Precision Drilling(US:PDS)2022-02-11 01:31Financial Data and Key Metrics Changes - Precision Drilling reported an adjusted EBITDA of CAD 64 million for Q4 2021, a 16% increase from Q4 2020, driven by higher North American activity [19] - The company aims to reduce debt by CAD 400 million over the next four years, targeting a net debt to EBITDA ratio below 1.5 times [18][28] - As of December 31, 2021, the long-term debt position net of cash was approximately CAD 1.1 billion, with total liquidity around CAD 530 million [27] Business Line Data and Key Metrics Changes - In the U.S., drilling activity averaged 45 rigs in Q4, up four rigs from Q3, with daily operating margins of USD 5,648, an increase of USD 410 from Q3 [20] - In Canada, drilling activity averaged 52 rigs, an 87% increase from Q4 2020, with daily operating margins of CAD 7,990, up CAD 1,095 from Q4 2020 [21][22] - Internationally, drilling activity averaged six rigs, with average day rates at USD 52,069, down approximately 6% from the prior year [23] Market Data and Key Metrics Changes - The global oil demand has almost fully recovered, leading to strong oil and gas prices, with a tight supply-demand equation [9][10] - Labor inflation and service price inflation are present, with day rates being adjusted to reflect these changes [11] - The Canadian market is experiencing strong producer economics, with Western Canada select trading at its highest level since April 2014 [39] Company Strategy and Development Direction - The company is focused on financial discipline and capital allocation, prioritizing returns to shareholders through share buybacks and potential dividends in the future [18][54] - Precision is enhancing its technological capabilities through the EverGreen suite, aimed at reducing GHG emissions and improving operational efficiency [12][51] - The company is not pursuing market share aggressively but is focused on economic returns for each rig opportunity [35] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery cycle, noting that it is different from previous cycles due to capital discipline in the industry [15][16] - The company expects continued strong free cash flow generation in 2022, despite front-loaded capital expenditures [29] - Management anticipates that Q2 and Q3 activity levels could exceed those of Q1, barring any macroeconomic disruptions [132] Other Important Information - Capital expenditures for Q4 were CAD 28 million, with a total of CAD 76 million for the year, aligned with expectations for increased activity [25] - The 2022 capital plan is set at CAD 98 million, focusing on sustaining infrastructure and upgrading technology [26] - The company is experiencing strong demand in its well service group, with improved revenue and operating margins [44] Q&A Session Summary Question: How much of the day rate increase is due to cost inflation versus capturing more economic rent? - Management indicated that part of the increase is due to labor costs and reactivation costs, with the remainder attributed to margin expansion [59] Question: Have expectations for activity outlook in Canada and the U.S. changed? - Management confirmed a modestly more positive outlook for activity levels in both regions, reflecting stronger commodity prices [61] Question: What are the biggest constraints to growth currently? - Management noted that the company may run out of super-spec rigs during the year, indicating a high demand for their services [70] Question: What is the pricing perspective in Canada compared to the U.S.? - Management stated that pricing improvements in Canada are ahead of the U.S. market, driven by tighter utilization and labor challenges [84] Question: What is the framework for dividends versus buybacks in the capital return plan? - The initial focus will be on share buybacks, with dividends becoming more likely as the company approaches its target leverage level [120]