Precision Drilling Corporation

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

Thank you and welcome to Precision's Fourth Quarter Earnings Conference Call and Webcast. Participating on today's call with me will be Kevin Neveu, our President and CEO, and Carrie Ford, our CFO. Earlier today, we reported strong fourth 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. With that, I'll pass it over to Kerry.

Thanks, LaVon, and good afternoon. Precision's annual financial results show continued improvement from 2022 and reflect the focus on the 2023 strategic priorities that Kevin will address in his commentary. Annual highlights include revenue of $1.9 billion, a 20% annual increase, adjusted EBITDA of $611 million, a 96% increase, funds from operations of $533 million, an 89% increase, cash from operations of $501 million, a 111% increase, debt production of $152 million, and a $30 million of share repurchases while funding two acquisitions with cash or assumption of debt totaling approximately $100 million. and positive earnings per share every quarter during 2023 and for the past six consecutive quarters. In 2023, we closed the CWC acquisition on November 8th, and the Precision team has aggressively worked with our new colleagues at CWC to integrate the business to begin realizing synergies, including consolidating facilities, reducing administrative costs, and utilizing Precision's tech centers and supply stores to support the field. To date, we have achieved $12 million of the projected $20 million of annual synergies and expect to achieve most of the remainder in the first half of 2024. Moving on to our fourth quarter results, our fourth quarter adjusted EBITDA of $151 million included a share-based compensation charge of $13 million and transaction and severance charges of $6 million. Absent these charges, adjusted EBITDA would have been $170 million. In the U.S., drilling activity per precision averaged 45 rigs in Q4, an increase of four rigs from Q3 driven in part by the addition of acquired CWC rigs. Daily operating margins in the quarter absent impacts of IBC and turnkey were 11,802 USD in line with our guidance of 11,500 USD to 12,000 USD and consistent with Q3 levels. IBC revenue for the fourth quarter was 1,633 U.S. dollars per day, and for Q1, we expect minimal IBC revenue and normalized margins to range between 9,000 USD and 10,000 USD. The decrease in margins is mainly due to overhead costs spread over fewer activity days compared to Q4. In Canada, drilling activity for precision averaged 64 rigs, a decrease of two rigs from Q4 2022. Daily operating margins in the quarter were $15,740, an increase of approximately $1,800 from Q3 2023, and in line with our guidance of margins above $15,000 per day. For Q1, we expect margins to remain above $15,000 per day. Internationally, drilling activity for precision in the quarter averaged eight rigs and average day rates were 49,872 USD in line with the prior year. We expect 2024 activity levels will increase by approximately 40% over 2023 levels. I will remind the audience that capital expenditures in the international segment are typically lumpy with high CapEx at the front end of projects and lower normalized levels in subsequent years. For 2023, With recertification costs for the four Kuwait rig contracts and a bulk drill pipe purchase order for the region, international capital expenditures were over $50 million. For 2024, we expect capital expenditures to significantly decrease to normalized maintenance levels. In our C&P segment, adjusted EBITDA this quarter was $12 million, flat with our prior year quarter. Adjusted EBITDA was positively impacted by a 15% increase in well-service hours, reflecting partial impact of the CWC service rig acquisition. We expect results will improve in Q1 with increased rates and activity, the absence of Q4 transaction-related cost, and the realization of transaction synergies. Capital expenditures for the quarter were $79 million, and for the year, $227 million. Our capital expenditures were slightly higher than our guidance of $215 million due to timing of equipment deliveries. Our 2024 capital plan is $195 million and is comprised of $155 million for sustaining an infrastructure and $40 million for contracted upgrades and expansion. Sustaining an infrastructure CapEx of $155 million includes $40 million of long lead items. And I'd like to take a moment to comment on the strategic decision to purchase these long lead items because I believe it exemplifies Precision's ability to leverage our scale to reduce costs while positioning the company for growth opportunities. Due to our standardized fleet high activity levels across a broad geographic footprint and a mature supply chain function with core vendor relationships, we achieved a bulk purchase discount on these items and plan to utilize the equipment in either the US or Canadian fleet for potential upgrades or as critical spares. This also ties in with daily operating costs, which have increased for us and our peers over the past three years. The wage increases for our crews have been earned and well-deserved, and as a result, they are largely here to stay. Although the field labor portion of our daily operating costs is sticky, opportunities to lower costs exist. Identifying these opportunities and realizing cost savings has been and will remain a key focus area for the finance team, and we are working hand in hand with our operations, technology, supply chain, and equipment maintenance teams to reduce inflationary pressures, optimize equipment performance, and produce a lower and less volatile cost structure in the future. Moving to our contract book, as of February 5th, we had an average of 52 contracts in hand for the first quarter and an average of 43 contracts for the full year 2023. We now have 21 rigs on contract in Canada for 2024, reflecting an increasing number of customers seeking to lock up rigs ahead of LNG project startups. Moving into the balance sheet, As of December 31st, our long-term debt position net of cash was approximately $880 million, and our total liquidity position was over $600 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 1.4 times, a decrease from 3.4 times at the end of 2022. Our average cost of debt is 7%. We plan to reduce debt by $150 million to $200 million in 2024 and have increased our long-term debt reduction goal from $500 million to $600 million between 2022 and 2026. As of December 31st, 2023, we have reduced debt by $258 million and have $342 million additional reduction necessary over the next three years to reach our goal. We began reducing debt in 2016 and every year we have provided guidance we have met or exceeded our targets. To date, we have had only a modest allocation of free cash flow for share repurchases. But as we approach our target debt levels of below one times, we are confident in our ability to increase our allocation to direct shareholder payments as a percentage of free cash flow. We plan to allocate 25% to 35% of free cash flow before debt repayments for share repurchases, and we'll expect to continue increasing this allocation in future years moving towards a target allocation of 50% of free cash flow before debt repayments by 2026. Moving on to guidance for 2024, we expect strong free cash flow for the year, but Q1 cash flow to be impacted by front-end loaded capex, a working capital build, our semi-annual interest payment, and year-end payments. We expect depreciation of approximately $290 million, cash interest expense of approximately $75 million, Cash taxes to remain low and our effective tax rate to be approximately 25%. SG&A of approximately $100 million before share-based compensation expense. And we expect share-based compensation charges for the year to range between $45 million and $55 million at an $80 share price. And the range may change based on the share price and the performance of precision stock relative to precision's peer group. Please note this is a preliminary estimate and we will provide updated guidance on our Q1 call following the settlement of past grants and issuance of new grants later this quarter. With that, I will hand the call over to Kevin.