Precision Drilling Q1 Earnings Call Highlights

Key Points

• Precision reported improving utilization—+7% in Canada and +24% in the U.S.—with 123 rigs operating, generated CAD 63 million of cash from operations in Q1, spent CAD 65 million on capex (CAD 35m sustaining, CAD 30m upgrades), and posted adjusted EBITDA of CAD 124 million while net earnings fell to CAD 18 million.
• Management raised full‑year 2026 capex to CAD 265 million (including CAD 97 million for upgrades) to fund two contracted Canadian Super Triple upgrades and expects record Q2 Canada activity (avg. ~60 rigs, exiting in the mid‑70s) plus U.S. price increases that should lift H2 day rates and margins.
• International operations remain active despite Middle East logistics and a CAD 2 million Saudi reactivation charge, while the company targets net debt/adjusted EBITDA below 1x, plans to cut debt by at least CAD 100 million in 2026, and may allocate up to 50% of free cash flow to buybacks with > CAD 433 million in liquidity.

Precision Drilling NYSE: PDS executives highlighted improving utilization, cash generation, and a more constructive outlook for North American activity during the company’s first-quarter 2026 results conference call. Management also discussed higher planned capital spending tied to contracted rig upgrades and provided updates on international operations amid ongoing Middle East tensions.

First-quarter results and capital allocation

Vice President of Investor Relations Lavonne Zdunich said utilization improved versus the first quarter of 2025, rising 7% in Canada and 24% in the U.S., even as industry rig counts declined 7% in both markets. Zdunich added Precision had 123 rigs operating globally in the quarter and “remained the second most active driller in North America.”

CFO Dustin Honing said Precision generated CAD 63 million of cash from operations in Q1 despite what he described as a “recurring and expected heavy Q1 working capital build.” Capital expenditures totaled CAD 65 million, including CAD 35 million for sustaining and infrastructure and CAD 30 million for rig upgrades. Honing said the company reduced debt by CAD 25 million and allocated CAD 4 million to share buybacks during the quarter.

Adjusted EBITDA was CAD 124 million, or CAD 143 million before share-based compensation, compared with CAD 137 million (and CAD 140 million before share-based compensation) in Q1 2025. Honing said operating results exceeded the prior year but were offset by a larger stock-based compensation accrual as Precision’s share price appreciated 39% in the quarter. Net earnings were CAD 18 million, down from CAD 35 million a year earlier.

Segment performance: Canada, U.S., international, and CMP

In Canada, Honing said drilling activity averaged 79 active rigs, up five rigs from Q1 2025. Reported Q1 daily operating margins were CAD 14,282, compared with CAD 14,780 a year earlier, which he said was within prior guidance. He attributed the slight margin impact to rig mix, with stronger winter demand requiring a higher proportion of Super Single and doubles rigs.

In the U.S., the company averaged 37 active rigs, flat sequentially and up seven rigs from Q1 2025. Daily operating margins rose to $9,291 from $8,754 in the fourth quarter, “slightly exceeding” guidance, Honing said.

Internationally, Precision averaged seven active rigs, down eight rigs from the prior-year quarter. International day rates averaged $51,596, up 4% year-over-year, which Honing said was “all due to rig move revenues.” He said margins were affected by one Kuwait rig coming down, partially offset by one reactivated rig in Saudi Arabia. The company incurred $2 million of one-time charges tied to the Saudi reactivation and also recognized additional logistics costs related to the Middle East conflict.

In the company’s CMP segment, adjusted EBITDA was CAD 18 million, in line with Q1 2025. Honing said increased well servicing demand in Canada more than offset the impact of winding down U.S. CMP operations in Q2 2025.

Outlook: record Q2 Canada activity, U.S. churn, and pricing discussions

Looking to Q2 2026, Honing said Precision expects “record activity levels” in Canada, supported by demand and prior-year upgrades that expanded pad drilling capabilities, allowing rigs to work through spring breakup. Precision expects average Q2 Canadian active rig count of approximately 60 rigs, a 20% increase from 50 in Q2 2025, and expects to end the quarter in the “mid-70s.” Canadian operating margins are expected to range between CAD 12,000 and CAD 13,000 per day, slightly lower due to mix, with Honing noting the prior-year quarter benefited from one-time customer upfront payments for upgrades.

In the U.S., Honing said early Q2 featured increased contract churn with multiple rigs idle between jobs, which he expects will “correct over the next month or so,” with the rig count rising to 35 rigs by next week and exiting the quarter in the “high 30s.” For Q2, U.S. operating margins are expected to be $7,500 to $8,500 per day due to reactivation costs tied to deployments through Q2 and into Q3. He said Precision is “in the process of implementing price increases” that should flow through the back half of 2026.

CEO Carey Ford told analysts the company is having pricing increase discussions in the U.S. and expects those to have “a meaningful impact” on day rates and margins in the second half of the year, while reiterating Precision typically provides margin guidance only one quarter forward. He also argued the market may be tighter than headline rig availability suggests, citing the capital and time needed to reactivate rigs and crew them.

Ford said most of the rig count changes in Q2 reflect replacing churn and are “not really reflective of a market change in demand,” adding he expects oil-driven demand to show up more in Q3 and Q4. He said Precision expects U.S. activity to hit an “inflection point this summer” and said the company is ready to meet demand, including by carrying extra crews through Q2.

When asked about the broader U.S. market, Ford said an industry rig count increase of “40 or 50 rigs does not seem unreasonable,” with expected increases centered in the Permian and Rockies, while also noting minor increases in the Marcellus and Haynesville. He added private operators “got on the phone a little bit quicker” about rig availability, but public companies have also begun discussing rig additions.

Upgrades, spending plans, and international optionality

Honing raised full-year 2026 capital spending guidance to CAD 265 million from CAD 245 million, including CAD 168 million for sustaining and infrastructure and CAD 97 million for upgrades. The increase includes two Canadian Super Triple rig upgrades supported by multi-year contract commitments, along with other upgrade opportunities in Canada and the U.S. He said Q2 capital expenditures will be “disproportionately high” due to timing of bulk deliveries and maintenance projects, then level out later in the year.

Ford said Precision is expanding growth investments to include those two contracted Canadian Super Triple upgrades. He described the work as upgrading ST-1200 rigs “from the lowest end” of Precision’s Super Triple 1200 class to the “leading edge” of the fleet by increasing capacity across the rig, including hook load and pumping capacity. Ford said the capital will be fully recouped within the term of the contract “through either the day rate or an upfront payment from customers.” Honing said one upgrade is expected to be delivered in Q3 and the other in Q4, with portions of the financial benefit flowing through in 2026.

On upgrade economics more broadly, Ford said Precision generally targets recovering its upgrade capital within the contract term, noting U.S. contracts are often shorter (six months or pad-to-pad), which can create “white space” between jobs. He also said Precision’s capital plan has room to reactivate “15 or so rigs” without increasing the plan.

Internationally, Ford said all seven rigs in the Middle East are delivering “excellent results” while the team remains focused on safety amid a “dynamic regional environment.” Responding to questions about Q1 disruptions, he said reactivating a rig in Saudi Arabia cost $2 million, higher than expected due to customer requirements and mobilizing crews. He cited travel disruptions and logistical challenges sourcing fuel and parts as ongoing issues and said the impact on profitability is expected to be “low single-digits,” though he did not quantify further.

Ford also said Precision and its partner have engaged with major Argentine operators and have outstanding bids on multiple rigs. In Kuwait, he noted two idle rigs and said the company expects to secure a contract for one “within the next few months” if there is more clarity on the regional outlook. He added that an AlphaAutomation system deployed on one Kuwait rig is reducing drilling times for the customer, and Precision expects to broaden its technology footprint in the region during the year.

On longer-term financial priorities, Honing reiterated a target of net debt to adjusted EBITDA below 1x. He said Precision plans in 2026 to reduce debt by at least CAD 100 million while allocating up to 50% of free cash flow to share repurchases, noting an average cost of debt of 6.6% and more than CAD 433 million in total liquidity.

About Precision Drilling NYSE: PDS

Precision Drilling Corporation NYSE: PDS is a Calgary, Alberta–based oilfield services company that has provided drilling solutions since its founding in 1951. With more than seven decades of industry experience, the company delivers contract drilling services, directional and horizontal drilling, well servicing, and a suite of specialized equipment designed to meet the evolving needs of exploration and production companies worldwide.

The company's core business activities include operating a fleet of onshore drilling rigs, offering managed pressure drilling, measurement-while-drilling (MWD) and logging-while-drilling (LWD) services, and providing completion and workover rigs.

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