Precision Drilling Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Precision Drilling Corporation 2020 Third Quarter Results Conference Call and Webcast. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to introduce your host for this conference call, Mr. Dustin Honing, Manager of Investor Relations and Corporate Development. You may begin.

Thank you, Kevin, and good afternoon, everyone. Welcome to Precision Drilling's third quarter 2020 earnings conference call and webcast. Participating today on the call with me are Kevin Nebu, President and Chief Executive Officer, and Carey Ford, Senior Vice President and Chief Financial Officer. Through our news release earlier today, Precision reported its third quarter 2020 results. Please note these financial figures are in Canadian dollars unless otherwise indicated. Some of our comments today will refer to non-IFRS financial measures such as EBITDA and operating earnings. Please see our news release for additional disclosure on these financial measures. Our comments today will include forward-looking statements regarding Precision's future results and prospects. We caution you that these forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from our expectations. Please see our news release and other regulatory filings for more information on forward-looking statements and these risk factors. Carey will begin today's call by discussing our third quarter financial results. Kevin will then follow by providing an operational update and outlook. With that, I'll turn it over to you, Carey.

Thank you, Dustin. Our third quarter financial results reflect the execution and progress on our strategic priorities set out at the beginning of 2020, including reducing debt through free cash flow and maximizing financial results through leveraging our high performance, high value fleet and scale of operations. Our third quarter adjusted EBITDA of 48 million decreased 51% over the third quarter of 2019. The decrease in adjusted EBITDA primarily results from a sharp decrease in drilling activity in North America and a slight decrease in our international operations. Also included in adjusted EBITDA during the quarter is 2 million of severance costs and 8 million of Q's assistance payments. Absent these items, EBITDA would have been $42 million for the quarter. We are on track to achieve our guidance of a 35% reduction in fixed costs comprised of overhead and G&A and expect cash savings for the year to be $150 million. We expect to achieve a $35 million reduction in annualized G&A costs from the guidance provided at the beginning of the year. Cost reduction and cash preservation will continue to be priorities throughout our organization. Precision participation in the Q's program continued in Q3. We recognized $8 million in Q's assistance in Q3 and expect to participate in this program at similar levels in Q4. As a reminder, this Canadian government program supports economic activity in all sectors of the economy and has allowed us to retain several positions within our organization by offsetting wage expense with support payments. Although the government has announced a commitment to extend this program through June 2021, they have not communicated the amount of the support the program will provide. In the US, drilling activity for precision averaged 22 rigs in Q3, a decrease of eight rigs from Q2 2020. Daily operating margins in the quarter were 12,297 US dollars, a decrease of 2,901 US dollars from Q2. Q3 margins were positively impacted by IBC revenue and turnkey margins, offset by higher daily operating costs due to lower fixed cost absorption. In addition, in Q2, we recognized early termination revenue of US$2,896 per day versus nil in Q3. Absent impacts from IBC, early termination, and turnkey, daily operating margins would have been approximately US$2,015 per day lower than Q2. For Q4, we expect margins to be supported by contracted rigs and IBC revenue and to generally be flat with Q3 levels. In Canada, drilling activity for precision averaged 18 rigs, a decrease of 24 rigs from Q3 2019. Daily operating margins in the quarter were $8,506 per day, an increase of $3,834 from Q3 2019. were supported by a strict focus on operating costs and Q's assistance payments. Absent the Q's impact, margins would have been $6,270 per day or $1,598 per day higher than Q3 last year. For Q4, we expect margins absent of Q's to be down slightly from last year, with strict cost control offsetting the overhead burden arising from lower activity. Internationally, Drilling activity for precision in the current quarter averaged six rigs, two fewer than Q2 2020. International average day rates were $54,887 per day, up approximately $100 from Q2, and $3,654 from the prior year, benefiting from the active rig mix during the current third quarter. All six of our rigs are contracted through 2021, and we expect financial performance to remain consistent through that period. In our C&P segment, adjusted EBITDA this quarter was $3.9 million, down 14.2% compared to the prior year quarter. Adjusted EBITDA was negatively impacted by a 55% decline in wealth service hours as a result of lower industry activity during the quarter. We expect results will improve in Q4, primarily a result of increased industry activity and additional work supported by the Canadian government's $1.7 billion wealth site abandonment and rehabilitation program. Capital expenditures for the quarter were $3 million, and our 2020 capital plan remains $48 million, a decrease of approximately 50% from the beginning of year guidance. The 2020 capital plan is comprised of $30 million for sustaining and infrastructure and $18 million for upgrade and expansion. As of October 21st, we had an average of 34 contracts in hand for the fourth quarter and an average of 42 contracts for the full year 2020. Moving to the balance sheet, we continue to reduce both absolute and net debt levels, primarily through free cash flow generation. Year-to-date, we have reduced our debt levels by $125 million through redemptions and open market purchases. Of note, we have drawn $97 million on our revolving credit facilities We utilize this facility to reduce our overall interest costs, preserve a strong cash balance, and to provide flexibility for continued debt repayment through 2022. As of October 21st, our senior note balances were as follows. Notes due 2023, 293 million U.S. dollars. Notes due 2024, 271 million U.S. dollars. And notes due 2026, 358 million U.S. dollars. As of September 30, 2020, our long-term debt position net of cash was approximately $1.2 billion, and our total liquidity position was over $700 million. Our net debt to trailing 12-month EBITDA ratio is approximately 3.8 times, and our average cost of debt is 6.5%. For the remainder of this year, we expect to continue generating free cash flow through operations and do not expect Incremental Benefit from Working Capital Release as activity is increasing in both the US and Canada. Liquidity remains a top priority, but we will continue to look for opportunities to reduce leverage. We remain on track to meet our longer-term debt reduction goal of $700 million between 2018 and 2022, and have already reduced debt by over $500 million since the beginning of 2018. We remain in compliance with all of our debt covenants with an EBITDA to interest coverage ratio of 2.9 times. And for 2020, we expect depreciation to be approximately $320 million. We now expect SG&A to be $55 million before share-based compensation expense. This guidance compares to the 2020 guidance provided in February of $90 million and in Q2 of $60 million. We expect cash and interest expense to be approximately $100 million for the year and to have an annual run rate of approximately $90 million going forward post Q3. We expect cash taxes to remain low and our effective tax rate to be in the 20% to 25% range. With that, I'll hand the call over to Kevin. Good afternoon. Thank you, Carey.