PDS — Precision Drilling Corporation

Precision Drilling Q4 2025 Earnings Call Summary

1. Key Financial Results and Metrics

• Adjusted EBITDA: $126 million for Q4 2025, compared to $121 million in Q4 2024.
• Net Loss: $42 million, impacted by noncash charges of $67 million for rig decommissioning and $17 million for drill pipe. Without these charges, net income would have been $42 million, up from $15 million in Q4 2024.
• Daily Operating Margins:
  • Canada: $14,132 (down from $14,559 in Q4 2024).
  • U.S.: $8,754 (slightly up from $8,700 in Q3 2025).
• Capital Expenditures: $263 million for 2025, with $156 million for sustaining and infrastructure and $107 million for upgrades.
• Debt Reduction: $101 million, with a net debt to adjusted EBITDA ratio of 1.2x.
• Share Buybacks: $76 million, meeting the midpoint of the guidance of allocating 35%-45% of free cash flow.

2. Strategic Updates and Business Highlights

• Precision Drilling enhanced shareholder returns through debt reduction and share repurchases while maximizing free cash flow despite a declining industry activity.
• Increased market share in Canada and improved U.S. rig utilization from a low of 27 rigs in February to 38 by year-end.
• The company is focused on revenue growth, deepening customer relationships, and leveraging its digital technologies (Alpha and Clarity) to optimize drilling performance.
• Entered a Memorandum of Understanding (MOU) in Argentina to provide idle rigs and technology support, aiming for a gradual entry into the market.

3. Forward Guidance and Outlook

• Q1 2026 Expectations:
  • Canada: Average active rig count expected to exceed 74 rigs, with operating margins between $14,000 and $15,000 per day.
  • U.S.: Anticipated average active rig count of 37, with operating margins between $8,000 and $9,000 per day.
  • Internationally, expect to run 7 rigs with lower operating margins due to rig reactivations.
• Full Year 2026 Capital Expenditures: Budgeted at $245 million, with a focus on sustaining and infrastructure.
• Long-term target remains to achieve a net debt to adjusted EBITDA of less than 1x, with plans to increase free cash flow allocated to shareholders up to 50%.

4. Bad News, Challenges, or Points of Concern

• Net Loss: The significant net loss in Q4 due to noncash charges raises concerns about operational efficiency and asset management.
• Decommissioning Charges: The $67 million charge indicates potential issues with rig competitiveness and aging assets.
• International Activity: A decline in active rigs in international markets, particularly in Kuwait, raises questions about growth prospects in those regions.
• Market Volatility: The U.S. market remains flat, with potential headwinds from customer consolidation and fluctuating oil and gas prices affecting rig demand.

5. Notable Q&A Insights

• Kuwait Operations: Precision has 6 rigs in Kuwait, with 4 active and 2 idle, exploring reactivation opportunities.
• U.S. Rig Count Growth: Potential modest growth in the U.S. is anticipated, primarily through displacing competitors rather than significant new customer additions.
• Argentina MOU: The partnership aims to leverage local expertise while minimizing risks associated with entering the Argentine market.
• Rig Upgrades: The capital allocation for upgrades is demand-driven, with ongoing discussions with customers indicating potential for increased upgrade contracts in Canada and the U.S.

Overall, Precision Drilling demonstrated resilience in a challenging market, focusing on strategic growth and shareholder returns while navigating operational challenges and market volatility.