Q3 2023 Precision Drilling Corp Earnings Call
Speaker 1: transcript
Speaker 1: you
Okay.
Speaker 2: transcript
Speaker 2: Good day and thank you for standing by. Welcome to the Precision Drilling Corporation 2023 third quarter conference call. I would now like to hand the conference over to Levon Fedunik, Director of Investor Relations. Please go ahead.
Good day, and thank you for standing by walking through the precision drilling Corporation 2023 third quarter Conference call I would now like to hand, the conference over to live on.
The director of Investor Relations. Please go ahead.
Speaker 3: transcript
Speaker 3: Welcome to Precision's third quarter earnings conference call and webcast. Participating on today's call with me will be Kevin Neville, President and CEO and Kerry Ford RCFO. Earlier this morning, Precision reported strong third quarter results, which Kerry will review with you followed by an operational update and outlook commentary from Kevin. Once we have finished our prepared comments, we will open the call to questions.
Welcome to precision <unk> third quarter earnings conference call and webcast participating on today's call with me will be Kevin W. President and CEO and carry forward our CFO.
Earlier this morning precision reported strong third quarter results, which carry what would be with you followed by an operational update and outlook commentary from Kevin.
Once we have finished our prepared comments, we will open the call to questions.
Speaker 3: transcript
Speaker 3: Some of our comments today will refer to non-IFRS financial measures and will include forward-looking statements, which are subject to a number of risks and uncertainties.
Some of our comments today will refer to non <unk> financial measures and will include forward looking statements, which are subject to a number of risks and uncertainties. Please see our news release and other regulatory filings for more information on financial measures forward looking statements and risk factors.
Speaker 3: transcript
Speaker 3: Please see our news release and other regulatory filings for more information on financial measures, forward-looking statements and risk factors.
Speaker 3: transcript
Speaker 3: As a reminder, we express our financial results in Canadian dollars unless otherwise indicated.
As a reminder, we expressed our financial results in Canadian dollars unless otherwise indicated.
Speaker 3: transcript
Speaker 3: Before I pass the call over to Kevin and Carrie, I would like to remind listeners of our CWC energy services acquisition, which we announced in early September .
Before I pass the call over to Kevin and Carrie I would like to remind listeners of our CWC energy services acquisition, which we announced in early September.
Speaker 3: transcript
Speaker 3: This acquisition will position precision as the premier well service provider in Canada and both start drilling operations in both the US and Canada.
This acquisition will position precision as the Premier World service provider in Canada, and bolster our drilling operations in both the U S and Canada.
Speaker 3: transcript
Speaker 3: With the acquisition, precision adds to its marketed fleet, 62 service rates and seven drilling rigs in Canada, plus 11 drilling rigs in the US, which includes seven AC triples.
With the acquisition precision adds to its marketed fleet 62 service rates and seven drilling rigs in Canada, plus 11 drilling rigs in the U S, which includes seven AC triples.
Speaker 3: transcript
Speaker 3: We expect this acquisition to close within the next couple of weeks and generate a creative cash flow on a per share basis in 2024. With that, I'll pass it over to Kerry.
We expect this acquisition to close within the next couple of weeks and generate accretive cash flow on a per share basis in 'twenty 'twenty four with that I'll pass it over to Kerry.
Speaker 4: transcript
Speaker 4: Thank you, LeBond. Precision is two, three financial results to collect the resiliency of our high performance high about a business model, an organizational focus on cash flow and return of capital.
They can have on Q3 financial results reflect the resiliency of our high performance high quality cars as.
Small and organizational focus on cash flow and return of capital.
Speaker 4: transcript
Speaker 4: leading our expectations for just leave it up and further strengthen our balance.
Meeting our expectations for adjusted EBITDA further strengthening our balance sheet.
Speaker 4: transcript
Speaker 4: During the quarter, just to leave it up, $115 million was given by Help these early in activity, improve pricing, and strengthen costs.
During the quarter adjusted EBITDA of $115 million was driven by drilling activity improved pricing and strict cost control.
Speaker 4: transcript
Speaker 4: and included a share-based compensation charge of $31 million. Without this charge, a justice visa dot would have been $146 million, which compares to normalized visa dot $126 million. Thank you, 3, 2022.
And included a share based compensation charge of $31 million without this charge adjusted EBITDA would have been $146 million, which compares to normalized EBITDA of $126 million in.
Q3 2022.
60%.
Speaker 4: transcript
Speaker 4: March is in Canada for higher than guidance, resulting from stronger than expected pricing and cost recovery. Higher interior revenues can improve cost recovery.
Margins in Canada were higher than guidance, resulting from stronger than expected pricing and cost recoveries higher.
Ancillary revenues and improved cost performance in.
Speaker 4: transcript
Speaker 4: In the US, margins were lower than guidance, largely due to an increase in operating costs driven by increased repair and maintenance costs and lower fixed cost absorption, as we're maintaining higher overhead and anticipation of increased activity in the first part 2020.
In the U S margins were lower than guidance largely due to increased operating costs, driven by increased repair and maintenance costs and lower fixed cost absorption as we're maintaining higher overhead in anticipation of increased activity in the first part.
Speaker 4: transcript
Speaker 4: In the US, drilling actually be for precision, average 41 rigs, and Q3, a decrease in temperature.
In the U S drilling activity for precision averaged 41 rigs in Q3, a decrease of 10 rigs from Q2.
Speaker 4: transcript
Speaker 4: Daily operating margins at Q3, excluding the effects of turnkey and IBC, were $11,941, a decrease of $1,563 from Q2.
Daily operating margins in Q3, excluding the impact of turnkey and ITC were 11941 U S dollars a decrease of $1 60.
For U S dollars from Q2.
Speaker 4: transcript
Speaker 4: For Q4, we expect margins excluding the impacts of turnkey and IBC to be in line with Q3 margins in the $11,500 US dollar to $12,000 US dollar rate.
For Q4, we expect margins, excluding the impact of Cherokee and I B C to be in line with Q3 margins in the 11500 U S dollars to 12000 U S dollar range.
Speaker 4: transcript
Speaker 4: In Canada, drilling acted deeper precision at where 57 rigs flight decreased in 2 rigs from Q3 2022. Danae Alperty margins in the quarter with $13,913 an increase of $1,830 from Q2 2023.
In Canada drilling activity for precision averaged 57 rigs a slight decrease of two rigs from Q3 2022.
Operating margins in the quarter with $13913, an increase of $1830 from Q2 2023.
Speaker 4: transcript
Speaker 4: For Q4, our daily operating margins are expected to average over $15,000.
For Q4, our daily operating margins are expected to average over $2000.
Speaker 4: transcript
Speaker 4: an increase of over $1,000 from Q3 levels due to an salary of what your equipment can improve in price.
An increase of over $1000 from Q3 levels due to ancillary what's your equipment and improving pricing.
Speaker 4: transcript
Speaker 4: We continue to build our North American contract book with Q4 2023 drilling rig.
We continued to build our north American contract book with Q4 2023 drilling rigs.
Speaker 4: transcript
Speaker 4: of 57 under Take Your Pay Term Contract on average for the fourth quarter of 2023.
At 57 under take or pay term contracts on average for the fourth quarter of 2023.
Speaker 4: transcript
Speaker 4: In addition, we recently signed several term contracts for work preventing early 2020.
In addition, we recently signed several term contracts for work commencing in early 2024.
Speaker 4: transcript
Speaker 4: Internationally, Drilling Activity for Precision in the Quarter, every sixth rig.
Internationally drilling activity for precision in the quarter averaged six rigs.
Speaker 4: transcript
Speaker 4: International Agress Day rate for $51,570 US dollars. And increase the proof percent from the price.
National average day rates were 51570 U S dollars.
An increase of 3% from the prior year due to rig mix.
Speaker 4: transcript
Speaker 4: We recently activated our fourth rig in Kuwait, and expected fifth rig to be activated in the next few weeks.
We recently activated a fourth rig in Kuwait and expect a fifth rig to be activated in the next few weeks.
Speaker 4: transcript
Speaker 4: We expect earnings and our international business to increase approximately 50% from 2023 to 2020.
We expect earnings in our international business to increase approximately 50% from 2023 to 2024.
Speaker 4: transcript
Speaker 4: Moving to our C&P segment, Adjusted EBITDA this quarter was $14 million, down slightly compared to the prior year quarter with 10% fewer well servicing hours, offset by higher pricing in March.
Moving to our E&P segment adjusted EBITDA This quarter was $14 million down slightly compared to the prior year quarter, with 10% fewer well servicing hours offset by higher pricing and margins.
Speaker 4: transcript
Speaker 4: Moving to the balance sheet, we are committed to reducing depth by over $500 million between 2022 and 2025 and achieving a normalized leverage level of below one time.
Moving to the balance sheet, we are committed to reducing debt by over 500 million.
Between 2022, and 2025 and achieving a normalized leverage level of below one time.
Speaker 4: transcript
Speaker 4: Our debt reduction target for 2023 is $150 million, and we plan to allocate 10% to 20% of free cash flow before principal payments directly to shareholders.
Our debt reduction target for 2023 is $150 million and we plan to allocate 10% to 20% of free cash flow before principal payments directly to shareholders.
Speaker 4: transcript
Speaker 4: During the quarter, we reduced debt by $26 million and have now reduced debt by $126 million year-to-date. Upon closing the CWC acquisition, we will assume CWC debt, make cash payments to CWC shareholders, and incur transaction costs, all totaling in the $60 million to $70 million range.
During the quarter, we reduced debt by $26 million and have now reduced debt by $126 million year to date.
Upon closing the CWC acquisition, we will assume CWC debt make cash payments to CWC shareholders and incurred transaction costs, all totaling in the $60 million $70 million range.
Speaker 4: transcript
Speaker 4: Despite incurring these cash costs, we still expect to meet our annual debt reduction target of $150 million, pointing to robust cash flow expectations in the fourth quarter.
Despite incurring these cash costs, we still expect to meet our annual debt reduction target of $150 million pointing to robust cash flow expectations in the fourth quarter.
Speaker 4: transcript
Speaker 4: As of September 30, our long-term debt position debt of cash was approximately $915 million, and our total liquidity position was $621 million, excluding letters of credit.
As of September 30, our long term debt position net of cash was approximately $915 million and our total liquidity position was $621 million excluding letters of credit.
Speaker 4: transcript
Speaker 4: Our net debt to trailing 12-month EBITDA ratio is approximately 1.7 times and our average cost of debt is approximately 7%.
Our net debt to trailing 12 months EBITDA ratio was approximately one seven times and our average cost of debt is approximately 7%.
Speaker 4: transcript
Speaker 4: We expect our net debt to adjust the EBITDA ratio to be below 1.5 times by year end with net debt of approximately $909 and a run rate interest expense of approximately $65 million.
We expect our net debt to adjusted EBITDA ratio to be below one five times by year end with net debt of approximately $900 million and our run rate interest expense from approximately $65 million.
Speaker 4: transcript
Speaker 4: Our full year, 2020 Capital Plan, has increased from $195 million to $215 million, largely results in signing term contracts with upgrade capital paid back inside of the term of the contract. For several of these contracts, we received cash upfront from the customer.
Our full year 2023 capital plan has increased from $195 million to $215 million largely result of signing some contracts with upgrade capital paid back inside of the term of the contract.
Several of these contracts, we received cash upfront from the customer.
Additional annual guidance for 2023.
Speaker 4: transcript
Speaker 4: which does not consider impacts from the CWC acquisition, includes depreciation at $290 million and SG&A at $90 million before share-based compensation.
Which does not consider impacts from the TWC acquisition include depreciation at $290 million in SG&A SG&A at $90 million before share based compensation expense.
Speaker 4: transcript
Speaker 4: We expect cash interest expenses to be approximately $80 million for the year. It can cash taxes to remain low with an effect in tax rate of approximately $25.
We expect cash interest expense to be approximately $80 million for the year and cash taxes to remain low with an effective tax rate of approximately 25%.
Speaker 4: transcript
Speaker 4: Year-to-date, we have had share-based compensation charges of $22 million.
Year to date, we have had share based compensation charges of $22 million.
Speaker 4: transcript
Speaker 4: As previously stated, we expect our 2023 share-based compensation expense to range between $20 million and $40 million for the share price range of $60 to $100, with the potential to increase or decrease another $15 million based on relative share price performance and a multiple between zero and two times. With that, I will conclude.
As previously stated we expect our 2023 share based compensation expense to range between $20 million and $40 million for the share price range of 60 to $100 with the potential to increase or decrease other $15 million based upon relative share price performance and our multiple between zero and two times.
With that I'll now turn the call over to Kevin.
Speaker 4: transcript
Speaker 4: Thank you, Kerry, and good afternoon. I'm pleased with our third quarter results with improved revenue and cash flow compared to the same period last year, despite lower industry activity in the North American market.
Thank you Carrie and good afternoon.
Pleased with our third quarter results with improved revenue and cash flow compared to the same period last year, despite lower industry activity in North American markets.
Speaker 4: transcript
Speaker 4: I commend everyone in Precision's organization for their precise execution and safety, excellent operational performance, strict financial discipline, and the continued focus on cash management, which was demonstrated across all Precision business segments during the quarter.
I commend everyone in precision as organization for their precise execution and safety.
Excellent operational performance strict financial discipline.
And the continued focus on cash management, which was demonstrated across all precision.
The segments during the quarter.
Speaker 4: transcript
Speaker 4: I continue to be very encouraged by the support of commodity price fundamentals, but also by the strict capital discipline evident across this industry. And this discipline begins with the investor's expectations for shoulder returns, and it continues assistance for industry capital discipline.
I continue to be very encouraged by the support of commodity price levels, but also by the strict capital discipline evident across this industry.
Well it begins with the investors' expectations for shareholder returns and our continued assistance for industry capital discipline.
Speaker 4: transcript
Speaker 4: Our customers are functioning very well in this environment. They are not responding to short-term commodity price signals or volatility. They're managing budgets, they're staying well within cash flow, and most importantly, they're focusing on efficiency and performance.
Our customers are functionally very well this environment.
They are not responding to short term commodity price signals or volatility we are managing budgets are staying well within cash flow and most importantly, they are focusing on efficiency and performance.
Speaker 4: transcript
Speaker 4: Nowhere is this more important than our Canadian segment, where broad industry activity is down 6% during the third quarter compared to last year, as our customers remain highly disciplined, staying within fixed budgets.
And nowhere is this more important that our Canadian segment were broad industry activity is down 6% during the third quarter compared to last year as our customers remain highly disciplined stay within fixed budgets yet.
Speaker 4: transcript
Speaker 4: Our 29 Super Triple Rigs are fully utilized this year compared to 25 at the same time last year. I remind you we'll be adding one more Super Triple to our fleet on January 1st to an upgrade we announced late last year.
Our 28 Super Triple rigs are fully utilized this year compared to 25 at the same time last year. So to remind you will be adding one more super triple to our fleet on January one through an upgrade we announced late last year.
Speaker 2: transcript
Speaker 2: Today we're also running 32 state for singles. And this would be the highest Q3 utilization for this reclass since early last decade.
Today, We're also running 32 Super singles and this would be the highest Q3 utilization for this request since early last decade.
Speaker 2: transcript
Speaker 2: In light of the high-superstack rig demand, we have customers anxious to commit to firm, take-or-pay term contracts, securing rig access.
In light of the high Super spec rig demand, we have customers anxious to commit to firm take or pay term contracts securing rig access.
Speaker 2: transcript
Speaker 2: Currently our Canadian book includes 27 rakes under term contracts. And 17 of those have two year plus terms. I'll remind you that the Canadian market, term take-or-pay contracts, which initially...
Currently our Canadian book includes 27 rigs under term contracts and 17 of those have two year plus terms and remind you that the Canadian market.
Term take or pay contracts are traditionally exceedingly rare.
Speaker 2: transcript
Speaker 2: Notably, we recently booked several customer contracts, which include pad walking and depth extending upgrades. And those rigs are required for the winter 2024 drilling season. And this necessitated increasing our current year capital budget as Kerry described earlier.
Notably, we recently booked several customer contracts, which include pad walking in depth extending upgrades and those rigs are required for the winter 2024 drilling season, and this necessitated increasing our current year capital budget as Terry described earlier.
Speaker 2: transcript
Speaker 2: I'll also reiterate Kerry's comments that the capital will pay back within the contract period and the enhanced margins will continue for the duration of the rig's operation of life.
I'll also reiterate Carey's comments that the capital will pay back within the contract period and the enhanced margins will continue for the duration of the rigs operational life.
Speaker 2: transcript
Speaker 2: Also for several of these contracts, customers provided us with advanced cash payments upfront as we were required to minimize our cash uploads.
Also for several of these contracts customers.
Provided us with advanced cash payments upfront as we work hard to minimize our cash outflows.
Speaker 2: transcript
Speaker 2: Our outlook for Canada remains uniquely strong. Early in 2024, two major hydrocarbon pipe projects will be started up.
Our outlook for Canada remains uniquely strong.
Early in 2020 for two major hydrocarbon pipe projects will be started up the <unk>.
Speaker 2: transcript
Speaker 2: The coastal gasoline pipe set to deliver natural gas to the LNG Canada project, and Trans Mountain expansion, adding almost 700,000 barrels per day of oil export capacity.
Total gasoline type set to deliver natural gas to the LNG, Canada project.
On the Trans mountain expansion, adding almost 700000 barrels per day of oil export capacity.
Speaker 2: transcript
Speaker 2: For Canada, these projects are absolute game changers resulting in significantly improved upstream commodity prices for our customers, deep bottlenecking production and providing global market access for Canadian energy.
For Canada. These projects are absolute game changers, resulting in significantly improved upstream commodity prices for our customers Debottlenecking production and providing global market access for Canadian energy.
Speaker 2: transcript
Speaker 2: Now, I see these independent projects as complementing each other.
Now ICD independent projects is complementing each other.
Speaker 2: transcript
Speaker 2: And that is to say that the liquid condensate produced by the Monteney gas wells is sold commercially as billiwant to the heavy oil producers to enable heavy oil shipping through pipelines. So this significantly improves the economics of the not-need gas producers who are ultimately focused on the LNG exports of the longer term.
And that is to say that the liquid condensate produced by the Montney gas wells the sold commercially as diluent to the heavy oil producers to enable heavy oil shipping through pipelines. So this significantly improves the economics for the Montney gas producers. We are ultimately focused on the LNG exports over the longer term.
Speaker 2: transcript
Speaker 2: Currently, the increased oil export capacity at TMX will serve to reduce the Western Canada Select price discount, significantly improving economics for heavy oil customers.
Concurrently the increased oil export capacity of Tms will serve to reduce the western Canada select price discount significantly improving economics for heavy oil customers.
Speaker 2: transcript
Speaker 2: So for precision, the result is that the natural gas filling in the Monteney is growing to meet the imminent needs of Ellen G. Canada. And heavy oil drilling has rebounded to level, done experience since 2014. And all of this is evidence in our records to perturple demand and our strong super single demand.
So for precision. The result is that the natural gas drilling in the Montney is growing to meet the immediate needs of LNG, Canada and heavy oil drilling has rebounded to levels not experienced since 2014.
All of this is evidenced in our records Super Triple demand were strong Super singles.
Speaker 2: transcript
Speaker 2: So this is truly a game changer for precision Canadian drilling market.
So this is truly a game changer for precision the Canadian drilling market with.
Speaker 2: transcript
Speaker 2: with term contracts providing revenue stability, reduced seasonality with pad rigs drilling throughout breakup, market visibility extending beyond seasonal commodity price volatility, and all of these factors setting us up to deliver sustainable shareholder returns, commensurate with our asset base, and providing opportunities for further expansion in our Canadian footprint.
With term contracts, providing revenue stability reduced seasonality with pad rigs drilling throughout breakup market visibility extending beyond seasonal commodity price volatility and all of these factors setting us up to deliver sustainable shareholder returns.
Answer it with our asset base and providing opportunities for further expansion of our video footprint.
Speaker 2: transcript
Speaker 2: Today, we have 68 rigs running, actually up one from our crest release, which was reporting yesterday's activity. They expect to be in the lowest avenues before the crest is paused.
Today, we have 68 rigs running actually up one from our press release, which was reporting yesterdays activity.
Expect to be in the low seventies before the Christmas pause.
Speaker 2: transcript
Speaker 2: Customer planning for winter suggests a strong and fast start to 2024 with customer demand exceeding 23 levels.
Customer planning for winter suggest a stronger fast start to 2024 with customer demand exceeding 23 23 levels.
Speaker 2: transcript
Speaker 2: We look forward to the addition of the CWC drilling rigs and crews, and we expect that precision- combined activity, this winter, could be up 10 to 15 percent from last year.
So we look forward to the addition of the CWC drilling rigs and crews and we expect that precision combined activity.
It could be up 10% to 15% from last year.
Speaker 2: transcript
Speaker 2: Leading edge day rates for our super triples are now in the mid thirties. And for our conventional super singles in the mid twenties, while our cat equipped super singles have now moved up into the low thirties thousands per day in rain.
Leading edge day rates for our Super triples are now in the mid thirties and for a conditional super singles to mid twenties, while our cat equipped Super singles have now moved up into the low 30 thousands per day range.
Speaker 2: transcript
Speaker 2: In particular, excess customer demand for Precision's ELFA equipped SuperTrip full rigs is seemingly in the range of 7 to 10 additional rig opportunities we're considering. I think the likelihood
In particular excess customer demand for our precision elfa equipped super Triple rigs the seemingly in the range of seven to 10 additional rig opportunities were considered.
I think the likelihood that we secure our.
Speaker 2: transcript
Speaker 2: a customer paid redeployment of at least one or two super troubles from the US to Canada later next year is increasing.
Our customer paid redeployment of at least one or two super triples in the U S to Canada later next year is increasing.
Speaker 2: transcript
Speaker 2: With our super singles, the demand tends to be more seasonal, with winter being the peak season where demand could outstrip our rig availability by 10 or more rigs.
With our Super singles, the demand tends to be more seasonal with would you be into peak season, where demand could outstrip, our availability by 10 or more rigs.
Speaker 2: transcript
Speaker 2: So we expect these market demand signals be lead to additional opportunities for customer funded upgrades, for pad drilling, and longer reach horizontal capabilities, and certainly stimulate further customer interest in take-or-pay term contracts so they can secure access to the rig.
So we expect these market demand signals may lead to additional opportunities for customer funded upgrades for pad drilling.
Longer reach horizontal capabilities, and certainly stimulate further customer interest and take or pay term contracts. So they can secure access to the rigs.
Speaker 2: transcript
Speaker 2: Now turning to the lower 48, the capital discipline I've described in Canada is at work in every U.S. basin.
Now turning to the lower 48, the capital discipline of described in Canada is our work at every U S basis in.
Speaker 2: transcript
Speaker 2: In the interim, it's meant that natural gas drilling has slowed down over the course of 2023, and the increases in oil targeted drilling we expected earlier this year failed to materialize as our customers continue to take the manager drilling budget.
In the near term, it's meant that natural gas drilling has slowed down over the course of 2023 and the increases in oil targeted drilling we expected earlier this year, but failed to materialize as our customers continue to tightly manage their drilling budgets. However.
Speaker 2: transcript
Speaker 2: However, we continue to see customers optimizing drilling efficiency by high grading rigs, focusing on pad drilling, and extending lateral length.
We continue to see customers optimizing drilling efficiency by high grading rigs focusing our pad drilling we're extending lateral lengths. This.
Speaker 2: transcript
Speaker 2: This focus on efficiency is also continuing to drive customer interest in our alpha automation platform, our alpha apps, and it's driving interest in our evergreen best battery energy storage systems and other diesel fuel saving solutions.
This focus on efficiency is also continuing to drive customer interest in our <unk> automation platform. Our alpha apps is driving interest in our evergreen Bes battery energy storage systems and other diesel fuel savings solutions.
Speaker 2: transcript
Speaker 2: Today, we have 44 rigs operating in the US and seem to be in the trough, customer indications and interest indicate an increase in activity as budgets reload for 2024 and we expect to see some of these rigs activated later this year.
Today, we have 44 rigs operating in the U S. It seemed to be in the drop customer indications and interest.
An increase in activity as budgets reload for 2024 and.
And we expect to see some of these rigs activated later this year.
Speaker 2: transcript
Speaker 2: During the third quarter, we continued to experience strong customer interest in our alpha, put super triple rigs.
During the third quarter, we continued to experience strong customer interest in our alpha.
Super Triple rigs.
Speaker 2: transcript
Speaker 2: beginning of the year, we've added five public E&Ps to our customer list and increased our share with two others as we transition to more oil-based work and less private company exposure.
Since the beginning of the year, we've added five public e&ps to our customer list and increased our share with two others as we transition to more oil based work and less private company exposure.
Speaker 2: transcript
Speaker 2: Now, super spec rig supply remains in tight availability. During the third quarter, we secured a paid upgrade, commitment from a customer, to cover the cost of increasing the horizontal depth capability of precision super triple. And during the year, we've actually needed 12 other similar upgrades.
Now a super spec rig supply remains tight availability during the third quarter, we secured a paid upgrade commitment from a customer to cover the cost of increasing the horizontal depth capability of a precision super triple and during the year, we have executed 12 other similar upgrades.
Speaker 2: transcript
Speaker 2: And these upgrades include enhancements to the month-coming capability, the drill pipe rocking capacity, and targeting longer retrozenal wells. And some of these also include evergreen enhancements to improve the fuel efficiency of the rig. We expect to see more of these customer paid upgrades emerging in 2024.
These upgrades include enhancements to the mud pumping capability that drill pipe racking capacity of targeting longer reach horizontal wells and some of these also include evergreen enhancements to improve the fuel efficiency of the rig.
And we expect to see more of these customer Pete up paid upgrades emerging in 2024.
Speaker 2: transcript
Speaker 2: Rig pricing and leading edge rates remain stable as the most capable high specification rigs remain in tight supply. The pricing discipline remains a core strategy across the super spec land market industry.
Rig pricing Olivia as rates remained stable as the most capable high specification rigs rate of tight supply with pricing discipline remains a core strategy across the super spec land market industry.
Speaker 2: transcript
Speaker 2: I'm very excited to add the eight CWC rigs and crews currently operating in Wyoming. We see the Powder River Basin as an excellent opportunity for precision to expand our U.S. operations in 2024.
I'm very excited to add the eight CWC rigs and crews currently operating in Wyoming, and we see the powder River basin as an excellent opportunity for precision to extend our U S operations in 2024.
Speaker 2: transcript
Speaker 2: Now turning towards our national business, as Terry mentioned, we activated our fourth rigging to wait during the third quarter and expect the fifth rig to start up early to mid-November. Fourth rigs are activating several weeks later that we previously got it. And these delays were entirely due to client planning delays, not precision issues.
Now turning towards your National business as Jerry mentioned, we exited our fourth rig in Kuwait during the third quarter, we expect the fifth rig to start up in early to mid November.
Both rigs are activating several weeks later than we previously guided and these delays were entirely due to client planning delays not precision initiatives.
Speaker 2: transcript
Speaker 2: The capital spendage reactivates those rings with largely complete. And the five year contract for each ring will commence when the ring begins operation.
Our capital spending to reactivate those rigs is largely complete and the five year contract for each rig will commence when the rig begins operations.
Speaker 2: transcript
Speaker 2: By mid-November, we'll have all five rigs in Kuwait operating and three rigs in Kingdom of Saudi Arabia running for a total of eight rigs. We'll continue to bid all five idle rigs to opportunities across the Arabian Gulf.
By mid November we will have all five rigs in Kuwait operating three rigs.
Think about Saudi Arabia reveal running for a total of eight rigs and will continue to bid all five idle rigs opportunity across maybe ingalls.
Speaker 2: transcript
Speaker 2: In our well servicing segment, Canadian industry, well servicing activity, noticeably slow in the third quarter as our customers digested.
In our well servicing segment.
Gideon industry, well servicing activity noticed noticeably slowed during the third quarter as our customers digested.
Speaker 2: transcript
Speaker 2: The cost increases related to services inflation, labor costs, and material costs.
The cost increases related to services inflation labor costs and material costs.
Speaker 2: transcript
Speaker 2: We see a backlog of previously planned activity building up. I don't know if you didn't see a significant increase in activity. Next, expect us to continue with you next year.
See a backlog of previously planned activity building up <unk>.
But you didn't see a significant increase in activity. We expect this to continue into next year.
Speaker 2: transcript
Speaker 2: I'm also very encouraged by the strong performance we see in the CWC while services group and look forward to integrating the people of CWC and their operations into our business later this quarter.
I'm also very encouraged by the strong performance, we see in the CWC while services group.
Look forward to integrating the.
People of CWC in their operations into our business later this quarter.
Speaker 2: transcript
Speaker 2: So to wrap up my comments today, I'm thrilled that despite a weaker market than most would have expected, Precision's on track on all three strategic priorities. We also created the financial flexibility to execute a meaningful Canadian consolidation transaction. And we continue to have the flexibility to invest in our fleet, to be customer-backed, rig upgrade opportunities. And with that, I'll now turn the.
So to wrap up my comments today I'm thrilled that despite a weaker market than most would have expected precision is on track on all three strategic priorities.
We also created the financial flexibility to execute a meaningful Canadian consolidation transaction and we continue to have the flexibility to investor fleet to be customer back rig upgrade opportunities.
And with that I'll now turn the call back to the operator for your questions.
Speaker 1: transcript
Speaker 5: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1 1 on your telephone If your question has been answered you wish to move yourself from the queue, please press star 1 1 again We'll pause for a moment while we compile our Q&A roster
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.
Question has been answered the question yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Our first question comes from Aaron Macneil with TD Cowen Your line is open.
Afternoon, and thanks for taking my questions. Kevin I can appreciate that there is a lot of value in keeping your promises on the debt reduction.
Especially in light of the track record over multiple years, but sort of putting that aside.
How does debt reduction compete today for capital with BN CIB.
Given the prevailing valuation and how should we think about that in the context of your strategic priorities for next year.
Yes.
Speaker 4: transcript
Speaker 4: Aaron, so I'll take that one. You know, debt reduction still remains front and center, and we've put out very specific targets for 2023 and then the two years following this year, as we're committed to doing that as we have more free cash flow.
Go ahead, Terry Aaron So I'll take that one.
Reduction still remain front and center and we've put out very specific targets for 2023 and then the two years following this year.
Committed to doing that as we have more free cash flow.
Speaker 5: transcript
Speaker 6: We should be able to expand the amount that we allocate towards share repurchases. This year it's 10 to 20% of our pre-cash flow, which would put it kind of in the $15 to $30 million range of share repurchases. Next year, if our cash flow outlook improves, we should be able to increase that. Got it.
We should be able to expand the amount that we allocate towards share repurchases. This year at 10% to 20% of our free cash flow.
Would put it is kind of in the $15 million to $30 million range of share repurchases net.
Next year, if our cash flow outlook improves we should be able to increase that.
Got it and carry I know you gave guidance for Q4 margins in the U S. In your prepared remarks, but I'm, hoping you can sort of give us a better sense of the moving parts and you mentioned the higher staffing levels, you mentioned R&M like how much of that was.
Call It one time, but maybe abnormal and what's sort of.
Speaker 4: transcript
Speaker 4: Yes, so I think if you think about Q3 and Q4, top line, there won't be a whole lot of movement. And in the cost that we incurred in Q3, a lot of those will repeat in Q4. So that
Correct.
Yes, So I think if you think about Q3 and Q4.
Offline there won't be a whole lot of movement in the cost that we incurred in Q3, a lot of those will repeat in Q4 it to that.
Speaker 4: transcript
Speaker 4: That goes into the margin guidance that we provided.
That goes into the margin guidance that we provided.
Speaker 4: transcript
Speaker 4: As Kevin mentioned our Q2 call, we were going to have the read count kind of moving up and down a little bit around this kind of low 40s level. And that means there's a bit more rig churn than we typically have which causes a little bit more cost. And as I mentioned, we're carrying a bit more overhead.
As Kevin mentioned, our Q2 call we were going to have the rig count kind of moving up and down a little bit around this kind of low <unk> 40 level and that means there is a bit more rig churn than we typically have which causes a little bit more cost and as I mentioned, we're carrying a bit more overhead.
Speaker 4: transcript
Speaker 4: then we are typically with this activity level because we do think that activity.
We typically with this activity level, because we do think that activity is going to increase but for your guidance I would point to.
Speaker 4: transcript
Speaker 4: But for your guidance, I would point to a similar operating cost in Q4 that we added Q3.
A similar operating costs in Q4 that we had in Q3.
Got it okay. Thanks, I'll turn it back thanks Darren.
Speaker 6: transcript
Speaker 7: Our next question comes from Luke Lemoine with Piper Sandler. Your line is open.
Our next question comes from Luke Lemoine with Piper Sandler Your line is open.
Speaker 7: transcript
Speaker 8: A good afternoon. Kevin, I believe you talked about seven to ten additional opportunities in Canada. And maybe you can move one to two US super triples in the Canada. When you're looking at opportunities like that, are these kind of two-year terms that you're targeting to make the move from the US to Canada? Or how are you thinking about this?
Hey, good afternoon.
Kevin I believe you talked about 710 additional opportunities in Canada, and maybe you can move one or two U S Super triples in Canada.
When you are looking at opportunities like that or these kind of two year terms that youre targeting to make the move from the U S, Canada or how are you thinking about that.
Speaker 2: transcript
Speaker 2: Luke, that's a great question and it's a real important strategy question for us as we think about it. And, you know, some of these opportunities might not be for a full year of work. It might be for the winter or maybe for the summer. So we'll look at that very carefully and determine what we think is best. What we'd look for though, number one, is that the operator needs to be paying a leading edge market rate. We've in the past talked about that being around $37,000 per day.
Look that's a great question is real important strategy question for us as we think about it.
Some of these opportunities might not be for full year work might be for which are maybe for the summer. So we'll we'll look at that very carefully and determine what we think is best what we'd look for though.
Number one is that the operator needs to be paying a leading edge market rate.
<unk> talked about that being around 37000 Boes per day.
Speaker 2: transcript
Speaker 2: We've talked about the opportunity needing to pay the full mobilization cost. And you can think about that being around a million dollars to move the rig up and get it ready to work in Canada. So there's a lot of requirements we'll have on our customers if that rig's going to move up. But we also know it'll be a situation where we oversupply the market.
We've talked about the operator.
Needing to pay the full mobilization costs and you can think about that being around $1 billion to move the rig up and get it ready to work in Canada. So theres a lot of.
Requirements will have on our customers of that rig is going to move up.
But we also want to be a situation, where we oversupplied the market.
Speaker 2: transcript
Speaker 2: So, we'll think very carefully to make sure that we think it's sustainable work and that there's a long horizon of work for that rig. So, we'd want a contract that was one to two years in duration, but we'd want to have good visibility and work beyond that. Now, what I'd say is that with the LMG project coming on right now in Canada, we are expecting additional rig demand to meet the requirements of that project, and that's why we're targeting kind of something like one or two rigs, we think.
So we'll think very carefully to make sure that we think it's sustainable work.
Theres a long horizon of work for that rig so we'd want to contracted was one to two years in duration, but we'd want to have good visibility of work beyond that.
Now what I'd say is that with the LNG project coming on right now in Canada.
We are expecting additional rig demand to meet the requirements of that project.
That's why we're targeting kind of something like one or two rigs we think.
Speaker 2: transcript
Speaker 2: The market can probably handle and perhaps we're like, maybe you can handle a third or fourth ring, we'll take a
The market can probably handle and perhaps where like maybe you can handle with third or fourth goodwill, we'll take it one by one.
Speaker 7: transcript
Speaker 8: Okay. And then, just still in Canada, I believe CWC has some non-utilized rigs. What's the outlook on those going forward?
Okay, and then just still on Canada, Blake CWC us non utilized rigs, what's the outlook on those going back to work.
Speaker 2: transcript
Speaker 2: So their fleet is primarily what a classified as Kelly double rigs. Those are generally shallower rigs that are triples and maybe almost deeper than some of our super singles.
So their fleet is primarily what are classified as tele double rigs those are generally shallower rigs that are triples, and maybe a little deeper than some of our Super singles. The currently used in central Southern Alberta, and Saskatchewan scenario that precision hasnt.
Speaker 2: transcript
Speaker 2: commonly used in central southern Alberta and Saskatchewan.
Speaker 2: transcript
Speaker 2: It's an area that Precision hasn't had a lot of focus in the past. We've been really focused on the resource plays, the conventional heavy oil and the Montnique.
We have a lot of focus in the past we've been really focused on the resource plays.
Heavy oil in the.
Speaker 2: transcript
Speaker 2: But we'll certainly bring the CBC team on, we're anxious to see how they've worked. They've been very effective with the winter season. They've had often all of those rigs running through the winter, all six rigs running quite commonly.
The montney.
But we'll certainly bring the CIBC team on rates just to see how.
A big work they've been very effective in the winter season, they've had often all of those rigs running through the woods are all six rigs running quite commonly.
Speaker 2: transcript
Speaker 2: So, you know, to see us running all 60 WC rigs and maybe pulling through a few more of the precision tele-dibles would be a very good outcome. And we think that the sales team from CWC can bring some strong market intelligence on that market segment for us.
No.
See us running all six TWC rigs, maybe pulling through a few more of the precision until examples would be a very good outcome and we think that the sales team from CWC can bring us some strong.
Strong market intelligence on that market segment for us.
Speaker 7: transcript
Speaker 8: If I could sneak one more in real quick. On the U.S. side, I think you said you have 44 rigs operating and some could be reactivated later this year. You know, we've seen momentum, you know, in the Inveris count the last few weeks, especially on the Permian, just on a daily basis. Where do you think kind of your rig count could be maybe, you know, six months from now or three to six months in the U.S., just kind of based on conversations you're having and what you're seeing?
Okay, if I could sneak one more in real quick on the U S side. You said you had 44 rigs operating and some could be reactivated later this year, we have seen momentum embarrass count last few weeks, especially in the Permian just from a daily basis.
Where do you think kind of your rig count could be maybe six months from now or three to six months in the U S. Just kind of based on conversations you are having and what youre seeing.
Speaker 2: transcript
Speaker 2: Yeah, you know, I think we'll be in a fresh budget year come January . And certainly, we've already got customer educations, there'll be more rigs going to work, you know, we're playing that against a couple of these large acquisitions that have been announced recently between Exxon and Chevron, you know, everyone knows that, you know, three plus two equals four, not five. So there's going to be a slight recount reduction with those transactions.
Yes, I think.
We will be in our first budget year from January and certainly we've already got cut.
Customer indications there'll be more rigs going to work you're playing against.
A couple of these large acquisitions that have been announced recently between Exxon and Chevron.
Everyone knows that.
Three plus two equals four not five so there's going to be a slight rig count reduction with those transactions.
Speaker 2: transcript
Speaker 2: But other EMPs right now, they're looking to replace ducts and kind of get back into ensuring they can sustain production. It does feel like rig counts are moving up next year. You know, whether that's 50 or 75 rigs is a bit hard to project. But if we picked up our share of that and what we see in our pipeline right now, adding the eight rigs that are operating right now with CWC, we could have a rig count, you know, back in the low 60s pretty quickly. you
But other e&ps right now theyre looking to replace trucks and can we get back into.
Unknown Attendee: Good day, and thank you for standing by. Welcome to the Precision Drilling Corp. 2023-3rd quarter conference call.
Ensuring they can sustain production.
It does feel like rig counts are moving up next year.
Lavonne Zdunich: I would like to hand the conference over to Lavonne Zdunich, Director of Restorrelations. Please go ahead.
Whether thats 50, or 75 rigs is a bit hard to project.
But if we picked up our share of that and what we see.
Lavonne Zdunich: Welcome to Precision's 3rd quarter earnings conference call and webcast, participating on today's call with me will be Kevin Neveu, President and CEO and Carey Ford RCFO. Earlier this morning, Precision reported strong 3rd quarter results, which Carey will review with you, followed by an operation update and outlook commentary from Kevin. Once we have finished our prepared comments, we will open the call to questions.
Our pipeline right now adding the.
The eight rigs that are operating right now with Pwc.
You have a rig count back into the low <unk> pretty quickly.
Okay.
Perfect. Thanks, Kevin.
Speaker 8: transcript
Speaker 9: Great, thank you.
Great. Thank you.
Speaker 6: transcript
Speaker 7: Our next question comes from Kurt Halid with Benchmark. Your line is open.
Our next question comes from Kurt <unk> with benchmark.
Your line is open.
Hey, good afternoon.
Lavonne Zdunich: Some of our comments today will refer to non-IFRS financial measures and will include forward-looking statements, which are subject to a number of risks and uncertainties. Please see our news release and other regulatory filings for more information on financial measures, forward-looking statements and risk factors. As a reminder, we express our financial resolve. We will also present a number of requests and requests in Canadian dollars, unless otherwise indicated.
Hey, Kurt.
Speaker 9: transcript
Speaker 10: Hey Kevin, I know you guys referenced here on the press release and your commentary, you know, about a potential doubling of profitability in the international market.
Yes.
Hey, Kevin I know you guys reference here on the on your press release.
Commentary.
A potential doubling of profitability in the international market.
Speaker 9: transcript
Speaker 10: Is that, you know, it looks like you're adding what, one plus rig, you know, one and a half, two rigs on average, you know, going into next year. So, it doesn't seem like it's gonna be all volume driven per se, so is there a significant step up in kind of day rate and catch margin you expect from these rigs that you're gonna be bringing online?
Is that.
It looks like you are adding one one plus rig 152 rigs on average going into into next year. So it doesn't seem like it's going to be all volume driven per se. So is there a significant step up in <unk>.
Lavonne Zdunich: Before I pass the call over to Kevin and Carey, I would like to remind listeners of our CWC Energy Services Acquisition, which we announced in early September. This acquisition will position Precision as the premier well-service provider in Canada, and both start our drilling operations in both the US and Canada. With the acquisition, Precision adds to its marketed fleet, 62 service rigs and 7 drilling rigs in Canada, plus 11 drilling rigs in the US, which includes 7 AC triples. We expect this acquisition to close within the next couple of weeks and generate a creative cash flow on a per share basis in 2024.
Kind of day rate and cash margin you expect from these rigs that you're going to be bringing online.
Speaker 4: transcript
Speaker 4: So of course, there's a couple of things there. We're gonna average a little bit less than six rigs this year. And the next year will average eight for the full year. The two rates that we're adding are higher margin than the other rates that are running on average. And we also incurred a bit of cost reactivating these last two rates that we'll work on next year. So mixing all of that together, we think that an increase in 50%. Now that's a 50% increase. It's not a doubling.
So currently as a couple of things there, we're going to average a little bit less than six rigs. This year and then next year, we'll average for the full year. The two rigs we are adding a higher margin than the other rigs that are that are running.
On average.
And we also incurred a bit of cost reactivating. These last two rigs that won't recur next year. So mix can all of that together, we think that an increase in 50% now that's a 50% increase it's not a doubling.
Speaker 4: transcript
Speaker 4: And it's just a 50% increase to going from six to eight with a bit more profitability.
And.
And EBITDA.
It's a 50% increase in six to eight within that for profitability.
Carey Ford: With that, I'll pass it over to Carey.
Speaker 9: transcript
Speaker 10: Okay, that's great. Appreciate that clarity. And then, Kevin, kind of follow up for you, as you referenced the, you know, increased term contract dynamics happening, you know, in Canada, and, you know, 27 rigs now on term contracts. You know,
Carey Ford: Making a bond, Precision's two, three financial results reflect the resiliency of our high-performance high-fouted business model, an organizational focus on cash flow and return of capital, leading our expectations for just leave it up and further strengthen our balance sheet. During the quarter, just leave it up $115 million was driven by healthy drilling activity, improved pricing, and strict cost control, and included a share-based competition charge of $31 million. Without this charge, adjust to leave it up would have been $146 million, which compares to normalize leave it up $126 million in Q3, 2022, and increased 16%.
Okay. That's great I appreciate that clarity and then Kevin kind of follow up for you as you reference the increased term contract dynamics happening.
And in Canada.
27 rigs now on on term contract.
Hi.
Speaker 9: transcript
Speaker 10: Crystal ball it, you know, in the next one to two years, given the dynamics around, you know, LNG and heavy oil, as you referenced, what do you think that 27 could become?
Crystal ball it and the next one to two years given the dynamics around <unk>.
LNG and heavy oil as you referenced.
Or do you think that 27 could be coming.
Speaker 2: transcript
Speaker 2: I have to preface everything with macro. The macro can affect everywhere all the time, but assuming the macro doesn't have some massive shift like a pandemic or another war, but we're dealing with the Canadian market as it is today with Trans Mountain Pipeline coming on and the Coastal Gas Link Project and then likely follow-on approval of Phase 2 for LNG Canada.
I have to preface everything with macro.
Macro could affect everywhere, all the time, but assuming the macro doesn't have some massive shift like a pandemic or another war, but we're dealing with.
Carey Ford: Marges in Canada were higher than guidance, resulting from stronger than expected pricing and cost recovery, higher-antillery revenues and improved cost performance. In the US, margins were lower than guidance, largely due to an increase in operating costs driven by increased repair and maintenance costs and lower fixed cost absorption, as we're maintaining higher overhead and anticipation of increased activity in the first part of 2024. In the US, drilling activity for Precision, average 41 rigs, and Q3, a decrease in 10 rates from Q2.
The Canadian market as it sits today with <unk>.
<unk> mountain pipeline coming on.
The coastal gasoline project and then likely.
Follow on approval of phase II for LNG, Canada.
Speaker 2: transcript
Speaker 2: So if we're running 30 rigs today, that could be as much as mid 30s, three or four years down the road, could even be a low 30s just by the end of next year. So we could see that recount go from 30 to 32 or 33.
So if we're running three rigs today that could be as much as mid thirties, three or four years down the road could even be at a low <unk> just by mid of next year. So we could see that rig count go from 30 to 32 or 33 next.
Speaker 2: transcript
Speaker 2: next year and you know up on that could be 35 or could be 40 weeks kind of down the road. I don't think we're building new ricks. I think we've got opportunities to upgrade existing ricks like we did for the one rigger moving to Canada on January the first. You know to give you a sense of the capital needs for that we could probably upgrade a one of our older SER rigs to a full super-spec for the range of 10 to 15 million dollars far less expensive than building a new winterized rig. So I don't
Carey Ford: Daily operating margins at Q3, excluding the impact of turnkey and IBC, were $11,941, a decrease of $1,563 US dollars from Q2. For Q4, we expect margins excluding the impacts of turnkey and IBC to be in line with Q3 margins in the $11,500 US dollar to $12,000 US dollar range, from Canada, Drilling Act to Deepa Precision, average 57 rigs, a slight decrease in 2 rigs from Q3 2022. Daniel, operating margins in this quarter were $13,913, an increase of $1,830 from Q2 2023.
Next year.
Beyond that could be 35 or it could be 40 rigs go down the road I don't think we're building new rigs I think we've got opportunities to upgrade existing rigs like we did for the one rig or moving into Canada on January 1st.
To give you a sense of the capital needs for that we could probably upgrade.
One of our older SCR rigs to a full super spec for the range of $10 million to $15 million far less expensive than <unk>.
Building, a new winterized rigs so I don't think.
Speaker 2: transcript
Speaker 2: We would need a ton of capital to see our career count in Canada go up.
We would need a ton of capital does your rig count in Canada go up.
Speaker 2: transcript
Speaker 2: quite a bit if the LNG projects continue as they look and heavy oil continues.
Quite a bit if the LNG projects continue as they look.
Sure.
And in heavy oil continues to remain strong.
Speaker 9: transcript
Speaker 10: It's great. Really appreciate the color. Thank you. Thank you.
That's great really appreciate the color. Thank you.
Carey Ford: For Q4, our Daniel, operating margins are expected to average over $15,000, an increase of of $1,000 from Q3 levels, due to incinerary butcher equipment and improving pricing. We continue to build our North American contract book with Q4 2023 drilling rigs of 57 under take-or-pay term contracts on average for the fourth quarter of 2023. In addition, we recently signed several term contracts for work to maintain early in 2024. Internationally, Drilling Act to Deepa Precision in the quarter, average 6 rigs.
Thank you.
Speaker 6: transcript
Speaker 7: Our next question comes from Keith McKee with RBC Capital Markets. Your line is open.
Our next question comes from Keith <unk> with RBC capital markets. Your line is open.
Speaker 10: transcript
Speaker 11: Hi, good afternoon. First question is just on the US. Now, Kevin, we know that your rig count over the last year or so had been more private company weighted, and you talked about adding six public companies this year and increasing your share with two. Just curious, what do you think is the right customer mix for PD in the US in terms of public, private, etc? And what do you think needs to happen in order for you to get there?
Hi, Good afternoon. First question is just on the U S. Now, Kevin we know that your rig count.
Over the last year or so had been more private company weighted and you talked about adding six public companies this year and increasing your share with too.
Just curious what do you think is the right customer mix for PD in the U S. In terms of publics privates et cetera.
And what do you think needs to happen in order for you to get there.
Speaker 2: transcript
Speaker 2: Yeah, Keith, I think that that sort of changes with time a little bit. I do think that as US LNG exports start to ramp up in 2024 and 2025, we might be a little less worried about, you know, private equity style E&P companies if they're drilling for gas.
Keith I think that that sort of changes with time, a little bit I do think that as U S. LNG.
Carey Ford: International average day rates were $51,570, an increase of 3% from the prior year due to rigging. We recently activated our fourth rig in Kuwait and expected fifth rig to be activated in the next few weeks. We expect earnings and our international business to increase approximately 50% from 2023 to 2024. Moving to our CNP segment, adjusted Deepa's out of this quarter was $14 million, down slightly compared to the prior year, quarter, with 10% fuel wealth servicing hours offset by higher pricing and margins.
Exports start to ramp up.
<unk> 24 in 2025.
We might be a little less.
Read about.
Private equity style E&P companies that theyre drilling for gas.
Speaker 2: transcript
Speaker 2: if there's a stronger LNG export market. So if I look back at, you know, FY 2020, FY 2021, having that private company exposure and gas exposure was excellent for.
If theres a stronger LNG export market.
Look back at <unk>.
Why 'twenty 'twenty FY 2021, having that private company exposure gas exposure was excellent for precision.
Speaker 2: transcript
Speaker 2: Now, at this point in time today, having more public company exposure, having exposure to the major super majors, having more oil exposures, what we're targeting, and we're delivering on that. It's not, you know, we can't make these changes in a week or two, it takes a quarter to quarters, three quarters, but our customer mix at the end of this year will look vastly different than it did at the beginning of the year. And I'm really pleased the progress our sales team is making on.
At this point in time today, having more public company exposure, having exposure to the major super majors, having more oil exposure is what we're targeting that we're delivering on that.
Carey Ford: Moving to the balance sheet, we are committed to reducing debt by over $500 million between 2022 and 2025 and achieving a normalized leverage level of below one time. Our debt reduction target for 2023 is $150 million and we plan to allocate 10 to 20% of free cash flow before principal payments directly to shareholders. During the quarter, we reduced debt by $26 million and have now reduced debt by $126 million for you to date.
We can't make these changes in a week or two it takes a quarter two quarters three quarters, but our customer mix at the end of this year will look vastly different than it did at the beginning of the year and I'm really pleased with the progress our sales team is making on that.
Speaker 10: transcript
Speaker 11: got it appreciate the color and and maybe one for carry uh... what you see in terms of uh... maintenance capEx per rig or maintenance capEx per day uh... i guess more specifically on on your u.s. fleet has there been much inflation from that fifty hundred a day level that we used always quote door or where things trending there
Yes got it appreciate the color and maybe one for Kerry.
What are you seeing in terms of maintenance capex per rig or maintenance Capex per day, I guess more specifically on your U S. Fleet has there been much inflation from that 500, a day level that we used to always quote or where things trending there.
Carey Ford: Upon closing the CWC acquisition, we will assume CWC debt made cash payments to CWC shareholders in a current transaction cost, all totaling in the $60 million to $70 million range. Despite incurring these cash costs, we still expect to meet our annual debt reduction target at $159, pointing to robust cash flow expectations in the fourth quarter. As of September 30, our long-term debt position net of cash was approximately $950 million and our total liquidity position was $621 million, excluding letters of credit.
Speaker 4: transcript
Speaker 4: Yes, so there has been inflation, we've quoted on prior conference calls that.
Yes, so there hasnt been inflation, we had quoted on prior conference calls.
Speaker 4: transcript
Speaker 4: Man's capital cost per day was trending closer to 2000. Now it's closer to the mid 2000s, but I would point out that that includes drill pipe replacement. And then a lot of cases we are getting customers to pay for access where I'm drill pipe.
With the <unk> capital cost per day was trending closer to 2000 now it's closer to the mid two thousands but I would point out that that includes drill pipe replacement and then a lot of cases, we are getting customers to pay for assets were on drill pipe.
Speaker 4: transcript
Speaker 4: And so it's showing up as a higher cost in maintenance cap ex, but then we're recouping it in March.
And so we're it's showing up as a higher cost.
And maintenance Capex, but then we're recouping in margin.
Carey Ford: Our net debt to trailing 12-month EBITDA ratio is approximately 1.7 times and our average cost of debt is approximately 7%. We expect our net debt to adjust EBITDA ratio to be below 1.5 times by year end with net debt of approximately $909 and our run rate interest expense from approximately $65 million. Our full year 2023 capital plan has increased from $195 million to $215 million, largely resulting in signing term contracts with upgrade capital paid back inside of the term of the contract.
Speaker 10: transcript
Speaker 11: Got it. Okay. So drill pipe and some other things. What are what are besides the drill pipe? What would have been kind of the big the big drivers in terms of the maintenance capital number increase?
Got it okay, so drill pipe and some other things what are what are besides the drill pipe.
Has it been kind of the big the big drivers in terms of that maintenance capital number increasing so it would be mud pumps mud pump maintenance engines top drive all the critical components on the rig the repair costs have gone up if you think about R&M you've got.
Speaker 4: transcript
Speaker 4: So it would be mud pumps, mud pump maintenance, engines, top drive, all the critical components on the rig, the repair costs of ground. So if you think about RNM, you've got
Speaker 4: transcript
Speaker 12: You've got consumable components when you do repairs, which have a little bit of inflation in them. And then you have labor. And so labor yourself across the board, and that's what's driving it.
Consumable components, when you do repairs, which have a little bit of inflation and then and then you have labor.
So labor is up across the board and Thats whats driving it.
Carey Ford: For several of these contracts, we received cash upfront from the customer. Additional annual guidance for 2023. , which does not consider impacts from the CWC acquisition, includes appreciation at $290 million and SGNA at $90 million before share-based compensation expense. We expect cash interest expense to be approximately $80 million for the year and cash taxes to remain low with an effect in tax rate of approximately 25%. You today, we have had share-based compensation charges of $22 million.
Speaker 10: transcript
Speaker 13: And just one last one. On any activations that you might see in the U.S., are we talking about any substantial capital requirements to bring any of those rigs back, or are they all pretty warm?
Got it and just one last one on any on any activations that you might see in the US Is there are we talking about any substantial capital requirements to bring to bring any of those rigs back or are they all pretty pretty warm stove.
Speaker 4: transcript
Speaker 14: likely not much maintenance capital. We might have a little bit of operating expense and if there's upgrades associated with the reactivation, there'd be some upgrade capital.
Likely not not much maintenance capital, we might have a little bit of operating expense and if theres upgrades associated with the reactivation there'd be some upgrade Kevin.
Speaker 4: transcript
Speaker 15: But you make the correct point that a lot of these rigs were working six months or a year ago and they're not going to be the same type of reactivations that we had to put forward at the end of 21 and beginning of 22.
But you make you make the correct point that a lot of these rigs were working six months or a year ago and theyre not going to be the same type of reactivation that we had to put forward at the end of 'twenty, one beginning of 'twenty two.
Carey Ford: As previously stated, we expect our 2023 share-based compensation expense to range between $20 million and $40 million for the share-priced range at $60 to $100, with the potential to increase or decrease in other $15 million based on relative share-priced performance and a multiple between zero and two times.
Okay. Thanks very much.
Speaker 6: transcript
Speaker 16: Our next question comes from Cold Perear, which is deep hole, your line is open.
Our next question comes from <unk> <unk> with Stifel. Your line is open.
Speaker 11: transcript
Speaker 17: Afternoon, all. I just want to start on the margin front in the U.S. So, it sounds like some of the costs there are going to reoccur in Q4. Is there anything transitory that is in both Q3 and Q4? Or, in the event that the rig count in the U.S. doesn't increase, is that kind of a reasonable run rate going forward, just as from your last call? I mean, your rig count in the U.S. is down a little bit, but the margin outlook is quite a bit lower.
Afternoon, all I just wanted to start on the margin front in the U S.
Kevin Neveu: With that, I will now turn the call over to Katherine. Thank you, Carey, and good afternoon. I'm pleased to have third quarter results with improved revenue and cash flow compared to the same lower industry activity in North American markets. I commend everyone in precision's organization for the precise execution and safety, excellent operational performance, strict financial discipline, and they continue to focus on cash management, which was demonstrated across all precision business segments during the quarter.
So it sounds like some of the costs there.
To reoccur in Q4 was there anything transitory that is in both Q3 and Q4 or in the event that the rig count in the U S doesn't increase as that kind of a reasonable run rate.
Going forward just as.
From your last call I mean, your rig count in the U S is down a little bit, but the margin outlook is quite a bit lower.
Speaker 4: transcript
Speaker 18: Right, so I think that the cost will turn down a bit more in Q1 regardless of whether we increase our recount.
Right. So I think that they will the cost will trend down a bit more in Q1, regardless of whether we increase our rig count.
Kevin Neveu: I continue to be very encouraged by the support of commodity price fundamentals, but also by the strict capital discipline evident across this industry. And this discipline begins with the investors' expectations for shoulder returns and a continued assistance for industry capital discipline. Our customers are functioning very well in this environment. They are not responding to short-term commodity price signals or volatility. They are managing budgets and staying well within cash flow, and most importantly, they are focusing on efficiency and performance.
Speaker 4: transcript
Speaker 19: There, if you think about it, if you have a lower rig count, you're absorbing a bit more fixed cost, but also if you have a high maintenance cost on a rig, you know, if you have a critical component that needs to be replaced, it just shows up more.
There if you think about it if you have a lower rig count you're absorbing a bit more fixed cost, but also have do you have a.
High maintenance costs on a rig if you have a critical component that needs to be replaced.
It just shows up.
More.
It's it's more prevalent than the average.
Speaker 4: transcript
Speaker 20: operating cost if you're running fewer rigs. And so, we've had a few of those where we just had a higher R&M cost on a particular rig, and it just shows up a little bit more in the
Operating cost if you are running fewer rigs and so we've had a few of those.
Kevin Neveu: And nowhere is this more important than our Canadian segment, where broad industry activity is down 6% during the third quarter compared to last year, as our customers remain highly disciplined staying within six budgets. Yes, our 29 Super Triple Rigs are fully utilized this year compared to 25 at the same time last year, and to remind you, we'll be adding one more Super Triple to our fleet on January 1st to an upgrade we announced late last year.
Just had a higher higher R&M costs on a particular rig and it it just shows up a little bit.
A little bit more on the in the daily operating cost because of it.
Speaker 4: transcript
Speaker 21: So we do think that there's a bit of transitory cost in there and we should see it trending down a bit more in Q1.
So we do think that there's a bit of transitory costs in there and what we should see that trending down a bit more in Q1.
Speaker 11: transcript
Speaker 22: Okay, got it. Coming back to shareholder returns, you talked about it a little bit. There's obviously a few different ways activity can go next year, but free cash flow should be pretty strong in any reasonable scenario. From your standpoint, is it you maybe think about paying down $150 million of debt or something in that range and should have a lot left over, and then you think about growth capex and kind of put the rest in the buyback?
Okay got it and then coming back to shareholder returns.
About it a little bit and there's obviously a few different ways activity can go next year, but.
Kevin Neveu: Today, we're also running 32 Super Singles, and this would be the highest Q3 utilization for this reclass since early last decade. In light of the highest super-spec rig demand, we have customers anxious to commit to firm, take-or-pay, term contracts, securing rig access. Currently, our Canadian book includes 27 rigs under term contracts, and 17 of those have two-year-plus terms. And remind you that the Canadian market, term take-or-pay contracts, which are traditionally exceedingly rare.
Free cash flow should be pretty strong in any reasonable scenario.
From your standpoint is it you maybe think about paying down call it $150 million of debt or something in that range and should have a lot left over and then you think about gross capex and kind of put the put the rest in the buyback.
Speaker 4: transcript
Speaker 23: Yes, so we'll put forward our capital allocation targets at the beginning of next year. I think in general, you're you're thinking about it. Right, correctly. The we will continue our debt reduction.
Yes, so we will put forward our capital allocation targets at the beginning of next year I think in general Youre thinking about it right correctly.
Kevin Neveu: Notably, we recently booked several customer contracts, which include padwalking and depth-extending upgrades. And those rigs are required for the winter 2024 drilling season, and this necessitated increasing our current year capital budget as Kerry described earlier. I'll also reiterate Kerry's comments that the capital will pay back within the contract period, and the enhanced margins will continue for the duration of the rigs operation of life. Also, for several of these contracts, customers provided us with advanced cash payments up front, as we were required to minimize our cash inflows.
We will continue our debt reduction.
Speaker 4: transcript
Speaker 24: schedule, we will have capital all I can to work share by back. And then I would look at our growth capital, the same way that we would always look at it. We're going to look for opportunities to spend a great capital match the contracts where we get that capital paid back and to the extent that there's opportunities doing that in the market will pursue.
Schedule, we will have capital allocated towards share buybacks and then I would look at our growth capital. The same way that we've always looked at it we're going to look for opportunities to spend a great capital matched the contracts, where we get that capital paid back in to the extent that there is opportunity to do that in the market we'll pursue it.
Speaker 11: transcript
Speaker 25: Got it, thanks. And you've done a few of these bulletons now. How do you think about further consolidation just as part of the overall PD strategy?
Got it thanks, and you've done a few of these bolt ons now how do you think about further consolidation just as part of the overall PD strategy.
Speaker 2: transcript
Speaker 26: You know, I think we've demonstrated over the past couple of years that if we can be opportunistic, we will, but really clearly it's not one of our top three strategic priorities. So, I don't think we're going to pivot and all of a sudden become highly acquisitionally focused. We like the stability of a strong balance sheet, but.
Kevin Neveu: Our outlook for Canada remains uniquely strong. Early in 2024, two major hydrocarbon pipe projects will be started out. The Coastal GasLink typeset to deliver natural gas to the LNG Canada Project, and Transmountain Expansion adding almost 700,000 barrels per day of oil export capacity. For Canada, these projects are absolute game changers resulting in significantly approved upstream commodity prices for our customers, deep-bottle-necking production, and providing global market access for Canadian energy. Now, I see these independent projects as a couple of many each other, and that is to say that the liquid condensate produced by the Monteney gas wells is sold commercially as diluent to the heavy oil producers to enable heavy oil shipping to pipelines.
I think.
We've demonstrated over the past couple of years that.
We can be opportunistic we will but really clearly it's not one of our top three strategic priorities. So I don't think were to pivot and all of a sudden become highly.
Acquisition, we focused we like.
The stability of a strong balance sheet, but.
Jerry.
Speaker 4: transcript
Speaker 27: Sure, it's important to note that when we executed the high arctic acquisition.
Sure.
Sure.
It's important to note that when we executed the high Arctic acquisition, we were able to remain committed to our debt reduction target for 2021, and 2022 and if you look at what we're what we've communicated on this conference call that we're going to complete the CWC acquisition and still.
Speaker 4: transcript
Speaker 28: We were able to remain committed to our debt reduction target for 2021 and 2022. And if you look at what we're, what we're making on this conference call that we're going to complete the CWC acquisition and still meet our debt reduction targets for this year, it shows you where our priorities are to get the balance sheet in order and.
We'll meet our debt reduction targets for this year. It shows you where our priorities are to get the balance sheet in order in.
Kevin Neveu: So this significantly improves the economics of the Monteney gas producers, who are ultimately focused on the LNG exports of the longer term. And currently, the increased oil export capacity of TMX will serve to reduce the Western Canada Select price discount, significantly improving economics for heavy oil customers. So for precision, the result is that the natural gas drilling in the Monteney is growing to meet the imminent needs of LNG Canada, and heavy oil drilling has rebounded to level, not experienced since 2014.
Speaker 4: transcript
Speaker 29: We're in a favorable place right now where we've got some flexibility where we can do some of these tuck-in acquisitions.
We're in a favorable place right now where we've got some flexibility where we can do some nice tuck.
<unk> acquisition.
Speaker 4: transcript
Speaker 30: But debt reduction is still going to be the number one focus of the company for the next year or two.
Debt reduction is still going to be the number one focus of the company for the next year or two.
Speaker 11: transcript
Speaker 31: Got it. Okay, that's all from me. Thanks. I'll turn it back. It's pretty cool.
Got it Okay. That's all for me, Thanks, I'll turn it back.
Thank you cole.
Speaker 6: transcript
Speaker 32: Our next question comes from Makar Sayed with ATV Capital Markets. Your line is open.
Our next question comes from Waqar Syed with ATB capital markets. Your line is open.
Speaker 12: transcript
Thank you. Kerry, do you expect shortfall revenues in Q4?
Okay. Thank you.
Kevin Neveu: And all of this is evidenced in our records to pertribute demand and our strong super-single demand. So this is truly a game-changer for precision, stadium drilling market. With term contracts providing revenue stability, reduced seasonality with pad rigs drilling throughout breakup, market visibility extending beyond seasonal commodity price volatility, and all of these factors setting us up to deliver sustainable shoulder returns, commensurate with our asset base, and providing opportunities for further expansion in our stadium footprint.
Do you expect a shortfall revenues in Q4.
Speaker 4: transcript
Yes, that would be similar to what we reported in Q3 in that kind of $6 million range.
Yes, there will be similar to what we.
What we reported in Q3 and that kind of $6 million range.
Speaker 12: transcript
And when do they fall off? Is Q4 going to be the last quarter for those or do you expect them next year as well?
U S.
Okay and then.
Falloff is Q4 going to be the last quarter for those do you expect them next year as well.
Speaker 4: transcript
If we might have a little bit at the beginning of next year, but the bulk of this level of IBC revenue will fall off and keep working.
We might have a little bit at the beginning of next year, but the bulk of this this level of IPC revenue will fall off.
Kevin Neveu: Today, we have 68 rigs running, actually up one from our press release, which was reporting yesterday's activity, and expect to be in the lowest 70s before the Christmas pause. Customer planning for winter suggests a strong and fast start to 2024 with customer demand exceeding 23 levels. And we look forward to the addition of the CWC drilling rigs and crews, and we expect that precision combined activity this winter could be up 10 to 15 percent from last year.
In Q4.
Okay.
Speaker 12: transcript
Okay, and then, you know, as the CWC rigs get on the payroll in the next
Okay.
Then.
As the CW see rigs get on the <unk>.
On the payroll.
Next year in the U S.
Speaker 12: transcript
How would those impact your daily operating costs and daily regrets?
How would those impact your daily operating costs and daily.
Great.
Speaker 4: transcript
I think it's a little bit too early to talk about how that's going to impact our daily operating margins and rates. We're planning to close the acquisition here in the next couple of weeks and we'll be able to talk about that a bit more.
I think it's a little bit too early to talk about how that's going to impact our daily operating margins in rate.
Kevin Neveu: Leading end-day rates for our super-triples are now in the mid-30s, and for our conventional super-singles in the mid-20s, while our pad-equipped super-singles have now moved up into the low-30s thousands per day range. In particular, excess customer demand for precision's health-equipped super-triple rigs, the seemingly in the range of seven to ten additional rig opportunities we're considering. I think the likelihood that we secure a customer paid redeployment of at least one or two super-triples in the U.S, to Canada later next year is increasing.
We're planning to close the acquisition here in the next couple of weeks and we'll be able to talk about that a bit more clearly.
Speaker 12: transcript
Okay, so let's assume then without CWC.
Okay. So.
Let's zoom than without CWC.
Speaker 12: transcript
on your own fleet, when do you expect U.S. margins to bottom?
On your own fleet.
When do you expect U S margins to bottom.
Speaker 4: transcript
Well, they could be bottoming right now. We're not seeing much of a change from Q3 to Q4. It just depends on whether the recount continues.
While they're there.
Could be bought I mean, right now we're not seeing much of a much of a change from Q3 Q4 just depends on weather.
Rig count.
Kevin Neveu: With our super-singles, the demand tends to be more seasonal, with what's it being the peak season, where demand could usurp our rig availability by 10 or more rigs. So we expect these market-demand signals may lead to additional opportunities for customer funded upgrades, for pad drilling, and longer reach horizontal capabilities, and certainly stimulate further customer interest in take-or-pay term contracts so they can secure access to the rigs. Now, turning to the lower 48, the capital discipline I've described in Canada is outwork in every U.S, basin.
It continues to trend up in Q1.
Speaker 2: transcript
Carbite, I might get that kind of focused on what you model for recount next year, but for modeling, you recount and move up in Q1 that I think that reached the margins of bottom.
Okay.
Yes.
Yes.
Yes.
Kind of focused on what you model for rig count next year, but if you're modeling the rig count to move up in Q1.
I think that rates above that margins have bottomed.
Speaker 12: transcript
That's good to hear. And then Kevin, you touched upon these big mergers that are happening and then it was mentioned in one case that they would be looking at these four-mile type ladfords and some other companies have talked about those as well.
Okay.
That's good to hear and then Kevin.
You touched upon these big mergers that are happening and then.
It was mentioned in one case that they would be looking at these.
Kevin Neveu: In the near-term, it's meant that natural gas drilling has slowed down over the course of 2023, and the increases in oil-targeted drilling we expected earlier this year failed to materialize, as our customers continue to pay the amount that they're drilling budget. However, we continue to see customers optimizing drilling efficiency by hydrating rigs, focusing on pad drilling and extending lateral lengths. This focus on efficiency is also continuing to draw customer interest in our alpha automation platform or alpha apps and as driving interest in our evergreen best battery energy storage systems and other diesel fuel savings solutions.
<unk> type lateral is in some other companies have talked about those as well.
Speaker 12: transcript
What type of rig would be required to drill that? I imagine not every super triple rig can do that. There may be, you know, even a further subset within super triple that would do that. So maybe, could you talk about like what exactly, what type of equipment would be required on a rig?
What type of rig would be required to rid of that.
Not every super Triple rig can do that there may be.
Even.
Further.
Subset within Super triples that would do that so maybe could you talk about like what exactly what type of equipment would be required on a rig.
Speaker 2: transcript
Yeah, a little bit I can. So we've drilled some three mile ladders. We've actually drilled a couple of four mile ladders. They didn't shell replaced, not the deeper place. But anytime you extend the length of the well or the vertical depth of the well, either one, you're increasing the required hook load capacity for the rigs. You need to have the mask has to either be strong enough or be a reinforced to be strong enough.
Yes, a little bit I can.
So we've drilled some three mile laterals, we've actually drilled a couple of four mile laterals dividend shallow replace Dr deeper plays.
Kevin Neveu: Today, we have 44 rigs operating in the US and seem to be in the trop customer indications and interest indicate an increase in activity as budgets reload for 2024 and we expect to see some of these rigs activated later this year. During the third quarter, we continue to experience strong customer interest that our alpha put super triple rigs. Since the beginning of the year, we've added five public EMPs to our customer list and increased our share with two others as we transition to more oil based work in less private company exposure.
But any time you extend the length of the well or the vertical depth of the well either one youre increasing the required hook load capacity for the rigs do you need to have the mass has to either be strong enough for be reinforced to be strong enough you.
Speaker 2: transcript
You're increasing the amount of pipe you need to build a rack in the mast, so you have to increase the racking capacity of both the racking board and the substructure to support that pipe.
We're increasing the amount of pipe you need to build a rack in the mask. So you have to increase the racking capacity of both the rocky reward and the substructure to support that pipe.
Speaker 2: transcript
And now if you've got more pipe, it's more weight. So everything has to support that weight. And then because you're drilling farther and you're adding more pipe in the ground, you need more hydraulic horsepower. So typically going from two pumps to three pumps or going from 1,600 to 2,000 horsepower mud pumps. So most of these rigs that, you know, in our fleet.
And there'll be more pipe, it's more weight, so everything has to support that weight.
And then because youre drilling farther and youre, adding more pipe in the ground jabbour hydraulic horsepower.
Kevin Neveu: Now, super spec rig supply remains in tight availability. During the third quarter, we secure to pay an upgrade commitment from a customer to cover the cost of increasing the horizontal depth capability of precision super triple. And during the year, we've executed 12 other similar upgrades and these upgrades include enhancements to the month coming capability, the drill pipe rocking capacity and targeting longer reach horizontal wells. And some of these also include evergreen enhancements to improve the fuel efficiency of the rig.
Typically going from two pumps to three pumps or going from 60 to 102000 horsepower mud pumps. So.
Most of these rigs.
Our fleet.
Speaker 2: transcript
All of these changes for us are kind of bolt-ons. We can bolt on a mast upgrade, we can bolt on a rocking capacity upgrade, we can slide in a third pump, slide in a fourth generator. So the rig doesn't become obsolete, but these are capital increases. So to add a third pump and a fourth generator is over a million dollars. To upgrade the mast capacity to handle more pipe might be, in our case, might be less than a half million dollars.
All of these changes for us are kind of bolt ons, we can bolt on amassed upgrade we can bolt on.
<unk> capacity upgrade we can slide in a third pumps lighted a fourth generator so the rig doesn't become obsolete.
Kevin Neveu: We expect to see more of these customer paid upgrades emerging in 2024. Rig pricing and leading as rates remain stable as the most capable high specification rigs remain a tight supply and pricing discipline remains of course through energy across the super spec land market industry. I'm very excited to add the eight CWC rigs and crews currently work operating in Wyoming, and we see the powder river basin has an excellent opportunity for precision to expand our US operations in 2024.
But these are capital increases so to add a third pump or the fourth generators over $1 billion to us.
Great. The mass capacity to have had a more pipe might be the case that the last of the $5 million.
Speaker 2: transcript
Uh, if you want to do all of these things together for one of our rigs, that's probably the range of anywhere from three to 5 million.
If you want to do all of these things together for one of our rigs is probably the range of anywhere from $3 million to $5 million.
Okay.
Speaker 2: transcript
And the other component is the top drive usually has to have a higher torque capacity. So there's a bit of work to do in the top drive.
And.
The other component is a top drive usually has to have a higher torque capacity. So there is a bit of work to do on the top drive.
Alright.
Speaker 9: transcript
Thank you very much. That's all I have. Great. Thank you, Laquar.
Yes.
Thank you very much that's all I have great. Thank you Luca.
Kevin Neveu: Now, turning towards our national business, as Terry mentioned, we activated our fourth rig in Kuwait during the third quarter and expect the fifth rig to start off early to mid November. Both of the rigs are activating several weeks later than we previously got it. And these delays were entirely due to client planning delays, not precision missions. The capital spending to reactivate those rigs with largely complete and the five year contract for each rig will commence when the rig begins operations.
Speaker 6: transcript
Our next question comes from Sean Mitchell with Daniel Energy Partners. Your line is open.
Our next question comes from Sean Mitchell with Daniel Energy Partners. Your line is open.
Speaker 13: transcript
Thanks guys for taking my question here. You guys have got the three rigs and sawdate, the fourth and fifth rig in Kuwait. Any thoughts around exploring other international markets in the LUCIT, Canada and US, but we haven't really talked about, are there other opportunities in our national markets?
Thanks, guys for taking my question here.
Guys have got.
Three rigs in Saudi.
Fourth and fifth rig in Kuwait any thoughts around exploring other international markets and a look at Canada and U S. But we haven't really talked about are there other opportunities internationally that you guys are looking at and any color you can add.
Kevin Neveu: By mid November, we'll have all five rigs in Kuwait operating and three rigs in Kingdom of Saudi Arabia, Rivia running for total eight rigs, but we'll continue to bid all five idle rigs opportunity across the Indian Gulf. And our well servicing segment Canadian industry, well servicing activity notice notice was slow during the third quarter as our customers digested. The cost increases related to services inflation, labor costs and material costs. We see a backlog of previously planned activity building up and an LBVC, a significant increase in activity, and expect us to continue next year. I'm also very encouraged by the strong conformance we see in the CWC well services group and look forward to integrating the people of CWC and their operations into our business later this quarter.
Speaker 2: transcript
Sean, we've been clearly focused on maximizing our footprint in collate and Saudi. So for sure, those two countries.
Sean we've been clearly focused on.
Maximizing our footprint in Kuwait and Saudi so for sure those two countries we've been bidding around the Gulf. We think we can support rigs in the Qatar Bahrain maybe.
Speaker 2: transcript
We've been bidding around the Gulf. We think we can support rigs in Qatar, Bahrain, maybe Abu Dhabi, places like that, from the base of operations we have either in Saudi or Kuwait, and our regional offices in Dubai. So we think the entire.
Maybe of Adobe places like that from the base of operations, we have either in Saudi or Kuwait.
Our regional offices in Dubai, So we think the entire Gulf region is open to us we're.
Speaker 4: transcript
Gulf regions open to us. We're not looking really aggressively outside the Gulf. We have had inquiries from Argentina, we've had inquiries from Central Africa.
We're not looking really aggressively outside the Gulf, we have had inquiries from Argentina without inquiries from Central Africa.
Speaker 9: transcript
I'm not anxious to see us, you know, in six or seven different countries around the world, but if we had a one-off chance to put a rig somewhere at a really good day rate, we'd look at that. Okay.
Im not anxious to see us.
In six or seven different countries around the world, but if we had a one off chance to put a rig somewhere at a really good day rate we'd look at that.
Kevin Neveu: So to wrap up my comments today, I'm thrilled that despite a weaker market, the most sort of expected precision's on track on all three strategic priorities. We also created the financial flexibility to execute a meaningful Canadian consolidation transaction. And we continue to have the flexibility to invest in our fleet to be customer backed rig upgrade opportunities.
Okay.
Thank you.
Okay. Thanks, Sean.
Speaker 6: transcript
And I'm not showing any further questions at this time, I'd like to turn the call back over to Levon for any closing remarks.
And I'm not showing any further question at this time I'd like to turn the call back over to <unk> for any closing remarks.
Speaker 6: transcript
On behalf of the team here at Precision, I'd like to thank people for joining us today and that concludes our conference call. Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.
On behalf of that team here precision I'd like to thank people for joining us today and that concludes our conference call. Thank you.
Unknown Attendee: And with that, I'll turn the call back to the operator for your questions. Thank you ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our queue in a roster.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Okay.
[music].
Okay.
Aaron MacNeil: Our first question comes from Aaron MacNeil with TD Cowan, your line is open. Afternoon and thanks for taking my questions. Kevin, I can appreciate that there's a lot of value in keeping your promises on the debt reduction, especially in light of the track record over multiple years.
Kevin Neveu: But sort of putting that aside, how does debt reduction compete today for capital with the NCIB, given the prevailing valuation and how should we think about that in the context of your strategic priorities for next year. Yeah, go ahead, Jerry. Aaron, so I'll take that one, you know, the debt reduction still remains front and center. And we put out very specific targets for 2023 and then the two years following this year.
Kevin Neveu: It's what committed to doing that as we have more free cash flow, we should be able to expand the amount that we allocate towards cherry purchases. This year is 10 to 20% of our free cash flow, which would put it kind of in the 15 to $39 range of cherry purchases.
Carey Ford: Next year, if our cash flow outlook improves, we should be able to increase that.
Carey Ford: And I carry on, you gave guidance for Q4 margins in the US and your prepare remarks, but I'm hoping you can sort of give us a better sense of the moving parts. I mean, you mentioned the higher staffing levels, you mentioned RNM, like how much of that was, you know, I don't want to call it one time that maybe abnormal and what sort of recurring. Yes, so I think if you think about Q3 and Q4 top line, there won't be a whole lot of movement and in the cost that we incurred in Q3, a lot of those will repeat in Q4.
Carey Ford: So that that goes into the margin guidance that that we provided. As Kevin mentioned, our Q2 call, we were going to have the read count kind of moving up and down a little bit around this kind of low 40s level. And that means there's a bit more rate sharing than we typically have, which causes a little bit more cost. And as I mentioned, we're carrying a bit more overhead than we typically with this activity level, because we do think that activity is going to increase. But for your guidance, I would point to a similar operating cost in Q4 that we had in Q3.
Unknown Attendee: Okay, thanks.
Unknown Attendee: We'll turn it back next year.
Luke Lemoine: Our next question comes from Luke Lemoine with 5% like your line is open. A good afternoon. Kevin, I believe you talked about 7 to 10 additional opportunities in Canada. And maybe you can move one to two US super triples in the Canada. When you're looking at opportunities like that, are these kind of two-year terms that you're targeting to make the move from the US to Canada? Or how are you thinking about that?
Kevin Neveu: Luke, that's a great question. It's a real important strategy question for us as we think about it. And you know, some of these opportunities might not be for full-year work. It might be for the winter or maybe for the summer. So we'll look at that very carefully and determine what we think is best. What we look for, though, number one is that the operator needs to be paying a leading edge market rate.
Kevin Neveu: We've talked about that being around 37,000 dollars per day. We've talked about the opportunity needing to pay the full mobilization cost and you can think about that being around a million dollars to move the rig up and get a raise of work in Canada. So there's a lot of, you know, requirements will have in our customers if that rig is going to move up. But we also want to be a situation where we oversupply the market.
Kevin Neveu: So we'll think very carefully to make sure that we think it's sustainable work and that there's a long horizon of work for that rig. So we want to contract it was one to two years in duration, but we want to have good visibility and work beyond that. Now, what I'd say is that with the LNG project coming on right now in Canada, we are expecting additional rig demand to meet the requirements of that project.
Kevin Neveu: And that's why we're targeting kind of something like one or two rigs, we think the market can probably handle. And perhaps we're like, maybe you can handle a third or fourth rig will take it one by one.
Kevin Neveu: Okay, and then just still in Canada, believe CWC, some nonutilized rigs, let's be outlook on those going back to work. So there fleet is primarily what a classified as Kelly double rigs, those are generally shallower rigs that are triples and maybe only deeper than some of our super singles. They're commonly used in central southern Alberta and Saskatchewan. It's an area that precision hasn't had a lot of focus in the past. We've been really focused on the resource plays, the conventional heavy oil and the montney.
Kevin Neveu: But we'll certainly bring the CWC team on ranks is to see how they've worked, you know, they've been very effective in the winter season. They've had often all of those rigs running during the winter, all six rigs running quite commonly. So, you know, to see us running all 60 WC rigs and maybe pulling through a few more of the precision telly doubles would be a very good outcome. And we think that the sales team from CWC can bring some strong market intelligence on that market segment for us.
Luke Lemoine: Okay, I think one word real quick on the US side that you said you have 44 rigs operating and some could be reactated later this year. You know, we've seen momentum, you know, the inverse count last few weeks, especially on the Permian to some daily basis.
Kevin Neveu: Where do you think kind of your rigs out could be maybe, you know, six months from now or three to six months in the US, just kind of based on conversations you're having and what you're seeing. Yeah, you know, I think we'll be at a fresh budget year comes January and certainly we've already got customer educations. They'll be more very exploring to work. You know, we're playing that against a couple of these large acquisitions that have announced recently between Exxon and Chevron.
Kevin Neveu: You know, everyone knows that, you know, three plus two equals four, not five. So it's going to be a slight rig count reduction with those transactions. But other ENTs right now, they're looking to replace ducks and kind of get back into ensuring they can sustain production. It does feel like Rick counts are moving up next year. You know, whether that's 50 or 75 rigs is a bit hard to project. But if we picked up our share of that and what we see in our pipeline right now, adding the eight rigs are operating right now with the WC. We can have a rig count, you know, back in the low 60s pretty quickly.
Luke Lemoine: Okay, perfect. Thanks, Kevin. Great.
Unknown Attendee: Thank you.
Kurt Hallead: Our next question comes from Kurt, her lead with benchmark. Your light is up. Hey, good afternoon. Hey, Kevin. I know you guys reference here on the press release and your commentary about a potential doubling of profitability in the international market. Is that, you know, you're, it looks like you're adding what one one plus rig, you know, one and a half two rig on average, you know, going into into next year. So doesn't seem like it's going to be all volume driven per se. So is there a significant step up in kind of day rate and cash margin you expect from from these rigs that you're going to be bringing on line?
Kevin Neveu: So of course, there's a couple of things there. We're going to average a little bit less than six rigs this year. And the next year will average eight for the full year. The two rigs we're adding are higher margin than the other rigs that are that are running on that one average. And we also incurred a bit of cost reactivating these last two rigs that will occur next year. So mixing all of that together, we think that an increase in 50%. Now that's a 50% increase. It's not a doubling in Neveu. It's just a 50% increase. So going from six to eight with a bit more probability.
Kurt Hallead: Okay, that's great. Appreciate that clarity.
Kevin Neveu: And then Kevin, kind of follow up for you as you reference the increased term contract dynamics happening in Canada and 27 rigs now on on term contract. You know, Christopher Ballet, you know, in the next one to two years given the dynamics around, you know, LNG and heavy oil as you met reference, what do you think that 27 could become? You know, I have to preface everything with macro, you know, the macro could affect everywhere all the time.
Kevin Neveu: But assuming that macro doesn't have some, you know, massive shift like a pandemic or another war. But but we're dealing with the Canadian market as it's today with trans mountain pipeline coming on and the coastal gasoline project and then likely follow on approval of phase two for LNG, Canada. So for running 30 rigs today, that could be as much as mid 30s, three or four years down the road. Could it be a low 30s just by that of next year?
Kevin Neveu: So we could see that rig count go from 30 to 32 or 33 next year. And, you know, up beyond that could be 35 or it could be 40 rigs kind of down the road. I don't think we're building new rigs. I think we've got opportunities to upgrade existing rigs like we did for the one rigger moving to Canada on January 1st. You know, to give you a sense of the capital needs for that, we could probably upgrade a one of our older SER rigs to a full super stack for the range of 10 to 15 million dollars, far less expensive than building a new winterized rig. So I don't think we would need a ton of capital just here and count Canada go up quite a bit if the LNG projects continue as they look and have you all continues to remain strong.
Kurt Hallead: That's great. Really appreciate color. Thank you.
Keith Mackey: Our next question comes from Keith McKee with RBC Capital Markets. Your line is open. Hi, good afternoon. First question is just on the US. Now, Kevin, we know that your rig count over the last year or so had been more private company weighted and you talked about adding six public companies this year and increasing your share with two.
Kevin Neveu: Just curious, what do you think is the right customer mix for PD and the US in terms of public's private sector and what do you think needs to happen in order for you to get there? Yeah, Keith, I think that, that sort of changes with time a little bit. I do think that as U S LNG exports structure ramp up in 2024 and 2025, we might be a little less worried about, you know, private equity, style, ENP companies that they're drilling for gas, if there's a stronger LNG export market.
Kevin Neveu: So if I look back at, you know, FY 2020, FY 2021, having that private company exposure and gas exposure was excellent for precision. Now at this point in time today, having more public company exposure, having exposure to the majors, super majors, having more oil exposures, what we're targeting, and we're delivering on that. It's not, you know, we can't make these changes in a week or two, it takes a quarter, two quarters, three quarters, but our customer mix at the end of this year will look vastly different than it did at the beginning of the year, and I really pleased the progress our sales team is making on that. Yeah, I got it. Appreciate the color.
Carey Ford: And maybe one for Kerry.
Carey Ford: What are you seeing in terms of maintenance, CapEx per rig, or maintenance, CapEx per day? I guess more specifically on your U.S, fleet. Has there been much inflation from that 5000 a day level we used always quote, or where things trending there? Yes. So there has been inflation. We've quoted on prior conference calls that the main capital cost per day was trending closer to 2000. Now it's closer to the mid 2000s, but I would point out that that includes drill pipe replacement. And then a lot of cases we are getting customers to pay for access where I'm drill pipe. And so it's showing up as a higher cost in maintenance, CapEx, but then we're recouping it in margin.
Carey Ford: Got it. Okay, so drill pipe and some other things. What are besides a drill pipe? What have been kind of the big drivers in terms of the maintenance capital number increasing? So it would be mud pumps, mud pump maintenance, engines, top drive, all the critical components on the rig. The repair costs have gone up. If you think about R&M, you've got consumable components. When you do repairs, which have a little bit of inflation in them, and then you have labor. So labor's up across the board, and that's what's driving it. Yeah, got it.
Carey Ford: And just one last one. On any activations that you might see in the U.S. Are we talking about any substantial capital requirements to bring any of those rigs back, or are they all pretty warm still? Like they not much maintenance capital, we might have a little bit of operating expense. And if there's upgrades associated with the reactivations, there would be some upgrade capital. But you make the correct point that a lot of these rigs were working six months or a year ago. And they're not going to be the same type of reactivations that we had to put forward at the end of 21, beginning of 22.
Unknown Attendee: Okay, thanks very much.
Cole Perrer: Our next question comes from Cole Perrer. Steve, will your line is open?
Cole Perrer: Afternoon, all. I just want to start on the margin front in the U.S. So it sounds like some of the costs there are going to re-occur in Q4. Or, you know, is there anything transitory that is in both Q3 and Q4? Or, you know, in the event that the rig count in the U.S, doesn't increase, is that kind of a reasonable run rate going forward just as from your last call. I mean, your rig count in the U.S, is down a little bit, but the margin outlook is quite a bit lower.
Cole Perrer: Right, so I think that they will, the cost will trend down a bit more in Q1 regardless of whether we increase our recount. If you think about it, if you have a lower recount, you're absorbing a bit more fixed cost, but also if you have a high maintenance cost on a rig, if you have a critical component that needs to be replaced, it just shows up more. Or it's more prevalent in the average operating cost if you're running pure rigs.
Cole Perrer: And so we've had a few of those where we just had a higher iron and cost on a particular rig, and it just shows up a little bit more in the daily operating cost because of it. So we do think that there's a bit of transitory cost in there and we should see that trending down a bit more if you want. Okay, got it. And then coming back to a shareholder returns, you talked about it a little bit.
Cole Perrer: And there's obviously a few different ways that activity can go next year, but free cash flow, you know, should be pretty strong in any reasonable scenario. I mean, from your standpoint, is it, you know, you maybe think about paying down, call it $150 million of debt or something in that range and should have a lot left over. And then you think about growth, CapEx and kind of put the rest in the buyback. Yes.
Carey Ford: So we'll put forward our capital allocation target to the beginning of next year. I think in general, you're thinking about it right correctly. We will continue our debt reduction schedule. We will have capital allocation towards share buybacks. And then I would look at our growth capital, the same way that we would always look at it. We're going to look for opportunities to spend a great capital match the contracts where we get that capital paid back into the extent that there's opportunity to do that in the market will pursue it.
Carey Ford: Got it. Thanks. And you've done a few of these bolt-ons now. How do you think about further consolidation just as part of the overall PD strategy? You know, I think we've demonstrated over the past couple of years that if we can be optimistic, we will. But really clearly it's not one of our top three strategic priorities. So I don't think we're going to pivot and all of a sudden become highly acquisitionally focused.
Carey Ford: We like the stability of the strong balance sheet, but I carried you to the end of that. Sure. It's important to note that when we executed the high Arctic acquisition, we were able to remain committed to our debt reduction target for 2021 and 2022. And if you look at what we're what we can make it on this conference call that we're going to complete the CWC acquisition and still meet our debt reduction targets for this year.
Carey Ford: It shows you where our priorities are to get the balance sheet in order. And we're in a favorable place right now where we've got some flexibility where we can do some of these tucking acquisition. But debt reduction is still going to be the number one on the more folks of the company for the next year or two. Got it.
Kevin Neveu: Okay. That's all for me. Thanks. I'll turn it back. It's pretty cool.
Waqar Syed: Our next question comes from Waqar Syed with ATB Capital Markets. Your line is open. Thank you.
Carey Ford: Carey, do you expect shortfall revenues in Q4? Yes, they'll be similar to what we reported in Q3 in that kind of $6 million range, US. And when do they fall off? Is Q4 going to be the last quarter for those? Or do you expect them next year as well? If we might have a little bit at the beginning of next year, but the bulk of this level of IBC revenue will fall off. And keep for after keep for.
Carey Ford: Okay. And then you know, as the CWC rigs get on the, on the payroll in next year in the US, how about those impacts your daily operating costs and daily regrets? I think it's a little bit too early to talk about how that can impact our daily operating margins and rates. We're planning to close the acquisition here in the next couple of weeks. And we'll be able to talk about that a bit more clearly.
Carey Ford: Okay. So let's, let's, let's assume then with the CWC on your own fleet, when do you expect US margins to bottom? Well, they're, they're, they could be bottoming right now. We're not seeing much of a much of a change from Q3, Q4. It just depends on whether the rig count continues to trend up and you can Q1.
Waqar Syed: Okay. Yeah. Well, Carbite, I might get to that, kind of focused on what you model for rig count next year, but from modeling, you rig count to move up in Q1. Then I think that reach the margins of bottoms. That's good to hear.
Kevin Neveu: And then Kevin, you know, you touched upon these big mergers that are happening and then, you know, it was mentioned in one case that they would be looking at these four-mile type ladders and some other companies have talked about those as well. What type of rig would be required to reel that? I imagine not every simple triple rig can do that. There may be, you know, even a further subset within super triple that would do that.
Kevin Neveu: So maybe could you talk about like what exactly, what type of equipment would be required on a rig? Yeah, a little bit. I can. So we've drilled some three-mile ladders. We've actually drilled a couple of four-mile ladders. They didn't show replace, not the deeper place. But anytime you extend the length of the well or the vertical depth of the well, either one, you're increasing the required hook load capacity for the rigs.
Kevin Neveu: You mask has to either be strong enough or be a reinforced to be strong enough. You're increasing the amount of pipe you need to build a rack in the mask. So you have to increase the rocking capacity of both the rocking board and the substructure to support that pipe. And now you've got more pipe that's more weight so everything has to support that weight. And then because you're drilling farther and you're adding more pipe in the ground, you need more hydraulic horsepower.
Kevin Neveu: So typically going from two pumps to three pumps or going from 1,600 to 2,000 horsepower mud pumps. So most of these rigs that are in our fleet, All of these changes for us are kind of bolt-ons. We can bolt-on a mast upgrade. We can bolt-on a rocking capacity upgrade. We can slide in a third pump, slide in a fourth generator. So the rig doesn't become obsolete, but these are capital increases. So to add a third pump at a fourth generator is over a million dollars to upgrade the mast capacity.
Kevin Neveu: They have more pipe might be in our case might be less than a half a million dollars. If you want to do all of these things together for one of our rigs, it's probably going to rain today. We're working three to five million. And the other component is a top drive usually has to have a higher torque capacity. So there's a bit of work to do in the top drive.
Unknown Attendee: Great. Thank you very much.
Unknown Attendee: That's all I have. Great.
Unknown Attendee: Thank you, Waqar.
Sean Mitchell: Our next question comes from Sean Mitchell with Daniel Energy Partners. Your line is open. Thanks guys for taking my question. You guys have got the three rigs and Saudi, the fourth and fifth rig in Kuwait.
Kevin Neveu: Any thoughts around exploring other international markets in the Luke, Canada and US, but we haven't really talked about are there other opportunities international that you guys are looking at any color you can add. Sean, we've been clearly focused on maximizing our footprint in Kuwait and Saudi. So for sure, those two countries, we've been bidding around the Gulf. We think we can support rigs in Qatar, Bahrain, you know, maybe Abu Dhabi places like that from the base of operations we have either in Saudi or Kuwait and our regional offices in Dubai.
Kevin Neveu: So we think the entire Gulf region is open to us. We're not looking really aggressively outside the Gulf. You know, we have had inquiries from Argentina. We've had inquiries from Central Africa. I'm not anxious to see us, you know, in six or seven different countries around the world. But if we had a one off chance to put it right somewhere in a really good day rate, we'd look at that.
Unknown Attendee: Okay. Thank you. Thanks, Sean. And I'm not showing any further questions at the time.
Lavonne Zdunich: I'd like to turn the call back over to Levant for any closing remarks. On behalf of the team here of precision, I'd like to thank people for joining us today. And that concludes our comment call. Thank you.
Unknown Attendee: Well, ladies and gentlemen, that's included today's presentation. You may now disconnect and have a wonderful day. Thank you very much.