Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation 2024 Third Quarter Conference Call. I would now like to hand the call over to Lavonne Zdunich, Vice President of Investor Relations.

Welcome to Precision Drilling's third quarter earnings conference column webcast. Today I'm joined by Kevin Neveu, our President and CEO, and Carey Ford, the CFO. Yesterday Precision reported strong third quarter results which Kerry will review, followed by outlook commentary and an operational update from Kevin. Once we have finished our prepared comments, we will open the call to questions. Some of our comments today will refer to non-IFRS financial measures and will include forward-looking statements which are subject to a number of risks and uncertainties. Please see our news release and other regulatory filings for more information on financial measures, forward-looking statements, and risk factors. As a reminder, we express our financial results in Canadian dollars unless otherwise indicated. With that, I will pass it over to Carey.

Thank you, Lavonne. In the quarter, Precision delivered year-over-year growth in revenue, adjusted EBITDA, and net earnings. The resilience of our high-performance, high-value business model, geographic diversification, and organizational focus on cash flow and return on capital drove our financial results. We continue to strengthen our balance sheet with CAD49 million of debt reduction during the quarter and CAD152 million year-to-date, reaching the low end of our target range of CAD150 million to CAD200 million in 2024. Share repurchases were CAD17 million during the quarter and CAD50 million year-to-date, tracking the target of 25% to 35% of free cash flow allocated to shareholders. We expect strong cash flow during the fourth quarter and will continue to make progress with these targets. Longer term, we plan to reduce debt by CAD600 million between 2022 and 2026 over the next nine quarters with approximately CAD190 million remaining, achieve a leverage level of low one times net EBITDA, and increase our direct shareholder returns toward 50%. Precision's progress on balance sheet strength and shareholder returns has positioned us to be able to capture opportunistic high-value investments. We are increasing our 2024 capital spending plan from CAD195 million to CAD210 million to fund multiple contracted rig upgrades and take advantage of purchasing in-demand drill pipe for 2025 drilling programs ahead of potential import tariffs. In the past, we pursued similar opportunistic investments while meeting our annual capital allocation goals. These included the High Arctic and CWC acquisitions, as well as year-end pull-forward capital purchases at the end of 2023 and again this year. These investments have all produced excellent returns for our shareholders. In fact, as of the end of third quarter this year, we believe the assets purchased in the High Arctic transaction have paid for themselves in approximately two years. Moving on…

Thank you, Carey. I am pleased with the third quarter financial results and remain confident with the outlook for the balance of the year as we continue to make progress towards achieving our stated objectives. My confidence stems from the focus and discipline across the Precision organization seeking to maximize free cash flow from every aspect of our business. This is ingrained in our culture and underpins everything we do. I'm also very pleased that Precision's increased international and Canadian rig activity has more than offset the constrained U.S. market. For the third quarter, Precision is one of the few service companies reporting a material increase in overall activity, billing 10% more drilling days compared to the same period last year. And as I'll cover later in my prepared comments, we remain confident in the Canadian and international markets while we expect a modest increase in the U.S. as reloaded budgets for 2025 kick in. Looking forward to next year, our multi-year journey to improve our balance sheet and reset our capital structure will turn an important corner as our debt leverage drops below one times EBITDA. While this may not be our final debt level objective, the company will enjoy substantial increased financial flexibility to further exploit opportunistic growth at investments to increase shareholder capital returns and execute further capital structure improvements. A good example of this opportunistic investment strategy is a multi-million dollar advanced purchase of drill pipe Carey mentioned. We took advantage of excess vendor inventories and vendor discounts while front running possible tariff increases procuring drill pipe that we'll utilize during the upcoming year. There should be no question that Precision shareholders will be the prime beneficiaries of this resetting of the capital structure through increased capital returns and opportunistic growth investments which would all enhance…

Thank you. [Operator Instructions] Our first question comes from Kurt Hallead with Benchmark. Your line is open.

Hey, good afternoon everybody or good morning wherever you may be. Thanks for all that detail on the call and I think Kevin, you referenced a much more stable or relatively stable kind of outlook for Canada going out into next year with the potential for the Canadian LNG to cause a shortage and Super Triples. Can you expand upon that a little bit? To what magnitude do you think there -- if there is to be a shortage, what that magnitude would be?

That's a great question and you'll notice my comments were a little brief on LNG and our prepared comments. First thing I'll say is we were surprised by how quickly customers responded to the takeaway capacity for the Trans Mountain pipeline. And I'd say the demand was probably 10% to 15% higher than we expected resulting from that pipeline expansion. So we're watching anxiously to see how LNG Canada fires up. We know the gas is going to the pipe now to get the facility commissioned. We're still hearing the first shipments are going to be happening at the end of the second quarter in 2025 for LNG Canada. So I think that we'll see rig demand increase and it might be two or three rigs or it could be a little more, maybe four or five rigs. But it feels like demand is in that kind of two to five rig range to balance out the needs for LNG Canada.

Okay, great, appreciate that color. Then maybe for Carey, I've kind of referenced the dynamics around some of the potential upgrades that you got coming for some of these Super Single rigs and so on. How should we think about free cash flow conversions in 2025?

Yeah, if you remember, Kurt, all of the rigs, whether it's a Super Single or Super Triple, they're modular and the upgrades that we're doing are really bolt-on upgrades. Typically they're going to kind of be in the CAD1 million to CAD3 million dollar range. So an individual upgrade won't upset a prescribed capital allocation plan whether it's 2024 or 2025. So I would before we announce our formal plan at the beginning of next year, I would say that it will likely look pretty similar to this year with allocations towards debt reduction and share repurchases. And I'll just leave it there.

Yeah, I think we'll give more clear guidance on our plans in 2025 early in the year like we typically do.

Okay, great. And one more thing, just for clarity, Kevin, again in your press release and reference you got seven contracts starting up at the end of the year for projects in 2025. Is that going to be sufficient to kind of keep your run-rate in the mid-30s or is that going to be are those seven rigs going to wind up being additive to that 35 rig count that you had in third quarter?

Kurt, that's a really great detail question. And I'll do the best I can to answer it. There's still a fair amount of churn in the uncontracted rigs. You've got a block of rigs that are uncontracted, they're welded well. There has been churn and that churn is going to continue between now and the end of the year. I'd say that the range is kind of low to mid-30s to maybe as high as low-40s early in the next year. But there's a range and I think increasing commodity volatility probably keeps it towards the low end of the range and more commodity price stability probably moves us to the higher end of the range. So I hate to give you such a wide range. I don't think it's going to impact our capital or free cash flow plans dramatically because I think we're covering a lot of that with our international and our Canadian businesses.

Got it. Thank you. Appreciate it.

Great, thank you.

Our next question comes from Waqar Syed with ATB Capital Markets. Your line is open.

Thank you for taking my question. Carey or Kevin, when do you expect U.S. drilling margins to bottom?

So that's -- they may have already bottomed but if there's more weakness in the industry rig count, maybe they haven't. I think the resiliency this year has been really impressive for us and for the industry. One dynamic of our margins that I think you probably would see comparing to some of our peers that have already reported. They're several thousand dollars a day lower and there's a couple reasons for that. We had about 60% of our rigs that were working in the third quarter were Super Triple 1500s. The rest were 1200s or a few of the CWC rigs that we acquired at the end of last year. When we strip out the non-Super Triple 1500 rigs, our day rates were right in line with where our peers that have already reported day rates and our margins would have been a couple thousand dollars a day lower, which is a result of the lower fixed cost absorption that I've mentioned a couple times on previous calls. So I think the margins for Precision are quite a bit better for our Super Triple 1500s than what we're reporting on average. And we would expect certainly to have some stability in those margins in the coming quarters.

Okay, and you now have some seasonality in your activity in Q4 and Q1 primarily for some of those CWC rigs acquired in the Rockies area. Do you expect that seasonality this winter as well and if so what would be the impact like?

Well, that seasonality is in the range of two to four rigs, which normally wouldn't trouble me too much, but with 35 rigs running, two to four rigs starts to sound like a bigger number. I think there's a fair amount of churn and there's a pretty good chance we can mitigate that, but it'll be a day-to-day review with our operations team and sales team.

And how many rigs are -- and I can look up as well. But how many rigs are working in the Rockies right now for you?

Yeah, it's in the range of two to four rigs depending on what's happening on a day-to-day basis.

And that would just be Wyoming. We've got -- we have another six rigs or so working in Colorado.

Okay. And Kevin, you mentioned about these seven contracts that you've won with majors and consolidators. Do you know if this is incremental demand or if you are, you said that there was some high grading going on. Are they high grading from some of these small grading contractors or it's also happening with some of your large four peers as well?

It doesn't appear that we're taking market share away from a large peer. It probably looks like we're replacing lower grade rigs. Sometimes it's hard to tell exactly.

Sure. Okay. That's all for me. Thank you very much.

Great. Thanks, Waqar.

Our next question comes from Sean Mitchell with Daniel Energy Partners. Your line is open.

Hey, guys. Thanks for taking the question. A couple of thoughts. We've heard some rumblings about, obviously, a seasonal slowdown in Q4 in North America over the course of the last week or two. But with gas prices in the strip showing some signs of life, are you guys hearing anything from your customers on increasing activity on the gas side?

Sean, a great question. I think there's probably a little bit more optimism on gas now than there might have been a few weeks ago. And certainly, seeing seasonal prices improve and then LNG coming on this in the next 12 months, I think there is a little more focus on gas and I think that you'll see the gas rate move up at least modestly.

Got it. And then maybe one follow-up --

Let me qualify that. Every time I've made a rig count prediction, the rig count's going up a week after the conference call. Something changes that.

No, that's fair. It's tricky. Maybe a follow-up here. Can you share your thoughts about kind of growth in your current service lines and any additional service lines you guys might pursue in the world of M&A?

Sean, we've really worked hard to look at consolidating in the areas where we currently have business. So, the last couple of transactions in Canada have been consolidating transactions. Before that, we exited coiled tubing and swapped into more well-serviced rigs. I think we remain a believer that this industry requires more consolidation. We can see some of the benefits to the service industry in Canada where the returns are approaching a more normalized industrial-style return on the assets in Canada. So I think that as we look at consolidation, it's less likely that we go sideways to other product lines and more focused on the things we do well.

Okay. That's helpful. All right, guys. Thanks for the color.

Thanks, Sean.

Our next question comes from John Gibson with BMO Capital Markets. Your line is open.

Good morning, and thanks for taking my question. I just wanted some clarification on the margin guidance for Q4. Did you say CAD15,000 for Canada?

Yeah, approximately CAD15,000, John.

I'm just wondering, what is the delta from Q3? Is it mostly rig mix? Are you seeing some pricing improvements?

So I think the pricing is stable to slightly up across rig classes. The rig mix will be pretty similar. We have a couple of super triples that will be firing up in Q4, which will help. And then there's ancillary winter revenue that will be supporting margins like it typically does in Q4.

Got it. On your capital return program, you talked about a shift to 50% of free cash flow being allocated to shareholder returns. Is that still a 2025 story, and are buybacks the focus or could you look at maybe mixing a dividend in next year?

Yeah, I think we've never said that 2025 would be a 50% allocation. We said we'd be continually moving towards that number. So I think it's fair to assume we will be increasing our allocation towards shareholders. And I think when we get to below one times net debt to EBITDA, it'll be much more likely that we'll be at that 50% level. Right now, share buybacks have worked really well for us. I think that's going to be the mechanism to return capital directly to shareholders next year. And we will be talking about a dividend more frequently. We talk about capital allocation with our board every quarter, but I'm sure it'll become more prominent in the discussion.

Okay, that's fair. Last for me, on the international bids, apologies if I missed this, but have you seen much improvement or movement there, sorry, either positive or negatively, as you look out to potential signings moving forward?

John, what you might not have heard or seen is that in Saudi Arabia, Aramco suspended some offshore rigs, offshore jackups and some land rigs. Some of the other contractors saw their land rigs be suspended for a period of time, up to a year, maybe longer. We weren't under any of that. Our rigs are still running. We have no suspensions. But I think that tells you a bit about what's going on in the Middle East right now, that as long as OPEC has production constraints in place. The need for additional rigs is quite low or muted. So in fact, Saudi Arabia is pulling down drilling a little bit. I think that the tender delays in Kuwait have been linked to production constraints. I think as they start planning to release constraints over time that those rig needs will go up. But of course, we're coming to another OPEC meeting here in a few days' time in December, where they'll talk about whether they delay or not releasing more production. I would tell you -- I've been really surprised at how disciplined OPEC has been and how important it is to the OPEC members to, I'd say, support investable prices, as they call it. So I think there's going to be strong support to keep a narrow ban on oil prices, which likely means that production constraints stay in place a little longer, which probably means they don't need more rigs for a little longer. Long answer to a pretty simple question. I'm sorry.

No, I appreciate that. It's all very good colors. So thanks again and congrats on the strong quarter. Glad to see the reaction in the markets today.

Thank you.

Our next question comes from Keith Mackey with RBC Capital Markets. Your line is open.

Hi, good morning. I just wanted to start out on the rig market in Canada. Kevin, you gave some helpful color on the three different classes of rigs. My question is, if the Tele-Double market is overbuilt, as you alluded to. Is there a risk or a meaningful risk that you see that some of those rigs can compete either in your Super Single category or Triple category and take away some of the pricing or market share? Or are you not seeing that and don't expect to see that yet?

Keith, those rigs do compete with us in the Super Single category. They do compete with us in the Super Triple category. The math of the day rates works so that if a drilling pad is bigger than three wells per pad. Then there's almost nothing a tele-double can do to compete with a Super Triple, even at a very low price. The value a Super Triple produces on medium to large pads, you can't overcome that with a low rate on a Tele-Double. On one-well pads, two-well pads, yes, there is head-to-head competition. Virtually all of our work is on multi-well pads right now. I think 100% of our Super Triples are on multi-well pads. On the Super Single side, no question that a Tele-Double can compete. There's a meaningful difference in the cost to mobilize that Tele-Double compared to a Super Single. We can move a Super Single in about a third fewer truckloads. In short-duration wells, trucking costs become material. Again, it means that Tele-Doubles can compete, but the rate has to be substantially lower to balance out with that trucking cost. So as a result, we can achieve higher day rates for the Super Single. Then when we make a pad Super Single, then that Tele-Double can't compete.

Yeah, further to that point, if you look at our utilization on Super Singles this quarter and going into Q4, we're kind of in the 90% range on Super Singles. When our Tele-Doubles were around 50%, we think that 50% is representative of where the Tele-Doubles in the industry are working right now. The Super Single is just really in a class of its own in terms of what it can do in the heavy oil markets and best reflected in the utilization.

Yeah, understood. How would roughly that CAD15,000 per day margin break out between your different rig classes, if you had to describe it that way?

Yeah, I think the way I would describe it is the Super Triples are on average higher than CAD15,000. The Super Singles are a bit lower than CAD15,000, and the Tele-Doubles are a bit lower than that.

Got it. Okay, I'll leave it there. Thanks very much.

Thank you, Keith.

Our next question comes from Ali Hemraj with TD Cowen. Your line is open.

Is that me?

Yes.

Aaron MacNeil. Sorry about that. Kevin, maybe I'll ask Kurt's question a bit differently. As it relates to the seven new contracts, are you reactivating idle rigs or are these essentially already working? Are they essentially extensions or finding new homes for rigs that have contracts winding down?

Of the seven, two would be contract renewals or extensions, five would be new customer, new contract awards. Some of those rigs will have worked in the past four or five months. Some of those rigs have not worked this year.

Got you. That's super helpful. And then, any other color on what types of upgrades that are occurring? I'm particularly interested on the CWC-related rig side, if that's applicable? And also curious to know if you're moving rigs to new bases.

We're not moving any rigs in this current round. Nothing we've got scheduled to move in the near term. Perhaps one rig -- I'm wrong. There might be one rig moving up to the DJ basin, actually, 1,500-horsepower rig moving to the DJ basin. I think that's in the mix. And that move is paid for by the client, not paid for by us. Be clear on that. The upgrades are going to be things like racking capacity and pressure capacity on the rigs. We're going from 5,000 to 7,500 PSI adding a third mud pump on one or two rigs.

Kevin said in his comments on the Tele-Double Fleet, we don't foresee a whole lot of upgrade capital going forward as screen maintenance capital on the Tele-Double Fleet. All of the upgrade capital that we will be spending in Q4 and going into the first part of next year will be on Super Triples in the U.S., Super Singles in Canada and maybe a little bit on Super Triples in the Canadian market.

I was referring to the Triples in the U.S., the CWC Triples if there were any --

Aaron, none of those Triples are currently scheduled for an upgrade at this point.

Got it. That's helpful. And then maybe one more for Carey, expanding on John's question. Year-to-date, the pace of the buyback would suggest you're shooting for the bottom end of the range. The debt target has already been achieved. If we're just thinking exclusively about Q4, should kick off a decent amount of free cash flow. What's the capital allocation priority for the last two months of the year?

We put forward an annual guidance for how we're going to allocate capital, and we're going to continue to follow that annual guidance, but it's going to be a mix between debt reduction share buybacks and cash flow.

Fair enough. I'll leave it there. Thanks, guys.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Lavonne for any closing remarks.

I'd like to thank everyone for joining us today. And if you have any follow-up questions, you can give me a call later today. Thanks, and have a great afternoon.

Ladies and gentlemen, let's conclude today's presentation. You may now disconnect and have a wonderful day.