Precision Drilling (TSX:PD) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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The full earnings call is available at https://edge.media-server.com/mmc/p/952icqoy/
Summary
Precision Drilling reported a significant increase in rig utilization for Q1 2026, with a 7% rise in Canada and a 24% increase in the U.S., despite a 7% industry rig count decline.
The company generated $63 million in operating cash flow and returned capital to shareholders through debt reduction and share repurchases, with 123 rigs operating globally.
Precision Drilling plans to increase capital expenditures to $265 million for 2026, focusing on strategic upgrades and sustaining infrastructure, while targeting a net debt to adjusted EBITDA ratio of less than one by reducing debt by at least $100 million.
Management highlighted strong field performance with record low mechanical downtime in Canada and the U.S., contributing to high customer satisfaction and revenue growth.
The company anticipates record Q2 activity levels in Canada and expects to increase rig counts in the U.S. in response to higher oil prices, with price increases planned for the second half of the year.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Precision Drilling Corporation 2023 First Quarter Results Conference call and webcast. At this time, all participants are in listen only mode. After the speaker’s presentation, there’ll be a question and answer session where we will take questions from research analysts. To ask a question during the session, you’ll need to press Star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Lavon Schudomik, Vice President, Investor Relations. Please go ahead.
Lavon Schudomik
Welcome and thank you everyone for joining Precision Drilling’s first Quarter Conference call and webcast. Today. I’m joined by Kerry Ford, our President and CEO, and Dustin Honing, our CFO. Please note that some 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 MD&A and financial statements which are now available on Sedar and edgar. Before I pass the call over, I would like to highlight a couple points from our news release. First, utilization improved meaningfully in the quarter compared to Q1 of 2025. It increased 7% in Canada and 24% in the U.S. even as industry rig counts declined 7% in both markets. This performance underscores the value customers continue to see in our high performance high value strategy. Second, we delivered strong progress on our 2026 priorities, growing revenue year over year, generating $63 million in operating cash flow and returning capital to shareholders through debt reduction and share repurchases. In the first quarter, Precision had 123 rigs operating globally and remained the second most active driller in North America. With that, I’ll pass it over to Dustin.
Dustin Honing (Chief Financial Officer)
Thank you Lavon and good morning. Good afternoon. For those calling from different locations before we cover our 2026 Q1 financial results and outlook, I’ll briefly comment on our capital allocation strategy. As you’re likely aware, Precision has a longstanding reputation for publishing clear and transparent strategic priorities aligned with enhancing the competitive positioning of the business and driving enhanced shareholder returns. Over the last decade, Precision’s free cash flow generating abilities have allowed us to outpace expected timelines for delivering on major strategic initiatives, positioning the business with rapidly increasing financial flexibility. We remain committed to our shareholder return targets while responsibly investing back into the business with a return space mandate. These investments are paying dividends as we anticipate record Q2 activity levels in Canada and a notably strengthened utilization and customer mix in the US Evolving Maximizing strong free cash flow remains central to our strategy. Moving on to first quarter results despite our recurring and expected heavy Q1 working capital build, Precision generated 63 million of cash from operations. Capital expenditures were 65 million, comprised of 35 million for sustaining an infrastructure and 30 million for rig upgrades. These investments were made in step with our shareholder return commitments, reducing debt by 25 million and allocating 4 million towards share buybacks. We recorded adjusted EBITDA of 124 million which equates to 143 million before share based compensation expense compared with prior year Q1 EBITDA of 137 million 140 million before share based compensation expense. Although operating results exceeded prior year, this was offset by a larger stock based compensation accrual resulting from our share price appreciating 39% during the quarter. Net earnings were 18 million compared to 35 million in the first quarter of 2025. In Canada, drilling activity averaged 79 active rigs, an increase of 5 rigs from Q1 2025. Our reported Q1 daily operating margins were $14,282 compared to $14,780 in the prior first quarter 2025, falling within our prior guidance range. During the first quarter, Precision’s operating margins were slightly impacted by rig mix, with stronger demand requiring a higher proportion of super singles and doubles working through the winter. In the US we averaged 37 active rigs in line sequentially from Q4 and an increase of 7 rigs from prior year Q1. Our daily operating margins for the quarter were USD 9,291 compared to USD 8,754 sequentially from Q4, slightly exceeding our prior guidance range. Internationally, Precision averaged 7 active rigs down 8 rigs from prior year Q1. International day rates averaged USD 51,596, an increase of 4% from prior year, all due to rig move revenues during the quarter. Rig margins were unfavorably impacted by one Kuwait rig coming down offset by one reactivated rig in Saudi Arabia. We incurred US $2 million of one time charges associated with this reactivation and in addition recognized added logistics costs tied to the Middle east conflict. In our Completion and Production (CMP) segment. Adjusted EBITDA was 18 million in line with prior year Q1 increased well servicing demand in Canada more than offset the impacts of winding down our U.S. operations back in the second quarter of 2025. Moving on to forward guidance, I will begin with our expectations for the second quarter of 2026 starting in Canada. As I previously alluded to, our strong presence in Canada’s unconventional natural gas and heavy oil markets is expected to generate record activity levels this quarter. Our ability to capitalize is largely due to growing demand coupled with our prior year rig upgrades, expanding the pad drilling capabilities of our fleet and allowing these assets to work through the traditional seasonal constraints of spring breakup. For the full quarter we expect to average active rig counts to be approximately 60 rigs, a 20% increase from the 50 average rigs working in prior year Q2. We expect the end of the quarter to be at the mid-70s, up a similar percentage from prior year as a result of more super singles working. Our operating margins in Canada are expected to range between $12,000 and $13,000 per day, slightly lower than normalized prior year Q2, all due to rig mix. Keep in mind that prior year quarter operating margins were materially impacted by one time customer upfront payments for rig upgrades. Our expectation is that pricing levels will remain firm within our super Single and Super Triple fleet. In the US we expect to sustain the momentum we built in the last year. Early in Q2 we experienced increased contract turn with multiple rigs falling idle between jobs. This will correct over the next month or so with our rig count increasing to 35 rigs by next week exiting the quarter at our annual high within the high 30s. Beyond that level, we expect further precision rig count increases related to higher oil prices and our upgrade program. For the second quarter, we expect our operating margins to range between USD 7,500 and USD 8,500 a day due to increased reactivation costs tied to rig deployments through Q2 and into Q3. Given increased market demand for drilling rigs and precision super triples, we are in the process of implementing price increases which will flow to the back half of the year through the back half of 2026. Internationally we expect to run seven rigs. However, operating margins will be lower than prior year due to one higher margin Kuwait rig coming down in Q1 offset by recently reactivated lower margin rig in Saudi Arabia. For Q2 we expect to incur additional operating costs in response to ongoing tensions in the Middle East. Our CMP business continues to generate strong free cash flow driven by our well servicing and surface rentals business lines. For Q2, we expect EBITDA to remain in line with prior year levels. Moving on to forward guidance for the full year we’ve increased our capital expenditures budget to $265 million up from prior guidance of $245 million, which is now comprised of 168 million for sustaining an infrastructure and 97 million for upgrades. This increase includes two Canadian Super Triple rig upgrades underpinned by multi year contract commitments plus various oil weighted upgrade opportunities in both Canada and the US. Of note, we anticipate Q2 capital expenditures to be disproportionately high this quarter due to timing of bulk deliveries and scheduled maintenance capital projects leveling out through the back half of the year. Full year depreciation is expected to be 310 million and cash interest expense from debt is expected to be approximately 45 million. Our effective tax rate is expected to be approximately 25 to 30% with cash taxes remaining low in 2026. For 2026 we expect SGA to stay flat at approximately 95 million before share based compensation expense. As previously communicated, share based compensation guidance for the full year would range between 25 million and 45 million assuming a share price of 100 to 140 and a 1 times multiplier. Our long term target to achieve a net debt to adjusted EBITDA of less than one times remains firmly in place. In 2026 we were planning to reduce debt levels by at least 100 million while allocating up to 50% of free cash flow to share repurchases. Today we have an average cost of debt of 6.6% and over $433 million in total liquidity.
Kerry Ford (President and CEO)
With that, I’ll pass it over to Kerry. Thank you Dustin and good morning and good afternoon to everyone. From my prepared remarks, I plan to cover four areas. First, an update on our Middle East operations. Second, how we are growing revenue aligned with our first strategic priority. Third, our North American market outlook and fourth, a returns focused mindset that is foundational to Precision drilling. For an update on our Middle East operations, I want to recognize Precision’s leadership and crews for their performance over the past few months amid a dynamic regional environment and persistent uncertainty about where the conflict may lead next. In the face of these challenges, our team continues to focus on personnel safety, and with all seven rigs delivering excellent results for our customers, we are all extremely proud of this team moving on to progress on our first strategic priority, growing revenue and deepening customer relationships. We are succeeding on several fronts, but I will focus on three field performance, our upgrade program and international optionality. There are many ways we measure field performance, but in general field performance is almost perfectly correlated with customer satisfaction, which is also almost perfectly correlated with the drilling contractor’s ability to grow revenue. Now forgive me as I will briefly get into the weeds talking about a key field performance metric which is mechanical downtime. This is the percentage of time a rig is down in the field due to a mechanical issue when it should be making hole for a customer. In short, unplanned downtime is bad and customers don’t like it, so we do everything we can to minimize it for precision. In Q1, mechanical downtime in the U.S. was 0.59% and in Canada it was 0.48%. These figures are the best on record for Precision in each market and we believe they are industry leading. In Canada they were achieved in the highest activity Q1 we have had in over a decade. So why else is this metric important enough to highlight the performance results from our business acting on real time Data flows from the rig. Our scaled digital Twin initiative data driven sourcing of supply chain components, rig crews and maintenance practicing supporting a data driven approach. It is a true team effort with technology at the core. Furthermore, low downtime numbers are indicative of predictable repeatable performance which support safe operations and faster drill times. For those of you on the call who attended our Analyst and Investor Day in Houston one month ago, you saw firsthand how our digital platform is integrated and scaled into our operations and every operational support function, making these results possible and repeatable. Now there are multiple performance metrics demonstrating Precision’s progress in the field, a number of customer records set in the quarter, but I will stop short of covering those in detail and state that our rigs and crews are performing exceptionally well. Our customer satisfaction is high and we are growing revenue, but we still have more room for upgrades. We continue to execute our plan and are even expanding our growth investment to include two contracted Canadian Super Triple rig upgrades for delivery later this year in the first quarter. …
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