Precision Drilling Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Precision Drilling Corporation 2020 fourth quarter end of year results conference call webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require additional assistance, please press star then zero to reach an operator. I would now like to hand the call over to Dustin Honing, Manager of Investment Relations and Corporate Development. Please go ahead.

Thank you, Michelle, and good afternoon, everyone. Welcome to Precision Drilling's fourth quarter and year-end 2020 earnings conference call and webcast. Participating today on the call with me are Kevin Neveu, President and Chief Executive Officer, and Carey Ford, Senior Vice President and Chief Financial Officer. Through a news release earlier today, Precision reported its fourth quarter and year-end 2020 results. Please note that 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 fourth quarter and year end 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. Precision exceeded the financial targets set out at the beginning of 2020, leveraging our scale to generate $263 million in adjusted EBITDA, growing our cash balance by $34 million, and reducing debt by $171 million, despite experiencing year-over-year North American activity declines of over 44%. Precision's ability to achieve these results was a function of strict cost control and cash management as well as excellent field performance. Our cost reduction initiatives activated in the second quarter were necessary given the anticipated steep activity drop in 2020. We successfully reduced fixed costs by over 35% and SG&A by over $30 million, which positioned the company to generate strong financial results through the fourth quarter of this year and establish a cost structure we believe is sustainable in an increasing activity environment. Cost control, cash management and debt reduction will continue to be focus areas for the company in 2021. Moving on to our fourth quarter results. Our fourth quarter adjusted EBITDA was $55 million, a decrease of 47% from the fourth quarter in 2019. The decrease in adjusted EBITDA primarily results from a sharp decrease in drilling activity in North America and a Thank you for joining us today. and its impact on supporting employment during the pandemic. Although the program has extended well into 2021, it is likely participation levels will decrease for precision in 2021, with the expected financial impact to be approximately half that in 2020. In the U.S., sterling activity for precision averaged 26 rigs in Q4, an increase of 5 rigs from Q3. Daily operating margins in the quarter were $11,158, a decrease of $1,139 from Q3. The decrease in margins is due to lower IBC revenue earned in Q4, slightly offset by higher turnkey margins earned in Q4. Absent impacts from IBC and turnkey, daily operating margins would have been $716 higher and Q3, which reflects the impact of exceptional operational cost control during the quarter. For Q1, we expect normalized margins absent IBC and turnkey to be down slightly from Q4 levels. We expect to average one rig on IBC during the first quarter. In Canada, drilling activity for precision averaged 28 rigs, a decrease of 15 rigs from Q4 2019. Daily operating margins in the quarter were $9,379, An increase of $1,988 from Q4 2019. Margins were supported by a strict focus on operating cost, Q's assistance, and shortfall payments. As for the Q's and shortfall impact, margins would have been $6,895 or $496 lower than Q4 last year. With cost control efforts nearly offsetting the overhead burden from lower activity. For Q1, we expect margins Margin absent of queues to be relatively in line with last year. Internationally drilling activity for precision in the current quarter averaged six rigs. International average day rates were 55,453 US dollars, up approximately 3,170 US dollars from the prior year benefiting from active rig mix. In our CNP segment, Adjusted EBITDA this quarter was $5.3 million, down 15.4% compared to the prior year quarter. Adjusted EBITDA was negatively impacted by a 32% decline in wealth service hours, reflecting lower industry activity in the quarter. We expect results will improve in Q1 due to increased industry activity and additional work supported by the Canadian government's $1.7 billion Wealthside Abandonment and Rehabilitation Program. Capital expenditures for the quarter were $23 million and $62 million for the year. Our capital expenditures were higher than forecast due to higher than expected activity in the fourth quarter, anticipated higher activity to start 2021, four contracted upgrades completed in the fourth quarter, and discounted year-end purchasing of upgrade components ahead of increasing activity in 2021. Regarding the upgraded rigs completed in the fourth quarter, two related to U.S. operations and two were for the Canadian market. All four of the upgrades were heavily supported by precision teams at our NISQ Tech Center and Rossdale operations. Our 2021 capital plan is $54 million and is comprised of $38 million for sustaining infrastructure and $16 million for upgrade and expansion, which relates to anticipated investments supporting alpha technologies, and contracted customer upgrades. As of February 10th, we had an average of 33 contracts in hand for the first quarter and an average of 28 contracts for the full year 2021. Moving to the balance sheet, we continue to reduce both absolute and net debt levels, primarily through free cash flow generation. As of December 31st, Our long-term debt position net of cash was approximately $1.14 billion, and our total liquidity position was over $700 million when excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 4.3 times, and the average cost of debt for precision is 6.5%. We remain in compliance with all our credit facility covenants in the fourth quarter with an EBITDA to interest coverage ratio of 2.7 times. During the quarter, we utilized $6 million to repurchase shares. Our capital allocation program remains substantially weighted to debt reduction. For 2021, 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. Concurrent with the activity increase in the fourth quarter, we reported a $24 million increase in working capital from the NFQ3. Liquidity remains a top priority, and we will continue to look for opportunities to reduce leverage and have set our debt reduction targets for 2021 to $100 million to $125 million. We remain on track to meet our recently increased longer-term debt reduction goal of $800 million between 2018 and 2022. For 2021, we expect depreciation to be approximately $290 million. We expect SG&A to be $55 million before share-based compensation expense. We expect cash interest expense to be approximately $85 million for the year. And we expect cash taxes to remain low and our effective tax rate to be in the 5% to 10% range. That concludes my remarks, and I will now turn the call over to Kevin.