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Precision Drilling Corporation Announces 2017 First Quarter Financial Results – Part 1


FOR: PRECISION DRILLING CORPORATION
TSX SYMBOL: PD
NYSE SYMBOL: PDS

Date issue: April 24, 2017
Time in: 6:00 AM e

Attention:

CALGARY, ALBERTA--(Marketwired - April 24, 2017) - Precision Drilling Corporation (TSX:PD)(NYSE:PDS) - (Canadian dollars except as indicated) -

This news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For a full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release. This news release contains references to Adjusted EBITDA, Operating Earnings (Loss) and Funds Provided by Operations. These terms do not have standardized meanings prescribed under International Financial Reporting Standards (IFRS) and may not be comparable to similar measures used by other companies, see "Non-GAAP Measures" later in this news release.

Precision Drilling announces 2017 first quarter financial results:

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-- First quarter revenue of $346 million was an increase of 15% over the

prior year comparative quarter. -- First quarter earnings before income taxes, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, and depreciation and amortization (adjusted EBITDA see "Non- GAAP Measures") of $84 million was 15% lower than the first quarter of 2016. -- First quarter net loss of $23 million compared with a net loss of $20 million in the prior year comparative period. -- First quarter net loss per share of $0.08 compared with a net loss of $0.07 per share in the prior year comparative period. -- First quarter capital expenditures were $22 million, with full year capital spending expected to be $119 million.

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Kevin Neveu, Precision's President and Chief Executive Officer, stated: "The rebound which began in mid-2016 has continued unabated through the first quarter of 2017. During the quarter, we activated 17 rigs in the U.S. growing from 39 to 56 operating rigs by the end of the quarter. In Canada, we experienced a seasonal peak of 91 active rigs, almost 50% higher than the same quarter of 2016 with our total drilling days up 71% over last year. With three consecutive quarters of increased activity, all signs point to a strengthening recovery and Precision has responded as promised, rehiring more than 2,000 field personnel and activating over 100 rigs from 2016 trough activity."

"During the first quarter, we experienced some increased costs, primarily due to repositioning rigs which included moving six U.S. rigs from the Marcellus and Bakken regions to the higher demand markets such as the Permian, where our active rig count is now 27 rigs. We also moved rigs to Oklahoma for SCOOP/STACK opportunities, the Niobrara and the Eagle Ford. Our customer contracts include provisions to recover most of these costs during the initial contract period."

"During the quarter we completed and deployed eight rig upgrades, primarily adding higher pressure and higher capacity mud systems, pad walking systems and rig automation software. These upgrades have been supported by take-or-pay customer term contracts as year to date we have added nine term contracts. The day rates for both our newly contracted rigs and our non-contracted day work projects are continuing to strengthen as demand for our Super Series rigs remains strong. In the U.S., we are currently operating 59 rigs representing a tripling of activity from a year ago."

"In Canada, while demand was significantly stronger than 2016, the day rate increases have lagged due to the seasonal timing of customer negotiations, however, we expect Canadian pricing to improve as the year progresses."

"Internationally we have eight active rigs in the Middle East and no contract rollovers in 2017. We have built critical mass in our operations in Kuwait with five newly built rigs deployed over the last three years, all generating solid returns. We continue to look to expand our two core markets of Kuwait and Saudi Arabia and are actively bidding our four idle rigs in the region to new opportunities."

"Over the last 18 months, our well servicing group has done a remarkable job of managing costs in a rapidly increasing activity environment. Fixed costs in this division are down 42% compared to 2015 and the business is now operated from Red Deer with branch offices in major operating regions across Western Canada, allowing us to be more competitive in certain markets. I am very pleased with the integration of the Essential service rig assets, market share growth and improving financial performance of this division."

"We continue to view our ability to deploy efficiency-generating technologies as a key competitive advantage for Precision and have been working diligently with our partners to automate many manual processes on our rigs and further integrate and automate directional drilling. Beta-style field trials of these technologies are ongoing and we expect to commercialize these new automation features during 2017, details of which will be discussed at our Analyst and Investor day on May 15th," concluded Mr. Neveu.

SELECT FINANCIAL AND OPERATING INFORMATION

Adjusted EBITDA and funds provided by operations are Non-GAAP measures. See "NON-GAAP MEASURES."

Financial Highlights

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Three months ended March 31, (Stated in thousands of Canadian dollars, except per share amounts) 2017 2016 % Change ---------------------------------------------------------------------------- Revenue 345,800 301,727 14.6 Adjusted EBITDA(1) 84,308 99,264 (15.1) Net loss (22,614) (19,883) 13.7 Cash provided by operations 33,770 112,174 (69.9) Funds provided by operations(1) 85,659 93,593 (8.5) Capital spending: Expansion 3,792 19,201 (80.3) Upgrade 13,647 1,433 852.3 Maintenance and infrastructure 4,653 6,527 (28.7) Proceeds on sale (2,218) (2,157) 2.8 ---------------------------------------------------------------------------- Net capital spending 19,874 25,004 (20.5)

Net loss per share:

Basic (0.08) (0.07) (14.3) Diluted (0.08) (0.07) (14.3) ---------------------------------------------------------------------------- (1) See "NON-GAAP MEASURES"

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Operating Highlights

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Three months ended March 31, 2017 2016 % Change ---------------------------------------------------------------------------- Contract drilling rig fleet 255 251 1.6 Drilling rig utilization days: Canada 6,819 3,995 70.7 U.S. 4,190 2,886 45.2 International 720 763 (5.6) Revenue per utilization day: Canada (1)(3) (Cdn$) 18,524 23,880 (22.4) U.S.(2)(3) (US$) 19,972 31,830 (37.3) International (US$) 50,434 41,609 21.2 Operating cost per utilization day: Canada (Cdn$) 9,947 10,899 (8.7) U.S. (US$) 14,682 16,656 (11.9) Service rig fleet 210 163 28.8 Service rig operating hours 52,057 24,831 109.6 Revenue per operating hour (Cdn$) 636 745 (14.6) ---------------------------------------------------------------------------- (1) Includes lump sum revenue from contract shortfall. (2) Includes revenue from idle but contracted rig days. (3) 2016 comparative includes revenue from contract cancellation payments.

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Financial Position

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December March 31, 31, (Stated in thousands of Canadian dollars, except ratios) 2017 2016 ---------------------------------------------------------------------------- Working capital 248,892 230,874 Cash 120,580 115,705 Long-term debt(1) 1,892,739 1,906,934 Total long-term financial liabilities 1,918,636 1,946,742 Total assets 4,261,536 4,324,214 Long-term debt to long-term debt plus equity ratio(1) 0.49 0.49 ---------------------------------------------------------------------------- (1) Net of unamortized debt issue costs.

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Summary for the three months ended March 31, 2017:

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-- Revenue this quarter was $346 million which is 15% higher than the first

quarter of 2016. The increase in revenue is primarily the result of greater activity in all of our North American based businesses and higher average day rates from our international contract drilling business partially offset by lower contract short-fall payments, a decrease in average day rates in all of our North American businesses and no utilization in our Mexico based contract drilling business. Compared with the first quarter of 2016 our activity for the quarter, as measured by drilling rig utilization days, increased 71% in Canada and 45% in the U.S. and it decreased 6% internationally. Revenue from our Contract Drilling Services and Completion and Production Services segments both increased over the comparative prior year period by 10% and 63%, respectively.

-- Adjusted EBITDA this quarter of $84 million is a decrease of $15 million

from the first quarter of 2016. Our adjusted EBITDA as a percentage of revenue was 24% this quarter, compared with 33% in the first quarter of 2016. The decrease in adjusted EBITDA as a percent of revenue was mainly due to lower average day rates in North America and lower contract shortfall payments in the U.S. During the quarter, we incurred costs associated with repositioning drilling rigs to higher demand basins and time-based maintenance. These costs were primarily incurred in our U.S. operations.

-- Operating loss (see "Non-GAAP Measures" in this news release) this

quarter was $13 million compared with operating earnings of $4 million in the first quarter of 2016. Operating results this quarter were negatively impacted by decreased pricing in all of our North American businesses.

-- General and administrative expenses this quarter were $25 million, $2

million lower than the first quarter of 2016. The decrease is due to cost saving initiatives undertaken in 2016 and a moderate strengthening of the Canadian dollar on our U.S. dollar denominated costs partially offset by an increase in our share based incentive compensation that is tied to the price of our common shares.

-- Net finance charges were $33 million, a decrease of $3 million compared

with the first quarter of 2016 primarily due to a reduction in interest expense related to debt retired in 2016.

-- Average revenue per utilization day for contract drilling rigs decreased

in the first quarter of 2017 to $18,524 from the prior year first quarter of $23,880 in Canada and decreased in the U.S. to US$19,972 from US$31,830. The decrease in Canada is the result of lower spot market rates and a higher proportion of revenue from shallower drilling activity relative to the 2016 comparative period. During the quarter, we recognized $9 million in revenue associated with contract shortfall payments in Canada which was in line with shortfall and contract cancellation revenue recognized in the prior year period. The decrease in the U.S. revenue rate is the result of fewer rigs working under long- term contracts and a lower daily revenue impact from idle but contracted rigs. We recognized US$1 million in turnkey revenue compared with US$6 million in the 2016 comparative period and US$3 million in idle but contracted revenue in the current quarter versus US$7 million in the comparative period. In the U.S. for the prior year comparative quarter, we recognized US$13 million in incremental revenue related to three one- time payments for contract terminations.

-- Average operating costs per utilization day for drilling rigs in Canada

decreased to $9,947 compared with the prior year first quarter of $10,899. The decrease in average costs is due to cost saving initiatives and improved absorption of fixed costs with a higher utilization base. In the U.S., operating costs for the quarter on a per day basis decreased to US$14,682 in 2017 compared with US$16,656 in 2016 due to fixed costs spread over higher utilization partially offset by costs associated with repositioning drilling rigs to more active basins and completing time-based maintenance. In addition, higher turnkey activity increased per day costs in 2016.

-- We realized revenue from international contract drilling of US$36

million in the first quarter of 2017, a US$5 million increase over the prior year period. The increase was due to the startup of two new rigs in Kuwait in the fourth quarter of 2016 partially offset by a reduction in activity in our Mexico operations. Average revenue per utilization day in our international contract drilling business was US$50,434 an increase of 21% over the comparable prior year quarter primarily due to rig mix as we had fewer rigs working in the lower day rate jurisdictions.

-- Directional drilling services realized revenue of $13 million in the

first quarter of 2017 compared with $8 million in the prior year period. The increase was primarily the result of increased activity in Canada and a greater proportion of higher day rate activity in the U.S.

-- Funds provided by operations in the first quarter of 2017 were $86

million, a decrease of $8 million from the prior year comparative quarter of $94 million. The decrease was primarily the result of lower operating results.

-- Capital expenditures for the purchase of property, plant and equipment

were $22 million in the first quarter, a decrease of $5 million over the same period in 2016. Capital spending for the quarter included $4 million for expansion capital, $13 million for upgrade capital and $5 million for the maintenance of existing assets and infrastructure spending.

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STRATEGY

Precision's strategic priorities for 2017 are as follows:

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1. Deliver High Performance, High Value service offering in an improving

demand environment while demonstrating fixed cost leverage - In the U.S., we grew our active rig count by 44% throughout the first quarter of 2017, the highest quarterly growth in our history. In Canada, we began the year with 50 active rigs and reached a seasonal peak of 91 rigs. Year-over-year our first quarter utilization days were up 60% across our North American drilling operations and was achieved without any meaningful increase in fixed costs. 2. Commercialize rig automation and efficiency-driven technologies across our Super Series fleet - Beta-style field trials utilizing rig automation technologies, including advisory software and wired drill pipe are ongoing and we expect to commercialize these automation features during 2017. 3. Maintain strict financial discipline in pursuing growth opportunities with a focus on free cash flow and debt reduction - Effectively all upgrade capital spending is supported by take-or-pay term contracts priced at a level that allows for attractive rates of return. In the first quarter, we generated funds from operations of $86 million - see "Non-GAAP measures."

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OUTLOOK

For the first quarter of 2017, the average West Texas Intermediate price of oil and average Henry Hub natural gas price were 55% higher than the prior year comparative period.

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Year ended Three months ended December March 31, 31, 2017 2016 2016 ---------------------------------------------------------------------------- Average oil and natural gas prices Oil West Texas Intermediate (per barrel) (US$) 52.00 33.51 43.30 Natural gas Canada AECO (per MMBtu) (CDN$) 2.63 1.84 2.14 United States Henry Hub (per MMBtu) (US$) 3.07 1.98 2.48 ----------------------------------------------------------------------------

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