Precision Drilling Corporation (PDS)

PDS 
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Precision Drilling Trust (PDS)

Q4 2009 Earnings Call Transcript

February 12, 2010 12:00 am ET

Executives

David Wehlmann – EVP, IR

Doug Strong – CFO

Kevin Neveu – President and CEO

Gene Stahl – President, Drilling Operations

Analysts

John Daniel – Simmons & Company International

Victor Marchon – RBC Capital Markets

John Tasdemir – Canaccord Adams

Kevin Lo – FirstEnergy Capital

Chad Friess – UBS

Dana Benner – Thomas Weisel Partners

Roger Serin – TD Securities

Roy Mark [ph] – GI Capital [ph]

Brian Purdy – National Bank Financial

Jeff Fetterly – CIBC World Markets

Cory Wren [ph] – Peeco & Company [ph]

Todd Garman – Peters & Company

Teresa Fox – Stone Harbor

Jeff Mochoruk – Cormark Securities

Presentation

Operator

Please standby, your meeting is about to begin. Good morning, ladies and gentlemen, and welcome to the Precision Drilling Trust’s 2009 fourth quarter and year end conference call and webcast.

I would now like to turn the meeting over to David Wehlmann, Executive Vice President, Investor Relations. Please go ahead.

David Wehlmann

Thank you. Good morning, everyone. I would also like to welcome you Precision Drilling Trust’s fourth quarter 2009 conference call and webcast. Participating today on the call with me are Kevin Neveu, the Chief Executive Officer and Doug Strong, our Chief Financial Officer. Also with us here today is Gene Stahl, our President of Drilling Operations.

The new release earlier today, Precision Drilling Trust’s reported on the fourth quarter 2009 results. Please note that the financial figures are in Canadian dollars unless otherwise indicated. Precision also announced this morning in a separate news release; its intention to convert to a corporation Precision anticipates seeking approval from the unit holders in conjunction with its 2010 annual and special meeting in May and to complete the conversion by May 31, 2010. We believe the conversion will occur on the tax differed basis. Further to tell about the timing in mechanics the conversion will be communicated over the next two months.

Some of that comments today we’ll referred to non-GAAP measures such EBITDA and operating earnings. Please see our press release for additional disclosure on these non-GAAP measures. Our comments today will also include forward-looking information and statements reflecting Precision views about advanced and a potential impact on the Trust business, operations, structure, and financial result. Forward-looking information and statements include but are not limited to items that we have detailed in our press release.

There are risks and uncertainties that could cause actual results to differ materially from those indicated by such forward-looking information and statements. Please see our press releases and other regulatory filings from more information on these risks factors. Doug Strong will begin the call this morning with the review of the fourth quarter financial results and our yearend balance sheet. Kevin Neveu will then provide an operation updates and our outlook for going forward here. After that we’ll open the call for questions. Doug over to you.

Doug Strong

Thanks David. For Precision the fourth quarter of 2009 was positive on many fronts and in financial terms when according to plan. Our financial overview focus is on four key developments

The sequential quarterly improvement in operating results, balance sheet strength and liquidity, 2009 cash flow and our pending unitholder vote to convert on the income trust to traditional corporate structure.

First, the sequential improvement in Q4 2009 operating results. As reported in our news release earlier today, unaudited current quarter revenue and EBITDA preferably to the third quarter of 2009 as industry fundamentals continue to gradual rebound from those experienced earlier in the year. Our current quarter business mix while continuing to be supported by solid customer demand from oil wells reflected higher demand for natural gas both Canada and United States. Precision benefited from rising equipment activity in the fourth quarter unfolded and this led to stabilization in customer pricing. In the moment Kevin will comment further on customer demand and tightening supply for high performance asset and opportunities that lie ahead for 2010.

Fourth quarter activity was higher than the third quarter of 2009 was Precision average and active drilling rig count 72 in Canada, an increase of 21 rigs and 41%. In the United States the active count average 64 rigs and increase of 22% over Q3. Precision service rig fleet in Canada generated 60,108 hours, an increase of 10,527 hours or 21% over Q3 2009. Overall, this droved the 13% revenue increase and 8% increase for Precision in the current quarter.

Profit margin as an EBITDA percentage of revenue with solid as the decline of 1.4 percentage or 140 basis points to 32.4% was primarily caused by revenue mix as strong term contract rig comprised 48% of drilling utilization days versus 61% in Q3 2009. Traditional winterization revenue from northern operating areas and cost reduction initiatives help to mitigate the decline.

General and administrative expenses were $24 million in the fourth quarter, the favorable sequential decrease of 4% over the third quarter. In the current quarter, Precision recorded a pretax non-cash charge of $82 million for the decommissioning of assets as previously announced on December 16, 2009. The decision to take underperforming asset other services and necessary step to reduce equipment supply and high grade precision's overall fleet to inline with its high performance, high value brand and the more demanding customer requirement associated with unconventional resource plays. The reduction in capacity is expected to be accretive to earnings through lower fixed operating cost and the use of corrected spare components from the decommissioning rigs.

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