CORPORATE INFORMATION
BOARD OF DIRECTORS
Michael R. Culbert
Calgary, Alberta, Canada
(cid:131)
Audit Committee
Human Resources and Compensation Committee
(cid:131)
Susan M. MacKenzie
Calgary, Alberta, Canada
(cid:131)
(cid:131)
Corporate Governance, Nominating and Risk Committee (Chair)
Human Resources and Compensation Committee
William T. Donovan
North Palm Beach, Florida, USA
(cid:131)
Audit Committee (Chair)
Corporate Governance, Nominating and Risk Committee
(cid:131)
Kevin O. Meyers
Anchorage, Alaska, USA
(cid:131)
(cid:131)
Human Resources and Compensation Committee (Chair)
Corporate Governance, Nominating and Risk Committee
Brian J. Gibson
Mississauga, Ontario, Canada
(cid:131)
(cid:131)
Audit Committee
Corporate Governance, Nominating and Risk Committee
Steven W. Krablin
Spring, Texas, USA
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Chairman of Board of Directors
Audit Committee
Corporate Governance, Nominating and Risk Committee
Human Resources and Compensation Committee
Kevin A. Neveu
Houston, Texas, USA
(cid:131)
President and Chief Executive Officer
David W. Williams
Houston, Texas, USA
(cid:131)
(cid:131)
Audit Committee
Human Resources and Compensation Committee
OFFICERS
Kevin A. Neveu
President and Chief Executive Officer
Veronica H. Foley
Chief Legal and Compliance Officer
Shuja U. Goraya
Chief Technology 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
Carey T. Ford
Senior Vice President and Chief Financial Officer
Darren J. Ruhr
Chief Administrative Officer
Gene C. Stahl
Chief Marketing Officer
HOUSTON OFFICE
10350 Richmond Avenue, Suite 700, Houston, Texas,
77042
USA
Telephone: 713.435.6100
Email: info@precisiondrilling.com
www.precisiondrilling.com
Precision Drilling Corporation 2021 Annual Report
i
2021 SHARE TRADING SUMMARY
Toronto (TSX-PD)
High: $61.08
Low: $21.12
Close on December 31, 2021: $44.69
Volume Traded: 30,149,480
New York (NYSE-PDS) (US$)
High: $49.36
Low: $16.58
Close on December 31, 2021: $35.43
Volume Traded: 18,655,945
ii
Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION & ANALYSIS
Precision Drilling Corporation 2021
This Management’s Discussion and Analysis (MD&A) contains information to help you understand our business and financial
performance. Information is as of March 4, 2022. 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 43. In this MD&A, we reference certain Non-Generally
Accepted Accounting Principles (Non-GAAP) measures and ratios that are not defined terms under IFRS to assess our
performance because we believe they provide useful supplemental information to investors. Our financial measures and ratios
are defined on page 44.
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
production companies
the oil and natural gas and
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
AlphaTM technologies and EverGreenTM suite of environmental
solutions.
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 2022 on page
13.
Precision has partnered with several industry leaders to develop its digital portfolio consisting of AlphaAutomation TM,
AlphaAppsTM and AlphaAnalyticsTM, which delivers efficient, predictable, and repeatable results through enhanced drilling
performance.
In 2021, we launched our EverGreenTM suite of environmental solutions, bolstering our commitment to reduce the environmental
impact of oilfield operations. Our EverGreenTM suite of environment solutions is comprised of EverGreenMonitoringTM,
EverGreenEnergyTM and EverGreenTM Fuel Cell.
Precisi on Drilling Corporation provi des ons hore drilling and c ompl eti on and produc tion s ervic es to ex plor ation and pr oducti on c ompanies i n the oil and natur al gas industries . H ea dquarter ed in Calgary , Alberta, C anada, we ar e a l eading N orth Americ an drilling c ompany. W e also have operati ons in the Middle East. Our s har es trade on the T oronto Stock Exc hange under the s ymbol PD and on the New York Stock Exc hange under the sym bol PD S.
Precision Drilling Corporation provides onshore drilling, completion, and production services to exploration and production
companies in the oil and natural gas and geothermal 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.
Precision Drilling Corporation 2021 Annual Report
1
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:
(cid:131) a high-quality drilling rig fleet, with AC Super Triple rigs enabled with our AlphaTM technologies and supported by our
EverGreenTM suite of environmental solutions to deliver consistent, repeatable, high-quality wellbores while improving
safety, performance, operational efficiency and reducing environmental impact;
(cid:131) size and scale of our vertically integrated operations that provide higher margins and better service capabilities;
(cid:131) a diverse culture focused on operational excellence, which includes corporate responsibility, safety and field
performance; and
(cid:131) a capital structure that provides long-term stability, flexibility and liquidity, allowing us to take advantage of business
cycle opportunities.
CORPORATE GOVERNANCE
As we work to be financially, environmentally, and socially responsible, Precision is guided by our core values and corporate
governance principles. With the support and oversight of our Board of Directors (Board), we are committed to maintaining ethics
and integrity and recognize that governance practices such as board independence, proactive shareholder engagement and
risk management help us sustain the trust we’ve built with our stakeholders.
To deliver results, we focus on operational excellence, top-tier environmental, social and governance (ESG) performance and
productive stakeholder engagement. We integrate our health, safety and environmental (HSE) commitment into our operations
and incorporate ESG performance goals into our compensation program.
In July 2021, we published our second annual Corporate Responsibility Report that documents our progress in ESG efforts and
provides an outline of our ESG strategies, focus areas and performance. We invite you to review our Corporate Responsibility
Report available at www.precisiondrilling.com/sustainability. For additional information regarding ESG matters, we invite
you to review our Corporate Responsibility initiatives in our Annual Information Form, dated March 7, 2022.
We foster a culture that is inclusive and encourage our people to contribute their differing perspectives, ideas and experiences
to advance the way we live and work. We know that this is not achievable unless we have a diverse and inclusive culture. With
this in mind, we have commenced a process to recruit a new female director and increase diversity on our Board in 2022. Our
directors have a history of achievement and an effective mix of skills, knowledge and business experience. The directors
continue to provide oversight in support of future operations and monitor regulatory developments and governance best practices
in Canada, the United States (U.S.) and internationally.
As part of their oversight, our Board has established three standing committees, comprised of independent directors, to help
carry out its responsibilities effectively:
(cid:131) Audit Committee;
(cid:131) Corporate Governance, Nominating and Risk Committee (CGNRC); and
(cid:131) 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.
2
Management’s Discussion and Analysis
BUSINESS SEGMENTS
We have two business segments, Contract Drilling Services and Completion and Production Services, which share business
support systems and corporate and administrative services.
Precisi on Drilling Corporation C ontrac t Drilling Servic es Drilling Rig Oper ati ons Canada U .S. Internati onal Direc tional Drill ing Oper ations Canada C ompl eti on and Pr oducti on Servic es C anada and U.S. Service Rigs Canada C amps and C atering Eq uipm ent R entals Business Support Sy stems Sal es and M arketing Proc urem ent and Di stributi on M anufac turi ng Equi pment Mai ntenance and C ertific ation Engi neering C orporate Support Information Systems H ealth, Safety and Environm ent H um an R es ources Finance Legal and Enterprise Risk M anagem ent
2020 R evenue by Segment C ontract Drilling Servic es C ompl eti on and Pr oduc tion Servic es 8% 92% 2020 Rev enue by Location U.S. Canada Internati onal 47% 20% 33%
2020 R evenue by Segment C ontract Drilling Servic es C ompl eti on and Pr oduc tion Servic es 8% 92% 2020 Rev enue by Location U.S. Canada Internati onal 47% 20% 33%
Precision Drilling Corporation 2021 Annual Report
3
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 9% of
the active U.S. market. We also have an international presence with operations in the Middle East.
At December 31, 2021, our Contract Drilling Services segment consisted of:
(cid:131) 227 Super Series 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
(cid:131) engineering, manufacturing, and repair services, primarily for Precision’s operations
(cid:131) centralized procurement, inventory, and distribution of consumable supplies for our global operations
(cid:131) diverse offering of AlphaTM technologies including:
– 47 AlphaTM rigs with commercial AlphaAutomationTM
– 18 AlphaAppsTM, 16 of which are commercialized
– Deployed commercial AlphaAnalyticsTM offering
(cid:131) wide array of offerings from our EverGreenTM suite of environmental solutions:
– Battery Energy Storage System (BESS) and real-time fuel/emissions monitoring capabilities currently offered across
North America
– 4 grid power capable rigs, and
– 60 natural gas or bi-fuel rigs
Our Super Series rigs are state-of-the-art, technologically advanced land drilling rigs ideally suited for development drilling. We
have engineered our Super Series rigs to exceed performance standards required by top operators by offering highly automated
features designed to improve operational efficiencies, provide a safer working environment and deliver consistent results. 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. Our
Super Series AlphaTM rigs deliver exceptional value to our customers by further reducing risks, time and overall well cost. Our
AlphaTM technologies drive performance through its core strength of integrating data insights, human ingenuity, automation
consistency and smart algorithms, increasing drilling performance and cost efficiencies for our customers.
Contract Drilling Rev enue $ Millions $1,500 $1,200 $900 $600 $300 0 2016 2017 2018 2019 2020 Contr act Drilling Adjusted EBITDA $ Milli ons $500 $400 $300 $200 $100 0 2016 2017 2018 2019 2020 C ontrac t Drilling Utilization D ays H ours 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 2021, we serviced approximately 11% of the well completion and workover service rig market
demand in Canada.
At December 31, 2021, our Completion and Production Services segment consisted of:
(cid:131) 123 registered well completion and workover service rigs, including:
– 113 in Canada
– 10 in the U.S.
(cid:131) More than 1,900 oilfield rental items, including surface storage, small-flow water treatment, power generation, and solids
control equipment, primarily in Canada
(cid:131) 109 wellsite accommodation units in Canada
(cid:131) 943 drill camp beds, 822 base camp beds and three kitchen diners in Canada.
Compl eti on and Pr oducti on R evenue $ Millions $200 $150 $100 $50 0 2016 2017 2018 2019 2020 Com pletion and Production Adjus ted EBITDA $ Millions $25 $20 $15 $10 $5 0 -$5 2016 2017 2018 2019 2020 Com pletion and Producti on Service Rig Hours H ou0,000 0 2016 20 17 2018 2019 2020
Precision Drilling Corporation 2021 Annual Report
5
IMPACT OF COVID-19
In 2021, the Novel Coronavirus (COVID-19) pandemic persisted as the emergence of virus variants caused further disruptions
to global markets. The challenging economic climate continued to have an adverse impact on Precision including, but not limited
to, reductions in revenue and cash flows, labour constraints and supply chain inflation. The situation remains dynamic and the
ultimate duration and magnitude of the impact on the economy and financial effect on Precision remains unknown at this time.
Estimates and judgements made by management in the preparation of our Consolidated Financial Statements and Notes are
increasingly difficult and subject to a higher degree of measurement uncertainty during this volatile period.
UNDERSTANDING OUR BUSINESS DRIVERS
THE ENERGY INDUSTRY
Precision operates in the energy services business. Our primary customers are oil and natural gas exploration and production
companies, who 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 (NGLs).
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 open rock micro fissures,
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
Our customers’ funding mechanisms used to fund exploration and development is largely 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 NGLs 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. NGLs are used as a diluent for crude
oil transportation, accordingly market prices are driven by heavy oil pricing and volumes. More recently, higher crude oil prices
have contributed to increased NGL prices and, in turn, provided incentives to drill in liquid-rich formations, such as the Montney
and Duvernay formations in Canada. The continued development of Liquefied Natural Gas (LNG) export capacity 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.
2021
2020
67.91
54.84
39.40
26.56
3.72
3.64
2.13
2.24
2019
57.07
44.28
2.56
1.77
6
Management’s Discussion and Analysis
AlphaTM Technologies
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 pad 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 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 cost. Our early investment in field-
hardening our digital offering and training key personnel has allowed us to rapidly scale our Super Series rig fleet following the
commercialization of our AlphaTM technologies 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 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, as at December 31, 2021 had 47 commercialized AlphaAutomationTM
systems deployed in the field that have drilled over 2,100 wells to date. We intend to deploy additional AlphaAutomationTM
systems in North America in 2022, 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, 16 commercialized, which execute
multiple on-bottom, cost control, equipment optimization and emissions reduction functions. AlphaAppsTM 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 the commercialization of performance data to drive optimization
and performance KPI’s. To date, AlphaAnalyticsTM has generated successful results, setting new efficiency benchmarks
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, AlphaAppsTM and
AlphaAnalyticsTM help our customers achieve their efficiency goals and generate strong returns for our shareholders through
service differentiation.
Precision Drilling Corporation 2021 Annual Report
7
Drilling Activity
North American drilling activity continues to recover after the steep decline 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 2021, approximately 10,500 wells were started onshore in the U.S., compared with approximately 8,400 in 2020
and 18,000 in 2019. The industry drilled 4,557 wells in western Canada in 2021, compared with 2,960 in 2020 and 4,679 in
2019. Total industry drilling operating days were 43,795 in 2021 compared with 29,741 in 2020 and 45,334 in 2019. 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. In 2021 and into early 2022, more drilling activity has occurred in the traditional heavy
oil regions of Canada as well as the Clearwater play. 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. Ac tive Rig Count Source: Bak er H ughes Oil Land N atural Gas Land Rigs W orking 900 600 300 0 Jan - 16 J an - 17 Jan - 18 J an - 19 J an - 20 Jan - 21 C anadian Activ e Rig C ount Sourc e: Bak er Hug hes Oil Land N atural Gas Land Rigs Worki ng 300 200 100 0 J an - 16 Jan - 17 Jan - 18 J an - 19 Jan - 20 J an - 21
8
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, prior experience, condition of rigs,
mobilization costs, location 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 operating efficiency and minimizing environmental impact in several ways:
(cid:131) using innovative and advanced drilling technology that is efficient, reduces costs and minimizes impact on the
environment,
(cid:131) having equipment that is geographically dispersed, reliable and well maintained,
(cid:131) monitoring our equipment to minimize mechanical downtime,
(cid:131) managing operations effectively to keep non-productive time to a minimum,
(cid:131) staffing well trained crews, with performance measured against defined competencies,
(cid:131)
incentivizing our executives and eligible employees based on performance against safety, operational, employee
retention, strategic and financial measures, and
(cid:131) employing industry leading alternative rig energy sources and fuel monitoring to reduce emissions and cost.
Efficient, Sustainable, 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 pad walking systems, higher pressure and capacity mud pumps, increased setback capacity
and AlphaAutomationTM, AlphaAppsTM and AlphaAnalyticsTM. In 2021, we launched our EverGreen™ suite of environmental
solutions, focused on reducing and quantifying wellsite greenhouse gas (GHG) emissions. Our Battery Energy Storage System
provides significant reductions in hydrocarbon fuel use, and in turn a similar reduction in GHG emissions and fuel cost. While
our Integrated Power & Emissions Fuel Monitoring System measures wellsite GHG emissions, providing our customers with
real-time insight into the correlation between power demand, fuel consumption, and resulting GHG emissions throughout the
well construction process. Capturing and analyzing this data across different rigs, well profiles, engine types and geographic
areas, will meaningfully improve both Precision’s and our customers’ understanding of the variability of land drilling GHG
emissions and help operate power generating equipment with optimal fuel consumption and carbon footprint efficiency.
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, 2021, 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 and non-productive time is a key operating metric for us and our customers. Reliable and well-maintained
equipment and highly skilled crews 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 the non-productive time (to move, rig-up and rig-out) by utilizing
pad walking systems, reducing the number of move loads per rig, and using mechanized equipment for safer and quicker rig
component connections.
Crew Experience
Customer’s desire experienced, proven and stable crews as they believe this leads to safer and more economic operations.
Customers will usually pay a premium for a hot crew or one they have prior experience with. We focus on training, developing
and retaining key leaders of our field crews, including positions referred to as driller, rig manager, and field superintendent.
Precision Drilling Corporation 2021 Annual Report
9
Retaining these key personnel, even through periods of low activity, allows us to respond quickly with highly experienced,
customer preferred, field crews during periods of increasing activity.
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:
(cid:131) safety performance – total recordable incident rate per 200,000 man-hours, recordable free facilities, and “Triple Target
Zero” days (defined on page 10 under ‘Safe Operations’). Measured against prior year performance and current year
industry performance in Canada and the U.S.,
(cid:131) operational performance – rig downtime for repair as measured by time not billed to the customer. Measured against a
predetermined target of available billable time,
(cid:131) key field employee retention – senior field employee retention rates. Measured against predetermined target rates of
retention,
(cid:131) strategic and ESG initiatives – achieving strategic operational and ESG goals. Measured against predetermined target
(cid:131)
(cid:131)
metrics,
financial performance – Adjusted EBITDA, return on capital employed, debt reduction and debt leverage. 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.
Safety performance
performance and
results we generate
financial
shareholders. We track safety using five separate metrics:
fundamental contributor
is a
the
to operating
for our
(cid:131) Total Recordable Incident Rate,
(cid:131) Facilities Recordable Free,
(cid:131) Triple Target Zero Days,
(cid:131) High Potential or Near Miss (HIPO), and
(cid:131) Serious Injury and Fatality (SIF).
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 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, recordable injuries or reportable spills. We had 312 Triple Target Zero Days in 2021.
We introduced HIPO and SIF tracking in 2021 and have included a SIF metric in our 2022 short-term incentive plan. A HIPO
event is defined as a near miss or other incident that has a severity potential to cause a fatality, life threatening or life altering
injury, major equipment or asset damage, major environmental harm, or major operational loss. A SIF event is a near miss or
incident that has a severity potential to cause a fatal or life-altering injury or illness. SIF enhances our focus on identifying and
preventing the incidents that pose the greatest risk.
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 protocols and procedures, leadership, and team building.
10
Management’s Discussion and Analysis
High Performance Rig Fleet
Our fleet of drilling rigs is well positioned to address the industrialized unconventional drilling programs of our customers. The
vast majority of our drilling rigs have been designed or significantly upgraded to efficiently 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.
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.
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, typically working 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.
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 positioning 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 7, 2022.
Precision Drilling Corporation 2021 Annual Report
11
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 and
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, AlphaTM
technologies and EverGreenTM suite of environmental solutions position 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 2021 strategic priorities.
2021 Strategic
Priorities
2021 Results
Grow revenue and
market share through
our digital leadership
position
Demonstrate
operational leverage
to generate free cash
flow and reduce debt
Deliver leading ESG
(environmental,
social and
governance)
performance to
strengthen customer
and stakeholder
positioning
Revenue increased by 6% as compared with 2020 as we achieved an average market share of 33% in Canada and
9% in the U.S.
We realized U.S. drilling margins (revenue less operating costs) of US$6,165 per utilization day, supported by
contracted revenues and rigid cost control. Our Canadian drilling margins were $7,371 per utilization day, driven by a
favorable rig mix of larger AC Super Triples. Internationally, our day rates decreased to $52,069 per utilization day
due to the expiration of drilling contracts. Our Completion and Production Services segment reported Adjusted
EBITDA growth of 20% to $6 million, with year-over-year service rig activity growth of 55%.
We ended the year with of 47 AlphaTM rigs deployed in the North American market. In 2021, we increased our paid
AlphaAutomationTM days by 123% versus the prior year. We have drilled over 2,100 wells since the roll-out of
AlphaAutomationTM, including 765 wells in 2021.
We had 18 AlphaAppsTM available, 16 of which were commercialized. Our paid AlphaAppsTM days in 2021 increased
by more than 600% year-over-year. During 2021, we drilled 765 wells with AlphaAppsTM, resulting in over 3,900
AlphaAppsTM days during the year.
In the fourth quarter of 2020, we commercialized our AlphaAnalyticsTM offering. Over the year, we steadily increased
our paid AlphaAnalyticsTM days. In 2021, our fourth quarter paid AlphaAnalyticsTM days increased 108% as compared
with 2020.
Total debt reduction for the year was $115 million, exceeding the midpoint of our targeted range of $100 million to
$125 million. This is our fourth consecutive year of achieving our stated debt reduction target and, as at December
31, 2021, we have reduced our debt levels by approximately $665 million since 2018.
We issued US$400 million of unsecured senior notes due in 2029, using the proceeds along with drawings on our
Senior Credit Facility to redeem in full our 2023 and 2024 unsecured senior notes. In addition, we extended the
maturity of our Senior Credit Facility to June 18, 2025. Accordingly, we successfully extended our debt maturities with
our earliest maturity date in 2025.
We reported cash provided by operations of $139 million and an ending cash balance of $41 million. As at December
31, 2021, we had more than $530 million in available liquidity, providing financial flexibility to capture anticipated
industry activity growth in 2022, reduce debt and repurchase common shares pursuant to our Normal Course Issuer
Bid (NCIB).
We disposed of non-core and underutilized assets for proceeds of $13 million.
During the year, we repurchased and cancelled 155,168 common shares for $4 million.
We released our second annual Corporate Responsibility report during the second quarter and formed our ‘E-Team’
and ‘S-Team’, which are cross-functional teams tasked to develop and implement certain ESG strategies and tactics.
Precision’s EverGreen™ suite of environmental solutions was launched in 2021, with development and
implementation of multiple technologies aimed at reducing and quantifying greenhouse gas emissions at the wellsite.
As part of our EverGreenEnergy™ sub-product line, our BESS was tested and validated to provide significant
reductions in hydrocarbon fuel use, and in turn a similar reduction in emissions and fuel cost. This successful testing
resulted in customer agreements for three BESS units scheduled for deployment in the first quarter of 2022, and
several additional pending commitments expected by mid-year.
We also completed testing and field-hardening of our Integrated Power & Emissions Fuel Monitoring System, part of
our EverGreenMonitoring™ sub-product line, which is capable of measuring and communicating real-time wellsite
GHG emissions. By the end of the first quarter of 2022, we expect to have eight Integrated Power & Emissions
Monitoring Systems deployed, providing our customers with real-time insight into the correlation between power
demand, fuel consumption, and resulting GHG emissions throughout the well construction process. Capturing and
analyzing this data across different rigs, well profiles, engine types and geographic areas, will meaningfully improve
both Precision’s and our customers’ understanding of the variability of land drilling GHG emissions and help operate
power generating equipment with optimal fuel consumption and carbon footprint efficiency.
12
Management’s Discussion and Analysis
We established the following strategic priorities for 2022:
2022 Strategic Priorities
(cid:131)(cid:131)(cid:3)Grow revenue through scaling Alpha™ technologies and EverGreen™ suite of environmental solutions across Precision’s
Super Series rig fleet and further competitive differentiation through ESG initiatives.
(cid:131)(cid:3)Grow free cash flow by maximizing operating leverage as demand for our High Performance, High Value services continues
to rebound.
(cid:131)(cid:3)Utilize free cash flow to continue strengthening our balance sheet while investing in our people, equipment and returning
capital to shareholders.
Precision Drilling Corporation 2021 Annual Report
13
2021 RESULTS
Financial Highlights
Year ended December 31
(in thousands of dollars, except where noted)
Revenue
Adjusted EBITDA(1)
Adjusted EBITDA % of revenue(1)
Net earnings (loss)
Cash provided by operations
Funds provided by operations(1)
Cash used in investing activities
Capital spending by spend category(1)
Expansion and upgrade
Maintenance and infrastructure
Intangibles
Proceeds on sale of property, plant and equipment
Net capital spending(1)
Earnings (loss) per share ($)
Basic
Diluted
(1) See Financial Measures and Ratios on page 44 of this report.
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(1)
Long-term debt(2)
Total long-term financial liabilities
Total assets
Enterprise value(1)(3)
Long-term debt to long-term debt plus equity
Long-term debt to cash provided by operations(1)
(1) See Financial Measures and Ratios on page 44 of this report.
(2) Net of unamortized debt issue costs.
(3) See page 28 for more information.
2021
986,847
192,772
19.5 %
(177,386 )
139,225
152,243
% increase/
(decrease)
5.5
(26.8 )
47.7
(38.4 )
(10.8 )
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 )
56,613
39.7
40,517
(45.6 )
74,500
(26.1 )
19,006
56,935
—
(13,086 )
62,855
(29.2 )
64.2
(100.0 )
(38.0 )
55.2
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 )
(13.32 )
(13.32 )
52.1
52.1
(8.76 )
(8.76 )
(2,004.3 )
(2,046.7 )
0.46
0.45
(102.3 )
(102.2 )
2021
227
% increase/
(decrease)
—
14,494
15,782
2,190
21,213
21,105
52,837
15,048
13,734
123
126,840
20.0
46.2
(13.3 )
(19.0 )
(2.3 )
(3.6 )
2.6
1.4
—
54.8
2020
227
12,080
10,794
2,526
26,184
21,611
54,811
14,666
13,546
123
81,952
% increase/
(decrease)
0.4
(54.5 )
(25.5 )
(18.3 )
11.9
0.2
6.7
1.5
(11.1 )
—
(44.3 )
2019
226
26,544
14,498
3,093
23,397
21,569
51,360
14,447
15,240
123
147,154
% increase/
(decrease)
(4.2 )
(0.6 )
(22.1 )
5.9
7.0
(0.3 )
1.8
0.8
5.2
(41.4 )
(6.5 )
December 31,
December 31,
2021
2020
81,637
1.3
1,106,794
1,185,858
2,661,752
1,660,781
0.5
7.9
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
14
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(1)
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
Foreign exchange
Finance charges
Loss on investments and other assets
Loss (gain) on redemption and repurchase of unsecured senior notes
Loss before income tax
Income taxes
Net earnings (loss)
(1) See Financial Measures and Ratios on page 44 of this report.
Results by Geographic Segment
Year ended December 31 (in thousands of dollars)
Revenue
U.S.
Canada
International
Total assets
U.S.
Canada
International
2021 COMPARED WITH 2020
2021
2020
2019
877,943
113,488
(4,584 )
986,847
231,532
23,807
(62,567 )
192,772
282,326
(8,516 )
—
—
393
91,431
400
9,520
(182,782 )
(5,396 )
(177,386 )
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
2021
2020
2019
398,024
443,772
145,051
986,847
1,247,173
959,163
455,416
2,661,752
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
2021 was highlighted by increasing industry activity, supported by strengthening commodity prices, as global oil and natural gas
demand approached pre-pandemic levels and customers sought to replenish depleted well inventories. In the U.S., West Texas
Intermediate (WTI) oil prices averaged US$67.91 per barrel and Henry Hub natural gas prices averaged US$3.72 per MMBtu,
representing an increase of 72% and 75% from 2020, respectively. In Canada, Western Canadian Select (WCS) and AECO
natural gas price averaged US$54.84 and $3.64 in 2020, respectively. Average WCS pricing was 106% higher than 2020 while
AECO increased by 63%.
As compared with 2020, our revenue in 2021 increased by 5% to $987 million. Our higher revenue in the year was primarily the
result of higher North American drilling and service activity, partially offset by lower average drilling day rates across all regions.
We recognized Adjusted EBITDA in 2021 of $193 million, 27% lower than in 2020. Our lower Adjusted EBITDA in the current
year was primarily due to higher share-based compensation charges, lower average drilling day rates and the impact of lower
idle but contracted rig revenue, partially offset by higher drilling and service activity and lower restructuring costs. As compared
with 2020, our U.S. drilling activity increased 20%, Canadian activity increased 46% and international activity decreased 13%.
In addition, our service rig operating hours increase 55% compared with the prior year. Our net loss in 2021 was $177 million,
or $13.32 per diluted share, compared with a net loss of $120 million, or $8.76 per diluted share, in 2020.
Issue and Redemption of Unsecured Senior Notes
During the year, we issued US$400 million of 6.875% unsecured senior notes due in 2029 in a private offering. These unsecured
senior notes were issued at a price equal to 99.253% of face value. The net proceeds from the issuance, along with amounts
drawn on our Senior Credit Facility, were used to redeem in full US$286 million aggregate principal amount of our 7.750%
Precision Drilling Corporation 2021 Annual Report
15
unsecured senior notes due 2023 and redeem in full US$263 million aggregate principal amount of our 5.250% unsecured senior
notes due 2024 for a total of US$557 million, plus accrued and unpaid interest, resulting in a loss on redemption of US$8 million.
Finance Charges
Finance charges were $91 million, a decrease of $16 million compared with 2020 and were primarily due to a reduction in interest
expense related to retired debt and the impact of the strengthening of the Canadian dollar on our U.S. dollar denominated
interest, partially offset by higher amortization of debt issue costs.
Capital Spending and Long-Lived Assets
Capital expenditures for the purchase of property, plant and equipment and intangible assets were $76 million in 2021, an
increase of $14 million from 2020. By spend category, our capital spending included $19 million for expansion and upgrades
and $57 million for the maintenance of existing assets, infrastructure and intangibles.
Under IFRS, we review the carrying value of our long-lived assets for indications of impairment at the end of each reporting
period. At December 31, 2021, we reviewed each of our cash-generating units (CGUs) and did not identify indications of
impairment, or reversal of impairment and therefore, did not test our CGUs for impairment.
During the year, we disposed of our directional drilling business for a gain of $1 million.
Foreign Exchange
We recognized a foreign exchange expense of $0.4 million in 2021 (2020 – $5 million). The lower foreign exchange expense in
the current year was due to the translation impact of lower outstanding U.S. denominated intercompany payables.
Income Taxes
In 2021, we recognized an income tax recovery of $5 million as compared with an income tax expense of $11 million in 2020.
The income tax recovery in the current year was primarily the result of the reversal of temporary differences. In 2021, we
continued to not recognize the benefit of Canadian and certain international deferred tax assets.
2020 COMPARED WITH 2019
As compared with 2019, our revenue, Adjusted EBITDA and net earnings declined in 2020 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 the year. 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
In 2020, 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.
Capital Spending and Long-Lived Assets
Capital expenditures for the purchase of property, plant and equipment and intangible assets were $62 million in 2020, a
decrease of $99 million from 2019. By spend category, our capital spending included $27 million for expansion and upgrades
and $35 million for the maintenance of existing assets, infrastructure and intangibles.
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
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.
16
Management’s Discussion and Analysis
Finance Charges
In 2020, 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
During 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.
SEGMENTED RESULTS
CONTRACT DRILLING SERVICES
Financial Results
Year ended December 31
(in thousands of dollars, except where noted)
Revenue
Expenses
Operating
General and administrative
Restructuring
Adjusted EBITDA(1)
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and equipment
Operating earnings (loss)(1)
(1) See Financial Measures and Ratios on page 44 of this report.
2021 Compared with 2020
2021
877,943
618,327
28,084
—
231,532
256,072
(7,673 )
—
—
(16,867 )
% of
revenue
70.4
3.2
—
26.4
29.2
(0.9 )
—
—
(1.9 )
2020
861,202
526,716
26,441
7,620
300,425
288,389
(10,171 )
—
—
22,207
% of
revenue
2019
1,399,068
% 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
Revenue from Contract Drilling Services was $878 million, 2% higher than 2020 due to higher drilling activity in North America,
offset by lower average revenue day rates and lower international activity. In 2021, we did not recognize any U.S. idle but
contracted rig revenue as compared with US$37 million in the prior year. In Canada, we recognized $1 million of shortfall
payments, consistent with 2020.
Operating expenses in 2021 were 70% of revenue, 9% higher than the prior year and was primarily due to the impact of lower
U.S. idle but contracted rig revenue. On a per utilization day basis, in the U.S., operating costs were 3% higher than the prior
year primarily due to higher rig operating expenses and repairs and maintenance, offset by fixed operating overheads spread
over more utilization days. Operating costs on a per day basis in our Canadian drilling rig division were 1% higher than in 2020,
primarily due to increased industry-wide wage increases.
General and administrative expenses for 2021 increased by 6% higher due to higher share-based compensation charges
resulting from our increased share price. In 2020, we incurred $8 million of restructuring charges, as we aligned our cost structure
and personnel to reflect lower drilling activity.
During the year, we recognized Canada Emergency Wage Subsidy (CEWS) program assistance of $16 million, as compared
with $15 million in 2020.
Our 2021 operating loss was $17 million as compared with operating earnings of $22 million in the prior year. Our lower operating
earnings in 2021 was primarily due to the impact of lower idle but contracted rig revenue and higher share-based compensation
charges, partially offset by lower depreciation and amortization.
Precision Drilling Corporation 2021 Annual Report
17
Our depreciation expense for 2021 was lower by 11% compared with the prior year due to asset sales and assets becoming
fully depreciated.
During the year, we disposed of our directional drilling business for a gain of $1 million.
Capital expenditures in 2021 for our Contract Drilling segment were $71 million. Our capital spending by spend category was:
(cid:131)(cid:3)$19 million – to upgrade and expand our asset base.
(cid:131)(cid:3)$52 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)
—
2021
227
2020
227
% increase/
(decrease)
0.4
2019
226
% increase/
(decrease)
(4.2 )
14,494
15,782
2,190
21,213
21,105
52,837
20.0
46.2
(13.3 )
(19.0 )
(2.3 )
(3.6 )
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
Revenue from U.S. drilling was US$307 million, 3% lower than 2020. Drilling rig activity, as measured by utilization days, was
up 20% from 2020 while average revenue per day was down 19%.
Adjusted EBITDA was US$78 million, 37% lower than 2020, mainly because of lower average day rates and idle but contracted
revenue, partially offset by higher activity and lower restructuring costs.
Our average day rates in the U.S. decreased 19% compared with 2020 due to lower average day rates and revenue from idle
but contracted rigs, partially offset by higher AlphaTM revenue. During the year, we did not recognize revenue from idle but
contracted rigs, as compared with US$37 million in 2020. In 2021, we recognized turnkey revenue of US$14 million which
accounted for 4% of our U.S. drilling revenue as compared with US$11 million and 3% in 2020, respectively.
Depreciation expense for the year was US$100 million, US$6 million lower than 2020 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 40 rigs working in 2021, 21% higher than 2020, as industry activity
increased by 10%. The average number of active land rigs for the industry was 461 in 2021 as compared with 420 rigs in the
prior year.
2020
Precision Industry (1) Precision Industry (1) Precision Industry (1)
2019
2021
Average number of active land rigs for quarters ended:
March 31
June 30
September 30
December 31
Annual average
(1) Source: Baker Hughes.
Canadian Drilling
33
39
41
45
40
378
437
485
545
461
55
30
21
26
33
764
378
241
297
420
79
77
72
63
73
1,023
967
896
798
921
Revenue from Canadian drilling was $333 million, 43% higher than 2020. Drilling rig activity, as measured by utilization days,
was up by 46% while average day rates were down 2% compared with the prior year.
Adjusted EBITDA was $108 million, 40% higher than 2020, as a result of higher drilling activity and lower restructuring costs.
During the year, we recognized CEWS program assistance of $16 million, as compared with $15 million in 2020. In 2021, CEWS
program assistance was presented as offsets to operating and general and administrative expenses of $15 million and $1 million,
respectively, as compared with $14 million and $1 million in 2020.
Depreciation expense for the year was $90 million, 5% lower than 2020 because of a lower capital asset base as assets become
fully depreciated, decommissioned, or were disposed.
18
Management’s Discussion and Analysis
Drilling Statistics – Canada
Our Canadian rig count remained at 109, consistent with 2020. We averaged 43 rigs working in 2021, 48% higher than 2020
which was consistent with industry as the average number of active land rigs for the year rose to 132 from 89.
2020
Precision Industry (1) Precision Industry (1) Precision Industry (1)
2019
2021
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
Year ended December 31
(in thousands of dollars, except where noted)
Revenue
Expenses
Operating
General and administrative
Restructuring
Adjusted EBITDA(1)
Depreciation and amortization
Gain on asset disposals
Operating earnings (loss)(1)
(1) See Financial Measures and Ratios on page 44 of this report.
2021 Compared with 2020
42
27
51
52
43
145
72
151
160
132
63
9
18
28
29
196
25
47
88
89
48
27
42
43
40
183
82
132
138
134
2021
113,488
% of
revenue
84,401
5,280
—
23,807
15,405
(525 )
8,927
74.4
4.7
—
21.0
13.6
(0.5 )
7.9
2020
77,251
59,404
3,995
2,595
11,257
16,375
(1,447 )
(3,671 )
% of
revenue
2019
147,829
% 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
Revenue from Completion and Production Services was $113 million, 47% higher than 2020, resulting from increased activity
across all divisions and improved hourly service rates.
Operating expenses were 74% of segment revenue, 3% lower than 2020, which was primarily the result of our improved cost
structure that was implemented in 2020 incurring restructuring charges of $3 million.
During the year, we recognized CEWS program assistance of $6 million, as compared with $7 million in 2020. In 2021, CEWS
program assistance was presented as offsets to operating and general and administrative expenses of $5 million and $1 million,
respectively, as compared with $6 million and $1 million in 2020.
Our increased activity in 2021 resulted in operating earnings of $9 million, compared with an operating loss of $4 million in 2020.
Depreciation in 2021 decreased by 6% due to our lower capital asset base as assets become fully depreciated, decommissioned,
or were disposed.
Capital expenditures in 2021 were $4 million, comprised mainly of maintenance capital.
Operating Statistics
Year ended December 31
Number of service rigs (end of year)
Service rig operating hours
2021
123
126,840
% increase/
(decrease)
—
2020
123
54.8 81,952
% increase/
(decrease)
—
2019
123
(44.3 ) 147,154
% increase/
(decrease)
(41.4 )
(6.5 )
Our current year service rig operating hours rose by 55% versus the comparable period.
Precision Drilling Corporation 2021 Annual Report
19
CORPORATE AND OTHER
Financial Results
Year ended December 31
(in thousands of dollars, except where noted)
Expenses
General and administrative
Restructuring
Adjusted EBITDA(1)
Depreciation and amortization
Gain on asset disposals
Operating loss(1)
(1) See Financial Measures and Ratios on page 44 of this report.
2021 Compared with 2020
2021
2020
2019
62,567
—
(62,567 )
10,849
(318 )
(73,098 )
40,433
7,846
(48,279 )
11,558
(313 )
(59,524 )
58,798
2,935
(61,733 )
14,853
(125 )
(76,461 )
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 $63 million in 2021, $22 million higher than 2020. The increase was mainly
related to increased share-based compensation charges, resulting from our higher share price in the current year, and lower
CEWS program assistance. During the year, we recognized CEWS program assistance of $2 million, as compared with $4
million in 2020. In 2021, corporate general and administrative costs were 6.3% of consolidated revenue compared with 4.3% in
the prior year.
In 2020, we recognized $8 million in restructuring costs, comprised of severance costs, as we aligned our cost structure in
response to our reduced activity levels. We did not incur any restructuring costs in 2021.
Capital expenditures in 2021 for our Corporate and Other segment were $1 million, primarily related to infrastructure.
QUARTERLY FINANCIAL RESULTS
2021 – Quarters Ended
(in thousands of dollars, except per share amounts)
Revenue
Adjusted EBITDA(1)
Net loss
per basic share
per diluted share
Funds provided by (used in) operations(1)
Cash provided by operations
(1) See Financial Measures and Ratios on page 44 of this report.
2020 – Quarters Ended
(in thousands of dollars, except per share amounts)
Revenue
Adjusted EBITDA(1)
Net loss
per basic share
per diluted share
Funds provided by operations(1)
Cash provided by operations
(1) See Financial Measures and Ratios on page 44 of this report.
Seasonality
March 31
236,473
54,539
(36,106 )
(2.70 )
(2.70 )
43,430
15,422
March 31
379,484
101,904
(5,277 )
(0.38 )
(0.38 )
81,317
74,953
June 30
201,359
28,944
(75,912 )
(5.71 )
(5.71 )
12,607
42,219
September 30
253,813
45,408
(38,032 )
(2.86 )
(2.86 )
33,525
21,871
December 31
295,202
63,881
(27,336 )
(2.05 )
(2.05 )
62,681
59,713
June 30
189,759
58,465
(48,867 )
(3.56 )
(3.56 )
26,639
104,478
September 30
164,822
47,771
(28,476 )
(2.08 )
(2.08 )
27,489
41,950
December 31
201,688
55,263
(37,518 )
(2.74 )
(2.74 )
35,282
4,737
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.
20
Management’s Discussion and Analysis
Fourth Quarter 2021 Compared with Fourth Quarter 2020
In the fourth quarter of 2021, we recorded a net loss of $27 million or a net loss of $2.05 per diluted share compared to a net
loss of $38 million or a net loss of $2.74 per diluted share in 2020.
Revenue for the fourth quarter was $295 million, 46% higher than in 2020 and was the result of increased drilling and service
rig activity, partially offset by lower average revenue rates in the U.S. and internationally. Compared with the fourth quarter of
2020, our drilling activity increased 74% in the U.S. and 87% in Canada, while international activity remained consistent. Our
2021 fourth quarter revenue from our Contract Drilling Services and Completion and Production Services segments increased
48% and 36%, respectively, from the comparable 2020 quarter.
Adjusted EBITDA was $64 million, an increase of $9 million from the fourth quarter of 2020. Our higher Adjusted EBITDA in the
current quarter was mainly due to higher drilling and service activity, lower share-based compensation charges, partially offset
by lower CEWS program assistance, U.S. wage increases and labour settlement, and the impact of a $3 million inventory write-
down.
Contract Drilling Services
Revenue from Contract Drilling Services was $265 million this quarter, 48% higher than 2020, while Adjusted EBITDA increased
by 8% to $68 million. The increase in revenue and Adjusted EBITDA was primarily due to higher activity, partially offset by lower
U.S. and international drilling day rates.
Our fourth quarter drilling rig utilization days in the U.S. were 4,179, 74% higher than in 2020. Drilling rig utilization days in
Canada were 4,819 during the fourth quarter of 2021, 87% higher than 2020. The increase in utilization days in both the U.S.
and Canada was consistent with higher industry activity. Drilling rig utilization days in our international business were 552,
consistent with 2020.
Revenue per utilization day in the U.S. decreased in the fourth quarter of 2021 to US$21,976 from US$25,577 in the prior year
quarter. The decrease was primarily the result of lower revenue from idle but contracted rigs and lower fleet average day rates.
During the fourth quarter of 2021, we recognized revenue from idle but contracted rigs and turnkey projects of nil and US$6
million, respectively, as compared with US$7 million and US$5 million in 2020. Excluding the impact of idle but contracted rig
revenue, our fourth quarter 2021 average revenue per utilization day was down 3% compared with 2020. In Canada, average
revenue per utilization day for contract drilling rigs for the quarter was $22,948 compared with $21,670 in 2020. The higher
average revenue per utilization day in 2021 was primarily due to our higher average day rates. Average revenue per utilization
day in our international contract drilling business was US$52,069 compared with US$55,453 in the prior year quarter. The lower
average rate in 2021 was primarily due to the expiration of a drilling contract.
In the U.S., 51% of utilization days were generated from rigs under term contract as compared with 62% in the fourth quarter of
2020. In Canada, 13% of our utilization days in the quarter were generated from rigs under term contract, compared with 11%
in 2020.
Operating costs were 71% of revenue for the quarter, as compared to 61% in the prior year period. In the U.S., our fourth quarter
operating costs on a per day basis increased to US$16,056, compared with US$14,419 in 2020 due to higher rig operating
expenses, partially offset by the impact of fixed costs being spread over higher activity and lower turnkey costs. During the fourth
quarter of 2021, we incurred a non-recurring wage dispute settlement charge of US$1.5 million that increased daily operating
costs by US$378 per day. Additionally, in December of 2021, we implemented field wage increases and after quarter end,
adjusted day rates for these increases. The higher wages increased our daily operating costs by US$242 per day and negatively
impacted field margins for the quarter by the same amount. In the prior year quarter, we recognized US$3 million of certain
operating cost recoveries, further reducing our comparative daily operating costs by approximately US$1,300 per day.
In Canada, our average operating costs per utilization day for the quarter increased to $14,935 compared with $12,291 in 2020.
The increase was mainly due to industry-wide wage increases and lower CEWS program assistance, partially offset by fixed
costs being spread over higher activity. During the quarter, we did not recognize any CEWS program assistance as compared
with $6 million in 2020.
Depreciation expense in the quarter was 4% lower than in 2020 primarily because of a lower capital asset base as assets
become fully depreciated, decommissioned or disposed.
In the fourth quarter of 2021, we sold used assets recognizing a gain on disposal of $2 million, consistent with 2020.
Completion and Production Services
Completion and Production Services revenue for the fourth quarter of 2021 increased to $32 million as compared with $24 million
in 2020. The higher revenue was primarily due to increased average hourly service rates and service activity. Our fourth quarter
service rig operating hours were 33,063, an increase of 21% from 2020. Approximately 78% of our fourth quarter Canadian
service rig activity was oil related.
Precision Drilling Corporation 2021 Annual Report
21
During the quarter, Completion and Production Services generated 11% of its revenue from U.S. operations compared with 21%
in the comparative period.
Operating costs as a percentage of revenue increased to 77% as compared with 73% in the comparative quarter. The higher
percentage in 2021 was primarily the result of lower CEWS program assistance. In the fourth quarter of 2021, we received
CEWS program assistance of $0.2 million as compared with $2 million in 2020.
As compared with 2020, our fourth quarter Adjusted EBITDA increased by $1 million to $6 million primarily from increased
average hourly service rates and activity.
Depreciation expense in the quarter was 10% lower than in 2020 primarily because of a lower capital asset base as assets
become fully depreciated, decommissioned or disposed.
Corporate and Other
The Corporate and Other segment had negative Adjusted EBITDA of $11 million as compared with $14 million in 2020. Our
Adjusted EBITDA was positively impacted by lower share-based compensation costs, partially offset by lower CEWS program
assistance. During the quarter, CEWS program assistance offset general and administrative costs by $0.1 million as compared
with $1 million in 2020.
Net finance charges were $21 million as compared with $24 million in the fourth quarter of 2020. Our lower net finance charges
were primarily due to reduced interest expense from lower debt levels and average cost of borrowings. Interest charges on our
U.S. denominated long-term debt in the fourth quarter of 2021 were US$15 million ($19 million) as compared with US$16 million
($21 million) in 2020.
During the quarter, we reduced debt by $55 million, primarily through repayments of our Senior Credit Facility.
Income tax expense for the quarter was $1 million as compared with $8 million in 2020. During the fourth quarter of 2021 and
2020, we did not recognize deferred tax assets on certain Canadian and international operating losses.
OUTLOOK
In 2021, we had an average of 36 drilling rigs working under term contracts. Utilization days from these contracts was
approximately 37% 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 4, 2022, we had term contracts in place for an average of
32 rigs: 21 in the U.S., six in Canada and five internationally for 2022. 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 2021, approximately 37% of our total contract
drilling utilization days were generated from rigs
under term contracts.
During 2021, commodity prices strengthened as global demand for oil and natural gas gradually returned to pre-pandemic levels.
Although customer spending remained conservative, the active rig count steadily increased in North America as customers
sought to replenish production levels after depleting their drilled but uncompleted well inventories since the onset of pandemic.
As of March 4, 2022, the U.S. rig count was approximately 66% higher than the same time last year and has averaged
approximately 63% higher year-to-date compared to 2021. In Canada, the industry rig count at March 4, 2022 was approximately
37% higher in Canada than it was a year ago while the year-to-date rig count has averaged approximately 31% higher than
2021. Our U.S. and Canadian activity for the remainder of the year is expected to be determined by the strength in commodity
prices and 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 as the region has
been slow to reemerge from the pandemic. We remain optimistic in our ability to secure rig reactivations as our customers return
to more normal operations.
22
Management’s Discussion and Analysis
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 and Free Cash Flow Allocation
Capital spending in 2022 is expected to be $98 million and includes $56 million for maintenance, infrastructure, and intangibles
and $42 million for expansion and upgrades. Capital spending by spend category is expected to be $91 million in the Contract
Drilling Services segment, $6 million in the Completion and Production Services segment and $1 million to the Corporate
segment. At December 31, 2021, Precision had capital commitments of $137 million with payments expected through 2024.
Our debt reduction plans will continue with the goal of repaying over $400 million in debt over the next four years and reaching
a sustained Net Debt to Adjusted EBITDA ratio of below 1.5 times. At the end of 2025, we expect to have reduced debt by well
over $1 billion since 2018. In addition to debt reduction targets through 2025, we plan to allocate 10% to 20% of free cash flow
before debt principal repayments toward the return of capital to shareholders.
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
variable cost structure so we can respond 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
During 2021, we maintained our strong liquidity position, exiting the year with a cash balance of $41 million and approximately
$490 million of available borrowing capacity under our secured credit facilities, providing us with more than $530 million of total
liquidity. To provide additional liquidity, we established a Canadian Real Estate Credit Facility in the amount of $20 million in the
first quarter of 2021.
We expect that cash provided by operations and our sources of financing, including our Senior Credit Facility, will be sufficient
to meet our unsecured senior note obligations and to fund future capital expenditures.
At December 31, 2021, excluding letters of credit, we had approximately
$1,126 million (2020 – $1,250 million) outstanding under our secured
and unsecured credit facilities and $17 million (2020 – $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 2021 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 7.9.
The current blended cash interest cost of our debt is approximately 6.4%.
Precision Drilling Corporation 2021 Annual Report
23
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 of 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(1)
Long-term debt(2)
Total long-term financial liabilities
Total assets
Enterprise value(1)(3)
Long-term debt to long-term debt plus equity
Long-term debt to cash provided by operations(1)
Net debt to Adjusted EBITDA(1)
(1) See Financial Measures and Ratios on page 44 of this report.
(2) Net of unamortized debt issue costs.
(3) See page 28 for more information.
Credit Rating
December 31,
2021
81,637
1.3
1,106,794
1,185,858
2,661,752
1,660,781
0.5
7.9
5.5
December 31,
2020
175,423
2.1
1,236,210
1,304,162
2,898,878
1,409,147
0.5
5.5
4.3
December 31,
2019
201,696
1.9
1,427,181
1,500,950
3,269,840
1,854,393
0.5
5.0
3.5
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 4, 2022
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 2021, 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.
24
Management’s Discussion and Analysis
SOURCES AND USES OF CASH
At December 31 (in thousands of dollars)
Cash provided by operations
Cash used in investing activities
Surplus (deficit)
Cash used in financing activities
Effect of exchange rate changes on cash
Net cash used
Cash Provided by Operations
2021
2020
139,225
(56,613 )
82,612
(149,913 )
(883 )
(68,184 )
226,118
(40,517 )
185,601
(145,624 )
(5,906 )
34,071
2019
288,159
(74,500 )
213,659
(231,814 )
(3,770 )
(21,925 )
In 2021, cash provided by operations was $139 million compared with $226 million in 2020. The decrease was primarily
attributable to higher share-based compensation charges, lower U.S. idle but contracted rig revenue and the impact of increased
working capital draws resulting from our increased activity in 2021.
Cash Used in Investing Activities
Our 2021 capital spending of $76 million by spend category was comprised of:
(cid:131) $19 million on upgrade and expansion capital, and
(cid:131) $57 million on maintenance, infrastructure capital and intangibles.
The $76 million in capital expenditures in 2021 was split between our segments as follows:
(cid:131) $71 million in Contract Drilling Services,
(cid:131) $4 million in Completion and Production Services, and
(cid:131) $1 million in Corporate and Other.
Expansion and upgrade capital includes the cost of long-lead items purchased for our capital inventory, such as integrated top
drives, drill pipe, control systems, engines and other items we can use to complete new-build projects or upgrade our rigs in
North America and internationally.
We sold underutilized capital assets for proceeds of $13 million in 2021 compared with $21 million in 2020. During the year, we
disposed of our directional drilling business for a gain of $1 million.
Cash Used in Financing Activities
In 2021, cash used in financing activities was $150 million as compared with $146 million in 2020. Our 2021 financing activities
were comprised of:
(cid:131) $129 million of net repayments of long-term debt,
(cid:131) $10 million of debt issue and amendment costs resulting from our unsecured senior note issuance and Senior Credit
Facility extension,
(cid:131) $7 million of operating lease payments, and
(cid:131) $4 million of NCIB share repurchases.
Precision Drilling Corporation 2021 Annual Report
25
CAPITAL STRUCTURE
Material Debt
Amount
Senior Credit Facility (secured)
US$5001 million (extendible, revolving term
credit facility with US$300 million accordion
feature)
Real estate credit facility (secured)
US$10 million
$19 million
Operating facilities (secured)
$40 million
US$15 million
Demand letter of credit facility (secured)
US$30 million
Availability
Used for
Maturity
US$118 million drawn and US$33
million in outstanding letters of
credit
General corporate purposes
June 18, 20251
Fully drawn
Fully drawn
General corporate purposes
General corporate purposes
November 19, 2025
March 16, 2026
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$3 million in
outstanding letters of credit
Letters of credit
Unsecured senior notes (unsecured)
US$348 million – 7.125%
US$400 million – 6.875%
(1) US$53 million expires on November 21, 2023.
Fully drawn
Fully drawn
Covenants
Debt redemption and repurchases January 15, 2026
Debt redemption and repurchases January 15, 2029
At December 31, 2021, we were in compliance with the covenants of our Senior Credit Facility, Real Estate Credit Facility and
unsecured senior notes.
Covenant
At December 31, 2021
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.
Senior Credit Facility
≤ 2.50
≥ 2.00
≥ 2.00
≥ 2.00
0.97
2.83
2.83
2.06
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 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 Senior Credit Facility requires we comply with certain covenants including a leverage ratio of consolidated senior debt to
consolidated Covenant EBITDA of less than 2.5:1. For purposes of calculating the leverage ratio consolidated senior debt only
includes secured indebtedness.
On June 18, 2021, we agreed with the lenders of our Senior Credit Facility to extend the facility’s maturity date and extend and
amend certain financial covenants during the Covenant Relief Period (established on April 9, 2020). The maturity date of the
Senior Credit Facility was extended to June 18, 2025; however, US$53 million of the US$500 million will expire on November
21, 2023.
The lenders agreed to extend the Covenant Relief Period to September 30, 2022 and amend the consolidated Covenant EBITDA
to consolidated interest coverage ratio for the most recent four consecutive quarters to be greater than or equal to 1.75:1 for the
period ended September 30, 2021, 2.0:1, for the periods ending December 31, 2021 and March 31, 2022, 2.25:1 for the periods
ending June 30, 2022 and September 30, 2022 and 2.5:1 for periods ending thereafter.
During the Covenant Relief Period, our distributions in the form of dividends, distributions and share repurchases are restricted
to a maximum of 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.
26
Management’s Discussion and Analysis
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. We also have the option
to voluntarily terminate the Covenant Relief Period prior September 30, 2022.
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.
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.
Under the Senior Credit Facility, amounts can be drawn in U.S. dollars and/or Canadian dollars. At December 31, 2021, US$118
million amounts were drawn under this facility (2020 – US$75 million). 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, 2021 outstanding letters of credit amounted to US$33 million (2020 – US$32 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 Facilities
Our Canadian Real Estate Credit Facility is secured by real properties in Alberta, Canada. Principal plus interest payments are
due quarterly, based on 15-year straight-line amortization with any unpaid principal and accrued interest due at maturity. Interest
is calculated using a CDOR rate plus margin.
Our U.S. Real Estate Credit Facility 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.
Our Real Estate Credit Facilities contain certain affirmative and negative covenants and events of default, customary for these
types of transactions. Under the terms of these facilities, we must maintain financial covenants in accordance with the Senior
Credit Facility, described above, as of the last day of each period of four consecutive fiscal quarters. For the Canadian Real
Estate Credit Facility, in the event the Senior Credit Facility expires, is cancelled, or is terminated, financial covenants in effect
at that time shall remain in place for the remaining duration of the facility. For the U.S. Real Estate Credit Facility, 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, 2017 for the 2026 senior notes and July 1, 2021 for the 2029 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 2021, 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.
Precision Drilling Corporation 2021 Annual Report
27
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.
Payments due (by period)
At December 31, 2021
(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
(1) U.S. dollar denominated balances are translated at the period end exchange rate of Cdn$1.00 equals US$0.7909.
Less than
1 year
2,223
72,147
42,248
10,782
18,414
145,814
1-3 years
4,446
144,067
94,883
18,816
49,073
311,285
4-5 years
613,660
105,629
—
10,511
—
729,800
More than
5 years
505,784
70,995
—
2,391
—
579,170
Total
1,126,113
392,838
137,131
42,500
67,487
1,766,069
(2) Balance primarily relates to cost of rig equipment with flexible delivery schedule wherein we can take delivery between 2022 and 2024.
(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 $44.69 at December 31, 2021.
Shareholders Capital
Shares outstanding
Deferred shares outstanding
Share options outstanding
March 4,
December 31,
December 31,
2022
2021
2020
13,568,325
1,470
298,263
13,304,425
1,470
383,448
13,459,593
1,470
432,458
December 31,
2019
13,864,990
4,659
519,232
During the third quarter of 2021, 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 1,317,158 common shares, representing 10%
of the public float of common shares as of August 13, 2021. The NCIB will terminate no later than August 26, 2022. For the year
ended December 31, 2021, we repurchased and cancelled a total of 155,168 common shares for $4 million.
Subsequent to December 31, 2021, Precision settled 131,950 vesting Executive PSUs in 263,900 common shares.
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(1)
(1) See Financial Measures and Ratios on page 44 of this report.
December 31,
2021
13,304,425
44.69
594,575
1,106,794
(40,588 )
1,660,781
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
28
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 judgement 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 judgements, and are the most critical to how we report our financial position and
results of operations:
impairment of long-lived assets
(cid:131)
(cid:131) depreciation and amortization
(cid:131)
income taxes.
Climate-related risks and opportunities may have a future impact on the Corporation and its estimates and judgements, including
but not limited to the useful life and residual value of its property, plant and equipment and the measurement of projected cash
flows when identifying impairment triggers, performing tests for impairment or impairment recoveries of non-financial assets.
The Corporation evaluated the remaining useful lives and residual values of its property, plant and equipment, concluding they
remain reasonable given the current estimate of the demand period for oil and natural gas extractive services well exceeds their
remaining useful lives. In addition, the Corporation’s property, plant and equipment, including drill rig equipment, adapts to
numerous low-carbon projects, including but not limited to, geothermal drilling, carbon capture and storage and the extraction of
helium and hydrogen gas.
In future periods, if indications of impairment of non-financial assets exist, the Corporation’s measurement of projected cash
flows may be exposed to higher estimation uncertainty, including but not limited to the Corporation’s continued capital investment
required to lower the carbon intensity of its property, plant and equipment, period and growth expectations used to calculate
terminal values and the Corporation’s weighted average cost of capital.
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 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.
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. Judgement 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 judgement 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 judgement.
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 judgement. This determination can be
complex and subject to differing interpretations and views, particularly when rig equipment comprises individual components for
which different depreciation methods or rates are appropriate.
Precision Drilling Corporation 2021 Annual Report
29
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.
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 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, the conflict in Ukraine and actions of
Russia or a conflict in the Middle East, expectations for global economic growth, political sanctions, trade disputes, international
government sanctions, or initiatives by OPEC+, can affect supply and demand for oil and natural gas and cause extreme
commodity price volatility, complicating the business planning for us and our customers and exposing us to rapid changes in
demand for our services. Weather conditions, governmental regulation (in Canada and U.S.), 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.
In 2021, approximately 10,500 wells were started onshore in the U.S., compared to approximately 43,700 in 2014. In 2021, the
industry drilled 4,557 wells in western Canada, compared to 10,942 in 2014. According to industry sources, the U.S. average
active land drilling rig count was up approximately 10% in 2021, compared to 2020, and the Canadian average active land drilling
rig count was up approximately 48% during the same period as oil and natural gas prices stabilized throughout 2021.
Recently, commodity prices have been negatively affected by a combination of factors, including increased production, the
decisions of OPEC+, the COVID-19 pandemic and a strengthening in the U.S. dollar relative to most other currencies. Although
OPEC+ agreed in April 2020 to oil production cuts, OPEC+ has been gradually reducing such cuts and in July 2021, agreed to
further reduce such cuts on a monthly basis with a goal of phasing out all production cuts towards the end of 2022. There is no
assurance that the most recent OPEC+ agreement will be observed by its parties and OPEC+ may change its agreement
depending upon market conditions. Although crude oil prices have recovered since March 2020, reductions related to the onset
of the COVID-19 pandemic, oil and natural gas prices are expected to continue to be volatile as a result of near-term production
instability, the ongoing COVID-19 pandemic, conflict in Ukraine and actions of Russia, changes in oil and natural gas inventories,
industry demand, global and national economic performance, the actions of OPEC+, and any coordinated releases of oil from
30
Management’s Discussion and Analysis
strategic reserves by the U.S. (or any other country). Certain of these events and conditions may contribute to decreased
exploration and drilling activities and a decrease in confidence in the oil and natural gas industry generally. These difficulties
have been exacerbated in Canada and the U.S. by political and other actions resulting in uncertainty surrounding regulatory,
tax, royalty and environmental regulation. Each of these factors have adversely affected, and could continue to adversely affect,
the price of oil and natural gas and drilling activities by our customers, 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 volatility in oil and natural gas prices, regulatory uncertainty, and strategies of certain of our
customers to focus on debt reductions or returning cash to shareholders rather than incurring expenditures on exploration and
drilling activities, many of our customers have reduced spending budgets compared to periods prior to the downturn in
commodity prices experienced in 2014. 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.
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.
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:
(cid:131) negatively impacting our revenue, cash flow, profitability and financial condition
(cid:131) 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
(cid:131) affecting the existing fair market value of our rig fleet, which in turn could trigger a write-down for accounting purposes
(cid:131) our customers negotiating, terminating, or failing to honour their drilling contracts with us
(cid:131) making our Senior Credit Facility financial covenants more difficult to attain, and
(cid:131) 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.
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, rig availability and technology are the primary factors potential
customers consider when selecting a drilling contractor. We believe other factors are also important, such as the drilling
capabilities and condition of drilling rigs, the quality of service and experience of rig crews, the safety record of the contractor,
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. In addition, development of
new drilling technology by competitors has increased in recent years, which could negatively affect our ability to differentiate our
services. 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.
Precision Drilling Corporation 2021 Annual Report
31
Lower activity in the contract drilling industry exposes us to the risk of oversupply of equipment
Periods of low demand often lead to low utilization. The number of drilling rigs competing for work in markets where we operate
has remained the same as the industry has seen a decrease in drilling activity. 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 decline 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 17% 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.
Pipeline constraints in western Canada could 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. On March 17, 2021, 21 states filed a lawsuit in the Southern District of Texas, alleging President Biden’s
order violates the U.S. Constitution. As at the date hereof, the constitutional challenge was dismissed.
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.
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.
32
Management’s Discussion and Analysis
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.
Risks and uncertainties associated with our international operations can negatively affect our business
We conduct some of our business in the Middle East. We may decide to establish 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:
(cid:131) an uncertain political and economic environment
(cid:131)
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
(cid:131) war, terrorist acts or threats, civil insurrection and geopolitical and other political risks
(cid:131)
(cid:131) restrictions on the repatriation of income or capital
(cid:131)
increases in duties, taxes and governmental royalties
(cid:131) renegotiation of contracts with governmental entities
(cid:131) changes in laws and policies governing operations of companies
(cid:131) compliance with anti-corruption and anti-bribery legislation in Canada, the U.S. and other countries, and
(cid:131)
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
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 civil and criminal
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 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. We could also face fines, sanctions and other penalties from authorities in other the
relevant foreign jurisdictions, including prohibition of our participating in or curtailment of business operations in those
jurisdictions and the seizure of drilling rigs or other assets. 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.
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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. Additionally, certain investors and lenders may discourage
investments or lending into the hydrocarbon industry. To the extent that certain institutions implement policies that discourage
investments or lending into the hydrocarbon industry, it could have an adverse effect on the cost of capital or availability of capital
for our customers, which may result in reduced spending by our 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 on the exploration and development activities of oil and natural gas exploration and production companies” on page
30.
Our debt facilities contain restrictive covenants
Our Senior Credit Facility, Real Estate Credit Facilities 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 27). In the event our Consolidated Interest Coverage Ratio (as defined in our
two 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 of December 31, 2021, our Consolidated Interest Coverage Ratio, as
calculated per our unsecured Senior Note Indentures, was 2.06.
In addition, we must satisfy and maintain certain financial ratio tests under the Senior Credit Facility and Real Estate Credit
Facilities (see Capital Structure – Material Debt on page 26). 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 Facilities 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 Facilities
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, 2021, we were in compliance with the covenants of our Senior Credit Facility and Real Estate Credit Facilities.
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. Additionally, new technologies, services or standards could render some of our services, drilling rigs or
equipment obsolete, which could reduce our competitiveness and have a material adverse impact on our business, financial
condition and results of operations.
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. 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, or be required from time to time, in certain countries or jurisdictions
which could continue to result in decreased demand for oil and gas or increased volatility in prices for oil and gas. 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, as there are no comparable recent events to provide guidance on the spread or continuance of
the COVID-19 pandemic, including future variants.
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Management’s Discussion and Analysis
The current challenging economic climate resulting from the impact of the COVID-19 pandemic and corresponding emergency
measures that have been implemented or may be implemented from time to time by various governments has or may have
significant adverse impacts on Precision including, but not exclusively:
(cid:131) potential interruptions of our business or operations
(cid:131) material declines in revenue and cash flows, as our customers are concentrated in the oil and natural gas industry
(cid:131)
(cid:131) risk of non-payment of accounts receivable and customer defaults, and
(cid:131) 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
Additionally, any potential spread of COVID-19 amongst our or our customers’ employees or contractors may result in temporary
interruptions to our business or operations, which may have an adverse effect on our financial condition, results of operations
and cash flow.
Other Disease Outbreak may impact our business
Future local, regional, national or international outbreaks of contagious diseases 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 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 and our customers’ operations are subject to numerous environmental laws, regulations and guidelines
In addition to expanded regulations and guidelines related specifically to climate change, we and our customers are subject to
numerous environmental laws and regulations, including regulations 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 regulations apply directly to our operations and authorize the
recovery of damages by the government, injunctive relief, and the imposition of stop, control, remediation and abandonment
orders. For instance, 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. The total
costs of complying with environmental protection requirements is unknown, but we may experience increased insurance and
compliance costs as further environmental laws and regulations are introduced.
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.
Governments in Canada and the U.S. may also 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 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.
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. There can also
be no guarantee that other laws and other government programs relating to the oil and gas industry and the transportation
industry will not be changed in a manner which directly and adversely impact the demand for oil and natural gas which could
affect our business, nor can there be any assurances that the laws, regulations or rules governing our customers will not be
changed in a manner which adversely affects our customers and, therefore, 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.
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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.
Effects of climate change, including physical and regulatory impacts, could have a negative impact on our business
The views on climate change are evolving at a regional, national and international level. As a result, political and economic
events may significantly affect the scope and timing of climate change measures and regulations that are ultimately put in place,
which may challenge the oil and gas industry in a number of ways. Additionally, the risks of natural disasters that could impact
our business may increase in the future as a result of climate change. Furthermore, as societal awareness and public debate
continues to grow in relation to the potential impact of climate change, consumer-demand for alternative fuel sources may
continue to rise and incentives to conserve energy may be developed. Our business, financial condition, results of operations,
cash flows, reputation, access to capital, access to insurance, cost of borrowing, access to liquidity, and/or business plans may,
in particular, without limitation, be adversely impacted as a result of climate change and its associated impacts.
Physical Impact
As discussed under “Business in our industry is seasonal and highly variable” on page 40, 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 and evolving climate conditions could result
in increased risks of, or more frequent, natural disasters such as flooding or forest fires and 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. Extreme weather conditions could also impact the production and
drilling of new wells. We cannot estimate the degree to which climate change and extreme climate conditions could impact our
business and operating results.
Regulatory Impact
In response to climate change and increased focus on environmental protection, environmental laws, regulations and guidelines
relating to the protection of the environment, including regulations and treaties concerning climate change or greenhouse gas
emissions, continue to expand in scope. There has been 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. 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.
Canada and the U.S. are signatories to the Paris Agreement drafted at the United Nations Framework Convention on Climate
Change (UNFCCC) 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 United States. 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. Certain Canadian provinces,
including Alberta and Saskatchewan, had previously launched constitutional challenges related to the PCF; however, on March
25, 2021, the Supreme Court of Canada released its judgement confirming the constitutionality of Canada's national carbon
pricing regime. In November 2021, to conclude the 26th Conference of the Parties to the UNFCCC, nearly 200 countries including
Canada signed the Glasgow Climate Pact, which reaffirms the commitments to limiting global temperature rise set out in the
Paris Agreement. The Glasgow Climate Pact calls for nations to submit new targets to the UNFCCC by the end of 2022 to align
with the Paris Agreement’s goals, requests that nations take accelerated actions to reduce emissions by 2030 and asks nations
to accelerate the development and adoption of policies to transition towards low-emission energy systems. It also includes the
party nations’ agreement on rules under the Paris Agreement to create a global carbon credit market.
As at the date hereof, it is not possible to predict the effect of the Paris Agreement, the Glasgow Climate Pact and climate
change-related legislation in Canada, the U.S. and globally on our business or whether additional climate-change legislation,
regulations or other measures will be adopted at the federal, state, provincial or local levels in Canada, the U.S. or globally.
While some of these regulations are in effect, others remain in various phases of review, discussion or implementation, leading
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Management’s Discussion and Analysis
to uncertainties regarding timing and effects of these emerging regulations, making it difficult to accurately determine the cost
impacts and effects on our operations. 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 and
potentially lead to lower demand for our services.
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 oil and gas exploration and production activity, impacting the demand for our services from the oil and gas
industry. 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. A public safety performance issue could also result in reputational damage to us or increased costs
of operating and insuring Precision’s assets.
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.
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.
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. Increased inflation may also result in cost
increases for the key components, materials, equipment and parts we use in our business. 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 COVID-19 pandemic has resulted in acute supply chain issues for many industries that may impact our ability to obtain key
components, materials, equipment and parts for our operations.
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 in which we operate
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
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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.
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 2021, approximately 48% of our revenue was received from our ten largest drilling customers and approximately 25% 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.
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.
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Management’s Discussion and Analysis
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 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. See also “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.”
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 Facilities and any debt financing we may negotiate. On July 27, 2017, the U.K. Financial
Conduct Authority (FCA) 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. On July 29, 2021, the Alternative References Rates Committee formally recommended the Secured
Overnight Finance Rate (SOFR) as its preferred alternative replacement rate for U.S. dollar LIBOR. Although SOFR appears to
be the preferred replacement rate for U.S. dollar LIBOR at this time, it is not presently known whether SOFR or any other
alternative reference rates that have been proposed will attain market acceptance as replacements of U.S. dollar LIBOR.
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.
Mergers and acquisitions entail numerous risks and may disrupt our business or distract management
We consider and evaluate mergers and acquisitions of, or significant investments in, complementary businesses and assets as
part of our business strategy. Mergers and acquisitions involve numerous risks, including unanticipated costs and liabilities,
difficulty in integrating the operations and assets of the merged or acquired business, the ability to properly access and maintain
an effective internal control environment over a merged or acquired company to comply with public reporting requirements,
potential loss of key employees and customers of the merged or acquired companies, and an increase in our expenses and
working capital requirements. Any merger or 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 mergers and acquisitions and also may issue equity securities or convertible
securities for mergers and 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 mergers and acquisitions.
Mergers and 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 mergers and acquisitions
into our operations, we may not derive the benefits such as operational or administrative synergies we expect from mergers and
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.
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
Precision Drilling Corporation 2021 Annual Report
39
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, political sanctions, 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, flooding, 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.
There are risks associated with increased capital expenditures
The timing and amount of capital expenditures we incur, including those related to our AlphaTM technologies and EverGreenTM
suite of environmental solutions, 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.
40
Management’s Discussion and Analysis
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.
Our assessment of capital assets for impairment may result in a non-cash charge against our consolidated net income
We are required to assess our capital asset balance for impairment when certain internal and external factors indicate the need
for further analysis. When assessing impairment triggers and calculating impairment it is 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 capital assets would result in a non-cash charge against net earnings, and it
could be material.
Our credit ratings may change
Credit ratings affect our financing costs, liquidity and operations over the long term and are intended as an independent measure
of the credit quality of long-term debt. Credit ratings affect our ability to obtain short and long-term financing and the cost of this
financing, and our ability to engage in certain business activities cost-effectively.
If a rating agency 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
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.
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 26).
As a foreign private issuer in the U.S., we may file less information with the SEC than a company incorporated in the
U.S.
As a foreign private issuer, we are exempt from certain rules under the United States Exchange Act of 1934 (the Exchange Act)
that impose disclosure requirements, as well as procedural requirements, for proxy solicitations under Section 14 of the
Exchange Act. Our directors, officers and principal shareholders are also exempt from the reporting and short-swing profit
recovery provisions of Section 16 of the Exchange Act. We are not required to file periodic reports and financial statements with
the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor are we
generally required to comply with Regulation FD, which restricts the selective disclosure of material non-public information. As
a result, there may be less publicly available information about us than U.S. public companies and this information may not be
provided as promptly. In addition, we are permitted, under a multi-jurisdictional disclosure system adopted by the U.S. and
Canada, to prepare our disclosure documents in accordance with Canadian disclosure requirements, including preparing our
financial statements in accordance with International Financial Reporting Standards (IFRS), which differs in some respects from
U.S. GAAP. We are required to assess our foreign private issuer status under U.S. securities laws annually at the end of the
second quarter. If we were to lose our status as a foreign private issuer under U.S. securities laws, we would be required to
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.
Precision Drilling Corporation 2021 Annual Report
41
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.
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 2021 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,
2021, management has concluded that our internal control over financial reporting is effective.
The effectiveness of internal control over financial reporting as of December 31, 2021 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, 2021, 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.
42
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:
the average number of term contracts in place for 2022
our strategic priorities for 2022
our capital expenditures, free cash flow allocation and debt reduction plan for 2022
anticipated activity levels in 2022
anticipated demand for our drilling rigs
plans for returns of capital to shareholders
customer adoption of Alpha™ technologies and EverGreen™ suite of environmental solutions
potential commercial opportunities and rig contract renewals
our future debt reduction plans
addition of a new female director to our Board in 2022
our outlook on oil and natural gas prices
target Net Debt to Adjusted EBITDA
the potential impact liquefied natural gas export development could have on North American drilling activity
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 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 political, economic, market or business conditions
the availability of qualified personnel and management
a decline in our safety performance which could result in lower demand for our services
Precision Drilling Corporation 2021 Annual Report
43
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
such conditions.
Readers are cautioned that the foregoing list of risk factors is not exhaustive. You can find more information about these and
other factors that could affect our business, operations or financial results in this MD&A under the section titled “Risks in our
Business” and 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, 2021, 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.
FINANCIAL MEASURES AND RATIOS
NON-GAAP FINANCIAL MEASURES
We reference certain 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, loss (gain) on redemption and repurchase
of unsecured senior notes, loss on investments and other assets, finance charges, foreign exchange, gain
on asset disposals, and depreciation and amortization), as reported in our Consolidated Statements 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.
The most directly comparable financial measure is net earnings (loss).
Funds Provided
by (Used In)
Operations
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 changes, which is primarily made up of highly liquid
balances.
The most directly comparable financial measure is cash provided by (used in) operations.
Net Capital
Spending
We believe net capital spending is a useful measure as it provides an indication of our primary investment
activities.
The most directly comparable financial measure is cash provided by (used in) investing activities.
Net capital spending is calculated as follows:
Year ended December 31 (in thousands of dollars)
Capital spending by spend category
Expansion and upgrade
Maintenance and infrastructure
Intangibles
Proceeds on sale of property, plant and equipment
Net capital spending
Purchase of investments and other assets
Changes in non-cash working capital balances
Cash used in investing activities
2021
2020
2019
19,006
56,935
—
75,941
(13,086 )
62,855
3,500
(9,742 )
56,613
26,858
34,677
57
61,592
(21,094 )
40,498
—
19
40,517
120,910
38,976
808
160,694
(90,768 )
69,926
—
(4,574 )
74,500
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.
44
Management’s Discussion and Analysis
The most directly comparable financial measure is net earnings (loss).
Operating earnings (loss) is calculated as follows:
Year ended December 31 (in thousands of dollars)
Revenue
Expenses:
Operating
General and administrative
Restructuring
Depreciation and amortization
Gain on asset disposals
Loss on asset decommissioning
Reversal of impairment of property, plant and equipment
Operating earnings (loss)
Foreign exchange
Finance charges
Loss on investments and other assets
Loss (gain) on repurchase of unsecured senior notes
Income taxes
Net earnings (loss)
2021
986,847
698,144
95,931
—
282,326
(8,516 )
—
—
(81,038 )
393
91,431
400
9,520
(5,396 )
(177,386 )
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
Working Capital We define working capital as current assets less current liabilities, as reported in our Consolidated
Statements of Financial Position.
Working capital is calculated as follows:
Year ended December 31 (in thousands of dollars)
Current assets
Current liabilities
Working capital
NON-GAAP RATIOS
2021
319,757
(238,120 )
81,637
2020
342,263
(166,840 )
175,423
2019
417,765
(216,069 )
201,696
We reference certain additional non-GAAP ratios that are not defined terms under IFRS to assess performance because we
believe they provide useful supplemental information to investors.
Adjusted EBITDA
% of Revenue
We believe that adjusted EBITDA as a percentage of consolidated revenue, as reported in our Consolidated
Statements of Net Earnings (Loss), provides an indication of our profitability 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.
Net Debt to
Adjusted EBITDA
We believe that the net debt (long-term debt less cash, as reported in our Consolidated Statements of
Financial Position) to Adjusted EBITDA ratio provides an indication to the number of years it would take for
us to repay our debt obligations.
SUPPLEMENTARY FINANCIAL MEASURES
We reference certain supplementary financial measures that are not defined terms under IFRS to assess performance because
we believe they provide useful supplemental information to investors.
Capital Spending
by Spend
Category
We provide additional disclosure to better depict the nature of our capital spending. Our capital spending is
categorized as expansion and upgrade, maintenance and infrastructure, or intangibles.
Enterprise Value We calculate our enterprise value as our market capitalization (outstanding common shares multiplied by
our share price at the reporting date) plus our long-term debt less cash, as reported in our Consolidated
Statements of Financial Position.
Long-term debt
to cash provided
by (used in)
operations
We calculate our long-term debt, as reported in our Consolidated Statements of Financial Position, to cash
provided by (used in) operations, as reported in our Consolidated Statements of Cash Flow.
Working Capital
Ratio
We define our working capital ratio as current assets divided by current liabilities, as reported in our
Consolidated Statements of Financial Position.
Precision Drilling Corporation 2021 Annual Report
45
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 judgements
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) as issued by the International Accounting Standards Board (IASB) and
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 the 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 as issued by the IASB. The MD&A compares
the audited financial results for the years ended December 31, 2021 and December 31, 2020.
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, 2021.
Also, management determined that there were no material weaknesses in the Corporation’s internal control over financial
reporting as of December 31, 2021.
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, 2021, 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, 2021.
The Audit Committee of the Board of Directors, which is comprised of five independent directors who are not employees of the
Corporation, provides oversight to the financial reporting process. Integral to this process is the Audit Committee’s review and
discussion with management and KPMG of the quarterly and annual financial statements and reports prior to their respective
release. The Audit Committee is also responsible for reviewing and discussing with management and KPMG major issues as to
the adequacy of the Corporation’s internal controls. KPMG has unrestricted access to the Audit Committee to discuss its audit
and related matters. The Consolidated Financial Statements have been approved by the Board of Directors and its Audit
Committee.
Kevin A. Neveu
President and Chief Executive Officer
Precision Drilling Corporation
Carey T. Ford
Senior Vice President and Chief Financial Officer
Precision Drilling Corporation
March 4, 2022
March 4, 2022
46
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, 2021 and 2020, the related consolidated statements of 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, 2021 and 2020, and its financial performance and its cash flows for
each of 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, 2021, 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 4, 2022 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 Matter
The critical audit matter communicated below is a matter 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 judgements. The communication of a critical audit matter 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 matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of indicators of impairment for the Contract Drilling cash generating units (CGUs)
As discussed in notes 3(f) and 3(s) to the consolidated financial statements, the Corporation reviews the carrying amount of
each of the cash generating units (CGUs) 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, 2021. Accordingly, no impairment tests were performed on the Contract Drilling CGUs as at December 31, 2021.
Total assets recognized in the Contract Drilling CGUs at December 31, 2021 were approximately $2,392,382 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 the amount of earnings before income taxes, loss (gain) on redemption
and repurchase of unsecured senior notes, loss on investments and other assets, finance charges, foreign exchange, gain on
asset disposals and depreciation and amortization (Adjusted EBITDA) budgeted for 2022 for the Contract Drilling CGUs, used
in the indicator of impairment assessment for comparison to the Adjusted EBITDA for 2021, and consideration of the
Corporation’s market capitalization on the Corporation’s impairment indicator assessment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of the internal control over the Corporation’s identification and evaluation of indicators that the
Contract Drilling CGUs may be impaired, which includes the comparison of the Adjusted EBITDA budgeted for 2022 to the
Adjusted EBITDA for 2021, and the assessment of the Corporation’s market capitalization. We evaluated the Corporation’s 2022
budgeted Adjusted EBITDA for the Contract Drilling CGUs by comparing it to historical results considering the impact of changes
Precision Drilling Corporation 2021 Annual Report
47
in conditions and events affecting the Contract Drilling CGUs. We compared the Corporation’s 2021 budgeted Adjusted 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.
Chartered Professional Accountants
We have served as the Company’s auditor since 1987.
Calgary, Canada
March 4, 2022
48
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, 2021, 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, 2021, 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, 2021 and 2020, the related
consolidated statements of 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 4, 2022 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’s 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.
Chartered Professional Accountants
Calgary, Canada
March 4, 2022
Precision Drilling Corporation 2021 Annual Report
49
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Stated in thousands of Canadian dollars)
ASSETS
Current assets:
Cash
Accounts receivable
Inventory
Total current assets
Non-current assets:
Deferred tax assets
Property, plant and equipment
Intangibles
Right-of-use assets
Investments and other assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Income tax payable
Current portion of lease obligations
Current portion of long-term debt
Total current liabilities
Non-current liabilities:
Share-based compensation
Provisions and other
Lease obligations
Long-term debt
Deferred tax liabilities
Total non-current liabilities
Shareholders’ equity:
Shareholders’ capital
Contributed surplus
Deficit
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2021
December 31,
2020
$
(Note 25)
(Note 14)
(Note 7)
(Note 8)
(Note 12)
$
(Note 25)
$
(Note 9)
(Note 13)
(Note 16)
(Note 9)
(Note 14)
(Note 17)
(Note 19)
$
$
40,588
255,740
23,429
319,757
867
2,258,391
23,915
51,440
7,382
2,341,995
2,661,752
224,123
839
10,935
2,223
238,120
26,728
6,513
45,823
1,106,794
12,219
1,198,077
2,281,444
76,311
(1,266,980 )
134,780
1,225,555
2,661,752
$
$
$
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
3,702
11,285
896
166,840
11,507
7,563
48,882
1,236,210
21,236
1,325,398
2,285,738
72,915
(1,089,594 )
137,581
1,406,640
2,898,878
See accompanying notes to consolidated financial statements.
Approved by the Board of Directors:
William T. Donovan
Director
Steven W. Krablin
Director
50
Consolidated Financial Statements
(Note 5)
$
2021
986,847
$
CONSOLIDATED STATEMENTS OF LOSS
Years ended December 31,
(Stated in thousands of Canadian dollars, except per share amounts)
Revenue
Expenses:
Operating
General and administrative
Restructuring
Earnings before income taxes, loss (gain) on redemption and repurchase of
unsecured senior notes, loss on investments and other assets, finance
charges, foreign exchange, gain on asset disposals, and depreciation and
amortization
Depreciation and amortization
Gain on asset disposals
Foreign exchange
Finance charges
Loss on investments and other assets
Loss (gain) on redemption and repurchase of unsecured senior notes
Loss before income taxes
Income taxes:
Current
Deferred
Net loss
Net loss per share:
Basic
Diluted
See accompanying notes to consolidated financial statements.
(Note 10, 25)
(Note 10, 25)
(Note 10)
(Note 11)
(Note 9)
(Note 14)
(Note 18)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years ended December 31,
(Stated in thousands of Canadian dollars)
Net loss
Unrealized loss on translation of assets and liabilities of operations denominated in
foreign currency
Foreign exchange gain on net investment hedge with U.S. denominated debt
Tax benefit related to net investment hedge of long-term debt
Comprehensive loss
See accompanying notes to consolidated financial statements.
2020
935,753
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 )
698,144
95,931
—
192,772
282,326
(8,516 )
393
91,431
400
9,520
(182,782 )
3,203
(8,599 )
(5,396 )
(177,386 )
(13.32 )
(13.32 )
$
$
$
2021
(177,386 )
(11,256 )
$
8,455
—
$
(180,187 )
2020
(120,138 )
(25,925 )
23,853
5,398
(116,812 )
$
$
$
$
$
Precision Drilling Corporation 2021 Annual Report
51
CONSOLIDATED STATEMENTS OF CASH FLOW
Years ended December 31,
(Stated in thousands of Canadian dollars)
Cash provided by:
Operations:
Net loss
Adjustments for:
Long-term compensation plans
Depreciation and amortization
Gain on asset disposals
Foreign exchange
Finance charges
Income taxes
Other
Loss on investments and other assets
Loss (gain) on redemption and repurchase of unsecured senior notes
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
Purchase of investments and other assets
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.
2021
2020
$
(177,386 )
$
(120,138 )
31,952
282,326
(8,516 )
1,733
91,431
(5,396 )
(972 )
400
9,520
(5,999 )
48
(67,258 )
360
152,243
(13,018 )
139,225
(75,941 )
—
13,086
(3,500 )
9,742
(56,613 )
696,341
(824,871 )
(4,294 )
(913 )
(9,450 )
(6,726 )
(149,913 )
(883 )
(68,184 )
108,772
40,588
$
$
17,769
316,322
(11,931 )
4,808
107,468
10,954
(2,392 )
—
(43,814 )
(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
(Note 25)
(Note 7)
(Note 8)
(Note 25)
(Note 9)
(Note 9)
(Note 17)
(Note 8)
(Note 9)
52
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Stated in thousands of Canadian dollars)
Balance at January 1, 2021
Net loss
Other comprehensive loss
Share-based payment reclassification
Share repurchase
Share-based compensation expense
Balance at December 31, 2021
(Stated in thousands of Canadian dollars)
Balance at January 1, 2020
Net loss
Other comprehensive income
Redemption of non-management directors’
DSUs
Share-based payment reclassification
Share repurchase
Share-based compensation expense
Balance at December 31, 2020
Shareholders’
Capital
(Note 17)
$
$ 2,285,738
—
—
—
(4,294 )
—
$ 2,281,444
Shareholders’
Capital
(Note 17)
$ 2,296,378
—
—
677
$
Accumulated
Other
Comprehensive
Income
(Note 19)
137,581
—
(2,801 )
—
—
—
134,780
$
Deficit
Total Equity
$ (1,089,594 ) $ 1,406,640
(177,386 )
(177,386 )
—
(2,801 )
—
(4,757 )
—
(4,294 )
8,153
—
$ (1,266,980 ) $ 1,225,555
Contributed
Surplus
72,915
—
—
(4,757 )
—
8,153
76,311
Accumulated
Other
Comprehensive
Income
(Note 19)
134,255
—
3,326
—
$
$
Contributed
Surplus
66,255
—
—
(502 )
Deficit Total Equity
(969,456 ) $ 1,527,432
(120,138 )
(120,138 )
3,326
—
175
—
$
$
—
(11,317 )
—
$ 2,285,738
$
(8,331 )
—
15,493
72,915
$
—
—
—
137,581
—
(8,331 )
—
(11,317 )
15,493
—
$ (1,089,594 ) $ 1,406,640
See accompanying notes to consolidated financial statements.
Precision Drilling Corporation 2021 Annual Report
53
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 4, 2022.
(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 Judgements
The preparation of the consolidated financial statements requires management to make estimates and judgements that affect
the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingencies. These estimates and
judgements 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 judgements used in the preparation of the consolidated financial statements are described in Note 3(d), (e), (f), (h), (i), (k),
(q) and (s) and Note 4.
Climate-related risks and opportunities may have a future impact on the Corporation and its estimates and judgements, including
but not limited to the useful life and residual value of its property, plant and equipment and the measurement of projected cash
flows when identifying impairment triggers, performing tests for impairment or impairment recoveries of non-financial assets.
The Corporation evaluated the remaining useful lives and residual values of its property, plant and equipment, concluding they
remain reasonable given the current estimate of the demand period for oil and natural gas extractive services well exceeds their
remaining useful lives. In addition, the Corporation’s property, plant and equipment, including drill rig equipment, adapts to
numerous low-carbon projects, including but not limited to, geothermal drilling, carbon capture and storage and the extraction of
helium and hydrogen gas.
In future periods, if indications of impairment of non-financial assets exist, the Corporation’s measurement of projected cash
flows may be exposed to higher estimation uncertainty, including but not limited to the Corporation’s continued capital investment
required to lower the carbon intensity of its property, plant and equipment, period and growth expectations used to calculate
terminal values and the Corporation’s weighted average cost of capital.
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 consolidated 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.
54
Notes to Consolidated Financial Statements
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.
(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 net earnings 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 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 judgement. 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.
Precision Drilling Corporation 2021 Annual Report
55
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 net earnings 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.
The estimated useful lives and methods of amortization are reviewed annually and adjusted prospectively if appropriate.
(f) 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 or CGU). Judgement 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 net earnings. 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.
(g) 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 net earnings in the period in which they are incurred.
(h) Income Taxes
Income tax expense is recognized in net earnings except to the extent that it relates to items recognized directly in equity, in
which case it is recognized in equity.
Current tax is the expected tax payable or receivable on the taxable earnings or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the 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 net earnings in the period that includes the date of enactment or substantive enactment. Deferred tax
assets and liabilities are offset if there is a legally enforceable right to offset and they relate to taxes levied by the same tax
authority on the same taxable entity, or on different tax entities that are expected to settle current tax liabilities and assets on a
net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be realized.
The 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.
56
Notes to Consolidated Financial Statements
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.
(i) 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 provided directional drilling services, which included the provision of directional drilling equipment,
tools and personnel to the wellsite, and performance of daily directional drilling services. Directional drilling revenue was
recognized over time, upon the daily completion of operating activities. Operating days were measured through daily tour
sheets. Revenue was recognized at the applicable day rate, as stipulated in the directional drilling contract. The
Corporation’s directional drilling business was sold in July 2021.
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.
(j) 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.
(k) 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.
(l) 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
entitled to payment. The recorded liability is re-measured at the end of each reporting period until settlement with the resultant
change to the fair value of the liability recognized in net earnings for the period. When the plans are settled, the cash paid
reduces the outstanding liability.
Precision Drilling Corporation 2021 Annual Report
57
The Corporation has an employee share purchase plan that allows eligible employees to purchase common shares through
payroll deductions.
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.
(m) Foreign Currency Translation
Transactions of the Corporation’s individual entities are recorded in the currency of the primary economic environment in which
it operates (its functional currency). Transactions in currencies other than the entities’ functional currency are translated at rates
in effect at the time of the transaction. At each period end, monetary assets and liabilities are translated at the prevailing period-
end rates. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Gains
and losses are included in net earnings except for gains and losses on translation of long-term debt designated as a hedge of
foreign operations, which are deferred and included in other comprehensive income.
For the purpose of preparing the Corporation’s consolidated financial statements, the financial statements of each foreign
operation that does not have a Canadian dollar functional currency are translated into Canadian dollars. Assets and liabilities
are translated at exchange rates in effect at the period end date. Revenues and expenses are translated using average exchange
rates for the month of the respective transaction. Gains or losses resulting from these translation adjustments are recognized
initially in other comprehensive income and reclassified from equity to net earnings on disposal or partial disposal of the foreign
operation.
(n) 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.
(o) 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 net earnings. 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
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 net earnings and are recorded on the statement of financial position
at estimated fair value. Transaction costs are recognized in net earnings when incurred.
58
Notes to Consolidated Financial Statements
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.
(p) 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 net earnings.
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 net earnings and the corresponding exchange gains or losses arising from the translation of the foreign
operation are recorded through net earnings upon dissolution or substantial dissolution of the foreign operation.
(q) 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:
(cid:120)
(cid:120)
(cid:120)
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:
(cid:120)
(cid:120)
(cid:120)
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
Precision Drilling Corporation 2021 Annual Report
59
(cid:120)
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:
(cid:120)
(cid:120)
(cid:120)
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 net earnings 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.
(r) 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 net earnings on a
systematic basis over the periods in which Precision recognizes expenses related to costs for which the grants are intended to
compensate.
(s) 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 adjusted 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 judgement.
ii) Income Taxes
Significant estimation and assumptions are required in determining the provision for income taxes. The recognition of
deferred tax assets in respect of deductible temporary differences and unused tax losses and credits is based on the
Corporation’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.
60
Notes to Consolidated Financial Statements
(t) Accounting Standards Adopted in 2021
i) Simplification of Financial Disclosures about Guarantors
On January 1, 2021, the Corporation adopted the Securities and Exchange Commission’s amendments to the financial
disclosure requirements for guarantors and issuers of guaranteed securities, as specified in Rule 3-10 of Regulation S-X.
The amendments simplify disclosure requirements by replacing condensed consolidated financial information with
summarized financial information and expanded qualitative non-financial disclosures about the guarantees, issuers and
guarantors. This disclosure can be found in Note 27.
(u) Accounting Standards and Amendments not yet Effective
The IASB has issued a number of new standards and amendments to existing standards that will become effective for periods
subsequent to December 31, 2021. Accordingly, these new standards and amendments were not applied when preparing these
consolidated financial statements. For each standard, Precision has assessed or is in the process of assessing the impact these
new standards and amendments will have on its consolidated financial statements.
Standards and Amendments
Annual improvements to IFRS Standards 2018–2020
Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16)
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
IFRS 17 Insurance Contracts and Amendments to IFRS 17
Definition of Accounting Estimates (Amendments to IAS 8)
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12)
Disclosure of Accounting Policies (Amendments of IAS 1)
Classification of liabilities as current or non-current (Amendments to
IAS 1)
NOTE 4. IMPACT OF COVID-19
Effective for periods
beginning on or after
January 1, 2022
January 1, 2022
Impact to Precision
Drilling Corporation
Not material
Review in-progress
January 1, 2022
January 1, 2023
January 1, 2023
January 1, 2023
January 1, 2023
January 1, 2023
Review in-progress
Not material
Review in-progress
Review in-progress
Review in-progress
Review in-progress
In 2021, the Novel Coronavirus (COVID-19) pandemic persisted as the emergence of virus variants caused continued disruptions
to global markets. The challenging economic climate continued to have adverse impact on the Corporation including, but not
limited to, reductions in revenue and cash flows, labour constraints and supply chain inflation. The situation remains dynamic
and the ultimate duration and magnitude of the impact on the economy and financial effect on the Corporation remains unknown
at this time. Estimates and judgements made by management in the preparation of these consolidated 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.
Year ended December 31, 2021
United States
Canada
International
Day rate/hourly services
Shortfall payments/idle but contracted
Turnkey drilling services
Directional services(1)
Other
(1) Directional drilling disposed in the third quarter of 2021.
Contract
Drilling
Services
385,330
347,562
145,051
$
877,943
$
Completion
and
Production
Services
12,700
100,788
$
—
$
113,488
845,832
543
17,086
7,871
6,611
877,943
$
$
113,488
—
—
—
—
113,488
$
$
$
$
$
$
Inter-
Segment
Eliminations
(6 )
(4,578 )
$
Corporate
and Other
—
—
—
$
—
$
—
$
(4,584 )
(462 )
—
—
—
(4,122 )
(4,584 )
$
$
—
—
—
—
—
—
$
$
Total
398,024
443,772
145,051
986,847
958,858
543
17,086
7,871
2,489
986,847
Precision Drilling Corporation 2021 Annual Report
61
Year ended December 31, 2020
United States
Canada
International
Day rate/hourly services
Shortfall payments/idle but contracted
Turnkey drilling services
Directional services
Other
Contract
Drilling
Services
427,436 $
247,678
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
16,630 $
60,621
—
$
77,251
77,251
—
—
—
—
77,251
$
$
— $
—
—
$
—
—
—
—
—
—
—
$
$
(14 ) $
(2,686 )
—
$
(2,700 )
(393 )
—
—
—
(2,307 )
(2,700 )
$
$
Total
444,052
305,613
186,088
935,753
856,630
51,028
14,134
9,637
4,324
935,753
NOTE 6. SEGMENTED INFORMATION
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 (disposed in the third quarter of 2021), 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.
Year ended December 31, 2021
Revenue
Operating earnings (loss)
Depreciation and amortization
Gain on asset disposals
Total assets
Capital expenditures
Year ended December 31, 2020
Revenue
Operating earnings (loss)
Depreciation and amortization
Gain on asset disposals
Total assets
Capital expenditures
$
$
Contract
Drilling
Services
877,943 $
(16,867 )
256,072
(7,673 )
2,392,382
70,998
Completion
and
Production
Services
113,488 $
8,927
15,405
(525 )
127,233
4,452
Contract
Drilling
Services
861,202 $
22,207
288,389
(10,171 )
2,571,397
57,741
Completion
and
Production
Services
77,251 $
(3,671 )
16,375
(1,447 )
132,771
3,362
Corporate
and Other
Inter-
Segment
Eliminations
— $
(73,098 )
10,849
(318 )
142,137
491
(4,584 ) $
—
—
—
—
—
Total
986,847
(81,038 )
282,326
(8,516 )
2,661,752
75,941
Corporate
and Other
— $
(59,524 )
11,558
(313 )
194,710
489
Inter-
Segment
Eliminations
(2,700 ) $
—
—
—
—
—
Total
935,753
(40,988 )
316,322
(11,931 )
2,898,878
61,592
A reconciliation of operating loss to net loss is as follows:
Operating earnings (loss)
Deduct:
Foreign exchange
Finance charges
Loss on investments and other assets
Loss (gain) on redemption and repurchase of unsecured senior notes
Income taxes
Net loss
2021
(81,038 ) $
2020
(40,988 )
$
393
91,431
400
9,520
(5,396 )
$
(177,386 )
4,542
107,468
—
(43,814 )
10,954
(120,138 )
$
The Corporation’s operations are carried on in the following geographic locations:
Year ended December 31, 2021
Revenue
Total assets
United States
$
398,024 $
1,247,173
Canada
443,772 $
959,163
International
145,051 $
455,416
Total
986,847
2,661,752
62
Notes to Consolidated Financial Statements
Year ended December 31, 2020
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
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, 2019
Additions
Disposals
Reclassifications
Effect of foreign currency exchange
differences
Balance, December 31, 2020
Additions
Disposals
Reclassifications
Effect of foreign currency exchange
differences
$
$
$
$
$
2021
6,503,721
(4,245,330 )
2,258,391
2,074,185
20,597
17,088
3,204
44,009
67,884
31,424
2,258,391 $
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
Other
Rental
Equipment
Rig
Equipment
Equipment Vehicles Buildings
$ 6,109,383 $ 110,307 $ 185,319 $ 38,506 $ 126,177 $
—
(3,053 )
—
(846 )
—
(3,990 ) (2,789 )
—
(367 )
10,375
(78,028 )
55,322
(71,285 )
—
(4,664 )
—
(619 )
521
(1,196 )
350
Total
Land
67,740 $ 33,547 $ 6,670,979
61,535
50,810
(92,524 )
—
—
(55,843 )
(76,784 )
(2,135 )
—
—
—
(336 )
Assets
Under
Construction
6,025,767 105,024 181,004 35,350 122,278
—
(2,454 )
—
(305 )
15,288
(100,004 )
47,080
(19,815 )
254
(2,300 )
188
(429 )
—
(1,822 )
—
(21 )
—
(543 )
—
(127 )
60,572 33,211 6,563,206
75,941
60,399
—
— (1,674 ) (108,797 )
—
—
(26,629 )
(113 )
(47,268 )
(5,819 )
Balance, December 31, 2021
$ 5,968,316 $ 103,181 $ 178,717 $ 34,680 $ 119,519 $
67,884 $ 31,424 $ 6,503,721
Accumulated Depreciation
Balance, December 31, 2019
Depreciation expense
Disposals
Effect of foreign currency exchange
differences
Balance, December 31, 2020
Depreciation expense
Disposals
Effect of foreign currency exchange
differences
Other
Rental
Equipment
Rig
Equipment Vehicles Buildings
Equipment
$ 3,598,878 $ 75,870 $ 146,715 $ 30,710 $ 69,343 $
12,013 2,790 5,288
277,799
(3,990 ) (2,782 ) (1,319 )
(73,354 )
(485 )
(346 )
(1,052 )
(47,350 )
7,044
(4,631 )
(618 )
Assets
Under
Construction
— $
—
—
—
Land
Total
— $ 3,921,516
— 304,934
(86,076 )
—
(49,851 )
—
3,755,973
248,564
(95,977 )
(14,429 )
77,665 153,686 30,372 72,827
10,410 1,739 4,582
(543 ) (1,769 )
(2,194 )
(130 )
(273 )
6,741
(1,804 )
(18 )
(92 )
—
—
—
—
— 4,090,523
— 272,036
— (102,287 )
(14,942 )
—
Balance, December 31, 2021
$ 3,894,131 $ 82,584 $ 161,629 $ 31,476 $ 75,510 $
— $
— $ 4,245,330
(a) Impairment Test
Precision reviews the carrying value of its long-lived assets for indications of impairment at the end of each reporting period. At
December 31, 2021, Precision reviewed each of its cash-generating units and did not identify indications of impairment, or
reversal 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 net gain on asset disposal of $9 million (2020 – $12 million).
Precision Drilling Corporation 2021 Annual Report
63
During 2021, Precision sold its directional drilling business to Cathedral Energy Services Ltd. (Cathedral), along with $3 million
of cash to support Cathedral’s further growth and expansion, for a purchase price of $6 million, resulting in a gain on disposal of
$1 million. The directional drilling business was previously contained within the Contract Drilling Services segment.
The purchase price was satisfied through the issuance of 13,400,000 Cathedral common shares, along with warrants to
purchase an additional 2,000,000 Cathedral common shares at a price of $0.60 per common share within a two-year period. In
addition to the statutory hold period, the parties agreed to resale restrictions on the common share consideration that limits the
timing and quantities of common shares Precision can sell over a two-year period. The Cathedral common shares and share
purchase warrants held by Precision are presented as long-term investments and other assets and will be revalued at each
reporting period using Level I and II inputs, respectively.
NOTE 8. INTANGIBLES
Cost
Accumulated amortization
Loan commitment fees related to Senior Credit Facility
Software
Cost
Balance, December 31, 2019
Additions
Effect of foreign currency exchange differences
Balance, December 31, 2020
Additions
Effect of foreign currency exchange differences
Balance, December 31, 2021
Accumulated Amortization
Balance, December 31, 2019
Amortization expense
Effect of foreign currency exchange differences
Balance, December 31, 2020
Amortization expense
Balance, December 31, 2021
$
$
$
$
2021
55,108 $
(31,193 )
23,915 $
2,067 $
21,848
23,915 $
Loan
Commitment
Fees
15,478 $
690
—
16,168
913
—
17,081 $
Loan
Commitment
Fees
13,206 $
853
—
14,059
955
15,014 $
$
$
$
$
Software
37,938 $
57
26
38,021
—
6
38,027
$
Software
8,464 $
3,971
29
12,464
3,715
16,179 $
2020
54,189
(26,523 )
27,666
2,109
25,557
27,666
Total
53,416
747
26
54,189
913
6
55,108
Total
21,670
4,824
29
26,523
4,670
31,193
64
Notes to Consolidated Financial Statements
NOTE 9. LONG-TERM DEBT
Current Portion of Long-Term Debt
Canadian Real Estate Credit Facility
U.S. Real Estate Credit Facility
Long-Term Debt
Senior Credit Facility
Canadian Real Estate Credit Facility
U.S. Real Estate Credit Facility
Unsecured Senior Notes:
7.75% senior notes due 2023
5.25% senior notes due 2024
7.125% senior notes due 2026
6.875% senior notes due 2029
Less net unamortized debt issue costs
2021
2020
2021
2020
U.S. Denominated Facilities
Canadian Facilities and Translated
U.S. Facilities
US $
US $
US $
US $
— US $
704
704 US $
— $
704
704 $
1,333 $
890
2,223 $
—
896
896
118,000 US $
—
9,093
—
—
347,765
400,000
874,858 US $
74,650 $
—
9,797
149,206 $
17,667
11,498
285,734
263,205
347,765
—
981,151
$
—
—
439,735
505,784
1,123,890
(17,096 )
1,106,794 $
95,041
—
12,474
363,782
335,099
442,757
—
1,249,153
(12,943 )
1,236,210
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
Payment of debt issue costs
Non-cash changes:
Gain on redemption / repurchase of unsecured senior
notes
Amortization of debt issue costs
Foreign exchange adjustment
Balance December 31, 2020
Current
Long-term
Balance December 31, 2020
Changes from financing cash flows:
Proceeds from unsecured senior notes
Proceeds from Senior Credit Facility
Proceeds from Real Estate Credit Facility
Repayment of unsecured senior notes
Repayment of Senior Credit Facility
Repayment of Real Estate Credit Facility
Payment of debt issue costs
Non-cash changes:
Loss on redemption / repurchase of unsecured senior
notes
Amortization of debt issue costs
Original issue discount
Foreign exchange adjustment
Balance December 31, 2021
Current
Long-term
Balance December 31, 2021
Senior
Credit
Facility
Unsecured
Senior
Notes
Canadian
Real
Estate
Credit
Facility
U.S. Real
Estate
Credit
Facility
Debt Issue
Costs and
Original
Issue
Discount
Total
(17,946 ) $ 1,427,181
$
— $ 1,445,127 $
— $
— $
(37,243 )
137,255
—
—
— (240,793 )
—
—
—
—
—
—
—
—
—
—
(76 )
—
13,811
—
— (240,793 )
(37,319 )
—
— 137,255
13,811
—
(354 )
(354 )
—
(43,814 )
—
—
—
(43,814 )
—
(4,971 )
—
(18,882 )
$ 95,041 $ 1,141,638 $
—
95,041 1,141,638
$ 95,041 $ 1,141,638 $
—
—
—
—
(365 )
— $ 13,370 $
—
896
—
12,474
— $ 13,370 $
5,350
7
5,350
(24,211 )
(12,943 ) $ 1,237,106
896
(12,943 ) 1,236,210
(12,943 ) $ 1,237,106
—
— 482,064
—
194,277
—
—
— (676,058 )
—
—
—
(146,930 )
—
—
—
—
20,000
—
—
(1,000 )
—
—
—
—
—
—
(883 )
—
— 482,064
— 194,277
—
20,000
— (676,058 )
— (146,930 )
(1,883 )
—
(9,450 )
(9,450 )
—
9,520
—
—
—
9,520
—
—
6,818
—
3,628
(15,273 )
—
—
(99 )
$ 149,206 $ 945,519 $ 19,000 $ 12,388 $
—
890
11,498
149,206 945,519
$ 149,206 $ 945,519 $ 19,000 $ 12,388 $
1,333
17,667
—
—
—
—
8,720
(3,427 )
4
8,720
201
(8,550 )
(17,096 ) $ 1,109,017
2,223
(17,096 ) 1,106,794
(17,096 ) $ 1,109,017
—
Precision Drilling Corporation 2021 Annual Report
65
Precision’s current and long-term debt obligations at December 31, 2021 will mature as follows:
2022
2023
2024
2025
Thereafter
(a) Senior Credit Facility:
$
$
2,223
2,223
2,223
160,257
959,187
1,126,113
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 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 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.
On April 9, 2020 Precision agreed with the lenders of its Senior Credit Facility to certain covenants during the Covenant Relief
Period. On June 18, 2021, Precision agreed with the lenders of its Senior Credit Facility to extend the facility’s maturity date
and extend and amend certain financial covenants during the Covenant Relief Period. The maturity date of the Senior Credit
Facility was extended to June 18, 2025, however, US$53 million of the US$500 million will expire on November 21, 2023.
The lenders agreed to extend the Covenant Relief Period to September 30, 2022 and amended the consolidated Covenant
EBITDA to consolidated interest coverage ratio for the most recent four consecutive quarters to be greater than or equal to
2.0:1, for the periods ending December 31, 2021 and March 31, 2022, 2.25:1 for the periods ending June 30, 2022 and
September 30, 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$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, 2021, US$118
million was drawn under this facility (2020 – US$75 million). 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, 2021 outstanding letters of credit amounted to US$33 million (2020 – US$32 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 March 2021, Precision established a Canadian Real Estate Credit Facility in the amount of $20 million. The facility matures in
March 2026 and is secured by real properties in Alberta, Canada. Principal plus interest payments are due quarterly, based on
15-year straight-line amortization with any unpaid principal and accrued interest due at maturity. Interest is calculated using a
CDOR rate plus margin.
In November 2020, Precision established a Real Estate Term Credit Facility in the amount of US$11 million. The facility matures
in November 2025 and is secured by real property located in Houston, Texas. Principal plus interest payments are due monthly,
based on 15-year straight-line amortization with any unpaid principal and accrued interest due at maturity. Interest is calculated
using a LIBOR rate plus margin.
66
Notes to Consolidated Financial Statements
The Real Estate Credit Facilities contain certain affirmative and negative covenants and events of default, customary for these
types of transactions. Under the terms of these facilities, Precision must maintain financial covenants in accordance with the
Senior Credit Facility, described above, as of the last day of each period of four consecutive fiscal quarters. For the Canadian
Real Estate Credit Facility, in the event the Senior Credit Facility expires, is cancelled or is terminated, financial covenants in
effect at that time shall remain in place for the remaining duration of the facility. For the U.S. Real Estate Credit Facility, in the
event the consolidated Covenant EBITDA to consolidated interest expense coverage ratio is waived or removed from the Senior
Credit Facility, a minimum threshold of 1.15:1 is required.
(c) Unsecured Senior Notes:
Precision has outstanding the following unsecured senior notes:
7.125% US$ senior notes due 2026
These unsecured senior 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.
Precision may redeem these notes in whole or in part at any time before November 15, 2023, at redemption prices ranging
between 105.344% and 101.781% of their principal amount plus accrued interest. Any time on or after November 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.
6.875% US$ senior notes due 2029
These unsecured senior notes bear interest at a fixed rate of 6.875% per annum and mature on January 15, 2029. Interest
is payable semi-annually on January 15 and July 15 of each year, commencing January 15, 2022.
Prior to June 15, 2024, Precision may redeem up to 35% of the 6.875% unsecured senior notes due 2029 with the net
proceeds of certain equity offerings at a redemption price equal to 106.875% of the principal amount plus accrued interest.
Prior to January 15, 2025, Precision may redeem these notes in whole or in part at 100.0% of their principal amount, plus
accrued interest and the greater of 1.0% of the principal amount of the note to be redeemed and the excess, if any, of the
present value of the January 15, 2025 redemption price plus required interest payments through January 15, 2025
(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 January 15, 2025 and before January 15, 2027, at
redemption prices ranging between 103.438% and 101.719% of their principal amount plus accrued interest. Any time on
or after January 15, 2027, these notes can be redeemed for their principal amount plus accrued interest. Upon specified
change of control events, each holder of a note will have the right to sell to Precision all or a portion of its notes at a
purchase price in cash equal to 101% of the principal amount, plus accrued interest to the date of purchase.
The 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, 2021, the governing net
restricted payments basket was negative $369 million (2020 – negative $307 million), therefore limiting us from making any
further dividend payments or share repurchases until the governing restricted payments basket once again becomes positive.
During 2021, 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.
On June 15, 2021, Precision issued US$400 million of 6.875% unsecured senior notes due in 2029 in a private offering. These
unsecured senior notes were issued at a price equal to 99.253% of the face value, resulting in a US$3 million original issue
discount. The original issue discount will be amortized over the life of the notes using the effective interest rate method.
The net proceeds from the issuance along with amounts drawn on the Senior Credit Facility were used to redeem in full US$286
million aggregate principal amount of the 7.750% unsecured senior notes due 2023 and redeem in full US$263 million aggregate
principal amount of the 5.250% unsecured senior notes due 2024 for US$557 million plus accrued and unpaid interest resulting
in a loss on redemption of US$8 million. The redemption of the unsecured senior notes occurred on June 16, 2021 and interest
ceased to accrue on the notes on that date.
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 summarized financial
information and expanded qualitative non-financial disclosures based on Rule 3-10 of the U.S. Securities and Exchange
Commission’s Regulation S-X.
Precision Drilling Corporation 2021 Annual Report
67
(d) Covenants:
At December 31, 2021, Precision was in compliance with the covenants of the Senior Credit Facility, Real Estate Credit Facilities
and unsecured senior notes.
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, 2021
≤ 2.50
≥ 2.00
≥ 2.00
≥ 2.00
0.97
2.83
2.83
2.06
(1) For purposes of calculating the leverage ratio consolidated senior debt only includes secured indebtedness.
NOTE 10. RESTRUCTURING AND OTHER
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, 2021, Precision recognized $24 million (2020 – $26 million) of salary and
wage subsidies. Wage subsidies were presented as reductions of operating and general and administrative expense of $21
million (2020 – $21 million) and $3 million (2020 – $5 million), respectively.
For the period ended December 31, 2020, the Corporation incurred restructuring charges of $18 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 its directional drilling operations in the United States. Precision did not recognize any
restructuring costs in 2021.
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
2021
78,921
2,764
80
(210 )
9,876
91,431
$
$
2020
98,555
3,217
232
(739 )
6,203
107,468
$
$
Precision recognizes right-of-use assets primarily from its leases of real estate and vehicles and equipment.
Balance, December 31, 2019
Additions
Derecognition
Depreciation
Lease remeasurements
Effect of foreign currency exchange differences
Balance, December 31, 2020
Additions
Derecognition
Depreciation
Effect of foreign currency exchange differences
Balance, December 31, 2021
Real Estate
54,026
136
—
(3,900 )
(6,233 )
(340 )
43,689
514
—
(3,566 )
(174 )
40,463
$
$
$
Vehicles and
Equipment
$
12,116 $
3,031
(2,597 )
(3,517 )
2,602
(156 )
11,479 $
3,029
(480 )
(3,009 )
(42 )
10,977 $
$
$
Total
66,142
3,167
(2,597 )
(7,417 )
(3,631 )
(496 )
55,168
3,543
(480 )
(6,575 )
(216 )
51,440
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
68
Notes to Consolidated Financial Statements
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.
For the period ended December 31, 2021, Precision had total cash outflows of $9 million (2020 – $9 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 and equipment 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
$
$
2021
10,782 $
29,327
2,391
42,500 $
2020
10,960
29,630
6,590
47,180
Precision leases its rig equipment under long-term drilling contracts with terms ranging from one to five years. At December 31,
2021, the net book value of the underlying rig equipment subject to long-term drilling contracts was $503 million (2020 – $477
million).
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received
subsequent to December 31, 2021.
Less than one year
One to five years
$
$
198,188
61,860
260,048
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 (share 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.
Liability Classified Plans
Restricted
Share Units
Performance
Share Units
Executive
Performance
Share Units
Balance, December 31, 2019
Expensed during the period
Reclassification from equity-settled plans
Payments
Balance, December 31, 2020
Expensed during the period
Reclassification from equity-settled plans
Payments
Balance, December 31, 2021
Current
Long-term
Balance, December 31, 2021
$
$
$
7,318 $
3,119
—
(3,813 )
6,624
17,168
—
(5,742 )
18,050 $
11,338
6,712
18,050 $
2,858 $
2,787
—
(894 )
4,751
18,634
—
(1,861 )
21,524 $
6,182
15,342
21,524 $
Non-
Management
Directors’
DSUs
3,336 $
(1,551 )
—
(176 )
1,609
3,065
—
—
4,674 $
—
4,674
4,674 $
— $
—
6,833
—
6,833
17,646
(3,164 )
(4,808 )
16,507 $
16,507
—
16,507 $
Total
13,512
4,355
6,833
(4,883 )
19,817
56,513
(3,164 )
(12,411 )
60,755
34,027
26,728
60,755
(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
Precision Drilling Corporation 2021 Annual Report
69
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, 2019
Granted
Redeemed
Forfeited
December 31, 2020
Granted
Redeemed
Forfeited
December 31, 2021
RSUs
Outstanding
316,904
363,253
(127,884 )
(67,491 )
484,782
356,928
(216,820 )
(26,734 )
598,156
PSUs
Outstanding
166,768
502,558
(39,028 )
(64,919 )
565,379
488,510
(40,515 )
(29,640 )
983,734
(b) Executive Performance Share Units
Precision grants Executive PSUs to certain senior executives. 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.
A summary of the activity under this share-based incentive plan is presented below:
Executive Performance Share Units
December 31, 2019
Redeemed
Forfeited
December 31, 2020
Redeemed
Forfeited
December 31, 2021
Outstanding
368,845
(57,442 )
(22,696 )
288,707
(96,355 )
(2,388 )
189,964
Included in net loss for the year ended December 31, 2021 is an expense of $18 million (2020 – $15 million). Subsequent to
December 31, 2021, Precision settled 131,950 vesting Executive PSUs in 263,900 common shares.
(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, 2019
Redeemed
Balance December 31, 2020
Granted
Balance December 31, 2021
Equity Settled Plans
(d) Option Plan
Outstanding
89,613
(12,039 )
77,574
27,017
104,591
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
70
Notes to Consolidated Financial Statements
U.S. dollars, and vest over a period of three years from the date of grant, as employees render continuous service to the
Corporation, and have a term of seven years.
A summary of the status of the equity incentive plan is presented below:
Canadian Share Options
December 31, 2019
Forfeited
December 31, 2020
Forfeited
December 31, 2021
U.S. Share Options
December 31, 2019
Forfeited
December 31, 2020
Forfeited
December 31, 2021
Weighted
Average
Options
Outstanding
Range of
Exercise Prices
201,079 $ 87.00 – 286.20
87.00 – 203.00
(52,414 )
87.00 – 286.20
148,665
89.20 – 286.20
(33,060 )
115,605 $ 87.00 – 146.40 $
Exercise Price
145.88
165.79
138.86
193.10
123.35
Options
Outstanding
Range of
Exercise Prices
(US$)
318,153 $ 51.20 – 183.60 $
(34,360 )
283,793
(15,950 )
267,843 $ 51.20 – 115.80 $
64.20 – 183.60
51.20 – 183.60
183.60 – 183.60
Weighted
Average
Exercise Price
(US$)
93.32
151.92
86.23
183.60
80.43
Options
Exercisable
178,453
141,156
115,605
Options
Exercisable
217,441
239,521
257,854
Canadian Share Options
Total Options Outstanding
Options Exercisable
Range of Exercise Prices:
$ 87.00 – 117.59
117.60 – 146.19
146.20 – 146.40
$ 87.00 – 146.40
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
(Years)
88.11
145.97
146.40
123.35
2.14
2.13
0.11
1.21
Number
45,590 $
17,035
52,980
115,605 $
Weighted
Average
Exercise Price
88.11
145.97
146.40
123.35
Number
45,590 $
17,035
52,980
115,605 $
U.S. Share Options
Total Options Outstanding
Options Exercisable
Range of Exercise Prices (US$):
$ 51.20 – 66.50
66.51 – 105.94
105.95 – 115.80
$ 51.20 – 115.80
Number
103,035 $
78,323
86,485
267,843 $
Weighted
Average
Exercise Price
(US$)
60.42
70.69
113.08
80.43
Weighted
Average
Remaining
Contractual Life
(Years)
2.02
3.05
1.38
2.11
Weighted
Average
Exercise Price
(US$)
61.41
70.69
113.08
81.56
Number
93,046 $
78,323
86,485
257,854 $
No options were granted during 2021 and 2020. Included in net loss for the year ended December 31, 2021 is an expense of
$0.2 million (2020 – $1 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, 2019
Redeemed
December 31, 2020 and 2021
Outstanding
4,659
(3,189 )
1,470
Precision Drilling Corporation 2021 Annual Report
71
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
$
$
2021
(182,782 ) $
24 %
(43,868 ) $
2020
(109,184 )
25 %
(27,296 )
1,162
(257 )
(1,474 )
937
(1,467 )
37,924
1,647
(5,396 ) $
628
(6,184 )
(238 )
813
(1,531 )
44,112
650
10,954
2021
2020
Income tax expense (recovery)
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 2041)
Long-term incentive plan
Other
Offsetting of assets and liabilities
Net deferred tax liability
$
$
$
$
$
359,383 $
1,457
11,082
6,221
378,143
(365,924 )
12,219 $
340,406 $
14,264
12,121
366,791
(365,924 )
867 $
11,352 $
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
20,138
Included in the deferred tax assets at December 31, 2021 was $1 million (2020 – $1 million) of tax-effected temporary differences
related to the Corporation’s international operations.
The Corporation has loss carry forwards 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
The movement in temporary differences is as follows:
$
$
2021
29,363 $
96,671
4,153
130,187 $
2020
29,809
72,516
2,020
104,345
Balance, December 31, 2019
Recognized in net earnings (loss)
Recognized in other comprehensive income
Effect of foreign currency exchange
differences
Balance, December 31, 2020
Recognized in net earnings (loss)
Effect of foreign currency exchange
differences
Balance, December 31, 2021
Property,
Plant and
Equipment
and
Intangibles
426,934 $
(28,600 )
—
(4,703 )
Partnership
Deferrals
850 $
1,682
—
—
Other
Deferred
Tax
Liabilities
7,926 $
(1,601 )
—
(3 )
Losses
(402,025 ) $
33,141
(5,398 )
3,843
Debt Issue
Costs
3,280 $
(615 )
—
—
Long-Term
Incentive
Plan
(6,131 ) $
1,120
—
55
Other
Deferred
Tax
Assets
(10,169 ) $
537
—
15
Net
Deferred
Tax
Liability
20,665
5,664
(5,398 )
(793 )
393,631 $
(32,562 )
(1,686 )
2,532 $
8,550
—
6,322 $
(99 )
(2 )
(370,439 ) $
28,528
1,505
2,665 $
(1,208 )
—
(4,956 ) $
(9,291 )
(17 )
(9,617 ) $
(2,517 )
13
20,138
(8,599 )
(187 )
$
$
$
359,383 $
11,082 $
6,221 $
(340,406 ) $
1,457 $
(14,264 ) $
(12,121 ) $
11,352
72
Notes to Consolidated Financial Statements
NOTE 15. BANK INDEBTEDNESS
At December 31, 2021, Precision had available $40 million (2020 – $40 million) and US$15 million (2020 – US$15 million) under
secured operating facilities, and a secured US$30 million (2020 – US$30 million) facility for the issuance of letters of credit and
performance and bid bonds to support international operations. As at December 31, 2021 and 2020, 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 (2020 – $7 million) and US$3 million (2020 – 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, 2019
Recovered during the year
Payment of deductibles and uninsured claims
Effects of foreign currency exchange differences
Balance December 31, 2020
Expensed during the year
Payment of deductibles and uninsured claims
Effects of foreign currency exchange differences
Balance December 31, 2021
Current
Long-term
$
$
2021
2,205 $
6,513
8,718 $
$
$
Workers’
Compensation
11,866
(750 )
(2,698 )
(110 )
8,308
3,296
(2,815 )
(71 )
8,718
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 statement of financial position 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. The
current portion of the provision is presented within accounts payables and accrued liabilities.
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, 2019
Share repurchase
Share issuance on redemption of non-management DSUs
Share consolidation adjustment
Balance, December 31, 2020
Share repurchase
Balance, December 31, 2021
(c) Normal Course Issuer Bid
Number
13,864,990 $
(420,588 )
15,228
(37 )
13,459,593 $
(155,168 )
13,304,425 $
Amount
2,296,378
(11,317 )
677
—
2,285,738
(4,294 )
2,281,444
In 2019, the Toronto Stock Exchange (TSX) approved Precision’s application to implement a Normal Course Issuer Bid (NCIB).
During the third quarter of 2021, the TSX approved Precision’s application to renew the NCIB. Under the terms of the NCIB,
Precision may purchase and cancel up to a maximum of 1,317,158 common shares, representing 10% of the public float of
common shares as of August 13, 2021. 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,
Precision Drilling Corporation 2021 Annual Report
73
2022. For the year ended December 31, 2021, Precision repurchased and cancelled a total of 155,168 (2020 – 420,588) common
shares for $4 million (2020 – $11 million).
(d) Share Consolidation
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.
NOTE 18. PER SHARE AMOUNTS
The following tables reconcile the net loss and weighted average shares outstanding used in computing basic and diluted loss
per share:
Net loss – basic and diluted
(Stated in thousands)
Weighted average shares outstanding – basic
Effect of share option and other equity compensation plans
Weighted average shares outstanding – diluted
NOTE 19. ACCUMULATED OTHER COMPREHENSIVE INCOME
$
2021
(177,386 ) $
2020
(120,138 )
2021
13,315
—
13,315
2020
13,722
—
13,722
Unrealized
Foreign Currency
Translation Gains
(Losses)
509,582 $
(25,925 )
483,657
(11,256 )
472,401 $
Foreign Exchange
Gain (Loss) on Net
Investment Hedge
Tax Benefit
Related to Net
Investment Hedge
of Long-Term Debt
(375,327 ) $
23,853
(351,474 )
8,455
(343,019 ) $
—
5,398
5,398
—
5,398
$
$
Accumulated
Other
Comprehensive
Income
134,255
3,326
137,581
(2,801 )
134,780
December 31, 2019
Other comprehensive income (loss)
December 31, 2020
Other comprehensive income (loss)
December 31, 2021
$
$
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 3% (2020 – 2%) of the employee’s eligible compensation. Total expense
under the defined contribution plan in 2021 was $6 million (2020 – $6 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
$
$
2021
6,591 $
5,554
18,741
30,886 $
2020
10,031
9,148
419
19,598
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, 2021, the Corporation had commitments to purchase property, plant and equipment totaling $137 million (2020
– $113 million). Payments of $42 million for these commitments are expected to be made in 2022, $60 million in 2023 and $35
million in 2024.
74
Notes to Consolidated Financial Statements
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:
(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, 2021, revenue from transactions with one of
Precision’s contract drilling customers exceeded 10% of consolidated revenue. Revenue from this customer accounted for 10%
(2020 – $12%) of consolidated revenue. No other customers exceeded 10% of consolidated revenue for the year. In addition,
Precision’s most significant customer accounted for $16 million of the trade receivables amount at December 31, 2021 (2020 –
$11 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:
$
$
2021
862 $
29
(70 )
(231 )
(5 )
585 $
2020
929
812
(479 )
(396 )
(4 )
862
2021
2020
Not past due
Past due 0 – 30 days
Past due 31 – 120 days
Past due more than 120 days
(b) Interest Rate Risk
Gross
117,618 $
27,235
8,524
105
153,482 $
$
$
Provision for
Impairment
Gross
66,191 $
35,060
11,649
1,895
114,795 $
Provision for
Impairment
1
8
26
827
862
1 $
5
474
105
585 $
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 they are
subject to floating rates of interest. At December 31, 2021, Precision had drawn US$118 million on its Senior Credit Facility
(2020 – US$75 million) and $31 million (2020 – $13 million) on its Real Estate Credit Facilities. As at December 31, 2021, a 1%
change to the interest rate would have a $2 million impact on net loss (2020 – $1 million). 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.
Precision Drilling Corporation 2021 Annual Report
75
The following financial instruments were denominated in U.S. dollars:
2021
2020
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
35,257 US $
—
(18,727 )
—
16,530 US $
$
165
2,398 US $
14
(29,427 )
—
(27,015 ) US $
$
(270 )
115,614
(81,971 )
(14,781 )
36,244 US $
$
—
17,382 US $
US $
$
362
—
—
$
$
$
$
Foreign
Operations
26,057
98,298
(59,704 )
(16,197 )
48,454
—
485
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, 2021:
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
$ 224,123
18,414
2,223
72,147
53,030
$ 369,937
2022
2023
$
—
24,331
2,223
72,071
69,631
$ 168,256
2024
$
—
24,742
2,223
71,996
44,068
$ 143,029
$
2025
—
—
160,257
69,433
5,688
$ 235,378
2026 Thereafter
$
—
—
453,403
36,196
4,823
$ 494,422
$
—
—
505,784
70,995
2,391
$ 579,170
Total
$ 224,123
67,487
1,126,113
392,838
179,631
$ 1,990,192
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
Facilities, 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, 2021 was approximately $969 million (2020 – $1,023 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 judgement 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.
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.
76
Notes to Consolidated Financial Statements
As at December 31, 2021 and 2020, these ratios were as follows:
Long-term debt
Shareholders’ equity
Total capitalization
Long-term debt to long-term debt plus equity ratio
$
$
2021
1,106,794
1,225,555
2,332,349
0.47
$
$
2020
1,236,210
1,406,640
2,642,850
0.47
As at December 31, 2021, liquidity remained sufficient as Precision had $41 million (2020 – $109 million) in cash and access to
the US$500 million Senior Credit Facility (2020 – US$500 million) and $97 million (2020 – $97 million) secured operating
facilities. As at December 31, 2021, US$118 million (2020 – US$75 million) was drawn on the Senior Credit Facility with available
credit further reduced by US$33 million (2020 – US$32 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 (2020 – $7 million) and US$3 million (2020 – US$2 million),
respectively. There were no amounts drawn on the US$15 million (2020 – nil) secured operating facility.
NOTE 25. SUPPLEMENTAL INFORMATION
Components of changes in non-cash working capital balances were as follows:
Accounts receivable
Inventory
Accounts payable and accrued liabilities
Pertaining to:
Operations
Investments
The components of accounts receivable were as follows:
Trade
Accrued trade
Prepaids and other
The components of accounts payable and accrued liabilities were as follows:
Accounts payable
Accrued liabilities:
Payroll
Other
$
$
$
$
$
$
$
2021
(50,255 )
1,993
44,986
(3,276 )
(13,018 )
9,742
2021
152,897
26,731
76,112
255,740
$
$
$
$
$
2021
90,750
$
68,953
64,420
224,123
$
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
Precision presents expenses in the consolidated statements of loss by function with the exception of depreciation and
amortization and gain on asset disposals, which are presented by nature. Operating expense and general and administrative
expense would include $263 million (2020 – $293 million) and $11 million (2020 – $11 million), respectively, of depreciation
and amortization and gain on asset disposals, if the statements of 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
$
$
$
$
2021
482,695 $
(24,108 )
278,743
56,745
794,075 $
698,144 $
95,931
—
794,075 $
2020
438,209
(26,297 )
240,591
19,847
672,350
583,420
70,869
18,061
672,350
Precision Drilling Corporation 2021 Annual Report
77
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.
NOTE 27. LONG-TERM DEBT GUARANTORS
Precision Drilling Corporation (Parent) issued registered unsecured senior notes in 2017 and 2021 which are fully and
unconditionally guaranteed by certain U.S. and Canadian subsidiaries (Guarantor Subsidiaries) that also guaranteed the
Senior Credit Facility. These Guarantor Subsidiaries are directly or indirectly wholly-owned by the Parent. The following is a
description of the terms and conditions of the guarantees with respect to the unsecured senior notes for which Precision is the
Parent issuer and Guarantor Subsidiaries (Obligor Group) provides a full and unconditional guarantee.
As at December 31, 2021, Precision had $946 million principal amount of unsecured senior notes outstanding, $440 million due
in 2026 and $506 million due in 2029, all of which is guaranteed by the Guarantor Subsidiaries.
The Guarantor Subsidiaries jointly and severally, fully, unconditionally, and irrevocably guarantees the payment of the principal
and interest on the unsecured senior notes when they become due, whether at maturity or otherwise. The guarantee is
unsecured and ranks senior with all of the Guarantor Subsidiaries’ other unsecured obligations.
The Guarantor Subsidiaries will be released and relieved of its obligations under the guarantees after the obligations to the
holders are satisfied in accordance with the applicable indentures.
Summarized Financial Information
The following tables include summarized financial information for the Obligor Group on a combined basis after elimination of (i)
intercompany transactions and balances within the Obligor Group; (ii) equity in earnings from investments in the non-guarantor
subsidiaries; and (iii) intercompany dividend income.
Statements of Loss
Revenue
Expenses
Earnings before income taxes, loss (gain) on redemption and repurchase of
unsecured senior notes, loss on investments and other assets, finance
charges, foreign exchange, gain on asset disposals, and depreciation and
amortization
Net loss
Statements of Financial Position
Assets
Current assets
Property, plant and equipment
Other non-current assets
$
Parent and Guarantor Subsidiaries
2021
844,619 $
690,149
154,470
2020
752,794
548,991
203,803
(171,030 )
(144,086 )
Parent and Guarantor Subsidiaries
2021
2020
$
219,013 $
1,909,951
79,033
227,265
2,085,460
79,104
78
Notes to Consolidated Financial Statements
Liabilities
Current liabilities
Long-term debt
Other non-current liabilities
Parent and Guarantor Subsidiaries
2021
2020
$
200,784 $
1,106,794
87,411
123,472
1,236,210
86,303
Excluded from the statements of loss and statements of financial position above are the following intercompany transactions
and balances that the Obligor Group had with the non-guarantor subsidiaries:
Assets
Accounts receivable, intercompany
Short-term advances to affiliates
Liabilities
Accounts payable and accrued liabilities, intercompany
Long-term advances from affiliates
NOTE 28. SUBSIDIARIES
Significant Subsidiaries
Precision Limited Partnership
Precision Drilling Canada Limited Partnership
Precision Diversified Oilfield Services Corp.
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.
Parent and Guarantor Subsidiaries
2021
34,373 $
11,686
2020
35,500
13,359
Parent and Guarantor Subsidiaries
2021
33,820 $
128,606
2020
25,374
89,830
$
$
Country of
Incorporation
Canada
Canada
Canada
United States
United States
United States
United States
Barbados
Barbados
Ownership Interest
2021
2020
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
Precision Drilling Corporation 2021 Annual Report
79
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, loss on investments and
other assets, finance charges, foreign exchange, 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
Foreign exchange
Finance charges
Loss on investments and other assets
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
2021
987
$
2020
936
$
2019
1,541
$
2018
1,541
$
2017
1,321
$
698
96
—
—
193
282
(9 )
—
—
—
—
91
1
10
584
71
18
—
263
316
(12 )
—
—
—
5
107
—
(44 )
(182 )
(5 )
(177 )
$
(109 )
11
(120 )
$
$
1,039
104
6
—
392
1,067
112
1
(14 )
375
334
(51 )
20
(6 )
—
(9 )
118
—
(6 )
(8 )
(15 )
7
377
(11 )
—
—
207
4
127
—
(6 )
(323 )
(29 )
(294 )
$
$
(13.32 )
(13.32 )
(8.76 )
(8.76 )
0.46
0.45
(20.05 )
(20.05 )
926
90
—
—
305
384
(6 )
—
15
—
(3 )
138
—
9
(232 )
(100 )
(132 )
(9.01 )
(9.01 )
(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.
80
Supplemental Information
ADDITIONAL SELECT FINANCIAL INFORMATION
Years ended December 31,
(Stated in millions of Canadian dollars, except per share amounts)
Return on sales - %(2)
Return on assets - %(3)
Return on equity - %(4)
Working capital(1)
Working capital ratio(1)
Property, plant and equipment
Total assets
Long-term debt
Shareholders' equity
Long-term debt to long-term debt plus equity
Net capital spending(1)
Adjusted EBITDA(1)
Adjusted EBITDA - % of revenue(1)
Operating earnings (loss)(1)
Cash provided by operations
Book value per share(5)(6)
Basic weighted average shares outstanding (millions)(6)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2021
(17.9 )
(6.5 )
(13.8 )
82
1.3
2,258
2,662
1,107
1,226
0.5
$
63
193
$
19.6 %
(41 )
$
226
$
$ 104.51
14
2017
2018
2019
2020
(10.0 )
(19.1 )
0.5
(12.8 )
(3.4 )
(8.1 )
0.2
(3.8 )
(0.1 )
(0.2 )
0.5
(8.1 )
232
248
202
175
2.1
1.9
1.9
2.1
3,174
3,039
2,749
2,473
3,893
3,636
3,270
2,899
1,730
1,706
1,427
1,236
1,810
1,558
1,527
1,407
0.5
0.5
0.5
0.5
83
$
102
$
70
$
40
305
375
$
392
$
263
$
23.1 %
24.3 %
25.4 %
28.1 %
(88 )
$
(198 )
$
95
$
117
$
293
$
288
$
$ 123.40
$ 106.20
$ 110.20
15
15
14
(80 )
139
92.12
13
$
$
$
$
$
$
$
$
$
$
$
$
(1) See Financial Measures and Ratios on page 44.
(2) Return on sales was calculated by dividing net earnings (loss) by total revenue.
(3) Return on assets was calculated by dividing net earnings (loss) by quarter average total assets.
(4) Return on equity was calculated by dividing net earnings (loss) by quarter average total shareholders’ equity.
(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.
Precision Drilling Corporation 2021 Annual Report
81
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
(cid:131)
(cid:131)
(cid:131)
(cid:131) 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.)
Email:
1.514.982.7555 (international direct dialing)
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 2021 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
2021 Trading Profile
Toronto (TSX: PD)
High: $61.08
Low: $21.12
Close: $44.69
Volume Traded: 30,149,480
82
Supplemental Information
Auditors
KPMG LLP
Calgary, Alberta
New York (NYSE: PDS)
High: US$49.36
Low: US$16.58
Close: US$35.43
Volume Traded: 18,655,945