Precision Drilling Corporation Q1 FY2025 earnings call

Carey Ford noted Precision's Q1 financial results met expectations for adjusted EBITDA, earnings, and cash flow. Adjusted EBITDA was driven by strong drilling in Canada and steady cash flow from U.S., Middle East, and C&P operations. Revenue decreased 6% y-o-y. Kevin Neveu discussed Canadian market with 47 rigs operating, expecting to add rigs in May, with rig mix including 40% in Montney gas/condensate. In the U.S., the sales and operations team was restructured, with activity up to 34 rigs. International business had rig changes in Kuwait and Saudi Arabia. Capital spending was reduced, focusing on deleveraging and cost control.

Precision's Q1 adjusted EBITDA was $137 million. Revenue for the quarter was $496 million, a 6% decrease from Q1 2024. In the U.S., drilling activity averaged 30 rigs in Q1, a decrease of 4 rigs from the previous quarter. Daily operating margins in Q1, excluding the impacts of turnkey and IBC, were US$8,360, a decrease of US$787 from Q4. For Q2, normalized margins were expected to be between US$7,000 and US$8,000. Daily operating costs in the U.S. were high due to rig activations, mobilizations, etc. Canada's drilling activity averaged 74 rigs in Q1, an increase of 1 rig from Q1 2024. Daily operating margins for the quarter were $14,779, a decrease of $858 from Q1 2024, with Q2 margins expected between $13,500 and $14,500. Internationally, drilling activity averaged 8 rigs in the quarter, with international average day rates at US$49,419, a 6% decrease from the prior year due to fewer rig moves. The C&P segment's adjusted EBITDA this quarter was $18 million, down 8% compared to the prior year quarter, negatively impacted by a 10% decrease in well service hours but slightly offset by higher margins. The full year 2025 capital plan was reduced from $225 million to $200 million, comprised of $158 million for sustaining and infrastructure and $42 million for upgrade and expansion.

Q2 normalized U.S. daily operating margins were expected to be between US$7,000 and US$8,000. The full year 2025 capital plan was reduced to $200 million. The net debt to trailing 12-month EBITDA ratio was approximately 1.5x and was expected to continue declining. The plan was to reduce debt by $100 million in 2025 and allocate 35% to 45% of free cash flow before debt principal payments towards share repurchases.

Macro economic uncertainty could impact customer spending plans. International contract awards were slow. There was uncertainty in controlling U.S. operating costs. Tariffs and counter tariffs could affect drill pipe costs. Canadian market faced price pressure.

Q: Aaron MacNeil asked about the performance model vs day rate model.

A: Kevin Neveu said he still liked the a la carte style with some rigs operating under performance contracts where they received incentives for better performance.

Q: Keith MacKey inquired about the impact of the capital reduction.

A: Kevin Neveu stated that meeting the capital allocation guidance was not dependent on the amount of capital expenditures.

Q: Waqar Syed asked about rig mobilization/reactivation costs.

A: Carey Ford said it was typically between $500,000 and $1 million.

Q: John Daniel asked about the decision to exit the well service business in the U.S.

A: Kevin Neveu said it was due to Canadian customers selling assets and being unable to compete with local price-sensitive peers.

Q: Aaron Rosenthal asked about international rigs.

A: Carey Ford confirmed details about rig changes in Kuwait and Saudi Arabia.

Q: John Gibson asked about producer conversations regarding commodity prices.

A: Carey Ford discussed that in the U.S. oily basins, low 60s to high 50s oil prices were stable, and in Canada, it was lower due to exchange rate and pipeline effects.