Q2 2025 Precision Drilling Corp Earnings Call

Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation Q2 2025 results conference call and webcast. I would like to hand the conference over to Lavon Zadun, Vice President of Investor Relations. Please go ahead.

Lavonne Zdunich: Thank you, operator. Welcome, everyone, to Precision Drilling's second quarter conference call and webcast. Today, I'm joined by Kevin Neveu, Precision's President and CEO, and Carey Ford, our CFO. Yesterday, we reported our second quarter results. To begin our call today, Carey will review these results, and then Kevin will provide an operational update and outlook commentary. Once we've finished our prepared comments, we will open the call for questions. Please note 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. 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 Plus and EDGAR. As a reminder, we express our financial results in Canadian dollars unless otherwise stated. With that, I'll pass it over to you, Carey.

Thank you, operator. Welcome, everyone, to Precision Drilling's second quarter conference call and webcast. Today, I'm joined by Kevin Neveu, Precision's President and CEO, and Carey Ford, RCF. Yesterday, we reported our second quarter results. To begin our call today, Carey will review these results, and then Kevin will provide an operational update and outlook commentary. Once we finish our prepared comments, we will open the call for questions.

Please note 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.

For more information on financial measures, forward-looking statements, and risk factors, please refer to our news release and other regulatory filings available on SEDAR Plus and EDGAR.

Carey Ford: Thank you, Lavonne. Precision's Q2 financial results exceeded our expectations for adjusted EBITDA earnings and cash flow. Adjusted EBITDA was $108 million, was driven by strong drilling activity in Canada, improved activity in the US, and steady cash flow generation from our drilling operations in the Middle East, as well as our completion and production services business. Our Q2 adjusted EBITDA included a share-based compensation charge of $4 million and additional revenue of $7 million related to customer-funded upgrade projects in Canada. Without these items, adjusted EBITDA would have been $105 million. Revenue was $407 million, a decrease of 5% from Q2 2024. Net earnings were $60 million, or $1.21 per share, representing Precision's 12th consecutive quarter of positive earnings. Funds and cash provided by operations were $104 million and $147 million, respectively.

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

Thank you. Devon Precisions, Q2 financial results exceeded our expectations for adjusted EVA earnings and cash flow. Adjusted EVA was $108 million.

Was driven by strong drilling activity in Canada, improved activity in the U.S., and steady cash flow generation from our drilling operations in the Middle East, as well as our Completion and Production Services business.

Our Q2 adjusted EBITDA included a share-based compensation charge of millions and additional revenue of $7 million related to customer-funded upgrade projects in Canada.

Without these items adjusted, EBA dog would have been $105 million.

Revenue was $407 million, a decrease of 5% from Q2 2024.

Net earnings were $60 million or $1.21 per share, representing Precision's 12th consecutive quarter of positive earnings.

Carey Ford: In the US, Precision's drilling activity averaged 33 rigs in Q2, an increase of three rigs from the previous quarter, with operating days increasing 13%. Daily operating margins in Q2, excluding the impacts of turnkey and IBC, were $9,026 USD, an increase of $666 USD from Q1, and well ahead of our guidance of $7,000 to $8,000 per day. For Q3, we expect normalized margins to be between $8,000 USD and $9,000 USD per day. This includes anticipated rig activations in Q3. Daily operating costs in the US were lower than the first quarter due to improved fixed cost absorption with higher activity levels and fewer one-time items. Our reported daily operating costs included costs associated with reactivating four rigs during the quarter, negatively impacting operating costs by $648 per day. In Canada, Precision's drilling activity averaged 50 rigs, an increase of one rig from Q2 2024.

Funds provided by operations were $104 million and cash was $147 million, respectively.

In the US, Precision Drilling activity averaged 33 rigs.

In Q2, there was an increase of 3 rigs from the previous quarter, with operating days increasing by 13%.

Daily operating margins in Q2, excluding the impacts of TurnKey and IBC, were $9,026 USD, an increase of $666,666 USD from Q1. And well ahead of our guidance of $7,000 to $8,000 per day.

For Q3, we expect normalized margins to be between $8,000 and $9,000 per day.

This includes anticipated rig activations in Q3.

Daily operating costs in the U.S. were lower than in the first quarter due to improved fixed cost absorption with higher activity levels. Additionally, there were fewer one-time items. Our reported daily operating costs included costs associated with reactivating four rigs during the quarter, which negatively impacted operating costs by $648 per day.

Carey Ford: Our daily operating margins in the quarter were $15,306, an increase of $883 from Q2 2024. Our Q2 margins included revenue associated with upfront customer payments for rig upgrades amounting to $1,440 per day. Without this payment, Q2 margins would have been $13,866, slightly ahead of the high end of our guidance of $12,500 to $13,500 per day. For Q3, our daily operating margins are expected to be between $12,000 and $13,000. Internationally, Precision's drilling activity in the quarter averaged seven rigs. International average day rates were $53,129 USD, an increase of 4% from the prior year due to rig mix. In our CMP segment, adjusted EBITDA this quarter was $10 million, down 18% compared to the prior year quarter. Adjusted EBITDA was negatively impacted by a 23% decrease in well service hours, slightly offset by higher margins.

In Canada, Precision Drilling activity averaged 50 rigs, which is an increase of 1 rig from Q2 2024. Our daily operating margins in the quarter were $1,536, an increase of $883 from Q2 2024.

Our Q2 margins included revenue associated with upfront customer payments for rig upgrades amounting to $1,440 per day.

Without this payment, Q2 margins would have been 13,866, slightly ahead of the high-end number. Guidance of $12,500 to $13,500 per day for 233, our daily operating margins are expected to be between $12,000 and $13,000.

Internationally, Precision's drilling activity in the quarter averaged seven rigs. The international average day rates were $53,129, an increase of 4% from the prior year, due to rig mix.

Carey Ford: Capital expenditures for the quarter were $53 million, including $27 million for upgrade and expansion and $26 million for maintenance and infrastructure. Our full year 2025 capital plan has been increased from $200 million to $240 million and is comprised of $150 million for sustaining the infrastructure and $86 million for upgrade and expansion. Our original 2025 plan was $225 million and was subsequently reduced in April as a result of heightened market uncertainty around tariff discussions and potential deterioration of US and Canada trade relations. Since our last conference call, oil and gas prices have increased, broad public indices, including the OSX, are up in the 10 to 20% range, and year-over-year rig counts are either stable or up in many of our key operating basins, including the Hainesville, Marcellus, Montney, and Canadian Heavy Oil.

Down 18% compared to the prior quarter. Adjusted EBITDA was negatively impacted by a 23% decrease in Wealth Services hours, slightly offset by higher margins.

Capital expenditures for the quarter were $53 million, including $27 million for upgrades and expansion, and $26 million for maintenance and infrastructure.

Our full year 2025 capital plan has been increased from $200 million to $240 million and is comprised of $150 million for sustaining and infrastructure and $86 million for upgrade and expansion.

Our original 2025 plan was $225 million and was subsequently reduced in April as a result of heightened market uncertainty around tariff discussions and potential deterioration of US and Canada trade relations.

Since our last conference call.

Carey Ford: The improved outlook and increased activity in several of our core geographic areas has resulted in a material increase in customer demand for upgrades to rigs versus three months ago. As of July 29th, we had an average of 38 contracts in hand for the third quarter and an average of 39 contracts for the full year of 2025. Moving to the balance sheet, our Q2 cash flow momentum continued with strong cash flow supporting debt reduction of $74 million and share repurchases of $14 million. As of June 30th, our long-term debt position net of cash was approximately $644 million, and our total liquidity position was approximately $530 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 1.3 times, and our average cost of debt is 6.9%.

Oil and gas prices have increased, broad public indices, including the OSX, are up in the 10% to 20% range year-over-year. Rig counts are either stable or up in many of our key operating basins, including the Haynesville, Marcellus, Montney, and Canadian heavy oil.

The improved outlook and increased activity in several of our core geographic areas has resulted in a material increase in customer demand for upgrades to rigs versus three months ago.

As of July 29th, we had an average of 38 contracts in hand for the third quarter, and an average of 39 contracts for the full year 2025.

Moving to the balance sheet, our Q2 cash flow momentum continued, with strong cash flow supporting debt reduction of $74 million and share repurchases of $14 million.

As of June 30th, our long-term debt position, net of cash, was approximately $644 million, and our total liquidity position was $530 million, excluding letters of credit.

Carey Ford: Moving on to guidance for 2025, we expect strong free 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%. 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 the share price and performance relative to Precision's peer group. Our debt reduction target for 2025 remains at $100 million, and we plan to allocate 35% to 45% of the free cash flow before debt principal payments to share repurchases.

Our net debt to trailing 12-month EBITDA ratio is approximately 1.3 times, and our average cost of debt is 6.9%.

Moving on to guidance for 2025, we expect strong free cash flow for the year, depreciation of approximately $100 million, cash interest expense of approximately $65 million, and cash taxes. We expect to remain low, and our effective tax rate to be approximately 25% to 30%. 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 the share price and performance relative to Precision's peer group.

Carey Ford: With $91 million of debt reduction and $45 million of share repurchases through June 30, we are well on our way to achieving another annual capital allocation goal. 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 $525 million. With that, I will turn the call over to Kevin.

Our debt reduction target for 2025 remains at $100 million. We plan to allocate 35% to 45% of the free cash flow before debt principal payments to share repurchases.

With $91 million of debt reduction and $45 million of share repurchases through June 30, we are well on our way to achieving another annual capital allocation goal.

Kevin Neveu: Thank you, Carey, and good morning to those of us in Calgary, and good afternoon if you're east of us. As Carey mentioned, second quarter results were stronger than we anticipated, with excellent free cash flow and better than expected margins. We locked in additional term contracts in the United States and Canada, and we experienced strong customer demand for our super triple rigs in every gas basin in North America. All this coupled with continued customer demand for our pad-equipped super singles operating in Canadian heavy oil, and thus opening opportunities to invest in further rig enhancements, providing revenue and earnings growth opportunities for Precision. Our outlook for the balance of 2025 and into next year has substantially improved from our conference call in late April.

We are committed to reducing debt by $700 million between 2022 and 2027 and achieving a normalized leverage level below 1 times. Since 2022, we have reduced debt by $525 million. With that, I will turn the call over to Kevin.

Thank you, Carrie, and uh, good morning to those of us in Calgary and good afternoon if you're east of us.

As Carrie mentioned, the second quarter results were stronger than we anticipated, with excellent free cash flow and better-than-expected margins.

We locked in additional term contracts in the United States and Canada, and we are experiencing strong customer demand for our super triple rigs at every gas station in North America.

All this, coupled with continued customer demand for our pad-equipped super singles operating in Canadian heavy oil, is opening opportunities to invest in further rigging. This, in turn, provides revenue and earnings growth opportunities for Precision.

Kevin Neveu: While macro uncertainties persist, customer interest in gas-directed drilling has taken shape, with several operators planning to expand drilling programs with Precision, and this is very encouraging. Currently, we are operating 36 rigs in the United States, well up from our low of 27 rigs in late February, and I'll come back to our US segment in a few moments. Last quarter, with all the macro uncertainties, you'll recall that Precision implemented a fixed cost reduction program, and we suspended $25 million of unplanned or planned upgrade capital spending. Since then, firm customer demand supported by term contracts, increased rates on some contracted rigs, and customer prepayments have encouraged us to restore the $25 million of upgrades, and we've identified an additional $15 million of further good upgrade investment opportunities.

Our overall for the balance of 2025 and into next year, as substantially improved from our conference call. In late, April while macro

Uncertainties persist regarding customer interest in gas-directed drilling. However, this has taken shape, with several operators planning to expand their drilling programs with Precision, and this is very encouraging.

Currently we are operating 36 rigs in the United States while up north of 27 rigs in late February and I'll come back to our us segment a few moments.

Kevin Neveu: As Ferry mentioned, we now plan to spend a total of $86 million of rig upgrades as part of our 2025 capital spending plans, and I'll provide more color on these investments later in my comments. Even with this increased capital plan, we'll easily achieve our 2025 debt reduction and share repurchase targets. We'll continue with aggressive cost management. We will continue to seek pre-funding of capital upgrades, and you can expect strong execution on all aspects of cash flow management from the Precision team. Now, turning to Precision's Canadian business segment, this distinguishes us from virtually every other NAM-focused energy service provider. Now, all of you know that Precision is the largest driller in Canada, but I really want to draw your attention to our market presence in the Montney and heavy oil.

Last quarter, with all the macro uncertainties, you'll recall, Precision implemented a fixed cost reduction program and suspended $25 million of unplanned or planned upgrade capital spending. Since then, firm customer demand, supported by term contracts, increased rates on some contracted rigs, and customer prepayments have encouraged us to restore the $25 million of upgrades. We've also identified an additional $15 million of further good upgrade investment opportunities.

As part of our 2025 capital spending plans, I'll provide more color on these investments later in my comments.

Even with this increased capital plan, we will easily achieve our 2025 debt reduction and share repurchase targets. We'll continue with aggressive cost management, and we will seek pre-funding of capital upgrades. You can expect strong execution on all aspects of cash flow management from the Precision team.

Now turning to our Precision Canadian business segments. This distinguishes us from virtually every other named-focused energy service provider.

Kevin Neveu: And I'll begin with the Montney, which is categorized as a natural gas play located in northwestern Alberta and northeastern British Columbia. And we've been reminding our investors for several years now that while this is a gas play, it's also an important liquids play. Now, recently, one of our largest customers at their investor day referred to the Montney as a world class gas play with the most remaining oil inventory of any play in North America. This clearly aligns with Precision's view of the Montney and provides long-term visibility for rig demand in this play. Now, it's well understood that Precision has been focused on the Montney since its beginning, and we have 30 super triple alpha rigs currently in the region, with 26 running today in line with last year's activity levels.

Now, all of you know that Precision is the largest driller in Canada, but I really want to draw your attention to our market presence in the Montney and heavy oil.

And I'll begin with the Monty, which is categorized as a natural gas play located in northwestern Alberta and northeastern British Columbia. We've been reminding our investors for several years now that this is a gas play. It's also an important liquid supply.

Now, recently, one of our largest customers, at their investor day, referred to the Monty as a world-class gas play, but with the most remaining oil inventory of any play in North America.

This clearly aligns with Precision's view of the Monty and provides long-term visibility for rig demand in this play.

Kevin Neveu: These rigs offer the drilling efficiency of alpha-automated high-specification triples, coupled with pad-walking batch drilling capabilities. These rigs were designed for the Canadian environment, digitally controlled, fully winterized with small footprints, and reduced truckload counts for optimized mobility in the seasonally challenging Canadian market. During the second quarter, we operated 26 of these rigs through the Canadian breakup period and expect our fleet should be fully utilized again in the first quarter of next year, as it has in the past several winters. With LNG Canada phase one operating and shipping cargoes, full operational ramp-up is expected over the next several months into early next year. When phase one reaches rated capacity, we expect industry rig demand may increase by five rigs or more.

No, it's well understood that Precision has been focused on the martini since its beginning, and we have 30 super triple Alpha Rex currently in the region, with 26 running today in line with last year's activity levels.

These rigs offer the drilling efficiency of alpha automated high-specification triples, coupled with pad walking batch drilling capabilities.

These rigs were designed for the Canadian environment, digitally controlled, fully winterized, with small footprints that reduce truckload counts for optimized mobility in the seasonally challenging Canadian market.

During the second quarter, we operated 26 of these rigs in reaction to the Canadian breakup period and expect that our fleet should be fully utilized again in the first quarter of next year, as it has been in past winters.

With LG Canada Phase 1, operating and shipping cargos. Full operational ramp-up is expected over the next several months into early next year.

Kevin Neveu: For Precision, we expect this will lean to 100% utilization of our super triples, evolving from just winter drilling season to year-round pad activity to meet those increasing customer needs. We also believe that we may have opportunities to mobilize additional rigs back to Canada from the US. Some of those customer conversations and negotiations are underway right now. We'll provide further updates as those negotiations progress. Now, we've experienced a similar trend with stronger than expected heavy oil customer demand over the past year following the startup of the Transmountain expansion. During the second quarter, we reported the highest utilization of our super single rigs, higher than the second quarter of any second quarter for the past decade, with 24 of these rigs drilling straight through the breakup period.

When Phase 1 reaches rated capacity, we expect industry rig demand may increase by 5 rigs or more.

For precision, we expect this will lean to 100% utilization of our super triples, evolving from just winter drilling seasons and year-round pad activity to meet those increasing customer needs.

We also believe that we may have opportunities to mobilize additional rigs back to Canada from the U.S.

Some of those customer conversations and negotiations are underway right now. We will provide further updates as those negotiations progress.

Now we've experienced a similar trend with stronger-than-expected heavy oil. Customer demand over the past year following the startup of the Trans Mountain expansion.

Kevin Neveu: Currently, 16 of our super single rigs are equipped with pad drilling systems, which facilitate high-efficiency multi-well pad drilling and offer our customers the optimum economics for heavy oil drilling performance. We deployed two of these pad upgrades during the first quarter and will deliver a third, the 17th, later in the third quarter. The capital investments for these rig upgrades are covered by customer contracts and, in some cases, upfront cash payments. The efficiency these rigs offer our customers warrants day rate premiums of several thousand dollars per day above conventional non-pad rigs, and these upgraded rigs are well positioned to run through the seasonal breakup and deliver year-round operations for our customers and year-round revenue for Precision.

During the second quarter, we reported the highest utilization of our Super Single rigs uh higher than the second quarter uh of any second quarter for the past decade with 24 of these rigs drilling straight through the break up period.

Currently, 16 of our Super Single rigs are equipped with pad drilling systems, which facilitates high-efficiency multi-well pad drilling and offers our customers the optimum economics for heavy oil drilling performance.

We deployed 2 of these UH pad upgrades during the first quarter and will deliver a third on the 17th later in the third quarter.

The capital investments for these rig upgrades are covered by customer contracts and, in some cases, upfront cash payments.

The efficiency of these rigs offers our customers warrant day rate premiums of several thousand dollars per day above conventional Bond Pad rigs.

Kevin Neveu: Overall, Canadian activity this summer has been a little slower to rebound compared to last year, and we can link this directly to a handful of smaller operators cautiously managing the macro uncertainty surrounding oil. While our larger scale, top half of our customers are actually running slightly more rigs compared to this time last year. Now, specifically, the telescoping double market, double telescoping doubles rig segment market, which is focused broadly on light oil plays and smaller operators in southern Saskatchewan and central Alberta and touching into Montney and heavy oil, has seen the largest reduction in customer demand, with industry activity down almost 30% from last year in this rig class and with Precision operating seven fewer rigs. As we mentioned before, this rig class is oversupplied and highly price competitive, with rates trending to cyclic lows.

And these upgraded rigs are well positioned to run through the seasonal break-up and deliver year-round operations for our customers and year-on revenue for Precision.

Overall, Canadian activity this summer has been a little slower to rebound compared to last year, and we can link this directly to a handful of smaller operators cautiously managing the macro uncertainty surrounding oil.

While our larger scale, top half of our customers are actually running slightly more rigs compared to this time last year.

Now, specifically, the telescoping double market, double, uh, telescoping doubles rig segment market, which is focused broadly on light oil plays and smaller operators in southern Saskatchewan and central Alberta, and touching into Montney and heavy oil.

Has seen the largest reduction in customer demand, with industry activity down almost 30% from last year in this red class. Now, with Precision operating 7 fewer rigs.

Kevin Neveu: Now, before I leave Canada, I'll touch on our well servicing segment, where second quarter activity was down year over year, more in line with long-term seasonal breakup trends. I'll remind the listeners that most of our well service work is linked to oil and less to gas. Last year, we experienced a surge in customer demand, mostly linked to the TMS expansion mentioned earlier. This year, we see less customer urgency, reducing the workover pace, at least temporarily, as they control their lease operating expenses. We believe this segment will see customer demand improvement as some of the macro uncertainties are resolved. Precision's scale, operational excellence, and safety performance remain key differentiators in our well service group, particularly for the large cap public operators. And despite more lower industry utilization, our pricing and margin performance remains firm.

As we've mentioned before, this rig class is oversupplied, and how they price competitively with rates is trending to cyclic lows.

Li linked to the TMS expansion mentioned earlier.

This year, we see less custom urgency, reducing the workover pace.

At least temporarily as they control the lease operating expenses.

We believe this segment will see customer demand improvement as some of the macro uncertainties are resolved.

Kevin Neveu: Now, turning to the lower 48 drilling business, as I mentioned earlier, we have 36 rigs operating up from a low of 27 back in February, and we have three additional rigs contracted to activate over the next few weeks. And we're extremely pleased to be regaining activity in the face of broad market uncertainty. And I'll walk through these increases on a region-by-region basis. So, since February, we've added two rigs in the Hainesville, we've added three rigs in the Marcellus, and we have a fourth scheduled to start up shortly. We have two rigs in the Gulf Coast, all targeting gas. We've also added four rigs in the DJ and Rockies, where our ST-1200 is the perfect rig for the suburban drilling locations north of Denver.

Precision scale operational, excellence and safety performance. Remain key differentiators and are Well Service Group, particularly for the large cap, public operators, and despite more lower industry utilization of margin performance remains firm.

Now, turning to the lower $48 billion business.

As I mentioned earlier, we have 36 rigs operating, up from a low of 27 back in February. Additionally, we have 3 more rigs contracted to activate over the next few weeks, and we're extremely pleased to be regaining activity in the face of broad market uncertainty.

I'll walk through these increases on a region-by-region basis.

So since February, we've added 2 rigs in the Haynesville, we've added 3 rigs in the Marcellus, and we have a fourth scheduled to start up shortly.

We have 2 rigs in the Gulf Coast, all targeting gaps.

Kevin Neveu: We continue to experience a lot of contract churn in the oil plays, and we're operating two fewer rigs in the Permian, consistent with broad industry trends. Now, I'll close my comments on the lower 48 by mentioning that contract churn with our oil-directed rigs, particularly in West Texas, will continue. And while customer interest in the Hainesville Marcellus is encouraging, we have ongoing customer discussions for potential rig activations late this year into 2026. There's no question that LNG export capacity additions and data center power demand expectations are driving customer sentiment for natural gas operators. In our international segment, as Carey mentioned, we continue to operate five rigs in Kuwait and two rigs in the Kingdom of Saudi Arabia. These rigs are largely contracted for the next several years, and we'll continue to explore opportunities to activate our idle rigs in the region.

We've also added four rigs in the DJ and Rockies, where our ST1200 is the perfect rig for the Suburban drilling locations north of Denver.

We continue to experience a lot of contract churn in the oil plays, and we are operating 2 fewer rigs in the premium, consistent with broad industry trends.

Now, I will close my comments on the lower 48 by mentioning the contract churn with our oil-directed rigs. Particularly in West Texas, it will continue, and customer interest in the Haynesville and Marcellus is encouraging.

We have ongoing customer discussions for a potential big activation late this year and it's 2026.

There's no question that LNG export capacity additions and data center power demand expectations are driving.

Customer sentiment for natural gas operators.

In our international segment, as Gary mentioned, we continue to operate 5 rigs in Kuwait and 2 rigs in the Kingdom of Saudi Arabia.

Kevin Neveu: And we're also looking closely at the other emerging shale drilling opportunities, and we'll provide further updates should we be successful on these opportunities. So, turning to our strategic priorities, I'd like to provide a detailed mid-year update. So, first, as Carey mentioned, we retired $91 million of debt, almost achieving our target of $100 million by only mid-year. Also, Carey mentioned that we've returned capital to shareholders by repurchasing $45 million of shares, and we're on our way to achieving this target also. Turning to our second priority, which is to maximize free cash flow, we mentioned that we implemented the fixed cost and SG&A cost reduction plan back in April, and our Q2 results demonstrate the immediate impact of those cost reductions. We continue to successfully manage our global procurement efforts and offset the impacts, the cost impacts of the steel and other product tariffs.

These rigs are largely contracted for the next several years, and we'll continue to explore opportunities to activate our oil rigs in the region. We're also looking closely at other emerging scale-building opportunities, and we'll provide further updates should we be successful in these opportunities.

So, turning to our strategic priorities, I'd like to provide a detailed mid-year update.

So first, as Carrie mentioned, we retired $91 million of debt, almost achieving our target of $100 million by only mid-year.

Also, Carrie mentioned that we've returned capital to shareholders by repurchasing 45 million shares, and we're on our way to achieving this target.

According to our second priority, which is to maximize free cash flow.

Uh, we mentioned that we implemented the fixed cost and SG&A cost reduction plan back in April, and our Q2 results demonstrate the immediate impact of those cost reductions.

Kevin Neveu: We have several technology initiatives utilizing AI and digital twins to analyze machine data and reduce maintenance costs and unplanned downtime for mud pumps, top drives, and reciprocating engines. Our remote operating center provides real-time hardware and software support for our rigs to reduce downtime, minimize maintenance costs. And all of these initiatives are executed by the Precision teams based in Houston, Calgary, Dubai, and in our 23 field support bases. I'm proud of their efforts, and the results are clear in our financial performance in the first half of this year, and the momentum will continue through 2025. Our third priority was to grow revenue in existing product lines through contracted upgrades, optimizing pricing and rig utilization, and opportunistic tuck-in acquisitions. And earlier this year, this priority looked very challenging, yet we remained ready.

We continue to successfully manage our global procurement efforts and offset the impacts of the cost increases related to steel and other products.

We have several technology initiatives utilizing AI and digital twins to analyze machine data and reduce maintenance costs and unplanned downtime for mud pumps, top drives, and reciprocating engines.

Our remote Operating Center provides real-time hardware and software support for our rigs to reduce downtime and minimize maintenance costs. All of these initiatives are executed by the Precision teams based in Houston, Calgary, and Dubai, along with 23 field support bases. I'm proud of their efforts, and the results are clear in our financial performance for the first half of this year. The momentum will continue through 2025.

Our third priority was to grow revenue and existing product lines through contracted upgrades, optimizing pricing and rig utilization, and pursuing opportunistic tuck-in acquisitions.

And earlier this year.

Kevin Neveu: Customer demand has remained surprisingly resilient for Canadian heavy oil pad rig upgrades, along with hydraulic capacity upgrades on other super single rigs. These investments have been supported by a variety of advanced payments, increased day rates, and term contracts and will impact approximately 10 of our super single rigs. Our Evergreen Solutions reduce diesel fuel consumption, reduce rig emissions, and reduce daily operating costs for our customers. We expect to add Evergreen Systems to 36 rigs this year, including mass lighting kits and hydrogen catalyst systems. Evergreen Solutions are priced as an a la carte addition to the rig rate and pay out within a few months.

This priority looked very challenging. Yeah, we remained ready?

Customer demand has remained surprisingly resilient for Canadian heavy oil pad rigs, upgrades along with hydraulic capacity upgrades on other Super Single rigs.

These investments have been supported by a variety of advanced payments, increased day rates, and term contracts, and will impact approximately 10 of our Super Single rigs.

Kevin Neveu: Customer demand for extended reach gas drilling in the Hainesville and Marcellus has driven opportunities for capacity upgrades to our ST-1500 rigs, including larger mud pumps, higher torque top drives, racking, and hoisting capacity increases, and these upgrades will impact approximately 12 rigs. We have also established preferred driller agreements with several key customers, whereby we provide most or all drilling services at optimized rates with rig performance incentives and incentives for additional rig utilization. All of these initiatives are designed to provide and enhance our competitive advantage, provide revenue and earnings growth, improve revenue visibility while delivering returns well in excess of our cost of capital, and we'll continue to seek opportunities to further invest in our fleet and further develop customer partnerships.

Our Evergreen Solutions reduce diesel fuel consumption, reduce rig emissions, and reduce daily operating costs for our customers. We expect to add Evergreen systems to 36 rigs this year, including mass lighting kits and hydrogen catalyst systems. Evergreen Solutions are priced as an add-on to the rig rate and pay out within a few months.

Customer demand for extended reach gas drilling in the Haynesville and Marcellus has driven opportunities for capacity upgrades to our St. 1500 rigs, including larger mud pumps. Higher torque, top drives, racking, and hoisting capacity increases, and these upgrades will impact approximately 12 rigs.

We have also established preferred driller agreements with several key customers, whereby we provide.

Most, or all, grilling services at optimized rates with rig performance incentives and incentives for additional regularization.

Kevin Neveu: So, I'll now conclude my comments by thanking the whole Precision team for another quarter of excellent business execution, and I'll also thank all of our stakeholders for their continued support. Operator, we're now ready for questions.

All of these initiatives are designed to provide enhanced and to provide and enhance our competitive Advantage, provide revenue and earnings growth improved Revenue. Visibility while delivering returns while in excess of our cost of capital and we'll continue to seek opportunities to further, invest in our plate and further, develop customer Partnerships.

So I'll now conclude my comments by thanking the whole Precision team for another quarter of excellent business execution. I'd also like to thank all of our stakeholders for their continued support.

Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Derek Podheisler with Piper Sailor. Your line is open.

Operator: We're now ready for questions.

Ladies and gentlemen, if you have a question or a comment at this time, please press *1, 1 1 on your telephone. If your question has been answered, or you wish to remove yourself from the queue, please press *1 and 1. Again, we'll pause for a moment while we compile our Q&A roster.

Various Analysts: Hey, good morning, guys. How are you? I guess maybe let's just start on the US side. Obviously, some really nice growth that we're seeing in the Northeast and the Hainesville, you know, gassy window down in the Gulf. Maybe could you help us understand a little bit whether the split is between publics and privates? And then, you know, thinking heading to the end of the year, into next year, I guess what's the cadence or maybe can you help quantify for us the number of rigs that we could expect to go back to work into these gas basins?

Our first question comes from Derek Podheiser with Piper Sandler. Your line is open.

Hey, uh, good morning, guys. Um,

Kevin Neveu: Derek, that's a really key question, actually. And I think what we're seeing here is the history of the industry where the privates always lead when the industry is turning. The privates aren't trying to manage public expectations or making good investment decisions. There's no question that our gas-based work right now is tilted towards private companies throughout both the Marcellus and the Hainesville.

How are you? Uh, I guess maybe. Let's just start on the US side. Um, obviously some really nice growth that we're seeing, in the, in the Northeast and the hanesville, um, you know, gassy window down in, in the Gulf. Maybe you could just, could you help us understand a little bit, whether the split is between publics and privates and then, you know, thinking head into the end of the year into next year. How? I guess what's the Cadence? Or maybe the, the can you help qual? Uh, quantify for us the number of rigs that we could expect to go back to work into these gas basins.

Derek. That's a really key question actually. And, um, I think what we're seeing here is a, is the history of the industry where the privates always lead, um, when the, uh, industry is turning the privates aren't trying to manage public expectations. They're making good investment decisions. So there's no question that our gas based work right now is tilted towards private companies, throughout both the Marcellus, and the, uh, annsville.

Various Analysts: Got it. And then maybe just how many rigs potentially you think from here? I know you have a couple lined up, but as we work towards the end of the year and into 2026, are the privates not looking that far ahead yet as far as that incremental activity?

Got it. And then maybe just, um, how many rigs do you think we could potentially have from here? I know you have a couple lines up, and as we work towards the end of the year and in 2026, or are we not looking that far ahead yet as far as adding incremental activity?

Kevin Neveu: That's also a big question. So, I'll tell you, first of all, I've got some expectations I trust on the sales team in the US, and they've got a couple of benchmark targets we're looking at to try to get our activity higher so we can have better scale event operations and leverage our fixed costs better. But we've kind of targeted getting to 40 and then maybe 45 rigs over time. And obviously, gas will play an important part of that rise and managing churn on the oil rigs. So, you know, should oil prices stay in the range we're seeing today, which is not too bad, I think those targets make pretty good sense. If we, you know, go through another recycle on the oil price dipping down the low 60s, well, then all bets are off.

That's uh, also a big question. Uh, so I'll tell you first of all, I've got some expectations. I trust on the sales team in the US and uh they've got a couple of Benchmark targets. We're looking at to try to get our activity um higher so we can have better uh scale event operations and leverage our fixed costs better, but we've kind of targeted getting to 40 and then maybe 45 rigs over time. And obviously gas will play an important part of that rise and managing churn on the oil rig. So, um, you know, should, uh, oil prices stay in the range we're seeing today, uh, which is not too bad. I think those targets make pretty good sense.

Kevin Neveu: And, you know, I think churn will increase and be certainly more challenging for us. But, so, you know, if you do that math on that, you know, hopefully look to find another five to seven rigs in gas over the next several quarters.

Various Analysts: No, that's helpful. I appreciate the color. And then just as a follow-up and maybe more of an educational question for myself, when you ran down the Canadian market, you talked about the double rig segment and it's oversupplied. You have undisciplined pricing, pricing pressure. I guess, you know, taking a step back, what's the long-term thinking for this part of the market where your other two parts of Canada seem very, very tight with good secular tailwinds, but in this double rig segment, it looks to be, you know, less than that. So, maybe just some thoughts around what you strategically could do around with the double rig segment.

If we, you know, go through another cycle on the oil, price dipping down to the low $60s, well then all bets are off, and, uh, you know, I think churn will increase and be certainly more challenging for us. But, uh, so you know, if you do that math on that, you know, hopefully look to find another 5 to 7 rigs and gas over the next several quarters.

Kevin Neveu: You know, Derek, so a couple of years ago, we acquired CWC, which actually increased our doubles fleet quite a bit. And I think that I still think consolidation is a really important feature for oil service, especially as the operators have gotten larger. There's a bit of a scale mismatch right now where the operators have gotten larger quickly and the services industry is still playing catch up a bit on scale. On the triples and singles business in Canada right now, that matches much better. So, you know, there's really kind of two, three, maybe four drillers that run most of the triples in Canada. We've got good scale matching between the suppliers, us, and the operators. On the single side, I think there's 14 contractors that are in the tele-double business, maybe more. And that's just too much, too fractured.

No, that that's helpful. I appreciate the color. And then just as a follow up and maybe more of an educational question for myself and I, when you ran down the Canadian Market, you you you talked about the, the double rig segment and it's, it's over Supply. You have a disciplined pricing pricing pressure, I guess, you know, taking a step back, what's the, what's the long-term thinking? For this part of the market where your other 2, parts of Canada? Seem very, very tight with good secular Tailwinds. But in this d, double double rigged segment, it looks um, to be, you know, less than that. So maybe just some thoughts around what you strategically could do around with the double rig segment.

Uh, you know Derek. Uh so a couple years ago, we acquired CWC which actually increased our double sleep quite a bit. Um, and I think that I I still think it's consolidation, is a really important feature for oil service, especially as The Operators, have gotten larger. There's a bit of a scale mismatch right now with the operators have gotten larger quickly and the services industry is still playing catch up a bit on scale, um, on the triples and singles business in Canada right now that that matches much better

Kevin Neveu: So, I do think that the singles or the tele-double space needs to consolidate in Canada. You know, with the market share we have right now, we're likely not going to be that consolidator. But I do think there's other people in this market that could help consolidate that market and bring a bit more discipline and help get better scale matching between services and operators. Carey, do you have anything to add to that?

So you know, there's really kind of 2 3, maybe 4 Drillers that run most of the uh troubles in Canada. It's got we've got good scale matching between the suppliers us and the operators. On the single side. I think there's 14 contractors that are in this in the Telly, double business, maybe more and uh that's just too much to fractured. So I do think that the singles or the Telly double spaced

We need to consolidate in Canada. You know, with the market share we have right now, we're likely not going to be that consolidator. But I do think there are other opportunities.

Carey Ford: Yeah, I actually don't. I think that characterizes it pretty well.

People in the market could help consolidate that market, bring a bit more discipline, and help it get better. Scale matching between services and operators. Do you have anything to add to that?

Various Analysts: Great. Appreciate all the color. I'll turn it back.

Yeah, I actually don't. I think that's characterized as pretty well.

Kevin Neveu: Thanks, Derek.

No, appreciate all the color. I'll turn it back.

Operator: Our next question comes from Aaron McNeil with TD Cowan. Your line is open.

Thanks Derek.

Various Analysts: Hey everyone, thanks for taking my questions. Kevin, I'm hoping you can help me reconcile the prepared comments with the contract disclosures. So, again, Q1 disclosures, 38 average rigs under contract in 2025. Now it's 39, so one incremental. On a Q4 basis, there's three additional rigs, three incremental, and maybe some of the contracts don't take effect until 2026. So, you know, who knows? But of the 22 rig upgrades, you note in the press release, how many would be incremental this quarter versus what was disclosed last quarter? And what's sort of the contract durations that you're achieving with these upgrades? Or are some of these, you know, spec in nature and part of a larger market share capture strategy?

Our next question comes from Eric, Aaron McDel with TD. Cow, your line is open.

Hey everyone. Thanks for taking my questions.

Um, Kevin, I'm hoping you can help me reconcile the prepared comments with the contract disclosures. So.

Again, Q1 disclosures showed an average of 38 rigs under contract in 2025; now it's 39. So, that's 1 incremental on a Q4 basis. There are 3 additional rates—3 increments.

And maybe some of the contracts don't take effect until 2026. So,

You know, who knows? But of the 22 rig upgrades, in the press release, how many would be incremental this quarter versus what was disclosed last quarter? And what sort of contract durations are you achieving with these upgrades?

Um, are some of these, you know, spec in nature and part of a larger market share capture strategy?

Carey Ford: Hey Aaron, this is Carey. I think I can help you out. I'm not going to provide as much disclosure detail as I think you're asking for, but I think I could provide some good context to answer your question. So, first of all, the 22 rigs that we mentioned on upgrades, not all of those have been signed yet. That's what we expect, and that matches with our capital plan of $240 million. So, there are some that we expect to sign that don't show up in the contract book yet. The second point is most of these contracts' contract upgrades are going to be, you know, kind of in the $1 to $5 million range per rig.

Hey Aaron. This is Carrie. I think I can help you out. Uh, I'm not going to provide as much disclosure detail as, as I think you're asking for, but I think I could provide some good context on, um, to answer your question. So first of all the the 22 Rigs that, uh, that we mentioned on upgrades, not all of those have been signed yet. That's what we expect and that matches with our Capital plan of 240 million. So there are, there are some that we expect to sign that don't show up in the contract. But yet, uh, the second point is most of these contracts

Carey Ford: So, a lot of these upgrades that we're doing don't require a two-year contract to recoup the cost of the upgrade capital and the underlying value of what we call the opportunity cost of the rig. A lot of these upgrades, we're able to recoup the returns we need in six months to one year. For the larger dollar amounts, we do need one to two-year contracts, and we are getting those on the higher dollar upgrades. The other thing I would say is that some of the business that we have, at least with existing customers, where it's contracted and where the rig is contracted, and we provide the upgrade for a rig that's already contracted, and the day rate just goes up. So, you actually wouldn't see the contract increase because the contract term's not changing. The day rate's just increasing to give us a return.

Contract upgrades are going to be, you know, kind of in the $1 million to $5 million range, uh, per rig.

So a lot of these upgrades that we're doing don't require a 2-year contract to recoup the cost of the upgrade capital and the underlying value of what we call the opportunity cost of the rig. A lot of these upgrades, we're able to recoup the returns we need in 6 months to 1 year.

For the larger dollar amounts, we do need 1- to 2-year contracts, and we are getting those on the uh,

The higher dollar upgrades. Uh, the other thing I would say is that some of the, some of the business that we have, uh, is with existing customers where it's contracted,

and where the rig is contracted, and we provide the upgrade.

Carey Ford: And then the final comment I'd make is what we disclosed this quarter is we had $7 million of revenue for two, it was actually two different customers paying us upfront for rigs that we were upgrading. And there is no contract associated with that, and that's why we asked for an upfront payment to cover the cost of the upgrade. So, it's a little bit different than past cycles where you build a rig and you get a three-year contract or a four-year contract, and it shows up in the contract book. We're very happy with the returns we're getting. We're getting contracted coverage on just about all the capital that we're deploying, but it is a little bit different than past cycles.

For a rig that's already contracted in the day rate, just goes up. So you actually wouldn't see, uh, the contract increase be because, um, the contract terms not changing the day rates, just increasing to get, give us a return. And then the final comment, I'd make is what we, what we, uh, disclose this quarter is. We had 7 million dollars of Revenue. Uh, for 2, it was actually 2, different customers. Um, paying us Upfront for rigs that we were upgrading and there is no contract associated with that, and that's why we asked for an upfront payment to cover the cost of the upgrade. So it's it's a little bit different than past Cycles where you build a rig and you get a 3-year contract or a 4 year contract and it shows up in in the uh, in the contract book.

Various Analysts: Fair enough. And that actually leads into my next question. You mentioned the customer-funded upgrades. Do you have any of those penciled in for the future, and how should we think about that impacting go-forward margins?

Um, we're very happy with the returns we're getting. We're getting contracted coverage on just about all the capital that we're deploying, but it is a little bit different than past cycles.

Carey Ford: We won't guide to any more. We don't have any to disclose right now, but it is something that we've seen in the past. We just haven't had very many that are this large in one particular quarter, which is why we broke it out.

Fair enough. And that actually leads into my next question. You mentioned the customer-funded upgrades; do you have any of those penciled in for the future, and how should we think about that impacting go-forward margins?

We're not going to, we um, won't guide to any more. Um, we don't have any to uh.

Various Analysts: That's perfect. Thank you. Happy to turn it back.

To disclose right now, but it is something that we've seen in the past. We just haven't had very many that are this large in one particular quarter, which is why we broke it out.

Perfect, thank you.

Operator: Again, ladies and gentlemen, if you have a question... Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. Our next question comes from Keith Mackey with RBC Capital Markets. Your line is open.

again, ladies and gentlemen, if you have a question again, ladies and gentlemen, if you have a question or comment at this time, please press star 1, 1 1 on your telephone,

Various Analysts: Hey, good morning. Good afternoon. Just a quick clarification on the $40 million of incremental capital for those 22 rigs. That program is all to be spent in 2025, right? Like, just what I'm asking is, is there a 2026 portion related to those 22 rigs that we'll also see, or is the $40 million it as far as upgrading these rigs?

Our next question comes from Keith Mackey with RBC Capital Markets. Your line is open.

Hey, good morning, uh, good afternoon, uh,

Hey, just a quick clarification on the $40 million of incremental capital for those 22 rigs.

Carey Ford: Yes, Keith. So, I'll first say that the 22 rig upgrades span the entirety of 2025. So, we're not announcing 22 additional rig upgrades this quarter. Those were contemplated in our original 2025 capital plan. They just materialized a little bit faster degree than what we expected. All of the spend for this year will be for rigs that will be delivered in 2025, or just about all of it. So, some of the rigs will be delivered in November, December this year. So, we won't get EBITDA generation from those upgrades, but think about that $240 million spend largely being directed at rigs that'll be delivered this year.

Uh, that program is all to be spent in 2025, right? Like it. It I'm just what I'm asking is is there a 2026 portion related to those 2020 uh, 2022 rigs that will also see, or is, is the Forty million dollars it as far as upgrading these these rigs.

Will be delivered in.

2025 or just about all of it. Uh, so some of the rigs will be delivered in November December this year, so we won't, we won't get iPad generation from those upgrades but. But think about that, uh, 240 million spend largely uh, being

Kevin Neveu: All right, I'll just clarify one comment. So, we didn't originally intend for 22 rig upgrades at the beginning of the year. So, that's increased from earlier in the year based on some of the opportunities we've seen coming forward. And the projected investment in the Evergreen products has gone up also in this increase.

Uh, directed at Rigs. It'll be delivered this year. All right. I'll just clarify one comment. So, uh, we originally intended for 22 Rigg upgrades at the beginning of the year, uh, so that's increased from earlier in the year based on some of the opportunities we've seen coming forward. The projected investment in the Evergreen products has gone up. Also, in this increase,

Various Analysts: Got it. Okay, that's helpful. And just on the capital allocation and the target debt metrics, you know, we're certainly getting much closer to those levels, and you're ahead of your mid-year debt reduction target now. So, as we think about you getting closer to your ultimate debt load, how do you think about capital allocation shifting at that time, you know, between shareable returns, growth, and further debt reduction payment repayment at that time?

Got it. Okay, that that's helpful. Um, and just on the on the capital allocation and the target debt, um, metrics. Uh, you know, we're certainly getting much closer to those levels and you're you're ahead of your, you know, midyear debt reduction Target now. Um,

So, as we think about you getting closer to your ultimate debt load, how do you think about capital allocation shifting at that time, you know, between Chevrons returns growth and further debt repayment at that time?

Kevin Neveu: So, Keith, we haven't given much guidance beyond getting to our total debt reduction plan of $600 million by the end of next year, which we will...

um,

Various Analysts: $700 million.

Kevin Neveu: $700 million by the end of next year, which we will achieve.

Various Analysts: 2027.

Kevin Neveu: '27. Thank you. Thanks, Carey, for clarifying me.

Various Analysts: Big numbers we're dealing with here.

Kevin Neveu: Yeah. But what I would tell you is that if we see good opportunities to invest in our rigs, like we've seen over the last few weeks, that's one of the best places for us to place our capital. If we can get a less than two-year payback on a $3 or $4 million upgrade or a less than one-year payback on a million-dollar upgrade, those are outstanding investment opportunities. That I'd say stays near the top of our priority list. Paying down debt is the top of the priority list. Shareholder returns fit in there. So, we've got three priorities that are all important, and we're not going to sacrifice debt repayment or either shareholder share buybacks or capital or vice versa.

Carey Ford: Yeah, I think that's exactly right. And you know, we've got $175 million remaining on a long-term debt reduction plan with two and a half years to go. So, we can accelerate that. We can spread it out over the entire time period. It can give us more flexibility to increase returns to shareholders. And as Kevin said, if the opportunities come to us to get good returns on our capital investment, we'll invest in our fleet.

So, in case we haven't given much guidance Beyond getting to our total debt reduction plan of 600 million by the end of next year, which we will, uh, 700 million by the end of next year, which we will achieve 2027 27. Thank you. Thanks Gary for clarifying. Me, uh, big numbers we're dealing with. Yeah, uh, uh, but what I would tell you is that, um, if we see a good opportunities to invest in our rigs, like we've seen, uh, over the last few weeks, that's 1 of the best places for us to place our Capital, if we can get a less than 2 year payback on a 3 or 4 million dollar upgrade or a less than 1 year, payback on a million dollar upgrade those are outstanding investment opportunities. So that that I'd say stays near the top of our priority list paying down debt is the top of the priority list Cheryl returns fit in there. So we've got 3 priorities that are all all important and we're not going to sacrifice debt repayment or either shareholder, share BuyBacks or capital or vice versa.

Various Analysts: All right, thanks very much. Turn it back.

Yeah, I think I think that's exactly right. And you know, we've got 175 million dollars uh remaining on the long term, debt reduction plan with 2 and a half years ago. Uh, so we can, uh, we can accelerate that accelerate that we can spread it out over the entire time period, it can give us more flexibility to increase returns to shareholders. And as Kevin said at the uh the opportunities come to us to get good Returns on our capital investment will invest in our Fleet.

Kevin Neveu: Thanks, Keith.

All right. Thanks very much. Turn it back.

Operator: Our next question comes from Makhar Said with ATB Capital Markets. Your line is open.

Waqar Syed: Thank you. Thanks for taking my question. And first of all, congrats on an excellent quarter. In terms of the upgrades that you're doing on the rigs in the US, with these upgrades, do you bring these rigs at par in terms of capabilities with some of the other top-tier rigs in a particular basin? Or following the upgrades, these will be kind of unique type rigs in every basin?

Thanks, Keith. Our next question comes from Mar Side with ATB Capital Markets. Your line is open.

Uh, thank you. Thanks for taking my question. And, uh, first of all, congrats on an excellent quarter.

Um, in terms of the U.S., uh, the upgrades that you are making on the rigs in the U.S. Um,

Kevin Neveu: Makhar, it's a little hard to gauge that because there's been a little less disclosure by the industry peers around what rig capabilities are. So, it's hard to say for sure. What we do know is that I think we're getting to kind of peak hook loads and peak draw works capacities and peak mud pump sizes. So, I think that certainly we'll be at the point of the arrow on rig capability. Now, everything I've just said there is kind of making the hammer bigger. So, you know, larger mud pumps is more horsepower, larger draw works is more hoisting capacity, larger heavier mast would be more racking capacity, more casing capacity. It's all important. But when you couple that with alpha automation, I think that becomes a unique service package where you can fully automate that and deliver consistent predictable reports.

With these upgrades, do you bring these rigs at par in terms of capabilities with some of the other top-tier rigs in a particular basin? Or, following the upgrades, will these be kind of unique-type rigs in every basin?

Um, but it's a little hard to gauge that because there's been, um, a little less disclosure by the industry peers around what rig capabilities are. So, it's hard to say, for sure. What we do know is that I think we're getting to kind of the peak hook loads, and peak draw works capacities and peak mud pump sizes. So, I think that, uh, certainly will be at the point of the arrow on rig capability. Now, everything I've just said there is kind of making the hammer bigger.

Kevin Neveu: Now, we know that other drillers have various levels of automation. We don't think any other level of automation is as comprehensive from spud to release as alpha.

So you know, a large amount of pumps is more horsepower or larger draw works. More hoisting capacity. A larger, heavier mast would provide more rocking capacity and more casing capacity. It's all important. But when you couple that with the alpha automation, I think that becomes a unique service package where you can fully automate that and deliver a consistent, predictable output.

Waqar Syed: Sure. And then in terms of the type of wells that these rigs would be drilling, is it like these four-mile laterals or horseshoe type wells? Or what is it that clients hope to achieve with these rigs?

Reports. Now we know that other drillers have various levels of automation. We don't think any other level of automation is as comprehensive from spud to release Alpha.

Sure.

Kevin Neveu: So, we are drilling four-mile laterals right now. We're drilling some, you know, horseshoe bend four-mile laterals. But I think.Tell

And then in terms of uh, the type of Wells that you know that these rigs would be drilling is that like these formula laterals or horseshoe type Wells or what what is it that client who to achieve uh with these with these rigs?

Operator: you that, every drilling engineer that's drilling deeper wells wants rig capacity to drill farther. So even though some of these rigs that we're upgrading aren't necessarily gonna be drilling four mile laterals, the drilling team wants that ability down the road. So, yeah, I think, these are being designed to drill Angel or Marcellus and do the longest retors on the wells. It'll likely be economic for the near future.

Really going to be drilling for my laterals.

The drilling team wants that ability down the road. So, uh,

Lavonne Zdunich: Great. Well, thank you very much, Kevin, and congrats again.

Yeah, I think these are being designed to drill Haynesville or Marcellus and do the longest retros on all wells. It'll likely be economic for the near future.

Operator: Good. Thanks a lot, Lukar. Appreciate it.

Great. Well, thank you very much, uh, Kevin, and congrats again.

Carey Ford: Our next question comes from John Daniel with Daniel Energy Partners. Your line is open.

Good. Thanks a lot for appreciating it.

Lavonne Zdunich: Hey, good afternoon. I hope I didn't miss this on the call, but Kevin, in the Nat, your US customers in the Nat gas markets, are they seeking term contracts today? And what's your willingness to lock in? And if they're looking to do term contracts, what's the typical duration they're seeking?

Next question comes from John Danielle with Danielle Entry Partners. Your line is open.

Uh, good afternoon. I hope I didn't miss this on the call, but Kevin, do your U.S. customers in the NAT gas markets, um, are they seeking term contracts today, and what's your willingness to lock in? And if they're looking to do term contracts, what's the typical duration they're seeking?

Operator: John, great question. And it's the same question our board asked us yesterday in the discussion around capital. I would tell you that, we probably have opportunity to take longer terms if we choose, but the rates would be lower. So I'd say we're trying to balance, optimizing the day rate with, duration that returns our capital.

Lavonne Zdunich: Got it.

Operator: So higher day rates and maybe a little shorter term. But, but, but I'll tell you the terms we're looking at are in the one to two-year range.

Huh. Uh, John, great question, and it's the same question our board asked us yesterday in the discussion around capital. Um, I would tell you that we probably have the opportunity to take longer terms if we choose, but the rates would be lower. So, I'd say we're trying to balance optimizing the day rate with the duration that returns our capital.

Lavonne Zdunich: Okay. Fair enough. And then the last one for me, two of the, your two US well service players, since you're not competing down here anymore, they've announced, the introduction of electric workover rigs. And I'm just curious at this point if any of the Canadian operators are starting to ask you guys about electrifying, your fleet.

Got it. So maybe a little shorter term, but I'll tell you, the terms we're looking at are in the 1 to 2 year range.

Fair enough. And then the last one for me, two of the year, to us well, source player. Since you're not competing down here anymore, they've announced, uh,

The introduction of electric workover rigs. I'm just curious at this point if any of the Canadian operators are starting to ask you guys about electrifying.

Uh, your Fleet.

Operator: On the well service side, no. interestingly, we talked about evergreen upgrades. So we've had a, more interest in high line power drilling rigs that will be electric as most electric rigs are, but high line powered. But, there's, not a lot of interest on the well service side in Canada yet. And there's such an excess capacity of functional service rigs in Canada that the, the likelihood of a new build service rig in Canada, new build, new technology service rig is still probably several years out.

Uh, on the Well Service side, no, uh, interestingly we talked about Evergreen upgrades. We've had more interest in Highline power; drilling rigs that will be electric have most electric rigs, are Highline powered. However, there's not a lot of interest on the Well Service side in Canada yet, and there's such an excess capacity of functional service rigs in Canada.

That, um, the likelihood of a new build service rig.

Lavonne Zdunich: Okay. So I had, thanks for having me.

In Canada, new build technology, service rig is still probably several years out.

Okay.

Operator: Thanks, John.

Thanks for having me.

Carey Ford: Our next question comes from John Gibson with BMO Capital Markets. Your line is open.

Thanks, Sean.

Kevin Neveu: Morning or afternoon to where we are. Congrats on the strong quarter here. Just wondering if you could provide a breakdown either by geography or basin for where the upgrades are targeted of those 22 rigs.

Our next question comes from John Gibson with BMO Capital Markets. Your line is open.

Morning or afternoon, wherever we are. Congrats on the strong quarter here. I was just wondering if you could provide a breakdown, either by geography or basin, for where the upgrades are targeted among those 22 rigs.

Lavonne Zdunich: So, I I mentioned it a bit in my comments, John, on, where we're seeing a bit firmer demand and in some cases growth. And so it's the basins where we have, really strong presence, which would be the Hainesville, Marcellus, Montney, and Canadian Heavy Oil. That's where the bulk of the upgrades are going.

So I mentioned it a bit in my comments, John, on where we're seeing a bit firmer demand and, in some cases, growth. It's the basins where we have.

Kevin Neveu: Got it. and last one, how many rigs do you still have sitting on the sidelines in the, in the Hainesville?

Really strong presence, which would be Haynesville, Marcellus, Montney, and Canadian heavy oil. That's where the bulk of the upgrades are going.

Got it. Um, and last one, how many rigs do you still have sitting on the sidelines in the, uh, in Hayesville?

Operator: large, high single digits.

uh,

Large uh, High single digits.

Kevin Neveu: Okay. Great. appreciate the color. I'll turn it back.

Okay, great. Uh, appreciate the color. I'll turn it back.

Lavonne Zdunich: Great. Thanks, John.

Carey Ford: And I'm not showing any further questions at this time. I'd like to turn the call back over to Lavonne.

It's great. Thanks John.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Lavonne.

Various Analysts: Well, that concludes our conference call for today. Our next formal update will be in October, but we are always available to answer questions from now until then. With that, I will sign off. Thanks for joining.

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

Well, that concludes our conference call for today. Our next formal update will be in October, but we are always available to answer questions from now until then. With that, I will sign off. Thanks for joining. Hello, ladies and gentlemen, let's conclude today's presentation. You may now disconnect and have a wonderful day.