Q4 2023 Precision Drilling Corp Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the PRECISION DRILLING Corp. 2023 4th Quarter New York Results Conference Call. I would now like to hand the conference over to Lavon Zadunic, Director of Investor Relations. Please go ahead.

Good day, and thank you for standing by and welcome to the precision drilling Corporation 2023 fourth quarter and year end results conference call I would now like to hand, the conference over to <unk>.

<unk> director of Investor Relations. Please go ahead.

Lavon Zadunic: Thank you and welcome to PRECISION's fourth quarter earnings conference call and webcast. Participating on today's call with me will be Kevin Nevue, our President and CEO, and Kerry Ford, our CFO. Earlier today, we recorded strong fourth-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. 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.

Thank you and welcome to precision fourth quarter earnings conference call and webcast participating on today's call with me will be Kevin W are president and CEO and carry forward our CFO.

Earlier today, we reported strong fourth quarter results, which Terry 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.

Some of our comments today will refer to non <unk> financial measure is willing and will include forward looking statements, which are subject to a number of risks and uncertainties.

Lavon Zadunic: 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 results in Canadian dollars unless otherwise indicated. With that, I'll pass this over to Kerry.

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 results in Canadian dollars, unless otherwise indicated with that I'll pass it over to Carey Greenfield.

Kerry Ford: Thanks, Lavonne, and good afternoon. PRECISION's annual financial results show continued improvement since 2022 and reflect the focus on the 2023 strategic priorities that Kevin will address in his commentary. Annual highlights include revenue of $1.9 billion, a 20% annual increase, Adjusted EBITDA of $611 million, a 96% increase, and funds from operations of $533 million, an 89% increase. Cash from operations of $501 million, a 111% increase, debt reduction of $152 million, and $30 million in share repurchases while funding two acquisitions with cash or assumption of debt totaling approximately $100 million, and positive earnings per share every quarter during 2023 and for the past six consecutive quarters. In 2023, we closed the CWC acquisition on November 8.

Thanks, a lot and good afternoon.

The annual financial results showed continued improvement from 2022 and reflects the focus on the 2023 strategic priorities that Kevin will address in his commentary.

Annual highlights include revenue of $1 9, Billion% to 20% annual increase adjusted EBITDA of $611 million and 96% increase.

Funds from operations of $533 million, and 89% increase cash from operations of $501 million, 111% increase that.

Net production of $152 million and a $30 million of share repurchases, while funding two acquisitions with cash or assumption of debt totaling approximately $100 million.

And positive earnings per share every quarter during 2023 and for the past six consecutive quarters.

In 2023, we can cook, we closed the TWC acquisition on November eight.

Kerry Ford: And the PRECISION team has aggressively worked with our new colleagues at CWC to integrate the business to begin realizing synergies, including consolidating facilities, reducing administrative costs, and utilizing PRECISION's tech centers and supply stores to support the field. To date, we have achieved $12 million of the projected $20 million of annual synergies and expect to achieve most of the remainder in the first half of 2024. Moving on to our fourth-quarter results, our fourth-quarter Adjusted EBITDA of $151 million included a share-based compensation charge of $13 million and transaction and severance charges of $6 million. Absent these charges, Adjusted EBITDA would have been $170 million.

And the precision team has aggressively worked with our new colleagues at CWC to integrate the business to begin realizing synergies, including consolidated facilities, reducing administrative costs and utilizing precision tech centers and supply stores to support the field.

To date, we have achieved $12 million of the projected $20 million of annual synergies and expect to achieve most of the remainder in the first half of 2024.

Moving on to our fourth quarter results, our fourth quarter adjusted EBITDA of $151 million included share based compensation charge of $30 million and transaction and severance charges of $6 million asset. These charges adjusted EBITDA would have been $170 million.

Kerry Ford: In the U.S., drilling activity for PRECISION averaged 45 rigs in Q4, an increase of four rigs from Q3 driven in part by the addition of acquired CWC rigs. Daily operating margins in the quarter, absent impacts of IBC and turnkey, were $11,802 USD, in line with our guidance of $11,500 USD to $12,000 USD and consistent with Q3 levels. IBC's revenue for the fourth quarter was $1,633 U.S. dollars per day.

In the U S drilling activity for precision averaged 45 rigs in Q4, an increase of four rigs from Q3 driven in part by the addition of acquired TWC rigs daily.

Daily operating margins in the quarter absent the impact of IPC and turnkey were 11800 to USD in line with our guidance of 11500, USD to 12000, USD and consistent with Q3 levels.

<unk> revenue for the fourth quarter was 1633 U S dollars per day.

Kerry Ford: And for Q1, we expect minimal IBC revenue and normalized margins to range between $9,000 USD and $10,000 USD. The decrease in margins is mainly due to overhead costs spread over fewer activity days compared to Q4. In Canada, drilling activity for PRECISION averaged 64 rigs, a decrease of 2 rigs from Q4 2022. Daily operating margins in the quarter were $15,740, an increase of approximately $1,800 from Q3 2023, and in line with our guidance above, margins were about $15,000 per day. In Q1, we expect margins to remain above $15,000 per day. Internationally, drilling activity for PRECISION in the quarter, average daily rigs, and average day rates were $49,872 USD, in line with the prior year. We expect 2024 activity levels to increase by approximately 40% over 2023 levels.

And for Q1.

We expect minimal IDC revenue and normalized margins to range between 9000, USD 10000 USD.

The decrease in margins is mainly due to overhead cost spread over fewer activity days compared to Q4.

In Canada drilling activity for precision averaged 64 rigs a decrease of two rigs from Q4 2022, Dave.

Daily operating margins in the quarter were $15740 an increase of approximately $1800 from Q3 2023.

And in line with our guidance above of margins about $15000 per day for Q1, we expect margins to remain above $15000 per day.

Internationally drilling activity for precision in the quarter average eight rigs and average day rates were 49872, USD inline with the prior year.

We expect 2020 for activity levels will increase by approximately 40% over 2023 levels.

Kerry Ford: I will remind the audience that capital expenditures in the international segment are typically lumpy, with high CapEx at the front end of projects and lower normalized levels in subsequent years. For 2023, with recertification costs for the four Kuwait rig contracts and a bulk drill pipe purchase order for the region, international capital expenditures were over $50 million. For 2024, we expect capital expenditures to significantly decrease to normalized maintenance levels. In our C&P segment, Adjusted EBITDA this quarter was $12 million, flat with our prior year quarter.

I'll remind the audience that capital expenditures in the international segment are typically lumpy with high Capex at the front end of projects and lower normalized levels in subsequent years.

'twenty three with recertification costs for the Port Kuwait rig contracts and our bulk drill pipe purchase order for the region International capital expenditures were over $50 million for 2024, we expect capital expenditures to significantly decrease to normalized maintenance levels.

And our <unk> segment adjusted EBITDA This quarter was $12 million flat with our prior year quarter.

Kerry Ford: Adjusted EBITDA was positively impacted by a 15% increase in wealth service hours, reflecting the partial impact of the CWC service rig acquisition. We expect results will improve in Q1 with increased rates and activity, the absence of Q4 transaction-related costs, and the realization of transaction synergies. Capital expenditures for the quarter were $79 million, and for the year $227 million.

Adjusted EBITDA was positively impacted by a 15% increase in well service hours, reflecting the partial impact of CWC service rig acquisition.

We expect results will improve in Q1 with increased rates and activity. The absence of Q4 transaction related costs and the realization of transaction synergies.

Capital expenditures for the quarter were $79 million and for the year $227 million or.

Kerry Ford: Our capital expenditures were slightly higher than our guidance of $215 million due to the timing of equipment delivery. Our 2024 capital plan is $195 million and is comprised of $155 million for sustaining infrastructure and $40 million for contracted upgrades and expansion. sustaining an infrastructure CapEx of $155 million includes $40 million of long-lead items. And I'd like to take a moment to comment on the strategic decision to purchase these long-lead items because I believe it exemplifies PRECISION's ability to leverage its scale to reduce costs while positioning the company for growth opportunities. Due to our standardized fleet, high activity levels across a broad geographic footprint, and a mature supply chain function with core vendor relationships, we achieved a bulk purchase discount on these items and plan to utilize the equipment in either the U.S. or Canadian fleet for potential upgrades or as critical spares. This also ties in with daily operating costs, which have increased for us and our peers over the past three years. The wage increases for crews have been earned and well-deserved, and as a result, they are largely here to stay.

Capital expenditures were slightly higher than our guidance of $215 million due to timing of equipment deliveries.

Our 2024 capital plan is $195 million and is comprised of $155 million for sustaining and infrastructure and $40 million for contracted upgrades and expansion.

Sustaining and infrastructure Capex of $155 million includes $40 million of long lead items.

And I'd like to take a moment to comment on the strategic decision to purchase these long lead items, because I believe it exemplifies precision ability to leverage our scale to reduce cost while positioning the company for growth opportunities.

Due to our standardized fleet high activity levels across our broad geographic footprint and our mature supply chain function with core vendor relationships, we achieved a bulk purchase discount.

On these items and plan to utilize the equipment in either the U S.

Our Canadian fleet for potential upgrades or as critical spares.

This also ties in with daily operating costs, which have increased for us and our peers over the past three years.

The wage increases for our crews have been earned and well deserved and as a result, they are largely here to stay.

Kerry Ford: Although the field labor portion of our daily operating costs is sticky, opportunities to lower costs exist. Identifying these opportunities and realizing cost savings has been and will remain a key focus area for the finance team, and we are working hand-in-hand with our operations, technology, supply chain, and equipment maintenance teams to reduce inflationary pressures, optimize equipment performance, and produce a lower and less volatile cost structure in the future. Moving to our contract book, as of February 5th, we had an average of 52 contracts in hand for the first quarter and an average We now have 21 rigs on contract in Canada for 2024, reflecting an increasing number of customers seeking to lock up rigs ahead of LNG project startup. Moving to the balance sheet, as of December 31st, our long-term debt position, net of cash, was approximately $880 million, and our total liquidity position was over $600 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 1.4 times, a decrease from 3.4 times at the end of 2022. Our average cost of debt is 7%.

Although the field labor portion of our daily operating costs are sticky opportunities to lower cost exist.

Identifying these opportunities and realizing cost savings has been and will remain a key focus area for the finance team and we are working hand in hand, with our operations technology supply chain and equipment maintenance teams to reduce the inflationary pressures optimized equipment performance and produce a lower and less volatile cost.

Sure in the future.

Moving to our contract book as of February 5th we had an average of 52 contracts in hand for the first quarter and an average of 43 contracts for the full year 2023.

We now have 21 rigs on contract.

In Canada for 2024, reflecting an increasing number of customers seeking to lock up rigs ahead of LNG project startups.

Moving to the balance sheet as of December 31, our long term debt position net of cash was approximately $880 million and our total liquidity position was over $600 million excluding letters of credit.

Our net debt to trailing 12 month EBITDA ratio is approximately one four times a decrease from three four times at the end of 2022.

Our average cost of debt is 7%.

Kerry Ford: We plan to reduce debt by $150 million to $200 million in 2024 and have increased our long-term debt reduction goal from $500 million to $600 million between 2022 and 2026. As of December 31st, 2023, we have reduced debt by $258 million and have $342 million additional reduction necessary over the next three years to reach our goal. We began reducing death in 2016, and every year we have provided guidance, we have met or exceeded our target. Today, we have had only a modest allocation of free cash flow for share repurchase.

We plan to reduce debt by $150 million to $200 million in 2024 and have increased our long term debt reduction goal from $500 million to $600 million between 2022 and 2026.

As of December 31, 2023, we have reduced debt by $258 million and have $342 million additional reduction necessary over the next three years to reach our goal.

We began reducing debt in 2016 and every year. We have provided guidance, we have met or exceeded our targets to date, we haven't had only a modest allocation of free cash flow for share repurchases, but.

Kerry Ford: But as we approach our target debt levels of below one times, we are confident in our ability to increase our allocation to direct shareholder payments as a percentage of free cash flow. We plan to allocate 25-35% of free cash flow before debt repayments for share repurchases and will expect to continue increasing this allocation in future years, moving towards a target allocation of 50% of free cash flow before debt repayments by 2026. Moving on to guidance for 2024, we expect strong fruit and cashew nuts for the year.

But as we approach our target debt levels are below one times, we are confident in our ability to increase our allocation to direct shareholder payments as a percentage of free cash flow.

We plan to allocate 25% to 35% of free cash flow before debt repayments for share repurchases and we will expect to continue increasing this allocation in future years, moving towards a target allocation of 50% of free cash flow before debt repayments by 2026.

Moving onto guidance for 2024, we expect strong free cash flow for the year, but Q1 cash flow to be impacted by front end loaded capex working capital build our semiannual interest payment and year end payments.

Kerry Ford: Q1 cash flow is expected to be impacted by front-end loaded CapEx, a working capital bill. SEMI-ANNUAL INTEREST PAYMENTS and YEAR-END PAYMENTS. We expect depreciation of approximately $290 million, cash interest expense of approximately $75 million, cash taxes to remain low, and our effective tax rate to be approximately 25%. SG&A of approximately $100 million before share-based compensation expense, and we expect share-based compensation charges for the year to range between $45 million and $55 million at an $80 share price.

We expect depreciation of approximately $290 million.

Cash interest expense of approximately $75 million cash.

Cash taxes to remain low and our effective tax rate to be approximately 25%.

SG&A of approximately $100 million before share based compensation expense.

And we expect share based compensation charges for the year to range between $45 million $55 billion at $80 share price.

Kevin Nevue: And the range may change based on the share price and the performance of PRECISION stock relative to PRECISION's peer group. Please note this is a preliminary estimate, and we will provide updated guidance on our Q1 call following the settlement of past grants and issuance of new grants later this quarter. With that, I will hand the call over to Kevin. Thank you, Gary. Good afternoon.

And the range may change based on the share price and the performance of precision stock relative to precision peer group.

Please note. This is a preliminary estimate and we will provide updated guidance on our Q1 call. Following the settlement of past grants and issuance of new grants later this quarter.

With that I will hand, the call over to Kevin.

Thank you Gary good afternoon.

Kevin Nevue: Well, we are very pleased with the strong fourth quarter and full year financial results and operational results delivered by the PRECISION team in 2023. As Kerry mentioned, the progress achieved over the past several years in improving our balance sheet and reducing our debt levels while growing our revenue and cash flows has positioned us with the financial flexibility to execute on a number of opportunistic financial actions to further enhance shareholder value, and he described a few of those. Utilizing our strong free cash flow, we met or exceeded all of our financial priorities for the year, including debt reduction and share buyback.

Well, we are very pleased with the strong fourth quarter and full year financial results and operational results delivered by the precision team in 2023.

As Cary mentioned the progress achieved over the past several years, improving our balance sheet and reducing our debt levels, while growing our revenue and cash flow has positioned us with the financial flexibility to execute on a number of opportunistic financial actions to further enhance shareholder value maturity described a few of those.

Using our strong free cash flow, we met or exceeded all of our financial priorities for the year, including debt reduction share buybacks. We completed two consolidated in transactions, we invested in our fleet with high return projects for the Middle East United States and Canada. Those investments included Alpha technology expansion evergreen emissions reductions projects along with several.

Kevin Nevue: We completed two consolidating transactions. We invested in our fleet with high return projects for the Middle East, United States, and Canada. Those investments included ALFA technology expansion, evergreen emissions reduction projects, along with several rig capability upgrades and the reactivation of the rigs in Kuwait. So beginning with our international segment, in the fourth quarter, as Kerry mentioned, we reactivated our fifth region, Kuwait, on a five-year contract.

Rig capability upgrades and the reactivation of the rigs in Kuwait.

So beginning with our international segment in the fourth quarter as Carey mentioned, we reactivated our fifth rig in Kuwait on a five year contract.

Kevin Nevue: This rig, combined with the four other rigs in Kuwait and our three operating rigs in the Kingdom of Saudi Arabia, will increase our activity in 2024 by 40% over 2023, with our well-established international infrastructure already generating strong returns. We expect this increased activity to flow through our income statement with potentially no increases in our fixed costs or overhead. Despite the recent announcements from the Kingdom of Saudi Arabia regarding capping oil production, we do expect further bidding activity and possible land rig additions targeting unconventional gas, in addition to those recently announced by other industry participants. We have one idle super triple rig in Kuwait and four other idle rigs in the region. Equate, we have active bids for the EIDL rig and believe we have a high likelihood of contracting this rig in 2024.

Rig combined with the four other rigs in Kuwait and our three operating rigs in the Kingdom of Saudi Arabia will increase our activity in 2024 by 40% over 2023.

With our well established international infrastructure already generating strong returns. We expect this increased activity to flow through our income statement essentially no increases in our fixed costs or overhead.

And despite the recent announcements from the Kingdom of Saudi Arabia regarding capping oil production, we do expect further bidding activity impossible land rig addictions additions targeting unconventional gas. In addition to those recently announced by other industry participants.

We have one idle super Triple rig in Kuwait and for other idle rigs in the region.

We have active bids for the idle rig and believe we have a high likelihood of contracting this rig in 2024 and.

Kevin Nevue: And we continue to bid on other international rig tenders in the region and believe we can support regional new country entries from our established base in Dubai. I believe we're well positioned to grow this business segment as the international land drilling industry continues to recover. Turning to the lower 48, we continue to work to expand our presence in oil basins and with public E&P operators, particularly. This has been a little more challenging than we expected, as U.S. rig activity has been essentially flat for several months, with very few new rig deployment opportunities. There continues to be some contract churn and some operator high-grading, and our team has been tightly focused on those limited opportunities. However, it's important to understand the customer rig switching costs, which I've discussed in the past. When an operator decides to replace an existing rig, for whatever reason, they usually need to pay a demobilization cost for the current rig and then mobilize the replacement rig. This mobilization or switching cost can reach anywhere from several hundred thousand dollars to over a million dollars, depending on the drilling locations and the proximity to the contractor's operating base.

And we continue to bid on other international rig tenders in the region and believe we can support regional new country entries from our established based in Dubai.

I believe we are well positioned to grow this business segment is the international land drilling industry continues to recover.

Turning to the lower 48, we continue to work to expand our presence in oil basins, and where the public E&P operators, particularly.

This has been a little more challenging than we expected as U S rig activity has been essentially flat for several months with very few new rig deployment opportunities.

There continues to be some contract churn and some operator high grading, but our team has been tightly focused on those limited opportunities.

However, it's important to understand with customer rig switching costs, which ive discussed in the past.

When operator decides to replace an existing rig or whatever reason, they usually need to pay a demobilization cost for the current rig and then mobilize the replacement rig.

This mobilization or switching costs can reach anywhere from several hundred thousand dollars over $1 billion, depending on the drilling locations the proximity to the contractors operating base.

In addition to those hard mobilization costs Youre, operator will have to be a little patient as the hybrid rig and new crew come up the learning curve in that specific operators practice.

Kevin Nevue: In addition to those hard mobilization costs, your operator will have to be a little patient as the high-graded rig and new crew come up the learning curve in that specific operator's practice. This switching cost, coupled with the very firm drilling contractor market discipline we've seen over the past few years, has meant that both rig rates and rig contracts tend to be stickier than most other OFS services. It also means that even for those of us pursuing the high-grading opportunities, the drilling contractor may need to be very creative with initial day rates, escalation parameters, or performance incentives to catalyze those high-grading opportunities. Our team has been successful in sustaining our activity in the low 40s over the past couple of quarters. I do note a mistake on the PRECISION website earlier today, which posted PRECISION's U.S. activity at 37. It actually is 39 rigs as of today, and the website error has been corrected. That said, I'm not thrilled with 39 rigs running.

This switching cost coupled with.

Very firm drilling contractor market discipline, we've seen over the past few years has meant that both rig rates and rig contracts tend to be stickier than most other <unk> services.

It also means that even for those of us pursuing the high grading opportunities.

The drilling contractor media to be very creative with initial day rates escalation parameters or performance incentive better incentives to catalyze those high grading opportunities.

Our team has been successful sustaining our activity the low forties over the past couple of quarters.

Do note a mistake in the precision website earlier today, which posted precision as U S activity at 37%.

<unk> has 39 rigs as of today and the website error has been corrected.

That said I'm, not thrilled, but 39 rigs running.

With the pace of current customer bids recently signed contracts and planned Activations, we expect we'll be back into the low <unk> in the coming weeks, we expect to see our actively activity modestly increased further during the second quarter.

Kevin Nevue: The pace of current customer bids, recently signed contracts, and planned activations, which we expect will be back in the low 40s in the coming weeks, we expect to see our activity modestly increase further during the second quarter. Visibility beyond the next few months is a little less clear.

Visibility beyond the next few months with a little less clear.

While we continue to see positive leading indicators, including customer inquiries LNG export project startups exhausted ducks in the Permian and an increasing focus on drilling inventory quality and of course, the desire for longer reach laterals.

Kevin Nevue: But we continue to see positive leading indicators, including customer inquiries, LNG export project startup, exhausted ducks in the Permian, and an increasing focus on drilling inventory quality, and, of course, the desire for longer-reach laterals. We expect these factors will help to catalyze upgrading and high-grading growth opportunities, particularly for our super triples with our alpha automation capabilities. No doubt we have some work to do as we continue to expand our presence in the oil place while remaining well positioned for an improving gas macro. Our Canadian drilling and our well services businesses both delivered strong operational and financial performance throughout 2023 and are carrying that momentum on into 2024. Now, for most of the last decade, the Canadian market has been constrained by hydrocarbon takeaway bottlenecks and constraints. As a result, the discount for Western Canada Select Oil has ranged from $25 to $40 below WTI.

We expect these factors will help to catalyze upgrading and high grading growth opportunities, particularly for our Super triples, with our alpha automation capabilities.

No doubt we have some work to do as we continue to expand our presence in the oil place, while remaining well positioned for an improving gas macro.

And our Canadian drilling and our well services businesses, both delivered strong operational and financial performance throughout 2023, and we're carrying that momentum on into 2024.

Now for most of the last decade, the Canadian market has been constrained by hydrocarbon takeaway bottlenecks and constraints.

As a result, the discount for Western Canada select oil has ranged in the $25 to $40 below double UTI range.

While the Alberta natural gas commodity price Echo has been a function of highly cyclic seasonal weather patterns and regional market energy near it needs also limited by bottlenecks and takeaway capacity.

Now I think most of US know that later this year two major transmission projects, the Trans mountain oil pipe and the coastal gas link.

Kevin Nevue: Well, the Alberta natural gas commodity price, ACO, has been a function of highly cyclic seasonal weather patterns and regional market energy needs, also limited by bottlenecks and takeaway capacity. I think most of us know that later this year, two major transmission projects, the Trans Mountain oil pipeline and the Coastal GasLink natural gas pipeline, will begin full operation and serve to fully alleviate the Canadian constraints. WCS discounts are expected to moderate to high single-digit discounts, and LNG Canada exposes Canadian natural gas to the global LNG market. Our customers, the Canadian oil and gas operators, remain among the most disciplined E&P groups in the world, yet they fully understand the long-term implications of this transformation in the Canadian market. We expect they will thoughtfully and carefully align their capital programs and balance their rig and well-servicing demands to track the takeaway capacity of the market while continuing to generate stable cash flows and, most importantly, funding their shareholder return programs. This lays out a long-term thesis for the Canadian OFS market, fundamentally supported by global energy prices with no constraints.

Gas pipe will begin full operation and serve to fully alleviate the Canadian constraints.

WCS discounts are expected to moderate to high single digit discounts and LNG, Canada exposes Canadian natural gas to the global LNG market.

Our customers the Canadian oil and gas operators.

Among the most disciplined E&P group in the World.

If they fully understand the long term implications of this transformation in the Canadian market.

We expect they will thoughtfully and carefully align their capital programs and built a rig and well servicing demands to track to takeaway capacity of the market, while continuing to generate stable cash flows and most importantly funding their shareholder return programs.

This lays out our long term thesis for the Canadian office market fundamentally supported by global energy prices with no constraints.

Those Canadian oil and gas operators will remain highly disciplined and we will.

Utilized large scale multi wet multi well pad drilling programs, where efficiency safety industrial scale technology and digital capabilities will define the development model.

This also explains precision current market positioning in the Montney and heavy oil plays and aligns perfectly with our strategy over the past several years.

Kevin Nevue: Those Canadian oil and gas operators will remain highly disciplined and will utilize large-scale multi-well pad drilling programs where efficiency, safety, industrial scale, technology, and digital capabilities will define the development model. This also explains PRECISION's current market positioning in the Montany and heavy oil plays and aligns perfectly with our strategy over the past several years. We can look back to the introduction of our super triple rig last decade, the introduction of our Alpha Automation System five years ago, and more recently, our Evergreen Emissions Reduction Solution just two years ago.

We can look back to the introduction of our Super Triple rig last decade.

The introduction of our Elfa automation system five years ago, and more recently, our evergreen emissions reduction solution. Just two years ago. These rig technology advancements enable large scale optimized pad style oil and gas developments perfectly.

We also commissioned our 30 Super Triple rig in Canada, Canada earlier, this quarter and as we discussed on prior calls. This is a highly upgraded rig to full super Triple capacity. The rig is equipped with a full suite of alpha automation of apps. It's got.

At our Elfa clarity optimization system, and a full suite of evergreen environmental solutions easily making this the most advanced technology land rig in the world today.

Kevin Nevue: These rig technology advancements perfectly enable large-scale, optimized, pad-style oil and gas developments. We also commissioned our 30th Super Triple Rig in Canada earlier this quarter, and as we discussed on prior calls, this is a highly upgraded rig to full Super Triple capacity. The rig is equipped with the full suite of Alpha Automation, Alpha Apps, and our Alpha Clarity Optimization System and a full suite of Evergreen Environmental Solutions, easily making this the most advanced technology land rig in the world today. Oh, and one more item.

And one more item the rig is equipped with three fully automated robotic arms to handle rig floor and rocking board pipe handling operations now.

Now this is the first fully automated deployment of the it'll be Adam Wracking board and rig floor robotic system and in partnership with MLB and our customer. This is a fully functional and commercial deployment.

While we believe we still have some modest field hardening work over the coming weeks. This is essentially a bolt on robotic upgrades that we can install in any precision super triple rig to fully <unk>, the red zones on the rig floor and the pipe racking area in the Rocky Board.

Kevin Nevue: The rig is equipped with three fully automated robotic arms to handle rig floor and racking board pipe handling operations. Now, this is the first fully automated deployment of the NOV Adam Racking Board and Rig 4 Robotic System, and in partnership with NOV and our customer, this is a fully functional and commercial deployment. While we believe we still have some modest field hardening work to do over the coming weeks, this is essentially a bolt-on robotic upgrade that we can install on any precision super triple rig to fully de-man the red zones on the rig floor in the pipe racking area and the racking board. I believe there's much more to come on this over the next few months, and we'll continue to update you.

I believe there is much more to come on this over the next few months, we will continue to update you.

Today, we are operating eight drilling rigs in Canada, which includes the recently acquired CWC Tele double rigs.

Now the Canadian Tele double drilling market remains over saturated and highly fractured too many rigs to many contractors and the competition is intense.

Now precision scale, our highly skilled crews vertical integration and our procurement advantage allows us to improve the returns that CIBC achieved on these rigs, while we remain price competitive and relative participant in this request.

While precision is unlikely to be a further consolidator in this segment, it's our view that consolidation and rationalization of the tele doubles rig market is essential for the long term benefit of all stakeholders.

Kevin Nevue: Today, we are operating 80 drilling rigs in Canada, which includes the recently acquired CWC Tully Double Rigs. However, the Canadian Tele-Double drilling market remains oversaturated and heavily fractured with too many rigs, too many contractors, and the competition is intense. Now PRECISION's scale, our highly skilled crews, vertical integration, and a procurement advantage allow us to improve the returns that CWC achieved on these rigs while we remain a price competitive and relative participant in this rig class. While PRECISION is unlikely to be a further consolidator in this segment, it is our view that consolidation and rationalization in the tele-doubles rig market is essential for the long-term benefit of all stakeholders Precision super triples that are pad-equipped super singles remain generally sold out, with customers increasingly locking in access to these highly capable rigs and crews with firm take-or-pay contract commitments.

Precision Super Triple net Pat equipped Super singles remain generally sold out with customers increasingly lockean access these highly capable rigs and crews with firm take or pay contract commitments.

For comparison purposes.

In the first quarter of 2021.

<unk> Canadian Super series rigs were contracted with take or pay term contracts.

In 2022, this increased from nine rigs and 21% to 19 rigs and now for the first quarter of this year 24 rigs are contracted on firm take or pay terms significant shift in the market.

And this transformation towards take or pay term contracts improves our revenue visibility it improves crew performance and stability and it keeps those rigs off the market supporting tight supply fundamentals for the non contracted rigs.

Kevin Nevue: For comparison purposes, in the first quarter of 2021, nine Canadian Super Series rigs were contracted with Take or Pay Term Contracts. In 2022, this increased from nine rigs in 21 to 19 rigs. And now, for the first quarter of this year, 24 rigs are contracted on firm take or pay terms, a significant shift in the market. And this transformation towards take or pay term contracts improves our revenue visibility, it improves crew performance and stability, and it keeps those rigs off the market, supporting tight supply fundamentals for the non-contracted rigs. Looking forward, we expect to run 40 to 45 rigs throughout the spring, and then quickly ramp back up into the mid-60s during the summer, and again, higher levels closer this year in the fall, preparing for winter next year. Longer term, through the end of this year and into next, it appears rig demand will remain firm and likely tighten up further as the pipelines commence full operation. Our Alpha and Evergreen products, both in Canada and the U.S., continue to demonstrate broad market penetration.

Looking forward, we expect to run 40 to 45 rigs throughout the spring and then quickly ramped back up into the mid <unk> during the summer and again higher levels closer to this year in the fall.

Preparing for winter next year.

Longer term through the end of this year into next it appears to rig demand will remain firm and likely tighten up further as the pipeline commenced full operations.

Our alpha and evergreen products, both in Canada, and the U S continued to demonstrate broad market penetration.

Customers recognize the efficiency of the delivers with now 96% of our active super Triple rigs running <unk> automation enough apps.

Our experience on automated drilling is growing quickly with over 20 million feet now where Canadian analysts that $6 1 million meters drilled with alpha in 2023 up 43% from 2022. Despite the noted decline in U S drilling activity.

Late last year, we introduced a new tool faced control app for directional drilling and.

And since we've drilled 43 wells with over 3000 autonomous slide sequences fully proving the value of this app to further automate the drilling process processes now approaching 98% the sequence is being automated.

Kevin Nevue: Our customers recognize the efficiency that Alpha delivers, with 96% of our active Super Triple rigs running Alpha Automation and Alpha Apps. Our experience with automated drilling is growing quickly, with over 20 million feet, and now, for Canadian analysts, that's 6.1 million meters drilled with ELFA in 2023, up 43% in 2022, despite the noted decline in U.S. drilling activity. Late last year, we introduced a new tool face control app for directional drilling.

Our evergreen emission solutions have strong customer support currently 65% of our active Super Triple rigs currently running at least one evergreen system and customer commitments now booked that evergreen solutions to a total of at least 90% of the Super Triple rigs as soon as we can install the systems.

Kevin Nevue: And since we've drilled 43 wells with over 3,000 autonomous slide sequences, fully proven the value of the SAP to further automate the drilling process processes, now approaching 98% of these sequences being automated. Our Evergreen Emission Solutions have strong customer support. Currently, 65% of our active Super Triple rigs are currently running at least one Evergreen system, and customer commitment is now booked to add Evergreen solutions to a total of at least 90% of the Super Triple rigs as soon as we can install the system. I remind you that these solutions include better batteries, battery energy storage systems, diesel fuel and emissions monitoring apps, grid power connection systems, Low Emission Lighting Systems, and Blended Natural Gas Fuel Systems.

I'll remind you that these <unk> solutions. These solutions include better battery battery energy storage systems.

Fuel and emissions monitoring apps grid power connection systems low.

Low emission lighting systems and blended natural gas fuel systems.

Our strategy to deploy products, which provide meaningful reduction in rig emissions, while reducing our customers' fuel costs and providing a solid investment for return where precision is a no nonsense emissions reduction strategy and I certainly wish that our government policymakers would take a similar approach to their policies on the emissions challenge.

We believe both Alfa and evergreen will be important as we look to continue strengthening our market presence in the U S, Canada and international regions.

Turning to our well service business in Canada, the integration of the CWC rigs and personnel was the key focus in the fourth quarter. We are working their way through the synergies with the strong results of the combined team.

Kevin Nevue: Our strategy to deploy products which provide meaningful reduction in rig emissions, while reducing our customers' fuel costs, and providing a solid investment for return for PRECISION is a no-nonsense emissions reduction strategy, and I certainly wish that our government policymakers would take a similar approach to their policies on the emissions challenge. We believe both Alpha and Evergreen will be important as we look to continue strengthening our market presence in the U.S., Canada, and international regions. Turning to our well service business, Business in Canada, the integration of the CWC rigs and personnel was the key focus in the fourth quarter. And working their way through the synergies was a strong result for the combined team. Our well service activity remained firm through the fourth quarter, and this has carried on the momentum into 2024. Now, we experienced a roller coaster of weather, first losing activity in mid-January due to extremely cold weather conditions in western Canada, and then things turned too warm, causing some intermittent road bans, and with the unusually warm weather in late January making some well locations inaccessible, again negatively impacting activity.

Our well service activity remained firm through the fourth quarter and this is carried on the momentum into 2024.

Now we experienced a rollercoaster of weather first losing activity in mid January to due to extremely cold weather conditions in Western Canada, and then things turned to warm, causing some intermittent road bans and with the unusually warm weather in late January making some well locations and accessible again negatively impacting the activity.

Yet the combined business is performing very well today, we're operating 83 service rigs with 11 of those 24 operation our operations doubling the assets revenue efficiency.

Later this month it looks like our activity will break past 100 operating rigs customer demand remains firm and the outlook for the balance of the year. It looks good with a strong Canadian macro supporting customer activity.

So turning to our strategic priorities as we reported in our press release, we achieved all of our 2023 priorities and we posted precision as 2024 priorities.

We believe it's important that our investors understand exactly how we intend to create shareholder value. We will continue to provide the quarterly update on our progress.

Kevin Nevue: Yet the combined business is performing very well. Today, we're operating 83 service rigs, with 11 of those on 24-hour operations, doubling the asset's revenue efficiency. Later this month, it looks like our activity will break past 100 operating rigs. Customer demand remains firm, and the outlook for the balance of the year looks good with strong Canadian macro-supporting customer activity.

I can also report that the feedback from our investors continues to be highly positive.

Busters tell us we appreciate the transparency and they ask us to.

Please keep doing what we say we're going to do.

So with that in mind, you can see from our longer term guidance, we're shifting our priority towards increasing capital returns to shareholders, while continuing to reduce debt, but with a more balanced approach.

For the next several years, we believe this will deliver very good shareholder returns.

Kevin Nevue: So turning to our strategic priorities, as we reported in our press release, we achieved all of our 2023 priorities, and we posted PRECISION's 2024 priorities. We believe it's important that our investors understand exactly how we intend to create shareholder value, and we'll continue to provide that quarterly update on our progress. I can also report that the feedback from our investors continues to be highly positive.

So on that note I'll conclude by again thanking the people of precision drilling for their dedication their hard work and great safety results from great operating results in 2023.

We look forward to all look forward to a good year in 2024, I will now turn the call back to the operator for questions.

Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone extra question has been answered you question with yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.

Kevin Nevue: Investors tell us they appreciate the transparency, and they ask us to please keep doing what we say we're going to do. So with that in mind, you can see from our longer-term guidance that we're shifting our priority towards increasing capital returns to shareholders while continuing to reduce debt with a more balanced approach. Over the next several years, we believe this will deliver very good shareholder returns.

Yes.

Our first question comes from Aaron Macneil with TD Cowen Your line is open.

Afternoon.

I'm, hoping for a bit more detail on the U S Q1 margin guide.

Operator: So on that note, I'll conclude by again thanking the people at PRECISION DRILLING for their dedication, their hard work. The Great Safety Results and the Great Operating Results in 2023. We all look forward to a good year in 2024. I'll now turn the call back to the operator for questions. Thank you, ladies and gentlemen. If you have a question or comment at this time, please press star 11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star 11 again.

I guess I'm just wondering.

How much of that sequential changes a function of higher costs, how much is downward pressure on price.

Much is a function of.

Break mix in the seasonal return of those CWC rigs Shannon I guess another adjacent question would be do you see that.

Pressure persisting into subsequent quarters absent.

That particular activity.

Okay.

This is Jerry here I'd say, it's a combination of all of those the one that we think has the biggest impact is the operating cost and just the fact that we were running 45 rigs on average in Q4, and we're going to be.

Aaron McNeil: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Aaron McNeil with TD Cowen. Your line is open.

Kerry Ford: Afternoon, I'm hoping for a bit more detail on, Approximately how much of that? www.precisiondrilling.com PRECISION DRILLING. This is Kerry here. I'd say it's a combination of all of those.

Running.

Lower number than that we've got a bit more fixed cost with the CWC acquisition and so it is going to be a little bit of a drag on margins.

Kerry Ford: The one that we think has the biggest impact is the operating cost. The fact that we were running 45 breaks on average in Q4, and we're likely going to be running a lower number than that, we've got a bit more fixed costs with the CWC acquisition. And so it is going to be a little bit of a drag on margins in Q1, and as we get activity a bit higher in the second quarter, we think that margins have an opportunity to expand. You mentioned the Kuwait tender. That's a real, www.precisiondrilling.com Hi, Aaron.

In Q1, and as we get activity a bit higher in the second quarter, we think that margins have an opportunity to expand.

Got it.

You mentioned that Kuwait tender.

Is it realistic deployment timeline, if you get that work or.

Deployment timelines for other international rigs.

That may not have as clear a tender opportunity.

Hi, Eric Good question, certainly the even the bid cycle time can be measured in months and quarters not necessarily days or weeks like we see in North America.

Kevin Nevue: Good question. Certainly, even the bid cycle time can be measured in months and quarters, not necessarily days or weeks like we see in North America. The Quake tender right now is actually in process. We've been through a couple of rounds of clarifications. If their prior history is an indication, I'd expect the awards could come within a quarter, maybe a little more, maybe a little less, with deployments occurring before the end of the year.

The quake tender right now is actually in process, we've been through a couple of rounds of clarifications.

If their prior history is an indication I would expect the awards could come within within a quarter, maybe a little more maybe a little less with deployments occurring before the end of the year.

Kerry Ford: Precision Drilling, Yeah, it's not currently part of our plan, but it'll likely be in the same range that we've had in the past, somewhere between probably three to eight million per rig, depending on the clarifications we're going through right now. Great. Thank you, Aaron. Our next question comes from Kurt Haleed with Benchmark. Your line is open. Good afternoon. How's everybody doing?

Got it and what would the associated capex fee for that.

Good morning.

Yes, not currently part of our plan, but will likely be in the same range that we had in the past somewhere between probably three to 8 million per rig depending on.

The clarification is we're going through right now.

Got it thanks, guys I'll turn it over great. Thank you Ryan.

Our next question comes from Kurt <unk> with benchmark your line is open.

Hey, good morning.

Good afternoon, everybody doing.

Kurt Haleed: Good, Kurt. Appreciate the updates as always. So I'm kind of curious about coming full circle on the Canadian market you referenced, you know, contracted rigs, you know, 24 in the first quarter, 23. I don't know, Kevin, where do you think that could go?

Kurt.

I appreciate the update.

Kind of curious on the.

Coming back full circle on the Canadian market and you've referenced.

The contracted rate 24 in the first quarter 'twenty three.

I don't know Kevin what do you think that could go.

Kevin Nevue: You know, as we progress through the year, I know you and I have had discussions about, you know, E&P companies wanting to lock in rigs, you know, for the export capacity, especially around LNG. So, I don't know, what's your best guess of where you think it might be able to go? Yeah, you know, this has happened actually quite quickly, you know, just looking at the trajectory of contracting. I can tell you that we were a little surprised last year, like early 2023, to hear customers willing to take or pay contracts for the long term, be it one to two to three years, when, historically, in Canada, long-term contracts simply didn't exist. So now to have a book of, you know, a couple of dozen long-term contracts starting this year off is a great place to start. Curt, it would be logical that any operator that's tied to a long-term LNG delivery contract would lock in rigs for the long term. And by long term, I mean two, three years.

As we as we progress through the year I know youre not Scott.

Scott shifted out.

And paint companies wanted to lock in rates you also in your export capacity, especially around LNG.

I don't know, what's your best guess of where you're thinking about being able to go.

Yes.

This has happened.

It's actually quite quickly just looking at the trajectory of contracting.

I can tell you that we are little surprised last year or early 2023 that your customers willing to take or pay contracts for long term one to two to three years when historically in Canada long term contracts simply didn't exist.

So now to have a.

The book of.

A couple of dozen long term contract starting this Europe is a great place to start.

Kurt It would be logical that any operator, that's tied to our long term LNG delivery contract would lock in rigs for a long term and monitor I mean, two or three years.

Kevin Nevue: You know, it starts looking much more like an industrialized process where you're trying to maintain consistency, predictability, repeatability over the long haul and then using all your digital capabilities to lower costs. So I think to answer your question, I think once those projects start running and once we see gas flowing, and once our customers become more comfortable with the long-term nature of their supply contracts. I'd be surprised if the majority of the LNG rigs weren't tied to term, take or pay contracts in the range of two to four years.

It starts looking much more like an industrialized process, where you are trying to maintain consistency predictability repeatability over long haul and then using our digital capabilities lower cost so.

I think to answer your question.

Sure.

I think once those projects start running and once we see gas flowing and once we see our customers become more comfortable with the long term nature of their supply contracts.

I'd be surprised of the majority of the LNG rigs weren't tied to.

Term take or pay contracts in the range of two to four years.

Okay.

Kevin Nevue: Follow-up question and, you know, getting to the patch, you thought, you know, it's good to see the adoption of the alpha automation and alpha apps. Can you give us an update as to what the incremental cash margin is on adding those apps to the rig? So it's going to be on the lower end, it's going to be about $1,500 a day, and then with apps and Evergreen solutions, we've got rigs that are making closer to $4,000 a day with all of the additional ancillary products and services. Okay, and then you referenced 75% of your rigs had some sort of, or your super triples had some sort of alpha pass on them. Is that evenly split between the U.S. and Canada? Let me qualify that.

I appreciate that.

And a follow up question and again in the past, it's great to see the adoption on the alpha automation in App ads.

Can you give us an update as to what the what.

What's the incremental.

Cash margin is on adding those apps to the rates.

Yes, Kurt so it's going to be on the on the bottom minutes can be about $500. A day and then with apps and evergreen solutions. We've got rigs that are are making closer to $4000 a day with with all of the additional ancillary products and services.

Okay, and then you referenced 75% of your rigs had some sort of our super triples had some sort of alpha perhaps on it is that evenly split between the U S and Canada.

Let me qualify that so I think I said, 95% of our rigs have.

Kevin Nevue: So I think I said 95% of our rigs have, and I think I said 75% of our rigs have evergreen solutions on them. And yeah, it's evenly split both are evenly split between both markets. I might also add that on evergreen, I've been quite surprised by the uptake in the US, maybe a little less due to the environmental focus due to the lack of a carbon tax, but good customer take-up on both sides of the border, all due to the value we create through fuel saving. Great, alright, thanks Kevin, thanks Kerry. Thank you. Our next question comes from Luke LeBoyne with Piper Sandler. Your line is open. Hey, good morning.

Alpha on.

Okay, and I think I had said 75% of our rigs have.

Evergreen solutions on and yes, it's evenly split both are evenly split between both markets.

Also add debt on evergreen up and quite surprised by the uptake in the U S.

Maybe a little less.

Environmental focus due to the lack of a carbon tax but.

But good customer take up on both sides of the border all due to the value we create through fuel savings.

Great Alright, thanks, Kevin Thanks, Gary.

You.

Our next question comes from Luke Lemoine with Piper Sandler Your line is open.

Hey, good morning.

Luke LeBoyne: Kevin, you kind of loosely touched on it with Kurt's question, but you've previously mentioned maybe moving some idle U.S. workers to Canada. Can you just update us on that maybe how you're thinking about industry and criminal demand in Canada shaping up with the Spring Zone Pipeline Expansion and Coastal Gasoline? Yeah, Luke, you know, it's interesting.

Kevin you kind of loosely touched on with Curt's question achieved previously mentioned, maybe moving some Idaho U S routes to Canada.

Just update us on that maybe how youre thinking about industry incremental demand in Canada shaping up with that.

<unk> pipeline expansion in coastal gas link.

Luke.

It's interesting there is a.

Kevin Nevue: There's a supply and demand force pulling in opposite directions. No question the E&P base in Canada, the United States, you know, Kuwait, anywhere would rather see the market oversupplied. And I understand that because they want to have oversupplied rig supplies so that rates stay as low as possible. But we need, as a drilling contractor, we need to have the market technically supplied. We need the rigs to be fully utilized. We need day rates to generate returns that exceed our cost of capital.

Supply and demand forces pulling opposite directions.

No question.

The E&P base in Canada, United States.

Anywhere.

Would rather see the market oversupply and I understand that.

Because they want to have oversupplied rig supply so that keep rates as low as possible.

We need as a drilling contractor we need to have the market tech supplied we need the rigs to be fully utilized.

Day rates to generate returns.

Our cost of capital so.

Kevin Nevue: So it's incumbent on us to be really careful about not oversupplying the market. I do expect that as these projects start to function and operate, as the Coastal Gas Link starts running, and as the Trans Mountain Pipeline starts flowing, I expect rig demand will increase, and I do think there might be the potential to bring one or two more rigs from the U.S. up, depending on customer needs, but we'll be very careful not to set us up for returns on these assets that are less than our cost of capital. Not much of an answer, but we're going to manage the market carefully. Yeah, everything is all good.

It's incumbent on us to be really careful but not oversupply in the market.

I do expect that as these projects start to function and operate as the coastal gasoline starts running.

Trans Mountain pipeline starts going I expect rig demand will increase and I do think there might be a potential to bring up one or two more rigs from the U S. Depending on customer needs, but we'll be very careful.

Not to set us up for.

Returns on these assets that are less than our cost of capital.

Okay. Thanks.

Not much of an answer, but we're gonna managed market carefully.

Kevin Nevue: And then on the US side, you talked about maybe increasing activity in the second half of the industry at the current crude price. And you've just provided some details there, like what type of customer you think or indications from basins or what you're just kind of seeing from incremental demand. Yeah, look, you know, it's interesting.

Yes, Okay, and then on the U S side.

You talked about at the current crude price may be increasing activity in the second half of the industry.

Can you just provide some detail there around like what type of customer you're seeing quarter indications from basins or what youre, just kind of seen from incremental demand.

<unk>.

Yes look you know it's interesting so are our bid volume really hasnt changed much in the past couple of years. So lots of good activity going on lots of drilling departments.

Kevin Nevue: So our bid volume really hasn't changed much in the past couple of years. So lots of bid activity going on. Lots of drilling departments looking at rigs, lots and lots of drilling departments looking at upgrading rigs and high-grading rigs. So that activity remains strong. That's a good indicator.

Looking at rigs lots and lots of drilling apartments, looking at upgrading rigs and high grading rigs. So that's productivity remained strong that's a good indicator.

Kevin Nevue: We've got a bunch of M&A activity right now that hasn't cleared yet. And these consolidation transactions on the MP side need to clear, the dust needs to settle, and the drilling programs need to be established in a kind of post-transaction fashion. So it's just really hard to time how soon the market gets clear. But I don't think the problem is 75 or $76 crude. I think the problem is volatility in the crude price that maybe can go into the 60s, maybe it can go into the 50s. I mean, who knows when there's a risk of a low price. Recline to the point when an operator feels comfortable.

We've got a bunch of MMA M&A activity right now that hasn't cleared yet and these consolidation transactions on the E&P side did declare the dust needs to settle and drilling programs need to be established kind of post transaction. So it's just really hard to time.

How soon the market gets clearer I don't think the problem is 75% to $76 crude I think the problem is volte.

Volatility in the crude price or maybe you can go into the <unk>. Maybe you can go to the <unk> I mean, who knows.

When does the risk on low price declined to the point when an operator feels comfortable.

Kevin Nevue: Increasing the rig count by one or two rigs. So that's kind of the negative side of things. The positive side of things, we are watching duck counts. We're watching U.S. production kind of ramping up. Unreasonably high compared to breakdowns.

Increasing rig count by one or two rigs. So that's that's kind of the negative side of things on the positive side of things.

We are watching DUC counts were watching.

U S production and kind of ramping up.

Unreasonably high compared to brick counts there are certainly some optimization going on.

Kevin Nevue: There's certainly some optimization going on. It's probably our view that rig counts need to move up at least modestly to sustain production levels anywhere near this level. We are expecting, over time, the recounts to ease their way up. I don't know, say 20 of these transactions are finalized and take 20 rigs out of circulation, and then 30 companies add one rig; we're still up 10 rigs. Yeah, I appreciate it

That's probably our view that rig counts seem to move up at least modestly to sustain production levels anywhere near this level.

Overtime. So we I think we are expecting over time, the rig counts ease their way up but if you had.

I don't know.

Say 20 of these transactions are finalized.

Take 20 rigs out of circulation and then 30 companies add one rig we're still up 10 rigs.

Okay got it.

I appreciate it thanks, Kevin.

Waqar Mustafa Syed: And, you know, those numbers I gave are just random decisions; nothing we see right now points to rig count declines or, for that matter, imminent rig count increases. Our next question comes from Waqar Syed with ATB Capital Markets. Your line is open.

And those numbers that you ever just.

Random decisions, but nothing we see right now points to rig count declines or for that matter imminently rig count increases.

Our next question comes from a car side with ATB capital markets. Your line is open.

Waqar Mustafa Syed: Thanks for taking my question. Good afternoon, guys. Great quarter. Kevin, in the U.S. market, you know, some of your major competitors have got into the activity, going up slightly quarter over quarter. I think your comments say that maybe rig activity could be a little bit down. What do you attribute that to? Is it just some gas versus oil, a customer mix still, or is it some of the M&A that you talked about that's happening in the industry that's contributing to that? Yeah, Waqar, I think there are a few things.

Thanks for taking my question good afternoon, guys great quarter.

Kevin in the U S market. Some of your major competitor has guided to activity going up slightly quarter over quarter.

I think your comments, saying that maybe the activity could be down.

What you can do that too is it just.

Some gas versus oil or customer mix steadily or is it.

Some of the M&A that you've talked about.

That's happening in the industry, that's contributing to that.

Yes, <unk> I think there's a few things so.

Kevin Nevue: So, I mean, if I have your question correctly, you indicated that some of our peers have guided to recounts modestly moving up. I did comment that we expect our recount to modestly move up a little bit from the current 39%, but maybe a bit more in the second quarter. But again, very modest movements. There's no question that we're still transitioning from being very gas-focused a couple of years ago, which served us quite well during the pandemic, to pushing more into West Texas, more into the oilier basins. And, you know, it's tough when there are not a lot of new opportunities popping up.

If I have your question correctly, you indicated that some of our peers have guided to rig counts modestly moving up.

Did comment that we expect our rig count to modestly move up.

A little bit from the current 39, but maybe a bit more in the second quarter, but again very modest movements.

There's no question that we're still transitioning from being very guest focused a couple of years ago, which served us quite well during the pandemic.

Pushing more into west, Texas more into the Wailea basins and.

So it's tough when there's not a lot of new opportunities popping up so we've got to be very good. We've got to have good a good value proposition great technology, and it's still a one rig at a time game.

Kevin Nevue: So we've got to be very good. We've got to have a good value proposition, and great technology. And it's still a one-rig-at-a-time game. No question that it'll be a little tougher for us to do that than somebody who's got 50 or 60 rigs already running in the Permian Basin. So I think we're pushing uphill a little bit, but our guys understand that. They're working hard, and they're doing a really good job.

No question.

There'll be a little tougher for us to do that than somebody who's got 50, or 60 rigs already running in the Permian basin. So I think we're pushing up here a little bit, but our guys understand that they are working hard and they're doing a really good job.

Great.

Kevin Nevue: Great. And then on automation, do you think that's going to develop into a trend, that type of equipment on drilling rigs in Canada, or is it still very early stages to see more of that type of equipment on drilling rigs? You know, I can tell you a funny story about this, Waqar.

And then on the automation.

Do you think thats going to develop into a trend that type of.

Equipment and drilling rigs in Canada or is it still very early stages to see.

More and more of that type of equipment on drilling rigs.

I can tell you a funny story about this.

Kevin Nevue: I was in mechanical engineering school back in 1982, and my fourth year senior year project was a request by a drilling contractor to find a way to automate the racking board. So, back in 1982, the biggest challenge that drilling contracts could bring to a technical engineering school was, how do you automate the racking board to take that person off the racking board? It's taken 42 years, but I think we have a solution, and I'm pretty happy about that. It looks really good.

I was in mechanical Engineering school back in 1982, and my fourth year graduation, probably our fourth year senior year project was a request by drilling contractor to find a way to automate the wracking board.

So back in 19 days to the biggest challenge that drilling contractor could bring to a technical engineering school was how do you automate Rocky board to make to take up personnel Rocky Board.

Second 42 years, but I think we have a solution.

And.

I'm pretty happy about this it looks really good.

Kevin Nevue: It's not, you know; the cost isn't zero. There's going to be an incremental cost. But it removes everybody from that red zone on the rig floor and the racking board. It bolts onto our SuperSpec rig class. It doesn't require rig design. And, you know, we're supported by NLB. So the software and the programming is not, you know, it's not PRECISION DRILLING trying to write software. This is industrial-grade robotics software being performed by a company which is also designing the same software for the offshore industry. So we feel really good about the relationship.

It's not the cost isn't zero, there's going to be incremental cost, but it removes.

Removes everybody felt red zone on the rig floor and the wracking board to bolt onto our Super spec rig class, which doesn't require rig did redesign and were supported by <unk> of the software and the programming is not.

Precision drilling trying to write software. This is industrial grade robotic software being performed by the company, which is also designed the same software for the offshore industry. So we feel really good about this relationship.

Waqar Mustafa Syed: Great. And then... Just on the capital spending $195 million, Kerry May, could you provide us a breakdown of how those dollars are going to be spent, domestically, internationally, and US? Sure. I would say less than 10% would be international. And then, based on the activity levels that we're currently seeing today, we'd probably have a pretty even split between Canada and the U.S.

Okay great.

Great and then.

Just on the capital spending on $95 million.

Jeremy.

Could you provide a breakdown of that.

Is it going to be spent and spent domestic international and U S.

Sure I would say less than 10% would be international and then based on activity levels that we're currently seeing today, we'd probably have a pretty even split between.

Canada and the U S. I think it could shift if we see higher activity in the second half of the year.

Kerry Ford: I think it could shift if we see higher activity in the second half of the year. We could see more CapEx in the U.S. because that's probably where we'd have a few more higher dollar upgrade opportunities. 5. And Kerry, the portion of that capital that's long lead will actually just be for nothing until we have an identified target.

We could see more capex in the U S. Because that's probably where we'd have a few more higher dollar upgrade opportunities.

In fact, we see it.

A big jump up in the rig count and carry the portion of that capital Thats long lead will actually just be for nowhere until we havent identified target correct.

Okay.

And just a final question.

Kevin Nevue: And just a final question, Kevin, congrats on raising the capital return to shareholders for 2024. This 25 to 35 percent number, how do you think about that? Is it exclusively all return in the form of share buybacks, or when should investors start to expect some dividend as well? I think this year, Waqar, it's more than likely going to be all share buybacks, and then I think we're positioning the company and our cash flow profile to introduce some other ways to return capital to shareholders, but I think it's too soon to say exactly what format that's going to be. Well, thank you very much. Thanks, Waqar.

Kevin.

Congrats on raising debt.

Capital returned to shareholders for 2024.

This 25% to 35% number how do you think about that is it exclusively all returned in the form of share buybacks or when should investors start to expect some some dividend as well.

Yes, I think this year with <unk>, it's more than likely going to be all share buybacks and then I think we're positioning the company and our cash flow profile to introduce some some other ways to return capital to shareholders, but I think it's too soon to say exactly what format that's going to be.

Okay, great well, thank you very much thanks waqar.

Waqar Mustafa Syed: Our next question comes from Keith Mackey with RBC Capital Markets. Your line: Hi there. Just curious first, can you talk a little bit about what you're seeing in terms of, you know, the old leading edge rate question in the U.S.? Are things still in that $30,000 to $35,000 a day range, or has it moved one way or the other from there? Keith, I think that's a fair way to categorize the market broadly is that $30,000 to $35,000 a day range. I think the discipline that we've been talking about for several quarters now remains intact.

Our next question comes from Keith Mackey with RBC capital markets. Your line is open.

Hi, there just curious first can you talk a little bit about what youre seeing in terms of.

Now the old leading edge rate question in the U S are things still in that 30% to 35000, a day range or or has it moved one way or the other from there.

Keith I think that's a fair way to categorize the market broadly is that 30 to $35000 a day range.

I think the discipline that we've been talking about for several quarters now remains intact.

Keith Mackey: You know, I would believe that there are some small contractors that might try to bid at lower rates than that, but we really don't see that come across our desk very often. Yeah, okay. I got it. And just sticking with the tendering activity, can you just maybe speak a little bit to any trends you might be seeing in terms of rig spec in tenders, whether it's digital or physical, is the required rig changing at all from what we would have considered a super spec rig in recent years, particularly as some of the larger integrated companies in the Permian look to drill longer and longer wells? Are you seeing a change in what And does that match up with kind of what you've got available in your fleet or at least what's within your upgrade capital spending for the next little bit? The easy answer to the entire question is yes, but with a little more detail.

I would believe that there are some small contractors that might try to bid at lower rates than that but we really don't see that come across our bow very often.

Yeah, Okay got it and then just sticking with the tendering activity.

Can you just maybe speak a little bit too any trends you might be seeing in terms of rig specs and tenders whether it's.

Digital or physical is.

Is the required rig changing at all from what we would have been considered a super spec rig.

In recent years, particularly I'm thinking as some of the larger integrated in the Permian look to drill longer and longer wells are you seeing a change in what they're looking for in these bids end and does that match up with kind of what you've got available in your fleet or at least.

What's within your upgrade capital spending for the next little bit.

The easy answer to the entire question is yes.

But with a little more detail.

Kevin Nevue: So, all of our rigs that are available in the U.S. right now are padwalking, AC, digitally controlled triples. So, the rig itself is fully capable. There might be a handful of rigs that require minor upgrades to handle the rocking capacity of a long-reach well, but for PRECISION, that's a couple hundred thousand dollars per rig.

So all of our rigs and they are available in the U S. Right now our pad walking AC digitally controlled triples. So the rig itself is fully capable.

There might be a handful of rigs that require minor upgrades to handle the racking capacity of a long reach well, but for precision. That's a couple of hundred thousand doors per rig its really a minor upgrade to the rig to add five or 6000 feet of racking capacity.

Kevin Nevue: It's really a minor upgrade to the rig to add five or six thousand feet of rocking capacity. The second upgrade that'd be required is likely going from 5,000 PSI operating pressure to 7,500 PSI. That's probably about a million-dollar upgrade for a rig that's not equipped with 7,500 PSI. And then typically, if you're going to 7,500 PSI for a long-reach well, you might need to bolt on a third pump and a fourth generator, and that's more like a $1.5 million upgrade. We have idle rigs right now that are full-spec. They have the racking capacity. They've got the fourth generator, the third mount pump, and 7,500 PSI. As we get deeper down the batting order, probably when we get up to the next 5 or 10 rigs, we'll be doing some of those incremental upgrades.

The second upgrade that would be required likely going from 5000, PSA operating pressure to 7500, BSI, that's probably about $1 million upgrade for a rig that's not equipped with 7500 BSI and then typically.

If youre going to 7500, <unk> hundred BSI for long reach well you might need to bolt on a third mud pump and a fourth generator, that's more like a $1 $5 million upgrade we have idle rigs right now that are full spectrum. They have the racking capacity, we've got the fourth generate a third mud pump 7500 BSI.

But as we get deeper down the batting order, probably when we get past. The next after the next five or 10 rigs we'd be doing some of those incremental upgrades.

Kevin Nevue: And some of that's in our planned capital, and some of it's in our long-lead-time capital. Okay, that's it for me. Thank you very much, Kevin. Great, thanks. And I'm not showing any further questions at this time. I'd like to turn the call back over to Lavon for any closing remarks. Thank you everyone for joining our call today. On behalf of the PRECISION team, have a great afternoon. If there's any follow-up questions, you know how to reach me. Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a one- Thank you for watching!

And some of that's in our <unk>.

Planned capital and some of it is on a long lead time capital.

Okay. That's it for me. Thank you very much Kevin great. Thanks.

I'm not showing any further questions at this time I'd like to turn the call back over to Levine for any closing remarks.

Thanks, everyone for joining our call today.

Behalf of that precision team have a great afternoon, if theres any follow up questions you know how to reach me. Thank you.

Hello, Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

[music].

Okay.

Yes.