Precision Drilling Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: Precision reported Q2 adjusted EBITDA of $108 million and net earnings of $60 million, marking its 12th consecutive profitable quarter and strong cash flow generation.
  • Positive Sentiment: Drilling divisions in the U.S. and Canada saw improved utilization and margins—U.S. margins rose to $9,026/day (guidance $8K–$9K for Q3) while Canadian margins reached $15,306/day (guidance $12K–$13K for Q3).
  • Neutral Sentiment: The 2025 capital plan was increased to $240 million, including $150 million for sustaining infrastructure and $86 million for rig upgrades driven by heightened customer demand.
  • Positive Sentiment: Strong operational cash flow funded $74 million of debt reduction and $14 million in share repurchases, bringing net debt to $644 million with a net debt/EBITDA ratio of 1.3x and a $100 million debt reduction target for 2025.
  • Negative Sentiment: The Completion & Production segment’s adjusted EBITDA fell 18% year-over-year due to a 23% decrease in well service hours, reflecting softer demand in this business line.
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Earnings Conference Call
Precision Drilling Q2 2025
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Operator

Good day and thank you for standing by. Welcome to the Precision Drilling Corporation twenty twenty five Second Quarter Results Conference Call and Webcast. I would now like to hand the conference over to Lavon Zdunik, Vice President of Investor Relations. Please go ahead.

Lavonne Zdunich
Lavonne Zdunich
VP - IR at Precision Drilling

Thank you, operator. Welcome everyone to Precision Drilling's second quarter conference call and webcast. Today, I'm joined by Kevin Nevew, Precision's President and CEO, and Carey Ford, our CFO. Yesterday, we reported our second quarter results. To begin our call today, Keri will review these results, and then Kevin will provide an operational update and outlook commentary.

Lavonne Zdunich
Lavonne Zdunich
VP - IR at Precision Drilling

Once we've finished our prepared comments, we will open the call for questions. Please note that some comments today will refer to non IFRS financial measures and 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 available on SEDAR plus and EDGAR. As a reminder, we express our financial results in Canadian dollars unless otherwise stated. With that, I'll pass it over to you, Kerry.

Carey Ford
Carey Ford
CFO at Precision Drilling

Thank you, Lavonne. Precision's Q2 financial results exceeded our expectations for adjusted EBITDA, earnings and cash flow. Adjusted EBITDA was $108,000,000 was driven by strong drilling activity in Canada, improved activity in The U. S.

Carey Ford
Carey Ford
CFO at Precision Drilling

And steady cash flow generation from our drilling operations in The Middle East, as well as our Completion and Production Services business. Our Q2 adjusted EBITDA included a share based compensation charge of $4,000,000 and additional revenue of $7,000,000 related to customer funded upgrade projects in Canada. Without these items, adjusted EBITDA would have been $105,000,000 Revenue was $4.00 $7,000,000 a decrease of 5% from Q2 twenty twenty four. Net earnings were $60,000,000 or $1.21 per share, representing Precision's twelfth consecutive quarter of positive earnings. Funds and cash provided by operations were $104,000,000 and $147,000,000 respectively.

Carey Ford
Carey Ford
CFO at Precision Drilling

In The U. S, Precision's drilling activity averaged 33 rigs in Q2, an increase of three rigs from the previous quarter with operating days increasing 13%. Daily operating margins in Q2, excluding the impacts of Turnkey and IBC were $9,026 an increase of $666 from Q1 and well ahead of our guidance of $7,000 to $8,000 per day. For Q3, we expect normalized margins to be between $8,000 and $9,000 per day. This includes anticipated rig activations in Q3.

Carey Ford
Carey Ford
CFO at Precision Drilling

Daily operating costs in The U. S. Were lower than the first quarter due to improved fixed cost absorption with higher activity levels and fewer one time items. Our reported daily operating costs included costs associated with reactivating four rigs during the quarter, negatively impacting operating costs by $648 per day. In Canada, Precision's drilling activity averaged 50 rigs, an increase of one rig from Q2 twenty twenty four.

Carey Ford
Carey Ford
CFO at Precision Drilling

Our daily operating margins in the quarter were $15,306 an increase of $883 from Q2 twenty twenty four. Our Q2 margins included revenue associated with upfront customer payments for rig upgrades amounting to $14.40 dollars per day. Without this payment, Q2 margins would have been $13,866 slightly ahead of the high end of our guidance of $12,500 to $13,500 per day. For Q3, our daily operating margins are expected to be between $12,000 and $13,000 Internationally, Precision Drilling activity in the quarter averaged seven rigs. International average day rates were 53,129 an increase of 4% from the prior year due to rig mix.

Carey Ford
Carey Ford
CFO at Precision Drilling

In our C and P segment, adjusted EBITDA this quarter was $10,000,000 down 18% compared to the prior year quarter. Adjusted EBITDA was negatively impacted by a 23 decrease in well service hours, slightly offset by higher margins. Capital expenditures for the quarter were $53,000,000 including $27,000,000 for upgrade and expansion and $26,000,000 for maintenance and infrastructure. Our full year 2025 capital plan has been increased from $200,000,000 to $240,000,000 and is comprised of $150,000,000 for sustaining infrastructure and $86,000,000 for upgrade and expansion. Our original 2025 plan was $225,000,000 and was subsequently reduced in April as a result of heightened market uncertainty around tariff discussions and potential deterioration of US and Canada trade relations.

Carey Ford
Carey Ford
CFO at Precision Drilling

Since our last conference call, oil and gas prices have increased, broad public indices, including the OSX, are up in the 10% to 20% range, and year over year rig counts are either stable or up in many of our key operating basins, including the Haynesville, Marcellus, Montney and Canadian heavy oil. The improved outlook and increased activity in several of our core geographic areas has resulted in a material increase in customer demand for upgrades to rigs versus three months ago. As of July 29, we had an average of 38 contracts in hand for the third quarter and an average of 39 contracts for the full year 2025. Moving to the balance sheet, our Q2 cash flow momentum continued with strong cash flow supporting debt reduction of $74,000,000 and share repurchases of $14,000,000 As of June 30, our long term debt position net of cash was approximately $644,000,000 and our total liquidity position was approximately $530,000,000 excluding letters of credit. Our net debt to trailing twelve month EBITDA ratio is approximately 1.3 times, and our average cost of debt is 6.9%.

Carey Ford
Carey Ford
CFO at Precision Drilling

Moving on to guidance for 2025, we expect strong free cash flow for the year, depreciation of approximately $300,000,000 cash interest expense of approximately $65,000,000 cash taxes, we expect to remain low and our effective tax rate to be approximately 25% to 30%. We expect SG and A of approximately $95,000,000 before share based compensation expense. And we expect share based compensation charges for the year to range between $15,000,000 and $35,000,000 at a share price range of $60 to $100 and the charge may increase or decrease based on the share price and performance relative to Precision's peer group. Our debt reduction target for 2025 remains at $100,000,000 and we plan to allocate 35% to 45% of the free cash flow before debt principal payments to share repurchases. With $91,000,000 of debt reduction and $45,000,000 of share repurchases through June 30, we are well on our way to achieving another annual capital allocation goal.

Carey Ford
Carey Ford
CFO at Precision Drilling

We are committed to reducing debt by $700,000,000 between 2022 and 2027 and achieving a normalized leverage level below one times. Since 2022, we have reduced debt by $525,000,000 With that, I will turn the call over to Kevin.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Thank you, Carrie, and good morning to those of us in Calgary and good afternoon if you're east of us. As Kerry mentioned, second quarter results were stronger than we anticipated with excellent free cash flow and better than expected margins. We've locked in additional term contracts in The United States and Canada, and we experienced strong customer demand for our Super Triple rigs in every gas basin in North America. All this coupled with continued customer demand for our pad equipped Super Singles operating in Canadian heavy oil and thus opening opportunities to invest in further rig enhancements providing revenue and earnings growth opportunities for Precision. Our outlook for the balance of 2025 and into next year has substantially improved from our conference call in late April.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

While macro uncertainties persist, customer interest in gas directed drilling has taken shape with several operators planning to expand drilling programs with precision. And this is very encouraging. Currently, we're operating 36 rigs in The United States well up from a low of 27 rigs in late February. And I'll come back to our U. S.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Segment in a few moments. Last quarter, with all the macro uncertainties, you'll recall that Precision implemented a fixed cost reduction program and we suspended $25,000,000 of unplanned or planned upgrade capital spending. Since then firm customer demand supported by term contracts, increased rates on some contracted rigs and customer prepayments have encouraged us to restore the $25,000,000 of upgrades and we've identified an additional $15,000,000 of further good upgrade investment opportunities. As Ferry mentioned, we now plan to spend total of $86,000,000 of rig upgrades as part of our 2025 capital spending plans. And I'll provide more color on these investments later in my comments.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Even with this increased capital plan, we'll easily achieve our 2025 debt reduction and share repurchase targets. We'll continue with aggressive cost management. We will continue to seek pre funding of capital upgrades and you can expect strong execution on all aspects of cash flow management from the Precision team. Now turning to Precision's Canadian business segment. This distinguishes us from virtually every other NAM focused energy service provider.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Now all of you know that Precision is the largest driller in Canada, but I really want to draw your attention to our market presence in the Montney and heavy oil. And I'll begin with the Montney, which is categorized as a natural gas play located in Northwestern Alberta and Northeastern British Columbia. And we've been reminding our investors for several years now that while this is a gas play, it's also an important liquids play. Now recently, one of our largest customers at their Investor Day referred to the Montney as a world class gas play, but with the most remaining oil inventory of any play in North America. This clearly aligns with Precision's view of the Montney and provides long term visibility for re demand in this play.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Now it's well understood that Precision has been focused on the Montney since its beginning. And we have 30 Super Triple Alpha rigs currently in the region with 26 running today in line with last year's activity levels. These rigs offer the drilling efficiency of Alpha automated high specification triples coupled with pad walking batch drilling capabilities. These rigs were designed for the Canadian environment, digitally controlled, fully winterized with small footprints and reduced truckload counts for optimized mobility in the seasonally challenging Canadian market. During the second quarter, we operated 26 of these rigs through the Canadian breakup period and expect our fleet should be fully utilized again in the first quarter of next year as it has in the past several winters.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

With LNG Canada Phase one operating and shipping cargoes, full operational ramp up is expected over the next several months into early next year. When phase one reaches rated capacity, we expect industry rig demand may increase by five rigs or more. For precision, we expect this will lean to 100% utilization of our Super Triples evolving from just winter drilling season and year round pad activity to meet those increasing customer needs. We also believe that we may have opportunities to mobilize additional rigs back to Canada from The US. Some of those customer conversations and negotiations are underway right now.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

We'll provide further updates as those negotiations progress. Now we've experienced a similar trend with stronger than expected heavy oil customer demand over the past year following the startup of the Trans Mountain expansion. During the second quarter, we reported the highest utilization of our super single rigs, higher than the second quarter of any second quarter for the past decade with 24 of these rigs drilling straight through the breakup period. Currently 16 of our super single rigs are equipped with pad drilling systems, which facilitate high efficiency multi well pad drilling and offer our customers the optimum economics for heavy oil drilling performance. We deployed two of these pad upgrades during the first quarter and will deliver a third the seventeenth later in the third quarter.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

The capital investments for these rig upgrades are covered by customer contracts and in some cases upfront cash payments. The efficiency these rigs offer our customers warrant day rate premiums of several thousand dollars per day above conventional non pad rigs. And these upgraded rigs are well positioned to run through the seasonal breakup and deliver year round operations for our customers and year round revenue for Precision. Overall, Canadian activity this summer has been a little slower to rebound compared to last year. And we can link this directly to a handful of smaller operators cautiously managing the macro uncertainties surrounding oil.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

While our larger scale top half of our customers are actually running slightly more rigs compared to this time last year. Now, specifically the telescoping double market, telescoping doubles rig segment market, which is focused broadly on light oil plays and smaller operators in Southern Saskatchewan and Central Alberta and touching into Montney and heavy oil has seen the largest reduction in customer demand with industry activity down almost 30% from last year in this rig class. And with Precision operating seven fewer rigs. As we've mentioned before, this rig class is oversupplied and how they price competitive with rates trending to cyclical lows. Now, before I leave Canada, I'll touch on our well servicing segment where second quarter activity was down year over year more in line with long term seasonal breakup trends.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

I'll remind the listeners that most of our oil of our well service work is linked to oil and less to gas. Last year, we experienced a surge in customer demand, mostly linked to the TMS expansion mentioned earlier. This year, we see less customer urgency reducing the workover pace, at least temporarily as they control their lease operating expenses. We believe this segment will see customer demand improvement as some of the macro uncertainties are resolved. Precision's scale, operational excellence and safety performance remain key differentiators in our well service group, particularly for the large cap public operators and despite lower industry utilization, our pricing and margin performance remains firm.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Now turning to the Lower 48 drilling business. As I mentioned earlier, we have 36 rigs operating up from a low of 27 back in February. And we have three additional rigs contracted to activate over the next few weeks. And we're extremely pleased to be regaining activity in the face of broad market uncertainty. I'll walk through these increases on a region by region basis.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

So since February, we've added two rigs in the Haynesville. We've added three rigs in the Marcellus and we have a fourth scheduled to start up shortly. We have two rigs in the Gulf Coast, all targeting guests. We've also added four rigs in the DJ and Rockies where our ST-twelve 100 is the perfect rig for the suburban drilling locations North Of Denver. We continue to experience a lot of contract churn in the oil plays and we're operating two fewer rigs in the Permian consistent with broad industry trends.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Now I'll close my comments on Lower 48 by mentioning the contract churn with our oil directed rigs, particularly in West Texas will continue. And while customer interest in the Haynesville Marcellus is encouraging, we have ongoing customer discussions for potential reactivations late this year into 2026. There's no question that LNG export capacity additions and data center power demand expectations are driving customer sentiment for natural gas operators. In our international segment, as Gary mentioned, we continue to operate five rigs in Kuwait and two rigs in The Kingdom Of Saudi Arabia. These rigs are largely contracted for the next several years and we'll continue to explore opportunities to activate our idle rigs in the region.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

And we're also looking closely at the other emerging shale drilling opportunities, and we'll provide further updates should be successful on these opportunities. So turning to our strategic priorities, I'd like to provide a detailed mid year update. So first, as Kerry mentioned, we retired $91,000,000 of debt, almost achieving our target of 100,000,000 by only mid year. Also Carrie mentioned that we've returned capital to shareholders by repurchasing $45,000,000 of shares and we're on our way to achieving this target also. Turning to our second priority, which is to maximize free cash flow.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

We mentioned that we implemented the fixed cost and SG and A cost reduction plan back in April and our Q2 results demonstrate the immediate impact of those cost reductions. We continue to successfully manage our global procurement efforts and offset the impacts the cost impacts of this deal and other product tariffs. We have several technology initiatives utilizing AI and digital twins to analyze machine data and reduce maintenance costs and unplanned downtime for mud pumps, top drives, reciprocating engines. Our remote operating center provides real time hardware and software support for our rigs to reduce downtime, minimize maintenance costs. And all of these initiatives are executed by the Precision teams based in Houston, Calgary, Dubai, and there are 23 field support bases.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

I'm proud of their efforts and the results are clear in our financial performance the first half of this year and the momentum will continue through 2025. Our third priority was to grow revenue and existing product lines through contracted upgrades, optimizing pricing and rig utilization and opportunistic tuck in acquisitions. And earlier this year, this priority looked very challenging, yet we remained ready. Customer demand has remained surprisingly resilient for Canadian heavy oil pad rig upgrades along with hydraulic capacity upgrades on other super single rigs. These investments have been supported by a variety of advanced payments, increased day rates and term contracts, and will impact approximately 10 of our super single rigs.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Our Evergreen solutions reduce diesel fuel consumption, reduce rig emissions, and reduce daily operating costs for our customers. We expect to add Evergreen systems to 36 rigs this year, including mass lighting kits and hydrogen catalyst systems. Evergreen solutions are priced as an a la carte addition to the rig rate and payout within a few months. Customer demand for extended reach gas drilling in the Haynesville and Marcellus has driven opportunities for capacity upgrades to our ST-fifteen 100 rigs, including larger mud pumps, higher torque top drives, racking and hoisting capacity increases. And these upgrades will impact approximately 12 rigs.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

We have also established preferred driller agreements with several key customers whereby we provide most or all drilling services at optimized rates with rig performance incentives and incentives for additional regularization. All of these initiatives are designed to provide enhanced and to provide and enhance our competitive advantage, provide revenue and earnings growth, improve revenue visibility while delivering returns while in excess of our cost of capital. And we'll continue to seek opportunities to further invest in our fleet and further develop customer partnerships. So I'll now conclude my comments by thanking the whole Precision team for another quarter of excellent business execution. And I'll also thank all of our stakeholders for their continued support. Operator, we're now ready for questions.

Operator

Thank you. Our first question comes from Derek Podhacer with Piper Sandler. Your line is open.

Derek Podhaizer
Derek Podhaizer
Director & Senior Research Analyst at Piper Sandler Companies

Hey, good morning, guys. How are you? I guess maybe let's just start on The U. S. Side.

Derek Podhaizer
Derek Podhaizer
Director & Senior Research Analyst at Piper Sandler Companies

Obviously, some really nice growth that we're seeing in Northeast and the Haynesville gassy window down in The Gulf. Maybe could you help us understand a little bit whether the split is between publics and privates? And then thinking ahead into the end of the year into next year, I guess what's the cadence or maybe can you help quantify for us the number of rigs that we could expect to go back to work into these gas basins?

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Derek, that's a really key question actually. And I think what we're seeing here is the history of the industry where the privates always lead when the industry is turning. The privates aren't trying to manage public expectations or making good investment decisions. So there's no question that our gas based work right now is tilted towards private companies throughout both the Marcellus and the Haynesville.

Derek Podhaizer
Derek Podhaizer
Director & Senior Research Analyst at Piper Sandler Companies

Got it. And then maybe just how many rigs potentially you think from here? I know you have a couple lined up, but as we work towards the end of the year and into 2026, are the private's not looking that far ahead yet as far as adding incremental activity?

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

That's also a big question. So I'll tell you, first of all, I've got some expectations I've pressed on the sales team in The US. And they've got a couple of benchmark targets we're looking at to try to get our activity higher so we can have better scale of operations and leverage our fixed costs better. But we've kind of targeted getting to 40 and then maybe 45 rigs over time. And obviously gas will play an important part of that rise and managing churn on the oil rigs.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

So should oil prices stay in the range we're seeing today, which is not too bad, I think those targets make pretty good sense. If we go through another recycle on the oil price dipping down low 60s, well then all bets are off. And I think churn will increase and be certainly more challenging for us. But so if you do that math on that, hopefully look to find another five to seven rigs in gas over the next several quarters.

Derek Podhaizer
Derek Podhaizer
Director & Senior Research Analyst at Piper Sandler Companies

That's helpful. Appreciate the color. And then just as a follow-up and maybe more of an educational question for myself. When you ran down the Canadian market, you talked about the double rig segment and it's oversupplied. You have undisciplined pricing pressure.

Derek Podhaizer
Derek Podhaizer
Director & Senior Research Analyst at Piper Sandler Companies

I guess, taking a step back, what's the long term thinking for this part of the market where your other two parts of Canada seem very, very tight with good secular tailwinds, but in this double rig segment, it looks to be less than that. So maybe just some thoughts around what you strategically can do around with the double rig segment.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Derek, so a couple of years ago we acquired CWC, which actually increased our double fleet quite a bit. And I think that I still think consolidation is a really important feature for oil service, especially as the operators have gotten larger. There's a bit of a scale mismatch right now where the operators have gotten larger quickly and the services industry is still playing catch up a bit on scale. On the triples and singles business in Canada right now, that match is much better. So, there's really kind of two, three, maybe four drillers that run most of the triples in Canada.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

We've got good scale matching between the suppliers, us and the operators. On the single side, I think there's 14 contractors that are in the teledouble business, maybe more. And that's just too much, too fractured. So I do think that the singles or the teledouble space needs to consolidate in Canada. With the market share we have right now, we're likely not going to be that consolidator.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

But I do think there's other people in this market that could help consolidate that market and bring a bit more discipline and help get better scale matching between services and operators. Terry, do have anything to add to that? Yeah, I actually don't. I think that's characterizes pretty well.

Derek Podhaizer
Derek Podhaizer
Director & Senior Research Analyst at Piper Sandler Companies

Great. I appreciate all the color. I'll turn it back.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Thanks, Derek.

Operator

Our next question comes from Aaron MacDill with TD Cowen. Your line is open.

Aaron MacNeil
Director - Equity Research Analyst at TD Securities

Hey, everyone. Thanks for taking my questions. Kevin, I'm hoping you can help me reconcile the prepared comments with the contract disclosures. So again, Q1 disclosures, 38 average rigs under contract in 2025. Now it's 39, so one incremental.

Aaron MacNeil
Director - Equity Research Analyst at TD Securities

On a Q4 basis, there's three additional rigs, three incremental. And maybe some of the contracts don't take effect until 2026. Who knows? But of the 22 rig upgrades you note in the press release, how many would be incremental this quarter versus what was disclosed last quarter? And what sort of the contract durations that you're achieving with these upgrades?

Aaron MacNeil
Director - Equity Research Analyst at TD Securities

Or are some of these spec in nature and part of a larger market share capture strategy?

Carey Ford
Carey Ford
CFO at Precision Drilling

Hey, Aaron, this is Kerry. I think I can help you out. I'm not going to provide as much disclosure detail as I think you're asking for, but I think I can provide some good context to answer your question. So first of all, 22 rigs that we mentioned on upgrades, not all of those have been signed yet. That's what we expect, and that matches with our capital plan of $240,000,000 So there are some that we expect to sign that don't show up in the contract book yet.

Carey Ford
Carey Ford
CFO at Precision Drilling

The second point is most of these contracts, contract upgrades are going to be kind of in the 1 to $5,000,000 range per rig. So a lot of these upgrades that we're doing don't require a two year contract to recoup the cost of the upgrade capital and the underlying value of what we call the opportunity cost of the rig. A lot of these upgrades, we're able to recoup the returns we need in six months to one year. For the larger dollar amounts, we do need one to two year contracts, and we are getting those on the higher dollar upgrades. The other thing I would say is that some of the business that we have is with existing customers where it's contracted and where the rig is contracted and we provide the upgrade for a rig that's already contracted and the day rate just goes up.

Carey Ford
Carey Ford
CFO at Precision Drilling

So you actually wouldn't see the contract increase because the contract terms not changing, the day rates just increasing to give us a return. And then the final comment I'd make is what disclosed this quarter is we had $7,000,000 of revenue for two, there's actually two different customers paying us upfront for rigs that we were upgrading. And there is no contract associated with that, and that's why we asked for an upfront payment to cover the cost of the upgrade. So it's a little bit different than past cycles where you build a rig and you get a three year contract or a four year contract, and it shows up in the contract book. We're very happy with the returns we're getting.

Carey Ford
Carey Ford
CFO at Precision Drilling

We're getting contracted coverage on just about all the capital that we're deploying, but it is a little bit different than past cycles.

Aaron MacNeil
Director - Equity Research Analyst at TD Securities

Fair enough. And that actually leads into my next question. You mentioned the customer funded upgrades. Do you have any of those penciled in for the future? And how should we think about that impacting go forward margins?

Carey Ford
Carey Ford
CFO at Precision Drilling

We won't guide to any more. We don't have any to disclose right now, but it is something that we've seen in the past. We just haven't had very many that are this large in one particular quarter, which is why we broke it out.

Aaron MacNeil
Director - Equity Research Analyst at TD Securities

That's perfect. Thank you. Happy to turn it back.

Operator

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

Keith Mackey
Keith Mackey
Director, Global Equity Research, Oil & Gas Services at RBC Capital Markets

Hey, good morning. Good afternoon. Just a quick clarification on the $40,000,000 of incremental capital for those 22 rigs. That program is all to be spent in 2025, right? Like, just what I'm asking is, is there a 2026 portion related to those 2022 rigs that we'll also see, or is the $40,000,000 it as far as upgrading these rigs?

Carey Ford
Carey Ford
CFO at Precision Drilling

Yes, Keith. So, I'll first say that the 22 rig upgrades span the entirety of 2025, so we're not announcing 22 additional rig upgrades this quarter. Those were contemplated in our original 2025 capital plan. They just materialized a little bit faster degree than what we expected. All of the spend for this year will be for rigs that will be delivered in 2025, or just about all of it.

Carey Ford
Carey Ford
CFO at Precision Drilling

So some of the rigs will be delivered in November, December this year, so we won't get EBITDA generation from those upgrades. But think about that $240,000,000 spend largely being directed at rigs that will be delivered this year.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Right, I'll just clarify one comment. So we didn't originally intend for 22 rig upgrades at the end of the year. So that's increased from earlier in the year based on some the opportunities we've seen coming forward. And the projected investment in the Evergreen products has gone up also in this increase.

Keith Mackey
Keith Mackey
Director, Global Equity Research, Oil & Gas Services at RBC Capital Markets

Got it. Okay, that's helpful. And just on the capital allocation and the target debt metrics, we're certainly getting much closer to those levels and you're ahead of your mid year debt reduction target now. So, we think about you getting closer to your ultimate debt load, how do you think about capital allocation shifting at that time between shareholder returns growth and further debt reduction payment repayment at that time?

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

So Keith, we haven't given much guidance beyond getting to our total debt reduction plan of $600,000,000 by the end of next year, which we will 700,000,700 million dollars by the end of next year, which we will achieve 2027. 2027, thank you. Thanks, Gary, for clarifying me.

Carey Ford
Carey Ford
CFO at Precision Drilling

Big numbers we're dealing with.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

But what I would tell you is if we see good opportunities to invest in our rigs, like we've seen over the last few weeks, that's one of the best places for us to place our capital. If we can get a less than two year payback on a 3 or $4,000,000 upgrade or less than one year payback on a million dollar upgrade, those are outstanding investment opportunities. That I'd say stays near the top of our priority list. Paying down debt is the top of the priority list. Shareholder returns fit in there.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

So we've got three priorities that are all important, and we're not going to sacrifice debt repayment or either shareholder share buybacks or capital or vice versa.

Carey Ford
Carey Ford
CFO at Precision Drilling

Yeah, I think that's exactly right. And we've got $175,000,000 remaining on long term debt reduction plan with two and a half years to go. So we can accelerate that, we can spread it out over the entire time period, it can give us more flexibility to increase returns to shareholders, and as Kevin said, if the opportunities come to us to get good returns on our capital investment, we'll invest in our fleet.

Keith Mackey
Keith Mackey
Director, Global Equity Research, Oil & Gas Services at RBC Capital Markets

All right. Thanks very much. I'll turn it back.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Thanks, Keith.

Operator

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

Waqar Syed
MD & Head of Research at ATB Capital Markets

Thank you. Thanks for taking my question. And first of all, congrats excellent quarter. In terms of The U. S, the upgrades that you're doing on the rigs in The U.

Waqar Syed
MD & Head of Research at ATB Capital Markets

S, with these upgrades, do you bring these rigs at par in terms of capabilities with some of the other top tier rigs in a particular basin? Or following the upgrade, these will be kind of unique type rigs in every basin?

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

It's a little hard to gauge that because there's been a little less disclosure by industry peers around what rig capabilities are. So it's hard to say for sure. What we do know is that I think we're getting to kind of peak hook loads and peak drawbacks capacities and peak mud pump sizes. So I think that certainly we'll be at the point of the arrow on rig capability. Now, everything I've just said there is kind of making the hammer bigger.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

So larger mud pumps is more horsepower, larger draw works more hoisted capacity, larger heavier mast would be more racking capacity, more casing capacity. It's all so important. But when you couple that with the alpha automation, I think that becomes a unique service package where you can fully automate that and deliver consistent predictable reports out. We know that other drillers have various levels of automation. We don't think any other level of automation is as comprehensive from spud to release as alpha.

Waqar Syed
MD & Head of Research at ATB Capital Markets

Sure. And then in terms of the type of wells that these rigs would be drilling, is that like these former laterals or horseshoe type wells? What is it that client hope to achieve with these rigs?

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

So we are drilling four mile laterals right now. We're drilling some Horseshoe Bend four mile laterals. But I can tell you that every drilling engineer that's drilling deeper wells wants rig capacity to drill farther. So even though some of these rigs that we're upgrading aren't necessarily be drilling four mile laterals. The drilling team wants that ability down the road.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

So I think these are being designed to drill Haynesville or Marcellus and do the longest reach horizontal wells are likely to economic for the near future.

Waqar Syed
MD & Head of Research at ATB Capital Markets

Great. Well, thank you very much, Kevin, and congrats again.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Thanks a lot, Makar. Appreciate it.

Operator

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

John Daniel
Founder & President at Daniel Energy Partners

Hey, good afternoon. I hope I didn't miss this on the call. But Kevin, in The Nat your U. S. Customers in the nat gas markets, are they seeking term contracts today?

John Daniel
Founder & President at Daniel Energy Partners

And what's your willingness to lock in? And if they're looking to do term contracts, what's the typical duration they're seeking?

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

John, great question. And it's the same question our board asked us yesterday in the discussion around capital. I would tell you that we probably have opportunity to take longer terms if we choose, but the rates would be lower. So I'd say we're trying to balance optimizing the day rate with duration that returns our capital.

John Daniel
Founder & President at Daniel Energy Partners

Got it.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

So higher day rates, a little shorter term. But I'll tell you the terms we're looking at are in the one to two year range.

John Daniel
Founder & President at Daniel Energy Partners

Okay, fair enough. And then last one for me, two your two US well sourced players since you're not competing down here anymore. They've announced the introduction of electric workover rigs. I'm just curious at this point if any of the Canadian operators are starting to ask you guys about electrifying your fleet.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

On the well service side, no. Interestingly, we talked about Evergreen upgrades. So we've had more interest in high line power drilling rigs that will be electric as most electric rigs are, but high line power. But there's not a lot of interest on the well service side in Canada yet. There's such an excess capacity of functional service rigs in Canada that the likelihood of a new build service rig in Canada, new technology service rig is still probably several years out.

John Daniel
Founder & President at Daniel Energy Partners

Okay, that's all I had. Thanks for having me.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Thanks, John.

Operator

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

John Gibson
John Gibson
Director - Equity Research at BMO Capital Markets

Good morning or afternoon where we are. Congrats on the strong quarter here. Just wondering if you could provide a breakdown either by geography or basin for where the upgrades are targeted of those 22 rigs.

Carey Ford
Carey Ford
CFO at Precision Drilling

So I mentioned it a bit in my comments, John, on where we're seeing a bit firmer demand and in some cases growth. And so it's the basins where we have really strong presence, would be Haynesville, Marcellus, Montney, and Canadian heavy oil. That's where the bulk of the upgrades are going.

John Gibson
John Gibson
Director - Equity Research at BMO Capital Markets

Got it. And last one, how many rigs do you still have sitting on the sidelines in Haynesville?

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Large, high single digits.

John Gibson
John Gibson
Director - Equity Research at BMO Capital Markets

Okay, great. Appreciate the color. I'll turn it back. Thanks, Great.

Kevin Neveu
Kevin Neveu
President and Chief Executive Officer at Precision Drilling

Thanks, John.

Operator

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

Lavonne Zdunich
Lavonne Zdunich
VP - IR at Precision Drilling

Well, concludes our conference call for today. Our next formal update will be in October, but we are always available to answer questions from now until then. With that, I will sign off. Thanks for joining.

Operator

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

Executives
    • Lavonne Zdunich
      Lavonne Zdunich
      VP - IR
    • Carey Ford
      Carey Ford
      CFO
    • Kevin Neveu
      Kevin Neveu
      President and Chief Executive Officer
Analysts
    • Derek Podhaizer
      Director & Senior Research Analyst at Piper Sandler Companies
    • Aaron MacNeil
      Director - Equity Research Analyst at TD Securities
    • Keith Mackey
      Director, Global Equity Research, Oil & Gas Services at RBC Capital Markets
    • Waqar Syed
      MD & Head of Research at ATB Capital Markets
    • John Daniel
      Founder & President at Daniel Energy Partners
    • John Gibson
      Director - Equity Research at BMO Capital Markets
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