They currently have a C$125.00 target. GLTA
Precision Drilling Corp.
(PD-T, PDS-N) C$69.59 | US$52.02
Capital Allocation, Operations Update
Event
Precision provided an operations update.
Impact: POSITIVE
Shareholder Returns will be Enhanced in 2024: Management has committed to
"improve our capital returns to shareholders in 2024 by increasing our debt reduction
and share buyback allocations", with the details to come with Q4/23 results.
2023 Capital Allocation Highlights: Precision reduced total debt by $152 million in
2023, in line with its guidance of $150 million, and remains on track to achieve its
$500 million debt reduction goal between 2022 and 2025. Management now believes
that it will exit 2025 with a ND/EBITDAS ratio <1.0x (TD estimate: 0.3x). In 2023,
Precision also deployed $30 million to share repurchases.
Q4/23 Guidance:
Q4/23 operating margins are expected to align with its previous guidance of US
$11,500-US$12,000/day gross margins (excluding idle but contracted rigs) in the
U.S. and $15,000/day gross margins in Canada.
Q4/23 and 2023 shared-based compensation expense of $12 million and $34
million compared to our estimates of $15 million and $37 million, respectively.
Precision will record an $11 million non-cash decommissioning charge associated
with its legacy assets.
Activity Update: Precision’s Q4/23 Canadian and U.S. rig counts averaged 63 and
42 (TD: 63 and 39 rigs) with 74 and 43 rigs currently active (TD Q1/24 estimates: 67
and 49). As expected, Precision activated an eighth rig in its International segment.
As shown, U.S. activity was stronger than expected in Q4/23, but will be slower to
ramp up in 2024, with management now suggesting that a recovery in the rig count
will not occur until Q2/24.
TD View: Precision continues to have an excellent track record in meeting its debt
reduction targets with 2023 marking the sixth consecutive year that it has either
met or exceeded its debt reduction goal despite volatile macroeconomic conditions.
Given Precision's relatively lower-interest rate senior notes (~7%) that become due
in 2026 and 2029, we believe management could take a more opportunistic approach
to its buyback activity. We will update our estimates to reflect Precision's activity
levels and guidance with our Q4/23 Preview.