Q1 2025 Precision Drilling Corp Earnings Call

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Operator: Good day, and thank you for standing by.

Good day and thank you for standing by welcome to the precision drilling Corporation 2025 first quarter results conference call and webcast I would now like to hand, the conference over those bonds at Ontic, Vice President of Investor Relations. Please go ahead.

Lavonne Zdunich: Welcome to the PRECISION DRILLING Corporation 2025 First Quarter Results Conference call and webcast. I would now like to hand the conference over to Lavonne Zdunich, Vice President of Investor Relations. Please go Thank you, Operator, and welcome everyone to our first quarter conference call.

Thank you operator, and welcome everybody to our first quarter conference call today, I'm joined by Kevin nephew precision as President and CEO and carry forward our CFO.

Lavonne Zdunich: Today, I'm joined by Kevin Neveu, PRECISION's President and CEO, and Carey Ford, our CFO. Yesterday we reported our first quarter results. To begin the call, Carey will review these results and then Kevin will provide an operational update and outlook commentary.

Yesterday, we reported our first quarter results to begin the call. Carrie will review. These results and then Katherine will provide an operational update and outlook commentary. Once we have finished our prepared comments, we will open the call for questions.

Lavonne Zdunich: Once we have finished our prepared comments, we will open the call for questions. Please note some of the comments today will refer to non-IFRS financial measures and include forward-looking statements which are subject to a number of risks and uncertainties.

Please note some of the comments today will refer to non Ifr S financial measures and include forward looking statements, which are subject to a number of risks and uncertainties for more information on financial measures forward looking statements and risk factors. Please refer to our news release and other regulatory filings on SEDAR.

Lavonne Zdunich: For more information on financial measures, forward-looking statements, and risk factors, please refer to our news release and other regulatory filings on CDAR and EDGAR.

Lavonne Zdunich: As a reminder, we express our financial results in Canadian dollars unless otherwise stated.

Edgar.

As a reminder, we express our financial results in Canadian dollars, unless otherwise stated with that I'll turn it over to you Carey.

Carey Ford: With that, I'll turn it over to you, Carey.

Carey Ford: Thank you, Lavonne. PRECISION's Q1 financial results met our expectations for adjusted EBITDA earnings and cash flow. Adjusted EBITDA of $137 million was driven by strong drilling activity in Canada and steady cash flow generation from our drilling operations in the US and Middle East, as well as our completion and production services business. Our Q1 adjusted EBITDA included a share-based compensation charge of $3 million and restructuring charges of $3 million. Without these charges, the adjusted EBITDA would have been $143 million. Revenue for the quarter was $496 million, a decrease of 6% from Q1 2024. Net earnings were $35 million, or $2.52 per share, representing PRECISION's 11th consecutive quarter of positive earnings.

Juan: Thank you Juan <unk>.

Juan: <unk> Q1 financial results met our expectations for adjusted EBITDA earnings and cash flow adjusted EBITDA of $137 million was driven by strong drilling activity in Canada and steady cash flow generation from our drilling operations in the U S and middle East as well as our completion <unk> production services business.

Juan: Our Q1 adjusted EBITDA included share based compensation charge of $3 million and restructuring charges of $3 million without these charges adjusted EBITDA would have been 143 months.

Juan: Revenue for the quarter was 496 million a decrease of 6% from Q1 2024 net earnings were $35 million or $2 52 per share representing precision 11th consecutive quarter of positive earnings.

Carey Ford: Funds and cash provided by operations were $110 million and $63 million, respectively. And in the U.S., PRECISION's drilling activity averaged 30 rigs in Q1, a decrease of four rigs from the previous quarter. Daily operating margins in Q1, excluding the impacts of turnkey and IBC, were $8,360 USD, a decrease of $787 USD from Q4. For Q2, we expect normalized margins to be between $7,000 USD and $8,000 USD. Daily operating costs in the U.S. were unusually high this quarter due to rig activations, rig mobilizations, severance costs, and standby labor. Without these items, daily operating costs would have been approximately $22,000 per day.

Juan: Cash provided by operations were $110 million and $63 million respectively.

Juan: Yeah.

Juan: And in the U S precision drilling activity averaged 30 rigs in Q1, a decrease of four rigs from the previous quarter.

Juan: Daily operating margins in Q1, excluding the impact of turnkey and IDC were 8360 USD a decrease of 787 USD from Q4 for Q2, we expect normalized margins to be between 7000 U S D and 8000 USD.

Juan: Daily operating costs in the U S were unusually high this quarter due to rig up rig activations rig mobilizations severance costs standby labor.

Juan: Without these items daily operating costs would have been approximately $22000 per day.

Carey Ford: which is still above where I would like to see. As previously mentioned, we are carrying higher fixed costs in the U.S. to support future activity increases. We maintain active rigs in the Rockies, West Texas, South Texas, Louisiana, and the Northeast. We intend to maintain a strong presence in all these regions, but that presence comes with cost.

Juan: Which is still above where I would like to see.

Juan: Okay.

Juan: As previously mentioned, we are carrying higher fixed cost in the U S to support future activity increases we maintain active rigs in the Rockies West, Texas, South, Texas, Louisiana in the northeast, we intend to maintain a strong presence in all these regions, but that presence comes with costs.

Carey Ford: Our U.S. team is demonstrating its ability to increase activity levels, ultimately driving down the per rig fixed cost burden. As the activity increase will not happen immediately and should evolve over several quarters, I will continue to push our team on every aspect of our cost structure to drive down operating costs as we work through the year. Also, with planned activity increases, I will be closely monitoring costs associated with rig reactivations and mobilizations later this year, as these costs may introduce some variability in reported daily cost future periods. Our goal will be to continue to drive down normalized operating costs throughout 2025.

Juan: Our U S team is demonstrating its ability to increase activity levels levels, ultimately driving down the per rig fixed cost burden.

Juan: As the activity increase will not happen immediately and should evolve over several quarters and we'll continue to push our team on every aspect of our cost structure to drive down operating costs as we work through the year.

Juan: Also with planned activity increases it would be.

Juan: Closely monitoring costs associated with rig reactivation and mobilization later this year as these costs may introduce some very big variability in reported daily cost in future periods.

Juan: Our goal will be to continue to drive down normalized operating costs throughout 2025.

Carey Ford: Moving to Canada, PRECISION DRILLING activity averaged 74 rigs, an increase of one rig from Q1 2024. Our daily operating margins for the quarter were $14,779, a decrease of $858 from Q1 2024. For Q2, our daily operating margins are expected to be between $13,500 and $14,500. Internationally, PRECISION's drilling activity in the quarter averaged eight rigs. International average day rates were $49,419 USD, a decrease of 6% from the prior year due to fewer rig moots. In our C&P segment, Adjusted EBITDA this quarter was $18 million, down 8% compared to the prior year quarter. Adjusted EBITDA was negatively impacted by a 10% decrease in well service hours, slightly offset by higher margins.

Juan: Moving to Canada precision drilling activity averaged 74 rigs an increase of one rig from Q1 2024.

Juan: Operating margins for the quarter were $14779 a decrease of $858 for Q1 2024 for.

Juan: For Q2, our daily operating margins are expected to be between 13000 514500.

Juan: Internationally precision as drilling activity in the quarter averaged eight rigs international average day rates were 49419, USD a decrease of 6% from the prior year due to fewer rig moves.

Juan: And our <unk> segment adjusted EBITDA this quarter was $18 million down 8% compared to the prior year quarter. Adjusted EBITDA was negatively impacted by a 10% decrease in well service hours slightly offset by higher margins.

Carey Ford: Well abandonment work represented approximately 27% of well service operating hours in the quarter. Capital expenditures for the quarter were $60 million, including $20 million for upgrade and expansion and $40 million for maintenance and infrastructure. Our full year 2025 capital plan has been reduced from $225 million to $200 million and is comprised of $158 million for sustaining infrastructure and $42 million for upgrade and expansion. As of April 23rd, we had an average of 41 contracts in hand for the second quarter and an average of 38 contracts for the full year 2025. Moving to the balance sheet, our Q1 cash flow performance was better than expected, with neutral cash flow despite a quarter with working capital increases, semi-annual interest payments, and typical year-end payments.

Juan: Well abandonment work represented approximately 27% of well service operating hours in the quarter.

Juan: Capital expenditures for the quarter were $60 million, including $20 million for upgrade and expansion of $40 million for maintenance and infrastructure. Our full year 2025 capital plan has been reduced from $225 million to $200 million and is comprised of $158 million for sustaining and infrastructure and $42 million for upgrade and expansion.

Juan: Okay.

Juan: As of April 23rd we had an average of 41 contracts in hand for the second quarter at an average of 38 contracts for the full year 2025.

Juan: Moving to the balance sheet, our Q1 cash flow performance was better than expected with neutral cash flow, despite a quarter with working capital increases.

Annual interest payments and typical year end payments and.

Carey Ford: In fact, the $46 million decrease in cash from year-end was applied almost entirely to debt reduction of $17 million in share repurchase. sure repurchases $31 million in the quarter. As of March 31st, our long-term debt position of cash was approximately $778 million, and our total liquidity position was approximately $570 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 1.5 times, and our average cost of debt is 6.9%. We expect our net debt to adjust EBITDA before share-based compensation expense to continue to decline throughout the year. This quarter, on our balance sheet, we recognized the $230 million balance on our 2026 note as current debt.

Juan: In fact, the $46 million decrease in cash from year end was applied almost entirely to debt reduction of $70 million of share repurchase share repurchases a $31 million in the quarter.

Juan: As of March 31, our long term debt position net of cash was approximately $778 million and our total liquidity position was approximately $570 million excluding letters of credit.

Juan: Net debt to trailing 12 month EBITDA ratio is approximately one five times and our average cost of debt of six 9%.

Juan: We expect our net debt to adjusted EBITDA before share based compensation expense.

Juan: <unk> to decline throughout the year.

Juan: This quarter on our balance sheet, we recognized the $230 million balance on our 2026 note as current debt.

Carey Ford: We plan to reduce this balance by at least $80 million in the last three quarters of the year with cash flow and cash on hand during the year and use our undrawn revolving credit facility to address the remaining balance. Our plan to reduce our revolver balance continues significantly during 2026. where we expect to reduce the majority of the balance. A Revolving Cryo Facility, as a reminder, matures in the middle of 2027.

Juan: We plan to reduce this balance by at least $80 million.

Juan: In the past three quarters of the year with cash flow and cash on hand during the year and use our undrawn revolving credit facility to address the remaining balance.

Juan: Our plan to reduce our revolver balance.

Juan: Continued significantly during 2026.

Juan: Where we expect to reduce the majority of the balance.

Juan: Our revolving credit facility as a reminder, matures in the middle of 2027.

Carey Ford: We were committed to reducing debt by $700 million between 2022 and 2027 and achieving a normalized leverage level below one times. Since 2022, we have reduced debt by $452 million. Conveniently, the $248 million remaining on our target debt reduction nearly matches the remaining balance on a 2026 note. Our debt reduction target for 2025 is $100 million and we plan to allocate 35% to 45% of free cash flow before debt principal payments towards share repurchase. Moving on to guidance for 2025, strong cash flow for the year, depreciation of approximately $300 million, cash interest expense of approximately $65 million, cash taxes, we expect to remain low and our effective tax rate to be approximately 25% to 30%.

Juan: We are committed to reducing debt by $700 million between 2022, and 2027 and achieving a normalized leverage level below one times. Since 2022, we have reduced debt by $452 million conveniently the $248 million remaining on our target debt reduction nearly matches the remaining balance of 2026 months.

Juan: Our debt reduction.

Juan: Target for 2025 is $100 million and we plan to allocate 35% to 45% of free cash flow before debt principal payments towards share repurchases.

Juan: Moving on to guidance for 2025 strong cash flow for the year depreciation of approximately $300 million cash interest expense of approximately $65 million cash taxes, we expect to remain low and our effective tax rate to be approximately 25% to 30%.

Carey Ford: We expect SG&A of approximately $95 million before share based compensation expense. And we expect share based compensation charges for the year to range between $15 million and $35 million at a share price range of $60 to $100. And the charge may increase or decrease based on share price performance and the performance of our shares relative to PRECISION's peer group.

Juan: We expect SG&A of approximately $95 million before share based compensation expense and.

Juan: And we expect share based compensation charges for the year to range between $15 million and $35 million at a share price range at $60 to $100 and the charge may increase or decrease based on share price performance and the performance of our shares relative to precision peer group.

Kevin Neveu: With that, I will turn the call over to Kevin. Thank you, Carey. Good morning, and thank you for joining our first quarter earnings call. So I'll begin by saying that I'm feeling very good about our first quarter financial results and the momentum we're carrying into the second quarter. While macro events in economic uncertainty are somewhat obscuring forward visibility, I'm comforted that capital discipline across the upstream oil and gas industry has dampened the traditional knee-jerk reaction to commodity price volatility. Our customers in both the United States and Canada are telling us that they are cautiously watching the macro events and the impact on oil prices, while they remain optimistic about LNG gas opportunities.

Kevin: With that I will turn the call over to Kevin.

Kevin: Thank you Gary Good morning, and thank you for joining our first quarter earnings call.

Speaker Change: So I'll begin by saying that I'm feeling very good about our first quarter financial results and the momentum we're carrying into the second quarter.

Speaker Change: While macro events as economic uncertainty are somewhat obscuring forward visibility.

Speaker Change: The capital discipline across the upstream oil and gas industry has dampened the traditional knee jerk reaction to commodity price volatility.

Speaker Change: Our customers in both United States, and Canada are telling us they are cautiously watching the macro events and the impact of oil prices, while they remain optimistic about LNG gas opportunities.

Kevin Neveu: While our customers are closely monitoring these trends, oil-targeted drilling plans remain largely unaffected by the current commodity price range, and our customer discussions regarding gas drilling opportunities continue to have a positive tone. As Carey mentioned, we've taken steps to tightly control aspects of our business and strictly manage our spending, and the organization is well-focused on free cash flow while we remain poised and well-positioned for any and all emerging opportunities. So beginning in Canada, after a strong winter, we're rolling into spring breakup period with our most active fleet in over a decade. Today, we have 47 rigs operating that are essentially at the seasonal low in this mix.

Speaker Change: And while our customers are closely monitoring these trends oil targeted drilling plans remain largely unaffected by the current commodity price range.

Speaker Change: Our customer discussions regarding gas drilling opportunities continued to have a positive tone.

Speaker Change: Now as Gary mentioned, we've taken steps to tightly control aspects.

Speaker Change: Aspects of our business strictly manage our spending and.

Speaker Change: And the organization is more focused on free cash flow, while we remain poised and well positioned for any and all emerging opportunities.

Speaker Change: So beginning in Canada. After a strong winter, we're rolling into spring breakup period with our most active fleet in over a decade.

Speaker Change: Today, we have 47 rigs operating essentially at the seasonal low in this mix.

Kevin Neveu: We have 24 super triples and 23 super singles running straight through breakup, about 10% above last year's level. We expect to begin adding rigs in the first week of May and should come climb back up into the mid 60s by early July in line or slightly ahead of last year's trend. The RIGMEX will remain in the same proportions as this last winter, with approximately 40% of our rigs in the Montigny-Duvernay Deep Basin drilling gas and condensate targets, and those should be relatively unaffected by any WTI volatility. I'll remind the listeners that for many of our customers, the condensate volumes these wells produce more than covers the drilling and completion costs, and the Canadian market remains short condensate.

Speaker Change: We have 24 Super triples, 23 Super singles running straight through breakup about 10% above last year's level.

Speaker Change: We expect to begin adding rigs in the first week of May that should come climbed back up into the mid 60 by early July inline or slightly ahead of last year's trend.

Speaker Change: The rig mix will remain in the same proportions as this last winter with approximately 40% of our rigs in the Montney Duvernay deep basin drilling gas and condensate targets and those should be relatively unaffected by any WTO volatility.

Speaker Change: I'll remind the listeners that for many of our customers. The condensate volumes. These wells produce more than covers the drilling and completion costs in the Canadian market remains short condensate.

Kevin Neveu: With LNG Canada's first shipments imminent and the potential for Phase 2 approval later this year, we expect long-term stability in the Montagne, with additional rigs likely required when the first phase is at full capacity early next year, and with further rig additions if Phase 2 achieves FID. The balance of our Canadian activity will be almost all heavy oil related, and that is Clearwater, Manville, Martin Hills, SAG-D, and conventional heavy oil. During the first quarter, we upgraded and reactivated an additional super single, increasing our fleet of 46 rigs available, with all of these committed for work through the summer and the fall.

Speaker Change: With LNG, Canada's first shipments evidenced in the potential for phase II approval. Later this year, we expect long term stability in the montney with additional rigs slightly likely required when the first phase is up full capacity early next year and with further rig additions of phase III achieved Friday.

Speaker Change: The balance of our Canadian activity will be almost all had the oil related and that is Clearwater Manville Marten Hills, Sadie and conventional heavy oil.

Speaker Change: During the first quarter, we upgraded and reactivated and additional Super single, increasing our fleet of 46 rigs available with all of these committed for work through the summer and the fall.

Kevin Neveu: We have two remaining super singles cold stacked that are ready to reactivate. We believe there are several good opportunities, which may lead to firing up these rigs before next winter. Despite the macro uncertainties, our Canadian customer base has learned to operate in a lean market with historically wider differentials. exercising capital discipline with operating efficiency as a prime strategy. And they've been doing this for a decade. Our customers' balance sheets are in the best shape they've been in since the early 2000s. The Trans Mountain pipe has narrowed the oil differentials. The drilling and completion costs are tightly managed, and our customers are well positioned to continue their programs through periods of market uncertainty.

Speaker Change: We have two remaining Super singles Cold stacked that are ready to reactivate. We believe there are several good opportunities, which may lead to firing up these rigs before next winter.

Speaker Change: Despite the macro uncertainties, our Canadian customer base has learned to operate in a lean market with historically wider differentials.

Speaker Change: <unk> capital discipline.

Speaker Change: Operating efficiency is a prime strategy.

Speaker Change: We're doing this for a decade.

Speaker Change: Our customers' balance sheets are in the best shape they have been in since the early two thousands.

Speaker Change: Trans Mountain pipe has narrowed the oil differentials the drilling and completion costs are tightly managed as our customers are well positioned to continue their programs through periods of market uncertainty.

Kevin Neveu: LNG Canada will be the first LNG export facility for Canada, and this new capacity will drive stable Montney gas activity for a very long time. My enthusiasm for our Canadian segment is well supported by these fundamentals, and I see a good runway for the next several years.

Speaker Change: LNG, Canada will be the first LNG export facility for Canada, and this new capacity will drive stable montney gas activity for a very long time.

Speaker Change: My enthusiasm for our Canadian segment is well supported by these fundamentals and I see a good runway for the next several years.

Kevin Neveu: So shifting gears for a moment, I'll discuss our Canadian Well Service segment, which is also experiencing strong, although slightly lower than expected customer demand. It seems that during the first quarter, our customers prioritized spending on drilling programs and perhaps held back a little on abandonments and delayed some prospective work over time. Despite the 10% reduction in activity this year versus last, RIGMIX was focused on higher margin projects and net cash flows were almost flat with last year. Our customers continue to give us indications that the activity this summer should be in line with last year, and we will have no problem responding with available rigs and crews.

Speaker Change: So shifting gears for a moment I will discuss our Canadian well service segment, which is also experiencing strong although slightly lower than expected customer demand.

Speaker Change: It seems that during the first quarter, our customers prioritize spending on drilling programs and perhaps held back a little on abandonments and delayed some prospective workovers.

Speaker Change: Despite the 10% reduction in activity this year versus last rig mix was focused on higher margin projects and net cash flows were almost flat with last year.

Speaker Change: Our customers continue to give us indications this activity, but the activity. This summer should be in line with last year and we will have no problem responded with available rigs and crews.

Kevin Neveu: Now, we mentioned in our press release that we're exiting, that we've exited North Dakota, where we operated a fleet of 10 service rigs. We originally entered this market to provide services to Canadian customers operating in North America, in North Dakota, and for several years, this business performed well. When our Canadian customers exited the market, we were left competing with local mom-and-pop service providers for highly price-sensitive customers. And although last year was a positive cash flow year for this segment, we did not achieve our targeted return on capital. We decided to exit the market. We are moving six of the rigs back to Canada and we'll sell the balance of the assets in the market.

Speaker Change: Now we mentioned in our press release that we are exiting but that we've exited north Dakota, where we operated a fleet of 10 service rigs.

Speaker Change: We originally entered this market to provide services to Canadian customers operating in North America and.

Speaker Change: North Dakota.

Speaker Change: And for several years this business performed well.

Speaker Change: But our Canadian customers exited the market, we were less competing with local mom and pop service providers for highly price sensitive customers.

Speaker Change: And although last year was a positive cash flow year for this segment, we did not achieve our targeted return on capital we decided to exit the market.

Speaker Change: We are moving six of the rigs back to Canada will sell the balance of the assets in the market.

Kevin Neveu: In our U.S. drilling business, as Carey mentioned in his comments, we remain challenged by low utilization and subscale activity levels, with an average of 30 rigs operating in the first quarter. As mentioned in our press release and Carey's comments, we've restructured our U.S. sales and operations group to better focus on our customers' needs, their key performance metrics, and enhance our customer relationships. These changes included flattening the organization, eliminating several management positions, aligning sales, operations, and technology with collaborative customer objectives, and streamlining decision making and internal communication chain. Early indications are that our restructured organization is working very well, as our current activity level is now 34 rigs, up from 30 in the first quarter.

Speaker Change: And are you assuming business as Jerry mentioned in his comments, we remain challenged by low utilization and subscale activity levels with an average of 30 rigs operating in the first quarter.

Speaker Change: As mentioned in our press release and the Jerry's comments, we've restructured our U S sales and operations group to better focus on our customers' needs their key performance metrics and enhance our customer relationships.

Speaker Change: These changes included flattening the organization, eliminating several management positions aligning sales operations and technology with collaborative customer objectives, and streamlining decision, making and internal communication Jamie.

Speaker Change: Early indications are that are restructured our organization is working very well as our current activity level is now 34 rigs up from 30 in the first quarter.

Kevin Neveu: And while contract churn will continue, we see a path to increase our U.S. activity back to a level of appropriate scale. In my opening comments, I mentioned that our customers remain cautious regarding oil-directed drilling, yet drilling plans remain in place. How we've seen this play out in one case is where a customer is indicating that our rigs will continue to operate through the year, but they will suspend completion activities for a period until they have more confidence in the oil price. I remain cautiously optimistic that our Permian, our DJ, and South Texas activity will remain stable through the summer and into the fall.

And while contract churn will continue we see a path to increase our U S activity back to a level of appropriate scale.

Speaker Change: In my opening comments I mentioned that our customers remain cautious regarding oil directed drilling you have drilling plans remain in place how we've seen this play out in one case is where a customer is indicating that our rigs will continue to operate through the year, but they will suspend completion activities for a period until they have more confidence in the oil price.

Speaker Change: I remain cautiously optimistic that our Permian, our DJ and South Texas activity will be stable through the summer into the fall.

Kevin Neveu: Now, we continue to see a lot of interest in gas directed drilling, both in the Haynesville and the Marcellus, and we currently expect to mobilize an additional ST1500 rig to the Marcellus later this quarter. Now we continue to experience very active bidding activity in the Haynesville and expect reactivation later this quarter and into the summer. With 10 PRECISION SUPER TRIPLE RIGS stacked near Houghton, Louisiana, we believe we are very well positioned as our customers begin to pick up more rigs. Regarding leading edge pricing, with customer demand firm and rig supply tight in the gas basins, we are seeing stronger pricing in the Haynesville and Appalachia than in the Permian, where contract sharing is prevalent, and most of the price competition seems to be focused.

Speaker Change: Now we continue to see a lot of interest in gas directed drilling both in the Haynesville and the Marcellus and we currently expect to mobilize and additional ft 500 rig to the Marcellus later this quarter.

Speaker Change: Now we continue to experience very active bidding activity in the Haynesville and expect rig Activations later this quarter into the summer.

Speaker Change: With 10 precision Super Triple rigs stacked in your heart and Louisiana. We believe we are very well positioned as our customers begin to pick up more rigs.

Speaker Change: Regarding leading edge pricing with customer demand firm and rig supply type in the gas basins, we are seeing stronger pricing in the haynesville in Appalachia and in the Permian where contract churn is prevalent in most of the price competition seems to be focused.

Kevin Neveu: I'll also add the customer interest in plans in these gas plays seems to be relatively unaffected by the macro uncertainties pressing on commodity prices.

Speaker Change: I'll also add the customer interest in plans in these gas place seems to be.

Speaker Change: Relatively unaffected by the macro uncertainties pressing on commodity prices.

Kevin Neveu: Now, turning to international business... In Kuwait, we continue to operate five rigs. Precision Rig 906, which was due to expire during the third quarter, has been extended and will continue to work through the end of this year. We believe that will either be extended further or recontracted after that. The remaining four rigs in Kuwait are contracted well into 2028. We have one idle rig in Kuwait, but we continue to bid for projects in Kuwait and other areas in the region. However, contract awards have slowed, and we do not expect this rig to be contracted this year.

Speaker Change: Now turning to our international business.

Speaker Change: We continue to operate five rigs.

Speaker Change: <unk>, which was due to expire during the third quarter has been extended and we will continue to work through the end of this year.

Speaker Change: We believe that will either be extended further or re contracted after that through.

Speaker Change: Remaining four rigs in Kuwait are contracted well into 2028.

Speaker Change: We have one idle rig in Kuwait that we continue to bid for projects in Kuwait and other areas in the region. However contract awards have slowed and we do not expect this rate to be contracted this year.

Kevin Neveu: In Saudi Arabia, we are currently operating three rigs, but we have received a suspension notice for one rig, which will take effect in May and reduce our activity for two rigs, likely for the balance of this year. Now, we have no indications for our customer that either of the two remaining rigs will be affected and they should continue working for the balance of the year.

Speaker Change: In Saudi Arabia, we are currently operating three rigs.

Speaker Change: But we have received a suspension notice for one rig which will take effect in mid and producer activity for two rigs likely for the balance of this year.

Speaker Change: Now we have no indications from our customer that either of the two remaining rigs will be affected and this should continue working for the balance of the year.

Kevin Neveu: So turning back to our planned reduction in capital spending, as Terry mentioned, we reduced our capital spending from $225 million down to $200 million. Let me break this down to a $8 million reduction in upgrade capital and a $17 million reduction in our maintenance or sustaining capital. So first on the sustaining capital reduction, I'll point out that we usually take advantage of year-end vendor discounts and pre-buy drill pipe and other rig components for the coming year. We did that in 2023. We did that again in 2024. In our 2025 budget, we anticipated a similar year-end investment.

Yeah.

Speaker Change: So turning back to our planned reduction in capital spending as Terry mentioned, we reduced our capital spending from 225 million down to $200 million.

Speaker Change: Let me break this down to $8 million reduction in.

Speaker Change: Great capital that $17 million.

Speaker Change: <unk> nerve maintenance or sustaining capital.

Speaker Change: First on the sustaining capital reduction I'll point out that we usually take advantage of year end vendor discounts and pre buy drill pipe and other rig components for the coming year. We did that in 2022, three we did that again in 2024 and in our 2025 budget, we anticipated a similar year end investment.

Kevin Neveu: At this point, we will remove that from our budget and comment that the remaining $158 million is in line with our initial activity estimates for the year. Regarding the $8 million reduction in upgrade capital, this was a budgeted placeholder for unidentified projects primarily in the United States and international markets. Should either of these markets rebound in 2025, we'll consider additional upgrade spending, but only if the financial returns and contract terms meet our financial thresholds.

Speaker Change: At this point, we removed that from our budget and comment that the remaining $158 million is in line with our initial activity estimates for the year.

Speaker Change: Regarding the $8 million reduction in upgrade capital. This was a budgeted placeholder for unidentified projects, primarily in United States and international markets.

Either of these markets rebound in 2025, we will consider additional upgrade spending but only if the financial returns and contract terms meet our financial thresholds.

Kevin Neveu: Now regarding the steps we are taking to reduce our fixed costs and restructure our U.S. operations team. These are very difficult steps for the PRECISION organization, and certainly we will miss the dedicated folks who are no longer on our team, and I thank them for their many contributions. That said, we believe it's essential to be sized and organized for the market that we see. It's also a key component of our core strategy to have tight control over every element of our business and our hand on every level we control. This gives me confidence that we'll continue to deliver on our three strategic objectives, despite whatever macro events impact our industry.

Speaker Change: Now regarding the steps, we are taking to reduce our fixed cost to restructure our U S operations team.

Speaker Change: These are very difficult steps for the precision organization and certainly we will miss the dedicated folks who are no longer on our team.

Speaker Change: Them for their many contributions.

Speaker Change: That said, we believe it's essential to be sized and organized with a market that we see.

Speaker Change: It's also a key component of our core strategy to have tight control over every element of our business and our hand on every lever we control.

Speaker Change: This gives me confidence that we'll continue to deliver on our three strategic objectives, despite whatever macro events impact our industry.

Kevin Neveu: We'll continue to provide high value, high performance services to our customers and remain well positioned for any market opportunities we uncover.

Speaker Change: Continuing to provide high value high performance services to our customers.

Speaker Change: We remain well positioned for any market opportunities we uncover.

Kevin Neveu: So I'll conclude by thanking the employees of PRECISION for their dedication, their loyalty and hard work, and the strong safety, operational, financial results our team continues to deliver.

Speaker Change: So I'll conclude by thanking the employees of precision for their dedication their loyalty and hard work and a strong safety operational financial results. Our team continues to deliver.

Kevin Neveu: With that, I'll now turn the call back to the operator for questions. Thank you, ladies and gentlemen.

Speaker Change: With that I'll now 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 one on your telephone. If your question has been answered you were seeing with yourself from the queue. Please press star one again.

Operator: 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 and you wish to remove yourself from the queue, please press star 1 1 again.

Operator: We'll pause for a moment while we compile our Q&A roster.

Speaker Change: We will pause for a moment, while we compile the Q&A roster.

Speaker Change: Yeah.

Aaron MacNeil: Our first question comes from Aaron MacNeil with TD Cowen, your line is open. Hey, everyone, thanks for taking my questions. Kevin, you spoke to the restructuring of the U.S. sales and operations team that operations are subscale. You know, some of your peers. I know you're comfortable with the option. Appreciate that you've got visibility.

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

Aaron MacNeil: Everyone. Thanks for taking my questions.

Speaker Change: Kevin you spoke to the restructuring of the U S sales and operations team.

Aaron MacNeil: Operations are sub scale.

Aaron MacNeil: Some of your peers have moved to a performance model you're stuck with the day rate model.

Aaron MacNeil: I know you are comfortable with the operational performance of your rigs just given all the investments you've made in automation I can also appreciate that you've got visibility to adding rigs. So maybe this is off the mark but I guess I'm just curious to hear what you are prevailing view is on that.

Kevin Neveu: Mark, but I guess I'm just curious to hear what Aaron, great question. And I didn't give a lot of guidance to our contract structure in the US right now. I would tell you that I still I still like the a la carte style of base rate for the rig plus add on prices. It gives us lots of room to kind of enhance our margins. But I comment that we do have right now I think about a third of our US rigs are operating under some form of performance contract, where we receive an incentive to offer our customers better performance.

Aaron MacNeil: Performance model versus the day rate model and if you think the reluctance to move to a performance model as a headwind.

Aaron MacNeil: Erin.

Aaron MacNeil: Question I didn't give a lot of guidance to our contract structure in the U S. Right now I would tell you that I still I still like the.

Aaron MacNeil: Ala Carte style of base rate for the rig plus add on prices. It gives us lots of room.

Aaron MacNeil: To enhance our margins, but I comment that we do have right now I think about a third of our U S rigs are operating under some form of performance contract, where we received an incentive to offer our customers better performance the performance could be.

Kevin Neveu: The performance could be could be related to move times could be related to drilling performance or even fuel consumption. So I feel good about how we're being rewarded for any enhancements we can provide our customers for better performance right now. I don't think it's going to permeate across our entire fleet, but we're certainly open to the idea of, you know, having rewards linked to things we can control and deliver better performance. And I know I was oversimplifying there, but thanks for that.

Aaron MacNeil: It could be related to move times could be related to drilling performance or even fuel consumption. So I feel good about.

Aaron MacNeil: How we are being rewarded for any enhancements, we can provide our customers for better performance right now.

Aaron MacNeil: I don't think its going to permeate across our entire fleet, but we're certainly open to the idea of.

Aaron MacNeil: Having rewards linked to things, we can control and deliver better performance.

Speaker Change: Okay, and I know it was im oversimplifying there thanks for that I am not sure. If the next one is for Kevin or carry but both of you have done an admirable job of fixing the balance sheet over many many years.

Kevin Neveu: I'm not sure if... has done an admirable job. better insights into the business from the inside I guess with all that in mind, you know, what's the rationale? Yeah, Aaron, I mean, I think part of the success we've had is just a commitment to, to de-lever, we set out targets every year, and we stick to them. And so, you know, we have investors all the time, asking us to adjust one way or the other. And we think that planning this capital structure for the long term, with annual commitments is going to generate the most success for shareholders.

Speaker Change: Much better insights into the business from the inside than we do from the outside so I guess with all that in mind.

Speaker Change: What's the rationale to continue to pay down debt here instead of maybe focusing more free cash flow on meaningfully buying back the stock.

Speaker Change: Yeah, Erinn I mean, I think part of the success. We've had is just a commitment to delever, we set out targets every year and we stick to them and so we have <unk>.

Speaker Change: Investors all the time.

Speaker Change: Asking us to adjust one way or the other and we think that planning this capital structure for the long term with annual commitments is going to generate the most success for our shareholders. So I think for this year, we're sticking with our guidance of a $100 million of debt reduction and you're allocating it maybe a little bit less than that two to share repurchases.

Kevin Neveu: So I think for this year, we're sticking with our guidance of $100 million of debt reduction, and allocating maybe a little bit less than that to share repurchases. And we want to get to the one times level. I mean, we've got a, we've got a really good capital structure in place with a lot of liquidity and termed out debt that's at good coupons. But we've made a commitment to get to below one times and we're going to stick with it. Aaron, I'll add to that and you know, I don't think I don't think one's a magic number, but I do think that between a combination of being low leverage and having kind of long term maturities, it gives us more confidence to weather through periods of uncertainty, and also focus on maximizing liquidity so that we can fund the business when it rebounds after these periods of uncertainty.

Speaker Change: And we want to get to the one times level I mean, we've got a we've got a really good capital structure in place with a lot of liquidity and turned out that that's it good coupons.

Speaker Change: But we've been made a commitment to get to below one times and we're going to stick with it.

Speaker Change: Fair enough fair enough.

Speaker Change: I'll add to that I don't think I don't think one's a magic number, but I do think that between a combination of being low leverage and having a long term maturity as it gives us more confidence to weather through periods of uncertainty.

Speaker Change: And also focus on.

Speaker Change: Maximize liquidity, so that we can fund the business when it rebounds after.

Kevin Neveu: So I feel good about our direction right now. You might notice that during the first quarter, we actually applied a little more cash to share repurchases than get repurchases. I think we'll we'll try to be intelligent with how we apply capital, but we'll stay in line side the guidelines we put forward.

Speaker Change: These periods of uncertainty so I feel good about our direction right now.

Speaker Change: You might notice that during the first quarter, we actually apply it a little more cash to share repurchases and debt reduction.

Speaker Change: I think we will we will try to be intelligent with how we apply capital, but we'll stay on lifestyles. The guidelines we put forward.

Aaron MacNeil: Understood. Thanks, guys.

Speaker Change: Understood. Thanks, guys I'll turn it back.

Aaron MacNeil: I'll turn it back. Thank you.

Speaker Change: Thank you.

Keith MacKay: Our next question comes from Keith MacKay with RBC Capital Markets. Point of clarification to start out. Technically, does that mean you end up with more excess free cash flow or are you anticipating that? Yeah, Keith, I would just say that we are fully confident that we're going to meet our meet our capital allocation guidance, whether the capital expenditures were 225 or 200 million. But that meaning that guidance was not a driver for reducing capital. I think it's just running all of our cash outflows as tightly as we can, whether that's operating costs or capital expenditures.

Speaker Change: Next question comes from Keith <unk> with RBC capital markets. Your line is open.

Keith: Hey, good morning.

Keith: Just a point of clarification to start out so the $25 million capital reduction I understand what that is all for.

Keith: But technically does that mean, you end up with more excess free cash flow or are you anticipating that you're going to see a decrease in cash from operations and this is a.

To even it out or are you ultimately expect to have more free cash flow for spending less capital.

Speaker Change: Yes, Keith I would just say that we are fully confident that we're going to meet our.

Speaker Change: Meet our capital allocation guidance, whether the capital expenditures were 125 or $200 million fat that mean.

Speaker Change: Meaning that guidance.

Speaker Change: It was not a driver for reducing capital I think it's just.

Speaker Change: Running all of our cash outflows as tightly as we can whether that's operating cost or capital expenditures.

Carey Ford: That's what we're doing.

Speaker Change: That's what we're doing.

Speaker Change: Yeah understood and just on the changes you've made in the U S. Kerry.

Carey Ford: Based on the changes you've made in the U.S., Carey... Normalized day margin for Q2 is a little bit lower than what we had in our model, not saying our model is the one that's correct. Nevertheless, you've made some changes in the U.S. Let's walk us through a little bit more about the impact. made and how you see that flowing. Yeah, so the margins on balance will reduce our fixed cost, our overall fixed cost, and then our fixed cost per day will be a function of the total fixed cost and activity. So as we add more rigs, that fixed cost per day will go down and margins should go up based on the lower fixed cost per day.

Speaker Change: The the day normalized daily margin for Q2 is a little bit lower than what we had in our model not not saying her model is one that's correct, but nevertheless, you have made some changes in the U S and yet we see margins below where we would have had them before these changes. So can you just walk us through a little bit more about the impact of that.

Speaker Change: Changes, you've made and how you see that flowing through margins in Q2 and beyond.

Speaker Change: Yeah. So the the margins on balance will reduce our fixed cost our overall fixed cost and then our fixed cost per day per day will be a function of the total fixed costs and activities. So as as we add more rigs that fixed cost per day will go down and margins should go up based on the lower fixed cost.

Carey Ford: But there are going to be, as I mentioned in my comments, there's going to be a little bit of noise in those margins as we as we increase the number of rigs running with rig mobilizations and rig reactivations that, you know, kind of come up when you don't have a steadier rig count. And so I think as we are adding rigs throughout the year, we're going to see kind of some bumps on the operating cost. But when we get to, as Kevin said, kind of an appropriate scale level, you should see those margins continue to go up.

Speaker Change: Per day, but there are going to be as I mentioned in.

Speaker Change: In my comments theres going to be a little bit of noise in those margins as we as we increase the number of rigs running with rig mobilizations in rig reactivation.

Speaker Change: Ed.

Speaker Change: <unk> kind of come up when you don't have a steadier rig count and so I think as we are adding rigs throughout the year, we're going to see kind of some bumps on the operating cost, but when we get to as Kevin said in a kind of an appropriate scale level yield efficiency those margins continue to go up.

Carey Ford: Keith, I'll add to that. My comments included the mention of a likely rig mobilization from Texas to the Marcellus. That's obviously covered by the contract value, but it's lumpy. We pay for that move up front and then recover it through the contract.

Speaker Change: Okay got it Keith I'll add to that and I did my comments included the mention of a likely rig mobilization from from Texas to the Marcellus.

Speaker Change: That's obviously covered by contract value, but it's lumpy with pizza that move upfront and to recover to the contract.

Speaker Change: Got it got it.

Carey Ford: Maybe just to follow up on that a little bit, so. There's also a lot of uncertainty on the What really gives you the confidence to be able to act? Well, no, actually, it's exactly what we're doing. But if the rig is moving to the Marcello, it's likely we have a rig move tied to that that will be recovering in the contract, but we still have to pay for that rig move up front. In the Haynesville, if you notice my comments, I think we have nine idle rigs in the Haynesville that are not active right now.

Speaker Change: Maybe just to follow up on that a little bit.

Speaker Change: So youre doing some rig reactivation is based on natural gas based on demand it sounds like there could be a couple there.

Speaker Change: But theres also a lot of uncertainty on the oil front. So just.

Speaker Change: What really gives you the confidence to be able to activate new rigs for gas basins. Instead of just kind of looking to see if you have some spare rigs spare hot rigs from oil basins that you could just move over or is it really just not realistic to work it that way.

Speaker Change: No no actually.

Speaker Change: Actually what we're doing but if the rig is moving to the Marcellus likely we have a rig move tied to that that will be recovering in the contract, but we still have to pay for that rig move upfront in the haynesville. If you've noticed my comments I think we have nine idle rigs in the Haynesville are not active right now it is less expensive to activate those rigs.

Carey Ford: It is less expensive to activate those rigs than mobilize rigs from their idle or that may even be hot in the Permian back to the Haynesville. So we will always make the decision that has the minimum cash impact and utilize the closest best available rig.

Speaker Change: Otherwise rigs from.

Speaker Change: They are idle.

Speaker Change: There may even be hot in the Permian back to the Haynesville.

Speaker Change: Okay got it thanks for that I'll turn it but we will always make the decision that has the minimum cash impact and utilize the closest best available rig.

Speaker Change: Thank you.

Speaker Change: Our next question. Thank you sorry about that our next question comes from Waqar Syed with ATV capital markets. Your line is open.

Waqar Syed: Our next question comes from Waqar Syed with ATV Capital Markets. Thank you for taking my question.

Waqar Syed: Thank you for taking my question.

Carey Ford: Kevin, Carey, is there a rule of thumb that we can use for rig mobilization or rig reactivation costs for rig pickup in the Haynesville and Appalachia? It depends on which rig you're picking up and when it's happening, but it's typically between $500,000 and a million dollars to either reactivate or remobilize a rig, something in that range. And are you seeing that... It's just a pure reactivation. To give you a little more clarity, you know, those rigs in the Haines have been down now for approaching two years. So if we reactivate a rig, we have to change the fluids, change some of the rubber products.

Kevin Kerry: Kevin Kerry.

Kevin Kerry: Is there a rule of thumb that we can use for a rig mobilization of rig reactivation costs.

Kevin Kerry: For a rig.

Kevin Kerry: The pickup in the Haynesville in Appalachia.

Kevin Kerry: It depends on which rig are picking up or when it's happening, but it's typically between 500000 and $1 million to either reactivated re mobilizing rigs something in that range.

Kevin Kerry: Yeah and.

Speaker Change: Are you seeing just adhere reactivation.

Speaker Change: To give you a little more clarity on those rigs in the Haynesville been down now for approaching two years. So if we reactivated rig we have to change the fluids changed some of the rubber products, that's probably something in the $500000 range, if removing inactive rig mobilization cost.

Carey Ford: That's probably something in the $500,000 range. If we're moving an active rig, the mobilization cost will be more than that, but the rig doesn't require that startup cost. It doesn't, it feels that, you know, if a rig is done for two years, a half a million or a million dollar reactivation cost may be at the lower end. Are you comfortable with those numbers? Yeah, we are. It really is just rubber products. I mean, what the industry often does, when it's been down for a long time is not, not specifically the industry will sometimes take drill pipe off a rig and borrow some spare parts off the rig.

Speaker Change: We'll be more than that but the rig doesn't require that startup costs.

Speaker Change: It doesn't it seems that rig.

Speaker Change: Craig has done for two years, a half a million a million dollars of reactivation cost may be at the lower end.

Speaker Change: Are you comfortable with those numbers.

Speaker Change: Yes, we are.

Speaker Change: It really is just driver products.

Speaker Change: But the industry often does when it's been down for a long time this is not.

Speaker Change: Specifically the industry will sometimes take drill pipe off of rig and borrow some spare parts off the rigs so reactivation costs could be higher if youre back filling borrow drill pipe or backfill spare parts on the rig.

Carey Ford: So reactivation costs can be higher. If you're backfilling borrowed drill pipe or backfilling spare parts on the rig. I don't expect we'll have much of that.

Speaker Change: I don't expect we'll have much of that.

Speaker Change: Okay and.

Carey Ford: And what's the impact on your CAPEX and maybe also on OPEX of these tariffs? both in the U.S. and Canada. Waqar, could you repeat that question? So the impact on your capital budget as well as on your operating costs of these tariffs and counter tariffs. Oh, tariffs. Okay, sorry, I'm just missing that one word there. You know, the big part for the big impact for drilling contractors is on drill pipe. That's the kind of the highest dollar consumable item. So there's going to be a little bit of impact on on new drill pipe that we purchased.

Speaker Change: And what's the impact on your Capex and maybe also on Opex of these tariffs.

Speaker Change: Both in the U S and Canada.

Waqar Syed: Waqar could you repeat that question.

Speaker Change: So the impact on the capital budget as well as on your operating cost of these tariffs and counter tariffs.

Waqar Syed: Oh tariffs, okay, sorry, I was just missing that one where they are.

Waqar Syed: The big part for the big impact for drilling contractors is on drill pipe.

Waqar Syed: The kind of the highest dollar consumable item, so theres going to be a little bit of impact on new drill pipe that we purchase I mean, if you've been following our story for the past couple of years, we've gotten well ahead of drill.

Carey Ford: I mean, if you've been following our story for the past couple of years, we've gotten well ahead of drill pipe needs in bulk purchases. But I think, you know, there will be a little bit of increased cost on drill pipe, drill pipe prices, Regardless of tariffs, move around quite a bit. And I think even with tariffs, drill pipe wouldn't be as expensive as it was a couple of years ago. So I think it's a cost we're gonna be able to manage. Absent or aside from drill pipe, we have some tariff exposure on consumable parts, but we have alternate supply sources.

Waqar Syed: Drill pipe.

Waqar Syed: And bulk purchases.

Waqar Syed: Thank you.

Waqar Syed: There will be a little bit of increased costs on drill pipe.

Waqar Syed: Drill pipe prices.

Waqar Syed: Regardless of tariffs move around quite a bit.

Waqar Syed: And I think even with tariffs drill pipe wouldn't be as expensive as it was a couple of years ago. So I think it's a cost of it and be able to manage absent.

Waqar Syed: Aside from drill pipe, we have some tariff exposure on.

Waqar Syed: Consumable parts, but we have alternate supply sources.

Carey Ford: in alternate domestic supply sources. We don't anticipate a big problem on either equipment deliveries or cost. And I think we're a bit fortunate as drilling contractors in that we're running machines that are already in place and the cost is really just repair and maintaining them and then paying the people to run them. So it's not nearly as big of an impact for our business as it would be for some other companies.

Waqar Syed: And alternate domestic supply sources. So we don't we don't anticipate a big problem either.

Waqar Syed: Deliveries or cost and I think where.

Waqar Syed: We're fortunate.

Waqar Syed: As drilling contractors and that we're running machines that are already in place and the cost is really just repair and maintaining them and then paying the people to run them. So it's not.

Waqar Syed: Not nearly as big of an impact for our business as it would be for some other companies.

Carey Ford: Kerry, maybe it's worth mentioning some work you've done with the IEDC on trying to communicate to policymakers around tariffs. Yeah, I'll just mention a few weeks ago, the IADC hosted a group of drilling contractor representatives to have meetings with US Congress people about the impact of these tariffs are on drilling contractors and our customers. And it really just the benefit of the oil and gas industry for the United States. And I think it was, it was positive to see the support from Congress people for the industry, and their openness to hearing maybe the impact some of these tariffs would have on on the industry in general.

Waqar Syed: Maybe it's worth mentioning so for work you've done.

Waqar Syed: The D C.

Waqar Syed: <unk> tried to communicate.

Waqar Syed: Sure.

Waqar Syed: Policymakers around tariffs.

Waqar Syed: Yes.

Waqar Syed: You mentioned, a few weeks ago the IDC.

Waqar Syed: A group of drilling contracted representatives to have meetings with.

Waqar Syed: U S Congress people about.

Waqar Syed: The impact of these tariffs are on drilling contractors and our customers and it really just the benefit.

Waqar Syed: The oil and gas industry for the United States and I think it was.

Waqar Syed: It was positive to see the support from Congress people for the industry and their openness openness to hearing maybe the impact some of these tariffs would have on the industry in general.

Carey Ford: And would you explain to us what those impacts could be beyond the drill pipe cost that you mentioned? Yeah, I mean, I think it's just probably the same, same squaring that everybody else is trying to do where the administration's trying to get oil prices lower. But if you have tariffs on products that are used by the oil and gas industry, it could make operating costs a bit higher for our customers. So just making sure that everybody understood the implications that tariffs may have on on the industry at large.

Speaker Change: And would you explain to us what those impacts could be beyond the drill pipe cost that you mentioned.

Waqar Syed: Yes, I think it's just probably the same.

Waqar Syed: Same squaring that everybody else is trying to do where.

Waqar Syed: The administrations try.

Waqar Syed: To get oil prices lower.

Waqar Syed: But if you have tariffs on products that are used by the oil and gas industry. It could make operating cost a bit higher for our customers. So just making sure that everybody understood that.

Waqar Syed: Implications that tariffs may have on on the industry at large.

Kevin Neveu: And Kevin, one of your E&P customers in Canada talked about cost deflation in Canada, up to about 10%. Are you seeing any pressure on price for services in Canada? Thank you for the question. I was waiting for that one. So I would tell you that we always have that pressure on pricing in our face. It only eases back when the industry is in a real growth mode. And we haven't seen that real growth mode for a long time. So there's always cost pressures or price pressures back from our customers, even in Canada, where we're almost fully utilized, and there might not be many other rigs in the market.

Waqar Syed: Okay.

Waqar Syed: Kevin.

Speaker Change: <unk> Costa E&P customers in Canada talked about cost deflation in Canada up to about 10%.

Speaker Change: Are you seeing any pressure on price.

Speaker Change: For services in Canada.

Speaker Change: Thank you for the question I was waiting for that one.

Speaker Change: So.

Speaker Change: I would tell you that we always have that pressure on pricing.

Speaker Change: It only eases back when.

Speaker Change: Industries that have real growth mode, and we haven't seen a real growth mode for a long time. So there is always cost pressures or price pressures back from our customers even in Canada, where we're almost fully utilized.

Speaker Change: It might not be many other rigs in the market our customers continually tried to pushback on price.

Kevin Neveu: Our customers continually try to push back on price. And certainly those negotiations are ongoing. No question when you're in a period of kind of broader uncertainty, they ramp up that work to try to try to cut their costs. What I'd tell you is that I think we're focused on managing our margins very effectively. We're likely trying to raise our margins, working with our customers to find ways to be more efficient, but being paid for that efficiency. So we're certainly not projecting a 10% reduction in margins or pricing in this market. And is the pressure more on the super singles versus super triples, or is it the same class?

Speaker Change: And certainly those negotiations are ongoing no question. When you are in a period of kind of broader uncertainty.

Speaker Change: They ramp up that work to try to try to cut their costs.

Speaker Change: Okay.

Speaker Change: What I'd tell you is that I think we're focused on managing our margins very effectively are likely trying to raise our margins.

Speaker Change: We're through other customers to find ways to be more efficient, but being paid for that efficiency.

Speaker Change: So we're certainly not projecting a 10% reduction in margins or more pricing in this market.

Speaker Change: Okay and is the pressure more on the Super singles versus Super triples.

Speaker Change: Could you.

Speaker Change: Is it the same.

Speaker Change: Asset classes.

Kevin Neveu: Yeah, so first of all, I'd guide you that don't expect margins and other product line to be reduced. In fact, expect to see margins rise. We probably have less third party competition or you know, peer group competition on super singles than we do on super triples. that we have really strong mark positions in both and great performance in both. So it's, you know, it's not not one of the high risks right now that we're weighing as we think about our business, the balance of this year. Great, good to hear.

Speaker Change: Yes, So first of all I'd guide you that don't expect margins in other product line to be reduced in fact.

Speaker Change: To see margins rise.

Speaker Change: We probably have less <unk>.

Speaker Change: Third party competition or peer group competition on Super singles that we do on Super triples.

Speaker Change: So we have really strong market positions in both and great performance in both so it's.

Speaker Change: No it's not.

Speaker Change: Not one of the high risks right now that we're waiting because we think about our business for the balance of this year.

Speaker Change: Great. Thanks again.

Carey Ford: And then, Waqar, just to add to that, if you heard my guidance for Q2 margins, they're effectively the same as last year, potentially higher than last year. With more super singles in the mix. Correct. Yeah.

Speaker Change: What card just just to add that if you heard my guidance for Q2 margins. They are effectively the same as last year potentially higher than last year with with more Super singles in the mix right. Okay. Yes.

Waqar Syed: And then just one final question, Carey, shortfall revenues, should we be expecting some in Q2 or for the second half of 2025? We may have some, we typically don't guide for that. That's all for me. Thank you so much. Thanks, Waqar.

Speaker Change: And then just one final question Kerry shortfall revenues should we be.

Speaker Change: <unk> <unk> in Q2 for the second half of 2020 five.

Speaker Change: We may have some we typically don't guide for that.

Speaker Change: Okay.

Speaker Change: That's all for me. Thank you so much.

Speaker Change: Thanks Waqar.

John Gibson: Our next question comes from John Gibson with VMO Capital Markets, your line Morning or afternoon, depending on the time zone you're in here, but just have one generally. What are your conversations like with producers in this environment? In both Canada and the U.S., is there a specific commodity price, be it oil or gas, where we could see a significant change in capital spending plans for the year? I'm just wondering, you know, what your expectations are, obviously, in a lower commodity environment. Yeah, so often the information you get from our customers is designed to create pricing tension with us.

Our next question comes from John Gibson with BMO capital markets. Your line is open.

Good morning, or afternoon, depending on the time zone you in here, but just had one.

Speaker Change: Generally sort of a broader question what are your conversations like with producers in this environment.

Speaker Change: In both Canada, and the U S is there a specific commodity price be it oil or gas, where we could see a significant change in capital spending plans for the year.

Speaker Change: I'm just wondering if.

Speaker Change: What your expectations are obviously in a lower commodity environment here.

Speaker Change: Yes.

Speaker Change: Often the information you get from our customers is designed to create pricing tension with us. So we don't get the cleanest information about what their thresholds are generally we don't get that great information, but it does feel like.

Kevin Neveu: So we don't get the cleanest information about what their thresholds are. Generally, we don't get that great information. But it does feel like it does feel like in the US and the oil or the basins. Low 60s, high 50s is probably stable, get below kind of high 50s, and the uncertainty level increases. In Canada, because we have an exchange rate advantage and the WCS discounts narrowed with the Trans Mountain Pipeline, that number might be a little lower. It might be more like low 50s or 50-ish before our customers get too nervous about activity. Now, that's a sense for us.

Speaker Change: It does feel like in the U S and the oil or the basins.

Speaker Change: Low <unk> high <unk> is probably stable get below kind of <unk> and the uncertainty level of increases.

Speaker Change: In Canada, because we have an exchange rate of.

Speaker Change: Advantage.

Speaker Change: The WCS discounts narrowed with the Trans mountain pipeline that number might be a little lower it might be more like.

Speaker Change: Low $50 or $50 before our customers get too nervous about activity now.

John Gibson: No customers give us a hard line or a hard threshold. They're continually trying to press us for lower rates. So I'd say it's not necessarily hard line numbers that we can stand on. Okay, that's fair, but I appreciate their response.

Speaker Change: Our sense from US no customers give us a hard line or a hard threshold there.

Speaker Change: We're continually trying to process for lower rates.

Speaker Change: So I would say is it's.

Speaker Change: Not necessarily.

Speaker Change: Hard line numbers that we can stand up.

Speaker Change: Okay, that's fair, but I appreciate the response I'll turn it back thanks.

John Gibson: I'll turn it back.

Operator: Thank you.

Speaker Change: Okay. Thank you.

John Daniel: Next question comes from John Daniel with Daniel Energy Partners. Your line is open. Hey guys, thanks for having me. Kevin, I know this question is not the well sourced business, it wasn't material to you guys in the US, but I'm just curious if the decision to to move out. Was that a customer consolidation because of that lack of scale, bad behavior from your local well service peers? Just what kind of drove that? And then What is there a read through to maybe some of the similar sub 10 rig businesses in Canada that might see the same thing if you will?

Speaker Change: Our next question comes from John Daniel Daniel Energy Partners. Your line is open.

John Daniel: Hey, guys. Thanks for having me.

Speaker Change: Kevin I know this question.

Speaker Change: <unk> business not much wasn't material to you guys in the U S. But I'm just curious if the decision to.

Speaker Change: Move out was that a customer consolidation because of that lack of scale bad behavior from your local Wal service peers, just what kind of drove that and then.

Speaker Change: Is there a read through to maybe some other similar sub 10 rig businesses in Canada.

Speaker Change: So the same thing zero.

Kevin Neveu: Just your thoughts.

Speaker Change: Costs well.

Kevin Neveu: Well, John, first thing I'll say is you've been around the well service business darn near as long as I have been. So you understand the dynamics really well. And your question demonstrates that. The number one reason is that our Canadian customers that were pressing into North Dakota sold their assets. and uh and then then we were faced with um you know I'd say that more price sensitive customers that were happy with uh service quality and safety offered by local mom and pops. and we have a hard time competing in that kind of an environment. So it was price sensitivity.

John Daniel: John first thing I'll say is <unk> been around the well service business darn near as long as I have been so you understand the dynamics really well your question demonstrates that.

John Daniel: Number one reason is that our Canadian customers that were oppressing into North Dakota sold their assets.

John Daniel: Okay.

John Daniel: And then then we were faced with.

John Daniel: I'd say that more price sensitive customers. So we're happy with.

John Daniel: The service quality and safety offered by a local mom and Pops.

John Daniel: And we have a hard time competing in that kind of environment. So he was he was price sensitivity.

Kevin Neveu: If safety quality and crew capability was at a higher value, we might still be there. Fair enough.

John Daniel: If.

John Daniel: If <unk>.

John Daniel: Safety quality and crew capability was at a higher value we might still be there.

Operator: That's all I had. Thanks for including me, guys. Thanks, John. Thank you, John. Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1, 1 on your telephone. One moment for our next question.

John Daniel: Fair enough, that's all I had thanks for including me guys.

Speaker Change: Thanks, John John.

Speaker Change: Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.

Speaker Change: One moment for our next question.

Aaron Rosenthal: Our next question comes from Aaron Rosenthal with J.P. Morgan, your line is open. Hey, thanks for taking my question. Just wanted to touch on a quick clarifying point on the international front, the rig drop that was called out in the release. And then you had mentioned that there was moving pieces on the international front. In the prepare marks, just want to confirm that there was only one international rig drop and the suspension was referenced in the release was the rig in kingdom. Is that correct?

Speaker Change: Our next question comes from Erin Rosenthal with Jpmorgan. Your line is open.

Erin Rosenthal: Hey, Thanks for taking my question.

Erin Rosenthal: Just wanted to touch on a quick clarifying point on the international front the rig drop that was called out in the release and then you had mentioned that there were some moving pieces on the international front.

Erin Rosenthal: In the prepared remarks, just wanted to confirm that there was only one international rig drop and the suspension was referenced in the release was the rig in Kingdom is that correct.

Kevin Neveu: That's correct. Thank you. And then you also mentioned that, you know, no expectations for impact for the other two rigs. In the region, any kind of broader comments you can provide on activity levels or anything you're hearing? You know, broader macro landscape in that region that you're able to provide? Yeah, well, certainly in Saudi Arabia, you know, it's a it's a single customer market. And, you know, they don't broadly communicate their drilling strategy across their fleet of rigs. But we do hear that our rig that's been suspended will be among a large group of rigs that are being suspended and how large that group is, we don't know.

Erin Rosenthal: That's correct.

Speaker Change: Okay. Thank you.

Speaker Change: And then you also mentioned that.

Speaker Change: Expectation for impact for the other two rigs.

Speaker Change: Yes.

Speaker Change: In the region any kind of broader comments, you can provide on activity levels or anything you're hearing.

Speaker Change: Yes.

Speaker Change: Our macro landscape in that region that you are able to provide.

Speaker Change: Yes, well certainly in Saudi Arabia.

Speaker Change: It's a single customer market.

Speaker Change: And.

Speaker Change: They don't broadly communicate their drilling strategy across there.

Speaker Change: Rigs, but we do hear that.

Speaker Change: Our rig that's been.

Suspended will be among a large group of rigs that are being suspended and how large that group is we don't know.

Kevin Neveu: So we understand there will be a number of suspensions occurring or that already have occurred that maybe haven't made it to the market yet.

Speaker Change: So we understand there there'll be a number of suspensions occurring or that already have occurred that maybe haven't made it to the market yet.

Kevin Neveu: Thank you very much. And then on the Hainesville piece, and sorry if I miss this, the work that you alluded to coming up in 2Q in the summer, you know, I guess relative to the nine to 10 rigs that you have rated, you know, I guess, I know in the region, are you able to quantify, quantify the level of rig demand, you know, in that timeframe? So I think for us, we're talking about, you know, 1, 2, 3, 4 rigs in the next couple of months, not 10 rigs in the next couple of months. Perfect.

Thank you very much and then.

Speaker Change: On the Haynesville piece.

Speaker Change: Sorry, if I missed this.

Work that you alluded to coming up in <unk> in the summer I.

Speaker Change: I guess relative to the nine to 10 rigs that you have.

Speaker Change: Sir I know in the region are you able to quantify.

Speaker Change: Quantify or quantify the level of demand.

Speaker Change: In that timeframe.

Speaker Change: Yes.

Speaker Change: I'll stop short of doing that because.

Speaker Change: I'd say the bid intensity right now is quite high so lots of bids, but its still hard for us to determine how many of those goods will turn into rigs rotate into the right.

Speaker Change: Activity is up our customers who are converting more of those contracts now which is clear I think both us and some of our.

Speaker Change: In basin peers are seeing increasing activity, but it's still hard to handicap, how many of those bids will actually turn into rigs and how soon that will happen.

Speaker Change: So I think for US we're talking about 1% to three four rigs in the next couple of months not not 10 rigs next couple of months.

Speaker Change: Okay.

Aaron Rosenthal: Thank you very much. Great, thank you.

Speaker Change: Perfect. Thank you very much.

Speaker Change: Great. Thank you.

Lavonne Zdunich: And I'm not showing any further questions at this time. I'd like to turn the call back over to Lavonne for any closing Thank you everyone for taking the time to listen to our first quarter earnings call and wishing you a good day. If you have any follow up questions, please feel free to send an email to myself or give me a call. Thank you.

Speaker Change: And I'm not showing any further questions at this time I would like to turn the call back over to Levonne for any closing remarks.

Speaker Change: Thank you everyone for taking the time to listen to our first quarter earnings call and wishing you a good day. If you have any follow up questions. Please feel free to send an E mail to myself or give me a call. Thank you.

Operator: Ladies and gentlemen, this does conclude 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.

Unknown Attendee: Say Hi to the Smurfs

Speaker Change: [music].

Okay.

Speaker Change: Okay.

Speaker Change: [music].