the business. The Corporation seeks to maintain a balance between the level of long-term debt
and shareholders’ equity to ensure access to capital markets to fund growth and working capital given the cyclical nature
of the oilfield services sector. The Corporation strives to maintain a conservative ratio of long-term debt to long-term debt
plus equity. As at December 31, 2017 and 2016, these ratios were as follows:
Long-term debt
Shareholders’ equity
Total capitalization
Long-term debt to long-term debt plus equity ratio
$
$
2017
1,730,437
1,810,336
3,540,773
0.49
$
$
2016
1,906,934
1,962,118
3,869,052
0.49
As at December 31, 2017, liquidity remained sufficient as Precision had $65.1 million (2016 – $115.7 million) in cash and
access to the US$500.0 million Senior Credit Facility (2016 – US$550.0 million) and $96.6 million (2016 – $100.4 million)
secured operating facilities. As at December 31, 2017, no amounts (2016 – US$ nil) were drawn on the Senior Credit
Facility with availability reduced by US$20.9 million (2016 – US$41.5 million) in outstanding letters of credit. Availability of
the $40.0 million secured operating facility and US$30.0 million secured facility for the issuance of letters of credit and
performance and bid bonds were reduced by outstanding letters of credit of $20.8 million (2016 – $22.0 million) and
US$13.3 million (2016 – US$ 6.5 million), respectively. There was no amount drawn on the US$15.0 million secured
operating facility.
NOTE 23. SUPPLEMENTAL INFORMATION
Components of changes in non-cash working capital balances are as follows:
Accounts receivable
Inventory
Accounts payable and accrued liabilities
Pertaining to:
Operations
Investments
The components of accounts receivable are as follows:
Trade
Accrued trade
Prepaids and other
The components of accounts payable and accrued liabilities are as follows:
Accounts payable
Accrued liabilities:
Payroll
Other
$
$
$
$
$
$
$
$
2017
(41,309 )
(3,902 )
(30,158 )
(75,369 )
(67,380 )
(7,989 )
2017
178,433
91,708
52,444
322,585
$
$
$
$
$
$
2017
87,436
$
58,550
63,639
209,625
$
2016
11,688
(429 )
(3,136 )
8,123
17,133
(9,010 )
2016
150,142
87,685
55,855
293,682
2016
73,239
59,595
107,902
240,736
Precision Drilling Corporation 2017 Annual Report
86
Precision presents expenses in the consolidated statements of earnings by function with the exception of depreciation
and amortization, gain on re-measurement of property, plant and equipment, loss on asset decommissioning, and
impairment of property, plant and equipment, which are presented by nature. Operating expense and general and
administrative expense would include $364.2 million and $13.5 million (2016 – $369.7 million and $14.4 million),
respectively, of depreciation and amortization, gain on re-measurement of property, plant and equipment, loss on asset
decommissioning and impairment of property, plant and equipment if the statements of earnings were presented purely
by function. The following table presents operating and general and administrative expenses by nature:
Wages, salaries and benefits
Purchased materials, supplies and services
Share-based compensation
Allocated to:
Operating expense
General and administrative
Restructuring
$
$
$
$
2017
580,482 $
433,827
1,934
1,016,243 $
926,171 $
90,072
—
1,016,243 $
2016
463,113
275,840
36,205
775,158
661,715
107,689
5,754
775,158
NOTE 24. CONTINGENCIES AND GUARANTEES
The business and operations of the Corporation are complex and the Corporation has executed a number of significant
financings, business combinations, acquisitions and dispositions over the course of its history. The computation of
income taxes payable as a result of these transactions involves many complex factors as well as the Corporation’s
interpretation of relevant tax legislation and regulations. The Corporation’s management believes that the provision for
income tax is adequate and in accordance with IFRS and applicable legislation and regulations. However, there are tax
filing positions that have been and can still be the subject of review by taxation authorities who may successfully
challenge the Corporation’s interpretation of the applicable tax legislation and regulations, with the result that additional
taxes could be payable by the Corporation.
The Corporation, through the performance of its services, product sales and business arrangements, is sometimes
named as a defendant in litigation. The outcome of such claims against the Corporation is not determinable at this time;
however, their ultimate resolution is not expected to have a material adverse effect on the Corporation.
The Corporation has entered into agreements indemnifying certain parties primarily with respect to tax and specific third
party claims associated with businesses sold by the Corporation. Due to the nature of the indemnifications, the maximum
exposure under these agreements cannot be estimated. No amounts have been recorded for the indemnities as the
Corporation’s obligations under them are not probable or estimable.
NOTE 25. SUBSIDIARIES
Significant Subsidiaries
Precision Limited Partnership
Precision Drilling Canada Limited Partnership
Precision Diversified Oilfield Services Corp.
Precision Directional Services Ltd.
Precision Drilling (US) Corporation
Precision Drilling Company LP
Precision Completion & Production Services Ltd.
Precision Directional Services, Inc.
Grey Wolf Drilling Limited
Grey Wolf Drilling (Barbados) Ltd.
Country of
Incorporation
Canada
Canada
Canada
Canada
United States
United States
United States
United States
Barbados
Barbados
Ownership Interest
2017
100
100
100
100
100
100
100
100
100
100
2016
100
100
100
100
100
100
100
100
100
100
Precision Drilling Corporation 2017 Annual Report
87
Supplemental Information
Precision
Drilling
Corporation
Consolidated Statements of Earnings (Loss)
Years ended December 31,
(Stated in millions of Canadian dollars, except per share amounts)
Revenue(1)
Expenses:
Operating(1)
General and administrative(1)
Restructuring
2017
$ 1,321
2016
$ 1,003
2015
$ 1,635
2014
$ 2,488
2013
$ 2,122
926
90
-
662
107
6
1,021
119
21
1,564
124
-
1,341
142
-
Earnings before income taxes, loss on redemption and repurchase of
unsecured senior notes, finance charges, foreign exchange,
impairment of property, plant and equipment, gain on
re-measurement of property, plant and equipment and
depreciation and amortization
Depreciation and amortization
Loss on asset decommissioning
Impairment of property, plant and equipment
Gain on re-measurement of property, plant and equipment
Operating earnings (loss)
Impairment of goodwill
Foreign exchange
Finance charges
Loss on redemption and repurchase of unsecured senior notes
Earnings (loss) before tax
Income taxes
Net earnings (loss)
Earnings (loss) per share:
$
Basic
Diluted
(1) Prior year comparatives have changed to conform to current year presentation.
305
378
-
15
-
(88 )
-
(3 )
138
9
(232 )
(100 )
(132 )
$
228
392
-
-
(8 )
(156 )
-
6
147
-
(309 )
(153 )
(156 )
$
474
487
166
282
-
(461 )
17
(33 )
121
-
(566 )
(203 )
(363 )
$
800
448
127
-
-
225
95
(1 )
110
-
21
(12 )
33
(0.45 )
(0.45 )
(0.53 )
(0.53 )
(1.24 )
(1.24 )
0.11
0.11
$
$
$
639
333
-
-
-
306
-
(9 )
93
-
222
31
191
0.69
0.66
Precision Drilling Corporation 2017 Annual Report
88
Additional Select Financial Information
Years ended December 31,
(Stated in millions of Canadian dollars, except per share amounts)
Return on sales - %(1)
Return on assets - %(2)
Return on equity - %(3)
Working Capital
Current ratio
Property, plant and equipment
Total assets
Long-term debt
Shareholders' equity
Long-term debt to long-term debt plus equity
Interest coverage(4)
Net capital expenditures excluding business acquisitions
Adjusted EBITDA
Adjusted EBITDA - % of revenue
Operating earnings (loss)
Operating earnings (loss) - % of revenue
Cash flow continuing operations
Cash flow continuing operations per share:
Basic
Diluted
Book value per share(5)
Price earnings (loss) ratio(6)
Basic weighted average shares outstanding (millions)
$
$
$
$
$
$
$
$
$
$
$
$
$
2017
(10.0 )
(3.4 )
(0.1 )
232
2.1
3,174
3,893
1,730
1,810
0.5
(0.6 )
$
83
305
$
23.1 %
$
$
$
$
$
(88 )
(0.1 )
117
$
$
$
$
$
$
2016
(15.6 )
(3.6 )
(7.7 )
231
2.0
3,642
4,324
1,907
1,962
0.5
(1.1 )
$
196
228
$
22.7 %
(156 )
$
(15.6 )
123
$
$
$
$
$
$
2015
(22.2 )
(7.0 )
(15.3 )
654
2.3
3,887
4,879
2,181
2,121
0.5
(3.8 )
$
449
474
$
29.0 %
(461 )
$
(28.2 )
517
$
$
$
$
$
$
2014
1.3
0.7
1.3
306
1.9
3,932
5,309
1,852
2,441
0.4
2.1
$
755
800
$
32.2 %
225
$
9.0
680
$
2013
9.0
4.3
8.4
278
1.7
3,566
4,579
1,323
2,399
0.4
3.3
522
639
30.1 %
306
14.4
428
$
$
$
0.40
0.40
6.17
(8.5 )
293
0.42
0.42
6.69
(13.8 )
$
$
$
293
$
$
$
1.77
1.77
7.24
(4.4 )
293
$
$
$
2.33
2.32
8.34
64.2
293
1.54
1.49
8.22
14.4
278
(1) Return on sales was calculated by dividing earnings (loss) from continuing operations by total revenue.
(2) Return on assets was calculated by dividing net earnings (loss) by quarter average total assets.
(3) Return on equity was calculated by dividing net earnings (loss) by quarter average total shareholders’ equity.
(4)
Interest coverage was calculated by dividing operating earnings (loss) by net interest expense.
(5) Book value per share was calculated by dividing shareholders’ equity by shares outstanding.
(6) Price earnings ratio was calculated using year-end closing price divided by basic earnings (loss) per share.
Precision Drilling Corporation 2017 Annual Report
89
ACCOUNT QUESTIONS
Our transfer agent can help you
with shareholder related services,
including:
• change of address
• lost share certificates
• transferring shares to another
person
• estate settlement.
Computershare Trust Company of
Canada
100 University Avenue,
9th Floor, North Tower
Toronto, Ontario, Canada
M5J 2Y1
Telephone: 1.800.564.6253
(toll free in Canada and the U.S.)
1.514.982.7555
(international direct dialing)
Email:
service@computershare.com
Shareholder Information
listed on
STOCK EXCHANGE LISTINGS
Our shares are
the
Toronto Stock Exchange under the
trading symbol PD and on the New
York Stock Exchange under
the
trading symbol PDS.
TRANSFER AGENT AND
REGISTRAR
Computershare Trust Company
of Canada
Calgary, Alberta
TRANSFER POINT
Computershare Trust Company
NA Canton, Massachusetts
2017 TRADING PROFILE
Toronto (TSX: PD)
High: $8.11
Low: $2.89
Close: $3.81
Volume Traded: 515,273,662
New York (NYSE: PDS)
High: US$6.14
Low: US$2.26
Close: US$3.02
Volume Traded: 722,529,628
ONLINE INFORMATION
To receive news releases by email,
or to view this report online, please
visit the Investor Relations section of
our
at
website
www.precisiondrilling.com.
information
including
form
You can find additional information
our
about Precision,
and
annual
management
circular,
under our profile on
the SEDAR
website at www.sedar.com and on the
EDGAR website at www.sec.gov.
information
PUBLISHED INFORMATION
Please contact us if you would like
this annual
additional copies of
report, or copies of our 2017 annual
information
the
Canadian
commissions
and under Form 40-F with the U.S.
Exchange
and
Securities
Commission:
form as
securities
filed with
Investor
Relations
Suite 800, 525 – 8th Avenue
SW Calgary, Alberta, Canada
T2P 1G1
Telephone: 403.716.4500
Precision Drilling Corporation 2017 Annual Report
90
OFFICERS
Kevin A. Neveu
President and
Chief Executive Officer
Doug B. Evasiuk
Senior Vice President,
Sales and Marketing
Veronica H. Foley
Senior Vice President, General
Counsel and Corporate Secretary
Cary T. Ford
Senior Vice President and
Chief Financial Officer
Darren J. Ruhr
Senior Vice President,
Corporate Services
Gene C. Stahl
President, Drilling Operations
LEAD BANK
Royal Bank of
Canada
Calgary, Alberta
AUDITORS
KPMG LLP
Calgary, Alberta
HEAD OFFICE
Suite 800, 525 – 8th Avenue
SW Calgary, Alberta, Canada
T2P 1G1
Telephone: 403.716.4500
Email:
info@precisiondrilling.com
www.precisiondrilling.com
Corporate Information
DIRECTORS
Michael R. Culbert(1)(3)
Calgary, Alberta, Canada
William T. Donovan(1)(2)
North Palm Beach, Florida, USA
Brian J. Gibson(1)(2)
Mississauga, Ontario, Canada
Allen R. Hagerman, FCA(1)(3)
Millarville, Alberta, Canada
Catherine J. Hughes(1)(3)
Calgary, Alberta, Canada
Steven W. Krablin(1)(2)(3)
Spring, Texas, USA
Stephen J. J. Letwin(2)(3)
Toronto, Ontario, Canada
Susan M. MacKenzie(2)(3)
Calgary, Alberta, Canada
Kevin O. Meyers(2)(3)
Anchorage, Alaska, USA
Kevin A. Neveu
Houston, Texas, USA
1. Member of Audit Committee
2. Member of Corporate Governance, Nominating
and Risk Committee
3. Member of Human Resources and
Compensation Committee
Precision Drilling Corporation 2017 Annual Report
91
Precision Drilling Corporation
Suite 800, 525 – 8th Avenue SW
Calgary, Alberta, Canada T2P 1G1
Phone: 403.716.4500
Email: info@precisiondrilling.com www.precisiondrilling.com