Q2 2024 Precision Drilling Corp Earnings Call
Good day and thank you for standing by. Welcome to the Precision Drilling Corporation 2024 second quarter conference call. I would like to hand the call over to Lavonne Zdunich, Vice President of Investor Relations. Please go ahead.
Operator: I would like to hand the call over to Lavonne Zdunich, Vice President of Investor Relations. Please go ahead.
Lavonne Zdunich: Thank you and welcome to PRECISION's second quarter earnings conference call and webcast. Participating on today's call with me will be Kevin Neveu, our President and CEO, and Carey Ford, our CFO. Earlier or last night, we reported strong second-quarter results, which Carey 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.
Speaker Change: Thank you and welcome to PRECISION's second quarter earnings conference call and webcast. Participating on today's call with me will be Kevin Neveu, our President and CEO , and Carey Ford, our CFO .
Lavonne Zdunich: Earlier, or last night, we reported strong second quarter results, which Carey 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.
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.
Lavonne Zdunich: 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.
Lavonne Zdunich: 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.
Carey Thomas Ford: Thank you, Lavonne. PRECISION's Q2 financial results exceeded our expectations for revenue, adjusted EBITDA earnings, and cash flow. The resiliency of our high-performance, high-value business model, geographic diversification, and organizational focus on cash flow and return on capital drove our financial results. PRECISION's demonstrated commitment to strengthen its balance sheet continues with year-to-date debt reduction and share repurchases of $103 million and approximately $40 million, respectively. For 2024, we expect to reduce debt by $150 million to $200 million and utilize 25% to 35% of free cash flow before debt repayments to repurchase shares. In the longer term, we plan to reduce debt by $600 million between 2022 and 2026, with approximately $240 million remaining over the next two and a half years.
Carey: Thank you, Lavonne. PRECISION's Q2 financial results exceeded our expectations for revenue, adjusted EBITDA earnings, and cash flow.
Carey: The resiliency of our high-performance, high-value business model, geographic diversification, and organizational focus on cash flow and return on capital drove our financial results.
Speaker Change: PRECISION's demonstrated commitment to strengthen our balance sheet continues with year-to-date debt reduction and share repurchases of $103 million and approximately $40 million respectively.
Carey: For 2024, we expect to reduce debt by $150M to $200M and utilize 25% to 35% of free cash flow before debt repayments to repurchase shares.
Carey: Longer term, we plan to reduce debt by $600 million between 2022 and 2026, with approximately $240 million remaining over the next two and a half years.
Carey Thomas Ford: We expect to achieve a leverage level of below one times net debt to EBITDA and increase our direct shareholder returns towards 50% over that time period. The progress on these capital allocation targets is clear, and the longer-term trend remains in place as we have reduced debt by over $1.3 billion since the beginning of 2016. Moving on to Q2 Performance. The U.S. drilling count has declined 15% over the past year, and while this data point is typically used as a proxy for broader oilfield service activity and financial performance, this is not the case for PRECISION, as we have achieved year-over-year growth and consolidated Q2 revenue, driven by substantial growth in international drilling, Canada drilling, and completion in production services. Q2 EBITDA of $115 million included a share-based compensation charge of $10 million. Without this charge, adjusted EBITDA would have been $125 million.
Carey Thomas Ford: Net earnings were $21 million, or $1.44 per share, representing the eighth consecutive quarter of positive earnings for PRECISION DRILLING Corp. Funds provided by Operations and cash provided by Operations were $112 million and $174 million, respectively. Margins in both Canada and the U.S. were higher than guidance, resulting from stronger-than-expected pricing and cost recoveries, higher ancillary revenues, and improved cost performance. In the U.S., drilling activity for PRECISION averaged 36 rigs in Q2, a decrease of two rigs from the previous quarter.
Carey: We have achieved year over year growth in consolidated Q2 revenue driven by substantial growth in international drilling.
Carey: Canada drilling and completion and production services.
Carey: Q2, EBITDA of $115 million included share based compensation charge of $10 million without this charge adjusted EBITDA would have been $125 million.
Carey: Net earnings were $21 million or $1 44 per share representing the eighth consecutive quarter of positive earnings for precision.
Carey: Funds provided by operations and cash provided by operations were $112 million and $174 million respectively.
Carey: Margins in both Canada, and the U S were higher than guidance, resulting from stronger than expected pricing and cost recoveries higher ancillary revenues and improved cost performance.
Carey: In the U S drilling activity for precision averaged 36 rigs in Q2, a decrease of two rigs from the previous quarter.
Carey Thomas Ford: Daily Operating Margins in Q2. Excluding the impacts of turnkey and IBC, they were $10,838, a decrease of $219 from Q1. For Q3, we expect margins to be stable and above $10,000 per day. In Canada, drilling activity for PRECISION averaged 49 rigs, an increase of 7 rigs, or 18% from Q2 2023.
Carey: Daily operating margins in Q2.
Excluding the impacts of turnkey in I B C were 10838 U S dollars a decrease of 219 U S dollars for Q1 for Q3, we expect margins to be stable and above $10000 per day.
Carey: In Canada drilling activity for precision averaged averaged 49 rigs increase of seven rigs or 18% from Q2 2023 daily.
Carey Thomas Ford: Daily operating margins for the quarter were $14,423, an increase of $2,220 from Q2 2023. For Q3, our daily operating margins are expected to be between $13,500 and $14,000 per day. With higher fixed cost absorption and improved pricing, largely offsetting the impact of rigging. International drilling activity for PRECISION in Q2 was Everest 8 rig, a 61% increase over Q2 2023. International average day rates were $55,301 U.S. dollars, an increase of 9% from the prior year due to rigging.
Carey: Daily operating margins for the quarter were $14423, an increase of $2220 from Q2 2023 for.
For Q3, our daily operating margins are expected to be between 13000 514000 per day.
Carey: With higher fixed cost absorption and improved pricing largely offsetting the impact of rig mix.
Carey: Internationally drilling activity for precision in Q2 averaged eight rigs.
Carey: 55301 U S dollars, an increase of 9% from the prior year due to rig mix.
Carey Thomas Ford: In our C&P segment, Adjusted EBITDA was positively impacted by a 44% increase in well service hours, the integration of the CWC acquisition, and improved pricing. C&P results were further supported by PRECISION's rental business, which is realizing increased demand and utilization for centrifuge equipment on Super Triple Rigs for customers this month. Our contracted rig fleet continues to support our outlook, with average annual rigs under contract for 2024 of 17 in the U.S., 23 in Canada, and 8 internationally.
Carey: And our CMP segment adjusted EBITDA This quarter was.
Carey: $12 $4 million up 66% compared to the prior year quarter. Adjusted EBITDA was positively impacted by a 44% increase in well service hours the integration of the TWC acquisition and improved pricing.
Carey: CMP results were further supported by precision rental business, which is realized and increased demand and utilization for centrifuge equipment on super Triple rigs for customers in the Montney.
Carey: Our contracted rig fleet continues to support our outlet with average annual rigs under contract for 2024 of <unk> 17 in the U S 23 in Canada and eight internationally.
Carey Thomas Ford: Moving onto the balance sheet, as of June 30, our long-term debt position net of cash was approximately $800 million, and our total liquidity position was over $540 million, excluding letters of credit. Our net debt to trailing 12 month adjusted EBITDA ratio is approximately 1.5 times, and our average cost of debt is approximately 7%. We expect our net debt to adjust to the EBITDA ratio to be approximately 1.25 times by year-end, when we expect net debt to be between $700 million and $750 million, and our run rate interest expense at that time will be approximately $50 million.
Carey: Moving to the balance sheet as of June 30, our long term debt position net of cash was approximately $800 million and our total liquidity position was over $540 million excluding letters of credit.
Carey: Our net debt to trailing 12 month adjusted EBITDA ratio is approximately one five times and our average cost of debt is approximately 7%.
Carey: We expect our net debt to adjusted EBITDA ratio to be approximately 1.25 times by year end, when we expect net debt to be between $700 million $750 million and our run rate interest expense at that time will be approximately $50 million.
Carey Thomas Ford: Moving on to guidance for 2024, depreciation is expected to be approximately $290 million, cash interest of approximately $75 million, cash taxes are expected to remain low, and our effective tax rate is expected to be approximately 25%. SG&A is expected to be approximately $100 million before share-based compensation expense. And we expect share-based compensation charges for the year to range between $40 million and $60 million at a share price range of between $80 and $120 per share, and the charge may increase or decrease by up to $20 million based on the share price performance relative to PRECISION's peer group.
Carey: Moving on to guidance for 2020 for depreciation.
Carey: I expected to be approximately $290 million.
Carey: Cash interest approximately $75 million cash taxes are expected to remain low and our effective tax rate to be approximately 25% SG.
Carey: SG&A is expected to be approximately $100 million before share based compensation expense and.
Carey: And we expect share based compensation charges for the year to range between $40 million $60 million at a share price range of between $80 and $120 per share.
Carey: And the charge may increase or decrease by up to $20 million based on the share price performance relative to precision peer group.
Carey Thomas Ford: Given PRECISION's share price performance year to date, we have increased the upper end of our guidance from $100 to $120 per share to provide increased visibility for our investors. With that said, I will now turn the call over to Kevin.
Kevin: Given precision share price performance year to date, we have increased the upper end of our guidance from $100 to what her $20 per share to provide increased visibility for our investors with that I'll now turn the call over to Kevin.
Kevin A. Neveu: Thank you, Carey, and good morning. As Carey mentioned, we are very pleased with the strong cash flow our business is generating. We're thrilled with the progress we've made with our international and Canadian units. While our US segment is stable, activity is a little slower than we would like. In the lower 48, customer demand appears to have troughed.
Kevin: Thank you Carrie and good morning.
Kevin: Terry mentioned, we are very pleased with the strong cash flow our business is generating and we're thrilled with the progress we made with our international and Canadian units, while our U S segments are stable activities, a little slower than we would like.
Kevin: In the lower 48 customer demand appears to have trust.
Kevin A. Neveu: Combined drag effects of capital discipline, low natural gas prices, operator consolidation, and delayed drilling plans seem to have bottomed out, and we're noting an increase in customer conversations regarding drilling programs and plans for considerations to pick up rigs and modestly increase activity later this year and into 2025. As the E&P consolidation transactions draw to a close, and those operators commence integration of the drilling teams, we expect the drilling contractor mix to shrink to fewer and larger, more capable drillers rather than the fractured vendor base used by many of those acquisition targets.
Kevin: The combined drag effects of capital discipline, low natural gas prices, operator consolidation and delayed drilling plans seems to have bottomed out and we're noting an increase in customer conversations regarding drilling programs and plans or considerations to pick up rigs and modestly increased activity later this year and into 2025.
Kevin: As the E&P consolidation transactions draw to a close and those operators commenced integration of the drilling teams, we expect a drilling contractor mix to shrink to fewer and larger more capable drillers rather than the fractured vendor base used by many of those acquisition targets.
Kevin A. Neveu: Some of this contractor rationalization is already underway, and we are encouraged by the sophisticated customer interest in our alpha automation, safety performance, and overall rig performance. We believe PRECISION is very well positioned to grow market share over the next several quarters. We also see some of these acquired drilling teams falling out of the transactions and reforming with private equity and looking to utilize the most technologically advanced drilling rigs they can find.
Speaker Change: Some of this contractor rationalization is already underway. We are encouraged by the sophisticated customer interest that our alpha automation safety performance and overall rig performance.
Speaker Change: We believe precision is very well positioned to grow market share over the next several quarters.
Speaker Change: We also see some of these acquired drilling team is falling out of the transactions and reforming with private equity and looking to utilize the most technologically advanced drilling rigs they can find it.
Kevin A. Neveu: One of the rigs we added this month was contracted to one of these new private equity startups, and the drilling team is well familiar with PRECISION's capabilities. Additionally, we are in discussions with several of our Haynesville customers who are in the early stages of planning and anticipating increasing LNG export demand.
Speaker Change: One of the rigs we added this month was contracted to one of these new private equity startups and the drilling team is well familiar with precision capabilities.
Speaker Change: Encouragingly, we are also in discussions with several of our Haynesville customers, who are in the early stages of planning and anticipating increasing LNG export demand.
Kevin A. Neveu: The Hainesville is a region that has traditionally been a stronghold for PRECISION's Super Triple Rigs. We currently have six available rigs in the region, and it seems plausible we will have some additional reactivations before year-end. Currently, in the U.S., we have 38 rigs operating and expect to hold in the upper 30s through the third quarter with a modest increase perhaps to the low 40s in the late fall. Super triple leading edge rates have remained stable in the low 30s per day.
Speaker Change: The Haynesville is a region that has traditionally been a stronghold for precision Super Triple rigs. We currently have six available rigs in the region and it seems plausible who will have some additional reactivation is before year end.
Speaker Change: Currently in the U S. We have 38 rigs operating we expect to hold in the upper <unk> through the third quarter with a modest increase perhaps to the low forties in the late fall.
Speaker Change: Super Triple leading edge rates have remained stable in the low thirties per day. However, we did activate a couple of legacy CWC rigs in Wyoming.
Kevin A. Neveu: However, we did activate a couple of legacy CWC rigs in Wyoming. And while these are AC rigs, they are not super-spec. And as a result, the day rates are a little bit lower.
Speaker Change: While these are AC rigs they are not super spec and as a result, the day rates are a little bit lower.
Kevin A. Neveu: 32rd International Segment, PRECISIONS ACTIVITY REVENUE EBITDA will increase approximately 50% as compared to last year. While we have no new contracts to report, we remain very active bidding on our idle rigs. I'll remind the listeners that we have three active rigs in Saudi Arabia. These are deep, high-capacity drilling rigs operating in the strategic Manifa oil field for Ramco. The rigs have been on a long-term contract since 2010 and are currently contracted up for several more years.
Speaker Change: Turning to our international segment.
Speaker Change: Precision is activity revenue EBITDA will increase approximately 50% as compared to last year.
Speaker Change: We have no new contracts to report we remained very active bidding our idle rigs.
Speaker Change: I will remind the listeners that we have three active rigs in Saudi Arabia. These are deep high capacity drilling rigs operating in the strategic maneuver oilfield for remco the rigs have been a long term contract since 2010 and are currently contracted out for several more years.
Kevin A. Neveu: In Kuwait, we have five super triple 3000 horsepower, ultra large drilling rigs, all operating on long-term contracts. We renewed most of the rigs last year, including spending maintenance capital last year to recertify those rigs. We expect a long runway of strong and sustained free cash flow from international rigs, and we'll continue to bid our idle rigs, including potential redeployed U.S. rigs, but only at rates that meet our return expectations and deliver free cash flow over the full contract duration. Our Canadian businesses, both drilling and well servicing, are performing at the highest levels in over a decade. Starting with our Canadian Drilling Group.
Speaker Change: In Kuwait, we have five Super Triple 3000 horsepower ultra large drilling rigs all operating on long term contracts.
Speaker Change: We renewed most of the rigs last year, including extending the maintenance capital last year to recertify those risks.
Speaker Change: We expect a long runway of strong and sustained free cash flow from our international rigs.
Speaker Change: Continue to bid our idle rigs, including potential redeployed U S rigs, but only at rates that meet our return expectations and deliver free cash flow over the full contract duration.
Speaker Change: Our Canadian businesses, both drilling and well servicing are performing at the highest levels over a decade.
Speaker Change: Starting with our Canadian drilling group to update you we have activated three more rigs today, raising our active rig to 77% from the 74 mentioned in our press release last night.
Kevin A. Neveu: To update you, we have activated three more rigs today, raising our active rig count to 77 from the 74 mentioned in our press release last night. Customer demand has been substantially stronger than we anticipated earlier this year, and we have been more than pleasantly surprised by the acceleration in heavy oil drilling across the full spectrum of Clearwater, Manville, conventional heavy oil, and SAG-D. The PRECISION super single rig is a clear market leader, with 26 different heavy oil customers using our rigs.
Speaker Change: Customer demand has been substantially stronger than we anticipated earlier this year and we have been more than pleasantly surprised by the acceleration in heavy oil drilling across the full spectrum of Clearwater Manville conventional heavy oil and Sag D.
Speaker Change: The precision Super single rigs as a clear market leader with 26 different heavy oil customers using our rigs are.
Kevin A. Neveu: Our Canadian super single rig fleet includes 48 rigs, with 43 running, and a third of those are pad equipped, significantly increasing the value for our customers and for PRECISION. Now, as a refresher for the listeners, the PRECISION super single rig was specifically designed for shallow to medium depth, high efficiency slant and horizontal drilling and has its origins in the early 1990s. Between 2010 and 2016, we built out and upgraded our current fleet of 48 fully standardized super single rigs.
Speaker Change: Our Canadian Super single rig fleet includes 48 rigs with 43 running at a third of those are pad equipped significantly increasing the value for our customers and for precision.
Speaker Change: As a refresher for the listeners the precision Super single rig was specifically designed for shallow to medium depth high efficiency slots and horizontal drilling and has its origins in the early 19 nineties.
Speaker Change: Between 2010 and 2016, we built out an upgraded our current fleet of 48 fully standardized super single rigs ultra.
Kevin A. Neveu: All PRECISION super-singles are manufactured or upgraded in our in-house manufacturing facilities in Calgary and Niskiu. Our comprehensive vertical integration on the super-single underpins the low operating cost we maintain. This high efficiency design is based on a mechanical drive system with hydraulic controls that enables precise horizontal drilling control and extremely precise wellbore placement.
Speaker Change: All precision Super singles are manufactured or upgraded in our in house manufacturing facilities in Calgary in NICU, our comprehensive vertical integration on the Super single underpins the low operating costs, we made.
Speaker Change: This high efficiency design is based on mechanical drive system with hydraulic controls that enables precise horizontal drilling control at extremely precise wellbore placement. These rigs also incorporate fully mechanized drilling pipe handling operations.
Kevin A. Neveu: These rigs also incorporate fully mechanized drilling and pipe handling operations. Super singles are safe, efficient, and highly reliable, with the lowest operating costs of any rigs in our fleet. These rigs can be moved from well to well in under one hour and pad to pad in just a few hours, requiring as few as 21 truckloads, almost 10 fewer than similarly capacity rated tele-doubles. The rigs can be easily upgraded to increase drilling torque, increase hydraulic capacity, or add padwalking systems for significantly less capital than any competitive rig.
Speaker Change: Super singles are safe efficient and highly reliable with the lowest operating cost of any rigs in our fleet.
Speaker Change: These rigs can be moved well dwell in under one hour and pad to pad in just a few hours requiring as few as 21 truckloads almost 10 fewer than similarly <unk>.
Speaker Change: Capacity rated tele doubles.
Speaker Change: The rigs can be easily upgraded to increase drilling torque increased hydraulic capacity, whereas pad walking systems for significantly less capital than any competitive rig.
Kevin A. Neveu: This combination of versatility, precision drilling capabilities, safety, and efficiency has made our super single rig the market leader in all complex, shallow to medium-depth drilling applications from Manitoba to Northeastern British Columbia. While we do not break down our revenue and margins by rig type, I'm confident to quote base margins in the range of $7,000 to $14,000 per day, with the upper end of the range typical for pad-equipped super singles. This overlaps with our triple margins, which start in the $12,000 range and move up from there.
Speaker Change: This combination of Bristol utility precision drilling capabilities safety and efficiency has made our super single rig the market leader in all complex Sheldon <unk> medium depth drilling applications from Manitoba to register in British Columbia.
Speaker Change: While we do not break down our revenue and margins by rig type and confidence quote based margins in the range of 7% to $14000 per day with the upper end of the range typical for Pat equipped Super singles.
Speaker Change: This overlaps with our triple margins, which.
Speaker Change: To start in the 12000 orange to move up from there.
Kevin A. Neveu: During the second quarter, PRECISION's Evergreen team introduced two new Evergreen products that improve fuel efficiency, reduce emissions, and improve the safety and versatility of our super single rigs. We began rolling these products out to the field and have equipped nine rigs with our hydrogen injection combustion catalyst system, which offers our customers fuel savings and emissions reductions in the 6 to 8% range. In addition, PRECISION's high-mass lighting system has also been adapted to our super-single rigs, and we've deployed four of these to the field.
Speaker Change: During the second quarter precision is evergreen team introduced two new evergreen products, which improve the fuel efficiency reduce emissions and improve the safety and versatility of our Super single rigs and we began rolling these products out to the field and are equipped nine rigs with our hydrogen injection combustion catalyst system, which offers our customers fuel savings and emissions.
Speaker Change: The reductions in the 6% to 8% range.
Speaker Change: Further precision as high mast lighting system is also been adapted to our Super single rigs we've deployed four of these to field.
Kevin A. Neveu: We expect both of these evergreen systems to roll out across the full super single fleet over the next 12 months, adding over $500 per day of additional incremental margin. Leveraging this across our super single fleet results in a $6 to $7 million annualized incremental margin run rate. Now turning to our super triples and the Montigny gas condensate play in Canada, our current fleet of 30 rigs is virtually fully committed, with just a few windows available in activity this quarter, which we expect to fill short-term customer programs.
Speaker Change: We expect both of these evergreen systems to rollout across the full Super single fleet over the next 12 months, adding over $500 per day of additional incremental margin.
Speaker Change: Leveraging this across our Super single fleet results in a $6 million to $7 million annualized incremental margin run rate.
Speaker Change: Now turning to our Super triples in the Montney gas condensate play in Canada. Our current fleet of 30 rigs is virtually fully committed with just a few windows available in activity this quarter, which we expect to fill with short term customer programs.
Kevin A. Neveu: Rates remain strong in the low to mid-30s for the base rig, with Alpha Automation in Evergreen and other extras pushing those rates in the mid to upper 30s. I mentioned earlier that we've been somewhat surprised by surging customer demand for heavy oil following the TMX opening. It seems we may experience a similar Montana surge once LNG Canada is fully commissioned and shipping LNG at capacity this time next year.
Speaker Change: Rates remained strong in the low to mid thirties for the base rig with Alpha automation and evergreen another extra is pushing those rates in the mid to upper Thirty's.
Speaker Change: I mentioned earlier that we've been somewhat surprised by surging customer demand and heavy oil following the <unk> opening.
Speaker Change: It seems we may experience, a similar montney surge once LNG, Canada's fully commissioned and shipping LNG capacity. This time next year.
Kevin A. Neveu: It's conceivable that the market may be several rigs short. Recent customer contracting activity, and particularly the contract duration customers are seeking, seem to support the notion of a prospective rig shortage. And as I've mentioned in the past, we have idle, fully winterized Super Triple 1200s in the DJ Basin, and we'll consider redeploying some of those rigs to Canada if the contracted rates are in the upper 30s and the customers pay the full mobilization cost. I expect to have better visibility on this opportunity later this year and into 2025.
Speaker Change: It is conceivable that the market may be several rig short.
Speaker Change: Recent customer contracting activity and particularly the contract duration customers are seeking seem to support the notion of a prospective briggs shortage.
Speaker Change: As I've mentioned in the past, we have idle fully winterized Super Triple 12, hundreds of DJ Basin, we will consider redeploying some of those rigs to Canada. If the contracted rates are the upper thirties, and the customers pay the full mobilization costs.
Speaker Change: Expect to have better visibility on this opportunity later this year and into 2025.
Kevin A. Neveu: As I mentioned earlier, we have 77 active rigs today and expect to be in the range of 75 to 80 through August and could see our rig activity trend further upwards in September and through the fall as our customers prepare for what looks like a very busy 2025. In our Canadian well-servicing operations, we see much of the same customer demand and fundamentals. Additionally, government mandated well abandonment activity is a 22% and growing wedge in that business.
As I mentioned earlier, we have 77 active rigs today and expect to be in the range of 75 to 80 through August and could see our rig activity trend further upwards in September and through the fall as our customers prepare for what looks like a very busy 2025.
Speaker Change: And our Canadian well servicing operations, we see much of the same customer demand and fundamentals.
Speaker Change: Additionally, government mandated well abandonment activity is a 22% and growing which in that business.
Kevin A. Neveu: We have fully integrated the CWC fleet into PRECISION, and the results are clear: our average rates, our margins, and our total activity. Now, well servicing activity can be heavily influenced by weather, namely rain and forest fires. Through the second quarter and now into July, on any given day, we may have had anywhere from 5 to 20 rigs delayed or postponed due to those issues. Typically, if these deferrals are material, they will push demand later into the fall when drier and lower fire conditions normally persist.
Speaker Change: We have fully integrated the CWC fleet its precision and the results are clear and our average rates our margins that our total activity.
Now well servicing activity can be heavily influenced by weather, namely rain and by forest fires.
Speaker Change: Through the second quarter now into July on any given day, we may have had anywhere from 5% to 20 rigs delayed or postponed due to those issues.
Speaker Change: Typically if these deferrals are material it will push demand later into the fall when drier and lower fire conditions normally persists.
Kevin A. Neveu: Today, we're operating 71 service rigs and expect to be in the range of 70 to 85 rigs for the balance of the third quarter, and expect the higher end of that range may trend closer to 95 in the fourth quarter. So to wrap up, we have many PRECISION employees who listened in on this earnings call, and we encourage our staff to do so. I want to thank all the PRECISION people who once again delivered a strong quarter of safety reforms for their intense focus on operational efficiency and their outstanding efforts on cost control. So, great work to the PD team, and thank you all. I'll now turn the call back to the operator for questions. Thank you, ladies and gentlemen.
Speaker Change: Today, we're operating 71 service rigs, we expect to be in the range of 70 to 85 rigs for the balance of the third quarter.
Speaker Change: And we expect a higher end of that range may trend closer to <unk> 95 in the fourth quarter.
Speaker Change: So to wrap up we.
Speaker Change: We have many precision employees listening in on this earnings call and we encourage our staff to do so.
Speaker Change: Want to thank all the precision people, who once again delivered a strong quarter of <unk> performance for their tips focus on operational efficiency and their outstanding efforts on cost control. So great work to the PD team and thank you all.
Speaker Change: I'll now turn the call back to the operator for questions.
Operator: Thank you, ladies and gentlemen. If you have a question or comment at this time, please press star one one on your telephone. If your question has been answered, or you wish to move yourself from the queue, please press star one one again. We'll pause for a moment while we can compile our Q&A roster. Our first question comes from Kurt Hallead with Benchmark. Your line is open.
Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered you wish to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.
Okay.
Kurt Kevin Hallead: Our first question comes from Kurt <unk> with benchmark your line is open.
Kurt Kevin Hallead: Hey, good morning, everybody. Point of order.
Kurt Kevin Hallead: Hey, Hey, good morning, everybody.
Speaker Change: Alright, great.
Kevin A. Neveu: Good afternoon, if you're in Houston. So, yeah, Kevin, um, yeah, things are really playing out, as you mentioned, better than expected in, you know, Canada, despite obviously some dynamic to play with with wildfires. So Okay, can you just give us an update on what you think kind of triggered this acceleration, if you will, in overall customer activity, and then, I know you kind of referenced some additional things that are, you know, coming up for 2025. But, you know, is the customer base at this juncture as concerned about a shortage of rigs as you seem to be?
Speaker Change: Good afternoon, if you're in Houston.
Kevin: So yes, Kevin.
Kevin: Yeah. Thanks.
Speaker Change: Really playing out.
Speaker Change: You mentioned better than expected in Canada. Despite obviously some dynamics at play with wildfires.
Speaker Change: No.
Speaker Change: Okay can you just give us give us an update on what you think kind of triggered this.
Speaker Change: Acceleration, if you will and overall customer activity and then.
Speaker Change: I know you kind of referenced some additional things that are coming.
Speaker Change: Coming up for 2025.
Speaker Change: As the customer base at this juncture as concerned about a shortage of rigs that is as you seem to be.
Kevin A. Neveu: I'll start with kind of why I think we're a little surprised by the activity, and I think what we underestimated. So first of all, the math for our customers works out quite, quite well right now. You know, they're realizing somewhere between $77 and $83 a barrel US minus the Canadian discount, which has shrunk with the opening of Trans Mountain. So they're realizing somewhere typically around $65 US for oil. But you can read that Canadian dollars are between $90 and $100, depending on the range.
Speaker Change: Yeah.
I'll start with the kind.
Speaker Change: Kind of why I think we're a little surprised by the activity and I think what we underestimated. So first of all the math for our customers works out quite quite well right now.
Speaker Change: Realizing somewhere between 77% and $80 a barrel U S minus the Canadian discount.
Speaker Change: Which is shrunk with the opening of Trans Mountain.
Speaker Change: Expansion, so theyre, realizing somewhere typically around $65 U S for oil with Canadian dollars is between 90 and $100 depending of the range. So it's the highest.
Kevin A. Neveu: So it's the highest realized returns they've made on oil in a long time. But I think what this really means now is that they've got certainty of export capacity. And there's no uncertainty; they're not relying on train cars to move oil out; they've got a pipeline that's flowing, and they can move the oil. So I think besides having a firm and better price than they've ever realized in the past, they also have certainty of export capacity.
Speaker Change: Realized returns they made in oil at a long time, but I think what this really means now is they've got certainty of export capacity and there is no uncertainty they're not relying on on train cars to move oil out they've got a pipeline slowing they can move the oil so I think BC.
Speaker Change: Besides having a firm and.
Speaker Change: Better price ever realized in the past. They also have certainty of export capacity. So I think when you reduce the risks and the uncertainty increased the price is unlocked more drilling demand that we expected.
Kevin A. Neveu: So I think when you reduce the risk, and the uncertainty, and increase the price, it unlocks more drilling demand than we expected. So that's been clearly our experience on the oil side, and my comments on LNG Canada opening up.
Speaker Change: So thats been <unk> been clearly our experience in the oil side and my comments on LNG, Canada opening up. So there is an awful lot of drilling has gone out over the past three years in the Montney most of its been funded by the condensate is produced by those wells in that condensate gets sold into actually the heavy oil markets help ship have you all done pipeline slip.
Kevin A. Neveu: So there's been an awful lot of drilling that's gone on over the past three years in Montigny. Most of it's been funded by the condensate that's produced by those wells. And that condensate gets sold into the heavy oil market to help ship heavy oil down the pipeline. So condensate drives the economics, and the gases actually kind of oversupply the system.
Speaker Change: Condensates, driven the economics of the gas is actually kind of oversupply the system, but they built up an inventory of gas supply now for the opening of LNG, Canada No question about that but.
Kevin A. Neveu: But they've built up an inventory of gas supply now for the opening of LNG Canada, no question about that. But we sense that once that plant gets running and sustains operations, they'll need to continue drilling and probably increase drilling. So that's why we think there's probably going to be kind of a further step up in rig demand once that plant starts running, which should be about mid next year when it's at full capacity.
Speaker Change: But we're sensing that once that plant gets running and sustained operations they'll need to continue drilling and probably increased drilling. So that's why we're sensing that there's probably going to be kind of a further step up in rig demand once that plant is running which should be mid next year when its at full capacity.
Kevin A. Neveu: When we combine that with the behavior of our customers around trying to contract rigs, lock them in, maybe windowing right now, but getting the rigs going again on January 1st, it really seems like there's a trend pushing towards increased activity in 2025.
Speaker Change: When you combine that with the behavior of our customers around trying to contract rigs locked them in.
Speaker Change: Maybe when doing right now, but getting the rigs going again on January the first.
It really seems like theres behavior pushing towards increased activity in 2025.
Kevin A. Neveu: Okay, that's great color. Now, maybe maybe a follow-up to that would be, you know, I think, in past calls and discussions, you mentioned the prospect for some of these rigs that are going to be filling that LNG export capacity to be booked on some sort of long-term contract dynamic. I think you referenced there might be kind of a limit to how many of those rigs might ultimately be on a long-term contract. Could you just give us an update on your thoughts on that?
Speaker Change: Okay. That's.
Speaker Change: That's great color now, maybe maybe a follow up to that would be I think in past calls.
Speaker Change: Discussions you've mentioned.
Speaker Change: Aspect for some of these rigs that are going to be filling that LNG export capacity to bolt on some sort of long term contract dynamic I think you referenced there might be kind of a limit to how many how many of those rigs might ultimately be on a long term contract can you just give us an update on your thoughts with that.
Kevin A. Neveu: Yeah, Kurt, that contracting strategy has kind of got two parts. It's got our willingness to contract rigs and the customer's desire to take contracts. I'd say that the Canadian industry has been really cautious over the past decade. They've been through hell and back with commodity prices and pipeline constraints, and they're finally getting a bit of room to run right now. But as a result, Canadian customers have been reluctant to sign too many long-term contracts because of the long-term uncertainty that we've faced for the past 10 years. But that is changing now.
Speaker Change: Yeah.
Kurt: Kurt contracting strategy has kind of got two parts, it's got our willingness to contract rigs and the customers' desire to take contracts I would say that the Canadian Canadian industry has been really cautious over the past decade <unk> been through they've been through second back with commodity prices and pipeline constraints, they're finally, getting a bit of room to run right now but.
Kurt: As a result Canadian customers have been reluctant to sign to many long term contracts because of the long term uncertainty there with the next phase of the past 10 years.
Kevin A. Neveu: We see, certainly for development drilling in Montigny, more and more of a trend for long-term contracts. So they're more willing to sign those contracts than might have been a few years ago. And we want to remain and keep some of the fleet with optionality for increased rates. So we're not anxious to tie up the entire fleet with long-term contracts. But a blend of, you know, half the rigs contracted, half the rigs exposed, maybe a little more contracted is kind of how we look at things.
Kurt: That is changing now we see certainly for development drilling in the Montney more and more of a trend for long term contracts and so they're more willing to sign the contracts there might've been a few years ago and we want to remain.
Speaker Change: And keep some of the fleet with Optionality for increased rates. So we're not anxious to tie up the entire fleet.
Long term contracts, but blend of.
Speaker Change: Rigs contracted half the rigs exposed maybe a little more contracted is kind of how we look at things.
Kurt Kevin Hallead: That's a great color. Thank you. Great, thanks for asking.
Speaker Change: That's great color. Thank you great.
Operator: Great. Thanks, Kurt. Our next question comes from Luke Lemoine with Piper Slander. Your line is open.
Speaker Change: Great. Thanks, Kurt Thank you Sir.
Speaker Change: Our next question comes from Luke Lemoine with Piper Sandler Your line is open.
Luke Michael Lemoine: Yeah, Hey, good morning.
Luke Michael Lemoine: Kevin, on the last call, you talked about U.S. land, the visibility and timing of the rebound just being a little bit unclear. And then you just talked about, you know, activity dropping now, so your views changed a little bit. It sounded like the customer conversations around rig ads were basically due to new capital formation along with Hainesville ads next year. And I guess, first, anything to point out there, any other factors? And then second, you talked about your rig counts in the U.S. maybe increasing from the high 30s to the low 40s from 3Q to 4Q. Do you think that's representative of the overall super spec rig count or maybe specific to PRECISION?
Luke Michael Lemoine: Kevin look less last call you talked about in U S land that visibility and timing of the rebound just being a little bit unclear.
Speaker Change: And then you just talked about activity trough analysis reviews changed a little bit.
Speaker Change: Like the customer conversations around rig adds for basically.
Speaker Change: Due to new capital formation, along with Haynesville as next year and I guess first anything you point out there any other factors and then second you talked about your rig counts in the U S. Maybe increasing the high <unk> to low <unk> from <unk>.
Speaker Change: I think thats representative of the overall super spec rig count or maybe specific to precision.
Kevin A. Neveu: Luke, I think, you know, for us, a couple of rigs moves us from 38 to 40. So it's not a big market indicator. So I think you should keep that in mind.
Speaker Change: Look I think.
Speaker Change: So for US a couple of rigs moves us from 38 to 40, so it's not a big market indicator. So I think keep that in mind.
Kevin A. Neveu: You know, even if we had three rigs, we're now 41. So that doesn't really mean the whole industry is changing. I do think between now and the end of the year, it's likely that the larger drillers, and I think we're in that bucket, will gain rigs, and some of the smaller drillers may lose rigs as some of these consolidation transactions complete and they rationalize their fleets. So I think you could see any one of the larger drillers pick up a few rigs and, you know, 2, 3, 4 rigs, not 50 rigs, to be clear on that, just through the kind of conclusion of these consolidation transactions.
Speaker Change: Even if we had three years without 41, so it doesn't really meet the whole industry is changing I do think between now and the end of the year, it's likely that the larger drillers where that bucket.
Speaker Change: Gain rigs and some of those smaller Joe's drillers may lose rigs some of these consolidation transactions complete and they rationalize their fleets. So I think you could see one of the larger drillers pick up a few rigs and.
Speaker Change: Two three or four rigs not not not 50 rigs to be clear on that.
Speaker Change: Through the kind of conclusion of these consolidation transactions, if you layer in for us one or two rigs in the haynesville.
Kevin A. Neveu: If you layer in, for us, one or two rigs in Haynesville, which isn't a big move, now you're at 42, 43 rigs. So the path to get to 43 isn't that complicated. But I wouldn't, I don't see the market moving and adding 50 or 60 rigs between now and the end of the year. So I don't think that, you know, 3 or 4 rigs for PRECISION means 10% of the market.
Speaker Change: This isn't a big move.
Speaker Change: 42, 43 weeks so the path to get there are 43 isn't that complicated.
Speaker Change: But I wouldn't I don't see the market moving and adding 50 or 60 rigs between now and the end of the year. So I don't think that.
Speaker Change: Three or four rigs for decision means timber.
Speaker Change: 10% of the market.
Carey Thomas Ford: Okay, and then Carey, in the press release, you talked about looking for opportunities to lower costs. Could you maybe elaborate on that, especially on the U.S. drilling side, and maybe what that could mean?
Speaker Change: Okay, and then Terry in the press release, you talked about looking for opportunities to lower costs could you maybe elaborate on that.
Terry: And especially on the U S drilling side and maybe what that can mean.
Carey Thomas Ford: Yeah, I'll hit that from a couple different points. So we've talked a bit in the past about wearing a bit more fixed costs in our US business than we have in the past. We're operating in six different operating regions and running 38 rigs. So we've got fixed costs to spread over a few days. So that's been a little bit of a headwind to margins. On the items we can control, we've really had a focus on repair and maintenance expenses and working with our vendor list and optimizing centralized purchasing and optimizing third-party labor on our rig.
Terry: Yes ill hit that from a couple of different points. So we've talked a bit in the past about we're in a bit more fixed costs in our U S business than we have in the past just we're operating in six different operating regions and running 38 rigs that we've got.
Terry: Fixed costs are spread over fewer days, so that's been a little bit of a headwind to margins on the items. We can control, we've really had a focus on repair and maintenance expense and working with our vendor list and optimizing and centralizing centralized purchasing and optimizing.
Terry: Third party labor on our rigs so we're.
Carey Thomas Ford: So we're looking at all avenues to address reducing costs on our rigs. And we saw some of that performance really start to show up in the second quarter, and we expect to maintain that performance for the rest of the year.
Terry: We're looking at all avenues to.
Terry: <unk> addressed reducing costs on our rigs and we saw some of that performance really start to show up in the second quarter and we expect to maintain that performance the rest of the year.
Luke Michael Lemoine: Okay, great. I'll turn it back on.
Terry: Okay, Great I'll turn it back.
Speaker Change: Thanks Luke.
Operator: Our next question comes from Aaron MacNeil with TD Cow, and your line is open.
Speaker Change: Our next question comes from Aaron Macneil with TD Cowen Your line is open.
Aaron MacNeil: Hi everyone, thanks for taking my questions. Carey, we've had two quarters now where margins have come in generally better than the guide, and I guess the question is, is your Q3 margin guide similarly sort of conservative in your view?
Aaron MacNeil: Hi, everyone. Thanks for taking my questions.
Carey: Carey with two quarters, now where margins have come in.
Aaron MacNeil: Generally better than the guide and I guess the question is as you are.
Martin: Q3, Martin margin guide similarly.
Speaker Change: Conservative in your view.
Carey Thomas Ford: I think what we want to do is provide some guidance for the market that is realistic and that we can meet and, hopefully, exceed. I think in the Canadian market, we have a dynamic that we haven't really had in the past several years where we're getting, as Kevin mentioned, a lot more super single work and some tele-double work. And so when you get that rig mix blended into the fleet average, the pricing is a little bit lower, margins are a little bit lower, so it's a little bit less predictable. We think that we can beat the guidance that we provided, but want to err a little bit on the conservative side just because of that new dynamic. And then in the U.S., same thing.
Speaker Change: I think what we want to do is provide some some guidance for the market that it's realistic that we can that we can meet and hopefully exceed I think.
Speaker Change: On the Canadian market, we have a dynamic that we haven't really had in it.
Speaker Change: In the past several years, where we're getting as Kevin mentioned, a lot more super single work and some tele double work and so when you get that rig mix blend into the fleet average.
Pricing is a little bit lower margins are a little bit lower so it's a little bit less predictable.
Speaker Change: We think that we can beat the guidance that we provided but.
Speaker Change: I want to err, a little bit on the conservative side, just because of the new dynamic and then in the U S.
Speaker Change: Same thing I think that.
Speaker Change: If we if we our rig count remains flat or decrease a bit were wearing a bit more fixed cost per rig and if it increases.
Carey Thomas Ford: I think that if we If a rig count remains flat or decreases a bit, we're wearing a bit more fixed cost per rig. And if it increases, you know, on kind of Kevin's potential, you know, getting to the low 40s, I think we're wearing a little bit less fixed costs. So the margin should be a little bit better. So I think, in short, there are some moving parts. So we want to make sure that we're providing realistic margin guidance for the market.
Speaker Change: On kind of kevins.
Kevin: Potential getting to low <unk> I think we're right a little bit less fixed costs. So the margins should be able to better so I think.
There's some moving parts.
Kevin: So we want to make sure that we're providing a realistic margin guidance for the market.
Aaron MacNeil: Makes total sense, and I think this one might be for you as well. But excuse the napkin math here, but at least on my estimates, you're sort of on pace to hit the lower end of the 25 to 35% share buyback target. I mean, is that sort of, maybe you can't guide to this if it's consistent with your view, but like, is that sort of the intention? Or do you think we'll maybe see you ramp up the share buyback pace in the second half of the year?
Speaker Change: Total sense and I think this one might be for you as well bye.
Speaker Change: Excuse the napkin math here, but at least on my estimates you're sort of on pace to hit the lower end of that.
Speaker Change: 25% to 35% share buyback target.
Speaker Change: I mean is that sort of maybe you can guide to this and it's consistent with your view, but like is that sort of the intention or do you think we'll maybe see that ramp up the share buyback pace.
Speaker Change: Half of the year.
Carey Thomas Ford: Yes, so we are intentionally not prescriptive on how we're going to, on what side of the range we're going to be on for the share buybacks. I think it depends on how much cash the business generates and also where the shares are trading in the market. You know, in my comments, I mentioned that we've bought back about $40 million worth of shares year to date. That includes some shares that we bought back in the month of July.
Speaker Change: Yes.
Speaker Change: We are intentionally not prescriptive on on how we're going to.
Speaker Change: Outside of the range, we're going to be on for the share buybacks I think it depends on how much cash the business generates and also where the shares are trading in the market.
Speaker Change: In my comments I mentioned that.
Speaker Change: Bought back about $40 million worth of shares year to date that includes some shares that we bought back in the month of July.
Carey Thomas Ford: And if you kind of double that and look at the midpoint of our debt reduction range, I think we'd actually be at the high end of the 25% to 35% range. So I think we're definitely going to be within that range, and where we are within that range will depend on both the cash flow and then where the shares trade between now and then.
Speaker Change: And if you kind of double that in and look at the midpoint of our debt reduction range I think we would actually be at the high end of the 20% to 35% range. So I think we're definitely gonna be within that range and where we are within that range will depend on both the cash flow and then where the shares trade between now and the end of the year.
Speaker Change: Makes sense I'll turn it back thanks, guys. Okay. Thanks.
Operator: Our next question comes from Waqar Syed with ATB Capital Markets. Your line is open.
Speaker Change: Our next question comes from Waqar Syed with HEB capital markets. Your line is open.
Waqar Mustafa Syed: Thank you for taking my questions. Kevin, you know, you've seen a number of M&A transactions in the market with your peers. Some have decided to expand their pressure pump business and become more of a full service provider in the U.S., others have increased exposure to the Middle East. Drill bit acquisitions have happened as well. How do you see PRECISION kind of evolving over the next like three to five years? Do you remain focused on what you do now, or do you think that uh, you know, five years from now, precision could be uh offering more, more business?
Waqar Mustafa Syed: Thank you for taking my questions.
Waqar Mustafa Syed: Kevin.
Speaker Change: <unk> seen a number of M&A transactions.
Speaker Change: And the market.
Speaker Change: Yes.
Speaker Change: And some of them decided to expand their pressure pump.
Speaker Change: And become more kind of.
Speaker Change: Regarding <unk>.
Speaker Change: In the U S.
Speaker Change: <unk> increased exposure to middle East.
Speaker Change: Clearly acquisitions have happened as well.
Speaker Change: How do you see.
Speaker Change: Precision kind of.
Speaker Change: Evolving over the next like key to five Years' time do you remain focused on what you do now.
Speaker Change: Do you think that <unk>.
Speaker Change: Five years from now proceeding could be offering.
Speaker Change: More businesses.
Kevin A. Neveu: Waqar, that's a great question. In fact, something we talk about with our board pretty much every board meeting, and especially during our strategy sessions. So it is nice to have options kind of going forward. You know, we've been so focused on debt reduction for the past decade that that's been kind of our top priority. It's been really clear in our annual priorities.
Speaker Change: That's a great question and in fact, something we've talked about with our board pretty much every board meeting and especially during our strategy sessions.
Speaker Change: So it is nice to have options going forward.
Speaker Change: We've been so focused on debt reduction for the past decade that that's been kind of our top priority is to really clear with our annual priorities, but we did do a couple of tuck in acquisitions that were talked quite well we did.
Kevin A. Neveu: But we did do a couple of tuck-in acquisitions that worked out quite well. We did the High Arctic deal two years ago and then CWC last year. Those worked out well.
Speaker Change: The high Arctic deal two.
Speaker Change: Two years ago, and then CWC last year those worked out well, so I think that as.
Kevin A. Neveu: So I think that as we go forward, we'll keep our eyes open. We'll be opportunistic if we can transact and do another tuck-in type, another or more tuck-in style acquisitions to supplement our current businesses. I think we'd be anxious to do that, with a couple of comments. We have no strategic objectives right now around acquisitions. We don't need to. We don't need to make a big bet internationally. We don't need to go buy a block of business in any geography in North America because we have those blocks.
Speaker Change: As we go forward.
Speaker Change: We will keep our eyes open we'll be opportunistic.
Speaker Change: If we can transact and do another tuck in type another or more tuck in style acquisitions to supplement our current businesses.
Speaker Change: I think we'd be anxious to do that.
Speaker Change: A couple of comments, we have no strategic objectives right now around acquisitions, we don't need to.
Speaker Change: We don't need to make a big bet internationally, we don't need to go buy a block of business in any geography in North America as we have those blocks.
Kevin A. Neveu: We're not looking to grow well servicing in the U.S. Instead, we're looking to grow well servicing in Canada to grow drilling in the U.S. So I think we'd stick with our knitting right now, which is drilling and well servicing in Canada and drilling in the U.S., and if we can find good tuck-in opportunities that we can do at least neutral on leverage or delevering and accretive, we'd be thrilled to do them.
Speaker Change: We're not looking to grow well servicing in the U S. We're looking to grow well servicing in Canada to grow drilling in the U S.
Speaker Change: I think we'd stick with our knitting, right, now, which is drilling and well servicing and Canada drilling in the U S and if we can find good tuck in opportunities that.
Speaker Change: We can do it at least at least neutral or leverage or delevering.
Speaker Change: <unk>.
Speaker Change: The accretive we'd be thrilled to do it.
Waqar Mustafa Syed: And then Carey, you mentioned as a goal of being below one times net debt to bidder ratio and then maybe expanding cash return to shareholders to about 50% of free cash flow. In your view, from a timing perspective, when do you think you're going to get there? At 50% return of cash to free cash flow to shareholders, what would it look like? Would this be still buybacks or a combination of buybacks and dividends? Or how do you intend to proceed there?
Speaker Change: Makes sense and then Carey.
Carey: You mentioned that the goal.
Carey: Being below one times net debt to EBITDA ratio.
Speaker Change: And then maybe expanding cash or to enter Shannon just about 50% of free cash flow.
Speaker Change: In your view from a timing perspective, when do you think you're going to get there and then.
About 50% a ton of cash free cash flow to shareholders. What would it look like would this be still buybacks a combination of buybacks and dividends.
Speaker Change: How do you.
Speaker Change: And to proceed there.
Carey Thomas Ford: Well, first of all, I think we're kind of taking one thing at a time. So we've got our guidance for this year and then our guidance through 2026. So we definitely are going to be looking to increase that allocation of our free cash flow directly to shareholders. This year, it's going to be share buybacks. We'll look at all options in the coming years as we get closer to that leverage level, but we have nothing to report on today.
Speaker Change: Well first of all I think we're kind of taking one thing at a time. So we've got our guidance for this year and then our guidance through 2026. So we definitely are going to be looking to increase that allocation of our free cash flow directly to shareholders. This year it can be share buybacks.
Speaker Change: We'll look at all options in the coming years, as we get closer to that leverage level, but nothing to report on today I think on in terms of timing of when we can get to below one times I think it's it's a lot sooner than we thought I mentioned in my comments that by the end of the year, we expect to be kind of around one five times and.
Carey Thomas Ford: I think in terms of timing on when we can get to below one times, I think it's a lot sooner than we thought. I mentioned in my comments that by the end of the year, we expect to be kind of around 1.25 times. And assuming we can continue the strong cash flow performance and EBITDA generation in 2025 that we've produced so far this year, we should be below one times EBITDA at some point next year.
Speaker Change: Assuming we can continue the strong cash flow performance and EBITDA generation.
Speaker Change: In 2025, we produced so far this year, we should be below one times at some point next year.
Waqar Mustafa Syed: Sounds good. Well, thank you very much and congrats on a great, great quarter.
That's good thank you very much and congrats on a great great quarter.
Operator: Thanks, Waqar. Thank you. Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. Our next question comes from Jamie Kubik with CIBC. Your line is open.
Speaker Change: Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
Speaker Change: Our next question comes from Jamie Kubik with CIBC. Your line is open.
Jamie Kubik: Yeah, good morning, guys. Thanks for taking my question here.
Jamie Kubik: Yes. Good morning, guys. Thanks for taking my question here.
Jamie Kubik: Just have a question on the Canadian market here a bit.
Speaker Change: Kevin and carry you do reference LNG directed drilling remaining very active in Canada.
Kevin A. Neveu: I just have a question on the Canadian market here a bit. You know, Kevin and Carey, you reference LNG-directed drilling remaining very active in Canada, but the ACO and Station 2 gas markets on a four basis are expected to be very weak for the next several months in Canada. Respecting that PRECISION's rig count is north of 70, can you talk a bit more about the dynamic in the Canadian market here and if operators have been discussing potentially deferring drilling activity given the pricing outlook is so weak, can you just expand a little bit on that market if you could? Thanks.
Speaker Change: But the <unk> and station to gas markets on a forward basis is expected to be very weak for the next several months in Canada respecting that precision rig count is north of 70 can you talk a bit more on the dynamic in the Canadian market here and if operators have been discussing potentially deferring drilling activity given.
Speaker Change: The pricing I guess, so we can you just expand a little bit around that market. If you could thanks.
Jamie Kubik: Yeah, I can. I don't want to speak to specific customer comments because they'll know who they are, and they'll know what they said. So we hear a lot, no question about that. I think our rig count today is actually one rig higher than a year ago drilling in the Montagne, I think it is. I also know that we've got a couple of operators that are slowing down their drilling programs this year but asking us to have that rig for them on January 1st.
Speaker Change: Yes, I can.
Speaker Change: Don't want to speak to a specific customer comments, because you'll know who they are they'll do what they said.
Speaker Change: So we hear a lot no question about that.
Speaker Change: I think our rig count today is actually run rate higher than a year ago drilling in the Montney I think it is I also know that we've got a couple of operators are slowing down drilling programs. This year, but <unk> is to have that rig for them for January one.
Jamie Kubik: So I think you're getting to the point now where there's enough gas to meet the demand when they start operating. But I think as I plan for kind of full-scale drilling operations next year, they probably need those rigs back. So I did mention that we've got a few windows of rig availability right now in Q3. We expect to fill those up with other customers. And I'd also comment that I don't think we're drilling a single dry gas well. I think all of these wells produce condensate that still fires the economics of the wealth. Shouldn't use that term, fighters. It still drives the economy of the world.
Speaker Change: So I think youre getting to the point now where there's enough gas to meet the demand when they start operating but I think as a plan for kind of full scale run operations next year, they probably need those rigs back. So it did mentioned that we've got a few windows of a rig availability right now in Q3, you expect to fill those up with other customers.
Speaker Change: <unk>.
Speaker Change: And I'd also comment that I don't think we're drilling a single dry gas well I think all of these wells produce.
Speaker Change: Condensate, that's still fires the economics of the well.
Speaker Change: Shouldn't use that term buyers still drives the economics of the world.
Operator: Okay, that's good. That's all for me. Thank you.
Speaker Change: Okay. That's great. That's all for me. Thank you.
Speaker Change: Thank you.
John Gibson: Our next question comes from John Gibson with BMO Capital Markets. Your line is open.
Speaker Change: Our next question comes from John Gibson with BMO capital markets. Your line is open.
John Gibson: Morning all, um, maybe touching on your international rigs and just sort of presence, obviously going to be up 50% year over year, which is outstanding. Can you provide details on the daily margins on those rigs and maybe some further details on potential rig activations that you referenced in the press release? Have they moved closer or further from prior quarters?
Speaker Change: Yes.
John Gibson: Good morning, all.
John Gibson: Maybe touching on your international rigs and just sort of presence, obviously going to be up 30% year over year, which is outstanding can you provide details on the.
Speaker Change: Daily margins on those rigs and maybe.
Some further details on potential rig activations that you referenced in the press release have been moved closer further from prior quarters.
Carey Thomas Ford: Yeah, so hey, John. I think about the international margins; we don't disclose the margins just because we have two customers in the international market. So, I would like to keep that confidential, but I would say that they are a little bit better than mid-cycle margins we would experience in North America. And when you think about kind of the dynamics, we're getting five-year contracts on those rigs. And so the payback period and the IRR on the rigs are going to be just a little bit lower than what we would require in North America because there's more certainty and a longer-term horizon.
Speaker Change: Okay.
Speaker Change: Yes, So hey, John.
Speaker Change: I think on the international margins, we don't disclose the margins just because we have two customers in the international market.
Speaker Change: So I'd like to keep that confidential, but I would say that they are a little bit better than mid cycle margins. What we would experience in North America and when you think about kind of the dynamics, we're getting five year contracts on on those rigs and so the payback period and the IRR on the rigs is going to be just a little bit lower than what we would require nor.
Speaker Change: America, because theres more certainty and longer term.
Speaker Change: Awesome.
Speaker Change: Okay.
Speaker Change: And last one.
Kevin A. Neveu: Would you please have an update on the potential reactivations of the outstanding rigs in your international regions?
Speaker Change: Just any on any update on the potential reactivation of the.
Speaker Change: Outstanding.
John Gibson: Yeah, John, we have no news right now, nothing to report other than we were unsuccessful in a tender in Saudi Arabia. The rates were well below the levels we... I do think that we have opportunities that we'll continue pursuing in Kuwait and Saudi Arabia and in the region right now, and I think we'll be successful, I think, but I don't see anything happening likely during the third quarter, maybe during the fourth quarter.
Speaker Change: International regions.
Yes.
Speaker Change: John No we have no news right now nothing nothing to report other than.
Speaker Change: We were unsuccessful in a tender in Saudi Arabia.
Speaker Change: The rates were well below the levels we.
Speaker Change: Never upgrade we can deploy to but we understand some people, making strategic decisions. It's just that's their call.
Speaker Change: I do think that we have opportunities to continue pursuing in Kuwait, and Saudi Arabia and in the region right now and I think it will be successful I think but I don't see anything happening likely during the third quarter, maybe during the fourth quarter.
Kevin A. Neveu: Okay, great. Last one for me. Sorry, if I missed this. Could you touch on day rates and margins on the super single cluster rigs in Canada? I mean, it looks like you've gained some market share here and I just wondering if once you're old this, and if you've been able to push prices higher on this class of rig.
Speaker Change: Okay great.
Speaker Change: Last one for me sorry, if I missed this could you touch on day rates and margins on our Super single class of rigs in Canada, I mean, it looks like you've gained some market share market.
Speaker Change: <unk> market share here and just wondering if.
Speaker Change: What drove this and if you've been able to push pricing higher on this class of rigs.
Kevin A. Neveu: Yeah, I'm not sure we've actually gained any market share because our market share, it's really hard to tell exactly, but our market shares still seem to be in the same range. And, you know, we're mainly competing with rigs that probably aren't quite as efficient, so we can get a little higher day rate. I gave guidance on the margins of the range of $7,000 to $14,000 a day. You can assume that the pad rigs are going to be in the top half of that range, and the non-pad rigs will be in the bottom half of the range.
Speaker Change: Yes, I'm not sure we've actually gained the market share because our markets, it's really hard to tell exactly but our market share is still seem to be in the same range.
Speaker Change: And we remain the competing with rigs that probably arent quite as efficient. So we can get a little higher day rate.
Speaker Change: I gave guidance on the margins of the range of 7% to $14000. A day you can assume that the pad rigs are going to be the top half of that range.
Speaker Change: One pad rigs will be the bottom half of the range I suggested that a third of the rigs are pad style rigs.
Kevin A. Neveu: I suggested that a third of the rigs are pad style rigs. The upgrade cost to convert a rig to pad style is quite low compared to the triples, and I expect we'll have several more of those super-singles that are non-pad converted pad rigs, probably in the second half of this year.
Speaker Change: The upgrade cost to convert the rig to pad style is quite low compared to the triples, and I expect we will have.
Speaker Change: Several more of those Super singles that are non pad converted pad rigs probably the second half of this year.
John Gibson: Okay, great. An awesome quarter. I'll turn it back. Thanks.
Speaker Change: Okay great.
Speaker Change: Awesome quarter I'll turn it back thanks.
Operator: Please, all quads are on.
John Gibson: Our next question comes from John Daniel with Daniel Energy Partners. Your line is open.
John Gibson: Hey, John.
John Gibson: Our next question comes from John Daniel with Daniel Energy Partners. Your line is open.
John Gibson: Hey guys, thanks for having me on. Just one question. One of the frequent complaints I get from guys like private well service guys in the U.S. is the cost of insurance and the ability to get it.
John Gibson: Hey, guys. Thanks for having me on just one question one of the complaints.
John: Complaints I get from my prior.
John Gibson: Private wealth service guys in the U S as the cost of insurance and the ability to get it I'm just curious if that same dynamic is at play.
Kevin A. Neveu: I'm just curious if that's the same dynamic as a play, Canada, and is that going to create some opportunities for more tucking?
John Gibson: Canada and is that going to create some opportunities for more tuck ins.
Kevin A. Neveu: John, that's a really prickly question. I just came back from our insurance renewals in the spring. We go to London, and we do a comprehensive insurance renewal with our insuring group. I would tell you that I think that larger service companies with scale right now have very good access to insurance, but the rates have gone up. I would say that the smaller you get, access to insurance gets trickier and more expensive. The insurance industry is dealing with a lot of its investors, and they're being pushed not to insure this industry. We see that.
John Gibson: John That's a really quickly question I just came back from our insurance renewals in the spring.
Speaker Change: We go to London, we do a comprehensive insurance real with our insurance group I would tell you that I think that.
Speaker Change: Larger service companies with scale right now.
Speaker Change: Very good access to insurance, but the rates have gone up.
Speaker Change: I would say that smaller and smaller you get access to insurance gets trickier and more expensive.
Speaker Change: The insurance industry is dealing with.
Speaker Change: A lot of there.
Speaker Change: A lot of there.
Speaker Change: Investors in there.
They are being pushed not to ensure this industry. We see that we start with several insurers use to cover precision who will cover oil and gas again. So the market size is decreasing and those are in the space what to focus on the lower risk.
Kevin A. Neveu: We sat with several insurers who used to cover PRECISION and won't cover oil and gas again. So the market size is decreasing, and those that are in the space want to focus on the lower risk, you know, larger, more capable companies. So I think that's a real risk for a small company. But I would tell you that I think any large service provider that's kind of multi-basin, you know, you know, tens or hundreds of assets will have access to insurance. It may be tougher for smaller companies.
Speaker Change: Larger more capable companies. So I think that's a real risk for a small company I would tell you that I think a large service provider Thats got a multi basin.
Speaker Change: No.
Speaker Change: Tens or hundreds of assets.
Speaker Change: We will have access to insurance it may be tougher for smaller companies.
John Gibson: Okay, is it your sense that the customers are being smart and auditing this?
Speaker Change: Okay is it your sense that the customers are being smart and auditing us.
Kevin A. Neveu: For every contract we have, we have to have proof of insurance. Okay. Got it. And we have to typically go through that liability assessment with our clients. Fair enough.
Speaker Change: Yeah.
Speaker Change: For every contract we have we have to have proof of insurance okay.
Speaker Change: We typically go through that liability assessment with our clients.
John Gibson: Sure enough, that's all I got. Thanks, guys.
Speaker Change: Sure enough that's all I got thanks, guys.
Lavonne Zdunich: And I'm not showing any further requests at this time. I'd like to turn the call back over to Lavonne for any closing remarks.
John: Thanks, John.
Speaker Change: And I'm not showing any further questions at this time I'd like to turn the call back over to <unk> for any closing remarks.
Operator: On behalf of the PRECISION team, I would like to thank everyone for joining in on our call today and wish you a great day. Thank you.
<unk>: On behalf of the positioning I would like to thank everyone for joining in on our call today and wish you a great day. Thank you.
Operator: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.