Activity update indicates near-term softening in US rig activity; FY23 strategic priorities intact
TSX: PD | CAD 57.16 | Outperform | Price Target CAD 120.00
Sentiment: Neutral
Our view: PD's North American activity update included 2Q23 rig counts in line with our estimates, as detailed below. We see the announcement as neutral to slightly negative for PD shares today, given PD's expectation for near-term softening in US rig counts though the company remains confident in its ability to execute its FY23 priorities including $150MM debt repayment and using 10-20% of FCF for share repurchases.
• Canada climbing out of spring break-up. PD has 46 rigs running today and expects 2Q23 to average about 42 rigs, in line with our 42 rig estimate, despite modest wildfire impacts. The company expects to have over 60 active rigs by the end of June, versus our 3Q23 estimate of 65.
• US activity could soften near term. PD has 50 active rigs and expects 2Q to average 50 rigs, versus our 51 rig estimate. All else equal, one rig maps to a $2MM quarterly EBITDA impact, or 1.7% of our 2Q23 estimate of $119MM. PD believes activity may further soften in the coming weeks but continues to sign contracts for 2H23 starts and anticipate a return to activity growth with supportive commodity prices. The release does not mention whether current spot or strip commodity prices would be considered constructive, so our 2H23 estimate of 51 average active rigs might be optimistic.