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News

March 24, 2021

STAMPEDE DRILLING INC. ANNOUNCES 2020 FORTH QUARTER RESULTS

Canada NewsWire

CALGARY, AB, March 24, 2021 /CNW/ – Stampede Drilling Inc. (“Stampede” or the “Corporation”) (TSXV: SDI) announces today its financial and operational results for the year ended .

The following should be read in conjunction with the Corporation’s consolidated financial statements and the notes thereto for the year ended , related management’s discussion and analysis and annual information form, 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.

FINANCIAL SUMMARY

Three months ended
December 31,

Year ended
December 31,

(000’s CAD $ except per share amounts)

2020

2019

%
Change

2020

2019

%
Change

2018

Continuing operations

Revenue

2,515

6,705

(62%)

14,394

23,697

(39%)

16,028

Direct operating expenses

1,496

4,589

(67%)

9,529

15,500

(39%)

10,381

Gross margin (1)

1,019

2,116

(52%)

4,865

8,197

(41%)

5,647

Net loss from continuing operations

(2,386)

(104)

2,194%

(4,042)

(1,247)

224%

(88)

Basic and diluted loss per share

(0.01)

(0.00)

nm

(0.03)

(0.01)

nm

(0.00)

Adjusted EBITDA (1)

479

1,139

(58%)

2,377

4,126

(42%)

3,060

Weighted average common shares outstanding

132,046

132,046

0%

132,046

131,851

0%

130,541

Weighted average diluted common shares outstanding

132,046

132,046

0%

132,046

131,851

0%

130,541

Combined operations (2)

Net loss

(1,666)

(154)

982%

(4,042)

(245)

1,550%

(4,124)

Basic and diluted loss per share

(0.01)

(0.00)

nm

(0.03)

(0.00)

nm

(0.03)

Adjusted EBITDA (1)

479

1,056

(55%)

2,377

4,589

(48%)

1,776

Capital expenditures

703

2,295

(69%)

3,505

9,580

(63%)

16,599

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.

As at December 31,

(000’s CAD $)

2020

2019 (1)

%
Change

Current assets

4,197

7,958

(47%)

Total assets

47,784

53,182

(10%)

Total current liabilities

10,008

16,199

(38%)

Total non-current liabilities

5,005

429

1,067%

Shareholders’ equity

32,771

36,554

(10%)

(1) Includes assets and liabilities classified as held for sale

2020 OPERATIONAL OVERVIEW

2020 was a difficult year for the oil and gas industry marked by unprecedented challenges. In late Q1, commodity prices drastically declined due to over supply concerns stemming from failed negotiations between OPEC+ countries on production curtailments combined with a decrease in global oil demand due to the COVID-19 pandemic. As a result, producer cash flows were negatively impacted which resulted in cancelled drilling programs across , temporarily shutting in of production and cost cutting measures by producers to protect their balance sheets. Commodity pricing started to improve in , however overall benchmark crude oil prices in 2020 remained 31% lower than the prior year. As a result, in , the Corporation implemented key cost and discretionary spending plan adjustments. For the year ended , total administrative expenses were down 35% as compared to the corresponding 2019 period as a result of the following cost cutting measures:

  • Elimination of all discretionary spending, non-essential travel, and entertainment.
  • 18% to 36% reduction to executive cash compensation.
  • Employee salary reductions, modified work schedules, job sharing and layoffs.
  • Elimination of all cash compensation for the Board of Directors.

In addition, the Corporation qualified for the Canadian Federal Government’s Canadian Emergency Wage Subsidy program (“CEWS”) which was used to reduce employee related salary expenses and help minimize reduction in headcount. For the year ended , the Corporation recorded against cost of sales and against salaries and benefit expenses.

On , the Corporation announced that it had completed the restructuring and amendment of the Debentures to:

  • extend the maturity date of the Debentures to ;
  • lowered the conversion price of the Debentures from to per Share;
    provide the Corporation with the ability to pay accrued interest in Shares based on the average trading price of the Shares over the previous 30 trading days (subject to the prior approval from the TSX Venture Exchange); and
  • update the redemption thresholds in the Debentures, such that the Corporation: (i) may not redeem the Debentures prior to ; (ii) may redeem the Debentures on and after and prior to at the Redemption Price (as defined in the Debentures), provided the current market price of the Shares is at least 125% of the Conversation Price; and (iii) may redeem the Debentures on and after at the Redemption Price.

On November 30, 2020, the Corporation finalized a loan facility with the Business Development Bank of (“BDC”) in an amount of (the “BDC Facility”). The BDC Facility has an interest rate equal to BDC’s floating base rate, currently at 4.55% and a maturity date of . In connection with the BDC Facility, the Corporation granted to BDC a subordinated security interest in all present and after–acquired property, except for consumer goods, accounts receivable and inventory. The security interest of BDC is subordinate in right of payment to the security interests granted by the Corporation to HSBC Bank Canada in connection with the 2018 Credit Facility.

In conjunction with the BDC Facility, the Corporation amended its 2018 Credit Facility, including adjustments to, and suspension of, certain debt covenant thresholds with HSBC Bank Canada commencing on until , as well as other amendments to reflect the establishment of the BDC Facility.

As at , the Corporation completed a review of the useful lives and estimated residual values of its property and equipment. Due to uncertainty associated with the Corporation’s ability to monetize the assets at values in excess of their net book values, coupled with negative economic effects of the ongoing COVID-19 pandemic, the Corporation identified specific spare parts in which the carrying value is not expected to be fully recoverable. As a result, the Corporation recognized a write-down of property and equipment of (2019 – nil), which is recognized in the statement of comprehensive loss.

OUTLOOK

A turnaround in commodity prices that began in Q4 2020 has continued into 2021 due to short–term production cuts by and OPEC+, combined with renewed optimism for rising energy demand due to the deployment of COVID–19 vaccines around the world. The favorable increase in commodity pricing has resulted in record drilling utilization for the Corporation throughout Q1 2021. With the addition of 2 new customers in 2021, the Corporation had all 10 of its marketable rigs working during the first quarter.

For the 2 nd half of 2021, the Corporation remains cautious on forecasted drilling activity as COVID–19 variants and longer–term over supply concerns still create considerable uncertainty with regards to the outlook in commodity prices. However preliminary discussions with the Corporation’s customer base indicates a modest increase in capital spending in 2021 vs 2020 due to the current strengthening of commodity prices. Management will continue to focus on maintaining a prudent capital structure and positioning the Corporation to take advantage of growth opportunities. The Corporation’s current capital commitments are , in the event market conditions continue to improve, any additional capital spending by the Corporation for the remainder of 2021 will be based on confirmed work with its customers.

RESULTS OF CONTINUING OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2020

Year ended December 31,

(000’s CAD $ except operating days)

2020

2019 (1)

% Change

Revenue

14,394

23,697

(39%)

Direct operating expenses

9,529

15,500

(39%)

Gross margin (2)

4,865

8,197

(41%)

Gross margin %

34%

35%

(3%)

Net loss from continuing operations

(4,042)

(1,247)

224%

General and administrative expenses

3,101

4,782

(35%)

Adjusted EBITDA (2)

2,377

4,126

(42%)

Drilling rig operating days

681

1143

(40%)

Drilling rig revenue per day

21.1

20.7

2%

Drilling rig utilization

19%

34%

(44%)

CAODC industry average utilization (3)

16%

22%

(27%)

nm – not meaningful

(1) The comparative period has been restated to reflect discontinued operations as discussed in Note 4 of the 2020 annual consolidated financial statements.

(2) Refer to “Non-GAAP measures” for further information.

(3) Source: The Canadian Association of Oilwell Drilling Contractors (“CAODC”) monthly Contractor Summary

  • In 2020, revenue was $14,394 , a decrease of $9,303 (39%) compared to $23,697 for the year ended December 31, 2019 . The decrease was because of decreased drilling activity related to the continued economic slowdown and the corresponding negative impact on oil and gas commodity pricing which began in March 2020 .
  • The Corporation’s drilling rig operating days of 681 days for 2020 was a 40% decrease over the 1,143 operating days in 2019. Drilling rig utilization for 2020 was 19%, which was above the CAODC industry average utilization rate of 16%. Overall Canadian drilling activity was down as producers drilling programs were drastically reduced or eliminated completely.
  • As a result of the decreased 2020 operating days and corresponding revenue, Adjusted EBITDA for the year ended December 31, 2020 was $2,377 , a decrease of $1,749 (42%) from $4,126 for the 2019 corresponding period. The 2020 decrease was partially offset by the $911 of CEWS funding the Corporation qualified for in 2020.
  • For the year ended December 31, 2020 , gross margin as a percentage of revenue was 34%, a decrease of 3% from the corresponding 2019 period. Gross margin was negatively impacted from fire-up costs in December 2020 for the forecasted Q1 2021 drilling program. These costs were partially offset by a higher revenue per day and a reduction in field labor costs due to the $451 CEWS funding the Corporation qualified for in 2020 which was recorded against cost of sales for the year ended December 31, 2020 .
  • General and administrative expenses for the year ended December 31, 2020 were $3,101 down $1,681 (35%) from $4,782 for the comparable period of 2019. The 2020 decrease in general and administrative expenses was because of the Corporation’s cost cutting initiatives implemented in March 2020 . Cost cutting initiatives included reduced headcount, salary roll backs, elimination of all discretionary spending and incentives earned during 2020 as part of the Canada Emergency Wage Subsidy from the Government of Canada . The Corporation recorded $460 against general and administrative expenses, for the year ended December 31, 2020 .
  • For the year ended December 31, 2020 , the Corporation’s net loss was $4,042 , an increase of $2,795 (224%) from a net loss of $1,247 for the comparable 2019 period. As well as the overall drop in drilling activity, the Corporation identified $720 in specific assets that were reduced to their salvage value.

FOURTH QUARTER RESULTS OF CONTINUING OPERATIONS

Three months ended December 31,

(000’s CAD $ except per day amounts)

2020

2019 (1)

% Change

Drilling rig revenue

2,515

6,705

(62%)

Direct operating expenses

1,496

4,589

(67%)

Gross margin (2)

1,019

2,116

(52%)

Gross margin %

41%

32%

28%

Net loss from continuing operations

(2,386)

(104)

2,194%

General and administrative expenses

653

1,093

(40%)

Adjusted EBITDA (2)

479

1,139

(58%)

Drilling rig operating days

114

289

(60%)

Drilling rig revenue per day

22.0

23.2

(5%)

Drilling rig utilization

12%

31%

(60%)

CAODC industry average utilization (3)

16%

23%

(30%)

nm – not meaningful

(1)

The comparative period has been restated to reflect discontinued operations as discussed in Note 4 of the 2020 annual consolidated financial statement

(2)

Refer to “Non-GAAP measures” for further information.

(3)

Source: The Canadian Association of Oilwell Drilling Contractors (“CAODC”) monthly Contractor Summary

As commodity pricing for oil and gas slowly improved during the year from the dramatic lows of March 2020 , producers remained cautious on their drilling program spending negatively impacting the Corporation’s Q4 2020 operating activity. As a result revenue for the three months ended December 31, 2020 , was $2,515 , a decrease of $4,190 (62%) compared to $6,705 for the 2019 corresponding period.

  • The Corporation’s drilling rig operating days of 114 days for Q4 2020 was a 60% decrease over the 289 operating days in Q4 2019. Drilling rig utilization for 2020 was 12%, which was below the CAODC industry average utilization rate of 16%. Overall Canadian drilling activity was down as producers drilling programs were drastically reduced or eliminated completely.
  • As a result of the decreased Q4 2020 operating days and corresponding decrease in revenue, Adjusted EBITDA for the three months ended December 31, 2020 was $479 , a decrease of $660 (56%) from $1,139 for the 2019 corresponding period.
  • For the three months ended December 31, 2020 , gross margin as a percentage of revenue was 41%, an increase of 28% from 32% for the corresponding 2019 period. Gross margin was up primarily due to the reduction in field labor costs as a result of the Canadian emergency wage subsidy. The Corporation recorded $451 against cost of sales for the three month period ended December 31, 2020 .
  • General and administrative expenses for the three month period ended December 31, 2020 were $653 down $440 (40%) from $1,093 for the comparable period of 2019. The 2020 decrease in general and administrative expenses was because of the Corporation’s cost cutting initiatives implemented in March 2020 . Cost cutting initiatives included reduced headcount, salary roll backs, elimination of all discretionary spending and the $130 of CEWS recorded against general and administrative expenses, for the three months ended December 31, 2020 .
  • For the three months ended December 31, 2020 , the Corporation’s net loss was $2,386 , an increase of $2,282 from a net loss of $104 for the comparable 2019 period. As part of the net loss due, the Corporation recorded a write down in assets of $720 during Q4 2020.

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 net 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.

Three months ended
December 31,

Year ended
December 31,

(000’s CAD $)

2020

2019

%
Change

2020

2019

%
Change

Net loss from continuing operations

(2,386)

(104)

2,194%

(4,042)

(1,247)

224%

Depreciation

1,922

1,055

82%

4,838

4,274

13%

Write-down of property and equipment

720

nm

720

nm

Finance costs

143

184

(22%)

687

684

0%

Other income

(4)

(19)

(79%)

(56)

(123)

(54%)

Gain from disposition of property and equipment

(8)

(100%)

(8)

(100%)

Gain from equipment lost in hole

(4)

nm

(19)

(100%)

Share-based payments

19

50

(62%)

214

428

(50%)

Transaction costs

41

10

nm

76

156

(51%)

Foreign exchange gain

24

(25)

(196%)

24

(19)

(226%)

Gain on extinguishment of convertible debenture

nm

(84)

nm

Adjusted EBITDA

479

1,139

(58%)

2,377

4,126

(42%)

nm – not meaningful

(ii)

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) 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
December 31,

Year ended
December 31,

(000’s CAD $)

2020

2019

%
Change

2020

2019

%
Change

Income (loss) from operations

(89)

1,127

(108%)

426

4,206

(90%)

Depreciation of property and equipment

1,108

989

12%

4,439

3,991

11%

Gross margin

1,019

2,116

(52%)

4,865

8,197

(41%)

Gross margin %

41%

32%

28%

34%

35%

(3%)

nm – not meaningful

FORWARD-LOOKING INFORMATION

Certain statements contained in this News 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 “anticipate”, “plan”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”, “could”, “believe”, “predict”, and “forecast” are intended to identify forward-looking information.

This News Release contains forward-looking information pertaining to, among other things: the Corporation’s expectations regarding the recoverability of carrying value of spare parts; expectations associated with the Corporation’s outlook, including among other things, the impacts of production cuts by Saudi Arabia and OPEC+, rising energy demand due to the deployment of COVID-19 vaccines, forecasted drilling activity and capital spending of the Corporation’s customers, and the Corporation’s capital spending expectations; the forecasted Q1 2021 drilling program; and the belief that Adjusted EBITDA is a useful supplemental financial measure, amongst others.

Forward-looking information is presented in this News 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 recent collapse of global crude oil prices, other commodity prices and the recent 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 News 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 effect the stabilization of global crude prices will have on drilling and completion activities in Western Canada ; the creditworthiness of the Corporation’s customers; the effectiveness of the Corporation’s financial risk management policies at ensuring all payables are paid within the pre-agreed credit terms; 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 the Corporation’s management’s discussion and analysis dated March 24, 2021 and 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 News 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 News Release is expressly qualified by this cautionary statement.

SOURCE Stampede Drilling Inc.

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