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

Explicit Guidance:

• Q4 2026 Revenue/Margins: Canada daily operating margins expected between $13,500 and $14,500; US daily operating margins expected to climb to $9,500–$10,500 (up from $7,653 in Q3); International margins expected to remain under pressure due to elevated costs; C&P EBITDA expected to remain in line with prior year levels.
• Q4 2026 Activity: Canada average active rig count expected in the low 70s (up from 66 in Q4 2025); US average rig count expected in the low to mid-40s (vs. 43 in Q3); International rig count expected to remain at 7 active rigs.
• FY 2026 Capital Expenditures: Increased budget range to $275–$285 million (up from prior guidance) to support committed long-lead purchases for 2027 and pending upgrade opportunities; breakdown includes ~$58M maintenance/infrastructure and ~$24M upgrades in Q3, with the full year reflecting the higher cap.
• FY 2026 Financial Metrics: Depreciation expected at $325 million; Cash interest expense ~$45 million; Effective tax rate 25–30%; SG&A $100 million (excluding share-based comp); Share-based compensation range $25–$50 million (dependent on share price between $100–$150 and multiplier 0–2x).
• FY 2026/2027 Capital Return & Debt: Committed to $100 million debt reduction target for 2026 (remaining $60–$65M to go); Liquidity >$460 million with target net debt/EBITDA ratio <1.0x by year-end 2026/early 2027; Share buyback program continues through Q4, with significant shift to buybacks expected in 2027 once debt targets are met.
• 2027 Outlook: Cash taxes expected to slightly increase in Canada; Business positioned for improved cash flow generation and margin expansion.

Business-Segment Outlook:

• North America Drilling (Canada): Expect robust demand for "Super Series" rigs with utilization near full through the winter; Heavy oil (Super Single) utilization up 18% YoY; Montney activity steady; 28 rigs under contract in Q3 (up from 16 YoY); Potential for more drilling days via pad upgrades adding ~100 days/rig, potentially requiring capability for ~9 additional rigs if all non-configured units are upgraded.
• North America Drilling (US): Focus on margin expansion post-reactivations; Permian rig count at 16 (up from 8 YoY); "Hot stack" (warm) rig inventory at 52 by end of quarter, supporting potential ramp to ~50 active rigs; Activity expected to improve in the Northeast with multiple rigs firing up in coming months; Elevated requests for rig startups anticipated for Q1 2027, signaling improved activity outlook.
• International: Operations steady at 7 rigs; One high-performing Kuwait rig idled is expected to return to work in mid-2027 under a five-year contract; Argentina market has significant demand for high-spec rigs, but no contracts finalized yet due to risk mitigation terms; Middle East operations facing elevated costs due to regional tensions.
• C&P (Completion & Production): Adjusted EBITDA growth driven by well-servicing and rentals business in heavy oil regions; Rentals business delivering incremental revenue/EBITDA; Growing contract book and full-service offering strengthening competitive position.

Market and Competitive Outlook:

• Pricing & Contracts: US market contract durations shifting from 6-months to 1–2 years; Industry-wide conversations on pricing supported by utilization, though broad repricing expected until spring breakup; Customers adding features to rigs to drive higher pricing.
• Demand & Activity: Canadian market at multi-year highs despite wet conditions; Western Canada pipeline and LNG infrastructure (TMX, LNG Canada Phase 2, Pacific Link, Greenlight Data Center) creating a constructive investment backdrop; Customer consolidation in Montney/DuVernay/Heavy oil driving demand for efficiency and technology.
• Competitive Positioning: Differentiation via Alpha/Clarity technology platforms and crew training; Growing demand for emissions/diesel reduction solutions (batteries, bi-fuel, hydrogen injection) via Evergreen offering; Robotics discussions heating up with customers in both US and Canada.
• Geography Expansion: Increased focus in Permian (16 rigs); Potential for US rigs (Super Triple 1500s) to be reactivated/upgraded for Permian and Haynesville; Potential to move Super Triple 1200s from US to Canada if demand surges; Currently no rigs in Oklahoma/North Dakota.

Macro / Industry Outlook:

• Infrastructure & Regulation: Pacific Link Pipeline designated "Project of National Interest" (decision within 1 year); Shell's FID on LNG Canada Phase 2 and BC election support LNG growth; Federal mega-tax deduction for infrastructure creating favorable backdrop for Canadian energy investment.
• Inflation & Costs: Primary inflationary pressures identified as labor retention (wage increases implemented in US and Canada) and steel-intensive purchases (drill pipe, accelerated wear); Diesel price increases managed via Evergreen offerings; International and Canadian C&P segments most exposed to inflation; Vertically integrated model used to mitigate cost escalation.
• FX & Taxes: Financials in Canadian dollars; Effective tax rate 25–30% for 2026; CRA dispute update submitted in Q4.

Strategic Initiatives:

• Fleet Upgrades: 2026 guide included 25 upgrades; 2027 outlook includes low single-digit upgrades (2–3 ERD upgrades in Canada, 1–3 pad upgrades in heavy oil, reactivations/upgrades of Super Triple 1500s in US/Permian); One pending upgrade opportunity in Canada could contract multiple rigs through 2029.
• Technology Centers: Calgary Remote Ops Center opened (Aug); Over 100 customer representatives visited; Focus on AI-driven insights and real-time optimization.
• Capital Allocation: Prioritizing debt reduction to reach <1.0x leverage by end of 2026, followed by increased share repurchases and buyback ramp in 2027; No SIV or other acceleration mechanisms currently planned, but flexibility exists.

Risks and Headwinds to Outlook:

• International Risks: Regional tensions in Middle East elevating costs; Argentina contract negotiations stalled on financial risk terms.
• Operational/Seasonal: Canadian Q4 activity impacted by Christmas shutdowns; Wet weather conditions in Canadian summer/late fall.
• Cost Pressures: Elevated labor costs and fuel prices (diesel); Steel price/wear impacts on drill pipe; Reactivation costs previously impacted margins (Q3/Q4 2026).
• Regulatory/Tax: Ongoing CRA dispute resolution; Potential changes in tax rates or regulatory frameworks in Canada.
• Execution: Finite number of upgrade opportunities; Margin sustainability dependent on limiting new reactivations (targeting single digits in 2027) and absorbing fixed costs on higher activity base.

Management Tone on the Future:

• Confidence: High confidence in margin expansion trajectory and sustained activity; Described Canadian market news as "head-spinning" and positive; Confident in "holding margins" into 2027 with only single-digit reactivations.
• Trend: Shift from reactive reactivations to sustainable growth; Positive sentiment on US Permian performance and Canadian infrastructure drivers; Expectation that 2027 will be a year of "steady and potentially growing profitability" in the US.
• Commitment: Reaffirmed commitment to capital return program and debt reduction; View 2027 as a pivotal year for shifting FCF toward shareholders.

Miscellaneous:

• Technology: "Evergreen" and "Alpha" businesses on track for highest revenue/contribution margin; Clarity platform and digital twin offerings expanding value proposition.
• Workforce: Field crews recognized for safety in dynamic environments; Wage increases implemented to retain talent in growth environment.
• Future Reporting: Formal Q1 2027 margin guidance to be provided on February call.