*Rig 576, Loving County TX, Permian Basin TSX: PDTSX: PD NYSE: PDS PRECISION DRILLING CORPORATION

Transcription

1 *Rig 576, Loving County TX, Permian Basin TSX: PDTSX: PD NYSE: PDS PRECISION DRILLING CORPORATION Jefferies Energy Conference November 27,

2 Forward-looking Statements Certain statements contained in this report, 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"). In particular, forward looking information and statements include, but are not limited to, the following: our strategic priorities for 2018; our capital expenditure plans for 2018; anticipated activity levels in 2018 and our scheduled infrastructure projects; anticipated demand for Tier 1 rigs; the average number of term contracts in place for 2018 and 2019; expectation for U.S. operating costs to be lower in the fourth quarter of 2018; our future debt reduction plans beyond 2018; and the anticipated financial, operational and strategic benefits of the proposed Trinidad Drilling transaction. 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: the fluctuation in oil prices may pressure customers into reducing or limiting their drilling budgets; the status of current negotiations with our customers and vendors; customer focus on safety performance; existing term contracts are 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 Information Form for the year ended December 31, 2017, which may be accessed on Precision s SEDAR profile at or under Precision s EDGAR profile at The forward-looking information and statements contained in this news release 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 result of new information, future events or otherwise, except as required by law. 2

3 PRECISION AT A GLANCE High Performance Land Driller 257 Drilling Rigs: Canada (135) U.S. (105) International (17) 210 Service Rigs: Canada (202) U.S. (8) Complementary Services: Camps & Catering, Rentals and Water Treatment *Dots on map representative of areas where Precision has had drilling operations in 2015, 2016 & 2017 (09/2017) 3

4 Precision s High Performance Foundation PRECISION SYSTEMS + SCALE PRECISION CREWS SUPER SERIES RIGS 4

5 SYSTEMS + SCALE Driving Operational Excellence and Lower Costs IT Infrastructure and ERP Supports Increased Data Flows Operating Efficiencies Fixed Cost Leverage Manufacturing + Capital Projects Engineering Project Management Equipment Manufacturing Technical Support Centres Asset Integrity Maintenance Standard In House Repair & Rebuild Supply Chain Management Cost Savings Vendor Management Centralized Support 5

6 Recruiting and Development Program Successfully Eliminates Labor Constraints 177,972 Applications processed (35,800 Applications in 2017) 1,200 1,400 Screened candidates in the system 100+ drilling rigs reactivated from Q2/16 lows, positions filled 8,000 people received in-house training in 2017 Leadership Development Programs Structured Competency Standards Long-term Compensation Programs Permanent Training Facilities with Fully Functioning Rigs World-Class Safety Culture and Processes Career Path Management Structured Promotion Programs Field Training Investments Tier 1 Assets 6

7 PRECISION SUPER TRIPLE Advanced Rig Technology 1 25,000 + FT RACKING CAPACITY 2 PROCESS AUTOMATION CONTROL (APPS)* 3 4 DRILLING EQUIPMENT CONTROL SYSTEM* HIGH SPEED DOWNHOLE DATA* 6 5 OMNI-PAD WALKING SYSTEM 6 825,000 LBS HOOKLOAD HP TDS-11 TOP DRIVE DIRECTIONAL GUIDANCE SYSTEM* TWO SPEED DRAWWORKS TRANSFER TANK UMBILICALLY CONNECTED BACKYARD COMPLEX (3) 1,600HP 7,500 PSI PUMPS REMOTE OPERATIONS CONTROL CENTER (OPTIMIZATION*) INTEGRATED POWER MANAGEMENT SYSTEM (4) CAT 3512 GENSETS * Precision Technology Building Blocks 7

8 Precision s Super Series Investments Drive Market Share Gains >$3.0 Billion in Drilling Expansion and Upgrade Capital Investment from TIER 1 RIGS ADDED 1, Peak Month Avg. Rig Count 101 Peak 2018 U.S. Rig Count as % of 2014 Peak Month Average , Int U.S % 67% 56% 58% 80% 56% Canada 44% PD Peer A Peer B Peer C Peer D Lower 48 Lower 48 ex. PD & 1) Excludes 16 upgrade candidates, 100 newbuild rigs and 21 major upgrades. Peers A-D 2) Decommissioned 36 legacy rigs in 2011, 52 rigs in 2012, 29 rigs in 2014 and 79 rigs in 2015 total of 196 rigs. 3) Peak based on Baker Hughes U.S. Land Rig Count average of 1,872 in November,

9 Precision s 2018 Strategic Priorities TECHNOLOGY AS A DIFFERENTIATOR Commercial deployment of Process Automation Controls and Directional Guidance Systems on a wide scale FINANCIAL PERFORMANCE Enhance financial performance through higher utilization and improved margins REDUCE DEBT WITH FREE CASH FLOW Reduce debt by generating free cash flow while continuing to fund only the most attractive investment opportunities (Target $300 million-$500 million debt reduction in the next 3-4 years; $75 million-$125 million in 2018) 9

10 PRECISION TECHNOLOGY BUILDING BLOCKS RIG AUTOMATION TOP DRIVE MUD PUMPS PROCESS AUTOMATION CONTROL Automates repetitive drilling activities using pre-programmed automation routines DIRECTIONAL GUIDANCE SYSTEM Steering instructions generated using algorithms and real-time downhole data to automate directional drilling HIGH SPEED DOWNHOLE DATA Wired drill pipe enables instantaneous transmission of data, saving time DRILLING EQUIPMENT CONTROL SYSTEM Connects all rig components to electronically manage, control and monitor rig equipment APPS Open source software allows for expansive app development to further automate drilling operations DRAWWORKS ENGINES OPTIMIZATION Using analytics and data to improve performance, drill faster 10

11 UNITED STATES Focused on Market Share Growth, Cash Flow Growth ACTIVE RIG COUNT GROWTH PD trough to current up ~270% versus Lower 48 up ~175% 2016 Low 2016 Avg Avg. Q3/18 Avg. Current PD Lower 48 (RHS) TOTAL REACH COMPLETE GEOGRAPHICAL COVERAGE 2 1, % 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Woodford MARKET SHARE 1 PRECISION DRILLING U.S. Permian DJ-Niobrara CASH FLOW MOMENTUM Pricing power on Super Series rigs Leading edge dayrates up as much as US$10,000+ from trough Dayrates and margins continue to improve Highest market share in company history at ~7.5% Low cost rig upgrades backed by contracted cash flow Technology (PAC, DGS, Apps) driving further growth 1) Market share based on drilling days 2) Current rig count as at 11/23/2018, Baker Hughes * Dots on map representative of areas where Precision has had operations in 2015, 2016 & 2017 (09/2017) 11

12 CANADA Focused on Cash Flow SUPER SERIES FLEET 128 Tier 1 Rigs INDUSTRIALIZED DRILLING EFFICIENCY 70+ Delivered NEWBUILD & UPGRADED RIGS SINCE 2010 #1 High Performance Fleet in Canada STRONG FREE CASH FLOW GENERATION Generated $1.8 billion in free cash $156 flow since $321 $269 $252 Virtually no upgrade capital spending planned in 2018 Scale drives operational and cost efficiencies Activity and margins expected to be up y/y in 2H 18 1) Cash flow calculated using reported daily margins multiplied by drilling utilization days plus C&P EBITDA, less Canadian maintenance capital expenditure. 2) Based on well count provided by industry sources and internal analysis (2017 average). * Dots on map representative of areas where Precision has had operations in 2015, 2016 & 2017 (09/2017) MARKET POSITION 25% Market Share Typically operate 25% of rigs in market with 135 drilling rig fleet 30% Duvernay LEADING MARKET SHARE 2 33% Heavy Oil LEADING MARKET SHARE 2 26% Montney LEADING MARKET SHARE 2 12

13 INTERNATIONAL Stable Cash Flow in Low Cost Region ESTABLISHED SCALE IN THE MIDDLE EAST REGION 8 RIGS CURRENTLY UNDER CONTRACT 6 NEWBUILD RIGS 17 TOTAL RIGS DEPLOYED SINCE 2014 INCLUDING TWO IN Q4/16 DEPLOYED INTERNATIONALLY (12 ME REGION, 5 MEXICO) Additional Kuwait newbuild award (Q3/19 deployment) Ability to leverage fixed costs with additional deployments Targeting IOC s and NOC s that value Safety and Performance 13

14 Revenue and Cash Flow Visibility and Stability CUSTOMER BASE 2017 TOP 50 CUSTOMERS 1 PUBLIC 72% Primarily public, large private, and national oil companies Average market capitalization of ~$48 billion (median ~$11 billion) International US Canada CONTRACT BOOK 3 PRIVATE 24% NATIONAL OIL COMPANIES 4% Proactive contract management balancing predictable cash flow with exposure to improving price environment All contracts performed through the downturn Average 2019 Average 1. Includes Canada, U.S. and International operations based on revenue (2017), 2. As of 11/23/2018, 3. As of 11/17/

15 Financial Performance RESILIENT MARGINS THROUGH THE DOWNTURN Aggressive cost management Rig contract performance Premium day rates (in $ millions) Fiscal 2017 Fiscal 2016 Revenue $1,321 $1,003 EBITDA $305 $228 Margin 23% 23% FIXED COST LEVERAGE WITH IMPROVED ACTIVITY TTM SG&A expenses down ~20% from predownturn levels 1 Stable corporate headcount from postrestructuring levels Increased U.S. rig count by >200% from trough to Q3/18 TTM SG&A Expense ($mms) Avg. Active Rig Count TTM SG&A U.S. Rig Count WCSB Rig Count 1) From Q1/14 to Q3/18 15

16 2018 CAPITAL PLAN Strict Financial Discipline MAINTENANCE, INFRASTRUCTURE & INTANGIBLES $64M Fleet well maintained throughout the downturn, minimal catch-up maintenance required Remaining spend related to ERP system upgrade Increase operating efficiencies, improve fixed cost leverage and position organization to better handle increased data flows Maintenance spend highly correlated to activity levels PLANNED 2018 CAPEX TOTAL: $94M $135M EXPANSION & UPGRADES $71M Plans to upgrade ~12-24 Tier 1 rigs to industry leading rig specifications Additions of walking systems Increased pumping and racking capacities Rig automation systems ** Spending contingent on firm customer contract commitments that meet internal return thresholds Kuwait new build rig (~$10 mm spending in 2018, remainder in 2019) U.S. new build rig completed for <$10 mm 16

17 Precision s Balance Sheet Management Through Downturn DEBT REDUCTION PROGRESS Long-term Debt US$Bns ~US$280mm reduction YE2018E STRONG LIQUIDITY POSITION Liquidity as of 9/30/ (in $ millions) Cash $785 $11 0 $65 SENIOR DEBT MATURITY PROFILE 3 US$350 US$395 US$400 Revolver/ Operating Facilities 1 (Matures November, 2021) $67 5 $661 No Maturities Until December 2021 US$ The 2015 total includes the 2019 maturity C$200 million senior notes converted at the exchange rate as of Dec 31, Liquidity calculated as undrawn portion of revolver (adjusted for LCs outstanding) and cash using CAD/USD exchange rate and balance sheet numbers 3. Reflects US$30 million redemption expected by year end

18 Creating Shareholder Value HIGH PERFORMANCE SUPER SERIES FLEET MARKET SHARE GAINS & PREMIUM PRICING DRIVE FINANCIAL PERFORMANCE CASH FLOW GENERATION FOR DEBT REPAYMENT AND ENHANCED EQUITY VALUE 18

19 *Rig 576, Loving County TX, Permian Basin PRECISION DRILLING CORPORATION Combination with Trinidad Drilling Ltd. November

20 Combination of Two High Performance Contract Drilling Companies Transaction Creates Exceptional Value for Precision and Trinidad Shareholders Unique combination of two highly focused drilling contractors pursuing similar strategies with complementary Tier 1 assets Immediately realizable cost synergies enhanced by long-term operating efficiencies from increased scale; ~$52 million annualized Strong balance sheet and cash flow support/enhance deleveraging plan; flexibility to pursue attractive growth opportunities Significantly accretive to cash flow per share Expanded platform for U.S. and international growth and technology deployment Complementary cultures with commitment to people, safety, technology and customers 20

21 Transaction Overview Transaction Overview Precision to acquire all of the issued and outstanding shares of Trinidad in an allshare transaction Pro Forma ownership will be ~71% Precision and ~29% Trinidad Precision expects the Transaction to be significantly accretive to 2019 and future cash flow per share metrics Consideration Trinidad shareholders will receive shares of Precision for each outstanding Trinidad share Governance One Trinidad director will be appointed to the Precision Board, and an additional Trinidad director will be nominated for election Approvals and Timing Expected to be completed in late 2018 Subject to TSX and Alberta Court of Queen s Bench approval, regulatory approvals, security holder approvals from each company and the satisfaction of other customary closing conditions 1) Transaction values as at October 5,

22 Significantly Enhanced Combined Platform to Leverage the Industry Transition to High Performance Drilling 152 Canadian Rigs (1) 50 Rigs Held For Sale 170 U.S. Rigs 26 International Rigs (2) 348 Total Rigs (1) ~215 Active Rigs 1) Excludes 50 rigs identified for divestiture 2) 26 international rigs include Precision s new build Kuwait rig for 2019 deployment 3) Active rigs as at October 5,

23 Transaction Update Successful termination of the waiting periods for both Canadian and U.S. competition acts - satisfies the required condition under the arrangement Obtained interim order from Court of Queen s Bench of Alberta Filed joint information management circular, in the process of being mailed to shareholders Shareholder votes for both Trinidad and Precision scheduled for December 11, 2018 Precision aligned with Trinidad Board and strongly recommends against shareholders tendering to Ensign Χ Competing hostile all-cash Ensign bid shortened timeline to Tuesday, November 27, 2018 Updated & New Disclosure provided November 7, 2018 Preliminary 2019 Financial Guidance for Post-Arrangement Precision 2019 Post-Arrangement Precision Strategic Priorities Update on Expected Synergies Refined expected fixed cost synergies of ~$37 million annualized (previously ~$30 million annualized) Quantified expected operating cost synergies (~$15 million annualized) Debt Repayment of US$30 million and Updated Post-Arrangement Precision Debt Reduction Targets Update on Asset Sale Process (properties & expected 50 rig sale) 23