Looking to the Conference Call for Margin guidance: As noted above, management typically provides forward-quarter gross margin/day guidance on the conference call. We expect that this disclosure will be extremely relevant, given the recent volatility in commodity prices and modest declines in the U.S. rig count. Our current forecast assumes modest declines in margin performance throughout 2023, and would view flat or increasing margin guidance as directionally positive. For context, Nabors (NBR-US, not covered) is guiding to a US$200/day to US$300/ day sequential increase in Q2/23 in its Lower 48 operations on its Q1/23 conference call, indicating that the pace of margin expansion is slowing.
2023 Capital Spending Guidance: Precision is guiding to $195 million, down from $235.0 million previously to reflect fewer rig upgrades and lower maintenance costs in light of a reduced near-term activity outlook.
Debt Reduction Remains on Track: Despite having to draw $77.7 million from its credit facility due to seasonal working capital needs, annual compensation payments, a $28 million milestone payment associated with the High Arctic acquisition and capital expenditures that are H1/23 weighted, we believe that Precision remains on track to meet its 2023 debt reduction target of $150 million as well as its long-term debt reduction target of $500mm between 2022 and 2025.
TD View: Q1/23 results featured a continuation of the strong pricing and margin performance that management has been articulating for some time. We believe that Precision's ability to maintain strong margin performance throughout 2023 will be a key determinant of share price performance going forward.
Estimate Changes: We will update our estimates following management's conference call at 2:00 pm ET, dial: 1-844-515-9176.