Precision Drilling Corporation

Good day and thank you for standing by. Welcome to the Precision Drilling Corporation 2025 First Quarter Results Conference Call and Webcast. I would now like to hand the conversation over to Yvonne Zudonic, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and welcome everyone to our First Quarter Conference Call. Today, I'm joined by Kevin Neveu, Precision's President and CEO, and Carrie Ford, our CFO. Yesterday, we reported our first quarter results. To begin the call, Kerry will review these results and then Kevin will provide an operational update and outlook commentary. Once we have finished our prepared comments, we will open the call for questions. Please note some of the comments today will refer to non-IFRS financial measures and include forward-looking statements which are subject to a number of risks and uncertainties. For more information on financial measures, forward-looking statements and risk factors, please refer to our news release, and other regulatory filings on CDAR and EDGAR. As a reminder, we express our financial results in Canadian dollars unless otherwise stated. With that, I'll turn it over to you, Kerry.

Thank you, Lavonne. The Precision Q1 financial results met our expectations for adjusted EBITDA earnings and cash flow. Adjusted EBITDA of $137 million was driven by strong drilling activity in Canada and steady cash flow generation from our drilling operations in the U.S. and Middle East, as well as our completion and production services business. Our Q1 adjusted EBITDA included a share-based compensation charge of $3 million and restructuring charges of $3 million. Without these charges, adjusted EBITDA would have been $143 million. Revenue for the quarter was $496 million, a decrease of 6% from Q1 2024. Net earnings were $35 million, or $2.52 per share, representing Precision's 11th consecutive quarter of positive earnings. Funds and cash provided by operations were $110 million and $63 million, respectively. And in the U.S., precision drilling activity averaged 30 rigs in Q1, a decrease of four rigs from the previous quarter. Daily operating margins in Q1, excluding the impacts of turnkey and IBC, were $8,360 USD, a decrease of $787 USD from Q4. For Q2, we expect normalized margins to be between $7,000 USD and $8,000 USD. Daily operating costs in the U.S. were unusually high this quarter due to rig activations, rig mobilizations, severance costs, and standby labor. Without these items, daily operating costs would have been approximately $22,000 per day, which is still above where I would like to see. As previously mentioned, we are carrying higher fixed costs in the U.S. to support future activity increases. We maintain active rigs in the Rockies, West Texas, South Texas, Louisiana, and the Northeast. We intend to maintain a strong presence in all these regions, but that presence comes with cost. Our US team is demonstrating its ability to increase activity levels, ultimately driving down the per rig fixed cost burden. As the activity increase will not happen immediately and should evolve over several quarters, I will continue to push our team on every aspect of our cost structure to drive down operating costs as we work through the year. Also, with planned activity increases, I will be closely monitoring costs associated with rig reactivations and mobilizations later this year, as these costs may introduce some variability in reported daily costs in future periods. Our goal will be to continue to drive down normalized operating costs throughout 2025. Moving to Canada, precision drilling activity averaged 74 rigs, an increase of one rig from Q1 2024. Our daily operating margins for the quarter were $14,779, a decrease of $858 from Q1 2024. For Q2, our daily operating margins are expected to be between $13,500 and $14,500. Internationally, precision drilling activity in the quarter averaged eight rigs. International average day rates were $49,419 USD, a decrease of 6% from the prior year due to fewer rig moves. In our C&P segment, adjusted EBITDA this quarter was $18 million, down 8% compared to the prior year quarter. Adjusted EBITDA was negatively impacted by a 10% decrease in well service hours, slightly offset by higher margins. Well abandonment work represented approximately 27% of well service operating hours in the quarter. Capital expenditures for the quarter were $60 million, including $20 million for upgrade and expansion and $40 million for maintenance and infrastructure. Our full year 2025 capital plan has been reduced from $225 million to $200 million, and it is comprised of $158 million for sustaining infrastructure and $42 million for upgrade and expansion. As of April 23rd, we had an average of 41 contracts in hand for the second quarter and an average of 38 contracts for the full year 2025. Moving to the balance sheet, our Q1 cash flow performance was better than expected. with neutral cash flow despite a quarter with working capital increases, semi-annual interest payments, and typical year-end payments. In fact, the $46 million decrease in cash from year-end was applied almost entirely to debt reduction of $17 million in share repurchases of $31 million in the quarter. As of March 31st, our long-term debt position net of cash was approximately $778 million, and our total liquidity position was approximately $570 million, excluding letters of credit. Our net debt to trailing 12-month EBITDA ratio is approximately 1.5 times, and our average cost of debt is 6.9%. We expect our net debt to adjust to EBITDA before share-based compensation expense to continue to decline throughout the year. This quarter on our balance sheet, we recognized the $230 million balance on our 2026 note as current debt. We plan to reduce this balance by at least $80 million in the last three quarters of the year with cash flow and cash on hand during the year and use our undrawn revolving credit facility to address the remaining balance. Our plan to reduce our revolver balance continues significantly during 2026, where we expect to reduce the majority of the balance. Our revolving credit facility, as a reminder, matures in the middle of 2027. We are committed to reducing debt by $700 million between 2022 and 2027 and achieving a normalized leverage level below one times. Since 2022, we have reduced debt by $452 million. Conveniently, the $248 million remaining on our target debt reduction nearly matches the remaining balance on our 2026 notes. Our debt reduction target for 2025 is $100 million, and we plan to allocate 35% to 45% of free cash flow before debt principal payments towards share repurchases. Moving on to guidance for 2025, strong cash flow for the year, depreciation of approximately $300 million, cash interest expense of approximately $65 million, cash taxes we expect to remain low, and our effective tax rate to be approximately 25% to 30%. We expect SG&A of approximately $95 million before share-based compensation expense. And we expect share-based compensation charges for the year to range between $15 million and $35 million at a share price range of $60 to $100. And the charge may increase or decrease based on share price performance and the performance of our shares relative to Precision's peer group. With that, I will turn the call over to Kevin.