Precision Drilling Corporation

Good day and thank you for standing by. Welcome to the Precision Drilling Corporation 2021 Second Quarter Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Thank you, Maddie, and good afternoon, everyone. Welcome to Precision Drilling's second 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 second 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 a number of 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 second 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. Before we discuss your second quarter results, I'd like to notify the audience on this call that Dustin will be taking on a new role within Precision, overseeing the finance operations and other administrative functions within our wealth service division. As you all know, Dustin has managed PD's investor relations efforts very well over the past two and a half years and he is ready for a new challenge within our organization. For the time being, you can contact me with investor relations matters. Moving on to our second quarter results. Precision second quarter results were characterized by increasing North American activity, field margin performance exceeding our prior guidance, and continued strict focus on cost control and cash flow generation. Our second quarter adjusted EBITDA of $29 million included a share-based compensation expense accrual of $26 million. Absent this accrual, adjusted EBITDA would have been $55 million, far exceeding our expectations. The unusually large share-based compensation accrual resulted from our share price approximately doubling between the end of Q1 and the end of Q2 and our cash settled accounting treatment. As noted on our last conference call, the cash treatment and share price volatility may present higher volatility in financial results. Please keep in mind we have the ability to pay a portion of these awards as either cash or equity upon investing. During the quarter, we received $9 million of 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. The Q's program has continued into the third quarter, and we expect the impact to precision to be approximately $25 million for 2021. In the U.S., drilling activity for precision averaged 39 rigs in Q2, an increase of 6 rigs from Q1. Daily operating margins in the quarter were $6,752, a decrease of $275 from Q1, primarily due to legacy contracts rolling off into the spot market. Offset by higher spot market pricing on new rigs and increasing adoption of alpha technologies. Absent impacts from IBC and turnkey daily operating margins would have been 227 U.S. dollars lower than Q1. During the quarter, we activated six rigs, and the reactivation expense remained in the $150,000 to $200,000 range for and we expect the same cost per reactivation for the coming quarters. For Q3, we expect normalized margins to be in line with Q2, an indication of average field margins bottoming this summer. In Canada, drilling activity for precision averaged 27 rigs, an increase of 18 rigs from Q2 2020 and representing a tripling of the rig count. Daily operating margins in the quarter were $7,124, a decrease of $1,918 from Q2 2020. Absent the Q's impact, margins would have been $5,247 or $1,378 higher than Q2 last year. For Q3, we expect margins absent of Q's and one-time recoveries to be consistent with Q2. and slightly down compared to Q3 last year due to rig mix, offset by price increases, improved fixed cost absorption and higher alpha technology adoption. For reference, daily operating margins of Q3 2020 absent queues and one-time recoveries were $6,270. Internationally, drilling activity for precision in the quarter averaged six rigs, and international average day rates were $54,269 U.S. dollars consistent with the prior year. In our C&P segment, adjusted EBITDA this quarter was $4.3 million, up approximately $5.5 million compared to the prior year quarter. Adjusted EBITDA was positively impacted by a 466% increase in well servicing hours. In addition, a lower cost structure, CUSE program support, and well-abandonment work supported the quarter's financial results. Well-abandonment work represented less than 20% of our operating hours in the quarter. Capital expenditures for the quarter were $20 million, and our full-year 2021 guidance has increased to $63 million, comprised of $41 million for sustaining infrastructure and $22 million for upgrade and expansion. which relates to anticipated investments supporting alpha technologies and contracted customer upgrades. As of July 22nd, we had an average of 33 contracts in hand for the third quarter and an average of 34 contracts for the full year 2021. In June of this year, we completed a $400 million U.S. offering of senior notes due in 2029 with a coupon of 6.78%. and an extension of a revolving credit facility to 2025. These transactions enabled us to push out our first maturity to 2026, reduce our interest cost, and left approximately $200 million in prepayable debt on our balance sheet, all while maintaining a strong liquidity position. As of June 30th, our long-term debt position net of cash was approximately $1.1 billion, and our total liquidity position was approximately $500 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 5.8 times and our average cost of debt is 6.3%. We remain in compliance with all our credit facility covenants in the second quarter with an EBITDA to interest coverage ratio of approximately two times. During the quarter, we reduced total debt by $23 million and year-to-date debt reduction is $52 million, over halfway to meeting our debt reduction target range of $100 to $125 million for the year. Our capital allocation program remains substantially weighted to debt reduction and we remain on track to meet or exceed our long-term reduction target of $800 million between 2018 and 2022. We have already reduced debt by $602 million since the beginning of 2018. For the remainder of 2021, we expect to continue generating free cash flow through operations. With higher activity, improved pricing, and only $22 million of cash interest due, we expect cash flows to be robust in the second half, supporting further deleveraging. For 2021, our guidance for depreciation in G&A before share-based compensation are $280 million and $55 million, respectively. As a result of our recent debt refinancing, our run rate cash interest expense is less than $80 million, and we expect it to move lower as debt pay down should continue in 2021. Finally, we expect our cash taxes to remain low and our effective tax rate to be below 10%. With that, I will now turn the call over to Kevin.