Precision Drilling(US:PDS)2025-02-13 22:49Financial Data and Key Metrics Changes - Precision Drilling reported annual revenue of CAD 1.9 billion, essentially flat year-over-year, with adjusted EBITDA of CAD 521 million, a 15% decrease year-over-year [10] - Funds from operations were CAD 463 million, a 13% decrease, while cash from operations remained similar to the prior year at CAD 482 million [11] - The company achieved a debt reduction of CAD 176 million and completed CAD 75 million in share repurchases, representing 4% of outstanding shares [11] Business Line Data and Key Metrics Changes - In the U.S. drilling segment, average rig activity was 34 rigs in Q4, a decrease of 1 rig from Q3, with daily operating margins of USD 9,165, below guidance [13] - Canadian drilling activity averaged 55 rigs, an increase of 1 rig from Q4 2024, with daily operating margins of CAD 14,559, an increase of approximately CAD 2,131 from Q3 2024 [14] - Internationally, average drilling activity was 8 rigs with average day rates of USD 49,636, consistent with the prior year [16] Market Data and Key Metrics Changes - The Canadian market outlook remains positive, with indications of increased activity during the breakup period, expected to exceed last year's record levels [41] - The U.S. land market has been challenging, with gas-directed activity declining and oil-directed activity impacted by various factors [32][36] - Internationally, oil activity is expected to remain flat for 2025, with no suspension requests in Saudi Arabia and firm operations in Kuwait [46] Company Strategy and Development Direction - The company’s 2025 strategic priorities focus on maximizing free cash flow, reducing debt, and enhancing shareholder returns through share repurchases [4] - Precision aims to grow revenue in existing service lines and strengthen its competitive position through operational excellence and market penetration of its products [9] - The company is transitioning its strategy to allocate more cash towards share buybacks while considering growth-focused investments [31] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding gas opportunities in the U.S. while acknowledging challenges in the oil market due to operator capital discipline and commodity price volatility [34][36] - The Canadian market is expected to see increased demand, particularly with LNG Canada starting up, which should enhance rig demand [42] - Management remains focused on maintaining operational efficiency and leveraging technology to improve market positioning [38][85] Other Important Information - Capital expenditures for the quarter were CAD 59 million, with a total of CAD 217 million for the year, slightly above guidance due to equipment delivery timing [18] - The company has a capital plan of CAD 225 million for 2025, with a focus on sustaining infrastructure and upgrades [18] - As of December 31, long-term debt was CAD 748 million, with a net debt-to-EBITDA ratio of approximately 1.4x [20] Q&A Session Summary Question: Can you speak to contract duration for idle but contracted rigs in the U.S.? - Management noted that there has been significant churn in the U.S. market, with many contracts being short-term, indicating downside risk for the first couple of quarters [52][54] Question: What assumptions support expected activity growth in the second half of the year? - Management highlighted conversations with customers indicating a comfort level for gas prices in the high 3s to mid-4s range, suggesting potential rig count stability and opportunities in Q2 and Q3 [56][58] Question: How do you see Canadian activity levels progressing throughout the year? - Management indicated that Q1 margins are impacted by rig reactivations and a shift in rig mix, but they expect pricing traction and improved margins as the year progresses [60][66] Question: What is the impact of tariffs on your operations? - Management expressed that the reduced tariff levels have less impact compared to larger macroeconomic factors, and they have strategies in place to manage potential tariff-related costs [71][73] Question: Is there any indication of private equity returning to the E&P space? - Management confirmed that there is capital returning to the E&P space, which is a positive sign for future activity levels [78] Question: How do you view the tuck-in acquisition opportunities in the current market? - Management acknowledged that while the market for consolidation exists, valuation remains a challenge, and they are focused on pursuing opportunities at the right price [92][94]