Precision Drilling(US:PDS)2021-10-21 21:22Financial Data and Key Metrics Changes - Precision Drilling reported an adjusted EBITDA of CAD 45 million for Q3 2021, which would have been CAD 59 million without a share-based compensation expense accrual of CAD 14 million [4] - The company received CAD 6 million in CEWS assistance payments, with a total impact of approximately CAD 24 million for 2021 [5] - The long-term debt position net of cash was approximately CAD 1.1 billion, with total liquidity around CAD 500 million, excluding letters of credit [12] - Year-to-date debt reduction reached CAD 60 million, with expectations to achieve a total reduction of CAD 100 million to CAD 125 million for the year [13] Business Line Data and Key Metrics Changes - U.S. drilling activity averaged 41 rigs in Q3, an increase of 2 rigs from Q2, with daily operating margins at USD 5,211, down USD 1,541 from Q2 [6] - Canadian drilling activity averaged 51 rigs, a significant increase from Q3 2020, with daily operating margins at CAD 6,238, down CAD 2,268 from Q3 2020 [8] - International operations averaged 6 rigs, with average day rates at USD 52,277, down USD 2,610 from the prior year [9] - The C&P segment reported adjusted EBITDA of CAD 5.4 million, up CAD 1.5 million compared to the prior year quarter, driven by a 107% increase in Well Service hours [10] Market Data and Key Metrics Changes - The U.S. market is experiencing a dwindling inventory of uncompleted wells, indicating a need for operators to shift focus back to drilling [20] - In Canada, the outlook is strengthening with key commodity prices suggesting peak industry demand could reach 250 to 300 rigs [31] - Internationally, activity remains steady, with ongoing contract renewals in Saudi Arabia and Kuwait [33][34] Company Strategy and Development Direction - The company is focused on capital discipline and sustainable shareholder returns, which are expected to lead to a healthier industry balance [19] - Precision is prioritizing environmental initiatives through the launch of the Precision EverGreen brand, aimed at reducing emissions and enhancing drilling performance [22][23] - The company is also expanding its Alpha digital technologies, with 46 rigs equipped and a 38% sequential increase in app activity [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in energy demand and favorable commodity prices, with expectations for increased drilling activity in 2022 [18][20] - The company is committed to maintaining pricing discipline, even if it means turning down work to achieve desired rates [29] - Management noted that while the global energy transition is underway, hydrocarbons will remain a critical part of the energy supply chain for the foreseeable future [21] Other Important Information - Capital expenditures for the quarter were CAD 20 million, with a full-year guidance increase to CAD 74 million due to opportunistic purchases [11] - The company expects normalized margins in Q4 to be USD 1,500 to USD 2,000 higher than Q3 [7] Q&A Session Summary Question: How is the company managing labor cost inflation? - Management indicated that contracts have provisions to pass labor cost inflation to customers, and they are actively working on recruiting strategies to mitigate these pressures [41][42] Question: What is the outlook for rig count and pricing power? - Management noted that while they are currently operating 45 rigs, they expect to exceed 50 by year-end, with a strong focus on pricing discipline [70] Question: What are the expectations for well abandonment programs? - The well servicing program is expected to continue until the end of next year, with traditional demand likely to replace any lost work once the program concludes [72] Question: How is the company addressing international rig reactivations? - Management stated that reactivating rigs internationally would incur lower operational costs compared to capital expenditures, with a focus on the Arabian Gulf region [65][74]