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Stampede Drilling Inc. Announces 2020 First Quarter Results

CALGARY , May 14, 2020 /CNW/ - Stampede Drilling Inc. ("Stampede" or the "Corporation") (SDI.V) announces today its financial and operational results for the three months ended March 31, 2020 .

The following should be read in conjunction with the Corporation's unaudited condensed consolidated interim financial statements and the notes thereto for the three months period ended March 31, 2020 and related management's discussion and analysis, which are available on SEDAR at www.sedar.com.

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.

Estimates and forward-looking information are based on assumptions of future events and actual results may vary from these estimates. See "Forward-Looking Information" in this press release for additional details.

Q1 2020 OPERATIONAL OVERVIEW

Global oil prices declined significantly during the Q1 2020 period as a result of reduced demand driven by the novel coronavirus ("COVID-19") health pandemic and over supply concerns stemming from failed negotiations between OPEC+ countries on production curtailments.  As a result, the Corporation's customer base have announced significant reductions of their remaining 2020 capital budgets.

During the three months ended March 31, 2020 , the Corporation recorded Adjusted EBITDA from continuing operations of $2,584 , up 3% from the prior year comparative period. Increased Q1 2020 operating days during January and February resulted in a 40% increase in revenue of $10,890 as compared $7,763 from the prior year comparative period. The Corporation's Q1 2020 utilization rate was 58%, which was 66% higher than the CAODC average utilization.

The Corporation recognized net income from continuing operations of $1,135 during the three months ended March 31, 2020 , compared to net income of $1,211 during the prior year comparative period. Net income and Adjusted EBITDA from continuing operations were negatively impacted by higher repairs and maintenance costs and the reallocation of Corporate G&A expenses after the sale of the directional drilling division in Q2 2019. 

RECENT ECONOMIC DEVELOPMENTS

In March 2020 , the World Health Organization declared a global pandemic following the emergence and rapid spread of a novel strain of the coronavirus ("COVID-19").  The outbreak and subsequent measures intended to limit the pandemic contributed to significant declines and volatility in the financial markets.  The pandemic adversely impacted global commercial activity, including significantly reducing worldwide demand for crude oil.  Crude oil prices have also been severely impacted by increased global supply due to disagreements over production restrictions between the Organization of Petroleum Exporting Countries ("OPEC") and non-OPEC members, primarily Saudi Arabia and Russia . The full extent of the impact of COVID-19 on the Corporation's operations and future financial performance is currently unknown. It will depend on future developments that are uncertain and unpredictable, including the duration and spread of COVID-19, its continued impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus.  These uncertainties may persist beyond when it is determined how to contain the virus or treat its impact.  The outbreak presents uncertainty and risk with respect to the Corporation, its performance, and estimates and assumptions used by the Corporation in the preparation of its financial results.

OUTLOOK

As concerns around COVID-19 continue, the Corporation's employees' health and safety remains the primary concern. Since mid-March, measures have been implemented to protect both the field and office employees while ensuring business continuity. COVID-19, combined with crude over supply, will have a significant effect on the Corporation's financial results. However, through maintaining cost and capital discipline while providing exceptional service to our customers, the Corporation is positioned to withstand the impact this commodity price cycle will have on forecasted activity levels for the remainder of 2020 and into 2021.

The following key cost and discretionary spending plan adjustments were implemented in March 2020 :

  • Reduction of forecasted personnel costs consisting of salary reductions, layoffs and job sharing.
  • Reduction of all capital expenditures to only necessary sustaining expenditures reflective of forecasted levels of activity.
  • 18% to 36% reduction to Executive cash compensation.
  • 100% reduction to Board of Directors cash compensation.
  • Elimination of all non-essential travel, entertainment and other discretionary spending.


With regards to the $2,612 convertible debenture due in October 2020 , the Corporation is currently assessing its options to extend the maturity date of the debenture or convert the debenture to equity on the maturity date.

OUTLOOK (continued)

While these cost reductions have been significant, the Corporation continues to review all aspects of the business for further optimization with our customers and cost reduction opportunities.

FINANCIAL HIGHLIGHTS

FIRST QUARTER 2020 SUMMARY (Compared with the first quarter 2019)

  • Revenue from continuing operations of $10,890 , up 40% from $7,763 ;
  • Gross margin from continuing operations of $3,529 , up 5% from $3,360 ;
  • Adjusted EBITDA from continuing operations of $2,584 , up 3% from an Adjusted EBITDA $2,499 ;
  • Net income from continuing operations of $1,135 , down 6% from $1,211 ;
  • Net income from combined operations of $1,135 , down 44% from $2,041



Three months ended March 31,

(000's CAD $ except per share amounts)

2020

2019

% Change

Continuing operations




Revenue

10,890

7,763

40%

Direct operating expenses

7,361

4,403

67%

Gross margin (1)

3,529

3,360

5%

Net income from continuing operations

1,135

1,211

(6%)

Basic per share

0.01

0.01

nm

Diluted per share

0.01

0.01

nm

Adjusted EBITDA (1)

2,584

2,499

3%

Weighted average common shares outstanding

132,046

131,615

0%

Weighted average diluted common shares outstanding

145,528

137,171

6%

Combined operations (2)




Net income

1,135

2,041

(44%)

Basic per share

0.01

0.02

nm

Diluted per share

0.01

0.01

nm

Adjusted EBITDA (1)

2,584

3,028

(15%)

Capital expenditures

705

255

176%

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.


Three months ended March 31,

(000's CAD $ except operating days)

2020

2019(1)

% Change





Revenue

10,890

7,763

40%

Direct operating expenses

7,361

4,403

67%

Gross margin (2)

3,529

3,360

5%

Gross margin %

32%

43%

(26%)

Net income from continuing operations

1,135

1,211

(6%)

General and administrative expenses

1,142

998

14%

Adjusted EBITDA (2)

2,584

2,499

3%

Adjusted EBITDA as a % of revenue

24%

32%

(25%)

Drilling rig operating days

531

378

40%

Drilling rig revenue per day

20.5

20.5

0%

Drilling rig utilization

58%

52%

12%

CAODC  industry average utilization (3)

35%

29%

21%

(1) The comparative period has been restated to reflect discontinued operations as discussed in Note 4.

(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 PERIOD ENDED MARCH 31, 2020

  • First quarter revenue increased by $3,127 (40%) to $10,890 in 2020 as compared to $7,763 in 2019. The increase was as a result of an increase in operating days due to the higher average rig count in the first quarter of 2020. The revenue per day in the first quarter of 2020 remained consistent with the revenue per day in the first quarter of 2019.

  • Operating days in the drilling rig division of 531 days for the first quarter of 2020 was 153 days (40%) higher than the 378 operating days in corresponding period of the prior year , 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 the first quarter of 2020 was 58%, 66% above the CAODC industry average utilization rate of 35%.

  • For the first quarter of 2020, gross margin as a percentage of revenue was 32%, 26% lower than the first quarter of 2019 of 43% due to higher direct operating expenses from repair and maintenance expenses combined with higher start up costs for rigs that began operations in the first quarter of 2020.

  • For the period ended March 31, 2020 , net income from continuing operations of $1,135 was down $76 (6%) compared to net income of $1,211 during the prior year comparative period. For the period ended March 31, 2020 , Adjusted EBITDA was $2,584 an $85 (3%) increase from $2,499 as compared to the corresponding 2019 period, as a result of the increase in active rig count which was partially offset by the increased general and administrative expenses compared to 2019. Net income and Adjusted EBITDA from continuing operations were negatively impacted by start up costs incurred for rigs that began operations in the first quarter and the reallocation of Corporate G&A expenses after the sale of the directional drilling division in Q2 2019.

  • General and administrative expenses for the first quarter of 2020 were $1,142 up $144 (14%) from $998 for the comparable period of 2019, 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 as part of the discontinuation of the directional drilling division in Q2 2019.


Other Items


Three months ended March 31,

(000's CAD $)

2020

2019

% Change

Gain from equipment lost in hole

-

15

(100%)

Finance costs

(221)

(175)

26%

Other income

24

42

(43%)

Foreign exchange gain

35

4

775%

Transaction costs

-

(99)

(100%)

Other items

(162)

(213)

(24%)

For the period ended March 31, 2020 , finance costs were $221 , a $46 (26%) increase from $175 as compared to the first quarter of 2019.  The increase was due to higher 2020 debt levels associated with the Corporation's line of credit. The  higher 2020 debt levels as compared to the first quarter of 2019 were a result of increased capital spend and working capital as a result of increased activity for the period ended March 31, 2020 compared to the corresponding period of the prior year.

For the period ended March 31, 2020 , other income was $24 as compared to $42 in the corresponding 2019 period. Other income is comprised of rent collections from the Corporation's subleases.

For the period ended March 31, 2020 , there were no transaction costs incurred compared to $99 (100%) in the corresponding 2019 period. Transaction costs for 2019 consisted of non-capitalizable amounts related to US start-up costs.

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 of 2019, the Corporation disposed of its directional drilling assets to an independent, third-party purchaser.

RESULTS OF DISCONTINUED OPERATIONS (continued)

The following sets forth the operating results and cashflows from discontinued operations for the comparative period ended March 31, 2019 :


Three months ended March 31,


2019



Revenue

1,835



Cost of sales:


Direct operating expenses

928

Depreciation of property and equipment

-


928



Income from operations

907



Expenses


Administrative expenses

85

Salaries, benefits, and severance

293

Share based payments

7


385

Net income before interest and other income

522



Loss from disposition of property and equipment

(2)

Gain from equipment lost in hole

307

Foreign exchange gain

3

Net Income - discontinued operations

830

NON-GAAP MEASURES

This press release contains references to (i) Adjusted EBITDA and (ii) Gross margin. These financial measures are not measures that have any standardized meaning prescribed by IFRS and are therefore referred to as non-GAAP (Generally Accepted Accounting Principles) measures. The non-GAAP measures used by the Corporation may not be comparable to similar measures used by other companies.

(i)  Adjusted EBITDA is defined as "income (loss) from operations before interest income, interest expense, taxes, transaction costs, depreciation and amortization, share-based compensation expense, gains on disposal of property and equipment, impairment expenses, other income, foreign exchange, non-recurring restructuring charges, finance costs, accretion of debentures and other income/expenses, and any other items that the Corporation considers appropriate to adjust given the irregular nature and relevance to comparable operations." Management believes that in addition to net and total comprehensive income (loss), Adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how these activities are financed, how assets are depreciated, amortized and impaired, the impact of foreign exchange, or how the results are affected by the accounting standards associated with the Corporation's stock-based compensation plan. Investors should be cautioned, however, that Adjusted EBITDA should not be construed as an alternative to net income (loss) and comprehensive income (loss) determined in accordance with IFRS as an indicator of the Corporation's performance. The Corporation's method of calculating Adjusted EBITDA may differ from that of other organizations and, accordingly, its Adjusted EBITDA may not be comparable to that of other companies.

NON-GAAP MEASURES (continued)


Three months ended March 31,

(000's CAD $)

2020

2019

% Change

Net loss from continuing operations

1,135

1,211

(6%)

Depreciation (1)

1,192

1,046

14%

Finance costs

221

175

26%

Other income

(24)

(42)

(43%)

Gain from equipment lost in hole

-

(15)

(100%)

Share-based payments

95

29

228%

Transaction costs

-

99

(100%)

Foreign exchange gain

(35)

(4)

nm

Adjusted EBITDA

2,584

2,499

3%

nm - not meaningful




(1) Includes depreciation of property and equipment and right-of-use assets

(i)  Gross margin is defined as "gross profit from services revenue from continuing operations before stock-based compensation and depreciation". Gross margin is a measure that provides shareholders and potential investors additional information regarding the Corporation's cash generating and operating performance. Management utilizes this measure to assess the Corporation's operating performance. Investors should be cautioned, however, that gross margin should not be construed as an alternative to net income (loss) and comprehensive income (loss) determined in accordance with IFRS as an indicator of the Corporation's performance. The Corporation's method of calculating gross margin may differ from that of other organizations and, accordingly, its gross margin may not be comparable to that of other companies.


Three months ended March 31,

(000's CAD $)

2020

2019

% Change

Income from operations

2,439

2,422

1%

Depreciation of property and equipment

1,090

938

16%

Gross margin

3,529

3,360

5%

Gross margin %

32%

43%

(26%)

FORWARD-LOOKING INFORMATION

Certain statements contained in this press release constitute forward-looking statements or forward-looking information (collectively, "forward-looking information"). Forward-looking information relates to future events or the Corporation's future performance. All information other than statements of historical fact is forward-looking information. The use of any of the words "plan", ""continue", "estimate", "expect", "intend", "might", "may", "will", "should", "believe", "predict", and "forecast" are intended to identify forward-looking information. This press release contains forward-looking information pertaining to, among other things: the Corporation's expectations regarding the impact on macro-economic factors of the COVID-19 virus, of instability created by OPEC's inability to maintain the global oil supply and the resulting impact of both on commodity prices; the effect of measures implemented by the Corporation to protect its field and office employees while ensuring business continuity; the Corporation's expectation that 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; the Corporation's capital expenditure budget for 2020 and expected responses to COVID-19 and commodity pricing; the Corporation's ability to withstand the impact the current commodity price cycle will have on its forecasted activity levels for the remainder of 2020 and into 2021; the belief that Adjusted EBITDA is a useful supplemental financial measure; the expectation of having full access to its Operating Loan facility to fund 2020 operations and other strategic opportunities; the ability of the Corporation to extend the maturity date of its $2,612 convertible debenture due in October 2020 , or to convert the debenture to equity on the maturity date; and the expected effects of seasonality and weather on the Corporation's operations and business, amongst others.

Forward-looking information is presented in this press release for the purpose of assisting investors and others in understanding certain key elements of the Corporation's financial results and business plan, as well as the objectives, strategic priorities and business outlook of the Corporation, and in obtaining a better understanding of the Corporation's anticipated operating environment. Readers are cautioned that such forward-looking information may not be appropriate for other purposes.

Forward-looking information, by its very nature, is subject to inherent risks and uncertainties and is based on many assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from the expectations of the Corporation expressed in or implied by such forward-looking information and that the Corporation's business outlook, objectives, plans and strategic priorities may not be achieved. Macro-economic conditions, including public health concerns (including the impact of the COVID-19 pandemic) and other geopolitical risks, the condition of the global economy and, specifically, the condition of the crude oil and natural gas industry including the collapse of global crude oil prices, other commodity prices and the decrease in global demand for crude oil in 2020, and the ongoing significant volatility in world markets may adversely impact drilling and completions programs, which could materially adversely impact the Corporation. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding, among other things: the condition of the global economy, including trade, public health (including the impact of the COVID-19 pandemic) and other geopolitical risks; the stability of the economic and political environment in which the Corporation operates; the success of the measures implemented by the Corporation to protect its field and office employees and the ability to ensure business continuity at the same time; the ability of the Corporation to retain qualified staff; the ability of the Corporation to obtain financing on acceptable terms; the impact of increasing competition; the ability to protect and maintain the Corporation's intellectual property; currency, exchange and interest rates; the regulatory framework regarding taxes and environmental matters in the jurisdictions in which the Corporation operates; and the ability of the Corporation to successfully implement key cost and discretionary spending plan adjustments. Actual results and future events could differ materially from those expected or estimated in such forward-looking information.  As a result, the Corporation cannot guarantee that any forward-looking information will materialize and we caution you against relying on any of this forward-looking information. Accordingly, readers should not place undue reliance on forward-looking information.

Additional information on these and other factors are disclosed in our most recently filed management's discussion and analysis, including under the heading "Risks and Uncertainties" therein, in the Corporation's annual information form dated March 25, 2020 , and in other reports filed with the securities regulatory authorities in Canada from time to time and available on SEDAR (sedar.com).

Statements, including forward-looking information, are made as of the date of this press release and the Corporation does not undertake any obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. The forward-looking information contained in this press release is expressly qualified by this cautionary statement.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Stampede Drilling Inc.


Cision

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