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Stampede Drilling Inc
Symbol SDI
Shares Issued 132,045,605
Close 2020-03-25 C$ 0.09
Recent Sedar Documents

Stampede Drilling loses $245,000 in 2019

2020-03-25 20:37 ET - News Release

Mr. Lyle Whitmarsh reports

STAMPEDE DRILLING INC. ANNOUNCES 2019 FOURTH QUARTER RESULTS

Stampede Drilling Inc. has released its financial and operational results for the three months and year ended Dec. 31, 2019.

The following should be read in conjunction with the Corporation's audited consolidated financial statements and the notes thereto for the three months and year ended December 31, 2019 and related management's discussion and analysis, which are available on SEDAR.

All amounts or dollar figures are denominated in thousands of Canadian dollars except for per share amounts, number of drilling rigs, and operating days, or unless otherwise noted.

2019 OPERATIONAL OVERVIEW

2019 marked the Corporation's second full calendar year of operations for its drilling rig division combined with the sale of the directional drilling division in Q2 2019. The drilling rig division continued its 2018 positive momentum with 2019 revenue of $23,697, up $7,669 (48%) compared to 2018, and 2019 annual Adjusted EBITDA of $4,126, up $1,066 (35%) from 2018. The increase in annual Adjusted EBITDA was a direct result of the Corporation's 2019 annual rig utilization of 34%, 55% higher than the CAODC's 2019 annual utilization of 22%. Net loss from continuing operations was $1,247, $1,159 lower than 2018's net loss of $88 as a result of higher general and administrative expenses from higher allocation of corporate expenses.

In 2019, the Corporation increased its operating days by 33% as compared to 2018, as we continued our geographic expansion into Alberta with the reallocation of assets from Saskatchewan. The reallocation allowed the Corporation to expand and diversify its customer base while increasing revenue in 2019 by 48% from 2018.

The Corporation now has 13 drilling rigs consisting of ten complementary heavy telescopic drilling rigs, one cantilever triple drilling rig, one light telescopic double rig, and one cantilever double drilling rig. In 2019, the Corporation operated 8 of its 10 heavy telescopic double drilling rigs and one light telescopic double.

RECENT ECONOMIC DEVELOPMENTS

First quarter 2020 global events have significantly impacted the global economy and downgraded the Corporation's near-term expectations of the energy industry. The spread of the COVID-19 virus in combination with OPEC's inability to maintain global oil supply levels during early March 2020 has significantly undermined commodity prices, customer cash flows and investor confidence. Further, the influence of these recent developments impact customers' capital spending budgets and their potential ability to pay for work completed on a timely basis.

OUTLOOK

The recent development of the macro-economic factors of the COVID-19 virus, instability created by OPEC's inability to maintain the global oil supply and the resulting impact to commodity prices, have created an adverse effect on the energy industry.

The Corporation expects Canadian oil and gas producers will continue to be faced with the challenge of exporting their products due to uncertainty surrounding the timing of the Trans Mountain pipeline expansion project as well as delays related to other pipeline projects such as the Keystone XL pipeline. This, combined with the rise of the COVID-19 virus, global oil supply from OPEC and continued government mandated crude oil production cuts, will result in capital spending reductions by our customers relative to historical levels.

As a result of the recent developments, the Corporation has reduced its 2020 remaining capital spending forecast to $0 and has eliminated all nonessential repairs and maintenance of its entire fleet of rigs. The Corporation will focus on continued cost cutting, cash collections from our customers and debt repayment to maintain our balance sheet.

FINANCIAL HIGHLIGHTS

FOURTH QUARTER 2019 SUMMARY (Compared with the fourth quarter 2018)

  • Revenue from continuing operations of $6,705, up 11% from $6,025;
  • Gross margin from continuing operations of $2,116, down 14% from $2,454;
  • Adjusted EBITDA from continuing operations of $1,139, down 20% from an Adjusted EBITDA $1,423;
  • Net loss from continuing operations of ($104), down 120% from ($520);
  • Net loss from combined operations of ($154), up 92% from ($1,995)

YEAR ENDED DECEMBER 31, 2019 SUMMARY (Compared with the year ended December 31, 2018)

  • Revenue from continuing operations of $23,697, up 48% from $16,028;
  • Gross margin from continuing operations of $8,197 up 45% from $5,647;
  • Adjusted EBITDA from continuing operations of $4,126, up 35% from $3,060;
  • Net loss from continuing operations of ($1,247), down 1,317% from net loss of $($88);
  • Net loss from combined operations of ($245), up 94% from a net loss of ($4,124)

                                      Three months ended  December 31,      Years ended December 31,       
(000's CAD $ except per share amounts)              2019       2018       2019       2018       2017

Continuing operations
Revenue                                            6,705      6,025     23,697     16,028      1,453
Direct operating expenses                          4,589      3,571     15,500     10,381        971
Gross margin (1)                                   2,116      2,454      8,197      5,647        482
Net income (loss) from continuing operations       (104)        520    (1,247)       (88)      (372)
Basic and diluted per share                       (0.00)       0.00     (0.01)     (0.00)     (0.01)
Adjusted EBITDA (1)                                1,139      1,423      4,126      3,060        269
Combined operations (2)
Net income (loss)                                  (154)    (1,995)      (245)    (4,124)    (6,875)
Basic and diluted per share                       (0.00)     (0.02)     (0.00)     (0.03)     (0.16)
Adjusted EBITDA (1)                                1,056      1,085      4,589      1,776      (189)
Capital expenditures                               2,295      1,720      9,580     16,599     17,696
nm - not meaningful

(1) Refer to "Non-GAAP Measures" for further information.
(2) Combined operations represents the aggregated results of both continuing and discontinued operations.

                                                   Years ended December 31,
(000's CAD $ except operating days)                   2019         2018(1)

Revenue                                             23,697          16,028
Direct operating expenses                           15,500          10,381
Gross margin (2)                                     8,197           5,647
Gross margin % (2)                                     35%             35%
Net loss from continuing operations                (1,247)            (88)
General and administrative expenses                  4,782           2,663
Adjusted EBITDA (2)                                  4,126           3,060
Drilling rig operating days                          1,143             859
Drilling rig revenue per operating day                20.7            18.7
Drilling rig utilization                               34%             29%
CAODC  industry average utilization (3)                22%             29%

(1) The comparative period has been restated to reflect discontinued
    operations as discussed in Note 6. 
(2) Refer to "Non-GAAP measures" for further information.
(3) Source: The Canadian Association of Oilwell Drilling Contractors ("CAODC").
    The CAODC industry average is  based on operating days divided by total
    available drilling days.

RESULTS OF CONTINUING OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2019

In 2019, revenue was $23,697, an increase of $7,669 (48%) compared to $16,028 for the year ended December 31, 2018. The increase was as a result of an increase in operating days due to the higher average rig count in 2019, and an increase in revenue per day of 11% from $18.7 for the year ended December 31, 2018 to $20.7 in the comparable 2019 period. The increase in revenue per day was related to the higher dayrates in Alberta compared to in Saskatchewan as a result of an increase in the average rig count in Alberta.

Operating days in the drilling rig division of 1,143 days for 2019 was a 33% increase over the 859 operating days in 2018, as a result of the increase in rig count during the period and continued positive momentum in the drilling rig division. The drilling rig utilization for 2019 was 34%, 55% above the CAODC industry average utilization rate of 22%. The increase in average active rig count allowed the Corporation to diversify geographically into the Alberta market and expand its customer base resulting in increased drilling rig utilization in the current year.

For the year ended December 31, 2019, gross margin as a percentage of revenue for the year ended December 31, 2019 was 35%, consistent with the corresponding period in 2018.

General and administrative expenses for the year ended December 31, 2019 were $4,782 up $2,119 (80%) from $2,663 for the comparable period of 2018, as a result of increased headcount and the higher allocation of corporate expenses related to salaries, legal, IT, and rent as part of the Corporation's continuing operations.

For the year ended December 31, 2019, Adjusted EBITDA was $4,126 a $1,066 (35%) increase from $3,060 as compared to the corresponding 2018 period, as a result of the increase in active rig count which was partially offset by the increased general and administrative expenses compared to 2018.

                               Other Items

                                               Years ended December 31,
(000's CAD $)                                  2019   2018   %  Change 
Gain from disposition of property and equipment8      172    (95%)     
Gain from equipment lost in hole               19     -      nm        
Finance costs                                  (684)  (406)  68%       
Other income                                   123    18     583%      
Foreign exchange loss                          19     (5)    (480%)    
Transaction costs                              (156)  (683)  (77%)     
Other items                                    (671)  (904)  (26%)     
nm - not meaningful                                                    

For the year ended December 31, 2019, finance costs were $684, a $278 (68%) increase from $406 as compared to the corresponding 2018 period. The increase was due to higher 2019 debt levels associated with the Corporation's line of credit. The higher 2019 debt levels were a result of increased capital spend and working capital as a result of increased activity for the year ended December 31, 2019 compared to the corresponding 2018 period.

For the year ended December 31, 2019, other income was $123 as compared to $18 in the corresponding 2018 period. Other income is comprised of rent collections from the Corporation's subleases.

For the year ended December 31, 2019, there was a decrease in transaction costs of $527 (77%) from $683 as compared to the corresponding 2018 period. Transaction costs for 2019 consist of non-capitalizable amounts related to US start-up costs of $156. Transaction costs for 2018 represent non-capitalizable amounts directly related to drilling rig acquisitions which consist of due diligence and external legal fees and US start-up costs.

              FOURTH QUARTER RESULTS OF CONTINUING OPERATIONS
  
  
                                           Three months ended December 31,
(000's CAD $ except operating days)                     2019       2018(1)

Revenue                                                6,705         6,025
Direct operating expenses                              4,589         3,571
Gross margin (2)                                       2,116         2,454
Gross margin % (2)                                       32%           41%
Net income (loss) from continuing operations           (104)           520
General and administrative expenses                    1,093         1,069
Adjusted EBITDA (2)                                    1,139         1,423
Drilling rig operating days                              289           292
Drilling rig revenue per operating day                  23.2          20.6
Drilling rig utilization                                 31%           35%
CAODC  industry average utilization                      23%           28%

(1) The comparative period has been restated to reflect discontinued operations
    as discussed in Note 6.
(2) Refer to "Non-GAAP measures" for further information. 
(3) Source: The Canadian Association of Oilwell Drilling Contractors ("CAODC").
    The CAODC industry average is  based on operating days divided by total
    available drilling days.

Revenue in the fourth quarter of 2019 was $6,705, an increase of $680 (11%) compared to $6,025 in the fourth quarter of 2018. The increase was as a result in the increased average rig count and an increase in revenue per day of 13% from $20.6 in the fourth quarter of 2018 to $23.2 in the comparable 2019 period. The increase in revenue per day was related to the higher dayrates in Alberta compared to in Saskatchewan, as the Corporation added one rig in Alberta during 2019.

Operating days in the drilling rig division of 289 days in the fourth quarter of 2019 was a 1% decrease over the 292 operating days in the fourth quarter of 2018 due to weather related delays in western Canada. The drilling rig utilization for the quarter ended December 31, 2019 was 31%, 35% above the CAODC industry average utilization rate of 23%.

Direct operating expenses are primarily comprised of personnel, equipment, operating and repair costs, and shop expenses. For the fourth quarter ended December 31, 2019, gross margin as a percentage of revenue was 32%, down 22% from a gross margin of 41% in the fourth quarter of 2018. The decrease in gross margin as a percentage of revenue was primarily a result of increased startup costs for rigs that had not worked in 2019 that went to work in Q1 2020.

General and administrative expenses for the three months ended December 31, 2019 were $1,093, up $24 (2%) from $1,069 for the three months ended December 31, 2018, as a result of the increased headcount and the higher allocation of corporate expenses related to salaries, IT and professional fees as part of the Corporation's continuing operations.

For the fourth quarter ended December 31, 2019, the Adjusted EBITDA was $1,139, a $284 (20%) decrease from Adjusted EBITDA of $1,423 in the comparable quarter of 2018, mainly as a result of the increase in direct operating expenses from higher wages which was partially offset by the increased revenue generated by higher dayrates.

RESULTS OF DISCONTINUED OPERATIONS

On April 3, 2019, the Corporation announced the discontinuation of its directional drilling division. As part of this process, the Corporation presented the results of the directional drilling operations using the guidance under "IFRS 5 - Non-Current Assets Held for Sale and Discontinued Operations", as discontinued operations on the consolidated statements of comprehensive income (loss) and the consolidated statements of cash flows for the current and comparative periods.

During the second quarter, the Corporation disposed of its directional drilling assets to an independent, third-party purchaser. In accordance with the disposal, property and equipment with a net book value of $912 was sold on May 27, 2019 for gross proceeds of $1,500 which resulted in recognition of a gain on disposition of $588, which was classified within discontinued operations.

The general and administrative expenses for the three months ended December 31, 2019 represent the remaining costs associated with discontinued operations. As part of the disposal transaction, right of use assets previously used by the directional drilling division and their related lease liabilities were assigned to the purchaser with the purchaser assuming all rights and obligations under the lease.

The following table sets forth operating results from the discontinued operations for the three months and year ended December 31, 2019 and 2018:

                                                                Three months ended December 31,
(000's CAD $ except operating days)                             2019     2018       % Change   
                                                                                               
Directional drilling revenue                                    -        541        (100%)     
Direct operating expenses                                       -        524        (100%)     
Gross margin (1)                                                -        17         (100%)     
Gross margin % (1)                                              -        3%         nm         
Directional drilling net income (loss)                          34       (2,515)    (101%)     
General and administrative expenses                             11       2,320      (100%)     
Adjusted EBITDA (1)                                             (83)     (340)      (76%)      
Directional drilling operating days(2)                          -        184        (100%)     
Directional drilling revenue per day                            nm       2.9        nm         
nm - not meaningful.                                                                           
(1) Refer to "Non-GAAP measures" for further information.                                      
(2) A stand-by day is calculated as 0.5 day of an operating day.                               
                                                                                               
                                                                Years ended December 31,       
(000's CAD $ except operating days)                             2019     2018       % Change   
                                                                                               
Directional drilling revenue                                    1,837    4,845      (62%)      
Direct operating expenses                                       1,020    4,062      (75%)      
Gross margin (1)                                                817      783        4%         
Gross margin % (1)                                              44%      16%        175%       
Directional drilling net income (loss)                          1,002    (4,036)    (125%)     
General and administrative expenses                             411      4,192      (90%)      
Adjusted EBITDA (1)                                             463      (1,284)    136%       
Directional drilling operating days(2)                          209      512        (59%)      
Directional drilling revenue per day                            8.8      9.5        (7%)       
(1) Refer to "Non-GAAP measures" for further information.                                      
(2) A stand-by day is calculated as 0.5 day of an operating day.                               

Revenue from discontinued operations for the year ended December 31, 2019 was $1,837, a decrease of $3,008 (62%) from $4,845 in the prior year comparable period, as a result of a 59% decrease in operating days due to the suspension of operations on April 3, 2019.

Direct operating expenses from discontinued operations for the year ended December 31, 2019 were $1,020, a decrease of $3,042 (75%) from $4,062 in the prior year comparable period. Gross margin as a percentage of revenue for the year ended December 31, 2019 was 44%, up 175% from 16% for the year ended December 31, 2018. The primary reason for the increase was the rebilling of repairs and maintenance costs of $285 to customers and the deferral of all non-essential repairs to the Corporation's owned equipment.

General and administrative expenses from discontinued operations for the year ended December 31, 2019 was $411, a decrease of $3,781 (90%) compared to $4,192 in the corresponding 2018 period. The overall decrease was a result of a reduction in headcount in the division and the reallocation of expenses of salaries, legal, IT, and rent from the directional drilling division to the drilling rig division.

The overall effect of the decrease in revenue combined with the decrease in direct operating costs and general and administrative expenses resulted in Adjusted EBITDA of $463 for 2019, an increase of $1,747 (136%) from an Adjusted EBITDA loss of $1,284 as compared to the corresponding 2018 period.

Net income (loss) from discontinued operations for the year ended December 31, 2019 was $1,002, an increase of $5,038 (125%) from a net loss from discontinued operations of $4,036 as compared to the corresponding 2018 period due to the gain on disposition from sale of the directional drilling assets.

We seek Safe Harbor.

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