CORPORATE INFORMATION
BOARD OF DIRECTORS
Michael R. Culbert
Calgary, Alberta, Canada
Audit Committee
Human Resources and Compensation Committee
Susan M. MacKenzie
Calgary, Alberta, Canada
Corporate Governance, Nominating and Risk Committee (Chair)
Human Resources and Compensation Committee
William T. Donovan
North Palm Beach, Florida, USA
Audit Committee (Chair)
Corporate Governance, Nominating and Risk Committee
Kevin O. Meyers
Anchorage, Alaska, USA
Human Resources and Compensation Committee (Chair)
Corporate Governance, Nominating and Risk Committee
Brian J. Gibson
Mississauga, Ontario, Canada
Audit Committee
Corporate Governance, Nominating and Risk Committee
Steven W. Krablin
Spring, Texas, USA
Chairman of Board of Directors
Audit Committee
Corporate Governance, Nominating and Risk Committee
Human Resources and Compensation Committee
OFFICERS
Kevin A. Neveu
Houston, Texas, USA
President and Chief Executive Officer
David W. Williams
Houston, Texas, USA
Audit Committee
Human Resources and Compensation Committee
Kevin A. Neveu
President and Chief Executive Officer
Carey T. Ford
Senior Vice President and Chief Financial Officer
Veronica H. Foley
Senior Vice President, General Counsel and Corporate
Secretary
Darren J. Ruhr
Chief Administrative Officer
Shuja U. Goraya
Chief Technology Officer
Gene C. Stahl
Chief Marketing Officer
CORPORATE OFFICES
CALGARY HEAD OFFICE
Suite 800, 525 – 8th Avenue SW
Calgary, Alberta, T2P 1G1
Canada
Telephone: 403.716.4500
Email: info@precisiondrilling.com
www.precisiondrilling.com
HOUSTON OFFICE
10350 Richmond Avenue, Suite 700
Houston, Texas, 77042
USA
Telephone: 713.453.6100
Email: info@precisiondrilling.com
www.precisiondrilling.com
i
Management’s Discussion and Analysis
2020 SHARE TRADING SUMMARY
Toronto (TSX-PD)
High: $43.00
Low: $7.70
Close on December 31, 2020: $20.93
Volume Traded: 19,640,076
New York (NYSE-PDS) (US$)
Low: $5.70
High: $32.20
Close on December 31, 2020: $16.49
Volume Traded: 14,694,118
ii
Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION & ANALYSIS
Precision Drilling Corporation 2020
This Management’s Discussion and Analysis (MD&A) contains information to help you understand our business and financial
performance. Information is as of March 12, 2021. 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.
You should read this MD&A with the accompanying audited Consolidated Financial Statements and Notes, which have been
prepared in accordance with International Financial Reporting Standards (IFRS) and with the information in Cautionary
Statement About Forward-Looking Information and Statements on page 47. In this MD&A, we reference additional non-generally
accepted accounting principles (Non-GAAP) measures that are not defined terms under IFRS to assess performance because
we believe they provide useful supplemental information to investors. Our Non-GAAP measures are defined on page 48.
The terms we, us, our, Corporation, Company, Precision and Precision Drilling mean Precision Drilling Corporation and our
subsidiaries and include any partnerships that we are part.
All amounts are in Canadian dollars unless otherwise stated.
ABOUT PRECISION
Precision Drilling Corporation provides onshore drilling,
completion and production services
to exploration and
the oil and natural gas and
production companies
geothermal industries. We offer customers access to an
extensive fleet of high-efficiency Super Series drilling rigs,
further enhanced by our commercialized and industry-leading
Alpha digital technologies.
in
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 2021 on page
15.
Precision has partnered with several industry leaders to develop its digital portfolio consisting of AlphaAutomationTM,
AlphaAppsTM and AlphaAnalyticsTM, which delivers efficient, predictable and repeatable results through enhanced drilling
performance.
Precision Drilling Corporation provides onshore drilling and completion and production services to exploration and production companies in the oil and natural gas industries. Headquartered in Calgary, Alberta, Canada, we are a leading North American drilling company. We also have operations in the Middle East. Our shares trade on the Toronto Stock Exchange under the symbol PD and on the New York Stock Exchange under the symbol PDS.
1
Management’s Discussion and Analysis
COMPETITIVE ADVANTAGE
From our founding as a private drilling contractor in 1951, Precision has grown to become one of the most active drillers in North
America. Our High Performance, High Value competitive advantage is underpinned by four distinguishing features:
a high-quality drilling rig fleet, with AC Super Triple rigs capable of supporting our digital Alpha suite of technologies to
deliver consistent, repeatable, high-quality wellbores while improving safety, performance and operational efficiency,
size and scale of our vertically integrated operations that provide higher margins and better service capabilities,
a culture focused on operational excellence, which includes corporate responsibility, safety and field performance, and
a capital structure that provides long-term stability, flexibility and liquidity, allowing us to take advantage of business
cycle opportunities.
CORPORATE GOVERNANCE
In 2020, we continued to reinforce our steady focus on corporate responsibility by leveraging our long history of strong corporate
governance and maintaining an unwavering commitment to responsibly operating our business. With the support and oversight
of our Board of Directors (Board), we are committed to conduct our business in ways that are ethical, transparent and
accountable to stakeholders. We believe a transparent culture of corporate governance and ethical behaviour in decision-making
is fundamental to the way we do business. For specific information regarding Environmental, Social and Governance (ESG)
matters, we invite you to review our Corporate Responsibility initiatives in our Annual Information Form, dated March 15, 2021.
We have a diverse and experienced 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, the United States (U.S.) and internationally.
Our Board also annually 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 carry out its responsibilities
effectively:
Audit Committee,
Corporate Governance, Nominating and Risk Committee (CGNRC), and
Human Resources and Compensation Committee (HRCC).
The Board may also create special ad hoc committees from time to time to deal with important matters that arise.
Management has also established internal committees, including an Enterprise Risk Management Committee, a Compliance
Committee, a Disclosure Committee and a Health, Safety, Environment and Corporate Responsibility Council (HSE and
Corporate Responsibility Council). Two of our directors, Dr. Meyers and Ms. MacKenzie, are active members of the HSE and
Corporate Responsibility Council and attend quarterly meetings.
You can find more information about our approach to governance in our Management Information Circular, available on our
website (www.precisiondrilling.com).
2
Management’s Discussion and Analysis
BUSINESS SEGMENTS
We operate our business in two segments, supported by vertically integrated business and corporate support systems.
Precision Drilling Corporation Contract Drilling Services Drilling Rig Operations Canada U.S. International Directional Drilling Operations Canada Completion and Production Services Canada and U.S. Service Rigs Canada Camps and Catering Equipment Rentals Business Support Systems Sales and Marketing Procurement and Distribution Manufacturing Equipment Maintenance and Certification Engineering Corporate Support Information Systems Health, Safety and Environment Human Resources Finance Legal and Enterprise Risk Management
2020 Revenue by Segment Contract Drilling Services Completion and Production Services 8% 92% 2020 Revenue by Location U.S. Canada International 47% 20% 33%
3
Management’s Discussion and Analysis
Contract Drilling Services
We provide onshore drilling services to exploration and production companies in the oil and natural gas and geothermal
industries, operating in Canada, the U.S. and internationally.
We are a large, multi-basin oilfield operator servicing approximately 33% of the active land drilling market in Canada and 8% of
the active U.S. market. We also have an international presence with operations in the Middle East.
At December 31, 2020, our Contract Drilling Services segment consisted of:
227 land drilling rigs, including:
– 109 in Canada
– 105 in the U.S.
– 6 in Kuwait
– 4 in Saudi Arabia
– 2 in the Kurdistan region of Iraq, and
– 1 in the country of Georgia
directional drilling services in Canada
engineering, manufacturing and repair services, primarily for Precision’s operations
centralized procurement, inventory and distribution of consumable supplies for our global operations
diverse offering of digital technologies from our Alpha portfolio including:
– 39 Alpha-Rigs with commercial AlphaAutomationTM
– 18 AlphaAppsTM, six of which are commercial, and
– Deployed commercial AlphaAnalyticsTM offering.
At December 31, 2020, we had 227 Super Series drilling rigs. Our 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 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.
Contract Drilling Revenue $ Millions $1,500 $1,200 $900 $600 $300 0 2016 2017 2018 2019 2020 Contract Drilling Adjusted EBITDA $ Millions $500 $400 $300 $200 $100 0 2016 2017 2018 2019 2020 Contract Drilling Utilization Days Hours 50,000 40,000 30,000 20,000 10,000 0 2016 2017 2018 2019 2020
4
Management’s Discussion and Analysis
Completion and Production Services
We provide well completion, workover, abandonment and re-entry preparation services to oil and natural gas exploration and
production companies in Canada and the U.S. In addition, we provide equipment rentals and camp and catering services in
Canada.
On an operating hour basis in 2020, we serviced approximately 10% of the well completion and workover service rig market
demand in Canada and 1% in the U.S.
At December 31, 2020, our Completion and Production Services segment consisted of:
123 well completion and workover service rigs, including:
– 113 in Canada
– 10 in the U.S.
approximately 1,400 oilfield rental items, including surface storage, small-flow water treatment, power generation, and
solids control equipment, primarily in Canada
113 wellsite accommodation units in Canada
966 drill camp beds, 822 base camp beds and three kitchen diners in Canada.
At December 31, 2020, we had 75 additional well completion and workover service rigs in Canada that were not registered with
the industry association.
Completion and Production Revenue $ Millions $200 $150 $100 $50 0 2016 2017 2018 2019 2020 Completion and Production Adjusted EBITDA $ Millions $25 $20 $15 $10 $5 0 -$5 2016 2017 2018 2019 2020 Completion and Production Service Rig Hours Hours 200,000 150,000 100,000 50,000 0 2016 2017 2018 2019 2020
5
Management’s Discussion and Analysis
IMPACT OF COVID-19
In March 2020, the Novel Coronavirus (COVID-19) outbreak was declared a pandemic by the World Health Organization.
Governments worldwide, including those countries in which Precision operates, have enacted emergency measures to combat
the spread of the virus. These measures, which include the implementation of lockdowns, travel bans, quarantine periods and
social distancing, have caused a material disruption to businesses globally resulting in an economic slowdown and decreased
demand for oil. Governments and central banks have reacted with significant monetary and fiscal interventions designed to
stabilize economic conditions; however, the long-term success of these interventions is not yet determinable.
As a result of the decrease in demand, worldwide inventories of oil increased significantly. However, voluntary production
restraint from national oil companies and governments of oil-producing nations along with curtailments in the U.S. and Canada
have shifted global oil markets from a position of over supply to inventory draws. The situation remains dynamic and the ultimate
duration and magnitude of the impact on the economy and the financial effect on Precision remains unknown at this time.
Financial Impacts
The current challenging economic climate has or may have significant adverse impacts on Precision including, but not
exclusively:
future impairment charges to our property, plant and equipment and intangible assets,
material declines in revenue and cash flows, as our customers are concentrated in the oil and natural gas industry,
risk of non-collection of accounts receivable and customer defaults, and
additional restructuring charges as we align our structure and personnel to the dynamic environment.
Our estimates and judgements made in the preparation of our financial statements are increasingly difficult and subject to a
higher degree of measurement uncertainty during this volatile period. Precision took the following measures to align our cost
structure and maximize cash preservation during the current market conditions, including:
compensation reductions for the Board and management,
staff headcount reductions,
elimination of all non-essential travel, entertaining and other discretionary spending,
reductions to our 2020 capital expenditure plan, and
discontinuance of our U.S. directional drilling operations.
We review the carrying value of our long-lived assets for indications of impairment at the end of each reporting period. At March
31, 2020, we tested all cash-generating units (CGU) for impairment and no impairment charges were identified. At December
31, 2020, we reviewed each CGU and did not identify any indications of impairment. Accordingly, we did not test our CGUs for
impairment.
Operational Impacts
During the pandemic, in regions where the local authorities have ordered non-essential business closures and implemented
“stay at home” orders, the oil and natural gas extractive services industry has been classified as an “essential service.” As a
result, Precision’s operations remain open. This includes all of Precision’s field operations, technical support centres and
administration groups. The vertical integration of our operations has resulted in minimal supply chain constraints and disruptions
during the pandemic.
To manage the additional safety risks presented by COVID-19, Precision implemented a comprehensive infectious disease plan
to keep our field crews, support staff and customers safe and well-informed. Precision has implemented additional safety,
sanitization and physical distancing procedures, including remote work sites where possible and ceased all non-essential
business travel. Precision’s procedures are in accordance with recommendations from the World Health Organization, Center
for Disease Control and various federal, state and provincial government health authorities.
Liquidity
Despite the enormous challenges posed by COVID-19, we maintained our strong liquidity position. We exited the year with a
cash balance of $109 million and $552 million of available borrowing capacity under our secured credit facilities, providing us
with $661 million of total liquidity as compared with $725 million at December 31, 2019. To provide additional liquidity, we
established a Real Estate Credit Facility in the amount of US$11 million in the fourth quarter of 2020.
At December 31, 2020, our available borrowing capacity of $552 million was comprised of our Senior Credit Facility of US$500
million less drawn amounts of US$75 million and US$32 million of outstanding letters of credit, our undrawn Canadian operating
facility of $40 million less $7 million of outstanding letters of credit and our undrawn U.S. operating facility of US$15 million. Our
available borrowing capacity calculation excludes our US$30 demand letter of credit facility.
We expect that cash provided by operations, cash on hand and our sources of financing, including our Senior Credit Facility, will
be sufficient to meet our debt obligations and fund committed and future capital expenditures.
6
Management’s Discussion and Analysis
Amendments to Senior Credit Facility
In response to COVID-19, on April 9, 2020, we agreed with the lenders of our Senior Credit Facility to amend our interest
expense coverage ratio financial covenant in future periods. The amending agreement also restricts Precision’s distributions in
the form of dividends, distributions and share repurchases. Despite obtaining financial covenant relief on our Senior Credit
Facility through March 31, 2022, if the global economic slowdown continues for a prolonged period, there may be an increased
risk to Precision’s ability to comply with these financial covenants.
Additional discussion of amendments to our Senior Credit Facility can be found on page 30.
7
Management’s Discussion and Analysis
UNDERSTANDING OUR BUSINESS DRIVERS
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.
Unconventional Wells
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 natural gas formation. These “unconventional” or “shale” reservoirs are typically lower pressure and require
extra stimulation to generate production. The practice of “hydraulic fracturing” follows the unconventional drilling process with
high horsepower equipment pumping water and proppant down a wellbore at high pressure to frack the
rock,
releasing hydrocarbons. The vast majority of the wells we drill in North America are unconventional. We are not involved in the
hydraulic fracturing of a well.
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 are 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 and lower prices. The continued
development of liquefied natural gas (LNG) in the U.S. and planned export from Canada could serve as a catalyst for natural
gas directed drilling activity over the medium to long term.
Average Oil and Natural Gas Prices
Oil
West Texas Intermediate (per barrel) (US$)
Western Canadian Select (per barrel) (US$)
Natural gas
U.S.
Henry Hub (per MMBtu) (US$)
Canada
AECO (per MMBtu) (Cdn$)
Source: WTI and Henry; Hub Energy Information Administration, AECO; Gas Alberta Inc.
2020
2019
39.40
35.59
57.07
44.28
2.13
2.56
2.24
1.77
2018
64.88
38.46
3.12
1.49
8
Management’s Discussion and Analysis
Digital Technology Offering
North American exploration and production companies, which comprise the majority of our customer base, have been
increasingly focused on enhancing operational efficiency within their drilling and completion programs. Most of these companies
have adopted large-scale industrialization techniques, utilizing multi-well pads and high-efficiency downhole and surface drilling
systems to improve efficiency. Over the past several years, drilling rig enhancements have focused on equipment upgrades,
such as walking systems, digital AC controls and increased fluid pumping capacity. More recently, customers have shifted focus
to digital offerings that deliver increased efficiency, consistency and predictability of results in their development-style drilling
programs. Exploration and production companies have displayed an appetite for these technologies as they provide an
opportunity to significantly reduce drilling times and improve overall wellbore quality.
Our technology strategy is well-aligned with customer efficiency objectives. We currently leverage our existing base of digital
AC control systems installed on all of our Super Triple drilling rigs. Our standardized rig fleet enables us to reliably mass deploy
our advanced digital platform capable of delivering leading-edge digital automation and significantly boosting efficiency of the
well construction process. Our technology strategy is centered around partnering with industry experts which allows us to deliver
an extensive suite of offerings to our customers with minimal research and development capital. Over the last five years,
Precision has heavily invested in field-hardening its digital offering and training key personnel, which has allowed the company
to commercialize its Alpha portfolio throughout North America. Our digital technology strategy is currently focused on four
fundamentals:
1. AlphaAutomationTM
We leverage our standardized fleet to deploy our fully integrated AlphaAutomationTM system (AlphaAutomationTM), which
allows us to consistently implement best practices to eliminate human variance, resulting in significantly improved drilling
efficiency. In addition to built-in process automation routines, AlphaAutomationTM also hosts Precision Drilling Apps
(AlphaAppsTM), which leverage advanced algorithms and exploitation of various machine learning techniques to improve
complex down-hole drilling processes. The standard platform is encouraging innovation in the drilling app space by attracting
innovative solutions from customers and third parties inside and outside the oil and natural gas industry. We installed our
first AlphaAutomationTM system in late 2016 and currently have 39 commercialized AlphaAutomationTM systems deployed
in the field which have drilled over 1,800 wells to date. We intend to deploy additional AlphaAutomationTM systems in North
America in 2021, further strengthening our digital leadership position.
2. AlphaAppsTM
Our open platform is capable of supporting internal, customer or third party developed applications, designed to further
enhance the overall drilling function. To date, Precision has 18 available AlphaAppsTM, six commercialized, which execute
multiple on-bottom, cost control and equipment optimization functions. These specialized apps maximize the performance
of the entire drilling process, resulting in increased drilling performance and cost efficiencies for our customers.
3. AlphaAnalyticsTM
Our digital platform captures more than 1 GB/min of data, versus a limited number of data channels from traditional
Electronic Data Recorders, known as EDR systems. We have a robust data analytics offering (AlphaAnalyticsTM) focused
on improving rig performance and financial returns through commercialization of performance data to drive optimization and
performance KPI’s. To date, AlphaAnalyticsTM has generated successful results in trials, setting new efficiency benchmarks
for several large customers across multiple basins.
4. Leading-Edge Corporate-Wide Data Systems and Technology Culture
In 2018, we implemented SAP S/4HANA to fully realize the benefits of the system’s integration with our digital service
delivery platform. This robust SAP enterprise resource planning (ERP) system is built to support the increased data flows
from the field. Precision remains committed to its digital technology strategy which has enabled us to build a strong digital
mindset throughout the company.
The combination of our High Performance standardized rig fleet, integrated AlphaAutomationTM systems, AlphaAppsTM and
AlphaAnalyticsTM position us to help our customers achieve their efficiency goals and generate strong returns for our
shareholders through service differentiation.
9
Management’s Discussion and Analysis
Drilling Activity
North American drilling activity steeply declined early in the second quarter of 2020 as reduced global oil demand caused by
COVID-19 and prolonged periods of commodity price volatility spurred significant reductions in customer spending. In 2020
approximately 8,400 wells were started onshore in the U.S., compared with approximately 18,000 in 2019 and 19,300 in 2018.
The industry drilled 2,960 wells in western Canada in 2020, compared with 4,679 in 2019 and 6,781 in 2018. Total industry
drilling operating days were 29,741 in 2020 compared with 45,334 in 2019 and 64,491 in 2018. In Canada, there has been
relative strength in natural gas liquids and tight light 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.
The graphs below show the shift in drilling activity to oil targets since 2017, 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 Source: Baker Hughes Oil Land Natural Gas Land Rigs Working 900 600 300 0 Jan - 16 Jan - 17 Jan - 18 Jan - 19 Jan - 20 Jan - 21 Canadian Active Rig Count Source: Baker Hughes Oil Land Natural Gas Land Rigs Working 300 200 100 0 Jan - 16 Jan - 17 Jan - 18 Jan - 19 Jan - 20 Jan - 21
10
Management’s Discussion and Analysis
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 represents 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 striving to generate superior financial
returns for our investors.
Operating Efficiency
We keep customer well costs down by maximizing the efficiency of operations in several ways:
using innovative and advanced drilling technology that is efficient and reduces costs,
having equipment that is geographically dispersed, reliable and well maintained,
monitoring our equipment to minimize mechanical downtime,
managing operations effectively to keep non-productive time to a minimum,
staffing well trained crews, with performance measured against defined competencies, and
incentivizing 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. Precision
has invested over $3 billion in its drilling rig fleet since 2010, adding over 125 Super Series drilling rigs during the period. With
one of the newest and most technically capable fleets in North America and the Middle East, Precision’s Super Series rigs have
been designed for industrial-style drilling: highly efficient, mobile, safe, controllable, upgradable and able to act as a platform for
digital technology delivery to the well location. Precision has completed relatively low dollar cost upgrades over the past several
years, including additions of walking systems, higher pressure and capacity mud pumps, increased setback capacity and
AlphaAutomationTM and AlphaAppsTM technology. Precision’s Super Series drilling rig fleet meets the industrial-style drilling
requirements of our customers in North America and deep, high-pressure/high-temperature drilling projects internationally. As
of December 31, 2020, we had 227 Super Series rigs in our fleet.
Broad Geographic Footprint
Geographic proximity and fleet versatility support the High Performance, High Value services we provide to our customers. Our
large fleet of rigs is strategically deployed across the most active drilling regions in North America, including all major
unconventional oil and natural gas basins.
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 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 statistics to evaluate our performance against competitors.
We reward executives and eligible employees through incentive compensation plans for performance against the following
measures:
safety performance – total recordable incident rate per 200,000 man-hours, recordable free facilities and “Triple Target
Zero” days (defined on page 12 under ‘Safe Operations’). Measured against prior year performance and current year
industry performance in Canada and the U.S.,
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,
11
Management’s Discussion and Analysis
key field employee retention – senior field employee retention rates. Measured against predetermined target rates of
retention,
strategic initiatives – achieving strategic operational goals. Measured against predetermined target metrics,
financial performance – Adjusted EBITDA, adjusted cash flow, return on capital employed and debt reduction. Measured
against predetermined targets, and
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.
Safe Operations
Safety and employee health are critical for us and for our customers and are the foundation of our culture.
is a
fundamental contributor
Safety performance
to operating
performance and the financial results we generate for our shareholders.
We track safety using three separate metrics:
Total Recordable Incident Rate,
Facilities Recordable Free, and
Triple Target Zero Days.
Target Zero
The health and safety of our employees is a core
value at Precision, and daily we work to set the
standard for safety in our industry.
Total Recordable Incident Rate 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.
Facilities Recordable Free includes all of our rigs, operating centres and offices and measures how many of our facilities do not
have a recordable incident 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 high
potential work-related vehicle incidents, no recordable injuries and no reportable spills. We had 325 Triple Target Zero Days in
2020.
We foster our safety culture through strong leadership, technical and compliance training, and proven support systems. Every
day, we invest in our field employees to prepare them for any and every situation on the rig. Our technical support centre training
facilities are located in Houston, Texas, and Nisku, Alberta. These facilities are used to train employees on our culture,
responsibilities, tools and equipment, safety and environmental protocol and procedures, leadership and team building.
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, critical sour gas well work and well re-entry
preparation across the Western Canada Sedimentary Basin and in the northern U.S. Our service rigs are supported by four field
locations in Alberta, two in Saskatchewan, and one each in Northwest Territories, British Columbia and North Dakota.
We continuously review our rig designs and components and use advanced technology to operate safely, improve our equipment
life cycle, maintain operational efficiency and reduce energy use. In 2020, approximately 25% of our fleet was configured to be
powered by natural gas, which is cleaner-burning than diesel and therefore reduces our customer’s emissions footprint. Our
pad-capable rig fleet has also helped our customers reduce their overall operating footprint by enabling them to drill multiple
wells on a single well pad location.
Upgrade Opportunities
We leverage our internal manufacturing and repair capabilities and inventory of quality rigs to address market demand through
upgraded drilling rigs. Upgrades are typically performed at the request of a customer and are secured by a term contract.
Historically, certain upgrades have resulted in a change in classification to Super Series.
12
Management’s Discussion and Analysis
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.
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.
Technical Centres
We operate two contract drilling technical centres, one in Nisku, Alberta and one in Houston, Texas, and one completion and
production services technical centre in Red Deer, Alberta. These centres accommodate our technical service and field training
groups and consolidate field support and training for our operations. The Houston and Nisku facilities have fully-functioning
training rigs with the latest drilling technologies. Also, our Houston facility accommodates our rig manufacturing group.
People
There are often shortages of industry manpower in peak operating
periods. Having an experienced, High Performance crew is a
competitive strength and is highly valued by our customers. We rely
heavily on our safety record, investment in employee development,
comprehensive employee training, competency development and
reputation to attract and retain employees.
Toughnecks (www.toughnecks.com) has been a
highly successful field recruiting program for us
since we introduced it in 2008.
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 quality field crews at all points in the industry cycle.
Systems
Our ERP system is fully integrated with our drilling rigs, field facilities and corporate offices, increasing operating efficiencies and
better positions the organization to capture and analyze increased data flow within 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 more timely processing and accuracy of data. 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.
Corporate Responsibility
Corporate Responsibility is integral to Precision’s vision, mission, and competitive strategy as we believe that operating a
sustainable and responsible company is critical to our long-term success. We believe our Corporate Responsibility approach
and initiatives drive business execution and create a competitive advantage. Precision’s High Performance, High Value
competitive strategy is supported by and reliant upon safety performance, environmental stewardship, employee well-being and
training and community involvement. Our employees, investors and customers reward our commitment to Corporate
Responsibility and recognize that it provides us the ability to attract talent, capital and a premium for our services. For specific
information regarding ESG matters, we invite you to review our Corporate Responsibility initiatives in our Annual Information
Form, dated March 15, 2021.
13
Management’s Discussion and Analysis
AN EFFECTIVE STRATEGY
Our Corporate and Competitive Strategies are designed to optimize resource allocation and differentiate us from the competition,
generating value for investors. Unconventional drilling remains the primary opportunity in the North American marketplace.
Unconventional resource development requires the most efficient and technically capable 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 our Super Series rig fleet, High
Performance, High Value strategy and Alpha Technologies offering, positions us to benefit from that trend. In addition, the
completion and production work associated with unconventional wells provides the most profitable growth opportunities for our
Completion and Production Services segment.
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.
We summarized the results of our 2020 strategic priorities.
2020 Strategic Priorities
2020 Results
Generate strong free cash flow and reduce debt
by $100 million to $150 million in 2020 and by
$700 million between 2018 and 2022.
Demonstrate operational excellence
in all
aspects of our business including operational,
financial and ESG (environmental, social and
governance) metrics.
Leverage our Alpha Technology platform as a
competitive differentiator and source of
financial returns for Precision.
Despite the drastic industry decrease in global rig count, we ended the
year with total debt reduction of $171 million, exceeding the high end of
our original targeted range by $21 million. This is our third consecutive
year exceeding the high-end of our annual targeted range.
At the conclusion of the year, we increased our long-term debt reduction
target to $800 million, previously set at $700 million from 2018 through
to 2022. At year-end, we reduced debt levels by approximately $550
million, just three years into our five-year debt reduction plan.
Reported cash provided by operations of $226 million, compared with
$288 million in 2019.
At the onset of the pandemic, we prioritized maintaining a strong liquidity
position. We ended the year with $661 million in liquidity, providing
financial flexibility to both reduce debt and utilize our Normal Course
Issuer Bid (NCIB) to repurchase and cancel 420,588 common shares for
$11 million.
Ended the year with a reported cash balance of $109 million and
covenant relief on our Senior Credit Facility, lasting through the first
quarter of 2022.
Achieved record market share levels in Canada throughout the year of
over 30%. Sustained strong market share results in the U.S. at
approximately 8%.
U.S. Drilling margins (revenue less operating costs) of $11,518 per
utilization day were driven by contracted revenues and rigid cost
controls. Canada drilling margins of $8,065 per utilization day were
driven by a favorable rig mix of larger AC Super Triples. International day
rates remained stable at $54,811 per utilization day. Our Completion and
Production Services segment generated positive cash flow, reporting
Adjusted EBITDA of $11 million.
Adjusted EBITDA in 2020 was $263 million, down 33% from prior year
despite a 42% reduction in global drilling activity levels resulting from the
COVID-19 pandemic.
Released our inaugural Corporate Responsibility report, highlighting
several ESG initiatives.
Precision ended the year with a total of 39 Alpha-Rigs deployed in the
North American market, fully equipped with AlphaAutomationTM. We also
had 18 AlphaAppsTM available, six of which are commercialized, and
demonstrated significant cost savings with recent case studies with its
AlphaAnalyticsTM offering.
Precision drilled over 1,800 wells since
its
AlphaAutomationTM technology, which includes approximately 650 wells
in 2020. During 2020, we drilled approximately 200 wells with
AlphaAppsTM, resulting in over 2,300 App-Days during the year.
roll-out of
the
14
Management’s Discussion and Analysis
We established the following strategic priorities for 2021:
2021 Strategic Priorities
Grow revenue and market share through our digital leadership position.
Demonstrate operational leverage to generate free cash flow and reduce debt.
Deliver leading ESG performance to strengthen customer and stakeholder positioning.
15
Management’s Discussion and Analysis
2020 RESULTS
2020 HIGHLIGHTS
Adjusted EBITDA, operating earnings (loss), funds provided by (used in) operations and working capital are Non-GAAP
measures. See page 48 for more information.
Financial Highlights
Year ended December 31
(in thousands of dollars, except where noted)
Revenue
Adjusted EBITDA
Adjusted EBITDA % of revenue
Net earnings (loss)
Cash provided by operations
Funds provided by operations
Investing activities
Capital spending
Expansion and upgrade
Maintenance and infrastructure
Intangibles
Proceeds on sale
Net capital spending
Earnings (loss) per share ($)
Basic
Diluted
Operating Highlights
Year ended December 31
Contract drilling rig fleet
Drilling rig utilization days
U.S.
Canada
International
Revenue per utilization day
U.S. (US$)
Canada (Cdn$)
International (US$)
Operating cost per utilization day
U.S. (US$)
Canada (Cdn$)
Service rig fleet
Service rig operating hours
Financial Position and Ratios
(in thousands of dollars, except ratios)
Working capital(1)
Working capital ratio
Long-term debt(2)
Total long-term financial liabilities
Total assets
Enterprise value(3)
Long-term debt to long-term debt plus equity
Long-term debt to cash provided by operations
(1) See Non-GAAP Measures on page 48 of this report.
(2) Net of unamortized debt issue costs.
2020
935,753
263,403
28.1%
(120,138 )
226,118
170,727
% increase/
(decrease)
(39.3 )
(32.7 )
(1,915.3 )
(21.5 )
(41.7 )
2019
1,541,320
391,305
25.4%
6,618
288,159
292,652
% increase/
(decrease)
0.0
4.3
(102.2 )
(1.8 )
(6.0 )
2018
1,541,189
375,131
24.3%
(294,270 )
293,334
311,214
% increase/
(decrease)
16.6
23.0
26,858
34,677
57
(21,094 )
40,498
(77.8 )
(11.0 )
(92.9 )
(76.8 )
(42.1 )
120,910
38,976
808
(90,768)
69,926
82.6
(19.4 )
(93.0 )
271.1
(31.2 )
66,201
48,375
11,567
(24,457 )
101,686
(8.76 )
(8.76 )
(2,004.3 )
(2,046.7 )
0.46
0.45
(102.3 )
(102.2 )
(20.05 )
(20.05 )
122.2
122.2
122.9
151.7
69.2
35.0
87.6
(50.1)
64.8
22.3
2020
227
% increase/
(decrease)
0.4
2019
226
26,544
14,498
3,093
23,397
21,569
51,360
14,447
15,240
% increase/
(decrease)
(4.2 )
(0.6 )
(22.1 )
5.9
7.0
(0.3 )
1.8
0.8
5.2
2018
236
26,714
18,617
2,920
21,864
21,644
50,469
14,337
14,493
(54.5)
(25.5)
(18.3)
11.9
0.2
6.7
1.5
(11.1)
—
(44.3)
123
147,154
(41.4 )
(6.5 )
210
157,467
% increase/
(decrease)
(7.8)
30.4
(1.4)
—
10.1
2.4
0.5
3.5
10.3
—
(8.9)
12,080
10,794
2,526
26,184
21,611
54,811
14,666
13,546
123
81,952
December 31,
2020
175,423
2.1
1,236,210
1,304,162
2,898,878
1,409,147
0.5
5.5
December 31,
2019
201,696
1.9
1,427,181
1,500,950
3,269,840
1,854,393
0.5
5.0
December 31,
2018
240,539
1.9
1,706,253
1,723,350
3,636,043
2,305,890
0.5
5.8
(3) Share price multiplied by the number of shares outstanding plus long-term debt minus cash. See page 32 for more information.
16
Management’s Discussion and Analysis
2020 Overview
2020 was overshadowed by significant decreases in industry activity and extreme commodity price volatility. In the U.S., West
Texas Intermediate (WTI) oil prices averaged US$39.40 per barrel and Henry Hub natural gas prices averaged US$2.13 per
MMBtu, representing a decrease of 31% and 17% from 2019, respectively. In Canada, Western Canadian Select (WCS) and
AECO natural gas price averaged US$35.59 and $2.24 in 2020, respectively. Average WCS pricing was 20% lower than 2019
while AECO increased by 27%. Volatile commodity prices and uncertain outlook on global oil demand caused by the COVID-19
pandemic resulted in conservative customer spending and significant decreases to the active industry rig count in 2020.
For the year ended December 31, 2020, our net loss was $120 million, or a net loss of $8.76 per diluted share, compared with
2019 net earnings of $7 million, or $0.45 per diluted share.
Revenue in 2020 was $936 million, 39% lower than 2019. As compared with 2019, revenue from our Contract Drilling Services
and Completion and Production Services segments was down 38% and 48%, respectively. Our lower revenue in the year was
primarily the result of lower activity across all regions. Our U.S. drilling activity decreased 55%, Canadian activity decreased
26% and international activity decreased 18%. In addition, our service rig operating hours were down 44% compared with the
prior year.
Adjusted EBITDA in 2020 was $263 million, 33% lower than in 2019. Our lower Adjusted EBITDA in 2020 was primarily due to
decreased drilling and service activity and higher restructuring charges, partially offset by higher Contract Drilling Services day
rates and the impact of Canadian Emergency Wage Subsidy (CEWS) program assistance of $26 million. As a percentage of
revenue, our Adjusted EBITDA margin was 28% as compared with 25% in 2019.
Contract Drilling Services’ Adjusted EBITDA as a percentage of segment revenue for the year was 35%, compared with 31% in
2019, while the Completion and Production Services segment was 15%, compared with 16% in 2019. Our portfolio of term
customer contracts, scalable operating cost structure and economies achieved through vertical integration of the supply chain
helped manage our Adjusted EBITDA percentages during 2020.
Capital expenditures for the purchase of property, plant and equipment and intangible assets were $62 million in 2020, a
decrease of $99 million over 2019. Our capital spending included $27 million for upgrade and expansion capital, $35 million for
the maintenance of existing assets, infrastructure and intangibles.
During the year, we retired our 6.50% unsecured senior notes due 2021 through redemptions of US$88 million principal amount
and repurchases and cancellations of US$3 million. In addition, we repurchased and cancelled US$44 million of our 5.25%
unsecured senior notes due 2024, US$22 million of our 7.125% unsecured senior notes due 2026 and US$59 million of our
7.75% unsecured senior notes due 2023. We recognized a gain of $44 million on the repurchase of unsecured senior notes.
Pursuant to our NCIB, we repurchased and cancelled a total of 420,588 common shares for $11 million. Subsequent to
December 31, 2020, we repurchased and cancelled an additional 155,168 shares for $4 million.
On November 12, 2020, we completed a 20:1 consolidation of our common shares. No fractional shares were issued pursuant
to the share consolidation. Comparative period basic and diluted weighted average shares outstanding have been retrospectively
adjusted to reflect our share consolidation.
17
Management’s Discussion and Analysis
Revenue and Adjusted EBITDA $ Millions $1,750 $1,500 $1,250 $1,000 $750 $500 $250 0 2016 2017 2018 2019 2020 Margin % 50% 40% 30% 20% 10% 0% Revenue Adjusted EBITDA EBITDA Margin Cash and Funds Provided by Operations $ Millions $350 $300 $250 $200 $150 $100 $50 0 2016 2017 2018 2019 2020 Funds provided by operations Cash provided by operations Drilling Utilization Days Days 60,000 40,000 20,000 0 2016 2017 2018 2019 2020 International U.S. Canada
18
Management’s Discussion and Analysis
Consolidated Statements of Net Earnings (Loss) Summary
Year ended December 31 (in thousands of dollars)
Revenue
Contract Drilling Services
Completion and Production Services
Inter-segment elimination
Adjusted EBITDA
Contract Drilling Services
Completion and Production Services
Corporate and Other
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and equipment
Impairment of goodwill
Foreign exchange
Finance charges
Gain on redemption and repurchase of unsecured senior notes
Loss before income tax
Income taxes
Net earnings (loss)
Results by Geographic Segment
Year ended December 31 (in thousands of dollars)
Revenue
U.S.
Canada
International
Total assets
U.S.
Canada
International
2020 COMPARED WITH 2019
2020
2019
2018
861,202
77,251
(2,700 )
935,753
300,425
11,257
(48,279 )
263,403
316,322
(11,931 )
—
—
—
4,542
107,468
(43,814 )
(109,184 )
10,954
(120,138 )
1,399,068
147,829
(5,577 )
1,541,320
429,483
24,155
(61,733 )
391,905
333,616
(50,741 )
20,263
(5,810 )
—
(8,722 )
118,453
(6,815 )
(8,339 )
(14,957 )
6,618
1,396,492
150,760
(6,063 )
1,541,189
412,134
14,881
(51,884 )
375,131
377,044
(11,384 )
—
—
207,544
4,017
127,178
(5,672 )
(323,596 )
(29,326 )
(294,270 )
2020
2019
2018
444,052
305,613
186,088
935,753
1,339,945
1,053,921
505,012
2,898,878
871,651
459,377
210,292
1,541,320
1,560,523
1,133,591
575,726
3,269,840
791,312
558,746
191,131
1,541,189
1,772,850
1,269,542
593,651
3,636,043
As compared with 2019, our revenue, Adjusted EBITDA and net earnings declined in the year primarily due to lower activity
levels across all segments as volatile commodity prices and uncertain outlook on global oil demand caused by the COVID-19
pandemic resulted in conservative customer spending throughout 2020. Our 2020 revenue declined 39% from the prior year
while Adjusted EBITDA was $263 million, a decrease of $128 million from 2019. Net loss in 2020 was $120 million, or a net loss
of $8.76 per diluted share, compared with net earnings of $7 million, or $0.45 per diluted share, in 2019.
Restructuring
We incurred $18 million of restructuring charges, as compared with $6 million in 2019. Our restructuring charges were comprised
of severance and costs associated with the shutdown of our U.S. directional drilling operations as we continued to align our
structure and personnel with a lower activity environment.
Long-Lived Assets
Under IFRS, we review the carrying value of our long-lived assets for indications of impairment at the end of each reporting
period. At March 31, 2020, we tested all CGUs for impairment and no impairment charges were identified. At December 31,
2020, we reviewed each CGU and did not identify any indications of impairment. Accordingly, we did not test our CGUs for
impairment.
Through normal course disposal, we recognized a gain on asset disposals of $12 million as compared with $51 million in 2019.
In the prior year, we sold our Mexico-based drilling rigs and ancillary equipment for total proceeds of US$48 million, recognizing
a gain on asset disposal of US$24 million and reversed US$4 million of previous impairment charges. In 2019, we
19
Management’s Discussion and Analysis
decommissioned certain assets that no longer met our High Performance technology standard for a loss on asset
decommissioning of $20 million. We did not decommission any assets in 2020.
Foreign Exchange
We recognized a foreign exchange loss of $5 million in 2020 (2019 – $9 million gain) due to the weakening of the Canadian
dollar against the U.S. dollar. This affected the net U.S. dollar denominated monetary position in our Canadian dollar-based
companies and the translation of our U.S. denominated intercompany payables.
Finance Charges
Finance charges were $107 million, a decrease of $11 million compared with 2019 and was primarily due to a reduction in
interest expense related to debt retired, partially offset by the impact of the weakening of the Canadian dollar on our U.S. dollar
denominated interest.
Gain on Redemption and Repurchase of Unsecured Senior Notes
In 2020, we were able to repurchase our unsecured senior notes at a discount. We retired our 6.50% unsecured senior notes
due 2021 through redemptions of US$88 million principal amount and repurchases and cancellations of US$3 million. We
repurchased and cancelled US$44 million of our 5.25% unsecured senior notes due 2024, US$22 million of our 7.125%
unsecured senior notes due 2026 and US$59 million of our 7.75% unsecured senior notes due 2023. We recognized a gain of
$44 million on the repurchase of our unsecured senior notes. In comparison, during 2019, we redeemed and/or repurchased
and cancelled US$153 million of our previously outstanding unsecured senior notes for a gain of $7 million.
Income Taxes
In 2020, we recognized an income tax expense of $11 million as compared with a recovery of $15 million in 2019. The higher
income tax expense in the current year was primarily the result of not recognizing the benefit of Canadian and certain
international deferred tax assets.
2019 COMPARED WITH 2018
Net earnings in 2019 was $7 million, or $0.45 per diluted share, compared with a net loss of $294 million, or a net loss of $20.05
per diluted share, in 2018. The higher net earnings were primarily the result of higher operating margins in our U.S. contract
drilling business, lower general and administrative costs, lower finance charges because of our reduced debt, a current year
foreign exchange gain and a 2018 goodwill impairment charge that after-tax reduced net earnings by $199 million, partially offset
by lower activity in Canada and the receipt of a transaction termination fee in 2018.
Revenue was $1,541 million (consistent with 2018) because of higher international activity and improved U.S. and international
day rates, offset by lower U.S. and Canadian activity and lower day rates in Canada.
Adjusted EBITDA in 2019 was $392 million (5% higher than in 2018). Our higher Adjusted EBITDA in 2019 was primarily due to
increased U.S. and international day rates, higher international activity, improved operating margins and lower general and
administrative costs, partially offset by lower activity in the U.S. and Canada.
Long-Lived Assets
Under IFRS, we are required to assess the carrying value of assets in our CGUs containing goodwill annually and when
indicators of impairment exist. As a result of the goodwill impairments recognized in 2018, at December 31, 2019, we no longer
have any CGUs that contain goodwill. We did not identify an indication of impairment within the Corporation’s CGUs as at
December 31, 2019. Accordingly, no impairment tests were performed.
In the second quarter of 2019, Precision sold its Mexico-based drilling rigs and ancillary equipment, contained within its Contract
Drilling Services segment, for total proceeds of US$48 million. Precision recognized a gain on asset disposal of US$24 million
and reversed US$4 million of previous impairment charges.
In 2018, due to the decrease in oil and natural gas well drilling in Canada and the outlook for activity in Canada and in our
directional drilling division in the U.S., we recognized a $208 million goodwill impairment charge. The impairment charge
represents the full amount of goodwill attributable to our Canadian contract drilling and U.S. directional drilling operations.
Foreign Exchange
We recognized a foreign exchange gain of $9 million in 2019 (2018 – $4 million loss) due to the strengthening of the Canadian
dollar against the U.S. dollar and this affected the net U.S. dollar denominated monetary position in our Canadian dollar-based
companies and the translation of our U.S. denominated intercompany payables.
20
Management’s Discussion and Analysis
Finance Charges
Finance charges were $118 million, a decrease of $9 million compared with 2018 primarily due to a reduction in interest expense
related to debt retired in 2018 and 2019, partially offset by the impact of the weakening of the Canadian dollar on our U.S. dollar
denominated interest and lease accretion charges resulting from the adoption of IFRS 16 on January 1, 2019.
Gain on Redemption and Repurchase of Unsecured Senior Notes
During 2019, Precision repurchased and cancelled US$30 million of the 7.125% unsecured senior notes due 2026, US$5 million
of the 7.75% unsecured senior notes due 2023 and US$43 million of the 5.25% unsecured senior notes due 2024. In addition,
Precision redeemed US$75 million principal amount of its 6.50% unsecured senior notes due 2021. We recognized a gain on
the repurchase and redemption of unsecured senior notes of $7 million. In comparison, during 2018, we redeemed and/or
repurchased and cancelled US$132 million of our previously outstanding unsecured senior notes resulting in a gain of $6 million.
Income Taxes
In 2019, we recognized an income tax recovery of $15 million as compared to $30 million in 2018. The reduced recovery in 2019
compared with 2018 was mainly due to a smaller loss in 2019, prior to the non-taxable portion of the goodwill impairment
recorded in 2018.
SEGMENTED RESULTS
CONTRACT DRILLING SERVICES
Financial Results
Adjusted EBITDA, operating earnings (loss), funds provided by (used in) operations and working capital are Non-GAAP
measures. See page 48 for more information.
Year ended December 31
(in thousands of dollars, except where noted)
Revenue
Expenses
Operating
General and administrative
Restructuring
Adjusted EBITDA
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and equipment
Impairment of goodwill
Operating earnings (loss)
2020
861,202
526,716
26,441
7,620
300,425
288,389
(10,171 )
—
—
—
22,207
2020 Compared with 2019
% of
revenue
2019
1,399,068
% of
revenue
2018
1,396,492
% of
revenue
61.2
3.1
0.9
34.9
33.5
(1.2)
—
—
—
2.6
927,612
38,927
3,046
429,483
300,882
(46,849 )
20,263
(5,810 )
—
160,997
66.3
2.8
0.2
30.7
21.5
(3.3 )
1.4
(0.4 )
—
11.5
945,203
39,155
—
412,134
341,712
(7,157 )
—
—
207,544
(129,965 )
67.7
2.8
—
29.5
24.5
(0.5 )
—
—
14.9
(9.3 )
Revenue from Contract Drilling Services was $861 million, 38% lower than 2019 due to lower drilling activity in each geographic
region. In 2020, we recognized idle but contracted rig revenue in the U.S. of US$37 million and shortfall payments in Canada of
$1 million, compared to US$4 million and $4 million, respectively in 2019.
Operating expenses in 2020 were 61% of revenue, 5% lower than the prior year. On a per utilization day basis, in the U.S.,
operating costs were 2% higher than the prior year primarily due to fixed operating overheads spread over fewer utilization days
and higher turnkey activity, offset by lower repairs and maintenance and our rig mix. Operating costs on a per day basis in our
Canadian drilling rig division was 11% lower than 2019, primarily due to the impact of CEWS program assistance and lower
repairs and maintenance.
General and administrative expenses for 2020 were 32% lower due to our cost savings initiatives, restructuring and CEWS
program assistance. In 2020, we incurred $8 million of restructuring charges, as compared with $3 million in 2019, as we
continued to align our cost structure and personnel to reflect lower drilling activity.
During the year, we recognized CEWS program assistance of $15 million of which $14 million and $1 million were presented as
reductions to our operating and general and administrative costs, respectively.
Our 2020 operating earnings were $22 million as compared to $161 million in the prior year. In addition to lower activity, our
operating earnings decreased in 2020 as a result of lower gains on asset disposals and reversals of impairment, partially offset
by lower asset decommissioning and depreciation and amortization.
21
Management’s Discussion and Analysis
In 2019 we decommissioned drilling rigs resulting in a loss on decommissioning of $20 million and sold our Mexico-based drilling
rigs and ancillary equipment, recognizing a gain on asset disposal of US$24 million and reversal of impairment of US$4 million.
Our depreciation expense for 2020 was lower by 4% compared with the prior year due to asset sales and assets becoming fully
depreciated.
Capital expenditures in 2020 for our Contract Drilling segment were $58 million:
$27 million – to upgrade and expand our asset base.
$31 million – on maintenance and infrastructure.
Operating Statistics
Year ended December 31
Number of drilling rigs (year-end)
Drilling utilization days (operating and moving)
U.S.
Canada
International
Drilling revenue per utilization day
U.S.
Canada
International
U.S. Drilling
% increase/
(decrease)
0.4
2020
227
2019
226
% increase/
(decrease)
(4.2 )
2018
236
% increase/
(decrease)
(7.8)
12,080
10,794
2,526
26,184
21,611
54,811
(54.5)
(25.5)
(18.3)
11.9
0.2
6.7
26,544
14,498
3,093
23,397
21,569
51,360
(0.6 )
(22.1 )
5.9
7.0
(0.3 )
1.8
26,714
18,617
2,920
21,864
21,644
50,469
30.4
(1.4)
—
10.1
2.4
0.5
Revenue from U.S. drilling was US$316 million, 49% lower than 2019. Drilling rig activity, as measured by utilization days, was
down 55% from 2019 while average revenue per day was up 12%.
Adjusted EBITDA was US$124 million, 43% lower than 2019, mainly because of lower activity, partially offset by higher average
day rates, idle but contracted revenue and turnkey activity.
Our average day rates in the U.S. increased 12% compared with 2019 due to higher revenue from idle but contracted rigs,
turnkey projects and the commercialization of our Alpha technology. Revenue from idle but contracted rigs was US$37 million
in 2020, an increase of US$33 million from the prior year. We recognized turnkey revenue of US$11 million which accounted for
3% of our U.S. drilling revenue as compared with US$3 million and less than 1% in 2019, respectively.
Depreciation expense for the year was US$106 million, US$6 million lower than 2019 because of a lower capital asset base as
assets become fully depreciated, decommissioned, or were disposed.
Drilling Statistics – U.S.
We ended the year with a U.S. rig count of 105. We averaged 33 rigs working in 2020, 55% lower than 2019, consistent with
lower industry activity. In 2020, the average number of active land rigs for the industry was 420, down 54% from 921 rigs in
2019.
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.
2020
2019
2018
Precision Industry (1) Precision
Industry (1) Precision
Industry (1)
55
30
21
26
33
764
378
241
297
420
79
77
72
63
73
1,023
967
896
798
921
64
72
76
80
73
951
1,021
1,032
1,050
1,014
22
Management’s Discussion and Analysis
Canadian Drilling
Revenue from Canadian drilling was $233 million, 25% lower than 2019. Drilling rig activity, as measured by utilization days,
was down by 26% while average day rates were consistent with 2019.
Adjusted EBITDA was $78 million, 6% lower than 2019, as a result of lower drilling activity, partially offset by the impact of CEWS
program assistance.
During the year, we recognized CEWS program assistance of $15 million of which $14 million and $1 million were presented as
reductions to our operating and general and administrative costs, respectively.
Depreciation expense for the year was $95 million, 13% lower than 2019 because of a lower capital asset base as assets
become fully depreciated, decommissioned, or were disposed.
Drilling Statistics – Canada
Our Canadian rig count remained at 109, consistent with 2019. We averaged 29 rigs working in 2020, 28% lower than 2019
while the average number of active land rigs for the industry declined 34% from 134 to 89.
Drilling Statistics – Canada
Average number of active land rigs
for quarters ended:
March 31
June 30
September 30
December 31
Annual average
(1) Source: Baker Hughes.
COMPLETION AND PRODUCTION SERVICES
Financial Results
2020
2019
2018
Precision Industry (1) Precision
Industry (1) Precision
Industry (1)
63
9
18
28
29
196
25
47
88
89
48
27
42
43
40
183
82
132
138
134
64
72
76
80
73
269
108
209
179
191
Adjusted EBITDA, operating earnings (loss), funds provided by (used in) operations and working capital are Non-GAAP
measures. See page 48 for more information.
Year ended December 31
(in thousands of dollars, except where noted)
Revenue
Expenses
Operating
General and administrative
Restructuring
Adjusted EBITDA
Depreciation and amortization
Loss (gain) on asset disposals
Operating earnings (loss)
2020 Compared with 2019
2020
77,251
59,404
3,995
2,595
11,257
16,375
(1,447)
(3,671)
% of
revenue
2019
147,829
% of
revenue
2018
150,760
% of
revenue
76.9
5.2
3.4
14.6
21.2
(1.9)
(4.8)
116,932
6,285
457
24,155
17,881
(3,767)
10,041
79.1
4.3
0.3
16.3
12.1
(2.5 )
6.8
128,124
6,591
1,164
14,881
22,801
1,078
(8,998)
85.0
4.4
0.8
9.9
15.1
0.7
(6.0)
Revenue from Completion and Production Services was $77 million, 48% lower than 2019, resulting from lower activity across
all divisions.
Operating expenses were 77% of segment revenue, 2% lower than 2019, which was primarily the result of our improved cost
structure and the impact of CEWS program assistance.
During the year, we recognized CEWS program assistance of $7 million of which $6 million and $1 million were presented as
reductions to our operating and general and administrative costs, respectively.
We incurred $3 million of restructuring costs, compared with less than $1 million in 2019, as we continued to align our cost
structure to reflect lower divisional activity.
Our reduced activity in 2020 resulted in an operating loss of $4 million in 2020, compared with operating earnings of $10 million
in the prior year.
23
Management’s Discussion and Analysis
Depreciation in 2020 decreased by 8% due to our lower capital asset base as assets become fully depreciated, decommissioned,
or were disposed.
Through normal course disposals, we recognized a gain on asset disposals of $1 million as compared with $4 million in 2019.
In the prior year, we disposed of certain snubbing units and related equipment, recognizing a gain on disposal of $3 million.
Capital expenditures in 2020 were $3 million, comprised mainly of maintenance capital.
Operating Statistics
Year ended December 31
Number of service rigs (end of year)
Service rig operating hours
2020
123
81,952
% increase/
(decrease)
—
(44.3)
2019
123
147,154
% increase/
(decrease)
(41.4 )
2018
210
(6.5 ) 157,467
% increase/
(decrease)
—
(8.9)
Our service rig operating hours fell by 44% in the current year as compared with the prior year period.
CORPORATE AND OTHER
Financial Results
Adjusted EBITDA, operating earnings (loss), funds provided by (used in) operations and working capital are Non-GAAP
measures. See page 48 for more information.
Year ended December 31
(in thousands of dollars, except where noted)
Revenue
Expenses
Operating
General and administrative
Restructuring
Other recoveries
Adjusted EBITDA
Depreciation and amortization
Gain on asset disposals
Operating loss
2020 Compared with 2019
2020
—
2019
—
—
40,433
7,846
—
(48,279 )
11,558
(313 )
(59,524 )
—
58,798
2,935
—
(61,733 )
14,853
(125 )
(76,461 )
2018
—
—
66,084
—
(14,200 )
(51,884 )
12,531
(5,305 )
(59,110 )
Our Corporate and Other segment contains support functions that provide assistance to our business segments. It includes
costs incurred in corporate groups in both Canada and the U.S.
Corporate general and administrative expenses were $40 million in 2020, $18 million lower than 2019. The decrease was mainly
related to our efforts to realign our cost structure, including the reduction of fixed overhead costs, and CEWS program assistance,
partially offset by higher foreign exchange translation on our U.S. dollar-based costs.
We recognized $4 million of CEWS program assistance in the year. In 2020, corporate general and administrative costs were
4.3% of consolidated revenue compared with 3.8% in 2019.
During the year, we recognized $8 million in restructuring costs, as compared with $3 million in the prior year. Our restructuring
costs were primarily comprised of severance costs as we continued to align our cost structure with our reduced activity levels.
Capital expenditures in 2020 for our Corporate and Other segment were $1 million, primarily related to infrastructure.
24
Management’s Discussion and Analysis
QUARTERLY FINANCIAL RESULTS
Adjusted EBITDA, operating earnings (loss), funds provided by (used in) operations and working capital are Non-GAAP
measures. See page 48 for more information.
2020 – Quarters Ended
(in thousands of dollars, except per share amounts)
Revenue
Adjusted EBITDA
Net earnings (loss)
per basic share
per diluted share
Funds provided by operations
Cash provided by operations
2019 – Quarters Ended
(in thousands of dollars, except per share amounts)
Revenue
Adjusted EBITDA
Net loss
per basic share
per diluted share
Funds provided by operations
Cash provided by operations
Seasonality
March 31
379,484
101,904
(5,277 )
(0.38 )
(0.38 )
81,317
74,953
March 31
434,043
107,967
25,014
1.70
1.67
95,993
40,587
June 30
189,759
58,465
(48,867 )
(3.56 )
(3.56 )
26,639
104,478
September 30 December 31
201,688
55,263
(37,518 )
(2.74 )
(2.74 )
35,282
4,737
164,822
47,771
(28,476 )
(2.08 )
(2.08 )
27,489
41,950
June 30
359,424
81,037
(13,801 )
(0.93 )
(0.93 )
40,950
106,035
September 30
375,552
97,895
(3,534 )
(0.23 )
(0.23 )
79,930
66,556
December 31
372,301
105,006
(1,061 )
(0.08 )
(0.08 )
75,779
74,981
Drilling and well servicing activity is affected by seasonal weather patterns and ground conditions. In Canada and the northern
U.S., wet weather and the spring thaw make the ground unstable resulting in road restrictions that may limit the movement of
heavy oilfield equipment and reduce the level of drilling and well servicing activity primarily during the second quarter of the year.
In northern Canada, some drilling sites can only be accessed in the winter once the terrain is frozen, which usually begins late
in the fourth quarter. Our business activity depends, in part, on the severity and duration of the winter drilling season.
Fourth Quarter 2020 Compared with Fourth Quarter 2019
In the fourth quarter of 2020, we recorded a net loss of $38 million or a net loss of $2.74 per diluted share compared to a net
loss of $1 million or a net loss of $0.08 per diluted share in 2019.
Revenue in the fourth quarter was $202 million or 46% lower than the comparable 2019 quarter, mainly due to lower activity.
Compared with the fourth quarter of 2019, our drilling activity decreased 59% in the U.S., 34% in Canada and 33% internationally.
Our 2020 fourth quarter revenue from our Contract Drilling Services and Completion and Production Services segments
decreased 47% and 33%, respectively, from the comparable 2019 quarter.
Adjusted EBITDA was $55 million, a decrease of $50 million from the fourth quarter of 2019. Our lower Adjusted EBITDA in
2020 was primarily due to reduced activity and higher share-based incentive compensation expense.
As a percentage of revenue, operating costs were 62% in the fourth quarter of 2020, 3% lower than the same quarter of 2019.
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 $179 million in the fourth quarter of 2020, 47% lower than the fourth quarter of
2019, while Adjusted EBITDA decreased by 44% to $63 million. The decrease in revenue and Adjusted EBITDA was due to
lower activity across all geographic operating locations.
In the U.S., we had fourth quarter revenue from idle but contracted rigs and turnkey projects of US$7 million and US$5 million,
respectively. Whereas in 2019, we had revenue of US$3 million in each of idle but contracted rigs and turnkey projects. During
the quarter, we recognized $1 million of contract shortfall revenue in Canada as compared with nil in 2019.
25
Management’s Discussion and Analysis
In the fourth quarter of 2020, industry drilling activity remained low. Accordingly, our U.S. drilling rig utilization days (drilling days
plus move days) were 2,396, 59% lower than 2019 while our Canadian utilization days were 2,578, 34% lower than 2019. Drilling
rig utilization days in our international business were 552 in the fourth quarter of 2020, 33% lower than 2019 due to the expiration
of drilling contracts.
Revenue per utilization day in the U.S. increased in the fourth quarter of 2020 to US$25,577 from US$23,949 in the prior year
quarter as we realized higher revenues from idle but contracted rig revenue and turnkey projects. In Canada, average revenue
per utilization day for contract drilling rigs was $21,670 compared with $22,182 in the fourth quarter of 2019. The lower average
revenue per utilization day in the fourth quarter of 2019 was primarily due to our rig mix for the quarter. Average revenue per
utilization day in our international contract drilling business was US$55,453 compared with US$52,283 in the prior year quarter.
The higher average rate in 2020 was primarily due to our rig mix.
In the U.S., 62% of utilization days were generated from rigs under term contract as compared with 66% in the fourth quarter of
2019. In Canada, 11% of our utilization days in the quarter were generated from rigs under term contract, compared with 9% in
the fourth quarter of 2019.
Operating costs were 61% of revenue for the quarter, as compared to 64% in the prior year period. In the U.S., operating costs
for the quarter on a per day basis of US$14,419 were higher than the prior year period of US$14,073 primarily due to higher
turnkey activity and fixed operating overheads spread over fewer utilization days. On a per utilization day basis, operating costs
in Canada of $12,291 were lower than the 2019 quarter of $14,791 due to the impact of the CEWS program assistance, offset
by fixed operating overheads spread over fewer utilization days. During the quarter, we recognized CEWS program assistance
of $7 million of which $6 million and $1 million were respectively presented as reductions to our operating and general and
administrative costs.
Depreciation expense in the quarter was 7% lower than the fourth quarter of 2019 primarily because of a lower capital asset
base as assets become fully depreciated, decommissioned, or were disposed.
In the fourth quarter of 2020, through the completion of normal course business operations, we sold used assets recognizing a
gain on disposal of $2 million, compared with $4 million in 2019.
Completion and Production Services
Completion and Production Services revenue decreased 33% compared with the fourth quarter of 2019 due to lower activity in
each of our service lines. Our service rig operating hours in the quarter of 27,286 were down 32% from the fourth quarter of
2019, consistent with lower industry activity. Approximately 73% of our fourth quarter Canadian service rig activity was oil related.
Adjusted EBITDA of $5 million in the fourth quarter of 2020 was 15% lower than the 2019 quarter primarily due to lower activity.
During the quarter, Completion and Production Services generated 21% of its revenue from U.S. operations compared with 19%
in the comparative period.
In the fourth quarter of 2020, operating and general and administrative costs as a percentage of revenue were lower as compared
with 2019. The lower percentage in 2020 was primarily due to the impact of our reduced cost structure and CEWS program
assistance partially offset by fixed overhead costs spread over a lower revenue base. During the quarter, we recognized CEWS
program assistance of $3 million which were presented as reductions to our operating and general and administrative costs of
$2 million and $1 million, respectively.
Depreciation expense in the quarter was 8% lower than the comparative period, primarily because of a lower capital asset base
as assets become fully depreciated or were disposed.
Corporate and Other
The Corporate and Other segment had negative Adjusted EBITDA of $14 million, consistent with the comparative 2019 quarter.
In the fourth quarter of 2020 our improved cost structure and CEWS program assistance were offset by higher share-based
compensation expense. During the fourth quarter of 2020, we recognized $1 million of CEWS program assistance.
Net finance charges were $24 million, a decrease of $4 million compared with the fourth quarter of 2019, primarily due to reduced
interest expense related to retired debt. Interest charges on our U.S. denominated long-term debt in the fourth quarter of 2020
were US$16 million ($21 million) as compared with US$20 million ($26 million) in 2019.
During the quarter, we repurchased and cancelled US$21 million of our 7.75% unsecured senior notes due 2023, US$10 million
of our 7.125% unsecured senior notes due 2026, and US$8 million of our 5.25% unsecured senior notes due 2024. Our debt
reduction resulted in a gain of $14 million.
Income tax expense for the quarter was $8 million compared with a recovery of $12 million in the same quarter in 2019. In the
fourth quarter of 2020, we did not recognize deferred tax assets in Canada and certain international jurisdictions, resulting in a
higher income tax expense as compared with 2019.
26
Management’s Discussion and Analysis
OUTLOOK
In 2020, we had an average of 42 drilling rigs working under term contracts. Utilization days from these contracts was
approximately 48% of our total contract drilling utilization days for the year.
Contracts
Term customer contracts provide a base level of activity and revenue.
As of March 12, 2021, we had term contracts in place for an average of
30 rigs: 18 in the U.S., six in Canada and six internationally for 2021. In
most regions in the U.S. and internationally, term contracts normally
generate 365 utilization days per rig year. In Canada, term contracted
rigs normally generate 250 utilization days per rig year because of the
seasonal nature of wellsite access.
Pricing, Demand and Utilization
In 2020, approximately 48% of our total contract
drilling utilization days were generated from rigs
under term contracts.
The volatile and uncertain outlook on oil prices and stringent focus on free cash flow encouraged conservatism in customer
spending, leading to a significant industry decrease in rig count late in the year. In the U.S., customer focus on free cash flow
continues to encourage conservatism in customer spending, leading to a significant industry decrease in rig counts late in 2020.
As of March 12, 2021, the U.S. rig count was 49% lower than the same time last year and has averaged 51% lower year-to-date
compared to 2020. In Canada, acute pipeline takeaway shortfalls and continued uncertainty in regulatory policy caused immense
pressure on regional commodity prices and subsequent activity levels. The industry rig count at March 12, 2021 was 43% lower
in Canada than it was a year ago while the year-to-date rig count has averaged 30% lower than 2020. Our U.S. and Canadian
activity for the remainder of the year is expected to be determined by the strength in commodity prices and the resulting customer
budgets.
International
We currently have six rigs working on term contracts with three in Kuwait and three in the Kingdom of Saudi Arabia. We continue
to bid our idle rigs within the region. Securing reactivations has been difficult due to COVID-19 restrictions. However, we remain
optimistic in our ability to secure reactivations as our customers return to more normal operations.
High Performance Rig 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 made
legacy rigs virtually obsolete in North America.
Capital Spending
Capital spending in 2021 is expected to be $54 million and includes $16 million for upgrade and expansion and $38 million for
sustaining, infrastructure and intangibles. We expect that the $54 million will be split $50 million in the Contract Drilling Services
segment, $3 million in the Completion and Production Services segment and $1 million to the Corporate segment. At December
31, 2020, Precision had capital commitments of $112 million with payments expected through to 2023.
27
Management’s Discussion and Analysis
FINANCIAL CONDITION
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 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
Despite the enormous challenges posed by COVID-19, we maintained our strong liquidity position. We exited the year with a
cash balance of $109 million and $552 million of available borrowing capacity under our secured credit facilities, providing us
with $661 million of total liquidity. To provide additional liquidity, we established a Real Estate Credit Facility in the amount of
US$11 million in the fourth quarter of 2020.
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.
At December 31, 2020, excluding letters of credit, we had approximately
$1,249 million (2019 – $1,445 million) outstanding under our secured
and unsecured credit facilities and $13 million in unamortized debt issue
costs. Our Senior Credit Facility and Real Estate Credit Facility include
financial ratio covenants that are tested quarterly.
Key Ratios
We ended 2020 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 5.5.
We ended 2020 with a long-term debt to long-term debt plus equity ratio of 0.5 (2019 – 0.5) and a ratio of long-term debt to cash
provided by operations of 5.5 (2019 – 5.0).
The current blended cash interest cost of our debt is approximately 6.5%.
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 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(2)
Total long-term financial liabilities
Total assets
Enterprise value(3)
Long-term debt to long-term debt plus equity
Long-term debt to cash provided by operations
Long-term debt to Adjusted EBITDA(1)
(1) See Non-GAAP Measures on page 48 of this report.
(2) Net of unamortized debt issue costs.
December 31,
2020
175,423
2.1
1,236,210
1,304,162
2,898,878
1,409,147
0.5
5.5
4.7
December 31,
2019
201,696
1.9
1,427,181
1,500,950
3,269,840
1,854,393
0.5
5.0
3.6
December 31,
2018
240,539
1.9
1,706,253
1,723,350
3,636,043
2,305,890
0.5
5.8
4.5
(3) Share price multiplied by the number of shares outstanding plus long-term debt minus cash. See page 32 for more information.
28
Management’s Discussion and Analysis
Credit Rating
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.
At March 12, 2021
Corporate credit rating
Senior Credit Facility rating
Unsecured senior notes credit rating
CAPITAL MANAGEMENT
Moody’s
B2
Not rated
B3
S&P
B
Not rated
B
Fitch
B+
BB+
B+
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 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.
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.
During 2020, we designated our U.S. dollar Senior Credit Facility and unsecured senior notes as a net investment hedge in our
U.S. dollar denominated foreign operations.
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 (in 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
2020
2019
226,118
(40,517 )
185,601
(145,624 )
(5,906 )
34,071
288,159
(74,500 )
213,659
(231,814 )
(3,770 )
(21,925 )
2018
293,334
(100,794 )
192,540
(169,085 )
8,090
31,545
In 2020, we generated cash from operations of $226 million compared with $288 million in 2019. The decrease is primarily the
result of lower activity, partially offset by lower interest payments due to debt reduction.
Investing Activity
Our 2020 capital expenditures of $62 were comprised of:
$27 million on upgrade and expansion capital, and
$35 million on maintenance, infrastructure capital and intangibles.
The $62 million in capital expenditures in 2020 was split between our segments as follows:
$58 million in Contract Drilling Services,
$3 million in Completion and Production Services, and
$1 million in Corporate and Other.
29
Management’s Discussion and Analysis
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 $21 million in 2020 compared with $91 million in 2019.
CAPITAL STRUCTURE
Material Debt
Amount
Senior Credit Facility (secured)
US$500 million (extendible, revolving term
credit facility with US$300 million accordion
feature)
Real estate credit facility (secured)
US$11 million
Operating facilities (secured)
$40 million
US$15 million
Demand letter of credit facility (secured)
US$30 million
Availability
Used for
Maturity
US$500 million less US$75 million
drawn and US$32 million
in
outstanding letters of credit
General corporate purposes
November 21, 2023
Fully drawn
General corporate purposes
November 19, 2025
Undrawn, except $7 million in
outstanding letters of credit
Undrawn
Letters of credit and general
corporate purposes
Short-term working capital
requirements
Undrawn, except US$2 million in
outstanding letters of credit
Letters of credit
Unsecured senior notes (unsecured)
US$286 million – 7.75%
US$263 million – 5.25%
Fully drawn
Fully drawn
US$348 million – 7.125%
Fully drawn
Covenants
Debt redemption and repurchases December 15, 2023
November 15, 2024
Capital expenditures and general
corporate purposes
Debt redemption and repurchases January 15, 2026
Following is a listing of our currently applicable covenants and the calculations as of December 31, 2020:
Covenant
At December 31, 2020
Senior Credit Facility
Consolidated senior debt to consolidated covenant EBITDA(1)
Consolidated covenant EBITDA to consolidated interest expense
Real Estate Credit Facility
Consolidated covenant EBITDA to consolidated interest expense
Unsecured Senior Notes
Consolidated interest coverage ratio
(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.
≤ 2.50
≥ 1.75
≥ 1.75
≥ 2.00
0.23
2.68
2.68
2.57
At December 31, 2020, we were in compliance with the covenants of our Senior Credit Facility, Real Estate Credit Facility and
unsecured senior notes.
Senior Credit Facility
The senior secured revolving credit facility (Senior Credit Facility) provides Precision with senior secured financing for general
corporate purposes, including for acquisitions, of up to US$500 million with a provision for an increase in the facility of up to an
additional US$300 million. The Senior Credit Facility is secured by charges on substantially all of the present and future assets
of Precision, its material U.S. and Canadian subsidiaries and, if necessary, to adhere to covenants under the Senior Credit
Facility, certain subsidiaries organized in jurisdictions outside of Canada and the U.S.
The Senior Credit Facility requires that we comply with certain restrictive and financial covenants including a leverage ratio of
consolidated senior debt to consolidated Covenant EBITDA (as defined in the debt agreement) of less than 2.5:1. For purposes
of calculating the leverage ratio consolidated senior debt only includes secured indebtedness. It also requires we maintain a
ratio of consolidated Covenant EBITDA to consolidated interest expense for the most recent four consecutive quarters, of greater
than 2.5:1.
30
Management’s Discussion and Analysis
Distributions under the Senior Credit Facility 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.
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, 2023.
On April 9, 2020 we agreed with the lenders of our Senior Credit Facility to reduce the consolidated Covenant EBITDA to
consolidated interest expense coverage ratio for the most recent four consecutive quarters of greater than or equal to 2.5:1 to
2.0:1 for the period ending September 30, 2020, 1.75:1 for the period ending December 31, 2020, 1.25:1 for the periods ending
March 31, June 30 and September 30, 2021, 1.75:1, for the period ending December 31, 2021, 2.0:1 for the period ending March
31, 2022 and 2.5:1 for periods ending thereafter.
During the covenant relief period, Precision’s distributions in the form of dividends, distributions and share repurchases are
restricted to a maximum of US$15 million in 2020 and US$25 million in each of 2021 and 2022, subject to a pro forma senior
net leverage ratio (as defined in the credit agreement) of less than or equal to 1.75:1.
In addition, during 2021, the North American and acceptable secured foreign assets must directly account for at least 65% of
consolidated Covenant EBITDA calculated quarterly on a rolling twelve-month basis, increasing to 70% thereafter. Precision
also has the option to voluntarily terminate the covenant relief period prior to its March 31, 2022 end date.
Under the Senior Credit Facility, amounts can be drawn in U.S. dollars and/or Canadian dollars. At December 31, 2020, US$75
million amounts were drawn under this facility (2019 – nil). Up to US$200 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, 2020 outstanding letters of credit amounted to US$32 million (2019 – US$25 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 Canadian Dollar Offered Rate (CDOR); such margins will be based
on the then applicable ratio of consolidated total debt to EBITDA.
Real Estate Credit Facility
In November 2020, Precision established a Real Estate Credit Facility in the amount of US$11 million. The facility matures in
November 2025 and is secured by real property located in Houston, Texas. Principal plus interest payments are due monthly,
based on 15-year straight-line amortization with any unpaid principal and accrued interest due at maturity. Interest is calculated
using a LIBOR rate plus margin.
The Real Estate Credit Facility contains certain affirmative and negative covenants and events of default, customary for this type
of transactions. Under the terms of the Real Estate Credit Facility, Precision must maintain a consolidated interest coverage
ratio in accordance with the Senior Credit Facility, described above, as of the last day of each period of four consecutive fiscal
quarters commencing December 31, 2020. In the event the consolidated Covenant EBITDA to consolidated interest expense
coverage ratio is waived or removed from the Senior Credit Facility, a minimum threshold of 1.15:1 is required.
Unsecured Senior Notes
The unsecured senior notes require we comply with an incurrence based consolidated interest coverage ratio test of consolidated
cash flow, as defined in the senior note agreements, to consolidated interest expense of greater than 2.0:1 for the most recent
four consecutive fiscal quarters. In the event 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.
The unsecured senior notes contain a restricted payment covenant that limits our ability to make payments in the nature of
dividends, distributions and for share repurchases from shareholders. This restricted payment basket grows from a starting point
of October 1, 2010 for the 2024 senior notes, from October 1, 2016 for the 2023 senior notes and October 1, 2017 for the 2026
senior notes by, among other things, 50% of consolidated cumulative net earnings and decreases by 100% of consolidated
cumulative net losses, as defined in the senior note agreements, and payments made to shareholders. The governing net
restricted payments basket is currently negative, limiting our ability to declare and make dividend payments until such time as
the restricted payments baskets become positive. During 2020, pursuant to the indentures governing the unsecured senior
notes, Precision used the available general restricted payments basket to facilitate the repurchase and cancellation of its
common shares.
In addition, the unsecured 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.
For further information, please see the unsecured senior note indentures which are available on SEDAR and EDGAR.
31
Management’s Discussion and Analysis
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, 2020
(in thousands of dollars)
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
Less than
1 year
896
80,980
23,917
10,960
7,768
124,521
Payments due (by period)
1-3 years
460,615
160,520
89,552
18,438
19,277
748,402
4-5 years
345,781
79,360
—
11,192
—
436,333
More than
5 years
442,757
1,314
—
6,590
—
450,661
Total
1,250,049
322,174
113,469
47,180
27,045
1,759,917
(1) U.S. dollar denominated balances are translated at the period end exchange rate of Cdn$1.00 equals US$0.7855.
(2) Balance primarily relates to cost of rig equipment with flexible delivery schedule wherein we can take delivery between 2021 and 2023.
(3) Includes amounts not yet accrued but are likely to be paid 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 closing share price on the TSX of $20.93 at December 31, 2020.
Shareholders Capital
Shares outstanding
Deferred shares outstanding
Share options outstanding
March 12,
December 31,
December 31,
2021
2020
2019
13,304,425
1,470
389,258
13,459,593
1,470
432,458
13,864,990
4,659
519,232
December 31,
2018
14,689,092
4,659
539,951
On November 12, 2020, we completed a 20:1 consolidation of our common shares. No fractional shares were issued pursuant
to the share consolidation. In lieu of any such fractional shares, each registered shareholder otherwise entitled to a fractional
share following the implementation of the share consolidation received the nearest whole number of post-consolidation shares.
During the third quarter of 2020, the Toronto Stock Exchange approved our application to renew our Normal Course Issuer Bid.
Under the terms of the NCIB, we may purchase and cancel up to a maximum of 1,199,883 common shares, representing 10%
of the public float of common shares as of August 14, 2020. The NCIB will terminate no later than August 26, 2021. For the year
ended December 31, 2020, we repurchased and cancelled a total of 420,588 common shares for $11 million. Subsequent to
December 31, 2020, we have repurchased and cancelled an additional 155,168 shares for $4 million.
More information about our capital structure can be found in our Annual Information Form, available on our website and on
SEDAR.
Common Shares
Our articles of amalgamation allow us to issue an unlimited number of common shares.
Preferred Shares
We can issue preferred shares in one or more series. The Board must pass a resolution determining the number of shares in
each series, and the designation, rights, privileges, restrictions and conditions for each series, before the shares can be issued.
This includes the rate or amount of dividends, when and where dividends are paid, the dates dividends accrue from any rights
or obligations for us to buy or redeem the shares, and the price, terms and conditions, and any conversion rights.
Enterprise Value
(in 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,
2020
13,459,593
20.93
281,709
1,236,210
(108,772 )
1,409,147
December 31,
2019
13,864,990
36.20
501,913
1,427,181
(74,701 )
1,854,393
December 31,
2018
14,689,092
47.40
696,263
1,706,253
(96,626 )
2,305,890
32
Management’s Discussion and Analysis
ACCOUNTING POLICIES AND ESTIMATES
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:
impairment of long-lived assets
depreciation and amortization
income taxes.
Due to the outbreak of COVID-19 and the resulting impact on the economy and in particular the prices of oil and natural gas,
the estimates and judgements used to prepare our Consolidated Financial Statements were subject to a higher degree of
measurement uncertainty.
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment and intangibles, 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.
The recoverability of long-lived assets requires a calculation of the recoverable amount of the cash generating unit or groups of
CGUs to which assets have 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. For property, plant
and equipment, this requires us to forecast future cash flows to be derived from the utilization of our 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.
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.
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.
33
Management’s Discussion and Analysis
RISKS IN OUR BUSINESS
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 Precision’s policies, guidelines and review mechanisms.
Our businesses routinely encounter and manage risks, some of which may cause our future results to be different, and
sometimes materially different than what we presently anticipate. We describe certain important strategic, operational, financial,
legal and compliance risks. Our response to developments 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, which have been subject to increased volatility in recent
years, and on the exploration and development activities of oil and natural gas exploration and production companies
We primarily 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 relatively low. The volatility of crude oil and natural gas prices accounts for much
of the cyclical nature of the oilfield services business and in recent years, increased volatility has led to greater uncertainty in
the demand for our services.
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 use of natural gas is growing quickly worldwide, with the three most
developed demand centers residing in North America, Western Europe and North Asia. These regions have dense pipeline
networks and a high demand for natural gas. The world’s largest producers of natural gas are currently the U.S., Russia, Iran,
Qatar, Canada, China and Norway. 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 (LNG) in ocean-going tanker ships introduced an element of globalization to the natural
gas market. The development of LNG means all the major production centers for natural gas are linked to the world’s major
demand centers.
Worldwide military, political, economic and other events, such as the COVID-19 pandemic in 2020 or a conflict in the Middle
East, expectations for global economic growth, trade disputes, 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 renewable energy
initiatives), the availability of pipeline capacity and other transportation for oil and natural gas, global oil and 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 downturn relative to activity levels experienced prior to 2015, a result of
lower commodity prices restricting customer spending which decreases drilling demand. In 2020, approximately 8,400 wells
were started onshore in the U.S., compared to approximately 43,700 in 2014. In 2020, the industry drilled 2,960 wells in western
Canada, compared to 10,942 in 2014. According to industry sources, the U.S. average active land drilling rig count was down
approximately 54% in 2020, compared to 2019, and the Canadian average active land drilling rig count was down approximately
34% during the same period. Oil and natural gas prices remained volatile throughout 2020 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 Russia, the COVID-19 pandemic 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
price of oil and natural gas, which would adversely affect the level of capital spending by our customers and in turn could have
a material adverse effect on our business, financial condition, results of operations and cash flow.
As a result of the continued pressure on commodity prices, many of our customers have reduced spending budgets compared
to periods prior to the downturn. Reductions in commodity prices or factors that impact the supply and demand for oil and natural
gas and lead to price volatility may result in further reductions in capital budgets in the future, which could result in cancelled,
delayed or reduced drilling programs by our customers and a corresponding decline in demand for our services. Moreover, the
prolonged reduction in oil and natural gas prices has depressed, and may continue to depress, the overall level of exploration
and production activity, resulting in a corresponding decline in the demand for our services. Additionally, the availability and
pricing of alternative sources of energy, a potential shift to lower carbon intensive energy sources or a shift to a lower carbon
economy, and technological advances may also depress the overall level of oil and natural gas exploration and production
activity, similarly impacting the demand for our services.
34
Management’s Discussion and Analysis
If a reduction in exploration and development activities, whether resulting from changes in oil and natural gas prices or reductions
in capital budgets as described above or otherwise, continues or worsens, it could materially and adversely affect us further by:
negatively impacting our revenue, cash flow, profitability and financial condition
restricting our ability to make capital expenditures compared to periods prior to the downturn and our ability to meet
future contracted deliveries of new-build rigs
affecting the existing fair market value of our rig fleet, which in turn could trigger a write-down for accounting purposes
our customers negotiating, terminating, or failing to honour their drilling contracts with us
making our Senior Credit Facility financial covenants more difficult to attain, and
negatively impacting our ability to maintain or increase our borrowing capacity, our ability to obtain additional capital to
finance our business and our ability to achieve our debt reduction targets.
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 business, financial condition,
results of operations and cash flow.
Additionally, 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.
Continued Impacts of the COVID-19 Pandemic
In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. Governments worldwide,
including those countries in which Precision operates, have enacted emergency measures from time to time to combat the
spread of the virus. These measures, which include the implementation of travel bans, quarantine periods, stay-at-home orders
and social distancing, have caused a material disruption to businesses globally resulting in an economic slowdown and
decreased demand for oil. Governments and central banks have reacted with significant monetary and fiscal interventions
designed to stabilize economic conditions; however, the long-term success of these interventions is not yet determinable. As a
result of the decrease in demand, worldwide inventories of oil have increased significantly. However, voluntary production
restraint from national oil companies and governments of oil-producing nations along with voluntary curtailments in the U.S. and
Canada have shifted global oil markets from a position of over supply to inventory draws. Vaccines that are expected to provide
for high levels of effectiveness against COVID-19 have been developed and vaccination programs are in progress globally.
While vaccination programs have resulted in a more positive worldwide economic outlook, the overall timing, including the spread
of any variants, and effectiveness of the vaccination programs remains uncertain and emergency measures to combat the spread
of the virus may remain in effect for an indefinite period in certain countries or jurisdictions which could continue to result in
decreased demand for oil. The situation remains dynamic and the ultimate duration and magnitude of the impact on the economy
and the financial effect on Precision remains unknown at this time.
The current challenging economic climate resulting from the impact of the COVID-19 pandemic and corresponding emergency
measures that have been implemented by various governments has or may have significant adverse impacts on Precision
including, but not exclusively:
potential interruptions of our business or operations
material declines in revenue and cash flows, as our customers are concentrated in the oil and natural gas industry
risk of non-payment of accounts receivable and customer defaults, and
additional restructuring charges as we align our structure and personnel to the dynamic environment.
future impairment charges to our property, plant and equipment and intangible assets
Pipeline constraints in western Canada have an adverse effect on the demand for our services in Canada
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 natural gas produced in western Canada, which has depressed, and may continue to depress, the overall exploration and
production activity of our customers. Construction has commenced on the Trans Mountain and Coastal Gaslink pipelines in
Western Canada; however, both projects may face further regulatory delays or disruptions. On January 20, 2021, the Biden
Administration issued an executive order revoking the Presidential permit allowing the construction and operation of the
Keystone XL pipeline. The regulatory uncertainty in Canada has impacted some of our customers’ ability to obtain financing,
which has also depressed overall exploration and production activity.
These factors could result in a corresponding decline in the demand for our services that could have a material adverse effect
on our business, financial condition, results of operations and cash flow.
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
35
Management’s Discussion and Analysis
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, the offering of
ancillary services, the ability to provide drilling equipment that is adaptable, 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 day rates, followed by
periods of high demand, short rig supply and increasing day rates. 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 business, financial condition, results of operations and cash flow.
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 business, financial condition, results of operations and
cash flow.
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 day rates in the oilfield services
industry generally and lower utilization of existing rigs. If any of these factors materialize, it could have a material adverse effect
on our business, financial condition, results of operations and cash flow.
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, geopolitical, 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 our Senior Credit Facility and in
our Senior Note Indentures 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 generate enough cash flow from operations or borrow
a sufficient amount 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 business, financial condition, results of operations and cash flow.
Repaying our 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 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 are carried out through subsidiaries, and some of them are not guarantors of our debt.
The assets of the non-guarantor subsidiaries represent approximately 21% of Precision’s consolidated assets. 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 funds 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 business, financial condition, results of operations and cash flow.
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 natural 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. In Canada, the Supreme Court of Canada’s 2019 Redwater decision
36
Management’s Discussion and Analysis
(Orphan Well Association v. Grant Thornton Ltd., which held that abandonment and reclamation obligations of a bankrupt debtor
were binding on the debtor’s trustee) may increase the cost of capital for our Canadian customers and could impact the
availability of credit for those customers. A reduction in spending by our customers could have a material adverse effect on our
business, financial condition, results of operations and cash flow as described further under – “Our operations depend on the
price of oil and natural gas, which have been subject to increased volatility in recent years, and the exploration and development
activities of oil and natural gas exploration companies” on page 34.
Our debt facilities contain restrictive covenants
Our Senior Credit Facility, Real Estate Credit Facility and the unsecured senior notes indentures contain a number of covenants
which, among other things, restrict us and some of our subsidiaries from conducting certain activities (see Capital Structure –
Material Debt – Unsecured Senior Notes on page 31). In the event our Consolidated Interest Coverage Ratio (as defined in our
three 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, 2020, our Consolidated Interest Coverage Ratio, as
calculated per our unsecured senior note indentures, was 2.57:1.
In addition, we must satisfy and maintain certain financial ratio tests under the Senior Credit Facility and Real Estate Credit
Facility (see Capital Structure – Material Debt on page 30). 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 and Real Estate Credit
Facility or any of the unsecured senior 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, Real Estate Credit Facility or any of the
unsecured senior note indentures to be due and payable immediately and terminate any commitments to extend further credit
under the Senior Credit Facility. 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 Senior Note Indentures
to be due and payable immediately.
At December 31, 2020, we were in compliance with the covenants of our Senior Credit Facility and Real Estate Credit Facility.
Risks and uncertainties associated with our international operations can negatively affect our business
We conduct some of our business in 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 United States.
Our international operations are subject to risks normally associated with conducting business in foreign countries, including,
but not limited to, the following:
an uncertain political and economic environment
the loss of revenue, property and equipment as a result of expropriation, confiscation, nationalization, contract
deprivation and force majeure
fluctuations in foreign currency and exchange controls
war, terrorist acts or threats, civil insurrection and geopolitical and other political risks
restrictions on the repatriation of income or capital
increases in duties, taxes and governmental royalties
renegotiation of contracts with governmental entities
changes in laws and policies governing operations of companies
compliance with anti-corruption and anti-bribery legislation in Canada, the U.S. and other countries, and
trade restrictions or embargoes imposed by the U.S. or other countries.
If there is a dispute relating to our international operations, we may be subject to the exclusive jurisdiction of foreign courts. In
addition, we may not be able to file suits against foreign persons or subject them to the jurisdiction of a court in Canada or the
U.S. or be able to enforce judgement or arbitrated awards against state-owned customers.
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
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Management’s Discussion and Analysis
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.
We are subject to compliance with the United States Foreign Corrupt Practices Act (FCPA) and the Corruption of Foreign Public
Official Act (Canada) (CFPOA), which generally prohibit companies from making improper payments to foreign government
officials for the purpose of obtaining business. While we have developed policies and procedures designed to achieve
compliance with the FCPA, CFPOA and other 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 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 that 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.
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, financial condition, results of
operations and cash flow.
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 result in changes that may 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. Laws, regulations or treaties concerning climate change or greenhouse gas emissions, including incentives to conserve
energy or use alternate sources of energy, can have an adverse impact on the demand for oil and natural gas, which could have
a material adverse effect on us. Such laws, regulations or treaties are evolving and it is difficult to estimate with certainty the
impact they will have on our business.
In the U.S., the Biden Administration will likely implement additional regulations and oversight concerning environmental policies
and federal land management compared to the Trump Administration. On January 20, 2021, President Biden took executive
actions to temporarily block new leases for oil and natural gas drilling on federal lands and ordered a review of fossil-fuel
subsidies. The potential for increased regulation and oversight may make it more difficult or costly for us to operate.
Governments in Canada and the U.S. may consider 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
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Management’s Discussion and Analysis
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 business, financial condition, results of
operations and cash flow.
Effects of climate change, including physical and regulatory impacts, could have a negative impact on our business
The effects of climate change, including physical and regulatory impacts, could have a negative impact on our operations and
the demand for oil and natural gas. 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, including incentives
to conserve energy or use alternate sources of energy, can have an adverse impact on the demand for oil and natural gas,
which could have a material adverse effect on us.
As discussed under “Business in our industry is seasonal and highly variable” on page 41, weather patterns in Canada and the
northern U.S. affect activity in the oilfield services industry. Global climate change could impact the timing and length of the
spring thaw and the period in which the muskeg freezes and thaws and could impact the severity of winter, which could have a
material adverse affect on our business and operating results. Furthermore, extreme climate conditions that could result in
natural disasters such as flooding or forest fires, may result in delays or cancellation of some of our customer’s operations or
could increase our operating costs (such as insurance costs), which could have a material adverse affect on our business and
operating results. We cannot, however, estimate the degree to which climate change and extreme climate conditions could
impact our business and operating results.
Canada and the U.S. are signatories to the Paris Agreement drafted at the United Nations Framework Convention on Climate
Change in December 2015. The goals of the Paris Agreement are to prevent global temperature rise from exceeding 2 degrees
Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius above pre-
industrial levels. On November 4, 2020, the U.S. formally withdrew from the Paris Agreement; however, on January 20, 2021,
the Biden Administration re-entered the U.S. into the Paris Agreement, which may provide for climate targets that could result in
reduced demand for oil and natural gas in the U.S. In Canada, in connection with its commitments under the Paris Agreement,
the federal government developed the Pan-Canadian Framework on Clean Growth and Climate Change in 2016 (the “PCF”).
The PCF requires all provinces and territories to have a carbon price of $30 per tonne in 2020 and rising by $10 per year to $50
per tonne in 2022. In December 2020, the Canadian Government announced proposed $15 per year increases to the carbon
price commencing in 2023, to reach a total of $170 per tonne by 2050. Provinces and territories can implement either an explicit
price-based system (such as the systems implemented in British Columbia and Alberta) or a cap and trade system.
Saskatchewan remains the only Canadian jurisdiction that has not joined the national plan set out in the PCF. Saskatchewan
released its own output-based performance standards approach, which is applied only to certain large industrial facilities. The
proposed system in Saskatchewan only partially meets the PCF standards, therefore the federal carbon pollution pricing system
will apply in Saskatchewan to sources not covered by Saskatchewan’s system. It is not possible at this time to predict the effect
of the Paris Agreement and climate change-related legislation in Canada and the U.S. or whether additional climate-change
legislation, regulations or other measures will be adopted at the federal, state, provincial or local levels in Canada and the U.S.
However, further efforts by governments and non-governmental organizations to reduce greenhouse gas emissions appear
likely, which, together with existing efforts, may reduce demand for oil and natural gas.
In addition to physical and regulatory effects of climate change on our business, an increasing focus on reduction of greenhouse
gas emissions and a potential shift to lower carbon intensive energy sources or a shift to a lower carbon economy may depress
the overall level of exploration and production activity, impacting the demand for our services. Certain investors may discourage
investments into the hydrocarbon industry. To the extent that certain institutions implement policies that discourage investments
in our industry, it could have an adverse effect on our financing costs and our access to liquidity and capital. Additionally, if our
reputation is diminished as a result of the industry we operate in or services we provide, it could result in increased operating or
regulatory costs, lower shareholder confidence or loss of public support for our business. It may also encourage exploration and
production companies to diversify and limit drilling to find other more energy efficient/green generating energy alternatives.
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 business, financial condition, results of
operations and cash flow.
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.
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Management’s Discussion and Analysis
Relying on third-party suppliers has risks and shortages in supply of equipment could adversely impact our business
We source certain key rig components, raw materials, equipment and component parts from a variety of suppliers in Canada,
the U.S. and internationally. 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. In times of increased demand for drilling
services, there may be shortages of components, materials, equipment, parts and services required for our business. 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 business, financial condition, results of operations and cash flow.
The loss of one or more of our larger customers could have a material adverse effect on our business and our current
backlog of contract drilling revenue may decline
In 2020, approximately 51% of our revenue was received from our 10 largest drilling customers and approximately 28% of our
revenue was received from our three largest drilling customers. The loss of one or more of our larger customers could have a
material adverse effect on our business, financial condition, results of operations and cash flow. In addition, financial difficulties
experienced by customers could adversely impact their demand for our services and cause them to request amendments to our
contracts with them. Further, consolidation among oil and natural gas exploration and production companies may reduce the
number of available customers.
Our fixed-term drilling contracts generally provide our customers with an ability to terminate the contracts at their election, with
an early termination payment to us if the contract is terminated prior to the expiration of the fixed term. During depressed market
conditions or otherwise, customers may be unable to satisfy their contractual obligations or may seek to terminate or renegotiate
or otherwise fail to honor their contractual obligations. In addition, we may not be able to perform under these contracts due to
events beyond our control, and our customers may seek to terminate or renegotiate our contracts for various reasons, without
paying an early termination payment. As a result, we may not realize all of our contract drilling backlog. In addition, the
termination or renegotiation of fixed-term contracts without the receipt of early termination payments could have a material
adverse effect on our business, financial condition, results of operations and cash flows. Our contract drilling backlog may
decline, as fixed-term drilling contract coverage over time may not be offset by new or renegotiated contracts or may be reduced
by price adjustments to existing contracts, including as a result of the decline in the price of oil and natural gas, capital spending
reductions by our customers or other factors.
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 business, financial condition, results of operations and cash flow.
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 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.
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Management’s Discussion and Analysis
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, which could have a material
adverse effect on our business, financial condition, results of operations and cash flow. Additionally, unexpected events such as
unplanned power outages, natural disasters, supply disruptions, pandemic illness or other unforeseeable circumstances could
have a material adverse effect on our business, financial condition, results of operations and cash flow.
Our worldwide operations could be disrupted by terrorism, acts of war, earthquakes, telecommunications failures, power or water
shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions (whether as a result of climate change or
otherwise), medical epidemics or pandemics and other natural or manmade disasters or catastrophic events, for some of which
we may be self-insured. The occurrence of any of these business disruptions could result in difficulties in transporting our crews,
hiring or managing personnel as well as other significant losses, that may adversely affect our business, financial conditions,
results of operations and cash flow, and require substantial expenditures and recovery time in order to fully resume operations.
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., wildfires, 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.
Litigation and legal claims could have an adverse impact on our business
We may be subject to legal proceedings and governmental investigations from time to time related to our business and
operations. Lawsuits or claims against us could have a material adverse effect on our business, financial condition, results of
operations and cash flow. While we maintain insurance that may cover the cost of certain litigation or have indemnity provisions
in our favor, we cannot assure that any insurance or indemnification agreement will cover the cost of theses liabilities, thus
litigation or claims could negatively impact our business, reputation, financial condition and cash flow.
Unionization efforts and labor regulations could materially increase our costs or limit our flexibility
Efforts may be made from time to time to unionize portions of our workforce. We may be subject to strikes or work stoppages
and other labor disruptions in connection with unionization efforts or renegotiation of existing contracts with unions. Unionization
efforts, if successful, new collective bargaining agreements or work stoppages could materially increase our labor costs, reduce
our revenues and adversely impact our operations and cash flow.
Disease Outbreak may impact our business
Future local, regional, national or international outbreaks of contagious diseases, such as COVID-19, could have an adverse
effect on local economies and potentially the global economy, which may adversely impact the price of and demand for oil and
natural gas (and correspondingly, decrease the demand for our services, which could have a material adverse effect on our
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Management’s Discussion and Analysis
business, financial condition, results of operations and cash flows). Additionally, such an outbreak, if uncontrolled, may result in
temporary shortages of staff to the extent our work force is impacted, which may have a material adverse effect on our business.
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.
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 and the unsecured senior note indentures, 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. Such volatility and uncertainty may be adversely impacted by potential
negative perception of investing in the hydrocarbon industry. 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 business, financial condition, results of operations, and cash flow.
Increasing interest rates may increase our cost of borrowing
Increases to the Canadian or United States benchmark interest rates may have an impact on our cost of borrowing under our
Senior Credit Facility, Real Estate Credit Facility and any debt financing we may negotiate. On July 27, 2017, the U.K. Financial
Conduct Authority announced that it intends to stop compelling banks to submit LIBOR rates after 2021. The elimination of
LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the
market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due
to us.
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 business, financial condition,
results of operations and cash flow.
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Management’s Discussion and Analysis
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 a material adverse effect on our business financial condition, results of operations and cash flow.
Losing key management could reduce our competitiveness and prospects for future success
Our future success and growth depend 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 business,
financial condition, results of operations and cash flow.
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 business, financial condition, results of operations and cash
flow.
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.
After recording a goodwill impairment charge for $208 million in the fourth quarter of 2018, we no longer have a goodwill balance.
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 downgrades our current corporate credit rating or rating of debt, or changes our credit outlook to negative, 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, the perception of the industry we operate in and service and Canadian, U.S. or international economic and social
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Management’s Discussion and Analysis
factors and political events unrelated to our performance may also affect the price of our shares. Investors should therefore not
rely on past performance of our shares to predict the future performance of our shares or financial results. At times when our
share price is relatively low, we may be subject to takeover attempts by certain companies or institutions acting opportunistically.
While there is currently an active trading market for our shares in both the United States and Canada, we cannot guarantee that
an active trading market will be sustained in either country. There could cease to be an active trading market due to, among
other factors, minimum listing requirements of stock exchanges. If an active trading market in our shares is not sustained, the
trading liquidity of our shares will be limited and the market value of our shares may be reduced. The removal of our shares from
stock exchanges due to the failure to maintain minimum listing requirements may have an adverse impact on the value of our
shares.
Selling additional shares could affect share value
While we have a normal course issuer bid in place under which we may acquire our own shares, in the future we may issue
additional shares 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 shares, except as may be required by applicable stock exchange rules,
and shareholders do not have any pre-emptive rights related to share issues (see Capital Structure on page 30).
Our business is subject to cybersecurity risks
We rely heavily on information technology systems and other digital systems for operating our business. Threats to information
technology systems associated with cybersecurity risks and cyber incidents or attacks continue to grow and are increased by
the growing complexity of our information technology systems. 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 other electronic security breaches that could lead to disruptions in our critical
systems. Other cyber incidents may occur as a result of natural disasters, telecommunication failure, utility outages, human
error, design defects, and unexpected complications with technology upgrades. Risks associated with these attacks and other
incidents include, among other things, loss of intellectual property, reputational harm, leaked information, improper use of our
assets, disruption of our and our customers’ business operations and safety procedures, loss or damage to our data delivery
systems, unauthorized disclosure of personal information which could result in administrative penalties 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, including cybersecurity risk assessments that are reviewed by our CGNRC, cyber security awareness programs for
our employees, continuous monitoring of our information technology systems for threats, and insurance that may cover losses
incurred as a result of certain cyber security attacks or incidents, cybersecurity attacks and other incidents are evolving and
unpredictable. The occurrence of such an attack or incident could go unnoticed for a period of time. Any such attack or incident
could have a material adverse effect on our business, financial condition results of operations and cash flow.
Our business could be negatively affected as a result of actions of activist shareholders and some institutional
investors may be discouraged from investing in the industry we operate in
Activist shareholders could advocate for changes to our corporate governance, operational practices and strategic direction,
which could have an adverse effect on our reputation, business and future operations. In recent years, publicly traded companies
have been increasingly subject to demands from activist shareholders advocating for changes to corporate governance
practices, such as executive compensation practices, social issues, or for certain corporate actions or reorganizations. There
can be no assurances that activist shareholders will not publicly advocate for us to make certain corporate governance changes
or engage in certain corporate actions. Responding to challenges from activist shareholders, such as proxy contests, media
campaigns or other activities, could be costly and time consuming and could have an adverse effect on our reputation and divert
the attention and resources of management and our Board, which could have an adverse effect on our business and operational
results. Additionally, shareholder activism could create uncertainty about future strategic direction, resulting in loss of future
business opportunities, which could adversely affect our business, future operations, profitability and our ability to attract and
retain qualified personnel.
In addition to risks associated with activist shareholders, some institutional investors are placing an increased emphasis on ESG
factors when allocating their capital. These investors may be seeking enhanced ESG disclosures or may implement policies that
discourage investment in the hydrocarbon industry. To the extent that certain institutions implement policies that discourage
investments in our industry, it could have an adverse effect on our financing costs and access to liquidity and capital. Additionally,
if our reputation is diminished as a result of the industry we operate in or service, it could result in increased operation or
regulatory costs, lower shareholder confidence or loss of public support for our business.
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
44
Management’s Discussion and Analysis
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% or more 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 income is not distributed to the person. We are
not currently a CFC, but this could change in the future.
45
Management’s Discussion and Analysis
EVALUATION OF CONTROLS AND PROCEDURES
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).
There were no changes in our internal control over financial reporting in 2020 that have materially affected or are reasonably
likely to materially affect our internal control over financial reporting. Based on management’s assessment as of December 31,
2020, management has concluded that our internal control over financial reporting is effective.
The effectiveness of internal control over financial reporting as of December 31, 2020 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, 2020, 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.
46
Management’s Discussion and Analysis
ADVISORIES
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:
our outlook on oil and natural gas prices
our expectations about drilling activity in North America and the demand for drilling rigs
our capital expenditure plans for 2021
our 2021 strategic priorities
our intentions to deploy additional AlphaAutomationTM systems in North America
our expectations that new or newer rigs will enter the markets we currently operate in, and
our ability to remain compliant with our Senior Credit Facility and Real Estate Credit Facility financial debt covenants.
the potential impact liquefied natural gas export development could have on North American drilling activity
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:
the status of current negotiations with our customers and vendors
our ability to react to customer spending plans as a result of changes in oil and natural gas prices
customer focus on safety performance
existing term contracts are neither renewed or terminated prematurely
continued market demand for drilling rigs
our ability to deliver rigs to customers on a timely basis
the general stability of the economic and political environment in the jurisdictions in which we operate, and
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:
volatility in the price and demand for oil and natural gas
the success of vaccinations for COVID-19 worldwide
fluctuations in the level of oil and natural gas exploration and development activities
fluctuations in the demand for contract drilling, directional drilling, well servicing and ancillary oilfield services
our customers’ inability to obtain adequate credit or financing to support their drilling and production activity
changes in drilling and well servicing technology, which could reduce demand for certain rigs or put us at a competitive
advantage
liquidity of the capital markets to fund customer drilling programs
the impact of weather and seasonal conditions on operations and facilities
shortages, delays and interruptions in the delivery of equipment supplies and other key inputs
availability of cash flow, debt and equity sources to fund our capital and operating requirements, as needed
competitive operating risks inherent in contract drilling, directional drilling, well servicing and ancillary oilfield services
ability to improve our rig technology to improve drilling efficiency
general economic, market or business conditions
a decline in our safety performance which could result in lower demand for our services
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 natural gas
terrorism, social, civil and political unrest in the foreign jurisdictions where we operate
fluctuations in foreign exchange, interest rates and tax rates, and
other unforeseen conditions which could impact the use of services supplied by Precision and our ability to respond to
the availability of qualified personnel and management
such conditions.
47
Management’s Discussion and Analysis
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, 2020, 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 non-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, gain on repurchase of unsecured senior notes, finance
charges, foreign exchange, impairment of goodwill, reversal of impairment of property, plant and equipment, loss on asset
decommissioning, gain on asset disposals and depreciation and amortization), as reported in our Consolidated Statement of
Net Earnings (Loss), is a useful measure, because it gives an indication of the results from our principal business activities prior
to consideration of how our activities are financed and the impact of foreign exchange, taxation and depreciation and amortization
charges.
Covenant EBITDA
Covenant EBITDA, as defined in our Senior Credit Facility agreement, is used in determining the Corporation’s compliance with
its covenants. Covenant EBITDA differs from Adjusted EBITDA by the exclusion of bad debt expense, restructuring costs, certain
foreign exchange amounts and with the adoption of the new lease standard IFRS 16 - Leases, the deduction of cash lease
payments incurred after December 31, 2018.
Operating Earnings (Loss)
We believe that operating earnings (loss) is a useful measure because it provides an indication of the results of our principal
business activities before consideration of how those activities are financed and the impact of foreign exchange and taxation.
Operating earnings (loss) is calculated as follows:
Year ended December 31 (in thousands of dollars)
Revenue
Expenses:
Operating
General and administrative
Restructuring
Other recoveries
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and equipment
Impairment of goodwill
Operating earnings (loss)
Foreign exchange
Finance charges
Gain on redemption and repurchase of unsecured senior notes
Income taxes
Net earnings (loss)
Funds Provided by (Used In) Operations
2020
935,753
2019
1,541,320
583,420
70,869
18,061
—
316,322
(11,931 )
—
—
—
(40,988 )
4,542
107,468
(43,814 )
10,954
(120,138 )
1,038,967
104,010
6,438
—
333,616
(50,741 )
20,263
(5,810 )
—
94,577
(8,722 )
118,453
(6,815 )
(14,957 )
6,618
2018
1,541,189
1,067,264
111,830
1,164
(14,200 )
377,044
(11,384 )
—
—
207,544
(198,073 )
4,017
127,178
(5,672 )
(29,326 )
(294,270 )
We believe that funds provided by (used in) operations, as reported in our Consolidated Statements of Cash Flow, is a useful
measure because it provides an indication of the funds our principal business activities generate prior to consideration of working
capital, which is primarily made up of highly liquid balances.
48
Management’s Discussion and Analysis
Working Capital
We define working capital as current assets less current liabilities as reported in our Consolidated Statement of Financial
Position.
49
Management’s Discussion and Analysis
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, 2020 and December 31, 2019.
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, 2020.
Also, management determined that there were no material weaknesses in the Corporation’s internal control over financial
reporting as of December 31, 2020.
KPMG LLP (KPMG), a Registered Public Accounting Firm, 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 effectiveness of the Corporation’s internal control over financial reporting as of
December 31, 2020, as stated in its report included in this Annual Report and has expressed an unqualified opinion on the
effectiveness of internal control over financial reporting as of December 31, 2020.
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.
/s/ Kevin A. Neveu
/s/ Carey T. Ford
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 12, 2021
March 12, 2021
50
Consolidated Financial Statements
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 statements of financial position of Precision Drilling Corporation
and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of net earnings (loss),
comprehensive loss, changes in equity, and cash flow for the years then ended, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2020 and 2019, and its financial performance and its cash flows for
the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 12, 2021 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Assessment of indicators of impairment for the Contract Drilling cash generating units (CGUs)
As discussed in notes 3(g) and 3(u) to the consolidated financial statements, the Corporation reviews the carrying amount of
each of the cash generating units at each reporting date to determine whether an indicator of impairment exists based on an
analysis of relevant internal and external factors. The Corporation analyzes indicators that an asset may be impaired such as
financial performance of the CGUs compared to historical results and forecasts and consideration of the Corporation’s market
capitalization. The Corporation did not identify an indicator of impairment within the Corporation’s Contract Drilling CGUs as at
December 31, 2020. Accordingly, no impairment tests were performed on these CGUs as at December 31, 2020. Total assets
recognized in the Contact Drilling CGUs at December 31, 2020 were approximately $2,571,397 thousand.
We identified the assessment of indicators of impairment for the Corporation’s Contract Drilling CGUs as a critical audit matter.
Complex auditor judgement was required in evaluating certain of the internal and external impairment indicators included in the
Corporation’s indicators of impairment analysis including the comparison of the actual financial performance of the CGUs to
historical results and forecasts and consideration of the Corporation’s market capitalization.
51
Consolidated Financial Statements
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls over the Corporation’s identification and evaluation of indicators that CGUs
may be impaired. This included controls related to the Corporation’s preparation and approval of the annual forecast which is
used to identify possible indicators of impairment. We evaluated the internal and external factors analyzed by the Corporation in
their impairment indicators analysis and compared them to relevant external market data or internal source documents. We
evaluated the Corporation’s 2021 forecasted earnings before interest, taxes, depreciation and amortization (EBITDA) for the
Contract Drilling CGUs by comparing growth assumptions to historical results considering the impact of changes in conditions
and events affecting the Contract Drilling CGUs. We compared the Corporation’s 2020 forecasted EBITDA for the Contract
Drilling CGUs to actual results to assess the Corporation’s ability to accurately forecast. We evaluated the changes in market
capitalization over the year and its impact on the Corporation’s impairment indicator analysis.
Assessment of the recoverable amounts for the Contract Drilling cash generating units
As discussed in note 7 to the consolidated financial statements, the Corporation identified an indicator of impairment within the
Corporation’s Contract Drilling CGUs as at March 31, 2020. The Corporation performed an impairment test to determine the
recoverable amount of each of its Contract Drilling CGUs and concluded there was no impairment at March 31, 2020.
We identified the assessment of the recoverable amount of the Contract Drilling CGUs at March 31, 2020 as a critical audit
matter. Complex auditor judgment was required to assess the Corporation’s calculation of the recoverable amount of the
Contract Drilling CGUs as at March 31, 2020. There was a high degree of subjectivity required to assess the significant
assumptions, in particular forecasted EBITDA and discount rate. Additionally, the audit effort associated with this estimate
required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls related to the Corporation’s impairment process. This included controls
related to the Corporation’s determination of the significant assumptions in the estimate of the recoverable amount of each of
the Contract Drilling CGUs, including forecasted EBITDA and the discount rate. For each of the Contract Drilling CGUs, we
compared the Corporation’s actual EBITDA for the three months ended March 31, 2020 and the year ended December 31, 2019
to the corresponding amounts previously forecasted to assess the Corporation’s ability to accurately forecast. We compared the
forecasted EBITDA for the year ended December 31, 2020 for each of the Contract Drilling CGUs to the corresponding amount
in the forecast reviewed by the Corporation’s Board of Directors to assess consistency with other significant assumptions used
by the Corporation in other estimates in the financial statements. We evaluated the forecasted EBITDA of the Contract Drilling
CGUs by comparing the Corporation’s forecasted EBITDA to historical results considering the impact of changes in conditions
and events affecting the Contract Drilling CGUs. We involved a valuation professional with specialized skills and knowledge,
who assisted in evaluating the discount rate used to estimate the recoverable amount of each of the Contract Drilling CGUs by
comparing it against market data and other external data. The valuations specialist evaluated the recoverable amount of the
Contract Drilling CGUs using the Corporation’s estimate of the cash flows associated with each Contract Drilling CGU and the
discount rate evaluated by the specialist and compared the results to market data and other external pricing data.
/s/ KPMG LLP
Chartered Professional Accountants
We have served as the Corporation’s auditor since 1987.
Calgary, Canada
March 12, 2021
52
Consolidated Financial Statements
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 and subsidiaries (the Company) internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of financial position of the Company as of December 31, 2020 and 2019, the related
consolidated statements of net earnings (loss), comprehensive loss, changes in equity, and cash flow for the years then ended,
and the related notes (collectively, the consolidated financial statements), and our report dated March 12, 2021 expressed an
unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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’ Report
to the Shareholders. Our responsibility is to express an opinion on the Company’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
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
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.
/s/ KPMG LLP
Chartered Professional Accountants
Calgary, Canada
March 12, 2021
53
Consolidated Financial Statements
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
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:
Deferred tax assets
Property, plant and equipment
Intangibles
Right-of-use assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Current portion of lease obligations
Current portion of long-term debt
Income tax payable
Total current liabilities
Non-current liabilities:
Share based compensation
Provisions and other
Long-term debt
Lease obligations
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
December 31,
2020
December 31,
2019
(Note 25)
(Note 14)
(Note 7)
(Note 8)
(Note 12)
(Note 25)
(Note 12)
(Note 9)
(Note 13)
(Note 16)
(Note 9)
(Note 12)
(Note 14)
(Note 17)
(Note 19)
$
$
$
$
$
$
$
108,772
207,209
—
26,282
342,263
1,098
2,472,683
27,666
55,168
2,556,615
2,898,878
150,957
11,285
896
3,702
166,840
11,507
7,563
1,236,210
48,882
21,236
1,325,398
2,285,738
72,915
(1,089,594 )
137,581
1,406,640
2,898,878
$
74,701
310,204
1,142
31,718
417,765
4,724
2,749,463
31,746
66,142
2,852,075
3,269,840
199,478
12,449
—
4,142
216,069
8,830
9,959
1,427,181
54,980
25,389
1,526,339
2,296,378
66,255
(969,456 )
134,255
1,527,432
3,269,840
See accompanying notes to consolidated financial statements.
Approved by the Board of Directors:
/s/ William T. Donovan
William T. Donovan
Director
/s/ Steven W. Krablin
Steven W. Krablin
Director
54
Consolidated Financial Statements
(Note 5)
$
2020
935,753
$
2019
1,541,320
583,420
70,869
18,061
263,403
316,322
(11,931 )
—
—
4,542
107,468
(43,814 )
(109,184 )
5,290
5,664
10,954
(120,138 )
(8.76 )
(8.76 )
$
$
$
1,038,967
104,010
6,438
391,905
333,616
(50,741 )
20,263
(5,810 )
(8,722 )
118,453
(6,815 )
(8,339 )
1,080
(16,037 )
(14,957 )
6,618
0.46
0.45
2020
(120,138 )
(25,925 )
$
23,853
5,398
$
(116,812 )
2019
6,618
(106,781 )
79,022
—
(21,141 )
$
$
$
$
$
CONSOLIDATED STATEMENTS OF NET EARNINGS (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, gain on redemption and repurchase of unsecured
senior notes, finance charges, foreign exchange, reversal of impairment of
property, plant and equipment, loss on asset decommissioning, gain on asset
disposals and depreciation and amortization
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and equipment
Foreign exchange
Finance charges
Gain on redemption and repurchase of unsecured senior notes
Loss before income taxes
Income taxes:
Current
Deferred
Net earnings (loss)
Net earnings (loss) per share:
Basic
Diluted
(Note 10, 25)
(Note 10, 25)
(Note 10)
(Note 7)
(Note 7)
(Note 11)
(Note 14)
(Note 18)
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years ended December 31,
(Stated in thousands of Canadian dollars)
Net earnings (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
Tax benefit related to net investment hedge of long-term debt
Comprehensive loss
See accompanying notes to consolidated financial statements.
55
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOW
Years ended December 31,
(Stated in thousands of Canadian dollars)
Cash provided by:
Operations:
Net earnings (loss)
Adjustments for:
Long-term compensation plans
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and equipment
Foreign exchange
Finance charges
Gain 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
Cash provided by operations
Investments:
Purchase of property, plant and equipment
Purchase of intangibles
Proceeds on sale of property, plant and equipment
Changes in non-cash working capital balances
Cash used in investing activities
Financing:
Issuance of long-term debt
Repayment of long-term debt
Repurchase of share capital
Debt amendment fees
Debt issue costs
Lease payments
Cash used in financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to consolidated financial statements.
2020
2019
$
(120,138 )
$
6,618
17,769
316,322
(11,931 )
—
—
4,808
107,468
(43,814 )
10,954
(2,392 )
(6,468 )
1,385
(103,851 )
615
170,727
55,391
226,118
(61,535 )
(57 )
21,094
(19 )
(40,517 )
151,066
(278,112 )
(11,317 )
(690 )
(354 )
(6,217 )
(145,624 )
(5,906 )
34,071
74,701
108,772
$
19,457
333,616
(50,741 )
20,263
(5,810 )
(8,585 )
118,453
(6,815 )
(14,957 )
(981 )
(5,060 )
2,479
(116,655 )
1,370
292,652
(4,493 )
288,159
(159,886 )
(808 )
90,768
(4,574 )
(74,500 )
—
(198,387 )
(25,902 )
(702 )
—
(6,823 )
(231,814 )
(3,770 )
(21,925 )
96,626
74,701
(Note 25)
(Note 7)
(Note 8)
(Note 25)
(Note 9)
(Note 9)
(Note 17)
(Note 8)
(Note 9)
$
56
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Stated in thousands of Canadian dollars)
Balance at January 1, 2020
Net loss for the period
Other comprehensive income
Share based payment reclassification
Share repurchase
Share issuance on redemption of non-
management DSUs
Share based compensation expense
Balance at December 31, 2020
(Note 17)
(Note 17)
(Note 13)
Shareholders’
Capital
(Note 17)
2,296,378 $
$
—
—
—
(11,317)
677
—
$
2,285,738 $
Accumulated
Other
Comprehensive
Income
(Note 19)
134,255
—
3,326
—
—
—
Contributed
Surplus
66,255 $
—
—
(8,331)
—
(502)
$
Deficit
(969,456) $
(120,138)
—
—
—
—
Total Equity
1,527,432
(120,138 )
3,326
(8,331 )
(11,317 )
175
15,493
72,915 $
—
137,581
—
$ (1,089,594) $
15,493
1,406,640
Contributed
Accumulated
Other
Comprehensive
Income
(Note 19)
162,014
—
—
(27,759 )
—
—
134,255
Surplus
52,332 $
—
—
—
—
13,923
66,255 $
Deficit
(978,874) $
2,800
6,618
—
—
—
(969,456) $
Total Equity
1,557,752
2,800
6,618
(27,759 )
(25,902 )
13,923
1,527,432
$
$
(Stated in thousands of Canadian dollars)
Balance at January 1, 2019
Lease transition adjustment
Net earnings for the period
Other comprehensive loss
Share repurchase
Share based compensation expense
Balance at December 31, 2019
Shareholders’
Capital
(Note 17)
2,322,280 $
$
(Note 12)
(Note 17)
(Note 13)
—
—
—
(25,902)
—
$
2,296,378 $
See accompanying notes to consolidated financial statements.
57
Consolidated Financial Statements
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 12, 2021.
(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), (e), (g), (i), (j), (l), (s) and (u) and
Note 4.
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
Cash consists of cash and short-term investments with original maturities of three months or less.
58
Notes to Consolidated Financial Statements
(c) Inventory
Inventory is primarily comprised of operating supplies and 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
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
20 years
up to 15 years
up to 15 years
up to 15 years
3 to 10 years
4 years
7 to 10 years
10 to 20 years
–
–
10%
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
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’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 earnings
(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 method and components 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’s own historical experience and may change as more experience is gained or
technological advancements are made.
Amortization is recognized in profit and loss using the straight-line method over the estimated useful lives of the respective
assets. Precision’s loan commitment fees are amortized over the term of the respective facility. Software is amortized over its
expected useful life of up to 10 years.
59
Notes to Consolidated Financial Statements
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 of 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. 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.
If any such indication exists, then the asset or CGU’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.
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 CGU.
An impairment loss is recognized if the carrying amount of an asset or a 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 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 profit or loss 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 asset and 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 profit or loss 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.
60
Notes to Consolidated Financial Statements
The Corporation 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 are 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 from Contracts with Customers
Precision recognizes revenue from a variety of sources. In general, customer invoices are issued upon rendering all performance
obligations for an individual well-site job. Under the Corporation’s standard contract terms, customer payments are to be received
within 30 days of the customer’s receipt of an invoice.
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. Revenue
from contract drilling services is recognized over time from spud to rig release on a daily basis. Operating days are
measured through industry standard tour sheets that document the daily activity of the rig. Revenue is recognized at the
applicable day rate for each well, based on rates specified in the drilling contract.
The Corporation 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 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.
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. Directional drilling revenue is
recognized over time, upon the daily completion of operating activities. Operating days are measured through daily tour
sheets. Revenue is 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. In general, service
rigs do not involve long-term contracts or penalties for termination. Revenue is recognized daily upon completion of
services. Operating days are measured through daily tour sheets and field tickets. Revenue is recognized at the applicable
daily or hourly rate, as stipulated in the contract.
The Corporation offers its customers a variety of oilfield equipment for rental. Rental revenue is recognized daily at the
applicable rate stated in the rental contract. Rental days are measured through field tickets.
The Corporation provides accommodation and catering services to customers in remote locations. Customers contract
these services either as a package or individually for a fixed term. For accommodation services, the Corporation supplies
camp equipment and revenue is recognized over time on a daily basis, once the equipment is on-site and available for
use, at the applicable rate stated in the contract. For catering services, the Corporation recognizes revenue daily according
to meals served. Accommodation and catering services provided are measured through field tickets.
(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 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.
(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. The estimated fair value of 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
61
Notes to Consolidated Financial Statements
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 profit or loss for the period. When the plans are settled, the cash paid
reduces the outstanding liability.
The Corporation has 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.
The Corporation has a share option plan 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 profit or loss 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 profit or loss 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 and liabilities are classified and measured at amortized cost, fair value through other comprehensive
income or fair value through profit and loss. The classification of financial assets and liabilities is generally based on the
business model in which the asset or liability is managed and its contractual cash flow characteristics. Financial assets
held within a business model whose objective is to collect contractual cash flows and whose contractual terms give rise
to cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding are
measured at amortized cost. After their initial fair value measurement, accounts receivable, accounts payable and accrued
liabilities and long-term debt are classified and measured at amortized cost using the effective interest rate method.
Upon initial recognition of a non-derivative financial asset a loss allowance is recorded for expected credit losses (ECL).
Loss allowances for trade receivables are measured based on lifetime ECL that incorporates historical loss information
and is adjusted for current economic and credit conditions.
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
62
Notes to Consolidated Financial Statements
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 financial assets are never separated. Rather, the financial instrument as a whole is assessed for
classification. Derivatives embedded in financial liabilities 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
in financial liabilities 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 from fluctuations 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 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 ineffective portions
are recorded through profit or loss.
A reduction in the fair value of the net investment in the foreign operations or increase in the foreign currency long-term debt
balance may result in a portion of the hedge becoming ineffective. If the hedging relationship ceases to be effective or is
terminated, hedge accounting is not applied to subsequent gains or losses. The amounts recognized in other comprehensive
income are reclassified to profit and loss and the corresponding exchange gains or losses arising from the translation of the
foreign operation are recorded through profit and loss upon dissolution or substantial dissolution of the foreign operation.
(r) Assets Held For Sale
Non-current assets, or disposal groups, are classified as held-for sale if it is highly probable that their carrying amount will be
recovered primarily through a sale transaction rather than through continued use. Such assets, or disposal groups, are measured
at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held-for-sale
and subsequent gains or losses on remeasurement are recognized in profit or loss.
(s) Leases
At inception, Precision assesses whether its contracts contain a lease. A contract contains a lease if it conveys the right to
control the use of an identified asset for a period of time in exchange for consideration. The assessment of whether a contract
conveys the right to control the use of an identified asset considers whether:
•
•
•
the contract involves the use of an identified asset and the substantive substitution rights of the supplier. If the supplier has
a substantive substitution right, then the asset is not identified;
the lessee’s right to obtain substantially all of the economic benefits from the use of the asset; and
the lessee’s right to direct the use of the asset, including decision-making to change how and for what purpose the asset is
used.
At inception or on reassessment of a contract that contains a lease component, Precision allocates the consideration in the
contract to each lease component on the basis of their relative stand-alone prices.
Leases in which Precision is a lessee
Precision recognizes a right-of-use asset and corresponding lease obligation at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for lease payments made
on or before commencement date, incurred initial direct costs, estimated site retirement costs and any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets
are consistent with those of property, plant and equipment. In addition, the right-of-use asset is reduced by impairment losses,
if any, and adjusted for certain remeasurements of the lease obligation.
The lease obligation is initially measured at the present value of the minimum lease payments not paid at commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, Precision’s incremental
borrowing rate. Generally, Precision uses its incremental borrowing rate as the discount rate for those leases in which it is the
lessee.
Lease payments included in the measurement of the lease obligation comprise the following:
63
Notes to Consolidated Financial Statements
•
•
•
•
fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the
commencement date;
amounts expected to be payable under a residual value guarantee; and
the exercise price under a purchase option that Precision is reasonably certain to exercise, lease payments in an optional
renewal period if Precision is reasonably certain to exercise an extension option, and penalties for early termination of a
lease unless Precision is reasonably certain not to terminate early.
The lease obligation is measured at amortized cost using the effective interest method. The measurement of lease obligations
require the use of certain estimates and assumptions including discount rates, exercise of lease term extension options, and
escalating lease rates. It is remeasured when there is a change in:
•
•
•
future lease payments arising from a change in an index or rate;
the estimated amount expected to be payable under a residual value guarantee; or
the assessment of whether Precision will exercise a purchase, extension or termination option.
When the lease obligation is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-
of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Leases in which Precision is a lessor
When Precision acts as a lessor, at inception, Precision evaluates the classification as either a finance or operating lease.
To classify each lease, Precision makes an overall assessment of whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an
operating lease.
When acting as a sub-lessor, Precision accounts for its interests in the head lease and the sub-lease separately. It assesses
the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to
the underlying asset. If a head lease is a short-term lease then Precision classifies the sub-lease as an operating lease.
If an arrangement contains lease and non-lease components, Precision applies IFRS 15 to allocate the consideration in the
contract. Precision recognizes lease payments received under operating leases for drilling rigs as income on a systematic basis,
drilling days, over the lease term as part of revenue.
The accounting policies applicable to Precision as a lessor in the comparative period were not different from IFRS 16. However,
when Precision was an intermediate lessor the sub-leases were classified with reference to the underlying asset.
(t) Government Assistance and Grants
Precision may receive government grants in the form of transfers of resources in return for past or future compliance with certain
conditions relating to operating activities. Government grants are recognized once there is reasonable assurance that Precision
will comply with the attached conditions and grants will be received. Government grants are recognized in profit or loss on a
systematic basis over the periods in which Precision recognizes expenses related to costs for which the grants are intended to
compensate.
(u) Critical Accounting Assumptions and Estimates
i) Impairment of Long-Lived Assets
At each reporting date, the Corporation reviews the carrying amount of assets in each CGU to determine whether an
indicator of impairment exists. The Corporation’s analysis is based on relevant internal and external factors that indicate
a CGU may be impaired such as the obsolescence or planned disposal of significant assets, financial performance of the
CGU compared to forecasts and consideration of the Corporation’s market capitalization.
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 and margins and
the resulting estimated earnings before interest, taxes, depreciation and amortization associated with the CGU and the
discount rate used to present value the estimated cash flows. In selecting a discount rate, the Corporation uses observable
market data inputs to develop a rate that the Corporation believes approximates the discount rate of market participants.
Although the Corporation believes the assumptions and estimates are reasonable and consistent with current conditions,
internal planning, and expected future operations, such assumptions and 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
64
Notes to Consolidated Financial Statements
Corporation’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’s future taxable income. These estimates
may be materially different from the actual final tax return in future periods.
(v) Accounting Standards, Interpretations and Amendments to Existing Standards not yet Effective
The IASB has issued a number of new standards, interpretations and amendments to existing standards that will become
effective for periods subsequent to December 31, 2020. Accordingly, these new standards, interpretations and amendments
were not applied when preparing these consolidated financial statements. For each standard, Precision has performed or is in
the process of performing a preliminary assessment of the impact these new standards, interpretations and amendments will
have on its consolidated financial statements.
Standards and Amendments
Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IAS
39, IFRS 7, IFRS 4 and IFRS 16)
Annual improvements to IFRS Standards 2018–2020
IFRS 17 Insurance Contracts and Amendments to IFRS 17
Classification of liabilities as current or non-current (Amendments to IAS 1)
Effective for periods
beginning on or after
January 1, 2021
Impact to Precision Drilling
Corporation
Not material
January 1, 2022
January 1, 2023
January 1, 2023
Not material
Not material
Review in-progress
NOTE 4. IMPACT OF COVID-19
In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. Governments worldwide,
including those countries in which Precision operates, have enacted emergency measures to combat the spread of the virus.
These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have
caused a material disruption to businesses globally resulting in an economic slowdown and decreased demand for oil.
Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic
conditions; however, the long-term success of these interventions is not determinable. The current challenging economic climate
has had a significant adverse impact on the Corporation including, but not limited to, substantial reductions in revenue and cash
flows, increased risk of non-payment of accounts receivable and risk of future impairments of property, plant and equipment and
intangible assets.
As a result of the decrease in demand, worldwide inventories of oil have increased significantly. However, voluntary production
restraint from national oil companies and governments of oil-producing nations along with curtailments in the U.S. and Canada
have shifted global oil markets from a position of over supply to inventory draws. The situation remains dynamic and the ultimate
duration and magnitude of the impact on the economy and the financial effect on the Corporation remains unknown at this time.
Estimates and judgements made by management in the preparation of these financial statements are increasingly difficult and
subject to a higher degree of measurement uncertainty during this volatile period.
NOTE 5. REVENUE
The following table includes a reconciliation of disaggregated revenue by reportable segment (Note 6). Revenue has been
disaggregated by primary geographical market and type of service provided.
Twelve months ended December 31, 2020
Canada
United States
International
Day rate/hourly services
Shortfall payments/idle but contracted
Turnkey drilling services
Directional services
Other
Contract
Drilling
Services
247,678 $
427,436
186,088
861,202 $
779,772 $
51,028
14,134
9,637
6,631
861,202 $
$
$
$
$
Completion
and
Production
Services
Corporate
and Other
Inter-
Segment
Eliminations
60,621 $
16,630
—
77,251 $
77,251 $
—
—
—
—
77,251 $
— $
—
—
— $
— $
—
—
—
—
— $
(2,686 ) $
(14 )
—
(2,700 ) $
(393 ) $
—
—
—
(2,307 )
(2,700 ) $
Total
305,613
444,052
186,088
935,753
856,630
51,028
14,134
9,637
4,324
935,753
65
Notes to Consolidated Financial Statements
Twelve months ended December 31, 2019
United States
Canada
International
Day rate/hourly services
Shortfall payments/idle but contracted
Turnkey drilling services
Directional services
Other
NOTE 6. SEGMENTED INFORMATION
Contract
Drilling
Services
852,293
336,483 $
210,292
1,399,068 $
1,333,114 $
9,789
3,754
41,876
10,535
1,399,068 $
Completion
and
Production
Services
19,627
128,202 $
—
147,829 $
147,829 $
—
—
—
—
147,829 $
$
$
$
$
Corporate
and Other
Inter-
Segment
Eliminations
—
—
$
—
$
—
—
—
—
—
—
—
$
$
(269 )
(5,308 ) $
—
(5,577 ) $
(905 ) $
—
—
—
(4,672 )
(5,577 ) $
Total
871,651
459,377
210,292
1,541,320
1,480,038
9,789
3,754
41,876
5,863
1,541,320
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, oilfield equipment rental, and camp and catering services.
2020
Revenue
Operating earnings (loss)
Depreciation and amortization
Gain on asset disposals
Total assets
Capital expenditures
2019
Revenue
Operating earnings (loss)
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and
equipment
Total assets
Capital expenditures
$
$
Contract
Drilling
Services
861,202 $
22,207
288,389
(10,171)
2,571,397
57,741
Completion
and
Production
Services
Corporate
and Other
Inter-
Segment
Eliminations
77,251 $
(3,671)
16,375
(1,447)
132,771
3,362
— $
(59,524)
11,558
(313)
194,710
489
(2,700 ) $
—
—
—
—
—
Contract
Drilling
Services
1,399,068 $
160,997
300,882
(46,849)
20,263
(5,810)
Completion
and
Production
Services
147,829 $
10,041
17,881
(3,767)
—
—
Corporate
and Other
Inter-
Segment
Eliminations
— $
(76,461)
14,853
(125)
—
—
(5,577 ) $
—
—
—
—
—
Total
935,753
(40,988 )
316,322
(11,931 )
2,898,878
61,592
Total
1,541,320
94,577
333,616
(50,741 )
20,263
(5,810 )
2,963,260
154,066
152,611
5,448
153,969
1,180
—
—
3,269,840
160,694
A reconciliation of operating earnings (loss) to loss before income taxes is as follows:
Operating earnings (loss)
Deduct:
Foreign exchange
Finance charges
Gain on redemption and repurchase of unsecured
senior notes
Loss before income taxes
66
Notes to Consolidated Financial Statements
2020
(40,988 ) $
2019
94,577
$
4,542
107,468
(43,814 )
(8,722)
118,453
(6,815)
$
(109,184 ) $
(8,339)
The Corporation’s operations are carried on in the following geographic locations:
2020
Revenue
Total assets
2019
Revenue
Total assets
$
$
United States
444,052 $
1,339,945
Canada
305,613 $
1,053,921
International
186,088 $
505,012
Total
935,753
2,898,878
United States
871,651 $
1,560,523
Canada
459,377 $
1,133,591
International
210,292 $
575,726
Total
1,541,320
3,269,840
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Cost
Accumulated depreciation
Rig equipment
Rental equipment
Other equipment
Vehicles
Buildings
Assets under construction
Land
Cost
Balance, December 31, 2018
Additions
Disposals
Reclassifications
Asset decommissioning
Effect of foreign currency exchange
differences
Balance, December 31, 2019
Additions
Disposals
Reclassifications
Effect of foreign currency exchange
differences
$
$
$
$
$
2020
6,563,206
(4,090,523 )
2,472,683
2,269,794
27,359
27,318
4,978
49,451
60,572
33,211
2,472,683 $
2019
6,670,979
(3,921,516)
2,749,463
2,510,505
34,437
38,604
7,796
56,834
67,740
33,547
2,749,463
Assets
Under
Construction
Other
Rental
Equipment
Equipment Vehicles Buildings
Rig
Equipment
$ 6,322,536 $ 130,463 $ 191,290 $ 45,456 $128,327 $
415
(58 )
—
—
(2,507 )
18,436
(69,945 )
150,674
(4,364 )
(307,954 )
—
(19,982)
—
—
(174)
224
(6,014)
—
—
(1,160)
976
(4,708)
1,197
—
(3,436)
Total
Land
84,561 $ 34,429 $6,937,062
159,886
(100,707 )
—
(4,364 )
(320,898 )
139,835
—
(151,871 )
—
(4,785 )
—
—
—
—
(882 )
6,109,383 110,307 185,319 38,506 126,177
—
(3,053 )
—
(846 )
10,375
(78,028 )
55,322
(71,285 )
—
(4,664)
—
(619)
350
(3,990)
521
(1,196)
—
(2,789)
—
(367)
67,740 33,547 6,670,979
61,535
50,810
(92,524 )
—
—
(55,843 )
(76,784 )
(2,135 )
—
—
—
(336 )
Balance, December 31, 2020
$ 6,025,767 $ 105,024 $ 181,004 $ 35,350 $122,278 $
60,572 $ 33,211 $6,563,206
67
Notes to Consolidated Financial Statements
Accumulated Depreciation
Balance, December 31, 2018
Depreciation expense
Disposals
Asset decommissioning
Reversal of impairment of property, plant
and equipment
Effect of foreign currency exchange
differences
Balance, December 31, 2019
Depreciation expense
Disposals
Effect of foreign currency exchange
differences
Rig
Equipment
$ 3,577,364 $
289,056
(33,929 )
(3,518 )
(5,810 )
Rental
Equipment
Other
Equipment Vehicles Buildings
Assets
Under
Construction
86,471 $ 139,095 $ 32,754 $ 62,766 $
7,663
13,023 3,521
(58)
(4,768)
(3,274)
—
—
—
—
—
—
7,473
(17,933)
—
—
— $
—
—
—
—
Land
Total
— $3,898,450
320,736
—
(59,962 )
—
(3,518 )
—
(5,810 )
—
(224,285 )
(141)
(2,129)
(797)
(1,028)
—
—
(228,380 )
3,598,878
277,799
(73,354 )
(47,350 )
75,870 146,715 30,710 69,343
5,288
12,013 2,790
(1,319)
(2,782)
(3,990)
(485)
(346)
(1,052)
7,044
(4,631)
(618)
—
—
—
—
— 3,921,516
304,934
—
(86,076 )
—
(49,851 )
—
Balance, December 31, 2020
$ 3,755,973 $
77,665 $ 153,686 $ 30,372 $ 72,827 $
— $
— $4,090,523
(a) Impairment Test
Precision reviews the carrying value of its long-lived assets for indications of impairment at the end of each reporting period.
Due to the global economic slowdown and significant commodity price reductions in the first quarter of 2020, the Corporation
identified indications of impairment in each of its CGU at March 31, 2020. Accordingly, the Corporation tested all CGUs for
impairment as at March 31, 2020.
In performing its impairment tests, the Corporation used a discounted cash flow model. 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 Corporation’s
budget and strategic plan, developed based on benchmark commodity prices and industry supply-demand fundamentals. At
March 31, 2020, the Corporation completed impairment tests for each CGU and no impairment charges were identified.
At December 31, 2020, Precision reviewed each of its cash-generating units and did not identify indications of impairment and
therefore, did not test its CGUs for impairment.
(b) Asset Disposals
Through the completion of normal course business operations, the Corporation sold used assets incurring gains or losses on
disposal resulting in a gain on asset disposal of $12 million. For the period ended December 31, 2019, Precision recognized a
$51 million gain on asset disposal which was mainly comprised by the following transactions.
Mexico
In 2019, Precision sold its Mexico-based drilling rigs and ancillary equipment, contained within its Contract Drilling Services
segment, for total proceeds of US$48 million. Precision recognized a gain on asset disposal of US$24 million and reversed
US$4 million of previous impairment charges.
Snubbing
In 2019, Precision disposed of certain snubbing units and related equipment, contained within the Completion and Production
Services segment, for proceeds of $8 million resulting in a gain on asset disposal of $3 million.
(c) Decommissioned Drilling Rigs
In 2019, Precision incurred a $20 million loss on the decommissioning of certain drilling and ancillary equipment, contained
within the Contract Drilling Services segment, that no longer met the Corporation’s High Performance technology standards.
(d) Change in Rig Components
In the fourth quarter of 2019, Precision performed its annual review of estimated useful lives, residual values and methods and
components of depreciation of property, plant and equipment. Due to changes in the timing, nature and complexity of certain rig
recertifications, the Corporation determined the associated costs represent a separate component of property, plant and
equipment. This change was made prospectively.
68
Notes to Consolidated Financial Statements
NOTE 8. INTANGIBLES
Cost
Accumulated amortization
Loan commitment fees related to Senior Credit Facility
Software
Cost
Balance, December 31, 2018
Additions
Effect of foreign currency exchange differences
Balance, December 31, 2019
Additions
Effect of foreign currency exchange differences
Balance, December 31, 2020
Accumulated Amortization
Balance, December 31, 2018
Amortization expense
Balance, December 31, 2019
Amortization expense
Effect of foreign currency exchange differences
Balance, December 31, 2020
NOTE 9. LONG-TERM DEBT
Current Portion of Long-Term Debt
Real Estate Credit Facility
Long-Term Debt
Senior Credit Facility
Real Estate Credit Facility
Unsecured Senior Notes:
6.5% senior notes due 2021
7.75% senior notes due 2023
5.25% senior notes due 2024
7.125% senior notes due 2026
Less net unamortized debt issue costs
$
$
$
$
2020
54,189 $
(26,523 )
27,666 $
2,109 $
25,557
27,666 $
Loan
Commitment
Fees
14,776 $
702
—
15,478
690
—
16,168 $
Loan
Commitment
Fees
12,469 $
737
13,206
853
—
14,059 $
$
$
$
$
Software
37,136 $
808
(6 )
37,938
57
26
38,021 $
Software
4,042 $
4,422
8,464
3,971
29
12,464 $
2019
53,416
(21,670 )
31,746
2,272
29,474
31,746
Total
51,912
1,510
(6)
53,416
747
26
54,189
Total
16,511
5,159
21,670
4,824
29
26,523
2020
2019
2020
2019
US $
704 US $
— $
896 $
US $
US $
74,650 US $
9,797
—
285,734
263,205
347,765
981,151 US $
— $
—
95,041 $
12,474
90,625
344,845
307,690
369,735
1,112,895
$
—
363,782
335,099
442,757
1,249,153
(12,943 )
1,236,210 $
117,678
447,792
399,545
480,112
1,445,127
(17,946)
1,427,181
—
—
—
69
Notes to Consolidated Financial Statements
Balance December 31, 2018
Changes from financing cash flows:
$
— $ 1,729,351 $
— $
Redemption / repurchase of unsecured senior notes
—
(198,387 )
Senior
Credit
Facility
Unsecured
Senior
Notes
Real Estate
Credit
Facility
Non-cash changes:
Gain on redemption / repurchase of unsecured senior notes
Amortization of debt issue costs
Foreign exchange adjustment
Balance December 31, 2019
Changes from financing cash flows:
Redemption / repurchase of unsecured senior notes
Repayment of long-term debt
Proceeds from Senior Credit Facility
Proceeds from Real Estate Credit Facility
Addition of debt issue costs
Non-cash changes:
Debt Issue
Costs
Total
(23,098 ) $ 1,706,253
—
—
—
—
—
—
(198,387 )
—
5,152
—
(6,815 )
5,152
(79,022 )
(17,946 ) 1,427,181
(6,815 )
—
—
—
—
— 1,445,127
(79,022 )
—
(37,243)
137,255
—
—
(240,793 )
—
—
—
—
—
(76 )
—
13,811
—
—
—
—
—
(354 )
(240,793 )
(37,319 )
137,255
13,811
(354 )
Gain on redemption / repurchase of unsecured senior notes
Amortization of debt issue costs
Reclassified to current portion of long-term debt
Foreign exchange adjustment
Balance December 31, 2020
$
(43,814 )
—
—
—
—
—
(4,971)
(18,882 )
95,041 $ 1,141,638 $
—
—
(896 )
(365 )
12,474 $
—
5,350
—
7
(43,814 )
5,350
(896 )
(24,211 )
(12,943 ) $ 1,236,210
Precision’s current and long-term debt obligations at December 31, 2020 will mature as follows:
2021
2022
2023
2024
Thereafter
(a) Senior Credit Facility:
$
$
896
896
459,719
335,995
452,543
1,250,049
The senior secured revolving credit facility (Senior Credit Facility) provides Precision with senior secured financing for general
corporate purposes, including for acquisitions, of up to US$500 million with a provision for an increase in the facility of up to an
additional US$300 million. The Senior Credit Facility is secured by charges on substantially all of the present and future assets
of Precision, its material U.S. and Canadian subsidiaries and, if necessary, to adhere to covenants under the Senior Credit
Facility, certain subsidiaries organized in jurisdictions outside of Canada and the U.S.
The Senior Credit Facility requires that Precision comply with certain restrictive and financial covenants including a leverage
ratio of consolidated senior debt to consolidated Covenant EBITDA (as defined in the debt agreement) of less than 2.5:1. For
purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness. It also requires the
Corporation to maintain a ratio of consolidated Covenant EBITDA to consolidated interest expense for the most recent four
consecutive quarters, of greater than 2.5:1, subject to the amendments noted below.
Distributions under the Senior Credit Facility 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.
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, 2023.
On April 9, 2020 Precision agreed with the lenders of its Senior Credit Facility to reduce the consolidated Covenant EBITDA to
consolidated interest expense coverage ratio for the most recent four consecutive quarters of greater than or equal to 2.5:1 to
2.0:1 for the period ending September 30, 2020, 1.75:1 for the period ending December 31, 2020, 1.25:1 for the periods ending
March 31, June 30 and September 30, 2021, 1.75:1, for the period ending December 31, 2021, 2.0:1 for the period ending March
31, 2022 and 2.5:1 for periods ending thereafter.
70
Notes to Consolidated Financial Statements
During the covenant relief period, Precision’s distributions in the form of dividends, distributions and share repurchases are
restricted to a maximum of US$15 million in 2020 and US$25 million in each of 2021 and 2022, subject to a pro forma senior
net leverage ratio (as defined in the credit agreement) of less than or equal to 1.75:1.
In addition, during 2021, the North American and acceptable secured foreign assets must directly account for at least 65% of
consolidated Covenant EBITDA calculated quarterly on a rolling twelve-month basis, increasing to 70% thereafter. Precision
also has the option to voluntarily terminate the covenant relief period prior to its March 31, 2022 end date.
Under the Senior Credit Facility, amounts can be drawn in U.S. dollars and/or Canadian dollars. At December 31, 2020, US$75
million was drawn under this facility (2019 – nil). Up to US$200 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, 2020
outstanding letters of credit amounted to US$32 million (2019 – US$25 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 Canadian Dollar Offered Rate (CDOR); such margins will be based
on the then applicable ratio of consolidated total debt to EBITDA.
(b) Real Estate Credit Facility
In November 2020, Precision established a Real Estate Term Credit Facility in the amount of US$11 million. The facility matures
in November 2025 and is secured by real property located in Houston, Texas. Principal plus interest payments are due monthly,
based on 15-year straight-line amortization with any unpaid principal and accrued interest due at maturity. Interest is calculated
using a LIBOR rate plus margin.
The Real Estate Credit Facility contains certain affirmative and negative covenants and events of default, customary for this type
of borrowing. Under the terms of the Real Estate Credit Facility, Precision must maintain a consolidated interest coverage ratio
in accordance with the Senior Credit Facility, described above, as of the last day of each period of four consecutive fiscal quarters
commencing December 31, 2020. In the event the Consolidated Interest Coverage Ratio is waived or removed from the Senior
Credit Facility, a minimum threshold of 1.15:1 is required.
(c) Unsecured Senior Notes:
Precision has outstanding the following unsecured senior notes:
7.75% US$ 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.
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.
During 2020, Precision repurchased and cancelled US$59 million (2019 – US$5 million), recognizing a gain on repurchase
of $18 million (2019 – nil).
5.25% US$ 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.
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 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 2020, Precision repurchased and cancelled US$44 million (2019 – US$43 million), recognizing a gain on
repurchase of $16 million (2019 – $5 million).
7.125% US$ senior notes due 2026
These notes 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.
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
71
Notes to Consolidated Financial Statements
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.
During 2020, Precision repurchased and cancelled US$22 million (2019 – US$30 million), recognizing a gain on
repurchase of $9 million (2019 – $1 million).
6.5% US$ senior notes due 2021
During 2020, Precision retired its 6.5% unsecured seniors through redemptions of US$88 million (2019 – US$75 million)
principal amount and the repurchase and cancellation of US$3 million (2019 – nil), recognizing a gain on repurchase of
$1 million (2019 – $1 million).
The unsecured senior notes require Precision to comply with certain restrictive and 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 the Consolidated Interest Coverage Ratio is less than 2.0:1 for
the most recent four consecutive fiscal quarters the senior notes restrict Precision’s ability to incur additional indebtedness.
The unsecured senior notes also contain a restricted payments covenant that limits Precision’s ability to make payments in the
nature of dividends, distributions and for repurchases from shareholders. This restricted payments 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. At December 31, 2020, the governing net
restricted payments basket was negative $307 million (2019 – negative $517 million), therefore limiting us from making any
further dividend payments or share repurchases until the governing restricted payments basket once again becomes positive.
During 2020, pursuant to the indentures governing the unsecured senior notes, Precision used the available general restricted
payments basket to facilitate the repurchase and cancellation of its common shares.
Precision’s 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, the Corporation has included in Note 27 condensed consolidating
financial statements based on Rule 3-10 of the U.S. Securities and Exchange Commission’s Regulation S-X.
(c) Covenants:
Following is a listing of the currently applicable restrictive and financial covenants as at December 31, 2020:
Senior Credit Facility
Consolidated senior debt to consolidated covenant EBITDA(1)
Consolidated covenant EBITDA to consolidated interest expense
Real Estate Credit Facility
Consolidated covenant EBITDA to consolidated interest expense
Unsecured Senior Notes
Consolidated interest coverage ratio
Covenant
At December 31, 2020
≤ 2.50
≥ 1.75
≥ 1.75
≥ 2.00
0.23
2.68
2.68
2.57
(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.
At December 31, 2020, Precision was in compliance with the covenants of the Senior Credit Facility, Real Estate Credit Facility
and unsecured senior notes.
72
Notes to Consolidated Financial Statements
NOTE 10. RESTRUCTURING AND OTHER
For the period ended December 31, 2020, the Corporation had restructuring charges of $18 million (2019 – $6 million). These
charges were comprised of severance, as the Corporation aligned its cost structure to reflect reduced global activity, and certain
costs associated with the shutdown of directional drilling operations in the United States in the first quarter of 2020.
In response to the economic slowdown caused by COVID-19, governments enacted various employer assistance and economic
stimulus programs. In the second quarter of 2020, the Government of Canada introduced the Canadian Emergency Wage
Subsidy program. For the year ended December 31, 2020, Precision recognized $26 million (2019 – nil) of salary and wage
subsidies. Wage subsidies were presented as reductions of operating and general and administrative expense of $21 million
(2019 – nil) and $5 million (2019 – nil), respectively.
NOTE 11. FINANCE CHARGES
Interest:
Long-term debt
Lease obligations
Other
Income
Amortization of debt issue costs
Finance charges
NOTE 12. LEASES
(a) As a lessee
2020
2019
98,555
3,217
232
(739 )
6,203
107,468
$
$
110,730
3,389
21
(1,576 )
5,889
118,453
$
$
Precision recognizes right-of-use assets primarily from its leases of real estate and vehicles and equipment.
Balance, January 1, 2019
Transition adjustments
Additions
Derecognition
Depreciation
Lease remeasurements
Effect of foreign currency exchange differences
Balance, December 31, 2019
Additions
Derecognition
Depreciation
Lease remeasurements
Effect of foreign currency exchange differences
Balance, December 31, 2020
Real Estate
—
58,635
—
(29 )
(4,055 )
163
(688 )
54,026
136
—
(3,900 )
(6,233 )
(340 )
43,689
$
$
$
$
$
$
Vehicles and
Equipment
— $
14,829
1,947
—
(4,403 )
—
(257 )
12,116 $
3,031
(2,597 )
(3,517 )
2,602
(156 )
11,479 $
Total
—
73,464
1,947
(29)
(8,458)
163
(945)
66,142
3,167
(2,597)
(7,417)
(3,631)
(496)
55,168
Precision’s real estate lease contracts often contain renewal options which may impact the determination of the lease term for
purposes of calculating the lease obligation. If it is reasonably certain that a renewal option will be exercised, the renewal period
is included in the lease term. When entering a lease, Precision assesses whether it is reasonably certain renewal options will be
exercised. Reasonable certainty is established if all relevant facts and circumstances indicate an economic incentive to exercise
the renewal option. For the majority of its real estate leases, Precision is reasonably certain it will exercise its renewal option.
Accordingly, the renewal period has been included in the lease term used to calculate the lease obligation.
73
Notes to Consolidated Financial Statements
For the period ended December 31, 2020, Precision had total cash outflows of $9 million (2019 – $10 million) in relation to its
lease obligations.
The Corporation has commitments under various lease agreements, primarily for real estate and vehicles and equipment. Terms
of Precision’s real estate leases run for a period of one to 10 years while vehicle leases are typically for terms of between three
and four years. Expected non-cancellable undiscounted operating lease payments are as follows:
Less than one year
One to five years
More than five years
(b) As a lessor
$
$
2020
10,960 $
29,630
6,590
47,180 $
2019
11,954
33,566
11,117
56,637
Precision leases its rig equipment under long-term drilling contracts with terms ranging from one to five years. At December 31,
2020, the net book value of the underlying rig equipment subject to long-term drilling contracts was $477 million (2019 – $1
billion).
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received
after December 31, 2020.
Less than one year
One to five years
(c) Adoption of IFRS 16, Leases
$
$
182,139
102,216
284,355
Precision adopted IFRS 16 on January 1, 2019 using the modified retrospective method of adoption. At the date of initial
application, for those leases previously classified as an operating lease under IAS 17, Management elected to recognize and
measure the respective right-of-use assets at the amount equal to the lease obligation, adjusted for any prepaid or accrued
lease payment immediately before the date of initial application. The opening balance sheet adjustment in relation to these
leases was:
Right-of-use asset
Accounts payable and accrued liabilities
Lease obligations
Deficit
$
January 1, 2019
73,464
2,800
(73,464 )
(2,800 )
At the date of transition, Precision derecognized $3 million of its deferred base rent balance which was established to straight-
line amortize escalating corporate office rent expenses over the term of the lease.
NOTE 13. SHARE BASED COMPENSATION PLANS
Precision’s omnibus equity incentive plan (Omnibus Plan) allows the Corporation to settle short-term incentive awards (annual
bonus) and long-term incentive awards (options, performance share units 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 performance share unit awards issued under
the Omnibus Plan in cash and to settle options in voting shares.
Award unit and share option quantities and share option exercise prices have been retrospectively adjusted to reflect the 20:1
share consolidation as described in Note 17(c).
74
Notes to Consolidated Financial Statements
Liability Classified Plans
Balance, December 31, 2018
Expensed during the period
Payments
Balance, December 31, 2019
Expensed during the period
Reclassification from equity-settled plans
Payments
Balance, December 31, 2020
Current
Long-term
Restricted
Share Units
Performance
Share Units
Executive
Performance
Share Units
$
$
$
5,409 $
5,755
(3,846)
7,318
3,119
—
(3,813)
6,624 $
4,212
2,412
6,624 $
4,521 $
1,583
(3,246)
2,858
2,787
—
(894)
4,751 $
1,120
3,631
4,751 $
Non-
Management
Directors’
DSUs
2,481 $
855
—
3,336
(1,551 )
—
(176 )
1,609 $
—
1,609
1,609 $
— $
—
—
—
—
6,833
—
6,833 $
2,978
3,855
6,833 $
Total
12,411
8,193
(7,092)
13,512
4,355
6,833
(4,883)
19,817
8,310
11,507
19,817
(a) Restricted Share Units and Performance Share Units
Precision has various 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, 2018
Granted
Redeemed
Forfeited
December 31, 2019
Granted
Redeemed
Forfeited
December 31, 2020
RSUs
Outstanding
202,796
209,368
(75,284 )
(19,976 )
316,904
363,253
(127,884 )
(67,491 )
484,782
PSUs
Outstanding
227,150
101,945
(66,138 )
(96,189 )
166,768
502,558
(39,028 )
(64,919 )
565,379
(b) Executive Performance Share Units
Precision grants Executive PSUs to certain senior executives. Prior to the fourth quarter of 2020, units were granted with the
intention of settling them in voting shares of the Corporation either issued from treasury or purchased in the open market. On
December 31, 2020, pursuant to the Omnibus Plan, Precision changed its intention and anticipates settling the Executive PSUs
in cash. Accordingly, $7 million of previously expensed share based compensation charges have been reclassified to a financial
liability at December 31, 2020.
Executive 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.
75
Notes to Consolidated Financial Statements
A summary of the activity under this share based incentive plan is presented below:
Executive Performance Share Units
December 31, 2018
Granted
Forfeited
December 31, 2019
Redeemed
Forfeited
December 31, 2020
Outstanding
159,553
210,580
(1,288)
368,845
(57,442)
(22,696)
288,707
During the first quarter of 2020, pursuant to the omnibus equity incentive plan, Precision elected to cash-settle vested Executive
PSUs. Precision reclassified $1 million of previously expensed share-based compensation charges to establish a financial
liability that was subsequently settled during the quarter.
Included in net loss for the year ended December 31, 2020 is an expense of $15 million (2019 – $12 million).
(c) Non-Management Directors
Precision has a 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, 2018
Granted
Balance December 31, 2019
Redeemed
Balance December 31, 2020
Outstanding
52,682
36,931
89,613
(12,039)
77,574
During the second quarter of 2020, Precision elected to settle the redemption of DSUs in common shares.
Equity Settled Plans
(d) Option Plan
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:
Options
Outstanding
Range of
Exercise Prices
236,658 $ 87.00 – 286.20 $
(35,579 )
201,079
(52,414 )
148,665 $ 87.00 – 286.20 $
143.00 – 213.40
87.00 – 286.20
87.00 – 203.00
Weighted
Average
Exercise Price
155.56
210.29
145.88
165.79
138.86
Options
Exercisable
189,324
178,453
141,156
Canadian Share Options
December 31, 2018
Forfeited
December 31, 2019
Forfeited
December 31, 2020
76
Notes to Consolidated Financial Statements
U.S. Share Options
December 31, 2018
Granted
Forfeited
December 31, 2019
Forfeited
December 31, 2020
Weighted
Average
Exercise Price
Options
Outstanding
Range of
Exercise Prices
(US$)
303,293 $ 64.20 – 214.80 $
29,965
(15,105)
318,153
(34,360)
283,793 $ 51.20 – 183.60 $
51.20 – 51.20
155.80 – 214.80
51.20 – 183.60
64.20 – 183.60
(US$)
103.47
51.20
213.54
93.32
151.92
86.23
Options
Exercisable
161,204
217,441
239,521
Canadian Share Options
Total Options Outstanding
Options Exercisable
Range of Exercise Prices:
$ 87.00 – 139.99
140.00 – 279.99
280.00 – 286.20
$ 87.00 – 286.20
Weighted
Average
Remaining
Contractual Life
Weighted
Average
Exercise Price
(Years)
88.17
161.80
286.20
138.86
3.09
1.19
0.34
1.80
Number
47,970 $
99,710
985
148,665 $
Weighted
Average
Exercise Price
88.38
161.80
286.20
141.62
Number
40,461 $
99,710
985
141,156 $
U.S. Share Options
Total Options Outstanding
Options Exercisable
Range of Exercise Prices (US$):
$ 51.20 – 79.99
80.00 – 139.99
140.00 – 183.60
$ 51.20 – 183.60
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
Number
176,603 $
91,240
15,950
283,793 $
(US$)
64.01
112.21
183.60
86.23
(Years)
3.49
2.38
0.12
2.94
Number
132,331 $
91,240
15,950
239,521 $
Weighted
Average
Exercise Price
(US$)
65.04
112.21
183.60
90.90
No options were granted during 2020. The per option weighted average fair value of the share options granted during 2019 was
$30.80 estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: average risk-
free interest rate of 2.5%, average expected life of four years, expected forfeiture rate of 5% and expected volatility of 57%.
Included in net loss for the year ended December 31, 2020 is an expense of $1 million (2019 – $2 million).
(e) 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, 2018 and 2019
Redeemed
December 31, 2020
Outstanding
4,659
(3,189)
1,470
77
Notes to Consolidated Financial Statements
NOTE 14. INCOME TAXES
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
Impact of foreign tax rates
Withholding taxes
Taxes related to prior years
Tax assets not recognized
Other
Income tax expense (recovery)
$
$
$
2020
(109,184 ) $
25 %
(27,296 ) $
628
(6,184 )
(238 )
813
(1,531 )
44,112
650
10,954 $
2019
(8,339)
27%
(2,252)
1,597
(1,408)
(13,549)
1,262
(1,975)
—
1,368
(14,957)
In 2020, the Province of Alberta accelerated the reductions to corporate income tax rates which were announced in 2019. The
tax rate was decreased to 8% effective July 1, 2020. The impact of this rate reduction is nominal and has been reflected in the
current year tax expense.
The net deferred tax liability is comprised of the tax effect of the following temporary differences:
Deferred tax liability:
Property, plant and equipment and intangibles
Debt issue costs
Partnership deferrals
Other
Offsetting of assets and liabilities
Deferred tax assets:
Losses (expire from time to time up to 2040)
Long-term incentive plan
Other
Offsetting of assets and liabilities
Net deferred tax liability
2020
2019
393,631 $
2,665
2,532
6,322
405,150
(383,914 )
21,236 $
370,439 $
4,956
9,617
385,012
(383,914 )
1,098 $
426,934
3,280
850
7,926
438,990
(413,601 )
25,389
402,025
6,131
10,169
418,325
(413,601 )
4,724
20,138 $
20,665
$
$
$
$
$
Included in the deferred tax assets at December 31, 2020 was $1 million (2019 – $5 million) of tax-effected temporary differences
related to the Corporation’s international operations.
The Corporation has loss carryforwards in the U.S. and certain international locations and capital loss carry forwards in Canada
and other deductible temporary differences in certain international locations for which it is unlikely that sufficient future taxable
income will be available. Accordingly, the Corporation has not recognized a deferred tax asset for the following items:
Tax losses (Capital)
Tax losses (Income)
Deductible temporary differences
Total
$
$
2020
29,809 $
72,516
2,020
104,345 $
2019
31,033
33,221
—
64,254
78
Notes to Consolidated Financial Statements
The movement in temporary differences is as follows:
Property,
Plant and
Equipment
and
Intangibles
Partnership
Other
Deferred
Tax
Deferrals
Liabilities
Balance, December 31, 2018
Recognized in net earnings
Effect of foreign currency exchange
differences
Balance, December 31, 2019
Recognized in net earnings (loss)
Recognized in other comprehensive income
Effect of foreign currency exchange
differences
Balance, December 31, 2020
$
$
467,109 $
(26,825 )
(13,350 )
426,934 $
(28,600 )
—
(4,703 )
1,730 $
(880 )
—
850 $
1,682
—
—
5,722 $
2,216
(12 )
Losses
(423,595 ) $
7,874
13,696
7,926 $
(1,601 )
—
(3 )
(402,025 ) $
33,141
(5,398 )
3,843
Long-Term
Incentive
Plan
(6,849 ) $
572
146
Other
Deferred
Tax
Assets
(11,752 ) $
1,260
323
(6,131 ) $
1,120
—
55
(10,169 ) $
537
—
15
Net
Deferred
Tax
Liability
35,899
(16,037 )
803
20,665
5,664
(5,398 )
(793 )
Debt Issue
Costs
3,534 $
(254 )
—
3,280 $
(615 )
—
—
$
393,631 $
2,532 $
6,322 $
(370,439 ) $
2,665 $
(4,956 ) $
(9,617 ) $
20,138
NOTE 15. BANK INDEBTEDNESS
At December 31, 2020, Precision had available $40 million (2019 – $40 million) and US$15 million (2019 – US$15 million) under
secured operating facilities, and a secured US$30 million (2019 – US$30 million) facility for the issuance of letters of credit and
performance and bid bonds to support international operations. As at December 31, 2020 and 2019, no amounts had been
drawn on any of the facilities. Availability of the $40 million and US$30 million facility was reduced by outstanding letters of credit
in the amount of $7 million (2019 – $26 million) and US$2 million (2019 – US$2 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 million facility are available at the bank’s prime lending rate, U.S. base rate, U.S. LIBOR rate plus applicable margin, or
applicable margin for Banker’s Acceptances, or in combination, and under the US$15 million facility at the bank’s prime lending
rate.
NOTE 16. PROVISIONS AND OTHER
Balance December 31, 2018
Expensed during the year
Payment of deductibles and uninsured claims
Effects of foreign currency exchange differences
Balance December 31, 2019
Recovered during the year
Payment of deductibles and uninsured claims
Effects of foreign currency exchange differences
Balance December 31, 2020
Current
Long-term
Workers’
Compensation
13,373
4,047
(4,915 )
(639 )
11,866
(750 )
(2,698 )
(110 )
8,308
2019
1,907
9,959
11,866
$
$
2020
745 $
7,563
8,308 $
$
$
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.
79
Notes to Consolidated Financial Statements
NOTE 17. 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, 2018
Share repurchase
Balance, December 31, 2019
Share repurchase
Share issuance on redemption of non-management DSUs
Share consolidation adjustment
Balance, December 31, 2020
(c) Share Consolidation
Number
14,689,092 $
(824,102 )
13,864,990 $
(420,588 )
15,228
(37 )
13,459,593 $
Amount
2,322,280
(25,902 )
2,296,378
(11,317 )
677
—
2,285,738
On November 12, 2020, Precision Drilling Corporation completed a 20:1 consolidation of its common shares. No fractional
shares were issued pursuant to the share consolidation. In lieu of any such fractional shares, each registered shareholder
otherwise entitled to a fractional share following the implementation of the share consolidation received the nearest whole
number of post-consolidation shares, resulting in a share consolidation adjustment of 37 common shares.
(d) Normal Course Issuer Bid
In 2019, the Toronto Stock Exchange (“TSX”) approved Precision’s application to implement a Normal Course Issuer Bid
(“NCIB”). During the third quarter of 2020, the TSX approved Precision’s application to renew the Normal Course Issuer Bid.
Under the terms of the NCIB, Precision may purchase and cancel up to a maximum of 1,199,883 common shares, representing
10% of the public float of common shares as of August 14, 2020. Purchases under the NCIB were made through the facilities of
the TSX, the New York Stock Exchange and various other designated exchanges in accordance with applicable regulatory
requirements at a price per common share representative of the market price at the time of acquisition. The NCIB will terminate
no later than August 26, 2021. For the year ended December 31, 2020, Precision repurchased and cancelled a total of 420,588
(2019 – 824,102) common shares for $11 million (2019 – $26 million).
Subsequent to December 31, 2020, Precision repurchased and cancelled an additional 155,168 common shares for $4 million.
NOTE 18. PER SHARE AMOUNTS
The following tables reconcile the net earnings (loss) and weighted average shares outstanding used in computing basic and
diluted earnings (loss) per share:
Net earnings (loss) – basic and diluted
(Stated in thousands)
Weighted average shares outstanding – basic
Effect of share options and other equity compensation plans
Weighted average shares outstanding – diluted
$
2020
(120,138 ) $
2020
13,722
—
13,722
2019
6,618
2019
14,539
320
14,859
Comparative period basic and diluted weighted average shares outstanding have been retrospectively adjusted to reflect the
20:1 share consolidation as described in Note 17(c).
80
Notes to Consolidated Financial Statements
NOTE 19. ACCUMULATED OTHER COMPREHENSIVE INCOME
Unrealized Foreign
Currency Translation
Gains (Losses)
Foreign Exchange
Gain (Loss) on Net
Investment Hedge
Tax Benefit
Related to Net
Investment Hedge
of Long-Term Debt
December 31, 2018
Other comprehensive income (loss)
December 31, 2019
Other comprehensive income (loss)
December 31, 2020
$
$
616,363 $
(106,781 )
509,582
(25,925 )
483,657 $
(454,349 ) $
79,022
(375,327 )
23,853
(351,474 ) $
—
—
—
5,398
5,398
$
$
Accumulated
Other
Comprehensive
Income
162,014
(27,759 )
134,255
3,326
137,581
NOTE 20. EMPLOYEE BENEFIT PLANS
The Corporation has a defined contribution pension plan covering a significant number of its employees. Under this plan, the
Corporation matched individual contributions up to 2% (2019 – 5%) of the employee’s eligible compensation. Total expense
under the defined contribution plan in 2020 was $6 million (2019 – $13 million).
NOTE 21. 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
$
$
2020
10,031 $
9,148
419
19,598 $
2019
8,747
9,047
1,432
19,226
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 22. CAPITAL COMMITMENTS
At December 31, 2020, the Corporation had commitments to purchase property, plant and equipment totaling $113 million (2019
– $113 million). Payments of $24 million for these commitments are expected to be made in 2021, $53 million in 2022 and $36
million in 2023.
NOTE 23. 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:
81
Notes to Consolidated Financial Statements
(a) Credit Risk
Accounts receivable includes balances from a large number of customers primarily operating in the oil and natural 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. For the year ended December 31, 2020, revenue from transactions with one of
Precision’s contract drilling customers exceeded 10% of consolidated revenue. Revenue from this customer accounted for 12%
of consolidated revenue. No other customers exceeded 10% of consolidated revenue for the year. In 2019, there were no
customers that exceeded 10% of consolidated revenue. In addition, Precision’s most significant customer accounted for $11
million of the trade receivables amount at December 31, 2020 (2019 – $12 million).
The movement in the expected credit loss allowance during the year was as follows:
Balance, January 1,
Impairment loss recognized
Amounts written-off as uncollectible
Impairment loss reversed
Effect of movement in exchange rates
Balance, December 31,
The ageing of trade receivables at December 31 was as follows:
$
$
2020
929 $
812
(479 )
(396 )
(4 )
862 $
2019
1,470
72
(537 )
(24 )
(52 )
929
Not past due
Past due 0 – 30 days
Past due 31 – 120 days
Past due more than 120 days
(b) Interest Rate Risk
2020
Provision for
Gross
66,191 $
35,060
11,649
1,895
114,795 $
$
$
Impairment
1 $
8
26
827
862 $
2019
Gross
144,292 $
47,965
19,166
1,303
212,726 $
Provision for
Impairment
1
8
28
892
929
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. Precision had
exposure to interest rate fluctuations on amounts drawn on its Senior Credit Facility and Real Estate Credit Facility as it is subject
to floating rates of interest. At December 31, 2020, Precision had drawn US$75 million on its Senior Credit Facility (2019 – nil)
and US$11 million (2019 – nil) on its Real Estate Credit Facility. For the year ended December 31, 2020, a 1% change to the
interest rate would have had a $1.0 million impact on net income (2019 – nil).
The interest rate on Precision’s unsecured senior notes is fixed and is not subject to interest rate risk.
(c) Foreign Currency Risk
The Corporation is primarily exposed to foreign currency fluctuations in relation to the working capital of its foreign operations
and certain long-term debt facilities of its Canadian operations. The Corporation has no significant exposures to foreign
currencies other than the U.S. dollar. The Corporation monitors its foreign currency exposure and attempts to minimize the
impact by aligning appropriate levels of U.S. denominated debt with cash flows from U.S. based operations.
82
Notes to Consolidated Financial Statements
The following financial instruments were denominated in U.S. dollars:
2020
2019
Canadian
Operations
Foreign
Operations
Canadian
Operations
US$
Cash
Accounts receivable
Accounts payable and accrued liabilities
Long-term liabilities, excluding long-term incentive plans (1)
Net foreign currency exposure
Impact of $0.01 change in the U.S. dollar to Canadian dollar
exchange rate on net earnings (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.
(d) Liquidity Risk
26,057 US $
98,298
(59,704 )
(16,197 )
48,454 US $
$
—
35,257 US $
—
(18,727)
—
16,530 US $
$
165
242
(17,730 )
—
(7,761 ) US$
$
(78 )
9,727 US$
US$
$
485
—
—
$
$
$
$
Foreign
Operations
41,154
150,873
(86,324)
(7,669)
98,034
—
980
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, 2020:
2021
2022
2023
2024
2025 Thereafter
Accounts payable and accrued liabilities
Share based compensation
Long-term debt
Interest on long-term debt (1)
Commitments
Total
(1) Excludes amortization of long-term debt issue costs.
Fair Values
— $
— $
$ 150,957 $
—
—
7,768
9,786
896
31,964
80,980
34,877
5,229
$ 275,478 $ 154,323 $ 594,079 $ 389,354 $ 46,979
— $
—
335,995
47,396
5,963
9,419
459,719
79,540
45,401
9,858
896
80,980
62,589
$
Total
— $ 150,957
27,045
—
1,250,049
442,757
322,174
1,314
160,649
6,590
$ 450,661 $ 1,910,874
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. Amounts drawn on the Senior Credit Facility and Real Estate Credit
Facility, measured at amortized cost, approximate fair value as this indebtedness is subject to floating rates of interest. The fair
value of the unsecured senior notes at December 31, 2020 was approximately $1,023 million (2019 – $1,428 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.
83
Notes to Consolidated Financial Statements
NOTE 24. 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, 2020 and 2019, these ratios were as follows:
Long-term debt
Shareholders’ equity
Total capitalization
Long-term debt to long-term debt plus equity ratio
$
$
2020
1,236,210
1,406,640
2,642,850
0.47
$
$
2019
1,427,181
1,527,432
2,954,613
0.48
As at December 31, 2020, liquidity remained sufficient as Precision had $109 million (2019 – $75 million) in cash and access to
the US$500 million Senior Credit Facility (2019 – US$500 million) and $97 million (2019 – $98 million) secured operating
facilities. As at December 31, 2020, US$75 million (2019 – nil) was drawn on the Senior Credit Facility with available credit
further reduced by US$32 million (2019 – US$25 million) in outstanding letters of credit. Availability of the $40 million secured
operating facility and US$30 million secured facility for the issuance of letters of credit and performance and bid bonds were
reduced by outstanding letters of credit of $7 million (2019 – $26 million) and US$2 million (2019 – US$2 million), respectively.
There were no amounts drawn on the US$15 million (2019 – nil) secured operating facility.
NOTE 25. 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
$
$
$
$
$
$
$
2020
103,857
5,181
(53,666 )
55,372
55,391
(19 )
2020
113,933
16,769
76,507
207,209
$
$
$
$
$
2020
56,922
$
44,533
49,502
150,957
$
2019
51,152
1,157
(61,376 )
(9,067 )
(4,493 )
(4,574 )
2019
211,797
32,167
66,240
310,204
2019
91,468
54,334
53,676
199,478
84
Notes to Consolidated Financial Statements
Precision presents expenses in the consolidated statements of earnings by function with the exception of depreciation and
amortization, gain on asset disposals, loss on asset decommissioning and reversal of impairment of property, plant and
equipment, which are presented by nature. Operating expense and general and administrative expense would include $293
million (2019 – $282 million) and $11 million (2019 – $15 million), respectively, of depreciation and amortization, gain on asset
disposals, loss on asset decommissioning and reversal of impairment of property, plant and equipment if the statements of
earnings (loss) were presented purely by function. The following table presents operating and general and administrative
expenses by nature:
Wages, salaries and benefits
Wage subsidies
Purchased materials, supplies and services
Share based compensation
Allocated to:
Operating expense
General and administrative
Restructuring
$
$
$
$
2020
2019
438,209 $
(26,297 )
240,591
19,847
672,350 $
583,420 $
70,869
18,061
672,350 $
697,935
—
429,365
22,115
1,149,415
1,038,967
104,010
6,438
1,149,415
NOTE 26. 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 determinable.
85
Notes to Consolidated Financial Statements
NOTE 27. LONG-TERM DEBT GUARANTOR DISCLOSURE
Condensed Consolidated Statement of Financial Position as at December 31, 2020
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Total
Assets
Cash
Other current assets
Intercompany receivables
Investments in subsidiaries
Property, plant and equipment
Intangibles
Right-of-use assets
Other long-term assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Intercompany payables and debt
Long-term debt
Lease obligations
Other long-term liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$
4,409,992
76,547 $
5,399
15,392 $
129,924
48,595 2,358,699
30
44,114 2,041,094
759
26,907
31,323
20,115
—
—
$ 4,631,669 $ 4,577,221 $
16,833 $
98,165
115,204
—
387,223
—
3,730
1,140
622,295 $
— $
3
(2,522,498)
(4,410,022)
108,772
233,491
—
—
252 2,472,683
27,666
55,168
1,098
(6,932,307) $ 2,898,878
—
—
(42)
$
37,251 $
2,420,264
1,224,048
19,326
7,505
3,708,394
86,221 $
53,375
12,162
27,072
32,400
211,230
923,275 4,365,991
$ 4,631,669 $ 4,577,221 $
43,368 $
48,859
—
2,484
443
95,154
527,141
622,295 $
— $
(2,522,498)
166,840
—
— 1,236,210
48,882
—
40,306
(42)
(2,522,540) 1,492,238
(4,409,767) 1,406,640
(6,932,307) $ 2,898,878
Condensed Consolidated Statement of Financial Position as at December 31, 2019
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Total
Assets
Cash
Other current assets
Intercompany receivables
Investments in subsidiaries
Property, plant and equipment
Intangibles
Right of use assets
Other long-term assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Intercompany payables and debt
Long-term debt
Lease obligations
Other long-term liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$
4,535,625
20,952 $
3,952
20,651 $
242,968
82,101 2,205,834
30
48,416 2,263,355
1,312
30,434
39,267
23,070
—
—
$ 4,744,550 $ 4,773,417 $
33,098 $
96,140
67,377
—
437,413
—
3,805
6,595
— $
4
(2,355,312)
(4,535,655)
74,701
343,064
—
—
279 2,749,463
31,746
66,142
4,724
$ (6,892,555) $ 3,269,840
—
—
(1,871)
644,428
130,232 $
$
33,862 $
84,901
2,217,790
—
1,427,181
31,614
20,877
18,454
26,927
3,726,637
265,201
1,017,913 4,508,216
$ 4,744,550 $ 4,773,417 $
51,975 $
52,621
—
2,489
668
107,753
536,675
644,428
— $
(2,355,312)
216,069
—
— 1,427,181
54,980
—
44,178
(1,871)
(2,357,183) 1,742,408
(4,535,372) 1,527,432
$ (6,892,555) $ 3,269,840
86
Notes to Consolidated Financial Statements
Condensed Consolidated Statement of Net Earnings (Loss) for the year ended December 31, 2020
Revenue
Operating expense
General and administrative expense
Restructuring
Earnings (loss) before income taxes, equity in earnings of
subsidiaries, gain on redemption and repurchase of
unsecured senior notes, finance charges, foreign
exchange, gain on asset disposals and depreciation
and amortization
Depreciation and amortization
Gain on asset disposals
Foreign exchange
Finance charges
Gain on redemption and repurchase of
unsecured senior notes
Equity in earnings of subsidiaries
Earnings (loss) before income taxes
Income taxes
Net earnings (loss)
$
Parent
Guarantor
Subsidiaries
57 $
50
38,489
6,978
(45,460)
752,737 $
465,624
26,767
11,083
249,263
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
186,088 $
120,875
5,613
—
59,600
(3,129) $
(3,129)
—
—
—
Total
935,753
583,420
70,869
18,061
263,403
9,981
(141)
(6,957)
109,578
(43,814)
255,299
(11,655)
36,313
(2,113)
—
50,815
(135 )
(24,814 )
3
—
227
—
—
—
—
316,322
(11,931)
4,542
107,468
(43,814)
22,462
(136,569)
(16,658)
$ (119,911) $
—
(28,581)
18,056
(46,637) $
—
33,731
9,556
24,175 $
(22,462)
22,235
—
—
(109,184)
10,954
22,235 $ (120,138)
Condensed Consolidated Statement of Net Earnings (Loss) for the year ended December 31, 2019
Revenue
Operating expense
General and administrative expense
Restructuring
Earnings (loss) before income taxes, equity in earnings of
subsidiaries, gain on redemption and repurchase of
unsecured senior notes, finance charges, foreign
exchange, reversal of impairment of property,
plant and equipment, loss on asset decommissioning,
gain on asset disposals and depreciation and amortization
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and equipment
Foreign exchange
Finance charges
Gain on redemption and repurchase of
unsecured senior notes
Equity in earnings of subsidiaries
Earnings (loss) before income taxes
Income taxes
Net earnings (loss)
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
$
92 $ 1,341,624 $
909,898
56
57,119
38,418
3,616
2,822
370,991
(41,204 )
210,292 $
139,701
8,473
—
62,118
Total
(10,688) $ 1,541,320
(10,688) 1,038,967
104,010
6,438
391,905
—
—
—
13,272
(47 )
—
—
(8,499 )
118,775
(6,815 )
262,914
(50,439)
20,263
(5,810)
(758)
(354)
—
57,205
(255 )
—
—
535
32
—
225
—
—
—
—
—
—
(102,114 )
(55,776 )
(62,619 )
6,843 $
—
145,175
44,809
100,366 $
$
—
4,601
2,853
1,748 $
102,114
(102,339)
—
(102,339) $
333,616
(50,741 )
20,263
(5,810 )
(8,722 )
118,453
(6,815 )
—
(8,339 )
(14,957 )
6,618
Condensed Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2020
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Total
22,235 $ (120,138 )
3,326
22,435 $ (116,812 )
200
Net earnings (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
$ (119,911 ) $
29,251
(90,660 ) $
$
(46,637) $
9,732
(36,905) $
24,175 $
(35,857 )
(11,682 ) $
87
Notes to Consolidated Financial Statements
Condensed Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2019
Net earnings (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
$
$
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
100,366 $
(79,018)
21,348 $
1,748 $
(27,655 )
(25,907 ) $
(102,339) $
(108)
(102,447) $
Parent
6,843 $
79,022
85,865 $
Condensed Consolidated Statement of Cash Flow for the year ended December 31, 2020
Cash provided by (used in):
Operations
Investments
Financing
Effects of exchange rate changes on cash
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
$
$
(79,919 ) $
292,596
(152,738 )
(4,344 )
55,595
20,952
76,547 $
263,514 $
(32,668)
(234,953)
(1,152)
(5,259)
20,651
15,392 $
42,523 $
(7,252 )
(51,126 )
(410 )
(16,265 )
33,098
16,833 $
— $
(293,193)
293,193
—
—
—
— $
Condensed Consolidated Statement of Cash Flow for the year ended December 31, 2019
Parent
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
$ (189,376 ) $
408,753
(226,379 )
(672 )
(7,674 )
28,626
20,952 $
$
480,215 $
(56,937)
(438,350)
(1,415)
(16,487)
37,138
20,651 $
(2,680 ) $
(15,337 )
21,936
(1,683 )
2,236
30,862
33,098 $
— $
(410,979)
410,979
—
—
—
— $
Total
6,618
(27,759 )
(21,141 )
Total
226,118
(40,517 )
(145,624 )
(5,906 )
34,071
74,701
108,772
Total
288,159
(74,500 )
(231,814 )
(3,770 )
(21,925 )
96,626
74,701
Cash provided by (used in):
Operations
Investments
Financing
Effects of exchange rate changes on cash
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
NOTE 28. 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 Holdings Company
Precision Drilling Company LP
Precision Completion & Production Services Ltd.
Grey Wolf Drilling Limited
Grey Wolf Drilling (Barbados) Ltd.
88
Notes to Consolidated Financial Statements
Country of
Incorporation
Canada
Canada
Canada
Canada
United States
United States
United States
United States
Barbados
Barbados
Ownership Interest
2020
100
100
100
100
100
100
100
100
100
100
2019
100
100
100
100
100
100
100
100
100
100
SUPPLEMENTAL INFORMATION
CONSOLIDATED STATEMENTS OF NET 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)
Other
Restructuring
Earnings before income taxes, loss (gain) on redemption and
repurchase of unsecured senior notes, finance charges, foreign
exchange, gain on re-measurement of property, plant and
equipment, impairment of goodwill, impairment (reversal of
impairment) of property, plant and equipment, loss on asset
decommissioning, gain on asset disposals and depreciation and
amortization
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Impairment (reversal of impairment) of property, plant and
equipment
Impairment of goodwill
Gain on re-measurement of property, plant and equipment
Foreign exchange
Finance charges
Loss (gain) on redemption and repurchase of unsecured senior
notes
Loss before income taxes
Income taxes
Net earnings (loss)
Earnings (loss) per share:(2)
Basic
Diluted
2020
936
$
2019
1,541
$
2018
1,541
$
2017
1,321
$
2016
1,003
$
584
71
18
—
263
1,039
104
6
—
392
1,067
112
1
(14 )
375
926
90
—
—
305
662
107
—
6
228
316
(12 )
—
—
—
—
5
107
(44 )
(109 )
11
(120 )
(8.76 )
(8.76 )
$
$
334
(51 )
20
(6 )
—
—
(9 )
118
(6 )
(8 )
(15 )
7
377
(11 )
—
—
207
—
4
127
(6 )
(323 )
(29 )
(294 )
$
$
0.46
0.45
(20.05 )
(20.05 )
384
(6)
—
15
—
—
(3)
138
9
(232)
(100)
(132)
(9.01)
(9.01)
$
402
(10 )
—
—
—
(8 )
6
147
—
(309 )
(153 )
(156 )
(10.61 )
(10.61 )
(1) For years prior to 2017 comparatives have changed to conform to current year presentation.
(2) Comparative periods have been retrospectively adjusted for the 20:1 share consolidation completed in 2020.
89
Supplemental Information
$
$
$
$
$
$
$
$
$
$
2018
(19.1 )
(8.1 )
(0.2 )
248
1.9
3,039
3,636
1,706
1,558
0.5
(1.6 )
$
102
375
$
24.3 %
(198 )
$
(12.8 )
293
106.20
15
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)
$
(6.7)
117
$
$ 123.40
15
$
$
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
133.80
15
$
$
$
$
$
2019
0.5
0.2
0.5
202
1.9
2,749
3,270
1,427
1,527
0.5
0.8
$
70
392
$
25.4%
95
$
6.2
288
110.20
14
$
$
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 provided by operations
Book value per share(5)
Basic weighted average shares outstanding (millions)(6)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2020
(12.8)
(3.8)
(8.1)
175
2.1
2,473
2,899
1,236
1,407
0.5
(0.4)
$
40
263
$
28.1%
(41)
$
(4.4)
226
104.51
14
$
$
(1) Return on sales was calculated by dividing net earnings (loss) 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) Comparative periods have been retrospectively adjusted for the 20:1 share consolidation completed in 2020.
90
Supplemental Information
SHAREHOLDER INFORMATION
Stock Exchange Listings
Our shares are listed on 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
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, M5J 2Y1
Canada
Telephone: 1.800.564.6253 (toll free in Canada and the U.S.)
1.514.982.7555 (international direct dialing)
Email: service@computershare.com
Online Information
To receive news releases by email, or to view this report online, please visit the Investor Relations section of our website at
www.precisiondrilling.com.
You can find additional information about Precision, including our annual information form and management information
circular, under our profile on the SEDAR website at www.sedar.com and on the EDGAR website at www.sec.gov.
Published Information
Please contact us if you would like additional copies of this annual report, or copies of our 2020 annual information form as filed
with the Canadian securities commissions and under Form 40-F with the U.S. Securities and Exchange Commission:
Investor Relations
Suite 800, 525 – 8th Avenue SW Calgary
Alberta, T2P 1G1
Canada
Telephone: 403.716.4500
Lead Bank
Royal Bank of Canada
Calgary, Alberta
2020 Trading Profile
Toronto (TSX: PD)
High: $43.00
Low: $7.70
Close: $20.93
Volume Traded: 19,640,076
91
Supplemental Information
Auditors
KPMG LLP
Calgary, Alberta
New York (NYSE: PDS)
High: US$32.20
Low: US$5.70
Close: US$16.49
Volume Traded: 14,694,118