Precision Drilling Corporation

Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation 2023 Third Quarter Conference Call. I would now like to hand the conference over to LaVon Sedunic, Director of Investor Relations. Please go ahead.

Welcome to Precision's Third Quarter Earnings Conference Call and webcast. Participating on today's call with me will be Kevin Neveu, President and CEO, and Kerry Ford, our CFO. Earlier this morning, Precision reported strong third quarter results, which Kerry will review with you, followed by an operational update and outlook commentary from Kevin. Once we have finished our prepared comments, we will open the call to questions. Some of our comments today will refer to non-IFRS financial measures and will include forward-looking statements, which are subject to a number of risks and uncertainties. Please see our news release and other regulatory filings for more information on financial measures, forward-looking statements, and risk factors. As a reminder, we express our financial results in Canadian dollars unless otherwise indicated. Before I pass the call over to Kevin and Kerry, I would like to remind listeners of our CWC energy services acquisition, which we announced in early September. This acquisition will position Precision as the premier well service provider in Canada and bolster our drilling operations in both the US and Canada. With the acquisition, Precision adds to its marketed fleet 62 service rigs and seven drilling rigs in Canada, plus 11 drilling rigs in the US, which includes seven AC triples. We expect this acquisition to close within the next couple of weeks and generate accretive cash flow on a per share basis in 2024. With that, I'll pass it over to Kerry.

Thank you, Yvonne. Precision's Q3 financial results reflect the resiliency of our high-performance, high-value business model and organizational focus on cash flow and return of capital, meeting our expectations for adjusted EBITDA and further strengthening our balance sheet. During the quarter, adjusted EBITDA of $115 million was driven by healthy drilling activity, improved pricing, and strict cost control. and included a share-based compensation charge of $31 million. Without this charge, adjusted EBITDA would have been $146 million, which compares to normalized EBITDA of $126 million in Q3 2022, an increase of 16%. Margins in Canada were higher than guidance, resulting from stronger-than-expected pricing and cost recoveries, higher ancillary revenues, and improved cost performance. In the U.S., margins were lower than guidance, largely due to an increase in operating costs driven by increased repair and maintenance costs and lower fixed cost absorption, as we're maintaining higher overhead in anticipation of increased activity in the first part of 2024. In the U.S., drilling activity for precision averaged 41 rigs in Q3, a decrease of 10 rigs from Q2. Daily operating margins at Q3, excluding the impacts of turnkey and IBC, were $11,941, a decrease of $1,563 from Q2. For Q4, we expect margins, excluding the impacts of turnkey and IBC, to be in line with Q3 margins in the $11,500 to $12,000 range. In Canada, drilling activity for precision averaged 57 rigs, a slight decrease of two rigs from Q3 2022. Daily operating margins in the quarter were $13,913, an increase of $1,830 from Q2 2023. For Q4, our daily operating margins are expected to average over $15,000, an increase of over $1,000 from Q3 levels due to ancillary winter equipment and improving prices. We continue to build our North American contract book with Q4 2023 drilling rigs of 57 under take or pay term contracts on average for the fourth quarter of 2023. In addition, we recently signed several term contracts for work commencing early in 2024. Internationally, drilling activity for precision in the quarter averaged six rigs. International average day rates were $51,570 U.S. dollars. an increase of 3% from the prior year due to rig mix. We recently activated our fourth rig in Kuwait and expect the fifth rig to be activated in the next few weeks. We expect earnings in our international business to increase approximately 50% from 2023 to 2024. Moving to our C&P segment, adjusted EBITDA this quarter was $14 million, down slightly compared to the prior year quarter with 10% fewer wealth servicing hours offset by higher pricing and margins. Moving to the balance sheet, we were committed to reducing debt by over $500 million between 2022 and 2025 and achieving a normalized leverage level of below one time. Our debt reduction target for 2023 is $150 million, and we plan to allocate 10% to 20% of free cash flow before principal payments directly to shareholders. During the quarter, we reduced debt by $26 million and have now reduced debt by $126 million year to date. Upon closing the CWC acquisition, we will assume CWC debt, make cash payments to CWC shareholders, and incur transaction costs, all totaling in the $60 million to $70 million range. Despite incurring these cash costs, we still expect to meet our annual debt reduction target of $150 million, pointing to robust cash flow expectations in the fourth quarter. As of September 30th, our long-term debt position net of cash was approximately $915 million, and our total liquidity position was $621 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 1.7 times, and our average cost of debt is approximately 7%. We expect our net debt to adjust to EBITDA ratio to be below 1.5 times by year-end, with net debt of approximately $900 million and a run rate interest expense of approximately $65 million. Our full-year 2023 capital plan has increased from $195 million to $215 million, largely a result of signing term contracts with upgrade capital paid back inside of the term of the contract. For several of these contracts, we received cash up front from the customer. Additional annual guidance for 2023, which does not consider impacts from the CWC acquisition, includes appreciation at $290 million and SG&A at $90 million before share-based compensation expense. We expect cash interest expenses to be approximately $80 million for the year and cash taxes to remain low with an effective tax rate of approximately 25%. Year-to-date, we have had share-based compensation charges of $22 million. As previously stated, we expect our 2023 share-based compensation expense to range between $20 million and $40 million for the share price range of $60 to $100, with the potential to increase or decrease another $15 million based on relative share price performance and a multiple between zero and two times. With that, I will now turn the call over to Kevin.