Precision Drilling Corporation 2026 Third Quarter Results Conference Call and Webcast - PRECISION DRILLING CORP

Explicit Guidance:

• Q4 2026 Activity: Expect average active rig count of low 70s in Canada (up from 66 in prior year Q4); low to mid-40s in the U.S.
• Q4 2026 Margins: Canadian daily operating margins expected at $13,500–$14,500; U.S. daily operating margins expected to climb to US$9,500–US$10,500.
• Q4 2026 International: Expect to operate 7 rigs with elevated operating costs; C&P segment EBITDA expected in line with prior year levels.
• Full Year 2026 CapEx: Budget increased to $275M–$285M to support committed long-lead purchases and a pending upgrade opportunity.
• Full Year 2026 Financials: Depreciation expected at $325M; Cash interest expense ~$45M; Effective tax rate 25%–30%; SG&A $100M (pre-Share-Based Compensation), including one-time restructuring costs.
• Full Year 2026 Share-Based Compensation: Range $25M–$50M, dependent on share price ($100–$150) and a multiplier (0–2x).
• Full Year 2026 Capital Allocation: Committed to $100M debt reduction target; remaining share repurchase commitment of $50M (on a quarterly basis, implying continued buybacks through Q4).
• Q1 2027 Margins: Management will provide explicit margin guidance in February; expects Q4 2026 to reflect a more sustainable margin level.
• 2026 Tax Position: Business cash taxes expected to remain low in 2026; slight increase anticipated in Canada in 2027.

Business-Segment Outlook:

• Canada: "Super Single" rigs expected to operate at near-full utilization through the winter; "Super Triple" fleets also at near-full utilization. Sustained high activity in heavy oil and Montney/Unconventional gas bases.
• U.S.: Focus on margin expansion via improved fixed cost absorption; reactivation frequency expected to drop to single digits in 2027 on a higher base activity level.
• International: One idle rig in Kuwait expected to return to work in mid-2027 under a five-year contract; Argentina opportunities exist but currently lack acceptable contract terms for risk mitigation.
• C&P Services: Strong free cash flow driven by well-servicing and surface rental businesses; growing rentals business delivering incremental YoY revenue/EBITDA.
• Technology Services (Alpha/Clarity): Alpha and Evergreen businesses on track for highest revenue and contribution margin ever; growing customer interest in AI-driven optimization and robotics.
• U.S. Activity Growth: Permian rig count expected to remain in the low-mid 40s for remainder of year; significant volume of rig startup requests expected for early 2027, driven by public and private operators in the Permian, Haynesville, and Rockies.

Market and Competitive Outlook:

• U.S. Contracting Trends: Shift observed from 0–6 month contracts to 6–12 months, with increasing conversations targeting 18-month to 2-year terms.
• Canadian Market Dynamics: Expectation of more level load drilling activity throughout the year due to extended operating seasons; potential to add ~9 rigs worth of capability via pad upgrades to Super Single rigs in the Montney/Heavy Oil regions.
• Pricing Power: Support for price increases driven by utilization and performance requirements; broad repricing opportunities expected in spring breakout; current strategy involves adding features to drive pricing higher.
• Customer Base: Consolidation among Canadian producers leading to longer-term development programs and higher expectations for efficiency and technology; U.S. customer base deepening with multiple rig placements per customer.
• Capacity: 52 "hot" (warm) rigs available in the U.S. by year-end, supporting potential to reach 50+ active rigs without significant reactivation costs.

Macro / Industry Outlook:

• Canadian Infrastructure & Policy: Positive macro backdrop driven by TMX expansion, Canada LNG Phase 1, and Pacific Link Pipeline (designated national interest, potential approval within 1 year); Shell's FID on LNG Phase 2 and BC political support; Federal mega-tax deduction for infrastructure.
• Inflation & Costs: Primary headwinds include high-end field labor retention, steel-intensive purchases (specifically drill pipe), and diesel prices.
• Fuel Costs: Evergreen offering (batteries, bi-fuel, hydrogen injection) gaining traction as a solution for customers to reduce diesel consumption and costs.
• International Risks: Elevated operating expenses in the Middle East due to regional tensions; potential for Argentina market entry contingent on mitigating financial risk in contract terms.

Strategic Initiatives:

• U.S. Fleet Strategy: Upgrading and reactivating Super Triple 1500s, likely for the Permian; opportunities in Haynesville expected to be low to mid-single digit in count.
• Canadian Fleet Strategy: Planned 2–3 ERD (Extended Reach Drilling) upgrades and 1–3 Super Single pad upgrades in 2027; low single-digit upgrade opportunities.
• Pending Upgrade Opportunity: High-priority capital project for a large Canadian producer with contracts contracted through 2029.
• Remote Operations Center: Calgary Remote Ops Center (opened August) driving customer engagement; over 100 customer representatives visited to observe Alpha technology and optimization teams.
• 2027 CapEx Focus: Capital directed toward the pending Canadian producer upgrade project; reactivation costs expected to be minimal in 2027 compared to 2026.
• Debt Reduction: Goal to reach net debt to adjusted EBITDA <1.0x by end of 2026/early 2027, unlocking flexibility for accelerated share buybacks.

Risks and Headwinds to Outlook:

• Reactivation Costs: While reduced, reactivations remain a variable; management notes that Q4 includes one reactivation.
• International Cost Volatility: Middle East regional tensions continue to elevate operating expenses; Argentina contract negotiations carry financial risk if terms are not met.
• Inflationary Pressures: Labor wage increases, steel price volatility, and diesel cost escalations impacting C&P and international margins.
• Weather & Seasonality: Canadian Q4 activity impacted by temporary shutdowns over Christmas; wet conditions into late October noted (though activity remains at multi-year highs).
• Contract Negotiation: Argentina market entry stalled due to inability to meet on financial risk mitigation terms.
• Tax Dispute: CRA dispute remains unresolved; formal objection to be submitted in Q4.

Management Tone on the Future:

• Confidence: High confidence in Q4 margin expansion and the sustainability of U.S. margins heading into 2027; described Canadian market news as "head-spinning."
• Strategic Clarity: Reiteration that "it is what we said we would do"; focus on disciplined capital deployment for short- and long-term shareholder value.
• Flexibility: Emphasis on the "flexibility built in the company" post-debt reduction to enhance shareholder value via buybacks.
• Future Growth: Excited about technology partnerships and the potential for robotics; optimistic about U.S. activity growth driven by early-year rig startup requests.
• Hedges: Explicitly noted that reactivation costs will be "much smaller" in 2027 due to higher base activity; CAPEX range allows for flexibility on pending opportunities.

Miscellaneous:

• Liquidity: Over $460M in total liquidity entering Q4; $75M debt reduced and $47M shares repurchased in first nine months of 2026.
• Technology Differentiation: "Alpha" and "Clarity" platforms are critical to meeting evolving customer needs for efficiency and emissions reduction; ongoing customer performance dialogue expected to strengthen long-term partnerships.
• Safety: Acknowledged field crews in the Middle East operating in a dynamic environment.