Earnings Call: Precision Drilling Reports Growth and Strategic Upgrades

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Earnings Call: Precision Drilling Reports Growth and Strategic Upgrades

Precision Drilling Corporation (ticker: PD), a leading drilling services provider, reported significant financial and operational growth in its third quarter earnings report on October 25, 2024. Under the leadership of President and CEO Kevin Neveu and CFO Carey Ford, the company highlighted year-over-year increases in revenue, adjusted EBITDA, and net income. Precision Drilling also emphasized its strategic focus on upgrading its drilling fleet and reducing debt while demonstrating a disciplined approach to capital allocation.

Key Points:

  • Precision Drilling reported CAD 142 million in adjusted EBITDA and CAD 39 million (CAD 2.77 per share) in net income, reflecting year-over-year growth.
  • The company reduced its long-term debt to approximately CAD 775 million and aims to decrease it further by year-end.
  • Capital expenditures for 2024 were raised to CAD 210 million, focusing on rig upgrades and drilling pipe supply.
  • Average rig activity in the U.S. reached 35 rigs in Q3, with a slight decline anticipated in Q4 margins.
  • Demand for drilling rigs in Canada remains robust, with high utilization rates and a focus on highly efficient rigs, especially in the Clearwater region.
  • Precision anticipates a busy 2025 due to increased customer activities following the recent commissioning of the Trans Mountain Pipeline.

Company Outlook:

  • Precision aims to reduce its debt by CAD 600 million between 2022 and 2026.
  • The company plans to continue enhancing operational efficiency and shareholder returns.
  • Precision expects high rig utilization in Canada to persist until early 2025, forecasting 70-80 rigs operational at the beginning of January.
  • Internationally, increased activity is anticipated in Saudi Arabia and Kuwait.

Downside Expectations:

  • A seasonal slowdown is expected in Q4 and Q1, particularly impacting 2 to 4 rigs in the Rockies.
  • Overall demand for additional drilling rigs in the Middle East remains low due to OPEC production restrictions.

Upside Expectations:

  • Precision reports growing interest in upgrading to Super Single rigs for better performance.
  • The company secured seven contracts with major clients, demonstrating strong market positioning.
  • Improving gas prices and upcoming LNG projects contribute to rising optimism in natural gas activities.

Shortcomings:

  • Currently, no significant upgrades are planned for rigs related to CWC.

Q&A Highlights:

  • Neveu confirmed seven new contracts, including two renewals and five new ones.
  • Future capital spends will prioritize Super Triples in the U.S. and Super Singles in Canada.
  • The company plans to allocate 50% of free cash flow to shareholder returns, focusing on share buybacks in the coming year.

Precision Drilling’s third quarter earnings report underscored the company's strategic initiatives aimed at further strengthening its robust financial performance and market position. With a clear focus on rig efficiency upgrades and a disciplined capital allocation strategy, Precision Drilling appears poised for sustained growth in the coming year, leveraging favorable market conditions and increasing customer activities.

InvestingPro Forecasts: The strong financial performance highlighted in Precision Drilling Corporation's (PDS) recent earnings report is also supported by InvestingPro data. The company’s P/E ratio of 5.4 indicates it may be undervalued relative to its earnings, consistent with the reported revenue and adjusted EBITDA growth.

InvestingPro data shows Precision Drilling had trailing twelve-month revenues of USD 1,435.34 million as of Q3 2024, with a gross profit margin of 35.45%. This strong financial performance is reflected in the company's 12.68% operating income margin for the same period, signaling efficient operations and cost management.

An InvestingPro tip highlights that Precision Drilling has been profitable over the past twelve months, aligning with the positive net income reported in the earnings release. Another InvestingPro tip indicates that the company offers high shareholder returns, which could be attractive to investors, given Precision's commitment to allocating 50% of its free cash flow to shareholder returns, primarily through share buybacks.

It's important to note that InvestingPro has provided six additional tips regarding Precision Drilling, which may offer further insights into the company's financial health and market position.

The company's focus on reducing debt is particularly noteworthy, as InvestingPro data indicates that Precision Drilling's liquid assets exceed its short-term obligations. This financial stability supports the company's ability to invest in rig upgrades and expansion, as indicated in its increased capital expenditure plans for 2024.

For investors seeking a more comprehensive analysis, InvestingPro provides additional metrics and tips that could offer valuable context regarding Precision Drilling's market performance and future expectations.