Precision Drilling Corp. Q3 FY2024 earnings call

• Precision delivered year-over-year growth in revenue, adjusted EBITDA, and net earnings. Strengthened balance sheet with CAD49 million debt reduction in Q3 and CAD152 million YTD, targeting CAD150 million to CAD200 million in 2024.
• Share repurchases: CAD17 million in Q3 and CAD50 million YTD, tracking 25%-35% of free cash flow to shareholders. Plan to reduce debt by CAD600 million by 2026, achieve low one times net EBITDA leverage, and increase direct shareholder returns toward 50%.
• Increased 2024 capital spending plan from CAD195 million to CAD210 million for rig upgrades and drill pipe purchases ahead of potential tariffs.
• Operational updates: Steady U.S. rig activity with 7 new term contracts in 2025 pipeline; strong demand in Canada for Super Single and super triple rigs due to heavy oil, condensate, and LNG market drivers; international activity steady with one rig recertification issue, expecting Q4 revenue to trend closer to normal.

Canada

• Q3 margins: CAD12,877, lower than guidance due to rig mix. Q4 expected margins: ~CAD15,000/day with winter seasonal ancillary revenue.

U.S.

• Q3 averaged 35 rigs. Daily operating margins (excluding turnkey and IBC) were $10,888, essentially flat from Q2. Q4 expected margins: ~$9,500/day.

International

• Averaged 8 rigs in Q3. International average day rates: $47,223, down 8% y/y due to 44 non-billable utilization days for a rig under certification, offset by positive rig mix.

C&P segment

• Adjusted EBITDA CAD20 million in Q3, up 40% y/y, driven by 34% increase in well service hours, CWC acquisition integration, and improved pricing.

• Q4 margins: Canada expected ~CAD15,000/day, U.S. expected to decrease slightly to ~$9,500/day.
• 2024 depreciation: ~CAD300 million; cash interest expense: ~CAD70 million; effective tax rate: ~25%; SG&A: ~CAD100 million before share-based compensation; share-based compensation charges range CAD40 million-CAD60 million, may vary by up to CAD20 million based on share price relative to peers.
• Plan to reduce debt by CAD600 million between 2022-2026, with ~CAD190 million remaining, aiming for low one times net EBITDA leverage and 50% direct shareholder returns.

• Commodity price volatility impacting drilling activity and margins.
• Rig market competition, especially with overbuilt Tele-Double rigs potentially competing in Super Single and Triple categories.
• Potential impacts of import tariffs on drill pipe purchases and other operational costs.

Q: Kurt Hallead asked about the magnitude of LNG-related rig demand increase in Canada.

A: Kevin Neveu said demand could be in the range of 2-5 rigs due to Trans Mountain Pipeline's impact on LNG Canada.

Q: Kurt Hallead inquired about free cash flow conversions in 2025.

A: Carey Ford stated formal 2025 plans would likely be similar to 2024 with allocations towards debt reduction and share repurchases.

Q: Waqar Syed asked about U.S. drilling margins bottoming.

A: Kevin Neveu said Precision's Super Triple 1500 rigs have better margins, and margins should stabilize in coming quarters.

Q: Waqar Syed asked about seasonality impact on CWC rigs.

A: Kevin Neveu said seasonality involves 2-4 rigs, with daily review to mitigate impact.

Q: John Gibson asked about capital return program shift to 50% free cash flow to shareholders.

A: Carey Ford said moving towards 50% allocation, with share buybacks likely the focus initially but discussing dividends more frequently.

Q: Keith Mackey asked about Tele-Double rig competition risk.

A: Kevin Neveu said Tele-Doubles compete on one/two-well pads, but Super Triples are better on multi-well pads, and Tele-Doubles need lower rates to compete.