Precision Drilling Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Precision Drilling Corporation 2021 First Quarter Results Conference Call and Webcast. At this time, all participants' lines are in a 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Dustin Honing, Director of Investment Relations and Corporate Development. Thank you. Please go ahead, sir.

Thank you, Denise, and good afternoon, everyone. Welcome to Precision Drilling's first quarter 2021 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 our news release earlier today, Precision reported its first quarter 2021 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. Our comments will also include forward-looking statements regarding Precision's future results and prospects, which are subject to certain risks and uncertainties. Please see our news release and other regulatory filings for more information on financial measures, forward-looking statements, and these risk factors. Carey will begin today's call by discussing first quarter financial results. Kevin will then follow by providing an operational update and outlook. With that, I'll turn it to you, Carey.

Thank you, Dustin. Our first quarter adjusted EBITDA of $55 million decreased 47% from the first quarter of 2020. The decrease in adjusted EBITDA primarily results from a decrease in drilling activity in all regions. also included in adjusted EBITDA during the quarter, his $11 million in share-based compensation expense, and $9 million in Q's assistance payments. As a reminder, the Q's program supports employment in Canada, and Precision has utilized this program to preserve jobs within our organization. We applaud the Canadian federal government for this program and its impact on supporting employment during the pandemic. The recent Canadian federal government budget that was presented included a proposal to extend the Q's program beyond its current June expiration. We will provide additional guidance on how the program will affect precision when details firm up, but for now we expect the precision impact to be greater than what we communicated in February. In the U.S., drilling activity for precision averaged 33 rigs in Q1, an increase of seven rigs from Q4. Daily operating margins in the quarter were 7,000 27 U.S. dollars, a decrease of 4,131 U.S. dollars from Q4. The decrease in margins is primarily due to lower idle but contracted revenue earned during Q1 this year, higher operating costs driven by startup costs relating to 12 rigs activated year-to-date, and turnkey activity. Absent impacts from idle but contracted rigs and turnkey, daily operating margins would have been 1,217 Thank you. Thank you. In 2018, our peak activity reached 82 rigs in November, and activity troughed at 19 rigs in September last year. During that 22-month period, over 60 rigs were stacked and preserved in good condition to be reactivated at a later date. Precision had 57 rigs working in March of last year, and substantially all of the rigs we have reactivated since the trough last year were working in the first part of 2020. Activating those rigs require us to incur some operating costs to cold start rig crews, inspect and certify critical components such as top drives and engines, restock consumables, and sometimes mobilize the rig or rig components. We have found the average cost to activate each rig has been approximately $150,000 to $200,000. Some of these costs are incurred before the rig goes to work, and some of it is incurred in the first few months of operations. We expect this level of startup cost to continue as we add the next 25 to 30 rigs in our U.S. fleet. In Canada, Drilling Activity for Precision averaged 42 rigs in the quarter, a decrease of 21 rigs from the first quarter of 2020. Daily operating margins in the quarter were $8,106, an increase of $901 from Q1 2020. Margins were supported by a strict focus on operating cost and Q's assistance, offsetting lower fixed cost absorption. absent the Q's impact, margins would have been $6,760 or $445 lower than Q1 last year. For Q2, we expect margins absent of Q's and one-time recoveries to be up $500 to $1,000 per day compared with last year due to cost reduction initiatives, higher fixed cost absorption from increased activity. For reference, Daily operating margins in Q2 2020 absent queues and one-time recoveries were approximately $4,000. Internationally, drilling activity for precision in the current quarter averaged six rigs. International average day rates were $52,744 U.S. dollars, down approximately $1,500 U.S. dollars per day from the prior year. This was due to rig mix and lower rig move revenue. In our C&P segment, adjusted EBITDA this quarter was $7.8 million, 140% increase from the prior year quarter. Adjusted EBITDA was positively impacted by a 2% increase in well-service hours reflecting improved industry activity, lower cost structure, fused program support, and $2.3 million in restructuring charges in the prior year quarter. Well abandonment work in the first quarter of this year represented approximately 15% of our operating hours. Capital expenditures for the quarter were $8 million, and our full year 2021 guidance remains $54 million, 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 April 21st, we had an average of 36 contracts in hand for the second quarter and an average of 31 contracts for the full year 2021. Moving into the balance sheet, we continued to reduce both absolute and net debt levels, primarily through free cash flow generation. As of March 31st, our long-term debt position net of cash was approximately $1.1 billion, and our total liquidity position was approximately $700 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 5.2 times and average cost of debt is 6.6%. We remain in compliance with all of our credit facility covenants in the first quarter with an EBITDA to interest coverage ratio of 2.1 times. During the quarter, we reduced total debt by $29 million and made an additional $22 million debt reduction subsequent to the quarter end totaling $51 million debt reduction year to date, over halfway to meeting our debt reduction target range of $100 to $125 million for this year. Our capital allocation program remains substantially weighted to debt reduction, and we remain on track to meet or exceed our 2021 debt reduction target and our long-term debt reduction target of $800 million between 2018 and 2022, where we have already reduced debt by $601 million since the beginning of 2018. For 2021, we expect to continue generating free cash flow through operations. We expect some benefit from working capital release in Q2 with lower activity during the Canadian spring breakup after an $18 million working capital build in Q1. For reference, the working capital build since our trough in Q3 2020 has been approximately $44 million, which has been driven by higher activity. For 2021, our guidance for depreciation, SG&A, and interest expense remains unchanged at $290 million, $55 million before share-based compensation expense, and $85 million, respectively, for the year. We expect cash taxes to remain low and our effective tax rate to be in the 5% to 10% range. Of note, as a result of the previously reported change in our accounting treatment, for a portion of our share-based compensation plans from equity settled to cash settled. We incurred an additional charge of $2 million in the quarter as a result of our increased stock price. This treatment of share-based compensation change will lower future equity dilution and will introduce a bit more volatility in reported share-based compensation expense in the future. With that, I will now turn the call over to Kevin.