PRECISION DRILLING |
CORPORATION |
April 2024 Investor Presentation |
FORWARD-LOOKING STATEMENT
Certain statements contained in this report, including statements that contain words such as "could", "should", "can", "anticipate", "estimate", "intend", "plan", "expect", "believe", "will", "may", "continue", "project", "potential" and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward-looking information and statements").
In particular, forward-looking information and statements include, but are not limited to, the following: our strategic priorities for 2024; our future capital expenditure plans; anticipated activity levels and our scheduled infrastructure projects; anticipated demand for rigs; the number of term contracts in place; and our future debt reduction plans beyond 2024.
Certain of the information in this presentation is "financial outlook" within the meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with disclosure regarding our reasonable expectations as to the anticipated results of its proposed business activities. Readers are cautioned that this financial outlook may not be appropriate for other purposes.
These forward-looking information and statements are based on certain assumptions and analysis made by Precision in light of our experience and our perception of historical trends, current conditions, expected future developments, and other factors we believe are appropriate under the circumstances. These include, among other things: our ability to react to customer spending plans as a result of changes in oil and natural gas prices; the status of current negotiations with our customers and vendors; customer focus on safety performance; existing term contracts are neither renewed nor terminated prematurely; our ability to deliver rigs to customers on a timely basis; the general stability of the economic and political environments in the jurisdictions where we operate; and the impact of an increase/decrease in capital spending.
Undue reliance should not be placed on forward-looking information and statements. Whether actual results, performance or achievements will conform to our expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from our expectations. Such risks and uncertainties include, but are not limited to: volatility in the price and demand for oil and natural gas; fluctuations in the demand for contract drilling, well servicing and ancillary oilfield services; our customers' inability to obtain adequate credit or financing to support their drilling and production activity; changes in drilling and well servicing technology which could reduce demand for certain rigs or put us at a competitive disadvantage; shortages, delays and interruptions in the delivery of equipment supplies and other key inputs; the effects of seasonal and weather conditions on operations and facilities; ability to enhance our rig technology to improve drilling efficiency; the availability of qualified personnel and management; a decline in our safety performance which could result in lower demand for our services; changes in environmental laws and regulations such as increased regulation of hydraulic fracturing or restrictions on the burning of fossil fuels and greenhouse gas emissions, which could have an adverse impact on the demand for oil and gas; terrorism, social, civil and political unrest in the foreign jurisdictions where we operate; fluctuations in foreign exchange rates, interest rates and tax rates; and other unforeseen conditions which could impact the use of services supplied by Precision and Precision's ability to respond to such conditions.
Readers are cautioned that the foregoing list of risk factors is not exhaustive. Additional information on these and other factors that could affect our business, operations or financial results are included in reports on file with applicable securities regulatory authorities, including but not limited to Precision's Annual Information Form for the year ended December 31, 2023, which may be accessed on Precision's SEDAR+ profile at www.sedarplus.ca or under Precision's EDGAR profile at www.sec.gov. The forward-looking information and statements contained in this news release are made as of the date hereof and Precision undertakes no obligation to update publicly or revise any forward-looking information and statements, whether as a result of new information, future events or otherwise, except as required by law.
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CREATING SHAREHOLDER VALUE
DELIVERING HIGH PERFORMANCE, HIGH VALUE SERVICES
GENERATING SIGNIFICANT FREE CASH FLOW
MAINTAINING STRICT COST CONTROL & CAPITAL DISCIPLINE
HIGHER EQUITY VALUATION THROUGH STRONG FCF YIELD,
DELEVERAGING, & SHARE REPURCHASES
DISCIPLINED INVESTMENTS IN OUR PEOPLE & EQUIPMENT
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ROBUST 2024 FREE CASH FLOW YIELD POTENTIAL
> 20%
FREE CASH FLOW YIELD POTENTIAL
STILL TO COME IN 2024
Analyst Estimates for | $310M |
2024 Free Cash Flow1 | |
Equity Market Cap2 | $1,333M |
Estimated FCF Yield | 23% |
2024 FREE CASH FLOW DRIVERS
- INTERNATIONAL GROWTH
- ~ 40% activity increase
- Increased profitability
- INTEGRATION OF CWC ENERGY SERVICES3
- Growth in C&P and U.S. & Canada drilling
- Expect $20M in annual synergies
- Estimated $20M asset sales
- MARGIN PROGRESSION EXPECTED IN CANADA
- Market fundamentals supporting strong demand
- High demand for Super Triple & pad Super Single rigs
- Addition of Super Triple upgrade
- LEVERAGE OPERATING SCALE, DISCIPLINED COST CONTROL & CASH MANAGEMENT
- 2024 Estimated FCF: FY Consensus EBITDA less FY Consensus Interest Expense less FY Consensus CAPEX; Consensus numbers from Nasdaq IR as of April 1, 2024
- As of April 1, 2024 (Equity Market Capitalization was $1.029B on January 3, 2024)
- Transaction closed November 8, 2023
4
DIFFERENTIATED EXPOSURE TO ATTRACTIVE CANADIAN MARKET1
UNIQUE CANADIAN MARKET FUNDAMENTALS SUPPORTING POSITIVE OUTLOOK FOR PRECISION
PRECISION IS THE MARKET LEADER
- Most active driller in Canada
Q1/24 | ||||
Preferred Rig | Peak Rig Activity | |||
Montney/LNG | Super Triple | 30 | ||
Oil Sands/Clearwater | Super Single | 43 | ||
Other Plays | Tele Double | 10 | ||
Total Canada | 83 |
- Most advanced land rig with rig floor robotics activated in January 2024
- Largest well service provider in Canada with 173 registered rigs
- High Performance Rentals and Camps business
ATTRACTIVE MARKET FUNDAMENTALS
- Natural gas market improving with LNG outlook
- Expect oil market to be bolstered by significant expansion to tidewater access
IMPROVED MARKET ACCESS
LNG Canada
- 2.1 bcf/d facility
- start-upto begin in 2024
TMX Expansion
- ~600,000 bbls/d
- start-upexpected Q2/24
1. See Slide 23 for more information on Canadian Market Fundamentals
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2024 STRATEGIC PRIORITIES
1 | FOCUS ON GENERATING FREE CASH FLOW | |
• | Leverage our scale across drilling and well service operations | |
• | Continued focus on strict cost control |
2 | IMPROVE CAPITAL RETURNS TO SHAREHOLDERS | |
• | Reduce total debt by $150 - $200 million in 2024 | |
• | Allocate 25-35% of free cash flow to share repurchases in 2024 |
- Increased debt reduction target -> $600 million from 2022-2026
- Moving direct shareholder returns towards 50% of free cash flow
3 | FOCUS ON OPERATIONAL EXCELLENCE |
• Continue to strengthen our competitive position | |
• Extend market penetration for AlphaTM and EverGreenTM products |
6
APRIL PRECISION MARKET UPDATE
FIRM COMMITMENT TO DEBT
REDUCTION & SHARE BUYBACK TARGETS
DRILLING ACTIVITY UPDATE
TIGHT SUPER-SPEC RIG MARKET
SUPPORTING STRONG MARGINS
ALPHATM & EVERGREENTM DRIVING
MARGIN EXPANSION & COMPETITIVE
ADVANTAGE
- Non-GAAPmeasure; see our Quarterly Report for more information
- As of April 1, 2024
- Defined as Revenue per utilization day less Operating cost per utilization day
- Targeting to reduce debt $150-$200 million in 2024 ($152 million in 2023)
- Targeting 25-35% free cash flow for share buybacks in 2024 (15% in 2023)
- On track to reach a Net Debt to Adjusted EBITDA ratio1 of <1.0x in 2025 (1.4x in 2023) & reduce total debt by $600 million between 2022 and 2026
- Canada's YTD in 2024 activity tracking ahead of 2023
- US activity remains steady near 40 active rigs
- 8 rigs active Internationally2; ~40% activity increase expected in '24 vs '23
- In Canada, Precision's Super Triples and pad Super Singles in high demand
- Canada Q1/24 margins3 expected to remain strong >$15,000/day
- US Q1/24 margins3 expected between US$9,000 to $10,000/day
- Strong customer uptake of our AlphaTM and EverGreenTM products
- Generate revenue incremental to daily contract rates and at high margins
- ~75% of North American Super Triple fleet equipped with AlphaTM and majority of the fleet has at least one EverGreenTM product
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BALANCE SHEET & CASH FLOW PROFILE STRENGTHENING
DEBT MATURITY PROFILE1 | DEBT REDUCTION PROGRESS2 |
$500 | ||||||||||
MILLIONSUS$ | ▪ 2023 total debt repayment of $152m, including US$75m 2026 senior notes | |||||||||
$300 | ▪ Combined average cost of debt is ~7.0% | $286 | $400 | |||||||
DEBT | $400 | |||||||||
$200 | ||||||||||
-TERM | $100 | |||||||||
LONG | $8 | $7 | ||||||||
$0 | ||||||||||
2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | ||
SIGNIFICANT FREE CASH FLOW3 POTENTIAL
$400
MILLIONSC$ | ▪ Higher day rates & margins and lower debt levels, contributing to significant free cash flow | ||||||
$300 | |||||||
FCF | $200 | ||||||
pre-COVID | |||||||
$100 | |||||||
$0 | |||||||
2019 | 2020 | 2021 | 2022 | 2023 | 2024E |
$1.6 | Net Debt to Adj EBITDA | ||||||||||||||||||
BILLIONS | ~1.4x end of 2023 | ||||||||||||||||||
$1.4 | |||||||||||||||||||
Targeting Net Debt | |||||||||||||||||||
US$ | $1.2 | to Adj EBITDA < 1.0x | |||||||||||||||||
end of 2025 | |||||||||||||||||||
DEBT | |||||||||||||||||||
$1.0 | |||||||||||||||||||
-TERM | |||||||||||||||||||
$0.8 | |||||||||||||||||||
$0.6 | |||||||||||||||||||
LONG | |||||||||||||||||||
$0.4 | |||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 2024E 2025E 2026E |
ANNUAL INTEREST EXPENSE2
MILLIIONS | $110 |
$100 | |
US$ | $90 |
$80 | |
EXPENSE | |
$70 | |
INTEREST | |
$50 | |
$60 | |
$40 |
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024E2025E2026E
- US$701 million total includes 2026 & 2029 senior notes, revolver draw ($nil) and three real estate mortgages with maturities in 2025 (US$8 million), 2026 (C$16 million), and 2028 (C$10 million) as of 12/31/2023
- 2024E based on mid-point of debt reduction target of $150 million to $200 million; 2025E & 2026E based on debt reduction target of C$600 million between 2022 & 2026; Annual Interest Expense estimates based on Consensus
- Actual FCF: Adj EBITDA less CapEx and Interest Expense. 2024E Estimated FCF: Consensus EBITDA less Consensus Interest Expense less Consensus CAPEX; Consensus numbers from Nasdaq IR as of April 1, 2024
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DAY RATE INCREASES DRIVING REVENUE & EBITDA GROWTH
REVENUE1 | ADJUSTED EBITDA1 |
REVENUE (C$ MILLIONS)
$2,500
$2,000
$1,500
$1,000
$500
$0
Revenue continues to
increase after COVID-low
2019 | 2020 | 2021 | 2022 | 2023 | 2024E |
ADJ. EBITDA (C$ MILLIONS)
$700 | ||||||||||
Significant rebound in 2023 | ||||||||||
$600 | ||||||||||
& 2024E from COVID-low | ||||||||||
$500 | ||||||||||
$400 | ||||||||||
$300 | ||||||||||
$200 | ||||||||||
$100 | ||||||||||
$0 | ||||||||||
2019 | 2020 | 2021 | 2022 | 2023 | 2024E |
U.S. DAY RATES | |||
$35,000 | 69% | ||
(US$) | Increase last 9 quarters | ||
$30,000 | |||
RATE | $25,000 | ||
$20,000 | |||
DAY | $15,000 | ||
$10,000 | |||
U.S. | |||
$5,000 | |||
$0 | |||
1. 2023E and 2024E Consensus numbers from Nasdaq IR as of February 29, 2024
CANADIAN DAY RATE
$35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000
$0
CANADIAN DAY RATES
78%
Increase last 9 quarters
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CANADIAN FUNDAMENTALS STRONGEST IN A DECADE
LEADING DRILLING RIG SERVICE PROVIDER IN WCSB
▪ 33% market share in 2023 and has grown in Q1/24
- Fleet of 98 drilling rigs2 including:
- 30 AC Super Triples
- 48 Super Singles
- AC Super Triple fleet preferred Montney rig
- Super Single preferred rig in Oil Sands & Clearwater heavy oil play
STRONG MARKET FUNDAMENTALS
- Imminent additional oil and natural gas takeaway capacity from
TMX expansion and Coastal GasLink pipelines
- Industry Super-Spec rigs & PD Super Triples nearly fully utilized
- PD pad capable Super Singles fully utilized prior to spring break up
- PD Super Series rig demand expected to exceed supply in 2024
OPERATING LEVERAGE & GROWING CASH FLOW POTENTIAL
- Benefit from High Performance fleet and operating scale
- AlphaTM technologies and EverGreenTM solutions are competitive differentiators and improve cash flow and margins
- Tight supply of Super-Spec rigs supports potential margin expansion
- Dots on map representative of areas where Precision has operations in 2023 with its Super Series rigs
- Adjusted for 20 rigs decommissioned in 2023 and includes 7 rigs acquired with CWC acquisition
- Defined as revenue per utilization day less operating costs per utilization day; Q2 margins impacted by seasonality (ie. spring break up)
Precision Canada Activity1
CANADIAN DAYRATE MARGINS3
18,000 | ||||||||||||
147% | ||||||||||||
(C$) | 16,000 | |||||||||||
Increase last 9 quarters | ||||||||||||
14,000 | ||||||||||||
MARGIN/DAY | 12,000 | |||||||||||
10,000 | ||||||||||||
8,000 | ||||||||||||
6,000 | ||||||||||||
4,000 | ||||||||||||
2,000 | ||||||||||||
000 | ||||||||||||
Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |||
2021 | 2022 | 2023 |
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Precision Drilling Corporation published this content on 02 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 April 2024 03:38:01 UTC.