Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation 2023 First Quarter Results Conference Call. I would like to hand the conference over to Lavonne Zdunich, Director of Investor Relations. Please go ahead.

Thank you, operator. Welcome everyone to Precision Drilling's First Quarter Earnings Conference Call and Webcast. Today, I'm joined by Kevin Neveu, our President and CEO; and Carey Ford, our CFO. Earlier this morning, Precision reported strong first quarter results. Carey will review these results with you, followed by an operational update and outlook commentary from Kevin. Once we have finished our prepared comments, we will open the call to questions. Please note that 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. For more information on financial measures, forward-looking statements and risk factors, please refer to our news release and other regulatory filings. As a reminder, we express our financial results in Canadian dollars unless otherwise indicated. With that, I'll turn it over to Carey.

Thanks, Lavonne. Precision’s Q1 financial results exceeded our expectations for revenue, adjusted EBITDA, earnings and cash flow. Adjusted EBITDA of $203 million was driven by strong drilling activity, improved pricing and strict cost control. Our Q1 adjusted EBITDA included a share-based compensation recovery of $12 million, which reflects our stock price decline during the quarter. Without this recovery, adjusted EBITDA would've been $191 million, which compares to $84 million in Q1 2022, an increase of 127%. Revenue for the quarter was $559 million, an increase of 59% from Q1 2022. Margins in both the U.S. and Canada were higher than guidance, resulting from stronger than expected pricing, higher ancillary service revenue, and improved cost performance. I commend our marketing and operations teams for achieving these results. In the U.S., drilling activity for Precision averaged 60 rigs in Q1, consistent with our activity in the previous quarter. Daily operating margins in Q1, excluding the impacts of turnkey and IBC were US$14,179, an increase of US$2,330 from Q4. For Q2, we expect normalized margins to be relatively flat with Q1. In Canada, drilling activity for Precision averaged 69 rigs, an increase of six rigs or 9% from Q1 2022. Daily operating margins for the quarter were $13,558, an increase of $1,210 from Q4 2022. For Q2, our daily operating margins are expected to be approximately $10,000, down from Q1 due to normal seasonality and lower fixed cost absorption. Internationally, drilling activity for Precision in the current quarter averaged five rigs. International average day rates were US$51,753, an increase of 3% from the prior year. In our C&P segment, adjusted EBITDA this quarter was $17.4 million, up 166% compared to the prior year quarter. Adjusted EBIDA was positively impacted by 53% increase in well service hours and improved pricing, reflecting improved industry activity…

Thank you, Carey. We're very pleased with the strong start to 2023. The momentum we established last year is continuing well into this year and our long-term outlook remains unchanged. Our market positioning with our fleet of Super Series rigs, coupled with our AlphaAutomation technology, and our EverGreen solutions, combined with the remarkably strong long-term energy fundamentals, and Precision's broad geographic exposure gives us confidence in our plans for this year and for the long term. And this geographic exposure is a key as weakness in one region can be mitigated by strength in others. So with that, I'll begin with our international operations in Kuwait and Saudi Arabia. As you know, we recently re-contracted seven rigs in the region on five-year contracts, and this includes reactivating two previously idle rigs. We guided to some rig downtime as we work through the recertification process on four of those rigs prior to commencing the new terms. The first of those rigs was back up in operation in early April, about a month earlier than planned, as our team was able to fast track the recertification process. We further expect the remaining three rigs to be on a similar fast track with reactivation spread evenly over the next 12 to 15 weeks. In the third quarter, we'll have eight rigs operating up from five today and six last year. We see continued good opportunities and have already bid our one remaining idle rig in Kuwait. We expect that rig could be active late this year or early next year. That leaves us with one idle rig in Saudi Arabia and three other idle rigs in the region. But we will continue to market those rigs throughout the Gulf region, as we see several countries beginning to seek increasing drilling activity. Now turning…

[Operator Instructions] Our first question comes from Waqar Syed with ATB.

Kevin, could you maybe talk a little bit more about the rate environment and also any -- what are you seeing from a rig release notice perspective? One of your competitors said that the rig release notices kind of are at a very high level in early March, and then they've started to slow down a lot. Are you seeing something similar?

Waqar, good questions. It's really hard to glean out any trend from rig releases. I will tell you that we have seen kind of repeatedly over the last few quarters that our customers will tend to make decisions near a quarter end or before a reporting period so that they can report that they've already completed whatever work they wanted to do. So, it's common that at the end of a quarter or early in the next quarter before an earnings call, that if they plan to lay rig down or two, they do it before their earnings call, so they can say the work is already done. So there's usually a little bit of a increase in activity around quarter end, beginning of the next quarter. That's not uncommon. We've seen a bit of that this quarter, but we also saw previous quarters. Just speaking to day rates and what we see for rate activity. It depends a little bit on just how competitive the environment is. If we're in an area where we're kind of the only rig around and mobilization costs for other rigs tends to be higher, then we're much closer to those linear edge rates. We might have quoted even back on our Q4 conference call. If we're in an area where there tends to be maybe 3 or 4 rigs competing for the same job, then yes, rates are going to be a little softer. We are expecting to see rates kind to pull back a little bit in those peaks of Q1, I'd say in that range of $3,000 to $4,000 to $5,000.

Okay. So leading edge is in the gas business, could be in that low 30s to mid-30s kind of level, is that fair?

I think that's reasonable. We have been kind of lucky so far in that. We have been activating rigs and customers have been seeking out our AlphaAutomation. So, so far, so good. But going forward, I do expect to it to be a little bumpier, and we could see competition in that mid-30s or low-30s range. I think that's possible.

Okay. And then on the cost, OpEx side, is that kind of holding firm or what trends are you seeing there?

Hi, Waqar. So we have had a little bit of a labor increase in the fourth quarter that was highlighted in our press release. But other than that, the costs are firm. We are not really seeing any inflationary impacts on a sequential basis, and we could actually see some inflationary relief here in the coming quarters.

Okay. And on the Canadian side like as you are negotiating your contracts now, do you see rates headed higher for H2? Or is it mostly going to be first quarter next year, when you see the new rates?

Look, we kind of have about two cycles in pricing in Canada. There is one cycle that starts -- begins at Q3, and the second cycle begins in Q1 kind of the following year. So I do expect there will be some opportunity for prices to move up in Q3. Those negotiations are ongoing right now. I did kind of gave a lot of detail on my prepared comments around both the cost pressures we have, and the need we have to achieve, return on capital above our cost of capital. So I know those conversations are going on. I know our customers are really sensitive to price right now. But the fact is to sustain this level of performance, you need to have higher rates. So we are going to keep that pressure on the market and we are going to back that up by having rigs that deliver excellent results for our customers, and both safety, performance and predictability.

[Operator Instructions]. Our next question comes from Cole Pereira with Stifel. Your line is open.

For the U.S. rigs that were dropped, was this a function of customers just laying down rigs, or was it maybe a little bit of you losing the rigs because you wanted to stay firm on price as well?

The simple answer to that question is, yes. We have had a bit of both. And as I've said in previous calls Cole, the best signal we can send our customers about discipline is by rejecting prices that are below our threshold. And I'd kind of further that comment by saying, I think it's fair to say that a few customers out there are looking at this period right now as a chance to grab a premium rig and maybe get a discount price, we are not going to let that happen.

Got it. Thanks. And you talked about a rig count in the low 50s in the U.S. Should we be thinking that your rig count stabilizes at that level for the rest of the year? Or can it maybe climb or fall further in the second half potentially?

Yes. So it's all going to ultimately depend on commodity prices. I think we have seen the gas price bottom out here around $2. And if the oil prices firm up, we think a lot of those rigs that are getting laid down in the gas basins will get picked up in the oil basins. So I think we've got good visibility here for the next few months. And then beyond that, it's going to be largely a function of where commodity prices are.

And I know obviously you don't give -- typically give margin guidance beyond one quarter. But I mean, with the U.S. rig count in the low 50s, kind of reasonable to think that the drilling margins should stay at similar levels, although it'll probably move around a bit?

Yes, I think with stable activity we should be able to ma maintain similar margins.

And in Canada, I mean, you talked a little bit about pricing and so on and so forth. Can you kind of talk about your visibility right now for Q3, Q4 activity relative to Q1 from what you see today?

Yes, sure can. Last couple of years we've been able to actually exceed Q1 activity peaks in third or fourth quarter. I don't think that happens this year, but a couple of notable features about Q1 that I think do speak to the rest of the year. I think we said our peak was 79 rigs and our average was 69 rigs. To have a 69 rig average and only a 79 rig peak over the entire quarter is quite remarkable. Spring breakup came quite late. Activities stayed quite long because customers kept rigs working as long as they could. And there's a definite focus to level load. So I do expect that our Super Triples, once they fire back up again, once they're all fired up, they stay active for the rest of the year. Whether they fire up on May 15th or April 29th or June 5th, that activity stays flat for the rest of the year. Probably a similar situation with our Super Singles. I think the variability will be on our -- doubles. So I think we'll see good loading levels that start early and get to levels in that 60 plus rig range in July and then hold there for the rest of the year. Very stable loading. Our customers are focused on trying to minimize variability in this market. It's real industrial based market now and that plays well into our model.

And Carey on the credit facility side, and once you repay the Q1 draw, you don't have much of a balance there to get through? Once you get through that, I mean, is the plan sort of to eventually call your next tranche of bonds and maybe put all or a portion of those on the credit facility?

So, you're correct. We've got about CAD60 million left on the credit facility based on our guidance for what we're going to do in Q2. So to hit CAD150 million target, it'll require us to pay down that balance on the credit facility. And then about another CAD90 million high yield bonds. Those 26 notes are callable at the end of the year. So we'll look to likely use that for some of our debt reduction. And then if we look at where interest rates are right now, there's not a whole lot of difference between the coupon on those 26 notes or the 29 notes and what we're paying on a revolver. So there's not a big benefit to calling those bonds and putting them on the revolver right now.

Our next question comes from Luke Lemoine with Piper Sandler.

Kevin, you talked about some possible oil project startups in the second half. Could you maybe kind of give us the order magnitude that you're expecting there?

We have a contract to be signed early in the year for reactivations in Q3 and Q4. And those are proceeding and we worked with our customers on that and there's been no change in their sentiment. And those would've been rates that were negotiated back in early Q1.

And then on the CapEx, you gave us the dollar amount of how much of upgrade CapEx is coming down, but could you talk about maybe how many rigs you are planning to upgrade and what those upgrade plans were that you pulled out?

Sure. We can. It was an amount of money that would be targeting some additional technology upgrades, which we may slow down on, depending on market demand on additional rigs. We are targeting some third pump mud generator packages that if the rig count doesn't get above 62 or 63, we probably don't need those upgrades. But if we get back to 62 or 63 rigs, we could bring that capital back into play. So it depends heavily on, like Carey said earlier, commodity prices and market conditions.

And there were no major upgrades contemplated in that budget.

Okay. Got it. Um, I appreciate…

It's fair to say, when that budget was put together, we were kind of targeting activity increase across the boards of industry wide 50 rigs. And as that -- as we've taken that 50 rigs out of the mix, our piece of that, our -- which might have been four or 5 or 6 rigs, would've made some upgrades, minor upgrades, we've taken that capital out.

Our next question comes from Keith MacKey with RBC.

Maybe just if we could start in Canada, just wanted to ask about what you're seeing in heavy oil, particularly the Clearwater as far as the demand for rig spec. Has that changed at all in the last call it one to two quarters, given some changes in how operators in the Clearwater are drilling wells or have things and have demand remained relatively stable for the type of rig that is most desired in the Clearwater?

Yes. Really, truly a great question. The Clearwater is still early days in its development, early really a couple years into it right now, and they're still experimenting with the length of the laterals and the number of laterals off each wellbore. So, it's a great question. The wellbore configurations are evolving with time and we're keeping pace with that. And nothing right now that's changing, that's impacting our rig capability. I do expect the torque requirements to go up and we may need to boost the torque on some of our Super Singles. That's a pretty minor upgrade.

Okay. Got it. Thanks for that. Maybe just on the -- in the U.S. as far as the low 50s rig count for Q2, what really I guess Kevin is driving that, is it you have line of sight to some contracts ending that you haven't gotten new rigs or new contracts for yet? Or is there in general, an increased amount of time between contracts as rig churn sort of amplifies?

Well, I'll be clear. We have visibility on 1 or 2 rigs coming down right now, so we know that, but we do expect that the industry account is going to be dropping and that we'll take a piece of that. We'll be bearing a piece of that. So I would say that there's a lot of moving pieces. I gave you the data on the rig bids we have out there right now. I remain pleasantly surprised by the volume of rig inquiries we have. So there might be some timing issues where a rig comes down in maybe late June, but gets reactivated in July or August. It's really kind of hard to see how it plays up, but the visibility right now is 1 or 2 not 5 or 10.

Yes. Got it. And just on the rig bids that you have outstanding now. Can you give us a bit of an indication of how those breakdown by customer type, by region, et cetera?

No. I just -- in the past, I've just kind of quoted the bidding activity more as an indicator of interest. I think I've said in the past that, usually about 1/3 to a 1/4 of those turn into rig -- actual rig orders for us or somebody else that we win a portion of those. We are thinking going forward that something like that 1/3or 1/4 turn to real rigs over time, and that hopefully we win our share of that.

Got it. Thanks for the color.

I will tell you, it's biased towards oil though, no question about that.

[Operator Instructions]. Our next question comes from Kurt Hallead with The Benchmark Company. Your line is open.

Good afternoon, guys. Interesting dynamic to play with the prospects of pulling some rigs from the U.S. back up into Canada. It's been a while since we've seen that kind of dynamic play out. So kind of curious about that, Kevin. And I know you mentioned a lot of positive dynamics underway in Canada with the pipelines and agreement there in BC. So I don't know how many -- is this just kind of a near-term event or is this something, where you could potentially see some additional demand pull north of the border even in 2024?

So Kurt, I'll be surprised if we don't move a couple of rigs from the U.S. up to Canada or more. So I think it's going to happen. I don't think it happens inside this calendar year. But it may happen in 2024. So that's just a prognostication. It's not a forecast. But here's what's going on. So we did move two rigs up last year, and both of those are paid moves by the customer, really healthy contracts. And we also saw utilization on that same class of rig increase in the U.S. DJ Basin got a little busier. And the competition of those assets increased. So right now today, I think we have two or three that aren't working in the U.S. But we have customers looking at those rigs for the U.S. for DJ Basin drilling. So there will be a little bit of competition between Canada and the U.S. to see where those rigs best end up. There is no question that, we are a market in Canada that was five or six Triples short, a 1.7 Triples short in Q1. We are pretty certain our customers in some cases might have used a lesser performing rig to do the work, some work got delayed. We have excess demand for Q3 that we are trying to decide right now how to manage. The clearing price to bring one of those rigs to the U.S. is probably $5,000 or $6,000 above leading edge rates in Canada right now. So it's still a little bit away. This is why I'm leaning towards 2024. No doubt that when LNG Canada gets fired up and they are filling the pipe in Coastal GasLink Pipeline, I think rig demand in Canada goes up by 5 to 7 Super Triples.

Interesting. Okay. Great.

We don't plan to build any.

Yes. I got you. I guess. All right.

One of their data points there, we did get one contract earlier, we mentioned on our Q4 call, to do a significant upgrade taking a [DC SER] rig and drilling it to a super spec AC 1500 horsepower rig. You mentioned a $44,000, $45,000 day rate in the four year contract. So we did do that earlier this year and that rig will get fired up in January 2024. And that's because we simply didn't have the ability to move a 1500 horsepower rig up to Canada. So if we have more up continues for those kinds of upgrades in Canada, we'd be interested in doing it.

Okay, great. So it seems like the outlooks are kind of taking shape now for the rest of the year, and your commentary sounded very similar to 20 year U.S. peers from yesterday. So basically, some weakness and natural gas basins on pricing and so, I'd say, stability or whatever on pricing in oil basins. Now, however we all know, right, EPs are always going to try to use that against anybody in the oil field service industry. So is there anything in the context beyond typical friction around pricing talk going on in the U.S., that's discernible to you?

I think, the fungibility of rigs kind of confuses the equity markets. It costs money to move a rig and for rigs going to move from the Haynesville to the Permian. That's a 700,000 rig move and it takes a bit of time. So, there is financial friction in the fungibility of rigs that the capital markets kind of ignore sometimes. It does mean that if there are, let's just make a number, I say there's 10 rigs loose in the Haynesville, that doesn't mean those 10 rigs compete in the Permian at leading edge rates or drive rates down. Because you've got to factor in that cost to bring the rig over. Whether the drilling contractor subsidizes the move or whether the [LP] is paying for the move, that cost is in the system creates friction. So I think that's one factor that the equity investors need to think about a little bit as they risk the space. The other thing that is clearly different is the demand by investors for all of us to be disciplined and deliver strong results. I think the willingness to buy market share that might have been around in previous cycles has just gone away. I think most of us would rather show that we're disciplined in our pricing than letting the market drive down our rates. Because once the rate goes down, it gets applied, it can be applied across the fleet. That's always the fear. If we remain disciplined, then reject work that supports pricing and we need that pricing. We need to be able to earn our cost of capital to keep sustaining the productivity we're delivering, whether it's in the Montney in Canada or the Haynesville or the Permian Basin.

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

That concludes our conference call for today. Thank you everyone for joining, and have a great day.

Ladies and gentlemen that concludes today's presentation. You may now disconnect and have a wonderful day.