Q4 2024 Precision Drilling Corp Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Precision Drilling Corporation 2024 fourth quarter and end of year results conference call and webcast. I would like to turn the conference over to Lavonne Zdunich, Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you, Kevin. Welcome to Precision Drilling's fourth quarter and year-end conference call and webcast. Today, I'm joined by Kevin Neveu, Precision's President and CEO, and Carey Ford, our CFO.
Speaker Change: Yesterday, we reported our fourth quarter results, concluding another year of strong cash flow and profitability. In our news release, we revealed our 2025 strategic priorities that the whole Precision team is aligned with.
Speaker Change: Our 2025 priorities remain focused on generating shareholder value by maximizing CRE cash flow through disciplined capital deployment and strict cost management.
Speaker Change: Enhancing shareholder returns through further debt reduction and increased share repurchases and growing revenue in existing service lines.
Speaker Change: Before I turn the call over to Kevin and Carey, I would like to remind our listeners that some comments today will refer to non-IFRS financial measures and include forward-looking statements which are subject to a number of risks and uncertainties.
Speaker Change: For more information on financial measures, forward-looking statements, and risk factors, please refer to our news release and other regulatory filings available on CDAR and EDGAR.
Speaker Change: As a reminder, we express our financial results in Canadian dollars unless otherwise stated.
Speaker Change: With that, I'll turn it over to Carey. Thanks, Lavonne, and good afternoon. Precision's 2024 Annual Financial Results demonstrated our resilient business model and ability to meet our financial commitments despite lower industry activity in certain core markets.
Carey Ford: Before detailing our 2024 financial results, I will recap Precision's 2024 strategic priorities and our performance against each.
Carey Ford: Number one, concentrate organizational efforts on leveraging our scale and generating free cash flow.
Carey Ford: We generated cash provided by operations of $482 million, reached near full utilization on our Canadian Super Series rigs, increased year-over-year activity in international drilling, Canada drilling, and well servicing by 37%, 12%, and 26% respectively. We also achieved full synergies in our CWC acquisitions.
Carey Ford: Number two, reduce debt by 150 million and 200 million dollars and allocate 25 to 35 percent of free cash flow before debt repayment to share repurchases.
Carey Ford: We reached the midpoint of both of these targets and lowered our net debt to EBITDA leverage ratio. And number three, continue to deliver operational excellence and strengthen our competitive position and extend market penetration of our alpha and f-grain products.
Carey Ford: During the year we nearly doubled our evergreen revenue year-over-year and added two new major product offerings on our super single rigs, which were LED mass lighting and hydrogen combustion catalyst systems. We also invested $52 million into our fleet and grew market share year-over-year in Canada.
I will now cover annual financial highlights.
Carey Ford: which include revenue of $1.9 billion, essentially flat year-over-year, adjusted EBITDA of $521 million, 15% decrease year-over-year, funds from operation of $463 million, a 13% decrease, cash from operations of $482 million, similar to prior year.
Carey Ford: We achieved debt reduction of $176 million and $75 million in share repurchases, representing 4% of our outstanding shares, and generated positive earnings per share every quarter during 2024 and for the past 10 consecutive quarters.
We'll get on to fourth quarter results.
Carey Ford: Our fourth quarter adjusted EBITDA of $121 million included a share-based compensation charge of $15 million and non-recurring charges of $8 million.
Carey Ford: Non-recurring charges included $4 million of rig reactivations and $4 million of severance inventory write-downs and year-end accrual cleanups. Add to these charges, the justice of the dog would have been $144 million.
Carey Ford: In U.S. drilling, activity for precision averaged 34 rigs in Q4, a decrease of one rig from Q3. Daily operating margins in the quarter absent impacts of IBC and Chernokee were $9,165 USD, just shy of our guidance of $9,500 USD.
Carey Ford: and $1,719 USD below Q3 levels. For Q1, we expect normalized margins to range between $8,500 USD and $9,000 USD. The expected margin decrease is due to slightly lower day rates and higher overhead costs spread over fewer activity days compared to Q4.
Carey Ford: In Canada, drilling activity for precision averaged 65 rigs, an increase of one rig from Q4 2024.
Carey Ford: Daily operating margins in the quarter were $14,559, an increase of approximately $2,131 from Q3 2024, and slightly below our guidance of $15,000 per day.
Carey Ford: Q4 margins included approximately $4 million, or just over $500 per day, in rig reactivation costs. As for these costs, margin performance would have exceeded guidance.
For Q1, we expect margins to remain consistent with Q4.
Carey Ford: at $14,500 to $15,000 per day. Compared to Q1 2024, margins are down approximately $1,000 per day. This is due to rig mix and planned rig reactivations versus zero rig reactivations last year.
Carey Ford: Internationally, precision drilling activity in the quarter averaged eight rigs and averaged day rates for $49,636 USD in line with the prior year. We expect 2025 activity to be consistent with 2024 levels.
Carey Ford: In our C&P segment, adjusted EBITDA this quarter was $16 million, a $4 million increase from the prior year quarter. Adjusted EBITDA was positively impacted by a 6% increase in wealth service hours, reflecting
Carey Ford: a full quarter with the CWC service rigs. We expect results to improve in Q1 with increased rates, activity, and rental performance.
Carey Ford: Capital expenditures for the quarter of 59 million dollars and for the year they were 217 million dollars. Due to timing of equipment deliveries our capital expenditures were slightly higher than our guidance of 210 million dollars.
Carey Ford: Our 2025 capital plan of $225 million is comprised of $175 million for sustaining and infrastructure and $50 million for upgrades and expansion. This plan will increase or decrease based on activity levels and contracted customer upgrades.
Carey Ford: Moving to our contract book, as of February 12th, we had an average of 43 contracts in hand for the first quarter and an average of 37 contracts for the full year 2025. Based on customer conversations for super triple and upgraded super single grades, we expect the number of Canadian contracts to increase over the coming quarters.
Carey Ford: Moving to the balance sheet, as of December 31st, our long-term debt position net of cash was $748 million, and our total liquidity position was approximately $600 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 1.4 times, and our average cost of debt is 6.9%.
Carey Ford: For 2025, it is clear that we are nearing our long-term capital structure target of below one times leverage, and we continue to balance our cash liquidity, debt maturities, total debt, and leverage ratios while optimizing our cost of capital.
Carey Ford: This year, we plan to reduce debt by at least $100 million and have increased our long-term debt reduction goal from $600 million to $709 million between 2022 and 2027.
Carey Ford: As of December 31st, 2024, we have reduced debt by $435 million over this period and now have an additional $265 million reduction over the next three years to achieve our goal.
Carey Ford: Moving on to guidance for 2025, we expect depreciation of $300 million, cash and interest expense of $65 million.
Carey Ford: million dollars, affected tax rate of 25 to 35, 25 to 30 percent with low cash taxes.
Carey Ford: SG&A before share-based comp expense of $100 million, share-based comp expense of $25 to $35 million with a share price range of $80 to $100 Canadian, assuming a one-times multiplier.
Speaker Change: Please note that 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. That concludes my prepared comments. I'll now turn the call over to Kevin.
Kevin Neveu: Thank you, Carey. So I will speak to our outlook for 2025, and I'll provide some additional perspectives on precisions, strategic priorities, which Lavonne outlined earlier.
Kevin Neveu: So let me start with our strategic priorities, as this is core to how we execute a precision. First, we believe this is key messaging for precision investors. We're laying out exactly what we intend to accomplish, and that our investors can count on us to deliver against those commitments.
Kevin Neveu: We've been providing this guidance and meeting or exceeding our targets for over nine years. We believe this important messaging provides our investors with a clear line of sight as to how we'll continue to create value and what we can be held accountable for.
Kevin Neveu: Internally, the strategic priorities are an essential driver of the precision culture. From these annual priorities, we build out the individual objectives for each leader in the organization.
Kevin Neveu: Those individual objectives are then cascaded down throughout the full organization in order that virtually every employee understands where they fit and how their work affects shareholder value.
Kevin Neveu: This organization-wide alignment model ensures that every element of our business that we can control is tightly monitored, measured, and controlled and that we can deliver every result we commit to.
Kevin Neveu: For most of the past decade, our primary strategy has been creating surrogate value by reducing debt and converting enterprise value from debt to equity.
Kevin Neveu: To support this strategy, we've crafted annual priorities intended to optimize the value of our services, seek returns on RIG investments, and ultimately maximize free cash flow. And for the past decade, this free cash flow has been primarily prioritized towards debt reduction.
Kevin Neveu: Using this strategic process, we retired over 1.4 billion dollars in debt, bought back over 150 million dollars of stock.
Kevin Neveu: We fully commercialized our alpha automation suite. We introduced and commercialized our green solutions.
Kevin Neveu: We've continued to invest in rig upgrades when supported by customer contracts. We have integrated two consolidating acquisitions and grown our Canadian drilling and oil service market share. We've reloaded our international business with long-term contracts and steady predictable cash flow. Our U.S. segment has been a little more challenging. I'll come back to that in a few moments.
Carey Ford: Now Carey mentioned that we're nearing our target long-term capital structure and with that we've been slowly transitioning our strategy, first increasing the allocation of cash to share buybacks and now throttling down our pace of debt reduction.
Carey Ford: Embedded in this cash allocation shift is creating the financial flexibility to consider more growth focused investments such as additional fleet upgrades and exploring potential tuck-in style acquisitions.
Carey Ford: Now with that, let me come back to our U.S. drilling segment where I commented earlier. This has been a little more challenging for us.
Carey Ford: The U.S. land market in general has been in delays for the last 24 months, lead in 2023 with gas-directed activity declining, and in 2024 with drilling efficiencies, among many other factors, negatively impacting oil-directed activity.
Carey Ford: When this release began, Precision's market share was underpinned by strong customer relationships and market positions in both the Haynesville and the Marcellus. We've reinforced that very favorable customer position over the past couple of years and very encouraged by the gaps opportunities we see looking forward.
Carey Ford: I will go out on a limb and predict the gas filling activity will end 2025 at a higher level than we've seen in the last several quarters, but I believe Precision is well positioned to gain, share, and grow utilization in these areas.
Carey Ford: Oil activity, on the other hand, appears to remain constrained by operator capital discipline, commodity price volatility, operator consolidation, and some continued efficiency impacts.
Carey Ford: I am not going on a limb to predict an increase in oil activity. On the contrary, flat feels like the right call in oil activity. Now that said, rig efficiency continues to be an important competitive differentiator, and this presents an opportunity for precision.
Carey Ford: With this market backdrop, I believe that precision has growth opportunities, and to that end, we've made some adjustments within our U.S. team.
Carey Ford: Late last year, we restructured our operations group to flatten up the management structure and to improve our focus on customer needs, specifically leveraging our success in the gas basins for the oil-focused customers.
Carey Ford: We also enhanced our sales organization with additional sales and marketing expertise to better communicate the efficiencies we can deliver with our alpha automated super triple rigs and the cost savings that Evergreen products deliver along with the overall safety and efficiency our highly skilled crews provide.
Carey Ford: As noted in our capital plans, we have earmarked $30 million for U.S. rig upgrades, which I expect will largely be focused on long-reach horizontal capability enhancements.
Carey Ford: We believe our intense focus on the U.S. will improve our positioning in oil while ensuring we continue to capture the new rig opportunities which seem to be emerging in gas. To close the loop on our strategic priorities, this U.S.- focused initiative is captured at our third priority to grow existing revenue and existing service lines.
through contracted upgrades, optimized pricing, utilization, and opportunistic token acquisitions.
to touch on the acquisition topic for a moment.
Carey Ford: We believe the drive to efficiency across the drilling industry is a technology and scale-based exercise.
Carey Ford: We believe this will marginalize the rigs that don't have the technology or the scale to deliver the operating and cost efficiency that the oil and gas operators demand.
Carey Ford: We believe that industry consolidation is an opportunity, and we'll have the financial capability to pursue tuck-in deals, which is important to us, but only if we can achieve the appropriate value in these transactions.
Carey Ford: Turning to Canada, the outlook remains very good indeed. Now, there has been some short-term concern mainly focused on the potential of US tariffs on Canadian energy.
Carey Ford: The more recent clarity around potentially reduced tariffs for energy versus other Canadian exports has moderated that concern. And the delay in implementation of the tariffs also seems to encourage further Canadian to U.S. negotiations aimed at exempting energy entirely, which I believe benefits everyone.
Carey Ford: Looking back at the fourth quarter, Canadian drilling activity tailed off more than we expected for the traditional Christmas break, and we believe this was due primarily to bunch of exhaustion.
Carey Ford: We were encouraged by how quickly customers activated our rigs immediately following Christmas as we rebounded to 78 rigs by January 8, then to 81 just a few days later, and this level has held firm through today.
Carey Ford: Break-up will be weather-driven, not budget-constrained. We have good customer indications that activity during break-up will exceed last year's record level and should approach 50 rigs operating straight through the spring break-up period.
Carey Ford: Second half activity should also benefit from increased customer demand once L&G Canada fully starts up.
Carey Ford: It is likely that we'll be upgrading more super singles to pad systems as the efficiency gains these rigs deliver.
Carey Ford: allow us to capture a larger portion of the value we create.
Carey Ford: As Carey noted in his comments, we activated three weeks in December, and we are activating another super single during the first quarter that should be ready for a customer in May.
Speaker Change: In our Canadian Well Servicing segment, we also experienced a steeper-than-expected slowdown over Christmas.
Carey Ford: The winter activation ramp-up was also slower than we experienced during the life segment.
Carey Ford: It seems that some of the tariff uncertainty slowed down customer decision-making for workovers and abatements.
Carey Ford: We have noticed an improvement in customer urgency and demand once the lower potential tariffs were clarified. Our active service rate count today is now hovering in the mid-90s, similar to the activity level this time last year.
Carey Ford: As a side note, during the fourth quarter, we entered a joint venture with two First Nations groups in British Columbia. They invested, along with Precision, in several fully recertified Service Free Express.
Carey Ford: Since the inception of this JV, the available rigs have been essentially fully utilized by Montagnier operators looking to support First Nations communities.
Carey Ford: I'm excited about this opportunity for both Precision and our First Nations business partners, and anxious to see this expand, and perhaps include more First Nations groups and additional assets.
Carey Ford: For those customers looking to support the local First Nations communities, this is an excellent avenue for all stakeholders.
Carey Ford: Turning to our international business, oil activity looks to remain flat for the balance of 2025. We've not received any suspension requests in Saudi Arabia and we do not believe we will. Now remember that we're a relatively small player in that market.
Carey Ford: Our great operations should remain firm for this year and its next year with long-term contracts in place.
Carey Ford: Now we have seen an influx of unconventional gas inquiries for multiple rigs in three different regions. Most of these are looking to utilize North American-style bad rigs and technology to pursue shale gas developments.
Carey Ford: I will intentionally remain very vague about these projects, as other drillers, and some perhaps listening to this call, will also be pursuing these inquiries. Now, it's unlikely that any of these rigs would spud before year-end.
Carey Ford: As contract negotiations, equipment certifications, and mobilization times preclude a rapid deployment.
Carey Ford: So I'll wrap up my comments by reaffirming that Precision's entire organization is aligned to deliver our strategic objectives, which are all aimed at increasing shareholder value.
Carey Ford: There should be no doubt that we believe we are turning the corner on nearly a decade of debt reduction as we're increasing our allocation of cash to shareholders, and we are looking to invest in our business for targeted growth.
Carey Ford: I want to thank all Precision stakeholders and their patience through the volatility in industry experiences. I want to thank the employees at Precision for delivering on our 2020 work commitments. And I know we are all looking forward to repeating this again in 2025.
Speaker Change: With that, I'll turn the call back to the operator for questions.
Speaker Change: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1 1 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1 1 again. We'll pause for a moment while we compile our Q&A roster.
Thank you for watching!
LaVonne Zdunich, Carey Ford, Lavonne Zdunich, LaVonne Zdunich,
Speaker Change: Our first question comes from Aaron McNeil with TD Cowen. Your line is open.
Aaron McNeil: I don't think I'm making a huge leap to assume here that there's a couple idle but contracted rigs in the US And so I was just hoping you could speak to contract duration For those rigs and if you think you can sort of backfill that activity with with new work
Aaron McNeil: Aaron, thanks for the question. Really key question kind of on our US strategy right now. So there's been an awful lot of churn in the US and...
Aaron McNeil: A lot of that in oil, a lot of these are very short-term, you know, well-to-well, pad-to-pad type contracts.
Aaron McNeil: and that's going to continue through the next couple of quarters in the U.S. So I think there is downside risk.
Aaron McNeil: Now, I didn't talk about the changes we put in place to try to leverage our capabilities.
Aaron McNeil: Better in oil-based basins. I wouldn't tell you that I'm really thinking about the first couple quarters of this year as being flat
Aaron McNeil: but I think that we have will get traction both in gas and with some of our actions.
Aaron McNeil: that should help us later in the year but it's going to take a while and there's I think there's downside risk. I don't think our contract book covers us in the first couple quarters but we've managed that trend pretty well over the past few months and I expect us to manage it well going forward.
Gotcha, makes sense.
Speaker Change: I know I'm probably being too acute here, but at a recent recent energy conference a few Haynesville producers suggested they wanted to see
Speaker Change: significantly higher gas prices before they put new rigs to work and I can appreciate that the Haynesville isn't the only area where you might see an uptick in gas focus activity but what assumptions are you sort of making that give you comfort that you'll see that activity growth in the back half of the year?
Speaker Change: Yeah, Aaron, so I think I've heard the same narrative you've heard and that that price range that customers are comfortable with ranges
Speaker Change: from kind of high threes to mid fours for our NIMAC staff. We understand that.
Speaker Change: We've had a number of conversations with customers, both in the Marcellus and in the Amesville. We'll have some sure in this quarter, but I expect there are rent counts in those areas will stay pretty firm, maybe move up a little bit.
Speaker Change: and I think we we see opportunities right now that haven't been committed to yet but could emerge in Q2 and Q3.
Okay, great. Thanks, Kevin. I'll turn it back.
Speaker Change: Thank you. Our next question comes from Kurt Halid with Benchmark. Your line is open.
Kurt Halid: Hey, good morning, everybody. Thanks for the color insights, as always.
Thank you.
Speaker Change: I guess I just want to maybe kick off the Q&A on the Canadian front. So, Kevin, you referenced, you know, still a very constructive outlook.
with respect to activity levels. However,
Speaker Change: coming back to Carey's comment about margins in the first quarter of being down on a year-on-year basis.
Speaker Change: You know, how do we think that progresses throughout the course of the year? Is the first quarter going to be a low point? You know, do you got some momentum there? What are some of the headwinds? Maybe kind of flesh that out a little bit more for us, to help us?
Speaker Change: So I would say that on the margin forecast for Q1, it's a combination of two things. One, we have some big reactivations that are negatively impacting margins, just like we had in Q4.
Speaker Change: And we also have a little bit of a brick mix that's slightly shallower than what we had.
Speaker Change: last year in Q1, and that's kind of a result of the strength of the super single market, so the heavy oil market remains really strong. If we look at day rates by rig class and margin by rig class, we have not seen any degradation in price or margins. It's just the rig mix has been
Speaker Change: shifted a little bit more towards the super signals which is causing that just a little bit of pressure on margins.
Speaker Change: I'd add to that and say that, certainly on the non-contracted rigs that will churn during the year in Canada, but I think stay fairly constant in activity.
Speaker Change: Our sales team is really focused on ensuring that we capture our fair share of the value, so I do expect there will be some pricing traction as the year progresses. We certainly have an expectation that LNG Canada will increase rig demand, especially on cripples.
Speaker Change: and that will add more pricing attention and give us more opportunity. So I think we're pretty optimistic on margins trending throughout the year.
Kevin Neveu: All right, great. And then maybe on a follow-up, this question might be easy for you to punt, Kevin, but...
Speaker Change: We're all kind of flying blind here, so let's fly blind together.
Speaker Change: on the tariff front, right? You guys referenced that you, you know, made some purchases of drill pipe.
Speaker Change: going into the fourth quarter in anticipation of some tariff dynamics.
Speaker Change: When you when you look at the potential business risk and business exposure
Speaker Change: whether it be broader context of, you know, is it going to impact, you know, oil exports into the U.S.?
Kevin Neveu: Is it going to impact any of the Canadian EMPs, how they kind of approach the market? Again, you referenced buying some drill pipe in the 4Q. Did you buy enough drill pipe to last you through the full year? Again, let's fly blind together on this, Kevin.
Kevin Neveu: Yeah, correct. This is something we spent a lot of time on. We did a detailed deep dive for our board a few days ago to make sure they understand kind of what the levers are that we have.
Speaker Change: First thing I'd tell you is that when the tariff discussion was kind of dropped from 25% down to 10%
Kevin Neveu: There's kind of a huge sigh of relief among the Canadian operating companies.
So, I think what that means is...
that the chirps are far less impactful than...
Large swings in WTI.
Kevin Neveu: were in large swings to Canadian exchange rate. And so far what we've seen is that the tariff has actually caused the exchange rate to be more unfavorable to the dollar, which is more favorable to our customers.
Kevin Neveu: selling their product in oil. So, you know, a little bit of that tariff impact has been marginalized up by the exchange rate change.
Kevin Neveu: I still worry more about the larger macro impacts. You know, we don't know what's going to happen with Russia. We don't know what's going to happen in the Middle East right now. There's a lot of uncertainty there. And I think those macro events...
Kevin Neveu: could have more impact on activity than the tariff issue. But I think we'll have a little bit of friction in some of our costs if the maximum tariffs are exercised.
Kevin Neveu: We've got a very diverse supply chain and we've got, I think, ways to manage around the tariffs, internal manufacturing.
Kevin Neveu: You know, bypassing some of the areas that are tariff stricken. So, I mean, our conclusion with the board is that the macro risk that we always face every day in this business is still there. And the tariff risk has been mitigated by the lower tariff levels that are being brought forward.
Kevin Neveu: I'm not sure if that answers your question, but we're feeling pretty comfortable about things right now.
Speaker Change: No, no, you know, everything's a moving target these days, but so I appreciate your insight. Thanks.
Speaker Change: Our next question comes from Sean Mitchell with Daniel Energy Partners. Your line is open.
Sean Mitchell: Hi guys, good morning or good afternoon. Thanks for taking my question.
Sean Mitchell: Just wanted to kind of poke around on the activity front. We've heard rumblings of some of the private guys starting to pick up rigs again.
Sean Mitchell: more recently, and I think we understand, obviously, there's been a lot of M&A in the market on the larger E&Ps and some of those assets that get bought take a while to kind of
Sean Mitchell: figure out what they're going to sell, but you're starting to see some of that. Do you guys see any of that in the customer mix or in the conversations with some of the private guys on the E&P front looking to put stuff back to work?
Sean Mitchell: and is that offset by more public companies laying stuff down or kind of how should we think about it because I know I think the market is basically and you're in line with it is saying flat activity especially for the oil market and 25 but
Sean Mitchell: I got to think at some point some of these private guys put rigs back to work and I'm just trying to see if you have any commentary on that.
Sean Mitchell: Yeah, Sean, if you follow the public data on Precision, you'll find that we have two rigs right now for the new private equity startup.
Sean Mitchell: So the short answer is yes, we do see some capital coming back into the E&P space. That's a good sign. I'm also encouraged by, you know, the recent IPOs. We've had an oil service IPO and an LNG IPO.
Sean Mitchell: both perform quite well. So it does seem like there's capital coming back in. Private capital is usually kind of leading edge. IPOs kind of follow that. All of this seems to be a bit encouraging. There's no question, talking to investors over the past, I'd say, 45 days,
Sean Mitchell: really since January, since the election, actually, but in the first part of this year. Today, our investors seem to feel better about investing in this political environment in the U.S. than they did a year ago.
Sean Mitchell: So I think we're going to have a lot more people looking closer at energy, looking closer at oil and gas.
Sean Mitchell: looking at closer oil and gas services. Certainly we're seeing it in just the investor mix we're getting at conferences, but going back to your original question, yes, private equity is coming into the space early, and small, and slow, but it's a good indicator.
Speaker Change: Yeah and then maybe one more following on that front just the activity as we think about 25 being kind of flattish maybe there's some gas rig activity in the back of the year but as you roll into
Speaker Change: 26. I guess my bigger, larger question would be, we've had
Speaker Change: 565 rigs running in the U.S. essentially for a while now it seems like it's kind of flattish through this year maybe up a little maybe down a little but if you roll into 26 and things
There's actually a call on Riggs and...
Cruz
Speaker Change: How do you think the industry will respond or some of the people that have been laid off are they coming back or like Will we have kind of a labor problem?
Speaker Change: Getting people back to work, I guess, is what I would say.
Speaker Change: Yeah Sean, a couple of parts to your question there. First of all, I would tell you that if the grid count stays flat this year, I think the
Speaker Change: The technology advanced thrillers, there's probably four or five of us that fall in the bucket, probably have more rigs running and the less technology advanced or less scale-based thrillers probably have fewer rigs running.
Speaker Change: So I think there'll be a market share shift in a flat environment because our customers still want efficiency and want more and more efficiency and You know, you need alpha automation need large fab rigs that can do a multi-well multi-well pads with
Speaker Change: with sequential drilling. You need all of that to get the maximum efficiency. So I think that trend is going to continue throughout 2025.
Speaker Change: I would tell you that over this last cycle, kind of post-COVID, we've been quite surprised by the veracity of our recruiting programs and how well that's worked for us.
Speaker Change: So we haven't seen a problem recruiting. It's a tight labor market. We're getting lots of inquiries for jobs. We process lots of resumes and lots of applications. We sort through them, find the right guys and hire them.
Speaker Change: I don't think we'll be labor constrained. If there's a call on rigs and the rig count goes up, I think that the larger scale-based drillers will benefit the most because efficiency will matter in everybody's mind going forward.
Got it. Thanks guys, appreciate it.
Speaker Change: Thank you. Thanks Sean. Our next question comes from Keith Mackey with RBC Capital Markets. Your line is open.
Keith Mackey: Brunt of that, but can you just talk a little bit more about
Speaker Change: what you're thinking on on the Tuckian front. I know certainly there's been challenges historically to getting deals done with looking at
Keith Mackey: you know, value per rig and things like that, and there being a wide bid-ask spread there.
Keith Mackey: But has anything changed on that front, as far as how you might think about...
Keith Mackey: I guess the market share mix of some of these private companies, as it does feel like some of the public companies have been saying, here's our rig rate, you can take it or leave it. And some of the private, you know, they've been going to the private companies who have been taking it. And so can we just, you know, just talk a little bit more about how you're thinking around that, that end of the market.
Keith Mackey: I would say that the market for consolidation is still there. There are a number of potential targets that have been
Keith Mackey: either softly marketed or formally marketed over the past few years. We think that most of those targets believe in the benefits of consolidation. And I think the highlight here from Kevin's prepared comments are
are really that our capital structure.
Keith Mackey: and Balance Sheet is in shape right now to where we can pursue a few more growth opportunities. We think we're in a pretty good position to...
to effect one of those transactions.
Keith Mackey: But the challenge does remain the valuation, and I think we are hypersensitive on...
Keith Mackey: on price if we were going to pursue consolidation has to be at the right price and that's been I think the biggest impediment for some of the smaller drillers combining with with the large drillers, but we do think that that would
Kevin Neveu: benefit the industry because, as Kevin said, that scale continues to be an important competitive advantage for the larger drillers.
Kevin Neveu: Roughly, how many rigs would that cover, and would you expect all of those to go to work in 2025, or is this on a we'll-spend-it-as-needed basis?
Kevin Neveu: For sure, we'll spend it as needed. And we'll make sure we have direct line of sight to customer contracts like we always do.
Kevin Neveu: You know, depending on the scope of the upgrades, it's probably somewhere in the 6 to 10 rig range, looking at long reach for a whole, you know, four mile laterals and the hook load capacity for that and the mud pump capacity for that.
Kevin Neveu: Keith, I'll expand a little bit though. I will say that when we built on our fleet of Super Triple rigs...
Kevin Neveu: We built these rigs with extended capabilities in mind for us.
Kevin Neveu: Equipping your rig to go from a 750,000 pound book load to a million pound book load is a modification to the rig. It's not a replacement of the mast.
Kevin Neveu: We think that's a real spending advantage and capital advantage when it comes to increasing capacity. On the mud pumps, going to a larger capacity mud pump is slide the old mud pump out, put the new mud pump and drive system in. Everything else at Rick's stays as is.
Kevin Neveu: So, the modular style of our rigs allows us to make these upgrades without affecting the entire rig, just effectively bolt on the change and move forward.
Perfect, thanks very much.
Thank you, again.
Speaker Change: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone.
Speaker Change: Our next question comes from Lapar Said with ATB Capital Markets. Your line is open.
Thanks for taking my question.
Speaker Change: Kevin, on the international side, you have eight rigs working, but I think contract on one of the rigs expires in the second half. Is that a rig in Saudi or Kuwait? Could you enlighten that? And then what – I know that you mentioned that you expect flattish eight rigs working through the year.
Speaker Change: but what's your confidence level that you know it stays at that eight level?
Speaker Change: Yeah, I'm pretty confident it stays at A-level. We'll seek an extension, which is pretty common, and in the absence of extension, there are active bids right now that will be bidded, so I'm quite confident that that high-technology rig stays operating at a similar return in Kuwait.
Speaker Change: Closer to home in the U.S., you typically see some seasonality and rigs come down in the Rockies during the winter months. Have you seen that this year as well? If so, how many rigs have been affected and when do you expect them to come back up again?
Speaker Change: Yeah, we've kind of run between three to five rigs in the northern Rockies and Wyoming that came into precision through the CWC acquisition primarily. Those are quite seasonal rigs and despite the fact that they're winterized, the operators only drill seasonally. So I expect some of those rigs to come back in the spring once we get past the winter season.
Speaker Change: So right now, just to clarify, are those three to five regs all down or still some of them are working?
Speaker Change: Yeah, two are down right now and those two likely come up when we get into spring.
Speaker Change: Okay, great. And then is there a way to quantify the impact of FX change or inflation on your CapEx budget versus, you know, everything else in terms of more work?
Speaker Change: I think this year it was about eight million dollars was the difference between you know kind of if you look at the maintenance capital year over year a big a big cause of the increase has been the weaker Canadian dollar
Thank you very much. Bye.
Great.
Thank you very much, that's all I have.
Speaker Change: Thanks, Ricard. And I'm not showing any further requests at this time. I'd like to turn the call back over to Luan.
Speaker Change: Thanks everyone for attending Precision's conference call webcast today. If you have further questions, you can reach out to myself in the Investor Relations Department. Thank you very much.
Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.