August, 2016s2.q4cdn.com/639056707/files/Precision-Drilling... · 2016-08-08 · 15 Average market...
Transcript of August, 2016s2.q4cdn.com/639056707/files/Precision-Drilling... · 2016-08-08 · 15 Average market...
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Investor Presentation
August, 2016
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Forward-looking statements
Certain statements contained in this presentation, 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 statement").
In particular, forward looking information and statements include, but are not limited to, the following: our contract log for 2016 and 2017; expectations on the
delivery of 2 additional rigs to Kuwait; our capital expenditure plan for 2016; and the potential amount in annual fixed cost savings due to the steps taken by
Management to position Precision for a prolonged downturn.
These 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, expected future developments and other factors we believe are appropriate under the circumstances. These
include, among other things: low oil and natural gas prices will continue to pressure customers into reducing or limiting their drilling budgets; the status of
current negotiations with our customers and vendors; continuing demand for Tier 1 rigs; customer focus on safety performance; existing term contracts being
neither renewed nor terminated prematurely; our ability to deliver rigs to customers on a timely basis; and the general stability of the economic and political
environments in the jurisdictions where we operate.
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; fluctuations in the demand for
contract 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 disadvantage; shortages, delays
and interruptions in the delivery of equipment supplies and other key inputs; the effects of seasonal and weather conditions on operations and facilities; the
availability of qualified personnel and management; a decline in our safety performance which could result in lower demand for our services; changes in
environmental laws and regulations such as increased regulation of hydraulic fracturing or restrictions on the burning of fossil fuels and greenhouse gas
emissions, which could have an adverse impact on the demand for oil and gas; 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 Precision’s ability to respond to such conditions.
Readers are cautioned that the forgoing list of risk factors is not exhaustive. Additional information on these and other factors that could affect our business,
operations or financial results are included in reports on file with applicable securities regulatory authorities, including but not limited to Precision’s Annual
Report, Annual Information Form and 40-F for the year ended December 31, 2015, which may be accessed on Precision’s SEDAR profile at www.sedar.com,
under Precision’s EDGAR profile at www.sec.gov, or on our website at www.precision.com. The forward-looking information and statements contained in this
presentation are made as of the date hereof and Precision undertakes no obligation to update publicly or revise any forward-looking statements or information,
whether as a results of new information, future events or otherwise, unless so requires by applicable securities laws.
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0
100
200
300
400
500
600
700
800
January
Febru
ary
Marc
h
April
May
June
July
August
Septe
mber
Oct
ober
Novem
ber
Dece
mber
Historical North American Drilling Activity
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan, 2018Jan, 2016Jan, 2014Jan, 2012Jan, 2010Jan, 2008Jan, 2006
+18%
U.S. Land Rig Count10 Year History
Canadian Land Rig Count5 Year History
Source: Baker Hughes land rig count as of August 5th, 2016
18062014 Average Active Rigs
9442015 Average Active Rigs
3782014 Average Active Rigs
1892015 Average Active Rigs
-48%
-50%
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Fiscal 2015 Revenue $1.56 Billion (down 34% from FY14)
Fiscal 2015 EBITDA $474 Million (down 41% from FY14)
EBITDA Margin of 30% (34% in FY2014)
• 1H 2016 Revenue decreased 45% from 1H 2015
• 1H 2016 EBITDA margins decreased to 26% from 30% in 1H 2015
Results – 2015 and 1H 2016
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Cash Management
$120 million in
annual fixed
cost savings
Management
reorganization
$24 million of
restructuring/
severance costs
since 2015
Operating center
consolidation
Overhead
ReductionsVariable Field
Cost
Limited Growth
Capex
Reduced
Maintenance
Capex
Maintain High Performance, High Value
Positioned for Prolonged Downturn
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Precision’s 2016 Strategic Priorities
Sustain High Performance, High Value competitive positioning
• People, assets, systems, efficiency
Position for an eventual rebound• Asset integrity• People – retain and recruit• Strong liquidity position
Strong Liquidity Position
• Generating positive operating cash flow and ensuring access to revolver
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Positioning for the Rebound
Positioned to respond to North American
activity
Proven track record to manage field staffing
Proven track record on asset quality and
maintenance
Liquidity(as of 6/30/2016)Broad Footprint
High Performance
PeopleAsset Integrity
$456 Cash
$731 RevolverRevolver/ Operating
Facilities Available
(Maturity June 3, 2019)
Ample liquidity
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Recruiting in a Rebound – Toughnecks Program
102,224Applications processed
2013-2015
1,200Screened candidates in the
system – ready to work
536Drillers ~50% at lower
positions
275Rig Managers ~50% at
lower positions
Brand & Advertising
Targeted Selection
Interviews
System Screening & Testing
New Hire
Rig Placement
1
1
1. As of June 30th 2016.
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Staffing for a Rebound – Retention and Development of Key Personnel
Leadership
Development
Programs
Career Path
Management
Structured Promotion
Programs
Long-term
Compensation Programs
Field Training
Investments
Permanent Training
Facilities with Fully
Functioning Rigs
Tier 1 Assets
World-Class Safety
Culture and
Processes
Precision HR Training and Processes
Structured Measured Retention Programs for Key Personnel
Structured
Competency
Standards
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238Tier 1 Rigs
High Performance Super Single and Super Triples Rig Fleet
101
93
Canada
International
U.S.
1 Jan, 2009
8
129
21 July, 2016
1) As of July 21st 2016 - Includes 2 newbuild rigs for Kuwait to be delivered late 2016. Excludes 16 upgrade candidates. 2) Decommissioned 79 drilling rigs on December 31, 2015.
1,2
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High Performance – Efficiency on the Rig
Reducing well cost while improving performance and
efficiency
Average Canada downtime of 0.42% and 1.39% for U.S.
86% improvements in recordable frequency
57% efficiency gain in average rig move days
6 days faster wells on PD integrated services with
reduced headcount on location
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34
Ho
le D
ep
th (
Fe
et)
Drilling Days
Competitor A
Competitor B
PD Planned Well
PD Well
2-Man Directional Crew w/ Remote
MWD & DD
6 days faster
Feb/15 Apr/15 Oct/15 Dec/15Aug/15 Feb/16Jun/15
20132011 2012 2014 2015
0.59% 0.61%
0.41%0.50%
0.42%
2011 2013 20152012 2014
Ca
na
dia
n
Do
wn
tim
e
Re
co
rda
ble
Fre
qu
en
cy
We
st
Te
xa
sA
vg
. M
ove
Da
ys
2.09%1.73% 1.65% 1.58% 1.39%
201520142012 20132011
U.S
.D
ow
nti
me
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Drilling Support Centers and Precision Supply
Nisku - AlbertaHouston – Texas
Vertically Integrated
Centralized Procurement
Repair & Maintenance
Rig Build & Construction
• Leverage Scale• Centralized Support
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Comprehensive North American Footprint / Targeted International Markets
Dots representative of areas where Precision has had operations in 2014 and 2015
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Geographical Diversification
0%
20%
40%
60%
80%
100%
201520142013201220112010200920082007
Canada
U.S.
International
2007 to 2015 Geographical Diversification
Canadian revenue diversified from 95% to 38%
U.S. revenue increased from 5% to 48%
International expansion from 0% to 14%
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Average market cap. of $41 billion (median $16 billion).2
Accounts for 86% of total revenue.
Credit risk for vast majority of contract book remains low.
Strong Contract Book backed by Well Capitalized Customers
National OilCompanies
8%
Private20%
Public 72%
1 Includes Canada, U.S. and International operations.2 As of July 21st, 2016.
2015 Top 50 Customers 1
35
30
21
7
58
2017 Average2016 Average
Average Term Contracts
CanadaUSInternational
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Responsive Capital Allocation
$320
$187
$721
2016 Capital – $202 million
$160 million for Expansion and Upgrade
2 new-build rigs for Kuwait
$42 million for Maintenance and Infrastructure
2017 Capital
No anticipated growth capital
$160
$42
Maintenance & Infrastructure
Expansion & Upgrades
2016E
$202
$42
$160
2015
$459
$410
2014
$857
$149
$708
2013
$536
$113
$423
2012
$868
$142
$726
2011
$726
$121
$605
2010
$176
$50
$126
2009
$193
$30
$163
$49
Annual Capital Spending
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Balance Sheet Strength
1) Statistics refer to balance sheet and annual income statement as of 6/30/2016. Debt to total capital equals long-term debt to long-term debt plus equity. Interest coverage equals EBITDA divided by interest. Available liquidity, adjusted for amendment of revolver post quarter end.
2) Calculated as undrawn portion of revolver (adjusted for LCs outstanding) and cash using CAD/USD exchange rate and balance sheet numbers as at 6/30/2016.3) Current blended cash interest cost of our debt is approximately 6.2%.
Attractive Capital Structure (1)
Net debt to total capital: 39% Interest coverage: 2.5x
Long maturity, low cost debt Average interest rate of 6.2%
First Principal Payment due 2019 (3)
2019: $200 million 2020: US$650 million 2021: US$390 million 2024: US$400 million
Available liquidity as of6/30/2016 2
Revolver /operating facilitiesAvailability(Maturity: June 3, 2019)
Cash
$1,187
$731
$456
Flexibility to react to market upturn or downturn
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Precision Drilling Investment Merits
Leading North American driller with global diversification
High Performance Tier 1 fleet of rigs with Tier 1 crews
Strong balance sheet with $456
*million of cash
Contract position backed by excellent customer base
Experienced organization and management team
Delivering Shareholder Value
* As of March 31st 2016 TSX: PD NYSE: PDS
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Appendix
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Canadian Activity Update
Source: Baker Hughes land rig count as of August 5th, 2016
0
100
200
300
400
500
600
700
800
Ca
na
dia
n A
cti
ve
La
nd
Rig
Co
un
t
5 Year Range 2010 - 2014 2014 2015 2016
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Oil Drilling Dominates Activity
Source: Baker Hughes land rig count as of August 5th, 2016
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
U.S
. A
cti
ve
La
nd
Rig
Co
un
t
Oil GasSource: BHI
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PEOPLE
SYSTEMS & SCALE
DRILLING TECHNOLOGY
LOWER RISK
MAXIMUM EFFICIENCY
ATTRACTIVE RETURNS
PRODUCES
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SYSTEMS&
SCALE
IT Infrastructure and ERP
Supply Chain Management• Leverage Procurement• Vendor Management• Centralized Support
Technical Support centres• Asset Integrity• Maintenance Standard• Centralized Support• In House Repair & Rebuild
Manufacturing + Capital Projects• Engineering• Project Management• Equipment Manufacturing (Rostel)
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8,680 employees completed training through Precision Tech centres in 2013 – 2015
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Safety & Operations
Training
Rig Build & Construction
Repair & Maintenance
Nisku Drilling Support Centre
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Completion & Production Segment: Full Well Cycle Exposure
Largest well service provider in Canada and established presence in U.S.
Over 150 Well Service, Snubbing and Coil Tubing rigs
Large fleet of high value rental equipment
Camps and Catering
Excellent footprint in Canada and Northern U.S.
Existing asset base supports solid cash flow generation
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International Revenue Growth
Inte
rna
tio
na
l R
eve
nu
e (
mil
lio
ns)
Compounded Annual Growth Rate
$240
$160
$200
$120
$0
$40
$80
+77%
20152014201320122011
Revenue
• Initiated Saudi with 3 Rigs
• Deployed additional 3 Rigs to Mexico
• Initiated Kurdistan with 2 Rigs
• Initiated Kuwait with 2 Rigs
• Deployed additional 1 rig to Saudi
• Deployed 1 rig to Georgia• Deployed additional 1 rig to Kuwait• Signed 2 newbuild contracts for
delivery to Kuwait late 2016
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Commodity • Vertical gas • Vertical gas• Vertical oil• Horizontal gas emerges
• Horizontal gas, development mode• Horizontal oil/liquids growth• Vertical oil• Vertical gas declining
Customers • Small independents• Highly cyclic customer
demand
• Large cap independents• Mid cap independents• Small cap independents
• Integrated oil companies• National oil companies • Large cap independents• Mid cap independents• More stable demand
UnconventionalBasins
• Oil Sands • U.S. focused• 3 to 5 basins
• U.S. and Canada • Emerging Internationally• 20+ basins
Barriers to Entry & Competitive Advantage
• Low barriers• No differentiation
• Rig ownership• Capital• Technology bifurcation
emerging• High performance contractors
emerge• Shortage of Tier 1 rigs
• Technology bifurcation complete• Rig efficiency dominates• Scale benefits apparent• Capital needs large• Established track record• Robust support systems• Tier 1 rigs in demand
North American Market Has Transitioned To Industrialized Resource Drilling
1985-2005Reservoir Drilling
2005-2010Resource Drilling Emergence
2010-PRESENTIndustrial Resource Drilling
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Precision Commands Leadership In Canadian LNG Opportunity
Approved export capacity of 26Bcf/day 1
Opportunity for 20 to 25 rigs per Bcf of export capacity
Longer-term demand source
Require deeper Tier 1 rigs
ST-1200 and ST-1500 rigs ideal for type of development Pad walking Potential year around operations
Well capitalized players funding projects Want long-term partners with proven
track record
Precision has won approximately half of the awarded LNG related new builds
ST-1500 deployed in Northwestern Alberta in February 2014
1. Source: Risky Business: This issue of timing, entry and performance in the Asia-Pacific LNG Market, The School of Public Policy SPP Research Papers, University of Calgary
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Precision’s Tier 1 Super Series Fleet
High Performance Development Drilling Technology
INDUSTRY LEADING RIGSDelivering unrivaled economics through High Performance
Rapid Mobility Walking/skidding system Location to location Sophisticated connections
Small footprint Integrated components Cold weather operations
Smart Design
Automation & Safety Features
Pipe handling Electronics and hydraulics Advanced control systems
1) ST-1500 Requires as few as 42 truck loads in addition to 12 loads of tubular and any operator rental loads2) Requires as few as 36 truck loads in addition to 10 loads of tubular and any operator rental loads
Super Triple 1500 1
Super Triple 1200 2Super Single
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800, 525-8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G1
Telephone: 403.716.4500
Facsimile: 403.264.0251
www.precisiondrilling.com