Precision Drilling(US:PDS)2020-04-30 21:44Financial Data and Key Metrics Changes - Precision Drilling reported an adjusted EBITDA of CAD 102 million for Q1 2020, a decrease of 6% compared to Q1 2019, primarily due to a 30% reduction in U.S. activity, offset by a 33% increase in Canadian drilling activity [19][20] - The company's long-term debt position, net of cash, is approximately CAD 1.4 billion, with total liquidity exceeding CAD 800 million [23] - The net debt to trailing 12-month EBITDA ratio stands at approximately 3.6x, with an average cost of debt at 6.8% [23] Business Line Data and Key Metrics Changes - In the U.S., drilling activity averaged 55 rigs, a decrease of 8 rigs from Q4 2019, with daily operating margins of USD 9,344, down USD 532 from Q4 [19] - Canadian drilling activity averaged 63 rigs, an increase of 15 rigs from Q1 2019, with daily operating margins of CAD 7,205, down CAD 1,317 from Q1 2019 [20] - Internationally, drilling activity increased by 1% from Q1 2019, with average day rates rising to USD 54,294, an increase of USD 4,354 from the prior year [21] Market Data and Key Metrics Changes - Precision's U.S. market share increased to 58 rigs in late February, holding that level until late March, before declining due to oil price volatility [32] - In Canada, the company peaked at 83 rigs running in late January, maintaining a market share of approximately 32% [33] - As of the end of March, Precision had 15 rigs active in Canada, with current activity down to 11 rigs, reflecting historic lows for the Canadian segment [36] Company Strategy and Development Direction - The company is focused on preserving cash and maximizing liquidity during the downturn, with expected cash savings exceeding CAD 100 million this year [13][18] - Precision is prioritizing operational excellence and technology commercialization, with ongoing initiatives like AlphaAutomation and AlphaAnalytics to enhance efficiency [29][30] - The company plans to maintain a strong liquidity position and resume debt repayments when visibility improves [23][27] Management's Comments on Operating Environment and Future Outlook - Management expressed that the current downturn is the deepest and toughest experienced, with a focus on financial and competitive positioning [26] - The company anticipates a continued decline in industry activity, particularly in the U.S., with expectations of settling in the low 30s for rigs for the remainder of Q2 [35] - Management noted that while there is uncertainty, they are well-positioned to manage through low customer demand and are focused on cash generation [28][36] Other Important Information - The Canadian federal government announced a CAD 1.7 billion funding program for well abandonments, which is expected to significantly impact Precision's well service business [42][93] - The company has implemented cost-saving initiatives, including workforce reductions and slashing travel and entertainment budgets [17][18] Q&A Session Summary Question: Can you elaborate on the recent changes in customer discussions regarding activity levels? - Management indicated that discussions have shifted from reducing activity to implementing previously made decisions, with a focus on stability in drilling due to hedged customers and natural gas drilling [46][47] Question: Is there a possibility of the rig count bottoming in Q2? - Management refrained from calling a bottom but suggested that customer planning is complete, and they will start looking into Q3 after their disclosure period [52][54] Question: What is the company's comfort level with its financial position compared to previous downturns? - Management expressed confidence in their ability to manage costs and maintain free cash flow, emphasizing the importance of liquidity access [58][60] Question: How does the company view pricing pressures from customers? - Management acknowledged that procurement teams are applying pressure on pricing, but they remain disciplined in justifying their value [73][88] Question: What impact does the federal funding program have on the well service segment? - Management expects to garner a significant share of the funding, potentially leading to a material change in their well service business [92][93]